Wickman v. Kane

DEBORAH S. EYLER, Judge. Miles X. Wickman, appellant, challenges an order of the Circuit Court for Montgomery County granting summary judgment in favor of Michael A. Kane, appellee, in Wickman’s suit on a promissory note. Wickman presents the following question for review, which we have rephrased: Did the circuit court err in ruling that his acceptance of a partial payment of the total amount due on the promissory note constituted an accord and satisfaction? For the following reasons, we shall reverse the judgment of the circuit court.

FACTS AND PROCEEDINGS On June 2, 1989, Michael A. Kane and Randy C. Stewart, as makers, executed a promissory note for $225,000, with interest at 11%, amortized over a thirty year period, and payable to Miles X. Wickman. The note called for monthly payments of $2,143, with the balance due on June 2, 1994. The note further contained an acceleration clause providing that, in the event of a default on any of the obligation, in whole or in part, the balance would become due and payable at the option of the holder. It also gave the makers the right to prepay the unpaid balance, in whole or in part, without penalty. ⁵⁵⁷ After the balance on the note became due, Kane and Stewart continued to make monthly payments on it.

On November 12, 1995, Kane wrote a check for $111,456.54, payable to Wickman. That amount equaled one-half of the outstanding balance on the note, plus interest. On the memorandum line of his check, Kane wrote: “payment in full of loan.” Kane mailed the check to Wickman on November 14, 1995. He enclosed a cover letter in which he said: As you know, in June 1989, you loaned to Randy and I, on a several basis (meaning we each were responsible for one half of the loan) the amount of $225,000.

The note was due in June of 1994 and was not formally extended although payments were continued at the same interest rate of 11%. Please find enclosed payment for my one half of the above note together with interest through the above date. The remaining principle [sic] balance of my share is $108,186. The interest is $3270.54 for a total of $111,456.54.

Since Randy is still paying you on a monthly basis, it is impossible for you to return the note marked canceled. Accordingly, would you please sign the bottom of this letter and return it to me so that I may fulfill the terms of the refinance of my portion of the note. The purpose is to acknowledge that I no longer owe you any money and that the above referenced note is paid in full. Please call with questions.

The following statement, with a signature line for Wickman, appeared at the bottom of Kane’s letter: The undersigned hereby acknowledges receipt of $111,456.54 which represents complete and full payment of all principal and interest of Michael A. Kane’s share of the note between Miles X. Wickman (as lender) and Michael A. Kane and Randy C. Stewart (as makers) originally dated June 2,1989. Wickman did not negotiate the check or sign the statement at the bottom of Kane’s letter. On December 27, 1995, Kane and Wickman had a telephone conversation, which Kane me ⁵⁵⁸ morialized as follows in a letter to Wickman, dated January 10, 1996: In connection with our telephone conversation of December 27, 1995, I once again -wish to set forth my position as clearly as possible to avoid any further misunderstanding. The note Randy and I signed (dated June 2, 1989) which became due on June 2, 1994, was signed on a “several” basis, meaning that Randy owed half and I owed half.

It was always paid out of accounts owned one half by Randy and one half by me. It was never my intention that I would be responsible for Randy’s half or that Randy would be responsible for my half. The documents that Randy and I signed in connection with our decision to part company reflect this intent and indicate that I was to pay my half of the note to you and that Randy was to make arrangements with you to pay his one half of the note. I have requested that Randy finalize this aspect of our agreement with you on more than one occasion.

It is my understanding that unless a note states that an obligation is “joint and several”, then it is presumed to be “several”. The note I signed does not indicate that the liability is joint and several. I have tendered payment of my one half share of the note together with interest with my letter to you of November 14, 1995. It is my understanding that you have yet to deposit the check.

