CONTRACT LECTURES TRANSCRIPTS C STRICKLAND
LECTURE 5 Total time = 59 mins and 41 seconds
Track/slide 1 01.07
Introduction
We are continuing with consideration and are now looking at whether it is possible to
establish a NEW CONTRACT using consideration from an EXISTING CONTRACT. In
other words, can consideration be MULTI-APPLICABLE?
To recap, we said that we can look at this under the traditional 3 headings – is there
SUFFICIENT CONSIDERATION to make ANOTHER contract in the:
i.
performance of a PUBLIC or STATUTORY duty?
ii.
performance of a contractual duty ALREADY OWED to a 3rd
party?
iii.
performance of an ALTERATION to an existing contractual duty?
The first two headings have been addressed in lecture 4. We can now continue by discussing
the issues that arise under heading number 3.
Track/slide 2
04.14
Here, then, we begin our discussion of the situation
WHERE THERE IS A MAIN CONTRACT AND THEN ONE SIDE SUGGESTS AN
'ALTERATION’
promising either to PAY MORE for the same work under the original contract
or
to ACCEPT LESS PAYMENT than is due under the original contract are such alteration promises enforceable as contracts? Is there consideration for them?
We need to look at both possibilities.
Promises to PAY MORE for the same work
Key cases that we need to look at here are:
Stilk v Myrick 1809
Hartley v Ponsonby 1857 and
Williams v Roffey Brothers & Nicholls (contractors) Limited 1991
The leading case here until 1991 was STILK v MYRICK 1809. However, the rule in this
case was EFFECTIVELY OVERRULED in 1991 by the extremely important case of
WILLIAMS v ROFFEY BROS LTD.
We can now look at these 3 cases.
In STILK v MYRICK it was held that a promise by the master of a ship to pay the crew
EXTRA money above that already agreed for sailing the ship home in an emergency was
UNENFORCEABLE by the crew as they had provided NO EXTRA CONSIDERATION for
the extra money. When the boat had reached Cronstadt, 2 of the sailors deserted and the
master had promised the crew that if they sailed the ship back to London he would divide the
wages of the deserters between them. He did not do so and one sailor sued.
There are 2 reports of this case, the Espinasse report that says that the case was decided on
the issue of duress for public policy reasons, and the Campbell report, that says the case was
decided on the basis that ‘legally’ the sailors had not provided consideration because by
sailing the boat home in an emergency they were merely doing what they originally were
contracted to do.
In Hartley v Ponsonby 1857 the result was different because the sailors provided
consideration by doing ‘more’ than they were originally contracted to do. In this case there
was an original crew of 36 sailors and 17 deserted leaving only 19, of which only 4 or 5 were
able seamen. The master of the ship promised the 19 remaining crew members extra wages if
they sailed the ship home. Were they entitled to the extra wages? Yes – when the 17
deserted, the ship was so undermanned that they were not legally obliged to sail her back
under the original contract. In effect, the contract was frustrated. Agreeing to sail back for
enhanced wages was the consideration for a new contract. They were doing more than they
were originally required to do.
Track/slide 3
02.38
In WILLIAMS v ROFFEY the defendant building contractors had entered into a contract
with a sub-contractor for the carpentry work on the block of 27 flats for a price of £20,000.
After the sub-contractor had completed about 80% of the work and received interim
payments for this, it became clear to the main contractor that the sub-contractor was in grave
financial difficulties, mainly because he had under-priced his bid for the job, and there was a
danger that he might pull out of the work.
The main contractor was under the threat of a penalty clause if he did not complete the whole
refurbishment of the 27 flats on time and so he called a meeting with the carpenters and
promised to pay them extra money ‘on completion’ of each flat. When the carpenters had
completed a further 8 flats they had received only one extra payment from the main
contractor and so stopped work and sued for the other payments.
The main contractor said that they were not entitled to any extra money because the
ALTERATION to pay this extra money was UNENFORCEABLE AS IT LACKED
CONSIDERATION by the carpenters.
