The Doctrine of Promissory Estoppel
Equity has long come to the relief of the rigour of the common law. Foakes v Beer, a House of Lords decision is binding until what will be the new Supreme Court changes it or legilsation is passed to change it. Denning in High Trees was able to circumvent Foakes v Beer by drawing on Estoppel and by developing the concept. The basic premise of Estoppel is that a person is prevented from renaguing on a promise which another has relied on even though the promise is not supported by consideration.
1 The context
“Where by his words or conduct one party to a transaction makes to the other a clear and unequivocal promise or assurance which is intended to affect the legal relations between them (whether contractual or otherwise), or was reasonably understood by the other party to have that effect, and, before it is withdrawn, the other party acts upon it, altering his or her position so that it would be inequitable to permit the first party to withdraw the promise, the party making the promise or assurance will not be permitted to act inconsistently with it.”
Snell’s Equity (31st Edition) 10-08
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 Denning J In 1937 the plaintiffs let a block of flats to the defendants for a period of 99 years at a rent of £2500 per annum. In 1940 plaintiffs agreed to reduce the rent to £1250 because many of the flats were unlet due to the war. At the end of the war the plaintiffs asked for the full rent to be reinstated. Denning J HELD that the plaintiffs were entitled to reinstate the rent. Denning J went on to state that the plaintiffs could not have sued for the full rent for the period covered by the agreement.
“The logical consequence no doubt is that a promise to accept a smaller sum, if acted upon, is binding notwithstanding the absence of consideration.”
Denning J. @ 134.
Denning founded his assertion upon the dictum of Lord Cairns in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439
“it is the first principle upon which all the Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal rights – certain penalties or legal forfeiture – 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 otherwise might have enforced these 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.’
Hughes had been cited with approval in Birmingham & District Land Co v L&NW Ry (1889) LR 40 Ch D 268
Denning J
“ If I were to consider this matter without regard to recent developments in the law, there is no doubt that had the plaintiffs claimed it, they would have been entitled to recover ground rent at the rate of 2,500l. a year from the beginning of the term, since the lease under which it was payable was a lease under seal which, according to the old common law, could not be varied by an agreement by parol (whether in writing or not), but only by deed. Equity, however stepped in, and said that if there has been a variation of a deed by a simple contract (which in the case of a lease required to be in writing would have to be evidenced by writing), the courts may give effect to it as is shown in Berry v. Berry [1929] 2 K. B. 316. That equitable doctrine, however, could hardly apply in the present case because the variation here might be said to have been made without consideration. With regard to estoppel, the representation made in relation to reducing the rent, was not a representation of an existing fact. It was a representation, in effect, as to the future, namely, that payment of the rent would not be enforced at the full rate but only at the reduced rate. Such a representation would not give rise to an estoppel, because, as was said in Jorden v. Money (1854) 5 H. L. C. 185, a representation as to the future must be embodied as a contract or be nothing.But what is the position in view of developments in the law in recent years? The law has not been standing still since Jorden v. Money (1854) 5 H. L. C. 185. There has been a series of decisions over the last fifty years which, although they are said to be cases of estoppel are not really such. They are cases in which a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made and which was in fact so acted on. In such cases the courts have said that the promise must be honoured.
The cases to which I particularly desire to refer are: Fenner v. Blake [1900] 1 Q. B. 426, In re Wickham (1917) 34 T. L. R. 158, Re William Porter & Co., Ld. [1937] 2 All E. R. 361 and Buttery v. Pickard [1946] W. N. 25. As I have said they are not cases of estoppel in the strict sense. They are really promises – promises intended to be binding, intended to be acted on, and in fact acted on. Jorden v. Money (1854) 5 H. L. C. 185 can be distinguished, because there the promisor made it clear that she did not intend to be legally bound, whereas in the cases to which I refer the proper inference was that the promisor did intend to be bound. In each case the court held the promise to be binding on the party making it, even though under the old common law it might be difficult to find any consideration for it.
The courts have not gone so far as to give a cause of action in damages for the breach of such a promise, but they have refused to allow the party making it to act inconsistently with it. It is in that sense, and that sense only, that such a promise gives rise to an estoppel. The decisions are a natural result of the fusion of law and equity: for the cases of Hughes v. Metropolitan Ry. Co. (1877) 2 App. Cas. 439 , 448, Birmingham and District Land Co. v. London & North Western Ry. Co. (1888) 40 Ch. D. 268 , 286 and Salisbury (Marquess) v. Gilmore [1942] 2 K. B. 38 , 51, afford a sufficient basis for saying that a party would not be allowed in equity to go back on such a promise. In my opinion, the time has now come for the validity of such a promise to be recognized. 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 this result, so much the better. That aspect was not considered in Foakes v. Beer (1884) 9 App. Cas. 605. At this time of day however, when law and equity have been joined together for over seventy years, principles must be reconsidered in the light of their combined effect. It is to be noticed that in the Sixth Interim Report of the Law Revision Committee, pars. 35, 40, it is recommended that such a promise as that to which I have referred, should be enforceable in law even though no consideration for it has been given by the promisee. It seems to me that, to the extent I have mentioned that result has now been achieved by the decisions of the courts.
I am satisfied that a promise such as that to which I have referred is binding and the only question remaining for my consideration is the scope of the promise in the present case. I am satisfied on all the evidence that the promise here was that the ground rent should be reduced to 1,250l. a year as a temporary expedient while the block of flats was not fully, or substantially fully let, owing to the conditions prevailing. That means that the reduction in the rent applied throughout the years down to the end of 1944, but early in 1945 it is plain that the flats were fully let, and, indeed the rents received from them (many of them not being affected by the Rent Restrictions Acts), were increased beyond the figure at which it was originally contemplated that they would be let. At all events the rent from them must have been very considerable. I find that the conditions prevailing at the time when the reduction in rent was made, had completely passed away by the early months of 1945. I am satisfied that the promise was understood by all parties only to apply under the conditions prevailing at the time when it was made, namely, when the flats were only partially let, and that it did not extend any further than that. When the flats became fully let, early in 1945, the reduction ceased to apply.
In those circumstances, under the law as I hold it, it seems to me that rent is payable at the full rate for the quarters ending September 29 and December 25, 1945.
If the case had been one of estoppel, it might be said that in any event the estoppel would cease when the conditions to which the representation applied came to an end, or it also might be said that it would only come to an end on notice. In either case it is only a way of ascertaining what is the scope of the representation. I prefer to apply the principle that a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply. Here it was binding as covering the period down to the early part of 1945, and as from that time full rent is payable.
I therefore give judgment for the plaintiff company for the amount claimed.
The precedents Denning avoided
Denning, initially, was reluctant to describe the doctrine as an estoppel but it it clear now that the doctrine has developed and been accepted – although some judges have expressed doubt and have sought to achieve results by different routes (Brikom Investments v Carr [1979] QB 467 providing an illustration)
(a) Jorden v Money (1854) 5 HL Cas 185
Jorden v Money [1854] UKHL J50 (1854) 5 HL Cas 185, (1854) HL 185, 10 ER 868
The House of Lords held that only a representation of past or existing fact could establish an estoppel – whereas Denning J was asserting the promise as the foundation of estoppel.
