Law Report: Payment of lesser sum did not settle claim

Ferguson v Davies; Court of Appeal (Lord Justice Evans, Lord Justice Henry, Lord Justice Aldous) 21 November 1996

Acceptance by the plaintiff of a lesser sum from the defendant than the amount claimed could not constitute accord and satisfaction so as to compromise the action between them unless the plaintiff received some additional benefit by way of consideration.

The Court of Appeal allowed an appeal by the plaintiff, Michael Ferguson, against the decision of Judge Crane, sitting in Northampton County Court on 19 July 1994, dismissing his claim for money due under a contract with the defendant, Steven Clive Davies.

The plaintiff in person; Terry Lynch (J. Garrard & Allen, Olney, Bucks) for the defendant.

Lord Justice Henry said the plaintiff, wishing to dispose of some specialist records, tapes and discs, agreed with the defendant, who dealt in such items, that the defendant would provide in exchange other specialist items sought by the plaintiff to the wholesale value of pounds 600 by a certain date, failing which the defendant would pay pounds 1,700 in cash. In fact the defendant only delivered goods to the value of pounds 143.50 and made a single payment of pounds 5.

The plaintiff claimed there was due to him approximately pounds 1,550.

However, he originally limited his claim to pounds 486.50, perhaps to keep it within the small claims jurisdiction. His claim was set out on the County Court's N1 default summons.

The defendant completed from N9B, a form of defence and counterclaim to be filled in if he disputed all or part of the claim. In answer to the question "How much of the claim do you dispute?" he ticked the box "I admit the amount of . . ." and inserted pounds 150. In answer to the question "Do you dispute the claim because you have already paid it?" he ticked "Yes" and wrote that he had paid pounds 450 to the plaintiff. He then added that he had sent a cheque for pounds 150.

He sent the cheque to the court with a letter saying the cheque was in settlement of the plaintiff's account, and that he did not dispute that he owed him money but disputed the total amount claimed. He wrote to the plaintiff in similar terms, concluding "I hope that this will now resolve the matter."

The plaintiff cashed the cheque but replied that he was continuing with the action until he received full payment. He got leave to amend his claim upwards to pounds 1,745.79.

The judge found for the plaintiff on the contractual issues, holding that a further pounds 1,400 was due from the defendant. He also found that the plaintiff had not intended to accept the pounds 150 in full settlement, but nevertheless held that his doing so had compromised his claim by a binding accord and satisfaction.

It was clear that the judge did not address his mind to the fact that the sending of the cheque for pounds 150 was an unqualified admission of liability, nor to the significance of such an admission.

An open admission of money due was something quite different from an offer of a sum in compromise. It was manifest that the formal admission on form N9B was not made without prejudice as part of an offer to compromise, but was properly before the court on the question of liability.

The judge erred in law in that he did not consider the legal significance of the fact that the defendant had unequivocally admitted liability for the sum paid by cheque, and was not giving the plaintiff any additional benefit on top of that. Therefore there was in law no consideration for the accord suggested.

Nor did the judge pay regard to the scheme of the County Court Rules governing cases where an admission was coupled with an assertion that the remainder of the claim had been paid. Against that background, it was wrong to conclude that the cashing of the cheque, sent as a result of a formal and unqualified admission on the pleadings, constituted "a clear and unequivocal acceptance that no further sum was due" because of a side letter seeking to impose a term for which there was no consideration once admission had been made.

Had he directed himself properly, he would inevitably have decided that there was no binding accord.

Paul Magrath, Barrister