Accord and Satisfaction Affirmative Defense: Everything You Need to Know
Accord and satisfaction agreements are cited by some entities in breach of contract lawsuits. 3 min read
What is accord and satisfaction affirmative defense? An accord and satisfaction is an agreement to solve a claim in which the parties to a contract agree on new terms which may be less stringent than the ones in the original contract. The party with a claim usually receives less than what is owed to settle the claim. Even after an accord and satisfaction agreement, it is still possible for one of the parties in the contract to take legal action for breach of the original contract. When used as an affirmative defense, it is the responsibility of the party being sued to prove that an accord and satisfaction agreement was actually done.
The Use of Accord and Satisfaction as a Defense in Breach of Contract Lawsuits
Accord and satisfaction agreements are cited by some entities in breach of contract lawsuits. Disagreements usually occur when one party claims that it has been given less than what they believe to be owed. This may prompt the creditor to file a breach of contract lawsuit.
The Uniform Commercial Code (UCC) lists the following conditions for satisfaction of an accord and satisfaction agreement:
- The person in good faith gave something to the creditor as full satisfaction of the debt
- The original amount of the debt was not liquidated or subject to a dispute
- The creditor got the payment
- The payment or accompanying written communication contains a “conspicuous statement” to the effect that the amount given will lead to full satisfaction of the original debt
But the settlement will not be valid in any of the following scenarios:
- If the debtor proves that before the amount was sent, the debtor was sent a conspicuous statement that informed him that any payment sent as full satisfaction is to be sent to a designated person, office, or place and the payment was not sent to that person, place, or office.
- If the creditor proves that he repaid the payment given to him as full payment within 90 days.
Requirements for Using the Accord and Satisfaction Defense
For an entity to use the accord and satisfaction defense in the courts, it must generally prove the following:
- That there is an agreement between the parties.
- That there is a dispute between the parties.
- Evidence of the fact that the parties intentionally agreed to solve an existing obligation with a lesser payment.
- That payment has been accepted.
- The creditor communicated to the debtor that acceptance of the lesser amount shows satisfaction with the previous agreement.
- Accepting the payment, if the payment is accompanied by a communication that the lesser amount settles the debt, may imply acceptance of the new terms of the agreement.
Accord and Satisfaction in Cases of Payment in Full Notations
Businesses that have contractors should carefully examine checks or drafts sent with the notation “payment in full.” This is because acceptance of such checks or drafts may be construed as accepting an accord and satisfaction agreement. In some cases, a creditor who cashes such a check may need to prove that his acceptance of the check did not constitute an accord and satisfaction agreement if:
- The check was cashed without knowing about the notation.
- The creditor struck out or deleted the “payment in full” notation.
The H.L. “Brownie” Choate, Inc. V. Southland Drilling Co., Inc Case
Lawsuits can arise when there is a disagreement between the creditor and the debtor about what is enough to settle a dispute. For example, in the H.L. “Brownie” Choate, Inc. V. Southland Drilling Co., Inc case in San Antonio. The case went up to the Texas Supreme Court.
When the drilling company damaged the supplier's drilling rig, the supplier settled the dispute by trying to deduct an amount equal to the value of the rig from the amount he owed the drilling company, as was the usual practice. Later the drilling company sent him a check which didn't cover the complete amount but with a notification that the payment has been made in full.
But "Brownie" sued to recover the remaining amount. The court ruled that the acceptance and cashing of the check which was offered in “full settlement” meant that "Brownie" constituted an accord and satisfaction of the debt.
The laws governing accord and satisfaction contracts vary from state to state. Consult a competent attorney in your state to help you to interpret your state's laws.
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