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 explains how valid variations depend on mutual agreement, the presence of fresh consideration, or, in some cases, formal execution as a deed. It analyzes the traditional rule that performance of an existing contractual duty is normally not good consideration, the practical benefit exception in Williams v Roffey, and the strict rule on part payment of debts in Foakes v Beer. It reviews the operation and evidential impact of no oral modification clauses, assessing when oral or informal changes will be ineffective despite the parties’ intentions. It also discusses how economic duress can undermine an apparent variation, preventing reliance on any practical benefit. In addition, it outlines the doctrine of promissory estoppel as a limited equitable response where consideration is absent, focusing on its requirements, suspensory effect, and interaction with debt claims and NOM clauses. Overall, this article develops the ability to apply these principles to SQE1-style problem questions, enabling accurate evaluation of whether a purported variation is binding, voidable, or unenforceable, and to distinguish clearly between legal and equitable routes to upholding or challenging varied contractual obligations.

SQE1 Syllabus

For SQE1, you are required to have 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, with a focus on the following syllabus points:

• 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 operation and effect of no oral modification (NOM) clauses on variations
• how economic duress can render a variation voidable
• the requirements and limitations of promissory estoppel as an equitable remedy
• when a variation may be effected by deed without consideration
• how variation may impact third-party rights under the Contracts (Rights of Third Parties) Act 1999.

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. Additionally, many contracts now include a clause restricting oral changes (a no oral modification clause), and equitable doctrines such as promissory estoppel may sometimes provide relief where consideration is absent, although they operate within clear limits. Economic duress can also vitiate an apparent agreement to vary.

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. The agreement must be freely given and sufficiently certain. If parties exchange emails or letters proposing specific revised terms and then act in accordance with those terms, the variation may be concluded by words or conduct, provided the terms are objectively ascertainable.

Agreement must not be procured by illegitimate pressure. Where one party leverages the other’s vulnerability to obtain a change (for example, threatening breach unless the price is increased), the variation can be voidable for economic duress and be set aside. The presence of duress also prevents reliance on the practical benefit doctrine (see below).

Many commercial contracts contain a "no oral modification" clause (NOM clause), which stipulates that any variation must be in writing and signed by authorised representatives. The Supreme Court confirmed the effectiveness of NOM clauses, holding that a clause requiring written, signed variations is generally enforceable. An oral agreement to vary a contract containing such a clause will normally not be legally effective. Exceptions are limited; promissory estoppel may in rare circumstances prevent reliance on a NOM clause where there is an unequivocal representation that the clause will not be insisted upon and clear reliance, but this is exceptional and fact-sensitive.

Key Term: No oral modification (NOM) clause
A contractual term requiring that any variation be in writing and signed, thereby preventing the legal effectiveness of oral variations unless the clause’s conditions are met or an exceptional estoppel applies.

Variations may also be effected by deed. A deed does not require consideration and can validly vary obligations if it satisfies the formal requirements for a deed (including being executed as such). This route is sometimes used for significant amendments, particularly where fresh consideration is doubtful.

Variations affecting third-party rights must also respect statutory constraints. If a contract confers rights on a third party under the Contracts (Rights of Third Parties) Act 1999, the parties may be restricted in their ability to vary the contract in a way that removes or alters the third party’s rights without that third party’s consent once the third party has assented to, or relied upon, the term, or where reliance was reasonably foreseeable and has occurred.

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.

Worked Example 1.2

Contract A states that any variation must be “in writing signed by both parties.” Mid-project, the contractor and employer orally agree to extend time by two weeks and reduce liquidated damages accordingly. The contractor finishes within the extended time but the employer later deducts full liquidated damages, saying the oral extension was ineffective. Can the contractor rely on the oral variation?

Answer:
Probably not. A NOM clause is generally enforceable, so an oral variation will not normally be effective. Unless there is a signed written variation or exceptional promissory estoppel preventing reliance on the NOM clause, the employer can insist on the original terms. A deed could have varied the terms without consideration.

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 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, 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.

However, performing an existing duty owed to a third party can be good consideration. If X is already bound to perform for Y, X’s promise to perform for Z may support Z’s promise (e.g., Scotson v Pegg; affirmed in later authority). This reflects the law’s focus on the bargain between X and Z: Z gets something of value, even if X was already obligated to someone else.

The Practical Benefit Exception

A significant modification to the Stilk v Myrick rule came from Williams v Roffey Bros & Nicholls (Contractors) Ltd. 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 avoids a disbenefit) as a result of the promisee’s continued performance, provided there is no economic duress or fraud. Practical benefits include avoiding penalties under other contracts, securing timely completion, or averting the costs and inconvenience of re-procurement.

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.

This doctrine does not extend to everything. It has been consistently held that the practical benefit analysis cannot be used to circumvent the rule about part payment of debts (see below). Courts have also emphasised that the benefit must be real and the variation must not be procured by illegitimate pressure.

Economic Duress and Variations

Where one party exerts illegitimate pressure to procure agreement to a variation, the variation may be voidable for economic duress. The court will examine:

• whether the pressure was illegitimate (e.g., a threat to breach the contract without lawful justification)
• whether the pressure caused the other party to enter into the variation
• whether the innocent party had reasonable alternatives, such as legal remedies or practical options.

If these elements are present, the variation can be set aside, and any additional payment recovered.

Key Term: Economic duress
Illegitimate pressure applied to a party which induces their agreement to a variation or contract, leaving them with no practical alternative; the agreement is voidable at the innocent party’s option.

Worked Example 1.3

RefurbCo threatens to stop work unless paid an extra £15,000 to finish a hotel fit-out, two weeks before a significant opening. The employer, facing significant losses, agrees to the increase. After completion, the employer seeks to recover the £15,000. Can the variation be set aside?

