CONTRACT LAW

LARGE GROUP 4
Student Guide

Consideration in the context of contractual variations

Context

Where contracting parties have an on-going relationship, a change of circumstances

may mean that one, or other, of them seeks to vary the contract. For example, a
contractor who has underestimated his costs may seek to be paid more for what he
has agreed to do, or a debtor who suddenly finds himself in financial difficulties may
ask his lender to temporarily accept reduced repayments on the loan. These are
referred to as upward and downward variations respectively.

For variations of contracts to be binding there must be agreement (offer and

acceptance), consideration and an intention to create legal relations (just the same
as on formation of contracts). Where a party seeks to enforce a contractual variation,
the legal issue will often centre round consideration. What, if anything, did that party
promise, or give, in return for the other party’s agreement to either pay extra money
or to accept less money?

In the absence of consideration a variation will not be enforceable at common law,

although in the case of downward variations (i.e. promises to accept less money) a
debtor may have an equitable defence to enforcement if he can show that in all the
circumstances it would be unfair for the creditor to renege on his promise. This
equitable defence is known as promissory estoppel.

So it is important for lawyers to be able to identify some consideration in the context

of contractual variations; and in the case of downward variations to advise on the
availability of promissory estoppel as a potential defence to enforcement in the
absence of consideration.

Outcomes

By the end of this large group you should be able to:

1. Identify and explain consideration in the context of upward and downward

variations of contracts.

2. Compare and contrast the legal principles governing upward and downward
variations.

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1. Contractual variations

1.1 Introduction

For a variation to be binding the same 3 components must be present

as on formation
-Often the problem is consideration(define)
-Parties agreed with the variation
-Intended the variation to have legal consequences

Two types of variations:

A want more from B for performing an existing contractual

obligation- (upwards)

-A wants to pay a lower amount to B in full satisfaction of a debt

owed to B (Downwards)

2. ‘Upward’ variations

2.1 Is performance of an existing contractual duty sufficient consideration for

a promise of extra payment? - the “traditional” rules

Activity 1: Case analyses on “existing contractual duty”

Consider the following two cases. Do you think judgment should have been in
favour of the claimant? Yes or no? Why?

Hartley v Ponsonby
Stilk v Myrick (1809)(1857)

The claimant, aa seaman, seaman, agreed

agreed to to sail
sailaaship
shipfrom
fromLiverpool,
London, toto Cronstadt,
Port Philip to
in
Australia,
Gottenburgh to Bombay
and theninback the East Indies and
to London. The back to the United
complement of crewKingdom. The
was eleven.
complement
The wages ofofthe crew
seamenwas thirty
were to six.beThe wages
£5 per of the seamen were to be £3
month.
per month.
The ship sailed from London to Cronstadt. Whilst at Cronstadt, two of the crew
The ship sailed from Liverpool to Port Philip. Whilst at Port Philip, seventeen of
deserted.
the crew deserted.
The master, to induce the remaining nine seamen to perform the rest of the
The
voyage,master, to induce
promised the remaining
to split the wagesnineteen
of the twoseamen (an unreasonably
deserters between them,small
in
number
addition to to sail thenormal
their ship safely)
wages, to sail on to Bombay,
provided promised
they continued thetovoyage.
pay themThea
sum of money in
voyage was then completed. addition to their wages to continue to Bombay. The voyage
was then completed.
The defendant refused to pay the claimant the additional sums promised.
The defendant refused to pay the claimant the additional sums promised.
No, the judgment should have been favour of the claimant but the defendant
Yes,
-Dealthere shouldatbethe
was struck a judgment
time in the favour of the claimant
-The crew
effectdeserted
what hadithappen
was a big chunk
to the of thesailors
remain crew
-The
-Whoever left still bound to do their job to get this
ship had half of the crew missing and would
the ship be very
safely dangerous for
to port
the
-Do crew
the job that stayed
they on the
agreed to do ship
-The ones that stayed
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had to
do more -contractually obliged to do
2.2 Public policy - Harris v Watson (1791)

‘If this action was to be supported, it would materially affect the navigation of this
kingdom…. for if sailors were in all events to have their wages, and in times of
danger entitled to insist on an extra charge on such a promise as this, they would in
many cases suffer a ship to sink, unless the captain would pay an extravagant
demand they might think proper to make.’
-per Lord Ellenborough

