The first issue to be addressed is the establishment of a bi-lateral contract, this is where A is bound to do X and B is bound to do Y in return for the promise made by A. Another type of contract is that of a uni-lateral contract. This is where A makes an offer and assumes an obligation such as a promise to perform a certain act but B is under no obligation. This is where the contract has become one-sided; it does not mean that there is only one party involved. From the facts given in the scenario, a uni-lateral contract can be disregarded in this respect as there has been an obvious bi-lateral contract formed between the two disputing parties as Hard-Up Construction Ltd has promised to complete the building work on time in return for being paid the sum of money by the University of South Yorkshire.
To make the agreement enforceable it must be established whether it is an agreement or a contractual agreement. The minds of the two parties concerned must be consensus ad idem, which means they need to meet on the matters which are the subject of the agreement. Offer and acceptance has to be established. There tends to be two approaches taken to establish this. The courts can adopt a liberal approach where they look at all the circumstances and see if the parties appear, objectively to have reached agreement, or they can apply a more traditional approach, looking at the evidence as a whole to see if there has been a concluded agreement, therefore establishing offer and acceptance to see if there has been a contract made. It is clear from the facts that there has been an offer and acceptance made in the first agreement, in the form of a tender from Hard-Up Construction Ltd to the University of South Yorkshire, the University have accepted this offer, which has formed a contractual obligation between the parties.
With regards to the second ‘agreement’ it appears that an agreement has been made between the two parties for the extra £600,000, from Hard-Up Construction Ltd asking for the additional payment and the University agreeing. However an element of reluctance has been noted in the scenario. It would need to be established whether contractual terms were expressed or implied during this second agreement or whether it was just a conversation with no legal sufficiency behind it. The courts will take great care in establishing exactly what was communicated between both parties in order to find contractual relations.
It is this second ‘agreement’ which is causing contention between the two parties; intention to create legal relations is another aspect to be considered when trying to enforce a contract during a legal dispute. Without that intention to create legal relations within the agreement, the case will not stand in court. An uncertain agreement is no agreement at all, which can be seen in the case of Scammell (G) & Nephew Ltd v HC & JG Ouston. It is often the case that the offer and agreement are present and correct, but when it comes to finding the intention to create a legally binding contract, many issues can rear their ugly head. For it to be enforceable by the Courts, the conversation on the agreement to pay the £600,000 needs to be analysed thoroughly to establish the intentions of both parties when coming to an agreement over the additional payment of the money. If Hard-Up Construction can prove that they definitely perceived the intention of the University to be a legally binding promise, then intention to create legal relations can be found within this second agreement. With the leading authority on Hillas & Co. v Arcos Ltd, it is more likely that an executed agreement will be far more workable and followed up than an executory agreement, where neither side of the parties concerned have carried out their obligations yet. Hard-Up Construction Ltd is in a stronger position in this sense due to the fact they have begun to carry out their building work which is their side of the contract.
Another issue to be addressed is the establishment of whether there was consideration for the £600,000. Defined as “the price of the promise”, consideration is something which is a benefit to the promisor or a detriment to the promisee (Currie v Misa) in which Lush, J stated that consideration was “a valuable consideration in any sense of the law may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other.
In this situation, Hard-Up Construction Ltd are trying to enforce the promise that the University will pay an additional £600,000 (on top of the original tender price of £1,000,000) if the work is completed by March 2007. Hard-Up Construction Ltd is the promisee trying to enforce the promise and the University is the promisor. Consideration must be sufficient; it must be of value in the eyes of the law, even if it is not adequate as in the case of Chappell & Co. Ltd v Nestle Co Ltd, where chocolate bar wrappers were used as consideration for the manufacturer’s promise to supply a record.
Here, Hard-Up Construction Ltd needs to show that there is consideration for receiving the extra money to complete the work. It could be argued that performance of an existing obligation can never be consideration for a fresh promise; authority for this can be found in the case of Stilk v Myrick. Hard-Up Construction Ltd could say that if they don’t receive the money, they will suffer a detriment which would be consideration as they cannot complete the work and perform the contract they have promised to do; therefore by providing the money as requested it could be classed as something extra gained by the University, as the work will be completed on time, so consideration on both sides of the disputing parties would be of value in the eyes of the law. The authority for this is the case of Williams v Roffey Bros & Nicholls, where it was held that as the defendants had obtained a benefit from the promise and the work was completed on time, the promise was enforceable. What would need to be established is whether something extra above the original contract has been given by the parties, if this is so; this is consideration for a new agreement as in Hartley v Ponsonby. In this scenario, the courts are more likely to adopt the approach taken in the Williams case, as the facts from this scenario are similar, therefore the courts would be reluctant to disapply or distinguish from this precedent.
