The appellant ordered 60,000 T-shirts from the respondent, a garment manufacturer. Only 40,000 were delivered and invoiced at R1,003,104.35. After four payments and a credit note, a balance of R229,846.07 remained. The T-shirts were delivered late and there were quality issues. The appellant repaired some garments and sold the remainder to Adidas at half price. On 19 February 2002, the appellant sent a 'Credit Request' letter proposing a discount of R122,649.18 to recoup losses, along with a 'Final Reconciliation' and a post-dated cheque for R107,196.89 (the balance after deducting the requested credit). The cheque was dated 28 February 2002 and bore the words 'full and final settlement of account'. The respondent's employee deposited the cheque for special clearance on 28 February 2002, and it was paid that day. On 1 March 2002, after business hours, the respondent's attorneys faxed a letter purporting to reject the offer of compromise and requested the appellant to stop payment. The appellant only saw this on 4 March 2002, by which time the cheque had already been paid. The proceeds were paid into the respondent's attorneys' trust account, from which R12,750.89 was deducted for fees, and the balance was later transferred to new attorneys and appropriated to legal fees in other matters.
The appeal was upheld with costs. The order of the full court was set aside and replaced with an order upholding the appeal with costs and setting aside the trial court's order, dismissing the respondent's claim with costs.
A cheque sent with accompanying documentation showing a calculation of disputed amounts and marked 'full and final settlement of account' constitutes an offer of compromise that must be objectively construed in context. An offeror may prescribe the manner of acceptance, and where a cheque is sent as part of an offer of compromise, deposit of that cheque constitutes acceptance. A creditor cannot accept payment while purporting to reject or add conditions to the offer - they must either accept the offer as tendered or return the money. By depositing, retaining and appropriating the proceeds of such a cheque, the creditor accepts the offer and becomes bound by the compromise, even if they later purport to reject it. Where one party acts in a manner that would reasonably lead the other to believe the offer has been accepted, contractual liability arises even in the absence of actual consensus.
The court noted that there was a conditional counterclaim by the appellant based on short-delivery of T-shirts which had been successful in the amount of R80,000 in the lower court. However, the court observed that this counterclaim could not stand if the matter had been compromised as found. The court could not deal with this issue because the respondent had not lodged a cross-appeal (conditional or otherwise). The court also commented that the question of the respondent's employee's authority to compromise, or lack thereof, was only cursorily dealt with in evidence and was not argued before the court, distinguishing the case from Blackie Swart Argitekte v Van Heerden where lack of authority was central.
This case establishes important principles regarding compromise agreements in South African contract law. It clarifies that offers of compromise must be assessed objectively based on how a reasonable person would understand them in context, rather than focusing solely on subjective intention. The case confirms that when a debtor sends payment marked as 'full and final settlement', this constitutes an offer of compromise that can be accepted by depositing and retaining the proceeds. Critically, it establishes that a creditor cannot accept payment while purporting to reject the conditions attached to it - they must either accept the offer as is or return the money. The case also demonstrates the application of reliance theory in contract law, where contractual liability can arise even without actual consensus if one party reasonably relies on the other's conduct as indicating acceptance. It overrules the full court's judgment and provides guidance on when deposit and retention of a cheque will constitute acceptance of an offer of compromise.