Law of Contract Consideration Part Payment of Debt

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Law of ContractConsiderationPart Payment of
Debt
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Part Payment of Debt

• Pinnels Case (1602)
• A promise to accept a part payment
• of a debt, in discharge of the entire
• debt is not valid consideration

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Part Payment of Debt

• example
• If A owes B a debt of 200, and B agrees to
  accept 100 in full satisfaction of the debt, B
  is not bound by his promise.
• He may subsequently sue for the full amount of
  his debt.

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Part Payment of Debt

• Pinnels Case
• Facts Cole owed Pinnel 8.50 which was due in
  11th Nov. At Pinnel request, Cole paid 5.11 on
  01st October, which Pinnel accepted in full
  settlement of the debt. Pinnel Sued Cole for the
  amount owed.
• Held obiter, part payment in itself is not
  consideration.

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Part Payment of Debt

• Pinnels case Principle
• part payment of a lesser sum, on the day
  (that it is due) cannot be any satisfaction for
  the whole because it appears to the judges that
  by no possibility a lesser sum can be
  satisfaction to the claimant for a greater
  sum..

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Part Payment of Debt

• Exception to the general rule
• 1) If the creditor accepts part-payment on an
  earlier date than the due date.
• 2) If the creditor accepts chattel instead of
  money.
• 3) If the creditor accepts part payment in a
  different place, at the creditors request, to
  that originally specified.

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Part Payment of Debt

• Pinnels case was followed in
• Foakes v Beer (1884)
• Held Dr. Foakes had not provided any
  considerationhe had not done or promised to
  do anything that he was not already obliged to
  do.
• Rule followed in following cases
• Re Selectmove (1995)
• Ferguson v Davies (1996)

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Part Payment of Debt

• Two exceptional situations where a creditor
  cannot go back on his promise even though
  consideration is absent.
• 1) Part payment of a debt by a third party.
• 2) Composition agreements with creditors

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Part Payment of Debt

• Part Payment of a Debt by a third party
• Welby v Drake (1825)
• Cook v Lister (1863)
• Part payment by a third party, if accepted by
  the creditor in full settlement of the debtors
  liability is a good defence, to a later action
  by the creditor.

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Part Payment of Debt

• Welby v Drake (1825)
• Facts The defendant owed the claimant 18.
  The claimant accepted 9 from the defendants
  father in full satisfaction.
• The claimant then sued the defendant.
• Held The claimant failed because by suing
  his son he was committing a fraud on the father.
• See also Hirachand Punamchand v Temple (1911)

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Part Payment of Debt

• Composition agreements (with creditors)
• Good v Cheesman (1831)
• Wood v Roberts (1818)
• Held A debtor who cannot pay his creditors in
  full, may agree with his creditors, to pay each
  of them dividend and thus lesser sums.
• If they agreed they then cannot sue the debtor,
  as it would be a fraud on the other creditors.

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Promissory estoppel

• Central London Property Trust Ltd v High Trees
  House Ltd (1947)
• Held Lord Dennings by his ratio, held that
  the claimants were entitled to sue as the rent
  reduction was only meant to apply for the period
  of war.
• Obiter, he mentioned that the claimants would
  have been estopped in equity if they had made
  the claim during the war.

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Part Payment of Debt

• What is Estoppel ?
• a rule where a person is prevented
• from denying the existence of facts,
• which he himself has previously
• asserted.
• What is promissory estoppel ?
• The promissor will be estopped from denying
  the existence of such promises and will not be
  allowed to act inconsistently from any such
  assetions he may have made, as to his future
  conduct.

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Part Payment of Debt

• Promissory Estoppel
• High Trees Principle
• a promise to accept a smaller sum in
  discharge of a larger sum, if acted upon, is
  binding, notwithstanding the absence of
  consideration

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Part Payment of Debt

• Requirements that must be met before doctrine of
  promissory estoppel may be applied.
• 1) There must be clear and unambiguous
  statement by the promisor that his strict
  legal rights will not be enforced.
• 2) The promisse must have acted in reliance on
  the promise.
• 3) It must be inequitable for the promisor to
  back on his promise.

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Statement that legal rights will not be enforced

• 1) There must be clear and unambiguous
  statement by the promisor that his strict legal
  rights will not be enforced.
• The Scaptrade (1983)
• Hughes v Metropolitan Railway (1877)
• Statement can be implied or by conduct.

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Promisee must have acted on reliance

• 1) Promisee must have acted on reliance on
  the promise.
• The promisee must have changed his position to
  his etriment,.meaning put in worse position if
  promise is revoked, or altered his position in
  some way.
• Ajayi v Brisco (1964)
• The postchaser (1982)

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Inequitable for promisor to go back on promise

• The promisor can resile from his promise or
  rather withdraw from his promise, if it is
  equitable.

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Part Payment of Debt

• Doctrine of Promissory Estoppel,
• is a Shield and not a sword
• Does not allow a new cause of action,
• where no cause of action existed.
• Combe v Combe (1951)
• Held C/A , held that wife gave no
  consideration for the husbands promise,
  therefore she could not succeed.
• High trees principle was not applied.

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Promissory estoppel

• Does doctrine suspend or extinguish the rights
  of the promissor?
• Tool Metal Manufacturing v Tungsten Electric Co
  Ltd (1955)
• D C Builders v Rees (1965)
• Held Creditors may resume strict rights on
  giving notice that they wish to be paid the full
  amount and then allowing a reasonable time for
  the debtor to comply. so principle does not
  extinguish obligations.