## Facts

- AEE contracted with Target to sell blank videotapes with 300,000 “free gift with purchase” promotional items; Target could cancel before delivery if tapes failed quality standards.
- AEE contracted with Webb to supply 300,000 promotional units for $684,000 and issued a purchase order contingent on Target’s order, without disclosing Target’s cancellation right.
- Webb borrowed about $400,000 to finance performance; its lender received an assignment of funds due from AEE to Webb.
- Target raised quality concerns about the videotapes; AEE did not disclose the concerns to Webb and at one point falsely stated Target had not raised any.
- Target reduced the promotional-item order to 85,000 units; Webb agreed to supply 85,000 units instead of 300,000.
- Webb invoiced AEE about $190,000 for the 85,000 units delivered; AEE disputed payment.
- AEE sent Webb a $150,000 check and a letter stating the payment was “full and final settlement” of Webb’s claim; the letter and check contained conspicuous full-satisfaction language.
- Webb cashed the check and sued AEE for breach of contract, arguing the payment did not settle its broader claim related to the May 24 contract and purchase order and that no valid accord and satisfaction existed due to AEE’s lack of good faith.

## Issues

1. Under Minn. Stat. § 336.3-311, may a court consider a debtor’s bad faith in the underlying transaction when deciding whether a “full satisfaction” tender was made in good faith?
2. Does Minn. Stat. § 336.3-311 eliminate the traditional requirement of mutual assent for an enforceable accord and satisfaction?

## Decision

- The court held that the good-faith inquiry under Minn. Stat. § 336.3-311 may consider the debtor’s broader course of dealing, including bad faith in the underlying transaction.
- The court held that mutual assent remains required for an accord and satisfaction; § 336.3-311 does not remove the “meeting of the minds” element.
- The court reversed the court of appeals and remanded for further proceedings consistent with these holdings.

## Legal Principles

- Minn. Stat. § 336.3-311 requires a debtor asserting accord and satisfaction by instrument to prove: (i) a good-faith tender as full satisfaction, (ii) an unliquidated claim or bona fide dispute, and (iii) the claimant obtained payment, with discharge generally requiring conspicuous full-satisfaction language in the instrument or accompanying writing.
- For merchants, UCC “good faith” includes honesty in fact and observance of reasonable commercial standards of fair dealing; the court may evaluate good faith in light of the parties’ conduct beyond the moment of tender.
- Accord and satisfaction remains a contract doctrine; mutual assent is an essential element even when § 336.3-311 applies.

## Conclusion

The court ruled that a “full payment” check defense under Minn. Stat. § 336.3-311 turns on UCC good faith assessed in context and does not displace the need for mutual assent, requiring remand to apply these standards to the parties’ dispute.


Webb Bus. Promotions, Inc. v. Am. Elecs. & Ent. Corp., 617 N.W.2d 67 (Minn. 2000)