Consideration - Promises to Accept Less in Satisfaction of More Flashcards
Promises to Accept Less in Satisfaction of More, explain the issue with this.
Main issue: there is consideration flowing from the lender but there is nothing fresh from the borrower = pre-existing duty, payment of a lesser sum is on the path of a greater sum, therefore no consideration, arguably a gratuitous gift.
Foakes v. Beer (1884), 9 App. Cas. 605 (H.L.)
(Promise to Accept Less in Satisfaction of More)
Issues:
- Was the promise to accept less legally binding?
Rules:
- A promise to accept less in satisfaction of more is not legally binding, because the debtor (Foakes) gave no fresh consideration, and this is a gratuitous gift.
- Gratuitous gifts are not binding.
- Payment of a lesser sum cannot be satisfaction of a greater some; cannot be consideration.
Where 1 party agrees to accept less, the other party paying the lesser some is non-binding.
Analysis:
- Foakes always made the payments and completely paid off his debt to Beer.
- Foakes’ consideration: making debt payments which was his pre-existing duty. Therefore, no fresh consideration.
- Beers’ consideration: forbearance to sue and the fresh consideration of not charging interest.
- Foakes is just continuing a pre-existing duty to pay the debt, so this does not count as consideration so Beer’s promise is nudum pactum.
Conclusion:
- New agreement in promising to accept less is not legally binding.
Foot v Rawlings [1963] S.C.R.
(Offering Something Fresh No Matter How Trivial, Way Around Foakes v Beer)
Issues:
- Was the promise to accept less in satisfaction of more legally binding?
Rules:
- Normally, this arrangement to pay less in satisfaction to pay more would be not binding since there is no fresh consideration and therefore a gift that is not binding (Foakes v Beer).
- A promise to accept less in satisfaction of more is legally binding if both parties offer something fresh, which can include something seemingly trivial according to the peppercorn principle like a different form of currency for repayment, then it’s not a pre-existing duty and is legally binding.
- If you give something different no matter the value, the consideration is now considered fresh and the other party’s promise is no longer a gratuitous gift and is binding.
Re Selectmove
(Foakes Applies, Roffey Bros/RosasvToca Does Not Apply to Accord in Satisfaction)
Issues:
- Should we apply the exception from Rosa v Toca, or Foakes v Beer to accord in satisfaction cases?
Rules:
- You cannot apply the Rosa v Toca or Roffey Bros exception to accord in satisfaction cases. Must apply Foakes v Beer instead under accord in satisfaction.
Law and Equity Act of BC PART PERFORMANCE
(Overrules Foakes v Beer)
Issues: Explain this Act
Rules:
Section 43: part performance of an obligation either before or after a breach of it, when expressly accepted by the creditor in satisfaction or rendered under an agreement for that purpose, though without any new consideration, must be held to extinguish the obligation.
-A promise to accept less than satisfaction is legally binding if the creditor has already accepted part performance of the new agreement, despite there being no consideration from the borrower.
· Means for example: a debtor owes creditor $100, creditor reduces amount owed to $50, debtor actually pays the $50 (part-performance), the creditor expressly accepts it to satisfy reimbursement – the paying the lesser amount will be legally binding and the remainder of the debt is cancelled.
o If it is a promise to pay, or not expressly accepted, then the legislation does not apply.
· This legislation overrules Foakes v Beer, but does not apply when there is not part performance from the debtor and part performance has not been expressly accepted to satisfy the reimbursement.
Process Automation v Norstream Intertec Inc & Arroyave 2010 ONSC
(Ultimatum - Either Accept Half or Accept Nothing)
Issues:
- Does section 43 of the Law and Equity Act apply in situations of duress?
Rules:
- If there was duress (pressure put on the creditor) to accept less in satisfaction of more then s. 43 of the LEA will not apply and the new agreement will not be legally binding
- If you pay less and the creditor expressly accepts this, there must be a true accord (agreement) means a genuine agreement, that is voluntary and not precured under duress.
