Prepare: Worksheet 13.3: Special Consideration Cases and Moral Consideration

Liquidated debt

A debt in which there is no dispute about the amount owed. The parties do not dispute the amount owed.

Unliquidated debt

A debt that is disputed because the parties disagree over its existence or amount.

Settlement of Debts: Liquidated Debt:

If the creditor agrees to accept less than full payment, the agreement is NOT binding. Exception: Different Performance - If a debtor offers a different performance to settle the liquidated debt, and the creditor agrees to take it as full settlement, the agreement IS binding.

Settlement of Debts: Unliquidated Debt:

Parties may enter into a binding agreement to settle for less than what the creditor demands. The debtor than must pay the agreed upon amount. Called Accord and Satisfaction agreement.

Pursuant to the UCC, a creditor who cashes a check on which a debtor has written "full settlement" generally loses the right to claim any more money from the debtor. T or F?

True

Critics of "moral consideration" argue that it gives judges leeway to enforce promises whenever they feel that it is just. T or F?

True. In some circumstances, courts will uphold agreements with "moral consideration". Ex. if someone promises a donation to a charity but fails to make it, courts may force payment IF the charity took action based on the promise and showed reliance (promissory estoppel) on the promise.

What are the requirements for accord and satisfaction?

Unliquidated debt; Debtor pays the agreed upon amount; Creditor agrees to accept as full payment a sum less that the amount creditor claims

Accord and Satisfaction by Check

When debtor writes "full settlement" on the check, a creditor who cashes the check has entered into an accord and satisfaction.

Under the UCC, which of the following are ways that organizations can prevent accord and satisfaction?

Within 90 days of cashing a "full payment" check, repaying the same amount to the debtor; Notifying debtors that offers to settle for less than the full debt must be made to a particular official

As the court's holding in Henches v. Taylor demonstrates, a creditor who alters a debtors "full payment" or similar notation on a check before depositing the check

does not prevent accord and satisfaction and loses his right to recover any more money from the debtor.

Agreements to accept less than full payment of liquidated debt are not binding because _____________

the debtor has given no consideration in exchange for reducing the debt. A liquidated debt is one in which there is no dispute about the amount owed. In cases of liquidated debt, if the creditor agrees to take less than the full amount as full payment, her agreement is not binding. The debtor has given no consideration to support the creditor's promise to accept a reduced payment, and therefore the creditor is not bound by her word. The reasoning is that the debtor is already obligated to pay the full amount, so no bargaining could reasonably cause the creditor to accept less.

Mary pledges $30,000 to a school for the blind. In reliance on Mary's promise, the school hires an architect to build a cafeteria. Two month later Mary takes back her promise. The school sues and the judge will likely rule that _____________

the school will be able to enforce the promise with "moral consideration". The school provided no consideration, but the court could uphold Mary's promise under promissory estoppel because the school relied on it.

As reflected in the holding in Snider Bolt & Screw v. Quality Screw & Nut, the current majority view on non-compete agreements is that

they are supported by consideration in the form of continued employment by the employer in exchange for the employee's promise not to compete.