In the recent case of Simantob v Shavleyan (t/a Yacob's Gallery) [2018] EWHC 2005 (QB) (3 August 2018) (Kerr J) the parties were art dealers and had settled claims relating to a dispute over the sale of antique Islamic art by entering into a Settlement Agreement whereby the debtor agreed to a full and final settlement sum of $1.5m.  The agreement provided that, in the event of a default, the debtor would pay a further $1,000 per day.  Over the course of several years, Mr Shavleyan made payments to Mr Simantob totalling USD 1.1m leaving $400,000 of the debt outstanding, together with more than $1m of accrued interest. The debtor subsequently defaulted and the parties entered into a separate oral agreement in 2014, the exact nature of which was disputed. 

The debtor argued that the parties varied the settlement agreement such that he would pay eight monthly instalments of $100,000 in full discharge of his obligations under the settlement agreement.  The creditor denied that a variation had been agreed and instead argued that the subsequent agreement to receive $100,000 per month related to a separate transaction for the sale of certain Moroccan and Arabic antiques.

Under English law, a debt cannot be satisfied by paying less than the amount due "unless there is some benefit to the creditor added so that there is an accord and satisfaction".

The judge decided that, as a matter of fact and “on the balance of probabilities”, the parties had agreed to vary the terms of the settlement agreement in 2014 such that a payment of $800,000 by the debtor would discharge his liability in full under the settlement agreement.  However, to be an effective variation, there needed to be some additional benefit to the creditor beyond the debtor’s promise to pay part of the pre-existing debt.  The judge held that this additional benefit existed in the creditor giving up his claims that the settlement agreement was invalid as the judge said, "While the [creditor’s] arguments subsequently failed, they might – the penalty argument in particular – have succeeded or at least been found arguable. If the $1,000 a day clause had been struck down, Mr Simantob would have been entitled under the settlement agreement only to the $400,000 outstanding principal due instead of the $800,000 to which he became entitled under the settlement agreement as varied. I therefore conclude that this was not a case of a promise to pay part only of a pre-existing debt". 

The case is a useful reminder of the law as set out in a long history of cases.  The so-called Rule in Pinnel’s case (1603) 5 Coke Rep 117a set out that payment of a lesser sum on the [due] date in the satisfaction of a greater cannot be any satisfaction of the whole.   In Foakes v Beer (1883-4) LR 9 App Cas 605 the House of Lords held that consideration was necessary for the discharge of the debtor’s liability and Re Selectmove Ltd [1995] 1 WLR 474 established that payment of part of a debt does not amount to consideration for a creditor’s promise to accept a lesser sum in full settlement.

As set out in the decision here, a verbal variation to a written contract is valid in law so long as consideration is given.  What constitutes good consideration however may be open to debate.