Contract Law - P.Q/2

At this point we are brought before an ambiguity.  English law sets as principle in such cases concerning the performance of an existing duty that ‘’If the promisee obtains a benefit or avoids a detriment from the performance of a promise, that is good consideration, even if the promissor was already bound to perform the promise under an existing contract with the promisee”. This was established in “William v Roffey Bros” where the common law established the key-principle which states that the defendant was able to recover the additional sum due to the fact that they received a practical benefit because the work was completed on time and they did not have to engage other sub-contractor.

The case of “William v Roffey Bros”  could operate as a precedent binding for the case being examined due to the similarity of the facts taking place. There is Tony, an individual who gains a practical benefit thought the performance of Neil’s promise. Although Neil’s performance is in the limits of the original contract concluded, nevertheless it still presents a benefit to Tony due to the fact that material of high quality would be used for the structure of the residence instead of cheap materials, which could resulted in a defective residence. Therefore it can be well argued, that Tony as far as he is concerned, most probably will be held liable in delivering the additional sum promised, due to his practical benefit of having completed on time a good and ergonomic residence of steady condition without having to engage another contractor.

We proceed now with the second part of the question addressed and this concerns Jim’s part in the scenario’s facts.  While Neil sub-contracting with Jim at the very beginning, Jim had quoted a price of £35,000 for the electrical work, nevertheless he compromised to a fixed price of £30,000 “in order to help out Neil” who happened to be his brother-in-law. Jim when discovering that Neil was promised an additional £50,000, claims from Neil the recovery of the £5,000. Neil replies that in normal circumstances he would pay him back the residual amount, but during his economic difficulties he cannot afford at this time. Therefore Jim he is advised to claim the money from Neil. It is plain that the doctrine of privity of contract which English law acquires comes into play now. It is quire doubtful whether or not (if able) and to what extent, a third party likelihood would claim contractual rights in contract in which it is not involved.

At the very least, as English law is concerned, contractual rights and duties can only be imposed on the parties to a contract. This was firmly established in “Tweddle v Atkinson” where a third party could not recover the money from the contracting parties. He was not able to be sued on a contract and therefore not able of suing for a contract. Same principles seem to apply here, where Jim is contracted with Neil and not Tony, and therefore it seems inequitable for imposing liability upon Tony where the actual negotiation and agreement have been reached among Neil and Jim.

Furthermore it seems quite unjust on behalf of Jim to claim from Tony extra money in order to complete on time the requested task, while at the beginning (without knowing for any additional money promised to Neil) had agreed to carry on properly and on time the requested work, even with a lesser amount from what it originally quoted. It is plain that if Jim persistently seeks the recovery of his money, then the person of whom should this request be addressed is Neil.

Therefore, from all the above as stated, it is rational to say that Tony is not held responsible towards Jim for additional money, and even more no legally contractual relationship has ever been established among them.

2. Don owns the Grand Hotel in Seatown.

In Summer 1998, at a time when the hoteliers in Seatown were busy taking bookings for Millennium dinner dances on New Year’s Eve 1999,

 Don contracted with the Reg Smith dance band to provide the musical entertainment at the Grand Hotel’s dinner dance on New Year’s Eve 1998 and 1999. It was agreed that the band would be paid £5,000 in 1998 and £8,000 in 1999 (the latter reflecting the higher prices being charged in 1999). It was also agreed that accounts would be settled within 28 days of invoices being submitted.

In Autumn 1998, Reg Smith told Don that the contract would have to be revised because the band was now being offered £10,000 or more for Millennium dinner dance engagements. Don said that he could not readily agree to this because some tickets had already been sold. However, when Reg Smith threatened not to fulfil the 1999 engagement, Don reluctantly agreed to raise the fee for the 1998 engagement to £7,000.

At the beginning of December 1998, Reg Smith again told Don that the contract sum would need to be revised because the band was now being offered as much as £20,000 for Millennium dinner dance engagements and the band members simply could not afford to turn down such lucrative work. Reg proposed that the band should be paid £10,000 for the 1998 engagement and £15,000 for the 1999 engagement.

Don told Reg that this was no way to do business and that these figures were potentially ruinous. Nevertheless, Don said that he did not wish to let down his many customers who had already bought tickets and so he agreed to pay the sums demanded by Reg.

