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Part Payment – Liquidated and Undisputed Claims

Accord and satisfaction deals with a debtor’s offer of payment and a creditor’s acceptance of a lesser amount than the creditor originally purported to be owed.  It is a method of discharging a claim by settlement of the claim and performing the agreement.  The accord is the agreement and the satisfaction its execution or performance.  A new contract is substituted for an old contract thereby discharging an obligation or cause of action, which is settled, and must have all of the elements of a valid contract.

In an accord contract it is typical that the consideration supplied is less than bargained for in the original contract.  In accord contracts that require an amount of consideration that is less than the original, the consideration must be of a different type, i.e. instead of money, debtor offers something in kind.  Consideration is the value given in return for a promise.  It has two elements: (1) there must be a bargained-for exchange between the parties (2) what is bargained for must have legal value.

Something legally sufficient must be given in exchange for a promise.  It may be a return promise.  If it is performance, that performance may be an act or forbearance.  Whatever it is, it must be either legally detrimental to the promise or legally beneficial to the promisor.  Legally detrimental is not always economically detrimental.  A person can incur legal detriment by doing or promising to do something that he or she had no prior legal duty to do or refraining from or promising to refrain from doing something that he or she had no prior legal duty to refrain from doing

Although the common law part payment rule has been criticized and condemned by some courts.  Generally, the agreement of a creditor to discharge the whole debt immediately due in consideration of the payment of part is unsupported by sufficient consideration.  In other words, part payment of an undisputed, liquidated claim even if the creditor accepts it as full payment, it does not constitute a valid accord and satisfaction of the unpaid balance unless such settlement was supported by some consideration which is additional or collateral to the partial payment.  A benefit or detriment different from that involved in the creation of the debt is sufficient consideration to support an accord and satisfaction discharging that debt.  There can be no accord and satisfaction without the intentional relinquishment of a known right.

Inside Part Payment – Liquidated and Undisputed Claims