1. What is a Consideration?

Consideration is the price of the contract and it can be right,

interest or responsibility etc. According to section 2( d) of the
Indian Contract Act “when at the desire of the promisor,
promisee or any other person has done or abstained from doing or
does or abstains from doing or promises to do or to abstain from
doing something, such act or abstinence, or promise is called a
consideration for the promise.”
When we say that consideration is an a ct it acquires an
affirmative tone. For example A promise to pay ` 10,000 to B if
B will sell his mobile to him. When we say that consideration is
abstinence or forbearance it acquires negative tone. It means one
party agree not to do something in lieu of the promise of other
party of the contract. Thus one party may be able to benefit due
to the abstinence of another who refrains from some gain.

Example :

A offers to sell his car to B for a sum of ` 1,00,000. B accepts the

offer. In this contract,
i. A is the promisor and it is his desire to sell his car for `
1,00,000
ii. B is the promisee and on the desire of A he is purchasing
the car for ` 1,00,000.
The consideration for A’s promise, is a sum of ` 1,00,000 while
consideration for B’s promise is the car.
Case Law
In Currie v. Misa, it was defined, “A valuable consideration in
the sense of the law may consist either in some right, interest,
forbearance, detriment, loss or responsibility, given, suffered or
undertaken by the other.”
ESSENTIALS OF A VALID CONSIDERATION
1. Something should be done or abstained from doing at the
desire of the promisor only.
2. Promisee or any other person has done or abstained from
doing something at the desire of the promisor.
3. It can be Past, Present or Future.
4. It is not necessary that Consideration must be adequate.
5. Consideration must be Real and Not Illusory or Impossible.
6. It must be Lawful.
Explanation
1.1 Consideration must proceed at the desire of the Promisor
An act must have been done at the desire or request of the
promisor. Voluntary acts or acts done at the desire of the third
party is not a consideration in the eyes of law.

Example :
B house is on fire. A rushes to B’s help and later demanded `
10,000 from B. Is A justified in claiming ` 10,000
No, he is not justified as there is no consideration here. It is a
voluntary act of A.
But if A goes to B’s help at B’s request who promises, to give `
10,000 to A for the help then B is bound to pay. As the
consideration for B is to get the help from A and consideration
for A’s promise is ` 10,000

Case Law

In Durga Prasad v. Baldeo,on the order of the collector of a

town Durga Prasad built some shops on his own expense in a
market. The shopkeepers who occupied these shops promised to
pay to Durga Prasad commission on their sales. Durga Prasad
sued the shopkeepers when he did not receive the commission.
The court held that the promise was not supported by any
consideration as the shops were built on the collector’s order and
not at the request of the shopkeepers. Therefore there could not
be a recovery.

Is it necessary that the promisor himself should be benefited

by consideration?
No, It is not necessary that the promisor himself should be
benefited by consideration. It is enough if the act or forbearance
constituting consideration was done or given at the request of the
promisor.
1.2 Consideration may move from the promisee or any other
person
Consideration may proceed from the promisee or any person.

1. Consideration may be furnished even by a stranger under Indian

Law.
2. Consideration can be from any direction, even a stranger to
contract can offer

Case Law

In Chinaya v. Ramayya, A, by a deed of gift, made over certain

property to her daughter, with a direction that the daughter
should pay an annuity to A’s brother. On the same day the
daughter executed a deed in writing in favour of the brother and
agreed to pay the annuity. After that the daughter declined to
fulfil her promise and the brother sued to recover the amount.
The defendant (sister) contended that as there was no
consideration from the side of brother, and that he being the
stranger to the consideration had no right to sue. It was held that
it is not necessary that consideration must move from the
promisee himself. Therefore, the brother was entitled to maintain
the suit.

