Variation of contracts
The situation in question raises problems relating to variation of contracts, consideration, third party rights. The story brings into discussion on the one hand, the variation of terms made between Hard-Up Construction and the University of South Yorkshire, and on the other hand, the agreement (potentially enforceable) between Ms. Barbara Ella and Hard-Up Construction.
The First Agreement
First of all, Hard-Up Construction and the University of South Yorkshire have a valid, enforceable contract under which Hard-Up Construction is supposed to build the Institute for Space Research by March 2007 in exchange for 1,000,000 pounds. The bargain meets the requirements of a contract as all of the necessary elements are present. Consideration can be found under the form of the payment of 1,000,000 for the work, while intention to create legal relations is undoubtedly present, as the contract here is commercial in nature. The terms of the contract appear to be clear and unequivocal, which ensures certainty. Taking into account these factors, there is no doubt that a valid contract exists.
The First Variation Of Terms
What is in reality questionable and open to scrutiny is the enforceability of the variation of terms. Once Hard-Up Construction realises the estimated price was by all means insufficient, it persuades the University officials to pay another 600,000 pounds in order to be able to complete the work on time. This accounts to a variation of terms, situation in which consideration must be provided by the promisee, in this case Hard-Up Construction. As a general rule, ‘consideration may consist of some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other party' (Misa v. Currie). The promisee is here promising to do something which he already legally owes to the promissory and generally this cannot be regarded as consideration. In Stilk v. Myrick, for instance, the claimant, captain of the defendant's ship was on a journey with his crew when two members of the crew deserted. The claimant failed to find replacements and therefore promised the remaining sailors that if they brought the ship to destination, he would let them share the money the two sailors would have received. The court found that the promise was not supported by any consideration. Nevertheless, the courts have found in William v. Roffey that when such a variation is made, consideration can be found under the form of a ‘practical benefit' for the promisor. For instance, in Roffey v. Williams, the practical benefit was constituted of several components.
In Roffey v. Williams before attempting to identify a practical benefit, the courts sought to find if duress was present, because in its presence, the existence of a practical benefit would be impossible. In Pao On v. Lau Yiu Long duress was described to be an illegitimate threat that vitiates consent. Just like in Roffey v. Williams, the constructor here faces financial difficulties which make him aware that in the initial circumstances he cannot finish the project on time. By bringing this to the knowledge of the other party, he is announcing his repudiatory breach. At this point, the University can either affirm the contract or accept the breach. By affirming the contract, the University can keep the contract alive, while by accepting the breach, the University can receive damages to compensate the loss.
In our case the University keeps the contract alive and agrees on the variation. The circumstances and the manner in which the repudiatiory breach is announced do not seem to account for an illegitimate threat and they are rather a mere process of informing the breach and of negotiating. However, there appears to be hesitation and reluctance from the University, which could reveal a compelling force. Still, while this can indicate slight commercial pressure, it cannot be good evidence of real duress. Duress is therefore not present in our case so consideration and practical benefit could enforce the contract if they are present.
The concept of practical benefit is to be analysed in the light of Roffey v. Williams. Firstly, the contract had to be performed by a specific deadline, time being a term of the essence like in because after that time, the defendants (constructors) were under a contractual obligation to rent the building to another party. Therefore, by not having the building done on time, the defendants would be in breach to another party they contracted with.
Secondly, the courts found that the fact that if the defendant repudiated the services of the claimants (carpenter workers), they would have to suffer the burden of finding new carpenters. Thirdly, an expert asserted that a reasonable price of the contract would have been around 23,000-24,000 pounds, while the claimants offered a contract for 20,000 which was it seems a sub-evaluation.
Similarly, in our current case there seem to be a number of elements which could consist in practical benefit. Firstly, It is unclear whether in our case having the construction done on time can be valuable consideration. The reason why it needs to be done in time is for the opening of the National Space Initiative by the Queen. There are two elements to be analysed: the importance of the Queen's presence in the opening and the opening of the Initiative itself. If the Queen's ceremony could be rescheduled, or in the case in which it couldn't, if those who attend the opening would not mind the absence of the Queen, then perhaps time would be less significant. Nevertheless, as having the Queen present is an event which can bring high reputation to such an Institute, and as it is doubtful that the Queen's opening can be rescheduled, it appears that time is indeed precious here. Moreover, the National Space Initiative seems to be an event of paramount importance so having it take place on time is crucial. As a result, having the Institute constructed on time can be a practical benefit. Secondly, by keeping the contract alive, the University could, like in Roffey v. Williams, derive benefit because it would not have to go through the trouble of finding other constructors, process which could in fact delay the project even more. Thirdly, like in Roffey v. Williams the contract has been here underestimated, since no other tender submitted was under 1,500,000 pounds, while the current constructors only asked for 1,000,000 pounds. It appears that a reasonable market price here would be in the whereabouts of 1,500,000 and that 1,600,000 (1,000,000 from the initial contract and 600,000 from the variation) is a reasonable price.
