Varying of Contract Terms - Case Study Example

Contract Law The issue in this question relates to the doctrine of consideration, the traditionalists approach towards the varying of the terms of the contract and the doctrine of promissory estoppel. An evaluation of each of the concept would be made which would include the circumstances in which the courts is or is not willing to enforce promises which tend to vary terms of contract. Consideration is an important principle for a contract as the English courts take that into when determining the legal enforceability of a contract. McKendrick states that the purpose of consideration is to give the ‘badge of enforceability’ to agreements. The definition of consideration can be found in the case of Currie v. Misa1 which revolves around the concept of benefit to the promissor, or detriment to the promisee, thus the requirement is mutually exclusive.2 Another important aspect of consideration is that it must be sufficient and need not be adequate that is it must be something which the court would consider to be legally capable of constituting consideration. (Thomas v. Thomas)34 The position that was found to be problematic for business practices in respect of consideration whether an existing obligation could be treated as good consideration or in other words could the terms of the contract be changed without any additional consideration being provided for such variance. The three aspects that require an analysis there are possibly three different types of existing obligation which can arguably constitute to be consideration5. The first one is of an obligation which arises under law, and there are independent of any contract. The second one is that of obligations that are owed under a contract with a third party. Finally, the obligations which are existent by way of a contract with the person who makes the new promise, for which it is alleged that the existing obligations should be held to be good consideration.6 The final situation is the one whereby there is variation of existing obligations under a contract between the parties and this is where the dealing of effectiveness of such variation comes in. The principle has been modified but the extent to which such modification applies remains unclear. The long established principle in respect of variation of terms and promises in that respect was that of Stilk v. Myrick7whereby it was a long accepted principle that if there was an existing contractual obligation it could never be relied upon that is it could not as good consideration for a fresh promised with the person to whom the existing obligation was owed. The facts of the case were that sailors had been under a contract to sail the ship back home and due to two sailors who deserted the voyage the rest of them renegotiated the wages. The courts found that the additional wages could not be claimed as the existing obligation of sailing the ship would not constitute as good consideration, despite the fact that the original sailors were not present and the number of work that was done was higher.8 The decision of Stilk and it being good law is doubtful after the case of Williams v Roffey Brothers9the facts of the case were that carpenters, plaintiff, while doing their work, asked the defendants for additional amount of money to finish the work even though they were no doing anything more than what they were already obliged to do. After completion of the work the defendants refused to pay the plaintiff. The main argument that was put forward was that there had been no consideration for the defendants’ promise to pay the additional amount and the decision of Stilk and its application would lead to the promise being construed unenforceable. However, the Court of Appeal found that that plaintiff’ could recover the promised payments for completion of work of the flats, the Court gave a broader meaning to consideration than what had been previously given. The reasoning of Glidewell LJ in particular referred to the point of ‘practical benefits’ which were likely to have accrued to the defendants as a result of them paying the additional promised amount of money, these were that such a promise ensure that the plaintiffs stayed and continued work thus the contract was completed; the defendants avoid the penalty clause which they were bound to pay under a separate contract with the owners of the block of flats; and finally the defendant avoided the trouble and expenses that would have accrued for finding other carpenters so as to get the work completed.10 The decision has been criticized because if the facts of Stilk are looked into there were practical benefits that had been derived in that case as well. Thus the only difference that has been seen in respect of both the cases is there was no pressure put on the defendants in Williams so as to get an offer for additional payment. Thus the effect of such a promise of additional payment and work which is done in response to such a promise, which has already been contracted to can be enforced if it is done in response to a promise.11 Glidewell LJ provided for the circumstances of practical benefits and emphasized that there need not be economic duress and fraud; however, it has been argued that the courts would not be restricted to the criteria laid down in his judgment.12 It is pertinent to mention that the approach in respect of part payment of debt has not been affected by the decision of Williams which is that part payment of debt cannot discharge the debtor from the obligation to pay the remaining amount. (Foakes v .Beer)13. However, if something extra is done then the whole debt would be discharged (Pinnel’s case)14. But it is reiterated for the sake of clarity that payment of less than what is due on or fter the payment date will not provide for consideration for a promise to forgo the balance. There had been criticism as to the approach of Foakes and it was thought that the approach of Williams would lead to extension to Foakes as well but the courts in Reselectmove15 confirmed that the decision in Williams had no impact on Foakes.16 Another important principle in respect of consideration is that it must generally be given after promise so as to make it enforceable. Thus a promise