No end to debt in final cheque

IF YOU send a cheque in full and final settlement of a debt, that may not be the end of the matter. There is no guarantee you will not be sued for any outstanding balance, writes Sue Fieldman.

A case in the Court of Appeal has scuppered any automatic right to pay in part and get out of paying the rest of the debt, just by including the words 'in full and final settlement' with your cheque.

The case involved a builder and a homeowner. The builder submitted a revised invoice for pounds 10,163 for work done on the house. The homeowner thought the invoice was about pounds 3,000 too high. He offered to settle for pounds 8,471 and sent a cheque for that amount 'in full and final settlement'.

The builder cashed the cheque. But he told the homeowner on the telephone that the cheque could not be accepted in full and final settlement.

The case went to court. The judge decided there was no agreement between the parties to accept the cheque in full and final settlement, and that the builder could claim for the unpaid balance.

The homeowner appealed. He argued that the court should adopt the rule used in the US, where a creditor who uses or retains a cheque that has been sent in full and final settlement is treated as having accepted it on those terms.

The Appeal judges were unimpressed with the US version of the law. They cited a decision in 1889, which said that to keep a cheque is not conclusive as a matter of law. It was a question of fact on what terms the cheque was kept.

The judges in the latest case said that cashing the cheque was strong evidence of acceptance, as was the brief delay before rejecting the offer, but neither was conclusive.

The builder was entitled to claim for unpaid sums under the contract. His solicitor, Tim McNeil, a partner with Bates Wells and Braithwaite of Suffolk, said: 'If you send a cheque on the basis of full and final settlement, you have to take the risk it will not be accepted on those terms.'

David Wolfson, a barrister specialising in banking law, said: 'If a debt is disputed and you pay a lesser amount in full and final settlement, you cannot guarantee that the creditor will not come at you.'