1.3 Consideration may be past, present or future

1. Past consideration:
Past consideration is a promise for a voluntary act done in
the past to help the party who is making promise to pay or
to do something subsequently. It means consideration is
promised to pay later for an act done without any promise
from the other party. A promise is said to be given for past
consideration when the promisor’s motivation for making
the promise is a past benefit he received that gave rise to an
obligation to make compensation. Earlier past consideration
was no consideration but now it is a good and valid
consideration.

Example :

B house is on fire. A rushes to B’s help and saved his life. In a

show of gratitude, B promises to pay A ` 5,00,000 for the help
provided by A. In this case, B’s motivation for making this
promise is the past benefit that A provided which gave rise to
the moral obligation to compensate A.
2. Present or Executed consideration:
When the promisor receives consideration simultaneously
with his promise, the consideration is termed as Present
Consideration.
 Example:

A purchased goods from a shopkeeper of the worth of ` 10,000

A pays money to the shopkeeper immediately. Consideration is
“Present”.
3. Future or Executory Consideration:
When a promise is to be executed on a future date it is
called executory consideration or future consideration. In
this the promisor makes an offer for a future date and the
promisee promises to accept and execute the contract after
that date this is future consideration. In this case both
parties move the consideration to a future date. The liability
becomes outstanding on both parties on a future date.

1.4 Consideration need not be Adequate

What is important to convert agreement into contract is the
presence of the Consideration, but it is not essential that the
consideration should be adequate. It may or may not be adequate.
Consideration should be of some value in the eyes of the law.

Example:

A agreed to sell his Mobile worth ` 40,000 for ` 2,000 with his
free consent. This is a valid Contract.

Explanation 2 to Section 25
An Agreement to which the consent of the promisor is freely
given is not void merely because the consideration is inadequate;
but the inadequacy of the consideration may be taken into
account by the Court in determining the question whether the
consent of the promisor was freely given.
The court does not take the responsibility of repairing any bad
bargains made between parties but if it is so unjustified then it is
a ground to ascertain that whether consideration was given freely
with the consent of the other party of the contract or not.

1.5 Consideration must be Real and Not Illusory or

Impossible
Real consideration means that the consideration should not be
physically or legally impossible. Consideration is not real in the
case of physical and legal impossibility or uncertainty.
Physical Impossibility: If a promise is made to do impossible
things that are not possible to do physically, it is not real. For
example, A promises to pay B ` 1,00,000 if he will be able to run
200 km in 5 minutes. This is not a valid consideration as it is
physically impossible for anybody to do this.
Legal Impossibility: If a promise is made to do things that are
prohibited by law then also it is not valid consideration. For
example, A enters into contract with B that he will pay ` 5,00,000
to B if B will murder C. This contract cannot be executed as
consideration is illegal.
Uncertain Consideration: Consideration must be certain
otherwise it is impossible to carry out an agreement.

Example:

A dentist says he will charge ` 10,000 or ` 6,000 for his services.

This is uncertain consideration and difficult to carry out because
of the uncertainty about the exact amount.

Consideration Involving Pre-existing Duty: Consideration

should be a new obligation. Performance of an existing legal duty
is no consideration in the eyes of law. It should be something
more than a person is already required to do. Moreover, a
promise to pay for doing a public duty to a government employee
is not good consideration.

Example: The pilot of a plane had to land in Chandigarh

although the actual landing destination was Delhi because of
technical problems. The pilot asked for money from the
passengers to bring the plane back safely to Delhi. This is not a
valid consideration as it is the duty of the pilot bring the
passengers to Delhi safely.

1.6 Consideration must be Lawful

Consideration should be lawful, otherwise the agreement
becomes void. According to section 23 of the Indian Contract Act
consideration is not lawful in the following situations:
i. When it is made of an act forbidden by law
ii. When it causes injury to a person or property of another
person.
iii. When it is declared as immoral or opposed to public policy.
When a part of the agreement is unlawful the whole agreement
will become void except in those cases when the unlawful part
can be separated from the lawful one.
NO CONSIDERATION- NO CONTRACT- SECTION 25

1. A) Meaning–

The general rule is ex-nudopacto non oritur actio i.e. an

agreement made without consideration is void.
Example –
If Salman promises to pay Aishwarya ` 1000 without any
obligation from Aishwarya then it will be void contract as there
is no consideration from Aishwarya towards Salman.