Answer:
Likely yes. If RefurbCo’s threat was to breach the contract unless paid extra, and the employer had no reasonable alternative given the proximity of the opening, the variation may be voidable for economic duress. A practical benefit to the employer does not rescue a variation obtained by illegitimate pressure.

Worked Example 1.4

Supplier and Operator have a contract requiring variations to be signed. They orally agree a change in delivery dates, which Operator relies upon by reprogramming production and incurring costs. Supplier later insists the oral agreement is unenforceable due to the NOM clause. Is Operator’s reliance enough to defeat the NOM clause?

Answer:
Generally, no. NOM clauses are effective. Operator may only prevent Supplier relying on the NOM clause if there is a clear, unequivocal representation that the clause would not be insisted upon and substantial reliance in a way that would make it unjust to revert to the original terms. Routine scheduling adjustments or ordinary reliance are unlikely to suffice. A written signed variation or a deed would have avoided the issue.

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, affirmed by the House of Lords in Foakes v Beer, 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. Examples of additional consideration include:

• early payment at the creditor’s request
• payment at a different place or in a different manner at the creditor’s request
• the provision of something else of value
• payment by a third party (which may discharge the debtor’s liability if properly structured)
• composition with creditors (an arrangement with all creditors to accept a proportion of debts, binding each to the composition).

Courts have cautioned against using practical benefit to undermine Foakes v Beer. While the Court of Appeal in MWB Business Exchange Centres v Rock Advertising found practical benefit in rescheduling payments for a licence fee, the Supreme Court resolved the case on NOM clause grounds and left the consideration issue open. As a result, the general rule in Foakes v Beer remains authoritative for part-payment situations.

Worked Example 1.5

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.

Worked Example 1.6

A debtor owes £10,000 due on 30 June. On 25 June, the debtor pays £8,000 and the creditor agrees, in writing, to accept this as full and final settlement because of the early payment. Can the creditor sue for the remaining £2,000?

Answer:
No. Early payment at the creditor’s request is fresh consideration for the promise to accept less. The agreement is binding, so the balance cannot be claimed.

Worked Example 1.7

A owes B £5,000. C (A’s parent) offers to pay B £3,000 to settle A’s account. B accepts and receives £3,000 from C. Can B later sue A for the remaining £2,000?

Answer:
Generally no. Payment by a third party to discharge the debtor’s obligation can be good consideration for the creditor’s promise to accept less. Once B has agreed and accepted C’s payment in full settlement, B cannot usually recover the balance from A.

Worked Example 1.8

A business in financial distress enters a composition agreement with all creditors to accept 40% of their debts in full settlement. One creditor later sues for the remaining 60%. Can they succeed?

Answer:
No. A composition with creditors, where all creditors agree to accept a percentage of their debts, is binding. The collective agreement and reliance by all parties supply the necessary consideration.

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, derived from Hughes v Metropolitan Railway and developed in Central London Property Trust Ltd v High Trees House Ltd, 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. In some circumstances, an estoppel may operate with a permanent effect for the period in which the promise was intended to apply (for example, rent reductions during wartime when flats were partly unoccupied), but courts are cautious to avoid undermining the doctrine of consideration.

Estoppel will not assist a debtor who extracted a promise by improper pressure. For example, a debtor who induced a creditor to accept less using unfair pressure cannot rely on promissory estoppel to prevent the creditor from claiming the balance.

Worked Example 1.9

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.

Estoppel and NOM Clauses

Where a NOM clause exists, promissory estoppel can, in principle, prevent a party from relying on the clause in exceptional circumstances. The promisee must prove a clear representation that the NOM clause would not be insisted upon and substantial reliance. Courts insist on a high threshold to avoid hollowing out NOM clauses.

Estoppel and Part Payment

Estoppel may operate with care in the part-payment context. Some authority suggests that in specific circumstances a debtor relying on a promise to accept part payment, and having reorganised affairs accordingly, may be protected against immediate enforcement of the full debt. However, courts are cautious to ensure that estoppel does not swallow the rule in Foakes v Beer. Estoppel will not make a creditor’s promise to accept less irrevocably binding in the absence of consideration; its effect remains protective and often suspensory, and inequity must be established.

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 Foakes v Beer, and in exceptional cases limiting reliance on NOM clauses.

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. Where a contract includes a NOM clause, any variation must comply with that clause (i.e., writing and signature) unless a deed is used or a rare estoppel applies. For significant changes, especially where consideration may be uncertain, parties often execute a deed to ensure legal effectiveness.

In long-term commercial agreements, parties often include structured mechanisms for variation (e.g., change control procedures). Following those procedures helps avoid disputes about whether the changes are binding. Where variations impact a third party’s rights under the Contracts (Rights of Third Parties) Act 1999, the parties may be prevented from varying the contract to the detriment of the third party without the third party’s consent once statutory conditions are met (such as assent or reliance).

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, except where a deed is used.
• 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; practical benefit does not displace this rule.
• Recognised exceptions to the part-payment rule include early payment at the creditor’s request, payment in a different manner or place, payment by a third party, and composition with creditors.
• Economic duress can render a variation voidable if illegitimate pressure induced the agreement.
• No oral modification clauses are generally effective; oral variations are unlikely to bind unless the clause’s formalities are satisfied, a deed is used, or in exceptional circumstances promissory estoppel applies.
• 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 to do so. It requires a clear promise, reliance, and inequity, operates as a defence, and is usually suspensory.
• Variations affecting third-party rights may be constrained by the Contracts (Rights of Third Parties) Act 1999 if the third party has assented or relied upon the relevant term.

Key Terms and Concepts

• Variation of contract
• Consideration
• Practical Benefit
• Promissory Estoppel
• No oral modification (NOM) clause
• Economic duress