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Contract Law - An agreement to pay less under an existing contract
English law differentiates between promises to pay less than what is owed under an existing contract and promises to pay more. If a creditor accepts less than the amount owed under an existing contract, a debtor's payment of the lesser amount is not considered consideration. This law applies even if the creditor benefits from the debtor paying a lower amount.
Adam an electrician, completed electrical work for Sally for £100. Sally requests that Adam accept £80 instead of £100 due to financial constraints. Adam accepts £80 instead of £100, but later faces cash flow issues. Can Adam go back on his promise and sue Sally for the remaining £20?
The answer is yes. Sally’s payment of less than what she owes Adam does not constitute legal consideration for the agreement. This is true even if Amir (as promisor) receives a practical benefit, such as avoiding having to sue Shakira for the money owed to him. However, there are notable exceptions to this general norm. If Adam asked Sally to pay £80 to repay a £100 obligation before its due date or in a different location than negotiated, the situation would be different. Payment made before the due date or in a different location than agreed upon is considered if done at the creditor's request. Additionally, Adam could consider accepting Sally’s handbag instead of the money owing. There are two more exceptions to this rule. If Shakira cannot pay all of her debts and agrees to pay a percentage (e.g., 80%), this is considered consideration by all creditors. The second exception is if Adam receives £80 from a third party, such as Sally’s sister. Adam’s willingness to accept these amounts binds him and prevents him from claiming any deficit.
English law differentiates between promises to pay less than what is owed under an existing contract and promises to pay more. If a creditor accepts less than the amount owed under an existing contract, a debtor's payment of the lesser amount is not considered consideration. This law applies even if the creditor benefits from the debtor paying a lower amount.
Adam an electrician, completed electrical work for Sally for £100. Sally requests that Adam accept £80 instead of £100 due to financial constraints. Adam accepts £80 instead of £100, but later faces cash flow issues. Can Adam go back on his promise and sue Sally for the remaining £20?
The answer is yes. Sally’s payment of less than what she owes Adam does not constitute legal consideration for the agreement. This is true even if Amir (as promisor) receives a practical benefit, such as avoiding having to sue Shakira for the money owed to him. However, there are notable exceptions to this general norm. If Adam asked Sally to pay £80 to repay a £100 obligation before its due date or in a different location than negotiated, the situation would be different. Payment made before the due date or in a different location than agreed upon is considered if done at the creditor's request. Additionally, Adam could consider accepting Sally’s handbag instead of the money owing. There are two more exceptions to this rule. If Shakira cannot pay all of her debts and agrees to pay a percentage (e.g., 80%), this is considered consideration by all creditors. The second exception is if Adam receives £80 from a third party, such as Sally’s sister. Adam’s willingness to accept these amounts binds him and prevents him from claiming any deficit.
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