EXCEPTIONS:
Under following cases, a contract will be valid even without
consideration:
1) Promise made on account of natural love and affection
2) Promise to compensate for voluntary services
3) Promise made to pay a time barred debt
4) Completed Gifts
5) Creation of agency
6) Contract of Guarantee
7) Remission

Explanation:

1) Promise made on account of natural love and affection –

An agreement made without consideration is valid –

i. When a contract is made on account of natural love and

affection between the parties.
ii. The parties are standing in a near relation to each other, and
iii. The contract is in writing and registered under the law for
the time being in force for the registration of documents.
. Examples: A, out of his love and affection, promises to
give his wife, ` 10,000. This promise is put into
writing and is registered. It will be a valid contract
without consideration.
 After persistent quarrels and disagreement between
husband and his wife, the husband promised in writing
to pay his wife, a sum of money for her maintenance
and separate residence. The agreement was also
registered. It was held that the promise was not
enforceable because it was not entered out of natural
love and affection. (Rajlusmi Dabee v. Bhootnath)
(1900).

2) Promise to compensate for voluntary services–

Voluntary service means service done without any request. It will be

valid if the following conditions are satisfied –

a) The service should have been done voluntarily.

b) The service should have been done for the promisor.
c) The promisor must have been in existence at the time when the
service was done.
d) The intention of promisor must have been to compensate the
promisee.

e) The service rendered must also be legal.

Example: Jethalal finds Babita’s purse and gives it to ‘her. Babita

promises to give Jethalal 50 rupees. This is a valid contract.

3) Promise to pay time-barred debt–

According to section 25(30), a promise by a debtor to pay a time

barred debt is enforceable it is made in writing and is signed by
the debtor or by his agent generally or specially authorised in that
behalf. The promise may be to pay the whole or any part of the
debt. The debt must be such, of which the creditor might have
enforced payment but for the limitation of suits. For example, A
owes B ` 2,000 but the debt is barred by the Law of Limitation. A
sign written promise to pay B ` 1,000 on account of the debt.
This is a contract.
a) A promise by a debtor to pay a time-barred debt is also a valid
contract.
b) But the promise must be in writing.
c) It must be signed by the promisor or his authorised agent.
d) The promise may be to pay the whole or part of the debt.

Example: Ram owes Laxman 1,000 rupees but the debt is barred by
the Limitation Act. Ram signs a written promise to pay 500 rupees on
account of the debt. The promise will be valid and binding without
any fresh consideration.

4) Creation of Agency–

a) No consideration is necessary to create an agency.

b) Thus, when a person is appointed as an agent, his appointment is
valid even if there is no consideration.

5) Completed Gifts–
a) Gifts once made cannot be recovered on the ground of absence of
consideration.
b) Absence of consideration will not affect the validity of any gift
already made.
The rule ‘no consideration, no contract’ does not apply to
completed gifts. According to Explanation to section 25, nothing
shall affect the validity, as between the donor and donee of any
gift actually made.

Example: Virat gave a watch as a gift to Anushka on his birthday.

Later on Virat cannot demand the watch back on the ground that there
was no consideration.

6) Contract of guarantee–

Contract of guarantee needs no consideration.

7) Remission–

Remission means lesser performance of the contract than what is

actually to be performed.
DOCTRINE OF PRIVITY OF CONTRACT/ STRANGER TO
CONTRACT

Privity of Contract and Privity of Consideration

Only the parties of the suit are bound by the terms and conditions
as well as by the consequences of the contract. A stranger to
contract, cannot file a suit to enforce any of the right or liability
arising out of the contract. It means that a person who stands to
obtain a benefit from the contract (a third-party beneficiary) is
not entitled to take any enforcement action even if he or she is
denied the promised benefit.

