A contract is defined as an agreement between parties creating obligations that are enforceable or otherwise recognizable at law1 . For such recognition in law to be attained, its formation must consist of an offer, acceptance, consideration, competent parties, intention to create binding relations and mutuality of obligation.2

Thus, a contract is generally based on the parties' intention which the court will enforce.3 The guiding principle in this regard is the the legal maxim "Pacta sunt servanda", which means contracts are to be kept. An even better and more incisive maxim is, "Pacta convent quae neque contro leges neque dolo malo inita sunt omni modo observando sunt", which means that agreements which are neither contrary to the law nor fraudulently entered into, should be adhered to in every manner and in every detail.4

However, upon the execution of a contract, there are unanticipated situations which may arise and therefore require parties to revisit the contract; especially where one of the parties alleges a change in economic circumstances, and seeks to have certain terms in the contract modified for the purpose of maintaining the commercial intention of the parties at the time of signing the original contract. In the event this happens, parties may agree to renegotiate and modify the terms of their contract to suit the new exigencies.

The Concept of Renegotiation

The concept of renegotiation of contract is based on the legal maxim "rebus sic stantibus" (things thus standing); a legal doctrine that allows a contract to become inapplicable because of a fundamental change of circumstances which may warrant revisiting a contract and renegotiating some terms therein.5 In other words, it helps parties to avoid the effect of the principle of 'pacta sunt servanda' on their contract.

Basis for the Renegotiation of Contracts

Despite the parties' reduction of their full understanding of their transaction in writing, in actual fact, this may be not be the case, especially because parties are unable to predict all the events and conditions that may affect the transaction in the future. To this extent, events which may not have been contemplated such as a sudden fall in commodity prices, the development of a new technology, or unexpected increase in costs may force the parties back to the negotiation table. Indeed, in such circumstances, a party may request renegotiation when it is realizes that the cost of complying with the original contract is adversely greater than the cost of abandonment.

In other words, rather than abandon such contract by reason of frustration, parties have an opportunity to renegotiate the terms of their contracts, and salvage an agreement which has otherwise become onerous or impracticable.

Effect of Renegotiation of Contract

Upon renegotiation of a contract by parties, the intention of the parties are typically reflected in any of the following manner:

Variation

In law, parties are at liberty to mutually agree, orally or in writing, to dissolve, annul, add to, subtract from, vary, or qualify former agreements, and therefore enter into a new one. 6

In Wayne (W.A.) Limited v Ekwunife7 , the Supreme Court held as follows:

"Now it has not been disputed that parties to a contract may effect a variation of the contract by modifying or altering its terms mutual agreement... In such cases, mutual abandonment of the existing rights of the parties under the agreement as distinct from forbearance to suit, is sufficient consideration."

Effectively therefore, a variation is the creation of a new contract through revision of an existing agreement by the mutual consent of the parties. A variation is normally permanent except where the parties indicate that it should apply for only for a limited period. Being a new agreement, the usual components of a contract, that is – offer, acceptance, intention to create legal relations and consideration must be present, for it to binding on both parties.

Footnotes

1 Garner, B. A., & Black, H. C. (2019). Black's law dictionary. 11th ed. St. Paul, Minn.: West Group.

2 Lamoureu v Burrillville Racing Ass'n 91 R.I 94, 161A. 2d 213, 215

3 Bilante International Ltd. v NDIC (2011) LPELR-781(SC)

4 See Sonnar (Nigera) Ltd v Partenreedri M.S. Nordwind Owners of the Ship M. V. Nordwind (1987) LPELR-3494 (SC) 1 at 44 per Oputa, JSC." Per SANKEY, J.C.A. (Pp. 19-20, Paras. F-B)

5 Abba Kolo and Thomas.W. Wälde, 'Renegotiation and Contract Adaptation in the International Investment Projects: Applicable Legal Principles & Industry Practices', (2003) 1(2) OGEL Journal 1-48, accessed 11 June 2020.

6 See Ekwunife v Wayne West Africa Ltd (1982) 12 SC 92; Ashaka Cement Plc v Ashartul Mubashurun Investment Ltd (2016) LPELR 40196 (CA).

7 (1989) 3 N.S.C.C 325

To read the full article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.