It was held in Court of Appeal that the carpenters were entitled to the extra payments because
they had provided consideration to the main contractors for their promise in that:
the promise secured completion of the work on time so that the main contractors avoided the
penalty clause, and,
the main contractors avoided the need to employ another sub-contractor if the original ones
decided to quit.
This is such an important case and you MUST ALL READ IT IN THE LAW REPORTS. It
is a relatively short case but very important.
Track/slide 4
02.20
Although the 3 Lords justices of appeal all agreed with the result, they got there by different
routes. We can briefly look at the judgments of each of them, starting with
Glidewell LJ:
His lordship provides a good survey of relevant case law and is of the view that the doctrine
of PROMISSORY ESTOPPEL (which we look at next) does NOT APPLY in this case.
His lordship further notes that in some cases, the doctrine of ECONOMIC DURESS
might apply though not in this case. This would be where the PLAINTIFF had stopped doing
work and WAS DEMANDING extra payment for completing – in the present case the
plaintiff, the sub-contractors were not the ones who suggested the extra payment – that idea
came from the main contractors so they couldn’t try to use economic duress or fraud as an
argument.
His lordship decides the case on the basis of how he sees the law to be as
stated in PAO ON v LAU YIU1979 - basically that the promise by the main contractors to
pay extra to avoid a penalty and to get the work done by the original subcontractors gave
them a PRACTICAL BENEFIT or avoided a DISBENEFIT to them and this was
consideration – so long as economic duress or fraud was absent.
His lordship further said that STILK v MYRICK was NOT OVERRULED by his judgment
that he was merely ‘REFINING AND LIMITING’ the application of the case.
Track/slide 5
01.18
We can now look at the judgment of Russel LJ:
His lordship said that he would have been happy to consider the doctrine of PROMISSORY
ESTOPPEL in this case HAD counsel for the main contractors raised it – and gives a good
explanation of how it applies.
He then moves on to base his finding of consideration on a PRAGMATIC view of it – he
states ‘Consideration there must still be
but in my judgment the courts nowadays should be
more ready to find its existence so as to REFLECT the
INTENTION OF THE PARTIES to the contract where
the bargaining powers are not unequal and where the
finding of consideration reflects the true intention of
the parties’.
His lordship also confirms the point that in no way does his judgment affect the
standing of STILK v MYRICK which is still good law.
Track/slide 6
01.18
We can now look at the judgment of Purchas LJ.
His lordship starts off by saying that STILK v MYRICK is still good law and that his
judgment does not effect it.
His lordship expresses the view that the Stilk v Myrick case was in large part decided for
POLICY reasons – to protect masters of ships from being held to ransom by crews at sea.
And he suggests that the lack of consideration argument was only really used because the
duress was not available.
His lordship felt that there was consideration in this case for COMMERCIAL REASONS –
as the sub-contractor could have decided to be in deliberate breach of contract in order to ‘cut
his losses’. And so if BOTH PARTIES ‘BENEFIT’ from an agreement it is not necessary
that both should also suffer a detriment for consideration to exist.
Track/slide 7
02.19
We can consider some commentary on this case:
After the case, commentators wondered to what extent the whole idea of consideration had
been NULLIFIED – since there seemed to be no real consideration for the extra payment – so
although their lordships stressed that they were not challenging the decision in Stilk v
Myrick, in effect they overruled it.
It is interesting to note that all 3 lord justices of appeal stressed the
fact that their judgments only applied to ALTERATION PROMISES and had NO EFFECT
AT ALL on the requirement to find consideration in THE FORMATION OF CONTRACTS
from scratch.
Thus the requirement for consideration in the formation of contracts seems to be intact after
this case – as supported in
RE SELECTMOVE 1995 and RE C(A DEBTOR) 1994.
In addition, the move away from the need for ‘legal’ consideration in Williams v Roffey
Brothers Limited 1991 was NOT FOLLOWED in recent cases concerning promises to
ACCEPT LESS payment than is due under an original contract. Remember that in Williams v
Roffey, the consideration that was said to exist was of a ‘practical’ or ‘factual’ nature as
opposed to really ‘legal’ in nature.
