Partial Payments of Debt, and Accord and Satisfaction Problems

If you’re owed money, for a lot of reasons, it is a good idea to see if you can work out an arrangement for payment, before just jumping into a lawsuit. But if you don’t do that correctly, you could end up hurting yourself, because of a little known legal doctrine, called accord and satisfaction.

A Typical Situation

Let’s assume that you are owed a debt by a debtor. The debtor says that he or she cannot pay, or even disputes what may be owed. But as a show of good faith, and to avoid further collections, the debtor makes a partial payment, which you accept.

Later, you approach the debtor to collect the remaining balance. The debtor says to you, “what remaining balance? I paid you before. That was all I was willing to pay, and you accepted it, so I don’t owe any more.”

Who is right in this situation? It’s not as clear as you may think because as the debtor points out, there is a chance that the court doesn’t see what the debtor paid, as a partial payment—there’s a chance the court sees it as a negotiated settlement of all monies that are owed.

And if a court does see it that way, that’s it—you won’t be able to collect any more money that is owed to you.

Clarify What You are Doing

One easy way to avoid this happening to you is, if you do opt to accept a partial payment of an amount owed to you, to clarify that your acceptance of that money, isn’t a complete settlement of all the amounts (the remaining balance) that may be owed.

You can do this by stating in a writing that it is a partial payment, or that you are accepting the payment with reservation of your rights to collect on the remaining balance. You should try to get some confirmation from the debtor, that he, she or it, understands that this is not a final and complete settlement.

Watch Debtor Writings

Often, clever debtors will try to provide partial payments, with words like “full settlement,” or “in complete satisfaction of amounts owed,” or similar language. It may be written on the instrument (like the check itself), or in a separate email or writing.

Before cashing that check or depositing the money you should get clarification from the debtor, and make sure that he or she understands that this is a partial payment—not a full settlement of all amounts that may be owing.

Long Term Payments

All of this applies where a debtor makes a single, partial payment. If the debtor wants to work out an extended payment plan to pay off a larger debt, it is always best to have a separate writing memorializing the terms of the agreement.

Collect on debt owed to your business the right way. Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 for help.

Sources:

law.cornell.edu/ucc/3/3-311

caselaw.findlaw.com/fl-district-court-of-appeal/1674975.html