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Hi All,
As there is much questioning of the methods, reasoning and techniques of achieving Full and Final Settlements around the forums in various places, I thought that it would sensible to open a full blown discussion thread where all ideas and questions can be aired. This post is based on a text I did for another forum with some updating. This subject leads to the well intentioned “hi-jacking” of others threads and hopefully questions can be referred here for discussion.
There needs to be an understanding at the outset that F & Fs are nothing to do with relatively simple Statute Law, they enter you immediately into the complex minefield of the Common Law of Contract. This is judge-made law and every case will stand or fall on its own merits. This is NOT a magic wand to solve debt problems. This, even carried out to the letter of the known case law with professionals, carries the risk of the “loss” of the settlement monies “on account” and the outstanding amount still being owed and pursuable. There are a number of approaches to this subject, this is just mine, so if you are contemplating this route then it is wise to read all of Niddy’s material that is on this site and the template letters provided for members.
We have just had a little success with F & F at a figure of 10% with a business overdraft and the remnants of a business loan. There are some little practical things that we picked up along the way as well which have proved of value.
When we first considered a Full & Final settlement offer the prerequisite was that should any deal be accepted then it had to be absolutely watertight with no get out for the creditor now or in the future. We had disputes/complaints with four credit cards with the same bank where the business account was held which had been ongoing for some two years. The cards were fully paid up to date at the time but the account, already in OD was stripped up to and above its agreed overdraft limit by the card company subsidiary and for which they tried to charge us for the privilege. We did get the money back after a load of histrionics in a crowded branch one Saturday morning. However we could no longer trust the bank to behave correctly if we paid money into the account or to make payments on the loan account without covering paperwork etc. I expected to pay about 70 to 80% on an F & F but any saving would have been of help. I started a “reading round” to find out what I could and to see if there really was any mileage in offering the F & F and closing the account(s) down completely, making that the end of the matter and ensuring there was no further comeback and dealing with the CC issues separately which we had in the hands of specialist litigation solicitors anyway. I just did not need the hassle any longer and needed to tick at least one box.
The first thing that came out was that the legal mechanism for F & Fs is deceptively elegant and simple, can I just emphasise the word deceptively. The underlying, and underpinning law is definitely not, in fact you have stepped away from the relatively simple arena of Statute Law (e.g. CCA1974/2006) into the absolute minefield of the Common Law of Contract which carries the baggage of very expensive litigation if things go wrong.
Case law, which is often quoted and goes back to the infamous Pinnel case of 1602, does NOT provide any hard and fast rules, which you can use to guide your thinking. Every case appears to stand or fall on its own particular merits should you, heaven forbid, end up in a court of law. I tackled my studies perhaps a little differently from the norm by taking a look first at what the obligations of a creditor are in these circumstances, what he may or may not do and what the consequences are for those actions. I found a couple of legal websites to start with, which provided fairly comprehensive answers to my mind’s questions.
Firstly for those interested in the Pinnel (1602) case (aka Penny v Cole) Sir Edward Coke opined that a debt could NEVER be discharged by a partial settlement. There is much case law since and a source of reference is “wikipaedia” putting “Pinnel’s case” into the “wiki” search engine and a whole raft of reference source material comes up.
However more recent material came to light from the two websites I mentioned and a repeat of the quotes I have made elsewhere might be useful.
Quote 1.
“The first thing to look at is whether the cheque comes from the debtor itself, or from some other person (e.g. a director, a group company). If it comes from a third party then you must not cash the cheque unless you really are going to accept it in settlement. Doing so would make an agreement with the third party which will be binding on you.
Assuming that the cheque does in fact come from the debtor, the question if you cash it will be whether there was in fact any agreement between you and the debtor that you were accepting the cheque in settlement. You can therefore pay the cheque in provided that at the same time you make clear to the debtor that you are not accepting it in full and final settlement.
You should do this immediately the cheque is received - holding it for a time could be taken as agreement to the terms. It is not necessary to tell the debtor before you actually pay it in. It is enough if you write at the same time, so that it is clear afterwards that you were never intending to settle the debt. The letter should make clear that you do not accept the cheque in full and final settlement but that you are paying it in as a part payment of the debt, and you expect to receive the balance.
If there are claims of breach of contract the position could be different. Assuming there is no dispute as to the amount due, then there is no dispute which needs settling - paying in the cheque could not count against you. However, it would still be prudent to use the procedure outlined above.”
Quote 2
“If there is to be accord and satisfaction the debtor must prove that there was agreement between the parties as to settlement. This requirement for 'agreement' is overridden somewhat once time has passed. Lloyd LJ stated that , "what matters is not what the creditor himself intends, but what, by his words and conduct, he has led the [debtor] to believe" (7).
