The onus is on the payor to prove that the payee has expressly accepted the part payment as full payment. A condition of acceptance attached to the part payment, however clear, is not determinative. What governs is the intention of the recipient and whether it is “expressly” communicated. There must be evidence of acceptance, considerably more than the mere receipt of payment. A creditor owes no duty to inform the debtor of his intention not to accept a part payment on condition. Silence is not generally, without more, tantamount to express acceptance.

Accepting cheque with conditions attached does not mean acceptance of conditions

by Paul Sandori

IBI Group v. LeFevre & Company Property Agents Ltd.

Developer hired architect for consulting services • developer requested further input to architect’s first report but promised to pay full fee • cheque sent for less than amount in fee arrangement as developer alleged work was unsatisfactory • cheque was intended by developer to be in full and final payment of account once cashed • employee of architect accepted and cashed cheque • no proof that architect intended to accept cheque on developer’s terms and abandon rest of payment

In May 2001, LeFevre & Company engaged the architectural firm IBI Group for a development project in Victoria, BC. The consulting services were to be provided in two phases. The fee for Phase A was to be $25,000.

On June 15, IBI mailed its report on Phase A along with an invoice for $25,000 plus disbursements and GST for a total of $26,817.73.

Mr. LeFevre wrote back that further input was required before he would be ready to move on to the next phase. He remained “uncomfortable” with the design and, eventually, proposed two alternatives: IBI would “…take one more approach to refining a loose but preferred initial concept” or “cancel any further work as of now.”

The letter also stated, “…under either of the above scenarios your account would of course be promptly paid in full.”

IBI submitted a revised fee proposal and work program but LeFevre wrote to IBI principal David Thom: “I am simply not comfortable enough to move forward with any further work.” He advised IBI that LeFevre & Company would consider other approaches. He again promised prompt payment of IBI’s account.

On August 8, 2001, LeFevre again wrote to Thom stating he had reconsidered his position. He alleged that IBI had not followed his instructions and had not actually completed all of the work contemplated by Phase A in the fee proposal. The last paragraph of this letter read:

The attached cheque in the sum of $16,050.00 (being $15,000 plus GST) I regard as more than equitable payment for the portion of work that you performed. In an effort to bring closure to this matter the cheque is tendered on the basis of it being full and final settlement of your account. This is not to be accepted as a partial payment. I am therefore forwarding same on the understanding that if you deposit the cheque you will have agreed to this being finalization of your account in full. If you are not prepared to accept this basis of settlement, the cheque is to be returned to us undeposited.

When the letter arrived, Thom was away on business and the letter was opened by a receptionist. She forwarded the cheque — but not the letter — to the accounting department which immediately cashed the cheque.

David Thom read the letter on his return to his office and attempted to call LeFevre but without success. IBI then issued an invoice to LeFevre company for the balance of the account. The invoice was not paid, and IBI took the company to the Small Claims Court.

The court concluded that the cheque was accepted as full and final settlement of the account, and dismissed IBI’s claim for the balance.

The Small Claims judge did not explain how IBI’s employees indicated acceptance of the settlement other than by the fact that they deposited the cheque. She relied on the clarity of the conditions imposed by LeFevre in his letter, noting only that he “was reserving [his] rights to fully dispute the account if [his] letter was not acceptable and retained a right over the funds remitted.”

The judge did not treat as critical IBI’s intent:

…in summary, I find that the delivery of the letter to the claimant’s receptionist is sufficient to constitute delivery to the company. I find that the acts of the receptionist and its accounting staff are binding on [IBI], and the company is deemed to have expressly accepted the terms of the settlement by depositing the cheque into its account….

I conclude that [LeFevre] has met the burden of showing that [IBI] expressly accepted payment of $15,000 in satisfaction of the obligations of [LeFevre] by negotiating a cheque which was sent under clear and unequivocal conditions as to what constituted acceptance.

She concluded, “I find that once the company deposited the cheque it was too late to assert that it was accepted only as payment on account by rendering a new statement of account.” IBI appealed to Supreme Court of British Columbia.

Justice Rice reviewed the law and a long list of precedent cases relating to part performance of an obligation such as a debt.

In the 1889 milestone case Day v. McLea, McLea sent to Day a cheque for less than the amount claimed by Day with a form of receipt indicating that the sum was accepted in full satisfaction of the claim. Day kept the cheque but refused to accept it in satisfaction, and sent a receipt on account. McLea argued in court that the keeping of the cheque was, as a matter of law, an accord and satisfaction of the claim, and that Day was bound either to take it in full satisfaction or to return it.

