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Accord and Satisfaction

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Inside Accord and Satisfaction Accord and Satisfaction – General Nature and Essentials o Distinction from Novation or Substituted Contract o Distinction from Payment or Release o Subject Matter o Distinction Between Liquidated and Unliquidated Claims o Effect of Counterclaim or Setoff o Effect of Suit or Appeal Parties o Agents o One of Several Joint Debtors, Creditors, or Tortfeasors o Creditor and Third Person Formation of Contract; Offer and Acceptance o Debtor’s Offer o Creditor’s Acceptance o Creditor’s Cashing of Check Offered in Full Satisfaction as Acceptance o Uniform Commercial Code o Certification of Check as Acceptance o Retention of Check as Acceptance o What Constitutes Unreasonable Period of Retention o Part Payment by Agent or Fiduciary o Qualified Acceptance or Protest by Creditor o Effect of Fraud, Mistake, Duress o Necessity of Tender Back of Amount Received o Multiple Claims Between Parties Consideration o Sufficiency o Part Payment – Liquidated and Undisputed Claims o Effect of Giving Release or Receipt in Full o Effect of Debtor’s Insolvency o Judgments
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Page 1: Accord and Satisfaction

Inside Accord and Satisfaction

• Accord and Satisfaction – General Nature and Essentials

o Distinction from Novation or Substituted Contract

o Distinction from Payment or Release

o Subject Matter

o Distinction Between Liquidated and Unliquidated Claims

o Effect of Counterclaim or Setoff

o Effect of Suit or Appeal

• Parties

o Agents

o One of Several Joint Debtors, Creditors, or Tortfeasors

o Creditor and Third Person

• Formation of Contract; Offer and Acceptance

o Debtor’s Offer

o Creditor’s Acceptance

o Creditor’s Cashing of Check Offered in Full Satisfaction as Acceptance

o Uniform Commercial Code

o Certification of Check as Acceptance

o Retention of Check as Acceptance

o What Constitutes Unreasonable Period of Retention

o Part Payment by Agent or Fiduciary

o Qualified Acceptance or Protest by Creditor

o Effect of Fraud, Mistake, Duress

o Necessity of Tender Back of Amount Received

o Multiple Claims Between Parties

• Consideration

o Sufficiency

o Part Payment – Liquidated and Undisputed Claims

o Effect of Giving Release or Receipt in Full

o Effect of Debtor’s Insolvency

o Judgments

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o What Constitutes Sufficient New or Additional Consideration Under Part

Payment Rule

o Different Medium of Payment, Generally

o Payment in Property

o Change of Place of Payment

o Payment Before Maturity

o Giving Security

o Payment by Third Person

o Part Payment-Unliquidated or Disputed Claims

o What Constitutes “Disputed” Claim

o Payment of Undisputed Portion of Claim

o Claims by or Against Government

o Federal Government

o State, County, or Municipal Government

• Execution of Accord

o Necessity of Execution Where Accord Involves Something Other Than

Payment in Money

o Part Performance

o Tender of Performance

o Acceptance of Promise as Satisfaction of Original Obligation

• Effect of Accord and Satisfaction; Executory Accord

o Where Executory Accord is Breached

• Pleading and Proof

o Burden of Proof; Presumption

o Admissible Evidence

o Questions for Jury

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Accord and Satisfaction – General Nature and Essentials

An accord and satisfaction contemplates an agreement between parties to

give and accept something different from that claimed by virtue of the

original obligation. Both the giving and acceptance constitutes the essential

elements on an accord. The validity of such an agreement is dependent

upon the same basic factors and principles that govern contracts generally.

An accord and satisfaction results when the parties mutually intend to

effect a settlement of an existing dispute by entering into a superseding

agreement, and there is actual performance in accordance with the new

agreement. Compliance with the new agreement discharges the prior

obligations of the parties.[i]

The doctrine of accord and satisfaction is based on contract principles.

[ii]An accord and satisfaction should have all the elements of a contract

namely, offer, acceptance, and consideration.[iii] Thus, the burden of

proving accord and satisfaction is simply the burden of proving a

contract.[iv]

An accord and satisfaction is a contract and thus requires a meeting of the

minds of the two parties before it is valid and binding. Accord and

satisfaction occurs where the parties, “by a subsequent agreement, have

satisfied the former agreement, and the latter agreement has been

executed.”[v] For instance, in Hinley, 169 Ga. App. 529, the debtor was

married to the creditor’s daughter and he borrowed money from the

creditor and executed promissory notes for the indebtedness. The debtor

subsequently divorced the creditor’s daughter. During the divorce

negotiations, the debtor accepted less than his share in the marital home

based on his wife’s assurance that she would get her father to forgive the

promissory notes. However, the debtor and creditor never discussed the

matter. The creditor later demanded payment of the notes, but the debtor

claimed accord and satisfaction. The court held that accord and satisfaction

required a meeting of the minds of the parties to the contract, but the

creditor and debtor never spoke regarding the cancellation of the

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promissory notes. The court concluded that there was not sufficient

evidence to show that the wife acted as an agent for the creditor based only

on her relationship with him and her employment as his secretary.

A valid accord and satisfaction requires four elements, which include (1)

proper subject matter; (2) competent parties; (3) a meeting of the minds of

the parties; and (4) consideration.[vi]

In fact, an accord and satisfaction is a new contract—a contract complete in

itself.[vii] When the debtor tenders a draft in full payment of a debt,

acceptance by the creditor creates a settlement contract binding on both

parties.[viii] Absent an express reservation of rights, such a settlement

constitutes a complete accord and satisfaction of all claims.[ix]

Courts have held that as long as the basic requirements to form a contract

are present, there is no reason to treat such an accord differently from other

contracts which are binding. This is consistent with the public policy

dictating that courts should “look with favor upon the compromise or

settlement of law suits in the interest of efficient and economical

administration of justice and the lessening of friction and acrimony.”[x]

[i] Martinez v. South Bayshore Tower, L.L.L.P., 979 So. 2d 1023 (Fla. Dist.

Ct. App. 3d Dist. 2008)

[ii] In re MCI Telecommunications Complaint (Worldcom Network

Services, Inc. v. Public Service Com’n), 255 Mich. App. 361 (2003)

[iii] Helms v. University of Missouri-Kansas City, 65 Ark. App. 155 (Ark.

Ct. App. 1999)

[iv] Id. See also Wilson v. Builders Transport, Inc., 330 S.C. 287, 498

S.E.2d 674 (Ct. App. 1998) (the essential elements of “accord and

satisfaction” are an agreement to settle a dispute and consideration which

supports the agreement.)

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[v] Hinely v. Barrow, 169 Ga. App. 529, 530 (Ga. Ct. App. 1984)

[vi] O’Connor v. United States, 308 F.3d 1233 (Fed. Cir. 2002)

[vii] Or. Mut. Ins. Co. v. Barton, 109 Wn. App. 405 (Wash. Ct. App. 2001)

[viii] Hynes v. Hynes, 28 Wn.2d 660 (Wash. 1947)

[ix] Or. Mut. Ins. Co., 109 Wn. App. 405.

[x] City Of Cincinnati ex rel. Ritter v. Cincinnati Reds, 150 Ohio App. 3d

728, 745-746 (Ohio Ct. App., Hamilton County 2002)

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Distinction from Novation or Substituted Contract

The essential difference between an accord and a novation rests on the

intention of the contracting parties.[i] An accord and satisfaction is a

substitute contract for settlement of a debt by some alternative other than

full payment. The consideration for an accord is the resolution of a disputed

claim.[ii] While in a novation, the new promise itself satisfies the

preexisting claims, in an accord it is the performance of the new promise

that satisfies the preexisting duty. The distinctive feature of an accord and

satisfaction is that the obligee does not intend to discharge the existing

claim merely upon the making of the accord. S/he can do so only upon

performance or satisfaction. If the satisfaction is not tendered, the obligee

may sue under the original claim or for breach of the accord. On the other

hand, novation bars revival of the preexisting duty. Burden of proving the

extinguishment of preexisting duty is upon the party asserting a

novation.[iii]

If the parties may intend that a new agreement, though executory, will

immediately discharge the existing obligation, such an agreement is called a

substituted agreement.[iv]

In situations where “the full performance of the revised contract terms is

necessary to extinguish or discharge claims arising under an old contract,

the revised contract is called an executory accord and performance is called

a satisfaction, while in cases where mutual promises in a revised contract

are held by themselves to discharge all claims arising under the earlier

contract, the revised contract is called a substituted contract.[v]

[i] Paramount Aviation Corp. v. Agusta, 178 F.3d 132 (3d Cir. N.J. 1999)

[ii] Id. At 147-148

[iii] Id. At 148

[iv] Chappelow v. Savastano, 195 Misc. 2d 346 (N.Y. Sup. Ct. 2003)

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[v] Community Builders v. Indian Motocycle Assocs., 44 Mass. App. Ct.

537 (Mass. App. Ct. 1998)

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Distinction from Payment or Release

Payment is the discharge of a pecuniary obligation by the debtor by

delivering a specific sum of money or the equivalent of a specific sum. The

delivery can be actual or constructive and is made for the purpose of

extinguishing an obligation. Payment requires delivery by the debtor and

acceptance by the creditor, both with common purpose.[i]

An accord and satisfaction is generally defined as an agreement to

discharge a debt or claim by some performance other than that which was

originally due.[ii] Accord and satisfaction is contractual in nature, and

hence the intent of the parties is mandatory. Thus, a transaction will

constitute an accord and satisfaction of a claim only where both parties

intend it. Absent such intent, a claim for a specific sum of money cannot be

satisfied by partial payment. When a payment of less than what is claimed

is offered and accepted, it will not constitute an accord and satisfaction of

the entire claim unless it can be demonstrated that the creditor intended to

accept it as full satisfaction. In the absence of such intent, the partial

payment will operate as a discharge of only the amount paid, and the

creditor will be entitled to maintain an action to recover the balance of his

claim.[iii] To determine the intent of the parties, it is necessary to examine

the language of the order of satisfaction and release in light of the

circumstances existing at the time of the transaction.[iv]

An accord and satisfaction is distinguishable from release. A release is a

relinquishment of a right, which may be given gratuitously or for

inadequate consideration, while an accord and satisfaction is the discharge

of a debt or claim by the acceptance of some payment which is agreed to

constitute full satisfaction.[v] Thus, consideration is not a mandatory

element for a release as in the case of accord and satisfaction.

An accord and satisfaction has the same effect as that of a release in its

impact on third persons. Since there can be but a single satisfaction for an

injury or wrong, an accord and satisfaction made by one of two or more

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joint tortfeasors will operate to discharge the others. However, where a

payment made by one joint tortfeasor is not intended to constitute

satisfaction in full, it will not result in a discharge of the others, although it

will operate as a partial satisfaction to be credited to any recovery against

the remaining tortfeasors.[vi]

[i] Parnell v. Sherman, 899 S.W.2d 900 (Mo. Ct. App. S.D. 1995)

[ii] Holman v. Simborg, 152 Ill. App. 3d 453, 456 (Ill. App. Ct. 1st Dist.

1987).

[iii] Id.

[iv] Hulke v. International Mfg. Co., 14 Ill. App. 2d 5 (Ill. App. Ct. 2d Dist.

1957)

[v] Holman, 152 Ill. App. 3d 453, 456.

[vi] Id. At 457

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Subject Matter

Accord and satisfaction is a method of discharging a contract or cause of

action, whereby the parties agree to give and accept something in

settlement of the claim or demand of the one against the other, and

perform such agreement, the “accord” being the agreement, and the

“satisfaction” its execution or performance. [i]An accord and satisfaction is

distinct from a compromise. While a compromise should be based on a

disputed claim, an accord and satisfaction may be based on an undisputed

or liquidated claim.[ii] The scope of accord and satisfaction is relatively vast

and all claims relating to the person or to personal property may be the

subject of an accord and satisfaction.[iii]

Accord and satisfaction is based on the doctrine of equity. Although the

doctrine of accord mostly concerns monetary settlements of debts or

liabilities, other settlements not involving an exchange of funds can be as

equally binding as an accord and satisfaction. For instance, a partnership

dispute could be resolved by accord and satisfaction.[iv]

A claim or demand founded on a tort, or contract is a subject of accord and

satisfaction.[v] Any claim arising out of contract, express or implied, may

be the subject matter of an accord and satisfaction. However, the contract

should be a legally enforceable one.[vi]

In a criminal case, once monetary compensation to the victim of an assault

and battery or other misdemeanor is acknowledged and accepted, the

payment is referred to as an accord and satisfaction.[vii] To effectuate an

accord and satisfaction in a criminal case, the victim need only produce a

written acknowledgment that s/he received satisfaction for his/her injury

and requests that the charges be dropped.[viii]

Accord ands satisfaction can also arise in the context of real property

agreements,[ix] breach of warranty[x] and employment contracts. In the

context of an employment contract, a substitute agreement may be used to

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resolve good faith disputes between an employer and employee over the

amount of commissions, overtime, salary, or other compensation.[xi]

Any claim arising out of contract, express or implied, may be the subject

matter of an accord and satisfaction, provided the contract is not

illegal.[xii] Accord and satisfaction, as a defense to a claim based upon a

contract, exists when the parties have entered into a new contract, express

or implied, which discharges the obligations under the original contract in a

manner otherwise than as originally agreed. The new agreement need not

explicitly state that it is intended to be an accord and satisfaction. Rather,

the court may look to the surrounding circumstances of the new agreement

to determine if there has been an agreement to discharge the original

obligation.

