Stevenson Building Inc. has entered a contract to build a manufacturing facility for Johnston Services Ltd. Under the terms of that contract, Stevenson would incur a financial penalty if it failed to complete the project on schedule. Stevenson hired Leslie Plumbing Co. as a subcontractor to install all the plumbing for the manufacturing processes in the building. The terms of that subcontract required payment of $50 000 on completion.

Leslie Plumbing began work immediately but later discovered that it had honestly underestimated the cost of performance. Accordingly, it approached Stevenson advising that unless Leslie Plumbing was promised an additional $20 000, it simply would not be able to complete the job by the time agreed to in the contract. Stevenson Building Inc. realized that it could not possibly find a replacement for Leslie Plumbing on such short notice, and that any delay in completion of the project would trigger the penalty provision contained in its contract with Johnston Services Ltd. Stevenson Building agreed to Leslie Plumbing's request.

Although Leslie Plumbing completed its performance on schedule, Stevenson Building refused to pay more than $50 000.

Answer the following questions

1. Does Stevenson Building have a right to do so in law? Explain your answer fully. Consider the elements of a contract for each of the relevant contracts. (18 points)
2. Regardless of its legal position, why Stevenson Building Inc might honour its promise to pay an extra $20 000? (2 points)