Contractual Variations Flashcards
Explain the criteria required for a contract to be varied (upward or downward respectively)
For variations of contracts to be binding there must be:
Agreement (offer and acceptance)
Consideration
Intention to create legal relations
(just the same as on formation of contracts).
Explain what element makes variation of contractual agreements complex
Often the problem with upward and downward variations in contracts is the consideration element.
Consideration is typically always the issue that we aren’t sure is valid/good because we have to provide/demonstrate that there is fresh consideration following the request for upward/downward variation i.e. that they agree to the new agreement.
Define Consideration as per Currie v Misa
‘Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’
- Currie v Misa (1875)
Explain the principle/rule established via Stilk v Meyrick (1809) regarding upward variation of a contract
Stilk v Meyrick (1809) - Performance of an existing contractual duty is not good consideration for a promise to pay more money.
Explain the exceptions to the Stilk v Meyrick (1809) Rule/Principle regarding upward variation of a contract
There are 2 exceptions to the Stilk Rule:
If a party promises to do something extra then it will have given good consideration
- The Hartley v Ponsonby [1857] Principle/Rule
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] - provides a further exception whereby there is a key practical benefit
- Performance of an existing contractual duty will amount to good consideration for a promise of extra payment if it conffers a real practical benefit on the promissor.
If the promissor will receive a practical benefit or avoid a disbenefit or disadvantage as a result of agreeing to pay more money then this would be valid fresh consideration and thus the upward variation would be valid.
State the 3 exception rules which must be satisfied in order for the exception in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] to be applicable in an upward variation of a contract
For this williams exemption to apply there must be; (ensure you outline this)
- A contract for the supply of goods and services in exchange for payment (apply this and explain what the contract in the senario your given is for/relating to)
- Before completion of the contractual agreement one party indicates that they may not be capable of getting the job finished (apply this and explain at what point the doubt has arisen in the scenario)
- A promise of extra payment (a contractual variation) is made in return for a promise that this is adequate to get the job/agreement completed (explain where this has happened)
However state that theres an exception to this rule whereby the agreement was made under economic duress:
- If the promise was only made under economic duress then the variation may be avoided and invalid.
Define and explain Economic Duress
In contract law, economic duress also called business compulsion, refers to one party’s improper or illegal conduct that causes the other party’s fear of economic hardship and the fear prevents the party from engaging in a commercial agreement with free will.
Economic duress is a defense that can be used by a party to argue against the formation of a binding contract between two parties.
Therefore there are 3 elements of Economic Duress that must be satisfied:
Illegitimate Pressure or Threat: The pressure must be improper or unlawful.
Subjective Causation: The pressure must have caused the victim to act.
Objective Causation: A reasonable person in the victim’s position would have felt compelled to act similarly, with no realistic alternative which therefore induces the claimant to enter the contract.
The court therefore assesses wether;
there was an actual or threatened breach of contract,
the presence of good or bad faith
the availability of realistic alternatives, (lack of practical choice) and whether the victim protested, and
whether they affirmed the contract.
Duress can render a contract void or voidable, depending on the type of duress. However, Economic duress requires a nuanced analysis of the pressure exerted and the victim’s response.
The bars to rescission can apply in relation to claims for duress. The 3 bands for rescission to be available as a remedy:
- the contracting party seeking the remedy must not have affirmed the contract
- restitutio in integrum must be substantially possible: both sides of the transaction must be able to be undone
- a bona fide purchaser (refers to actions or agreements made with sincerity, without intent to deceive or defraud) for value without notice must not have taken an interest in property which would be affected by the rescission
Rescission may be barred if it is no longer possible to return the parties to their original positions (restitution in integrum is impossible), if third-party rights have intervened, or if there has been an affirmation of the contract by the misled party.
Contracts entered into under duress can be set aside, but if rescission is barred, the victim may be without a remedy unless the conduct constituting duress also gives rise to separate tortious liability.
In downward variation of a contract, state the basic/genreal principle established in pinnells case
Part-Payment of an undisputed debt:
Basic principle: an agreement to accept a lesser sum and forego the balance is not legally binding as there is no consideration (Foakes v Bear (1884).