In Stour Valley there was some disagreement over the amount outstanding after some building works had been carried out. The customer decided to send a cheque for a lower amount than that claimed by the builders and stated in his letter that the amount was in full and final settlement of all claims. The cheque arrived on day 1. The builders cashed the cheque and it cleared on day 5. On day 7 the builders spoke to the customer and told him that the amount could not be accepted in full and final settlement. This delay of seven days was not considered fatal and it was held that the builders were entitled to treat the cheque as a payment on account.
Lloyd LJ considered that cashing the cheque would always be strong evidence of acceptance, especially where an immediate rejection of the offer is not forthcoming. As far as a creditor is concerned, therefore, the communication of the rejection must occur "within a few days" for it to be valid. In this case a delay of one week fell within this band. In another case a delay of seven weeks (8) was found to be too long and accord and satisfaction was established. It appears, therefore, that the correct question to ask is whether the creditor's conduct caused the debtor to think that the money was accepted in satisfaction.”
It should be remembered that these two quotes are based on advice given to creditors as to the consequences of any actions they take. Lloyd LJ also made reference to settlements made directly between client/creditor and those made by “lawyers”. I do not understand quite the distinction in law but my humble opinion on this is that more weight would attached by the courts to settlements dealt with by lawyers in the debtors favour.
Cases referred to by the above quotes were:-
Croft v Lumley (1858)
Upfield v Marshall (1976)
Bracken v Billingshurst (2003)
The Commissioners of the Inland Revenue v Fry (2001)
Joinery Plus Ltd v Laing (2005)
Stour Valley Builders V Stuart (1993)
Day v McLea (1889)
I would in any circumstance always advise professional legal assistance when dealing with a full and final settlement if significant sums of money are involved. You will need someone who knows what they are doing as most High Street practices will quote a case which fell against the debtor on appeal, “The Commissioners of the Inland Revenue v Fry” which we can discuss at length if the thread progresses. It concerns the working practices of large institutions. It proved not to be relevant in our case.
My conclusions after all this and more:-
It became my opinion after all of the research that it would be unwise to tackle this problem alone particularly if significant sums are involved (see 5 above). This is not relatively simple Statute Law and has all of the complexities of a Common Law of Contract issue and all of the pitfalls that go with that. Every case stands or falls on its own merits. Hence our decision to ask our solicitors if they could take it up on our behalf. I would have thought a higher offer would be required but it was their decision that the opening offer only be 10% in total. If they wanted more then the bank would have to return the cheques and ask for a higher figure. To deal with this all only three letters were required.
It is my personal feeling that many successful F & Fs have little to do with the law, they are rather more to do with endemic systems failure and a weak management structure within these large sophisticated financial institutions. They only wake up to what has happened far too late, accord and satisfaction have been established as per Lloyd LJ. They have concerns about bringing actions under Contract Law. A failure would be embarrassing and could be disastrous for the other institutions as well.
One final point is that it is essential that you keep “proof” on a daily basis. Once those cheques have been cashed it will only take a few days before you will not be able to access all of your statements on line. Ours were cut off to the day postdating the day of the cheques being cleared. We could access nothing previous including the cashing of the cheques (but we had hard copy)/ Therefore it is wise counsel to print down your on-line statements on a daily basis until you have your “proofs”. If you are dealing with solicitors, they WILL require this proof as well as a copy statement from your benefactor which can have all else blocked out except the relevant transactions of the cheques clearing their account. It is most unlikely that you will receive any further hard copy statements from your creditor once this has gone through.
I thinks that it, much of it is old hat but relevant. Pick the bones. Sorry about the length of it.
Hope that it helps people to make clearer decisions.
Best regards
Garlok.
As there is much questioning of the methods, reasoning and techniques of achieving Full and Final Settlements around the forums in various places, I thought that it would sensible to open a full blown discussion thread where all ideas and questions can be aired. This post is based on a text I did for another forum with some updating. This subject leads to the well intentioned “hi-jacking” of others threads and hopefully questions can be referred here for discussion.
There needs to be an understanding at the outset that F & Fs are nothing to do with relatively simple Statute Law, they enter you immediately into the complex minefield of the Common Law of Contract. This is judge-made law and every case will stand or fall on its own merits. This is NOT a magic wand to solve debt problems. This, even carried out to the letter of the known case law with professionals, carries the risk of the “loss” of the settlement monies “on account” and the outstanding amount still being owed and pursuable. There are a number of approaches to this subject, this is just mine, so if you are contemplating this route then it is wise to read all of Niddy’s material that is on this site and the template letters provided for members.