As we shall see shortly, Williams v Roffey Bros Limited has made NO IMPACT on the old
cases of
PINNEL 1602 and FOAKES v BEER 1884.
Track/slide 8
02.24
We can now move on to consider
PROMISES TO ACCEPT ‘LESS PAYMENT’ THAN IS DUE UNDER AN ORIGINAL
CONTRACT
The leading cases here are PINNEL’S CASE 1602 and FOAKES v BEER 1884.
In PINNEL’S CASE it was held that if A made a promise with B to accept LESS
PAYMENT for a debt and NOT TO SUE for the balance, then this agreement was
UNENFORCEABLE unless B gave some extra consideration for it. The consideration
given, however, could be determined by A and B – thus even ‘payment in kind’ could be
enough (such as ‘a horse, a hawk or a robe’).
In Pinnel’s case, Pinnel had accepted less money from Cole than he was owed, over a month
in advance of the due date – on October 1st instead of on 11th November. Pinnel had accepted
this as full satisfaction for the debt. However, Pinnel sued Cole for the remainder of the debt.
Pinnel only succeeded on a technical point of pleading because although it was held that
‘Payment of a lesser sum on the due day for a debt is no satisfaction of the debt’
(and so the creditor can sue for the rest)
payment of a lesser sum may be enough to discharge the debt where the circumstances of
paying less can be regarded as creating extra consideration to the benefit of the creditor
as follows:
Track/slide 9
02.23
i.
payment in kind rather than in money (as the ‘thing in kind’
might be of more use to the creditor than the money)
ii.
payment in advance of the due date (in Pinnel’s case, Cole
would have won the case had it not been for the technical
point because by paying in advance there would have been
sufficient consideration – benefit to Pinnel )
iii.
payment at a different location to the creditor’s advantage
( such that the debtor has to travel and incur expenses to get to
the new location)
iv.
payment of a lesser sum by a third party accepted as full
settlement by the creditor (to avoid fraud against the third
party).
See HIRACHAND PUNAMCHAND v TEMPLE 1911.
In this case, a father wrote to the plaintiffs, his son’s creditors,
offering to pay part of a debt on a promissory note in satisfaction of the whole
debt, and he enclosed a draft for that amount. The plaintiffs cashed the draft, and
then sued the son for the balance.
The Court of Appeal held that there was sufficient consideration, benefit to the
plaintiff, to discharge the whole debt that was owed by the son, a Lieutenant
Temple.
v.
agreement by a group of creditors (composition of creditors) that they will
accept less than is actually owed them – should one creditor then try to sue
to get the full amount owed, this could be seen as fraud against the other
creditors.
Track/slide 10
03.00
We can now move on to consider the case of Foakes v Beer 1884.
This case is very important because it confirmed Pinnel’s case in the House of Lords.
In this case Mrs Beer had obtained a judgment against Dr Foakes for £2090 – 19shillings.
The key point is that such judgments carry INTEREST from the date of the judgment. In an
agreement with Dr Foakes Mrs Beer promised to accept payment by way of a £500 down
payment and regular instalments of £150. When all the debt was paid, as scheduled and thus
on the due dates, she sued him for the interest.
The House of Lords held that she could claim the interest from Dr Foakes because although
in the agreement between her and Dr Foakes she had stated that she WOULD NOT take
proceedings to enforce the debt, this agreement LACKED CONSIDERATION by Foakes –
he had to pay the debt to her anyway as scheduled and so he gave no additional consideration
for her to accept LESS than she was due, which was the DEBT PLUS INTEREST.
This case has been criticised and it is difficult to reconcile it with Williams v Roffey Bros
Limited 1991.
