We’ve previously discussed the problem of partial payments being disguised as payments in full, and how this can prevent a New York Business from collecting the full amount a customer owes it. Depositing a check, marked payment in full, normally creates an Accord and Satisfaction, which discharges the remainder of the claim, unless the depositor endorses the check by clearly indicating that he reserves his rights or deposits the check under protest. See UCC 1-207. A check marked “Payment in Full,” however, can be defeated; even if deposited without the restrictive endorsement noted above, there still must be a genuine Accord and Satisfaction in order to discharge the remainder of the debt.
It’s important that every New York Business understand what an Accord and Satisfaction is: A subsequent contract that both parties enter into in order to satisfy, in whole or in part, their obligations under a prior contract. It can be established only by showing that both parties were fully aware of, and freely entered into, the new contract. See Merrill Lynch Realty/Carll Burr, Inc. v. Skinner, 63 N.Y.2d 590 (NY 1984); Narendra v. Thieriot, 41 A.D.3d 442 (2nd Dept. 2007); Church Mut. Ins. Co. v. Kleingardner, 2 Misc. 3d 676 (Sup. Ct. Oswego County, 2003).
It is also important to know that depositing, without a restrictive endorsement, a check marked “Payment in Full,” does not automatically establish an Accord & Satisfaction: The business that accepts, and deposits, a check marked “Payment in Full,” has to know that, if it accepts that check (i.e. it accepts the lower proffered payment) it will settle or discharge a legitimately disputed claim. See Merrill Lynch Realty/Carll Burr, Inc. v. Skinner, 63 N.Y.2d 590 (NY 1984). This is especially important where there is more than one outstanding, or possible outstanding, claim between the parties.
A partial payment, disguised as payment in full, will discharge the full debt only where it is clear what claim(s) the payment is supposed to satisfy. In Narendra v. Thieriot, 41 A.D.3d 442, 838 N.Y.S.2d 131 (2nd Dept. 2007), the proposed Purchasers of real estate sued a Seller to specifically perform the terms of a real estate contract; i.e. to sell them the property. The Seller sought to dismiss the Purchasers’ complaint because, according to the Seller, an Accord and Satisfaction was created when the Seller returned the Purchasers’ down payment and the Purchasers deposited Seller’s check without protest. According to the court, however, the Purchasers’ acceptance of the Seller’s check did not create an Accord and Satisfaction discharging the Purchasers’ claims for specific performance, because the Seller did not inform the Purchasers that accepting the check would settle the claims for specific performance. Since the Purchasers did not know that accepting the check would relinquish their right to specific performance, they could not and did not knowingly enter into a new contract agreeing to give up that right in return for receiving their down payment back.
There must be an actual, legitimate, pending dispute about a claim before a check marked “Full Payment” is sent, in order for the check to create an Accord and Satisfaction dismissing that claim. Where there is no dispute, or even where there is no dispute yet, there is no Accord and Satisfaction. In Century 21 Kaaterskill Realty v. Grasso, 124 A.D.2d 316 (Third Dept. 1986), Plaintiff sued to collect the remaining balance on a real estate broker’s commission. Defendant sought to dismiss the complaint because of an Accord and Satisfaction that it said was created when it sent Plaintiff a check, marked payment in full, for less than the amount of the broker’s fees Plaintiff said it was due. Plaintiff deposited the check without protest. The court said there was no Accord and Satisfaction because, before Defendant sent the check, Defendant never disputed the Broker’s fees it owed. Since Defendant did not know, before it received Plaintiff’s check marked “Payment in Full”, that there was a dispute about its broker’s fees, it could not have knowingly entered into a new contract by which it agreed to accept the lower amount to satisfy the brokers fees it was due under the original broker’s agreement. Even though it deposited the check without protest, Plaintiff still could try to collect the remainder of the Broker’s fees it said it was owed.
As can be seen, there are means by which a business can fight to collect the remainder of the money a customer owes it, even if the business mistakenly deposits, without protest, a partial payment disguised as a payment in full. Those means are difficult to establish and do not always apply. If the check is deposited under protest, however, this would be a fight that would not have to be fought.