In the light of these aspects, it seems there is significant practical benefit to support the variation of terms, which becomes enforceable. As a result, the University will have to pay the extra 600,000 pounds. If it continues to refuse the payment, Hard-Up Construction can bring an action to court in an attempt to obtain remedies.
The Second Agreement
Second of all, the enforceability of the agreement between Ms. Barbara Ella and Hard-Up Construction is questionable. Ms. Barbara is a graduate of the University of South Yorkshire; she will not only be the first graduate to fly in space but she will also patron the Institute. Therefore, it appears that she will obtain significant benefit from the construction of the Institute and that her being in these positions is facilitated through the construction of the Institute. In the light of these details, Ms. Barbara's relationship with the University and with Hard-Up Construction could be perceived as a third-party contract in which the contracting parties are the University and Hard-Up Construction and the contract is made for the benefit of third parties, among which is Ms. Barbara. If it was however found that Ms. Barbara's relationship is something else but a third-party contract, it could instead be argued that the agreement amounts to a collateral contract, as described by Halsbury's Laws of England: ‘A contract between A and B may be accompanied by a collateral contract between B and C, whereby C makes a promise to B in return for [...] doing some other act for the benefit of C'.
The First Possibility
For third party contracts, the traditional rules are delineated by the doctrine of privity, according to which generally only the parties that contributed to the formation of the contract and that are part of the contract can be assigned rights or obligations.
Strangers to the contract ( third parties), on the other hand cannot be assigned these rights and obligations and cannot sue to claim their benefits where the contract was made for their benefit, as the third parties provided no consideration. Recently the law has been developed in a way that such rights can be conferred to third parties through the Contracts (Rights of Third Parties) Act 1999. According to it, third parties can now enforce their rights without there being need for consideration from their part. As described by statue, the situation in which they can enforce these are if: ‘(a) the contract expressly provides that he may, or (b) subject to subsection (2), the term purports to confer a benefit on him. (2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.' In relation to part (a) and the circumstances of the current situation, it seems unlikely that the University would have expressly provided this right to Ms Barbara, as the Institute is built for the benefit of numerous other third parties (students, etc.) and it is doubtful that the University would have expressly allowed all the beneficiaries to directly enforce their rights. Moreover, due to the same reasons, it is also unlikely that the University would have expressly stated that the Institute is built for the benefit of Ms Barbara, as she is only one of the many who will benefit from this for a temporary period. It appears Ms Barbara would be unable to enforce her rights by using the statute.
In the agreement between Ms. Barbara and Hard-Up Construction, Ms. Barbara promises to give Hard-Up an extra 50,000 pounds to finish the work on time, while in return Hard-Up promises to do what it is already bound to do by its contract with the University. Generally, as observed from cases such as Williams v. Roffey doing something that is already owed cannot by itself be good consideration. Nevertheless, it was held by Lord Wilberforce that ‘An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation he can enforce'. By promising 50,000 pounds Ms. Barbara obtained the right to enforce the obligation and to sue in case the obligation was not respected, which is indeed of great significance to her and a true benefit for a number of reasons. Ms. Barbara has a direct interest in the Institute being constructed on time and she will derive great benefit from the Space Initiative because she will gain significant experience and renown from being the first graduate to fly in space and from patronizing the Institute.
Shadwell v. Shadwell
The Second Possibility
Ms. Barbara will be the the patron of the Institute for Space Research, situation out of which it could be inferred that she has a contract with the University, whereby she will be the patron of the Institute and the first graduate to fly into space if the University contracts with a constructor (Hard-Up Construction) for the erection of the Institute buildings. The alternative of collateral contracts was often used to avoid privity rules.