Under the principle of accord and satisfaction, a debt is deemed to be discharged if a debtor tenders a check to a creditor clearly offered as payment in full for a known disputed claim, and that check is cashed by the creditor. The purpose behind this general rule is to protect the good faith expectations of a debtor who makes payment to a creditor on the condition that it will be accepted as payment in full for the debt owed. In addition, this rule of law is thought to promote the resolution of disputes between creditors and debtors informally and without litigation. Accordingly, accord and satisfaction constitutes a defense to a legal claim for money after a debtor has tendered a check as full payment.
Creditors should be aware of this legal principle in the event a debtor makes payment in an amount less than the full amount owed with the intent to satisfy the entire debt. For example, suppose a creditor sends a bill to a debtor stating that the amount due to the creditor is $10,000.00. The debtor sends a letter to the creditor disputing the amount due, along with a check to the creditor in the amount of $7,000.00 marked as "payment in full." The creditor cashes the check. Under the general rule described above, the payment of $7,000.00 has satisfied the full amount due, and the total debt is discharged.
The Wisconsin Statutes provide important requirements for accord and satisfaction by use of an instrument. Under Wisconsin Statute § 403.311, the debtor must prove that three conditions have been met in order to assert accord and satisfaction as a defense to a legal claim by the creditor. First, the debtor must have tendered the check to the creditor in good faith, meaning that the debtor is not trying to "sneak one past" the creditor and instead sincerely intends to make the creditor aware of the attempt to settle the matter for a lesser amount. Second, the amount of the claim or debt must have been subject to a known bona fide dispute. And third, the creditor must have accepted payment of the instrument; that is cashed the check.
Returning to the previous example, the statute’s "good faith" and "known bona fide dispute" conditions appear to have been met by the letter that accompanied the debtor’s payment, assuming the debtor had a colorable basis for the dispute. Therefore, the creditor’s receipt and acceptance of the payment with that knowledge meets the third requirement of the statute and an accord and satisfaction appears to have occurred.
Fortunately, the statutes provide another safeguard for creditors. Even if the debtor meets all three of the requirements above, the creditor still has the ability to tender repayment of the check to avoid discharge of the entire debt. Under §403.311(3), a debt is not discharged if the creditor tenders repayment within 90 days after the intended full payment was made by the debtor. Therefore, even if a debtor attempts to make full payment in good faith, for a debt that is subject to a known bona fide dispute, and the creditor has accepted payment, the creditor still has the ability to avoid discharge of the debt by tendering repayment of the debt within 90 days. In the example above, the debt will not be discharged if the creditor tenders repayment of the $7,000.00 within 90 days of cashing the check.
It is important for creditors to be aware of both the general principle of accord and satisfaction and the Wisconsin statutory law described above, in the event a debtor attempts to make full payment on a debt in an amount less than that which is due. Creditors, especially large creditors, often receive a significant number of payments from debtors in any given time period. Nonetheless, all creditors should be on the lookout for tender of payment by debtors intended as payment in full when processing payments. If a creditor does cash such a check from a debtor, the creditor also needs to be aware safeguards provided under the statutes, including the provision allowing the creditor to tender repayment within 90 days to avoid discharge of a debt.
Our staff at Kohn Law Firm has a long standing commitment to support its community. Various charity fund raisers are held throughout the year in the firm. We support the American Heart Association’s Wear Red day in February, usually with an award to wear jeans to work with a donation.
In September, the firm supported the Walk to Cure Diabetes through donations to the Juvenile Diabetes Research Foundation International. In walking through the firm, there are tack boards with multiple years of their “shoe” receipt hanging as a reminder of our long standing commitment there. Employees also earned a jeans day in October supporting Special Olympics during a “Toss the Boss” rappelling event held at what will be our new office space. All funds donated by employees were matched by the firm. (And we opted to toss our new building manager over the edge this year instead of any firm boss.)
We have pitted departments and teams against each other for a Pennies War to support UNICEF, marking the second year this charity has been supported. We’ll see employees in costume on Halloween, and a few will have some bragging rights.
The holiday season brings out additional generosity from our staff. The Hunger Task Force has been supported by Kohn Law Firm for many years during the holiday season. The firm will again match all monetary donations received from employees who are buying up to four days to wear jeans in December.
KLF is FIT FRIENDLY!
“On behalf of the American Heart Association, I would like to congratulate your organization on achieving Fit Friendly Company recognition for July 2011. This is a huge accomplishment which reflects the hard work and commitment you have to improving your employees’ health.
Thank you again for all you are doing to help your employee’s lead healthier lives, free from cardiovascular diseases and stroke.
Warm Regards,
Kevin D. Harker Executive Vice President, Midwest Affiliate”