Alteration promises on the back of an original contract - enforceable?

1. Alteration promises on the back of an original contract - enforceable? If A and B make a contract and then later make an alteration agreement relating to the original contract, either to pay more for the original contract or to accept less payment than is due under the original contract, is this alteration promise ‘enforceable’ in the courts? Is there consideration for it?

2. Promises to PAY MORE for the same work Key cases that we need to look at here are: • Stilk v Myrick 1809 • Hartley v Ponsonby 1857 and • Williams v Roffey Brothers & Nicholls (contractors) Limited 1991

3. Williams v Roffey Bros Ltd 1991 It was held in Court of Appeal that the carpenters were entitled to the extra payments because they had provided consideration to the main contractors for their promise in that: • the promise secured completion of the work on time so that the main contractors avoided the penalty clause, and, • the main contractors avoided the need to employ another sub-contractor if the original ones decided to quit.

4. Judgment of Glidewell LJ His lordship held that the promise by the main contractors to pay extra to avoid a penalty and to get the work done by the original subcontractors gave them a PRACTICAL BENEFIT or avoided a DISBENEFIT to them and this was consideration – so long as economic duress or fraud was absent.

5. Judgment of Russel LJ ‘Consideration there must still be but in my judgment the courts nowadays should be more ready to find its existence so as to REFLECT the INTENTION OF THE PARTIES to the contract where the bargaining powers are not unequal and where the finding of consideration reflects the true intention of the parties’.

6. Judgment of Purchas LJ His lordship expresses the view that the Stilk v Myrick case was in large part decided for POLICY reasons – to protect masters of ships from being held to ransom by crews at sea. And he suggests that the lack of consideration argument was only really used because the duress was not available.

7. Commentary on Williams v Roffey Bros Limited 1991 In addition, the move away from the need for ‘legal’ consideration in Williams v Roffey Brothers Limited 1991 was NOT FOLLOWED in recent cases concerning promises to ACCEPT LESS payment than is due under an original contract. Remember that in Williams v Roffey, the consideration that was said to exist was of a ‘practical’ or ‘factual’ nature as opposed to really ‘legal’ in nature.

8. PROMISES TO ACCEPT ‘LESS PAYMENT’ THAN IS DUE UNDER AN ORIGINAL CONTRACT In PINNEL’S CASE it was held that if A made a promise with B to accept LESS PAYMENT for a debt and NOT TO SUE for the balance, then this agreement was UNENFORCEABLE unless B gave some extra consideration for it

9. A promise to accept less than is due is only supported by consideration where there is: • payment in kind rather than in money, or • payment in advance of the due date, or • payment at a different location to the creditors advantage, or • payment by a 3rd party accepted as full satisfaction, or • a composition by creditors to accept less.

10. Foakes v Beer 1884 The House of Lords held that Mrs Beer could claim the interest from Dr Foakes because although in the agreement between her and Dr Foakes she had stated that she WOULD NOT take proceedings to enforce the debt, this agreement LACKED CONSIDERATION by Foakes – he had to pay the debt to her anyway as scheduled and so he gave no additional consideration for her to accept LESS than she was due, which was the DEBT PLUS INTEREST.

11. Re Selectmove Limited 1995 In this case, Williams v Roffey Brothers Limited was given a NARROW RATIO DECIDENDI– so that it could only apply to contracts for goods and services. In this way, the rule in Foakes v Beer was not challenged which would have been impossible anyway as it was a House of Lords case and Re Selectmove was only in the Court of Appeal – thus it would have been against the rules of precedent to attempt to overrule Foakes v Beer.

12. Promissory Estoppel ‘Where by words or conduct a person makes an unambiguous representation as to his future conduct, intending the representation to be RELIED on and to affect legal relations between the parties, and the representee alters his position in reliance on it, the representor will be unable to act inconsistently with the representation if by so doing the representee would be prejudiced’. McKendrick

13. A few early points on Promissory Estoppel 1. There is the potential for Promissory Estoppel (PE) to replace consideration 2. PE is just one strand of the broader equitable doctrine of estoppel 3. PE does not support a distinct cause of action 4. PE only protects one’s reliance interest not one’s expectation interest

14. 6 key points for Promissory Estoppel 1. The promise must be clear 2. He who comes to equity must have clean hands 3. PE usually involves reliance and detriment 4. PE is usually only suspensory in nature 5. PE is a shield and not a sword 6. PE must be explicitly pleaded in court

15. 7 key cases for Promissory Estoppel • Hughes v Metropolitan Railway Company 1877 • Central London Property Trust Ltd v High Trees House Ltd 1947 • Combe v Combe 1951 • Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd 1955 • D & C Builders v Rees 1966 • Williams v Roffery Brothers & Nicolls (contractors) Limited 1991 • Baird Textile Holdings Ltd v Marks & Spencer plc 2001

16. Hughes v Metropolitan Railway Co 1877 ‘It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results … afterwards by their own act or with their own consent enter upon a course of negotiations which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced or will be kept in suspense or held in abeyance, the person who might otherwise have enforced those rights will not be allowed to enforce them where it would be inequitable, having regard to the dealings which have thus taken place between the parties.’. Per Lord Cairns LC at 448.

17. High Trees case 1947 The key importance of the case comes from the obiter dicta remarks of Lord Denning. He said that HAD CLPT sued for the full rent between 1940 and 1945 it would have been estopped from doing so because of the promise not to demand full rent. He relied on the Hughes case.

18. Combe v Combe 1951 In this case and husband and wife got divorced. The husband then promised to pay his wife £100 a year as a permanent allowance. In reliance on this promise, the wife did not apply to the courts for maintenance. When the husband failed to make the payments, she sued him on the promise. She failed because Promissory Estoppel is a ‘shield and not a sword’.

19. D & C Builders v Rees 1966 In this case, although D & C builders agreed in writing to accept less than was owed to them they could still sue for the balance. This was argued on the basis of Pinnel’s case and Foakes v Beer and the defence of Promissory Estoppel was unsuccessful because Mrs Rees had not come to equity with clean hands - she had held them to ransom.

20. Per Dankwerts LJ His lordship stated: ‘Foakes v Beer, applying the decision in Pinnel’s case, settled definitively the rule of law that payment of a lesser sum than the amount of a debt due cannot be a satisfaction of the debt unless there is some benefit to the creditor added so that there is accord and satisfaction’. He felt that a cheque was basically the same as cash and so it was not extra consideration that could be used to avoid Foakes v Beer. Thus, the builders could sue for the balance due.

21. Baird Textile Holdings Ltd v Marks & Spencer plc 2001 Baird was contending that M&S was estopped from not ordering garments from them, that M&S should order garments from them. They failed because: firstly, Promissory estoppel is a shield and not a sword and secondly, that there was no clear unequivocal promise by M&S that they would continue to order garments from Baird.