The trial judge in that case held that the question whether there is an accord and satisfaction must be one of fact:

If a person sends a sum of money on the terms that it is to be taken, if at all, in satisfaction of a larger claim; and if the money is kept, it is a question of fact as to the terms upon which it is so kept. Accord and satisfaction imply an agreement to take the money in satisfaction of the claim in respect to which it is sent. If accord is a question of agreement, there must be either two minds agreeing or one of the two persons acting in such a way as to induce the other to think that the money is taken in satisfaction of the claim, and to cause him to act upon that view. In either case it is a question of fact.

Addressing the provisions of the Law and Equity Act, the B.C. Court of Appeal in Allen v. Bergen, set out the two methods of determining when part performance will extinguish an obligation:

[t]he two methods are, first, that part performance may be ‘expressly accepted by the creditor in satisfaction’, and, second, that part performance may be ‘rendered in pursuance of an agreement for that purpose’….

In the New Brunswick case Woodlot Services Ltd. v. Flemming, the trial judge found that the recipient had a choice to negotiate (the cheque) at a bank or return it to the maker and to continue negotiations, or to commence an action. On appeal, it was held that the trial judge erred in law. The court held that “…it is obvious from all the authorities that a person in the position of the plaintiff is not so limited and that he may cash such a cheque without abandoning the balance of his claim.”

In the case Champlain Ready-Mixed Concrete v. Beaupré in Ontario, Beaupré proposed by letter that Champlain accept 50¢ on the dollar, and although he was told that such an offer was unacceptable, he sent a cheque for less than full payment and endorsed the note that it was accepted in full payment.

The Ontario Court of Appeal held as follows:

It is a question of fact in every case, whether or not there has been express acceptance of part performance in satisfaction of an obligation; and while the silence of a creditor may be some evidence which is to be considered with all the other evidence in deciding whether or not there has been express acceptance, in my view it is not a factor which is singly governing the rights of the parties.

Justice Rice summarized the law and the precedents: Where a creditor cashes, certifies, deposits or otherwise negotiates a cheque delivered on condition of full settlement, accepting receipt may be evidence of accord and satisfaction, but not conclusive evidence and no presumption of the kind should be drawn. The creditor is at liberty to cash and keep the funds and disregard the condition as long as he or she does not agree otherwise, or communicate express acceptance of the condition.

The courts, he found, have mainly observed three important considerations in respect of express acceptance:

• The onus is on the payor to prove that the payee has expressly accepted the part payment as full payment. The standard of proof for this purpose is the balance of probabilities, and also “a heavy and substantial one.”
• A condition of acceptance attached to the part payment, however clear, is not determinative. What governs is the intention of the recipient and whether it is “expressly” communicated. There must be evidence of acceptance, considerably more than the mere receipt of payment.
• A creditor owes no duty to inform the debtor of his intention not to accept a part payment on condition. Silence is not generally, without more, tantamount to express acceptance.

On these principles, Justice Rice found that the trial judge had erred in law. The bare acceptance and cashing of the cheque did not constitute acceptance of the settlement terms. It was an error to find that LeFevre retained any right to the money by virtue of the conditions in his letter, however clear the conditions may have been.

The trial judge’s observation that IBI would be responsible for the acts of its employees in receiving the letter and cheque was correct, but that of itself would not constitute acceptance of LeFevre’s terms. There had to be proof of some act of acceptance of the settlement on IBI’s behalf. The letter arrived at IBI’s office without warning, and there was no evidence that any of the staff intended to accept LeFevre’s terms.

Thom communicated his rejection two weeks later with the revised invoice. The length of time before Thom actually and expressly confirmed rejection of the offer was not too lengthy based on the evidence, and on the precedent cases.

LeFevre argued that the company suffered loss by being led to wait and not stop payment on the cheque until it was too late. IBI did not induce LeFevre to refrain from stopping payment, replied Justice Rice. There was no bad faith. IBI was not obliged to communicate its position right away. LeFevre may have reasoned that cashing the cheque in the face of his conditions was to impose his conditions on IBI. That was wrong in law; the IBI Group was not to blame for that.

LeFevre may have reasoned that cashing the cheque in the face of his condition would serve to impose his conditions on IBI Group. That was also wrong in law, but IBI Group was not to blame for that either. LeFevre was not entitled to rely on IBI Group to protect his power to stop payment.

The court ordered that the trial judge’s decision be set aside. IBI was awarded its costs.

Supreme Court of British Columbia
   Rice J.
   January 13, 2004