Consideration & Equity (part payment of debt) PDF

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briefed cases on part payment of debt. Do they amount to a valid consideration?...

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CONSIDERATION (PAST PAYMENT OF DEBT) Part-Payment of a debt (alone) is never valid consideration. This is due to the ability of a party to exploit another party in a difficult financial position. Pinnel’s Case The court confirmed the general rule that part payment of a debt cannot be satisfaction for the whole. However, since the payment had been made early this was sufficient to discharge he debt. Lord Coke said (at 1117a): ‘Payment of a lesser sum on the day in satisfaction of a greater sum cannot be any satisfaction of the whole… but the gift of a horse, hawk, or robe etc. in satisfaction is good. For it shall be intended that a hawk, horse, or robe, etc. might be more beneficial to the plaintiff than the money’ Therefore, by paying some money early the defendant had provided the plaintiff with a further benefit and had not just repaid the money which he already owed. Consequently, this was good consideration, and the court found for the defendant. Foakes v Beer (1883 Lord Blackburn argued for the abolition of the rule in Pinnel’s case: ‘What principally weighs with me in thinking that Lord Coke made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognize and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the debtor is doubtful it must be more so.’ D AND C BUILDERS LTD V REES Danckwerts LJ said that the case of Foakes v Beer: ‘settled definitely the rule of law that payment of a lesser sum than the amount of a debt due cannot be a satisfaction of the debt, unless there is some benefit to the creditor added so that there is an accord and satisfaction.’ Lord Denning clears up the law regarding substitute contracts. He says that at common law, they are not allowed unless there is consideration provided. Without consideration, there can be no substitute agreement that is accepted at common law. However, substitute agreements that satisfy the necessary accord can be valid in equity, even if they do not have consideration, if it would be inequitable to allow the creditor to sue for the money from the original contract. To satisfy this requirement an agreement must have been made, the debtor must have relied upon it, and it must be unfair to allow the creditor to claim more money. Denning states that in this case there is no consideration; therefore the agreement will not stand in common law but might be allowed in equity. However, he states that the pressure placed on D. & C. by Rees forced them to accept an agreement that was unsatisfactory. Therefore "there is no reason in law or equity why the creditor should NOT enforce the full amount of the debt due to him." Thus the appeal is dismissed...

Promissory estoppel Promissory estoppel is an equitable remedy that prevents a party from ‘going-back on’ or rescinding a promise. Clearly the concept is not simple as just preventing the rescission of a promise. How does promissory estoppel operate? To determine whether promissory estoppel will apply in a situation where a promise has been rescinded the test laid out in the Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 must be examined. The requirements of the test are: 1. There must have been an existing legal relationship between the parties Promissory estoppel generally only operates when there is a pre-existing relationship between the parties and will not work to create new ones, as affirmed by Lord Denning in Combe v Combe [1951] 2 KB. 2. There must have been a reliance on the promise The promisee must rely on the promisors’ promise in order to attempt to apply promissory estoppel. This means that by relying on the promise the actions of the promisee have changed. This requirement has a very low threshold and although there has been argument that a detriment may be required to establish reliance both the cases of Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 and Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, dispute this. 3. It must be inequitable to allow the promisor to go back on the promise The courts of equity are remedies which attempt to ‘fill the gap’ where the common law produces unfair results. Therefore, it would be illogical to not allow the promisor to go back on the promise where it is in fact equitable. The law of equity, unlike the common law, affords discretion to the courts to decide whether it is fair or not to impose the principles of equity. A case which provides a good example of this is The Post Chaser [1982] 1 All ER 19, in which the promise was revoked within a few days, due to this small lapse in time, the promise would not have relied upon their promise or changed their position, therefore, it was equitable to allow the promisor to go back on the promise. 5. The doctrine is generally suspensory and does not extinguish rights A contractual modification supported by consideration will create the effect of a permanent set of obligations for the duration of the contract. Promissory estoppel operates slightly differently, only suspending the rights where relevant. The operation of this principle is clear in High Trees. Promissory estoppel suspended the rights of Party B to claim £2,500 during the time of the war, but the right to charge the full £2,500 was reintroduced following the end of the war....