I have been asked to advise Farm Hands 215 Ltd (“Farm Hands”) regarding their contractual liability toward Mr Flay and Groan Ltd. Of particular concern is whether variations made to the applicable contracts are supported by consideration. This opinion concludes that while Farm Hands has a strong chance of recovering against Mr Flay, it is likely that the court will find the company contractually obliged to pay $18,000 to Groan Ltd.  

I         Contractual Obligations to Mr Flay

A       Relevant Facts

In January 2013, Farm Hands entered into a long-term contract with Mr Flay. The agreement was for the provision of water to Mr Flay’s farm at the cost of $150,000 upfront, followed by an annual charge of $30,000. Mr Flay paid $50,000 towards the upfront fee but failed to provide the remaining $100,000.  In February 2013, Farm Hands reduced the initial payment to $55,000 (which included the previously paid $50,000), and cut the subsequent annual fee to $15,000. Farm Hands now wishes to challenge this variation in contract, preferring that Mr Flay pays the originally agreed price.

The primary legal issue is whether this price amendment is enforceable, given the apparent absence of consideration in the agreement.

B       Legal Application

1        Additional Consideration

Consideration is an essential element of contract formation, requiring the promisee to pay a token in return for a received promise.[1]  Variations made to a contract must be supported by fresh consideration, the absence of which can render the variation unenforceable.[2] In an application of this rule, Foakes v Beer claims that part payment of a debt does not satisfy the whole debt unless an additional, valuable consideration is moved from the promisee.[3] This additional consideration is described as an accord and satisfaction.[4] The rule of Foakes v Beer was upheld by the English Court of Appeal in Re Selectmove Ltd, and retains its precedence in English law.[5]

I advise Farm Hands to claim that their supplementary agreement with Mr Flay was unsupported by consideration, rendering it an unenforceable variation of their original contract. Although Farm Hands’ written agreement to vary its contract with Mr Flay substitutes an accord, there is no factual evidence to suggest that Mr Flay provided the necessary satisfaction for the new agreement. The facts of the case do not record any additional payment made by Mr Flay, or any transaction of a valuable token. This apparent absence of additional consideration may allow Farm Hands to enforce the original contract with Mr Flay.

2        The issue of additional practical benefits as consideration

Although an application of Selectmove is likely to favour Farm Hands, the court may also refer to recent judgments that have reconsidered the role of consideration in debt situations.[6] Williams v Roffey Brothers allows for practical benefits or disbenefits to suffice as consideration if no financial payment is made by the promisee.[7] The court in Selectmove was concerned that this dictum would entirely overrule Foakes v Beer, and so explicitly excluded the ratio of Roffey Brothers from cases of debt satisfaction.[8]  However, the New Zealand case of Machirus Properties Ltd v Power Sports World ruled in favour of a Roffey Brothers approach, allowing practical benefits to suffice as consideration.[9] In Machirus, the practical benefit arising from a subsidised shop lease was identified as the avoidance of maintaining a vacant shop property. Practical benefits may therefore be considered as relevant consideration for debt settlement cases in New Zealand.

In this case, it is difficult to ascertain that a practical benefit arose from the variation of contract. The agreement was a significant detriment to Farm Hands, as its water earnings decreased despite the presence of alternative customers likely to pay a higher price. Although Mr Sepulchrave (Farm Hands’ director) had the social benefit of assisting Mr Flay in his economic distress, the benefit cannot be applied to the company itself. Farm Hands therefore has an opportunity to enforce its original contract by claiming that it derived no consideration or practical benefit from its contractual variation with Mr Flay.

C       Challenges: the Judicature Act and Promissory Estoppel

When attempting to establish Farm Hands’ obligations toward the variation in contract, counsel for Mr Flay may rely upon section 92 of the Judicature Act 1908. This statute states that the receipt of part payment of debt in satisfaction of the whole will be valid if acknowledged by the debtor in writing. However, Farm Hands can respond by claiming that the statute is left unsatisfied. There is no evidence that Farm Hands received the $5000 agreed upon during the contractual variation, implying that the part payment was neither received nor acknowledged in writing.  Farm Hands’ claim is therefore unrestricted by the Judicature Act.

Mr Flay may attempt to estop Farm Hands from rejecting the variation in contract. Promissory estoppel prevents promisors from reneging their promises where this is unconscionable.[10] Although previously only available as a defence, the doctrine can now be utilised to found an action.[11] Homeguard Products relies on Foakes v Beer in establishing that promissory estoppel cannot be used to uphold the suspension of a debt.[12] Farm Hands can rely on this precedent in its defence. However, the court may be influenced by Ardern LJ in the English case of Collier v Wright, which ruled that promissory estoppel claims may sidestep Foakes v Beer to allow for the enforcement of contractual variations that lack appropriate consideration.[13] This step is made to avoid the occurrence of unconscionable actions undertaken by creditors.

