Law of Contract
Consideration
Part Payment of Debt
Part Payment of Debt
Pinnel’s Case (1602)
A promise to accept a part payment
of a debt, in discharge of the entire
debt is not valid consideration
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.
Part Payment of Debt
Pinnel’s Case
Facts : Cole owed Pinnel £8.50 which
was due in 11th Nov. At Pinnel’s
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.
Part Payment of Debt
Pinnel’s 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..”
Part Payment of Debt
Exception to the general rule :
1) If the creditor accepts partpayment 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
creditor’s request, to that originally
specified.
Part Payment of Debt
Pinnel’s case was followed in
Foakes v Beer (1884)
Held : Dr. Foakes had not provided any
consideration…he 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)
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
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 debtor’s liability is a good defence, to a
later action by the creditor.
Part Payment of Debt
Welby v Drake (1825)
Facts : The defendant owed the claimant
£18. The claimant accepted £9 from the
defendant’s 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)
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.
Promissory estoppel
Central London Property Trust Ltd v
High Trees House Ltd (1947)
Held : Lord Denning’s 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.
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.
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”
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.
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.
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 detriment,.meaning put in
worse position if promise is revoked, or
altered his position in some way.
Ajayi v Brisco (1964)
The postchaser (1982)
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.
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 husband’s promise, therefore she could not
succeed.
High tree’s principle was not applied.
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.