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Cheque in?

Can acceptance of a cheque in part payment of a debt prevent the creditor from claiming the balance of the debt when the cheque has been rendered in full and final settlement?

The High Court recently considered this position of when a debtor sends a cheque in part-payment of a debt to a creditor, purportedly in “full and final settlement”, even though that has not been agreed. If the creditor banks the cheque, is he prevented from recovering the balance?

In Cantor Index Limited -v- Thomson, Mr Thomson owed Cantor a debt of over £55,000. Mr Thomson wrote to Cantor offering to pay the debt by way of three instalments. Various correspondence followed including Cantor making a counter-offer, but ultimately Mr Thomson repeated his offer in a letter of 1 st March, and enclosed a cheque for the first instalment of £15,000. Cantor subsequently paid that cheque into its bank account, but that cheque bounced. Cantor then sought to rely on its earlier counter-offer.

The court held that the banking of the cheque by Cantor constituted strong evidence that it was prepared to accept the offer repeated in the 1 st March letter, and as there was no evidence of any contrary intention, the court found that a settlement agreement had been reached, even though Mr Thomson’s cheque subsequently bounced.

So what do you do if you receive a cheque which is not the full amount of the debt owed? You do not want to return it for fear of never seeing the money again, but you also want the balance to be paid. In such a situation, it would seem wise to respond immediately to the debtor confirming that the cheque is not accepted in full and final settlement, but saying that if no response is received within, say 7 days, the cheque will be banked as part-payment only.

There is no guarantee that this would work as technically a contract cannot be formed by the silence of one party, but provided a reasonable time to respond has been given, it certainly puts you in a stronger position to argue that the part-payment has not been accepted in full and final settlement of the whole debt.

For more information, please contact Barry Jervis on 0121 212 1200 or Emma Anderson on 0116 254 5454.