Creditors Be Aware: Accord and Satisfaction in North Carolina

Many creditors have experienced situations where it was nothing short of a battle to get a customer to pay an outstanding invoice. Therefore, it is understandable why creditors race to deposit monies received from past due invoices as quickly as possible.

What creditors need to know before cashing that check

Prior to depositing these payments, creditors need to ensure there is no restrictive or limiting language on the check or any correspondence accompanying the check. A payment that contains language indicating that the payment is tendered as settlement in full, or some language to that effect, may impact the creditor’s ability to pursue any remaining balance—due to a legal concept in North Carolina known as accord and satisfaction.

Accord and satisfaction is essentially an informal method of dispute resolution affected by use of a negotiable instrument. In order for there to be an accord and satisfaction there must first be a bona fide dispute between two parties. When one of those parties subsequently sends the other a check clearly purporting to be in full settlement of the disputed claim, and the other knowingly accepts it, this will amount to an accord and satisfaction—a finding that typically precludes further action on the debt.

More specifically, N.C.G.S. ‘ 25-3-311 states that the cashing of a check is considered satisfaction of a claim if:

1. Check is tendered in good faith
2. Amount submitted is subject to a bona fide dispute
3. Check contains a conspicuous statement that the check is being tendered as full satisfaction of the claim.

However, there are some limitations as to what can constitute an accord and satisfaction.

Creditors process a significant number of payments on a daily basis. Personnel processing those checks may not be aware that the check is being tendered as payment in full and may process the check without the knowledge or consent of the creditor.  N.C.G.S. ‘ 25-3-311(c)(1) is designed to prevent companies from accidentally entering into an accord and satisfaction. For example, an accord and satisfaction would not result in situations where a customer willfully ignores prior notice from the Creditor about where to submit payments in full, and instead sends their “‘payment in full’ to a non-designated payment processing center where it is subsequently processed.

It’s important to note there are no provisions in North Carolina that allow the creditor to circumvent an accord and satisfaction by striking through the  ‘paid in full’  language on the check or by a writing on the check that the check is being deposited without prejudice. However, accord and satisfaction is an affirmative defense and as a result, failure by the Defendant to raise accord and satisfaction as an affirmative defense results in a waiver of that defense.