What Does “Accord and Satisfaction” Mean In The Context Of Cashing A Borrower’s Check?

Lesson. Even when a check is cashed and that check contains a notation that cashing it shall be considered “settlement in full” of a disputed debt, accord and satisfaction is not automatic.

Case cite. Mayes v. Goldman Sachs Bank USA, 232 N.E.3d 1164 (Ind. Ct. App. 2024)

Legal issue. Did Borrower satisfy Ind. Code § 26-1-3.1-311’s requirements for an accord and satisfaction?

Vital facts. Borrower and Lender entered into an installment loan agreement. Among other provisions, the loan agreement provided that Lender “may process a … partial payment or a payment marked with any restrictive language” and that, by processing such payment, such action “will have no effect on [Lender’s] rights and the restrictive language will have no force or effect.” Following a default, Lender issued Borrower a demand letter for the amount due ($9,235). In response, Borrower sent Lender a $200 check in a letter stating that cashing the check would be “considered settlement in full” of the outstanding balance. The memo on the check also referenced “settlement.” Lender cashed the check.

Procedural history. Lender sued for the entire balance due, and Borrower asserted counterclaims and defenses surrounding the notion that the disputed debt had been settled by virtue of the check being cashed. The trial court granted Lender’s summary judgment motion, and Borrower appealed.

Key rules. The Court noted that “accord” means “an express contract between two parties by means of which the parties agree to settle some dispute on terms other than those originally contemplated.” The term “satisfaction,” in turn, “donates performance of the contract.”

Ind. Code § 26-1-3.1-311 applies when one attempts an accord and satisfaction by tender of a negotiable instrument (i.e. a check):

if a person against whom a claim is asserted proves:

(1) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim;
(2) the amount of the claim was unliquidated or subject to a bona fide dispute; and
(3) the claimant obtained payment of the instrument

then 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."

Holding. Borrower asserted the defense of “accord and satisfaction” under Section 311. The Court rejected it. While the check and letter did contain a “conspicuous statement,” the Court rejected the idea that $200 to settle a $9,235 debt was “good faith.” Even if it were, Borrower failed to prove that the amount was unliquidated (uncertain, and not definite or fixed) or subject to a bona fide dispute. The balance was not unliquidated because Lender established the specific amount due. As for the existence of a bona fide dispute, the mere assertion in a letter that the debt was disputed did not constitute evidence of such dispute. Also important to the Court’s reasoning were the terms of the loan agreement that specifically provided partial or late payments would not affect Lender’s rights.

Related posts.

• Settlement Agreement Between Lender And Guarantors Did Not Release The Contribution Rights Of The Guarantors
• Effectiveness Of A Release In An Indiana Forbearance Agreement

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Part of my practice involves representing parties in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.