On the facts of Foakes v Beer it was given the basic rule that a payment of a smaller sum will not discharge the higher sum. As a general rule, it would not be good consideration for a creditor to forgo the balance. In paying part of the debt the promisee is doing no more than performing an existing contractual duty owed to the promisor. In this case, the rule of Pinnell’s Case was nevertheless affirmed.
It can be argued, that the principles from Foakes v Beer and Pinnel’s Case, part payment may be more acceptable to a creditor than the ability to recover the full amount in damages. In the review, the author refers to the criticism taken by Lord Blackburn and stated:
‘…all men of business…do every day recognise 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 right…’
The doctrine itself as laid by Sir Edward Coke may have been criticised, as questionable in principle but had not been judicially overruled. Lord Blackburn noted that the latter point of obiter dictum, but nevertheless having been adapted by Lord Coke, is of weighty authority. What makes it appear that Lord Coke made a mistake of fact that businessmen frequently accept part payment in full satisfaction of an outstanding debt and, as a matter of commercial reality, that they are content to do so. In addition, there was further criticisms in the report of the Law Revision Committee.
In reference to the judgement of Pinnell’s Case, it was also argued there is undoubtedly the peace of mind of collecting some of the debt and obviating a financial disadvantage. The House of Lords supported the principle of Pinnell’s Case and subsequent judgements have tended to follow this ruling. Furthermore, the justification of this rule maybe found in the requirement of public policy. This could lead to economic duress and unconscionable behaviour on part of the debtor.
Despite limitations, the general rule laid down by Foakes v Beer still represents the common law approach to part-payment of a debt. However, the rule is open to criticisms and a means of evading it has been developed under the equitable principle of promissory estoppel. The author includes the judgement made by Lord Denning in Central London Property Trust v High Trees House to put forward a different solution to the problem of part-payment. Denning J, established the equitable principle of promissory estoppel by fusing two existing equitable principles in the case of Hughes v Metropolitan Railway Co. Ltd . This enabled Lord Denning to avoid having to follow the principle of Foakes v Beer. The author states that ‘…Lord Denning referred to such application of the doctrine as an already established practice…’ and ‘…opened the door to applying the equitable doctrine…’ The statement offered possibilities of a broader doctrine which can be summarised where one party, by words made a promise to the other which was intended to affect the legal relations between them; and the other party had taken him at his words cannot afterwards be allowed to revert to his previous legal relations. This was Lord Denning’s solution to the problem posed in Foakes. The ingenuity of his approach cannot be questioned. In suggesting the doctrine of promissory estoppel, Denning was concerned primarily with finding a solution to the problems of part payment of a debt, by itself does not create a cause of action. If it did, it would be difficult to reconcile with the doctrine of consideration.
Moreover, the author moves on to incorporate the case of Collier v P & MJ Wright (Holdings) Ltd in which the Court of Appeal has sought to apply the proposition in Rees to override definitively common law rule by putting forward an equally rule to opposite effect. The case was when Mr Collier came into an arrangement with P under which he agreed to pay one third of the debt. He understood that the arrangement meant he would not be liable for the other two-thirds. Nevertheless, it was unsuccessful for the court to show that there was a ‘genuine triable issue’. It was argued in the article that there was no consideration from Mr Collier and Wright as it was agreement to accept a lesser sum in discharge of a larger debt. Also, there was no estoppel because Mr Collier d not changed his position in reliance of the promise.
Conversely, the Court of Appeal reversed the judgement on the promissory estoppel point. Taken from Lord Denning’s words from Rees which barred recovery by the creditor in the face of an executed agreement to accept part of the debt. It was taken that where a debtor offered to pay part only of the amount he owed and the evidence showed the creditor voluntarily accepted that offer, and relying on that acceptance the debtor paid that part of what he owed in full, the creditor would be bound to accept that sum in full and final satisfaction of the whole debt by virtue of the doctrine of promissory estoppel. The author also stated that once the amount is paid, the equity is created and nothing more is required. For the creditor to resile “would of itself be inequitable” and therefore Arden LJ considered that accepted that Mr Collier had raised a genuine triable issue in respect of promissory estoppel. Arden LJ based this restatement on Lord Denning’s passage on D & C Builders v Rees where:
Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance.
Nevertheless, Longmore LJ was negative about the proposition of making the legal history by completing the extensive reform of the rule in Foakes. Whilst this restatement navigates a route around the difficult Foakes doctrine, it risks deriving the equitable doctrine of its distinguishing characteristics, namely, that equity provides relief where justice requires it to do so. This requires there to be an independent assessment of whether it would be inequitable for the creditor to resile from his promise.
Furthermore, Lord Arden’s approach was for the debtor to simply show that there was offer, acceptance and performance of the promise to accept part payment as discharge of the whole debt. As in English law, these are the standard requirements which prescribe the skeletal structure of a contract’s formation. Therefore, if one party has led the other to believe that he will not enforce his strict rights and the other party has incurred expense or loss in reliance on that promise, then it would be inequitable to permit the first to go back on his promise. The decision was taken from Hughes v Metropolitan Railway Co in which the case decision stated that the equitable doctrine prevented promisors from going back on their promises.
