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Articles Posted in Contract Disputes


754431_in_business.jpgIn our last entry, we spoke about a fairly common problem most New York Businesses have encountered: Where a customer/client makes a partial payment but tries to pass it off as payment in full for the money it owes. We also presented a way a business can protect itself: By placing a restrictive endorsement on the check, a business should be able to collect the partial payment and live to fight to recover the remainder of the debt another day.

The problem, in New York, is based on a legal concept known as “Accord and Satisfaction,” which sounds more complex than it actually is. To establish an Accord and Satisfaction, there must be a genuine dispute regarding an unliquidated claim. That could mean that the two parties to a sales contract have a dispute over how much the Buyer owes the Seller for the goods it purchased. For example, the Buyer claims it owes the Seller $700.00, but the Seller insists the Buyer owes it $1,000.00, because that is what they originally agreed to. Next, the parties must mutually resolve that dispute by entering into a new contract which discharges all or part of their obligations under the original contract. This could be an agreement by which the Seller agrees to accept the $700.00 for the goods the Buyer purchased, even though the original contract was for $1,000.00. If the Buyer pays the $700.00, and the Seller accepts the $700.00 without objection, then there is an Accord and Satisfaction, and, as a result, the Seller cannot recover the remaining $300.00 due it under the original sales agreement.

In New York, when one party accepts a check in full satisfaction of a disputed unliquidated claim, the claim is discharged, as an accord and satisfaction. (See, Horn Waterproofing Corp. v. Bushwick Iron & Steel Co., 66 N.Y.2d 321; Merrill Lynch Realty/Carll Burr v. Skinner, 63 N.Y.2d 590). As a result, if there is a dispute about the money a New York Business is owed, and it receives a check marked “payment in full”, it should make sure that it does not simply sign and deposit the check. Depositing a “Full Payment Check,” that way, is evidence that the business agrees to accept the lesser amount as payment in full. Instead, the business should clearly indicate that it does not accept the check as payment in full. One way to do this is to sign the check with the restrictive endorsement mentioned earlier.


Most New York businesses have been involved in fee disputes; where you’re trying to collect for goods or services you’ve sold to another. You know you lived up to your end of the bargain; you gave your customer/client what they asked for. All you want them to do is to live up to their responsibilities; i.e. pay you the price they agreed to, but they don’t, haven’t, and won’t. They always come up with an excuse. They haven’t had the time to get to it; they’re waiting on someone else to pay one of their bills; the check is in the mail. The bottom line, though, is they still haven’t paid the fee they agreed to.

Sometimes, the customer/client does pay something, though it is less than the full amount. Even though it is a partial payment, they indicate right on the check that it is in full satisfaction of all fees they owe you. Many times they’ll even cite a statute which they claim backs them up. Many businesses do not know what to do when they face that situation. Often they panic. Though they need the money and are entitled to it, after all they did earn it, they are afraid that if they cash that check they’ll forfeit their right to collect the remaining balance of the fees from the customer/client. As a result, they often don’t deposit the check; some return the check, and others deposit the check but fail to pursue the customer/client for the remainder of the fees.

At least in New York, there is a way around this problem. Under UCC 1-207, the recipient of just such a check can deposit the check and still maintain its right to proceed against the customer/client to recover the remainder of the money owed to it. Under that statute, a depositor can put a restrictive endorsement on the check before he puts it in the bank to collect the proceeds. The endorsement will include words that make it clear that the depositor does not forfeit his rights under the purchase or sales agreement. These could include such phrases as: Deposited Under Protest/With Reservation of Full Rights/Pursuant to UCC 1-207. At the very least, this will allow a business to live to fight another day; it won’t guarantee that you’ll recover the money you’re owed, but it won’t foreclose your ability to try to collect it. At the same time, it will let you deposit the check you’ve been given, collect at least some of the money you’re owed, and thereby make the dispute smaller and, perhaps, more manageable. When the economy is poor, this is something that businesses should be able to utilize to boost their bottom line. It may not be much, but then again, in times like these, every dollar does count.

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