Part-Payment of Debt CASES
In English law, part-payment of debt refers to a situation where a debtor pays a creditor less than the full amount owed, raising questions around whether the remaining debt can be enforced.
Definition and Principles
Generally, payment of a lesser sum on or after the due date does not discharge the full debt, due to the rule established in Pinnel’s Case (1602). Full settlement usually requires additional consideration or agreement.
Exceptions
- Additional Consideration: Creditor accepts part-payment plus something extra, such as earlier payment or goods.
- Composition Agreements: Creditor agrees formally to accept reduced payments.
- Promissory Estoppel: Creditor is prevented from enforcing full debt if specific assurances were relied upon.
Legal Consequences
Absent an exception, creditors typically retain the right to claim the outstanding balance despite accepting partial payments.
Practical Importance
Understanding part-payment rules helps parties manage debts clearly, ensuring enforceability and preventing unintended financial obligations.
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A company owing tax argued it had an enforceable agreement to pay arrears by instalments. The court held the tax collector lacked authority to bind the Revenue, and that an agreement to pay an existing debt is not supported by consideration. Facts Selectmove Ltd owed substantial arrears of PAYE and National Insurance contributions to the Inland Revenue. The company’s managing director, Mr Ffooks, met with a tax collector, Mr Polland, on 15 July 1991. Mr Ffooks proposed that the company would pay its future tax liabilities as they fell due, and would pay the arrears in instalments, suggesting a rate
Dr Foakes owed a judgment debt to Mrs Beer. She agreed to accept payment in instalments and forgo interest. After he paid the principal, she successfully sued for the interest, as her promise was unsupported by fresh consideration from Foakes. Facts The respondent, Mrs Julia Beer, had obtained a judgment in the High Court against the appellant, Dr John Weston Foakes, for the sum of £2090 19s. By law, judgment debts accrue interest from the date of the judgment. Subsequently, the parties entered into a written agreement whereby Dr Foakes agreed to pay £500 immediately and the balance in half-yearly
A small building firm was owed £482. The debtor's wife, knowing the builders were in financial difficulty, offered £300 in 'full settlement'. The builders accepted under pressure. The court held that this did not extinguish the debt, as the agreement was obtained by intimidation. Facts D & C Builders Ltd, a small building company, performed work for Mr Rees amounting to £746 13s. 1d. Mr Rees paid £250 on account, leaving a balance of £482 13s. 1d. Despite several requests for payment, the balance remained unpaid. The builders were in a desperate financial situation. Mrs Rees, acting for her husband,
