What happens in business if a debtor electronically transfers a part payment to your account sending an email, which you don’t properly register, telling you, it is in “full and final settlement”?
Accord and Satisfaction
In English common law the relevant principle is “accord and satisfaction” which is defined in one of the standard works on contract as follows:
“Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.”
(Chitty on Contracts (32nd edition, Sweet & Maxwell, Volume 1 at paragraph 22-012.)
I have owed you £10,000, which you have been chasing without success, for a couple of months.
Your cashflow is now poor.
I tell you I can pay you £7,000 tomorrow which I want you to accept in full and final settlement.
You agree and receive my payment.
The “accord” is the new agreement between us.
The “satisfaction” is your receipt and acceptance of the lesser amount.
Before the days of electronic payments if you cashed a cheque which arrived with an accompanying letter saying it was in full and final settlement of a larger debt, without raising any objection, that would be strong evidence (not conclusive) you had agreed and were satisfied.
But if you had cashed the cheque and at the same time written back to say it was not accepted in full and final settlement; that would be strong evidence to suggest there was no accord and satisfaction.
In a case called Joinery Plus Ltd (In Administration) v Laing  EWHC 3513 (TCC), the judge said:
A party does not, merely by accepting a cheque, accept that the debt, obligation or dispute underlying the payment of that cheque has been discharged or settled. Whether or not a discharge or settlement results will depend on the intention of the party accepting the cheque, as determined objectively from the surrounding circumstances of that acceptance. If the acceptance is intended to be qualified so that the payment is accepted generally on account of that party’s entitlement to payment, and it is clear from the surrounding circumstances objectively determined that the acceptance of the cheque was qualified in that way, the accepting party will not be taken to have fully and finally accepted or approbated or settled the underlying obligation or the situation giving rise to that obligation.”
In another case called Stour Valley Builders v Stuart (unreported, 21 December 1992) the judge said:
Cashing the cheque is always strong evidence of acceptance, especially if it is not accompanied by immediate rejection of the offer. Retention of the cheque without rejection is also strong evidence of acceptance depending on the length of the delay. But neither of these factors are conclusive; and it would, I think, be artificial to draw a hard and fast line between cases where the payment is accompanied by immediate rejection of the offer and cases where objection comes within a day or within a few days.
What is the legal situation if you receive an electronic part payment and an email at the same time saying it is in full and final settlement.
In my view, you must be in a slightly better position than if you had received a cheque.
As stated in the case of “Stour” above, cashing the cheque might be evidence you had accepted the offer.
If the money is paid electronically directly into your account you do not have to do anything to receive it.
Therefore, if you email and write back immediately saying the payment is not accepted in satisfaction of the debt but as a part payment only, it may be difficult for your debtor to argue there was an agreement.
What if your debtor says something like – if you do not accept the money in final settlement of the debt you must send it back.
Again, in my view this is analogous with the letter accompanying the cheque.
You are owed money.
Some of it has been paid to you.
Your debtor must be able to show “accord and satisfaction” to escape – they cannot simply foist an agreement onto you.
My view is if you write back and say you are keeping the money because it is owed to you and it is not accepted in settlement you should be OK.
But we cannot give you any guarantee – these disputes turn on their particular facts and it will be up to the court at the end of the day.
If this or something like it ever happens to you, and you decide not to seek our advice, your options are:
- Keep the money and write and email back immediately saying it is being accepted on account – you take the risk the court will find an agreement;
- Send the money back.
Contact Cato Solicitors