Cheques in “full and final” settlement - take the money?

An increasing number of cases deal with the attempts of debtors to avoid or decrease debts through use of these types of cheques.

There is a dilemma, especially if the dispute has been ongoing for a considerable period of time, to cash the cheque and pursue anyway, for the remaining amount. But the trouble is by cashing the cheque, are you then binding yourself to the agreement that the cheque provided is for full and final settlement and therefore barring yourself from further claim?

The case law certainly suggests, that like all things in law that: “it depends”. It depends, very much, on the circumstances, background and the intentions of each party. In other words, the courts have been fairly reluctant to put into place any concrete rules.

The major difference in treatment in these cases or at least probably the only one worth mentioning is when a debt is disputed or undisputed.

The debt was undisputed in the case of D and C Builders v Rees, where the claimant was entitled to recover the balance of the sum owed as the cheque offered in “settlement” was nothing other than a means by which the claimant sought to avoid the price of the works carried out because they had been carried out with no complaints.

Another factor in determining whether cashing such a cheque can be binding is time. In Bracken and Another v Billinghurst, the time taken for the creditors to indicate their non acceptance of the cheque as full and final settlement proved a deciding factor. The courts felt that too long a period of time had lapsed without having informed the defendants of their intentions and therefore deemed the acceptance of the cheque in full settlement.

In a disputed debt claim, reliance is placed on the case of Day v McLea, whereby an agreement to accept a cheque in full and final settlement will be heavily based upon the conduct of the creditor. So in Inland Revenue Commissioners v Fry, where the creditors had no idea that the cheque they received was in consideration of full and final settlement were entitled to pursue for the remaining balance.

There are two options for the creditor with the main lesson to be learned from case law is clarity. If you are explicitly clear (when banking the cheque) with your intentions of non acceptance, don’t dilly or dally, do nothing that could be construed as acceptance and notify the debtor straight away of your disagreement to the lesser amount - do this and the courts will likely look upon this favourably on the basis that there has been no consensus in idem to constitute a binding agreement. At the very least immediately write to the other party that you are rejecting the cheque as full and final settlement but will be cashing the cheque as part payment. Be sure to keep a copy of this letter and send by reliable source to the correct address. The temptation is, understandably, high to bank the cheque and pursue for the remaining balance but alongside the requirement of clarity; it may be that the best solution would be to reject the cheque altogether and advise the debtor that full payment is to be made within a short period of time, failing which will result in court proceedings. This way, the debtor has no claim against you.