Musumeci v Winadell Pty Ltd
(1994) 34 NSWLR 723
Case details
Court
Supreme Court of New South Wales
Citations
(1994) 34 NSWLR 723
[1994] NSW Conv R 55-716
[1995] Aust Contract Reports 90-050
[1995] ANZ Conv R 178
Judges
Santow J
Issues
Consideration
Performance of existing duty
Overview
The Musumeci's leased a shop in a shopping centre run by Winadell. Winadell subsequently leased another shop in the centre to a competing business. Musumeci's asked for a rent reduction (by one third) to compensate for this and Winadell agreed.
When a dispute later arose Winadell sought to terminate the lease and Musumeci sought damages for breach, relying in part on Winadell’s promise to charge a reduced rent.
Questions arose as to whether there was an agreement for rent reduction and, if so, whether it was supported by valid consideration.
The court held that there was an agreement and there was consideration. In this case Winadell received a practical benefit that could constitute consideration; agreeing to the rent reduction meant it remained viable for the Musumeci's to remain in occupancy which avoided the prospect of a vacancy.
Facts
The Musumeci’s leased a shop in a shopping centre run by Winadell. Winadell subsequently leased another shop in the centre to a competing business. Musumeci’s asked for a rent reduction to compensate for this and Winadell agreed.
When a dispute later arose Winadell sought to terminate the lease and Musumeci sought damages for breach, relying in part on Winadell’s promise to charge a reduced rent.
Held
Noted parties relied on the decision in Williams v Roffey Bros (Santow J observed that unless the Musumeci’s could rely on this exception, the Stilk v Myrick decision would apply and prevent the establishment of ‘consideration’ here). In this case it was argued that Winadell obviated a disbenefit by reducing rent, even though not obliged to do so.
Santow J then considered whether Williams v Roffey Bros should be followed in Australia. He noted there are three reasons why a contract to perform existing obligations should not be enforced:
(1) To protect the promisor from extortion (threatening breach to extract promise)
Santow J considered duress was sufficient protection (combined with fraud, undue influence and unconscionable conduct) against this sort of extortion
(2) Because the promisee suffers no legal detriment in performing what was already due and promisor receives no legal benefit in receiving what was already due
Here Santow J considered that the fact that a concession is given to P without extortion supports an inference that real and practical consideration has been provided for that concession.
(3) Because a ‘benefit which is merely the hoped-for end result of the performance cannot constitute consideration'.
Santow J did not accept that – as it would be an argument against consideration in any form.
Justice Santow J then indicated that he would add an element to Glidewell’s criteria in Williams v Roffey Bros and re-cast the criteria as follows:
The present state of the law on this subject can be expressed in the following proposition:
(i) If A has entered into a contract with B to do work for, or to supply goods or services to, B in return for the payment by B, and
(ii) At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or be able to, complete his side of the bargain, and
(iii) B thereupon promises A an additional payment or other concession (such as reducing A's original obligation) in return for A's promise to perform this contractual obligation at the time, and
(iv)
(a) As a result of giving his promise B obtains in practice a benefit, or obviates a disbenefit provided that A's performance, having regard to what has been so obtained, is capable of being viewed by B as worth more to B than any likely remedy against A (allowing for any defences or cross-claims), taking into account the cost to B of any such payment or concession to obtain greater assurance of A's performance, or
(b) as a result of giving his promise, A suffers a detriment (or obviates a benefit) provided that A is thereby foregoing the opportunity of not performing the original contract, in circumstances where such non-performance, taking into account B's likely remedy against A (and allowing for any defences or cross-claims) is capable of being viewed by A as worth more to A than performing that contract, in the absence of B's promised payment or concession to A.
(v) B's promise is not given as a result of economic duress or fraud or undue influence or unconscionable conduct on the part of A nor is it induced as a result of unfair pressure on the part of A, having regard to the circumstances, then,
(vi) The benefit to B or the detriment to A is capable of being consideration for B's promise, so that the promise will be legally binding."
In this case, applying Roffey, the practical benefit Winadell gained by promising lower rent was said to be the 'enhanced capacity of [the Musumeci's] to stay in occupation, able to carry out their future reduced lease obligations' notwithstanding the new competition. This enhanced the capacity of Winadell to keep a full shopping centre. Santow J concluded that there was a practical benefit; there was valid consideration for varying the lease.