Accord & Satisfaction, Restrictive Endorsement - Whats the difference?
People draw up settlement letters to collection agencies and find themselves in a whole lot of trouble. Before you begin to delve in to "playing lawyer" you had better understand what your goal is and what tool to use when approaching the subject of accord and satisfaction and contract law.
It's understandable that consumers get this information wrong because there is so much of it out there, and with state and federal rules, one is never sure - so before you open a can of worms, understand that you need to consider the outcome and that it may be a bad one.
Accord & Satisfaction
Accord and satisfaction is a contract law concept about the purchase of the release from a debt obligation. The payment is typically less than what is owed and is not paid by the actual performance of the original obligation.
The accord is the agreement to discharge the obligation and the satisfaction is the legal "consideration" which binds the parties to the agreement. If a person is sued over an alleged debt they bear the burden of proving the affirmative defense of accord and satisfaction.
The accord agreement must be transacted on a new agreement. It must therefore have the essential terms of a contract, (parties, subject matter, time for performance, and consideration).
If there is a breach of the accord there will be no "satisfaction" which will give rise to a breach of accord. In this instance the non-offending party has the right to sue under either the original contract or the accord agreement.
An endorsement on a check with restrictions. An endorsement is a signature on the back of a check stating that the payee has consented to receive the funds from the payer. A restrictive endorsement states the circumstances under which the payee will accept the funds under the signature.
A valid accord does not discharge the prior contract, it suspends the right to enforce it in accordance with the terms of the accord contract, in which satisfaction, or performance of the contract will discharge both contracts(the original and the accord).
If the creditor breaches the accord, then the debtor will be able to bring up the existence of the accord in order to enjoin any action against him. Related to this would be offer and acceptances.
Accord is the agreement and satisfaction is the execution of the contract or agreement. Both parties MUST be involved otherwise there is no accord and satisfaction. This is particularly important if you are trying to negotiate terms with a collection agency or creditor. Simply sending an A&S will not be binding.
What makes an accord and satisfaction different than a contract? There must be a prior dispute that both parties could not agree to and by creating a new accord, you are both agreeing to a new set of terms. This is why both parties must agree. Lots of people assume they can send an accord off to a collector and that binds them. This is not true.
Since an accord & satisfaction is a contract then contract terms must be present. Once both parties have agreed to the new contract then the case is final. For example, say you have an original credit card debt for 10,00.00 but you dispute a portion of the bill and are able to prove it to the creditor.
If the creditor agrees, you will enter into the new terms which will bind you both. Part of your terms may be that you will pay less and the creditor agrees to accept it as final and full payment. No future collection efforts from them can be made. All A&S must be in writing just as any other legal contract.
Remember. An accord without satisfaction is worthless. If you have an ongoing dispute with a creditor, collector or even a neighbor, contractor etc., you can use an A&S to settle your matter.
A restrictive endorsement is usually a matter of purely money. If I create a check with a restrictive endorsement and you cash it, you have created an execution of that endorsement which basically means you agreed to my terms. This is not a sure thing however because state laws apply. Not every state honors RE's. Be sure to check state statutes.
Most commonly, a restrictive endorsement is used to settle a debt and satisfy not only the other party, but to protect yourself from future collections. A RE can also mean pretty benign actions like "for deposit only" meaning the check is to be deposited, not cashed out.
In terms of collectors, many people use a RE to settle a debt. They may have attached a settlement letter to the check and sent them both in one envelope to the creditor.
Dont be fooled into thinking that the creditor has to follow the requirements of the letter in order to cash your check. If there are no RE terms on the actual check, then there are ways around the clause by the creditor. He can still cash your check and trash your letter.
How do you protect yourself?
Well, outside of state laws that dont honor them, you have to put the RE on the actual check. This will prove that the creditor saw the terms and cashed the check. Cashing of the check would obviously mean they agree. An endorsement on a check with restrictions has been created.
An endorsement is a signature on the back of a check stating that the payee has consented to receive the funds from the payer. A restrictive endorsement states the circumstances under which the payee will accept the funds under the signature.
It's a smart idea to work out the terms of the RE before you send it to ensure the creditor agrees. Take note of who you are sending it to and their physical location. You wouldn't want to send a RE to a lockbox or payment processing center where they dont read letters.
The creditor could use that defense claiming that technically nobody saw your agreement because they only process payments at that location. A physical location with a person's name (manager, supervisor etc.) would be ideal.
It's also a good idea to check the contract you signed with the creditor. Some of them have it disclosed in it that they do not honor restrictive endorsements. In that situation you would need to have their approval of your settlement/payment in writing before issuing payment.
Some states allow a creditor to cross out the RE and cash it "under protest" so you need to tread carefully when dealing with these types of settlements. It's very practical to get dialogue going with the creditor before hand to ensure success.