Chapter 12
Evaluating Whether Contract Modifications Are Enforceable
In This Chapter
Evaluating the enforceability of modifications made during performance
Knowing when no oral modification clauses carry weight
Recognizing when a party can make modifications unilaterally
Using accord and satisfaction to determine when a partial payment discharges a debt
Contracts usually call for future performance, and because no one can predict the future, parties may modify their contracts to accommodate unforeseen circumstances. Unfortunately, when parties modify a contract, they often don’t take the steps necessary to make the modifications clearly enforceable. As a result, after agreeing to a modification, one party may claim breach during performance while the other party claims it’s not in breach because the original contract was modified. Or after one party has performed, the parties may enter into an accord in which they agree that the other doesn’t have to pay as much as they originally agreed to. The courts must then determine whether the modification or the accord is enforceable.
When the parties modify the contract makes a big difference:
Before completing performance: An executory contract is a contract that neither party has fully performed. When parties modify an executory contract, the courts analyze the contract according to the law of modification.
After one party has fully performed: When the modification occurs after one party has fully performed, you’re dealing with a contract fully executed by one party. The courts analyze the contract according to the law of accord and satisfaction. (Accord is an agreement to discharge a debt by the payment of less money. Satisfaction is performance of that accord.)
This chapter explores some of the ways parties modify contracts before and after a party has fully performed. You discover how courts respond to these modifications in each case so that you’re better equipped to advise your clients and represent them when such modifications become the basis of a dispute.
Considering Modifications Made during Performance
To determine whether a contract modification made during performance is enforceable, you must examine several factors, including whether consideration was required, whether the modification falls within the statute of frauds, and whether the original contract has a no oral modification (NOM) clause or a clause that gives a party the right to make modifications unilaterally. This section explains how to evaluate these factors to determine whether a modification made during performance is enforceable.
Determining whether consideration is required
In theory, a contract modification is a new contract, requiring offer, acceptance, and consideration (see Chapters 2 and 3). Contract modifications, however, don’t always require consideration. To determine whether a modification is enforceable, the courts first consider whether the contract falls within UCC Article 2 (contracts for the sale of goods):
Within the UCC: The courts must follow the Code rule enacted by the legislature, § 2-209(1), and according to that rule, no consideration is necessary for a modification.
Not within the UCC: If you have a common-law case, some courts follow the old rule that if consideration is absent, then the modification is not enforceable. Other courts follow the Restatement, which says in § 59 that the modification is enforceable as long as it’s “fair and equitable.”
For example, a business rents a store in a shopping mall for two years at $1,000 per month, as reflected in a written lease. Shortly after the store opens, the economy slides into recession and the store isn’t doing so well. The business asks the mall whether it will agree to reduce the rent to $800 a month. The mall agrees, and the parties shake hands on it. After the business has paid $800 a month for six months, the mall claims that the business owes $1,200 — the balance of the unpaid rent for six months. The business claims it modified the contract and the mall agreed, but the mall says, “Ha-ha! You don’t remember your contract law. Consideration is required to make a promise enforceable. We promised you a reduction in rent of $200 a month, but you didn’t promise us anything in return. Therefore, our promise isn’t enforceable.”
The mall is technically right as a matter of general contract law, but given the fact that the parties agreed to a modification in good faith, letting the mall back out of its agreement to accept $200 less per month seems unjust. Contract law has struggled to find a theory to enforce modifications like this that the parties enter into in good faith. Here are some of the ways contract law has gotten around the problem:
A party can provide something new or different as consideration. The business could avoid the consideration problem by bargaining to give something in return for the reduced rent. For example, the business could say, “We’ll give you rent of $800 and a peppercorn rather than $1,000.” If the mall agreed, they’d have a bargained-for consideration. Is a peppercorn worth $200? If the parties say it is, the answer is yes — why should contract law disturb their agreement?
The parties can tear up the old agreement (a process called mutual rescission) and enter into a new one. This solution works because mutual rescission gives each party consideration (something of value): the release of their obligations under the contract. In effect, this process involves making three different contracts:
• The original contract: The business rents the store for $1,000 per month.
• The mutual rescission: The mall gives up rights against the business, and the business gives up rights against the mall.
• The new contract: The business rents the store for $800 per month.
