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What Constitutes Unreasonable Period of Retention

When a creditor retains a check offered as payment in full can constitute assent to an accord and satisfaction sometimes[i].  When a creditor receives a check purporting to be in full payment of a debtor’s disputed obligation, the creditor should return it promptly in order to avoid an accord and satisfaction[ii].

However, it was also observed that a mere retention of check without any negotiation by the creditor will not cause an accord and satisfaction[iii].  The period of retention is one of the significant factors that determine whether an accord and satisfaction has resulted.  If the check has been retained for an unreasonable period of time unexplained, it can operate as an accord and satisfaction[iv].

Similarly, if the debtor has requested the creditor to return the check back if s/he does not opt to accept it as payment in full will also be considered as a significant factor in determining whether the creditor’s retention constitutes an accord and satisfaction[v].

However, retention becomes unreasonable depending upon the facts and circumstances of each case.  For example, in some cases retention of two weeks or less[vi] was held reasonable and in some cases retention more than a year was held unreasonable[vii].

Whereas, in a particular case law, it was held that a period of more than three and one half years was held reasonable where such retention followed notice that the check was not accepted as payment in full[viii].

In Morris v. Aetna Life Ins. Co[ix]., an additional insured met with an accident while operating a car owned by his mother who was the insured.  The insurer paid all claims submitted by the additional insured except the claim involving a medical bill which was denied because the additional insured refused to give medical examination.  After the additional insured brought an action, the insurer paid the claim.  The check which was not negotiated was returned to the insurer.

The court observed that the additional insured was bound by the provision in the policy that enabled the insurer to require medical examinations even though the additional insured did not sign the policy.  The court also found that the insurer’s agents exercised reasonable judgment and acted in good faith in delaying payment of the disputed claim because the insurer had the right to require the medical examination.  In addition, the additional insured’s breach of the contract by refusing the examination entitled the insurer to withhold payment entirely.

[i] Valley Asphalt, Inc. v. Stimpel-Wiebelhaus Assocs., 3 Fed. Appx. 838 (10th Cir. Utah 2001)

[ii] Besco Enterprises, Inc. v. Carole, Inc., 274 Cal. App. 2d 42 (Cal. App. 1st Dist. 1969)

[iii] Hoeppner Constr. Co. v. United States, 273 F.2d 835 (10th Cir. Colo. 1960)

[iv] Kelly v. Kowalsky, 186 Conn. 618 (Conn. 1982)

[v] Id.

[vi] Service Fire Ins. Co. v. Ledbetter, 112 Ga. App. 333 (Ga. Ct. App. 1965)

[vii] Morris v. Aetna Life Ins. Co, 160 Ga. App. 484 (Ga. Ct. App. 1981)

[viii] Kelly v. Kowalsky, 186 Conn. 618 (Conn. 1982)

[ix] 160 Ga. App. 484 (Ga. Ct. App. 1981)


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