A full treatment of the legal issues here would involve much of the early part of a good contract law textbook.


My earlier treatment looked at whether the 'full and final settlement' letter is an offer to vary the pre-existing contract which creates a binding contract to vary if the cheque is banked without timely rejection of the offer. In some circumstances, a binding contract would not be created.

Without a contract to vary the previous arrangements and reduce the sum owed, a key starting place within common law appears to be Pinnel's Case which, in essence, says that part payment of a debt cannot satisfy the entire debt. However, even if there is no binding contract to settle for the lower amount, it is possible that an indication from the creditor that they would accept part payment coupled with cashing the cheque without timely communication rejecting the offer to settle could amount to an equitable promise to discharge the debt. Such a promise could bind the creditor via what is known as promissory estoppel. As an equitable remedy, estoppel comes with conditions, not least that you have to come to equity with clean hands. If a court felt that the debtor had tried to trick the creditor into discharging the debt, they might refuse to hold that the creditor is estopped from pursuing the debt.


A creditor intending to reject the 'full and final settlement' but retain the cheque as partial payment is probably best writing to reject the settlement offer, saying that unless the creditor objects, they will cash the cheque on or after a certain date and treat the funds as a payment on account. This, of course, risks the debtor objecting or the cheque being cancelled, but there is no guarantee a cheque will result in irrevocable transfer of funds until it has been paid in for six days.


Certainly where the law of England and Wales applies, there is no certainty that an unsolicited cheque sent in 'full and final settlement' will create a binding agreement to discharge the remaining debt if the cheque is cashed. The steps the creditor takes and when they take them are crucial in determining whether the creditor retains the right to pursue the debtor for the remaining sum. The case law in this area is quite complex.

Edited by deleted (Wed 03-Jun-15 04:44:18)

David W: Thanks for that, as always, all that means is that The Law is an ass, i.e. not clear cut and made on sometimes dubious pecedents, as I have learned couple of times to my costs !

However I have used the 'Full and Final payment' before, without problems.
Once the sum was many thousends of pounds, as the car sales man somehow calculated the final payment (and or the stated interest rate) wrong ! It was a major car loan co., they shut up after I told them to consult their legal department...
Regards,
Martin