[i] Automobile Trade Asso. v. Harold Folk Enterprises, Inc., 301 Md. 642,

665 (Md. 1984)

[ii] Eastern Steel Products Corp. v. Chestnutt, 252 N.C. 269 (N.C. 1960)

[iii] Id.

[iv] Adams v. Wilson, 264 Md. 1 (Md. 1971)

[v] Belrose v. Kanitz, 284 Mich. 497, 502 (Mich. 1938)

[vi] Indiana Lumbermen’s Mut. Ins. Co. v. State, 1 S.W.3d 264 (Tex. App.

Fort Worth 1999)

[vii] Commonwealth v. Henderson, 434 Mass. 155, 157 (Mass. 2001)

[viii] Id.

[ix]Small v. Chemlawn Corp., 584 F. Supp. 690 (W.D. Mich. 1984),

judgment aff’d, 765 F.2d 146 (6th Cir. 1985)

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[x] Womco, Inc. v. Navistar Int’l Corp., 84 S.W.3d 272 (Tex. App. Tyler

2002)

[xi] Erickson v. Am. Golf Corp., 194 Ore. App. 672 (Or. Ct. App. 2004)

[xii] Indiana Lumbermen’s Mut. Ins. Co. v. State, 1 S.W.3d 264 (Tex. App.

Fort Worth 1999)

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Distinction Between Liquidated and Unliquidated Claims

An accord is an agreement in which the parties agree to discharge a

preexisting obligation by giving and accepting a substituted consideration

in settlement of the claim and the execution of the agreement is called

satisfaction.[i] Intent of the parties is crucial for an accord and satisfaction

and both the debtor and the creditor must concur that the substituted

consideration is an accord and satisfaction of a preexisting claim.[ii] If the

creditor is aware of the fact that substituted consideration was intended as

an accord and satisfaction, such knowledge serves as proof of the creditor’s

intent.[iii]

In some states, accord and satisfaction only applies to unliquidated

claims.[iv] An unliquidated claim means the amount involved is not

definite and exact. A claim is said to be unliquidated if there is “a genuine

dispute regarding either the amount due or the debtor’s liability.”[v] Thus,

when the debtor tenders part payment of an unliquidated debt in full

satisfaction of the debt and the creditor accepts the same, it will be deemed

to be an accord and satisfaction of the existing debt.

On the other hand, in a liquidated claim, the subject matter, whether it is

monetary consideration or otherwise, is definite and fixed and therefore is

clearly ascertainable. For instance, if there was no dispute as to prices of

material or hours of labor in a service agreement, and the basis of

computation is provided in the agreement, the claim is deemed to be a

liquidated one.[vi]

If there is a good faith dispute regarding the sum due or in a situation

where one of two sums is due, but there is a dispute as to which is the

proper amount, the claim is unliquidated.[vii] Another example is where

the claim is pertaining to the amount of wages earned for a specified time,

and it is admitted by the creditor and debtor that one of two specific sums

is the correct amount, but the parties are in dispute as to which amount is

correct, the claim is disputed and hence unliquidated. [viii]

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In certain states, even the part payment of a liquidated claim will not

constitute an accord and satisfaction, even if the creditor accepts it as full

payment. In such a situation, courts may require some additional or

collateral consideration to the partial payment for making such an

arrangement a valid accord and satisfaction.

[i] Seidler v. Vaughn Oil Co., 468 N.W.2d 474, 475 (Iowa App. 1991)

[ii] Id. at 477

[iii] Id.

[iv] Id. at 476

[v] Seidler, 468 N.W.2d 474, 476

[vi] Eastover Co. v. All Metal Fabricators, Inc., 221 Md. 428 (Md. 1960)

[vii] Schultz v. Farmers Elevator Co., 174 Iowa 667, 675 (Iowa 1916)

[viii] Winter Wolff & Co. v. Co-op. Lead & Chemical Co., 261 Minn. 199

(Minn. 1961)

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Effect of Counterclaim or Setoff

An accord and satisfaction is the result of an agreement, and law stipulates

that an accord and satisfaction must be consummated by a meeting of the

minds of the parties. Controversy can arise as to settlement of claim on the

basis of accord and satisfaction where a counterclaim or set-off is claimed

as a part payment of the liquidated and undisputed debt. An initially

liquidated claim becomes unliquidated when, by reason of a counterclaim

or setoff, the actual amount due on the balance has been put in doubt

between the parties.[i] Under such circumstances, an accord and

satisfaction may result from the payment of a lesser sum than the creditor’s

claim, even a sum not in excess of the balance concededly due. Thus, a

liquidated claim due a creditor is rendered unliquidated, “when the debtor

in good faith asserts a disputed counter-claim or set-off, and in such a case

an accord and satisfaction may result from the payment by the debtor of an

amount less than the creditor’s claim and no greater than the amount

which the debtor concedes to be due.” For instance, in H.L. “Brownie”

Choate, Inc. v. Southland Drilling Co., Inc., 441 S.W.2d 672 (Tex. Civ. App.

San Antonio 1969), plaintiff creditor, who was the service provider to the

defendant debtor caused significant damage to defendant’s drilling rig. In

accordance with their past practice, defendant recovered the damage

amount by deducting it from the amount it owed to plaintiff for services

rendered. Plaintiff filed suit to recover the deducted amount. The court held

that “when the amount due was in dispute, and the debtor tendered a check

for less than the amount claimed by the creditor while expressing his

intention that the check was offered in full settlement, the retention and

cashing of the check by the creditor was regarded as an acceptance of the

offer, and such action on the part of the creditor operated as a full

satisfaction.” The court found that plaintiff’s acceptance of a lesser amount

constituted an accord and satisfaction of the debt. Majority of jurisdictions

follow this view although there is authority to the contrary.[ii]

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[i] Harr Iron Co. v. Melas Theatre Corp., 181 N.E.2d 726 (Ohio Ct. App.,

Columbiana County 1961)

[ii] B. Mifflin Hood Co. v. Lichter, 106 F. Supp. 220, 231 (D. Tenn. 1950).

(A counter or additional claim in dispute does not render the principal

obligation unliquidated where such principal obligation is itself not in

dispute. An accord and satisfaction in such cases would not be applicable.)

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Effect of Suit or Appeal

When a claim is disputed, parties generally approach a court of law. The

filing of a suit ordinarily indicates that the claim is unliquidated or

disputed. If the debtor tenders an amount less than the entire claimed

amount in full satisfaction of the claim and the creditor accepts the same, it

may lead to a valid accord and satisfaction. For instance, an action was

pending in the court and the plaintiff agreed to release the defendant from

the claim sued on upon defendant’s payment of the costs of the action, and

if the defendant makes the payment as agreed, such payment amounts to

an accord and satisfaction, and will serve as a good defense against the

further prosecution of the action by the plaintiff.[i]

[i] Baum v. Buntyn, 62 Miss. 110 (Miss. 1884)

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Parties

Accord and satisfaction refers to the purchase by one party to a contract of

a release from his obligations under it when the other party has already

performed his side of the bargain.

It is a method of discharging a claim whereby the parties agree to give and

accept something in settlement of the claim and perform the agreement. In

such cases, the accord is the agreement and the satisfaction is its execution

or performance.

Since the accord agreement is transacted on a new agreement, it must

therefore have the essential terms of a contract, (parties, subject matter,

time for performance, and consideration).

Therefore all requirements necessary to constitute a valid agreement are

also required for the formation of a valid accord. This includes factors like

competent parties, valid subject matter, consideration etc. A person is

competent to enter into an accord and satisfaction agreement if they have

the power and capacity to enter into the formation of a valid contract.

An accord and satisfaction requires competent parties. In the case of

O’Connor v. United States[i], it was observed by the court that a valid

accord and satisfaction requires four elements:

(1) proper subject matter;

(2) competent parties;

(3) a meeting of the minds of the parties; and

(4) consideration.

In its most common form, an accord and satisfaction exists as a mutual

agreement between the parties in which one pays or performs and the other

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accepts payment or performance in satisfaction of a claim or demand which

is a bona fide dispute.[ii]

Since accord and satisfaction requires the parties to be competent, an

accord and satisfaction agreement cannot be held binding on a minor. The

general principle that an infant may avoid all contracts he or she makes,

with the exception of contracts for necessities, may permit an infant to

avoid a contract for an accord and satisfaction.[iii] Therefore, an executed

accord and satisfaction cannot be held to be binding on a minor.[iv]

[i] 308 F.3d 1233 (Fed. Cir. 2002)

[ii] Nev. Half Moon Mining Co. v. Combined Metals Reduction Co., 176

F.2d 73, 76 (10th Cir. 1949).

[iii] Russell v. Buck, 116 Vt. 40, 68 A.2d 691 (1949).

[iv] Bromley b. n. f. v. School District, 47 Vt. 381

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Agents

Accord and satisfaction is the method of discharging a claim whereby the

parties agree to give and accept something in settlement of the claim and

perform the agreement. Generally, an agreement for accord and satisfaction

is entered into by the parties themselves. However, there may be cases

wherein the parties are not personally present to enter into an accord and

satisfaction agreement. In such cases, the parties can enter into such an

agreement through their authorized agents.

However, when the agent enters into an agreement for accord and

satisfaction, there are various things to be kept in mind. The first

requirement in such cases is that the agent must have been duly authorized

by the principal to enter into the agreement. In the alternative, the

principal must ratify the accord and satisfaction agreement entered into on

his behalf by the agent. Therefore, in order for an agent to bind a principal

to an accord and satisfaction, the agent must have been authorized to enter

into the contract on behalf of the principal, or the alleged principal must

have ratified the agreement.[i]

In the case of Homemakers Finance Service, Inc. v. Ellsworth[ii], the

borrowers gave a deed to their lender’s employee which stated that the deed

was given and accepted in full satisfaction of the borrowers’ obligations to

the lender, and the employee told the borrowers that he had no authority to

accept it but would forward it to the lender’s counsel who then informed the

borrowers that the deed and release provisions were unacceptable,

possession of the deed and the keys to the property did not constitute an

acceptance of an accord. Therefore in this case, the lender was not

precluded from bringing an action based on the borrowers’ original

obligation.

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[i] Mil-Spec Contractors, Inc. v. U.S., 835 F.2d 865 (Fed. Cir. 1987); Eckert-

Fair Const. Co. v. Capitol Steel & Iron Co., 178 F.2d 338 (5th Cir. 1949);

Kuehne & Nagel, Inc. v. U.S., 17 Cl. Ct. 11, 1989 WL 49849 (1989).

[ii] 177 Ind. App. 640, 380 N.E.2d 1285 (1st Dist. 1978).

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One of Several Joint Debtors, Creditors, or Tortfeasors

Generally, a debtor is bound to pay his debt personally, and all the estate he

possesses or may acquire, is also liable for his debt. Debtors may be joint or

several. They are joint when they all equally owe the debt. They are several

when each promises severally to pay the whole debt.

A tortfeasor is a person who commits a tort. If the court determines that the

defendant’s tort has caused the plaintiff to suffer loss or harm, then the

defendant is deemed legally responsible to compensate the plaintiff. There

may also be cases wherein more than one tortfeasor may be involved in

contributing to a tort. Joint tortfeasors are responsible for the same

wrongful act which results in a tort.

Generally, an accord and satisfaction agreement between a creditor and a

debtor will discharge all other jointly and severally liable debtors from

further liability on the claim.[i]

Therefore, in the case of 1629 Joint Venture v. Dahlquist, it was observed

that where directors of a dissolved corporation were jointly and severally

liable for breach of a lease, satisfaction of the judgment against one of the

directors who voted to distribute the corporation’s assets in liquidation

without providing for the payment of the lease installments discharged the

obligation against the other directors who also voted for the distribution.

As in cases wherein an accord and satisfaction agreement between a

creditor and a debtor will discharge all other jointly and severally liable

debtors from further liability on the claim, likewise, each of several joint

creditors has power to discharge the entire claim by an accord and

satisfaction.[ii]

In the case of Slusher v. Jack Roach Cadillac, Inc., it was observed that in

case of a husband and wife who were joint purchasers of a car and who

brought an action for damages for fraud against the car dealer, each had an

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interest in the entire claim sued upon and therefore each had the power to

discharge the dealer’s obligation by accord and satisfaction.

