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Part Payment-Unliquidated or Disputed Claims

Accord and satisfaction is a method of discharging a claim whereby the parties agree to give and accept something in settlement of the claim and perform the agreement.  Accord is the agreement and satisfaction is its execution or performance.  It is a new contract 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.

With regard to an unliquidated debt, accord and satisfaction can occur when a creditor accepts part payment of an unliquidated debt which the debtor tenders in full satisfaction of the debt and the creditor accepts that offer[i].

An accord and satisfaction requires certain elements such as a bonafide or good faith dispute, an unliquidated claim, consideration, a shared and mutual intention to compromise the claim, and a valid contract that was performed[ii].

A claim is said to be “disputed” where there exists a bona fide dispute[iii] asserted in good faith[iv] and where the subject matter is reasonably doubtful.  A claim or defense becomes reasonably doubtful when there is an uncertainty about the facts or the law to determine whether forbearance on the claim or defense will serve as consideration for an accord and satisfaction[v].

However, it is not essential that the matter must be really in doubt to render a valid compromise agreement in an accord and satisfaction if the claim is honest and not fraudulent[vi].  Similarly, the bona fide dispute must be a dispute between the parties and not that is confined to the mind of the sender of the check.

[i] Sedona Dev. Group, Inc. v. Merrillville Rd. Ltd. P’ship, 801 N.E.2d 1274 (Ind. Ct. App. 2004)

[ii] Sims-Madison v. Inland Paperboard & Packaging, Inc., 379 F.3d 445 (7th Cir. Ind. 2004)

[iii] Texas Water Supply Corp. v. Reconstruction Finance Corp., 204 F.2d 190 (5th Cir. Tex. 1953)

[iv] Wickman v. Kane, 136 Md. App. 554 (Md. Ct. Spec. App. 2001)

[v] Id

[vi] Potter v. Pacific Coast Lumber Co., 37 Cal. 2d 592 (Cal. 1951)

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