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The Accord and Satisfaction and 1-207 of the UCC Martin Frey

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The Accord and Satisfaction and 1-207 of the UCC Martin Frey University of Tulsa College of Law TU Law Digital Commons Articles, Chapters in Books and Other Contributions to Scholarly Works 1985 The Accord and Satisfaction and 1-207 of the UCC Martin Frey Follow this and additional works at: http://digitalcommons.law.utulsa.edu/fac_pub Part of the Law Commons Recommended Citation 56 Okla. B.J. 2551 (1985). This Article is brought to you for free and open access by TU Law Digital Commons. It has been accepted for inclusion in Articles, Chapters in Books and Other Contributions to Scholarly Works by an authorized administrator of TU Law Digital Commons. For more information, please contact [email protected]. The Accord And Satisfaction And 1-207 Of The UCC By Martin A. Frey Blue Ribbon Stables and Sunnydale Farms, a to discharge a prior obligation, begins with a tradi- thoroughbred horse breeding farm, enter into a con- tional offer, a promise for consideration. In the of- tract for the sale of Handsome Charlie, a race horse. fer for the accord, the drawer promises to pay the Sunnydale fully performs by delivering Charlie. payee the amount stated on the check as full pay- Several weeks later, Sunnydale receives a check ment in exchange for the payee's promise to take from Blue Ribbon for $500,000, an amount substan- this stated amount as full payment for the drawer's tially less than the $1,000,000 contract price. The prior obligation. While this discussion presents the check carries the notation "payment in full." Should accord as a bilateral contract (a promise for a pro- Sunnydale: (a) deposit the check as is; (b) strike mise), an accord could be a unilateral contract (a "payment in full," add the notation "without pre- promise for a performance) if the consideration for judice," and deposit the check; or (c) return the the drawer's promise were not "the payee's promise check to Blue Ribbon and demand full payment? to take the stated amount as full payment of the drawer's obligation" but rather "the payee's taking If Blue Ribbon had sent the check to pay for a the stated amount as full payment of the drawer's stud fee, a service, rather than for Handsome obligation." Charlie, himself, would the same course of action as to the check be appropriate7 By promising to take the stated amount as full If Blue Ribbon had sent the check to compensate payment in exchange for the drawer's promise to Sunnydale for personal injury committed through pay the stated amount as full payment, the payee the negligence of a Blue Ribbon employee on the accepts the offer and forms the accord contract. The owner of Sunnydale Farms, would the same course payee's performance of his or her promise (exercis- of action be appropriate? ing dominion over the check by an act such as negotiating the check) is the satisfaction- In each transaction, Sunnydale either had fully satisfaction being no more than the performance of performed or had no duty to perform and Blue Rib- the accord contract. If the payee does not express- bon is attempting to discharge its duty to pay. If ly promise to take the stated amount as full pay- both Sunnydale and Blue Ribbon had outstanding ment, the payee's promise may be implied from the duties, Blue Ribbon's attempt to discharge its duty payee's performance (exercising dominion over the would not involve an accord and satisfaction but check). Thus when the payee negotiates the check, rather a modification or a substitute contract. This this exercise of dominion acts as both the acceptance article is limited to the potential accord and satisfac- of the offer for the accord and the satisfaction of tion situation, that is, where the payee has fully per- the accord. formed or had no duty to perform. Editor's Note: This article updates and revises an What Is an Accord and Satisfaction? earlier version that appeared in the December 1984 issue of the Tulsa Lawyer. The accord, a contract to pay a stated amount @1985 Frey The Oklahoma Bar Journal 2551 If the existence or amount of the drawer's obliga- The accord and satisfaction promotes fairness by tion is disputed, the notation "payment in full" is protecting the bona fide expectations of the drawer significant. When the existence or amount of the who tenders payment on condition that it will be drawer's duty under the original contract is accepted as payment in full and provides a method disputed, the drawer's promise to pay a stated of settling disputes without litigation. amount as full payment, by not reaffirming a pre- existing duty, can be consideration for the payee's Does an Accord Exist When the Drawer's promise to