Denning J, while acknowledging Jorden, evaded the point by declining to describe his doctrine as an estoppel.
Denning in High Trees: “Jorden v. Money (1854) 5 H. L. C. 185 can be distinguished, because there the promisor made it clear that she did not intend to be legally bound, whereas in the cases to which I refer the proper inference was that the promisor did intend to be bound. In each case the court held the promise to be binding on the party making it, even though under the old common law it might be difficult to find any consideration for it.”
(b) Foakes v Beer (1884) 9 App Cas 605.
Foakes v Beer [1884] UKHL 1 (1883-84) L.R. 9 App. Cas. 605;(1884) 9 App Cas 605
Foakes, owed Julia Beer, a sum of £2,090 19s after a court judgment . According to the Judgments Act 1888, a judgment debt bore interest of 4% p.a. from the date of judgment. Beer agreed that she would not take any action against Foakes for the amount owed if he would sign an agreement promising to pay an initial sum of £500 and pay £150 twice yearly until the whole amount was paid back. Foakes was in financial difficulty, and so Beer waived any interest on the amount owed.
Foakes made the payments as agreed without any interest. Beer sues Foakes for the interest.
At first instance, the court found in favour of Foakes, but was reversed by the Court of Appeal . The House of Lords upheld the ruling of the Court of Appeal in favour of Beer.
The reasoning behind their judgment was that though the agreement did not contemplate the interest owed, it could still be implied given an enforceable agreement. However, the promise to pay a debt was deemed not to be sufficient consideration as there was no additional benefit moving from Foakes to Beer that was not already owed to her.
Payment of a smaller sum in satisfaction of a larger sum is no satisfaction of the larger sum.
Pinnel’s Case (1602) 5 Co Rep 117a
A rule confirmed by the House of Lords in Foakes v Beer – the facts of which have been canvassed earlier in relation to the doctrine of consideration.
Two members of the House of Lords who sat in Foakes were members of the House in Hughes – seven years before. While the Hughes point was not pleaded in Foakes the two members of the Lords appear to have been quite unaware of the ‘effect’ of the Hughes decision some seven years later!
Denning made the point that Hughes was not pleaded in Foakes , that the decision was per incuriam.
It is possible to reconcile Foakes with High Trees . In Foakes the debt had already accrued whereas in High Trees the promise was in relation to future payments. If this point is taken and accepted the two cases are reconcilable and that Foakes remains good law.
***
2. The conditions for the applicability of the doctrine
There must be a pre-existing legal relationship
Hughes v Metropolitan Railway Co (1877) 2 App Cas 439
There must be a promise
There must be a clear promise intended to alter the contracted (or otherwise legally binding) obligation. The court assesses intention objectively rather than taking evidence on the party’s state of mind.
Woodhouse Israel Cocoa Ltd v Nigerian Produce Marketing Board [1972] AC 741
There must be reliance on the promise
The promisee must have acted upon the promise and altered his position.
Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 HL
Does the promisee need to act to his detriment?
While there was no detriment in High Trees and the point was not taken in Ajayi v Briscoe or in Tungsten Electric it appears to be the case – strictly speaking – that detriment is not required.
Detriment not required in WJ Alan & Co v El Nasr Export and Import Co [1972] 2 QB 189.
In Goldsworthy v Brickell [1987] 1 All ER 853 Nourse LJ in the Court of Appeal indicated that detriment was required.
Goff J in Societe Italo-Belge v Palm Oils [1982] 1 All ER 19 thought that detriment was not required.
The issue has never been tested on appeal. The usual view is that to invoke the doctrine, it must be ‘inequitable’ for the promisor to go back on his promise. Detriment is one reason why it may be inequitable, but not the only one. ‘Misconduct’ by the defendant, e.g. unreasonably withdrawing the forbearance at short notice, may make it inequitable.
While Lord Denning asserted that there need be no reliance to detriment, recent caselaw suggests that reliance should have caused detriment.
Emery & Another v UCB Corporate Services [2001] EWCA Civ 675
Peter Gibson LJ:
A promissory estoppel, in my judgment, arises where
(1) there is a clear and unequivocal promise that strict legal rights will not be insisted upon;
(2) the promisee has acted in reliance on the promise; and
(3) it would be inequitable for the promisor to go back on his promise.
# Some commentators express the second condition in terms of the promisee altering his position to his detriment (see, for example, Snell’s Equity 13th Edition (2000) paragraph 39-08), but that is controversial (see, for example, Chitty: Law of Contracts, 28th Edition (1999), paragraph 3-089). However, the fact that the promisee has not altered his position to his detriment is plainly most material in determining whether it would be inequitable for the promisee to be permitted to act inconsistently with his promise.
Case Study: An excellent review of the law by Lady Justice Arden
Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329
ARDEN LJ:
The issues before the judge involved the application of a rule of English contract law, namely the rule in Pinnel’s case (1603) 5 Coke’s Rep 117a. This rule is based on the dictum of Sir Edward Coke in that case that “payment of a lesser sum on the [due] day in the satisfaction of a greater cannot be any satisfaction of the whole.” In the 19th century, the House of Lords, observing this dictum was long-standing, held that consideration was necessary for the discharge of the debtor’s liability (Foakes v Beer (1883-4) LR 9 App Cas 605). That meant that a debtor who was obliged to pay £100 could not discharge it by paying £50 even if the effect of the parties’ agreement was that the creditor should accept that sum in full satisfaction. The link between the rule in Pinnel’s case and the doctrine of consideration was first established by Foakes v Beer.
Needless to say, the rule in Pinnel’s case has proved very controversial. The effect of the rule is that it is not enough to give a creditor some only of the money to which he is already entitled. While that may sound like a good result in terms of creditor protection, the consequence is also that, where a compromise has been made, the expectations of the parties are frustrated. Thus, the rule makes it difficult to enter into compromises of claims, which it can often be commercially beneficial for both parties to do. The courts have, however, developed a number of exceptions to the rule. The first exception was created by Coke himself. He recognised that, although payment of a lesser sum could not discharge a greater debt, “the gift of a horse, hawk, robe etc in satisfaction is good”. Denning J (as he then was) was the originator of another doctrine which was used to alleviate the effects of the rule in Pinnel’s case, namely the doctrine of promissory estoppel. Mr Collier also relies on the doctrine and I shall have to explain it in more detail below. Suffice it to say at this stage that where there was a compromise agreement the doctrine of promissory estoppel meant that the agreement was binding if it was inequitable for the creditor to enforce his strict legal rights. The Court of Appeal has also held that the rule does not apply where the debt arises from the provision of services: Williams v Roffey [1991] 1 QB 1. We are not concerned with this exception because this court, in Re Selectmove Ltd [1995] 1 WLR 474, considered Williams but confirmed that a promise to pay part of the money to which the creditor is already entitled is not good consideration. The court applied Foakes v Beer and held that a debtor’s promise to pay the sum due from him by instalments without interest did not prevent the creditor from suing for the interest. There may be other cases where the rule is in effect circumvented.
