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]
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
[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)