Despite Lord Blackburn’s view in Foakes v Beer (1884) that there was a benefit in prompt payment, it is not accepted that such ‘practical’ benefit is, in the eyes of the law, consideration which will make a promise enforceable at law. As Dankwerts LJ said in D & C Builders v Rees [1966] ‘[It is] settled definitely [that] the rule of law that payment of a lesser sum than the amount of a debt cannot be a satisfaction of a debt, unless there is some benefit to the creditor which amounts to accord and satisfaction.’ However, this is not an absolute principle as in certain contracts a ‘practical’ benefit has been seen as valid consideration in the eyes of the law; Williams v Roffey Bros [1991]. Additionally the role of Equity in enforcing a promise cannot be ignored.
One thing that often confuses students is the relationship with promises enforceable at law and those enforceable in equity. At law the part payment of a debt is not valid consideration for the promise not to pay, which we establish from the case of Foakes v Beer (above) unless something extra is given for the promise to take less, which will bring the principle from Pinnel’s Case (1602) into play.
I tend to have an image in my mind when addressing these issues, for example:
In this situation there is no promise from A in return for B’s second promise. I am looking for an exchange of promises and if my arrows represent the promises, then the second promise from B does not have a matching promise from A. In this situation I rely on Foakes v Beer. As A has not offered something in exchange for the second promise Pinnel’s Case does not apply.
However, Equity is not limited by legal rules but can do ‘what ought to be done’. The doctrine of estoppel as developed, not invented, by Denning J (as he was) in Central London Properties v High Trees [1947] sets out criteria for enforcing the promise, which is well known by students. This means that the result at law and in equity will be in conflict.
Where equity and law conflict, then unless there is reason not to, as in D & C Builders v Rees [1965], equity prevails. So what would A have to do to rely on equity? A would need to prove there had be a clear promise from B (to only pay £250 instead of £500). That this was relied on by A (only paying £250) which would make it inequitable for B to go back on that promise (here we do not have enough facts, but in High Trees it was enough to remain in occupation during the war, when they may have been able to argue frustration: perhaps more of that in a later blog). Where students often miss out is in failing to apply the facts to the law and this seriously hampers the opportunity to demonstrate a real understanding of the legal principle. For example in D & C Builders v Rees it was not inequitable to go back on the promise because Mrs Rees had taken advantage of the builders cash flow problems, and “those who seek equity must do equity, come to equity with clean hands.”
The effect of estoppel is that it suspends rights and does not extinguish them (Tool Metal v Tungsten [1955]). This means that should B decide that they now want the full rent, they can, on reasonable notice return to their legal rights. They cannot reclaim the month’s rent paid at the lower rate, this has been extinguished but the future payments of rent are payable at the full rent.
So for example if rent was paid January – March at the reduced rate (so instead of £1500 in total only £750 had been paid), then A was notified by B that from April onwards the full rent was to be paid (assuming this is reasonable notice). This means that from April A would need to pay £500pm and if A did not then B could claim this in court. However, B could not claim the £750 balance for January – March rent, this has been extinguished.
Additionally estoppel can only be a defence, a shield and not a sword: Which is why it could not be used in Williams v Roffey, which we discuss in a later instalment. So in D & C Builders v Rees the builders had promised to take a lesser sum in payment for their work. They then later claimed the outstanding balance from Mrs Rees. Against this claim she raised the defence of estoppel (unsuccessfully as explained above) saying that they had promised to accept less. However, in Williams v Roffey Mr Williams was bringing a claim against Roffey Bros, to force them to pay more. This is the basic difference between these two variations from the general principle that for a promise to be enforceable there must be consideration which is over and above an existing obligation.
Consideration – Part 2 will follow later in the year.
This blog post was written by Anne Street, Law Lecturer at SOAS, University of London. Anne regularly teaches on the Laws Programme’s Regional Revision courses.