How are debts owed to family members dealt with in divorce proceedings?
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A party to a commercial agreement should seek legal advice as soon as it becomes aware of a breach of contract, or risk being bound by a deemed variation of the contract terms, according to a corporate lawyer. “Written contracts often contain a clause stipulating that any amendment can only be made through a written variation agreement, signed by both parties,” says Philip Round, a partner in George Green’s Wolverhampton office. “Parties commonly believe that such a clause preserves their rights notwithstanding a delay in enforcing obligations, or tacit acceptance of a contractual breach. There is, however, a clear body of case law to the contrary.”
Mr Round continues, “the recent Court of Appeal case of MWB Business Exchange Centres Limited v Rock Advertising Limited is the latest authority on the point. It concerned a tenancy agreement which incorporated a clause seeking to prevent any variation of its terms other than by written agreement. When the tenant defaulted on its rental payments, it alleged that the landlord had verbally accepted partial payment combined with a proposed repayment plan. The landlord argued that this was not possible given that the terms of the agreement prevented an oral variation, and that in making a partial payment of a debt already due, the tenant had not provided sufficient consideration for the variation to be contractually binding.”
According to Mr Round, the court held that the parties’ freedom to contract was paramount. “The court decided that the parties should be free to agree, whether verbally or in writing, to vary any part of the contract, including a clause which expressly sought to prohibit such an informal amendment. Furthermore, the landlord obtained a practical benefit through retaining the tenant and not having empty premises while it marketed them for re-letting. This was held to constitute sufficient consideration to make the variation binding.”
Mr Round concludes, “the case is in line with existing authority to the effect that it is possible for parties to vary a contract through a course of conduct or informal discussions, regardless of any express clause which seeks to prevent this. If a party becomes aware of a breach or is asked to consider a variation of the contract terms, it should seek advice promptly on the most effective way of preserving its rights under the contract. Inaction or tacit acceptance of the other party’s default is likely to result in the innocent party’s rights being compromised.”