LAW 1510 Contract Law - Legal Arguments

Contract Law

The legal arguments which parties generally invoke in regard to enforceability of contract variation:

In commercial contracts, it is important to include certain clauses for the purpose of making appropriate changes in contract. However, such contract needs to be in the form of writing and both parties need to sign it. These clauses are termed as variation clause and the intention of such clause is to prevent the nature of informal variations. However, under the provisions of common law, written contracts can be changed with prior consent of the parties along with mutual agreement on the part of both the parties either orally or in writing.

It is worth mentioning that, variations under common law shall be effective if the following elements are present. These can be categorized as-

1. There has to be a valid agreement between two parties. A mere notification on the part of one of the party to another should not be held effective.
2. There must be supporting documents and consideration in regard to such agreement.

The enforceability of a contract variation can be explained with the help of the case Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1. In reference to the case, the main legal arguments invoked by the parties can be emphasized. The case is related to variation of contracts, consideration and the rights on the part of third parties. Various arguments are there upon which the parties may rely can be categorized below:

The First Agreement:

In this part, the parties can present arguments regarding the fact that, when the bargain forms a part of the contract by complying with the existing requirements of such contract; then the concept of First Agreement can be relied upon. However, consideration can be found by the payment of certain amount. In this context, the parties must argue that there was an intention on their part to create legal relationship and the contract must be commercial in nature. The terms and conditions of the contract must be clear and unambiguous for the purpose of ensuring certainty. If these elements are taken into consideration, then a proper agreement can be formed by the parties regarding the fact that the contract was valid.

The First Variation of Terms:

ext-align: justify;">Consideration may be present in the form of rights, interests, profits or benefits given to one party as a result of some loss and detriment suffered by another party. This principle was observed in the case of Currie v Misa (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554. It is worthwhile to refer here that, there is a promise on the part of the promisee to do something which is legally owed by the promisor. Similarly, it was observed in the case of Stilk v Myrick [1809] EWHC KB J58 that the claimant was working as a captain of the defendant’s ship. When the ship was on a voyage’ two members of the crew have already left. No replacement was available to the captain; he promised the remaining sailors that he shall bring the ship to the destination. In this case, it was held by the Court that the promise on the part of the captain was not supported by any valid consideration. However, in the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, it was held by the Court that, there was a valid variation as it was supported by a consideration under the form of practical benefit for the promisor. In this regard, it is noteworthy to mention here that, the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 is such that the principle of practical benefit was constituted in regard to certain underlying components.

Duress:

In the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, it was held that before identifying the nature of practical benefit’ it is important on the part of the Courts to identify that whether the concept of duress was present or not. Without the existence of duress, the applicability of practical benefit would have been impossible. In the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the claimant has faced certain financial difficulties however; the nature of the contract was valid and complies with the principle of variation. In this regard, it is worth mentioning that duress is not present in this case however; consideration and practical benefit could measure the enforceability of the contract to the large extent.

Practical Benefit:

The concept of practical benefit has been highlighted in the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1. In this case, the parties in order to form arguments in regard to the enforceability of the contract variation shall depend upon various factors. Firstly, the contract must be performed by the parties within a stipulated period. In case of law of contract, time is an important essence of contract. In the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd, there was a contractual obligation on the part of the defendants to rent the building to the other parties to the contract. As the building was not available on the stipulated time; the defendant will be causing breach to the parties involved in such contract. Secondly, it was found by the Court that the defendant has repudiated the services of the claimants as a result of which the hiring of new carpenters created a burden upon them. Thirdly, it was emphasized by one of the expert that, the reasonable price of the contract would in fact be around 23,000 however; the claimants offered a value of 20,000.

From the abovementioned explanation, it can be significantly added that the concept of practical benefit is such that it shall support the terms of the variation in order to make the contract enforceable under law.

