| BANKRUPTCY — Debt — Statutory demand — Debtor’s application to set aside — Debtor jointly liable for county court judgment debt with two others — Debtor’s liability limited to one-third share of debt in alleged compromise agreement with creditor — Whether agreement sufficient to discharge liability — Whether estoppel arising
Collier v P & M J Wright (Holdings) Ltd [2007] EWCA Civ 1329
CA (Mummery, Arden and Longmore LJJ): 14 December 2007
Where a debtor offered to pay part only of the amount he owed and the evidence showed the creditor voluntarily accepted that offer, and relying on that acceptance the debtor paid that part of the amount he owed in full, the creditor would be bound to accept that sum in full and final satisfaction of the whole debt by virtue of the doctrine of promissory estoppel.
In those circumstances the promissory estoppel extinguished the creditor’s right to the balance of the debt, and it was inequitable for him to resile from his acceptance.
The Court of Appeal so held allowing the appeal of the debtor, David Anthony Collier, from the judgment of Judge Hodge QC, sitting as a judge of the Chancery Division in Manchester on 18 April 2007, dismissing his application to set aside a statutory demand served on the debtor for the sum of £58,814⋅32 in respect of a commercial loan relating to property development between the debtor and his two partners, Alexander Broadfoot and Vincent Flute, with the creditor. The demand was founded in a judgment debt payable by monthly instalments from Liverpool County Court in April 1999 between the creditor and the three partners, jointly liable for their firm’s debts. Following the other partners’ bankruptcies in 2002 and 2004, the creditor sought payment of the whole of the balance from the debtor. The debtor relied on an alleged compromise agreement made at a meeting in late 2000 with the creditor that his liability would be limited to a one-third share of the judgment debt.
ARDEN LJ said that the alleged agreement on its face was the debtor’s promise to pay part of what he already owed. That was not good consideration: Foakes v Beer (1884) 9 App Cas 605. It was a new collateral agreement added to the existing arrangements; the debtor’s joint liability was unaffected. The debtor could succeed to set aside the demand only if he could show a triable issue within an existing exception to the rule in Pinnel’s Case (1602) 5 Co Rep 117a. The doctrine of promissory estoppel applied when it was inequitable for the creditor (or other representor) to insist on his full rights: D & C Builders Ltd v Rees [1996] 2 QB 617. The debtor had to show it was inequitable for the creditor to resile from its alleged promise. The debtor did not have to prove his case at the present stage; what mattered was whether he had adduced enough evidence to support his case. In all the circumstances the debtor had raised a triable issue as to promissory estoppel. That doctrine achieved in practical terms the unimplemented recommendations of the Sixth Interim Report of the Law Revision Committee on the Statute of Frauds and the Doctrine of Consideration (1937) (Cmnd 5449), para 35.
LONGMORE LJ, agreeing that the appeal should be allowed, doubted if there was any true accord because the true construction of the promise/representation might well be that there was only an agreement to suspend the exercise of the creditor’s rights, not to forgo them permanently. As to the question whether it would be inequitable for the creditor to resile from its promise, it was perhaps all the more important that agreements forgoing a creditor’s rights permanently should not be too benevolently construed.
MUMMERY LJ agreed there was a real prospect of success on the promissory estoppel issue.
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