In Foakes v Beer, Mrs Beer certainly obtained a benefit from the getting the debt paid in
instalments – the option might have been to get no payment at all. So why couldn’t this have
been seen as conferring a PRACTICAL BENEFIT to Mrs Beer not only in FACT but also in
LAW by acknowledging it as consideration? This is the approach that was taken in Williams
v Roffey – the main contractor got a practical benefit, not a ‘legal’ benefit directly, although
the net result was that the ‘practical’ or ‘factual’ benefit was recognised as a ‘legal’ benefit.
Track/slide 11
02.33
However, Foakes v Beer does stand as good authority, being a House of Lords case, as
shown in the case of RE SELECTMOVE LIMITED 1995.
In this case Foakes v Beer was followed and Williams v Roffey Brothers Limited was
distinguished.
The case is useful for confirming a few rules of contract law, namely that:
SILENCE DOES NOT AMOUNT TO AN ACCEPTANCE OF AN OFER (in this case the
agent did not have authority to say silence was an acceptance) and
that the rule in Faokes v Beer was still good law.
It also added that:
Williams v Roffey Brothers Limited only applies to contracts involving GOODS AND
SERVICES - NOT TO CASES OF PURE DEBT PAYING.
Thus, since the present case was a pure payment of debt case (a company owing tax and
National Insurance Contributions to the inland revenue) an agreement by the inland revenue
to accept payment in installments from the company was unenforceable due to lack of
consideration.
Thus, Williams v Roffey Brothers Limited was given a NARROW RATIO DECIDENDI– so
that it could only apply to contracts for goods and services. In this way, the rule in F v B was
not challenged which would have been impossible anyway as it was a House of Lords case
and Re Selectmove was only in the Court of Appeal – thus it would have been against the
rules of precedent to attempt to overrule Foakes v Beer. This point is explored on the
Butterworths copy of the case at page 7 per Peter Gibson LJ.
Track/slide 12
02.03
Having looked at many of the issues surrounding the doctrine of consideration in contract
formation and in alteration promises made on the back of original contracts, it is now
necessary to move on to consider an associated doctrine, that of Promissory Estoppel.
As we shall see, where there is an alteration promise following on from an original contract,
if it is not possible to say that this alteration promise is legally enforceable in a court because
as an alteration promise it lacks extra consideration over and above that given for the original
contract, then it might be possible to argue that the alteration promise is enforceable despite
the lack of consideration due to the equitable doctrine of promissory estoppel. We shall also
see that as a doctrine it has severe limitations, not least of which is that it is generally only
available as a defence and is not a cause of action in its own right.
A possible definition of Promissory Estoppel can be found in the McKendrick text book,
‘Contract Law – text, cases and materials’, published by Oxford Press, on page 113, where he
states:
‘where by words or conduct a person makes an unambiguous representation as to his future
conduct, intending the representation to be RELIED on and to affect legal relations
between the parties, and the representee alters his position in reliance on it, the representor
will be unable to act inconsistently with the representation if by so doing the representee
would be prejudiced’.
Track/slide 13
04.48
First, it is a good idea to make a few early points
1. The reason we are studying promissory estoppel is because it has the POTENTIAL to
REPLACE CONSIDERATION as a key requirement for the FORMATION of a contact.
As it stands, Promissory Estoppel has NOT replaced the requirement for consideration in the
FORMATION of contracts BUT it has been used as a device to
ENFORCE PROMISES MADE IN RELATION TO EXISTING CONTRACTS – when these
new promises are NOT supported by NEW consideration.
It is thus a way of AVOIDING the need to find consideration in order to make a promise
legally enforceable.
2. Promissory Estoppel is just one type or strand of a broader equitable principle of estoppel.
In Williams v Roffey Brothers Limited 1991, Russel LJ quoted a passage from the
Amalgamated Investment and Property Co case 1982 in which Lord Denning MR stated:
‘The doctrine of estoppel is one of the most flexible and useful in the armoury of the law.
But it has become overloaded with cases. That is why I have not gone through them all in
this judgment. It has evolved during the last 150 years in a sequence of separate
developments: proprietary estoppel, estoppel by representation of fact, estoppel by
acquiescence and promissory estoppel.
