Sending cheques for ‘Full and Final Settlement’

In the past, a cunning way to settle a matter was to send a cheque to a debtor for a reduced amount with an enclosing letter expressing that the cheque was tendered on a full and final settlement basis. In cashing the cheque the debtor accepted these terms and their rights to further action in the matter were extinguished.

The tactic was based on the old adage “a bird in the hand is worth two in the bush”, on the premise that a creditor would rather obtain at least part of the debt owed than endure a lengthy and possibly costly recovery action with no certainty of success. However, despite it still being a common method adopted today by both individuals and businesses, at law it seems this approach is a thing of the past. The decision of the New South Wales Court of Appeal in J P Morgan Australia Ltd v Consolidated Minerals Pty Ltd [2011] NSWCA 3 exposed the perils of debtors offering a part payment. In this case the debt was $50 million and the cheque offered was for $20 million, here, the creditor simply banked the cheque and replied, thank you very much but we still want the rest of our money, and the Courts agreed.


Consolidated Minerals Pty Ltd (“Consolidated”) retained J P Morgan Pty Ltd (“J P Morgan”) to provide services for a takeover (and other general business). On completion of their business J P Morgan issued an invoice for over $50 million and Consolidated disputed the amount. On 6 June 2008 Consolidated sent a cheque for $20 million with a letter stating it was in full and final settlement of the matter. On 12 June 2008 J P Morgan banked the cheque and sent a letter to Consolidated thanking them for the payment but that it did not accept this as full payment. Consolidated claimed that by banking the cheque J P Morgan had agreed to the terms and had accepted the $20 million in satisfaction of all claims.

The Decision

The main issue highlighted was “accord and satisfaction”. At the original trial, Hammerschlag J at [138] quoted Dixon J from McDermott v Black [1940] HCA 4; (1940) 63 CLR 161 at [183-4]:

“The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action”.

Neither the trial judge nor the Court of Appeal found there was an accord and satisfaction. The Court said for any accord and satisfaction to exist J P Morgan must be shown to have agreed to accept the cheque and finalise the matter. The Court said the letter from Consolidated on 6 June 2008 was not an offer, stating that the letter merely outlined Consolidated’s position of disputing the invoiced $50 million and offering an alternative amount rather than clearly describe the $20 million cheque as a genuine offer to settle the matter.


  • The Court said that the wording of the letter was such that it identified what they (Consolidated) thought was due and enclosed a cheque for that amount;
  • Even if it were an offer, there was no identified method of acceptance in the letter (ie banking the cheque). The Court said it would have been more likely to succeed as an offer if there had been a line referring to the banking of the cheque as acceptance;
  • The Court also held that the actions of J P Morgan in sending a return letter, clearly stating that they did not accept the cheque as full and final payment but however, as a part payment of a larger debt, also indicated there was no accord and satisfaction;
  • The wording “[w]e trust that this brings this issue to a close” indicated a lack of confidence in the cheque being for full and final settlement.

The Effect of the Decision

This decision highlights the dangers in attempting to settle a debt by making a part payment. In this case, even the use of the words “full and final settlement” was not enough to conclude the matter. This is not to say that you can never settle a debt with a part payment offer, it merely highlights some of the pitfalls. You should always try to negotiate a settlement amount and exchange cheques and documents in person, however, should you wish to send an offer of compromise with a cheque attached there are some factors you should consider;

(a)    It needs to be carefully worded and properly drafted;

(b)   Make sure the letter is expressed as an offer of compromise and not just how you see things;

(c)    Make it absolutely clear that the action of banking the cheque is acceptance of an offer and the terms attached, those being full and final settlement, and above all;

(d)   Be prepared to defend your position; all of the case law surrounding part-payment cheques rely not only on the wording and context of the accompanying letter but on the actions of the offeree receiving the cheque.

How can we assist?

Should you require assistance with issues mentioned in this article, or any other litigation matter our Gold Coast Lawyers are here to assist. Please contact Affinity Lawyers on 07 5563 8970 to make an appointment and discuss your individual circumstances with an experienced lawyer.