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Settlement of Debt

In-House Memorandum ~ Part-Payment as Complete Payment of a Debt

Commercial disputes are frequently resolved by a compromise involving part payment. If this occurs, great care is needed to ensure that this is confirmed in writing and accepted. At the heart of the matter is whether the parties can be seen to enter into a binding agreement whereby one party takes the other’s monies in satisfaction of the full claim[1]. An objective assessment is required to answer this question[2] and specifically whether there is an external manifestation of agreement to an offer by the recipient[3]. In a 2010 New South Wales Supreme Court case[4], a mining company, Consolidated Minerals, tendered a cheque to JP Morgan for $20M dollars. The alleged amount owing to JP Morgan was actually $50M dollars. JP Morgan banked the cheque. Consolidated Minerals claimed that, by banking the cheque, this was an ‘accord and satisfaction’, being:

“… acceptance by the plaintiff of something in place of his cause of action.”[5]

However, the Court rejected this claim, holding that the mere banking of the $20M cheque was not conclusive of an accord[6]. Earlier cases have wavered on the point. In Wicks v First National[7], an employer dismissed an employee, handing him a cheque ‘in lieu of notice and in full settlement of all claims against the company’. The employer accepted the cheque ‘under protest’, but later sued the employer to recover damages for wrongful dismissal. The employee’s claim failed:

“How can a person who receives money in such circumstances be heard to say at the same time ‘Although I take this money in full settlement of all claims I still reserve my right to assert further claims’” (Street CJ)[8]

In Kiwi Packaging[9], one party sent a cheque to another party in ‘full settlement’ of their account. The party receiving the cheque gave no reply and banked the cheque. The Court held that banking the cheque, along with the absence of any other action, amounted to full settlement of the account. Conclusion The form in which money may successfully be tendered as full and final settlement is complex. Those intending compromise by tender must make that clear beyond doubt that, if banked, the payment is a complete settlement of all monies owing. Those receiving part payment must communicate carefully, especially if banking the funds only as part payment, lest they unintentionally enter an arrangement that extinguishes their rights to the balance of monies owed. Cameron Algie 12 November 2014 FOR A PRINTABLE VERSION OF THIS ARTICLE CLICK HERE FOR THE PDF VERSION [1] Osborn v McDermott [1998] 3 VR 1, at [10]; Illawong Village Pty Limited v State Bank of New South Wales [2004] NSWSC 18, at [261]-[264]. [2] Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8, at [25]. [3] Emprinall Holdings Pty Limited v Machon Paull Partners Pty Ltd (1998) 14 NSWLR 523, at 534-5 [4] JP Morgan Australia Limited v Consolidated Minerals Limited [2010] NSWSC 100. [5] McDermott v Black [1940] HCA 4, per Dixon J at [183]. [6] Fn. 1, per Hammerschlag J at [141]. [7] Wicks v First National Picture (Australasia) Ltd (1931) 31 SR (NSW) 427. [8] Ibid, at 431. [9] Homeguard Products v Kiwi Packaging [1981] 2 NZLR 322.