Contract LAW2040 Coursework First-Class Answer (Awarded a 73)

Submitted by Charlotte Wood:

Advise Bronagh and Ciara whether they are obliged to pay the full rent that Flashman demands.

The problem concerns the equitable doctrine of promissory estoppel and consideration. The issue to be dealt with by the courts is whether Darcy Flashman (the landlord) has the right to seek full payment of rent for the student house in South Belfast. If this is the case, are Bronagh and Ciara (tenants) obliged to pay full rent despite an earlier agreement with Flashman which accepts a reduced payment of two thirds following the withdrawal of a third tenant, who for circumstances out of their control was unable to continue with their plans to take up a tenancy in this property.

The authority in this area of contract law is derived from Foakes v Beer[1], which established that payment of a lesser sum could not be sufficient consideration to pay the full sum. This is derived from the Pinnel’s case[2] which held that the payment of a lesser sum does not discharge debt as there is no consideration. However, despite these rulings, the court has confined the rule in Foakes to strictly a ‘debtor/creditor’ relationship; meaning that in the case of a tenancy this would not be applicable. Nevertheless, the harshness of the rule established in Foakes paved the way for the equitable doctrine of promissory estoppel.

In a claim of promissory estoppel, it is possible through recent developments in case law for the tenants to continue paying a lesser rate of rent as agreed at the beginning of the academic year following the withdrawal of a third tenant. This is because this new agreement was made with good consideration which has been relied upon by the tenants. The doctrine of promissory estoppel was established in the case of Central London Property Trust v High Trees House Ltd[3], where Lord Denning held that full payment was only to be payable after the end of the second world war (1945). In regard to the instant case, it could be argued that full payment could only be applicable in the next academic year (2020/21), as consideration for a reduced rent was valid for the full year. Lord Denning continued in an obiter statement in High Trees that if Central London tried to claim for full payment of rent before 1945, they would be estopped from reneging on their promise to accept a lesser rent which High Trees had relied on. In the instant case, it could be demonstrated that the tenants have relied upon this acceptance of a lesser rent as to continue paying the full rate was ‘a liability which was difficult for them to bear’, giving effect to an estoppel claim.

To seek protection under the doctrine of promissory estoppel, certain requirements need to be satisfied. In Colin v Duke of Westminster[4], it was held that there must be a ‘clear and unequivocal’ promise; in the instant case this is present as the landlord offered the tenants a lessor rent following the tenants worry and uncertainty arising from the higher rate of rent. As established in Spence v Shell[5], is the intention to create legal relations; this is easily satisfied in the instant case as the dispute is a landlord/tenant relationship implying that there is a tenancy agreement between the parties intentionally creating a legal relationship. In W J Alan Co Ltd v El Nasr Export and Import Co[6], it was held that the promise must have acted in reliance to representations made by the promisor; in the tenant’s case this is easy to establish as it is likely that the tenants would have found an alternative house to occupy at a lesser rent or have sought a third tenant to occupy the spare bedroom to cover the higher rent. As the landlord agreed upon a lesser rent the tenants did not seek alternative solutions to their problem. D & C Builders v Rees[7], held that a requirement of the estoppel doctrine is that it must be ‘inequitable’ to go back on the promise; this is applicable to the instant case as if the landlord was allowed to go back on their promise this would leave the tenants in financial hardship, therefore it would be unconscionable for the courts to allow the landlord to go back on the promise. The tenants should have no difficulties in making a claim in the doctrine of promissory estoppel as they are able to satisfy all of the requirements needed to seek this remedy. However, the availability of this defence is up to the discretion of the courts as it is equitable in nature, it is likely that the courts in this case will make this defence available to the tenants. This would be satisfactory to prevent the landlord from enforcing the higher payment of rent as the equitable maxim ‘equity is a shield, not a sword’[8], is applicable meaning that promissory estoppel is available as a defence for the tenants to be protected under. The tenants protection under this defence is further strengthened under the emphasis of having a ‘practical benefit’ in the case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd[9] (which enforced the decision in Re Selectmore Ltd[10]), as to accept a lesser rate of rent has a practical benefit for both parties as if the landlord had not accepted a lesser rent, there was a risk of losing all tenants of the property as they sought alternative residences at a more affordable price. Lord Arden in MWB, held that it would be ‘unfair for the promisor to renege on its promise to accept a lesser payment’; therefore in the instant case this strengthens a claim under the estoppel doctrine as it would be unjust to allow the landlord to seek the higher payment of rent. The high court of Australia extended the doctrine of estoppel to claimants with a pre-existing relationship in the case of Walton Stores (Interstate) v Maher[11], this broadens the availability of the defence by the court and strengthens the tenants right to the estoppel doctrine as a pre-existing relationship between the tenants and the landlord was present before the acceptance of a lower rent.

The other issue that may arise for the tenants is whether there has been good consideration for the agreement of a lesser rent. The problem does not state whether there is a written contract, however this is not an issue for the tenants as in J Evans and Son v Mezario[12], the court held that contractual terms could be evidenced partly in writing, by conduct or through oral agreement; in the tenants case all three are evidenced at various stages, regardless as to whether a new contract was created in writing, an initial contract will have existed and there will be paper evidence through bank statements to prove a lesser payment of rent. In Williams v Roffey Bros & Nicholls Ltd[13], it was held that full consideration was given when the parties had acted in reliance to representations made; this is evident in the instant case as the tenants demonstrated their reliance by paying a lesser rent rather than seeking an alternative property. Further to this the House of Lords in Chappell & Co Ltd v Nestle Co Ltd[14] stated that consideration should be sufficient but does not need to be adequate, meaning that the reliance demonstrated through the actions of the tenants is sufficient to demonstrate that proper consideration has been made between the parties.

In conclusion, it is likely that the tenants would be able to escape an obligation to pay a higher rate of rent due to the circumstances in which the agreement of a lesser rate has been made. The agreement to accept a lesser rate can be said to give rise to a defence of promissory estoppel under the case of High Trees, as the tenants can satisfy the essential requirements needed to seek this equitable defence and it is likely that the courts will allow the tenants to seek justice through this doctrine. The tenants can also demonstrate that the acceptance of a lesser rate of rent is made with good consideration, as there has been reliance by the tenants on promises made by the landlord and this is adequate to amount to good consideration from both parties when accepting a lesser rate of rent.

[1] (1884) 9 App Cas 605 [2] (1602) 5 Co Rep 117 [3] [1947] KB 130 [4] [1985] QB 581 [5] (1980) 256 EG 819 [6] [1972] 2 QB 189 [7] [1965] 2 QB 617 [8] Referred to by Lord Birkett in Combe v Combe [1951] when deciding whether an estoppel claim should be allowed [9] [2016] EWCA Civ 553 [10] [1995] EWCA Civ 8 [11] (1988) 164 CLR 387 [12] [1976] 1 WLR 1078 [13] [1989] EWCA Civ 5 [14] [1960] AC 87