Early case law
In Pinnel's Case [1558-1774] All ER Rep 612, the plaintiff sued the defendant for the sum of 8 pounds 10s. The defendant pleaded that he had paid the plaintiff 5 pounds 2s 2d, which they had purportedly accepted in full satisfaction of the 8 pounds 10s. Judgment was given that “payment and acceptance of part before the day in satisfaction of the whole would be a good satisfaction". Effectively then, if payment is made in full satisfaction with consideration (in this case payment before time) and the plaintiff has accepted then the debt would be satisfied.
In D & C Builders v Rees  3 All ER 837, the plaintiff pressed the defendant for the sum of £482 13s 1d for work carried out without any complaints from the defendant. The defendant's wife knew that the plaintiff company was in financial difficulties and offered £300 to settle the matter and, if this was not accepted, nothing would be paid. The cheque was accepted but the plaintiff nevertheless sued for the balance of £182 13s 1d; the defendant submitted that the claimant had accepted the £300 in settlement of the debt. It was held that plaintiff was entitled to recover the balance of the debt as there was no equitable ground disentitling them to recover, in view of the pressure from the defendant's wife.
In the similar case of Stour Valley Builders (a Firm) v Stuart and Another (1993) Times, 22 February, the plaintiff had invoiced and pursued a revised account of £10,163 after the defendants had disputed a number of items. The defendants ultimately offered a cheque in the sum of £8,471 in full and final settlement of all charges, which the plaintiff cashed upon receipt and which cleared after five days. The plaintiff then came to pursue the balance, calling the defendants to inform them of their intentions two days after the cheque had cleared. The court held that keeping the cheque was not conclusive and it was a question of fact as to what terms the cheque was kept on. Whilst both cashing the cheque together with a delay before rejection was evidence of acceptance they were not conclusive. In this case the delay before rejection was considered to be brief and it was concluded that the plaintiff had not caused the defendants to think that the money was taken in satisfaction of the claim.
Recent case law
In Inland Revenue Commissioners v Fry  All ER (D) 434 (Nov), the Commissioners sued the defendant for a sum in excess of £100,000 in respect of income tax and other liabilities. The defendant's husband sent a cheque in the sum of £10,000 in full and final settlement, which the defendant contended had been accepted by the Commissioners in satisfaction of the debt. The decision was made in favour of the Commissioners on the grounds that there had been no 'meeting of the minds'; the Commissioners had banked the defendant's husband's cheque without any knowledge that it was offered in full and final settlement, as it was detached from the covering letter containing the offer, before being passed to the appropriate caseworker. Upon receiving the covering letter, the caseworker immediately called the defendant's husband to inform him that the cheque had been banked but was not accepted. In this case, it could not then have been said that there had been any act of acceptance.
In Bracken and Another v Billinghurst  All ER (D) 488 (Jul), the claimants sued the defendant for an adjudication award of £43,984.66. The claimants had previously informed the defendant that they would accept £6,000 in settlement of the award and had been presented with a cheque for £5,000 in full and final settlement. The defence was based on the fact that the covering correspondence sent by the defendant's solicitors clearly stipulated that "The payment is tended as an offer of settlement which will deemed to have accepted by you and therefore be contractually binding if it is presented to your bank and cleared for payment. If you are not willing to accept the payment on these terms, would you please return the payment and we will assume therefore that the dispute will have to continue". The claimants took over two weeks to present the cheque for clearing and then two days after the cheque cleared wrote to inform the defendant that they would not accept the lesser sum in satisfaction of the debt. The claimants' application for summary judgment was refused on the grounds that this was too long a period of time for the claimant to have held the cheque and not informed the defendant of their intentions; furthermore, as the offer and payment were made by a third party, the presentation of the cheque was construed to be a clear acceptance of the offer of compromise.
Lessons from case law
Whilst the courts are not willing to draw "hard and fast" rules between cases, it is clear that they are willing to look at the overall circumstances of each case, the background giving rise to each claim and the conduct and intentions of both parties in (a) offering a sum in full and final settlement and (b) accepting the same. However, there are some important considerations in dealing with offers made in full and final settlement:
Is the cheque from the debtor or a third party? If the cheque is from a third party then accepting it in any event would make a binding agreement between yourself and a third party, meaning that the matter would be considered settled.
Is there a genuine dispute regarding the debt? If not and the offer is simply made as a delaying tactic in order to put pressure on the creditor and reduce the debtor's liability, then it may still be possible to bank the cheque and pursue the balance.
Are the terms of acceptance clear? If the offer is made with no conditions imposed in the event that it is rejected then it may be possible to still bank the cheque on the basis that it is 'part payment on account' only. If it is specified that it must not be cashed if the offer is not accepted then it must not be cashed.
Timeliness in responding to the offer is key. The Courts have been clear that any delay in responding to the offer and holding on to the cheque may be viewed as the acceptance.
Is the cheque ultimately honoured? If not, then an agreement may already have been deemed to be concluded. Nevertheless, it would be possible to bring an action immediately in respect of the dishonoured cheque.
Given the potential implications in unwittingly accepting a reduced sum in settlement, creditors would be well advised to consider their processes upon receiving cheque payments and responding to cheques offered in full and final settlement.
Impact on creditors
It is a daily occurrence that debtors ask creditors to take less than they are owed because they are in financial difficulties; the creditor may be considerate and forgive the rest of the debt. However, this is to be distinguished from matters where debtors ask creditors to take less than they are owed because of some dispute as to the goods or services provided. When pursuing disputed debts creditors and their representatives must be cautious to consider the intention of the debtor in presenting the cheque and make their intention clear by their conduct when presenting a cheque for payment.