Hirachand Punamchand v Temple: CA 1911

The defendant, a British army officer in India, had given a promissory note to the plaintiff moneylenders. Unable to pay, he suggested they apply to his father, Sir Richard Temple. In reply, Sir Richard Temple’s solicitors wrote saying they were instructed to offer Rs1500 (a sum less than the debt) in full settlement. They enclosed a draft for that amount and sought that promissory notes be handed over against payment of that sum. The plaintiffs cashed and retained the proceeds of the draft and afterwards brought an action against the debtor for the balance of the debt.
Held: The creditor’s action against the debtor failed. A court will not support an action whose effect is circuitous, to recover damages awarded against that party in another action. Where one party releases another from liability, a third party will not later be allowed to sue on the same cause. Where a cheque for a smaller sum than the amount due is drawn by a person other than the debtor and delivered in satisfaction of his debt, it is clear that the debt is discharged if the cheque be accepted on that basis and duly paid.
Fletcher Moulton LJ said: ‘These being the facts, we have to consider how they affect the debt on the note in point of law. I am of opinion that by that transaction between the plaintiffs and Sir Richard Temple the debt on the promissory note became extinct. I agree with the view expressed by Willes J. in Cook v Lister. The effect of such an agreement between a creditor and a third party with regard to the debt is to render it impossible for the creditor afterwards to sue the debtor for it. The way in which this is worked out in law may be that it would be an abuse of the process of the Court to allow the creditor under such circumstances to sue, or it may be, and I prefer that view, that there is an extinction of the debt; but, whichever way it is put, it comes to the same thing, namely that, after acceptance by the creditor of a sum offered by a third party in settlement of the claim against the debtor, the creditor cannot maintain an action for the balance.
That being my view, namely, that either the debt is extinguished, or that the Court will not allow the creditor to assert his claim, I will only say a few words upon . . the decision in Foakes v. Beer [in the Library], the old doctrine that a debtor cannot discharge himself from his debt by payment of an amount smaller than that of the debt was recognized by the House of Lords as law of such old standing that it could not be challenged … But in the present case we are dealing with the question of the effect of money paid by a third person. In such a case there is no difference between payment of the total amount and payment of a portion of it only, so long as it is paid in settlement of the debt. If a third person steps in and gives a consideration for the discharge of the debtor, it does not matter whether he does it in meal or in malt, or what proportion the amount given bears to the amount of the debt. Here the money was paid by a third person, and I have no doubt that, upon the acceptance of that money by the plaintiffs with full knowledge of the terms on which it was offered, the debt was absolutely extinguished.
Vaughan Williams LJ thought that prima facie ‘an accord and satisfaction must be by virtue of an agreement made between a person who is under an obligation to another person, which he ought to have and has not performed, and that other person.’ Since the draft for Rs1500 had been sent by the father and retained and cashed by the Plaintiffs, the Court should conclude that they had agreed to accept it on the terms upon which it was sent. None of the plaintiffs were called as witnesses and no evidence was given to negative the presumption which arose from their keeping the draft that the plaintiffs had agreed to take it on the terms upon which it was sent. He considered what defence, if any, could be pleaded by the defendant (the debtor) on this basis, finding that, in the hands of the plaintiffs, the negotiable instrument on which they sued had ceased to be a negotiable instrument. Alternatively, from the moment the draft was cashed by the plaintiffs, a trust was created as between the father and the moneylenders in favour of the former so that any money the moneylenders might receive on the promissory note would be held in trust for the father.

Fletcher Moulton LJ, Vaughan Williams LJ
[1911] 2 KB 11, [1911] 2 KB 330
England and Wales
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Lists of cited by and citing cases may be incomplete.

Contract, Litigation Practice

Leading Case

Updated: 01 November 2021; Ref: scu.186670