A slightly different problem arises where a person
agrees to accept a smaller sum of money as full payment
under a contract to pay a larger amount. For example,
what is the legal position if Derek owes Graham £100,
but Graham says that he will accept £90 in full settle-
ment? Can Graham change his mind and sue for the
outstanding £10? The long-established common law
rule, known as the rule inPinnel’s Case(1602), is that an
agreement to accept a lesser sum is not binding unless
supported by fresh consideration.
The decision in Foakesv Beerwas reconsidered by the
Court of Appeal in the following case.Part 3Business transactions
218
main contract, agreed to a further £575 per flat. Williams
completed eight more flats but did not receive full
payment. He stopped work and brought an action for
damages. The defendants argued that they were not
obliged to pay as they had promised Williams extra pay
for something he was already contractually bound to do,
i.e. complete the work. Williams in turn submitted that
the defendants obtained a benefit in that they had
avoided a penalty for late completion and did not have
the expense of engaging another contractor. The Court
of Appeal held that Williams was entitled to the extra
payments. Where A promises additional payments to B
in return for B’s promise to complete work on time, and
by giving this promise A obtains a benefit by avoiding a
penalty clause, for example, then B’s promise may con-
stitute sufficient consideration to support A’s promise of
extra pay, provided A’s promise has not been obtained
as a result of fraud or economic duress (see p 239 ).
Comment. Doubt has been cast over the correctness of
the decision in Williams. In South Caribbean Trading
LtdvTrafigura Beeher BV(2004) Colman J sitting in the
Commercial Court noted that the decision in Williamsis
inconsistent with the long standing rule that considera-
tion must move from the promise. However, but for the
fact that Williamsis a Court of Appeal decision, which
has not yet been held by the House of Lords to have
been wrongly decided, the judge stated that he would
not have followed it.Hartleyv Ponsonby(1857)When almost half of the crew of a ship deserted, the
captain offered those remaining £40 extra to complete
the voyage. In this case, the ship was so seriously under-
manned that the rest of the journey had become ex-
tremely hazardous. It was held that this fact discharged
the sailors from their existing contract and left them free
to enter into a new contract for the rest of the voyage.Foakesv Beer(1884)Mrs Beer had obtained judgment for a debt against
Dr Foakes. She agreed that she would take no further
action in the matter, provided that Foakes paid £500
immediately and the rest by half-yearly instalments of
£150. Foakes duly kept to his side of the agreement.
Judgment debts, however, carry interest. The House of
Lords held that Mrs Beer was entitled to the £360 interest
which had accrued. Foakes had not ‘bought’ her promise
to take no further action on the judgment. He had not
provided any consideration.Re Selectmove Ltd(1995)Selectmove owed the Inland Revenue large sums of tax
and national insurance. In July 1991, Selectmove’s man-
aging director suggested to a collector of taxes that the
company should pay future income tax and national in-
surance contributions as they became due and clear the
arrears at £1,000 per month from 1 February 1992. The
collector said that he would have to obtain approval for
this proposal and that he would come back to the com-
pany if it was not acceptable. Selectmove heard no more
from the Inland Revenue until 9 October 1991, when the
Revenue demanded payment of the arrears in full and
threatened to present a winding-up petition. The ques-
tion was whether the proposal made by Selectmove’s
managing director in July had become a binding agree-
ment. It was argued on behalf of Selectmove that the
decision in WilliamsvRoffey Broswas authority for the
proposition that a promise to perform an existing obliga-
tion can amount to good consideration provided that
there are practical benefits to the promisee. The Court of
Appeal held that the Williamsprinciple, which related to
a case involving the supply of services, should not be
extended to a situation involving an obligation to make
a payment which is clearly governed by the authority of
the House of Lords in FoakesvBeer. The court concluded
that, if there was an agreement between Selectmove
and the Inland Revenue, it was unenforceable because
of the absence of consideration.There are some exceptions to the rule.
1 If the smaller payment is made, at the creditor’s
request, at an earlier time, at a different place, with an
additional item or by a different method, consideration