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June 2017

When the law accepts “part payment” as “full and final payment”

By | news

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.)

For example:

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 [2003] 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.

Electronic Payments

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:

  1. 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;
  2. Send the money back.

Contact Cato Solicitors

Contact Cato Solicitors

However if you do find yourself in this situation and require help John Cato can advise on Dispute Resolution and Debt Recovery. For more information please visit  Debt Recovery or contact John Cato.

No payment from a regular source of work

By | Problem Solved

The Problem

I am a carpentry sub-contractor, with most of my work coming from one source, a main contractor.  When I take on work for this contractor, it is usually by way of a verbal agreement.

Every Friday they email me a list of work to be carried out the following week, and at the end of that week, I email an invoice for each individual job.  The verbal agreement on payment is 7 days and the contractor makes payment straight into my bank account.  This has been the case for several months.

However, no payment was received from the contractor on 31 March.  When I spoke to them, they said that full payment would be made the following Friday.  This did not happen, and when I chased them up, they stated that one job I had done was unsatisfactory.  I immediately attended to this, only to be subsequently told that the job was still not satisfactory and they had employed someone else to fix the problem.  They have since told me that they will be contra-charging me for the cost, and in the meantime will be withholding all payments due to me until they know what the cost is.  They also stated that as there is no written agreement on payment terms, I cannot class the payment as late.

As they did not notify me that they still had an issue with my work and allowed me the chance to put the supposed issue right, can they then contra charge me?

I have since sent 3 final payment demands, but received no replies.  Nor have I received a pay less notice.  If payment was due on 31st March 2017, can this now be classed as having missed the final date for payment?  Also, has the contractor missed the chance to issue me with a pay less notice?

Name withheld

Michael’s Response

There is a binding contract at the point that you commenced the work (your commencement signifies your acceptance of the main contractor’s offer for you to carry out the work listed in the email), and this is known as contract by conduct.  Although there may be an absence of written terms, there will be implied terms and terms that may be incorporated in each contract by reference to your previous course of dealings with the main contractor, providing there was a reasonable expectation that the term you seek to rely upon would apply, and there are no other contrary terms.

In addition, the Housing Grants, Construction and Regeneration Act 1996 (as amended), will also apply to your contract, which in turn will imply part 2 (payment) of the Scheme for Construction Contracts, and although you may not be entitled to stage payments (for stage payments to apply, the duration of a contract must be estimated not to be less than 45 days), you will be entitled to receive payment by the ‘final date for payment’, although this is a much longer period than the 7 days you have said you agreed with the main contractor (it will be at least 47 days following completion of the work).

Whether or not the contractor has failed to issue you with a timeous pay less notice will depend on whether the previous course of dealings or the Scheme for Construction Contracts applies, although in all probability, in the absence of a pay less notice under either term, the contractor would have missed its chance.

On the contra-charge, the contractor must give you an opportunity to carry out the remedial work.  Whether or not your first attempt to make good is considered as giving you that opportunity will depend on the actual circumstances.  That said, without a timeous pay less notice, the contractor is not permitted to make any deductions from the amount due.

The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.


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All Builders Problems Solved articles are a response to real problems experienced in the industry and we invite you to submit details of your own legal issues using the form at the bottom of this page. If your matter is used the advice is free. We do however assume we have your permission to publish the article on our website and on our social media platforms, although the names and details will be amended so that you may not be identified.

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