How to Settle a Debt by Only Paying Part of it
Under Louisiana law, accord and satisfaction is the settlement of a debt by partial payment. In Complete Medical Systems, LLC v. Health Net Federal Services, LLC, 13-0367 (La. App. 1 Cir. 11/1/2013), — So. 3d —, the Louisiana First Circuit Court of Appeal applied the doctrine of accord and satisfaction to affirm summary judgment in a dispute between a software developer and a company that provided repricing services for the Veterans Administration healthcare system.
Accord and satisfaction
Accord and satisfaction is governed by Louisiana Civil Code article 3079. For there to be a valid accord and satisfaction of a debt or claim, there must be: (1) a disputed claim; (2) a tender of a check for less than the amount of the claim by the debtor, and (3) an acceptance of the tender by the creditor. It is absolutely essential that the creditor understand that the partial payment is being offered to satisfy the debt in its entirety.
In Complete Medical Systems, Health Net, the software developer, refuted charges on an invoice from Complete Medical Systems (“CMS”). After a month passed with no response to the challenge, Health Net submitted partial payment to CMS in full satisfaction of the invoice. The payment was accompanied by a cover letter that expressly stated the check represented payment in full for the charges referenced on the invoice. In addition, the check contained the notation “PAYMENT IN FULL.” CMS endorsed and deposited the check without any additional communication to Health Net.
The court held that because the partial payment was clearly marked as representing full satisfaction of the debt and because CMS negotiated the check that the partial payment represented accord and satisfaction under Louisiana law and was therefore a complete settlement of any claims CMS may have against Health Net. Thus, the First Circuit affirmed the decision of the lower court to dismiss the case on summary judgment.
What Businesses Should Know
Businesses should learn from this case that they must be very careful about accepting partial payment. If a debtor issues partial payment with a cover letter or an annotation that indicated it represents full payment of the debt, the creditor should consider returning the check and demanding full payment. Depositing or otherwise negotiating the check may mean that the creditor will be unable to recover the remaining debt.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.