Full and Final Settlement

[Wire01]

I'm asking this in this section as most debts are quickly passed to these guys but I suppose it could go in many other sections to.

Eg: You get letter from lender/DCA/DPC saying you owe xyz. If you sent a letter back to them saying all you can afford is £10 cheque enclosed in full and final settlement...

....if they cash it, is it legally binding?

Thanks!

Wire. x

[Sapphire]

Re: Full and Final Settlement

I would say ONLY if you have written confirmation, in other words personally I'd hate to rely on that in a court of law.

[morgan054]

Re: Full and Final Settlement

I'm asking this in this section as most debts are quickly passed to these guys but I suppose it could go in many other sections to.

Eg: You get letter from lender/DCA/DPC saying you owe xyz. If you sent a letter back to them saying all you can afford is £10 cheque enclosed in full and final settlement...

....if they cash it, is it legally binding?

Thanks!

Wire. x

Well if it was ten pounds you owed yes, but if someone owed you 5k would you accept a tenner

[Guest]

Re: Full and Final Settlement

No it is not legally binding. "Full and final settlement" is often found in a letter sent by a party to a contract with a payment or offer of payment in an attempt to settle a dispute between the parties. The cheque, or offer of a cheque is normally for a lesser amount than the disputed sum.

The common view is that if the receiver of the cheque cashes the cheque, or accepts the offer and subsequently cashes the cheque sent then he has been taken to accept the lesser amount as settling the dispute between the parties. A contract having arisen, with the sender proposing the terms of the contract by sending the letter and the cheque/offer, indicating a method of acceptance, that is by cashing the cheque.

This view is incorrect and is supported by previous case law. The correct view is to examine the intention of the receiving party. The intention by the receiving party must be to accept the cheque/offer of payment in settlement/satisfaction of the dispute for there to be a binding contractual settlement of the dispute. In every case, it is a question of fact whether this has occurred or not. (see Stour Valley Builders (a Firm) v Stuart and Another [1993] and The Commissioners of Inland Revenue v Fry [2001])

However, timing is key, as Bracken v Billinghurst [2003] showed where 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. 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.

Cashing a payment is not an automatic acceptance of your terms, however, paying in a cheque is strong evidence of acceptance by conduct of any offer accompanying the cheque (Cantor Index Ltd v Thomson [2008]) therefore, by cashing your cheque, they may provide objectively strong evidence of acceptance, but it is by by no means acceptance that the debt is settled.

[Wire01]

Re: Full and Final Settlement

Thanks for that last one. As ever, nothing is strictly black n white!

[Horsemad]

Re: Full and Final Settlement

What if the cheque is written by a third party and it clearly states in your letter accompanying the cheque that the cheque is "[offered in Full and Final Settlement of the account without any admission of liability to the amount claimed. The enclosed cheque payment is offered only in Full and Final payment to the account, with the further conditions that should you accept the cheque payment, then you agree that no further monies are required to the account and that the balance of the account will be put to zero and the account will be closed, furthermore, should you accept this settlement offer, then you also agree to make an entry on my credit reference files to show the status of this account as closed, settled and balance £0 and If you are not willing to accept the cheque settlement payment enclosed, under these terms that the cheque is tendered by, then I respectfully ask you to return the said enclosed cheque within seven (7) days of taking receipt of this communication". With setting out clear terms in the letter stating only to be banked if agreeing to f&F or return of cheque, surely they could not construe it was for part payment only, could they?