Ucc Section 1-207 on Full Payment Checks: Lawyers Beware
| Publication year | 1982 |
| Pages | 2584 |
| Citation | Vol. 11 No. 10 Pg. 2584 |
1982, October, Pg. 2584. UCC Section 1-207 on Full Payment Checks: Lawyers Beware
Can an endorser modify the terms of a restrictive endorsement on a check, cash the check and sue for the remaining balance of the obligation claimed due? Historically, it has been clear that an endorser of a check with a restrictive endorsement accepts the amount of the check in full satisfaction of the disputed obligation. Some courts, however, have recently questioned this result. The cases involved situations where the payee struck out the conditions of the acceptance (i.e., the restrictive endorsement) and wrote on the back of the check "accepted without prejudice and with full reservation of rights," relying on § 1-207 of the Uniform Commercial Code ("UCC"). Payees then cashed the checks and sued for the remaining amount claimed. The courts, applying UCC § 1-207, allowed the payees to recover the balance of the amount claimed and denied full accord and satisfaction of the obligation as intended by the maker of the check.(fn1)
Certain commentators and treatise writers endorsed this new application of the UCC to defeat the time-honored, simple commercial practice of compromising disputed claims by use of the full payment check.(fn2) As oracles, they apparently saw the scene from the creditor or claimant's point of view as a way to take the partial payment without sacrifice of any rights, even though this defeated the stated contractual intent of the maker-offeror.
These new cases raise issues involving logic, statutory interpretation, legislative history and the force and importance of precedent and custom in commercial usage. Reading all of the available cases on the issue is an absorbing tour through a gallery of logic and scholarship, as well as the absence thereof. The lesson for the practicing lawyer is skepticism in accepting as gospel the teaching of the treatise and law journal writers, as well as the seminar speakers. The issue under consideration reflects a classic case of the hornbook writers(fn3) finding a jurisdiction supporting an interpretation, picking up some support by dicta in other jurisdictions and seeing that as the new direction of the law. In fact, the courts in the majority of the states that have considered the problem are ruling the other way.(fn4)
White and Summers in 1972 concluded as follows:
We believe that the enactment of 1-207 has substantially changed the outcome when the payee adds words of "protest" to his endorsement. Certainly the post-Code case law indicates that 1-207 authorizes...
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