D & C Builders Ltd v Rees [1965] EWCA Civ 3 (12 November 1965)

A small building firm was owed £482. The debtor's wife, knowing the builders were in financial difficulty, offered £300 in 'full settlement'. The builders accepted under pressure. The court held that this did not extinguish the debt, as the agreement was obtained by intimidation.

Facts

D & C Builders Ltd, a small building company, performed work for Mr Rees amounting to £746 13s. 1d. Mr Rees paid £250 on account, leaving a balance of £482 13s. 1d. Despite several requests for payment, the balance remained unpaid. The builders were in a desperate financial situation. Mrs Rees, acting for her husband, telephoned the builders and, aware of their financial plight, offered a cheque for £300 in full and final settlement of the debt. She stated that if they did not accept the £300, they would get nothing. Fearing bankruptcy, the builders reluctantly accepted the offer and were given a receipt to sign stating the payment was ‘in completion of the account’. The builders then sued for the remaining balance of £182 13s. 1d.

Issues

The primary legal issue was whether the agreement to accept a lesser sum (£300) in satisfaction of a larger, undisputed debt (£482) was binding on the creditor. Specifically, the court had to determine if the doctrine of promissory estoppel could prevent the builders from claiming the balance of the debt, or if the circumstances under which the agreement was made vitiated the accord.

Judgment

The Court of Appeal found in favour of the builders, holding that they were entitled to the balance of the debt. Each judge delivered a concurring opinion.

Lord Denning M.R.

Lord Denning began by affirming the long-standing common law rule from Pinnel’s Case (1602) that the payment of a lesser sum is not good satisfaction for a greater debt. He then considered whether the equitable doctrine of promissory estoppel, which he had formulated in the High Trees case, could apply. He clarified the limits of the doctrine, stating that it cannot be relied upon by a party who has acted inequitably.

The creditor is only barred from his legal rights when it would be inequitable for him to insist upon them. Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance. But he is not bound unless there has been truly an accord between them.

In this case, Lord Denning found there was no ‘true accord’. Mrs Rees had exploited the builders’ financial vulnerability. This behaviour was described as a form of intimidation which vitiated the agreement.

No person can insist on a settlement procured by intimidation… In the present case, on the facts as found by the Judge, it seems to me that there was no true accord. The debtor’s wife held the creditor to ransom… She was making a threat to break the contract (by paying nothing) and she was doing it so as to compel the creditor to do what he was unwilling to do (to accept £300 in settlement). She was affecting an improper pressure… In these circumstances there was no true accord.

Because the agreement was procured under duress, it was not inequitable for the builders to go back on their promise and sue for the remainder. Equity would not assist a debtor who had acted in such a manner.

Lord Justice Danckwerts

Lord Justice Danckwerts concurred, emphasising the element of intimidation used by Mrs Rees.

The defendant’s wife held the plaintiffs to ransom… it was a case of ‘your money or your life’, or, at any rate, ‘your money or the ruin of your firm’. In the present case, in my view, the defendant’s wife was guilty of what I can only describe as intimidation. In my opinion there is no reason in equity why the creditor should not be able to enforce the full amount of the debt due to him.

Lord Justice Winn

Lord Justice Winn also agreed, focusing on the lack of a true ‘accord’. He reasoned that for an accord and satisfaction to be valid, the agreement must be voluntary. The pressure exerted by Mrs Rees meant the builders’ consent was not genuine.

In my judgment, it is an essential element of a valid accord and satisfaction that the agreement which constitutes the accord should itself be binding in law… In the present case, on the facts found by the judge, in my judgment there was no true accord at all. The payer is not acting voluntarily, is not making a concession, but is indulging in extortional pressure.

Implications

This case is a key authority on the doctrines of part-payment of debt and promissory estoppel. It confirms that the common law rule in Pinnel’s Case remains good law: a promise to accept part-payment of a debt in full satisfaction is unenforceable for want of consideration. More importantly, it clarifies a crucial limitation on the equitable doctrine of promissory estoppel. The case establishes that a party seeking to rely on promissory estoppel must have acted equitably (‘come with clean hands’). Where a promise to accept a lesser sum is extracted by intimidation or economic duress, it would not be inequitable for the promisor to resile from that promise. The case is therefore a foundational authority on the modern doctrine of economic duress in contract law.

Verdict: The appeal was allowed. The judgment of the lower court was reversed, and judgment was entered for the plaintiffs (D & C Builders Ltd) for the outstanding balance of £182 13s. 1d.

Source: D & C Builders Ltd v Rees [1965] EWCA Civ 3 (12 November 1965)