Public policy impacting upon contract law

-Has become greatly reduces in importance
-Since 1970s the courts have recognised that threats of economic pressure
might amount to economic duress
-Any promise induced by condition of economic duress might eb avoided for
that reason
-This means that the courts no longer have to use consideration as protection
against extortion in the contract of contractual variation
-If you got a variation of a contract that has arisen out of conditions of
economic duress
-One party placing economic duress on the other to agree to a variation which
means that the variation is not enforceable

2.3 ‘Practical benefit’ consideration

Williams v Roffey Brothers(1990)

A contract to refurbish a block of flats. The defendants were the main contractors,
and they subcontracted the carpentry work to the claimants for £20,000. Part way
through the work the claimants realised they had underestimated the cost and told
the defendants of their financial difficulty. The defendants (mindful of the fact that if
the work was not completed on time the defendants would be liable to pay
compensation under the main contract) promised to pay the claimants extra money
(i.e. £575 per flat) to complete on time. On this basis the claimants continued to work
on the flats but in the event were not paid the extra money promised by the
defendants and sued.
The main issue before the Court of Appeal was what, if any, consideration the
claimants had given in return for the promise of additional money. Whilst it was
conceded by the defendants that they had secured practical benefits (i.e. avoiding
liability under the compensation clause in the main contract and the cost and
expense of finding other carpenters to finish the job), the defendants argued that
there was no legal benefit.

Decision

Williams v Roffey
-The defendants are the main contractors
-When you have construction work being carried out
-Contractual context is intimate
-Main contractor
-Building responsible for everything
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 -Enter into subcontracts with particular tradesmen
-Mina builder who gets a electrician
-The defendants conceded and based their argument at their was no legal benefit
-The court felt that the practical benefit that the defendant was enjoying was
sufficient consideration (finishing the job on time)
-Practical benefit
-No threats or economic duress
-Payment was volunteered by the defendant

 Performance of an existing contractual duty will be good consideration for a

promise of extra payment if it confers a real practical benefit on the promisor;
but
 if the promise to pay extra was only made under economic duress the variation
may be avoided (See Unit 9).

Performance of an existing duty owed to the other party:
Silk and Myrick- performance of an existing contractual duty is not consideration for a
promise to pay more money
Hartley v Ponsonby- if something extra is given this is consideration

Williams and Roffey-Practical benefit consideration

3. ‘Downward’ variations

3.1 Part payment of an undisputed debt

-No dispute about the debt

-No dispute that the money is owed

3.2 Common law position

3.2.1 The Rule in Pinnel’s Case

In the case of an undisputed debt, at common law, an agreement between

creditor and debtor that the creditor will simply accept part payment in full and
final settlement of the full amount is not binding on the creditor.

Creditor- to whom the debt is owed

Debtor- is the person who owes the money

Pinnel's Case (1602)

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 Foakes v Beer (1884)

“…in consideration of the said John Weston Foakes paying to the said Julia
Beer on the signing of this agreement the sum of £500, the receipt whereof she
doth hereby acknowledge in part satisfaction of the said judgment debt of £2090
19s., ......... [and paying the remainder of the sums due in instalments] ........then
she the said Julia Beer hereby undertakes and agrees that she, her executors,
administrators or assigns, will not take any proceedings whatever on the said
judgment…”

-Mrs beer got a court judgment against doctor Foakes

-Mrs beer was entitled to interest
-Dr foakes owed Mrs Beer the money
-Because the court says
-the amount of debt was 2,00.90 pounds plus 90 shillings but mrs beer could
interest on top of that money
-Mrs Beer is the creditor
Dr Foakes is the debtor
-They went into an agreement on how Mrs Foakes would pay the money that he
owed to her

-Consideration Doctor Foakes paying of the money in instalments

-Mr Beer promised to forget about the interest however she came back for it
and took him to court
-No new consideration given by doctor Foakes to let him off the interest
-Satisfied the part that he was originally obliged to do
-Sue him or not paying the interest

3.2.2 Exception to the Rule in Pinnel’s Case

Activity 2: Judgment analysis: the Rule in Pinnel’s Case, and exceptions to the
Rule

Watch the Pinnel’s Case media clip. Identify the circumstance where the creditor is
not bound, and two circumstances where the creditor is bound, by their agreement to
accept less than the full amount due.

Where is the creditor not bound?

Payment on the lesser sum on the day of the satisfaction of the greater
-It appears by no probability that a lesser sum can give satisfaction to the creditor is a
greater sum
-If you owe someone like 100 pounds then you don’t satisfy your obligation by paying
them less than you owe.
-even if your creditor is prepared to accept 90 pounds in satisfaction in a 100 pounds
debt
-Paying them 90 pound still does not n claim satisfying your obligation

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-If you owe your creditor 100 pounds and they agreed to accept 90 pounds and you
have given them 90 pounds they could return later and ask for the remaining 10
pounds
-That is what the common law says

Where is the creditor bound?

