Introduction
The case In Re Selectmove [1995] 2 All ER 531 presents a significant examination of the doctrine of consideration within contract law, specifically focusing on the principle of "practical benefit" introduced in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1. The core issue revolves around whether a promise to accept a lesser sum than originally owed, in exchange for the practical benefit of receiving payment in installments, constitutes valid consideration. This case is crucial for understanding the limitations of the Williams v Roffey principle, which, in its own context, validated a promise to pay more for the same contractual performance under the guise of "practical benefit." The case engages with the principle of Foakes v Beer (1883) LR 9 App Cas 605, which established that part payment of a debt does not constitute good consideration for a promise to forgo the remaining balance. In Re Selectmove explores the interplay between these legal precedents and the requirements for valid consideration in contractual modifications.
The Facts of In Re Selectmove
The factual context of In Re Selectmove centers on Selectmove, a company that had accrued tax arrears to the Inland Revenue. Selectmove proposed an arrangement to pay off its outstanding debt through installments. A representative of the Inland Revenue indicated that he would consult with his superiors regarding the proposal. Selectmove did not receive any further correspondence from the Inland Revenue until it received a letter demanding immediate full payment of the outstanding tax, alongside a threat of a winding-up petition. Selectmove argued that an agreement existed for installment payments, which should preclude the winding-up petition. The company contended that its promise to pay the existing debt by installments constituted good consideration as the Inland Revenue would receive a practical benefit, that being a greater chance of recovering the full sum than if the company was liquidated. This argument aimed to extend the principle established in Williams v Roffey to a scenario of accepting less, rather than paying more.
The Court's Reasoning
The Court of Appeal, presided over by Peter Gibson LJ, ruled against Selectmove. The court concluded that Selectmove was liable for the immediate payment of the full outstanding debt, rejecting the notion that the agreement for installment payments was binding. Peter Gibson LJ specifically addressed the argument of “practical benefit” by differentiating this case from Williams v Roffey. He stated that Williams v Roffey concerned the provision of goods or services, not the payment of a debt. Furthermore, he asserted that the principle in Williams v Roffey could not be extended to cases where a creditor promises to accept less, as such an extension would contradict the precedent established by the House of Lords in Foakes v Beer. Gibson LJ emphasized that Foakes v Beer explicitly stated that a practical benefit, such as prompt payment of a lesser sum, does not satisfy the requirements of consideration for a promise to forgo the balance. He clarified that the Court of Appeal, bound by the doctrine of precedent, could not overrule a decision of the House of Lords. The decision highlighted that any modification to the principle of Foakes v Beer was not within the Court of Appeal’s jurisdiction and would have to be made by the Supreme Court or by Parliament.
The Doctrine of Practical Benefit and its Limitations
The core distinction drawn in In Re Selectmove lies in the application of the "practical benefit" principle as established in Williams v Roffey. In Williams v Roffey, the court determined that a promise to pay more for the same contractual performance could be supported by consideration if the promisor obtained a practical benefit, such as avoiding a penalty for delay. This practical benefit, it was argued, circumvented the strict rule that performing an existing obligation does not provide good consideration. However, Gibson LJ explained that Williams v Roffey should be narrowly construed and did not apply to scenarios involving a creditor's promise to accept less. The case confirms that the benefit of receiving payment of a lesser sum is not good consideration as per Foakes v Beer. The court’s reluctance to broaden the scope of Williams v Roffey arises from the perceived need to maintain consistency with the pre-existing principle laid down in Foakes v Beer. This decision reinforced the idea that modifications to the doctrine of consideration, in the context of part payment of debt, cannot be introduced by the Court of Appeal and require intervention from a higher court or the legislature. This emphasizes the hierarchical structure of the English legal system and the binding effect of precedent.
The Aftermath and MWB Business Exchange Centres Ltd v Rock Advertising Ltd
The decision in In Re Selectmove remained the prevailing authority until the case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24, reached the Supreme Court. In this case, Rock Advertising, a licensee, had fallen into arrears on payments to MWB, the licensor. MWB agreed to allow payment of these arrears in installments, with a reduced initial payment. Later, MWB brought action for breach of contract, claiming the original payment schedule was still valid. The Court of Appeal, relying in part on the principle of practical benefit, found in favor of Rock Advertising, concluding the oral modification of the contract was binding. However, the Supreme Court overturned this ruling, stating the oral agreement was not binding due to an anti-oral variation clause contained within the original contract. While the Supreme Court did not overrule Foakes v Beer or In Re Selectmove, it did acknowledge the difficulties and tensions between these cases and the Williams v Roffey principle of practical benefit, recognising that the points of distinction between the practical benefit in MWB and Williams v Roffey were forced. Lord Sumption also highlighted that an argument could be made for a practical benefit arising in the payment of debt context – the benefit of a greater chance of obtaining some payment and maintaining a tenant. These comments suggested the possibility for future reevaluation of the Foakes v Beer principle. The Supreme Court acknowledged the inconsistency and the artificiality of the distinction but deemed that it was beyond the scope of that case to overrule a House of Lords authority in Foakes v Beer, deferring the issue to a larger panel in future.
Broader Implications for Contract Law
The In Re Selectmove case and its subsequent treatment, particularly in MWB v Rock Advertising, illuminate a critical tension within contract law. This tension exists between a strict formalistic interpretation of the doctrine of consideration, and the commercial realities of contract modifications. Foakes v Beer presents an inflexible rule that arguably does not reflect the intentions of parties who agree to modify their contracts. The “practical benefit” exception in Williams v Roffey is an attempt to alleviate the harshness of the rule, however, In Re Selectmove places limitations on that exception in the payment of debt context. The debates around these cases also reflect the inherent problems that arise from the doctrine of consideration in cases where the contract is modified, particularly as the doctrine was designed to distinguish between binding bargains and non-binding gifts when a contract is created rather than altered. The discussion around these cases highlights the need for a clear, principled framework for assessing the enforceability of contract modifications. This has led to discussions about alternative means of enforcing such agreements, such as expanding the doctrine of promissory estoppel. Some have even argued for a complete abolition of consideration in the context of contract modifications, suggesting that an intention to create legal relations should be the sole requirement for enforceability. This would more closely align contract law with the commercial intentions of parties that engage in contractual modifications.
Conclusion
In Re Selectmove [1995] 2 All ER 531 stands as a definitive ruling that limits the application of the “practical benefit” doctrine established in Williams v Roffey. The Court of Appeal's decision emphasizes the binding nature of precedent, particularly the decision of the House of Lords in Foakes v Beer. The court determined that a promise to accept payment of a lesser sum, even if it offers the creditor a practical benefit such as a higher probability of payment, does not constitute valid consideration. This ruling underscores the traditional understanding of consideration, particularly in relation to part payments of debt. Although MWB v Rock Advertising [2018] UKSC 24 did not overrule Foakes v Beer, nor In Re Selectmove, the Supreme Court's acknowledgment of the forced distinction between “practical benefit” in a payment of debt case versus a provision of services case indicates a potential future review of Foakes v Beer. The debate around In Re Selectmove and related cases continues to highlight the complex interaction between strict legal doctrines, commercial realities, and the quest for equity within contract law. The case serves as a critical point of reference in legal discussions concerning the enforceability of contract modifications and the overall purpose of consideration.
