Foakes v Beer [1884] UKHL 1
Citation:Foakes v Beer [1884] UKHL 1
Rule of thumb:If there are market practices that have been in place consistently for a very long period of time, firmly entrenched market customs, a Court will be very unlikely to declare these to be a breach of contract law. One of these is that if one person can’t pay the price under the contract, and a lesser amount is agreed to be paid at this time, this does not prevent the other party from seeking the rest of the fee at a later date.
Background facts:
The facts of this case were that Foakes owed £2,000 (£200k as adjusted for inflation) to Beer. Foakes was struggling to pay this and was considering declaring bankruptcy. Beer drew up another contract which Beer agreed to repay the full principal sum in installments. Foakes agreed to this and repaid the princpal sum. Beer then came back later seeking the interest on this. Beer then came looking for the rest of the money at a later date. Foakes refused to pay Beer because he thought that they had agreed to settle the loan for a lesser amount. Beer took Foakes to Court to try to get the interest.
Parties argued:
Foakes argued that under the variation of contract principle Beer had agreed to re-write the contract. Beer argued that the variation of contract did not apply.
Judgment:
The Court found in favour of Beer. The Court upheld the arguments of Beer and ordered Foakes to repay the rest of the interest on the loan. They affirmed that the variation principle did not apply - it was accepted there was then 2 contracts. Significantly the Court took into consideration the customs of business in arriving at their decision. They were aware that what Beer was doing was an established business practice that was being widely followed and this made them less inclined to declare a widely established business practice to be in breach of contract law. Custom was indeed thought to be more important than the technicalities of the law for the Court.
Ratio-decidendi:
'I think it is not the fact that to accept prompt payment of a part only of a liquidated demand, can never be more beneficial than to insist on payment of the whole... What principally weighs with me in thinking that Lord Coke [in Pinnel's case] made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the debtor is doubtful it must be more so. I had persuaded myself that there was no such long-continued action on this dictum as to render it improper in this House to reconsider the question. I had written my reasons for so thinking; but as they were not satisfactory to the other noble and learned Lords who heard the case, I do not now repeat them nor persist in them. I assent to the judgment proposed, though it is not that which I had originally thought proper’, Lord Blackburn
'What principally weighs with me is ... merchants or tradesmen do every day recognise and act on ... (this)... ground', Lord Blackburn
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.