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Facts[]

Mr. Rees, a shop owner, commissioned D. & C., a small building company, to do work on his shop. They did the work and gave him a bill for £746. Rees paid £250 and received a discount of £14, leaving his debt at £482. He did not pay for a while, despite efforts from D. & C. to try and get the money. D. & C. were in financial trouble, and needed money. Mrs. Rees, knowing this, offered £300 in satisfaction of his debt. D. & C. said that this would not satisfy the debt, but Mrs. Rees said that this was all that she was going to pay - £300 or nothing. D. & C. had to accept, as they would have gone bankrupt without the money. They received the £300, signed something saying that it “satisfied the debt”, but then sued for the remaining balance. D. & C. were successful at trial, which Rees appealed.

Issue[]

  1. Could Ms. Rees claim the defence of promissory estoppel?
  2. Can a party accept a lesser amount for satisfaction of a debt and then demand payment in full?

Decision[]

  1. No.
  2. Yes. Appeal dismissed.

Reasons[]

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...

Supplementary - Oct. 2020

Lord Denning: “When a creditor and a debtor enter on a course of negotiation, which leades the debtor to suppose that, on payment of the lesser sum, the creditor will not enforce payment of the balance, and on the faith thereof the debtor pays the lesser sum and the creditor accepts it as satisfaction: then the creditor will not be allowed to enforce payment of the balance when it would be inequitable to do so […] in applying this principle, however, we must note the qualification. The creditor is barred from his legal rights only when it would be inequitable for him to insist on them […] but he is not bound unless there has been truly an accord between them.” In this case, Lord Denning finds that there was no true accord between the parties.

When Ms. Rees said, “we will pay you nothing unless you accept £300 in settlement” she placed undue pressure on the creditor. She was making a threat to break the contract (by paying nothing) and she was doing it so as to compel the creditor to do what he was unwilling to do (accept £300 in settlement): and she succeeded. Because there was no true accord, Denning opines that “there is no reason in law or equity why the creditor should not enforce the full amount of the debt due to him.” 

Ratio[]

  • Substitute agreements require consideration to be binding at common law.
  • Substitute agreements may be acceptable in equity even if they do not have consideration, if it would be inequitable to force the debtor to pay any more, there was an agreement between the two parties that the new sum would settle the debt, and this agreement was relied upon by the debtor.
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