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David, a developer, borrowed $100 000 from Rees for a development project with which he was associated. The terms of the agreement were that the money would be repaid within 120 days at 14 per cent interest. At the conclusion of the 120 days, David told Rees that he would be unable to pay the full amount as the development hadn't sold as well as had been expected. He offered to pay $90 000 by cheque immediately in full settlement of the debt. Rees accepted. Rees subsequently claimed the balance of $10 000, plus the interest. David argued that he shouldn't have to pay any more because he had paid Rees under one of the exceptions to the Foakes v Beer principle (ie, payment in a different kind) and that the doctrine of promissory estoppel operated to protect debtors such as himself from just this sort of problem. Who is correct here—Rees or David? Discuss. 

Margaret owned an antique store that specialised in rare porcelain dolls. When she opened the business in 1989, it was at a shop in an eastern suburb of Melbourne. In 1999 she started to advertise on the Internet and by 2006 the business had grown to the point where she needed help to keep the business going. After a family discussion one night at the kitchen table in July 2006, it was agreed that Margaret would probably keep the business going for another couple of years and then retire. Emily, her youngest daughter and aged 16, would work in the shop as long as was needed and in return, she would receive any unsold dolls. When Margaret retired at the end of 2009, she decided that she would give the unsold stock to charity and they could auction it and keep the proceeds. Advise Emily. 

Enforceability of Promises Made to Minors

Issue: here the issue is if the rule known as the Pinnel's rule can be applied in case of the transaction that took place between David and Rees.

Rule: In order to deal with this issue, the rule called the Pinnel's rule and its exceptions need to be applied to the facts of this question. This rule provides that the payment of less money than the money owed by one party to the other will not result in the complete discharge of the debt obligations. The reason that has been given in favor of this rule is that in such cases the promise of the credit according to which the creditor has given an assurance to the debtor that they were not so for the balance amount is a promise that is not supported by any consideration that has been given by the promisee in return. Therefore, the law does not allow the debtor to legally enforce this promise. This rule was provided for the first time in Pinnel's case (1602).

The court stated in this case that by paying lesser sum on the due date and in satisfaction of a larger sum cannot amount to the satisfaction of the complete debt. But the court stated that a "gift of horse, hawk or robe" can be considered as the complete satisfaction of the debt. The reason given by the court was that the gift of horse, hawk or robe would be more useful for the plaintiff otherwise such gift would not be accepted by the plaintiff as the complete satisfaction off the debt. However, it was also affirmed that the payment and the acceptance of a lesser amount than the amount due, on the day before the date of repayment. As stated in the original agreement should be considered as a valid consideration. In such cases, the premature settlement of their debt is something more that is needed under the original agreement.

This rule was further reiterated by the court in Foakes v Beer (1884). In this case, Foakes had obtained a judgment from the court for the recovery of debt and costs. But later on Beer agreed that he was ready to accept 500 pounds immediately and 150 pounds in half yearly installments until the total amount of debt has been repaid. Therefore, Beer agreed that he will not take any further action regarding the judgment. Therefore, the amount of debt was paid by Foakes. But later on, Beer, took action in the code for the governing interest on the judgment. Hence, the court arrived at the conclusion that Beer can take action for recovering interest. The reasoning of the court was that payment of smaller amount is not valid consideration in return of the promise according to which no more action was going to be taken on the judgment.

Application of Pinnel's Rule in Debt Repayment Agreements

However, the rule has to face a lot of criticism by the judges. This criticism is due to the fact that with the help of this rule, a creditor may go back from his promise that the whole debt has been discharge and as a result, the creditor may still decide to claim the balance amount. Due to this reason, the rule became quite unpopular. The result was that certain exceptions were created by the court regarding the rule. Therefore, the exceptions to this rule provide that the whole debt has been discharge if:

The creditor has accepted a smaller amount as well as something different in kind (for example, chattel)

The payment of smaller amount has been made before their debt is due, provided the payment has been made at the request made by the creditor.

The payment of smaller amount at different place on different currency, made at the request of creditor

Any other act that the creditor was not bound to perform

In case of fraud on third-party,

Promissory estoppel

The traditional estoppel was applicable only in cases related representations that have been made regarding existing facts. Therefore, it did not cover the representations that have been made concerning future intentions. But the traditional notion of estoppel was extended so that it may cover the representations related with future intentions (Central London Property. v High Trees. 1947). In view of this decision, the doctrine has been called promissory estoppel.

Application: the facts of this case are that $100,000 have been borrowed by David from Rees. According to the agreement, David was going to repay the amount within 120 days. The rate of interest was 14%. However after the expiry of 120 days, David tells Rees that the development did not sell as expected, and as a result, he was not in a position to pay the full amount. As a result, David meeting of according to which he was going to pay $90,000 as the full payment of the debt. This offer was accepted by Rees, but later on he initiated action in the code to claim the rest of the amount of $10,000 as well as interest on the whole amount. In such a case it is argued by David that he had already paid the debt as a result of the exception present to the rule provided in Foakes v Beer. According to this exception, if the debt has been repaid in different currency, it can be considered as the full repayment of debt. But in this case, David had not paid in different currency but he had made the payment by cheque. This cannot be treated as payment in different currency. The result is that Rees can still claim the remaining amount of $10,000 and interest on the whole amount. On the other hand, David cannot rely on the promise made by Rees where he accepted that $90,000 will be the complete repayment of the debt.