In early January 1999, when Reg submitted his invoice for £10,000 following the 1998 dinner dance, Don told Reg that he had a cash-flow problem such that it would not be possible to pay in full within the agreed 28 days. Reg agreed to give Don an extra 14 days to pay. At the end of the extended period, Don told Reg that he was still in difficulty and that the most he could pay was £5,000. In March 1999, Reg, having acquired a thoroughly bad reputation with Seatown hoteliers and being short of work and money, agreed to accept £5,000 in full settlement.

(1) Analyse each of the variations to the contract between Don and Reg and summarise the position between the parties as at March 1999.

(2) How would you argue the points if Don was your client? And, how would you decide the case if it came before you as a trial judge?

 

Answer:

We are brought before a case, where a constantly variation of the contract, which was concluded among the two parties Don and Reg Smith, takes place. By examining the key-facts taking place from the initial contract concluded in 1998 until the January 1999 we can determine the different variations of the terms of the contract, and how each form of the contract would be construed if it was brought before a court. Further, if Don was my client, in each of the variations of the contract would be advised to act differently, according to the factual circumstances, but that should be really inconsistent with the case of being a trial judge and have to deliver a judgment on the case.

From the information given above, we know that as it comes to the first contract which was concluded between Don and Reg Smith, it was agreed that the band of Reg Smith would be paid £5,000 in 1998 and £8,000 in 1999 on New year’s Eve respectively. Furthermore it was agreed that the financial settlement would be carried out by the submission of an invoice. Therefore Don would have 28 days of time in order to pay back his part of the agreement. This would apply for each event separately, and by this we direct our minds that after the new year’s eve of 1998 there would be sent an invoice of 28 days to Don while the second event (1999 year’s eve) would be paid by the its completion, and by this we mean January 2000.

Proceeding with the rest of the facts in autumn 1998, Reg Smith informed Don that their contract should be revised due to the factual changing circumstances. The band had been offered £10,000 or more for Millennium dinner dance engagement, therefore their initial contract with Don should either raise as to payment or break down. What impresses us in the conversation among the two parties is the fact that Reg Smith actually threatened Don not to fulfil the 1999 engagement unless his terms of the bargain were being satisfied.

This brings to the surface the position of English law as to this subject. The key-principle is that “The promise must have been given with full consent, not extracted by threats from the promisee”. As it was firmly established in “D & C Builders v Rees 1966”, the plaintiffs were stopped from claiming balance because they did not voluntary accept the lesser sum but under threatening. Therefore is seems unreasonable and inappropriate to hold Don liable in paying the requested amount of money to Reg under these conditions.

Thus, if the case until this point was brought before a court, due to the nature of the facts taking place and furthermore that an original contract has already been concluded, the judgment will place heavy support in Don’s side of arguments, condemning this illegal enforcement which Reg Smith tries to establish. Most probably, Reg Smith, if not carrying out regularly his engagement towards Don would be held liable of breach of contract. Nevertheless, Don reluctantly agrees with Reg’s terms and raises the fee of the new year’s eve of 1998 to a point of £7,000.

Unfortunately, this insanity seems of having no end. At the beginning of December 1998, few days before the New Year’s Eve, Reg informs again Don that a new offer came into play by some other interested tenders, therefore he should raise again respectively the fee of the two events which would be carried out by the band. Particularly, there was an offer as much as £20,000 for Millennium dinner dance engagements and the band members simply could not afford to turn down such lucrative work. Therefore he proposed that the band should be paid a sum of £10,000 for the 1998 engagement and £15,000 for the 1999 engagement.

Don really upset for the insanity of negotiations, which was constantly changing, affecting his financial capacity, decides reluctantly to approve the suggested changes because he didn’t want to disappoint his customers who have already bought their tickets for the event. This indicates that Don in different circumstances, most probably would not have accepted or reconciled with the changes proposed by Reg and might therefore abandon his side of bargain or even more bring an action before a court against Reg.

Notwithstanding, what really actually matters is that the contract was revised for the second time as to the financial terms of it, and the amendment was placed due to needed raises of the fees, of the two events respectively. The first event of 1998 rose to a point of £10,000 and £15,000 for the second event. Though these exhausting financially sums, Don proceeded only by considering what was best for the interest of the management of his hotel.