On this appeal, Mr David Uff, for Mr Collier, seeks to develop a further exception to the rule. He submits that where a debtor agrees to pay part of a joint debt, and to become severally liable for that part, the parties have necessarily entered into a binding agreement for good consideration that the debtor’s liability for the rest of the joint debt is discharged. I shall have to explain this in greater detail below.
So this is another case in which a challenge is made to the rule in Pinnel’s case. It does not apply in Scots law, which has no requirement for consideration. In 1937, the Law Revision Committee, chaired by Lord Wright MR, recommended the reversal of the rule in Pinnel’s case by statute but its recommendation has not been implemented (Sixth Interim Report on The Statute of Frauds and the Doctrine of Consideration, Cmnd 5449, paras 33 to 35). The Committee said:
In Foakes v. Beer Lord Blackburn was evidently disposed to hold that it was still open to the House of Lords to reconsider the rule based on the dictum, but in deference to his colleagues who were of a different opinion he did not press his views. In a few words (at p. 622) he summed up what appears to us to be a powerful argument for the abolition of the rule. He said:
“What principally weighs with me in thinking that Lord Coke made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognize and act on the ground that prompt payment of a part 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 often is so. Where the credit of the debtor is doubtful it must be more so.”
35.no hesitation in recommending that legislation should be passed to give effect to it. This legislation would have the additional value of removing the logical difficulty involved in finding consideration for the creditors’ promises in a composition with creditors when not under seal. It would be possible to enact only that actual payment of the lesser sum should discharge the obligation to pay the greater, but we consider that it is more logical and more convenient to recommend that the greater obligation can be discharged either by a promise to pay a lesser sum or by actual payment of it, but that if the new agreement is not performed then the original obligation shall revive.”
The current edition of Treitel on The Law of Contract (12 ed, 2007, Edwin Peel, p136) states that the law would be more consistent, and satisfactory in its practical operation, if it treated benefits obtained by part payment in the same way as “the gift of a horse, hawk, robe etc”. The text points out that a remedy might lie in duress if a creditor was suborned into agreeing to accept a smaller amount than that to which he was entitled. However, in the light of Foakes v Beer, the point made in Treitel is not open in this court. What we have to consider is whether it is open to this court to carve out yet another exception or use an existing one
…….
ARDEN LJ continues…
(2) The promissory estoppel point
Mr Uff also relies on the doctrine of promissory estoppel, which the common law and in particular Lord Denning, both at first instance and in this court, developed to meet the hardship created by the rule in Pinnel’s case. The principal authority is Central London Property Trust v. High Trees House Ltd [1947] 1 KB 130. This case concerns a rent reduction given by concession during the Second World War. After that war, the landlord sought to recover the difference between the reserved rent and the concessionary rent for the period following the war. Denning J held that the agreement to reduce the rent was intended to apply only while the war lasted. It was not intended to run for the full term of the lease. Accordingly the landlord could recover the full rent for the post-war period.Denning J went on to hold (obiter) that the landlord was bound by the earlier agreement as a result of what we now call promissory estoppel: the landlord had made a representation on which the tenants relied and it would be inequitable for the landlord to be allowed to resile from his promise. Denning J relied on Hughes v Metropolitan Railway (1887) 2 App Cas 439. In that case, a landlord gave his tenant six months’ notice to repair the premises. The lease could be forfeited if the tenant failed to comply. During the six months following service of the notice, the parties entered into negotiations for the landlord to buy the lease and with his concurrence no repairs were done during that period. When the negotiations failed, the landlord claimed to treat the lease for forfeit on the expiry of six months from the original notice. The House of Lords held that the tenant was entitled to relief in equity against forfeiture, and that the six months allowed for repair should run from the date of the failure of the negotiations. The landlord had waived his right to strict performance. Denning J observed that the principle in Hughes had not been considered in Foakes v Beer. In that case, the parties’ agreement for the giving of time was contained in a written agreement and there was no suggestion as to any representation by the creditor. The crucial element in the Hughes case was that the tenant had been induced to act on the basis of a representation by the landlord.
The doctrine of promissory estoppel has been approved and developed in later cases. In Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 the House of Lords (per Viscount Simmonds, Lord Tucker and Lord Cohen) accepted in principle that Hughes v Metropolitan Railway could apply to a reduction by concession in payments due to a creditor and held that the concession could be terminated by giving reasonable notice. The doctrine of promissory estoppel only applies when it is inequitable for the creditor (or other representor) to insist on his full rights: see D & C Builders v Rees [1966] 2 QB 617.
Mr Uff accepts that there must be reliance on the promise but submits that there does not have to be detriment. In this regard he relies on the following passage from Chitty at 3-136:
“Inequitable. By making the part payment, the debtor acts in reliance on the creditor’s promise, and so makes it prima facie “inequitable” for the creditor peremptorily to go back on his promise. But other circumstances may lead to the conclusion that it would not be “inequitable” for the creditor to reassert his claim for the full amount: this would, for example, be in the position where the debtor had failed to perform his promise to pay the smaller amount.”
He also relies on the following passage from the judgment of Lord Denning MR in D & C Builders v Rees, with which Dankwerts LJ agreed:
“This principle [the principle of promissory estoppel] has been applied to cases where a creditor agrees to accept a lesser sum in discharge of a greater. So much so that we can now say that, when a creditor and a debtor enter upon 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. This was well illustrated during the last war. Tenants went away to escape the bombs and left their houses unoccupied. The landlords accepted a reduced rent for the time they were empty. It was held that the landlords could not afterwards turn round and sue for the balance, see Central London Property Trust Ltd. v. High Trees House Ltd. This caused at the time some eyebrows to be raised in high places. But they have been lowered since. The solution was so obviously just that no one could well gainsay it.
In applying this principle, however, we must note the qualification: The creditor is only barred from his legal rights when it would be inequitable for him to insist upon them. Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance. But he is not bound unless there has been truly an accord between them.”
Mr Uff accepts that the doctrine is generally suspensory because the courts do the minimum necessary to satisfy the equity. However, he submits that the requirement of detriment, and perhaps other requirements of the doctrine, have to be approached as part of a broader enquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances (see generally per Robert Walker LJ (as he then was) in Gillett v Holt [2001] Ch 210 at 232D). Here, he submits, there is a triable issue as to the basic question of unfairness. There had been part payments over a number of years and the lapse of 5 1/2 years between promise and repudiation. The part payments were maintained over a number of years. By inference, Mr Collier conducted his affairs on the premise that his obligation was a several obligation and undertook new commitments based on the belief that he had so conducted his finances as to enable those payments and no more. Mr Uff further submits that Mr Collier did not take steps he would otherwise have taken, including on the evidence considering bankruptcy or composition with his creditors or pursuing or pressing the joint debtors to contribute. In addition, by each payment he would have been misled into acknowledging the joint debt for the purposes of limitation.
