Creditor and Debtor Relationship in Contract Law

Creditor and Debtor Relationship in let LawFor an agreement to become binding, the parties must show that they supplied consideration Currie v. Misa (1875)1, and such consideration may pull through of either in almost righteousness, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or under behaven by the other. In simple terms, it bureau that each party must do or give something in return, for what is acquired from the other party. Thus, if a party wishes to sue upon an agreement, it must first show that they themselves provided some form of consideration to the other Tweddle v Atkinson (1861)2. Hence, consideration is an integral component for the implementation of contracts. Pollack, provides a simpler explanation that it is an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable3. And , it is this very definition which Lord Dunedin embraced in the fireside of Lords (HOL), in pneumatic Tyre Co Ltd v Selfridge and Co Ltd (1915)4, a seminal case on the issue of consideration.Consequently, it begs to reason that a promise to forbear part of your consideration, as final settlement, does not make much sense in light of Mr. Pollacks definition. Yet, Sir Edward Coke, created a third estate law exception in Pinnels Case (1602)5 that where a debitor promises to provide, as final settlement of the debt, a lower sum which the creditor accepts, will provided be binding, provided that the creditor accrues some extra benefit, for the loss suffered. This case was affirmed by Baron Alderson in Sibree v Tripp (1846)6, on the basis that solo where the debitor is bound to do something more than what he was already bound to do, in the superior contract, post his part payment be considered acceptable. These extra elements, ranged from providing the debt at an earlier date, to providing chattel instead of money and lastly, providing the debt at another location7, then the one prescribed in the original agreement. The rule in Pinnel was later applied by the HOL in Foakes v. Beer (1884)8, where the court upheld the claim of the debtor for the remaining balance of the sum owed, despite, the humans of a promise by the debtor to forgo the balance. The court reiterated that a promise to forgo part of a debt owed cannot itself form enough consideration, to withh old(a) the debtor form exercising his strict legal right. This approach was recently adopted in Re Selectmove Ltd (1995)9, where the COA held that a reiterated promises to do the same, which you are already bound to do, can only amount to valid consideration if the other party was to receive a practical benefit.These cases opened the gates on the issue of the creditor and debtor race and how the law of contract gradually eased its restrictions on debtors. Slowly, yet gradually, equity came to the resc ue of the debtors, thus, in the process creating exception to the principles founded in Pinnel. But for the time be where a debtor does not provide an added benefit for his part payment, and the creditor accepts the lesser sum surely common law, as per the decision in Pinnel Foakes would not obturate the creditor from enforcing his strict legal right, post acceptance of the lesser sum. This very question was the focus of the case, Hughes v Metropolitan Railway Co (1877)10 where the equitable doctrine of promissory estoppel came into existence and subsequently revived, some 70 years later, in the Dicta of Lord Denning as a recognized principle of equity Central London situation Trust Ltd v naughty Trees House Ltd (1947)11.Hughes involved a populate, who under contractual obligation, was obliged to keep the premises, in his possession in good repair. The landlord, served the tenant a notice 6 months prior to the termination of the lease but nearing the end of the lease, negotiat ions took place between the parties and the tenant informed the landlord that they will not beam out the repair, in the meantime. By the end of the lease, the landlord, claiming that the tenant had not carried out to repair the premises, forfeited the lease. The HOL, applying the principles of equity, held that the landlords behavior implied a promise for the tenants to halt repair savings bank the time the negotiation finished. Thus, the HOL, saw that the time of the 6 months notice ran from the date when the negotiations between the parties finished. Lord Cairns explained that the decision stood for the proposition that where parties, bound by contractual obligation, come negotiations, their strict legal rights would be held in abeyance12 thus, any party reverting to their strict legal rights would be estoppeled from doing so.This equitable principle saw new heights, in the hand of Lord Denning, a good deal criticized for expanding the principle out of its conventional limits in Central London