The problem with this approach is that parties rarely take these three steps, so a court that finds they did often uses a legal fiction, pretending something happened in order to achieve a desirable outcome.
Contract law can change the rules so that the modification is enforceable even without consideration. Contract law has taken this approach but has done so differently in the common law and the UCC, as the next two subsections explain.
Dispensing with consideration: The UCC approach
The UCC has taken a straightforward approach to the problem of requiring consideration for a contract modification: It says that no consideration is necessary in such situations. Section 2-209(1) provides, “An agreement modifying a contract within this Article needs no consideration to be binding.”
Statutes have this advantage — the legislature can make a sweeping change to the law. Of course, because this provision appears in Article 2, it applies only to the sale of goods. If a seller of widgets agreed to reduce its contract price from $1,000 to $800, this provision would make the modification enforceable. But it wouldn’t help a business that agreed to a $200 rent reduction in leasing a store from the mall.
Just because the UCC does away with consideration in a modification doesn’t mean all modifications become enforceable. Other formation defenses (see Chapters 5 and 6) still apply. For example, if the widget buyer threatened the seller with bodily harm if the seller didn’t agree to a price reduction, that modification wouldn’t be enforceable because the seller entered into it under duress.
A more subtle Code limitation on the enforceability of modifications is the doctrine of good faith and fair dealing (see Chapter 10). This doctrine is part of every contract, regardless of whether the parties expressly include it in their agreement. Just because the Code says that a modification doesn’t require consideration, not every modification lacking consideration is enforceable. The doctrine of good faith can be used to prevent enforcement of a modification that may otherwise be enforceable.
In Roth Steel Products v. Sharon Steel Corp, the plaintiff had agreed to purchase various kinds of steel at various times from the defendant. At the time they made the contract, the market for steel favored the buyer. But when the market later changed and steel became harder to obtain, the seller sought to modify the price. The buyer initially agreed to the modification but then sought to avoid it.
The Sixth Circuit Court of Appeals, applying the Ohio UCC, acknowledged that lack of consideration was not an argument that the buyer could use to avoid the contract because § 2-209(1) specifically provides that a modification does not need consideration to be binding. However, the court pointed out that, as indicated in Official Comment 1 to § 2-209(1), “modifications made thereunder must meet the test of good faith imposed by this Act.”
Good faith requires both the “observance of reasonable commercial standards of fair dealing in the trade” and “honesty in fact,” as I explain in Chapter 10. The court found that the first prong had been satisfied because the seller was experiencing a loss on the contract, and a reasonable seller in that situation would request a modification. However, the seller did not satisfy the second prong because it wasn’t honest in requesting the modification. Instead of explaining that it believed the contract entitled it to pass on higher prices (an argument it came up with only during the litigation), the seller had threatened the buyer, saying that it would not ship any steel to the buyer if it did not agree to the price increase. That behavior is coercive and inconsistent with good faith.
The case makes clear that even though the UCC has done away with the requirement of consideration for a modification, that doesn’t mean that all modifications without consideration are enforceable. The courts can use the doctrine of good faith to police behavior such as coercion, even if that behavior does not rise to the level of duress, which was the principal way to avoid a modification under the common law.
Although a party must perform a contract in good faith, no requirement stipulates that a party must agree to a modification. If one party requests a change, the other party is free to say no.
Enforcing reasonable modifications: The common-law approach
In common law, courts set precedents, which lower courts in the jurisdiction must follow, but which have only persuasive authority in other jurisdictions. If enough courts follow the same rule, then it becomes the general rule, and it may become the black-letter rule of the Restatement.
Over time, a number of courts in common-law cases began to find contract modifications enforceable even with consideration missing. The Restatement states the rule this way in § 89(a):
§ 89. Modification of Executory Contract
A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made
If a court were to apply this rule to the rent-reduction scenario involving the mall (see the earlier section “Determining whether consideration is required”), the court would probably find that the modification was enforceable. The circumstances changed because of the economic recession, and the parties freely agreed to the modification.
