Joseph G. Ballstaedt
Unfortunately, not all contracts sail smoothly without dispute. Often times, one party breaches the contract—or there is at least a claim of a breach—and the two parties duke it out, and the conflict can be both time-consuming and expensive. There is a common saying that “a bird in the hand is worth two in the bush,” and a Utah statute, known as the “accord and satisfaction statute,” encourages settlement based on this principle. Sometimes it is better to take an offered payment that is less than what is owed than it is to risk losing any payment at all by trying to get full payment.
Here is a short example of how this “accord and satisfaction” works. Let’s suppose a contractor agrees to remodel a homeowner’s bathroom for $5,000. The contractor finishes the work and sends the homeowner a bill for the agreed-upon payment of $5,000—but the homeowner refuses to pay and responds with a letter claiming he doesn’t owe the contractor anything because the work was so bad that he’ll have to hire another contractor to do the same exact work for the same price. The contractor replies in a letter that the work was great and threatens to sue the homeowner (and even enforce his lien rights) unless he gets full payment.
At this point, the homeowner still believes that the work was deficient but is understandably worried about the possibility of a drawn-out dispute and potential litigation. The costs just simply aren’t worth it to him, so he reluctantly sends the contractor a check for $2,500 with a large, handwritten note on the front side of the check that states: “FULL SETTLEMENT PAYMENT FOR WORK ON MY BATHROOM.” After receiving the check, the contractor rethinks his own position. He too feels justified, believing he did the work perfectly well. However, he also shares the homeowner’s concerns for the time and expense of litigation. He would rather cut his losses on this job and pursue other work rather than try his luck in court, so he reluctantly deposits the check at his bank. This act of depositing the check likely legally resolved the matter. If either the contractor or the homeowner has a change of heart several months later and wants to revisit the dispute, he is likely stuck with the settlement. The two have just performed what is called an accord and satisfaction.
This example above shows the four basic required elements of an accord and satisfaction:
1. Tendering an Instrument in Good Faith. One party to the dispute must provide the other party payment through a negotiable instrument as an offer to fully resolve the claim. The most common form of a negotiable instrument is a check, including a personal check.
2. Bona Fide Dispute. Without a genuine dispute, a party cannot sneak in a lesser payment and accomplish an accord and satisfaction. In the example above, had the homeowner simply responded to the initial bill of $5,000 by sending a check in the amount of $2,500, the contractor would probably have cashed the check, maybe believing that the homeowner mistakenly sent only half payment or only had half payment at that time. The contractor might even follow up with a second bill for the remaining amount, unaware of the homeowners objections with the work on the bathroom. In this type of situation, there is not yet a bona fide dispute (or at least not a communicated one), so the payment of $5,000 is unlikely to create a legally binding settlement agreement—or an accord and satisfaction.
3. Conspicuous Statement. Similarly, because the law doesn’t generally favor tricks, the accord and satisfaction statute requires that any attempt to settle be clear. The negotiable instrument or any accompanying document, therefore, must—as stated in the statute—contain a “conspicuous statement” that the check or other tendered payment is intended to create a “full satisfaction of the claim.” create a fully satisfaction of the claim. In our example above, the large, red print on the face of the homeowner’s check satisfies this requirement. A similarly conspicuous statement could be included in an accompanying letter separate from the check.
4. Obtaining Payment of the Instrument. A necessary element of any accord and satisfaction is that a party actually received the offered payment. In the example explained above, the contractor and the homeowner could not have reached a settlement if the contractor never cashed nor deposited the $5,000 check. That does not mean, however, that acceptance of payment creates an irrevocable settlement. Under Utah law, even if one party received the offered payment (for example, by cashing the check), he can still undo the acceptance by repaying this amount within 90 days. In other words, in the example set forth above, if the contractor had paid back the homeowner $2,500 within 90 days, the accord and satisfaction would likely have been undone.
Legal Assistance with Contract Disputes. Each contract dispute is factually different, and simply offering payment in a manner similar to the example I provided above may not be enough to reach an accord and satisfaction. As a Utah contract and litigation attorney, I understand the frustrations, risks, and expenses of contract disputes, and in many cases, negotiating a resolution is better for both parties than bringing the matter before a Utah judge. If you are interested in reaching a contract resolution (or an accord and satisfaction), I am more than willing to discuss the particular facts of your case and give you guidance. I offer free consultations. My direct dial is 801.365.1021, and you can e-mail me at firstname.lastname@example.org.