Mr Atkins submits that the requirements for promissory estoppel are set out in the following passage from Chitty at 3-086:
“Requirements. For the equitable doctrine to operate there must be a legal relationship giving rise to rights and duties between the parties; a promise or a representation by one party that he will not enforce against the other his strict legal rights arising out of that relationship; an intention on the part of the former party that the latter will rely on the representation; and such reliance by the latter party. Even if these requirements are satisfied, the operation of the doctrine may be excluded if it is, nevertheless, not “inequitable” for the first party to go back on his promise. The doctrine most commonly applies to promises not to enforce contractual rights, but it also extends to certain other relationships. These points will be discussed in the following paragraphs.”
He further submits that Mr Collier must raise some factor which would make it inequitable for Mr Wright now to resile from the alleged assurance in the agreement. On his submissions, the matters relied upon by Mr Collier are misconceived or totally unsupported by evidence. He submits that the mere lapse of time cannot be enough. He further submits that it is not enough that Mr Collier conducted his affairs on the premise that his obligation was a several obligation. In any event there is no agreement as to that. He has to show detrimental reliance. The assumption of a several debt in place of a joint one cannot be a detriment but only a benefit. He further submits that it is not enough for Mr Collier to say that he maintained the agreed payments because that of itself does not suggest any prejudice. He further submits that there is no evidence that Mr Collier would have entered bankruptcy or proposed a compromise with his creditors or an individual voluntary arrangement. The evidence of Mr Redfern was that Mr Collier did not want to go into bankruptcy. Likewise, submits Mr Atkins, there is no evidence that Mr Collier would have been able to recover anything from his partners. In 2000 Mr Collier could not have been misled into making instalment payments. He was always liable to make those payments. I note that there is no evidence that Mr Collier’s position now is in any material respect different from that immediately before the agreement was made. For instance, there is no evidence that he entered into any business venture or made any substantial investment on the strength of the agreement. Nor is there any evidence that he could not raise the money now to meet Wrights’ claim. Mr Collier has had plenty of time to produce this evidence, since service of the statutory demand on 31 May 2007.
I now turn to my conclusions. Mr Collier has to show that it is inequitable for Wrights to resile from its alleged promise: see the Tool Metal case. The effect of promissory estoppel is usually suspensory only, but, if the effect of resiling is sufficiently inequitable, a debtor may be able to show that the right to recover the debt is not merely postponed but extinguished: see the High Trees case and the Tool Metal case with respect to the wartime payments.
In this case, the burden was on Mr Collier to show that there was a genuine triable issue that it would be inequitable for Wrights now to insist on payment. He does not have to prove his case at this stage. On the other hand, as I have said, it is not enough for a debtor merely to assert that he thinks that he has a defence. He has to produce some tangible evidence in support, though it need not be all his evidence that he would adduce if there were a trial, nor even need he raise all the possible defences open to him. What matters therefore is whether Mr Collier has adduced enough to support his case.
The mere fact that the time had elapsed would not be enough of itself to give rise to promissory estoppel. Mr Atkins submits that the payment by Mr Collier of his instalments would not be enough because he was already bound to make those payments. Mr Collier’s case, however, is that he made the payments on the faith of the agreement he had made with Mr Wright. He contends that there is a triable issue as to whether there has been an accord and satisfaction since he has now paid his share of the judgment and (if he can prove that the alleged agreement was made) that Wrights voluntarily agreed to accept that sum. It follows from the judgment of Lord Denning MR in D & C Builders which I have already set out that that is enough to make it inequitable for Wrights in those circumstances to pursue him for the balance because Lord Denning held:
“Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance.”
The passage from Chitty quoted at [32] above reflects this part of Lord Denning’s judgment. In all the circumstances, Mr Collier has in my judgment raised a triable issue as to promissory estoppel.
Some concluding observations on the rule in Pinnel’s case
In Couldery v Bartrum (1881) 19 Ch D 394 at 399, Sir George Jessel MR observed:“According to English common law a creditor might accept anything in satisfaction of his debt except a less amount of money. He might take a horse, or a canary, or tomtit if he chose, and that was accord and satisfaction; but, by a most extraordinary peculiarity of the English common law he could not take 19 shillings and sixpence in the pound; that was nudum pactum.” ”
The facts of this case demonstrate that, if (1) a debtor offers to pay part only of the amount he owes; (2) the creditor voluntarily accepts that offer, and (3) in reliance on the creditor’s acceptance the debtor pays that part of the amount 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. In addition, in these circumstances, the promissory estoppel has the effect of extinguishing the creditor’s right to the balance of the debt. This part of our law originated in the brilliant obiter dictum of Denning J, as he was, in the High Trees case. To a significant degree it achieves in practical terms the recommendation of the Law Revision Committee chaired by Lord Wright MR in 1937.
It must be inequitable to go back on the promise .
The point on detriment may be academic for there is a further requirement that it must be inequitable to go back on the promise. If a person has not altered his position to his detriment it may be easier to assert that it is not inequitable to go back on the promise.
A shield and not a sword
The doctrine cannot create any new rights. Denning made this perfectly clear in the Court of Appeal in the case of Combe v Combe [1951] 2 KB 215.
The doctrine operates as a defence to a cause of action and not to found a cause of action in itself.
Baird Textile Holdings Ltd v Marks and Spencer [2001] EWCA Civ 274
Baird had made clothes for M&S for 70 years. The companies had worked closely together. M&S was Britain’s most successful clothes retailer. Wishing to build on that position, M&S decided to stop buying from Baird and to import clothes from cheaper suppliers abroad. This was disaster for Baird. Baird argued that M&S’s close involvement with them amounted to conduct which induced Baird to believe M&S would not ‘pull the plug’ without reasonable notice.
HELD: the argument that M&S could not suddenly stop buying from Baird was an argument for a positive legal right (i.e. that M&S would continue to buy for a reasonable period after giving notice). Promissory Estoppel cannot be used to create a legal right, so Baird’s case could not succeed on the basis of promissory estoppel.
The Vice Chancellor:
In my view English law, as presently understood, does not enable the creation or recognition by estoppel of an enforceable right of the type and in the circumstances relied on in this case. First it would be necessary for such an obligation to be sufficiently certain to enable the court to give effect to it. That such certainty is required in the field of estoppels such as is claimed in this case as well as in contract was indicated by the House of Lords in Woodhouse AC Israel Cocoa Ltd v Nigeria Produce Marketing Co Ltd [1972] AC 741 and by Ralph Gibson LJ in Troop v Gibson [1986] 1 EGLR 1, 6. For the reasons I have already given I do not think that the alleged obligation is sufficiently certain. Second, in my view, the decisions in the three Court of Appeal decisions on which M&S rely do establish that such an enforceable obligation cannot be established by estoppel in the circumstances relied on in this case. This conclusion does not involve the categorisation of estoppels but is a simple application of the principles established by those cases to the obligation relied on in this. I do not consider that any of the dicta in the line of cases relied on by Baird could entitle this court to decline to apply those principles.
