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Creditor and Third Person

Accord and satisfaction is a method used to settle disputes in which there is a meeting of the minds with intent to compromise.  It is a new contract substituted for an old contract which is thereby discharged, or for an obligation or cause of action which is settled, and must have all of the elements of a valid contract.  An accord and satisfaction is generally entered into by the parties involved in the earlier contract.  However in some cases, the accord and satisfaction agreement may be entered into by the creditor and third person.

There may occur cases in which a third person may give something in satisfaction of a party’s debt.  In such a case, an accord and satisfaction is effected only if the creditor accepts the offer and the debtor authorizes, participates in, or later agrees to, the transaction.

Generally, in accord and satisfaction agreements, the acceptance as a full discharge of a promissory note or endorsement of a third person, even for a less sum, may constitute accord and satisfaction.  Therefore, where a creditor accepts from a third person an amount less than that which is due in full satisfaction of a debt, and the payment is made at the request of the debtor, there is an accord and satisfaction which discharges the debtor’s entire debt.[i]

In the case of Goetz v. Selsor[ii], it was observed that where a creditor accepted from a stranger less than the amount due in full satisfaction of the debt and that payment was made at the request of the debtor, there was an accord and satisfaction that discharged the entire debt.

Payment by a third party where the estate alleges accord and satisfaction is sufficient to be considered payment from the estate itself.  In such cases, the requirement of privity of contract for accord and satisfaction does not exist.  Further, receipt of payment from a third party by the creditor is the ratification of accord and satisfaction by the creditor himself.  Although payment by a stranger be not a legal discharge, yet acceptance in satisfaction is.  Where the creditor has actually received and accepted the contribution in satisfaction of the debt, s/he cannot be allowed to maintain an action on the same debt afterwards.[iii]

[i] Goetz v. Selsor, 628 S.W.2d 404 (Mo. Ct. App. S.D. 1982); Surber v. Woodruff, 10 Ohio Misc. 2d 1, 460 N.E.2d 1164 (C.P. 1983); Hollem & Truitt Lumber Co. v. Medicine Park Corp., 1947 OK 77, 198 Okla. 555, 180 P.2d 152 (1947).

[ii] 628 S.W.2d 404 (Mo. Ct. App. S.D. 1982)

[iii] Surber v. Woodruff, 10 Ohio Misc. 2d 1, 460 N.E.2d 1164 (C.P. 1983)

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