Case Law:

In Tweddle v. Atkinson, the father of the groom and the father of

the bride, agreed that each of them shall pay a sum of money to
the boy, and after marriage the husband should have full power to
sue for such sums. After the death of both the contracting parties
the husband sued the executors of the wife’s father upon the
above agreement, but the action was held not to be maintainable
because the husband was not a party to the contract.
In Dunlop Tyre Co. v. Selfridge Ltd, D supplied tyres to a
wholeseller X, on the condition that any retailer to whom X
resupplied the tyre should promise X, not to sell to the public
below D’s list price. X supplied the tyres to S, a sub-dealer, S
sold two tyres at less than the list price, and thereupon, the
Dunlop Co., sued him for breach of the contract. Held, Dunlop
Co., could not claim the benefit of the contract as against S, a
sub-dealer, there was no privity of contract between the two.
In M. C. Chakao v. State Bank of Travancore, A bank, of which
the appellant was the Manager, had an overdraft-account with
another bank which later merged with the respondent. The
appellant’s father had executed from time-to-time letters of
guarantee holding himself liable for the amount under the
overdraft arrangements. The appellant’s father executed a deed
giving away his properties to the appellant, and other members of
the family. The deed recited that he had executed the letters of
guarantee at the request of the appellant, and that the amount due
to the Bank was to be paid by the appellant; but if any amount
had to be, paid by him (father) as per the letter of guarantee, the
appellant and the properties allotted to hi m were to be answerable
for that amount. The creditor bank filed a suit against the debtor
bank and also against the appellant and his father’s other heirs
and legal representatives for the amount due under the overdraft
arrangement and claimed that a charge was created on the
properties to which the deed executed by the father of the
appellant related.
Issues
i. whether under the deed a charge was created in favour of
the creditor bank to satisfy the debt arising under the letter
of guarantee? and
ii. whether the charge, assuming that a charge arose, was
enforceable by the creditor bank when, it was not a party to
the deed?
Decision
In order that a charge may be created, there must be evidence of
intention disclosed by the deed that a specified property or fund
belonging to a person was intended to be made liable to satisfy
the deed. In the present case the recitals in the deed did not
evidence any intention of the donor to create a charge in favour
of the creditor bank; they merely set out an arrangement between
the donor and the members of his family that the liability under
the letter of guarantee if and when it arose, will be satisfied by
the appellant out of the property allotted to him under the deed.
The letter of guarantee Created merely a personal obligation and
an intention to convert a personal debt into a secured debt in
favour of the Bank, a third person, could not be inferred from the
recitals in the deed.
Privity of Consideration means that although the party is
stranger to consideration as he or she has not paid the
consideration, but someone has paid consideration for the benefit
of the beneficiary. So, the beneficiary may file a suit to execute
the contract.

Case Law:

In Chinaya v. Ramayya, A, by a deed of gift, made over certain

property to her daughter, with a direction that the daughter
should pay an annuity to A’s brother, as had been done by A. On
the same day the daughter executed a writing in favour of the
brother agreeing to pay the annuity. The daughter declined to
fulfil her promise and the brother sued to recover the amount.
The defendant (sister) contended that no consideration from the
brother, and that he being the stranger to the consideration had no
right to sue. Held, it is not necessary that consideration must
move from the promised himself. A contract can be supported
can be supported even by a consideration from a person other
than the promised. Therefore, the brother was entitled to maintain
the suit.
Analysis
In this case consideration for the defendant’s promise to pay the
annuity was the gift of certain lands by the mother to the
defendant. Although in this case consideration is not moving
from the side of the plaintiff i.e., brother but has been paid by the
mother for the benefit of the son. Thus, in this case it was held
that it is a valid consideration as section 2(d) permits that
consideration may be moved from the promisee or any other
person.
CASE LAW:

