The of the whole. The general principle,
The doctrine of consideration has been at the ‘basis of the English law of contract for several centuries’,1 its presence being imperative in establishing a binding contract. The application of this doctrine in alteration promises continues to present difficulties, mainly due to the distinction between promises to pay more and promises to accept less. Since this question involves an alteration promise to accept less in full satisfaction of a debt, one of the issues examined is whether fresh consideration arises in the formation of this promise, which would make it enforceable under the rule in Pinnel’s Case.2 Attention is also given to the criticism arising from the courts’ insistence of limiting the Roffey principle to alteration promises to pay more, as well as to how far the development of the doctrine of promissory estoppel could help Fred in establishing the enforceability of this promise, despite the absence of fresh consideration, thus preventing Dinesh from claiming the remaining balance of the debt. In the case that Dinesh decides to sue Fred for the remaining £5,000, he would most likely base his case on the principle of alteration promises to pay less in full satisfaction of the whole. The general principle, emerging from Pinnel’s Case3, is that such a promise cannot be enforceable without some fresh consideration coming from the promisee. This rule was confirmed in Foakes v Beer4, where the defendant promised to refrain from taking any proceedings on the judgement if the debt sum was repaid by agreed instalments. The House of Lords held that this promise was not supported by consideration since Foakes had done no more than he was contractually bound to do, rendering this promise unenforceable.
In this instance, it can be argued that Dinesh’s promise to ‘stop whining about the remaining money’ and accept the £5,000 in ‘full settlement’ was not supported by new consideration since Fred (or in this case his father, acting as his agent) would not be doing anything more than he was bound to do under the initial agreement that left the latter with a £10,000 debt. On the other hand, promises to accept less can be enforceable if the part payment is made by a third party acting as an agent for the debtor and accepted in full settlement. This was supported by Hirachand Punamchand v Temple5 where the defendant’s father sent to the plaintiffs a draft for a smaller sum in full satisfaction of his son’s debt. After cashing the draft, the plaintiffs proceeded to sue Temple for the balance but the Court of Appeal held that they were not entitled to that, based on the reasoning that there was an agreement between the creditor and the third party and it would be a fraud to go back on the promise. This is further supported by Bracken v Billinghurst6, where the cashing of a cheque was found to be acceptance in full settlement of the debt. Overall, Dinesh could sue Fred for the balance, arguing for the lack of new consideration to support his promise and, had Fred’s father (third party) not been involved in the making of the alteration promise to pay less, the court might have applied Foakes v Beer7 and found that such a promise was, indeed, not enforceable.
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However, in these circumstances, Hirachand v Temple8 seems more applicable, owing mainly to the involvement of a third party. Moreover, Dinesh’s claim of lack of fresh consideration could be countered by Lord Blackburn’s argument that, in practice, agreements to accept part payment in full satisfaction often have factual benefits for the creditor.9 In Williams v Roffey Bros & Nicholls (Contractors) Ltd,10 it was established that in alteration promises to pay more, consideration may be found if there is a factual benefit to the promisor arising from the promisee. In this case, despite the lack of new consideration, the factual benefit arising for the plaintiff, from Roffey completing the work on time, was enough to support the alteration promise.
In this question, one could argue that since Fred had failed to repay Dinesh ‘for months’, the latter may have reasonably thought that Fred was either not willing or not able to repay him anytime soon, if at all. Therefore, upon encountering his father in the process of withdrawing money and confronting him about his son’s debt, Dinesh could have been of the mind that if he did not accept the £5,000 on the father’s terms, he was unlikely to get anything in return. Accordingly, by accepting the £5,000, he must have reasonably believed it was in his best interest. However, the courts have been strict in their adherence to the established authority in Foakes v Beer11 as far as alteration promises to accept less are concerned. Re Selectmove Ltd12 and Re C (a debtor)13 have restricted further extension of Williams v Roffey14, thus ruling out the possibility of finding consideration from a factual benefit to the creditor for agreeing to accept less in full settlement of a debt. This is further supported by the more recent decision in Collier v P.
& M. J. Wright (Holdings) Ltd.15 Overall, despite Lord Blackburn supporting compellingly that factual benefits may be ground for finding consideration, especially in commercial agreements to accept less,16 the courts remain consistently reluctant to go against the clear authority in Foakes v Beer.17 Consequently, it is unlikely that courts would rule in Fred’s favour by finding that Dinesh getting £5,000, instead of waiting to get the full amount owed, constituted a factual benefit and so consideration for his promise. Nevertheless, there may be another route available for Fred to establish that the promise was enforceable, despite the absence of consideration to support it.
This reluctance by the courts to not uphold the authority in Foakes v Beer18 concerning promises to accept less, creates the necessity of looking elsewhere for consideration. In Central London Property Trust Ltd v High Trees House Ltd,19 Denning LJ led a ‘limited attack’20 upon the rule in Foakes v Beer,21 choosing to focus instead on the impact that reliance on a promise has on its enforceability. Relying on Hughes v Metropolitan Railway Co.,22 he stated obiter dictum that, according to the equitable doctrine of estoppel, ‘a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration’. This was in accordance with the Law Revision Committee’s recommendation that characterised Pinnel’s rule as ‘one of the most absurd doctrines which have succeeded in becoming established as part of the English law of contract’ and supported that an ‘agreement to accept a lesser sum in discharge of an enforceable obligation to pay a larger sum shall be deemed to have been made for valuable consideration’.23 In order to determine whether the doctrine would be applicable in this scenario, it is necessary to establish that all requirements needed for promissory estoppel are present.
