Summary - Pinnel\'s rule PDF

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Pinnel's Rule...

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PINNEL’S RULE This rule states that “payment of a lesser sum will not extinguish a debt for a greater amount”. Since, 1608 the rule has impacted on the doctrine of consideration, and exposed the one area where is does not function fairly. The rule enables a creditor to make a promise, and then change his mind. Example: Foakes v Beer Exceptions to Pinnel’s Rule 1. 2. 3. 4. 5.

Prepayment of debt Payment by transferring a chattel Fraud on a “third party” Composition with creditors or settlement of a valid legal claim, and finally Promissory Estoppel

Prepayment of debt -

Payment (of a lesser sum) on the due date is a problem BUT If the debtor pays a lesser amount before repayment is legally required, such prepayment benefits the creditor and disadvantages the debtor. This benefit/disadvantage is good consideration for the creditors promise

Transferring a Chattel -

If, instead of paying cash, I give my creditor some object of value and they agree to accept it in full settlement, they cannot later change their mind and sue. This is because the court will not ascribe a value to the object.

Fraud on a “third party” -

If a person “outside the contract” ie a third party pays part of the debt and the creditor agrees to accept it, the creditor cannot later sue the debtor for the balance. If they could it would amount to a fraud on the third party :Hirachand Punamchand v Temple

Composition with Creditors -

If a debtor convenes a meeting of creditors and they approve a composition under Part X of the Bankruptcy Act, no creditor can later be sued for the unpaid balance of the debt. This applies even if the relevant creditor voted against the scheme. All creditors are bound if it is a valid composition.

Settlement of a legal claim -

If a plaintiff settles a genuine legal claim for less than its “face value” he cannot later sue for the balance. Settlement is encouraged by the courts There are many reasons why a claimant may settle for less than he is owed Once settled, the claim cannot be revived

Estoppel -

If a person is “estopped” from doing something, he is prevented from doing it. Estoppel is a legal doctrine that prevents a person saying one thing and meaning another is a business dealing If another person acts on your statement, you are “estopped” from denying its truth.

Limitation on estoppel -

The limited aspect of estoppel was that court applied it only to statements of a factual nature and refused to extend it to promises of future intention. “He is my agent” is a statement of fact. “I will not sue you for the interest” is a promise of future intention

Promissory Estoppel This approach (shield) was changed in the 1947 High Trees House Case...