You are a lawyer in London.One of your client's has asked you for advice about a problem his company has.He explains that his company, Cheetham & Steele wished to expand the productivity and efficiency of their manufacturing processes.They arranged an unsecured loan of 100,000 from Grabbit & Runne, merchant bankers.The agreed period of the loan was 5 years: 20,000 to be repaid each year together with interest at 20% on the capital outstanding.

After repaying 80,000 of the loan plus interest over 4 years, Cheetham & Steele suffered a lengthy industrial dispute causing cash-flow problems which made it highly unlikely that they would be able to repay the final instalment of 20,000 when it fell due at the end of the year.The difficulties of Cheetham & Steele were so acute that there was a possibility that the company might become insolvent.Three months ago In June, Cheetham & Steele drew the attention of Grabbit & Runne to this situation and the consequential risk to their unsecured loan.With this in mind, Grabbit & Runne offered to take 17,000 as part-payment of the debt in full and final settlement.Cheetham & Steele agreed and paid the 17,000 plus interest to date at the end of the month.

However, by the end of August, Grabbit & Runnne were also experiencing severe financial problems and requested Cheetham & Steele to pay the balance outstanding of 3,000 without further delay.Cheetham & Steele refused suggesting that to do so would cause them severe hardship in the circumstances.

You tell your client that there are two issues to consider in this situation;Consideration and Promissory Estoppel.He asks you to explain what this means and whether Cheetham & Steele will have to pay the outstanding sum of 3,000 plus interest.

ADVISE YOUR CLIENT.