We have just had a little success with F & F at a figure of 10% with a business overdraft and the remnants of a business loan. There are some little practical things that we picked up along the way as well which have proved of value.
When we first considered a Full & Final settlement offer the prerequisite was that should any deal be accepted then it had to be absolutely watertight with no get out for the creditor now or in the future. We had disputes/complaints with four credit cards with the same bank where the business account was held which had been ongoing for some two years. The cards were fully paid up to date at the time but the account, already in OD was stripped up to and above its agreed overdraft limit by the card company subsidiary and for which they tried to charge us for the privilege. We did get the money back after a load of histrionics in a crowded branch one Saturday morning. However we could no longer trust the bank to behave correctly if we paid money into the account or to make payments on the loan account without covering paperwork etc. I expected to pay about 70 to 80% on an F & F but any saving would have been of help. I started a “reading round” to find out what I could and to see if there really was any mileage in offering the F & F and closing the account(s) down completely, making that the end of the matter and ensuring there was no further comeback and dealing with the CC issues separately which we had in the hands of specialist litigation solicitors anyway. I just did not need the hassle any longer and needed to tick at least one box.
The first thing that came out was that the legal mechanism for F & Fs is deceptively elegant and simple, can I just emphasise the word deceptively. The underlying, and underpinning law is definitely not, in fact you have stepped away from the relatively simple arena of Statute Law (e.g. CCA1974/2006) into the absolute minefield of the Common Law of Contract which carries the baggage of very expensive litigation if things go wrong.
Case law, which is often quoted and goes back to the infamous Pinnel case of 1602, does NOT provide any hard and fast rules, which you can use to guide your thinking. Every case appears to stand or fall on its own particular merits should you, heaven forbid, end up in a court of law. I tackled my studies perhaps a little differently from the norm by taking a look first at what the obligations of a creditor are in these circumstances, what he may or may not do and what the consequences are for those actions. I found a couple of legal websites to start with, which provided fairly comprehensive answers to my mind’s questions.
Firstly for those interested in the Pinnel (1602) case (aka Penny v Cole) Sir Edward Coke opined that a debt could NEVER be discharged by a partial settlement. There is much case law since and a source of reference is “wikipaedia” putting “Pinnel’s case” into the “wiki” search engine and a whole raft of reference source material comes up.
However more recent material came to light from the two websites I mentioned and a repeat of the quotes I have made elsewhere might be useful.
Quote 1.
“The first thing to look at is whether the cheque comes from the debtor itself, or from some other person (e.g. a director, a group company). If it comes from a third party then you must not cash the cheque unless you really are going to accept it in settlement. Doing so would make an agreement with the third party which will be binding on you.
Assuming that the cheque does in fact come from the debtor, the question if you cash it will be whether there was in fact any agreement between you and the debtor that you were accepting the cheque in settlement. You can therefore pay the cheque in provided that at the same time you make clear to the debtor that you are not accepting it in full and final settlement.
You should do this immediately the cheque is received - holding it for a time could be taken as agreement to the terms. It is not necessary to tell the debtor before you actually pay it in. It is enough if you write at the same time, so that it is clear afterwards that you were never intending to settle the debt. The letter should make clear that you do not accept the cheque in full and final settlement but that you are paying it in as a part payment of the debt, and you expect to receive the balance.
If there are claims of breach of contract the position could be different. Assuming there is no dispute as to the amount due, then there is no dispute which needs settling - paying in the cheque could not count against you. However, it would still be prudent to use the procedure outlined above.”
Quote 2
“If there is to be accord and satisfaction the debtor must prove that there was agreement between the parties as to settlement. This requirement for 'agreement' is overridden somewhat once time has passed. Lloyd LJ stated that , "what matters is not what the creditor himself intends, but what, by his words and conduct, he has led the [debtor] to believe" (7).
In Stour Valley there was some disagreement over the amount outstanding after some building works had been carried out. The customer decided to send a cheque for a lower amount than that claimed by the builders and stated in his letter that the amount was in full and final settlement of all claims. The cheque arrived on day 1. The builders cashed the cheque and it cleared on day 5. On day 7 the builders spoke to the customer and told him that the amount could not be accepted in full and final settlement. This delay of seven days was not considered fatal and it was held that the builders were entitled to treat the cheque as a payment on account.
Lloyd LJ considered that cashing the cheque would always be strong evidence of acceptance, especially where an immediate rejection of the offer is not forthcoming. As far as a creditor is concerned, therefore, the communication of the rejection must occur "within a few days" for it to be valid. In this case a delay of one week fell within this band. In another case a delay of seven weeks (8) was found to be too long and accord and satisfaction was established. It appears, therefore, that the correct question to ask is whether the creditor's conduct caused the debtor to think that the money was accepted in satisfaction.”
