Full Satisfaction Checks Under Ucc Revised Article Iii
| Publication year | 1995 |
| Pages | 771 |
| Citation | Vol. 24 No. 4 Pg. 771 |
1995, April, Pg. 771. Full Satisfaction Checks Under UCC Revised Article III
An angry general contractor client calls asking what to do with a check he just received from the owner on a construction project, bearing the legend "paid in full" or "in full satisfaction." The client and the owner have been arguing about contract changes and back charges, and the amount of the check is about three-fourths of what the client claims is due. His brother-in-law, a personal injury lawyer, advised him to simply strike the legend, add "without prejudice," deposit the check and sue the owner for the balance.
The client has inquired about what is known as a "conditional," "full satisfaction" or "full payment" check.(fn1) Use of such checks as a means of resolving disputes has a long history in a variety of commercial contexts. This article discusses what advice an attorney should give the client in this scenario under revised Article III of the Uniform Commercial Code ("UCC"), which became law in Colorado on January 1, 1995.(fn2)
Applying the common law doctrine of accord and satisfaction, courts traditionally held that when a person against whom a claim is asserted ("obligor")(fn3) tendered a check bearing a full satisfaction notation, he or she thereby made an offer by means of an accord and satisfaction, and that when the payee ("claimant") negotiated the check, he or she thereby accepted the offer ("accord"), and the entire obligation was discharged ("satisfaction"). The theory underlying the rule was that the accord and satisfaction represent a new contract, superseding or displacing all or some portion of the original contract. The consideration was the surrender, or forbearance to assert, the claim or defense by the obligor or claimant.
Additional reasoning to support the satisfaction result was that the obligor was the master of the offer and, as such, had the right to expect that either the offer would be accepted or the check destroyed or returned. The claimant could not unilaterally modify the offer represented by the accord legend and thereby create a contract binding the obligor to the changed terms.(fn4)
The analysis that was applied in conditional check situations followed traditional contract law principles. What, for example, would be the result if in the client's case there had been a fixed contract price and no dispute, and yet the owner had tendered the client a check for less than the contract price? Common law decisions almost universally limited application of the accord and satisfaction doctrine to situations involving either an unliquidated obligation or a bona fide dispute regarding the actual amount owing, reasoning that if the debt was liquidated and certain, there was no forbearance on the part of the obligor and hence no consideration to support the accord offer. The original contract therefore remained in effect.(fn5)
A more difficult issue would arise if the client and the owner had agreed that a part of the contract price was due, but the owner tendered a check for an amount less than that already-settled amount. Applying the same consideration rationale, one court held that there could be no accord and satisfaction in that circumstance.(fn6)
A plethora of factual variations on the theme reached appellate courts. The initial crucial question dealt with the situation raised by the client's brother-in-law's...
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