35. What is an “accord and satisfaction”?
An accord and satisfaction is a resolution of a contested debt. For example, the payor and holder of a negotiable instrument may have a dispute as to the amount and duty of payment of the instrument. Often a payor of the debt will offer a lesser amount than what is claimed by the holder in full satisfaction of the debt owed. This is an offer of settlement of the disputed debt. An instrument that purports to be full payment for an obligation will discharge an obligation if certain requirements are present:
• Good Faith – One party, in good faith, tenders an instrument to the claimant as full satisfaction of the claim;
• Bona Fide Dispute – The amount of the claim is subject to a bona fide dispute;
• Payment Accepted – The party receiving the offer of settlement obtains payment of the instrument; and
• Adequate Notice – The instrument or accompanying written communication contains a conspicuous statement to the effect that the instrument is tendered as full satisfaction of the claim.
A creditor receiving an offer of accord and satisfaction who inadvertently accepts the payment (not aware of accord language), upon learning of the other party’s intent, may make or offer repayment within 90 days of receipt.
• Discussion: Why do you think the UCC allows for the “accord and satisfaction” of a disputed payment obligation under a negotiable instrument? Are the prerequisites for a valid accord and satisfaction adequate? Why or why not? Can you think of any other necessary requirements?
• Practice Question: Cathy enters into a contract with Bernice. A dispute arises as to each party’s performance of the agreement. Cathy sends a check to Bernice with “accord and satisfaction” printed on the check. What is else is required to effect a valid accord and satisfaction of the disputed debt?