Variation, Part-Payment + Absence of Consideration

Question 1

Define variation of contracts?

Answer 1

When the obligations/ terms of a contract have been changed

Question 2

What position does the law take when a contract regarding the supply of goods + services is varied?
Case?

Answer 2

A new promise which varies the contract when the promisee is only performing an existing obligation is ONLY binding if the promisor receives a ‘practical benefit’

Williams v Roffey Bros (1991)

Question 3

What traditional principle about consideration also governs agreements to discharge a debt?

Answer 3

That the performance of a contractual duty owed to the promisor is not good consideration

Question 4

Is a promise to accept a part payment in discharge of the whole debt enforceable?
Case?

Answer 4

Generally no
= no good consideration
Debtor = already obliged to pay that part of the debt (+ the remaining debt)

The creditor can still sue for the remaining amount

Pinnel’s case (1602)

Question 5

Who is a debtor?

Answer 5

A person who owes ££ to their creditor
The ‘borrower’
Term isn’t restricted to loan agreements

Question 6

Who is a creditor?

Answer 6

The party to whom a monetary sum is owed

Question 7

Pinnel’s case (1602)

Answer 7

Claimant was owed £8 + 10 shillings
D paid £5 2 shillings + 2p
Claimant sued for the amount outstanding
Held: claimant = entitled to the full amount, even if they agreed to accept a lesser amount

OBITER:
If the promisor agrees to accept a lesser amount, part payment of a debt = not valid consideration for a promise to extinguish the debt
UNLESS at the promisor’s request, part payment is made either:
1. Before the due date
2. Payment on the due date but in a different location
3. Something additional is offered

Question 8

What are the 3 exceptions to the rule established in Pinnel’s case (1602)?

OBITER

Answer 8

OBITER:
Party is entitled to the rest of the debt UNLESS the promisor requests:

1. Early part payment (happened in Pinnel case)
2. Payment on the due date but in a different location to the 1 specified
3. Something additional is offered

Question 9

Why was the promise to discharge the debt in Pinnel’s case enforced?

Answer 9

The promisor had requested early part payment

Therefore sufficient consideration had been provided in exchange for discharging the entire debt

Question 10

What case confirmed the obiter set out in Pinnel’s case?

Answer 10

Foakes v Beer (1884)

Question 11

Foakes v Beer (1884)

Answer 11

F owed B £2,000
F = unable to repay the loan
B got a judgement to recover the amount
F offered to pay £500 immediately + the rest by instalments
B agreed to this + agreed she would not seek enforcement of the payment provided he kept up the instalments
F paid all the instalments as agreed
B brought action for the interest - entitled to under statute
HL: F = liable to pay the interest
The agreement reached = part payment
Under the Pinnel’s case rule, this was not good consideration for a promise not to enforce the full amount

Question 12

Re Selectmove (1955)

Answer 12

A company asserted that it had made a binding contract with the Inland Revenue to pay its tax by instalments.
IR argued that this agreement was not binding because the company provided no consideration - the company were only paying what they already owed + doing what they were already obliged to do (pay their taxes)
Company argued: the agreement to pay instalments provided a ‘practical benefit’
= higher chance that they would stay in business, less likely to go bankrupt
Therefore can continue to pay their taxes
CA: reiterated the position of Foakes v Beer - expressly said that a practical benefit was not good consideration
F v B = HL case
CA bound to follow it
Therefore agreement wasn’t supported by consideration

Question 13

What does the case of Re Selectmove (1955) tell us about the principles relating to ‘practical benefit’?

Answer 13

CA suggested that the principle of ‘practical benefit’ does not apply to part payment of debts

= only applicable as regards the provision of goods + services

Question 14

MWB Business Exchange Centres Ltd v Rock Advertising Ltd (2016)

Answer 14

D occupied a premises managed by MWB
D decided to expand
Entered into an agreement with MWB for larger premises for 12 months
D’s business = not as successful as hoped, so it incurred arrears of £12,000
MWB gave notice purporting to terminate the agreement
Parties then orally agreed another arrangement
D would pay some of what they were owed but in a different way
Pay smaller amounts to begin with, then paid higher amounts - in the end they would pay whole amount
MWB subsequently changed its mind about the new arrangement + sued
Had D provided consideration for the variation?
D argued - providing practical benefit
Would still get all of the £ at the end of the year – D would stay in business + MWB wouldn’t have to look for other tenants
CA: accepted this argument
Starting to see that there is no difference for when practical benefit can be applied
BUT its on appeal to the SCt

Question 15

What are we beginning to see from the case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd (2016)?

Answer 15

= no difference for when ‘practical benefit’ can be applied

BUT case = going through SCt - check result

Question 16

What are the common law exceptions to the principle in Foakes v Beer? (2)

Answer 16

1. Composition agreement between several creditors of 2 debtor
2. Part payment by a 3rd party (Hirachand Punamchand v Temple (1911))

Question 17

What is a criticism of the principles laid down in Foakes v Beer?

Answer 17

Principle can be harsh
Particularly if a debtor has relied on a promise by the creditor not to revoker the remainder of the debt
BUT the law remains, these promises are not enforceable unless consideration is given

(apart from the exceptions in Pinnel’s case)

Question 18

Can a contract be varied in any other way without the provision of consideration?
How?

Answer 18

Yes - promissory estoppel