This article considers the “grey area” of law concerning the situation when a cheque is received for an amount less than that being claimed and is sent under cover of a letter which states that the amount is proffered in full and final settlement of all matters. The question then arises whether retention or cashing of that cheque amounts to acceptance of the amount in full and final settlement?
There is no straight forward answer as the case law does not point to any hard and fast rules. However, each case is decided on its facts, and the party offering the lower figure must prove that there was accord and satisfaction.
Authority on this point stems from the case of Day v McLea [1889] 22 QB 610. Furthermore, this was supported by the unanimous decision of the Court of Appeal in the case of Stour Valley Builders v Stuart [1974]. The decision of the Court of Appeal was followed by a further case reported in 2001(The Commissioners of Inland Revenue v Fry [2001] STC 1715) and applied by a further two cases in 2003 Joinery Plus Ltd v Laing Ltd [2003] EWHC 3513 and Bracken v Billinghurst [2003] EWHC 1333. The principle therefore looks at least to have been decided. Precise issues of timing play a key part where the receiving party may be required to respond quickly.
Referring to Stour Valley Builders v Stuart [1974] the Judge’s opinion was “As with any other bilateral contract, what matters is not what the creditor himself intends but what by his words and conduct he has led the other party as a reasonable person to believe”. In addition he said “cashing” the cheque is always strong evidence of acceptance especially if it is not accompanied by immediate rejection of the offer.
Therefore, the communication of the rejection must occur “within a few days” for it to be valid. In this case a delay of one week fell within this band. In another case a delay of seven weeks was found to be too long and accord and satisfaction was established. It appears therefore, that the correct question to ask is whether the creditor’s conduct caused the debtor to think that the money was accepted in satisfaction.
In Bracken v Billinghurst an employer who had been awarded £45,000 as the result of an adjudication, told the building contractor on the other side that it would accept just £6,000 in settlement of this award. The other side decided to send a cheque to the employer for £5,000 in full and final settlement. However, in this case the covering letter stated that if the offer was not accepted the employer should return the cheque. Timing was key in this case as two weeks passed before the employer cashed the cheque and wrote to the contractor rejecting the offer in settlement and furthermore stated that it would pursue them for the total award. The Court held that this was too long a period for it to have held the cheque and not informed the contractor of its intentions. This delay, combined with the clear terms set out in the contractor’s letter, meant that there had been accord and satisfaction (i.e. the debt had been settled at only £5,000).
This last case highlights the dangers present in this area and the importance of acting quickly. One cannot treat a sum received as a payment on account without informing the other party of this intention sufficiently quickly.
It is not unusual in the present cash-strapped economic climate that debtors will try to reduce the amount they owe to creditors by offering a cheque for only part of the debt and express the payment to be in full and final settlement of the entire debt. As a creditor if you do want to cash the cheque you may want to consider the following:
- Reply quickly by clearly stating that the cheque is not accepted in full and final settlement but will be accepted and applied in part-payment of the full debt if you do not hear from the debtor within a short period of time;
- Whilst not a guarantee that your actions will succeed in preventing the debtor from arguing that the whole debt has been settled by acceptance of the cheque, it will give you an argument against the debtor to say that you have banked the cheque but are still owed the balance.