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.
A claim is said to be “disputed” where there exists a bona fide dispute[i] asserted in good faith[ii] 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[iii].
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[iv]. 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.
However, there will be no bona fide dispute for purposes of an accord and satisfaction, if it is clear about the amount owed and the dispute is only upon whether the debt is owed or not[v]. A person cannot create a dispute sufficient to make a basis for an accord and satisfaction by creating a situation which changes the vested rights of the parties[vi].
In Hayes v. Alexander[vii], a teacher and her late husband gave money to the accountant to invest in two businesses. No return was received on the investments, and the teacher demanded a return of her money. The accountant agreed in writing to pay back a portion of the money. When the accountant failed to make the required payments on the promissory note, the teacher filed the suit. Court rejected the accountant’s claim that there was no consideration for the promissory note. The court also rejected the accountant’s claim that the agreement was unenforceable because there was no meeting of the minds. Court observed that the essential elements of accord and satisfaction were met.
[i] Texas Water Supply Corp. v. Reconstruction Finance Corp., 204 F.2d 190 (5th Cir. Tex. 1953)
[ii] Wickman v. Kane, 136 Md. App. 554 (Md. Ct. Spec. App. 2001)
[iv] Potter v. Pacific Coast Lumber Co., 37 Cal. 2d 592 (Cal. 1951)
[v] Sedona Dev. Group, Inc. v. Merrillville Rd. Ltd. P’ship, 801 N.E.2d 1274 (Ind. Ct. App. 2004)
[vi] Fichter v. Milk Wagon Drivers’ Union, 382 Ill. 91 (Ill. 1943)
[vii] 264 Ga. App. 815 (Ga. Ct. App. 2003)