Background
Legal Contracts are formed once the 4 elements of (i) offer (ii) acceptance (iii) intention to create binding legal relations and (iv) consideration or deed under seal are present.
However, a great deal of contracting takes place without planning for future and usually unforeseen circumstances. In such cases, rather than rely on the general law to settle resulting disputes, parties can usually resolve their disputes through an agreement to vary the original contract. The legal doctrines and principles that drive this area of commercial law are collectively referred to as the law of contract modification.
Contract modification by agreement normally takes 4 forms:
- Rescission
- Variation
- Waiver
- Promissory Estoppel
1. Rescission
This is often described as the unmaking of a contract. Usually, triggered by the breach of one of the parties (as in the case of a fundamental breach), rescission is the cancellation of a contract by the innocent party unilaterally or by the agreement of both parties. In doing so, both parties are restored (as far as possible) back to the position they were in before they entered into the contract.
In International Messengers (Nig.) Ltd vs. Pegofor Industries Limited (2005) LPELR-1525 (SC) Edozie J.S.C. describes fundamental breach as “…used to denote a performance totally different from that which the contract contemplated or a breach of contract more serious than one which would entitle the other party merely to damages and which at least would entitle him to refuse further performance of the contract: Suisse Atlantique case (1967) 1 AC 361 at 392, 399.”
2. Variation
This is effectively the creation of a new contract through variation of an existing agreement by the mutual consent of the parties. A variation is normally permanent except where the parties indicate or intend that it should apply only for a limited period. Being a new Agreement, the usual components of a contract, that is – offer, acceptance, intention to create legal relations and consideration or a need to be present, for it to binding on both parties.
Nnaemeka Agu JSC In Wayne (W.A.) Limited vs Ekwunife (1989) 3 N.S.C.C 325, at page 335 to 336
“Now it has not been disputed that parties to a contract may effect a variation of the contract by modifying or altering its terms by mutual agreement. If authorities are required for this, I may mention the cases of Goss vs. Nugent (1835) 5 B & Ad. 58. , Dodd vs Churton (1897) 1 Q.B. 562. See also Chitty on Contracts (24th Edn.) paragraph 1377 and 1378.”
3. Waiver
This is where a party states or indicates by conduct that he will not exercise a remedy available to him for breach of contract by the other party or will not insist on his contractual rights without any consideration given for that promise by the other party.
Though a party who waives his right may appear bound by the waiver, he may however free himself by withdrawing the waiver upon giving reasonable notice. This is because, the other party did not give consideration or anything back in return for the waiver and so the party waiving cannot be perpetually bound by it.
Even where a party has not expressly waived his right but has taken some steps 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…..”, Equitable Waiver will be inferred as “…the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealing which have thus taken place between the parties“. per Lord Cairns LC in Hughes v. Metropolitan Railway Company (1877) 2 App. Case 439, HL
Ogbuagu, J.S.C. in Auto Import Export v.Adebayo [2005] 19 NWLR (Pt.959)44:
“It must always be borne in mind and this is also settled, that a waiver, may be inferred/implied by the courts from a conduct that is inconsistent with the continuance of a right on minimum or slight evidence.”
Like common Law waiver, equitable doctrine of waiver merely suspends the legal right of a party who waives and can be withdrawn after a reasonable notice is given since no consideration was given for it.
4. Lord Denning’s Promissory Estoppel
Though consideration remains a cardinal necessity for the formation of a contract, it is not an absolute requirement for its modification or discharge.
Thus where a party promises not to insist on the enforcement of a contractual right, knowing well that the promise will be acted upon and was in fact acted upon, such promise has been held to give rise to an estoppel whereby the courts will not allow that party to go back on it (Central London Property Trust Ltd. v. High Trees House Ltd. (1947) KB 130.)
Fabiyi J.S.C. in BFI Group Corporation v. Bureau of Public Enterprises (2012) LPELR-9339 (SC)
”The position of the law still remains the same. It is that where by words or conduct, a party to a transaction freely makes to the other an unambiguous promise or assurance which is intended to affect the legal relations between them and the former acts upon it by altering his position to his detriment, the party making the promise of assurance will not be permitted to act inconsistently with it. This is as pronounced in Central London Property Trust Ltd. v. High Trees House Ltd. (1947) K.B. 130. It has remained good law for a long time now. I approve same without any reservation.”
Likewise, “if a man who is entitled to reject goods on a certain ground, so conducts himself as to lead the other to believe that he is not relying on that ground, then he cannot afterwards set it up as a ground of rejection when it would be unfair or unjust to allow him to do so”. (Estoppel by conduct established in Panchaud Feres SA v. Establishment General Grain Co. [1970] 1 Lloyd’s Rep 53 CA).
Though waiver without consideration operates to suspend a legal right until reasonable notice is given to enforce the right, promissory estoppel can in appropriate cases operate to extinguish the promisor’s legal right. This is because it may be too late to revert to the former state of affairs or would be injustice to the other party to revert to it.
Thus in Panoutsos v. Raymond Hadley Corp. of New York [1917] 2 KB 473 (CA) and Enrico Furst & Co. v. W.E. Fischer Ltd. [1960] 2 Lloyd’s Rep 340, the courts refused to allow sellers to cancel the contract on the ground that the letters of credit were not confirmed when in fact they had taken no objection prior and had asked that they be extended, which the buyers did.
In Part 2 we look at the doctrine of ‘duress’, particularly of ‘economic duress’ and how these might be used to redefine contractual relations.
