Making "Accord and Satisfaction" Work for You
Ever think there's got to be a better way than wasting time wrangling with another party with which you're doing business when there's a dispute over the amount really owed? I’ve warned before about the risks of accepting checks intended as FINAL payment on a disputed obligation on my Fun with “Payment in Full” Checks post. Now a couple of Ohio appellate decisions illustrate the “right” and “wrong” way to go about using a “payment in full” check to resolve a dispute and/or bring finality to the transaction.
Two situationa in particular are addressed:
- When a landlord makes deductions from a security deposit, sending the balance to the former tenant, it assumes the relationship is now over. So what happens if the former tenant cashes the check sent by the landlord, but then sues the landlord for the balance of its security deposit?
- A customer complains to its vendor/supplier about the quality of the goods shipped to it and believes it is entitled to some sort of discount as a result. If the vendor/supplier does not agree, what can a customer do?
Whichever side of the table you’re on, it’s important to understand the practical side of the legal concept of “accord and satisfaction” and how it can affect the ability of the tenant to get the rest of the security deposit back or of the supplier to receive full payment after cashing a partial payment check from the customer.
Tourville v.Terzuoli, 2009–Ohio-2743 (Montgomery Cty) illustrates an ineffective use of "accord and satisfaction". After the tenant moved out, the landlord sent the tenant a check for a refund of a portion of the security deposit originally made by the tenant, together with an itemization of the deductions made from the security deposit. The tenant immediately called the landlord to discuss the itemized deductions and then cashed the check. A few weeks later, the tenant sued the landlord for a refund of the remainder of the security deposit withheld.
The trial court held that the tenant was barred from recovering the rest of the security deposit by the doctrine of “accord and satisfaction” because they cashed the check for a lesser amount. The Court of Appeals reversed and said the tenant should have been allowed to present evidence showing it was entitled to the balance of the security deposit.
The Court explained the “accord and satisfaction” concept this way:
First the defendant must show that the parties went through a process of offer and acceptance – an accord. Second. the accord must have been carried out – a satisfaction. Third, if there was an accord and satisfaction, it must have been supported by consideration.
The Court further explained that when a check cashing is involved, there must have been reasonable advance notice that the check was intended to be in full satisfaction of the outstanding debt. Because “there was no evidence that the check was the product of a negotiation between [the landlord and the tenant] regarding the amount of the security deposit that should be refunded,” the Court held no accord and satisfaction occurred. In other words, merely cashing a check for a lesser amount did not preclude the tenant from getting the full security deposit back.
By contrast, the case of Barmar Enterprises, L.L.C. v. Benco Industries, Inc., 2009–Ohio-366 (8th App. Dist. Cuyahoga Cty) is an example of an effective use of the accord and satisfaction doctrine to prevent recovery of the larger amount. Here, a steel brokerage delivered product to a distributor. Because the distributor’s end users rejected shipments on the basis of poor quality, the distributor issued itself six debit memos against the steel brokerage’s invoices. The distributor eventually sent the steel brokerage a reconciliation showing the debit memos accompanied with the following statement:
Enclosed please find our reconciliation of your account. In a show of good faith we have drafted a check in the amount of $30,892.96 representing full and final payment to [the steel brokerage of invoices totaling more than $100,000] thus clearing our account to a zero (0) balance. Upon your acceptance, [the distributor] will release your 44,860 lbs of steel [product in the possession of the distributor]. *** Please sign and fax back your acceptance of this accord and satisfaction in order to conclude this matter immediately.
The steel brokerage signed the document, the distributor sent the steel brokerage the specified check, and the check was cashed. Later the steel brokerage sued the distributor for the difference, alleging it sustained damages when it resold the rejected steel to a third party at a reduced cost. The Court said no dice and barred the steel brokerage from any recovery.
What these two cases illustrate is that putting a little thought into handling a dispute over an obligation can pay off – literally. Had the landlord accompanied the check for a partial refund of the security deposit with a statement indicating that it was intended as full and final payment of all amounts due from the landlord, it might have gotten the same result as the distributor did, i.e. by cashing the check when it had notice that it was intended to resolve the entire issue of the amount of the refund, the tenant would be barred from any further recovery of the amount withheld.
