A review of Tennessee case law, published and unpublished, demonstrates that the affirmative defense of accord and satisfaction is asserted far more often than it is successful. Nevertheless, it can be effective. Whether an accord and satisfaction defense is successful is dependent on the unique facts of each case, and, of course, on the reaction of the particular judge or jury to those facts.
The defense is used mostly in commercial litigation, though it pops up in tort cases from time to time in disputes about settlement agreements. Since it is an affirmative defense, the burden of proving it is on the defendant. As well, whether there has been an accord and satisfaction is a jury question (provided that the defense survives summary judgment).
The defense of accord and satisfaction arises where a party who owes some obligation or debt to another gives something other than, or less than, what the party who is owed the obligation believes it is entitled to receive. The giving of the something other than, or less than, is the accord part of the defense. The giving part of the defense, or the accord part, is usually a cinch to prove.
An accord and satisfaction is, at its core, a contract. To prove an accord and satisfaction, therefore, you have to prove that there was an agreement between both the parties. In other words, the accord which was offered by one party (the one asserting the defense) must also have been accepted by the other party.
Proving the acceptance part is usually where parties asserting the defense fail. It is the difficult hurdle in the defense, as Tennessee case law proves.
To prove that there was an acceptance, a party must prove that it was the intent of the party against whom the defense is asserted, in fact, to accept. In deciding whether there was an acceptance, the judge or jury must look at all of the attendant circumstances.
To understand the defense better, consider two cases: One in which the defense of accord and satisfaction worked, and the other in which it did not.
In Lewis v. Modern Supply Company (Tenn. Ct. App. 1986), a building contractor (“Contractor”) owed a supplier (“Supplier”) $15,231 for supplies it had purchased. The Contractor sent a check to Supplier for $13,886. On the face of the check, Contractor wrote: “Acct. in full to date.” With the check, Contractor also sent a letter stating that the check was for payment on the account “in full.”
On the same day Supplier received the check, it deposited it. It also wrote a letter that day to Contractor stating that its account balance was $1,532. The parties ended up in a lawsuit.
Contractor alleged that there had been an accord and satisfaction. The trial court and the Court of Appeals of Tennessee disagreed. Why? After all, Supplier cashed the check? Did that not amount to an acceptance? “No,” said the Court of Appeals.
By sending the letter to Contractor the same day it received the check notifying it that it still had a balance due, Supplier had demonstrated its intent that it did not accept the accord. Since the accord was not accepted, there was no satisfaction.
In Lindsey v. Lindsey (Tenn. Ct. App. 1996), the following were the key facts:
- In 1983, Father conveyed, by warranty deed, certain land to his Children
- At the same time Father conveyed the land, Children signed a Deed of Trust (a mortgage) on the land to secure a $70,000 demand note payable to Father
- The warranty deed was recorded in 1983, but the Deed of Trust was not recorded until 1993 (ten years later)
- Father continued to reside in the house on the land, but did not pay rent to his children
- Father paid to maintain the house, to insure it, and paid the property taxes
- Children testified that the purpose of the $70,000 note was for the Father to have security that they would not force him off of the land
- Children also testified that Father agreed that he would never try to collect on the note
- Father testified that he did not give the property to Children, but sold it to them for $70,000
- In 1988, Children conveyed a life estate in the property to Father
- Children alleged that Father agreed to nullify the demand note in exchange for the life estate, but Father denied this
- There was not a writing memorializing the alleged agreement of father to tear up and to nullify the note
- In 1993, Father tried to enforce the note
In Lindsey, the trial court found that the Father’s testimony was “unreliable.” The Court of Appeals noted, among other things, that it was significant that, for many years, Father never attempted to collect on the note; could not produce a copy of the note; and waited ten years to record the Deed of Trust. The Court of Appeals affirmed the trial court’s ruling that there had been an accord and satisfaction.
The accord was Childrens’ offering the life estate to Father in exchange for his agreeing to nullify the note. In Lindsey, the trial court found that Father intended to accept Childrens’ offer. Thus, there was a satisfaction.
For Tennessee lawyers who handle breach of contract cases, evaluating the defense of accord and satisfaction is important. If it is a potential defense, don’t forget that it is an affirmative defense, and must be pled as such.