In the United States once the receiving party banks a cheque tendered in full and final settlement, as a matter of law agreement as to the terms of settlement is inferred whatever the actual intention of the recipient. That is not the case in England and Wales.
Burden of proof rests on paying party
This issue has been considered by the Courts on a number of occasions but no definitive rule has emerged. Each case is decided on its own facts. The burden of proof rests on the paying party to prove accord and satisfaction.
The Court of Appeal considered the matter in Stour Valley Builders v Stuart 1993. In this case the amount of a builder’s final account was in dispute. The Stuarts sent a cheque for £3,000 less than the amount claimed and stated in the covering letter this was in full and final settlement. The builders cashed the cheque because they needed the funds and seven days later said it was not accepted in settlement.
The builder was fortunate in being allowed to accept the payment on account. The Court held that cashing a cheque is strong evidence of acceptance if not accompanied by immediate rejection. Retaining a cheque without rejection is also strong evidence of acceptance depending on the length of delay. However, neither of these factors are conclusive.
It would be artificial to draw a hard and fast line between cases where payment accompanied immediate rejection of the offer and cases where the objection comes within a day or a few days. It is therefore a matter of whether the creditor’s conduct was such the debtor would think the money had been accepted in satisfaction of the claim. The longer the delay between cashing the cheque and seeking to treat it as a payment on account, the more difficult it will be to deny a settlement has been reached.
The issue was considered again in 2003 in the case of Bracken v Billinghurst. Here the customer having been awarded at adjudication £45,000 informed the building contractor it would accept £6,000 in settlement. The builder sent a cheque for £5,000 in full and final settlement and said if it was not accepted the cheque should be returned. Two weeks later the customer cashed the cheque and wrote rejecting the offer indicating an intention to pursue the balance of the £45,000. The Court decided the customer had retained the cheque for too long, the builder’s letter was clear in its terms and an accord and satisfaction had been reached.
The legal principles
In 2014 in the case of Foulser v HMRC the First Tier Tax Tribunal reviewed the case law and derived the following principles:
- There must be a definite offer on a full and final basis
- Cashing a cheque presented on a full and final basis without demur indicates an intention to accept the offer of settlement
- The manifestation of intention not to accept otherwise than as a part payment may negate the inference of acceptance but a significant delay between receipt and/or payment is likely to give rise to the inference of acceptance.
Staying as safe as possible
If sending a cheque in full and final settlement it is important to be clear as to the terms on which it may be cashed. If it is not to be treated as a payment on account, that should be expressly stated alongside a requirement that if it is not accepted in full and final settlement, the cheque should be returned. Even then, this approach is not without risk as the creditor may still retain the cheque as a part payment on account provided the debtor is informed of the creditor’s intentions promptly.
Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.
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