Settlement by cashing cheque

When attempting to negotiate repayment from a debtor, it might initially appear attractive to accept and bank a cheque offered in payment and then pursue the debtor for the remainder. Take care though: paying in a cheque is strong evidence of acceptance by conduct of any offer accompanying the cheque and you may find yourself unable to pursue the debtor for the balance of the debt, or be unable to pursue it on your terms.

The case of Cantor Index Ltd v Thomson is a recent reminder of this. Thomson, who had an account with Cantor who had demanded repayment, made an offer to settle the debt by instalments. Cantor made a counter offer which was to accept Thomson's offer but subject to three stipulated conditions. Thomson then made a final offer which repeated the terms of his original offer and enclosed a cheque by way of payment of the first instalment, which Cantor banked. The cheque was not met on presentation and Cantor sought to enforce the settlement but on the terms of their counter offer. A dispute arose as to whether a settlement had been agreed and, if so, upon what terms.

The court dealt with the various offers and counter offers that had been made by the parties. It confirmed that rejection of an offer terminates the offer so that it can no longer be accepted. An attempt to accept an offer on new terms not contained in the original offer will lead to a rejection of the original offer accompanied by a counter offer. Here, Thomson's offer had been rejected by Cantor's counter offer which in turn had been rejected by Thomson's final offer.

Had the final offer been accepted? The court held that Cantor's conduct in immediately, and without demur or qualification, banking the cheque was, objectively, strong evidence of acceptance. As at the date that the cheque was banked, it was expected by both parties to be the end of the matter. Thus, a settlement had been achieved on the terms of Thomson's final offer.

Aspects to consider

Conduct will only amount to acceptance if it is clear that there is an intention to accept the offer. That intention will be determined objectively. Cashing a cheque is always strong evidence of acceptance, especially if it is not accompanied by an immediate rejection of the offer. Retention of a cheque without rejection is also strong evidence of acceptance, depending on the length of the delay in notification of rejection. However, neither of those two factors alone are conclusive. If a cheque is offered but the accompanying proposed terms of settlement are not acceptable, the cheque can still be banked but only after the offer has been formally and clearly rejected. The key is to make it clear that the cheque is being accepted as payment of part of the debt only, not in settlement of it.

For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Alexa Highfield on +44 (0)121 213 2396 or Amie Ryalls on +44 (0)121 213 2360

This published article may contain information of general interest about current legal issues, but does not give legal advice.