When parties to a contract change their minds but want to stay contractually bound to each other it can be tricky. Almost always the written contract is overlooked, and if the parties later fall out there can be costly litigation. Nearly all disputes that I have dealt with to do with variations of contract look at whether the variation was “effective” and “valid”, and if so is there any ulterior, ‘improper’, motive behind the change.
Not every change to a contract will be effective. A wholesale change will end (or “rescind”) the contract and create a new one. As long ago as 1918 cases talked the “extinction” of the first contract. Now, any alleged change to a contract that does not go to the heart of the agreement will not be a “rescission”, but a variation, but is it valid?
‘Consideration’ – is it only money?
Just as you need several steps to create a contract, so must you to have a valid variation. One ingredient is “consideration”; money or something of value passing from one to the other. Any amendments to a contract without consideration are not valid. What happens when the change is hard to value? Where one party makes a concession, or waives some rights?
Consideration can be more than money. A ‘thing of value’ could be the mutual abandonment of existing rights, or new benefits, liabilities or additional obligations. Disputes arise when amendments only seem to favour one party and not the other, (although perhaps that could have been seen coming!)
This issue can trip up well intentioned businesses and my advice has always been that rather than scrapping a perfectly good contract and starting again, that any variations that are commercially justified are dealt with properly. These variations can be recorded in a formal legal document known as a Deed. These do have their own requirements and considerations but if done properly will be much quicker (and cheaper!) than either starting again, or suing each other later.
Methods of Variation
Typically contracts will be varied by conduct, by one party waiving some terms, or accepting repeated minor breaches. Commonly contracts will state that any variations must be in writing, but that is not always cast iron. In terms of conduct something called the prevention principle operates to stop a party who has done (or not) something that affects the ability of the other to perform part of the contract cannot then complain about that.
If a party “waives” some rights that too, in theory, is a variation but those waivers could be rejected or retracted. There are also potential issues with repeated minor breaches where one party repeatedly accepts those minor breaches they may later be prevented from arguing that this is anything other than a variation.
Changes to a contract happen every day in business but the Commercial Litigation Team at Wilson Browne Solicitors get involved when the parties have entered into a dispute. I would recommend that where there has been the commercial foresight to have a written contract already, that any changes, no matter how seemingly small, are run past the expert commercial lawyers in the team led by my Partner Andrew Kerr between us we can advise the best preventative steps to take to protect you and your business from future liability (and expensive litigation) whilst ensuring a meeting of the minds with the business that you have a contract with, which might avoid disputes from both sides altogether and leave you to get on with running the business.
For further help or information call 01536 410014.