Court Opinion

ID: 6762027
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:32:35.039261+00
Date Added: 2024-06-11T16:02:37.062735
License: Public Domain

Sweeney, J.
The dispositive question presented in this cause is whether an accord and satisfaction has taken place with regard to the debt owed by DiCello to AFC. The appellee, DiCello, contends that an accord and satisfaction has taken place under the instant facts. The appellant, AFC, argues however that R.C. 1301.13, which embodies Section 1-207 of the Uniform Commercial Code (“UCC”), should supersede the doctrine of accord and satisfaction in the “full payment” or “conditional check” situation *3where the payee reserves his or her rights to pursue the balance of the debt alleged to be owed.
Accord and satisfaction is a common-law doctrine where there is a contract between a creditor and debtor for settlement of a claim by some performance other than that which is due. See Grosse & Goggin, Accord and Satisfaction and the 1-207 Dilemma (1984), 89 Comm. L.J. 537. Satisfaction takes place when the creditor accepts the accord. Id.; see, also, State, ex rel. Shady Acres Nursing Home, Inc., v. Rhodes (1983), 7 Ohio St. 3d 7, 7 OBR 318, 455 N.E. 2d 489.
In the cause sub judice, DiCello tendered a check for an amount apparently. less than what AFC expected. The check carried the notation that it constituted payment in full for any and all claims that AFC may have against DiCello. AFC crossed out the notation and inserted the words “Payment on Account” and further negotiated the check. Under Ohio law, it has been held that in such a situation the creditor had “* * * but one alternative; he must accept the amount tendered upon the terms of the condition, unless the condition be waived, or he must reject it entirely, or if he has received the amount by check in a letter, he must return it.” Seeds Grain & Hay Co. v. Conger (1910), 83 Ohio St. 169, 93 N.E. 892, paragraph one of the syllabus. See, also, Inger Interiors v. Peralta (1986), 30 Ohio App. 3d 94, 30 OBR 193, 506 N.E. 2d 1199. Thus, the precise question before this court is whether the special endorsement of the check by AFC with knowledge of a dispute as to the amount due, and with knowledge of the conditional statement on the check, constituted an acceptance of the conditional check, i.e., an accord and satisfaction. In light of the language of R.C. 1301.13, we do not believe that the special endorsement by AFC reserving its rights and subsequent negotiation of the check should continue to be recognized as an accord and satisfaction. Therefore, we reverse the decision of the court of appeals below and remand the cause for further proceedings.
R.C. 1301.13 (UCC 1-207) provides:
“A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as ‘without prejudice,’ ‘under protest,’ or the like are sufficient.”
The Official Comment to this section provides in part:
“1. This section provides machinery for the continuation of performance along the lines contemplated by the contract despite a pending dispute, by adopting the mercantile device of going ahead with delivery, acceptance, or payment ‘without prejudice,’ ‘under protest,’ ‘under reserve,’ ‘with reservation of all our rights,’ and the like. All of these phrases completely reserve all rights within the meaning of this section. The section therefore contemplates that limited as well as general reservations and acceptance by a party may be made ‘subject to satisfaction of our purchaser,’ ‘subject to acceptance by our customers,’ or the like.” (Emphasis added.)
The issue of whether UCC 1-207 should apply to supersede the doctrine of accord and satisfaction has been the subject of much scholarly debate. Courts in different jurisdictions are split with regard to the effect of UCC 1-207 in this context. See, e.g., White & Summers, Uniform Commercial Code (3 Ed. 1988) 689-692, Section 13-24; Note, Contracts — Section 1-207 of the Uniform Commercial Code Not Intended to Apply to Doctrine of Accord & Satisfaction (1980), 15 Land & *4Water Review 737-748; and Hawk-land, The Effect of UCC Section 1-207 on the Doctrine of Accord and Satisfaction by Conditional Check (1969), 74 Comm. L.J. 329.
We are of the opinion, however, that the drafters of the UCC, and Ohio’s General Assembly, promulgated UCC 1-207 in response to a perceived injustice to creditors that occurs where a creditor, under protest, deposits a check marked “paid in full” or the like, and later discovers that an accord and satisfaction has taken place which extinguished the right to demand further payment on the debt.
While this court has not applied R.C. 1301.13 (UCC 1-207) in factual situations similar to the case at bar, it appears that a discernible trend has developed whereby UCC 1-207 is used to supersede the common-law doctrine of accord and satisfaction in “full payment” or “conditional check” situations. Subsequent to the addption of the UCC, at least two other jurisdictions dealt with the subject, albeit in dicta. See Hanna v. Perkins (N.Y. Cty. Ct. 1965), 2 UCC Rep. Serv. 1044; Baillie Lumber Co. v. Kincaid Carolina Corp. (1969), 4 N.C. App. 342, 167 S.E. 2d 85. In Baillie, supra, the court stated that its version of UCC 1-207 would prevent an accord and satisfaction where a conditional check was endorsed “With reservation of all our rights.” Id. at 353, 167 S.E. 2d at 93. In Hanna, supra, the court did not rely on UCC 1-207 because it found no accord and satisfaction based on the fact that there was a triable issue therein. However, the court cited UCC 1-207 and opined that “[i]f it were not that this court finds that triable issues of fact are present, this court would deny the motion by holding this particular section of the code would seem to favor plaintiff’s overriding indorsement of ‘Deposited under protest’ as a reservation of his right to collect payment of [the] balance.” Id. at 1046.
