Law of Contract Consideration Part Payment of Debt

1. Law of ContractConsiderationPart Payment of Debt

2. 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

3. 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.

4. 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.

5. 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..”

6. 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 creditor’s request, to that originally specified.

7. 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)

8. 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

9. 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.

10. 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)

11. 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.

12. 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.

13. 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.

14. 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”

15. 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 onthe promise. 3) It must be inequitable for the promisor to back on his promise.

16. 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.

17. 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)

18. 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.

19. 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.

20. 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.