The Second Agreement:

Mention can be made of third part contracts, where the traditional rules are governed by the doctrine of privities. According to the doctrine of privity of contract, the parties contributing to the formation of the contract shall be considered and shall be assigned with specific rights and obligations. In this regard, it is important to mention the concept of strangers to the contract i.e. third parties. It is noteworthy to mention here that, strangers to the contract cannot be assigned the rights and obligations in relation to the formation of a contract. Third parties cannot claim benefits arising out of contract in case even if the contract was formed for their benefit. This is due to the reason that these third parties do not have any right to provide consideration. However, in recent era, various rules and regulations has been developed for the purpose of conferring such rights to the third parties by applying the provisions of Contract (Rights of Third Parties) Act 1999. According to the Contract (Rights of Third Parties) Act 1999, there is a right on the part of the parties to enforce their rights and obligations without providing any kind of consideration on their part. However, certain situations are there under which third parties can enforce their rights.

These can be emphasized as-

1. There is a express term in the contract which specifies the amount.
2. In regard to the relevant sub-section.
3. The term contained in the contract this confers a benefit on such third person.

However, the provisions of Section (1) (b) shall not be applied in cases involving construction of contract if the nature of the contract is such that there was no intention on the part of the parties to make the contract enforceable by any third party.

In the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, it was held that the nature of the act that has been previously owed do not form a good consideration. In this case, it was held by the Court that, if there is an agreement to perform any certain act in which there is an obligation on the part of a promisor towards a third party to do certain act in regard to certain consideration. However, if the promisee obtains any benefit from such direct obligation, then he can enforce the contract. It is worthwhile to mention here that, that while varying a contract, there must be an existence of a promise to perform pre-existing contractual obligations for the purpose of constituting good consideration; however it shall remain in operation as long as the benefits arising out of it are conferred upon the promise . As a result of it, the previously established principle is no longer applicable which emphasized on the part that pre-existing contractual obligations are not good consideration.

The abovementioned principles can form important arguments in which the parties can rely upon for the enforceability of a contract variation. Third parties are in general not legally bound by variation. However, in certain cases, they are held legally bound which has been explained above. Variation in regard to the performance of a specific work shall be made in regard to the variation procedure that has been drafted to valid terms of contract. This is applicable only in case of construction projects because these projects usually takes a longer time to complete and creates less burden on the parties to agree to the procedures of variation in advance. Therefore, in case if the scope of the work changes considerably; there is no need to amend the contract. It is noteworthy to mention here that if the variations are made by applying the correct procedure then, the actual terms of the contract need not be changed. Most importantly, in such cases, it is not mandatory to prove that there was valid consideration for ensuring efficiency of the amendment.

Consistency of the legal authorities in the present case:

It is important to measure the consistency of the legal authorities in the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 by considering the underlying issues.

In this case, it was observed that, the claimants were builders and were contracted for refurnishing 27 flats of the housing corporation. There was a penalty clause included in the contract for late completion. As a result of the existence of such clause, the claimants sub-contracted a carpenter, Williams and offered him with bonus when he was no longer able to cope up with the existing work. However, the work was sincerely carried out by Williams unless and until the claimants stopped the payments. As a result of which Williams sued them for for breach of contract. The claimants argued on their part that, the extra payment was unenforceable as there was no consideration on the part of Williams. Therefore, the appellants were only applicable to practical benefit by avoiding the penalty clause. However, they did not receive any benefit under the law. In this context, the claimants relied upon the case of Stilk v Myrick (1809) 2 Camp 317 where it was stated that performance of an existing duty is not a good consideration.

In this case, it was held by the Court that the promise of making bonus payments in enforceable by law if the promisor received practical benefits. As the claimants obtained practical benefit with the avoidance of penalty clause, therefore; the promise of extra-payment was enforceable by law.