At the same time it has been sought to be limited by a series of maxims: estoppel is only a
rule of evidence: estoppel cannot give rise to a cause of action: estoppel cannot do away with
the need for consideration, and so forth. All these can now be seen to merge into one general
principle shorn of limitations. When the parties to a transaction proceed on the basis of an
underlying assumption (either of fact or of law, and whether due to misrepresentation or
mistake, makes no difference), on which they have conducted the dealings between them,
neither of them will be allowed to go back on that assumption when it would be unfair or
unjust to allow him to do so.
If one of them does seek to go back on it, the courts will give the other such remedy as the
equity of the case demands’.
Here we can see the hallmarks of promissory estoppel that will be revealed in our study of
key cases below.
3. A contract (based on Offer, Acceptance, Consideration and Intention to create legal
relations ) gives both parties to it a CAUSE OF ACTION – the right to take the other side to
court for breach of contract.
Promissory Estoppel does NOT give the aggrieved person a cause of action – the aggrieved
person cannot take the other person to court for breach of a promise not supported by
consideration. See the case of Combe v Combe 1951.
4. The essential difference between contracts supported by consideration and LATER
PROMISES based on the original contract is that:
When there is a CONTRACT - this protects the parties’ FUTURE EXPECTATIONS
as most contracts are EXECUTORY – to be
fulfilled in the future. Thus, there might be a cause
of action without actual reliance on the contents of
the contract by either side.
However, Promissory estoppel -
only protects people who have ACTUALLY
RELIED on the promise, usually, though not
always, to their detriment. Thus, the scope of
application of promissory estoppel is narrower
than the scope of application for contracts.
Track/slide 14
03.39
Before looking at some of the key cases, we can now look at the general principles about
Promissory Estoppel. When wishing to rely on promissory estoppel the following 6 points
must be borne in mind.
i.
the promise in question MUST BE CLEAR – and is usually an
EXPRESS PROMISE. The promise must clearly demonstrate that the promisor
was giving up his strict legal rights viz a viz the promisee.
ii.
you will not be able to rely on Promissory Estoppel if it would be inequitable for you
to do so – see D & C Builders v Rees 1966 – he who comes to equity must do so
with clean hands.
iii.
usually the person trying to rely on estoppel must be able to
show that they have SUFFERED A DETRIMENT by RELIANCE
on the promise – that they altered their position in reliance on the
promise –
iv.
promissory estoppel may either SUSPEND the original contractual
position or completely EXTINGUISH it. It is usually only
suspended. The contractual position was regarded as merely
suspended in the Hughes case that we consider below – the notice to effect repairs
within 6 months was suspended during negotiations about the
sale of the lease – once they finished Hughes could then have
given the railway company 6 months notice to do the repairs. This was
also shown in
Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd
1955.
In this case the company was able to re-instate the original contract
after temporarily suspending its rights under the contract – but it
was only allowed to do this AFTER it had given ADEQUATE
NOTICE to the promissee that it was reverting to the original
Contract.
v.
Promissory estoppel is generally thought of as a ‘SHIELD AND
NOT A SWORD’ - see Combe v Combe 1951. Thus, it cannot
give rise to a cause of action by itself. As such it usually operates
as a defence to an action.
vi.
it must be explicitly pleaded in court to be considered – see Williams v
Roffey Brothers Limited 1991.
The main gist of what we are looking at here then is that if an original contract is followed by
an alteration promise, then IF extra consideration is not forthcoming to support this alteration
promise it is not enforceable – in which case Promissory Estoppel may be resorted to, though
we have just noted it is not an ideal fall back.
Track/slide 15
00.55
We can now look at the development and operation of the doctrine of promissory estoppel
and we can do this through 7 key cases.
