Contract S2c: Interpretation of contract terms; Variation.

Contract terms are classed as either…

conditions, warranties, or innominate terms.

If a condition is breached…

a party can regard the contract as repudiated, terminate the contract, and claim damages.

If a warranty is breached…

the remedy is damages only. The contract cannot be terminated.

The innocent party will only be entitled to terminate the contract if…

Therefore, if the effect of the breach is (?) it is a condition, if it is (?) a warranty.

the breach deprives them of substantially the whole of the intended benefit.

Serious = condition.

Minor = warranty.

For promises to pay more (upward variations of a contract), the general rule is that…

performance of an existing contractual obligation is not good consideration.

There is the exception to the general rule that exceeding an…

existing contractual duty is usually good consideration.

The other exception to the general rule is if…

the other party gains a practical benefit (e.g., avoidance of a specific penalty under a contract).

If so (and no duress), the performance of the existing contractual duty is good consideration and the other party’s promise to pay more will be binding.

For promises to accept less (downward variations of a contract), the general rule is that…

part payment of a debt is not good consideration.

The first exception to the general rule is that a debt can be partially paid (and be good consideration) if…

1) A different thing is used to pay.

2) Paid in a different place.

3) Early payment.

The second exception is that part payment of debt by…

a third party is good consideration for a downward variation.

The third exception is promissory estoppel.

For the defence of promissory estoppel to apply what 3 requirements must be met?

1) There must have been a clear promise to forgo a legal right, that was given freely (e.g., accept reduced rent).

2) The promisee must have acted in reliance on the promise (e.g., payment of reduced rent).

3) It must be inequitable for the promisor to go back on their promise.

Note: the right to full payment is generally held to be extinguished in relation to past payments, but by giving reasonable notice the creditor may resume his right to full payments in the future.