As a general rule, an accord and satisfaction between a person injured and

one of several cotortfeasors responsible for the injury will discharge the

other tortfeasors from further liability to the person injured.[iii] However,

if an injured party receives a part of damages from one co-tortfeasor, and

receipt of that part is not understood to constitute a full satisfaction of the

injury, the injured party does not thereby discharge the others from

liability.[iv] The latter transaction is in the nature of a release, reserving the

right to sue the other tortfeasors, or a covenant or agreement not to sue the

tortfeasor from whom the partial satisfaction was received.[v]

[i] Collection Professionals, Inc. v. Logan, 296 Ill. App. 3d 959, 231 Ill. Dec.

225, 695 N.E.2d 1344 (3d Dist. 1998)

[ii] Forbes v. First Camden Nat. Bank & Trust Co., 25 N.J. Super. 17, 95

A.2d 416 (App. Div. 1953); Singer v. Ritter, 167 Pa. Super. 154, 74 A.2d 520

(1950); Bede v. Tondre, 86 R.I. 92, 134 A.2d 122 (1957)

[iii] Wallner v. Chicago Consol. Traction Co., 245 Ill. 148, 91 N.E. 1053

(1910); Arrowood v. McMinn County, 173 Tenn. 562, 121 S.W.2d 566, 119

A.L.R. 855 (1938); First & Merchants Nat. Bank of Richmond v. Bank of

Waverly, 170 Va. 496, 197 S.E. 462, 116 A.L.R. 1156 (1938)

[iv] Luxenburg v. Can-Tex Industries, 257 N.W.2d 804 (Minn. 1977)

[v] Hicklin v. Anders, 201 Or. 128, 253 P.2d 897 (1953); City of Coleman v.

Kenley, 168 S.W.2d 926 (Tex. Civ. App. Eastland 1943)

Page 29: Accord and Satisfaction

Creditor and Third Person

Accord and satisfaction is a method used to settle disputes in which there is

a meeting of the minds with intent to compromise. It is a new contract

substituted for an old contract which is thereby discharged, or for an

obligation or cause of action which is settled, and must have all of the

elements of a valid contract. An accord and satisfaction is generally entered

into by the parties involved in the earlier contract. However in some cases,

the accord and satisfaction agreement may be entered into by the creditor

and third person.

There may occur cases in which a third person may give something in

satisfaction of a party’s debt. In such a case, an accord and satisfaction is

effected only if the creditor accepts the offer and the debtor authorizes,

participates in, or later agrees to, the transaction.

Generally, in accord and satisfaction agreements, the acceptance as a full

discharge of a promissory note or endorsement of a third person, even for a

less sum, may constitute accord and satisfaction. Therefore, where a

creditor accepts from a third person an amount less than that which is due

in full satisfaction of a debt, and the payment is made at the request of the

debtor, there is an accord and satisfaction which discharges the debtor’s

entire debt.[i]

In the case of Goetz v. Selsor[ii], it was observed that where a creditor

accepted from a stranger less than the amount due in full satisfaction of the

debt and that payment was made at the request of the debtor, there was an

accord and satisfaction that discharged the entire debt.

Payment by a third party where the estate alleges accord and satisfaction is

sufficient to be considered payment from the estate itself. In such cases, the

requirement of privity of contract for accord and satisfaction does not exist.

Further, receipt of payment from a third party by the creditor is the

ratification of accord and satisfaction by the creditor himself. Although

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payment by a stranger be not a legal discharge, yet acceptance in

satisfaction is. Where the creditor has actually received and accepted the

contribution in satisfaction of the debt, s/he cannot be allowed to maintain

an action on the same debt afterwards.[iii]

[i] Goetz v. Selsor, 628 S.W.2d 404 (Mo. Ct. App. S.D. 1982); Surber v.

Woodruff, 10 Ohio Misc. 2d 1, 460 N.E.2d 1164 (C.P. 1983); Hollem &

Truitt Lumber Co. v. Medicine Park Corp., 1947 OK 77, 198 Okla. 555, 180

P.2d 152 (1947).

[ii] 628 S.W.2d 404 (Mo. Ct. App. S.D. 1982)

[iii] Surber v. Woodruff, 10 Ohio Misc. 2d 1, 460 N.E.2d 1164 (C.P. 1983)

Page 31: Accord and Satisfaction

Formation of Contract; Offer and Acceptance

An accord may be an express agreement or it may be implied from the

circumstances surrounding the transaction. An accord and satisfaction

need not be in writing.

A mutual assent or agreement or a meeting of the minds is required for a

valid accord and satisfaction between two parties. The thing agreed to be

given or done in satisfaction must be offered and intended by the debtor as

full satisfaction, and accepted as such by the creditor. There will not be

accord and satisfaction where there is no agreement to settle all matters in

dispute.

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Debtor’s Offer

In applying the statutory doctrine of accord and satisfaction, common law

principles regarding the nature of the offer are relevant.[i] A debtor’s offer

must be made in full satisfaction of the creditor’s claim. The offer must be

accompanied by such acts or declarations amounting to a condition that if

the offered performance is accepted, it is to be in full satisfaction.

Moreover, the offer must be of such a character that the creditor is bound to

understand it was made subject to that condition.[ii] As long as the

statement that the offer is intended as full satisfaction is clear, full, and

explicit and not susceptible to any other interpretation, the debtor is not

required to use any set language in making an offer of full settlement.[iii]

[i] Gelles & Sons General Contracting, Inc. v. Jeffrey Stack, Inc., 264 Va.

285, 569 S.E.2d 406, 48 U.C.C. Rep. Serv. 2d 1429 (2002).

[ii] Fort Smith Service Finance Corp. v. Parrish, 302 Ark. 299, 789 S.W.2d

723 (1990)

[iii] Indiana Lumbermen’s Mut. Ins. Co. v. State, 1 S.W.3d 264 (Tex. App.

Fort Worth 1999).

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Creditor’s Acceptance

Generally, a creditor who receives a remittance must either accept or reject

such remittance. If it clearly appears that the remittance was sent upon the

condition that it be accepted in full satisfaction, the creditor’s unconditional

acceptance results in an accord and satisfaction. The creditor must accept

the offered payment with the intention that it constitutes a settlement of

the claim, in order to establish an accord and satisfaction. However, the

acceptance which completes an accord and satisfaction may be express or

implied from the circumstances.

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Creditor’s Cashing of Check Offered in Full Satisfaction as Acceptance

When a debtor tenders a check or draft with a written notation indicating it

is in full settlement of all claims, and the claimant accepts the tender, an

“accord and satisfaction” is present.[i] By negotiating a check, which the

debtor offers as a full payment for an unliquidated or disputed debt or

obligation, acceptance of the check constitutes accord and satisfaction

discharging the claim.[ii] Thus, in order for acceptance of a check to create

an accord and satisfaction, the notation on the check or an accompanying

writing must express in plain, definite, and certain terms that the debtor is

giving such check in full satisfaction of the debt and that acceptance thereof

discharges the debt.[iii]

[i] Oregon Mut. Ins. Co. v. Barton, 109 Wash. App. 405, 36 P.3d 1065 (Div.

3 2001)

[ii] Valley Asphalt, Inc. v. Stimpel Wiebelhaus Associates, 3 Fed. Appx. 838

(10th Cir. 2001)

[iii] Strother v. Strother, 136 Idaho 864, 41 P.3d 750 (Ct. App. 2002).

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Uniform Commercial Code

According to the Uniform Commercial Code, U.C.C. § 3-311, if a person

against whom a claim is asserted proves that:

• that person in good faith tendered an instrument to the claimant as

full satisfaction of the claim;

• the amount of the claim was unliquidated or subject to a bona fide

dispute; and

• the claimant obtained payment of the instrument

then under U.C.C. § 3-311(b), unless other law applies, the claim is

discharged if the person against whom the claim is asserted proves that the

instrument or an accompanying written communication contained a

conspicuous statement to the effect that the instrument was tendered as full

satisfaction of the claim. However, a claim is not discharged if either:

• the claimant, if an organization, proves that within a reasonable

time before the tender, the claimant sent a conspicuous statement

to the person against whom the claim is asserted that

communications concerning disputed debts, including an

instrument tendered as full satisfaction of a debt, are to be sent to a

designated person, office, or place, and the instrument or

accompanying communication was not received by that designated

person, office, or place; or

• the claimant, whether or not an organization, proves that within 90

days after payment of the instrument, the claimant tendered

repayment of the amount of the instrument to the person against

whom the claim is asserted.

Furthermore, a claim is discharged if the person against whom the claim is

asserted proves that within a reasonable time before collection of the

instrument was initiated, the claimant, or an agent of the claimant having

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direct responsibility with respect to the disputed obligation, knew that the

instrument was tendered in full satisfaction of the claim.

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Certification of Check as Acceptance

A creditor’s certification of a check clearly expressing that it is offered in

full payment of a disputed claim generally constitutes sufficient acceptance

and use of the check to result in an accord and satisfaction.[i] However,

certification may negate an acceptance of an offer of accord under

circumstances such as:

• where the creditor merely intends to obtain certification for the

limited purpose of security, rather than to discharge the underlying

obligation;[ii]

• where the creditor lacks an intelligent appreciation of the possible

consequences of certification;[iii] or

• where the debtor has waived the condition that the check be

accepted as full payment.[iv]

[i] Kreutz v. Jacobs, 39 Ill. App. 3d 515, 349 N.E.2d 93 (3d Dist. 1976)

[ii] Melick v. Nauman, Vandervoort, Inc., 393 Mich. 774, 224 N.W.2d 280

(1974)

[iii] Kasco Mills, Inc. v. Ferebee, 197 Va. 589, 90 S.E.2d 866 (1956)

[iv] Cline v. Zappettini, 131 Cal. App. 2d 723, 281 P.2d 35 (1st Dist. 1955)

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Retention of Check as Acceptance

Retention of a check offered as payment in full sometimes constitute assent

to an accord and satisfaction.[i] Where a creditor receives a check

purporting to be in full payment of a debtor’s disputed obligation, the

creditor should return it promptly in order to avoid an accord and

satisfaction.[ii]

An unexplained retention of a check for an unreasonable period of time

may operate as an accord and satisfaction where the creditor does not cash

or otherwise use the check and does not indicate a refusal to accept the

check as an accord and satisfaction. Where the debtor fails to

unambiguously condition the tendered check as payment in full, a creditor’s

retention of a check may not support an accord and satisfaction. Moreover,

there is no accord and satisfaction where acceptance is explicitly

conditioned on the creditor’s endorsement or negotiation of the check. An

accord and satisfaction may be precluded where the creditor notifies the

debtor that the check is not accepted as payment in full.

A significant factor in determining whether the creditor’s retention

constitutes an accord and satisfaction is whether the debtor has requested

that the creditor return the check, if s/he does not elect to accept it as

payment in full.[iii] However, when a check is retained merely for the

purpose of collecting evidence, it may or may not effect a settlement of the

underlying obligation by means of an accord and satisfaction.[iv]

[i] Valley Asphalt, Inc. v. Stimpel Wiebelhaus Associates, 3 Fed. Appx. 838

(10th Cir. 2001)

[ii] Fidelity & Cas. Co. of New York v. C. E. B. M., Limited, 116 Ga. App. 92,

156 S.E.2d 467 (1967)

[iii] Kelly v. Kowalsky, 186 Conn. 618, 442 A.2d 1355, 33 U.C.C. Rep. Serv.

801, 42 A.L.R.4th 111 (1982)

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[iv] Fidelity & Cas. Co. of New York v. C. E. B. M., Limited, 116 Ga. App. 92,

156 S.E.2d 467 (1967)

Page 45: Accord and Satisfaction

What Constitutes Unreasonable Period of Retention

When a creditor retains a check offered as payment in full can constitute

assent to an accord and satisfaction sometimes[i]. When a creditor receives

a check purporting to be in full payment of a debtor’s disputed obligation,

the creditor should return it promptly in order to avoid an accord and

satisfaction[ii].

However, it was also observed that a mere retention of check without any

negotiation by the creditor will not cause an accord and satisfaction[iii].

The period of retention is one of the significant factors that determine

whether an accord and satisfaction has resulted. If the check has been

retained for an unreasonable period of time unexplained, it can operate as

an accord and satisfaction[iv].

Similarly, if the debtor has requested the creditor to return the check back if

s/he does not opt to accept it as payment in full will also be considered as a

significant factor in determining whether the creditor’s retention

constitutes an accord and satisfaction[v].

However, retention becomes unreasonable depending upon the facts and

circumstances of each case. For example, in some cases retention of two

weeks or less[vi] was held reasonable and in some cases retention more

than a year was held unreasonable[vii].

Whereas, in a particular case law, it was held that a period of more than

three and one half years was held reasonable where such retention followed

notice that the check was not accepted as payment in full[viii].

In Morris v. Aetna Life Ins. Co[ix]., an additional insured met with an

accident while operating a car owned by his mother who was the insured.

The insurer paid all claims submitted by the additional insured except the

claim involving a medical bill which was denied because the additional

insured refused to give medical examination. After the additional insured

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brought an action, the insurer paid the claim. The check which was not

negotiated was returned to the insurer.

