Part Payment of Undisputed Debts Flashcards
FOAKES v BEER (1884) 9 APP CAS 605 HL
Part payment of an existing debt was no more than the debtor was already contractually bound to pay.
Partial payment of a debt is not sufficient consideration for a promise to forgo the balance
Existing judgment debt was to be paid by instalments and the creditor therefore promised not to take any enforcement proceedings in relation to the debt. However, the instalments did not cover the interest on the judgment debt and the creditor sought to go back on this promise and recover that sum.
The creditor could do this because the debtor had not provided any consideration for the promise not to sue on the debt
PINNEL’S CASE (1602) 5 CO REP 117A
Exception e.g. part payment early or with a chattel (“horse, hawk, or a robe”) - Pinnel’s case
A common law exception to the general rule that part payment of a debt is not consideration for a promise to forgo the balance is where the debtor can show that he gave something different for the creditor’s agreement to accept the lesser sum in settlement. For example, if the debtor provides, or promises to provide, goods instead of cash or if he pays early.
If the creditor accepts payment of a lesser sum early, he presumably does so because he regards it as being more beneficial than receiving the full amount on the due date. In fact, this is what happened in Pinnel’s Case, ie the debtor had paid early and had thereby provided consideration to discharge the whole debt.
CENTRAL LONDON PROPERTY TRUST LTD v HIGH TREES HOUSE LTD [1947] 1 KB 130
The doctrine of Promissory Estoppel.
Where a party to a contract has, by words or conduct, made a promise to the other to forgo a legal right, then once the other party has acted on the promise he will have a good defence to any claim brought by the promisor which is inconsistent with the promise.
The claimants let a block of flats to the defendants for 99 years at a rent of £2,500 a year. 2. The landlord agreed to alter the terms because the war had started in 1939. Due to war-time conditions, many of the flats were empty and it became apparent that the defendant would not be able to pay the rent under the lease. The landlord agreed to accept a reduced rent of £1,250 a year. 3. The tenant did not provide any consideration for the variation. 4. The landlord wrote to the tenant in 1945 claiming rent at £2,500 a year. By that time the war was over and all the flats were let. The landlord then brought an action claiming full rent for the last two quarters of 1945. 5. The claim succeeded. Denning J said that the promise to reduce the rent was intended to apply only as a temporary expedient while the block of flats was not fully let. 6. Denning J’s view, although only obiter, was that a claim for full rent for the war years would have failed.
For the doctrine of promissory estoppel to apply, four conditions must be satisfied.
There must be a promise to waive a legal right (eg a promise to accept a reduced amount of rent), and the promise must be intended to be acted upon by the other party.
The promisee must act on the promise (it seems that simply paying the reduced amount of rent would be acting on the promise).
P estoppel does not give rise to a cause of action; it can only be used as a defence. It has been said that the doctrine operates ‘as a shield not a sword’.
Note that there is also a fourth condition which may not be obvious from Denning J’s judgment. This is that it must be inequitable/unjust for the promisor to go back on his promise and insist on his full legal rights.
HUGHES v METROPOLITAN RAILWAY CO (1877 2 APP CAS 439 HL
Promissory Estoppel – there must be a promise to waive a legal right
There must be a clear promise to waive a legal right. For example, in the High Trees case, the landlord promised to reduce the rent. However, the promise need not be made expressly; the promise may be implied by conduct. For example, in Hughes v Metropolitan Railway Company, the landlord did not expressly promise to suspend the notice. However, such a promise could be implied from the landlord’s conduct in entering into negotiations for the sale of the property.
The defendant leased property from the claimant. The lease contained a covenant to repair within six months of being given notice. Shortly after the claimant gave notice, negotiations began between the parties for the sale of the remainder of the lease back to the claimant. In the meantime, the defendant said that it would defer doing any repair work. When after six months the parties had still not reached agreement, the claimant purported to end the lease for breach of covenant (ie because the defendant had not done the required repairs). It was held that it would be inequitable to allow the landlord to do this. By entering into negotiations for the sale of the property, the claimant had impliedly agreed to suspend the notice to repair for so long as the negotiations were taking place. Only when the negotiations broke down would time start to run again under the notice.
COOMBE v COOMBE [1951] 1 ALL ER 62
Promissory Estoppel can only be used as a defence.
Here, a husband and wife were in the process of obtaining a divorce. The husband promised that he would pay the wife £100 a year as permanent maintenance. The husband did not pay, and the wife brought an action based on the husband’s promise to make the payments. At first instance, the judge held that the wife could enforce the payments relying on promissory estoppel. However, the Court of Appeal reversed the decision, making it clear that the doctrine could only be used as a defence and not a cause of action.
D&C BUILDERS v REES [1966] 2 QB 617
Promissory Estoppel – it must be inequitable for the promisor to go back on his promise.
Four conditions were identified which had to be satisfied for the doctrine of promissory estoppel to apply. One of these conditions is that it must be inequitable for the promisor to go back on his promise. An authority for this is the case of D&C Builders v Rees [1966] 2 QB 617.
In this case, the defendants owed the claimants £482. The claimants were in financial difficulties and the defendants offered £300 in full settlement, indicating that if the claimants did not accept then they would not get any payment at all. The claimants accepted because they felt that they had no choice, but then sued for the balance. Lord Denning MR said that the defendants could not rely on promissory estoppel. It was not inequitable for the claimants to go back on their promise since it had not been freely given. It seems clear that when the court looks at whether it is inequitable for the promisor to go back on the promise, it will consider all of the circumstances of the case including the behaviour of the parties.
Tool Metal Manufacturing Co v Tungsten Electric Co Ltd [1955] 1 WLR 761,
In this sort of situation (High Trees), where the promisor agrees to accept reduced rent, he will generally be able to give reasonable notice and claim full rent for the future, but he will not be able to claim the full amount of rent for the period before the notice expires (although this does depend on what was agreed)
In the case of Tool Metal Manufacturing Co v Tungsten Electric Co Ltd [1955] 1 WLR 761, Lord Tucker made it clear that notice may not always be necessary.
Therefore the court will consider whether the promise was clearly intended to last only until a particular event happened or a particular situation came to an end (such as war time conditions in the High Trees case). If so, it may be that the promisor is able to resume his right to the full amount of rent (or other form of continuing payment) from that point. If not then it is likely that the promisor can give reasonable notice and resume full rights when the notice expires. What will amount to reasonable notice will be a question of fact and equity in each case. The notice does not have to be in any particular form.
Looking at the case of Tool Metal Manufacturing v Tungsten Electric Co Ltd [1955] 1 WLR 761, HL, it would seem that the employees could give reasonable notice and resume their strict legal rights. In the circumstances, reasonable notice here might be a considerable time.
Emanual Ajayi v RT Briscoe (Nigeria) Ltd [1964
If the promisee cannot be returned to his original position then the promisor’s rights may be extinguished completely.
In the Privy Council case of Emanual Ajayi v RT Briscoe (Nigeria) Ltd [1964] 3All ER 556. Lord Hodson said: … the promisor can resile from his promise on giving reasonable notice, which need not be formal notice … The promise only becomes final and irrevocable if the promisee cannot resume his position.