Property Trust Ltd v High Trees House Ltd (1947)13. The claimant, a landlord, leased part of his property to the suspect however, war broke out, thus, both(prenominal) parties renegotiated the contracts rent, on temporary basis, till the war lasted. However, once the war ended, the claimant, brought an action against the defendant for the balance of the payment as agreed upon in the original lease and the reversion to the original rent for the hereafter. Lord Denning, allowed the claimants plea that the rent should revert backward to as originally negotiated between the parties, as before the war. He found that, although for the time of fracture, i.e. the time of the war there existed no consideration for the debtor to genuine the reduced sum. But, he state that the debtor would be obliged due to the equitable principle, which states 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 app ly14. In fact, what Denning had through was expand the limits which Hughes had set. Hughes only talk about the suspension of rights, but in High Trees, Denning takes this a bit further, relying on equity, that once a debtor accepts part payment and the creditor relies on the promise this act destroys the debtors right to recover the rest. Nonetheless, Lord Denning distinguished the decision in High Trees with Foakes on the grounds that a plea of estoppel needs to be specially raised, which was never done in Foakes.Irrespectively, in essence the real implication of this decision was that it was in direct contradiction with Foakes, which restricted part payment of a debt as faulty consideration Hughes, which held that estoppel could not be used to variate the terms of the contract, unless there existed some new consideration to support such variation. In reality, Lord Denning was, often criticized for his expansion of the doctrine, although which remains to be the law. Elizabeth Coo ke, claims that Lord Dennings notion of promissory estoppel, single handedly, tries to abolish the debtors strict legal right to recover15. Secondly, Denning in High Trees, was also disliked for ignoring the rule in Jorden v. Money (1845)16 which held that grounds for an estoppel can only be assumed for current or preceding facts, not to those facts which relate to some future conduct. Although, the decision of Jorden is subject to many exceptions the rule in Hughes being one as well Lord Denning maintained that High Tress could also be views as an exception to Jorden thereby beckoning equity as to disallow a party to revert on a promise, once the other party relies on that promise.A few years after the decision in High Trees, Coombe v Coombe 195117 illuminated that the doctrine can only be used as a defense to a claim, not the other way around, as the basis for a claim thus limiting its scope, in equity. However, Lord Denning, in Coombe, did reiterate the position he maintained in High Trees and said that a creditor is not allowed to enforce a debt which he has deliberately agreed to throw in the towel if the debtor has carried on business or in some other way changed his position in belief18 of the creditors promise. This case illuminated the factor of reliance as a decider in case of promissory estoppel.Consequently, HOL in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd (1955) acknowledged Dennings estoppel, and further the view that the doctrine could establish rights, without consideration, based on reliance. The issue involved a manufacturer, who under license of a Patent, produced a certain number of goods. During the war, both parties agreed in letting go of their rights to remuneration and awaited new negotiation, at the conclusion of the war. Once, the war settled, the patent owners, on breaking down of negotiations, claimed for the compensation which would have been due from the time that the war finished. The HOL held that the assu rance to suspend rights was binding during the period of the war and the owners could, on giving reasonable notice to the manufacture, revert to their old legal regime. Thus, the court established that promissory estoppel merely suspends the rights of the debtor and only, if the creditor can establish that he could not resume his previous position then only can, promissory estoppel suspends that right, completely. Thus, Lord Denning MR, in D C Builders v Rees (1965)19 dismissing the appeal of the defendants stated that it is worth noticing that the principle may be applied not only so as to suspend strict legal rights but also so as to preclude the enforcement of them, thus reinforcing the idea that promissory estoppel may in certain circumstance extinguish rights all together.He added that, consequently, a creditor may only be restricted from enforcing his strict legal right where it would be inequitable for him to insist upon them20. Similarly, Lord