The court observed that the additional insured was bound by the provision

in the policy that enabled the insurer to require medical examinations even

though the additional insured did not sign the policy. The court also found

that the insurer’s agents exercised reasonable judgment and acted in good

faith in delaying payment of the disputed claim because the insurer had the

right to require the medical examination. In addition, the additional

insured’s breach of the contract by refusing the examination entitled the

insurer to withhold payment entirely.

[i] Valley Asphalt, Inc. v. Stimpel-Wiebelhaus Assocs., 3 Fed. Appx. 838

(10th Cir. Utah 2001)

[ii] Besco Enterprises, Inc. v. Carole, Inc., 274 Cal. App. 2d 42 (Cal. App.

1st Dist. 1969)

[iii] Hoeppner Constr. Co. v. United States, 273 F.2d 835 (10th Cir. Colo.

1960)

[iv] Kelly v. Kowalsky, 186 Conn. 618 (Conn. 1982)

[v] Id.

[vi] Service Fire Ins. Co. v. Ledbetter, 112 Ga. App. 333 (Ga. Ct. App. 1965)

[vii] Morris v. Aetna Life Ins. Co, 160 Ga. App. 484 (Ga. Ct. App. 1981)

[viii] Kelly v. Kowalsky, 186 Conn. 618 (Conn. 1982)

[ix] 160 Ga. App. 484 (Ga. Ct. App. 1981)

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Part Payment by Agent or Fiduciary

If an agent collects money that belongs to his/her principal and only pays a

part of it retaining the balance, then the principal’s acceptance and

retention of the amount paid will not constitute an accord and

satisfaction[i]. The principal can take subsequent action to recover the

balance due from the debtor irrespective of the fact that the debtor has paid

the amount to the agent.

Whereas, if there is exists a fiduciary relationship between the parties, then

the principles governing the determination of accord and satisfaction will

be enforced with greater strictness[ii]. If the alleged accord and satisfaction

arises out of an agreement with a fiduciary, the defendant asserting the

defense must show the accord was an express agreement made upon full

revelation[iii].

However, a fiduciary relationship is not an absolute bar preventing an

accord and satisfaction. It is only a fact that has to be considered along with

other circumstances[iv].

In Greenberg v. Pine Hollow Standardbred Sale & Management Corp[v],

defendants were a stud farm and its officers and plaintiff was the owner of a

horse. By an oral contract, plaintiff engaged the stud farm to sell his

undivided four share interest in a horse standing at the stud farm. Upon

sale of the owner’s share of the horse, the stud farm retained a commission.

The plaintiff filed an action for breach of contract. The court gave judgment

in favor of the plaintiff finding that the stud farm had improperly made a

unilateral modification of the contract as their initial agreement did not

mention anything about assessing commission to find a buyer for the

plaintiff.

[i] Mayrath Co. v. Helgeson, 258 Iowa 543 (Iowa 1966)

[ii] Avery v. Schuman Co., 159 F. Supp. 906 (D. Cal. 1958)

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[iii] Jones v. Allstate Ins. Co., 146 Wn.2d 291 (Wash. 2002)

[iv] Indianapolis v. Domhoff & Joyce Co., 69 Ohio App. 109 (Ohio Ct. App.,

Hamilton County 1941)

[v] 94 A.D.2d 836 (N.Y. App. Div. 3d Dep’t 1983)

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Qualified Acceptance or Protest by Creditor

When a partial payment of a disputed or unliquidated claim is tendered as

payment in full, and if the creditor is aware of this condition, then the

creditor’s acceptance of the tender results in accord and satisfaction. Even

if the creditor protests that s/he has not accepted the amount in full

satisfaction, it will amount to accord and satisfaction[i].

Under the common law rule, the seller can refuse or accept the check

subject to the condition stated by the buyer. However, the seller cannot

accept the check and refuse to be bound by the condition[ii]. This rule

applies only to a disputed or unliquidated claim in good faith by the

buyer[iii].

In Ex parte Meztista[iv], parties formed a partnership and agreed to divide

the assets and liabilities equally. After the partnership lost its sole contract,

the partnership tendered a check to the partner in full satisfaction of her

partnership interest, which she cashed with a restrictive endorsement. The

partner sought dissolution of the partnership and an accounting of the

partnership profits.

The court observed that the partner’s act of depositing the check completed

an accord and satisfaction. The court added that there was consideration

and meeting of minds regarding the subject matter.

[i] Air Van Lines v. Buster, 673 P.2d 774 (Alaska 1983)

[ii] U.C.C. § 3-311

[iii] Id.

[iv]Ex parte Meztista, 845 So. 2d 795 (Ala. 2001)

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Effect of Fraud, Mistake, Duress

The satisfaction of a debt obtained by fraud or misrepresentation will not

be considered a contract of accord or satisfaction. A contract of accord and

satisfaction obtained through mutual mistake, supervening illegality, or

frustration of purpose can be partly or completely set aside. If a contract is

agreed upon misrepresentation or without proper knowledge of facts, such

contract cannot be considered as a contract of accord and satisfaction. If

one of the parties to a contract is ignorant about the law in place and the

other has a better knowledge, such contract cannot be considered as a

contract of accord and satisfaction. Contracts made over economic pressure

will not be considered contracts of accord and satisfaction. If a party, by his

or her financial constrain is forced to accept a lesser amount than the

amount claimed, it does not constitute a contract of accord and satisfaction.

In Kucel v. Walter E. Heller & Co., 813 F.2d 67 (5th Cir. Tex. 1987), a lien

on the plaintiff’s plane was released by the defendant lender in furtherance

to plaintiff’s prepayment of the promissory note on the plane. However,

defendant refused to provide an accounting of the payoff amount. This

resulted in an action against the defendant for over payment of the loan.

The amount of overpayment, interest and attorney’s fees on plaintiff’s claim

of money had and received was awarded by the trial court. The appellate

court affirmed the trial court’s decision and contended that the defendant

was liable for overpayment. However, the awarded amount was vacated

stating that the trial court had misread the amortization schedule in

calculating the overpayment amount. The award of attorney’s fees to

plaintiff, and the sanction imposed on defendant’s attorney was reversed.

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Necessity of Tender Back of Amount Received

An accord and satisfaction occurs when parties to a contract agree that the

debt is discharged in a manner other than in accordance with the terms of

their original contract. The accord is the new agreement and satisfaction is

the discharge of the obligation. The debt is discharged only if debtor and

creditor agree that amount paid by debtor to creditor fully satisfies the

entire claim. In order to repudiate a transaction in full satisfaction of claim

creditor should return the tendered draft.[i] A tender back of payment is a

necessary prerequisite for filing suit where a valid accord and satisfaction is

established. If a landlord wants to file suit to collect rent owed by the tenant

the tender back of commercial tenant’s payment is a necessary prerequisite.

However if the amount paid in satisfaction is accepted to be due in any

event, the creditor need not tender back the amount paid prior to bringing

an action on the original obligation.[ii] Also if a creditor wants to avoid a

contract of accord on the ground of want of consideration or fraud, the

creditor need not tender back the amount paid prior to bringing an action

on the original debt.

[i] Metromarketing Servs., Inc. v. HTT Headwear, Ltd., 15 S.W.3d 190

(Tex. App. Houston 14th Dist. 2000)

[ii] Faith Reformed Church v. Thompson, 248 Mich. App. 487 (Mich. Ct.

App. 2001)

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Multiple Claims Between Parties

An accord and satisfaction occurs when parties to contract agree that the

debt is discharged in a manner other than in accordance with the terms of

their original contract. The acceptance of a check which states that it is in

satisfaction of full demand is an accord and satisfaction of whole demand.

An essential element of accord and satisfaction is an agreement, or a

meeting of the minds of the parties. Accord and satisfaction agreement

should have all the essentials of a contract and may be express, or implied

from the circumstances. Essential to accord is the identity of the claim, or

claims, account, or accounts, to be satisfied by acceptance of the accord. In

Roberts v. Finger,[i] court held that an accord and satisfaction is not

completed by the tender and acceptance of a check with the words “account

in full”. If payee reasonably understands that a particular account is

intended to be satisfied, there is no accord and satisfaction of another

account or claim. An accord is reached when the creditor accepts the

debtor’s payment in satisfaction of all claims of the creditor.[ii] If a check is

accompanied by a letter stating that check represents “the amount due in

full to complete recent buy-back on your account,” the acceptance of the

check did not constitute an accord and satisfaction. When there is more

than one claim or account against a debtor, the creditor may reasonably

assume that payment for the exact amount of one claim or billing was

intended to settle that claim alone. Such payment will not satisfy all claims

unless the debtor specifically expresses such intention.[iii]

[i] Roberts v. Finger, 227 Miss. 671 (Miss. 1956)

[ii] United States use of Glickfeld v. Krendel, 136 F. Supp. 276 (D.N.J. 1955)

[iii] Daube & Cord v. La Porte County Farm Bureau Co-Operative Ass’n,

454 N.E.2d 891 (Ind. Ct. App. 1983)

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Consideration

Accord and satisfaction deals with a debtors offer of payment and a

creditors acceptance

of a lesser amount than the creditor originally purported to be owed. It is a

method of discharging a claim by settlement of the claim and performing

the agreement. The accord is the agreement and the satisfaction its

execution or performance. A new contract is substituted for an old contract

thereby discharging an obligation or cause of action, which is settled, and

must have all of the elements of a valid contract.

In an accord contract it is typical that the consideration supplied is less

than bargained for in the original contract. In accord contracts that require

an amount of consideration that is less than the original, the consideration

must be of a different type, i.e. instead of money, debtor offers something in

kind. Consideration is the value given in return for a promise. It has two

elements: (1) there must be a bargained-for exchange between the parties

(2) what is bargained for must have legal value.

Accord and satisfaction is a settlement of an unliquidated debt. In an

unliquidated debt consideration, when the amount of the debt is in dispute,

acceptance of a lesser sum discharges the debt. Consideration is given by

the parties by giving up a legal right to contest the amount of debt.

Whereas, in a liquidated debt, acceptance of less than the entire amount of

a liquidated debt is not satisfaction, and the balance of the debt is still

owed. No consideration is given by the debtor, because the debtor has a

preexisting obligation to pay the entire debt.

For example, a builder is contracted to build a homeowner a garage for

$35,000. The contract called for $17,500 prior to starting construction, to

disburse $10,000 during various stages of construction, and to make a final

payment of $7,500 at completion. At completion, the homeowner

complained about inferior work quality and refused to make the final

payment. After a mutual settlement agreement, the builder accepted

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$4,000 as full payment. Thereby, a new contract was formed by offer,

acceptance, and consideration. The consideration is that for a $3,500

savings, the homeowner gives up that which he is entitled, a well-

constructed garage. The builder gives up his right to full price to avoid suit

for inferior performance. When accord and settlement has occurred, the

homeowner and builder have given up his right to sue for more money

under this settlement agreement.

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Sufficiency

Accord and satisfaction deals with a debtor’s offer of payment and a

creditor’s acceptance of a lesser amount than the creditor originally

purported to be owed. It is a method of discharging a claim by settlement of

the claim and performing the agreement. The accord is the agreement and

the satisfaction its execution or performance. A new contract is substituted

for an old contract thereby discharging an obligation or cause of action,

which is settled, and must have all of the elements of a valid contract.

In an accord contract it is typical that the consideration supplied is less

than bargained for in the original contract. In accord contracts that require

an amount of consideration that is less than the original, the consideration

must be of a different type, i.e. instead of money, debtor offers something in

kind. Consideration is the value given in return for a promise. It has two

elements: (1) there must be a bargained-for exchange between the parties

(2) what is bargained for must have legal value.

Something legally sufficient must be given in exchange for a promise. It

may be a return promise. If it is performance, that performance may be an

act or forbearance. Whatever it is, it must be either legally detrimental to

the promise or legally beneficial to the promisor. Legally detrimental is not

always economically detrimental. A person can incur legal detriment by

doing or promising to do something that he or she had no prior legal duty

to do or refraining from or promising to refrain from doing something that

he or she had no prior legal duty to refrain from doing.

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Part Payment – Liquidated and Undisputed Claims

Accord and satisfaction deals with a debtor’s offer of payment and a

creditor’s acceptance of a lesser amount than the creditor originally

purported to be owed. It is a method of discharging a claim by settlement of

the claim and performing the agreement. The accord is the agreement and

the satisfaction its execution or performance. A new contract is substituted

for an old contract thereby discharging an obligation or cause of action,

which is settled, and must have all of the elements of a valid contract.

In an accord contract it is typical that the consideration supplied is less

than bargained for in the original contract. In accord contracts that require

an amount of consideration that is less than the original, the consideration

must be of a different type, i.e. instead of money, debtor offers something in

kind. Consideration is the value given in return for a promise. It has two

elements: (1) there must be a bargained-for exchange between the parties

(2) what is bargained for must have legal value.

