## Facts

- Burger Dairy Co., an Indiana dairy vendor, regularly sold and shipped dairy products to McMahon Food Corp., a Chicago distributor, invoicing weekly and charging a refundable deposit for plastic milk cases.
- By February 1992, Burger’s records showed MFC was in arrears by $58,518.41.
- On June 17, 1992, MFC’s vice president met with Burger’s new general manager and asserted that the February arrearage had already been settled with Burger’s prior manager.
- At that meeting, MFC tendered a check for amounts accrued between February and June with a voucher stating “payment in full through 6/6/92 – clear statement of account thru 6/6/92 to follow.”
- Burger later confirmed with the prior manager that no settlement had occurred and that the February arrearage remained outstanding.
- Burger cashed the June 17 check after crossing out the “payment in full” notation on the voucher and inserting “without prejudice.”
- The parties continued doing business, and on August 18, 1992, MFC sent a second check with a voucher referencing three invoices and stating “PAID IN FULL THRU 8/8/92.”
- Burger cashed the August 18 check in the ordinary course.
- MFC filed a declaratory judgment action claiming its debt was discharged by accord and satisfaction based on Burger’s negotiation of the checks; Burger counterclaimed for the unpaid balance.

## Issues

1. Whether the district court improperly admitted parol evidence to interpret the June 17 voucher language and the parties’ negotiations when determining whether the first check created an accord and satisfaction.
2. Whether Burger’s cashing of the August 18 check bearing “PAID IN FULL THRU 8/8/92” discharged the disputed claim under Indiana’s version of U.C.C. § 3-311.

## Decision

- The Seventh Circuit affirmed the district court’s judgment for Burger for $58,518.41.
- The court held the district court’s factual findings were not clearly erroneous and supported the conclusion that neither check created an accord and satisfaction.
- As to the June 17 check, the court upheld consideration of surrounding circumstances, including evidence that the “payment in full” condition was tied to a misrepresentation about the existence of the arrearage, defeating an enforceable accord.
- As to the August 18 check, the court agreed that the “paid in full” notation did not establish a mutual agreement to settle all outstanding debt and functioned as a unilateral attempt by MFC to impose a settlement, insufficient under U.C.C. § 3-311 on the facts found.

## Legal Principles

- Under Indiana law, accord and satisfaction requires a bona fide dispute, an offer tendered as full satisfaction, and acceptance reflecting a meeting of the minds; negotiation of a check is evidence of acceptance only when the circumstances show assent to the condition.
- Parol evidence may be used to determine the meaning and intended scope of “payment in full” language and whether the parties objectively assented to settle the entire claim.
- An accord procured through misrepresentation does not bind the creditor because effective assent is lacking.
- U.C.C. § 3-311 does not make “paid in full” notations self-executing; discharge still depends on whether the instrument was tendered in good faith as full satisfaction of a disputed claim and whether the creditor’s obtaining payment, in context, reflects objective acceptance of a full settlement.

## Conclusion

The court upheld a judgment for the seller because the “paid in full” check notations, viewed in context, did not show mutual assent to discharge the arrearage, and a purported settlement tied to misrepresentation or unilateral action does not satisfy accord-and-satisfaction requirements, including under U.C.C. § 3-311.


McMahon Food Corp. v. Burger Dairy Co., 103 F.3d 1307 (7th Cir. 1996)