BetterLawNotes-5 (2)

CONTRACT LAW

Barney:

The principal issue here is whether the modification agreed at the end of week 5 is binding on Barney. Barney agrees/promises to accept less payment than is due. On the face of it, Archie provides no consideration for Barney’s promise, and so Archie cannot enforce the promise against Barney (Foakes v Beer; High Trees; nb Re Selectmove says Williams v Roffey has no application here). It would follow that Barney can claim the £30,000 as his promise to forego his entitlement to it was not given for good consideration.

However, Archie may argue that Barney is estopped from reneging on his promise to accept £18,000, invoking the principle set out in High Trees. In that case Denning J said that a promise will be binding if when it is made, it is intended to be binding and acted upon, and it is then acted upon. So in High Trees itself, Denning J said, obiter, that the landlord would have been estopped from claiming the balance of rent due for the war years, notwithstanding that the tenant had given no consideration for the landlord’s promise to accept a reduced rent.

However, the promise is only binding as far as its terms apply. Here Barney agreed to the reduced payments until Archie’s financial situation improved. This appears to have eventuated 10 weeks later when Archie agrees to sell the houses and receives the deposits. According to High Trees, the estoppel ceases to operate from this point: there L was able to recover full rent once the war conditions ceased. 

The enforceability of Archie’s promise to ensure that Barney is ‘looked after’ is less clear. Arguably, Barney provides consideration for the promise by giving up his contractual right to full payments (ie now that the estoppel has ceased to operate). However, Archie may claim that the promise is too uncertain to be enforceable. Promissory estoppel would not seem to be relevant as it cannot be used to found a cause of action (ie it’s a shield and not a sword): Combe v Combe.

It follows that Archie can recover an additional £10,000 being the balance due for the final 5 weeks, but that he is estopped from claiming the balance (of £20,000) for the previous 10 weeks.

(An alternative approach would be to argue that the intention of both parties had been merely to postpone payment of the balance due for each week until Archie’s financial situation improved. On this basis Barney only agreed to a suspension of his right to full payment for each of the remaining weeks. If this were right, Barney could claim the full £30,000).

Cherie:

The issue here is whether Cherie can enforce Archie’s promise of payment. Does she provide good consideration for A’s promise of payment? While the consideration amounts to no more than the performance of an existing duty, ie performance of the sub-contract, that duty is owed to Barney and not Archie. Following Scotson v Pegg, this does amount to good consideration. Cherie can claim the money from A as she performs the requested act.

Dixon:

The issue here is whether Dixon can enforce Archie’s promise to pay more for the appliances than was originally agreed. On the face of it, the promise is unenforceable as Dixon appears to provide no consideration: he merely performs an existing duty owed to Archie: Stilk v Myrick. However, following Williams v Roffey, the promise may be enforceable if Archie has obtained a practical benefit from his promise.

Is there a practical benefit here? In Williams, the Court of Appeal identified various benefits: avoidance of the penalty clause; an improved payment scheme; avoidance of the trouble of finding another contractor. Arguably, the first and last are capable of application here. Archie may incur liability to the purchasers if the appliances are not supplied on time; and, Archie does not have to try and find an alternative source of supply.

However, Williams may be distinguishable. There it was the employer who offered to pay more. Further, it seemed that there was a genuine prospect that the contractor would be unable to perform the contract on its original terms. Here it is Dixon who demands extra payment. Further, while his own increased costs may make his contract with Archie less profitable, it is not clear that he cannot perform the contract on the originally agreed terms. There is a hint of unfair pressure here, although it seems to fall short of economic duress: compare say, Pau On with Atlantic Baron. Economic duress is where the circumstances in which a promise is extracted are such that the court will not enforce the promise, as to do so would enable the promisee to take unfair advantage of the promisor: D & C Builders v Rees. Were economic duress made out, Archie’s promise to pay more would be voidable and thus liable to be set aside.

In conclusion, the outcome may turn on the facts. If Dixon had been genuinely unable to perform because of his supplier’s increases, the court may apply Williams v Roffey. If the evidence points to more of a ‘try on’ on the part of Dixon, the court may prefer to apply Stilk (which remains good law), meaning that Archie would have no liability to pay the additional amount.

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