The author argues that Collier replaces the approach from Hughes with a rule which takes into an account of equity as a defence for the lessee as well as providing debtors the absent of such promise to pay or not. This would provide justice on in to show full consideration of the contract, and on the defence of promissory estoppel the creditor would be bound to accept the full satisfaction of the whole debt. Nevertheless, the doctrine of estoppel is still questionable as there is still some confusion over the precise effect of the equitable principle on the rights of the promisor. Hence, it is possible to argue that promissory estoppel has the effect of extinguishing existing obligations, but merely suspending future obligations until reasonable notice is given by the promisor of his intention to resume his strict rights.
One other factor mentioned in the review is that whether the debtor not paying has a position in reliance on the creditor’s promise or whether the creditor’s reliance on his promise would affect the debtor, would nevertheless be inequitable. It can appear that the doctrine of promissory estoppel can extinguish the future rights of the promisor, even after he has given notice of his intention.
In addition, the author concludes the review by the latter of the characteristics of both cases. It states that the rule in Foakes can be injustice. In conclusion, The principle in Foakes can be harsh on a creditor who, believing they have extinguished their debt, finds that they are still liable for the full amount. However, is it desirable that this be replaced by a principle that allows unscrupulous businessmen to renege on their contractual duties and then use performance of their existing duty as consideration? Surely the proposed extension of promissory estoppel, above, would be a suitable compromise.
Bibliography
Resources
Beale, Bishop & Furnston, Contract: Cases and Materials (4th edn, Butterworths, 2001)
Fearson, M.I, The Rule in Foakes v Beer, The Yale Law Journal, Vol 31, No 1, pp 15-23 WEB <http://www.jstor.org/pss/789121> accessed 2/12/2008
Jackson, How many Kinds of Estoppel? [1982] The Conveyancer and Property Lawyer 450
Lord Wright’s Law Revision Committee 1937 (Sixth Interim Report Cmnd 5449)
Richards P, Law of Contract (8th edn, Pearson Ed Ltd, Essex) 60
Taylor & Taylor, Collier v P & MJ Wright , Promissory Estoppel and part payment of a debt (Oxford University Press, 2009) WEB <http://www.oup.com/uk/orc/bin/9780199299997/01student/updates/update02_1008.pdf> accessed 2/12/2008
Trukhtanov A, (2008) Foakes v Beer: Reform of common law at the expense of equity, L.Q.R, 124(Jul) 364-368
Cases
Central London Property Trust v High Trees House [1947] KB 130
Collier v P & M J Wright (Holdings) Ltd [2007] ECWA Civ 1329
Combe v Combe [1951] 1 ALL ER 767
Currie v Misa (1875) LR 10 EX 153
D & C Builders Ltd v Rees (1966) 2 WLR 288
Foakes v Beer (1884) 9 AC 605
Hughes v Metropolitan Railway Co Ltd (1877) 2 App Cas 439
Maharaj (Sheila) v Chand (Jai) (1986)
Pinnell’s Case (1602) 5 Co Rep 177a
Currie v Misa (1875) LR 10 EX 153 - The original definition of consideration was taken from this case
Richards P, Law of Contract (8th edn, Pearson Ed Ltd, Essex) 60
Foakes v Beer (1884) 9 AC 605 - payment of a lesser sum in satisfaction of a greater sum is generally not good consideration
Trukhtanov A, (2008) Foakes v Beer: Reform of common law at the expense of equity, L.Q.R, 124(Jul) 364-368
Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329
Pinnell’s Case (1602) 5 Co. Rep. 177a
Beale, Bishop and Furmston, Contract - Cases and Materials , (4th edn, Butterworths, 2001)
Ferson, M.L, The Rule in Foakes v Beer, The Yale Law Journal, Vol 31, No 1, pp 15-23 WEB <http://www.jstor.org/pss/789121> accessed 2/12/2008
Lord Wright’s Law Revision Committee 1937 (Sixth Interim Report Cmnd 5449)
D & C Builders Ltd v Rees (1966) 2 W.L.R 288 - The plaintiffs were not stopped from claiming the balance because they did not voluntarily accept the lesser sum
Central London Property Trust v High Trees House [1947] K.B. 130
Hughes v Metropolitan Railway Co Ltd (1877) 2 App Cas 439
Combe v Combe [1951] 1 ALL ER 767 - Estoppel cannot create a cause of action, and would be defined as ‘a shield not as a sword’ Ruff A, Contract Law (4th edn, Sweet & Maxwell, London, 2005) 35
Collier v P & MJ Wright (Holdings) Ltd [2007] ECWA Civ 1329
Taylor & Taylor, Collier v P & MJ Wright , Promissory Estoppel and part payment of a debt (Oxford University Press, 2009) WEB <http://www.oup.com/uk/orc/bin/9780199299997/01student/updates/update02_1008.pdf> accessed 2/12/2008
Jackson, How many Kinds of Estoppel? [1982] The Conveyancer and Property Lawyer 450
Hughes v Metropolitan Railway Co (1876-77) L.R. 2 App. Cas. 439
Maharaj (Sheila) v Chand (Jai) (1986)