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Hi Mike, this is the answer to a question in Kaplan revision kit I suppose, with the question being straight forward that A accepted a part payment of 15000 for the original sum of 20000. I understand this concept quite well but this answer is not making any sense to me as I think it is just telling me the “possibilities” like this this this can happen but so and so can also happen. Please help me with this in developing a clear cut concept to be applied in such scenarios. Thanks and sorry for the length of the answer.
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A has accepted £15,000 in full settlement, but he is not bound by this, at least not in common law, because B has not given him any fresh consideration for this acceptance of a smaller sum. The doctrine of ‘accord and satisfaction’ is sometimes used as an exception to the common law rule, but it is not really so since ‘satisfaction’ implies consideration of some kind. Examples of satisfaction from case law have included:
(a) payment of a smaller sum at an earlier date
(b) payment in kind rather than currency
(c) payment of a smaller sum by a third party (here a separate contract is made with the third party which subsequent insistence on the full amount would breach.
In this case there is even doubt about the element of ‘accord’, which means full agreement between the parties. A defence involves the equitable doctrine of promissory estoppel. The doctrine states that a promise to accept a smaller sum to discharge a debt for a larger amount is binding if acted upon, notwithstanding the absence of consideration. This relies on the principle of not going back on one’s word, which equity upholds as far as possible. Thus A at common law is entitled to pursue B for the original full amount, despite his apparent agreement not to do so. If this is shown for any reason not to be fair to B, the equitable doctrine of promissory estoppel may be helpful in ensuring that justice is done. Under this doctrine, equity may uphold an original promise if otherwise it would lead to hardship. In cases such as this, A can be said to have promised B that he would not ask for the remaining £5,000. Equity could well hold that he must keep his promise, on which B has relied. The only conflicting point is the possibility of duress (i.e. A made threats to B in order to get the money from him). Evidence should be sought as to whether this were the case.Rafay, if you’re doing CBE what chance do you have to spout out all this that Kaplan have given you?
Even the scenario questions are basically multiple choice
If you’re not doing cbe, the scenario questions tend to be broken down into 3 x 2 mark questions
Again I ask, what opportunities do you imagine will present themselves for you to indulge in such an answer?
Tell me, please! I really want to know!
🙂
I am doing CBE and I am aware about the format. However I am just going through these answers to polish my concepts and this is my sole motive. I do not intend to memorize these paragraphs, all I want is that I am able to establish a master concept shall any such scenario is presented to me. If you can, please give me a 1 or 2 line answer that will apply to such a case 🙂
Sure I will – tell me what the question is and I’ll give you 2 marks’ worth of answer
Hear from you soon – but it could well be this evening before I get back to you
Yea you can get back to me whenever it suits you, my exam is on Wednesday.
The question:A agrees with B, an accountant, to refurbish and redecorate the interior of B’s premises.
A’s initial estimate for the job is £20,000 and when the work is completed he presents a bill
for that amount to B. B claims that he has recently lost an important client and that he
cannot afford to pay the full amount. A reluctantly accepts £15,000 in full settlement of the
debt.
Required:
(a) Briefly explain the part payment problem. (2 marks)
(b) Explain whether A can recover any of the money from B. (4 marks)
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I get part (a), no issues there. I need help on the second one 🙂I am confused mainly on the point whether promissory estoppel will always apply or can the person to whom the money is owed can ALWAYS recover the remaining sum even if he accepted not to do so.
In common law, unless there is additional consideration given in respect of the reduced payment (I’ll pay you $15,000 out of the $20,000 and I’ll clean your windows every week for one year) the balance of the debt remains payable
In equity, promissory estoppel comes into play. Where a promise is given and acted upon, then it would be unfair (inequitable) for the promisor to go back on that promise to the detriment of the promisee
You ask whether promissory estoppel will ALWAYS apply
No, it won’t always apply
You ask ‘can the person to whom the money is owed can ALWAYS recover the remaining sum even if he accepted not to do so.’
No, that will not ALWAYS be the case
That’s why the original conclusion in your first post reads as it does! This is not a clear cut case and we need further evidence
That makes sense – So, was this question designed in such a way that we were only required to list the possible outcomes and not exactly just one simple conclusion because we were provided with limited evidence?
I suppose so – it’s an ‘old-style’ 10 marker and it was a reasonably common feature for this type of question to be open ended in terms of possible outcomes
Although you won’t come across this type of question again in F4 exams, it still happens in other subjects – notably the auditing papers
Okay – pretty much convinced now. Thank you very much for your precious time!
However, past consideration is no consideration 😀
^the line I remember the most from your lectures 🙂Funny that! It’s one of the lines I remember distinctly from the guy that lectured me all those many years ago!
It’s a word I don’t believe that I’ve ever come across, seen nor heard before. The nearest I could guess would be the word ‘incapacity’ and that would mean ‘not having the capacity’ or ‘incapable’.
And being ‘incapable’ means that one is technically ‘not able to enter into a contract’ hence one might come across numerous people on a Friday night being described as ‘drunk and incapable’.
Another way of saying ‘incapable’ is to describe someone as being ‘not able’ or ‘unable’.
If I were to try to create the word ‘incapacitation’ I suppose that that would mean the ‘result of having rendered someone incapable’! “The incapacitation of George was complete as he fell unconscious to the floor”.
Maybe if you gave me the context I would have a better guess?
OK?
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