Clean hands
Those who seek the protection of equity must have clean hands – they must have behaved equitably themselves.
D &C Builders v Rees [1966] 2 QB 617
Plaintiffs were owed £480 for building works. The defendant offered £300 which was accepted. The defendant had delayed in payment and had indicated that it was £300 or nothing, knowing that the builders were in serious financial difficulties. The plaintiffs sued for the balance. Lord Denning held that the plaintiffs were entitled to the full amount. The defendants had not behaved equitably.
The effect of the doctrine
Does the doctrine operate to extinguish legal rights or merely so as to suspend them.?
Denning – extinctive
Others – suspensory.
In Tool Metal v Tungsten Electric the effect of the doctrine was to suspend legal rights.
See also: Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329 (Above per Arden LJ)
“The effect of promissory estoppel is usually suspensory only, but, if the effect of resiling is sufficiently inequitable, a debtor may be able to show that the right to recover the debt is not merely postponed but extinguished: see the High Trees case and the Tool Metal case with respect to the wartime payments.”
per Arden LJ
The doctrine may only be used as a defence to a cause of actiomn and not to found a cause of action.
Wikipedia notes:
The doctrine of promissory estoppel has had a major impact on English and Irish contract law since the High Trees case. Debates surrounding the expansion and application of the doctrine have included whether or not detrimental reliance is required in order to bring the doctrine into effect, whether the doctrine can create a cause of action or merely provide a defence to a cause of action and whether or not the evolution of the doctrine has abrogated or abolished the rule in Pinnel’s case .
In Amalgamated Investment Co v Texas Bank [1982] 1 QB 122 it was held that the doctrine could act as a sword and not merely as a shield (that is, it could be used as a cause of action rather than merely providing a defence to an action).
Attempts have been made to utilize the doctrine of promissory estoppel after High Trees to create a new inroad into the rule in Pinnel’s case that an agreement to accept part payment of a debt in full satisfaction of it is unenforceable for want of consideration. In the High Trees case Lord Denning commented, obiter , that such an agreement should now be enforceable under the doctrine of promissory estoppel. However, the courts have traditionally been reluctant to overrule cases like Pinnel’s case and Foakes v Beer as they have formed part of the common law for so long. Lady Justice Arden in Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329 accepted in principle that High Trees could be used to extinguish a creditor’s right to full payment of a debt in such circumstances.
Analyses in Contract & Sale of Goods
Consideration
Drafted 13th August 2009
Mike Semple Piggot
Question
Ambassador Ltd has been contracted to paint and carpet a new business development park for HappyatWork PLC. Ambassador sub-contracted the carpet fitting work to Carpetbagger Ltd. Work proceeds for the first month but unable to pay for carpetting and their freelance labour Carpetbagger Ltd informs Ambassador Ltd of the difficulty. Ambassador Ltd, concerned that the project may not be completed on schedule agrees to pay an additional 20,000 over and above the original contract price of £100,00 to ensure completion of the project on time and advances the £20,000 to Carpetbagger Ltd
The work is completed on schedule and Ambassador now refuses to pay the additional £20,000 fee and deducts the £20,000 payment from the contract price of £100,000 and pays £80,000.
HappyatWork PLC, claiming difficulty in paying the contract price of £250,00 agreed with Ambassador Ltd for painting and carpeting of the business park because of the recession asks if Ambassador Ltd would be prepared to accept a reduction of £50,000 on the contract price. Ambassador, fearful of not obtaining any of the fee agreed if HappyatWork goes into receivership or liquidation, accepts the reduced amount of £50,000.
Ambassador now discovers that HappyatWork PLC have succeeded in letting the business park at 100 % occupancy asks HappyatWork PLC for the balance of £50,000. HappyatWork PLC reply that they have paid for the work at the agreed revised price and therefore do not owe the £50,000 as £200,000 was paid in full and final settlement of the contract.
You are asked to advise Ambassador Ltd in relation to:
(a) their contract with Carpetbagger Ltd and whether they have to pay the additional £20,000
(b) their contract with HappyatWork PLC and whether they are able to recover the full contract price of £250,000.
1. There are two separate contracts to consider: Ambassador Ltd v Carpetbagger Ltd and Ambassador v HappyatWork PLC ; the contract with Carpetbagger raising issues of the performance of an existing duty under the doctrine of consideration (Stilk v Myrick, Williams v Roffey [1991] et al) and the contract with HappyatWork, the issue of payment of a smaller sum in satisfaction of a larger sum at common law (Pinnels’ Case, Foakes v Beer [1884]) and the application of the doctrine of promissory estoppel (Central London Property Trust v High Trees House [1952] et al).
2. Ambassador Ltd v Carpetbagger Ltd
This is a contract for labour and materials priced at £100,000 which has been varied to a price of £120,000 because of the difficulties faced by Carpetbagger Ltd in securing supplies and labour; raising the issue of consideration to support the variation.
3. The Law
3.1 While the leading theory of consideration over 100 years ago turned on the concept of bargain, the giving of benefit and the sustaining of detriment (Currie v Misa (1875) per Lush J); modern theory appears to be the more simplified exchange of promises with scant attention being paid by the courts to the adequacy of consideration, consistent with the court’s reluctance to interefere in the right of the contracting parties to set the terms of their bargain or contract. (See Consideration must be sufficient but need not be adequate – Chappel v Nestle [1960] et al])
3.2 The main issue lies in the issue of whether the variation from £100,000 to a contract price of £120,000 is supported by fresh consideration. If it is, Ambassador will be liable for the full varied contract price of £120,000.
3.3 The starting point is the principle that the performance of an act already required under a prior contract cannot be a good consideration for a later promise. The leading case on this proposition is the 1809 case of Stilk v Myrick.
Stilk v Myrick (1809) 2 Camp 317
Sailors jumped ship. The Captain promised to divide their wages among the remaining crew if they agreed to work the ship home short handed. The Captain reneged on his promise. The sailors sued. It was HELD that they had not provided any consideration and could not enforce the contract.
Lord Ellenborough: “I think Harris v. Watson was rightly decided; but I doubt whether the ground of public policy, upon which Lord Kenyon is stated to have proceeded, be the true principle on which the decision is to be supported. Here, I say, the agreement is void for want of consideration. There was no consideration for the ulterior pay promised to the mariners who remained with the ship. Before they sailed from London they had undertaken to do all that they could under all the emergencies of the voyage. They had sold all their services till the voyage should be completed. If they had been at liberty to quit the vessel at Cronstadt, the case would have been quite different; or if the captain had capriciously discharged the two men who were wanting, the others might not have been compellable to take the whole duty upon themselves, and their agreeing to do so might have been a sufficient consideration for the promise of an advance of wages. But the desertion of a part of the crew is to be considered an emergency of the voyage as much as their death; and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to her destined port. Therefore, without looking to the policy of this agreement, I think it is void for want of consideration, and that the plaintiff can only recover at the rate of £5 a month.”
