Contract Law - Large Group 4

Consideration and Contractual Variations

Contractual Variations

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

formation
• Often the problem is consideration (define)
• Two types of variation:
- A wants more from B for performing an existing contractual obligation;
- A wants to pay a lower amount to B in full satisfaction of a debt owed to B.

‘Upward’ Variations

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?

Stilk v Myrick (1809)

The claimant, a seaman, agreed to sail a ship from London, to Cronstadt, to

Gottenburgh and then back to London. The complement of crew was eleven. The
wages of the seamen were to be £5 per month.

The ship sailed from London to Cronstadt. Whilst at Cronstadt, two of the crew
deserted.

The master, to induce the remaining nine seamen to perform the rest of the voyage,
promised to split the wages of the two deserters between them, in addition to their
normal wages, provided they continued the voyage. The voyage was then completed.

The defendant refused to pay the claimant the additional sums promised.

Judgement should be in favour of the Defendant - The claimant was under an existing duty
to work the ship back to London and undertook to submit to all the emergencies that
entailed. Therefore, he had not provided any consideration for the promise for extra money.
Consequently, he was entitled to nothing.
 Hartley v Ponsonby (1857)

The claimant, a seaman, agreed to sail a ship from Liverpool to Port Philip in
Australia, to Bombay in the East Indies and back to the United Kingdom. The
complement of crew was thirty-six. The wages of the seamen were to be £3 per
month.

The ship sailed from Liverpool to Port Philip. Whilst at Port Philip, seventeen of the
crew deserted.

The master, to induce the remaining nineteen seamen (an unreasonably small
number to sail the ship safely) to sail on to Bombay, promised to pay them a sum of
money in addition to their wages to continue to Bombay. The voyage was then
completed.

The defendant refused to pay the claimant the additional sums promised.

Judgement should be in favour of the Claimant - The crew were entitled to the extra
payment promised on the grounds that either they had gone beyond their existing
contractual duty or that the voyage had become too dangerous frustrating the original
contract and leaving the crew free to negotiate a new contract.

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

‘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 I 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

Consideration was provided by the claimant conferring a benefit on the defendant by

helping them to avoid the penalty clause. Therefore, the defendant was liable to make the
extra payments promised.
 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

• Stilk v 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 v Roffey - practical benefit consideration

‘Downwards’ Variation

Part payment of an undisputed debt

Common law position

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.

Pinnel's Case (1602)

The claimant was owed £810 shillings. The defendant paid £52 shillings and 2p. The claimant
sued for the amount outstanding.

Decision

The claimant was entitled to the full amount even if they agreed to accept less. Part
payment of a debt is not valid consideration for a promise to forebear the balance unless at
the promisor's request part payment is made either: 1 before the due date or, 2 with a
chattel or 3 to a different destination
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…”

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.

- The debtor has paid early

- Agreed to pay using something else

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 as the bank can’t agree to accept less money.

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, the bank can’t come back, if the bank accepts her horse, they can’t later change their
mind.

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 still be sued, there has to be an agreement with the creditor that the hawk is in
discharge of the debt.

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, it doesn’t necessarily have to be a horse, hawk of a robe like in Pinnel’s case, the only
requirement is that the bank must agree to it.
5. Are the “exceptions” to the Rule in Pinnel’s Case exceptions to the requirement for
consideration?

No, they are just ways in which we show that there was consideration for the concession,
we are not saying no consideration needs paid.

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, its isn’t sufficient as it is part payment, it must be of some legally reorganised benefit to
the creditor.

Part Payment of a Debt - the Position in Equity

The “High Trees” case and the doctrine of promissory estoppel

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 (PE)

Within contract law, promissory estoppel refers to the doctrine that a party may recover on
the basis of a promise made when the party's reliance on that promise was reasonable, and
the party attempting to recover detrimentally relied on the promise.

Conditions:

- Promise to forgo a legal right.

- Promisee acts on promise (reliance).
- Inequitable to go back on promise.
- If the promisor tries to enforce the promise, PE 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.

Effect in Relation to on-going Payments

Extinctory

• Arrears

Suspensory

• By giving reasonable notice the promisor may resume his strict legal rights

Effect in relation to one-off debts

• Possibly suspensory

Part Payment of a Debt

• Foakes v Beer - payment of a lesser sum in satisfaction of a debt is not good

consideration - basic principle;
• Pinnel’s case - common law exception;
• Promissory estoppel - equitable defence.

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

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

Comparison of Upward and Downward Variations

Rule in Stilk v Myrick Rule in Foakes v Beer

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

agrees to pay B more money if B will fully performed his obligations and
complete his obligations agrees to accept a reduced payment
from B.
Here A is agreeing to pay more money
to B. Here A is agreeing to accept less
money from B.
The rule in Stilk v Myrick provides that
performance of an existing contractual The rule in Foakes v Beer provides that
duty owed to other party is not partial payment of a debt is not
sufficient consideration for a promise sufficient consideration for a promise
 to pay more. by a creditor to forgo the balance.

APPLICATION APPLICATION

First state the rule. First state the rule.

Is B simply performing his existing Do any of the common law exceptions

obligations or whether he has done apply? For example, did the debtor pay
something extra in return for A’s early? If so, he can rely on the
promise to pay more? exception in Pinnel’s case and he will
have provided sufficient consideration.
If he has done something extra, then
he can rely on Hartley v Ponsonby and If B cannot rely on a common law
the extra will amount to sufficient exception, consider promissory
consideration. estoppel in detail.

If not, discuss Williams v Roffey. Did

the promisee confer a ‘practical
benefit’ on the promisor?

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.

P - promise to waive a strict legal right.

R - reliance, the act in reliance need not be detrimental

I - inequitable, must be inequitable/impossible for the creditor to renege on the promise

D - defence, it can only be used as a shield and not a sword (Combe v Combe)

E - extinctory, in relation to ongoing payments, the right to claim arrears is extinguished

S - supervisory in relation to ongoing payment of the creditor can resume their strict legal
rights as to the future by giving reasonable notice, but right to claim a race is distinguished
(High Trees and Tool Metal Manufacturing). With lump-sum payments, the likely effect of PE
is that it simply suspend the strict legal, right unless and until the circumstances giving rise
to the concession have changed.