Rees, a shop owner, commissioned D. & C., a small building company, to do work on his shop. They did the work and gave him a bill for £746. Rees paid £250 and received a discount of £14, leaving his debt at £482. He did not pay for a while, despite efforts from D. & C. to try and get the money. D. & C. were in financial trouble, and needed money. Mrs. Rees, knowing this, offered £300 in satisfaction of his debt. D. & C. said that this would not satisfy the debt, but Mrs. Rees said that this was all that she was going to pay - £300 or nothing. D. & C. had to accept, as they would have gone bankrupt without the money. They received the £300, si gned something saying that it “satisfied the debt”, but then sued for the remaining balance. D. & C. were successful at trial, which Rees appealed.
- Can a party accept a lesser amount for satisfaction of a debt and then demand payment in full?
Lord Denning clears up the law regarding substitute contracts. He says that at common law, they are not allowed unless there is consideration provided. Without consideration, there can be no substitute agreement that is accepted at common law. However, substitute agreements that satisfy the necessary accord can be valid in equity, even if they do not have consideration, if it would be inequitable to allow the creditor to sue for the money from the original contract. To satisfy this requirement an agreement must have been made, the debtor must have relied upon it, and it must be unfair to allow the creditor to claim more money.
Denning states that in this case there is no consideration; therefore the agreement will not stand in common law but might be allowed in equity. However, he states that the pressure placed on D. & C. by Rees forced them to accept an agreement that was unsatisfactory. Therefore it would not be inequitable to allow the creditor to claim the rest of the money, and thus the appeal is dismissed...
- Substitute agreements require consideration to be binding at common law.
- Substitute agreements may be acceptable in equity even if they do not have consideration, if it would be inequitable to force the debtor to pay any more, there was an agreement between the two parties that the new sum would settle the debt, and this agreement was relied upon by the debtor.