Gimmick Check Not Accord and Satisfaction Under UCC Section 3-311

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The United States District Court for the Eastern District of Virginia has held that, where a debtor in bad faith tenders a check or money order for substantially less than the amount owed on a loan, the receipt and deposit of that check will not constitute an “accord and satisfaction” under the Uniform Commercial Code (“UCC”), Section 3-311. Miffin v. Selene Finance LP.

Section 3-311 of the UCC provides that debtors can establish accord and satisfaction of a debt by proving that (1) they in good faith tendered an instrument to the claimant as full satisfaction of the claim, (2) that the amount was unliquidated or subject to a bona fide dispute, and (3) that the claimant obtained payment of the instrument.

In November, 2018, Miffin sent a money order to his mortgage servicer, Selene Finance LP (“Selene”), for $890. At the bottom of the money order Miffin had written “Tendered as Full Satisfaction of the Claim.” At the time, Miffin’s loan had an unpaid principal balance of approximately $63,000. Following Selene’s receipt and application of the money order to his mortgage, Miffin claimed that, pursuant to UCC § 3-311, as codified in Virginia, Selene was required show the loan as fully satisfied and stop any collections and credit reporting on the mortgage. When Selene refused to do so, Miffin filed suit.

The Court held that Miffin failed to state a claim for accord and satisfaction. First, UCC § 3-311 requires that the debtor act in good faith. Under Virginia law, good faith requires “honesty in fact and the observance of reasonable commercial standards of fair dealing.” Va. Code § 8.3A-103(a)(4). Miffin’s complaint demonstrated on its face that his claim was not made in good faith. He had never disputed his outstanding balance with Selene, he sent the money order to Selene’s general mailing address, and only alleged a dispute over the amount owed after Selene deposited the November 2018 money order. The Court noted that, notwithstanding Miffin’s assertions, it was “aware of no authority that holds that such a gimmick constitutes ‘good faith.'”

Secondly, even if Miffin had acted in good faith, the outstanding balance on his mortgage loan was not unliquidated nor was there any “bona fide dispute” regarding the amount owing prior to the November 2018 money order. Miffin could not establish the required bona fide dispute by manufacturing it through writing on the very money order he claimed was tendered in full accord and satisfaction of the alleged dispute. Accordingly, Selene acted properly, Miffin’s money order did not constitute accord and satisfaction of his mortgage loan, and his claim was dismissed.

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