made after alleged consideration is complete is unenforceable (Re Mcardle)17. Thus past consideration is generally held not to be good consideration. However, the courts in Pao On v. Lau Yiu Long whereby Lord Scarman laid down the three condition which were to be satisfied if the exceptions were to be relied upon, the first being that the act which was done must have been done at the request of the promisor; secondly the parties had understood that the work was to be paid for in one way or the other, which could have been by way of money or other benefit; finally the promise would be legally enforceable had it been made prior to the acts which constituted consideration. The most difficult of the condition would be the anticipation of payment.18 The doctrine of promissory estoppels has been developed so as to modify existing contracts. The classic position in respect of such modification was that there needed to be consideration for such modification to be enforceable. Another possible way was to terminate the agreement by mutual consent of the parties which would lead to sufficient consideration for each of the party.19 Thus due to the cumbersome nature of the common law procedures, equitable doctrine of promissory estoppels was developed so as to supplement such rules. Thus this doctrine allows in certain situations to accept modified performance of contract to be binding despite the fact that there was no consideration.20 The origin of the doctrine was found in the decision of Lord Denning in Central London Property Trust Ltd. v. High Trees House Ltd.21The facts of the case were that there had been modification of rent payable on the block flats during the Second World War. However, the most important principle in the case was that of Lord Denning where he set out that ‘a promisee intended to be binding, intended to be acted on, and in fact acted on, is binding so far as its terms properly apply’. Thus Lord Denning found that a promise whereby it was agreed that lower rent would be accepted was enforceable even though no consideration had been provided for it.22 The concept of waiver has been accepted by common law and equity, whereby certain can rights can be temporarily suspended and can subsequently be revive by appropriate notice. (Hughes v. Metropolitan Railway)23. The concept of promissory estoppels has now subsumed the concept of waiver.24 It is important to mention that there are certain limitations to the application of the doctrine of promissory estoppel. The first and foremost requirement is that there must be an existing legal relationship, thus promissory estoppel would apply to modifications of existing legal relationships and would not create new ones. However, Lord Denning himself was the main opponent of the limitation whereby he stated that there could be promissory estoppels where there was no legal relationship (Evenden v. Guildford City FC)25. The next limit is that there must be reliance by the promisee on the promise, thus providing him principal justification for the enforceability of such a promise. It has been at times stated that the reliance must be detrimental but Lord Denning had rejected this view (W J Alan & Co. v. El Nasr). Thus reliance itself is now held to be sufficient. Another limitation of the promissory estoppels is that it cannot be used as a cause of action and is merely a shield and not a sword, as pointed out by Lord Denning consideration ‘remains a cardinal necessity of the formation of a contract, though not of its modification or discharge’. Another limitation is that it must be inequitable for the promisor to go back on the promise. The judge is provided discretion in this respect whereby the judge looks at whether it is fair to enforce the promise. The doctrine of promissory estoppels is suspensory, thus it generally does not last for the duration of the contract. There have been times when the promise in itself is time limited. The original terms would then revive or in other cases the promisor can give reasonable notice for withdrawal of promise. (Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd.). Thus the doctrine of promissory estoppels is suspensory in its effect. The final limitation is that where the promise is prohibited by legislation then the promise would not be enforceable and so the doctrine of promissory estoppels would not apply. 26 In view of the discussion above, it can now clearly be seen that the courts can allow modification of the contracts without necessarily ending the contract or without fresh consideration being provided for it. Furthermore, the wider definition of consideration now includes practical benefits which are more than what used to be in accordance with the traditionalist view. Finally the doctrine of promissory estoppel has allowed for the modification of contracts thereby benefitting the parties who have acted to their detriment in placing reliance on the promise. References Atiyah, P S, and Stephen A. Smith. Atiyah's Introduction to the Law of Contract. Clarendon law series. Oxford: Oxford University Press, 2006. Print. Collins, Hugh. The Law of Contract. Law in context. Cambridge: Cambridge University Press, 2008. Print. Furmston, Michael P, Geoffrey C. Cheshire, Cecil H. Fifoot, and Alfred W. B. Simpson. Cheshire, Fifoot and Furmston's Law of Contract: Historical Introduction / A. W. B. Simpson. Oxford [u.a.: Oxford Univ. Press, 2007. Print. Koffman, Laurence, and Elizabeth J. Macdonald. The Law of Contract. Oxford: Oxford university press, 2010. Print. McKendrick, Ewan. Contract Law: Text, Cases, and Materials. Oxford: Oxford University Press, 2010. Print. O'Sullivan, Janet, and Jonathan Hilliard. The Law of Contract. New York: Oxford University Press, 2010. Print. Peel, Edwin, and G H. Treitel. Treitel on the Law of Contract. London: Sweet & Maxwell, 2007. Print. Poole, Jill. Casebook on Contract Law. Oxford: Oxford University Press, 2010. Print. Top of Form Poole, Jill. Textbook on Contract Law. Oxford: Oxford University Press, 2010. Print. Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Richards, Paul. Law of Contract. Foundation studies in law series. Harlow, England: Pearson Longman, 2009. Print. Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Read More