Something legally sufficient must be given in exchange for a promise. It

may be a return promise. If it is performance, that performance may be an

act or forbearance. Whatever it is, it must be either legally detrimental to

the promise or legally beneficial to the promisor. Legally detrimental is not

always economically detrimental. A person can incur legal detriment by

doing or promising to do something that he or she had no prior legal duty

to do or refraining from or promising to refrain from doing something that

he or she had no prior legal duty to refrain from doing

Although the common law part payment rule has been criticized and

condemned by some courts. Generally, the agreement of a creditor to

discharge the whole debt immediately due in consideration of the payment

of part is unsupported by sufficient consideration. In other words, part

payment of an undisputed, liquidated claim even if the creditor accepts it as

full payment, it does not constitute a valid accord and satisfaction of the

unpaid balance unless such settlement was supported by some

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consideration which is additional or collateral to the partial payment. A

benefit or detriment different from that involved in the creation of the debt

is sufficient consideration to support an accord and satisfaction discharging

that debt. There can be no accord and satisfaction without the intentional

relinquishment of a known right.

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Effect of Giving Release or Receipt in Full

Accord and satisfaction deals with a debtor’s offer of payment and a

creditor’s acceptance of a lesser amount than the creditor originally

purported to be owed. It is a method of discharging a claim by settlement of

the claim and performing the agreement. The accord is the agreement and

the satisfaction its execution or performance. A new contract is substituted

for an old contract thereby discharging an obligation or cause of action,

which is settled, and must have all of the elements of a valid contract.

In an accord contract it is typical that the consideration supplied is less

than bargained for in the original contract. In accord contracts that require

an amount of consideration that is less than the original, the consideration

must be of a different type, i.e. instead of money, debtor offers something in

kind. Consideration is the value given in return for a promise. It has two

elements: (1) there must be a bargained-for exchange between the parties

(2) what is bargained for must have legal value.

Something legally sufficient must be given in exchange for a promise. It

may be a return promise. If it is performance, that performance may be an

act or forbearance. Whatever it is, it must be either legally detrimental to

the promise or legally beneficial to the promisor. Legally detrimental is not

always economically detrimental. A person can incur legal detriment by

doing or promising to do something that he or she had no prior legal duty

to do or refraining from or promising to refrain from doing something that

he or she had no prior legal duty to refrain from doing

Although the common law part payment rule has been criticized and

condemned by some courts. Generally, the agreement of a creditor to

discharge the whole debt immediately due in consideration of the payment

of part is unsupported by sufficient consideration. In other words, part

payment of an undisputed, liquidated claim even if the creditor accepts it as

full payment, it does not constitute a valid accord and satisfaction of the

unpaid balance unless such settlement was supported by some

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consideration which is additional or collateral to the partial payment. A

benefit or detriment different from that involved in the creation of the debt

is sufficient consideration to support an accord and satisfaction discharging

that debt. There can be no accord and satisfaction without the intentional

relinquishment of a known right.

A receipt does not in and of itself constitute an accord and satisfaction,

although it is admissible as evidence to that effect. More specifically, partial

payment of a fixed and certain demand that is due and not in dispute does

not constitute a satisfaction of the entire debt even where the creditor

agrees to receive a partial payment for the whole debt and gives a receipt

for the whole demand. However, there is some authority for the view that

where an agreement to discharge a debt by the payment of a smaller sum is

fully executed, and a written receipt evidences the discharge for the lesser

sum in full satisfaction of the greater, it is a valid and irrevocable act.

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Effect of Debtor’s Insolvency

Accord and satisfaction deals with a debtors offer of payment and a

creditors acceptance of a lesser amount than the creditor originally

purported to be owed. In an accord contract it is typical that the

consideration supplied is less than bargained for in the original contract.

In accord contracts that require an amount of consideration that is less

than the original, the consideration must be of a different type, i.e. instead

of money, debtor offers something in kind. Where the creditor knows that

the debtor is insolvent and, in consideration of that fact, accepts part

payment of a liquidated demand in full satisfaction, there is an accord and

satisfaction. Further, an agreement by a debtor to forgo the right to file a

petition in bankruptcy if the individual creditor agrees to discharge his or

her claim upon the payment of a lesser amount, will also support a valid

accord and satisfaction.

However, in Prather v. Citizens Nat. Bank of Dallas, 582 S.W.2d 903 (Tex.

Civ. App. Waco 1979) an accord and satisfaction was not established where

there was no evidence that the creditor knew of the guarantor’s alleged

insolvency or regarded the alleged insolvency as consideration for an

agreement to release the guarantor from the entire debt.

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Judgments

A judgment ordering the payment of a lesser amount than demanded can

be accompanied by accord and satisfaction only if there is some

circumstance or act that has to be fulfilled in addition to part payment

sufficient to constitute consideration. In undisputed liquidated claims that

are not restricted by statutory limitations, the general rule that part

payment alone is not sufficient consideration for an accord and satisfaction

of a liquidated demand applies.

The acceptance of a part payment decided by a judgment does not amount

to an accord and satisfaction of the entire claim and such judgment can be

appealed. There can be no accord and satisfaction of a judgment which will

accrue in the future.

Acceptance of a criminal restitution order does not reflect an accord and

satisfaction and it cannot be considered as a waiver of civil remedies.

In Schwartz v. California Claim Service, Ltd., 52 Cal. App. 2d 47 (Cal. App.

1942), the creditor’s attorney signed the debtor’s offer to make a partial

payment on an indebtedness as full accord and satisfaction and the creditor

proceeded to institute collection efforts. Enforcement of the agreement

signed by the creditor’s attorney to accept partial payment as satisfaction

was sought by the debtor. The trial Court granted judgment favoring the

creditor. Upon appeal, the appellate Court reversed the trial Court’s

judgment stating that the complaint alleged sufficient facts to constitute a

valid accord and satisfaction of the debt. The court further stated that

partial performance by an obligor when expressly accepted in writing by a

creditor extinguishes the obligation.

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What Constitutes Sufficient New or Additional Consideration Under Part Payment Rule

In full discharge of demand, additional consideration to support a

transaction as an accord and satisfaction will lie upon acceptance of a

liquidated demand by a creditor in a different medium from that called for

by the contract between the parties. In such situations, courts will hold the

debt satisfied and will not inquire into the adequacy of the consideration. A

demand of liquidated money may be discharged in accord and satisfaction

by delivering property or part money and part property. However, it should

be received as full discharge of the debt. If the creditor has any right over

the property, the delivery of the property cannot be considered as full

discharge of the debt.

If part payment is made before the debt is due, or at another place, or in a

different medium than that required by the contract, it can be considered as

good discharge of a debt. When an amount less than the entire liquidated

claim is paid by a debtor to a creditor before the debt is due or the maturity

of obligation and the creditor accepts the early payment in full satisfaction

of the entire claim, that payment is a sufficient consideration to support an

accord and satisfaction of the claim.[i]

Providing additional security which the creditor has no right to demand can

be taken as a sufficient consideration to support an agreement by the

creditor to accept less than the full amount of the liquidated debt. If the

payment is made by a third person can be accepted as sufficient

consideration for the creditor’s acceptance of a lesser amount than the

amount of a liquidated claim. It creates an accord and satisfaction.

However, if the payment is made by a check is issued by the debtor’s

attorney shall not be considered adequate third-party payment discharging

the remainder of the debt.[ii]

[i] Thielen v. Thielen, 88 Haw. 191 (Haw. Ct. App. 1998)

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[ii] King Metal Products, Inc. v. Workmen’s Compensation Bd., 20 A.D.2d

565, 245 N.Y.S.2d 882

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Different Medium of Payment, Generally

If a creditor accepts payment of liquidated demand not as per the contract

agreed between the parties but in a different medium, there will be

adequate new or additional consideration to support the transaction as an

accord and satisfaction. However, the liquidated demand accepted must be

in full discharge of the demand. Where a creditor accepts the payment

made by debtor as payment in full, courts will hold that the debt is satisfied.

Even if the medium of payment benefits creditor more than the payment

contemplated by the contract, the courts will not inquire into the adequacy

of the consideration.

Under common law, the acceptance of a smaller sum for a debt due will not

effect the satisfaction of the total debt even if agreed and expressed to be

payment in full, since there is lack of consideration. Under the doctrine of

accord and satisfaction, the liquidated demand accepted less than as agreed

but in full satisfaction, is not invalid for lack of consideration and bears all

the elements of a contract.[i]

In Thielen v. Thielen,[ii] court held that the payment of a smaller sum in

full discharge of an unliquidated or disputed claim is a good accord and

satisfaction supported by sufficient consideration.

[i] In re Zerodec Mega Corp., 47 B.R. 304 (Bankr. E.D. Pa. 1985)

[ii] 88 Haw. 191 (Haw. Ct. App. 1998)

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Payment in Property

A liquidated money demand can be discharged by an accord and

satisfaction by delivery of property, or by providing part money and part

property to the creditor. For discharge of debt by payment in property there

should be consent of the parties as to full discharge of the indebtedness. If

the creditor is otherwise entitled to the property given by the debtor at the

time when the property is delivered, the debt will not be discharged.

In, Tremont Electric Co. v. Lang,[i] court held that, if the debtor gives to

the creditor certain property in full satisfaction and the value of the

property is not as agreed between the debtor and creditor, and the creditor

accepts such property without objection, he cannot thereafter complain that

the property taken was in fact worth less than the amount of the balance

due.

In Casper Nat’l Bank v. Woodin,[ii] the mortgage agreement between the

parties provided that in case of default the mortgagee may take immediate

possession of the mortgaged property and sell it. The mortgagor was in

default at the time of the accord agreement. The court held that there is no

accord and satisfaction of a debt for which a chattel mortgage is given.

[i] 16 Misc. 2d 983 (N.Y. Mun. Ct. 1959)

[ii] 68 Wyo. 232 (Wyo. 1951)

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Change of Place of Payment

The payment of a smaller sum in satisfaction of a larger amount is not a

good discharge of a debt. However the debt is discharged if part payment is

made;

• before the debt is due, or

• at another place, or

• in a different medium than that required by the contract. [i]

In Thielen v. Thielen,[ii] defendant husband did not pay spousal support to

plaintiff wife after their divorce. He entered into an agreement where he

paid the arrearage plus sums that were not due and owing in exchange for a

discharge from the remainder of his obligation. The court held that, the

debt is discharged when part payment is made at another place than that

required by the contract.

[i] Thielen v. Thielen, 88 Haw. 191 (Haw. Ct. App. 1998)

[ii] 88 Haw. 191 (Haw. Ct. App. 1998)

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Payment Before Maturity

When a debtor pays the creditor an amount less than the entire liquidated

claim before the debt is due and the creditor accepts the early payment in

full satisfaction of the claim, such payment is sufficient consideration to

support an accord and satisfaction.[i]

Under the common law, the acceptance of a smaller sum for a debt due,

though agreed and expressed to be payment in full, will not effect the

intended satisfaction of the total debt since the agreement lacks

consideration.[ii] However as per doctrine of accord and satisfaction if the

debtor pays the debt amount in full satisfaction of claim before the debt is

due and the creditor accepts it, the debt will be discharged.

In, First Hartford Realty Corp. v. Ellis,[iii] court held that “although part

payment of a debt does not operate to discharge the whole if the creditor

does not assent to receive it as such; part payment prior to maturity is

consideration for a promise to discharge the entire debt and it constitutes

satisfaction of the debt if the creditor accepts it as such.”

[i] Crow v. Gore, 85 F.2d 291 (D.C. 1936)

[ii] In re Zerodec Mega Corp., 47 B.R. 304 (Bankr. E.D. Pa. 1985)

[iii] 181 Conn. 25 (Conn. 1980)

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Giving Security

If a debtor gives additional security which the creditor has no right to

demand, then the debt will be discharged in full. The additional security is

an adequate consideration for the creditor to accept lesser amount than due

and it discharges the debt in full.[i]

In Lewis v. Akerberg,[ii] court held that, a liquidated claim may be the

subject of an accord and satisfaction. If a collateral benefit, such as specific

security, is received by the creditor, then such benefit even though less than

the amount due discharges the claim. The security constitutes legal

consideration for discharge of claim.

[i] In re Zerodec Mega Corp., 47 B.R. 304 (Bankr. E.D. Pa. 1985)

[ii] 118 N.E.2d 166 (Ohio C.P. 1953)

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Payment by Third Person

An accord is a contract in which a person promises to accept a stated

performance in satisfaction of the other person’s existing duty.

Performance of accord discharges the original duty.[i] If the payment of

debt is made by a third person and the creditor accepts the debt in full, then

the debt will be discharged. Payment in full settlement of a liquidated debt

by or with the aid of a third person discharges in full the entire original

debt. [ii] A payment or other performance by a third person and accepted

by creditor, as full or partial satisfaction of his claim, discharges the debt of

the debtor. Payment by a third person of a sum less than the amount due,

with the understanding that it is in full satisfaction is a valid accord and

satisfaction. A check issued by the debtor’s attorney is not a third party

payment that discharges the debt of the debtor.[iii]

[i] In re Zerodec Mega Corp., 47 B.R. 304 (Bankr. E.D. Pa. 1985)

[ii] Bealkowski v. Powers 310 Ill. App. 662 (Ill. App. Ct. 1941)

[iii] King Metal Products, Inc. v. Workmen’s Compensation Board, 20

A.D.2d 565 (N.Y. App. Div. 2d Dep’t 1963)

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Part Payment-Unliquidated or Disputed Claims

Accord and satisfaction is a method of discharging a claim whereby the

parties agree to give and accept something in settlement of the claim and

perform the agreement. Accord is the agreement and satisfaction is its

execution or performance. It is a new contract substituted for an old

contract thereby discharging an obligation or cause of action which is

settled, and must have all of the elements of a valid contract.

