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Saturday
Jan192008

Pinnel's Case Revisited

The other week, I wrote a post which arose mainly from noticing two new decisions in which Pinnel's Case was cited. The English case ("Collier")was the more interesting and I quoted a long-ish passage from the speech of Arden LJ which purports to set out concisely and authoritatively the law on promissory estoppel as it now stands.

While I think that it probably does so, it is necessary to lay out a few caveats:

  1. The judgment was, effectively, an interlocutory one on whether the claim of promissory estoppel being made was "stateable". It was not a final decision on whether the claim would actually succeed or not. This somewhat diminishes its authority;
  2. Determining what was really said by each side to the other will be crucial where this kind of problem arises. The situation set out at paragraphs 10-19 of Collier is, I suggest, fairly typical;
  3. It would appear likely that the debtor seeking to "get away with" paying less will need to show that s/he changed their position on the faith of the promise made by the creditor
  4. Pinnel's Case is still good law in the straightforward circumstances where a debtor seeks to have the payment of a lesser sum treated as binding satisfaction of an undisputed liability of a larger sum, without more complicating elements. If I owe you $500 and send you a cheque for $400, you are quite entitled to pursue me for the other $100.
  5. One of the earliest recognised complicating elements is if the debtor gives something else with the lesser sum - the older texts spoke of a hawk or a horse. The probable reason for this is that the law requires consideration for a contract to apply, but is usually unconcerned about whether the bargain is a fair one: a single peppercorn in return for writing-off $100 might be OK. It must be clear that the peppercorn is taking the place of the $100 by agreement; to obviate difficulties with that, it may be advisable to do better than a peppercorn, or even the traditional horse or hawk. The lottery winner postulated here might offer an original work of art (such as a Bill Griffinpainting, perhaps !)

Debtors often protest that, in the example above, the $400 was "meant" to be a final settling of accounts, that the creditor shared that understanding and cynically decided later to go back for more. This may be true on occasion. Cynicism, however, is not confined to creditors: the $400 is often tendered by debtors on the basis of a cynical calculation that the creditor will not enforce his or her entitlement.

These clashes generally come down to disputes over factual issues: what was said by each party to the other, and sometimes it becomes necessary to examine the surrounding matrix of circumstances. Collier is a reasonably good example of this. Collier was one of three partners who owed an undisputed debt to a company. The partnership broke up, but this did not change the legal liability of each partner for the full amount of the debt. One of the partners went bankrupt and nothing could be recovered from him. The second partner was not a "mark" either (and later became bankrupt as well). Collier alone of the three made substantial payments and over a period, by arrangement with the creditor, paid one-third of the debt.

The creditor company wanted more and in due course moved to bankrupt Collier, who sought to have the proceedings dismissed on the basis that the company was no longer entitled to anything beyond the one-third it had accepted pursuant to the arrangement which Collier had entered, he says, on the basis that if he complied with it, it would be a full and final settlement.

It will be interesting to see how Collier finally works out. In the meantime, be careful out there !

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