Part-payment of debt PDF

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Lecture 17

Week 5 Semester 1 Contract Law Part-payment of Debt

Part-payment of debt Traditionally, part-payment of a debt on the date on which it is due cannot be full satisfaction for the full amount owed. (Pinnel’s Case (1602) confirmed by Foakes v Beer [1884])  The creditor will be able to recover the balance of the debt, unless the creditor can show that some consideration was supplied in return for the creditor’s agreement in taking the lesser sum. o e.g. acceptance of $100 cannot be full satisfaction for a debt of $200 because the money is not equivalent in value. o However, if payment is made early, or on the day but at a different place from that specified in the contract, the debt may be discharged. (Foakes v Beer [1884])  if the debtor provides goods or services, instead of cash, this, if accepted by the creditor, will discharge the debt fully, even if the value of what was supplied is less than the total amount owed o “The gift of a horse, a hawk, or a robe, in satisfaction is good.” (Pinnel’s Case (1602)) Facts: The defendant, Cole, owed the plaintiff, Pinnel, the sum of £8 10s. Pinnel sued Cole for recovery of the debt. Cole had, at Pinnel’s request, paid £5 2s 6d one month before the debt was due to be paid and stated that they had an agreement that this part payment would discharge the entire debt. Pinnel’s Case (1602) 5 Co Rep 117

Foakes v Beer (1883) LR 9 App Cas 605

Held: The general rule that part payment of a debt cannot be satisfaction for the whole. Lord Coke: “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” Facts: The respondent, Beer, loaned the appellant, Foakes, £2090 19s. When he was unable to repay this loan she received a judgment in her favour to recover this amount. The pair then entered an agreement whereby “in consideration” of an initial payment of £500 and “on condition” of six-monthly payments of £250 until the whole amount was repaid, she would not enforce her judgment against him. Foakes made these regular payments until the entire amount was repaid. However, he had not paid any interest on the judgement debt, which Beer was entitled to under statute. This interest totalled £302 19s 6d.

Lecture 17

Week 5 Semester 1 Held: The respondent’s promise not to enforce the judgment was not binding as Foakes had not provided any consideration. Their Lordships approved the rule in Pinnel’s Case. Payment a day earlier could constitute good consideration. However, Lord Blackburn expressed some dissatisfaction with this, noting that by accepting less a creditor could in some cases gain a practical benefit. Lord Selborne: “some independent benefit, actual of contingent, of a kind which might in law be a good and valuable consideration.”

Practical benefit and consideration Can the concept of consideration in this context can include the type of “practical benefit” in Williams v Roffey [1991]?  According to Re Selectmove [1995], this could not be included.  However, it has been suggested in a later case that a practical benefit or commercial advantage could constitute valid consideration. (MWV Business Exchange v Rock Advertising [2018]) o Supreme Court clarified that this did not rule out Foakes v Beer (1883), and that its comments were merely obiter.

Re Selectmove [1995] 1 WLR 474

Facts: The Inland Revenue petitioned the court for a winding-up order in respect of a company, Selectmove, which had accrued arrears in the tax it owed. The company appealed on the grounds that a tax collector had met with the company and agreed that the company could pay the arrears in instalments instead of being wound up. The Inland Revenue argued that this agreement was not binding on them because the company provided no consideration for the agreement to accept instalments: it was only promising to do something (paying its debts) that it was already obliged to do. The company argued that the arrangement was to the Inland Revenue’s “practical benefit” because it meant that the company could stay in business and therefore be more likely to meet its debts. Held: To treat this as providing consideration would be in direct conflict with the leading House of Lords decision on part payment of debts, that is Foakes v Beer, which had not even been cited in Williams v Roffey. The reversing of the decision in Foakes v Beer was a matter for the House of Lords or Parliament, and could not be undertaken by the Court of Appeal. At this point, therefore, it seemed, although the decision on this point was obiter in Re Selectmove, that the concept of a “practical benefit” could not form part of the consideration provided for accepting part payment of a debt as full satisfaction.

