Martin Silver is a practicing attorney with offices in Hauppauge, N.Y. He was a flooring installer before and during the time he went to law school and has since represented numerous industry people and companies. To contact him, call 631-435-0700.
Payment in full
In the past we've touched on the effect of the notation "payment in full" placed by a buyer upon his check which he offers to the seller even though it is in fact made out for less than what the invoice says is due. In view of that, this question arises so often it's time to take another look at the rules that apply.
The facts of this case were not in dispute. In fact, these facts, as placed before the judges of the Appellate panel, were actually agreed to by both the buyer and seller.
This fact pattern began when the buyer, a general contractor (GC), contracted with the seller, a local dealer, for certain goods to be installed in a new bank, which the GC was building. These goods, pursuant to the specifications, have to be specially manufactured by the mill. Although the GC's original price was $23,680, one area was omitted before delivery, and it was agreed that the price be reduced to $18,905.
Anyway, after the goods were finally delivered and installed, a problem arose. The nature of the problem is itself unimportant. What is important is that in the end the buyer, the GC claimed, had to spend an extra $4,134.50 to "fix" the seller's job so the bank would be happy. Needless to say, the dealer thought the job was perfect as he left it and any extra money claimed to be spent by the buyer had nothing to do with him.
At this point the buyer sent the dealer a check in the sum of $14,770.50 representing the difference between the agreed purchase price and the claimed set repair cost. On the back of the check the GC had written, "Endorsement of this check constitutes payment in full of all claims that the seller may have against the buyer." Accompanying the check was a letter describing the deduction and stating the check was being given in full payment and its acceptance constituted a waiver by the seller of any further claim against the buyer.
The seller, probably one of our readers, deposited the check into his account but only after writing the following notation on the back of the check right under where the buyer had written, "Payment in full." He wrote, "Notwithstanding the foregoing, the seller accepts this payment without prejudice and with full reservation of its rights to assert a claim for $4,134.50 under P.O. 11820 dated 5/3/88 and Invoice #6349 dated 8/12/88 for which this payment is accepted in part."
The above facts were presented to the court. Before the existence of the Uniform Commercial Code (in the 1970s), the court stated there is no doubt that by accepting a check with the notation it was offered in full payment, the seller would be absolutely bound to that amount, no matter what additional notation he wrote on the check.
However, the Code, which is now the law in all 50 states, says, "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 does not thereby prejudice the rights reserved. Such words as 'without prejudice,' 'under protest' or the like are sufficient."
This section, the court noted, has been interpreted by most to mean it "permits a party to accept whatever he can get by way of payment, performance, etc., without losing his rights to sue for the balance of the payment so long as he explicitly reserves his rights."