D&C Builders Ltd v Rees
Court of Appeal
Citations:  2 QB 617;  2 WLR 288;  3 All ER 837; (1965) 109 SJ 971;  CLY 1739.
The claimants were builders who had done some work for the defendant. They sought payment of the £482 due under that contract. The defendant did not pay. The claimants later got into financial difficulty. The defendant offered to pay them £300 in full settlement of his debt. At the time, he had the money to pay the full debt. Despite this, he told the claimants that if they did not accept, they would get nothing. The claimants felt they had no choice but to accept, so they took the £300.
The claimants later sued for the £182 outstanding. The defendant responded that he was not obliged to pay because the parties had a binding settlement agreement. The claimants argued that the agreement to accept the lesser sum was not binding, because the defendant provided no consideration.
- Had the defendant provided good consideration for the settlement agreement?
- Were the claimants bound by their promise to accept less in promissory estoppel?
The Court held in favour of the claimants. The offer to pay £300 was not good consideration because the defendant was already obliged to pay the claimants a higher amount. It was not inequitable for the claimants to renege on their promise, because the defendant abused their weaker position to extract the promise.
This Case is Authority For…
Paying a lesser sum than that due under the contract is not good consideration for an agreement to discharge the full debt.
A promise to accept a lesser amount in full satisfaction of a debt can be binding due to a promissory estoppel if three conditions are met:
- The claimant made a clear and unequivocal promise to vary the contract;
- The defendant changed their position in reliance on this promise; and
- It would be inequitable to enforce the original contract terms.
The fact that the defendant extracted the promise through lies, intimidation or by abusing his position is a strong indicator that the third requirement is not met.
Winn LJ noted that a proper settlement of a contractual claim (accord and satisfaction) must itself be a binding legal agreement (such as a contract or deed).