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.