It should be remembered that these two quotes are based on advice given to creditors as to the consequences of any actions they take. Lloyd LJ also made reference to settlements made directly between client/creditor and those made by “lawyers”. I do not understand quite the distinction in law but my humble opinion on this is that more weight would attached by the courts to settlements dealt with by lawyers in the debtors favour.
Cases referred to by the above quotes were:-
Croft v Lumley (1858)
Upfield v Marshall (1976)
Bracken v Billingshurst (2003)
The Commissioners of the Inland Revenue v Fry (2001)
Joinery Plus Ltd v Laing (2005)
Stour Valley Builders V Stuart (1993)
Day v McLea (1889)
I would in any circumstance always advise professional legal assistance when dealing with a full and final settlement if significant sums of money are involved. You will need someone who knows what they are doing as most High Street practices will quote a case which fell against the debtor on appeal, “The Commissioners of the Inland Revenue v Fry” which we can discuss at length if the thread progresses. It concerns the working practices of large institutions. It proved not to be relevant in our case.
My conclusions after all this and more:-
- It is not necessary for a dispute to be in place prior to making an offer of F & F.
- There is a definite distinction between a debtors own cheques and those of a third party.
- Timing is of the absolute essence, a delay of a few days by the creditor after cashing F & F cheques is usually not fatal to his case, a delay of two weeks or more usually is fatal to his case, although seven weeks is on surer ground.
- Delay by the creditor in informing the debtor (if the cheques are the debtors own) of his refusal to accept the offer is fatal to his case as above.
- If this is attempted by the debtor acting alone then they must be prepared to “lose” the money offered in F & F as only monies taken on account, the remainder of the debt still being owed and shall we say enforceable now or in the future. The question to ask yourself is really can you afford to have this money taken as only monies on account and still continue making payment as before or have the debt still outstanding
- Third party cheques are essential components of succeeding with F & Fs below the actual figure of the original debt. If they are then cashed by the creditor then there exists a fully legally binding agreement between the creditor and the third party benefactor NOT the debtor.
- It is not entirely necessary to establish “accord” with the creditor prior to the F & F offer being made. ( this is a contentious issue and is a personal opinion from study)
- The covering correspondence must state exactly the terms and conditions under which the creditor may cash the cheques.
- The correspondence must give the creditor the opportunity to refuse the offer and return the cheques uncashed.
- It would be a wise move to state that a friend/relative/benefactor was prepared to make an ex-gratia payment to settle your debt on your behalf.
- Insist that no adverse entry is made on any credit reference file i.e. settled in full or satisfied. Nothing else will suffice
- Insist that the debt is settled and that no one will pursue this matter (OC, DCA, assignee or other agent) now or in the future (when you die think of your estate).
It became my opinion after all of the research that it would be unwise to tackle this problem alone particularly if significant sums are involved (see 5 above). This is not relatively simple Statute Law and has all of the complexities of a Common Law of Contract issue and all of the pitfalls that go with that. Every case stands or falls on its own merits. Hence our decision to ask our solicitors if they could take it up on our behalf. I would have thought a higher offer would be required but it was their decision that the opening offer only be 10% in total. If they wanted more then the bank would have to return the cheques and ask for a higher figure. To deal with this all only three letters were required.
It is my personal feeling that many successful F & Fs have little to do with the law, they are rather more to do with endemic systems failure and a weak management structure within these large sophisticated financial institutions. They only wake up to what has happened far too late, accord and satisfaction have been established as per Lloyd LJ. They have concerns about bringing actions under Contract Law. A failure would be embarrassing and could be disastrous for the other institutions as well.
One final point is that it is essential that you keep “proof” on a daily basis. Once those cheques have been cashed it will only take a few days before you will not be able to access all of your statements on line. Ours were cut off to the day postdating the day of the cheques being cleared. We could access nothing previous including the cashing of the cheques (but we had hard copy)/ Therefore it is wise counsel to print down your on-line statements on a daily basis until you have your “proofs”. If you are dealing with solicitors, they WILL require this proof as well as a copy statement from your benefactor which can have all else blocked out except the relevant transactions of the cheques clearing their account. It is most unlikely that you will receive any further hard copy statements from your creditor once this has gone through.
I thinks that it, much of it is old hat but relevant. Pick the bones. Sorry about the length of it.
Hope that it helps people to make clearer decisions.
Best regards
Garlok.
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