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Contracts • Contract Formation
K#045
Legal Definition
If a debt is due and undisputed, partial payment is not valid consideration for release of debt. However, if the debt is either disputed or not yet due, partial payment is valid consideration for release.
Plain English Explanation
If Bob owes Sam money, and it is clear that they owe them that money, and it is clear that they do not dispute whether they owe that much money, then if they are not allowed to negotiate down the amount of money owed by paying some partial amount of the debt. However, if Bob either disputes that they owe the amount claimed by Sam, or if the debt is not yet required to be paid, then Bob may offer to pay a reduced amount of money in exchange for Sam agreeing that the debt has been satisfied and to leave him alone.
This happens a lot when it comes to medical bills in the United States. Someone will go see the doctor, get billed an unexpected amount, and then negotiate with the doctor to pay a reduced rate that they can afford.
This happens a lot when it comes to medical bills in the United States. Someone will go see the doctor, get billed an unexpected amount, and then negotiate with the doctor to pay a reduced rate that they can afford.
Hypothetical
Hypo 1: Bob goes to a restaurant. He picks up a menu and examines the dishes and prices. He decides to order a burrito that is currently on special for $10. Bob receives his burrito, eats the burrito, and when he receives the bill for $10, Bob argues with the owner of the restaurant claiming that he doesn't believe it was worth $10. Bob offers $5 cash, which the owner accepts. The owner demands an additional $5. Result: Bob's debt to the restaurant was due and undisputed. Him not wanting to pay is not a valid dispute, it's just him being a jerk. Thus, the restaurant owner may still collect the $5 that is owed to him even though he agreed to accept $5 cash.
Hypo 2: Sam breaks his finger playing baseball. Sam has no health insurance. Sam visits his local emergency room and receives care. Later, Sam receives an itemized bill for $42,000. Sam can't afford this and, had he known it would be so expensive, he would have avoided getting care. Sam calls the hospital and offers to pay $2,000 instead. The hospital accepts. Result: Because the debt was legitimately disputed, it is possible for Sam to negotiate down the debt owed without having to worry that the hospital will still seek the remaining amount of money.
Hypo 3: Same facts as Hypo 2, except Sam offers to pay $2,000 within 3 months. 1 month later, Sam offers to pay $1,500 immediately if they will accept it as being paid in full. The hospital accepts. Result: Here, the hospital had the right to be paid $2,000 within 3 months. Likewise, Sam had the right to not pay for 3 months. If the hospital would rather be paid now for $1,500, and give up the right to be paid $2,000 later, then this is a valid negotiation that would allow Sam to pay a reduced amount of money.
Hypo 2: Sam breaks his finger playing baseball. Sam has no health insurance. Sam visits his local emergency room and receives care. Later, Sam receives an itemized bill for $42,000. Sam can't afford this and, had he known it would be so expensive, he would have avoided getting care. Sam calls the hospital and offers to pay $2,000 instead. The hospital accepts. Result: Because the debt was legitimately disputed, it is possible for Sam to negotiate down the debt owed without having to worry that the hospital will still seek the remaining amount of money.
Hypo 3: Same facts as Hypo 2, except Sam offers to pay $2,000 within 3 months. 1 month later, Sam offers to pay $1,500 immediately if they will accept it as being paid in full. The hospital accepts. Result: Here, the hospital had the right to be paid $2,000 within 3 months. Likewise, Sam had the right to not pay for 3 months. If the hospital would rather be paid now for $1,500, and give up the right to be paid $2,000 later, then this is a valid negotiation that would allow Sam to pay a reduced amount of money.
Visual Aids
Related Concepts
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