Just suppose a builder is pressurised to accept less, under its building contract, than it was entitled to receive. It agrees, perhaps thinking that 75% of the money today is better than the possibility of 100% at some indefinite future date (or even none at all). But is such an agreement legally binding?
Adam Opel v Mitras in our last issue reminded us that a party that agreed to pay its supplier more for the same performance was legally bound by the agreement (although it avoided the new agreement because there was economic duress). The Court of Appeal decision in Williams v Roffey (which governed the position) said that there was good consideration for an agreement to pay more because of the practical benefit to the paying party in not finishing a project late and having liquidated damages deducted (or in the Mitras case of not having to shut down a production line).
So does Williams v Roffey apply to this accept less for the same situation to find consideration in the practical benefit, for example, of obtaining some payment now rather than at some time in the future – if at all?
Strangely enough, the answer is no, even though there is an obvious lack of consistency. Foakes v Beer, decided in 1884 by the House of Lords (which followed Pinnel’s case of 1602) says that an agreement to accept payment of a lesser sum is not binding because there is no consideration, not even in a practical benefit.
There is case law to say that Williams v Roffey does apply to the accept less for the same scenario. In Anangel Atlas Compania Neaviera SA v Ishikawajima- Harima Heavy Industries Co. Limited the court applied Williams v Roffey to find a practical benefit in a ship builder’s promise to accept a reduced price. In Re Selectmove Limited, however, the Court of Appeal said there was no consideration in accepting less for the same. This was because of Foakes v Beer which was not considered in Williams v Roffey. Any changes to the position, said the Court of Appeal, would have to be made by the House of Lords or, more appropriately, Parliament.
There are some recognised exceptions to the Foakes v Beer principle: the debtor gives something additional for the a • greement to accept less – for example early payment or a different method of payment;
- the sum claimed is disputed and the agreement to accept less is a compromise of the claim;
- the claim is unliquidated and what is agreed is the sum due;
- to accept less involves a third party, for example, who makes the part payment.
Leaving aside these exceptions, however, English contract law currently leaves us with this contradiction. Williams v Roffey finds practical benefit consideration in pay more for the same scenarios and Foakes v Beer finds no practical benefit consideration in accept less for the same situations. And there the matter rests - unless and until the House of Lords gets an opportunity to sort it out.
There is, however, another avenue to explore where a party agrees to accept less for the same. Promissory estoppel achieved some notoriety, particularly with law students, through the decision of Lord Denning (as he became) in Central London Property Limited v High Trees House Limited in 1947. Its essential ingredients are:
- a promise by one party to the other;
- on which that other party acts;
- where it would be inequitable for the original party to go back on its promise;
- it generally suspends, rather than extinguishes, rights; and
- can only be operated defensively, as a “shield, but not as a sword”.
Might promissory estoppel therefore operate where a party is illegitimately pressurised into accepting less for the same, thus avoiding the Foakes v Beer no consideration obstacle?
Sorry - but no is the answer, because, in this situation, promissory estoppel has its own safeguard. For promissory estoppel to operate, it must be inequitable for the party agreeing to accept less, to go back on its promise. An example of this is D&C Builders v Rees where builders who were in desperate financial straits accepted a sum of £100 in respect of their bill of £482 and then sued for the balance. The Court of Appeal said there was no consideration because of Foakes v Beer and promissory estoppel did not apply because it was not inequitable for D&C to go back on its promise to accept less, because of the way that the debtor had behaved.
Which leaves us with Williams v Roffey on the one hand and Foakes v Beer on the other.
It’s not logical, it’s not consistent but it’s the law (at least in England and Wales) and just another obstacle for the commercial world to negotiate.