What Is the Common Law Rule on Part Payment of a Debt

Sometimes there are circumstances that require partial payment of a debt. In these circumstances, it is important that you receive duly qualified legal advice. According to Foakes v Beer, this promise is unenforceable, and Party B can claim the remaining £1,000, although it promises not to do so. The reason for this position is to prevent the exploitation of parties in a bad financial situation, as stated here: the difference between an agreement and an act is that an act does not require anything in exchange for it being binding on the parties. Usually, the payment of a smaller amount to fulfill a larger obligation is inconclusive, because the promise to accept payment of the lower amount is not taken into account. In cases where the payment contains something more, such as .B. the time, or if payment is made to resolve a dispute in good faith between the parties, the agreement to accept the lower amount is enforceable. An expressed instrument – (a) be an act or document; or (b) must be sealed; If it is signed and attested by at least 1 witness who is not a party to the act, it is deemed sealed and, subject to § 47, duly executed. An agreement between a debtor and its creditors on payment to creditors on an insolvency date releases the remaining amount of the debt. In Hartley v Ponsonby [1857] EngR 605, the court dealt with a case in which a ship sailed from London to Australia and was then contractually obliged to return to Britain via China or India. When they reached Australia, 16 crew members decided not to continue the journey. The other crew members were promised additional salaries while they continued the second leg or journey. When the shipping company arrived in the UK, it refused to pay and said it was doing what it had originally contractually agreed.

The Court stated: “The rule has long been that a debtor can no longer rely on the consent of a creditor to accept the full settlement of a debt owed to him that is less than the amount due. The rule known as the rule in the case of Pinnel is based on the absence of consideration, which in such a case passes from the debtor to the creditor. The rule was confirmed in Foakes v. Beer The rule in Pinnel is essentially that no new consideration was provided for the secondary agreement (the agreement to accept an instalment to satisfy the whole). Normally, one might assume that the execution of a corresponding promise of Foakes v. Beer . The conclusion that a promise of payment or payment of a lower amount does not legally entail the discharge of an existing debt of a higher amount. Therefore, since no review is required, a duly executed settlement act is legally binding on the parties and, if agreed, may allow for the partial payment of a debt. Part A owes £1,000 to Part B, but is aware that Part B has an urgent financial need of £500. With this knowledge, Party A can offer £500 as a partial payment of the debt if Party B waives the remaining £500, as it knows that Party B has no choice but to accept the money.

The case that developed the rule, the Pinnels case (1602), provided for some limited exceptions: in the law of debt recovery contracts, it is a general rule that an agreement according to which a debtor makes a partial payment of a debt does not satisfy the obligation to repay the entire debt. With few exceptions, the rule in Pinnel, which is supported by Foakes v Beer, has been followed and distinguished several times in the Australian and Queensland courts. Therefore, if the debtor provides a new counterparty, i.e. a counterparty that is not part of the original agreement, this may constitute a legally binding agreement. Pursuing abstention is the promise not to sue a party for a legal claim. In Pinnel`s case, they say that if the debtor also gave the creditor a horse, a falcon, a robe, etc., the deal would be good because it is supported by new considerations. There is a long-standing rule in English law that a debtor`s promise to pay part of the debt or the payment of part of the debt does not constitute satisfaction for the entire debt. This rule was expressed in contract law in the decision of the House of Lords in Foakes/Beer, supra, which concluded that payment of less than that due cannot be regarded as consideration for full debt relief. Paying a smaller sum on the day to satisfy a larger one cannot be a satisfaction for the whole, because it seems to the judges that a smaller sum for the applicant for a larger sum cannot be a satisfaction: but the donation of a horse, a falcon or a dress, etc. to satisfaction is good.

Because it is expected that a horse, a falcon or a dress could be more advantageous for the applicant than money. . He did not claim to have paid 5L.2S.2d. in full satisfaction (as the law should do for him), but pleaded for the payment of a portion in general; and that the applicant accepted it with full satisfaction. And always the way of the offer and payment is determined by the one who made the offer or payment, and not by the one who accepts it. And for this reason, a judgment was rendered for the plaintiff. An agreement not to exercise this legal right is the creditor`s consideration in a new agreement in terms of compromise or repayment. In the context of debt collection, the debtor is in default and the creditor is legally entitled to take legal action for breach of contract. This essentially indicates that the payment of a pre-existing obligation is not a good counterpart for a second so-called agreement to accept a partial payment to satisfy the whole. Partial payment of a debt will not fulfill the obligation to repay the debt in full, except in certain circumstances or if it is written in a duly executed instrument of incorporation.

The second agreement does not provide for any new considerations and is therefore not binding on the parties. A decision in that regard implies that it is not strictly necessary to examine another question raised by the applicant, namely that the compromise or `settlement` of a valid debt may be achieved by paying less than the total amount of the debt. In the absence of that support, the applicant submits that it has taken a decision in Foakes v. Beer. To conclude that the consideration for the forgiveness of debts of an amount of a certain amount cannot lawfully consist of a promise to pay a smaller sum of money or the payment of a smaller sum of money The common law rule confirmed in Foakes v Beer (1883) states that partial payment of a debt is not sufficient consideration. Consider the following example: Pinnel`s Case [1602] 5 Co. Rep. 117a[1], also known as Penny v Cole, is an important case in English contract law, on the doctrine of partial performance. Sir Edward Coke considered that a partial payment of a debt could not extinguish the obligation to pay in full. Can the partial payment of a debt constitute a sufficient counterpart under contract law and make a binding agreement? The settlement of a debt instrument, including the partial payment of a debt, must be treated with great care. It is important that you consult a commercial litigation lawyer to negotiate the promissory note on your behalf, or that you can rely on it if one party has relied on a promise or representation of another party and that party then acts inconsistently to the detriment of the trusted party. Pinnel sued Cole in a debt lawsuit on bail for the sum of £8.10s.

The defendant, Cole, argued that at Pinnel`s request, he had offered £5 2s 2d before the debt matured, and that the plaintiff had accepted the debt in full satisfaction. (KahuroSam 2021) Expressed as an advantage and disadvantage, a valuable consideration may consist either of a right, interest, profit or advantage attributable to one party, or of an abstention, disadvantage, loss or liability suffered or assumed by the other party. .