THERE ARE CONSEQUENCES TO EXECUTED DOCUMENTS SUCH AS THE ACCORD AND SATISFACTION DEFENSE

Posted on September 22, 2024September 22, 2024 by David Adelstein

A federal government contractor in Jackson Construction Co., Inc. v. U.S., 62 Fed.Cl. 84 (Fed.Cl. 2024) sought delay damages against the government. It lost. The reason for the loss is a crucial reminder that documents parties sign ALWAYS matter. ALWAYS!!

In Jackson Construction Co., the contractor’s delay claim was premised on relocating a waterline. The contractor, however, received additional money for relocating the waterline, but no additional time, and this was memorialized in a modification to the contract (i.e., a change order). In executing the modification for the additional work, the contractor did NOT reserve rights for time or money. Indeed, the modification reflected that the monetary adjustment constitutes full compensation for the additional work including delay, namely:

The contract period of performance remains the same. It is further understood and agreed that this adjustment constitutes compensation in full on behalf of the contractor and his subcontractors and suppliers for all costs and markup directly or indirectly, including extended overhead, attributable to the change order, for all delays related thereto, and for performance of the change within the time frame stated.

Jackson Construction Co., supra, at 90.

The contractor made a few arguments to try to overcome the modification it agreed to. All failed.

An “executed bilateral modification with a release provision usually constitutes an accord and satisfaction unless that release is either ambiguous or limited in scope.” Jackson Construction Co., supra, at 92.

An ‘accord’ is a contract under which both parties agree that one party will render additional or alternative performance in order to settle an existing claim made by the other party, and ‘satisfaction’ is the actual performance of the accord. The party asserting an accord and satisfaction defense must establish four elements: (1) proper subject matter; (2) competent parties; (3) a meeting of the minds; and (4) consideration.

Id. (internal citation omitted).

The contractor could reserve rights in a modification to avoid the accord and satisfaction defense. Without the reservation of rights, “the Court must focus on whether or not the parties’ objective manifestations of intent demonstrate that they reached a meeting of the minds with respect of additional claims.” Id. at 93.

Here, the contractor did not reserve its rights in the modification it executed. Thus, the contractor did not preserve its delay claim for the additional waterline relocation. To this point, there was no evidence that the contractor intended to reserve rights to assert a delay claim at the time it executed the modification.

While the contractor looked to avoid the accord and satisfaction defense by arguing the release in the modification was ambiguous and procured through government misrepresentation, the court was having none of this. There was no evidence of any misrepresentation or ambiguity.

The contractor further argued that it signed the modification due to economic duress.

A party asserting economic duress must show more than economic tension or financial harm. Jackson Construction Co., supra, at 95. “A party asserting economic duress must prove that: (1) its acceptance of the other party’s terms was involuntary; (2) the circumstances permitted no alternative but to accept the terms; and (3) the acceptance resulted from the coercive acts of the other party.” Id. The contractor could not prove any of those elements.

The key takeaway is that parties need to appreciate what they execute and that there are consequences to executing documents. The contractor could have reserved rights. It did not. As a result, the contractor had to rely on weak arguments that it had no evidence to support…all because of the consequences of the modification the contractor signed.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

DON’T PUT YOURSELF IN THE POSITION OF DEFENDING AGAINST AN ACCORD AND SATISFACTION DEFENSE

Posted on September 10, 2022November 12, 2023 by Edward Garber

The doctrine of accord and satisfaction lives and breathes in disputes including construction disputes. Unfortunately, a contractor, in the case discussed below, found out the hard way after it cashed checks that were accompanied with a letter that clearly indicated the checks were final payment. Once those payments were cashed, there was no “buyer’s remorse” that would allow it to still pursue disputed amounts. Remember this the next time you accept and cash a payment that says on the check it is full and final payment OR is accompanied by a letter that makes clear the payment is full and final payment. If you cash it, there is no second bite out of the apple, so to speak. If you are not interested in the payment being full and final payment, return the check. If you are not sure, either return the check or inquire and get that response in writing. Don’t put yourself in the position of defending against an accord and satisfaction defense.

Even without the doctrine of accord and satisfaction, the contract between the contractor and owner discussed below made clear that contractor’s acceptance of final payment meant that contractor was unconditionally waiving other claims against the owner, further reinforcing that there would be no second bite out of the apple.

The morale:

(1) read the letter that accompanies a check and do NOT cash a check that indicates it is for final payment unless you are prepared to accept that amount; and

(2) read your contract to understand any contractual obligation that kicks-in with the acceptance of final payment.

In Construction Consulting, Inc. v. The District Board of Trustees of Broward College, 47 Fla.L.Weekly D1847a (Fla. 4^th DCA 2022), a contractor (construction manager) was in a payment dispute with a public owner regarding separate projects under a master services agreement. The owner sent the contractor a letter with three checks. The letter identified itself as a reconciliation report for the projects and stated it was a summary of the final agreement to reconcile final payment for outstanding invoices. While the checks did not identify any “payment in full” language, the reconciliation report that accompanied the checks made clear the checks were for final payment. There was no ambiguity in this regard. The master services agreement also stated, “Construction Manager’s acceptance of Final Payment shall constitute an unconditional waiver and release of all claims by Construction Manager for additional compensation beyond that provided in the Final Payment.”

The contractor cashed the checks and filed a lawsuit against the owner for the delta it disputed. The owner moved for summary judgment under an accord and satisfaction defense. Summary judgment was entered in favor of the owner. The appellate court affirmed. The appellate court, in affirming, provided a valuable synopsis on the law of accord and satisfaction that is worthy of sharing so that you are not put in the same position as this contractor if you truly dispute a final payment:

Accord and satisfaction is a legal doctrine that has long been a part of Florida contract law.

