Variation of Contracts: Promissory Estoppel Flashcards
- What is a Varation of Contract?
When changes to the obligations or terms are made after the original contractual agreement.
For the variation to be enforceable, it should also be supported by consideration from the other party.
- What are the needs for changing terms/obligations?
Need for Agreement (offer plus acceptance).
Need for Consideration.
As it relates to the performance of existing contractual obligations to the same party.
◦ Stilk v Myrick (1809)
◦ Hartley v Ponsonby (1857)
◦ Williams v Roffey Bros (1990)
- What principle was set out in Williams v Roffey Bros?
Supply of goods and services- a new promise which varies (ie changes) the contractual terms when the promisee is only performing an existing obligation is binding on the promisor if the promisor receives a ‘practical benefit’.
However, in relation to debts owed, and paying a different sum (which is in effect a variation of the original contract to pay a certain amount), what is position of the law?
- What is the common law positon on a Part Payment of a Debt? (Pinnel’s Case (1602))
Starting point is Pinnel’s Case (1602)
Part payment of a debt on the date on which it is due can never be satisfaction for the full amount owed.
However,
◦ Early part payment at the request of the creditor
◦ Payment on the due date but at a different location from the one specified in the contract
◦ Provision of goods or services instead of money
◦ Something additional offered – “the gift of a horse, hawk, robe” will amount to consideration if acceptable to creditor.
The rule in Pinnels’s Case was obiter, because the debtor in that case had actually paid early and had therefore provided sufficient consideration to discharge the entire debt.
- What happened in Foakes v Beer?
Dr Foakes owed money to Mrs Beer.
Mrs Beer agreed to accept payment by instalments.
At end of the instalment payments, Mrs Beer claimed the interest on the debt, because of the instalment (ie delayed) payments.
The House of Lords confirmed that she was entitled to recover the interest and any promise to accept less than she was owed was not binding.
Even if Mrs Beer had promised not to demand the interest, that promise was unenforceable because Dr Foakes provided no consideration for it
.
So, the part payment (ie paying by instalments) could not in itself extinguish the entire debt (ie entire amount plus interest).
This principle has been confirmed in other cases- Re Selectmove [1995]
- What happened in Re Selectmove?
A company argued that it had made a binding contract with the Inland Revenue to pay its tax by instalments.
The Inland Revenue argued that this agreement was not binding on them because the company provided no consideration.
The company was only purporting to do what it was already obliged to do.
The company argued that the arrangement to pay in instalments provided ‘practical benefit’.
The C of A reiterated the position in Foakes v Beer.
- What does Williams v Roffey Bros. say about a practical benefit?
if ‘practical benefit’ is provided, then that will amount to sufficient consideration for the enforcement of a new promise, even when there was an existing obligation to the same party.
Rejected in Re Selectmove
C of A suggested that the principle as it relates to ‘practical benefit’ does not apply to part payment of debts.
It is only applicable as regards the provision of goods and services.
- What happened in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016]?
*Rock occupied a premises managed by MWB.
*Rock decided to expand and entered into an agreement with MWB for larger premises for 12 months.
*Rock’s business was not as successful as hoped, so it incurred arrears of £12,000.
*MWB gave notice purporting to terminate the agreement.
*The parties then orally agreed another arrangement.
*MWB subsequently changed its mind about the new arrangement and brought a claim.
*Key question was whether Rock provided consideration for the variation…C of A suggested that ‘practical benefit’ applied.
*UKSC ruled in 2018 and did not consider the issue.
Simantob v Shavleyan – Kerr J in the [2018] EWHC 2005 (QB) reiterated the view in Re Selectmove. The point was not considered in the 2019 C of A decision.
- What is the rule in relation to varation with the absence of consideration?
A contract can be varied in any other way without the provision of consideration.
Other Common Law Exceptions
Composition agreements with creditors - Good v Cheeseman (1831)
Third Party Payment to a creditor – Hirach and Punamchand v Temple (1911)
The Doctrine of Promissory Estoppel
- What is the leading case for promissory estoppel?
Central London Property Trust Ltd v High Trees House Ltd (1947)
◦ Claimants were owners of a block of flats in London.
◦ Rented it to defendants for £2,500 per annum.
◦ World War II – difficult for defendants to let the flats.
◦ Claimants agreed to reduce rent to £1,250 per annum.
◦ Even after the war in 1945, defendants continued paying the reduced rent.
◦ After the war, Claimants sought to return to £2,500 per annum and recover the difference for last two quarters of 1945.
◦ Held: Claimants could revert to £2,500 per annum, and they could recover the full rent from when the war ended but could not recover for the war years.
- What did Lord Denning say about the doctrine of promissory estoppel? How did he define it?
Argued that a general equitable principle applied here.
He stated that:
“A promise intended to be binding, intended to be acted on, and in fact acted on, is binding insofar as its terms properly apply”.
He relied on the ‘equitable waiver’ case of Hughes v Metropolitan Railway (1877)
- What happened in Hughes v Metropolitan Railway (1877)?
A lease included a covenant which required the lessee to undertake repair if the lessor gave notice.
The lessor (Hughes) gave notice and the lessee (railway company) responded by making an offer to sell their shares in the property under the lease back to the lessor.
Negotiations continued and then broke down after some time.
The lessor then claimed to be entitled to repossess the property on the basis that the lessee had failed to undertake the required repair within the time frame.
The lessee argued that there was an ‘implied promise’ that the repair did not have to be carried out if the negotiations were to be successful, and the period of notice would not start to count.
- What did Lord Cairns say in the case of Hughes v Metropolitan Railway?
…it is the first principle on which all Courts of Equity proceed, that if parties have entered into definite and distinct terms involving certain legal results, certain penalties or legal forfeiture, afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.
Per Lord Cairns
- What are the requirements for Promissiory Estoppel that can be identified?
- There must be an existing legal relationship.
- The doctrine can only be used as a ‘shield’ and not as a ‘sword’.
- A clear and unequivocal representation must have been made in terms of the promise.
- There must have been reliance on the promise.
- It must be inequitable to go back on the promise.
- The doctrine only suspends rights and original terms can be revived.
- What the does the law say about an existing legal relationship in the requirements for promissory estoppel?
The doctrine does not and cannot exist in a vacuum.
Cannot be plucked out of nowhere there must be an existing relationship which has been varied and then this should be allowed by the doctrine, should support the party who has provided no consideration in terms of the variation.
There has to be an existing legal relationship which has been varied and the variation is then allowed by the doctrine.