With regard to an unliquidated debt, accord and satisfaction can occur

when a creditor accepts part payment of an unliquidated debt which the

debtor tenders in full satisfaction of the debt and the creditor accepts that

offer[i].

An accord and satisfaction requires certain elements such as a bonafide or

good faith dispute, an unliquidated claim, consideration, a shared and

mutual intention to compromise the claim, and a valid contract that was

performed[ii].

A claim is said to be “disputed” where there exists a bona fide dispute[iii]

asserted in good faith[iv] and where the subject matter is reasonably

doubtful. A claim or defense becomes reasonably doubtful when there is an

uncertainty about the facts or the law to determine whether forbearance on

the claim or defense will serve as consideration for an accord and

satisfaction[v].

However, it is not essential that the matter must be really in doubt to

render a valid compromise agreement in an accord and satisfaction if the

claim is honest and not fraudulent[vi]. Similarly, the bona fide dispute

must be a dispute between the parties and not that is confined to the mind

of the sender of the check.

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[i] Sedona Dev. Group, Inc. v. Merrillville Rd. Ltd. P’ship, 801 N.E.2d 1274

(Ind. Ct. App. 2004)

[ii] Sims-Madison v. Inland Paperboard & Packaging, Inc., 379 F.3d 445

(7th Cir. Ind. 2004)

[iii] Texas Water Supply Corp. v. Reconstruction Finance Corp., 204 F.2d

190 (5th Cir. Tex. 1953)

[iv] Wickman v. Kane, 136 Md. App. 554 (Md. Ct. Spec. App. 2001)

[v] Id

[vi] Potter v. Pacific Coast Lumber Co., 37 Cal. 2d 592 (Cal. 1951)

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What Constitutes “Disputed” Claim

Accord and satisfaction is a method of discharging a claim whereby the

parties agree to give and accept something in settlement of the claim and

perform the agreement. Accord is the agreement and satisfaction is its

execution or performance.

A claim is said to be “disputed” where there exists a bona fide dispute[i]

asserted in good faith[ii] and where the subject matter is reasonably

doubtful. A claim or defense becomes reasonably doubtful when there is an

uncertainty about the facts or the law to determine whether forbearance on

the claim or defense will serve as consideration for an accord and

satisfaction[iii].

However, it is not essential that the matter must be really in doubt to

render a valid compromise agreement in an accord and satisfaction if the

claim is honest and not fraudulent[iv]. Similarly, the bona fide dispute

must be a dispute between the parties and not that is confined to the mind

of the sender of the check.

However, there will be no bona fide dispute for purposes of an accord and

satisfaction, if it is clear about the amount owed and the dispute is only

upon whether the debt is owed or not[v]. A person cannot create a dispute

sufficient to make a basis for an accord and satisfaction by creating a

situation which changes the vested rights of the parties[vi].

In Hayes v. Alexander[vii], a teacher and her late husband gave money to

the accountant to invest in two businesses. No return was received on the

investments, and the teacher demanded a return of her money. The

accountant agreed in writing to pay back a portion of the money. When the

accountant failed to make the required payments on the promissory note,

the teacher filed the suit. Court rejected the accountant’s claim that there

was no consideration for the promissory note. The court also rejected the

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accountant’s claim that the agreement was unenforceable because there

was no meeting of the minds. Court observed that the essential elements of

accord and satisfaction were met.

[i] Texas Water Supply Corp. v. Reconstruction Finance Corp., 204 F.2d

190 (5th Cir. Tex. 1953)

[ii] Wickman v. Kane, 136 Md. App. 554 (Md. Ct. Spec. App. 2001)

[iii] Id

[iv] Potter v. Pacific Coast Lumber Co., 37 Cal. 2d 592 (Cal. 1951)

[v] Sedona Dev. Group, Inc. v. Merrillville Rd. Ltd. P’ship, 801 N.E.2d 1274

(Ind. Ct. App. 2004)

[vi] Fichter v. Milk Wagon Drivers’ Union, 382 Ill. 91 (Ill. 1943)

[vii] 264 Ga. App. 815 (Ga. Ct. App. 2003)

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Payment of Undisputed Portion of Claim

Accord and satisfaction is a method of discharging a claim whereby the

parties agree to give and accept something in settlement of the claim and

perform the agreement. Accord is the agreement and satisfaction is its

execution or performance.

In some jurisdictions, when a part of a single claim is conceded and only

the balance is disputed, then the payment of the conceded portion of the

claim can furnish sufficient consideration for an accord and satisfaction of

the entire claim[i].

However, other jurisdictions follow the view that there can be no accord

and satisfaction of a claim for payment of the amount which is admitted to

be due will not furnish consideration for an accord and satisfaction of the

entire claim[ii].

Generally, payment of an undisputed claim will not constitute sufficient

consideration for an accord and satisfaction of another independent

liquidated and undisputed claim[iii]. In other words, an accord and

satisfaction can settle one or more claims, or a portion of a claim, without

prejudicing the remaining claims[iv].

In Cuddy v. A&E Mech[v], a subcontractor claimed against two general

contractors. The general contractor made two payments together which was

less than the amount billed by the subcontractor. The second check

included a statement which made clear that it was the final payment for all

work completed till date. Court observed that the general contractor met

with the burden to show the occurrence of accord and satisfaction.

[i] Flagel v. Southwest Clinical Physiatrists, P.C., 157 Ariz. 196 (Ariz. Ct.

App. 1988)

[ii] Cuddy v. A&E Mech., 53 Mass. App. Ct. 901 (Mass. App. Ct. 2001)

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[iii] Occidental Life Ins. Co. v. Eiler, 125 F.2d 229 (8th Cir. Mo. 1942)

[iv] Hosp. Auth. v. Pyrotechnic Specialties, Inc., 263 Ga. App. 886 (Ga. Ct.

App. 2003)

[v] 53 Mass. App. Ct. 901 (Mass. App. Ct. 2001)

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Claims by or Against Government

Accord and satisfaction is a method of discharging a claim whereby the

parties agree to give and accept something in settlement of the claim and

perform the agreement. Accord is the agreement and satisfaction is its

execution or performance.

Generally, an executed bilateral modification of a government contract that

contains no reservation of rights constitutes an “accord and satisfaction”[i].

Whereas, if a person has an unliquidated or disputed claim against a state,

county, or municipality and accepts part payment of the claim with

knowledge that the claim has not been allowed in full, the payment

amounts to a satisfaction of the claim[ii].

The Secretary of the Treasury can compromise any claim arising under

custom laws upon a report by a customs officer, United States attorney, or

any special attorney if such action is recommended by the General Counsel

for the Department of the Treasury[iii].

Likewise, the Secretary of the Treasury can compromise any civil or

criminal case arising under the internal revenue laws. The Attorney General

or his/her delegate can compromise any such case after referring to the

Department of Justice for prosecution or defense[iv].

In Mil Spec Contractors, Inc. v. United States[v], plaintiff submitted claims

for additional costs incurred after finishing its work under a government

contract. Plaintiff did not receive contingency funds. Plaintiff reached an

oral settlement agreement with a negotiator and it was told that the

plaintiff will receive the money directly. Contracting officer mailed a

prepared contract modification to plaintiff, but plaintiff did not accept. The

Armed Services Board of Contract Appeals denied plaintiff’s claim for

additional compensation on the ground that an oral agreement to settle the

claims constituted an accord and satisfaction. On appeal, the court reversed

the earlier judgment holding that there was no valid oral agreement

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because the negotiator did not have authority to bind the government, and

the modification was not signed by plaintiff.

In Kanag’Iq Constr. Co. v. United States[vi], a contractor entered into a

contract with the United States Department of Health and Human Services

to perform architectural and electrical repairs and renovations on a health

service building. The contractor sought additional money for rerouting

some wires due to asbestos located in the building. The court observed that

the contractor’s letter to the government constituted a claim regarding the

rerouting of certain wires under the Contract Disputes Act. But the court

added that the letter did not constitute a claim for delay costs.

[i] Kanag’Iq Constr. Co. v. United States, 51 Fed. Cl. 38 (Fed. Cl. 2001)

[ii] Chandler v. State Highway Board, 61 F.2d 601 (5th Cir. Ga. 1932)

[iii] 19 U.S.C.A. § 1617.

[iv] Id

[v] 835 F.2d 865 (Fed. Cir. 1987)

[vi] 51 Fed. Cl. 38 (Fed. Cl. 2001)

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Federal Government

Accord and satisfaction is a method of discharging a claim whereby the

parties agree to give and accept something in settlement of the claim and

perform the agreement. Accord is the agreement and satisfaction is its

execution or performance.

Generally, an executed bilateral modification of a government contract that

contains no reservation of rights constitutes an “accord and satisfaction.”[i]

The Secretary of the Treasury can compromise any claim arising under

custom laws upon a report by a customs officer, United States attorney, or

any special attorney if such action is recommended by the General Counsel

for the Department of the Treasury[ii].

Likewise, the Secretary of the Treasury can compromise any civil or

criminal case arising under the internal revenue laws. The Attorney General

or his/her delegate can compromise any civil or criminal case after

referring to the Department of Justice for prosecution or defense[iii].

In Kanag’Iq Constr. Co. v. United States[iv], a contractor entered into a

contract with the United States Department of Health and Human Services

to perform architectural and electrical repairs and renovations on a health

service building. The contractor sought additional money for rerouting

some wires due to asbestos located in the building. The court observed that

the contractor’s letter to the government constituted a claim regarding the

rerouting of certain wires under the Contract Disputes Act. But the court

added that the letter did not constitute a claim for delay costs.

[i] Kanag’Iq Constr. Co. v. United States, 51 Fed. Cl. 38 (Fed. Cl. 2001)

[ii] 19 U.S.C.A. § 1617.

[iii] Id.

[iv]Kanag’Iq Constr. Co. v. United States, 51 Fed. Cl. 38 (Fed. Cl. 2001)

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State, County, or Municipal Government

Accord and satisfaction is a method of discharging a claim whereby the

parties agree to give and accept something in settlement of the claim and

perform the agreement. Accord is the agreement and satisfaction is its

execution or performance.

If a person has an unliquidated or disputed claim against a state, county, or

municipality and accepts part payment of the claim with knowledge that the

claim has not been allowed in full, the payment amounts to a satisfaction of

the claim[i]. Similarly, if a state has a disputed claim against a party, and if

the state accepts part payment of the claim even under protest to agree the

payment in full, the party will be excluded from paying the balance

amount[ii].

In Indiana Lumbermen’s Mut. Ins. Co. v. State[iii], appellant challenged a

judgment that permitted the state to recover under performance issued by

appellant as surety. On appeal, the court reversed the judgment that

permitted the state to recover under a performance bond issued by

appellant. The stipulated facts and the findings of the trial court established

that the parties disputed the amount owed by appellant under the bond.

The appellant paid in full a certain amount but the state refused appellant’s

condition as payment in full but accepted the payment.

Court observed that a disputed money demand can be discharged by the

acceptance and negotiation of a check by the creditor for an amount less

than the claim given on the condition that its acceptance is in full and final

satisfaction of the claim. However, if such acceptance by the creditor even

under protest will be binding on the creditor and precludes recovery for any

unpaid amount. Therefore, an accord and satisfaction took place.

[i] Chandler v. State Highway Board, 61 F.2d 601 (5th Cir. Ga. 1932)

[ii] Indiana Lumbermen’s Mut. Ins. Co. v. State, 1 S.W.3d 264 (Tex. App.

Fort Worth 1999)

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iii] Id.

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Execution of Accord

The failure to make a payment or otherwise perform an act required by an

agreement entered into in satisfaction of a claim leaves such an agreement

a mere executory accord, except where the rule has been changed by

statute.[i] Such an executory accord is unenforceable and will not bar an

action on the original obligation.[ii]

Generally, an unexecuted accord is not a satisfaction. The original

obligation is not discharged unless it is fully performed.[iii] The defense of

accord and satisfaction fails if there is no performance under the new

agreement, since there is no satisfaction.[iv]

[i] Condo v. Mulcahy, 88 A.D.2d 497, 454 N.Y.S.2d 308

[ii] Zenith Drilling Corp. v. Internorth, Inc., 869 F.2d 560 (10th Cir. 1989)

[iii] Kalman v. Perry, 1999 Mass. App. Div. 1, 1999 WL 16327 (1999).

[iv] Wolowitz v. Thoroughbred Motors, Inc., 765 So. 2d 920 (Fla. Dist. Ct.

App. 2d Dist. 2000).