In Dutton v. Poole, the court observed that the stranger was

having very close relations to the promise. He could, therefore,
maintain an action on a contract as a beneficiary. In this case the
father of the defendant wanted to sell some timber trees. The
defendant promised (in consideration that his father would refrain
from cutting down the trees) to pay to his sister Grizil pounds
1000 Grizil (as Mrs. Dutton) with her husband sued from breach
of the promise. It was held that the action was maintainable.
Analysis
In this case the reason to ignore the doctrine of privity of contract
was that there were very near and affectionate relation between
the plaintiff and her father who was the promisee under the
contract. The court was of the opinion that natural love and
affection could constitute consideration. Therefore, the
consideration and promise to the father could extend to the
children for there exists natural love and affection between them.
The plaintiff was, no doubt, a stranger to the contract, but not a
stranger to the consideration, she was deemed to have furnished
consideration, so she was held entitled to sue.

EXCEPTIONS TO THE DOCTRINE OF PRIVITY OF

CONTRACT
a. Beneficiaries in the case of trust: A beneficiary under an
agreement to create a trust can sue upon the agreement,
though he was not a party to the contract between the settler
and the trustees. Example: A creates a trust for the benefit
of B, and appoints X, Y and Z as trustees. B can sue for
benefits available to him under the trust though he is not a
party to the contract.
 Case Law:
Nawab Khawaja Muhammad Khan v. Nawab Hussaini
Begum, the Privy Council firmly established an exception
to the doctrine of privity of contract and allowed an action
by a stranger to the contract. In this case the appellant
executed an agreement with the respondent’s father. By this
agreement he agreed that in consideration of respondent’s
marriage with his son (both, bride and bridegroom were
minor at the time) he would pay to the respondent ` 500 per
month in perpetuity for her kharch-e-pandan (betelbox or
betel leaf expenses) from the date of marriage. He also
charged his property in Agra and Dholpur with this money
and mentioned that in case of his death his heirs or
representative would pay the money out of these properties.
The arrear of the money was claimed by the plaintiff after
separation from her husband. In this case it was held that
she could enforce the promise in her favour. Although she
was not a party to the agreement but as the contract is
entered for her benefits only so she was clearly entitled to
proceed in equity to enforce her claim.
The Privy Council observed that it might occasion serious
injustice to apply the common law doctrine of privity of
contract in a country like India where marriages are
contracted for minors by parents or guardians.
b. In case of provision in marriage settlement of minors: A
child in a contract of marriage is treated as a party who has
given consideration, and he is entitled to enforce any
contract to settle property, which a marriage settlement may
contain.
c. In case provision is made for the marriage or maintenance
of a female member of the family on the partition of Hindu
Undivided family: The female members though not parties
to the contract, possess an actual beneficial right which
places them in the position of beneficiaries under the
contract, and can, therefore, enforce the promise.
 If Nikhil gives his Property in equal portions to his 3 sons with a
condition that after his death
all 3 of them will give Rs 10,000 each to Neha, the daughter of
Nikhil. Now Neha can prosecute if any one of them fails to obey
this.
d. Assignee of a contract: An assignee under an assignment
made by the parties, or by the operation of law, e.g., in case
of death or insolvency, can sue upon the contract for the
enforcement of his rights and interests. A debt can be
assigned by a creditor to a third person without the consent
of the debtor. But a mere nominee cannot sue e.g. the
person for whose benefit another has insured his own life
cannot sue.

Example: Rahul assigns his insurance policy in favour of his

wife. The wife can enforce it although she is not a party to it.

