Contents of a contract - Variation of contract terms

Learning Outcomes

This article examines the legal requirements for varying the terms of an existing contract. It covers the essential need for both agreement and consideration, exploring the rule regarding performance of existing duties and the concept of 'practical benefit'. The distinct rule for part payment of debts is also addressed. Finally, it outlines the equitable doctrine of promissory estoppel as a potential exception where consideration may be absent. Your understanding of these principles will enable you to analyse and apply the relevant rules to SQE1-style single best answer questions concerning contract variations.

SQE1 Syllabus

For SQE1, you need a practical understanding of how contract terms can be legally varied after formation. You will likely encounter scenarios requiring you to identify whether a purported variation is enforceable, focusing on the presence of agreement and valid consideration, or the potential application of promissory estoppel.

As you work through this article, focus your revision on:

• the necessity of mutual agreement for any contract variation
• the requirement for fresh consideration to support a variation
• the rule that performance of an existing contractual duty is generally not good consideration
• the 'practical benefit' exception established in Williams v Roffey
• the specific rule preventing part payment of a debt from being good consideration for discharging the whole debt (Foakes v Beer)
• the requirements and limitations of promissory estoppel as an equitable remedy.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is generally REQUIRED for a valid variation of an existing contract?
   1. The variation must be in writing.
   2. Fresh consideration must be provided by both parties.
   3. One party must receive a practical benefit.
   4. The original contract must state that variations are permitted.
2. A builder agrees to construct an extension for £50,000. Mid-way, the builder faces financial difficulty and tells the client they cannot finish unless paid an extra £5,000. The client reluctantly agrees, wanting the work finished on time. The builder completes the work. Is the client legally bound to pay the extra £5,000?
   1. No, because the builder was already contractually obliged to finish the work.
   2. No, because the client agreed under duress.
   3. Yes, because the client obtained a practical benefit by ensuring timely completion.
   4. Yes, because the original price was too low.
3. A debtor owes a creditor £1,000 due on 1st June. On 1st June, the debtor explains they can only pay £750 and asks the creditor to accept this in full settlement. The creditor agrees. Can the creditor later sue for the remaining £250?
   1. No, because they agreed to accept the part payment.
   2. No, because the debtor provided consideration by paying early.
   3. Yes, because part payment of a debt is not good consideration for a promise to discharge the entire debt.
   4. Yes, but only if the debtor's financial situation improves.
4. Which of the following is NOT a requirement for promissory estoppel to apply?
   1. A clear and unequivocal promise by the promisor not to enforce their strict legal rights.
   2. The promisee must provide fresh consideration for the promise.
   3. The promisee must have relied on the promise.
   4. It must be inequitable for the promisor to go back on their promise.

Introduction

Once a contract is formed, the parties may wish to change its terms. This alteration is known as a variation of contract. For a variation to be legally binding and enforceable, like the formation of the original contract, it generally requires the mutual agreement of both parties and must be supported by consideration. However, the rules surrounding consideration for variations, particularly where a party promises to pay more for an existing duty or accept less in settlement of a debt, have specific complexities. Furthermore, the equitable doctrine of promissory estoppel may sometimes provide relief where consideration is absent.

Key Term: Variation of contract
An agreement between the parties to an existing contract to alter its terms.

THE REQUIREMENT FOR AGREEMENT

Just as forming a contract requires offer and acceptance, varying a contract requires the clear agreement of both parties to the proposed changes. This agreement must be freely given, without duress or undue influence. While variations can sometimes be agreed orally, it is often advisable to document them in writing to avoid future disputes about the terms agreed. Certain contracts, such as those for the sale of land, may require variations to be in writing to be effective.

THE REQUIREMENT FOR CONSIDERATION

The traditional rule is that a variation, like the original contract, must be supported by consideration. This means each party must provide something of value in exchange for the other party's agreement to the variation. Issues often arise where the variation involves one party promising to do something they were arguably already bound to do under the original contract.

Key Term: Consideration
Something of value in the eyes of the law, requested by the promisor and given by the promisee in exchange for the promise. It can be a benefit to one party or a detriment to the other.

Existing Contractual Duties

The general principle, established in Stilk v Myrick (1809) 2 Camp 317, is that performing, or promising to perform, an existing contractual duty owed to the other party is not good consideration for a promise of extra payment. If a party is already bound to perform a certain task under the contract, simply carrying out that task does not provide anything new of value in exchange for an additional promise from the other side.

The Practical Benefit Exception

A significant modification to the Stilk v Myrick rule came from Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1. The Court of Appeal held that if a party promises to pay more for the performance of an existing contractual duty, that promise can be binding if the promisor obtains a practical benefit (or obviates a disbenefit) as a result of the promisee's continued performance, provided there is no economic duress or fraud.

Key Term: Practical Benefit
A factual or commercial advantage gained by a promisor from the promisee's continued performance of an existing contractual duty, sufficient in some circumstances (Williams v Roffey) to amount to consideration for a promise to pay more.

Worked Example 1.1

BuildCo contracts with Client Ltd to refurbish offices for £100,000, with a deadline of 1st September. Client Ltd has a separate, lucrative contract starting 2nd September, contingent on the offices being ready. BuildCo encounters unexpected staffing issues and tells Client Ltd they will not meet the deadline unless paid an extra £10,000. Client Ltd, anxious to avoid losing the lucrative contract, agrees. BuildCo finishes on time. Must Client Ltd pay the extra £10,000?