“An accord and satisfaction results when: (1) the parties mutually intend to effect a settlement of an existing dispute by entering into a superseding agreement; and (2) there is actual performance in accordance with the new agreement.” Compliance with the new agreement discharges the prior obligations.” Thus, “if an offer clearly serves as an accord and satisfaction, and the other party accepts the offer, then he or she is bound to the conditions attached.”

The Florida Supreme Court has declared that “when a claim in controversy is open and unliquidated and the party to whom it is due accepts payment in full it will operate as an accord and satisfaction even though the party to whom paid declares that he takes it only in part satisfaction.” Thus, a party who so accepts a payment tendered in full cannot cabin the legal effect of its acceptance.

By contrast, where the facts do not demonstrate that the parties agreed to resolve a dispute by payment of a set amount, “a partial payment of a legal obligation does not act to satisfy and discharge that obligation.”

The language used by the parties in a transaction is crucial to the creation of an accord and satisfaction. “An accord and satisfaction results as a matter of law only when the creditor accepts payment tendered on the expressed condition that its receipt is deemed to be a complete satisfaction of a disputed issue.” “When a creditor negotiates the tendered check with knowledge of the debtor’s intent, whether through discussions, correspondence, or unambiguous language on the check, he is then bound to the agreement and cannot later turn around and sue for the remaining balance due under the former dispute.” Therefore, “[i]f a creditor does not assent to the condition, then the proper course of action is to return the check. Simply put, the creditor cannot have his cake and eat it too.”

***

Florida courts have thus recognized that a creditor’s acceptance of payment results in an accord and satisfaction where the check itself or an accompanying writing expressly indicates that the check constitutes payment in full of the debtor’s obligations.

Cases finding no accord and satisfaction have focused on ambiguities in transmittal letters and a lack of clarity as to the matters that a tender was supposed to cover.

Construction Consulting, Inc., supra (internal citations omitted).

For more on accord and satisfaction, please review this posting.

THE CLEVER ACCORD & SATISFACTION DEFENSE

Posted on August 31, 2014November 8, 2024 by Edward Garber

A dispute concerning amounts owed (whether owed from an owner to contractor, a contractor to subcontractor, a subcontractor to supplier, etc.) is routine on a construction project. Even in these disputes, the party responsible for owing money may recognize there is an undisputed amount actually owed to the other party, although not the amount the other party claims. While I am a believer in tendering undisputed funds, sometimes there are clever and strategic ways to tender that money.

For instance, the defense of accord and satisfaction is a defense that the party receiving the money deposited the money in full satisfaction of a disputed claim. The decision in St. Croix Lane Trust & M.L. Shapiro, Trustee, v. St. Croix at Pelican Marsh Condominium Association, 2014 WL 3882458 (2d DCA 2014), while not a construction dispute, illustrates strategy in tendering money in full satisfaction of a claim and then relying on the defense of accord and satisfaction. In this case, a condominium association foreclosed on a unit for unpaid assessments. The unit was sold at a foreclosure sale to a Trust for $100. The $100 was insufficient to pay the association the amount of its foreclosure judgment so the association sent a letter to the Trust advising that the Trust owed the association unpaid assessments that accrued on the unit prior to the foreclosure sale (in excess of $30,000). The Trust disputed the amount it owed and thought it owed $840. In this regard, the Trust sent a letter to the association (through counsel) stating, “[I]n a good faith effort to resolve this matter I have enclosed herewith a check in the amount of $840.00….Be advised and warned, this check is tendered in full and final satisfaction of all claims made against the Trust and the property….” Despite this letter accompanying the check, the association negotiated the check and then threatened to foreclose a lien it recorded against the Trust’s unit due to the dispute. The Trust filed a lawsuit seeking declaratory relief whether it owed the association any money. An argument it raised was accord and satisfaction since the association negotiated the $840 check clearly sent in full satisfaction of all claims.

On appeal, the Second District agreed with the Trust that accord and satisfaction applied to discharge the Trust of any more monies owed relating to the dispute. The Second District relied on Florida Statute s. 673.3111 that provides:

“(1) If a person against whom a claim is asserted proves that that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, that the amount of the claim was unliquidated or subject to a bona fide dispute, and that the claimant obtained payment of the instrument, the following subsections apply.

(2) Unless subsection (3) 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.”

Furthermore, Florida case law defines an accord and satisfaction as follows:

“An accord and satisfaction results as a matter of law when the creditor accepts payment tendered on the expressed condition that its receipt is deemed to be a complete satisfaction of a disputed issue. This court has long held that cashing a check containing language that it is in full payment of the debtor’s obligations creates an accord and satisfaction with regard to the claim for which payment was tendered.”

United Auto Ins. Co. v. Palm Chiropractic Center, Inc., 51 So.3d 506, 509 (Fla. 4^th DCA 2010) (internal citation omitted)

If you are trying to devise clever strategy to set up an accord and satisfaction defense, you can send undisputed money with an accompanying letter clearly expressing that the money is in full and final satisfaction of the claim / dispute. Or, clearly delineate this point on the check. The recipient should not negotiate the check and should instead return it. If the money is truly undisputed, the paying party can always re-tender that money to take that undisputed amount off the table without conditioning it as a full settlement of the claim. But, if the check is negotiated, as it was in this case, the party has just set up an accord and satisfaction defense!