WHERE A FINAL ACCOUNT AND/OR CLAIM HAS BEEN SIGNED IN FULL AND FINAL SETTLEMENT BUT SUBSEQUENTLY IT IS DISCOVERED THAT AN ENTITLEMENT HAS NOT BEEN INCLUDED, CAN THE MATTER BE REOPENED?
It is common procedure for contractors and subcontractors to be expected to sign a statement to the effect that they agree to payment of the balance due on the final account on a "full and final settlement" basis.
Frequently the contractor or subcontractor is informed that payment will not be made unless the form is signed. The contractor or subcontractor often signs, as he needs money, even though he considers a greater entitlement is due.
Where one party, (i.e. the contractor or subcontractor), has completed his side of the bargain and agrees to forego an entitlement to full payment, there must be consideration if the agreement is to be binding. In other words the contractor or subcontractor must have received some benefit. For example, if the payment were to be made earlier than contractually required this would amount to consideration for payment of the lesser sum to which agreement was given.
This is sometimes referred to as accord and satisfaction. The acceptance of a sum less than the contractor or subcontractor's due entitlement would be considered as a variation to the contract. If an agreement is made whereby the contractor or subcontractor agrees to forego part of his entitlement in the absence of consideration the agreement will not be binding.
It may be however that the final balance includes a sum which was disputed and the contractor considers the amount in respect of the disputed sum is less that he considers due. Hudsons ‘Building and Engineering Contracts' 10th Edition as at page 22 states:
"However, consideration may be present in such a case if some bona fide dispute exists and a claim is given up in return for the promise to accept less."
This being the case the agreement will be binding.
In the case of D & C Builders Ltd -v- Rees (1966), an Employer told decorators that unless they agreed to accept a sum substantially less than the amount of their account, she would pay them nothing at all. They signed a written document agreeing to accept the reduced payment in full satisfaction of their claim. Later they sued for the full amount. It was held by the Court of Appeal there was no true accord, because the plaintiffs had acted as a result of a threat which was without any justification, and there was no consideration present.
For accord and satisfaction to be effective one party must have foregone some part of his obligations, e.g. payment in full of all entitlements in return for some form of consideration. Where an agreement is reached but unknown to both parties an entitlement has not been provided for, it could be argued by the contractor or subcontractor that the common intention is not reflected by the agreement. A court under those circumstances, may order that the agreement be rectified to reflect the intention of its signatories - Craddock Bros Ltd -v- Hunt (1923).
Summary
An agreement including a balance due on a final account and claim which due to financial pressure is signed by a contractor or subcontractor even though he considers he is entitled to more, will be binding as accord and satisfaction provided the contractor received some benefit such as payment earlier than otherwise would be the case.
If no benefit is derived then the argument will not be binding.
However, where a bona fide dispute exists and a claim or part of a claim is given up in return for a promise to accept less, the agreement may be binding.
In the event of a contractor or subcontractor signing in full and final settlement and it is subsequently discovered that a further entitlement exists, a Court may order rectification of the agreement to include the additional item on the basis that the agreement was intended to cover all financial entitlements and didn't.
BACK TO LEGAL & CONTRACTUAL FAQS
