A fine distinction when taking part payment

Do you know the fine disctintion between part payment of debt, and payment as full and final settlement?

If you are the lender, you may wish to rely on the general rule established since 1602 in Pinnel's case, that part payment of a debt does not discharge the entire debt, even where the creditor 'accepts'. For example, if a person is owed a debt of $1000 but 'agrees' to accept $600, this agreement is not binding and the person can still claim the remaining $400.

The classic case is Foakes v Beer (1884) 9 App Cas 605. Here, Mrs Beer had obtained judgment against Dr Foakes to the sum of £2090. Dr Foakes requested additional time to pay, and Mrs Beer agreed in writing not to enforce judgment provided Dr Foakes paid the £2090 by way of instalments.

After the £2090 was paid, Mrs Beer claimed interest. Dr Foakes objected, but Mrs Beer succeeded in her claim. According to the House of Lords, even if Mrs Beer had 'agreed to give up' her claim for interest, such an agreement was not binding because it was not supported by consideration.

     1.) relates to an unliquidated or disputed claim; or

     2.) is made earlier than the due date; or

     3.) is made in a different form; or

     4.) is made by a third party; or

     5.) involves numerous creditors

In these circumstances, accepting payment as 'full and final settlement' will most likely extinguish any further claim.

In the recent case of Ashton v Pratt (No 2) [2012] NSWSC 3, Madison Ashton alleged that Richard Pratt promised to give $2.5 million on trust to her children and over $500,000 per annum in annuities, in exchange for her services as a mistress. Whilst Madison Ashton's claim failed on numerous grounds, one such reason was that in February 2005 she accepted $100,000 as "full and final settlement" and again in November 2005 she accepted $50,000 as settlement. Brereton J held acceptance of either payment was sufficient on its own to discharge the claim that Madison Ashton was alleging. Importantly, whilst Ms Ashton believed she would be later given more money, she had lost her legal right to bring her claim. 

When seeking or accepting recovery of money owed, speak to one of our lawyers at the earliest possible stage.

For more information contact Dominic Maley at dmaley@maclarens.com.au or Chris Maley at cmaley@maclarens.com.au.  Alternatively, call now to discuss how we can help on ph: (02) 9682 3777.