Execution of Accord: Related Pages

• Necessity of Execution Where Accord Involves Something Other

Than Payment in Money

• Part Performance

• Tender of Performance

• Acceptance of Promise as Satisfaction of Original Obligation

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Necessity of Execution Where Accord Involves Something Other Than Payment in Money

Generally, the terms of a new agreement with respect to payment must be

fully performed in order for an accord and satisfaction to result, where the

satisfaction contemplated by the accord involves payment in something

other than money.[i]

The intent of the parties determines whether or not there is an accord and

satisfaction by the delivery and receipt of a debtor’s note, without payment

of the note. Furthermore, in the absence of an express or implied

agreement to take a check or note in satisfaction of a debt, there is no

extinguishment of the claim on the theory of accord and satisfaction until

the instrument is paid.[ii]

The accord and satisfaction is not executory and not binding when a party

cannot retain a major portion of the proceeds of the accord and satisfaction

and return only a minor portion of the consideration.[iii]

[i] Corrigan v. Payne, 312 Mass. 589, 45 N.E.2d 829 (1942)

[ii] Arkansas Farmers Ass’n v. Yohe, 227 Ark. 670, 300 S.W.2d 589 (1957)

[iii] Rosenfeld v. Glickstein, 159 So. 2d 670 (Fla. Dist. Ct. App. 1st Dist.

1964).

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Part Performance

The performance must be full and complete where the performance of an

accord is necessary to satisfy the original claim and constitute a valid

accord and satisfaction.[i] The whole accord fails if part of the agreed

consideration is not performed. The rule that a partially performed accord

does not constitute a settlement did not apply when a party unilaterally

attempted to return a portion of the consideration two or three weeks after

agreement was been reached, but did not see fit to tender a return of the

entire consideration.

However, delay in performance not depriving of any benefits, constitutes

substantial performance of the accord and satisfaction.[ii] If full

performance is prevented by the creditor, part performance may also be

sufficient.[iii]

[i] Rosenfeld v. Glickstein, 159 So. 2d 670 (Fla. Dist. Ct. App. 1st Dist. 1964)

[ii] Associated Builders, Inc. v. Coggins, 1999 ME 12, 722 A.2d 1278 (Me.

1999)

[iii] National Old Line Ins. Co. v. Brown, 107 N.M. 482, 760 P.2d 775

(1988)

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Tender of Performance

Generally, an unaccepted tender of performance is insufficient to create a

binding accord and satisfaction.[i] In Taylor v. Central of Georgia Ry. Co.,

the court opined that the judgment creditor’s promise to accept a lesser

amount does not become binding upon him/her until the whole of such

lesser amount is paid and accepted. Under such circumstances tender will

not take the place of performance. An unperformed promise cannot

constitute a satisfaction unless such promise amounts to a novation, and

takes the place of the original obligation.

[i] Taylor v. Central of Georgia Ry. Co., 99 Ga. App. 224, 108 S.E.2d 103

(1959)

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Acceptance of Promise as Satisfaction of Original Obligation

An agreement for the future discharge of an existing claim by a substituted

performance is known as an “executory accord”. [i] Where the parties agree

that a mere promise of a new performance will satisfy the prior obligation,

the executory accord is enforceable. Thus, an executory accord is

unenforceable and will not bar enforcement of the original obligation

unless the creditor has clearly accepted the new promise of the future

performance as satisfaction. However, the new agreement must be based

upon new consideration.[ii]

[i] Collection Professionals, Inc. v. Logan, 296 Ill. App. 3d 959, 231 Ill. Dec.

225, 695 N.E.2d 1344 (3d Dist. 1998)

[ii] Bruce Tile Co. v. Copelan, 185 Ga. App. 469, 364 S.E.2d 603 (1988)

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Effect of Accord and Satisfaction; Executory Accord

There is an accord and satisfaction when an executory accord is fully

performed, and the previously existing claim is discharged, extinguished, or

barred.

As long as there has not been a justification for the creditor’s change of

position due to the prospective nonperformance of accord, the executory

accord may suspend the right to enforce the original obligation.

Furthermore, the validity of an antecedent claim does not affect the

enforceability of an accord and satisfaction. Thus, a valid accord and

satisfaction renders a consideration of the defense of the statute of frauds

or of any defense on the merits to items which were originally in dispute.

Effect of Accord and Satisfaction; Executory Accord: Related Pages

• Where Executory Accord is Breached

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Where Executory Accord is Breached

A material breach of an accord is the non-performance of a duty that

justifies the injured party in regarding the whole transaction as at an end.[i]

An accord is enforceable as a contractual agreement in its own right.[ii] An

action may be maintained against the party in default for the breach or

nonperformance of an accord under ordinary contracts principles.[iii] The

obligee may enforce either the original duty or any duty pursuant to the

accord, if the obligor materially breaches the accord.

i] Associated Builders, Inc. v. Coggins, 1999 ME 12, 722 A.2d 1278 (Me.

1999).

[ii] Oregon Mut. Ins. Co. v. Barton, 109 Wash. App. 405, 36 P.3d 1065 (Div.

3 2001).

[iii] Brown v. Noland Co., 403 S.W.2d 33 (Ky. 1966)

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Pleading and Proof

According the general rules of pleading, in responding to a pleading, a party must affirmatively state any avoidance or affirmative defense. Accord and satisfaction is an affirmative defense.[i] Therefore a defense of accord and satisfaction must be specifically pleaded by the party raising it.[ii]

In the case of Mass v. Melymont[iii], it was observed that an accord and satisfaction arising from a motorist’s negotiation of an automobile insurer’s settlement drafts following his collision with insured was an affirmative defense required to be raised by the insurer in the motorist’s action seeking the difference between those drafts and amount charged by the body shop to repair his car. Where the defense of accord and satisfaction is not pleaded or expressly or impliedly consented to between the parties, it will be considered waived.[iv] However, the plaintiff is required to negate a claim of accord and satisfaction only when the defendant raises it. Therefore a person who asserts a claim does not need to anticipate the defense of accord and satisfaction and negate it in the initial pleading.[v]

In the case of Dugan & Meyers Const. Co., Inc. v. State of Ohio Dept. of Administrative Services[vi], it was observed that a state university which failing to plead accord and satisfaction in its answer and to make a request to amend its answer during the trial was taken to have waived the defense of accord and satisfaction to a lead contractor’s claim for recovery of cumulative impact costs.

In the case of South Carolina Farm Bureau Mut. Ins. Co. v. Kelly[vii], proceedings were instituted by the insurer for reimbursement of claims paid for house fires, which was later

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determined to have been deliberately started by the insured’s son. The court in this case held that the insured waived the possible defense that the insurer’s policy release was an accord and satisfaction by failing to plead accord and satisfaction in his answer. In pleading a defense of accord and satisfaction, the essential elements of accord and satisfaction should be set forth in the plea or answer.[viii] However, generally pleadings of accord and satisfaction tend to be construed liberally by courts.[ix] Therefore where facts are alleged which, given their proper force and effect, point to an accord and satisfaction, they may be so regarded even if not expressly pleaded as constituting an accord and satisfaction.[x]

In the case of Williams v. Johnson[xi], the answer alleged that an accord had been reached between the parties consisting of an agreement between them to settle the claims set forth in the complaint. It was also pointed out in the answer that the satisfaction consisted of the payment of the consideration agreed upon. The court therefore held in this case that the essential elements of an accord and satisfaction were set forth in the answer.

An answer sufficiently pleads accord and satisfaction when it contains or presents all of the elements of an accord and satisfaction, even if it does not use the terms accord and satisfaction and even if it could have been more technically or artfully drawn.[xii]

However where local practice provides for a replication or reply to a plea or answer setting up an affirmative defense, and an accord and satisfaction is pleaded, the plaintiff may attack the accord and satisfaction for fraud[xiii], duress, or mutual mistake by way of replication or reply[xiv].

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The plaintiff can also not avoid an accord and satisfaction on the ground of mistake where mistake was neither pleaded nor proved.[xv]

[i] Sims-Madison v. Inland Paperboard and Packaging, Inc., 379 F.3d 445 (7th Cir. 2004)

[ii] Waide v. Tractor and Equipment Co., 545 So. 2d 1327 (Ala. 1989)

[iii] 1 Misc. 3d 906(A), 781 N.Y.S.2d 625 (Dist. Ct. 2003)

[iv] Wolowitz v. Thoroughbred Motors, Inc., 765 So. 2d 920 (Fla. Dist. Ct. App. 2d Dist. 2000)

[v] Landers v. State, 56 A.D.2d 105, 391 N.Y.S.2d 723 (3d Dep’t 1977)

[vi] 2003-Ohio-3709, 2003 WL 21640882 (Ohio Ct. Cl. 2003)

[vii] 345 S.C. 232, 547 S.E.2d 871 (Ct. App. 2001).

[viii] U.S. v. Lundstrom, 139 F.2d 792 (C.C.A. 9th Cir. 1943)

[ix] Frame v. State ex rel. Com’rs of Land Office, 1945 OK 338, 196 Okla. 292, 164 P.2d 865 (1945)

[x] Riskas v. De La Montanya, 145 Cal. App. 2d 636, 302 P.2d 821 (1st Dist. 1956)

[xi] 244 S.C. 406, 137 S.E.2d 410 (1964)

[xii] Cass Const. Co., Inc. v. Brennan, 222 Neb. 69, 382 N.W.2d 313, 42 U.C.C. Rep. Serv. 1591 (1986)

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[xiii] Weesner v. Leased Transp., 95 Cal. App. 2d 414, 213 P.2d 26 (2d Dist. 1949)

[xiv] Deibel v. Kreiss, 38 Ohio L. Abs. 587, 50 N.E.2d 1000 (Ct. App. 8th Dist. Cuyahoga County 1943)

[xv] Dickson v. Stockman, 411 S.W.2d 610 (Tex. Civ. App. Texarkana 1966)

Pleading and Proof: Related Pages

• Burden of Proof; Presumption • Admissible Evidence • Questions for Jury

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Burden of Proof; Presumption

Accord and satisfaction is an affirmative defense. Therefore the burden of

proving all the elements[i] by either clear or convincing evidence[ii] or by a

preponderance of the evidence[iii] is on the proponent.

In case of accord and satisfaction, the claimant is also duty bound to show

that the alleged accord is supported by sufficient consideration. This can be

done either by proving that the claim was unliquidated or disputed.[iv] In

the alternative, the claimant may also prove that the claim was liquidated

but was supported by consideration additional or collateral to the

accord.[v]

The question of whether an accord and satisfaction has been proved is a

question of fact. The burden of proving that a valid accord and satisfaction

was reached is on the defendants.[vi]

Essentially the elements involved in an accord and satisfaction agreement is

that of offer, acceptance and consideration. In the case of Helms v.

University of Missouri-Kansas City[vii], it was observed that the burden of

proving an accord and satisfaction is simply the burden of proving a

contract: offer, acceptance, and consideration. In the case of Webb Business

Promotions, Inc. v. American Electronics & Entertainment Corp.[viii], it

was observed by the court that once the statutory requirements for accord

and satisfaction are met, mutual agreement of the parties to enter into an

accord and satisfaction is presumed as a matter of law. However, this

presumption may be rebutted where the party challenging the accord and

satisfaction can demonstrate, for example, some ambiguity in the language

of the instrument or the accompanying communication. This presumption

is therefore rebutted in circumstances wherein it can be shown that a

reasonable person would not have understood that payment was meant to

discharge the obligation.[ix]

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Since an accord and satisfaction is basically the substitution of one contract

for another, the debtor must prove that the creditor “definitely assented” to

the new arrangement.[x] Generally, there is a presumption that parties to

an accord and satisfaction intend that performance of the accord, rather

than the new agreement itself, satisfy the original obligation. Therefore in

order to rebut this presumption, there must be “clear evidence” that the

parties intended the new agreement as satisfaction.[xi] In other words, the

presumption exists that the intention to relinquish a debt in return for a

mere promise to pay a lesser amount, rather than for the performance of

that promise, is unusual and is not to be implied in the absence of language

compelling that result. In the case of Cullen v. Valley Forge Life Ins.

Co.[xii], it was observed that establishing an accord and satisfaction as a

matter of law requires evidence that permits no reasonable inference to the

contrary and that shows the unequivocal intent of one party to make and

the other party to accept a lesser payment in satisfaction of a larger claim.

Moreover, in accord and satisfaction cases, payment is a matter of

affirmative defense, and the burden of proof lies with the defendant.[xiii]

[i] Sims-Madison v. Inland Paperboard and Packaging, Inc., 379 F.3d 445

(7th Cir. 2004)

[ii] Wallace v. United Mississippi Bank, 726 So. 2d 578 (Miss. 1998)

[iii] Premier Capital, Inc. v. Doucette, 2002 ME 83, 797 A.2d 32, 47 U.C.C.

