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Full And Final Settlement

30 June 2006
Category: Legal Articles

Does the retention and / or cashing of a cheque, tendered in satisfaction of a claim,
Amount to full and final settlement, where such a cheque is made out for a smaller amount than your claim and a settlement agreement hasn't been reached?

Rory KirraneThe approach in the United States is strict, as a matter of law, and the use, or retention of a cheque by a creditor, with knowledge that it was sent in full and final settlement, is regarded as acceptance of the counteroffer. The English approach is to decide each case on its facts and that the party who made the counteroffer must establish that there was an agreement between the parties with regard to any counteroffer. The Irish courts do not appear to have decided a case on this precise issue but it is likely that they would follow the English approach and decide each case on its merits.

A very recent case in England, Bracken v Billinghurst (2003), presented the following scenario. A contractor, who was on the wrong end of an adjudicator's award to the tune of €65,000 (Stg£45,000), received an offer of settlement from the employer. The employer wished to settle the dispute and was willing to accept €8,700 (Stg£6,000) in full and final settlement.

Most contractors would jump at the chance of settling for almost one eighth of their liability. However, the contractor decided to try and ride his luck and on his behalf his solicitors forwarded a cheque for €7,250 (Stg£5,000) to the employer. The letter which accompanied the cheque made it clear that this cheque was being offered in full and final settlement of all issues between the parties which "... will be deemed to have been accepted by you and therefore be contractually binding if it is presented to your bank and cleared for payment." An important point is that the letter made provision for the employer to return the cheque if he was not willing to accept the counteroffer.

The employer held on to the cheque for two weeks and then decided to present it for payment, he then waited a couple more days before deciding to write to the contractor to inform him that he was withdrawing his previous offer of compromise and was now seeking satisfaction of the entire amount of the adjudicators award minus the €7,250 (Stg£5,000) already paid by the contractor and would pursue the matter in the courts.

The employer was unsuccessful in his application for summary judgement against the contractor, and the court found that the retention and subsequent cashing of the cheque amounted to acceptance of the contractor's compromise of €7,250 (Stg£5,000).

In making its decision the Court looked to a number of judgements where similar issues had been decided.

In Day v McLea (1889) it was held that it was a question of fact as to whether or not there was accord between the parties that the smaller amount tendered was indeed in satisfaction of a larger claim. The Court held that there must be a meeting of the minds of the two parties and it must be both parties' understanding that the retention of the smaller sum was in satisfaction of the larger sum owed.

In the English case of Stour Valley Builders v Stuart (1993) it was held that you must look to whether a reasonable person would have believed that the offer was final. The Court in Stour Valley also held that the cashing of a cheque or the retention of a cheque is always strong evidence of acceptance of a settlement offer especially where it is not followed by an immediate rejection. However the cashing or retention of, a cheque is never conclusive proof of acceptance. In that case the plaintiffs had banked the cheque upon its receipt, they then contacted the defendant informing him that the cheque, had not been accepted in full and final settlement, the Court accepted the plaintiff's argument and allowed him to sue for the balance of the award.

In Billinghurst the Judge 'made much of the fact that the employer had held on to the cheque for two weeks without informing the contractor of the basis upon which the cheque was being held. That combined with the very clear intention of the contractor's solicitor's letter, which the employer himself admitted was clear to him when he received it, sounded the death knell for the employer's claim.

It is therefore wise to bear in mind that the cashing, or retention of a cheque received in full and final settlement, which is less than the sum due, is a dangerous manoeuvre, it may prevent the injured party from pursuing the balance of their claim. The flip side of this is that where you are considering making a counteroffer by way of a cheque, to discharge a liability you owe, it is vitally important that you are clear and precise in stating that such an offer is made in full and final settlement of the dispute and that retention of the cheque, or presentation of the cheque for payment would amount to acceptance of your counteroffer, otherwise you could be faced with a claim from the other side for the balance owed.

Attribute to Rory Kirrane, Partner, Mason Hayes & Curran.

Rory Kirrane is a partner and head of construction law at Mason Hayes & Curran. For more information, please contact Rory at rkirrane@mhc.ie or + 353 1 614 5000. The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York. 

© Copyright Mason Hayes & Curran 2004. All rights reserved..


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