e. Acknowledgement of liability: Where the promisor either by his

conduct or acknowledgement or by part payment or by estoppel
creates privity of contract between himself and the stranger, the
stranger can sue. Example: Raju pays Shyam 500 rupees to be
given to Baburao, Shyam acknowledges to Baburao that he
holds that amount for him. Baburao can recover the amount
from Shyam.
f. Where a charge is created on certain specific immovable
property in favour of certain person: Such charge is
enforceable at the instance of the beneficiary entitled,
though he may be a stranger to the document creating the
charge.
g. Estoppel : Where one party has by his words or conduct
made to the other a promise or assurance which was
intended to affect the legal relations between them, then
once the other party has taken him on his words and acted
upon them, the party who gave the promise shall be
estopped from denying his liability arising from the
promise.
 h. Contracts which are entered into through an agent, can be
enforced by the principal.
When no consideration is necessary (Exception to Section 25)
1. Promise made on account of natural love and affection
. When a contract is made on account of natural love
and affection between the parties.
i. The parties are standing in a near relation to each
other, and
ii. The contract is in writing and registered under the law
for the time being in force for the registration of
documents.
. Examples: A, out of his love and affection,
promises to give his wife, ` 10,000. This promise
is put into writing and is registered. It will be a
valid contract without consideration.
a. After persistent quarrels and disagreement
between husband and his wife, the husband
promised in writing to pay his wife, a sum of
money for her maintenance and separate
residence. The agreement was also registered. It
was held that the promise was not enforceable
because it was not entered out of natural love and
affection. (Rajlusmi Dabee v. Bhootnath) (1900).
2. Promise to compensate for voluntary services: When a
contract is made to compensate a person, who has already
done something voluntarily for the promisor, or done
something which the promisor was legally compellable to
do. Here two conditions must be fulfilled. First, the act must
have been done voluntarily and for the benefit of the
promisor, secondly, the intention of promisor must have
been to compensate the promisee. This contract may be oral
or written. Thus, services voluntarily rendered but not with
gratuitous intention can form valid consideration for a
promise given to compensate him.
3. Promise to pay a time barred debt: According to section
25(30), a promise by a debtor to pay a time barred debt is
enforceable it is made in writing and is signed by the debtor
or by his agent generally or specially authorised in that
behalf. The promise may be to pay the whole or any part of
the debt. The debt must be such, of which the creditor might
have enforced payment but for the limitation of suits. For
example, A owes B ` 2,000 but the debt is barred by the
Law of Limitation. A sign written promise to pay B ` 1,000
on account of the debt. This is a contract.
4. Agency: Consideration is not necessary to create an agency.
5. Complete gift: The rule ‘no consideration, no contract’
does not apply to completed gifts. According
to Explanation to section 25, nothing shall affect the
validity, as between the donor and donee of any gift actually
made.
Pinnel’s Case (1602) 5 Co Rep 117

Summary: Whether part payment of a debt can be good

consideration.

Facts:
The defendant, Cole, owed the plaintiff, Pinnel, the sum of £8 10s.
Pinnel sued Cole for recovery of the debt. Cole had, at Pinnel’s
request, paid £5 2s 6d one month before the debt was due to be paid
and stated that they had an agreement that this part payment would
discharge the entire debt.

Issues:
The defendant argued that the plaintiff had accepted partial payment
of the debt as satisfaction of the whole. However, it was a general
rule that payment of a lesser sum than that which was owed in
satisfaction of a debt could not discharge the obligation to repay the
whole amount.

Decision/Outcome:
The court confirmed the general rule that part payment of a debt
cannot be satisfaction for the whole. However, since the payment had
been made early this was sufficient to discharge he debt.

Lord Coke said (at 1117a):

‘Payment of a lesser sum on the day in satisfaction of a greater sum

cannot be any satisfaction of the whole… but the gift of a horse, hawk,
or robe etc. in satisfaction is good. For it shall be intended that a
hawk, horse, or robe, etc. might be more beneficial to the plaintiff
than the money’

Therefore, by paying some money early the defendant had provided

the plaintiff with a further benefit and had not just repaid the money
which he already owed. Consequently, this was good consideration,
and the court found for the defendant.
What is the rule in Pinnel’s Case?

The rule in pinnel’s case is also known as promissory estoppel. The

rule states that payment of a lesser sum than the amount due does
not discharge the larger sum. Thus, where the sum of money
which the defendant pays to the plaintiff at the plaintiff’s request
is a lesser part of the sum which the defendant is already liable to
pay to the plaintiff, nothing more than an existing obligation is
discharge by the defendant and so the payment which he makes
cannot serve as consideration.