Hughes v Metropolitan Railway Company 1877
Central London Property Trust Ltd v High Trees House Ltd 1947
Combe v Combe 1951
Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd 1955
D & C Builders v Rees 1966
Williams v Roffery Brothers & Nicolls (contractors) Limited 1991
Baird Textile Holdings Ltd v Marks & Spencer plc 2001
Track/slide 16
03.10
First then we shall look at the HUGHES CASE 1877
In this case the railway company leased some property from Hughes. In the lease was a
covenant requiring the lessee (the railway company) to do repairs on receiving notice to do so
from the lessor.
Hughes gave the company six months notice to do some repairs. The company responded by
offering to sell back to Hughes their interest in the property contained in the lease. The 2
sides started negotiations but these broke down and more than six months from the original
date of notice to do repairs, the railway company had not started to do any.
Hughes thus claimed that the lease had been forfeited because the company had not done the
repairs within 6 months from being given notice to do the repairs.
The railway company claimed that there was a TACIT UNDERSTANDING or an IMPLIED
PROMISE that the repairs need not be carried out if the negotiations were concluded
successfully and that whilst they were going on, the period of 6 months notice would not start
to run.
The case went to the House of Lords where the existence of the implied promise was not
doubted. The problem was that it was NOT SUPPORTED BY CONSIDERATION and so
seemed to be unenforceable. The House of Lords however said that it was enforceable and
the basis of this decision comes from the famous speech of Lord Cairns LC at 448:
‘It is the first principle upon which all Courts of Equity proceed, that if parties who have
entered into definite and distinct terms involving certain legal results … afterwards by their
own act or with their own consent enter upon a course of negotiations which has the effect of
leading one of the parties to suppose that the strict rights arising under the contract will not
be enforced or will be kept in suspense or held in abeyance, the person who might otherwise
have enforced those rights will not be allowed to enforce them where it would be inequitable,
having regard to the dealings which have thus taken place between the parties.’.
In other words, equity provides a way of making promises on the back of an existing contract
enforceable, despite the lack of new consideration for them.
Track/slide 17
04.02
We can now look at the HIGH TREES CASE 1947
In this case, CLPT (Central London Property Trust) sued High Trees House Ltd (HTH) for
FULL RENT for the last 2 quarters of 1945, on a test basis to see if there was a possibility to
sue for full rent for the WHOLE DURATION OF THE WAR. Once the war had started and
it had become very difficult to rent out flats, CLPT had agreed to only charge HTH half the
usual rent on the 99 year lease for the block of flats, that is, £1,250 instead of £2,500 a year.
This agreement to accept lesser rent was made in writing, though it did not specify the
duration of the reduction in rent. There was no extra consideration by HTH for the
agreement.
So, how could HTH say that the promise to accept less payment for the original contract
could be binding?
HTH, the defendants, based their argument on 2 possible grounds, either:
i.
the landlords were ‘estopped’ from claiming the full rent or
ii.
the landlords were bound by their promise of a reduction in rent which was made
with the intention that it should be binding and should be acted on and which
was, in fact, acted on by the tenants.
Denning J gave the judgment of the court. He held that the action should succeed so that
CLPT could recover the full rent for the last 2 quarters of 1945, which is all that they
were claiming. He decided the case on the basis of the second argument above, so his
comments on estoppel were obiter dictum. However, the key importance of the case
comes from these obiter remarks. He said that HAD CLPT sued for the full rent between
1940 and 1945 it would have been estopped from doing so because of the promise not to
demand full rent. He relied on the Hughes case.
Crucially for the situation when someone accepts a lesser sum in full satisfaction of a
larger debt, as was the case here in the High Trees case, Lord Denning said that the PE
argument ‘logically would extend to such a situation’.
He said:
‘A party will not be allowed IN EQUITY to go back on such a promise… the logical
consequence, no doubt, is that a promise to accept a smaller sum in discharge of a larger
sum, if acted upon, is binding, notwithstanding the absence of consideration, and if the
fusion of law and equity leads to that result, so much the better’.
Although Dennings comments were obiter, Promissory Estoppel has been recognised in
later cases, as we shall now see.
