Cheques proffered in full and final satisfaction: a matter of principle
Degree GrantorUniversity of Canterbury
Degree NameMaster of Law
Despite popular perception, the law in relation to "cheques in full and final satisfaction" is not a separate branch of the law of contract. The law pertaining to cheques in full and final satisfaction is simply an application of the common law principles of accord and satisfaction. It is perhaps for this very reason that prior to the landmark High Court decision in Homeguard Products (NZ) Limited v Kiwi Packaging Limited there were very few New Zealand decisions concerning the same. The factual situation which gives rise to such a scenario is relatively straightforward. A simple illustration would be that of a building contract, where the builder had been instructed to, and had built a house for another party to occupy. A dispute may then have arisen as to the quality of the workmanship, the owner asserting that a defective job had been done. The owner may then tender a cheque to the builder for a lesser sum than was due under the contract, asserting that the same is proffered in full and final settlement of the dispute. This letter and cheque may arrive in the mail and be opened by a clerk employed by the builder, who has authority to bank cheques but no authority to settle claims. This clerk may then without noting the terms of the letter, detach and bank the cheque. Several days later this letter may then come to the attention of the builder, who then writes back to the owner expressly stating that he does not accept that he has received the cheque in full and final satisfaction, has banked it on account, and will be pursuing the owner for the balance. On this scenario, if the proposition of Mahon J. in the case of Homeguard is correct, then upon the clerk employed by the builder banking the cheque tendered in full and final satisfaction an accord and satisfaction would have resulted, and despite the builder's protests to the contrary, he would be unable to sue for the balance he felt due to him under the previous contract. As the existing case law stands there is an onus on the creditor if he banks the cheque to inform the debtor that his payment in full condition is rejected. Some cases state this must be done at the time, others suggest that days is too late, and generally uncertainty reigns as to when a creditor will be taken to be bound by the debtor's payment in full offer.