Take for instance, If Mr. Ben owes Mr. John $10,000 and Mr. Ben, at
the request of Mr. John, pays just $5,000 of the amount, Mr. Ben will
not by that payment be discharged of his obligation to pay Mr. John
the balance. The reason is because, Mr. Ben is already bound to pay
the total amount of $10,000. By paying part of the amount, he is
not doing anything more than he is bound to do.

In other words, he has paid no price for Mr John’s promise. Absence

of consideration is therefore the basis of the rule in pinnel’s case. It is
usually called promissory estoppel in contract law.

EXCEPTIONS TO THE RULE IN PINNEL’S CASE

1. If the payment of the lesser sum is made in a mode different

from that originally agreed upon:

The Rule in pinnel’s case will not apply if the payment was to be in
cash, but the lesser amount was paid in kind. For example: Mr
Ben owes John $1000. At John’s request, Mr Ben gives John a bag
of rice valued at N800 in return for John’s promise not to demand the
balance of the amount owned. The giving of the bag of rice
constitutes a new element in the method of payment and therefore
satisfies the requirement for consideration necessary to support a
contract.

The legal reason behind this is that, by asking for a bag of rice from
Mr. Ben, John may have considered it more useful to him than the
sum of $1000 owed him and hence that bag of rice constitute a price
or consideration for John’s promise to forgo the balance. It is
pertinent to also note that this exception will apply even when
price of the form which was used is of lower price. It is indeed one
of the exceptions to the rule in pinnels case.

2. Payment of a lesser sum at an earlier date

Another exception to the rule in pinnel’s case is where the payment of

the lesser sum is on an earlier date. This exception holds that where
there is payment of a lesser sum at an earlier date, the creditor will
be estopped from getting the full sum.

Take for instance, If the full amount is due in June and the creditor
request the debtor to pay him part of it in March in return of his
promise to forego the balance, the payment at earlier date
in March constitutes a new element and satisfy the requirements for
consideration.

3. Payment of a lesser sum in a different place

This exception to the rule in pinnel’s case will apply where the
payment is made at a different place from place originally appointed
for the payment. For instance, if Mr. Ben owes John $1000 payable
in Nigeria but they both meets at Oxford Street in London during a
summer holiday.

John request Mr. Ben to pay him $500 there and then in return
of John’s promise never to ask for the balance. If Mr. Ben pays this
money to John in London as requested, that payment will
discharge his indebtedness to Mr. John and he cannot afterwards
demand the balance.

4. Where the sum is unliquidated or disputed:

It is also an exception to the rule in pinnel’s case where the sum is

unliquidated or dispute. In this situation, payment of a smaller sum
will operate satisfaction from larger sum. For example, where the
lesser amount is paid as part of a comprehensive settlement involving
a variety of claim on both sides.

5. Composition with creditors

The Rule in pinnel’s case will not apply where for instance, A owes
money to different persons, B, C, D and E and the amount of money
in A’s possession is such that all the creditors cannot be paid in full.
They may agree amongst themselves to accept a fraction of their
individual debt from A in discharge of the whole sum in each case.

Thus, if A owes B, C, D and E $1,000 each and he can only lay hands
of $2, 000. B, C, D and Emay agree that rather than any two of them
getting full payment whilst the other two get nothing but a cause of
action, they should each accept $500 in full discharge of their
individual debts of $1,000.

Such an agreement is binding on all of them and none of them can

subsequently sue A for the balance of his debt. This is also called
composition with creditors.

6. Part-payment of a debt by a third party

Yes, this is also one of the exceptions to the rule in pinnel’s case.
Where there is part-payment of a debt by a third party the rule in
pinnel’s case will not apply. For example, the debt is owned to only
one person and the debtor unable to pay for it. A third party offers to
pay a smaller sum in discharge of the whole debt.