Unit 4 Notes - Consideration in the Context of Contractual Variations

Question 1

Explain the criteria required for a contract to be varied (upward or downward respectively)

Answer 1

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).

Question 2

Explain what element makes variation of contractual agreements complex

Answer 2

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.

Question 3

Define Consideration as per Currie v Misa

Answer 3

‘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)

Question 4

Explain the principle/rule established via Stilk v Meyrick (1809) regarding upward variation of a contract

Answer 4

Stilk v Meyrick (1809) - Performance of an existing contractual duty is not good consideration for a promise to pay more money.

Question 5

Explain the exceptions to the Stilk v Meyrick (1809) Rule/Principle regarding upward variation of a contract

Answer 5

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.

Question 6

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

Answer 6

For this williams exemption to apply there must be; (ensure you outline this)

1. 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)
2. 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)
3. 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.

Question 7

Define and explain Economic Duress

Answer 7

Economic duress is a defense that can be used by a party to argue against the formation of a binding contract between two parties.

If there is no option but to accept then we can argue duress.

If they could then there would be no duress and the upward variation would be valid

• i.e. could they actually find anyone else in the time period to do the job. Even if theres a slim chance there’s economic duress then make the argument and state that it would be at the discretion of the court as to whether they accepted that argument.

Question 8

In downward variation of a contract, state the basic/genreal principle established in pinnells case

Answer 8

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

Question 9

State and explain the exceptions to Pinnells case

Answer 9

Exceptions

Accord and Satisfaction:

Accord means that both the parties agree freely to the part payment.
satisfaction (i.e. consideration) might be payment at an earlier date, payment at a different place, payment in a different currency, etc.

• Pinnel’s case provides an exception where if they have 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.
• Where the part payment is made by a third party
• Promissory Estoppel

Question 10

Define Promissory Estoppel and its origins

Answer 10

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.

The doctrine of promissory estoppel is based on the principles of fairness and justice. It prevents a person going back on his promise to accept a lesser amount.

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

Question 11

Explain the necessary conditions for Promissory Estoppel to be utilised

Answer 11

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

Question 12

Explain the Effect of Promissory Estoppel on on-going payments and how this differs depending on wether there’s Arrears vs future payments

Answer 12

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

Question 13

Explain the effects of Promissory Estoppel in relation to one-off depts

Answer 13

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.

Question 14

Define the term ‘extinguished’

Answer 14

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.