The Restatement is not the law, and courts are free to ignore it. Rules in the Restatement are merely what the drafters found to be the rules. Usually the drafters state the rules that a majority of jurisdictions follow, but sometimes they state a rule they prefer even if it isn’t followed in the majority of cases. In a common-law case, the court may follow the rule in the Restatement or ignore it and stick to the old rule — in this case, refusing to enforce the modification when consideration is absent. In a Code case, however, courts must follow the UCC rule enacted by the legislature, and according to that rule, no consideration is necessary for such modifications. (See Chapter 1 for details on the UCC, the Restatement, and common law.)
Written requirements: Seeing whether the modification is within the statute of frauds
Even if a modification passes the consideration test, the agreement is still subject to the other formation defenses, including the statute of frauds (see Chapter 8) — the collective name for statutes that require written evidence of a contract. If the agreement is within the statute of frauds, then oral modifications don’t count.
In the example presented earlier in this chapter, the parties orally agree to reduce the rent on a two-year lease from $1,000 to $800. Because this agreement is related to real estate and real estate leases for more than one year are within the statute of frauds in most jurisdictions, the modification is not enforceable, even if it passes the consideration test. To be enforceable, the agreement would need to be in writing.
In the UCC, this rule appears in § 2-209(3), which provides that
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.
The UCC statute of frauds, § 2-201(1), requires contracts for the sale of goods for $500 or more to be evidenced by a writing. The rule of § 2-209(3) clearly applies if the parties made an oral agreement to sell four widgets for $400 (not within the statute of frauds) and then orally modify it to a sale for $600 (within the statute of frauds) — the modified agreement would have to be evidenced by a writing to be enforceable. The rule is less clear if the parties had a written agreement to sell the four widgets for $1,000 and then orally agreed to drop the price to $800. The contract as modified is within the statute of frauds. Written evidence of the modified agreement exists; however, it doesn’t include the new price term. You could argue that the writing doesn’t have to contain all the terms, as I discuss in Chapter 8.
Courts are divided on whether oral modifications to written agreements like this are enforceable. One thing they do generally agree on, however, is that if the quantity is modified, that modification has to be evidenced by a writing. For example, if the parties orally modify the agreement from four to five widgets for $1,000, most authorities would find that the writing does not evidence this agreement.
Dealing with “no oral modification” clauses
One of the most common terms found in the boilerplate of contracts is the no oral modification clause (NOM). It functions as the parties’ own private statute of frauds providing that oral modifications don’t count. The UCC expressly permits parties to create an NOM. Section 2-209(2) provides in part that “A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded.” This clause has a positive channeling effect, encouraging the parties to get their modifications in writing. The problem is that nine times out of ten, they don’t realize that the provision is there, or they ignore it, and they make an oral modification anyway.
Most courts find that an oral modification made in the face of a NOM is enforceable, especially when it induces reliance. (I cover reliance in Chapter 4.) Contract law authority Arthur Corbin says that the written contract the parties make today can’t change what they agree to tomorrow. In other words, today they agree that all modifications must be in writing. Tomorrow, by making an oral modification, the parties imply an agreement to change their original rule and allow oral modifications. Courts frequently invoke the doctrine of waiver to get around the NOM. (A waiver is a knowing relinquishment of a legal right.)
For example, a bank has a written agreement with a borrower for a car loan. The contract says that the customer agrees to make payments on the first of the month, and if she doesn’t, the bank can accelerate the debt (make the entire amount due) and repossess the car. The customer calls the bank and says, “I’m having a temporary cash-flow problem. Would it be okay if I pay next month on the tenth rather than the first?” The bank employee says, “No problem.” However, the bank employee neglects to tell the department that deals with defaults, and when the payment doesn’t arrive on the first, the bank repossesses the car.
Outraged, the customer says, “You agreed that I could have until the tenth to pay.” The bank says, “Ha-ha! No consideration! We gave you another ten days to pay, but what did you do for us?” The customer says, probably rightly, “This is a case where the modification may be enforceable without consideration under the rule found in Restatement § 89.” The bank says, “That may be true, but the contract that you freely agreed to has a NOM clause stating that oral agreements don’t count.”
Rarely would a court let the bank get away with that argument. Most courts say that the bank had the right to insist on the NOM, but it waived that right when it agreed to the oral modification, which led the customer to believe that nothing terrible would happen if she paid ten days late. Her reliance on the oral agreement makes it enforceable.
The UCC recognizes the waiver doctrine, providing in § 2-209(4) that both an agreement in violation of the NOM clause and an agreement in violation of the statute of frauds are subject to waiver: “(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.”
