Payment of a lesser amount in satisfaction of a greater amount
A new English decision.
A well known trick in the construction industry has been tendering cheques in satisfaction of invoices/progress payment certificates, that are for a lesser sum than requested by the creditor. The principle at law is described as accord and satisfaction. It has been dealt with by the New Zealand Courts on numerous occasions. In this article I wish to summarise a recent English decision called Stour Valley Builders v Stuart.
The contractors carried out work at the employer’s house and submitted a bill for GBP10,204. The employers queried a number of items which had been charged as extras and complained about other items for which they claimed compensation. The contractors sent a detailed reply, accepting some very minor errors, with a revised account coming to GBP10,163. The employers sent an equally detailed response disputing about GBP3,000, stating that they were prepared to settle the matter and were enclosing a cheque in full and final settlement of all charges for GBP8,471.
The contractors received the cheque and paid it into their bank account. Two days after the cheque had been cleared, the contractors were advised by their solicitor and then telephoned the employers to say that the cheque could not be accepted in full and final settlement and had been paid in because the contractors needed the money. Proceedings were begun by the contractor for the outstanding monies. It was argued by the Employer that the cheque had been accepted in full and final settlement.
At first instance, the argument of the Employer was rejected and it was found that the Employer was liable for the additional amount claimed, namely GBP1692.
On appeal the Judge held that accord and satisfaction depends on the debtor establishing an agreement between the parties whereby the creditor undertakes for valuable consideration to accept a sum less than the amount of his claim. As with any other bilateral contract, what matters is not what the creditor intends but what by his words and conduct, he has led the other party as a reasonable person in this case to believe. He states:
“If the creditor at the very moment of paying in the cheque makes clear that he is not assenting to the condition imposed by the debtor, how can it be said that, objectively, he has accepted the debtors offer.”
The Judge went onto state that the cashing of a 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 he held that neither of these two factors are conclusive.
He held that the lower Court judge had applied the right test in coming to his determination. The test applied being, did the contractors’s conduct cause the employer to think that the money was taken in satisfaction of the debt. It was concluded correctly that no it didn’t. Accordingly the lower Court’s judgment was upheld.