In Helton v. Phillip A. Glick Plumbing, Inc. (277 Va. 352; you can read the full decision here), the Supreme Court of Virginia addressed a contract dispute that centered on the issue of accord and satisfaction.Accord and satisfaction refers to a principle of contract law whereby a debtor obtains, from his creditor, a release from a disputed legal obligation in exchange for the debtor's agreement to pay some (but typically not all) of the obligation.
The most common setting for an accord and satisfaction is when one party (the creditor) has provided a product or service to the debtor and a dispute arises about how much the debtor owes to the creditor. If the debtor sends a check to the creditor with necessary "accord and satisfaction" language, and the other statutory requirements are satisfied, and the creditor cashes the check, then the parties have likely entered into an accord and satisfaction and the creditor no longer has a claim for the additional amount that was allegedly owed.
In Virginia, accord and satisfaction is governed under Code Section 8.3A-311 (you can read the section here), which provides that a debt is discharged if:
- A person [the debtor] in good faith gives a check (or other instrument of payment) to the claimant [the creditor] as full satisfaction of the claim; and
- The check or other instrument, or a written communication delivered with the instrument, contains "a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim"; and
- The amount of the claim was subject to a "bona fide dispute"; and
- The claimant obtains payment of the instrument.
In Helton, the Supreme Court addressed the situation where a debtor satisfies the requirements for an accord and satisfaction -- but the creditor tries to maintain the upper-hand and prevent the accord from occuring.
Mr. Helton hired Glick Plumbing, Inc. to do certain plumbing work at a house under construction in Penn Laird, Virginia.
After receiving invoices for Glick's work, Helton sent two letters that alleged that he had been overbilled. The letters claimed that Glick's workers had spent time at the house "goofing off," and that Helton should therefore not have to pay for all of the hours that were billed.
Later, Helton mailed a cashier's check to Glick's business address in the amount of $1,300.00, which represented $1,686.51 less than Helton had been charged on the invoices. In the memo line of the check, Helton wrote "Paid in Full," and he sent a letter, along with his check, which stated the amount had been reduced due to the previously reported issues with overbilling.
Glick deposited the check in its bank account, but Glick crossed out the words "Paid in Full" and added the words "No" and "Balance Due 1,686.51."
Glick's position -- which prevailed at the circuit court level -- was that its acceptance of Helton's check was not an accord and satisfaction but instead was only an acceptance of a partial payment.
The Supreme Court of Virginia, however, reversed, holding that if the other elements (listed in Code Section 8.3A-311) of an accord and satisfaction are satisfied, the creditor cannot avoid the accord by altering the "Paid in Full" notation (or otherwise trying to alter the debtor's offer).
There are several take-aways from Helton. First, if you are paid less than you believe you are owed by way of a check or other instrument that includes language such as "paid in full," you should not cash the check or otherwise accept the funds until you have determined the legal effect of doing so. Second, if you are in the position of the payee/debtor, and you believe that by paying a certain amount you will satisfy the requirements of an accord and satisfaction, consult with an attorney to confirm that you will indeed comply with the statute.
