The question sounds like one that should be established in 21st Century English law but the issue has recently been considered in the Court of Appeal and not without going back to consider many years of case law.
The facts of the case before the Court of Appeal in MWB Business Exchange Centres Ltd –v- Rock Advertising Ltd  were as follows; MWB ran managed office space in central London and Rock occupied as a licensee premises managed by MWB. Rock entered into a new lease with MWB for larger premises and payments then found itself unable to meet the larger payments and fell into arrears. MWB then excluded Rock from the premises, claimed against Rock in respect of the arrears. Rock counterclaimed with the loss and damage that occurred from its exclusion from the premises.
There was a telephone call between MWB’s Credit Controller and Rock’s Managing Director during which a payment plan for the arrears was agreed. Pursuant to this payment plan Rock made the first payment. Two days later an email was sent from MWB’s Credit Controller explaining that the Finance Director had not approved the new payment plan and demanding full payment in accordance with the original terms. The interesting point contractually is here; did this telephone call constitute a new agreement when a clause in the original lease said as follows:
“This license sets out all of the terms as agreed between MWB and the licensee. No other representations or terms shall apply or form part of this licence. All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect”.
MWB argued that a new agreement was not created not only because the Credit Controller did not have authority to conclude the agreement but also because the contract which the verbal agreement attempted to override expressly forbade it.
On the first point the judge at the Central London County Court thought the Credit Controller at least had ostensible authority to commit MWB to an agreement and the Court of Appeal agreed.
On the second point the Court of Appeal went through the somewhat inconsistent case law, two of which were made at the Court of Appeal in 2000 and 2002 respectively, the second of which was made in apparent unawareness of the first. The legal conundrum is neither new nor restricted to the Courts of England and Wales, in fact in 1919 Carzo J in the New York Court (Alfred C Beatty v Guggenheim Exploration Company and others (1919))when debating if a subsequent agreement could override a written agreement requiring amendments to be made in writing commented that:
“Those who make a contract, may unmake it, The clause which forbids a change, may be changed like any other, The prohibition of oral waiver, may itself be waived… What is excluded by one act, is restored by another. You may put it out by the back door, it is back through the window. Whenever two men contract, no limitation self-imposed can destroy their power to contract again…”
However a key issue in legally recognising a new agreement in which one party is required to comply with the terms of an original agreement is the absence of new consideration. Consideration is a legal requirement underpinning contracts requiring some sort of exchange between the parties, for example one party provides a service in exchange for payment. It is sometimes argued that no consideration passes when a party agrees in a new agreement, to comply with the terms of an original agreement. Nevertheless a commercially minded approach recognises that there is a benefit in having recovered 50% of a debt than to continue to be owed 100% of a debt on which you may receive only 25% at a later date. The Court of Appeal acknowledged established older cases recognising this practical and commercial benefit in securing some payment (rather than full payment) and where the parties have agreed to accept a lesser sum in satisfaction of the full sum then that agreement will generally supersede the original agreement. This practical or commercial benefit can therefore count as good consideration.
This is a welcome practical judgement from the Court of Appeal providing a helpful run through of the case law in this area and the most up to date and arguably loose interpretation of parties’ ability to alter the terms of their original agreement.
They key points to take away from this case are:
- a contractual term requiring all variations to be made in writing can be overridden by a subsequent conversation had by someone with ostensible authority;
- ensure that anyone dealing with a debtor has internal authority to agree to a new payment plan as if they have ostensible authority, a new payment plan could be relied upon by the debtor;
- when agreeing to lower monthly payments continue to require payment of the full amount albeit over a longer period of time, thereby not forfeiting entitlement to the full amount.