Agreeing to future, unilateral modifications
A cutting-edge question in contract law is whether the parties can agree that one party has the right to make unilateral (one-sided) modifications during the performance of the contract. In a number of cases, banks have done this to raise credit card interest rates in response to market changes.
A contract would be illusory if one party in effect said to the other, “You’re free to make whatever terms you want, and I will agree to them.” Such a provision would undermine the idea that contracts represent the agreement of two parties. On the other hand, allowing unilateral modifications based on future events makes sense in cases in which the parties can’t possibly predict a change in circumstances.
A rule that provides a good balance would permit the agreed-upon unilateral modifications when they’re based on some objective standard. Under that approach, a party that had reserved the right to make unilateral modifications would be allowed to change a term like a price or interest rate to meet a market standard but prohibited from changing terms unrelated to market fluctuations.
For example, in a long-term written agreement, a seller sets the price of goods at $1,000 each, says nothing about dispute resolution, and reserves the right to change the terms of the agreement. A few months later, the seller informs the buyer that because of an increase in the price of its raw materials, starting next month, the price of the goods will be $1,050 each and all disputes will go to arbitration. Are these modifications enforceable? Although not all courts will agree, I think the best answer is yes and no. Assuming that the price increase reflects a change in the market, the modified price increase is enforceable. However, the new language concerning how arbitrations are to be handled is not enforceable, because it’s not tied to some future, objective change in circumstances.
Making Changes after One Party Fully Performed: Accord and Satisfaction
After one party has fully performed, the other party owes the contract price for that performance. The party who performed is a creditor, and the party who hasn’t performed is a debtor. In this case, only the debtor has something to bargain with (the unpaid debt), so allowing modification without consideration doesn’t make sense. Either the debtor must pay up, or the parties may cut a deal through accord and satisfaction.
An accord is a contract in which a creditor agrees to accept less than the full amount of the debt in order to discharge the debt (satisfaction). Because an accord is a contract, all the elements of a contract I discuss in Part I, including offer, acceptance, and consideration, must be present without any of the defenses I discuss in Part II, including fraud, duress, and mistake.
For example, a painter has agreed to paint a house for $10,000. When the painter finishes the job, the painter is now a creditor, and the owner owes a debt of $10,000. The contract has been fully performed by one party — the painter — and the contract price is now due. If the debtor now offers to pay less, any agreement that results falls under the law of accord and satisfaction rather than modification.
Determining whether the parties formed an accord: Offer and acceptance
Like any contract, an accord requires offer and acceptance, but what constitutes offer and acceptance in this case can get fuzzy. For example, if the debtor owes the creditor $10,000 and sends the creditor a check for $8,000, a reasonable person in the shoes of the creditor would think this was just a payment on account (a partial payment made with the intention of paying the rest later) and that the remaining $2,000 is still owed.
If the debtor intends the creditor to discharge the debt by accepting this partial payment, the debtor must make that clear in the offer. This issue often arises with a conditional check, in which the debtor writes the offer to discharge the debt in fine print on the check. Although courts are divided on the issue of whether the fine print notice on the check is enough to constitute an offer, a wise debtor makes the offer clear in a separate communication to avoid any dispute.
If the debtor makes a clear offer, the creditor has two choices:
Accept the offer, thus discharging the debt upon acceptance of the partial payment (the satisfaction).
Reject the offer, in which case the debt remains.
What the debtor can’t do is accept the payment (the offer) and claim the right to recover the rest of the debt. The acceptance must match the offer. The offeree can’t change the offer and then accept the changed offer. This choice may be tough for a creditor, because a creditor may live to regret not accepting that offer of partial payment.
Finding consideration: Doing something additional or different
Assuming that the agreement to enter an accord passes the offer and acceptance test, it must then pass the consideration test without breaking the pre-existing duty rule. (The pre-existing duty rule states that a party’s promise to do what it’s already bound to do doesn’t constitute consideration; see Chapter 3 for details.) To get around the pre-existing duty rule, the debtor must agree to do something additional to or different from what he promised in the original agreement.