-The gift of a horse, hawk or a robe in satisfaction is good

-1602- if creditor days instead of paying 100 pounds give me your hawk
-If they agree to accept that
-Meaning that the creditor is accepting the hawk in satisfaction for what you
owe them
-Your hawk buys you out instead of paying the money
-You will not have to pay the money

Where is the creditor is bound to accept less than the full amount due?
-The payment and acceptance of the parcel before the day would be good
satisfaction because of the circumstance of the time
-Beneficial to the creditor
-Value of satisfaction is not material
If you owe your creditor money but you don’t have to pay it yet
-Then your creditor says if you agree to pay some of the money early you will
not have to pay the rest
-then you have satisfied your obligation
-Agreeing to pay it early even though it is less than the full amount
-You buy the rights to not pay the full amount

Activity 3: Application of the Rule in Pinnel’s Case, and exception to the Rule

Jane Rowley owes the bank £5,000.

1. Can Jane be sued for the balance at common law if the bank agrees to accept
£3,000 and let her off the remaining £2,000? Yes, she can be sued even if the
bank agrees to let her off 2,000 pounds

2. “A horse or a hawk or a robe in satisfaction is good” – can Jane be sued for the
£5,000 if the bank accepts her horse in full and final settlement of its claim? No,
if the horse is what the bank wants then Jane will be off the hook

3. Can Jane be sued for the £5,000 if she rushes into the bank, stuffs a hawk
under the counter, and rushes back out? Yes, she can be sued because there
has to be an agreement with creditor, however there is no agreement.

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4. What if Jane doesn’t have a horse, hawk or robe – can Jane be sued if the bank
accepts her shares in G4S PLC in full and final settlement? No, because they
are not legal requirements it is what the bank wants in satisfaction of the debt

5. Are the “exceptions” to the Rule in Pinnel’s Case exceptions to the requirement
for consideration? No, we are not saying these exceptions are for the
consideration

6. Is it the case that, at common law, if the Bank accepts G4S shares worth
£2,000 in full and final settlement, she cannot be sued for the balance, but if the
Bank accepts £2,000 in full and final settlement, she can be? Yes, she could be
sued

3.3 Part payment of a debt – the position in equity (cannot be more legal
benefit to the creditor)
-Part payments on its own will not be suffieceint considertaion

The “High Trees” case and the doctrine of promissory estoppel- Creditors may be
prevented or estopped from creditors going back on their promise
-Even if the agreement is less is not supported by consideration
-Until – common law and Equity
-If you are in common law courts- if you didn’t like it you could cross the court and
visit the court of equity
-The courts of equity took account in certain situations that the common law did not
take account of
-Estoppel- stopping somebody from doing something for what they have said or done
before
-All forms of estoppel have this basic common
-Stop from denying something previously asserted that is true or stop from doing
something that you previously said you wouldn’t do
-Estoppel- has the requirement that someone has acted or relied upon of what has
been asserted or said
-Debtor’s point of view there should be sufficient consideration to make the
concession enforceable
-Principle operates unfairly and not fair
-The creditor who promised to accept less can go bac k on that promise
-Made a promise to not enforce that right but they go back to their promise
-They should be stopped from doing that

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Combe v Combe (1951)

“Where one party has, by his words or conduct, made the other a promise or
assurance which was intended to affect legal relations between them …... then once
the other party has taken him at his word and acted on it, the one who gave the
promise or assurance cannot afterwards be allowed to revert to previous legal
relations ...... even though it is not supported in point of law by any consideration...” -
per Denning LJ.

Promissory estoppel. Conditions:

 Promise to forgo a legal right

 Promisee acts on promise (reliance)

 Inequitable to go back on promise

 If the promissor tries to enforce the promise, PE (promissory estoppel) may be

raised as a defence to stop him

Central London Property Trust v High Trees House (1947)

 Lease entered into in 1937 – annual ground rent of £2,500 (payable quarterly)

 January 1940 – agreement by landlord to accept £1,250 per annum (due to very
low level of letting, arising from wartime conditions)

1) Defendants pay reduced rent throughout the war.

2) By “early 1945” all the flats were fully let.
3) Landlord wanted full rent for the future.

