Part Payment as Full and Final Settlement

What if your business Debtor sends you a part payment (electronically or otherwise) and tells you it is paid in “full and final settlement”?

This is a situation we are seeing on a more regular basis and which is happening to Clients.

In English law, the relevant principle is “accord and satisfaction”. This is essentially the purchase of a release from an obligation which arise under a Contract or Tort by means by any valuable consideration, not being the actual performance of the obligation itself.

-The accord is the agreement which discharges the obligation.

-Satisfaction element is the consideration which gives operation to the agreement.

By way of an example, we recently had a case where a Client was owed £15,000.00 and had been chasing payment without success for several months.

Their cashflow was suffering as a result and they told the Debtor that if they paid £10,000.00 the next day it would be accepted in full and final settlement.

This was agreed and payment made and as such, the “accord” is the new agreement between them and the “satisfaction” is the receipt and acceptance of the lesser sum.

That is straight-forward.

The difficulty we have seen most recently is when Debtors take it on themselves to make payment for a lesser sum and try and tender it in “full and final settlement”.

This was a problem when payments by cheque were more prevalent but it is something we are seeing now with electronic payments being made either accompanied by an email saying it is in full and final settlement or at the time of transferring the funds.

This can cause a problem where inadvertently a lower sum tendered could be accepted in full and final settlement.

A Debtor would have to show there had been “accord and satisfaction”.

An agreement, however, cannot be forced on you.

In short, should you find yourself in this situation and are uncertain, please contact us for advice.

Each case where there is a dispute turns on their own particular facts –  but don’t get caught out.

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