Cheques tendered in full and final settlement

What is the position when you send (or receive) a cheque in full and final settlement of a sum of money you owe or are entitled to. This issue can lead to a dispute ending in a construction adjudication.

The first point to make is that if there is no dispute as to the sum of money involved then there has to be some consideration for a smaller sum offered or the matter will not settled in full and final settlement. That is because both sides have to ‘give’ something and there is no benefit to the receiving partying in accepting a smaller amount where there is no dispute as to the sum involved.

If the sum is in dispute then the matter is more complicated and will be decided on the facts. In Andrew Bracken and Ann Trockett v Graham Billinghurst [2003] Judge Wilcox was clear that the offer in that case had been made in full and final settlement at the time that the cheque was sent. He was also clear that presenting that cheque to the bank would amount to an acceptance of the offer giving rise to an agreement.

Referring to another case on the issue Stour Valley Builders v Stuart (1974) Judge Wilcox said “As with any other bilateral contract, what matters is not what the creditor himself intends but what by his words and conduct he has led the other party as a reasonable person to believe”.  The Judge said further that “Cashing the cheque is always strong evidence of acceptance especially if it is not accompanied by immediate rejection of the offer”.

In summary it may be said that a cheque given in full and final settlement will be binding if:

(i)                 the sum of money is in dispute;

(ii)               the offer of ‘full and final settlement’ is made at the same time the cheque is sent;

(iii)             the cheque is presented and cleared;

(iv)             the person banking the cheque does not make clear at the time of banking the cheque that that it is not accepted in full and final settlement.