Finally, in early January 1999 Reg submitted his invoice for £10,000 following the 1998 dinner dance, in the exact way of payment as it was originally agreed. Don informs Reg he was facing financial difficulties at that time, therefore an extension of the time agreed (28 days) would be very helpful in order to be capable of paying back his debt. A 14 days extension period was agreed whereas it was supposed to sufficient. Notwithstanding, by the end of the prescribed extended period, Don was still facing difficulty in paying back his debt, and suggested Reg to pay him £5,000, which was the highest amount of which he was capable of paying at that time. In March 1999, Reg, having acquired a thoroughly bad reputation with Seatown hoteliers and being short of work and money, agreed to accept £5,000 in full settlement.

We are facing a part- payment of a debt, where as English law is concerned, the basic rule is that part-payment of a debt can never satisfy the whole debt, see “Pinnel’s case”.This is due to lack of consideration which occurs, in order to render an agreement of part-payment to be enforceable. In principle, payment of a lesser sum after the data due is not good consideration, therefore it cannot satisfy the whole debt. Further, it is considered of doing less that you already bound to do.

According to the above, Don cannot satisfy the £10,000 he owed to Reg with a part-payment of £5,000. If the case was brought before a court by Reg, the trial judge would probably condemn the irrationality of the agreement reached In March 1999, two months after the due date, and impose liability on Don in re-paying back the residual amount owed.

It is plain if legal proceedings of the case above were brought, and being in the place of the trial judge, the agreement for full satisfaction of the debt reached in March 1999, would have been voided by me and i would have imposed liability on Don in re-paying back the whole debt of £10,000 which was last agreed, and this took place in December 1998.

3. What is the difference between the variation of a contract and rescission of the contract and its replacement by a new one?  Can the difference in treatment between the two transactions be justified?

Whenever two parties enter readily into a legally binding relationship, a contract then is concluded, and it is upon them whether amendments to the formation and the terms of the contract should be forwarded or not. It seems that in case of verification of this possibility, there are two possible options to classify as potential solutions:

1. The variation of a contract, which is a plain revision of the formation of the contract by the two parties, which will come up with a new agreement after negotiating, as to what amendments should be forwarded and applied to the original form of the contract.
2. Rescission of the contract, which is the cancellation of the contract by mutual agreement of the parties and the establishment of a new legally binding relationship, a new contract, between them, which will be formatted according the new terms.

It is quite obvious that both ways, serve the exact same purpose, which is to bring amendments readily agreed by the two parties to the terms of a contract. Nevertheless, the question as for the justification of this division arises. Can the difference in treatment between the two transactions be justified?  

The answer to the question seems of lacking certainty and having a rather subjective manner of treatment than an objective one. However, as long as I am concerned I would justify this division on the following ground of justification.

It seems that the rescission of a contract, in fact, brings the parties into the initial position that they would have been in case of no formation of any contract, where the variation of a contract does not change the contractual position of the parties, from which other elements derive such as mutual obligations towards the terms of the contract and carrying out by each party the responsibilities that the contract imposes upon it.

The variation of the contract only affects and brings changes as to the terms of the contract, nothing more. This could be stated that is far more different than terminating the whole contract and replacing by a new one, from which a new and different status of legal relationship would derive.

Therefore, is it rational to state that the difference between those two, is reasonably justified.

4.  Does “Williams v Roffey” signal the beginning of the end of the doctrine of consideration?

Before we begin the analysis of the above case, it is essential to mention the key -

principle which is deriving from this case. That is “If the promisee obtains a benefit or avoids a detriment from the performance of a promise that is good consideration, even if the promissor was already bound to perform the promise under an existing contract with the promisee.”

In this case, it was held that the plaintiff was entitled to receive the additional sum due to the fact that the defendants received a practical benefit because the work was completed on time, and they did not have to engage another sub-contractor.

It is quite obvious that the particular case, in fact, signals the beginning of the end of consideration. Here the plaintiff did not incur a “legal” detriment nor did the defendants receive “a legal benefit” because the plaintiff did not carry out any work in addition to that agreed under the original contract. Factual detriment and benefit appear to be good consideration. In most cases a party to a contract would receive a factual benefit if the other party promises to keep their side of the bargain rather than breaching the contract.

Courts are more willing to abolish the doctrine of consideration which has been operating as a determine factor capable of terminating the contract, where heavy reliance has begun to be placed in most important elements of a contract, such a offer and acceptance, and intention to create a legal relationship.

Therefore, this case indicates the start of a rather doubtful era as to the reliance placed upon the doctrine of consideration.

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