Pinnel’s Case and Consideration

On the 11th of November 1600, Pinnel sued Cole in the court. The reason behind this was that Cole had repaid only ? 5 2s 2d, whereas Pinnel had to be paid ? 8 10s. To this Cole submitted that Pinnel had accepted this lesser payment in full satisfaction of the amount owed to him. The court held that payment towards an amount due, which was lesser than what was due, did not constitute satisfaction for the amount due (Pinnel's Case , 1600). However, it accepted that payment made prior to the due date or at some other place, as specified by the creditor, constituted good satisfaction.

Payment in part on its own could not be claimed to amount to acceptance with full satisfaction. As such, it is upto to the creditor to specify the mode of payment and it is not the prerogative of the debtor. Since, the repayment had been on the agreed upon date, the court ruled that the debt had not been discharged in full (Pinnel's Case , 1600). The rule in Pinnel’s case, which had been in existence for more than a hundred years prior to this decision, states that from the perspective of common law no part – payment can constitute satisfaction for the total amount owed.

Some legal critics contended that although there was a necessity for consideration to create a contract, it was illogical to insist upon the provision of consideration with regard to the discharge of a contract. However, the common law approach that is founded on the enforcement of promises deems it of no consequence as to when the promise was made. As such, common law stipulates that in the absence of consideration, a promise is rendered unenforceable (Owens, 2001: 117 – 119).

Despite the fact that the rule in Pinnel’s case is open to criticism, it has proved to be of great benefit to creditors. The severity with which it deals with debtors has been offset to a certain extent due to certain exclusions and protections that have emerged over a period of time. The principal criticism levelled against this rule is that it does permit the enforcement of a bargain, in respect of the debt owed to the creditor, which had been arrived at without any duress, between the parties (Wilson, Kenny, & Wilson, The Law Student’s Handbook, 2007: 161).

The query that come to the fore is that why should it not be possible for an enforceable agreement to be entered into between the creditor and debtor, whereby the creditor accepts a lesser amount than what is due to him, in the absence of a legal benefit or detriment that is to constitute fresh consideration (Wilson, Kenny, & Wilson, The Law Student’s Handbook, 2007: 161). This issue has been addressed by the principle of consideration, the principle of practical benefit and the notion of economic duress, which permit the court to differentiate between forced and freely entered into bargains.

As such, this issue is dealt with by the doctrine of precedent. In Re Selectmove it was contended that the rule established in William’s v. Roffey was to be made applicable to part – payments of debts. However, the court refused to countenance this contention, because it would rescind the rule reaffirmed by the Foakes v. Beer decision (Wilson, Kenny, & Wilson, The Law Student’s Handbook, 2007: 161). Some exceptions to the rule in Pinnel’s case were developed that helped to reduce the severity of its effect on debtors.

For instance, if the creditor agreed to receive the amount due to him in kind, then it was deemed to be adequate for supporting the promise made by him to accept part – payment. Other exceptions to this rule are disputed and unliquidated claims, where this rule is inapplicable. Moreover, the principle of promissory estoppel protects a debtor from a creditor who breaks his promise to accept part – payment towards what is owed to him by the debtor as a full and final discharge from the debt (Wilson, Kenny, & Wilson, The Law Student’s Handbook, 2007: 158).

In its very decision, the court admitted of three possible exceptions to the rule in Pinnel’s case. These are described in the sequel. First, if the creditor accepts a lesser amount as full repayment of the amount owed, on a date prior to the due date, then such payment is tantamount to good consideration; because, such payment benefits the creditor, while proving to be disadvantageous to the debtor (Owens, 2001: 117 – 119).

Second, if the venue of the repayment is changed at the behest of the creditor, then a part – payment constitutes sufficient satisfaction; due to the reason that such change in the place of repayment is advantageous to the creditor, while being detrimental to the debtor. Third, repayment of the debt in kind is of decided advantage to the creditor, because it is up to him to decide upon a value for what is given to him by the debtor in lieu of money. Hence, such repayment is deemed to be sufficient satisfaction (Owens, 2001: 117 – 119).

Subsequently, some more exceptions to the rule in Pinnel’s case came to the fore. One of them occurs when an insolvent debtor comes to an agreement with his creditors to repay a proportional part – amount to them. This benefits the creditors, because they are very much likely to receive a greater amount than what they would have received if the debtor had been declared bankrupt (Owens, 2001: 117 – 119). In addition, the debtor is also at a distinct advantage, because, the ignominy and other drawbacks associated with bankruptcy can be circumvented.

The only drawback to such an arrangement arises when one of the creditors, notwithstanding the agreement, decides to obtain what is owed to him in its totality. In such instances, the mutual agreements between the creditors are sufficient consideration, but the debtor cannot take recourse to such consideration (Owens, 2001: 117 – 119). Another exception arises when a third party agrees to make the part – payment of the debtor to the creditor, subsequent to having obtained an assurance from the creditor that he would deem such part – payment to be full satisfaction for the debt.

However, the rule in Pinnel’s case connotes, in such instances, that the debtor had not provided consideration to the creditor’s promise to abstain from recovering the balance amount due to him (Owens, 2001: 117 – 119). The rule in Pinnel’s case was reaffirmed, nearly three centuries later by their Lordships in the Foakes v. Beer case. In this case, Beer had been granted a judgement in her favour against Foakes, whereby she was to receive around ? 2,000. Since, Foakes found it difficult to pay this amount to Beer all at once, they agreed to the debt being repaid over a period of time.

Accordingly, Beer and Foakes signed an agreement to that effect. Over a period of time, Foakes repaid all the instalments to Beer and thus cleared his debt to her. The lacuna in that agreement was that there was no mention about interest on the debt to which Beer was entitled. Consequently, Beer sued Foakes for interest on the judgement debt (John Weston Foakes v. Julia Beer, 1884). The issue placed before their Lordships concerned whether Beer was entitled to the interest, after having agreed to forego the same.

To this the House of Lords ruled that in accordance with the rule in Pinnel’s case, she could sue for the interest on the judgement debt. However, the House of Lords emphatically stated that if the agreement had been in a deed under seal, then Beer would not have been entitled to such interest (John Weston Foakes v. Julia Beer, 1884). . As such, the rule in Pinnel’s case was reiterated by the House of Lords in Foakes v Beer. However, the decision in Hughes v. Metropolitan Railway was not taken in to consideration in Foakes v.

Beer ruling. Thus it can be construed from this decision that the doctrine of promissory estoppel was not applicable to the part payment of debts. Nevertheless, in Central London Property Trust v. High Trees House, Denning LJ applied promissory estoppel to part payment of rent, which is analogous to part – payment of a debt. Moreover, the House of Lords affirmed the application of the rule in Pinnel’s case in Re Selectmove (Care, 2001: 87-88). Although, the rule in Pinnel’s case seems to engender confusion, the situation is quite clear. The exceptions to this rule clearly specify the conditions that render part – payment sufficient for full discharge of the debt.

List of References

  • Care, J. C 2001, Contract Law in the South Pacific. Routledge Cavendish. John Weston Foakes v. Julia Beer, [1881-85] All ER Rep 106 (House of Lords April 1, 1884).
  • Owens, K 2001, Law for Non – Law Students. Routledge Cavendish. Pinnel's Case , [1558-1774] All ER Rep 612 (1600).
  • Wilson, S. R. , Kenny, P. , & Wilson, S 2007, The Law Student’s Handbook. Oxford University Press.
  • Wilson, S. R. , Kenny, P. , & Wilson, S 2007, The Law Student’s Handbook. Oxford University Press.