Decision

-Payable in every 3 months

-War had broken out -low letting in the building
-Difficult to find money in wartime condition
-Landlord agreed to accept lower rent
-Second World War
-Land Lord wanted full rent from the defendant in the future

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 3 periods:
1) Unclaimed rent from starts of war until flats fully let
2) Unclaimed rent for last two quarters of 1945 after war had ended
3) Reinstatement of full rent for the future
The court decided the rent for period number 1 was not recoverable
-Obiter part of the decision
-Period number 2 – court felt that the landlord could recover that money
-Early 1945 the landlords concession came to an end- the war ended, and the
building is fully let
-The court felt that the landlord terminates the concession and given notice
-When the landlord made the original promise, it wasn’t extended
-They were allowed to claim for the full amount after that

Activity 4: Analysis of the “High Trees” principle: the doctrine of promissory

estoppel

Promissory estoppel:
Effect in relation to ongoing payments
Extinctory- Arrears
Suspensory- By giving reasonable notice the promisor may resume his strict
legal rights

You can resume your strict legal rights by giving reasonable notice to claim
the full amount

Part Payment of Debt:

Foakes v beer -payment of a lesser sum in satisfaction of a debt is not good
consideration- basic principle
Pinnels case- common law. Exception
Promissory estoppel- equitable defence

Watch the Lord Denning on High Trees media clip, on the analysis of the High Trees
case, following the instructions of your tutor.

State of the law

-Rule that a person could go back on his promise
-Only be bound if there is statement if fact not a promise
--Stopped from going his statement of fact
-He could be stopped from going back at his promise
-Sales of Good act
-you can go back on a promise to accept less
-Hightrees case:
-During the war moved out because of the bombing
-The landlord said that they would reduce the munt
-After the war was over- the landlord says I’m not bound and said you need to pay te
full amount
-Principle:
-If circumstances were inequitable
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-To stand by the contract
-This tenant – promised a statement of fact and acted upon it
-It is quite wrong for the landlord to go back on pay the full amount
Precedent:
-Law reform committee reporting
-Recommended that a law should be changed in that direction
-It was criticised
-Estoppel is only applied to the statement of fact
-Criticised
-A lot of creditors
-If the debtor said they can’t pay and pays a little and the creditor accepts it should
be the end of the offer
-House of lord s says that the creditor can sue the debtor
-Been ridiculed
-Exceptions within the pinnle case rule
Reconciling the case law:
-Foakes and Beer- dealing with strict common law
- no Consideration
-You couldn’t have a promise unless there is a consideration
-That was the common law
-Evoked by the equity
-Was it equitable or not
-For the debtor to pay the whole sum
-Unequitable and unjust that the creditor accepting the small sum should not be
bound by accepting the bigger sum
-Letter of a contract
-strict rules of the old law
-Equity-when a person intervenes
-House of lords were bound by their own decision
-Bound by their previous decisions
-brings in the doctrine of consideration
-goes back to the old common law
High trees case mad e a big dent in that doctrine
-Some consideration to make a promise binding
-Man who made a promise cannot go back on it
-A promise is hold binding
-Exception whether it was equitable or not

4. Comparison of upward and downward variations

Rule in Stilk v Myrick Rule in Foakes v Beer

A contract between A and B and A contract between A and B and

A agrees to pay B more money if
B will complete his obligations
Here A is agreeing to pay
more money to B.
The rule in Stilk v Myrick provides
A has fully performed his
obligations and agrees to accept
a reduced payment from B.
Here A is agreeing to accept
less money from B.

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 that performance of an existing
contractual duty owed to other
party is not sufficient
consideration for a promise to
pay more.
APPLICATION
First state the rule.
Is B simply performing his
existing obligations or whether he
has done something extra in
return for A’s promise to pay
more?
If he has done something extra
then he can rely on Hartley v
Ponsonby and the extra will
amount to sufficient
consideration.
If not, discuss Williams v Roffey.
Did the promisee confer a
‘practical benefit’ on the
promisor?
The rule in Foakes v Beer
provides that partial payment of a
debt is not sufficient consideration
for a promise by a creditor to
forgo the balance.
APPLICATION
First state the rule.
Do any of the common law
exceptions apply? For example,
did the debtor pay early? If so, he
can rely on the exception in
Pinnel’s case and he will have
provided sufficient consideration.
If B cannot rely on a common law
exception consider promissory
estoppel in detail.

Activity 5- Promissory estoppel

To help you remember the issues that need to be considered in relation to

promissory estoppel we suggest you use the mnemonic PRIDES. What do you think
each letter stands for? Put the appropriate word or words next to each letter.

Promise

Reliance

Inequitable

Defence

Extinctory

Suspensory

5. Unit 4 Engage

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