Contract Law: Out-Let Ltd v Fit-it Ltd

| April 29, 2014

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Order Details
In the Supreme Court
Out-Let Ltd v Fit-it Ltd
Fit-it Ltd, a company that specializes in refurbishing retail premises, entered into contract with Out-Let Ltd, a company that operates a chain of discount supermarkets. Under the contract it was agreed that Fit-it Ltd would refurbish 5 of Out-Let Ltd’s retail units for a contract price of £5million. Out-Let Ltd agreed to pay Fit-it Ltd one month after the refurbishments were completed.
Fit-it Ltd completed the work on 1st May 2012. In accordance with the agreement, Out- Let Ltd were due to pay Fit-it Ltd the full amount of £5million on 1st June 2012. However, Out-Let Ltd were experiencing severe financial difficulties due to intense competition from rival supermarkets. As a consequence, Out-Let Ltd were unable to pay the full amount as agreed under the contract.
Out-Let Ltd approached Fit-it Ltd and explained that they would be unable to pay the full amount on the agreed date. Out-Let Ltd had, however, been able to secure financial support from one of their creditors allowing them to pay £3million on 1st June 2012.
Fit-it Ltd required payment on 1st June 2012 in order for them to purchase materials and equipment to allow them to commence another refurbishment project they had entered into with Cost-Co Ltd. The contract with Cost-Co Ltd contained a penalty clause that would result in severe financial penalties if Fit-it Ltd did not commence the refurbishment as agreed. As a result, Fit-it Ltd agreed to accept £3million from Out-Let Ltd in full and final settlement for the refurbishment. £3million still represented a healthy profit for Fit- it Ltd under the contract and the payment received allowed Fit-it Ltd to commence the refurbishment contract with Cost-Co Ltd as agreed.
Out-Let Ltd’s 5 newly refurbished retail units proved a huge success due to their prime location and due to a number of competitors in the area going out of business. Hearing of Out-Let Ltd’s success, Fit-it Ltd approached Out-Let Ltd and demanded that they repay the outstanding £2million as agreed under the contract.
In the High Court, Fit-it Ltd’s claim was upheld and Out-Let Ltd was ordered to pay the outstanding amount of £2million.
Out-Let Ltd appealed this decision, but the Court of Appeal rejected their appeal on the grounds that the court was bound by the House of Lords decision in Foakes v Beer (1884) 9 App Cas 605.
Out-Let Ltd now appeals to the Supreme Court on the following ground:
1) Following the principles established in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the payment of a lesser amount can be sufficient consideration if that payment is more beneficial than pursuing a claim for the full amount.
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