I wish to be certain you understand that any interest on my one half share ceased when I tendered payment to you and that I no longer owe you any money. Thereafter, Wickman negotiated the November 12, 1995 check. Before doing so, however, he changed the memorandum on it to read “payment in full of jé loan,” instead of “payment in full of loan.” Stewart continued to make monthly payments on the note through July 1998. He then ceased making payments and filed for bankruptcy in federal court.

Wickman filed a claim in that proceeding. ⁵⁵⁹ Wickman brought an action on the note against Kane, in the Circuit Court for Anne Arundel County. He alleged that he had made demand upon Kane for payment under the note, but that Kane had refused. He further alleged that the note was in default and that as of August 1, 1998, the principal balance owed on it was $105,044.47, plus interest of 11% per annum. The case was transferred to the Circuit Court for Montgomery County.

Kane filed an answer denying the indebtedness and raising, inter alia, the defense of accord and satisfaction. Kane filed a motion for summary judgment, attaching an affidavit attesting to the facts recited above. Wickman filed an opposition and a cross-motion for summary judgment. He furnished an affidavit attesting that the note had been intended to be joint and several; that all of the payments on the note until November, 1995 had been paid by means of checks by both makers; that Kane’s November 14, 1995 letter had been accompanied by releases that he had refused to sign; that he had told Kane that he would not accept his check as full payment of the obligation due under the note; and that he had amended the memorandum line of Kane’s November 12, 1995 check to read “ ‘payment in full of /& of loan’ to indicate [his] refusal to accept [Kane’s] offer that the payment would satisfy his obligation under the Note.” The circuit court held a hearing on the motions for summary judgment.

It granted summary judgment in favor of Kane, ruling that there was no genuine dispute of material fact and that, as a matter of law, the action on the note was barred by the doctrine of accord and satisfaction. Three days later, the court docketed a written summary judgment order. Wickman filed a motion for reconsideration within ten days. After that motion was denied, he noted a timely appeal.

STANDARD OF REVIEW A circuit court may grant summary judgment when the movant demonstrates that there is no genuine dispute of material fact and that he is entitled to judgment as a matter of law. Md. Rule 2-501 (e) (2000); King v. Board of Educ., 354 ⁵⁶⁰ Md. 369, 376, 731 A.2d 460 (1999). In deciding whether to grant a motion for summary, judgment, the circuit court determines issues of law only. In reviewing the circuit court’s grant of summary judgment, we have the same information from the record and decide the same issues of law as the circuit court decided.

Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 591-92 , 578 A.2d 1202 (1990). We determine whether the circuit court was legally correct in granting summary judgment. Id. In essence, we review the trial-court’s legal conclusions de novo.

Matthews v. Howell, 359 Md. 152, 162 , 753 A.2d 69 (2000). DISCUSSION The parties agree that there was no genuine dispute of material fact. Wickman contends that the circuit court erred in ruling, on the undisputed facts, that his action against Kane on the note was barred by the defense of accord and satisfaction. Specifically, he argues that under Md.Code (1997 Repl.Vol.), § 3-116(a) of the Commercial Law Article (“CL”), the note as executed created a joint and several liability of Kane and Stewart, as the makers; therefore, there was no bona fide dispute as to whether Kane’s obligation under the note was for the full amount of the note or one-half of the amount of the note.

Because there was no such dispute, Kane’s November 12,1995 payment merely was a partial payment of a liquidated and undisputed debt that was due, which is not an accord and satisfaction, as a matter of law. Put otherwise, there was no consideration to support an accord and satisfaction, because Kane simply paid an existing debt. Kane responds that the undisputed facts established that there was a bona fide dispute over the amount of his liability under the note, and, therefore, his forbearance on his defense to Wickman’s claim against him for the full value of the note was sufficient consideration to support an accord and satisfaction. He further asserts that the undisputed facts established that Wickman accepted his $111,456.54 payment in compromise of that dispute. ⁵⁶¹ An accord and satisfaction is a completed compromise of a disputed claim.

