This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
In some cases, the courts have attempted to uphold an agreement by the creditor to accept payment of part of a liquidated debt in full satisfaction of the entire debt, on the theory that such transaction was a payment by the debtor of a part of the indebtedness and a gift by the creditor of the balance of such indebtedness.1 Payment of one dollar may discharge a larger debt where the creditor gave the rest of the debt to the debtor.2 An agreement by a lessor to accept less than the amount of rent reserved in the lease and the acceptance of such less amount may amount to a gift; and it is error to exclude evidence of such transaction from the jury.3
1 United States. Stewart v. Barnes, 153 U. S. 456, 38 L. ed. 781.
Colorado. Bassick Gold Mine Co. v. Beardsley, 40 Colo. 275, 33 L. R. A. (N.S.) 852, 112 Pac. 770; Tuttle v. Tut-tle, 53 Mass. (12 Met.) 551, 46 Am. Dec 701.
New Mexico. Maloy v. Bernatillo County, 10 N. M. 638, 52 L. R. A. 126, 62 Pac. 1106.
A. (N.S.) 588, Ann. Cas. 1913E, 578, 74 S. E. 418.
2 Maloy v. Bernatillo County, 10 N. M. 638, 52 L. R. A. 126, 62 Pac. 1106.
3Foakes v. Beer, 9 App. Cas. 605; Bowen v. Minneapolis, 47 Minn. 115, 28 Am. St. Rep. 333, 49 N. W. 683; Devlin v. New York, 131 N. Y. 123, 30 N. E. 45.
4 Emmittsburg R. Co. v. Donoghue, 67 Md. 383, 1 Am. St. Rep. 396, 10 Atl. 233.
A creditor should be allowed to make a gift of his claim against the debtor, just as an owner of chattel may give it away if he wishes, assuming in each case that the rights of third persons are not affected in any way. One difficulty, however, in the way of adopting this theory in these cases, is that a gift is not complete and does not pass title unless the thing which is given has been delivered to the donee. If the debt is evidenced by writing, especially if such writing is a negotiable contract, the surrender of such written contract by the creditor to the debtor, with the intention to discharge such obligation, should have that effect whether the debtor pays a part of the amount which is due under such contract, or whether he pays nothing at all. If the debt is not evidenced in this way, it can not be delivered by the creditor to the debtor or any one else; and where this transaction is explained as a gift of the balance, a gift is upheld without delivery of the thing given.4 The great weight of authority regards an oral or written gift of a debt by the creditor to the debtor, which is not under seal, and which does not involve the delivery or cancellation of the debt,7 or there has been a compromise of a disputed claim,8 or a note of a third person has been given.9
1 Green v. Langdon, 26 Mich. 221; Holmes v. Holmes, 129 Mich. 412, 95 Am. St. Rep. 444, 89 N. W. 47; C. S. Brackett Co. v. Lofgren, 140 Minn. 52, L. R. A. 1918F, 998, 167 N. W. 274; McKenzie v. Harrison, 120 N. Y. 260, 17 Am. St. Rep. 638, 8 L. R. A. 257, 24 N. E. 458; Adams v. Cook, 200 Pa. St. 258, 49 Atl. 954.
2 Gray v. Barton, 55 N. Y. 68, 14 Am. Rep. 181.
3 McKenzie v. Harrison, 120 N. Y. 260, 17 Am. St, Rep. 638, 8 L. R. A. 257, 24 N. E. 458.
If such contract has been performed, the lessor can not recover the difference between the amount reserved in the lease and the amount paid. C. S. Brackett Co. v. Lofgren, 140 Minn. 52, L. R. A 1918F, 998, 167 N. W. 274.