Firstly, the need for a clear and unequivocal representation is satisfied by Fred’s father giving Dinesh the £5,000 on condition that he ‘stops whining about the remaining money and in settlement of the debt’, satisfying Lord Pearson’s statement that the representation may need to have ‘at least as much precision as would be needed for a variation of the contract’.24 Secondly, Fred would only be able to use promissory estoppel as ‘a shield not a sword’,25 meaning that he could only use this as a defence if Dinesh decided to sue him for the remaining balance of the debt. As Denning LJ put it in Combe v Combe, the doctrine ‘does not create new causes of action where none existed before’.26 Thirdly, the reliance requirement would need the promisee to have ‘altered his position’ in reliance on the promise. The evidence supplied in the question is not enough to determine whether reliance existed or a change of position occurred based on the alteration promise.
Dinesh sees Fred ‘later’ at a shop and asks for the remaining balance. If ‘later’ means shortly thereafter, it could be argued that neither his father nor Fred had the time to alter their positions significantly. In this case, the reliance requirement could not be satisfied and Fred would not be able to rely on promissory estoppel. If, however, ‘later’ refers to a longer period of time, during which Fred’s father would be able to inform his son of the alteration promise with Dinesh, and either the father or the son acted in reliance on that very promise, then the doctrine would make it inequitable for Dinesh to go back on his promise and request the remaining balance of the debt.
In E.A. Ayaji v R. T. Briscoe (Nigeria) Ltd,27 Lord Hodson supported that the promisee’s position had to be altered in a detrimental way but in W. J. Alan & Co.
Ltd v El Nasr Export and Import Co.,28 Lord Denning MR supported that the promisee ‘must have been led to act differently from what he otherwise would have done.’29 Following Lord Denning’s interpretation, Fred’s father (the promisee) was initially planning on leaving the bank with £5,000, and upon agreeing with Dinesh he left the bank with £5,000 less than he owned before. This could indicate an alteration of his position, making it inequitable for Dinesh to go back on his promise. Therefore, the above analysis suggests that if Dinesh decided to sue Fred for the remaining balance, the latter would likely be successful in employing promissory estoppel as a defence. Overall, mainly due to the courts’ insistence on adhering to the authority of Foakes v Beer30 and on limiting the Roffey principle to alteration promises to pay more, ‘the law governing the enforceability of alteration promises is extremely complicated’.
31 Following the arguments presented above, while it would be difficult for Fred to establish new consideration supporting this alteration promise to pay less, the involvement of his father as a third party makes it possible for the courts to apply Hirachand v Temple32 in finding new consideration. However, if he is not successful in this line of argument, Fred is likely to face difficulty in pursuing the argument of a factual benefit arising for Dinesh, which could constitute consideration, particularly after Re Selectmove33 and Re C (a debtor)34 which further limited the scope of Williams v Roffey.35 Finally, the doctrine of promissory estoppel could allow Fred to establish that the alteration promise is enforceable, regardless of the absence of new consideration to support it, if he can show that it would be inequitable for Dinesh to go back on his promise and demand the remaining balance of the debt. 1 A. G.
Chloros, ‘The Doctrine of Consideration and the Reform of the Law of Contract: A Comparative Analysis’ (1968) Vol.17 International and Comparative Law Quarterly, 137.2 (1602) 5 Co Rep 117a.3 ibid.4 (1884) 9 App Cas 605.5 1991 2 KB 330.
6 2003 EWHC 1333 (TCC), 2004 TCLR 4.7 Foakes (n 4).8 Hirachand (n 5).9 Foakes (n 4) 622. 10 1991 1 QB 1.11 Foakes (n 4).12 1995 1 WLR 474.
13 1996 BPIR 535, The Times, 11 May 1994.14 Roffey (n 10).15 2007 EWCA Civ 1329, 2008 1 WLR 643.
16 Foakes (n 4) 622.17 Foakes (n 4).18 ibid.19 1947 KB 130.20 Jill Poole, Textbook on Contract Law (13th edition, OUP 2016) 153.21 Foakes (n 4).
22 (1877) 2 App Cas 439.23 The Law Revision Committee’s Sixth Interim Report (Statute of Frauds and the Doctrine of Consideration) by the Editorial Committee of the Modern Law Review, Vol. 1 no. 2, September 1937, 103.
24 Woodhouse A. C. Israel Cocoa SA v Nigerian Produce Marketing Co. 1972 AC 741, 762 (Lord Pearson).25 Combe v Combe 1951 2 KB 215 (Birkett LJ).
26 ibid, 219-20 (Denning LJ).27 1964 1 WLR 1326.28 1972 2 QB 189.29 ibid, (Lord Denning MR).30 Foakes (n 4).31 Poole (n 19), 147.32 Hirachand (n 5).33 Selectmove (n 12).34 Re C (a debtor) (n 13).35 Roffey (n 10).