Law of Contract - Consideration (Part 3)

6. Part Payment of a debt
In Foakes v Beer ((1883-84) L.R. 9 App. Cas. 605, HL ), the House of Lords upheld the ancient rule in Pinnel’s Case ((1602) rep 117a ) that part payment of a debt was not good consideration for the remainder of the debt.

Pinnel’s Case itself contains several exceptions to this rule:

“The gift of a horse, hawk, robe, &c. in satisfaction, is good. Payment of part before the day, and acceptance, may be in satisfaction of the whole; so payment of part at a different place.”

Also: “An acknowledgment of satisfaction by deed is a good bar without any thing received.”

Although the rule against part payment has stood unchanged since Pinnel’s Case, it has been subject to considerable criticism. Even in Foakes v Beer Lord Blackburn seemed to suggest that it was out of touch with commercial reality.

“All men of business....recognise and act on the ground that prompt payment 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 is often so. Where the credit of the debtor is doubtful it must be more so.”

In Re Selectmove ([1995] 1 WLR 474), it was argued that part payment could be good consideration for the entire debt provided that the creditor obtained a practical benefit from the part-payment.

The court held that the “practical benefit” test did not apply to part payment of a debt. One of the main reasons given for this was that by its very nature, part-payment of a debt would always provide a practical benefit – therefore to extend the Williams v Roffey exception to Part-Payment cases would deprive the rule in Pinnel’s Case of its efficacy.

It is worth pointing out that the court in Re Selectmove pointed out that it was not within its power to overrule Foakes v Beer that was a decision of the House of Lords.

The salient points are covered in the following extract from Re Selectmove. 

“When a creditor and a debtor who are at arm’s length reach agreement on the payment of the debt by instalments to cover to accommodate the debtor, the creditor will no doubt always see a practical benefit to himself in so doing. In the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter expressly considered in Foakes v Beer yet held not to constitute good consideration in law. Foakes v Beer was not even referred to in Williams v Roffey, and it is in my judgment impossible, consistently with the doctrine of precedent, for this court to extend the principle of the Williams case to any circumstances governed by the principles in Foakes v Beer. If that extension is to be made, it must be made by the House of Lords or, perhaps even more appropriately, by Parliament after consideration by the Law Commission.” (Per Peter Gibson LJ ) 

Promissory Estoppel 
A chapter on consideration would not be complete without some mention of the doctrine of promissory estoppel.

This is probably the most important exception to the rule in Pinnel’s Case.

Lord Denning resurrected this doctrine in the case of Central London Property Trust v High Trees House Ltd. ([1947] KB 130 )

Promissory estoppel can be an exception to the rule that part-payment is not good consideration for the entire debt.

Estoppel refers to the prevention of a party from relying on some legal right. There are various types of estoppels. The two most common are proprietary estoppels (involving land) and promissory estoppels (involving promises).

For estoppel to apply there must be:

A representation made. This must be a clear and unambiguous statement by the creditor that his legal right will not be enforced.

Reliance on that representation by the debtor.

It must be inequitable for the creditor to go back on his promise.

In addition, proprietary estoppel cannot be used to bring an action, only as a defence. “It is a sword not a shield.” (Combe v Combe 2 KB 215)

New Developments

Please note that a recent case appears to have wide ramifications for this whole area of law. In Collier(Collier v P & MJ Wright (Holdings) Ltd), the Court of Appeal considered both the rule in Foakes v Beer and also the doctrine of promissory estoppel. The court took such a liberal view of the doctrine of estoppel that the part-payment rule was effectively by-passed. It remains to be seen whether this approach will be followed.

“The facts of the case demonstrate that, if 1) a debtor offers to pay part only of the amount he owes; (2) the creditor voluntarily accepts the offer, and (3) in reliance on the creditor’s acceptance the debtor pays that part of the money he owes in full, the creditor will, by virtue of the doctrine of promissory estoppel, be bound to accept that sum in full and final satisfaction of the whole debt. For him to resile will of itself be inequitable.”
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