Rep. Serv. 2d 1409 (Me. 2002)

[iv] In re Marriage of Malec, 205 Ill. App. 3d 273, 150 Ill. Dec. 207, 562

N.E.2d 1010 (1st Dist. 1990)

[v] First Nat. Bank, Lexington, Tenn. v. U.S., 12 Cl. Ct. 719 (1987)

[vi] Williams v. B & K Medical Systems, Inc., 49 Mass. App. Ct. 563, 732

N.E.2d 300 (2000)

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[vii] 65 Ark. App. 155, 986 S.W.2d 419, 133 Ed. Law Rep. 615 (1999)

[viii] 617 N.W.2d 67, 42 U.C.C. Rep. Serv. 2d 534 (Minn. 2000)

[ix] Webb Business Promotions, Inc. v. American Electronics &

Entertainment Corp., 617 N.W.2d 67, 42 U.C.C. Rep. Serv. 2d 534 (Minn.

2000)

[x] Beard v. George, 135 Idaho 685, 23 P.3d 147 (2001)

[xi] Arkansas Val. Feed Mills, Inc. v. Fox De Luxe Foods, Inc., 171 F. Supp.

145 (W.D. Ark. 1959)

[xii] 161 N.C. App. 570, 589 S.E.2d 423 (2003)

[xiii] Community Builders v. Indian Motocycle Assocs., 44 Mass. App. Ct.

537 (Mass. App. Ct. 1998)

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Admissible Evidence

The general rule is that the party alleging discharge of the debt by accord

and satisfaction must prove the same by cogent evidence. Though clear and

cogent evidence is required, even evidence that tends to prove the existence

of circumstances and conditions which make it more or less likely that the

parties agreed to an accord and satisfaction is admissible in an action to

prove an accord and satisfaction.[i]

Generally, a receipt does not in and of itself constitute an accord and

satisfaction although it is admissible as evidence to that effect.

In the case of Sherman v. Stewart Co.[ii], it was observed that where an

action is brought upon an itemized account and the defendant claims an

accord and satisfaction, testimony as to the amount owing by the defendant

is competent as to the issue of accord and satisfaction; such evidence bears

upon whether the plaintiff would have accepted and the defendant would

have paid the amount claimed in settlement.

In case of accord and satisfaction, parol evidence is admissible to show the

situation of the parties and the circumstances under which the instrument

was made.[iii] In the case of Myers v. American Finance System of

Decatur, Inc.[iv], 615 F.2d 368 (5th Cir. 1980 it was observed by the court

that parole evidence is admissible to determine whether a creditor assents

to a recital in a document of accord and satisfaction.

In the case of Union River Associates v. Budman,[v] it was observed by the

court that the evidence of the parties’ settlement negotiations was relevant

to establish the existence of an accord and satisfaction. The appellate court

therefore held that in a forcible entry and detainer action the lower court

went wrong in excluding the tenant’s offer of such evidence.

If the intent as to whether a new agreement abrogates a former contract

cannot be determined expressly or impliedly from the contract provisions,

the court may consider evidence of the surrounding circumstances to

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determine if an accord and satisfaction exists.[vi] Therefore, in order to

determine the intent of the parties to an accord and satisfaction, a court

engages in an external interpretation of the party’s or parties’ intent. This is

manifested by, among other things, actions, words, prior practice between

the parties, and practices in the trade or profession.[vii]

Evidence of want of consideration, fraud, duress, illegality[viii], or

rescission of the accord contract may be introduced to defeat a claim of

accord and satisfaction.[ix]

[i] Collins v. Gaskill, 359 Mo. 171, 221 S.W.2d 181 (1949)

[ii] 216 Miss. 549, 62 So. 2d 876 (1953)

[iii] Nauman v. McCoy, 84 Ga. App. 131, 65 S.E.2d 853 (1951)

[iv] 615 F.2d 368 (5th Cir. 1980)

[v] 2004 ME 48, 850 A.2d 334 (Me. 2004)

[vi] CitiSteel USA, Inc. v. Connell Ltd. Partnership, 758 A.2d 928 (Del.

2000)

[vii] Weaver v. American Power Conversion Corp., 863 A.2d 193 (R.I.

2004)

[viii] Scheanwald v. Economy Sav. & Loan Co., 117 Ohio App. 29, 23 Ohio

Op. 2d 1, 189 N.E.2d 731 (6th Dist. Lucas County 1960).

[ix] Di Maria v. Mitchell, 112 Cal. App. 2d 691, 247 P.2d 60 (1st Dist. 1952)

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Questions for Jury

Accord and satisfaction is an affirmative defense and therefore the claimant

is duty bound to show that the alleged accord is supported by sufficient

consideration. This can be done either by proving that the claim was

unliquidated or disputed.[i] In the alternative, the claimant may also prove

that the claim was liquidated but was supported by consideration

additional or collateral to the accord.[ii]

In the case of Premier Capital, Inc. v. Doucette[iii], the court observed that

the existence of an accord and satisfaction is a question of fact unless it is

evidenced by a clear and unambiguous writing.

Therefore the question of whether an accord and satisfaction has been

proved is a question of fact[iv] and is therefore for the jury to decide.[v]

However, the issue becomes one of law if the requisite controlling facts are

undisputed and clear.[vi]

In the case of Owens v. Noble[vii], it was observed by the court that the

determination of whether there is a bona fide or genuine dispute as to the

amount of a claim for which a partial payment has been offered as an

accord and satisfaction is a question for the jury to resolve.

One crucial element for the occurrence of a valid accord and satisfaction is

the aspect of meeting of minds. In the case of M.J. Daly & Sons, Inc. v. City

of West Haven, the court observed that to prove an accord and satisfaction,

the proponent must show that at the time of the agreement there was a

good faith dispute over the existence of a debt. Moreover, it should also be

shown that the debtor and the creditor negotiated a contract of accord to

settle the claim. The proponent must also be able to show that there was a

meeting of the minds, that the offer by the debtor was clearly tendered as

full satisfaction of the debt, and that the payment was knowingly accepted.

To be a valid accord, there must be a meeting of the minds, and whether a

meeting of the minds has occurred is a factual determination.

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[i] In re Marriage of Malec, 205 Ill. App. 3d 273, 150 Ill. Dec. 207, 562

N.E.2d 1010 (1st Dist. 1990)

[ii] First Nat. Bank, Lexington, Tenn. v. U.S., 12 Cl. Ct. 719 (1987)

[iii] Premier Capital, Inc. v. Doucette, 2002 ME 83, 797 A.2d 32, 47 U.C.C.

Rep. Serv. 2d 1409 (Me. 2002)

[iv] Fassero v. Weinstock & Scavo, P.C., 261 Ga. App. 631, 583 S.E.2d 485

(2003), cert. denied, (Oct. 6, 2003);

[v] Newson v. Protective Industrial Ins. Co. of Alabama, 890 So. 2d 81

(Ala. 2003);

[vi] Pritchett v. Asbestos Claims Management Corp., 332 Ill. App. 3d 890,

266 Ill. Dec. 207, 773 N.E.2d 1277 (5th Dist. 2002)

[vii] Owens v. Noble, 77 Cal. App. 2d 209, 175 P.2d 241 (3d Dist. 1946)

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State Laws on Accord and Satisfaction

Accord and satisfaction is a concept in contract law dealing with the

purchase of a release from a debt obligation. The accord is the agreement to

discharge the obligation, and the satisfaction is the legal “consideration”

which binds the parties to the agreement. The negotiated payment is

typically less than what is owed. It is not paid by the actual performance of

the original obligation. In United States, some states have specific statutes

explaining accord and satisfaction, while in other states, courts have

defined the elements constituting accord and constitution.

State Laws on Accord and Satisfaction: Related Pages

• Alabama – Accord and Satisfaction

• Alaska – Accord and Satisfaction

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• Arkansas – Accord and Satisfaction

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• Iowa – Accord and Satisfaction

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• Maryland – Accord and Satisfaction

• Massachusetts – Accord and Satisfaction

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• South Dakota – Accord and Satisfaction

• Tennessee – Accord and Satisfaction

• Texas – Accord and Satisfaction

• Utah – Accord and Satisfaction

• Vermont – Accord and Satisfaction

• Virginia – Accord and Satisfaction

• Washington – Accord and Satisfaction

• West Virginia – Accord and Satisfaction

• Wisconsin – Accord and Satisfaction

• Wyoming – Accord and Satisfaction

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Virginia – Accord and Satisfaction

According to Virginia courts, an accord and satisfaction relates to offer and

acceptance.[i] The acceptance may be implied, where the amount due is

unliquidated, disputed, and a remittance of an amount less than that

claimed is sent to the creditor with a statement that it is in full satisfaction

of the claim, or is accompanied by such acts or declarations as amount to a

condition that if accepted, it is accepted in full satisfaction, and the creditor

accepts it with knowledge of such condition, then accord and satisfaction

results.

The “accord” is the agreement that a debtor will give and the creditor will

accept something in settlement of a disputed claim.[ii] An accord and

satisfaction does not result unless the debtor intends his/her offer as a

satisfaction of the demand and such intention is clearly made known to the

creditor and accepted by the creditor in accordance with the debtor’s

intention.

[i] Virginia-Carolina Elec. Works v. Cooper, 192 Va. 78 (Va. 1951)

[ii] John Grier Constr. Co. v. Jones Welding & Repair, Inc., 238 Va. 270

(Va. 1989)

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Maryland – Accord and Satisfaction

An accord and satisfaction ordinarily concerns monetary settlements of

debts or liabilities. However, other settlements not involving an exchange

of funds also come under its purview.[i] The principle of accord and

satisfaction is based on equity and is essentially contractual. Consideration

for an accord and satisfaction can be monetary or non-monetary.[ii]

While an accord is an agreement by one party to give or perform and by the

other party to accept, in settlement or satisfaction of an existing or matured

claim, something other than that which is claimed to be due, the

satisfaction is the execution or performance of the agreement.[iii] In the

event of a dispute of claim, the creditor’s acceptance of payment, coupled

with knowledge that payment was intended fully to satisfy a disputed claim,

constitutes an accord and satisfaction that bars any further recovery.[iv]

Accord and satisfaction is an affirmative defense and the defendant must

prove:

• that a dispute arose between the parties about the existence or

extent of liability;

• that, after the dispute arose, the parties entered into an agreement

to compromise and settle the dispute by the payment by one party

of a sum greater than that which he admits he owes and the

acceptance by the other party of a sum less than that which he

claims is due; and

• that the parties performed the agreement as stipulated.[v]

[i] Automobile Trade Asso. v. Harold Folk Enterprises, Inc., 301 Md. 642,

665 (Md. 1984)

[ii] Id. at 666

[iii] Weston Builders & Developers, Inc. v. McBerry, LLC, 167 Md. App. 24,

55 (Md. Ct. Spec. App. 2006)

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[iv] Wickman v. Kane, 136 Md. App. 554, 561 (Md. Ct. Spec. App. 2001)

[v] Air Power, Inc. v. Omega Equip. Corp., 54 Md. App. 534, 538-39, 459

A.2d 1120 (1983)

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Tennessee – Accord and Satisfaction

According to Tennessee courts, “accord and satisfaction” is a term

describing the legal consequence of a creditor’s acceptance of a substitute

performance for a previously existing claim or prior original duty.[i]

Acceptance of the substitute performance discharges the previously existing

claim. A debtor’s pleading and proving of the accord and satisfaction is a

complete defense to an action by the creditor on the previously existing

claim.

To constitute a valid accord and satisfaction it is essential that what is given

or agreed to be performed shall be offered as a satisfaction and extinction of

the original demand; that the debtor shall intend it as a satisfaction of such

obligation, and that such intention shall be made known to the creditor in

some unmistakable manner.[ii] Moreover, it is equally essential that the

creditor shall have accepted it with the intention that it should operate as a

satisfaction. The intention of the parties must be determined from all the

circumstances attending the transaction.

[i] Dobbins v. Dabbs, 2007 Tenn. App. LEXIS 39 (Tenn. Ct. App. Jan. 25,

2007)

[ii] Ward v. Wilkinson, 1999 Tenn. App. LEXIS 250 (Tenn. Ct. App. Apr. 19,

1999)

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North Carolina – Accord and Satisfaction

North Carolina courts hold that an accord and satisfaction is compounded

of the two elements enumerated in the term.[i] An “accord” is an agreement

whereby one of the parties undertakes to give or perform and the other to

accept, in satisfaction of a claim, liquidated or in dispute, and arising either

from contract or tort, something other than or different from what s/he is,

or considers himself/herself, entitled to. A “satisfaction” is the execution or

performance, of such agreement. However, if the accord in an accord and

satisfaction is fully performed, the performance satisfies the original claim.

Plaintiff has the burden of proof on accord and satisfaction.[ii] As a matter

of law, when there is some indication on a check that it is tendered in full

payment of a disputed claim, the cashing of the check is held to be an

accord and satisfaction.[iii]

[i] Dobias v. White, 239 N.C. 409 (N.C. 1954)

[ii] N. C. Monroe Constr. Co. v. Coan, 30 N.C. App. 731 (N.C. Ct. App. 1976)

[iii] Moore v. Bobby Dixon Associates, Inc., 91 N.C. App. 64 (N.C. Ct. App.

1988)

Page 130: Accord and Satisfaction

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