For example, assume that a debtor owes a creditor $10,000 on June 1. If the debtor offers to pay $8,000 on June 1 to settle the debt, this isn’t consideration because the debtor is merely promising to pay part of what he was obligated to pay on the same date specified in the original contract. If, instead, the debtor offers to pay $8,000 on May 31 to satisfy the debt and the creditor accepts, that’s consideration. The creditor got something he wasn’t legally entitled to: early payment. Is paying one day early worth $2,000? The law doesn’t inquire into the adequacy of consideration. If the creditor bargained for payment a day early, then consideration is satisfied.
Finding consideration in unliquidated debts and debt-dispute settlements
You can often find consideration in either liquidation of an unliquidated debt or in settlement of a dispute between the parties, including a tort claim, as I explain in this section.
Liquidation of an unliquidated debt
A debt is liquidated if the parties or a court fixes the amount of the debt. It is unliquidated if the parties have entered into a contract without specifying the amount to be paid. Similarly, a tort claim is unliquidated because how much the debtor will have to pay is unclear. If the debt is unliquidated, a dispute as to the amount owed may arise. Consideration in resolving that dispute exists because each side is getting something.
If a painter offers to paint the owner’s home for $10,000 and the owner accepts, they’ve liquidated the debt. On the other hand, if the painter offers to paint the owner’s home for some unspecified amount and the owner accepts, the debt is unliquidated. The contract is still valid, but the parties or a court must supply the contract price (see Chapter 10 for details on supplying terms). Suppose the painter has finished painting and says, “That’ll be $10,000.” The owner says, “I don’t think it’s worth that much. I’m only willing to pay you $6,000.” If the painter refuses, the parties can ask a court to fill in the gap with an amount. Or they can fix the amount themselves. The painter may say, “I’ll take $8,000,” and if the owner agrees, then they have an accord — they’ve liquidated the amount at $8,000. Both parties bargained to get something because if the court had liquidated the debt, the amount could’ve been more or less than $8,000.
Settlement of a dispute between the parties
A debt is disputed if — even though the amount was agreed to originally — one party raises a good-faith defense to payment. If the parties then settle the dispute, consideration exists, because each party got something out of the settlement.
For example, an homeowner and a painter agree that the painter will paint the owner’s house for $10,000. After the painter finishes painting the house, the owner says, “You did a terrible job painting. I don’t think you’ve lived up to the implied standard of workmanlike performance I read about in Chapter 10 of Contract Law For Dummies. But I’m willing to pay you $6,000.” The painter is perfectly free to reject the offer, sue the owner for $10,000, let the owner assert the defense as a breach of contract claim, and let the court determine the amount due. Or the painter can say, “I’ll take $8,000,” and if the owner agrees, then they’ve reached an accord by settling the dispute for $8,000. Both parties bargained to get something, because if a court had resolved the dispute, the amount could’ve more or less than $8,000.
Settlement of a tort claim
Accord and satisfaction is a quick and dirty dispute-resolution mechanism that also arises when an injured party makes a tort claim against the party who allegedly caused the injury. The injured party is a creditor, and the party who caused the injury is a debtor. The tort claim is clearly unliquidated and disputed, so consideration exists if the parties negotiate a release (an agreement to settle the claim), as I explain in Chapter 7.
Figuring out what happens when the accord has been satisfied . . . or not
After the parties form an accord, it hovers like a fairy, awaiting performance (satisfaction). If the debtor pays according to the terms of the accord, he performs the accord and satisfies the underlying debt. If the debtor fails to perform, he’s breached the accord, and the creditor may sue either on the accord or on the underlying debt (the greater amount).
If you’re representing the creditor and the underlying debt is unliquidated or disputed, consider suing on the accord (the lesser amount), because that amount has been established. If you sue on the underlying debt, the court may say you’re entitled to an amount that’s even less than the amount agreed to in the accord.
For example, suppose the parties entered into an accord to settle a disputed $10,000 debt for $8,000. If the debtor fails to perform (satisfy) the accord, then the creditor can sue on the underlying debt of $10,000. But the debtor can raise the dispute as a defense to that debt, and the creditor may end up recovering less than $8,000. If the creditor sues on the accord of $8,000, however, the debtor has agreed that that’s a liquidated and undisputed amount. The debtor can’t raise a defense to payment, so the creditor should get judgment for $8,000.