take the stated amount as full payment. of the offer, an accord con- Obligation Is Neither Unliquidated nor in With this acceptance being. Performance of the accord Dispute? tract comes into contract, the payee's exercise of dominion over the check, is the satisfaction. Upon satisfaction, the Since the accord is merely a contract, the tradi- original contractual duties are discharged . tional rules of offer and acceptance, including the rules of consideration, apply. For an offer to exist When a dispute exists, classical contract law under classical contract law, there must be con- precludes the payee from rejecting the offer for the sideration for the drawer's promise. The considera- accord by altering the notation on the check.' The tion for "the drawer's promise to pay the stated payee, however, may negotiate the check without amount as full payment" would be "the payee's new discharging the drawer if an accord cannot be promise to take the lesser amount as full payment." proven, or the payee does not see the obscure "pay- Thus an offer would be made. For an acceptance ment in full" notation.6 A pleading oversight by the to exist, there must be consideration for the payee's drawer's attorney also may benefit the payee, since promise. The consideration for "the payee's promise the accord and satisfaction is an affirmative defense to take the lesser amount as full payment" would to a claim on the original contract and must be have to be, under the mirror image rule, "the alleged ii the drawer's answer to the petition. drawer's promise to pay the lesser amount as full Failure to do so constitutes a waiver.' payment." If neither the existence nor the amount of the drawer's obligation is disputed, the drawer Does UCC 1-207 Provide the Creditor with a has a pre-existing contractual duty to pay the un- Method for Accepting the Drawer's Check disputed higher amount. A promise to pay only a without the Accord? part of that undisputed amount cannot be new con- sideration for the payee's promise and thus is not an acceptance of the accord offer. Without an ac- Concern has been expressed that section 1-207 of ceptance and thus without an accord contract, the the Uniform Commercial Code alters the classical drawer's notation on the check, "payment in full," accord and satisfaction doctrine." Section 1-207, en- is irrelevant and the payee may exercise dominion titled "Performance or Acceptance Under Reserva- over the check without losing his or her right to en- tion of Rights," provides: force the drawer's original promise to pay.' A party who with explicit reservation of rights performs or promises performance or Even if the drawer's obligation is neither unli- assents to performance in a manner demanded quidated nor in dispute, new consideration for the or offered by the other party does not thereby payee's promise can be manufactured if the payee prejudice the rights reserved. Such words as requires the drawer to promise to do something that "without prejudice", "under protest" or the like the drawer was not legally obligated to already do. are sufficient.' For example, if the payee required the drawer to promise to pay a day or even an hour before the It should be noted that since 1-207 is located in debt is due, pay at a different place, pay a third per- article one it has broad application, that is, it ap- son, or pay in personal property or anything other plies to all subsequent articles. Had 1-207 not been than money, then the drawer's promise would be located in article one but rather in one of the subse- consideration for the payee's promise to -take -the quent articles (two through nine), its application lesser amount as full payment. 2 would have been limited to the scope of that article.1o But while section 1-207 should not be Does an Accord Exist When the Drawer's limited to article two transactions, that is, transac- Obligation Is Either Unliquidated or in Dispute? tions in goods, courts have not agreed upon its 2552 Vol. 56-No. 41 MARTIN A. FREY, Professor of Law at the University of Tulsa College of Law, teaches Contracts and Commercial Law. He earned a B.S.M.E. from Northwestern University, a J.D. from Washington University, and a LL.M. from George Washington University's National Law Center, He is a member of the Oklahoma, Missouri and Tulsa County Bar Associations and is a Law School Inspector for the Accredition Committee of the ABA. scope. The Wyoming Supreme Court in Jahn v. Maine, New Jersey, North Carolina, Oregon, Utah, Burns limited 1-207 to "commercial" transactions Washington, Wisconsin and Wyoming), however, and would not apply 1-207 to non-commercial tran- refuse to apply 1-207 to the classical accord and sactions such as a check arising out of a tort claim.
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