In Kimmel v. SAFECO Ins. Co., 116 Md.App. 346 , 696 A.2d 482 (1997), we explained the doctrine as follows: [W]hen a claim is disputed, acceptance of payment, coupled with knowledge that payment is intended fully to satisfy a disputed claim, constitutes an accord and satisfaction that bars any further recovery. 116 Md.App. at 357 , 696 A.2d 482 . In Jacobs v. Atlantco Ltd. Partnership, 36 Md.App. 335 , 373 A.2d 1255 (1977), we adopted the definition of accord and satisfaction found in 1 C.J.S., Accord and Satisfaction, § 1 (1936 & Supp.1976) 1 : Accord and satisfaction is a method of discharging a contract or cause of action, whereby the parties agree to give and accept something in settlement of the claim or demand of the one against the other, and perform such agreement, the “accord” being the agreement, and the “satisfaction” its execution or performance. 36 Md.App. at 340-41 , 373 A.2d 1255 . See also Automobile Trade Ass’n v. Harold Folk Enter., 301 Md. 642, 665 , 484 A.2d 612 (1984).

Accord and satisfaction is an affirmative defense. To prevail, the defendant must prove: 1) that a dispute arose between the parties about the existence or extent of liability; 2) that, after the dispute arose, the parties entered into an agreement to compromise and settle the dispute by the payment by one party of a sum greater than that which he admits he owes and the acceptance by the other party of a sum less than that which he claims is due; and 3) that the parties performed that agreement. Air Power, Inc. v. Omega Equip. Corp., 54 Md.App. 534, 538-39 , 459 A.2d 1120 (1983).

The compromise of a dispute between parties will serve as consideration for an accord and satisfaction when the dispute is bona fide: that is, the dispute is asserted in good ⁵⁶² faith and the subject matter is reasonably doubtful. Snyder v. Cearfoss, 187 Md. 635, 643 , 51 A.2d 264 (1947); Air Power, Inc., 54 Md.App. at 539 , 459 A.2d 1120 . These conditions must exist because forbearance on a claim or defense relative to a dispute that is not made in good faith and is not reasonably doubtful is of no value. [Fjorbearance, to be adequate consideration, must be forbearance of a claim which is asserted in good faith. This does not mean that the one asserting the claim must believe that a suit on it can be won.

It does mean, however, that the claim is not made for purposes of vexation or “in order to realize on its nuisance value.” 1 Corbin, Contracts, § 140 (1963 & Supp.1971). To that requirement of “good faith,” the Court of Appeals, in Snyder v. Cearfoss, 187 Md. 635, 643 [ 51 A.2d 264 ] (1947), has imposed the additional requirement that the claim be “reasonably doubtful,” i.e., not “so lacking in foundation as to make its assertion incompatible with honesty and a reasonable degree of intelligence.” Air Power, Inc., 54 Md.App. at 539 , 459 A.2d 1120 . 2 CL § 3-311 also is pertinent, and is consistent with the Maryland common law of accord and satisfaction. It addresses accord and satisfaction by use of an instrument. It states, in pertinent part: (a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply. ⁵⁶³ (b) ... 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.

(Emphasis added.) 3 The corollary to the rule that, when a claim is liquidated, an accord and satisfaction only can be found when there was a bona fide dispute between the parties about the existence or extent of liability, is that partial payment of an undisputed claim or a debt that is liquidated and presently due cannot support an accord and satisfaction. This is so because past consideration will not support a new agreement. Reece v. Reece, 289 Md. 649 , 659, 212 A.2d 468 (1965). Accordingly, payment of a claim or debt that one already is obligated to pay, when the claim or debt is due and owing, ascertainable in amount, and not controverted, will not serve as consideration for an accord.

Eastover Co. v. All Metal Fabricators, Inc., 221 Md. 428, 438 , 158 A.2d 89 (1960); Air Power, Inc., 54 Md.App. at 538 , 459 A.2d 1120 . In that circumstance, there must be some collateral consideration beyond the past consideration to constitute an accord.