4 "But even though there may not be an accord and satisfaction, there may be a gift, and the receipt may be evidence of such gift. A gift is a voluntary transfer of any property or thing by one to another without consideration. To be valid it must be executed. There must be a delivery by the donor, such as will place the property or thing given under the control of the donee,' and there must be an intent to vest the title in him. Actual and personal delivery by the donor is not always necessary, for when another person is the custodian an order of the donor to deliver to the donee may constitute a gift. It may be oral or in writing. No formal words or expressions are required. It is a question of intent, and the inquiry is as to what was intended by that written evidence of the debt, as executory, gratuitous, and, therefore, inoperative.5 In many of the cases which have been cited in support of the view that the creditor may give part or all of the debt to the debtor, the doctrine is not really involved, as there is a sealed release,6 or a surrender of the note which evidences the which was said and done. A promissory note or other evidence of debt may be the subject of a gift, and the delivery of the note or of the evidence of debt is evidence tending to show an intent to give. A debt may be forgiven, and a receipt in full may be evidence of such forgiveness." McKenzie v. Harrison, 120 N. Y. 260, 17 Am. St. Rep. 638, 8 L. R. A. 257, 24 N. E. 458.
"It is objected, however, by the counsel for the complainant, that this being a gift inter vivos, delivery and acceptance were essential to its validity; and that as here was no delivery, it could not take effect. Doubtless such is the rule where the gift consists of tangible personal property which admits of actual delivery; and the same rule would probably apply where the notes or bond of a third person is the subject of a gift. Whether, if the whole mortgage debt, in the present case, had been the subject, delivery of the note and mortgage, or one of them, would not have been essential to its validity, we need not inquire. In the present case it was but a part of the sum secured by the note and mortgage, and the attempted donation was to the debtors themselves. And it is difficult to conceive how any delivery could have been made. But it is said that there must have been a delivery of the papers, or of a release or receipt for the portion of the debt intended to be given; because, without something of this kind, it would have been in the power of the donor to retract; and this he might doubtless have done, if this had been an executory agreement undertaking to make this gift. But here the purpose and intention of making the gift was fully executed and by one of the donees actually accepted at the time; and the acceptance by the other, of the extinguishment of a part of a debt against himself, may be very safely presumed. And if it remained in the power of the donor to retract, it would have been equally so, if purely a gift, had a receipt been given, and equally so, for aught we can discover, had a release been given, there being no consideration, and under our statute (Comp. L. of 1871, Sec. 5947), which makes the seal no more than prima facie evidence of a consideration. The want of consideration could, therefore, in either case, have been shown.
"As the debt which was the subject of the gift, when considered with reference to the fact that the donee was the debtor, and that only part of the debt was attempted to be given, did not admit of actual delivery, and as all was done that could well be done, under the circumstances, to render the gift effectual, we do not think the act and intention of the donor should be defeated merely because the subject did not admit of actual or technical delivery." Green v. Langdon, 28 Mich. 221.
5 Gray v. Nelson, 77 la. 63, 41 N. W. 566; Rodemer v. Rettig, 114 Ky. 634, 71 S. W. 869; Baldwin's Executor v. Barber's Executors, 151 Ky. 168, 151 S. W. 686; Brewer's Administrator v. Brewer, 181 Ky. 400, 205 S. W. 393; Hayes v. Hayes's Executor, 181 Ky. 589, 205 S. W. 596; Buswell v. Fuller, 156 Mass. 309, 31 N. E. 294; Kidder v. Kidder, 33 Pa. St. 268.
6Lamprey v. Lamprey, 29 Minn. 151, 12 N. W. 514.
If the agreement to give all or part of the principal to the debtor is a part of the original contract, it is supported by such transaction as a consideration.10 If A pays money to B under a contract by which B is to pay to A interest for A's life, and at A's death such fund should belong to B, such contract is enforceable.11.
Where the parties have attempted to make the transaction take the form of a sale of the debt by the creditor to the debtor, for a part of the amount due thereon, it has been said that the transaction has no legal effect, and that it is merely an attempt to discharge an undisputed, liquidated indebtedness by payment of less than the amount actually due.12
Whether a creditor could discharge a debt by declaring himself a trustee for the debt or is a question upon which authority is lacking. Where the debt can be made the subject of a gift to the debtor, such means of extinguishing it is used. Where it can not be the subject of a gift, the parties do not seem to have resorted to the device of a declaration of trust.