a) The Rule in Pinnel's Case:
Facts of the Case:
In Pinnel's Case, 1602 the defendant, Cole, owed the plaintiff, Pinnel, the sum of £8 10s. At Pinnel’s request, Cole had paid £5 2s 6d one month before the debt was due. But, Pinnel sued Cole for the balance. Cole's argument was that they had an agreement that this part-payment would discharge the entire debt.
Issue For Consideration:
Is part-payment of a debt a good consideration and satisfaction for the whole debt?
Rules to be applied:
1.An agreement that a debtor make a part-payment or pay a lesser sum than that which was owed in satisfaction of a debt could not discharge the obligation to repay the whole amount.
2.This is because there is no fresh consideration provided for the second agreement and agreement is therefore not binding on the parties.
3.For a contract to be binding there must be a consideration even if the consideration is not sufficient.
Judgement of the Court:
The court presided by Lord Coke held that "payment of a less sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole. The gift of a horse, hawk, robe, etc. in satisfaction, is good consideration."
Implication:
1. Essentially, the court said that the payment of a pre-existing obligation is not good consideration for a second alleged agreement to accept part-payment in satisfaction of the whole.
2. Whereas, if Cole had provided fresh consideration, such as the gift of a horse, hawk, robe, etc., then this second agreement may be legally binding.
b) Exemptions to the Rule in Pinnel’s Case:
Over the last four centuries, case law has evolved, thereby creating these exemptions:
1.Payment accompanied by fresh consideration: The ruling in the Pinnel's Case established that if there is a valid consideration for the second agreement, then the part-payment satisfies the whole debt, since the fresh consideration may be more valuable than the balance of the consideration. See also the case of Hartley v Ponsonby [1857] EngR 605.
2.Prepayment of debt at the creditor’s request: If the creditor asks for payment before the due date, it means that the part-payment is more valuable than the whole amount received on the due date. The case of Pinnel vindicates this exemption and also Foakes v Beer [1884] UKHL 1.
3.Payment of a lesser sum at another place at the creditors request: If the creditor requests for payment to be made at another place other than the agreed place, then part-payment may be sufficient. The debtor must have incurred some expense (which is a valid consideration) to deliver payment at this other venue. The case of Pinnel vindicates this exemption and also Foakes v Beer [1884] UKHL 1.
4.A contract with creditors after insolvency of the debtor: When a debtor suffers insolvency or bankruptcy, the creditors could agree to receive part-payment in full settlement of the whole debt through a deed of settlement and release, or a deed of company arrangement.
5.The parties enter into a deed of release: Another exemption exists when the parties enter into a deed of release. A deed, unlike a contract, does not require consideration to be legally binding. Deeds are usually done as out of court settlements but are recognized by courts. A deed is formally defined as "An instrument that has been signed, sealed, and delivered that passes an interest, right, or property, creates an obligation binding on some person, or is an affirmation or confirmation of something which passes an interest, right, or property."
6.Promissory Estoppel: If the parties exchange promises or representations, the relying party can estop the other party from rescinding the promises exchanged in the arrangement, if the other party acts inconsistently to the detriment of the relying party.
The relying party invokes this doctrine to estop the inconsistent party from going back on their promise.
c) In Ghanaian contract law, the position of the rule in Pinnel's Case has been abolished by Section 8 (2) of the Contract Act, 1960.
Explanation:
a) Promissory Estoppel: The doctrine of promissory estoppel is an alternative to the doctrine of consideration. Promissory Estoppel states that a contract cannot be withdrawn because one party acted on the other parties' promise. The implication is that a promise in contract is enforceable without any other consideration.
b) Common Law: Common law is a body of unwritten laws based on legal precedents established by the courts, making it possible for decision-making in unusual cases where the outcome cannot be determined based on existing statutes or written rules of law. Common law is prevalent in commonwealth nations, including the United Kingdom.
c) Contract Law: Contract law is the body of written law that relates to making and enforcing agreements when there is a breach. A contract is an agreement that a party can turn to a court to enforce.
