July 2009
Accord and Satisfaction
It has long been the law in Virginia that one can discharge a disputed debt for an amount less that a creditor says he owes simply by writing “Paid in full” on the check and convincing the creditor to cash it. In other words, the check acts as a new proposed agreement between the parties; the creditor’s cashing of the check acts as an acceptance of the terms of that agreement. This is a very basic illustration of the legal principle of “accord and satisfaction” in Virginia, codified in the Virginia Code at § 8.3A-311. If the creditor attempts to collect more than the amount of the check, the debtor can raise the defense of “accord and satisfaction” and halt further collection by the creditor.
Recently the Supreme Court of Virginia, in a case called Helton v. Glick Plumbing, Inc. , dealt with a twist on this factual scenario. In that case, a customer disputed the number of hours charged by a plumber for work on his home. The customer sent two letters to the plumber stating his side of the story, including tales of the plumber’s workers “goofing off” and wasting materials. Later, the customer mailed a cashier’s check to the plumber for $1,300.00, which was $1,686.51 less than the amount billed. Perhaps remembering previous Supreme Court cases, the customer had the foresight to write “Paid in Full” on the memo line of the check. He also included a third letter with his check stating that he was refusing to pay the full amount of the plumber’s bill because of the previously reported issues. Both the letters and the check indicated that no more payments would be made.
Undaunted, the plumber mailed the homeowner an invoice for the remainder of his bill. Included was a copy of the cashier’s check that had been deposited into plumber’s bank account. The plumber, however, had crossed out the words “Paid in Full,” and the words “No” and “Balance Due $1,686.51” had been added. The homeowner refused to pay any more and the plumber sued.
The case started in the General District Court, generally reserved for disputes involving less than $15,000.00. In both that Court, and the Circuit Court to which the homeowner appealed, the plumber won. Both courts awarded plumber a judgment in excess of the amount of the homeowner’s check.
The Supreme Court, however – ultimately the only court that mattered – sided with the homeowner and held that the Circuit Court had erred in allowing the plumber to recover any more from the homeowner. In the Supreme Court’s analysis, the homeowner proved every element of the “accord and satisfaction” defense to the plumber’s suit. First, the Court found that the check was tendered in good faith because there was no claim that it was submitted fraudulently. Second, the letters and the check indicated that the claim was subject to a bona fide dispute. Third, plumber deposited the cashier’s check that contained a conspicuous statement that the check was tendered as full satisfaction of the claim. Thus, homeowner proved that there was an “accord and satisfaction” under Code § 8.3A-311. More importantly, the Court, following the majority of other states, held that a creditor could not avoid an accord and satisfaction by altering an instrument tendered in good faith as a full payment of a disputed debt.
This decision affirms that the long-standing principles of accord and satisfaction are alive and well in Virginia. The lawyers at Moran Reeves & Conn PC are skilled at providing the counseling to guide parties through all types of commercial disputes, and the trial-readiness to litigate such disputes if necessary. Feel free to call the author of this article, Matthew J. Hundley, or any of the Commercial Litigation attorneys at Moran Reeves & Conn PC if you would like further information.
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To prove an “accord and satisfaction” under Va. Code § 8.3A-311, the debtor must prove that:
- he in good faith tendered an instrument to the claimant as full satisfaction of a claim;
- the amount of the claim was unliquidated or subject to a bona fide dispute; and
- the claimant obtained payment of the instrument.
In addition, the debtor must include a conspicuous statement, either on the check itself or in an accompanying written communication, that the check is tendered in full satisfaction of the claim.
277 Va. 352, 672 S.E.2d 842 (2009).