If the court admits Mr Flay’s arguments surrounding promissory estoppel, it will have to be maintained that Farm Hands’ actions were unconscionable. Applying the test in Waltons Stores, Mr Flay could posit that Farm Hands made an unequivocal promise to accept his reduced payments.[14] Mr Flay subsequently depended on this promise by continuing to use water supplied by Farm Hands. The reneging of Farm Hands’ promise to reduce water rates may further aggravate Mr Flay’s economic distress, potentially rendering the decision an unconscionable one. However, Farm Hands can maintain its opposition to the use of promissory estoppel in this case, given that Ardern LJ’s dictum in Collier is both obiter and a minority judgment.

II      Contractual Obligations to Groan Ltd

A       Relevant Facts

In April 2013, Mr Sepulchrave contracted Groan Ltd to topdress his paddocks. Although the original price for the service was $15,000, a mechanical error during the process increased the fee to $18,000. Mr Sepulchrave agreed to the increased price and the work was completed.

The legal issue is whether the amendment of price is contractually enforceable. This requires an analysis of whether it was supported by consideration.

B       Legal Application

1        The Parties of the Contract

The facts do not specify whether Mr Sepulchrave entered a contract with Groan Ltd directly, or if he formed the contract through Farm Hands. If the former is true, Farm Hands have no contractual obligation to Groan Ltd. The topdresser would need to charge Mr Sepulchrave directly.

This opinion will assume that Groan Ltd was contracted by Farm Hands.

2        Additional Consideration

The demand by Groan Ltd for $18,000 instead of the original $15,000 can be challenged by Farm Hands on grounds of the requirement for additional consideration to support the variation in contract. Stilk v Myrick dictates that any variation in contract requires fresh consideration to enforce it.[15]  In this case, Groan Ltd did not provide any service supplementary to its pre-contractual obligation to topdress 30 acres of paddocks. However, Williams v Roffey Brothers allows for courts to enforce promises made in the resolution of difficulties arising out of contractual performance.[16] This consideration may be manufactured from practical benefits gained by the promisee.

Groan Ltd has a strong basis for arguing that Farm Hands received practical benefits from their continued services. Continuing the contract at a higher price meant that the topdressing work was completed without the need to find another contractor. Farm Hands could resume normal farming services at an earlier time, and at a price which Mr Sepulchrave still considered to be “reasonable”. These advantages appear to fulfil the role of the practical benefits anticipated by Roffey Brothers.

The dictum of Roffey Brothers was applied in New Zealand by Antons Trawling v Smith.[17]  The appellate court identified Roffey Brothers as more practical than Stilk v Myrick, as it emphasises an analysis of the overall intention of the parties instead of dwelling on details of contractual consideration. Farm Hands and Groan Ltd appear to have shown clear intention throughout their contract’s formation and variation, as there is no evidence of disagreement between the parties. By considering this intention in tandem with the received practical benefits, it is likely that the court will find Farm Hands contractually obliged to pay Groan Ltd the full sum of $18,000.

III   Conclusion

This case is dependent upon the willingness of the court to depart from historic legal precedent such as Stilk v Myrick and Foakes v Beer. To succeed against Mr Flay, Farm Hands must maintain that its variation in contract was unsupported by consideration and cannot be enforced. It must also argue that claims for promissory estoppel are inadmissible in situations involving the extinguishing of debts. Finally, a renegation of Farm Hands’ obligation to pay Groan Ltd $18,000 instead of the originally agreed $15,000 requires proof that no practical benefit existed to serve as consideration for the variation in contract.   

[1] Beaton v McDivitt (1987) 13 NSWLR 162 (SC).

[2] Stilk v Myrik (1809) 2 Camp 317, 170 ER 1168 (KB).

[3] Foakes v Beer (1884) 9 App Cas 605 (HL).

[4] James Wallace Pty Ltd v William Cable [1980] 2 NZLR 187 (CA) at 203.

[5] Re Selectmove Ltd [1995] 1 WLR 474 (CA).

[6] Dena Valente “Enforcing Promises: Consideration and Intention in the Law of Contract” LLB(Hons)                                                                                                                                     Dissertation, University of Otago, 2010), at 20.

[7] Williams v Roffey Brothers [1991] 1 QB 1 (CA).

[8] Re Selectmove Ltd, above n 5.

[9] Machirus Properties Ltd v Power Sports World (1987) Ltd (1999) 4 NZ ConvC 193,066 (HC).

[10] National Westminster Finance NZ Ltd v National Bank of New Zealand [1996] 1 NZLR 548 (CA).

[11] Valente, above n 6, at 26.

[12] Homeguard Products Ltd v Kiwi Packaging Ltd [1981] 2 NZLR 322 (HC).

[13] Collier v P & MJ Wright (Holdings)Ltd [2007] EWCA Civ 1329, [2008] 1 WLR 643 (CA).

[14] Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 (HC).

[15]Stilk v Myrick, above n 2.

[16] Williams v Roffey Brothers, above n 7.

[17] Antons Trawling Co Ltd v Smith, [2003] 2 NZLR 23 (CA).