Distinguishing accord and satisfaction from substituted contract
When a debtor breaches an accord, the creditor may sue on the accord or on the underlying obligation. This rule has one exception that seldom arises. Sometimes the debtor claims that the creditor agreed to discharge the debt in return for the debtor’s promise to pay a lesser amount, not for the debtor’s payment of the lesser amount. Such an agreement is called a substituted contract because the new agreement presumably replaces the original contract. Whether the parties entered into an accord or a substituted contract is a matter of interpretation, as I discuss in Chapter 11. The more reasonable interpretation usually favors the creditor. To create a substituted contract, the parties must be very clear that that was their intention.
For example, a debtor says to a creditor, “I dispute owing you the $10,000 you claim. I promise to pay you $8,000 in return for your agreement to discharge the debt.” The creditor agrees. The debtor then fails to pay the $8,000, and the creditor sues for $10,000. The debtor defends this claim by arguing that the consideration for resolving the dispute was the debtor’s promise to pay the $8,000, not the payment of $8,000. Whether this falls under substituted contract or accord and satisfaction is a matter of interpretation:
Substituted contract: If the creditor said in effect, “I’ll accept your promise in exchange for my discharge of the debt,” then you’re looking at a substituted contract, and the creditor discharged the debtor from the underlying debt as soon as he stated that promise.
Accord and satisfaction: If the creditor said in effect, “I’ll accept your payment of $8,000 in exchange for my discharge of the debt,” then the parties have an accord, and the underlying debt is discharged only when the debtor pays the $8,000.
Because a reasonable creditor is likely to discharge an underlying debt only upon payment of the new amount, courts lean toward interpreting agreements like these to be accords unless evidence clearly shows that the parties intended to form a substituted contract.
Applying the rule of UCC § 3-311 to settlements by check
The discussion of the UCC in this book is mostly confined to Article 1, Definitions and General Provisions, and Article 2, Sale of Goods. Article 3 governs negotiable instruments such as checks and includes a rule that governs an accord and satisfaction entered into by check. This provision will probably become less important as fewer and fewer transactions use checks, but it makes for a good review of the rules. The statute provides the following in part, as enacted in North Carolina at 25-3-311:
§ 25-3-311. Accord and satisfaction by use of instrument.
(a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply.
(b) Unless subsection (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.
(c) Subject to subsection (d), a claim is not discharged under subsection (b) if either of the following applies:
(1) The claimant, if an organization, proves that (i) within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (ii) the instrument or accompanying communication was not received by that designated person, office, or place.
(2) The claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the claimant is an organization that sent a statement complying with paragraph (1)(i).
(d) A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.
Subsections (a) and (b) lay out the common-law rules of offer, acceptance, and consideration. Subsection (c) provides two rules that give the creditor an escape from an accord it entered under subsections (a) and (b). And subsection (d) states a situation in which a party would not be allowed the escape under (c).
Under subsection (a), this provision applies only when (1) the debtor sends a check, (2) the claim was unliquidated or subject to a good-faith dispute, and (3) the creditor accepted the offer by cashing the check.
Under subsection (b), the accord is satisfied only if the debtor, on the check or in an accompanying communication, informs the creditor that the check was offered in full satisfaction of the debt.
Subsection (c) gives the creditor two escape routes. First, the creditor may have informed the debtor that offers to enter into accords must be sent to a particular office. If the creditor did so and the debtor didn’t comply, then the accord doesn’t discharge the debt. Second, if the creditor doesn’t have such an office, it can return the debtor’s payment within 90 days of cashing the check to avoid the discharge of the debt.
Subsection (d) removes the subsection (c) escape routes if the creditor knew that it was entering into an accord before receiving the check. In this case, the partial payment discharges the debt.
Doing away with consideration by statute or case law
Many authorities would like to see accord and satisfaction used even when consideration for the settlement is missing. For example, if I owe you $10,000, you may have perfectly good reasons to willingly discharge that debt in return for my payment of $8,000 even if I offered no consideration for the reduced amount. You may just want to cut your losses and be done with me, especially if you think that collecting from me would be difficult. Therefore, many jurisdictions, by statute or by case law, have established a mechanism for discharging even a liquidated and undisputed debt. In such a case, carefully follow the procedure established in your jurisdiction in order to effectively discharge the debt.