Money disputes are a regular occurrence in the law and are often the result of a disagreement over the price, quantity or quality of goods or services. (Homeowner to plumber: “You told me fixing this stopped-up drain would cost $200. So what’s with this bill for $600?” Plumber to homeowner: “$200 was an estimate, before I found out your kids were flushing their toys down the toilet.”)
When such a dispute arises, one party will sometimes send a check to the other party for some, but not all, of the amount in dispute. The check will be accompanied by a letter, or wording on the check itself, to the effect that the check is tendered as an offer of settlement and that cashing the check will constitute acceptance of the offer. The question then becomes: Does this really work or can the recipient of the check cash the check as part payment of the disputed amount and pursue the sender of the check for the remaining amount?
What’s at issue here is a legal doctrine known as accord and satisfaction by check. It’s been causing trouble for hundreds of years and these days is the subject of a specific section of the Uniform Commercial Code. This section starts out by saying if a check, delivered in good faith, contains a “conspicuous statement” that it is being tendered in full satisfaction of a disputed claim, and the check is cashed, there will in fact be a binding settlement between the parties.
However, the section goes on to say that, if the claimant — the party to whom the check is sent — is an organization and the organization can prove it issued a conspicuous statement saying payments relating to a disputed matter must be directed to a particular office or person, and the offer-of-settlement check was sent only to the organization’s regular address for payment, there is no settlement.
In that circumstance, the organization can keep the payment it received and pursue the sender of the check for the balance of its claim. (What’s going on here, of course, is an attempt by the law to protect organizations that process a large number of checks, without paying any attention to what might be written on them, from a sneak attack by a customer.)
Even if an offer-of-settlement check is sent to a correct address for disputed matters, or the payee of the check gave no special instructions about where to send such checks, or the payee was not an organization, the Uniform Commercial Code throws in one more wrinkle. The payee can avoid the consequences of cashing the check by returning the amount of the payment to the sender of the check within 90 days following the date the check was cashed. This action undoes the settlement and puts the parties back in the position they were in before the check was cashed, with all claims and defenses preserved.
The accord and satisfaction by check doctrine was at the center of a high-volume dispute between a Denver condominium unit owner and his owners’ association decided by the Colorado Court of Appeals bin June. The facts were convoluted but, bottom line, the unit owner — a lawyer representing himself (a fool for a client?) — did not prevail. The trial court and Court of Appeals decided he had not proceeded in good faith. He now owes assessments, interest, late fees and collection costs, and has managed to turn a relatively small debt into a $50,000 problem.
Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. You can contact him at firstname.lastname@example.org.