Part payment of a debt (Foakes v Beer)
Gareth, a self-employed joiner, invoiced Ruth £8,000 for fitted wardrobes. The work is not disputed and payment was due on 1 June. Ruth, who could have paid in full, knew that Gareth urgently needed cash to pay his own suppliers. On 1 June she told him: "I will pay you £5,000 if you accept it in full settlement. If you don't, you'll get nothing." Gareth reluctantly signed a note, not executed as a deed, accepting £5,000 "in full and final settlement", and Ruth paid £5,000 by bank transfer that day. Two weeks later Gareth's solicitor wrote demanding the £3,000 balance.
Which of the following best describes whether Gareth can recover the £3,000?
Choose one answer to see the reasoning.
Worked answer
Correct answer A: Gareth can recover the £3,000: Ruth gave no consideration for his promise to accept less, and with no true accord it is not inequitable to claim the balance.
THE RULE TO REMEMBER
Payment of a smaller sum on the due date is no consideration for a promise to forgo the balance, and equity will not bar the creditor where the settlement was extracted by pressure rather than by a true accord.
Part payment of a debt (Foakes v Beer)
In Foakes v Beer (1884) 9 App Cas 605 the House of Lords affirmed the rule in Pinnel's Case that payment of a lesser sum on the day in satisfaction of a greater cannot be satisfaction of the whole. Ruth paid less than she owed, on the due date and in the ordinary way, so she gave no fresh consideration for Gareth's promise. An agreement not under seal is not enforceable without consideration. In D & C Builders Ltd v Rees [1966] 2 QB 617 the Court of Appeal held that equity will bar a creditor from claiming the balance only where it would be inequitable for him to insist on it, which requires a true accord; where the debtor exploits the creditor's known financial need with a threat to pay nothing, there is no true accord and the creditor may sue for the balance.
Why B is wrong: The House of Lords in Foakes v Beer held that the benefit a creditor gets from receiving part payment is not consideration, and the Supreme Court in Rock Advertising (para 18) noted that practical benefit was the very thing Foakes v Beer held inadequate.
Why C is wrong: Foakes v Beer confirms that an agreement not under seal to accept less requires consideration; signing a written note does not supply it.
Why D is wrong: In Rock Advertising the Supreme Court decided the case on the no oral modification clause and expressly declined to decide the consideration point, saying any overruling of Foakes v Beer should await an enlarged panel.
Why E is wrong: D & C Builders v Rees makes clear that the creditor is barred only where it would be inequitable to insist on his legal rights, and Ruth's pressure meant there was no true accord.
That's today's practice done. Another featured question tomorrow.
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