Retention of Settlement Checks

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After Mabel purchased a home through a foreclosure sale by the first mortgagee, she offered the second mortgagee $9,000 in satisfaction of the $30,000 remaining on that obligation. Her offer stated in part that a check was enclosed, and that retention of the check for 10 days or more following receipt would constitute acceptance of the offer.

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

Mabel's offer was rejected 16 days later, and the check was returned. She then sued the second mortgagee on the grounds that retaining the check more than 10 days constituted a satisfaction of all the obligations owed to the junior mortgagee. The case was dismissed and appealed.

Is Mabel right?

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Answer and Analysis

Mabel lost. The Court of Appeals of the State of Washington affirmed and awarded attorney fees and expenses to the second mortgagee. The court stated that an accord is a contract between a debtor and a creditor to settle a claim by some performance other than that which is due. There must be a meeting of the minds, consideration, and an intention of the parties to satisfy the claim. The court held that there could be no accord in this particular case, because the purchaser at the foreclosure sale was not the debtor.

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The court pointed out that this particular purchaser at the foreclosure sale was not the debtor, owed no obligation to the mortgagee, and was only making an offer to the mortgagee. As to the retention of the check for more than 10 days, the court relied on the fact that the State of Washington courts require some affirmative manifestation of a creditor's acceptance of an offer, such as cashing a check. Retention of the check was usually considered insufficient, and furthermore, there was no consideration for the alleged accord. The court pointed out that the bank held the check for only an additional six days which was not significant.

If the bank held the check for an additional 10 or 20 days or even 30 days, it is quite possible that the decision of the court might have been otherwise. Other verbal conversations or other actions by the bank and Mabel might also have led a court to believe that there was an acceptance of the check. The mere fact of retaining the check beyond the time specified in the offer might remove the bank's option of whether to accept or reject the check in other states.

The moral is that if a check is offered with this kind of condition attached, you should return it immediately rather than sitting on it pending some kind of decision. Often checks are submitted as paying the debt in full, which presents different problems. But any check that comes with a separate letter or notations on the check itself must receive attention.

If the debtor is setting conditions or specific terms under which the check is being offered, the creditor should review the terms and conditions carefully and reasonably quickly to see if they are acceptable. If not acceptable, a decision must be made whether to return the check. The accord and satisfaction statutes of the particular state also should be reviewed.

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.