In the present "cash-strapped" economic
climate, debtors may try to reduce the amount they owe to creditors
by offering a cheque for only part of the debt but then express the
payment to be in full and final settlement of the entire debt. The
temptation may be to bank the cheque immediately to assist with
cash-flow and then ask for the balance. However this may not always
be the best course of action.
It is worth re-visiting the case of Cantor Index Limited v Robert
Thompson decided earlier this year. The case raises the interesting
question of how to respond when a debtor offers a cheque for say
£150 but the debtor says in the covering letter that the cheque is
tendered in full and final settlement of a debt for a higher sum.
The natural instinct may be to bank the cheque and then ask for the
balance believing that it will be paid at some point in the future.
However, the Court in Cantor Index stated that by banking the
cheque, that concluded the contract between the parties i.e. by
making the offer in the letter (which was accepted by banking the
cheque), the parties had settled the debt that was owing at the
lower amount tendered.
To avoid this pit-fall and keep alive your wish to recover the
full amount that you are owed, you should consider taking the
following steps if you are not happy to accept a cheque in
part-payment but which is expressed to settle the whole debt:-
- Do not cash the cheque. Instead, send a letter immediately
rejecting the offer to settle the whole debt for the value of
the enclosed cheque. You should avoid any delay in notifying the
debtor of your rejection in order to avoid the argument that
owing to your delay in responding, a settlement has been
- If you do want to cash the cheque, consider the following:
You should reply quickly by clearly stating that the cheque is
not accepted in full and final settlement but will be accepted
and applied in part-payment of the full debt if you do not hear
from the debtor within a short period of time (say 5 days).
Whilst not a guarantee that your actions will succeed in
preventing the debtor from arguing that the whole debt has been
settled by acceptance of the cheque, it will give you an
argument against the debtor to say that you have banked the
cheque but are still owed the balance.
For more information please contact
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