Track/slide 18
05.47
We can now move on to the case of COMBE v COMBE 1951
In this case and husband and wife got divorced. The husband then promised to pay his
wife £100 a year as a permanent allowance. In reliance on this promise, the wife did not
apply to the courts for maintenance. When the husband failed to make the payments, she
sued him on the promise.
The Court of Appeal held that she could not succeed. There are 2 themes in the decision
of the court:
First, whether the wife’s ‘forbearance’ from applying to the Divorce Court for
maintenance could amount to ‘consideration’ for the agreement to pay her £100 a year
and
Secondly, whether, if there was no consideration, could she rely on the principle of
Promissory Estoppel as developed in the Hughes case.
The Court of Appeal held:
i.
there was no consideration for the promise –
in order for there to be consideration, her forbearance from
going to the Divorce Court for maintenance must have been at
the request of her husband either expressly or impliedly.
In this way the court could have seen an exchange of
promises.
The Court held, per Denning LJ, that the husband had
not expressly requested her forbearance from applying to the court for
maintenance, and it could not be implied. As such the forbearance was not made
in return for the promise by the husband. She may have suffered some
‘detriment’ by not going to the Divorce Court, but this detriment was not at
the request of her husband, so was not consideration.
ii.
If no consideration, could she rely on promissory estoppel?
NO. Denning LJ said at page 220:
‘Seeing that the principle (promissory estoppel) can never stand
alone as giving a cause of action in itself, it can never do away
with the necessity of consideration when that is an essential part of
the cause of action. The doctrine of consideration is too firmly
fixed to be overthrown by a side-wind. Its ill-effects have been
largely mitigated of late, but it still remains a cardinal necessity of
a formation of a contract, though not of its modification or
discharge’.
Lord Denning said that the wife could not use Promissory Estoppel here because her
real cause of action was contract so she needed to find consideration and since there was
none, she lost the case.
This is why we have the phrase, promissory estoppel is a ‘SHIELD AND NOT A SWORD’.
In other words, you can only use promissory estoppel with regard to contracts, on the back of
an existing cause of action.
The decision in Combe v Combe has been criticised. Could not the Court of Appeal have
‘implied’ that the husband promised her £100 a year in return for her promise not to go to the
Divorce Courts? That her forbearance was thus ‘linked’ to the husband’s promise and could
be consideration. There are 2 possible reasons why the court did not see her forbearance as
consideration:
i.
ii.
the case was essentially a Family law case – and she could not take away her
own right to go to the Divorce courts for maintenance – so even if it was implied
that she had promised not to go to the Divorce courts for maintenance in
response to the husbands promise, it was not consideration because she could
still have gone to the DC – her promise would thus have been worth nothing.
The court would not imply that she had promised not to go to the Divorce courts
in response to her husband’s promise because the ‘justice of the case’ did not
require it. This is because she was earning more than her husband and had not
asked for £100 after the first non-payment, but had waited 6 years and was after a
lump sum of £600.
Track/slide 19
03.45
The case of Tool metal manufacturing co 1955
shows that Promissory Estoppel is suspensory and can be revoked by giving reasonable
notice that the original position is being returned to.
We can now move on to the very important case of D & C BUILDERS v REES 1966
This is a very good case for you to read – it is only 9 pages long but makes some very good
points.
D & C builders were jobbing builders comprising just the two people, one a decorator Mr
Donaldson, and the other a plumber, Mr Casey. They carried out work for Mr Rees at his
business premises, 218 Brick Lane. The bill came to £482 13s 1d and this was not disputed.
The plaintiffs requested payment of the bill for months but nothing was forthcoming. At a
time when Mr Rees was ill with the flu, his wife spoke to Mr Casey on the phone and said,
‘My husband will offer you £300 in settlement. That is all you’ll get. It is to be in
satisfaction’.
