Gratuitous Promises for Reducing Debt - Commercial Law

Commercial Law
COMMERCIAL LAW
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Commercial and Corporation Law 1
Problem 2: Gratuitous promises for reducing the amount of debt
Issue
The problem that question is whether there is a ground to allow a gratuitous promise to
lower the debt.
Rule of Law
Courts do not enforce agreements where the creditor promises to accept a lower value of
the debt and forgo the rest of the debt. This rule was set in (Pinnel V Cole [Pinnel's Case], 1602).
Cole had a debit of £8 10s that was owed to Pinnel. Pinnel’s requested cole to pay £5 2s
6d and to forgo the whole debt. Cole complied but Pinnel still claimed for the rest of the debt.
Even though the defendant contended that Pinnel had accepted a partial pay to forgo the entire
sum, the court found that a lesser sum provided with no further consideration could not bar the
creditor from claiming for the whole amount. However, this rationale can be refuted if the debtor
asked for additional consideration. For instance, the court accepts further considerations such as
the change of the payment date to a closer date, change of payment location, and acceptance of
some goods in addition to the lower sum. Also, the development of the law has provided further
circumstances that can make the agreement enforceable. The circumstances are such as; where a
third party pays the lesser amount. The agreement to take a less amount between the debtor and
composition of creditors. Also, a reasonable defense of promissory estoppel can refute the
Pinnel’s case principle.
Application
The Pinnel’s case principles were applied in the case of (Foakes v Beer , 1884). The
claimant owed the defendant £2,000. The claimant request to pay £500 at the start, and then clear
the balance in installments. When the claimant cleared the debt, the defendant asked for the