Legal Bulletins

Wickman V. Kane, 136 Md. App. 554, 766 A.2d 241 (2001)

Holding:
Partial payment of a promissory note is not an accord and satisfaction of an entire debt which is the joint and several responsibility of multiple borrowers despite language to that effect on the payment instrument.

Background:
Kane and Stewart executed a promissory note for $225,000 payable to Wickman. Kane subsequently wrote a check to Wickman for one-half of the balance and wrote "payment in full of loan" on the memorandum line. Kane also wrote two letters to Wickman stating his belief that he owed only one-half of the balance because the note did not include language imposing joint and several liability.

Wickman changed the memorandum line on Kane's check to read "payment in full of ½ loan" and negotiated the check. Thereafter, Stewart filed for bankruptcy and Wickman sued Kane for the balance of the loan. The trial court granted summary judgment to Kane, holding that the action was barred by the doctrine of accord and satisfaction, but the Court of Special Appeals reversed.

Law: The Court of Special Appeals held that if a note does not contain any language regarding multiple borrowers' liability, it is joint and several. Pursuant to §3-116(a) of the Maryland Commercial Code, "except as otherwise provided in the instrument, two or more persons who have the same liability on an instrument as makers ... are jointly and severally liable...."

With that background, "accord and satisfaction" is an affirmative defense that bars claims where a party accepts less than full payment of a disputed sum with knowledge it is intended to satisfy the entire debt. By contrast, partial payment of an undisputed sum does not constitute and accord and satisfaction.

Thus, if Kane could assert a "reasonably doubtful" defense as to his joint and several liability, the accord and satisfaction would be enforceable. A defense based on a misinterpretation of fact or law is "reasonably doubtful" only if it "does not appear obviously unfounded in the law to a person of elementary knowledge of the legal principles involved." The Court held that a basic understanding of the law is all that is required to determine that Kane's liability was joint and several. Thus, Kane could not assert a "reasonably doubtful" defense and his accord was inoperative.

Recommendations:
When drafting promissory notes for multiple parties, it is advisable to insert specific terms as to joint and several liability, thereby eliminating claims arising from collateral documents or attempted accords. For borrowers, it is advisable to make the contrary provision equally clear, i.e., if liability is intended to be several, so state in the loan agreement. Although collateral documents may have some bearing on the matter, the terms of the note (or lack thereof) will likely control the issue.