3.4 Stilk v Myrick must be contrasted with the later case of Hartley v Ponsonby (1857) 7 E & B 872 where A ship became so short handed from crew desertion that it was dangerous to sail. The crew were offered additional wages to sail the ship home. It was held that the sailors provided fresh consideration. The original contract was discharged and a new contract was entered into under these arrangements.
It is rather difficult to see any material distinction on the facts of these cases, but in the latter the judge found that consideration had been provided allowing for a discharge of the original contract with a valid and enforceable varied contract coming into being.
William v Roffey Bros & Nicholls [1989] NLJ 1713
The CA HELD in the case of bonus payments that these will be enforced if the party agreeing to pay the bonus obtains some new practical benefit or avoided a disadvantage thereby.
Russell LJ : ‘the courts nowadays should be more ready to find [consideration’s] existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal’. He noted that Roffey Bros’ employee, Mr Cottrell had felt the original price to be less than reasonable, and there was a further need to replace the ‘haphazard method of payment by a more formalised scheme’ of money per flat. “True it was that the plaintiff did not undertake to do any work additional to that which he had originally undertaken to do but the terms upon which he was to carry out the work were varied and, in my judgment, that variation was supported by consideration which a pragmatic approach to the true relationship between the parties readily demonstrates.’
3. 5 In Williams v Roffey [1991] Glidewell LJ said of Stilk v Myrick “It is not in my view surprising that a principle enunciated in relation to the rigours of seafaring life during the Napoleonic wars should be subjected during the succeeding 180 years to a process of refinement and limitation in its application to the present day.”
Legal historians have suggested that the courts were more prepared to find a genuine fresh consideration provided by sailors faced with doing more than they were contracted to do originally because of the more stable political situation which pertained at the time when Hartley v Ponsonby was decided. Be that as it may, the decision in William v Roffey Bros & Nicholls [1989] NLJ 1713 certainly clarifies the law on contract variation when the party appears to be doing no more than contractually bound to do and may, if taken to a logical extent, revolutionise the law relating to consideration to the extent of rendering it a totemic or token requirement.
4. The case of William v Roffey Bros & Nicholls [1989] NLJ 1713, on facts similar to those in issue here, reveals the pragmatic approach of the Court of Appeal. In Willams v Roffey the court found that that the defendants had obtained a practical benefit by virtue of the claimants promise to complete the work on time and I can see no reason in the present case why a court would not take a similar line, given the similarity of the factual matrix.
Glidewell LJ’s judgement is of most value on this issue:
Accordingly, following the view of the majority in Ward v. Byham and of the whole court in Williams v. Williams and that of the Privy Council in Pao On the present state of the law on this subject can be expressed in the following proposition:
(i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and
(ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and
(iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and
(iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and
(v) B’s promise is not given as a result of economic duress or fraud on the part of A; then
(vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.
5. Professor McKendrick in his Contract Law Text 8th ed at p77 , Palgrave Macmillan Law Masters stresses the importance of anaylsing two points: “The first is: what exactly was the practical benefit the defendants obtained? The Second is: how can this conclusion be reconciled with Stilk v Myrick?
5.1 Applying the reasoning in Williams v Roffey to the present facts, Ambassador oibtained a practical benefit in having Carpetbagger complete the work on time and therefore did not breach their contract with HappyatWork and did not have to go to the trouble and expense of securing an alternative contractor to complete the work – possibly at a higher fee given the time consraints. There is an attractive logic in this but can it really be said that the practical benefit was any more ‘practical’ when Carpetbagger declared later on variation of the contract that they would still perofrm their contract than it was when they made the original promise? Arguably, the certainty of performance was made more clear after the variation and therein, arguably, lies the consideration for the variation.
5.2 Purchas LJ in Williams v Roffey noted: “That although in ‘normal circumstances the suggestion that a contracting party can rely on his own breach to establish consideration is distinctly ‘unattractive’ on the facts of the case the claimant had given up his right to ‘cut his losses’ by deliberately breaching the contract with the defendants.
“The question must be posed: What consideration has moved from the plaintiff to support the promise to pay the extra £10,300 added to the lump sum provision? In the particular circumstances which I have outlined above, there was clearly a commercial advantage to both sides from a pragmatic point of view in reaching the agreement of 9th April. The defendants were on risk that as a result of the bargain they had struck the plaintiff would not or indeed possibly could not comply with his existing obligations without further finance. As a result of the agreement the defendants secured their position commercially. There was, however, no obligation added to the contractual duties imposed upon the plaintiff under the original contact. Prima facie this would appear to be a classic Stilk v. Myrick case. It was, however, open to the plaintiff to be in deliberate breach of the contract in order to “cut his losses” commercially. In normal circumstances the suggestion that a contracting party can rely upon his own breach to establish consideration is distinctly unattractive. In many cases it obviously would be and if there was any element of duress brought upon the other contracting party under the modern development of this branch of the law the proposed breaker of the contract would not benefit. With some hesitation and comforted by the passage from the speech of Lord Hailsham, to which I have referred, I consider that the modern approach to the question of consideration would be that where there were benefits derived by each party to a contract of variation even though one party did not suffer a detriment this would not be fatal to the establishing of sufficient consideration to support the agreement. If both parties benefit from an agreement it is not necessary that each also suffers a detriment. In my judgment, on the facts as found by the judge, he was entitled to reach the conclusion that consideration existed and in those circumstances I would not disturb that finding. This is sufficient to determine the appeal. The judge found as a fact that the flats were “substantially completed” and that payment was due to the plaintiff in respect of the number of flats substantially completed which left an outstanding amount due from the defendants to the plaintiff in the absence of the payment of which the plaintiff was entitled to remove from the site. For these reasons and for the reasons which have already been given by Glidewell L.J. I would dismiss this appeal.”
per Purchas LJ
McKendrick notes (op cit) “Williams has been applaued as a pragmatic decision, giving effect to the ‘realities’ of the situation”. I agree with Mckendrick’s assessment, but would only add that it comes remarkably close to ‘constructing consideration’, some would say, out of thin air and devalues the principle, reducing it almost to the level of a token.
5.3 Professor Mckendrick, of course, recognises the point and notes later in his text (p100) “After the decision in Williams v Rofferty… the future of consideration in English contract law is somewhat uncertain. He notes that the Court of Appeal did not expressly attempt to throw out the doctrine, its stated aiam was to ‘limit’ and ‘fefine’ the rule in Stilk v Myrick by placing emphasis on the ned to identify practical benefit rather than legal benefit.