However, from the case of Collier v P & MJ Wright involving precise terms of an oral agreement, consideration has to be provided for Wright’s promise and there must be a reliance on a representation made by one party to the other, if this can be proved, the courts are likely to enforce the payment of the additional £600,000.
Hard-Up Construction Ltd may be able to use the principle of promissory estoppel to make sure that the University cannot go back on their agreement for the promise of the £600,000. Promissory estoppel was based on the principle that, when one party, by words or by conduct, has made a clear and unequivocal promise or assurance, which was intended to affect legal relations between them and be acted on accordingly, then once the party has taken him at his word and acted upon it, the one who gave the promise or assurance cannot be allowed to revert to their previous legal relations as if no such promise or assurance was made, but must accept their legal relations subject to the qualification which he/she has introduced. The authority for this is contained in the Central London Property Trust v High Trees House Ltd. However, caution must be exercised; promissory estoppel has not entered into the doctrine of consideration due to the fact it could lead to the suspension or even extinguishing contractual rights because it can prevent a party from going back on a promise and cannot stand alone as giving a cause of action in itself. So, although this could be brought up as an addition to the consideration argument, it is quite risky and should not be relied upon solely to bring about the desired result of winning the case. The other remaining question to be asked with regards to ascertaining a contract between Hard-Up Construction Ltd and the University over the additional £600,000 is whether the terms of the promise are certain to give rise to a contractual obligation. The certainty needs to be sufficient for the courts to enforce the contract. It is not clear from the facts whether there was any variation of terms specified for the first contract (adding the £600,000 to the total payable to Hard-Up Construction Ltd), so it would need to be established whether or not the first contract was modified to include the £600,000 or whether the University understood and clarified that the £600,000 would give rise to a legal obligation.
From taking all the facts into consideration, it would appear that Hard-Up Construction Ltd are in a strong position for getting the contract of the second agreement to pay the additional £600,000 enforced; due to the fact that they have relied on the assurance of the University and completed the contract on time due to this assurance, without this, the contract may not have been completed.
The remedies available to Hard-Up Construction with regards to the situation would be that damages could be recovered. There are certain limitations on contractual damages, such as the principles of remoteness of damage (Hadley v Baxendale). The type of damage must be reasonably foreseeable or in contemplation of the parties at the time of the contract (Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd). There is also an element of mitigation required which means that the claimant must try and take reasonable steps to put him in the position he would have been in if the contract had been performed. As long as Hard-Up Construction Ltd has an expectation interest in receiving the payment (because they would be losing profits), this interest will be protected and they could be awarded damages for the University refusing to pay the additional money of £600,000. This would be the most likely avenue that the courts would follow to remedy the situation.
The next issue to consider is the contractual relationship between Hard-Up Construction Ltd and Ms Barbara Ella. With regards to this situation, Ms Ella has promised to pay Hard-Up Construction Ltd £50,000 if they complete the building work on time (this refers to the building work as contracted with the University of South Yorkshire). This would appear to be nothing more than a gratuitous promise, due to the fact that Hard-Up Construction is inferring a benefit without any return consideration, relating back to the Williams v Roffey case, performance of an existing obligation can never be consideration for a fresh promise, unless something extra is gained. It would appear that nothing extra is being gained by Barbara as the building work contract is officially being undertaken by the University and Hard-Up Construction Ltd; Barbara has no right of a third party into the contract either so she cannot be linked to the previous contract.
Therefore, in relation to the contractual relationship between Hard-Up Construction Ltd and Ms Barbara Ella, it is likely that the courts would not enforce an agreement of this kind to pay £50,000 to Hard-Up Construction Ltd for something which they are already contracted to do in the first place. This type of agreement would be seen as a gratuitous promise and the courts are reluctant to enforce this as it would essentially mean re-writing the contract rule books according to some judges.
References
Cases
Central London Property Trust v High Trees House Ltd [1947] KB 130
Chappell v Nestle & Co Ltd [1960] AC 87
Collier v P & MJ Wright [2007] EWCA Civ 1329
Currie v Misa (1875) LR 10 Ex 153
Hadley v Baxendale (1854) 23 LJ Ex 179
Hartley v Ponsonby (1857) 7 E&B 872
Hillas & Co v Arcos Ltd (1932) 147 LT 503
Parsons (Livestock) v Uttley Ingham & Co Ltd [1978] QB 791, [1978] 1 All ER 525
Scammell (G) & Nephew Ltd v HC & JG Ouston [1941] AC 251
Stilk v Myrick (1809) 170 ER 1168
The Hannah Blumenthal (1983) 1 AC 854
Williams v Roffey Bros & Nicholls Ltd [1991] 1 QB 1
Books
Jill Poole, Casebook on Contract Law, (9th ed.) London, Oxford University Press, 2008
[1947] KB 130 from this case, promissory estoppel may be described as the High Trees principle/doctrine.
[1978] QB 791, [1978] 1 All ER 525