Civil Engineering Reference
In-Depth Information
full and final settlement'?
It is relatively common for payment to be offered 'in full and final settlement'. Great care
must be taken when faced with these words. The law is quite complex and based on what is
known as 'accord and satisfaction'. This is defined as:
The purchase of a release from an obligation whether arising under contract or tort by
meansofanyvaluableconsideration,notbeingtheactualperformanceoftheobligation
itself. The accord is the agreement by which the obligation is discharged. The satisfac-
tion is the consideration which makes the agreement operative.
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If there is accord and satisfaction, it acts as a bar to any action.
Ifapersonagreestoacceptpartpaymentandtoreleasetheotherfrompaymentofthebal-
ance, this will be valid if the agreement is supported by fresh consideration or if the agree-
ment is a deed that requires no consideration. The key point is that the creditor must accept
discharged simply by payment of a lesser sum. Therefore, if a party is owed £500 and the
debtoroffers£200'infullandfinalsettlement'ofthedebt,thecreditorisentitledtotakethe
£200 and subsequently take action to recover the balance.
The payment would be validly made to settle the debt if it were made in a different way
or, perhaps, in a different place. For example, if £500 is owed, payment of £200 worth of
grass seed could represent true accord and satisfaction.
Sometimes a cheque is sent on the basis that payment into the other's bank account will
signify acceptance 'in full and final settlement'. If the cheque is simply paid into the ac-
count, it is likely that a court would deem that it was accepted on the basis it was paid. It is
understandable that a party owed a substantial sum with a cheque in its hand will be keen to
recover as much as possible and, therefore, will be anxious to bank the cheque. The answer
is to write to the sender noting that the cheque is accepted and will be paid into the bank,
notinfullandfinalsettlement butasapartpayment ofmoneyowing.Thechequeshouldbe
paidintotheaccountacoupleofdayslater,allowingtimeforthesendertostopthechequeif
it feels so inclined. Perhaps surprisingly, few cheques appear to be stopped in this situation,
thesenderpreferringtorelyonthenowuselessargumentthatpaymentisasindicatedbythe
sender's terms, despite the note from the receiving party to the contrary.
Stuarts disputed the amount and sent a cheque for a lesser sum 'in full and final settlement'.
The builders cashed the cheque, but telephoned the Stuarts saying that it was not accepted