As the debate concerning the scope of UCC 1-207 grew, courts around the country proceeded to make decisions concerning its application. In Scholl v. Tallman (S.D. 1976), 247 N.W. 2d 490, the South Dakota Supreme Court faced a factual situation similar to the instant cause and held that UCC 1-207 applied to the “conditional check” situation. Therein, the creditor deposited, under protest, a check marked “Settlement in Full * * *” from a debtor by scratching out the debtor’s full-settlement notation and writing above his own endorsement, “Restriction of payment in full refused. $1,826.65 remains due and payable.” The court stated that the creditor effected “an explicit reservation of rights under * *' * [1-207]” and thereby did not jeopardize his rights to the balance he maintained was due. Id. at 492.
More recently, in Horn Waterproofing Corp. v. Bushwick Iron & Steel Co., Inc. (1985), 66 N.Y. 2d 321, 497 N.Y. Supp. 2d 310, 488 N.E. 2d 56, the debtor sent the creditor a check for less than the amount owed with a “full payment” notation. The creditor endorsed the check and added the notation “Under Protest,” and brought an action to recover the balance alleged to be due. The court applied the UCC and held that a creditor may preserve his right to the balance of a disputed claim by explicit reservation in his endorsement of the check tendered by the debtor as full payment under UCC 1-207. See Majestic Bldg. Material Corp. v. Gateway Plumbing, Inc. (Mo. App. 1985), 694 S.W. 2d 762.
In addition to the above-cited precedents, it appears that four other jurisdictions (Delaware, Florida, Massachusetts and New Hampshire) *5have embraced the view that the UCC 1-207 supersedes the common-law doctrine of accord and satisfaction in the local comments to their respective versions of UCC 1-207. See White & Summers, supra, at 691, fn. 4.
While the issue is far from settled in other jurisdictions, the competing viewpoints regarding the appropriateness of applying UCC 1-207 were best summarized by White & Summers, supra, at 691-692:
“* * * Those arguing that 1-207 does not alter the common law rule typically start with the position, generally unassailable, that the offeror is ‘master of his offer.’ They point out that the drawer has made an offer, namely that of full payment, and they argue that allowing the payee to accept the money without the other terms of the offer is not only unfair, but also in direct conflict with the traditional notions of contract formation. Those who apply 1-207 and readily reject the common law outcome characterize the offeror as a chisler [sic]. He knows that he owes $10,000 and hopes to get away with $9,000. While we have no empirical basis for concluding the typical offeror is a chiseler as opposed to a legitimately aggrieved debtor, we are inclined to that view.”
While we disdain characterizing any of the parties to the instant action in such a manner, we believe that the framers of the UCC drafted Section 1-207 in order to balance the interests of debtors and creditors in a more equitable manner. In any event, we are persuaded that UCC 1-207 was intended to apply in the situation confronting us in the cause sub judice.
At least one Ohio appellate judge has recognized the perspicaciousness of the Scholl interpretation of UCC 1-207 by noting that if such a rationale were adopted in Ohio, “ ‘* * * a creditor would no longer be at the mercy of the debtor facing the dilemma of either accepting the lesser amount as full settlement or returning the check and gambling his chances of collecting anything. Instead, the risk of loss would be upon the debtor who, after having received protest from the creditor, could stop payment on the check. Even if it were too late for the debtor to stop payment, he would still have the opportunity to protest the remainder the creditor claimed to be due on the debt. * * *’ ” Inger Interiors, supra, at 98, 30 OBR at 196, 506 N.E. 2d at 1202-1203 (Patton, J., dissenting). See, also, Duhart v. Franklin Park Lincoln-Mercury (July 1, 1983), Lucas App. No. L-83-027, unreported. Cf. Hearst Corp. v. Lauerer, Markin & Gibbs, Inc. (1987), 37 Ohio App. 3d 87, 524 N.E. 2d 193, wherein Judge Patton’s dissent in Inger Interiors was characterized as “persuasive.” Id. at 91, 524 N.E. 2d at 197.
In applying the provisions of R.C. 1301.13 to the facts of the cause sub judice, we find that appellant explicitly reserved its rights by crossing out DiCello’s notation on the back of the check and substituting its own notation, “Payment on Account.” By putting DiCello on notice in such a manner, AFC reserved its rights to collect the balance alleged to be due.
Therefore, based on the foregoing, we hold that R.C. 1301.13, which embodies UCC 1-2Q7, supersedes the common-law doctrine of accord and satisfaction in the “full payment” or “conditional check” situation.
Moreover, we expressly overrule this court’s prior pronouncement in Seeds Grain, supra, and further hold that pursuant to R.C. 1301.13, where a debtor tenders a check to a creditor as payment • in full for less than the amount alleged to be owed on the debt, the creditor may accept the check as partial payment on the debt so long as *6the creditor explicitly reserves all rights by endorsing the check “under protest” or any legend sufficient to apprise the debtor that the check is not accepted as full payment on the debt. In so doing, the creditor does not thereby prejudice any rights reserved on the balance alleged to be due.
Accordingly, the judgment of the court of appeals is reversed, and the cause is remanded to the trial court for further proceedings not inconsistent with this opinion.

Judgment reversed and cause remanded.

Holmes, Douglas and Resnick, JJ., concur.
Moyer, C.J., Wright and H. Brown, JJ., dissent.