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Foakes v Beer

(1884) 9 App Cas 605

Overview

This case dealt with the issue of part payment of a debt - could it constitute consideration for payment of the whole?

The Court held that Part payment of a debt on or after the date the debt is due is not good consideration for the creditors promise not to claim the balance. In this the Court adopted the Rule in Pinnel's case, although not without some reservation.

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Facts

Julia Beer (Respondent obtained a judgement against John Weston Foakes (Appellant) for a debt owed and costs in 1875. Over a year later the parties entered into an agreement to the effect that in consideration of Foakes paying Beer $500 in part satisfaction of the judgement debt and on condition that the balance be paid in instalments, Beer would not take proceedings on the judgement. 

In 1882 Beer took proceedings to enforce the judgement so as to recover interest on the judgement debt. It was established that the whole debt had now been paid off.

 

Issue

Was Beer prevented by the agreement from enforcing the judgement?

Held

Earl of Selborne LC

(1) The agreement could only be enforced if there was consideration.

(2) The only consideration expressed was the payment of $500 – which was part of a larger debt already due. The payment of instalments could not be consideration unless payment of the $500 was consideration

(3) The doctrine of Pinnel's case is that payment of a lesser sum on the day cannot be satisfaction for the whole sum. i.e. payment of a lesser sum on the day cannot be good consideration for a promise by the creditor not to claim the rest of the money due.

This rule is still the law and therefore there was no consideration provided here. As a result Beer could recover the interest.

Appeal dismissed

Lord Blackburn

Noted he would have reached a different conclusion ...

'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 recognise 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. I had persuaded myself that there was no such long-continued action on this dictum as to render it improper in this House to reconsider the question. I had written my reasons for thinking; but as they were not satisfactory to the other noble and learned Lords who heard the case, I do not now repeat them nor persist in them.' [footnotes omitted]

Lord Watson

Concurred with the Lord Chancellor and Lord FitzGerald

Lord Fitzgerald

Observed that the rule in Pinnel's Case had never been overruled and had been adopted for '282 years', during which time:

'it seems to have been understood and taken to be part of our law that the payment of a part of a debt then due and payable cannot alone be the foundation of a parol satisfaction and discharge of the residue, as it brings no advantage to the creditor, and there is no consideration moving from the debtor, who has done no more than partially to perform his obligation. Though it may not have been made the subject of actual decision, yet we find that every judge in this country who has had occasion to deal with the proposition states the law to be so ...

I am not aware of any decision that controverts this position, and the text-books uniformly present it thus; that "the payment of part of a liquidated and ascertained sum is in law no satisfaction of the whole." The proposition itself is but a part of a rule of our law, which affects and governs many of the daily relations of life, "Nuda pactio obligationem non parit." And, again, the law says that "nudum pactum est ubi nulla subest causa præter conventionem."

Lord FizGerald did, however, express some reservations about the rule [footnotes omitted]:

I should hesitate before coming to a decision which might be a serious inroad on that rule, but I concur with my noble and learned friend that it would have been wiser and better if the resolution in Pinnel's Case had never been come to, and there had been no occasion for the long list of decisions supporting composition with a creditor on the rather artificial consideration of the mutual consent of other creditors. We find the law to have been accepted as stated for a great length of time, and I apprehend that it is not now within our province to overturn it.

The short question then is, in relation to a judgment debt payable immediately, and on which the creditor is entitled to have execution, is the payment by the debtor of a part a sufficient consideration to support a parol agreement by the judgment creditor not to take any proceedings whatever on the judgment for the residue? In my opinion it is not; and I think, therefore, that the judgment of the Court of Appeal should be affirmed.