Consideration – Part 1

Despite Lord Blackburn’s view in Foakes v Beer (1884) that there was a benefit in prompt payment, it is not accepted that such ‘practical’ benefit is, in the eyes of the law, consideration which will make a promise enforceable at law. As Dankwerts LJ said in D & C Builders v Rees [1966] ‘[It is] settled definitely [that] the rule of law that payment of a lesser sum than the amount of a debt cannot be a satisfaction of a debt, unless there is some benefit to the creditor which amounts to accord and satisfaction.’ However, this is not an absolute principle as in certain contracts a ‘practical’ benefit has been seen as valid consideration in the eyes of the law; Williams v Roffey Bros [1991]. Additionally the role of Equity in enforcing a promise cannot be ignored.

One thing that often confuses students is the relationship with promises enforceable at law and those enforceable in equity. At law the part payment of a debt is not valid consideration for the promise not to pay, which we establish from the case of Foakes v Beer (above) unless something extra is given for the promise to take less, which will bring the principle from Pinnel’s Case (1602) into play.

I tend to have an image in my mind when addressing these issues, for example:

A - B
In this situation there is no promise from A in return for B’s second promise. I am looking for an exchange of promises and if my arrows represent the promises, then the second promise from B does not have a matching promise from A. In this situation I rely on Foakes v Beer. As A has not offered something in exchange for the second promise Pinnel’s Case does not apply.

However, Equity is not limited by legal rules but can do ‘what ought to be done’. The doctrine of estoppel as developed, not invented, by Denning J (as he was) in Central London Properties v High Trees [1947] sets out criteria for enforcing the promise, which is well known by students. This means that the result at law and in equity will be in conflict.

Where equity and law conflict, then unless there is reason not to, as in D & C Builders v Rees [1965], equity prevails. So what would A have to do to rely on equity? A would need to prove there had be a clear promise from B (to only pay £250 instead of £500). That this was relied on by A (only paying £250) which would make it inequitable for B to go back on that promise (here we do not have enough facts, but in High Trees it was enough to remain in occupation during the war, when they may have been able to argue frustration: perhaps more of that in a later blog). Where students often miss out is in failing to apply the facts to the law and this seriously hampers the opportunity to demonstrate a real understanding of the legal principle. For example in D & C Builders v Rees it was not inequitable to go back on the promise because Mrs Rees had taken advantage of the builders cash flow problems, and “those who seek equity must do equity, come to equity with clean hands.”

The effect of estoppel is that it suspends rights and does not extinguish them (Tool Metal v Tungsten [1955]). This means that should B decide that they now want the full rent, they can, on reasonable notice return to their legal rights. They cannot reclaim the month’s rent paid at the lower rate, this has been extinguished but the future payments of rent are payable at the full rent.

So for example if rent was paid January – March at the reduced rate (so instead of £1500 in total only £750 had been paid), then A was notified by B that from April onwards the full rent was to be paid (assuming this is reasonable notice). This means that from April A would need to pay £500pm and if A did not then B could claim this in court. However, B could not claim the £750 balance for January – March rent, this has been extinguished.

Additionally estoppel can only be a defence, a shield and not a sword: Which is why it could not be used in Williams v Roffey, which we discuss in a later instalment. So in D & C Builders v Rees the builders had promised to take a lesser sum in payment for their work. They then later claimed the outstanding balance from Mrs Rees. Against this claim she raised the defence of estoppel (unsuccessfully as explained above) saying that they had promised to accept less. However, in Williams v Roffey Mr Williams was bringing a claim against Roffey Bros, to force them to pay more. This is the basic difference between these two variations from the general principle that for a promise to be enforceable there must be consideration which is over and above an existing obligation.

Consideration – Part 2 will follow later in the year.

This blog post was written by Anne Street, Law Lecturer at SOAS, University of London. Anne regularly teaches on the Laws Programme’s Regional Revision courses.

6 comments

  1. I have several comments to make.

    On the issue of whether the promise extinguishes the right to claim the full amount amount or merely suspends it does not relate to the period where the promise is effective. It relates to the whole period of the contract.

    If promissory estoppel extinguishes the contractual right then the promissor can never revert to the original promise as the original consideration is now replaced with the consideration that is the subject matter of the promise. So going back to the example at the start of this article, if promissory estoppel extinguishes contractual rights, then the landlord can never revert back to the original position and claim the rental of 500 Pounds even in the future.