Pinnel’s case (1602) - In the case of an undisputed dept at common law, an agreement between a creditor and a debtor, a creditor will simply accept less money in satisfaction of that outstanding dept is not binding on the creditor. So even if they accept a smaller sum, it is not legally binding or valid downward variation and the creditor can go back on this agreement.
This is because it is not good consideration. This has been affirmed in Foakes v Beer (1884
State and explain the exceptions to Pinnells case
The exceptions to the rule in Pinnel’s case:
- Accord and Satisfaction:
If the parties enter into a new agreement (accord) and the new agreement is satisfied, this can discharge the original debt. This includes where the creditor has accepted something other than money in the place of a final sum or if they have made the payment of a lesser sum earlier than it was due.
For instance, in Pinnells case, it was held that part payment of a debt cannot be considered satisfaction for the whole sum, “but the gift of a horse, hawk or robe…” can be.
Therefore part payment of a debt will only be binding if the debtor also provides something else which may be more beneficial to the creditor, for example early repayment or a material item.
- If a third party offers to pay the debt, and the creditor accepts this as full settlement, the original debt can be discharged. The third party’s payment is considered to be a new consideration.
Define Promissory Estoppel and its origins
PE can be utilised as a secondary point of call after the exeptions in Pinnells case.
Promissory Estoppel Prevents a creditor going back on a promise made to a debtor if it would be inequitable to do so (Central London Property Trust v High Trees House (1947) Promissory Estoppel is a defence to a claim for money.
Promissory Estoppel is a defence to a claim for money. Promissory estoppel provides that if you promise not to exercise a right (like to require payment of a debt) you can’t go back on that promise unless you notify the counterparty first that you are no longer willing to forbear from exercising your rights
The principle was established in Central London Property Trust v High Trees House (1947) whereby the court established the doctrine of promissory estoppel in English law which prevents a party from backing out of a promise which the other party had relied on, even though the promise wasn’t supported by consideration.
Coombe v Coombe (1951) - Provides that once you’ve agreed to something and the other parties relied on it you are stopped from going back on this
Explain the necessary conditions for Promissory Estoppel to be utilised
In order to utilise PE and reply on the defence of promissory estoppel you must satisfy the following conditions. There has to be;
- A Promise to forego a legal right (has there been a promise to do so)
- Promisee acts on the promise (has there been reliance on the promise and it doesn’t have to be detrimental or negatively affected them they just have to have relied on it in some way)
- It would be Inequitable to go back on that promise agreed (is it unfair to go back on it, i.e. knowing the situation i.e. financial difficulty and still going back on their promise)
- The promissor attempts to enforce the promise that they waved there legal rights to and so the promisee raises the doctrine of promissory estoppel in order to prevent them doing so
Explain the Effect of Promissory Estoppel on on-going payments and how this differs depending on wether there’s Arrears vs future payments
Effect in relation to on-going payments (like rent):
The effect of PE is that It will suspend the strict legal right, unless the circumstances which gave rise to the reduction change. I.e. unless the debtors position improves or if they were in financial trouble the creditor cannot claim the outstanding money and there right to claim will be suspected.
If however the circumstances do change i.e. there is no longer in financial trouble or the war came to an end like in High Trees then they can come back and resume there legal right, proving they give reasonable notice that there going to do that.
Situation with Arrears:
However, if there’s arrears during a certain period, the legal right to claim during that period is extinguished (its gone) cause it would be unfair to do so.
For future payments its Suspensory:
So its suspended for future payments not fully extinguished. Therefore, they can come back in the future and begin claiming again by giving reasonable notice. In this case, the promissor may resume their strict rights legal rights
Explain the effects of Promissory Estoppel in relation to one-off depts
We don’t have clear domestic precedent - however we have obiter from other case law suggesting that rights to a one off dept would also be suspended rather than extinguished because that would not sit well with the original principle from Foakes v Bear and would invalidate that ratio/obiter from Foakes v Bear. Therefore its Possibly suspensory.
Define the term ‘extinguished’
Extinguishment is the cancellation or destruction of a legal right, interest, or contract. Debt is considered extinguished when the borrower pays the full balance of the debt, and the creditor releases the borrower. Extinguishment also applies when the creditor accepts a higher security.
