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

D & C Builders, a small building company in financial difficulties, were owed £482 by Rees. His wife offered £300 in full settlement, threatening they would receive nothing otherwise. The Court of Appeal held the payment did not discharge the debt as there was no consideration and the agreement was obtained through intimidation.

Facts

D & C Builders Ltd, a small jobbing building company, carried out work at premises owned by the defendant, Sidney Rees. The work totalled £746 13s 1d, of which £250 was paid on account plus a £14 allowance, leaving £482 13s 1d outstanding. Despite requests for payment in August and October 1964, Rees did not respond.

On 13 November 1964, Rees’s wife telephoned the plaintiffs and offered £300 in full settlement, stating that was all they would receive. The plaintiffs, in desperate financial straits facing bankruptcy, reluctantly accepted. A cheque for £300 was collected with a receipt stating it was ‘in completion of the account’. The cheque was honoured.

Within days, the plaintiffs’ solicitors wrote treating the £300 as payment on account only. The plaintiffs sued for the balance.

Issues

Main Legal Questions

1. Whether payment of a lesser sum by the debtor’s own cheque, accepted in full satisfaction, discharged the greater debt.

2. Whether the doctrine of promissory estoppel applied to bar the creditors from claiming the balance.

3. Whether there was a valid accord and satisfaction.

Judgment

Lord Denning MR

Lord Denning confirmed the rule from Pinnel’s Case (1602) and Foakes v Beer (1884) that payment of a lesser sum cannot discharge a greater debt without additional consideration. He held that no sensible distinction exists between payment by cash and payment by cheque, and that Goddard v O’Brien was wrongly decided.

Lord Denning discussed the equitable principle from Hughes v Metropolitan Railway Co that courts may prevent enforcement of strict legal rights where it would be inequitable. However, he held this principle only applies where there has been a ‘true accord’ voluntarily entered into.

On the facts, there was no true accord. The debtor’s wife held the creditors to ransom, knowing their financial difficulties. Her threat to pay nothing unless they accepted £300 in settlement constituted intimidation. Lord Denning stated:

When she said: ‘We will pay you nothing unless you accept £300 in settlement,’ she was putting undue pressure on the creditor. 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.

Lord Justice Danckwerts

Danckwerts LJ agreed, holding that a debtor’s own cheque for a smaller sum cannot be better than cash payment. He stated that Goddard v O’Brien was either wrongly decided or should not be followed. He noted the defendants’ bad behaviour in using the plaintiffs’ financial difficulties to intimidate them, and found no equitable ground for treating the payment as satisfaction.

Lord Justice Winn

Winn LJ held that a valid accord and satisfaction requires the accord agreement itself to be binding in law, supported by consideration or made under seal. Satisfaction does not provide retroactive validity to an invalid accord. He concluded the court should decline to follow Goddard v O’Brien.

Implications

This case reinforced the rule that part payment of a debt, even if accepted, does not discharge the whole debt without fresh consideration. It clarified that payment by cheque is equivalent to cash for these purposes. The case is also significant for establishing that promissory estoppel cannot be invoked where the creditor’s agreement was obtained through intimidation or economic duress. The principle of ‘true accord’ was emphasised—equitable doctrines will not assist a party who has obtained an agreement through improper pressure.

Verdict: Appeal dismissed. The plaintiffs were entitled to recover the balance of £182 13s 1d as the payment of £300 did not discharge the full debt. There was no valid accord and satisfaction, no consideration for accepting the lesser sum, and the agreement was obtained through intimidation.

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