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Effect of Counterclaim or Setoff

An accord and satisfaction is the result of an agreement, and law stipulates that an accord and satisfaction must be consummated by a meeting of the minds of the parties.  Controversy can arise as to settlement of claim on the basis of accord and satisfaction where a counterclaim or set-off is claimed as a part payment of the liquidated and undisputed debt.  An initially liquidated claim becomes unliquidated when, by reason of a counterclaim or setoff, the actual amount due on the balance has been put in doubt between the parties.[i]  Under such circumstances, an accord and satisfaction may result from the payment of a lesser sum than the creditor’s claim, even a sum not in excess of the balance concededly due.  Thus, a liquidated claim due a creditor is rendered unliquidated, “when the debtor in good faith asserts a disputed counter-claim or set-off, and in such a case an accord and satisfaction may result from the payment by the debtor of an amount less than the creditor’s claim and no greater than the amount which the debtor concedes to be due.”  For instance, in H.L. “Brownie” Choate, Inc. v. Southland Drilling Co., Inc., 441 S.W.2d 672 (Tex. Civ. App. San Antonio 1969), plaintiff creditor,  who was the service provider to the defendant debtor caused significant damage to defendant’s drilling rig.  In accordance with their past practice, defendant recovered the damage amount by deducting it from the amount it owed to plaintiff for services rendered.  Plaintiff filed suit to recover the deducted amount.  The court held that “when the amount due was in dispute, and the debtor tendered a check for less than the amount claimed by the creditor while expressing his intention that the check was offered in full settlement, the retention and cashing of the check by the creditor was regarded as an acceptance of the offer, and such action on the part of the creditor operated as a full satisfaction.”  The court found that plaintiff’s acceptance of a lesser amount constituted an accord and satisfaction of the debt.  Majority of jurisdictions follow this view although there is authority to the contrary.[ii]

[i] Harr Iron Co. v. Melas Theatre Corp., 181 N.E.2d 726 (Ohio Ct. App., Columbiana County 1961)

[ii] B. Mifflin Hood Co. v. Lichter, 106 F. Supp. 220, 231 (D. Tenn. 1950). (A counter or additional claim in dispute does not render the principal obligation unliquidated where such principal obligation is itself not in dispute.  An accord and satisfaction in such cases would not be applicable.)

Inside Effect of Counterclaim or Setoff