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Settling a debt? What you need to know on wording your full and final settlement agreement

There is a generally held perception that if a creditor accepts a cheque in full and final settlement of a claim, the matter is over and done with and there can be no further claims. We would like to draw your attention to a High Court ruling which affects this perception and potentially affects you, the debtor, should you find yourself in a situation concerning the settlement of a claim.

The case on full and final settlement wording

full and final settlement wordingIn the case of Hubbard v Mostert, the judge ruled that the making of a compromise offer in full and final settlement did not in fact cover the second of two amounts. This was because of a slight ambiguity in the wording of the letter accompanying the payment. This ambiguity led to the creditor being able to claim that the second portion of the debt was not covered by the payment.

How to approach full and final settlement wording

Although the above is a rare instance, what we want you to learn from this case is that your final debt payment should be worded so unambiguously (preferably with the help of an attorney) that no loophole is left to be used.

Ideally, the attorney should obtain confirmation from the other side that they accept the payment in full and final settlement. Also, it needs to be clear what the payment is in full and final settlement of. This will then provide the necessary assurance that there will in fact be no further claims.

The bottom line is that no situation is as straight forward as it might at first appear to be. If your situation resembles the above and you are in doubt concerning your legal position, it is worth engaging the services of an attorney to minimise the possibility of problems escalating. Please do not hesitate to contact us at Gunstons for any help concerning the settlement of claims at info@gunstons.com.

Images courtesy of Stuart Miles at FreeDigitalPhotos.net.

Grant Gunston

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