In the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the foundations of the doctrine of consideration can be explained. According to general principle, for the amendment of a contract there has to be a good consideration. Therefore, the case has proved to be significant in explaining and defining the limits of valid consideration and their limits. In order to explain the principle contained in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, it is important to define the doctrine of consideration. The doctrine of consideration is categorized into three parts. Firstly, the nature of the consideration must be such that it can be considered to be sufficient but not adequate. Secondly, past consideration is not a good consideration. Thirdly, the consideration must be made on the part of the promise.

In the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 it has been argued that, there was an authority on the part of the preposition regarding promise to perform an existing obligation which would eventually amount to good consideration. However, such promise must be obtained as a result of factual or practical benefit. From the very beginning, the case was concerned with the contract of goods and services. Based on this, it can be stated that the argument on the part of the legal authorities were inconsistent in regard to the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1.

The case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 is such that it has identified the concept of consideration that has been constituted by way of factual or practical benefit on the part of the promissory arising as a result of alteration promise. However, this rule is only applicable in cases involving alteration promises. It is worth noting that, paying more amounts does not apply to alteration promises than accepting less in regard to the amount owed. In such cases, there is an authority on the part of the Law Commission to deal with the question of consideration and performance in regard to an existing obligation. However, few existing options may be available as well. Arguments were raised in case of Williams v Roffey Bros & Nicholls (Contractors) Ltd on the part that whether a promise for the purpose of performing an existing obligation owed to the promise is held to be a good consideration or not. The concept of good consideration shall be determined by depending upon the arbitrary basis of the obligation in matter. A test of practical benefit shall be conducted in order to emphasize that whether a promise is a good consideration or not. In the third stage, the concept of consideration has been abolished. This is specially performed in cases involving negotiation of contracts for the purpose of testing their enforceability by relying upon the principles of economic duress. Fourthly, the scope of promissory estoppels shall be extended.

In the conclusion, it can be stated by referring the case of  Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, that the judgment is completely consistent with the doctrine of precedent. However, for the Court in order to extend the underlying principles of the case must rely upon the concept of consideration as well. Therefore, it can be stated that the observations that has been made in respect to the case are of high probability in regard to consideration; arising out of factual benefits which will be easier to detect. It can be finally concluded that, if any future extension needs to be made then the authority is entrusted upon the House of Lords or the Parliament after consideration.

Possible ways in which the legal rules can be reformed:

It is common for contracts to contain a clause stating that the terms of the contract between the parties cannot be varied without express consent in the form of a signature for both parties. This thus consolidates the position of the terms of the contract and ensures that either party to the contract has the opportunity to duly change the terms of the contracts in case the same needs to be executed but the same cannot be used as a tool to unfairly disadvantage a party who is already bound by agreement to adhere to the terms of such a contract. Hence, for such a variation to be enforceable the contractual terms being amended must be ratified by each of the parties to the contract. This is known as a variation clause which in essence governs all amendments made to the original contractual terms or to any supplementary agreement which forms a part of the original contract. The legal authorities governing the enforceability of such a term in the context of the commonwealth counties would be common law principles which are developed through judicial pronouncements in the form of judgments. The original position of law in terms of enforceability of variation of terms of such a contract in the context of common law is that in cases where the contract is silent about such a variation the parties can vary the terms by oral or written agreements provided that such an agreement in itself is an enforceable contract containing the essential elements of a lawful contract under common law. In such a case the parties would have to provide consideration for such a variation of terms as well since consideration is an essential element.

In such a case the rights of the parties would need to ensure that this supplementary agreement is agreed in the same sense by all related parties to a contract. However it has been determined by relevant authorities that the variation of such term or various terms can be made through oral agreement even if the original contract expressly prohibits it. This has been determined by various authorities Globe Motors v. RW Lucas Varity Electric Steering Ltd.  [2016] EWCA Civ 396 was the first. This was also further consolidated in Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24.