Lecture 17

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24

Week 5 Semester 1 Facts: Rock Advertising Ltd claimed that it should not have been locked out of a building, owned by MWB Ltd, because it had renegotiated arrears for rent and paid £3500 under it. MWB Ltd argued that in any event the renegotiated deal would be unenforceable, because there Rock Advertising Ltd agreed there would be "no oral variation" of the written deal, and there was no consideration for a change. MWB Ltd licensed its office space at Marble Arch Tower in Bryanston Street, London, to Rock Advertising Ltd, but after Rock Advertising Ltd requested more space it fell into arrears for fees and charges. MWB locked out Rock Advertising and gave notice, as it could under the contract. Rock Advertising claimed its exclusion was wrongful, because it had an oral agreement with MWB's credit controller to reschedule the licence fee payments to clear the arrears, and it had paid £3500 that day under it. MWB denied any agreement, and argued it was unenforceable for lacking consideration, and oral agreements were prohibited in the written contract clause 7.6, which said that the written agreement was the entire agreement and no other representations could become part of it. Held: The Court of Appeal found that there was sufficient practical benefit to the claimant in the arrangement agreed in February to amount to good consideration for the promise to accept less than was owed. Kitchin, LJ, with whom the other two members of the court concurred, noted the claimant’s argument that, on the basis of Re Selectmove there was no room for the Williams v Roffey concept of practical benefit in this situation, but suggested that this failed to take account of the judge’s findings of fact, namely “He was clearly of the view that the oral variation agreement would have a number of beneficial consequences for MWB. First, MWB would recover some of the arrears immediately and would have some hope of recovering them all in due course. But secondly and importantly, Rock would remain a licensee and continue to occupy the property with the result that it would not be left standing empty for some time at further loss to MWB.” There was no suggestion that MWB was under duress in reaching the agreement, and there was commercial advantage to both parties in relation to it. This went beyond the advantage of receiving a prompt, but incomplete, payment, which was ruled out as being consideration by Foakes v Beer and Re Selectmove.

Lecture 17

Week 5 Semester 1 Despite this insistence that its decision is consistent with both Foakes v Beer and Re Selectmove it is difficult to see this case as anything other than a significant limiting of the scope of those decisions, and extension of the scope of Williams v Roffey. The case was subsequently appealed to the Supreme Court, but the Supreme Court decided the case on other grounds with Lord Sumption stating: “There are arguable points of distinction, although the arguments are somewhat forced. A differently constituted Court of Appeal made these points in In re Selectmove Ltd, and declined to follow Williams v Roffey. The reality is that any decision on this point is likely to involve a re-examination of the decision in Foakes v Beer. It is probably ripe for reexamination. But if it is to be overruled or its effect substantially modified, it should be before an enlarged panel of the court and in a case where the decision would be more than obiter dictum”

Effect of promissory estoppel Promissory estoppel can completely discharge a “one-off” debt, simply on the basis that the debtor has made the requested part payment. (Collier v P & MJ Wright [2007])

Collier v P & MJ Wright [2007] EWCA Civ 1329

Facts: Mr Collier was one of three partners of a property developer. They had assented to a court order to pay £46,000 to Wright Ltd in monthly instalments of £600, and were jointly liable. From 1999 the payments went down to £200 a month. In 2000, swore Mr Collier, there was a meeting where Wright Ltd said he would be severally liable (for £15,600), rather than jointly (as a partner). The other two partners went bankrupt in 2002 and 2004. In 2006, when Mr Collier had finally made his payments (totalling exactly one third of the debt) Wrights served on him a statutory demand for the 'balance of the debt'. Mr Collier applied under rule 6.4 of the Insolvency Rules 1986 (because the debt was disputable on ‘substantial grounds’ (r.6.5(4)(b)); so he only needed to show there was a “genuine triable issue” in which case the court would set aside the demand. He alleged the variation agreement was binding, or if not that Wright Ltd was estopped from enforcing the full payment.

Held: The Court of Appeal reversed the first-instance judgment on the promissory estoppel point. Arden LJ held that Foakes v Beer applied, but referring to the “brilliant dictum” of Denning J in High Trees, held that promissory estoppel could aid Mr Collier. Where he had been assured that he could repay only part of the debt, he had relied on the

Lecture 17

Week 5 Semester 1 assurance by making his payments, Wright Ltd abandoning the promise “would of itself be inequitable”...