We are all aware of the situation where somebody sends a cheque which is expressed to be paid “in full and final settlement” of a debt.  Do you pay it in or return it?  A commonly held view is that you should pay the cheque in and write back to the other side to say that the cheque is accepted only on account.  However, the law in this area is more complicated than you think.

The starting point is to decide whether the debt is undisputed or disputed.

With undisputed debts, case law determines that if the cheque is expressed to be in full and final settlement the payee will only be bound if the payer has provided some concession; for example the payer may have paid the money early.  Therefore the general rule with undisputed debts is to pay the cheque in but still write back immediately to say that the cheque is accepted on account.

With disputed debts you have to be much more careful.  There is a much greater danger that if you pay in a cheque expressed to be in full and final settlement that you will not be able to claim the balance.  Where there is an actual dispute, the Court will look to see whether a valid agreement has been reached and the facts will be different in each case.  The Court will ask whether the payee has done anything to cause the payer to believe that the money was taken in full and final settlement, for example the payee may delay in informing the payer that the cheque is not accepted in full and final settlement.

To summarise the situation with disputed debts you may well be bound by a cheque expressed to be in full and final settlement if:

• The offer in full and final settlement of the dispute is made at the time the cheque is presented.
• You have presented the cheque.
• At the time you presented the cheque or shortly afterwards you fail to inform the payer that the cheque is not accepted in full and final settlement and/or
• There have been previous negotiations regarding payment.

Practical Advice

If you do receive a cheque which is expressed to be in full and final settlement you should write back immediately to say the cheque is only accepted on account of the debt and that you reserve the right to claim the balance.  You should also give some careful thought as to whether it is safe to do even this bearing in mind the points made above. Whatever your view is on the legal position there are some circumstances where it is pragmatic to pay in; for example, where you believe the payer to be in financial difficulty sometimes it is worth taking a risk especially if the payment is a generous one.

Contact

If you any questions about this issue or any issues concerning disputes please contact Jonathan Kenwright on 01242 285855 or by email on jonathan.kenwright@maitlandwalker.com