S. a former student at Masaku High School owes the school Sh. 50,000 as fees in arrears. Mr. P. the principal of the school wrote a demand letter to F. S‟s father threatening to sue S if the school fees in arrears was not cleared within seven days. F approached P and offered to make payment delivering 30 bags of maize valued at Sh. 30,000. On condition that it would be full and final payment of the debt owed to the school.
Mr. P accepted the offer and the maize was delivered to the school. Two years later, S was employed and Mr. P now intends to sue him for the fee balance.
Discuss the legal position of S. (8 marks)
ANSWER
• This problem is based on the rules of consideration and in particular the rule that payment of a lesser sum on the day in satisfaction of larger is not sufficient consideration for the creditors promise to accept the sum in full settlement of the debt. This is the rule in Pinnels Case (1602). However, this rule is subject to several exceptions.
• The legal position is that S is not liable to P at all as his obligation has been discharged in toto. This position may be justified on two arguments:
o P accepted payment of a lessor sum from a 3rdparty and such a promise isbinding. This is consistent with the decision in WelV. Drake.
o One of the salient exceptions to the rule in Pinnels Caseis that payment of a lesser sum in the form of an object extinguishes the entire debt. In Pinnels Case Brian
o C. J. was emphatic that the gift of a horse, hawk or robe is sufficient consideration. It therefore follows that P‟s acceptance of the bags of maize valued at Kshs. 30,000 extinguished S‟s obligation to him.
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Happy co. Ltd was incorporated in January 2000 with an authorized share capital of 50,000,000 of one shilling per share which is fully issued and fully paid. The original articles of association gave the directors authority to issue the initial authorized share capital. The directors are proposing to purchase a plot from Mr Karan for KShs.3,000,000 and to finance the purchase a fresh issue of 2,000,000 shares at one shilling per share to Mr. Karan. In order to develop the plot they propose to raise further capital issuing a further 2,000,000 shares of one shilling each. The directors propose that 1,000,000 of the shares should be offered to existing shareholders and 1,000,000 to the general public. The shares to Mr Karan, the existing shareholders and to the general public are to be offered at one shilling and fifty cents each. Explain the preliminary checks which the directors must make before proceeding with these proposals. State the steps the directors must take to give them effect.