It is worthwhile to refer here that reformation of contract variation may be permitted in contract involving disputes. Reformation of contracts generally takes place in two cases. Firstly, cases involving mistaken terms of contract. Secondly, cases involving misrepresentation of terms whether intentionally or accidentally. However, only one part of the contract can be reformed. It is noteworthy to mention here that reformation of contract is associated with rewriting a portion of the contract. There is no need to rewrite or change the whole contract. This is due to the reason that, if it is necessary to rewrite the whole contract, then the parties would have rescinded or cancelled the whole contract.

The nature of reformation is such that it would entirely focus upon the matter in dispute. However, there is confusion in regard to the concept of executor contracts. In this context, the principal difference of opinion is regarding the effect of the statute of frauds based upon the reformation of execution contracts. It is worth noting that, in UK most of the cases involve contracts of sale of land which are in fact referred to as executor contracts unless there is a delivery of deed. In some cases, reformation can be refused and the reason is simple. The reason can be due to the grant of relief which would significantly constitute enforcement of an oral and unenforceable agreement. There is a major error connected in such reasoning. The major error is that, there has been confusion between reformation and enforcement of contract. It is important to note that reformation and enforcement are two different concepts.

From the very beginning, the Contracts (Rights of Third Parties) Bill has been implementing various recommendations of the Law Commission for the purpose of enabling rights on the part of the individuals to enforce their rights under the law of contract. Therefore, it is necessary on the part of the government to reform the age old long standing general rule of English law, under which a contract can be enforced by an individual if he is a party t it. The newly formed law, however; will create significant implications for a wide range of contracts.

References:

Cases:

Currie v Misa (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554.

Globe Motors v. RW Lucas Varity Electric Steering Ltd.  [2016] EWCA Civ 396.

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24.

Stilk v Myrick [1809] EWHC KB J58.

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1.

Journals and Books:

Adriaanse, John, and Herbert Robinson. "Procurement and Contract Strategy: Risks Allocation and Construction Cost." Design Economics for the Built Environment: Impact of Sustainability on Project Evaluation 121 (2015).

Ashworth, Allan, and Srinath Perera. Contractual procedures in the construction industry. Routledge, 2018.

Callahan, Dennis J., et al. "2017 Government Contract Law Decisions of the Federal Circuit." Am. UL Rev. 67 (2017): 1273.

Ding, Jiyong, Na Wang, and Leichuang Hu. "Framework for Designing Project Delivery and Contract Strategy in Chinese Construction Industry Based on Value-Added Analysis." Advances in Civil Engineering 2018 (2018).

Dziadosz, Agnieszka, Andrzej Tomczyk, and Oleg Kapli?ski. "Financial risk estimation in construction contracts." Procedia Engineering 122 (2015): 120-128.

Ellingsen, Tore, Tor Jacobson, and Erik L. von Schedvin. "Trade credit: Contract-level evidence contradicts current theories." (2016).

Hammond, Emily, and David B. Spence. "The regulatory contract in the marketplace." Vand. L. Rev. 69 (2016): 141.

Hill, Andrew. "Something for Nothing: Explaining Single-Sided Contract Variations." Oxford U. Undergraduate LJ(2015): 75.

Klee, Lukas. International construction contract law. John Wiley & Sons, 2018.

Marino, Bill, and Ari Juels. "Setting standards for altering and undoing smart contracts." International Symposium on Rules and Rule Markup Languages for the Semantic Web. Springer, Cham, 2016.

Memon, Aftab Hameed, Ismail Abdul Rahman, and Mohamad Faris Abul Hasan. "Significant causes and effects of variation orders in construction projects." Research Journal of Applied Sciences, Engineering and Technology7.21 (2014): 4494-4502.

Purvis, Alan. "An investigative study of road construction contract variations." (2015).

Safa, Mahdi, et al. "Competitive intelligence (CI) for evaluation of construction contractors." Automation in Construction 59 (2015): 149-157.

Solan, Lawrence M. "Transparent and Opaque Consent in Contract Formation." Discursive Constructions of Consent in the Legal Process (2016): 118.

Thomas, Reginald William, and Mark Wright. Construction contract claims. Macmillan International Higher Education, 2016.