D and C talked it over and because their company was in desperate financial straits, they
decided to take the £300 but ask for the balance later. Mrs Rees said, ‘No, we will never
have enough money to pay the balance. £300 is better than nothing’. They decided to accept
the £300 and she said, ‘Would you like the money by cash or by cheque. If cash, you can
have it on Monday. If a cheque, you can have it tomorrow (Saturday).’
They decided to accept the cheque and when they gave her a standard receipt for it she
insisted that they added the words, ‘in completion of the account’.
The question was therefore, whether this cheque for £300 amount to full settlement of the
whole debt? D & C sued for the balance of £182 13s 1d.
Applying Pinnel’s case 1602 and Foakes v Beer 1884 you would think NOT in which case
D & C builders should win.
Mr Rees tried to rely on Goddard v O’Brien 1882 because in that case a cheque for £100
was held to discharge a debt for £127 7s because the cheque was seen as a NEGOTIABLE
SECURITY and so SOMETHING DIFFERENT to what the creditor was entitled to, that is
Cash. Thus, Pinnel’s Case was used to say that the negotiable security (the cheque) was the
equivalent of a hawk, robe, or a bird and so amounted to new consideration for a lesser
payment.
Track/slide 20
04.08
What did the 3 Lord Justices of Appeal think of this?
We can consider each of their judgments.
1. Winn LJ
His lordship noted that doubt as to the correctness of Goddard v O’Brien had been voiced in
the Hirachand Punamchand case in 1911 and said that the court should now decline to follow
Goddard v O’Brien. He thus dismissed the appeal applying Pinnel’s case and Foakes v Beer –
and so the builders could sue for the whole of the debt – the cheque was just like cash.
2. Lord Denning MR
First, his lordship said that there is no difference between paying a lesser sum in cash or
paying it by cheque and thus Pinnel’s Case and Foakes v Beer applies to both payment
methods, as supported in the case of Cumber v Wane 1721. In which case the builders
would win.
His lordship then used equitable principles and quoted from Hughes v Metropolitan
Railway Co 1877 the passage that states:
‘When a debtor and a creditor enter on a course of negotiation,
which leads 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’.
He then referred to the High Trees case to further support this equitable principle. On this
basis, it would appear that the builders would lose.
HOWEVER
He said that this principle DID NOT APPLY IN THE PRESENT CASE because it only
applies WHERE IT WOULD BE INEQUITABLE for the creditor to enforce full payment.
He said that it was NOT inequitable for the builders to recover the FULL AMOUNT OF
THE DEBT because Mrs Rees had HELD THEM TO RANSOM – she had intimidated them
to accept less than was due knowing that their company was in dire financial straits.
So the builders could win.
3. Dankwerts LJ
His lordship stated:
‘Foakes v Beer, applying the decision in Pinnel’s case, settled definitively 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 accord and satisfaction’.
He felt that a cheque was basically the same as cash and so it was not extra consideration that
could be used to avoid Foakes v Beer. Thus, the builders could sue for the balance due.
He did note, that a cheque from a THIRD PARTY for less than the whole bill might be
consideration to discharge the whole bill though – thinking along the line of the Hirachand
case – to avoid fraud to the 3rd party.
Track/slide 21
01.50
We can now look at Williams v Roffey Bros & Nicholls (Contractors) Ltd 1991
Glidewell and Russell LJJ suggested that they would have considered promissory estoppel
had it been pleaded. But, counsel for the claimant probably realised that they had a better
chance of winning by trying to establish extra consideration in the guise of practical benefit
rather than trying to get promissory estoppel recognised as a distinct cause of action in its
own right. A different approach was however taken in the next case.
In Baird Textile Holdings Ltd v Marks & Spencer plc 2001,
Baird was contending that M&S was estopped from not ordering garments from them, that
M&S should order garments from them. They failed because: firstly, Promissory estoppel is
a shield and not a sword and secondly, that there was no clear unequivocal promise by M&S
that they would continue to order garments from Baird.
It would thus seem that there is a move to get promissory estoppel established as a separate
cause of action. But, if it did become one, would it just be for ‘alteration’ promises or would
it replace consideration altogether?