5.4 Lord Goff in White v Jones [1995] AC 207, 262-3 said:
“..our law of contract is widely seen as deficient in the sense that it is perceieved to be hampered by the presence of an unnecessary doctrine of consideration’.
5.5 McKendrick points then to Professor Dawson’s view: “..even the most embittered critics of bargain consideration do not really object to the enforcement of bargains. The objection has been to its transformation into a formula of denial, A formula that would deny legal effect to most promises for which there is nothing given or received in exchange.”
Clearly, if the courts take the Williams v Roffey principle to its logical conclusion it could lead to the de facto abolition of the doctrine of consideration. Mckendrick concludes his remarks on p100 of his book by observing: , “There is no room for the doctrine of consideration in the Principles of European Contract Law article 2.101 which states|:
(1) A contract is concluded if:
(a) the parties intend to be legally bound; and
(b) they reach a sufficient agreement without any further requirement
(2) A contract need not be concluded or evidenced in writing nor is it subject to any other requirement as to form. The contract may be proved by any means, including witnesses.
6. A subsidiary, but not unimportant point, is the issue of whether it would be appropriate to raise estoppel. For reasons which will be made clear in the second half of this opinion analysis, estoppel cannot create a cause of action but can only act as a defence to a cause of action and in the present case, there is no need to plead estoppel because it is likely the court would accept the Williams v Roffey principle here and find for the claimant who would be unlikely to raise estoppel here when it is likely they would succeed under Williams v Roffey
7. It is perhaps, in closing, worth noting an extract from Professor Atiyah from thirty years ago:
“The truth is that the courts have never set out to create a doctrine of consideration. They have been concerned with the much more practical problem of deciding in the course of litigation whether a particular promise in a particular case should be enforced….When the courts found a sufficient reason for enforcing a promise they enforced it; and when they found that for one reason or another it was undesirable to enforce a promise, they did not enforce it. It seems highly probable that when the courts first used the word “consideration” they meant no than there was a “reason” for the enforcement of a promise. If the consideration was “good”, this meant that the court found sufficient reason for enforcing the promise.”
Atiyah, The Rise and Fall of Freedom of Contract (1976).
Ambassador Ltd v HappyAtWork PLC
1. This is a contract for labour and materials under which Ambassador Ltd was contracted by HappyatWork PLC to paint and carpet the business park operated by HappyAtWork PLC to contract specification for a fixed and agreed pirce of £250,000. HappyatWork, claiming financial difficulties, sought a reduction in the price to £200,000 to which Ambassasdor reluctantly agreed fearing possible great loss if HappyatWork went into liquidation.
2. Ambassador now seeks to recover the balance of £50,000 in circumstances where it is clear that HappyAtWork PLC has succeeed in letting all the units at the business park.
3. The Law
3.1 The issue turns on the long established principle of law that payment of a smaller sum in satisfaction of a larger sum is not, at common law, a satisfaction of that larger sum and does not discharge the contract inter partes by performance. This principle goes back to Pinnel’s Case (1602) 5 Co Rep 117a and was re-affirmed by the House of Lords in Foakes v Beer (1884) 9 App Cas 605.
3.2 The decision of the Court of Appeal in Re Selectmove [1995] 1 WLR 474 made clear that William v Roffey Bros & Nicholls [1989] NLJ 1713 cannot be used to subvert the part-payment of a debt principle accepted by the House of Lords in Foakes v Beer.
Lord Justice Peter Gibson:
Foakes v Beer has been followed and applied in numerous cases subsequently, of which I shall mention two. In Vanbergen v St. Edmunds Properties Ltd. [1933] 2 K.B. 223 at p.231 Lord Hanworth M.R. said “It is a well established principle that a promise to pay a sum which the debtor is already bound by law to pay to the promisee does not afford any consideration to support the contract.” More recently in D. & C. Builders Ltd. v Rees [1966] 2 Q.B. 617 this Court also applied Foakes v Beer, Danckwerts L.J. (at p.626) saying that the case “settled definitely 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 an accord and satisfaction.”
…….
Foakes v Beer has been followed and applied in numerous cases subsequently, of which I shall mention two. In Vanbergen v St. Edmunds Properties Ltd. [1933] 2 K.B. 223 at p.231 Lord Hanworth M.R. said “It is a well established principle that a promise to pay a sum which the debtor is already bound by law to pay to the promisee does not afford any consideration to support the contract.” More recently in D. & C. Builders Ltd. v Rees [1966] 2 Q.B. 617 this Court also applied Foakes v Beer, Danckwerts L.J. (at p.626) saying that the case “settled definitely 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 an accord and satisfaction.”
…….
Mr. Nugee however submitted that an additional benefit to the Revenue was conferred by the agreement in that the Revenue stood to derive practical benefits therefrom: it was likely to recover more from not enforcing its debt against the Company, which was known to be in financial difficulties, than from putting the Company into liquidation. He pointed to the fact that the Company did in fact pay its further PAYE and NIC liabilities and £7,000 of its arrears. He relied on the decision of this Court in Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 Q.B.1 for the proposition that a promise to perform an existing obligation can amount to good consideration provided that there are practical benefits to the promisee.
………
Mr. Nugee submitted that although Glidewell L.J. in terms confined his remarks to a case where B is to do the work for or supply goods or services to A, the same principle must apply where B’s obligation is to pay A, and he referred to an article by Adams and Brownsword in (1990) 53 M.L.R. 536 at pp. 539-540 which suggests that Foakes v Beer might need reconsideration. I see the force of the argument, but the difficulty that I feel with it is that if the principle of the Williams case is to be extended to an obligation to make payment, it would in effect leave the principle in Foakes v Beer without any application. When a creditor and a debtor who are at arm’s length reach agreement on the payment of the debt by instalments 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 the Williams case, 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 principle of Foakes v Beer. If that extension is to be made, it must be by the House of Lords or, perhaps even more appropriately, by Parliament after consideration by the Law Commission.
The decision in Re Selectmove highlights the paradox that while the performance of an existing duty can constitute consideration when there is a promise to pay more, it cannot constitute consideration when there is a promise to pay less. Given the fact that Foakes v Beer (which was not raised in in Williams v Roffey) is a House of Lords decision, the doctrine of precedent governs the position – a point made by Lord Justice Peter Gibson in Re Selectmove.
3.3. The principle in Foakes v Beer is well established and noted in the preceding passages extracted from Lord Justice Peter Gibson’s judgment. At common law HappyAtWork PLC has not provided consideration for Ambassador Ltd’s promise to accept a lesser sum in full satisfaction and Ambasssador may, accordingly, claim the balance of £50,000
3.4 The position under the doctrine of Promissory Estoppel
HappyatWork PLC will seek to argue that their debt and obloigation to pay £50,000 should be extinguihsed in equity under the doctrine of promissory estoppel established by Denning J, as he then was, in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 (High Trees)
3.5 In setting the context to High Trees it is worth noting the statement in Snell’s Equity
“Where by his words or conduct one party to a transaction makes to the other a clear and unequivocal promise or assurance which is intended to affect the legal relations between them (whether contractual or otherwise), or was reasonably understood by the other party to have that effect, and, before it is withdrawn, the other party acts upon it, altering his or her position so that it would be inequitable to permit the first party to withdraw the promise, the party making the promise or assurance will not be permitted to act inconsistently with it.”
