L4: Problem Scenario-Consideration/Promissory Estoppel

Question 1

What is the overall legal issue?

Answer 1

This question is about Consideration and Promissory Estoppel. Dodgy Builders are going to want to know whether Richard can be held to his promise to accept £100,000 instead of £110,000. If he can, then Dodgy builders will not be required to pay the outstanding £10,000.

Question 2

Introduction

Answer 2

Consideration as defined by Currie v Misa is some right, profit, interest benefit to one party. Promissory estoppel estops (prevents) a person from going back on a promise that has been relied upon by another person, where the outcome would be inequitable.

Question 3

Sub-Issue 1: Have DB supplied consideration in response to the promise to accept less ?

Answer 3

• Rule: An existing contractual duty cannot amount to valid consideration (Stilk v Myrick) unless the party goes above any beyond their existing contractual duty (Hartley v Ponsonby) or a practical benefit is provided, which acts as fresh consideration (Williams v Roffey Bros & Nicholls).
• Application: There is an existing contractual relationship between Richard and DB, for which valid consideration was provided (the original loan agreement). Therefore, if Richard makes a new promise, then DB would have to provide fresh consideration in response to that promise, in order to make it legally binding. They have not provided anything extra or gone above and beyond their existing contractual duties and therefore on this basis, there is no fresh consideration. You may question whether Richard is benefitting from the agreement as he receives SOME of the debt which is better than taking the risk of enforcing the whole debt and getting nothing…

Question 4

Sub-Issue 2: Can Williams v Roffey principle be applied to cases of part payment of debt?

Answer 4

• Rule: Part payment of debt can never be satisfaction for the whole unless there is something extra e.g. ‘a horse, a hawk or a robe’ (Pinnel’s case; Foakes v Beer). It is not possible to argue that there is a practical benefit in receiving most of a debt now (rather than risking getting much less or none later) as doing so would effectively overrule Foakes v Beer/(Re Select move).
• Application: DB have not provided anything extra in response to Richard’s promise to accept £100,000 instead of £110,000 and therefore DB’s part payment of debt cannot be accepted as satisfaction for the whole debt. This means that Richard may still pursue DB for the additional £10,000 according to contract law principles.

Question 5

Sub Issue 3: Can Promissory Estoppel be used to prevent Richard from going back on his promise?

Answer 5

• Rules: (1) There must be a pre-existing contractual relationship between A and B, and then later, a clear and unequivocal promise by A to vary or discharge B’s original obligation (Combe v Combe). (2) B must rely on A’s promise to vary or discharge the obligation (Central London Property Trust Ltd v High Trees Property). (3) If A tries to go back on their promise to vary or discharge B’s obligation, they will be estopped from doing so where it would be inequitable for the to go back on the promise (D & C Builders v Rees).
• Application: (1) There was a pre-existing contractual relationship between Richard and DB which was the original loan agreement and Richard had promised to vary this by accepting £100,000 instead of £110,000. (2) DB could be seen as relying on this promise as they paid the £100,000 and then used the remaining funds to pay off other creditors (knowing they wouldn’t have to pay the additional £10,000) (3) It would be inequitable to allow Richard to go back on his promise after this.

Question 6

Conclusion

Answer 6

Therefore, according to Contract Law principles Richard may pursue DB for the remaining £10,000, however if he does so, in accordance with equitable principles (specifically promissory estoppel) Richard may be ‘estopped’ from going back on his promise. Therefore, DB could use promissory Estoppel as a defence in this instance.