D & C Builders Ltd v Rees

Payment of part of an undisputed debt does not discharge the balance without fresh consideration. A debtor’s own cheque for the lesser sum is ordinarily only conditional payment. Its subsequent honouring does not supply consideration or make an otherwise invalid accord binding.

Equity may prevent a creditor enforcing the balance where a voluntary agreement to accept less has been acted on and enforcement would be inequitable. That protection depends on a true accord. It does not assist a debtor who procures the creditor’s acceptance by pressure amounting to intimidation.

The respondent builders had completed work for the appellant. After credits, an undisputed balance of £482 13s. 1d. remained due. While the builders were in serious financial difficulty, the appellant’s wife offered £300 only on condition that it was accepted in full settlement. The builders accepted the cheque and gave a receipt stating that it completed the account.

His Honour Judge Trapnell tried the settlement issue as a preliminary issue in the County Court. He held that the debtor’s cheque supplied no consideration for accepting less than the debt. The appellant contended that the agreement and subsequent honouring of the cheque constituted a binding accord and satisfaction. The appeal raised whether that arrangement discharged the debt at law or in equity.

1. Appeal dismissed unanimously. Lord Denning MR, with whom Danckwerts LJ expressly agreed, held that the respondents could recover the balance of the debt. Winn LJ reached the same conclusion in a separate judgment.
2. The common-law rule affirmed in Foakes v Beer (1884) 9 Appeal Cases 605 remained applicable. Payment of a lesser sum cannot satisfy a larger, undisputed debt unless the creditor receives fresh consideration. The debtor’s own cheque for the lesser sum was merely conditional payment. Once honoured, it was equivalent to cash and gave the creditor no additional legal benefit.
3. The court disapproved and declined to follow Goddard v O'Brien (1882) 9 Queen's Bench Division 37, insofar as it treated a debtor’s own cheque for part of an undisputed debt as sufficient satisfaction of the whole. A negotiable instrument may give fresh consideration where it replaces the old debt under a new contract, but that was not this case.
4. Lord Denning MR further held that equity could restrain enforcement of strict legal rights only where a creditor had voluntarily made, and the debtor had acted upon, a true accord such that enforcement would be inequitable. The respondents’ agreement was obtained by a threat to withhold all payment unless they accepted less. That was intimidation, not a true accord. Danckwerts LJ also found no detrimental alteration of position. There was therefore no equitable basis for treating the £300 as full satisfaction.
5. Winn LJ added that performance of an accord cannot retrospectively validate it. The accord itself must be legally binding, whether by deed or consideration.

• Court of Appeal — dismissed the appeal in D & C Builders Ltd v Rees [1966] 2 QB 617.
• County Court — His Honour Judge Trapnell determined the preliminary issue of settlement for the builders, holding that the agreement to accept £300 lacked consideration.