Snell’s Equity (31st Edition) 10-08
3.6 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130
In 1937 the plaintiffs let a block of flats to the defendants for a period of 99 years at a rent of £2500 per annum. In 1940 plaintiffs agreed to reduce the rent to £1250 because many of the flats were unlet due to the war. At the end of the war the plaintiffs asked for the full rent to be reinstated. Denning J HELD that the plaintiffs were entitled to reinstate the rent. Denning J went on to state that the plaintiffs could not have sued for the full rent for the period covered by the agreement.
“The logical consequence no doubt is that a promise to accept a smaller sum, if acted upon, is binding notwithstanding the absence of consideration.”
Denning J. @ 134.
Denning founded his assertion upon the dictum of Lord Cairns in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439
“it is the first principle upon which all the Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal rights – certain penalties or legal forfeiture – 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 otherwise might have enforced these 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.’
3.7 The conditions for the applicability of the doctrine
3.7.1 There must be a pre-existing legal relationship (Hughes v Metropolitan Railway Co (1877)2 App Cas 439. as here and there must be a clear promise intended to alter the contracted (or otherwise legally binding) obligation. The court assesses intention objectively rather than taking evidence on the party’s state of mind (Woodhouse Israel Cocoa Ltd v Nigerian Produce Marketing Board [1972] AC 741)
3.7.2 There must be reliance on the promise. The promisee must have acted upon the promise and altered his position ( Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 HL) It is clear that HappyAtWork PLC altered their position and relied on Ambassador Ltd’s acceptance of their offer to pay the reduced amount of £200,000, a considerable saving of £50,000 and the question which falls to be determined is whether the element of detriment is required when dealing with the reliance issue. While there was no detriment in High Trees and the point was not taken in Ajayi v Briscoe or in Tungsten Electric it appears to be the case – strictly speaking – that detriment is not required. Detriment was not required in WJ Alan & Co v El Nasr Export and Import Co [1972] 2 QB 189. In Goldsworthy v Brickell [1987] 1 All ER 853 Nourse LJ in the Court of Appeal indicated that detriment was required. Goff J in Societe Italo-Belge v Palm Oils [1982] 1 All ER 19 thought that detriment was not required.
3.7.3. The issue had never been tested on appeal. The usual view is that to invoke the doctrine, it must be ‘inequitable’ for the promisor to go back on his promise. Detriment is one reason why it may be inequitable, but not the only one. ‘Misconduct’ by the defendant, e.g. unreasonably withdrawing the forbearance at short notice, may make it inequitable. While Lord Denning asserted that there need be no reliance to detriment, recent caselaw suggests that reliance should have caused detriment.
3.7.4 In Emery & Another v UCB Corporate Services [2001] EWCA Civ 675 Peter Gibson LJ stated:
A promissory estoppel, in my judgment, arises where
(1) there is a clear and unequivocal promise that strict legal rights will not be insisted upon;
(2) the promisee has acted in reliance on the promise; and
(3) it would be inequitable for the promisor to go back on his promise.
# Some commentators express the second condition in terms of the promisee altering his position to his detriment (see, for example, Snell’s Equity 13th Edition (2000) paragraph 39-08), but that is controversial (see, for example, Chitty: Law of Contracts, 28th Edition (1999), paragraph 3-089). However, the fact that the promisee has not altered his position to his detriment is plainly most material in determining whether it would be inequitable for the promisee to be permitted to act inconsistently with his promise.
3.7.5 Lady Justice Arden in Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329 gave a thorough review of the cases and the point about detriment, whether finally settled or not, is to some extent academic because there is a further element that it must be inequitable to go back on the promise and the assertion here is that if a person has not sustained any detriment by relying on the promise it is may not be inequitable to go back on the promise and the doctrine of promissory estoppel will not apply. Whatever the factual matrix here, the issue of ‘clean hands’ has to be adverted to in addition.
3.7.6 Those who seek the protection of equity must have clean hands – they must have behaved equitably themselves. I can see little prospect of this restriction on the doctrine applying in the present case. There appears to be no evidence of fraud or other inequitable behaviour on the part of HappyATWork PLC to preclude the operation of the doctrine.D &C Builders v Rees [1966] 2 QB 617 The remaining issue, given that a court is most likely to apply the doctrine of promissory estoppel here is whether the doctrine operates suspensively or extinctively.
4. In Tool Metal v Tungsten Electric the effect of the doctrine was to suspend legal rights.
See also: Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329 (Above per Arden LJ)
“The effect of promissory estoppel is usually suspensory only, but, if the effect of resiling is sufficiently inequitable, a debtor may be able to show that the right to recover the debt is not merely postponed but extinguished: see the High Trees case and the Tool Metal case with respect to the wartime payments.”
per Arden LJ
4.1 Attempts have been made to utilize the doctrine of promissory estoppel after High Trees to create a new inroad into the rule in Pinnel’s case that an agreement to accept part payment of a debt in full satisfaction of it is unenforceable for want of consideration. In the High Trees case Lord Denning commented, obiter , that such an agreement should now be enforceable under the doctrine of promissory estoppel. However, the courts have traditionally been reluctant to overrule cases like Pinnel’s case and Foakes v Beer as they have formed part of the common law for so long. Lady Justice Arden in Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329 accepted in principle that High Trees could be used to extinguish a creditor’s right to full payment of a debt in such circumstances.
4.2 In the light of the foregoing it is likely that the court will apply the doctrine of promissory estoppel but applyu it suspensively and give HappyATWork PLC a reasonable opportunity to pay the balance of £50,000. The time is likely to be short, given the 100 % occupancy of the business park
Demonstration question
Charles contracted to supply Peter with 10,000 widgets per month for 24 months, for a fixed sum of £20,000, payable in advance. After six months the market price of widgets unexpectedly doubles, due to the outbreak of war in Ruritania (the main widget producing country) Peter, hearing that as a result of this Charles has started to cancel similar contracts, suggest to Charles that he will be prepared to take 7000 widgets per month in satisfaction of their contract.
Charles agrees, and delivers 7000 widgets per month for the next five months. The war in Ruritania then ends and the market price of widgets collapses. Peter now demands (a) the 15,000 shortfall in deliveries in relation to the past five months; and (b) 10,000 widgets per month for the rest of the contract.
Tutorial – Alteration of the contracted obligation
1. The doctrine of promissory estoppel interferes with the purity of absolutist principle and militates against certainty in commercial contracts.
Discuss.
2. If the facts of Foakes v Beer were to be repeated before the House of Lords today the Lords would decide the case in exactly the same way.