Exceptions to the Rule

Issue: The issue is related with the enforceability of the promise made by Margaret to Emily. The reason is that at the time of making the promise, Emily was 16 years old when she was a minor. Therefore, it needs to be seen if contract. With a minor can be enforced by a minor.

Rule: The capacity to contract is related with natural as well as artificial persons. In this regard, the law provides that the minor does not have the capacity to enter into a contract. Under the common law, generally a person who is less than 18 years is considered as a minor. In this regard, capacity is related with the ability of person to enter into a contract. Therefore, generally, a minor does not have the capacity creative content, but the law provides that in some cases, the minors can be held liable for the necessities, beneficial services and other voidable contracts.

Therefore, when the conference is related with the purchase of necessaries, the minor may be held liable under the law to pay reasonable price for such goods. Basically, the necessaries can be described as the things without which a person cannot be reasonably expected to exist. Therefore, these things include food, clothing, lodging, education and training in a particular trade or other vital services, for example medical services. Therefore, these things are not only limited to goods, but they also include services.

In Chapple v Cooper a married minor, formed a contract for purchasing the coffin for burying her husband. The court arrived at the conclusion that the contract can be described as one that was related with necessaries and as a result the minor can be held liable to pay for it.

Another important case in this regard is Nash v Inman. In this case, a tailor at Saville Row delivered 11 fancy waistcoats to a minor defendant who was an undergraduate student. Later on the tailor initiated action against the defendant for recovering the price of these waistcoats. However, it was held by the court that the action could not succeed. The reason was that during the trial it was established that already adequate supply of clothes was present with the minor. Therefore, the minor did not have any actual requirement for these clothes at the time of delivery.

In Fawcett v Smerthurst, an infant formed a contract according to which he had hired a car for transporting his baggage. It was mentioned in the contract that the infant will be completely liable for any damage that may be caused to the car, whether by negligence or not. It was held by the court that the contract cannot be enforced against the minor into the reason that the term of the contract was harsh and onerous. Regarding the effect of a minors agreement, the court stated that the minor cannot bind himself or herself by a contract. The reason is that a minor does not have the legal capacity of giving his consent for the same. As a result, any obligations cannot be imposed on a minor unless such obligations arise independently of the contract.

Case Law Analysis

The law provides that in such cases the minor does not have the capacity to former contract. Therefore, a minor, who signed the contract can either ratified the contract or void the contract. At the same time, the contract can be avoided by the minor only while the person is still under the age of majority. Therefore, if the minor does not do anything even after becoming a major void the contract, it can be stated that the contract cannot be avoided by such person.

In the present case, Margaret was owner of antique shop specializing in rare porcelain dolls. She started advertising on the Internet and the result was that soon the business grew to such an extent that Margaret needed help for managing the business. Under the circumstances, there was a discussion in the family. Everybody decided that Margaret would probably keep the business going for some years more and then retire. It was also decided that Margaret’s youngest daughter Emily, 16 years old then, would help her in the shop whenever required. In return, Margaret would give any unsold dolls to Emily. However, when Margret retired in 2009, she made the decision to give all the unsold stock to a charity so that they can auction the dolls.

In this way, the promise was made to Emily when she was a minor. According to the law, a minor does not have the capacity to form a valid contract. But in this context it is worth mentioning that the contract formed with minor is voidable at the option of the minor. Therefore if the minor decides to enforce the contract against the other party, such contract is perfectly valid and legally enforceable. In the present case, after attaining the age of majority, if Emily decides to ratify the contract, she may enforce the contract against minor. In this case, consideration has been provided by Emily in return of the promise made by Margaret in the form of work that she was doing in the shop. The contract can be considered to be ratified by Emily when she kept on working for Margaret even after attaining the age of majority. Moreover, Emily had not done anything to avoid the contract. As a result, it is clear that in the present case the contract has been ratified by Emily. Even if Emily was a minor, she can still enforce the contract against Margaret, because the contract created with the minor is the voidable and not void.

Conclusion: keeping in view the principles of contract law, in this case, it can be concluded that Emily can enforce the promise made by Margaret according to which she was going to give all unsold stock to Emily in return of the work done by Emily in the shop.

References

Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130

Chapple v Cooper (1844) 153 ER 105

Fawcett v Smethurst (1914) 84 LJ KB

Foakes v Beer [1884] UKHL 1

Nash v. Inman [1908] 2 KB 1

Pinnel's Case (1602) 5 Co Rep 117

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My Assignment Help. 'Enforceability Of Promises Made To Minors And Application Of Pinnel's Rule' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/bo1blaw204-business-law/david-and-rees.html> accessed 22 May 2024.

My Assignment Help. Enforceability Of Promises Made To Minors And Application Of Pinnel's Rule [Internet]. My Assignment Help. 2021 [cited 22 May 2024]. Available from: https://myassignmenthelp.com/free-samples/bo1blaw204-business-law/david-and-rees.html.

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