Denning, expanding the purview of the doctrine, was reported in Alan Co. Ltd V El Nasr Import Co,21 stating that the only requisite for the establishment of the doctrine was the fact that one was bring on in believing that the other party would not revert back to their strict legal rights. Nonetheless, it must be noted that the HOL has still, yet to date, to give their praise on the doctrine of promissory estoppel. However, in a recent case, Collier v P MJ Wright (Holdings) Ltd 2007 22 Arden LJ makes a number of points, enforcing the views established by Lord Denning. She said that where a creditor settles in accepting part payment as full sum, and the debtor pay the part payment, in reliance of the creditors promise the creditor will be estoppeled from reverting to his strict legal right. However, interestingly, vindicating the Dictas of Lord Denning in High Trees23, she stated that because reversion by the creditor would be inequitable such a move on his part would have the effect of extinguishing his righ t to the remainder of the debt. Although, it seems that part payment of a debt has became an exception to the rule of consideration, it remains to be seen what stance the HOL would take on the matter. Interestingly, Alexander Trukhtanov24, argues that Ardens approach is flawed, as it portray the idea that the creditor must establish real reliance, before equity helps, by way of promissory estoppel. He claims that the doctrine of promissory estoppel developed as an answer to the harshness of the rule in Foakes, and the application of this equitable doctrine is not the solution because any readjustment to these rules, according to him, requires the legislatures intervention.As far, as the Australian legal system is concerned they aptly adopted promissory estoppel within their legal system Waltons Stores v Maher25, to the issue of recognizing detrimental reliance where the debtors reliance on the creditors promise causes him to suffer a detriment, it obliges as enough evidence to res trict the creditor from enforcing his strict legal rights. It remains to be seen how the UK legislature views and adopts or either reject, this doctrine. Nevertheless, the legislature must remember the importance of such principles, as correctly stated in Crabb V. Arun DC (1976)26 that equity comes in to mitigate the rigours of strict law. Practically speaking, the doctrine of promisor estoppel, is no more than a blessing for debtors, entrapped under debt to their creditor. In conclusion, it seems hard to imagine that, what started as an exception in Hughes, by the help of Lord Denning approach, became a whole new exception to the fact of consideration, and its effects on the enforceability of contracts.(2342 Words)BibliographyBooks ArticlesCasebook on Contract Law by Jill Poole, 13th editionTextbook on Contract Law by Jill Poole, 13th edition.The Modern Law of Estoppel by Elizabeth Cooke (2000).Pollock on Contracts, 8th edition.Foakes v Beer reform of the common law at the expens e of equity By Alexander Trukhtanov, (2008) 124 LQR 364, 366-367.CasesAlan Co. Ltd V El Nasr Import Co. (1972) 2 QB 18Central London Property Trust v High Trees House Ltd 1947 KB 130Collier v P MJ Wright (Holdings) Ltd 2007 EWCA Civ 1329Coombe v Coombe 1951 2 KB 215Crabb V. Arun DC (1976) 1 Ch 179Currie v Misa (1875) LR 10 Ex 153D C Builders v Rees (1965) 2 QB 617Foakes v Beer 1884 UKHL 1Hughes v Metropolitan Railway Co (1877) 2 App Cas 439.Jorden v. Money (1845) 5 H.L.C 185Pinnels Case (1602) 5 Co Rep 117aPneumatic Tyre Co Ltd v Selfridge and Co Ltd 1915 AC 847Selectmove Ltd, Re 1993 EWCA Civ 8Sibree v Tripp (1846) 15 M W 23Tweddle v Atkinson (1861) 1 B S 393Vanbergen v St Edmund Properties 1933 2 KB 223.Waltons Stores (Interstate) Ltd v Maher 1988 HCA 7 High Court of Australia1 Currie v Misa (1875) LR 10 Ex 1532 Tweddle v Atkinson (1861) 1 B S 3933 Pollock on Contracts, 8th ed., p. 175.4 Pneumatic Tyre Co Ltd v Selfridge and Co Ltd 1915 AC 8475 Pinnels Case (1602) 5 Co Rep 117a6 Sibree v Tripp (1846) 15 M W 237 Vanbergen v St Edmund Properties 1933 2 KB 223.8 Foakes v Beer 1884 UKHL 19 Selectmove Ltd, Re 1993 EWCA Civ 810 Hughes v Metropolitan Railway Co (1877) 2 App Cas 439.11 Central London Property Trust v High Trees House Ltd 1947 KB 130.12 Ibid at 1013 Ibid at 1114 Ibid15 The Modern Law of Estoppel by Elizabeth Cooke (2000)16 Jorden v. Money (1845) 5 H.L.C 18517 Coombe v Coombe 1951 2 KB 21518 Ibid19 D C Builders v Rees (1965) 2 QB 61720 Ibid21 Alan Co. Ltd V El Nasr Import Co. (1972) 2 QB 1822 Collier v P MJ Wright (Holdings) Ltd 2007 EWCA Civ 132923 Ibid Para. 4224 Alexander Trukhtanov, Foakes v Beer reform of the common law at the expense of equity (2008) 124 LQR 364, 366-36725 Waltons Stores (Interstate) Ltd v Maher 1988 HCA 7 High Court of Australia26 Crabb V. Arun DC (1976) 1 Ch 179