The Art of Thinking More Analytically and Critically with the Example of the Law of Consideration

The Law Tutor Trusted by Law Students and Parents with A Successful Track Record, Helping Students Achieve Top Results.

Students always say to me that consideration is a difficult topic in contract law because somehow the application of the law to the facts is quite a challenge with the leading cases being difficult to understand. I told them that it is always the case that when it comes to controversial areas of law, the cases are getting more convoluted and may not make sense (which is probably the case). However, it is exactly the area of law that professors would like to test students on. In Hong Kong, law students are rather less flexible in understanding the law and applying it to a particular fact pattern. Here, I will seek to help you think more analytically and critically.

Let’s come back to consideration. One of the leading cases must be Williams v Roffey Brothers. In order to help you understand it, I will explain it from the development of law to the actual distinct features of the case. Then, I will take you through some similar fact patterns which call for different outcomes such that you can further appreciate those distinct features.

The starting point is that an agreement must be supported by consideration in order to be enforceable. Very important. The same logic goes to an attempt to change any term of a contract (“contractual modification”). Here, I would like to introduce a distinction so that you get to understand cases better. One type of contractual modification is that more is provided to a contracting party with the contracting party performing the same obligations (“more for the same contractual modification”). An example would be an employee getting more pay while doing exactly the same work that s/he usually does. Another type of contractual modification is that less is demanded the discharge of the obligation(s) required under a contract (“less for the same contractual modification”). This is the case where a lender accepts less payment for the discharge of the obligation to pay a debt. The rules related to these two types of contractual modification are different, which I shall explain in the following. Please bear in mind that Williams v Roffey Brothers is a more for the same contractual modification.

More for the same contractual modification

The story starts with Stilk v Myrick. The court held that the performance of pre-existing contractual duty owed to the other party is not fresh consideration when it comes to contractual modification. In simple wording, if you are only performing contractual obligations that are already existing, you are not providing fresh consideration by such performance because you are already obliged to perform. The reason for such a ruling is that you provide no additional benefit to the promisor or you suffer no additional detriment.

Most law students would then go directly to Williams v Roffey Brothers as an exception to Stilk v Myrick. This is not incorrect. But, one important layer (I will introduce the concept of multi-layered argumentative structure in answering exam questions in the next article) is missing. Before going to Williams v Roffey Brothers, one should first go to the exception that is implicit in Stilk v Myrick, i.e. if one party performs in a way that exceeds the pre-existing contractual duty owed to the other party, that performance is still considered fresh consideration. The authority for this is Hartley v Ponsonby, where the sailors’ agreement to a more dangerous voyage than initially contemplated under the contract was considered performance exceeding the pre-existing contractual duty. So students should first apply Stilk v Myrick and then see if there is an argument that the performance in question exceeds the pre-existing contractual duty owed to the other party, before going to consider Williams v Roffey Brothers.

Now, if the case is one of performance of pre-existing contractual duty owed to the other party and there is no argument that the performance exceeds the pre-existing contractual duty, we proceed to Williams v Roffey Brothers. In Williams, the court provided an expansionist approach to consideration in this area of law, holding that if there is some form of practical benefit that the court can find from the contractual modification, that practical benefit is also considered fresh consideration that supports the contractual modification. What happened in Williams is that the defendant main contractor Roffey Brothers promised to pay the plaintiff sub-contractor Williams an additional amount of money for the completion of carpentry work because Williams suffered financial difficulties. The reason why Roffey Brothers would pay more was that they were subject to a contract with the Housing Association such that if they delivered the work late (because of the late delivery on the part of Williams) they would need to pay a penalty as well. So, they resorted to paying more to Williams to solve their financial difficulties and have the carpentry work done on time in order to prevent paying the penalty in case Williams failed to deliver on time the carpentry work.

The court identified the practical benefits as:

(i) the continued performance of Williams (which I think does not make much sense because anyways they would have continued their carpentry work under the original contract);

(ii) the avoidance of the trouble and expense of finding a substitute carpentry sub-contractor in those circumstances (which I think does not make much sense because anyways they would have continued their carpentry work under the original contract); and

(iii) the avoidance of paying penalty (which I think does not make much sense because anyways they would have continued their carpentry work under the original contract).

You can see that from a certain perspective the practical benefit analysis does not make much sense and can be seen as a legal fiction since as I have indicated there is no additional benefit to the promisor (i.e. Roffey Brothers). That said, you as a student should still apply this practical benefit analysis in the exam when appropriate. But an excellent student would point out this deficiency in reasoning.

One very important note about Williams is that it was developed at a time where the doctrine of economic duress was developed. In one view, Stilk v Myrick was to prevent duress. Now, with the doctrine of economic duress, one may say the strictness of the law in this area can be relaxed and therefore such a practical benefit analysis was developed. Also (very important for the exam), if there is duress Williams does not apply. Since it was Roffey Brothers who suggested the bonus on its initiative, there is no case of duress. Next time, if you see a fact pattern where one party says it is in financial trouble and asks for more money to do the same work, please be aware of this caveat.

In order to advance your argument to the next level, you can add a new layer to your argument. If Williams is coupled with the development of economic duress, instead of using such a strained practical benefit analysis, how about suggesting a better solution, whereby in case of contractual modification, you only need to show that there is no duress without the need to show fresh consideration. Of course, we only suggest that the law can develop this way.

Now I would like to walk you through some fact patterns to help you further your understanding.

Fact Pattern 1

You are working in a tech company as a programmer. Last month, your boss told you that since you knew IT infrastructure as well you should go help Mark who took sick leave for a week already. If you did not help, the client in this project would rely on a time penalty clause against your company, resulting in a HK$250,000 penalty due to delayed delivery. He told you that he would pay you a HK$10,000 bonus for that at the end of the month. However, today, when you said to him about the bonus which was not included in the paycheck yesterday, he said “well, you are my employee. Why do I need to pay you more for working for me?” Can you ask your boss to pay that bonus to you as a matter of law?

Layer 1: Stilk v Myrick – no fresh consideration

Layer 2: Hartley v Ponsonby – arguable (on one hand, one may argue that your work as a programmer should also include general IT work and your work does not exceed the pre-existing contractual duty; on the other hand, one may also argue that your work as a programmer should not include IT infrastructure which is another specialisation in IT field and your work does not exceed the pre-existing contractual duty)

Layer 3: Williams – practical benefits of (i) continued performance, (ii) avoidance of trouble and expense of finding a freelancer, (iii) avoidance of the penalty. There is no duress.

Layer 4: Williams practical benefit analysis does not make much sense as discussed above.

Layer 5: Suggest a better solution: in case of contractual modification, you only need to show that there is no duress without the need to show fresh consideration.

Fact Pattern 2

The same fact as above except that it was you who asked for the HK$10,000 bonus. Would your answer change?

Yes, the outcome is likely different. Duress may be present because you knew your boss was in trouble and may be seen as taking advantage of him. Williams may not apply.