Buzz
words:
Accord and Satisfaction (taken from Black’s Law
Dictionary) An ‘accord” is an agreement whereby one of the parties
undertakes to give or perform, and other to accept in satisfaction of
liquidated or disputed claim arising in either contract or tort
something different from what he is or considers himself entitled to;
and “satisfaction” is the execution or performance of agreement.
Bona Fide (taken from Black’s Law Dictionary) In or with
good faith, honestly, openly and sincerely; without deceit or fraud.
Restrictive Endorsement (taken from Black’s Law
Dictionary) An endorsement so worded as to restrict the further
negotiability of the instrument.
Let’s
discuss the following examples:
John Smith of Execucar receives invoice # 00001 from Bob’s Auto for
$1000.00 for maintenance on the company car. He reviews the bill and
does not agree with the total. There are $275.00 in charges for items
that he thinks were not for his car. He called Bob's Auto, brings this
to Bob's attention and Bob agrees. He tells John to send his check for
$725.00 John does indeed send the check, and writes “Invoice #00001
Paid in Full” on the front. Bob deposits the check and all parties
agree, business completed.
Well fellow credit and collection professionals, business is not
always this smooth! What happened if
John
Smith received the invoice and does not agree with all the charges. He
calls Bob and lodges his complaint and explains why he is disputing a
portion of the invoice. Bob explains how the charges are indeed valid
and will not accept the settlement. The $1000.00 invoice stands. John is
not happy so he writes a check to Bob for $725.00, which is the amount
he feels is valid. On the front of the check John has written “Invoice
#00001 Paid in Full”. Bob deposits the check then forwards a bill to
John for the remaining $275.00 John calls Bob and says “I’m not
paying this bill. If you look at the check I forwarded, it carries a
restrictive endorsement and you have to abide by the rule.” Is John
right?
Or how about…
John
receives the invoice and detects some discrepancies, but he never calls
Bob to discuss the matter. He figures that he will forward his check for
$725.00, and write on the front “Invoice #00001 Paid in Full”.
Perhaps he assumes that Bob will understand why the check is for the
lesser amount. Bob deposits the check as payment on account despite the
restrictive endorsement. Bob calls John and says that his restrictive
endorsement does NOT apply and he still owes $275.00 Is Bob right?
Example
1 - Accord and satisfaction was duly processed, the balance due is null
and void. Both parties agreed on the settlement of the bill.
Example 2 - Bob knew of the dispute and should not have deposited the
restrictive check. The act of depositing the check fulfilled the
requirements of accord and satisfaction. Bob is not likely to collect
the balance of $275.00 Bob would have to prove that the dispute was not
"Bona Fide". In other words if John is claiming that a part
was not replaced and it obviously WAS replaced, there is no bona
fide dispute.
Example
3 - There was no dispute involved, or at least it was never conveyed to
Bob. No accord and satisfaction took place, the $275.00 is valid and due.
In
plain language, accord and satisfaction is an agreement to accept less
than the original amount owed in order to conclude a transaction.
Once the accord and satisfaction is made and the amount is paid (even
though it is less than owed) the debt is wiped out. The new agreement
(accord) and payment (the satisfaction) replaces the original
obligation.
Basically there are three key elements that must take place to support a
valid accord and satisfaction:
(1) an dispute to support an accord and satisfaction
(2) an offer of partial payment in full satisfaction of the disputed
claim
(3) acceptance of the partial payment by the creditor with knowledge
that the debtor offered it only upon the condition that the creditor
accept the payment in full satisfaction of the disputed claim or not at
all.