    The distinction between D & C Buiolders v Rees and Willaims v Roffey Brothers is not the fact that in D & C Builders the Plaintiffs were
    However as the principle merely suspends the original contractual right, when sufficient notice is given by the promissor the parties revert to the original position and the original consideration, therefore when the landlord gives reasonable notice, the tenant has to pay the original rental of 500 Pounds. This is seen in Central London Property Trust v High Trees House where Denning (J) states that the promissor is bound by the promise for the period where the reason for making the promise continues to exist, but once the reason does not exist any more then the parties can revert to their original position when reasonable notice is given.

    It is this idea, that when a party to a contract makes a voluntary promise that is relied on by the other contracting party, then the promissor is bound by his promise only for the duration of the circumstances that induced the promise and then parties can revert back to the original position that makes the principle of promissory estoppel an equitable principle.

    Thirdly, the distinction between D & C Builders v Rees and Williams v Roffey Brothers is not that the fact that in D & C Builders the Plaintiffs were claiming a lesser amount while in Willams v Roffey the Plaintiff was claiming a larger amount.
    The difference in the two cases is that in D & C Builders the promise was obtained by force. Mrs. Rees told the Plaintiffs that of they did not accept the lesser sum they would get nothing. As the Plaintiff were already in financial difficulties they accepted the lesser sum.
    In Williams v Roffey the promise to pay the extra sum was not induced by the Plaintiff. In fact Roffey Brothers made a voluntary promise to pay a higher amount. That is why in Williams v Roffey the Court of Appeal went to great pains to discuss the issue of duress and decided that as Roffey Brothers obtained practical benefits from making the promise, work at the site could proceed without any delay and Roffey Brothers would not be liable under the default clause with the landlords of the flats together with the fact that the promise was voluntary without any duress Roffey Brothers were bound by their promise to pay the increased payment.
    Roffey Brothers rights to revert back to the original consideration had been lost.
    It is interesting to note that the reports on William v Roffey indicate that at the time Roffey entered into the contract with Williams, Roffey Brothers knew that Williams could not finish the work at the price he had quoted. later when Williams had fallen behind in the work Roffey Brothers realised that predicament they were in – they would have to pay the owners under the default clause. That prompted them to make the promise to pay the increased rate.
    I wonder whether Williams v Roffey is actually equity working in the skin of the common law!

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  2. This is a good discussion. I am interested to see your view. But in High Trees the landlord was able to return to the full rent. So the rights were merely suspended and not extinguished.

    It seems from the post that parts of your argument between D & C Builders v Rees/Williams v Roffey are missing, which is a shame. There is a crucial difference in the cases.

    In Williams v Roffey the argument is in common law. There was consideration for the promise.

    In D & C Builders there was no consideration for the promise, to pay less. The promise to take less is not within the criteria of Williams v Roffey. It fails on the first part – being a contract for goods or services. In D & C Builders it is part payment of a debt.

    This is why you must be clear on the type of contract you are dealing with.

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  3. Interesting analysis. Thanks Anne. How I wished I had consumed this before taking my contract law paper. From now on I will regularly visit the Undergrad laws blog page.

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  4. Anne,

    Natarajan has quite a point when he says the question of extinction or suspension of rights relate to the whole period of the contract. You said ‘The effect of estoppel is that it suspends rights and does not extinguish them (Tool Metal v Tungsten [1955]).’ So far so good, this is not controversial. But you went on to give an example saying that if rent was paid Jan-March at reduced rate, then A was notified by B that from Apr onwards, full rent has to be paid (assuming reasonable notice), ‘B could not claim the £750 balance for January – March rent, this has been extinguished’.

    With the greatest of respect, this is problematic for two reasons. First, it bluntly contradicts whatever you said about the suspensory effect of promissory estoppel. If it is true that it is merely suspensory, why then did you use the word ‘extinguished’ to describe the position of B regarding Jan-Mar’s rent? The better view is perhaps to say that promissory estoppel suspends rights indefinitely. Second, there is no case law backing up the idea that the past rights were extinguished. I think the courts have always been cautious in this regard, preferring to say that rights were suspended, and eschewing the word ‘extinguished’. It may be that in exceptional circumstances, the court will say that even the past dealings were not extinguished; they were merely suspended, such that B can now claim £750 balance for Jan-Mar rent.

    But having said that, this piece was lucid as usual and extremely logical in its presentation.

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  5. Hello Set

    Look to what Denning said in High Trees as to the rent for the period of the war. The rights are suspended in the sense that they can be returned to, but the past rights for the periodic payment will be estopped from being claimed.

    If they rent for Jan to Mar can be reclaimed then this is just what they law says, Foakes v Beer. Which means that estoppel would be a sterile concept. So I stand by the explanation for the past rent.

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