Answer: Yes, likely. Although BuildCo was performing an existing duty, Client Ltd obtained a practical benefit by securing timely completion and avoiding the loss of the lucrative follow-on contract. There is no indication of economic duress. Applying Williams v Roffey, the promise to pay more is likely supported by consideration and therefore binding.

Exam Warning

Be careful not to confuse the 'practical benefit' exception with the rule regarding part payment of debts. Williams v Roffey applies where a party promises to pay more for an existing duty. It does not apply where a party promises to accept less in settlement of a debt.

Part Payment of a Debt

The rule in Pinnel's Case (1602) 5 Co Rep 117a, affirmed by the House of Lords in Foakes v Beer (1884) 9 App Cas 605, states that part payment of a debt is not good consideration for a promise by the creditor to forgive the balance. Paying less than you owe on or after the due date is simply performing part of your existing duty, not providing anything extra of value.

Therefore, even if a creditor agrees to accept a smaller sum in full settlement, they can generally change their mind and sue for the remainder, unless the debtor provides some additional consideration (e.g., paying earlier than the due date, paying at a different location at the creditor's request, or giving something else of value along with the part payment).

Worked Example 1.2

Sarah owes Ben £500, due yesterday. Today, Sarah offers Ben £400 "in full and final settlement," explaining she has lost her job. Ben feels sorry for her and agrees, taking the £400. A week later, Ben regrets his decision. Can Ben legally demand the remaining £100?

Answer: Yes. The rule in Foakes v Beer applies. Sarah provided no fresh consideration for Ben's promise to accept less. Part payment of the debt after it was due is not sufficient consideration to discharge the full amount owed.

PROMISSORY ESTOPPEL

Where consideration is lacking for a variation (particularly in cases involving promises to accept less, like Foakes v Beer), the equitable doctrine of promissory estoppel may sometimes prevent a party from going back on their promise. It acts as a shield, not a sword – it can stop a promisor enforcing their strict legal rights, but cannot create new rights or be used as a cause of action itself.

Key Term: Promissory Estoppel
An equitable doctrine that may prevent a party from going back on a clear promise not to enforce their strict legal rights, where the promisee has relied on that promise and it would be inequitable to allow the promisor to renege.

The key requirements for promissory estoppel, largely derived from Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, are:

1. A clear and unequivocal promise or representation by the promisor that they will not enforce their strict legal rights against the promisee.
2. Reliance by the promisee on the promise (they must have altered their position).
3. It must be inequitable for the promisor to go back on their promise.

Promissory estoppel generally has a suspensory effect; it suspends the promisor's rights but may not extinguish them permanently. The promisor may be able to resume their original rights by giving reasonable notice, unless the promisee cannot realistically resume their original position.

Worked Example 1.3

Landlord Ltd leases a shop to Tenant Ltd for £2,000 per month. Due to local road closures significantly impacting Tenant Ltd's business, Landlord Ltd agrees in writing to accept reduced rent of £1,000 per month "until the roadworks are completed." Tenant Ltd pays the reduced rent for six months. The roadworks finish. Can Landlord Ltd demand the full £2,000 for future months? Can they claim the shortfall (£1,000 x 6 = £6,000) for the past six months?

Answer: Landlord Ltd can demand the full £2,000 rent for future months, as the condition (completion of roadworks) stated in their promise has occurred. Regarding the past shortfall, Tenant Ltd may be able to rely on promissory estoppel. There was a clear promise, Tenant Ltd relied on it (likely arranging its finances accordingly), and it would likely be inequitable for Landlord Ltd to demand the arrears retrospectively. Estoppel would likely prevent Landlord Ltd from claiming the £6,000 shortfall for the period the promise was active.

Revision Tip

Remember the limitations of promissory estoppel: it requires reliance and inequity, it is generally suspensory, and it cannot found a cause of action (shield, not sword). It is most relevant in scenarios involving promises to accept less payment, potentially mitigating the harshness of the Foakes v Beer rule.

FORM OF VARIATION

Unless the original contract or statute specifies otherwise (e.g., contracts for land), variations do not necessarily need to be in writing. They can be agreed orally or even implied by the conduct of the parties, provided the intention to vary is clear. However, written variations provide greater certainty.

Key Point Checklist

This article has covered the following key knowledge points:

• Variation of a contract requires mutual agreement between the parties.
• Generally, fresh consideration is needed to make a variation legally binding.
• Performing an existing contractual duty owed to the promisor is typically not good consideration (Stilk v Myrick).
• An exception exists where the promisor obtains a 'practical benefit' from the performance, provided there is no duress (Williams v Roffey). This applies to promises to pay more.
• Part payment of a debt is not good consideration for a promise to forgive the balance (Foakes v Beer). This applies to promises to accept less.
• Promissory estoppel may prevent a party from reneging on a promise not to enforce strict legal rights if the other party has relied on it and it would be inequitable. It requires a clear promise, reliance, and inequity.
• Promissory estoppel acts as a defence ('shield') and is usually suspensory.

Key Terms and Concepts

• Variation of contract
• Consideration
• Practical Benefit
• Promissory Estoppel