20 Hoosier Banker February 2015 COMPLIANCE CONNECTION Question: One of the bank’s borrowers has written “Payment in Full” on the memo line of his check for this month’s loan payment. According to the bank’s records, a balance well in excess of the amount of the check remains due on the loan. May the bank endorse the check with a statement that payment is accepted “under protest” or “with reservation of rights,” and accept the check without losing its ability to collect the remaining balance? Answer: The borrower is attempting to make an accord and satisfaction. An “accord” is “an express contract between two parties by means of which the parties agree to settle some dispute on terms other than those originally contemplated, and the term ‘satisfaction’ denotes performance of the contract.”1 In other words, the borrower is attempting to enter into a new contract with the bank to discharge the balance of the loan for an amount equal to the tendered check. “As a contract, accord and satisfaction requires a meeting of the minds or evidence that the parties intended to agree to an accord and satisfaction.”2 The borrower may raise accord and satisfaction as an affirmative defense in the event that the bank attempts to collect the balance of the loan, but would have the burden of specifically pleading and proving that the parties formed an accord and satisfaction, which will depend upon a number of factors.3 Because the borrower tendered a check — which is a negotiable instrument — the Uniform Commercial Code as adopted in Indiana (“Indiana UCC”) controls the situation.4 The relevant sections of the Indiana UCC provide that a debt may be discharged, if the debtor proves that: • He tendered the check in good faith as full satisfaction of the loan; • The amount due on the loan was subject to a bona fide dispute; • The bank received payment for the check; and • The check or a written communication included with the check contained a conspicuous statement to the effect that the check was tendered as full satisfaction of the loan.5 Subject to the exception noted below, the borrower’s check would not operate as an accord and satisfaction, and the debt would not be discharged, if: • Prior to the borrower tendering the check, the bank sent the borrower a notice which conspicuously stated that “communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place” and the check was “not received by that designated person, office, or place” or • The bank tenders repayment of the check to the borrower within 90 days of its receiving payment on the check.6 If, however, the borrower proves that, within a reasonable time before initiation of collection of the check, the bank, or an agent of the bank having direct responsibility with respect to the disputed obligation, knew that the check was tendered in full satisfaction of the claim, the bank could not use the foregoing defenses.7 The bank may either accept or reject the check on its terms, but the bank may not obtain the benefits of the check without also accepting its burdens.8 Accordingly, the bank’s acceptance of the check accompanied aBout ComplianCe ConneCtion In order to address compliance inquiries from members, IBA provides Compliance Connection, an assistance program offering advice on Indiana-specific compliance questions. If the matter requires legal advice, IBA Compliance Connection will refer the bank to a law firm. The material in this issue was prepared by Larry C. Tomlin, partner with Krieg DeVault LLP, Indianapolis, and IBA compliance consultant. Submit Compliance Connection questions to IBA’s Amber R. Van Til at avantil@ indianabankers.org. Your supplier for over 150,000 marketing and promotional items. FORMING A PARTNERSHIP WITH INDIANA BUSINESSES. 1419 Fabricon Blvd. • Jeffersonville, IN 47130 (800) 736-1326 • Full-Service Printing • Document Imaging • On-Demand Printing • On-Line Ordering Systems • Micr-Encoded Documents • Forms Management Call us for your FREE forms cost analysis! Adam McCoskey Vice President - Sales Southern Indiana 812-989-9236 arm@voluforms.com Tom Staley Vice President - Sales Central / Southern Indiana 812-258-2722 tjs@voluforms.com Susan Voyles Garr Vice President - Sales Southern Indiana 812-987-6008 svg@voluforms.com Jim Hutchinson Vice President - Sales Southern Indiana 812-258-2723 jfh@voluforms.com Scan QR code to visit www.voluforms.com
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