Document Type
Comment
Abstract
A relatively overlooked section of the Uniform Commercial Code [hereinafter U.C.C. or Code], section 1-207, which concerns performance or acceptance under reservation of rights, has recently come to the forefront and could have a profound effect on debtor-creditor relations.' The question which has arisen is whether U.C.C. section 1-207 should be applied to the full payment check, thus changing the common law doctrine of accord and satisfaction concerning the full payment check. In the context of debtor-creditor relations, disputes often arise over an amount due. For example, A and B enter into an agreement whereby A agrees to furnish certain supplies and B agrees in return to pay $200. During the course of the transaction, due to market conditions, some of the supplies have to be substituted. B claims that the substituted supplies are only worth $100. A claims that the supplies are substantially the same, and that B still owes $200. B, in an attempt to compromise, sends A a check for $150 marked "payment in full." This triggers the dilemma.
Under the common law doctrine of accord and satisfaction, creditor A would have two choices. He could accept B’s check in full payment of the claim or he could return the check and sue for the full balance. The creditor cannot retain the check and sue for the balance. The burden is placed on the creditor to choose between these two alternatives. The debtor’s position is clear. In sending a check marked "payment in full," he has presented the creditor a "take it or leave it" offer.
On the other hand, if U.C.C. section 1-207 is applied to the same set of facts, the burden shifts to the debtor. Under the Code, the creditor can retain the check "under protest" and with "full reservation of rights" and still sue for the balance. Hence, the debtor can send a full payment check in an amount which he considers a fair compromise, $150, hoping that the creditor will elect to accept the check in full settlement of the claim. Although the creditor upon receipt of an amount larger than the debtor admits is due might be less inclined to sue for the balance than if he received only what the debtor claimed was due, the debtor nevertheless risks the chance that the creditor will retain the larger amount and still sue for the balance. In other words, in sending $150 the debtor takes the risk that the creditor will receive $50 more than the debtor thinks he owes, and that the creditor will additionally sue for the remaining $50 he originally claimed. The debtor's other choice is to send only the amount he admits is due, $100, and wait for the creditor to sue for the balance. The potential for litigation is even greater in this instance because the debtor has made no attempt to compromise with the creditor; on the other hand, the debtor has not taken the risk of placing in the hands of the creditor any sums greater than the precise amount he admits is due. Consequently, because of these poor alternatives left open to the debtor when section 1-207 is applied to this type of situation, the informal compromise of accord and satisfaction is impaired.
Perhaps of greater consequence to the debtor or the creditor is the question whether the Code will be applied to the situation.
Recommended Citation
Hendrick, Susan Harrison
(1982)
"UCC Section 1-207 and the Full Payment Check: The Struggle between the Code and the Common Law - Where Do the Debtor and Creditor Fit In?,"
University of Dayton Law Review: Vol. 7:
No.
2, Article 6.
Available at:
https://ecommons.udayton.edu/udlr/vol7/iss2/6
Publication Date
3-1-1982
