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Imagine this scenario:  you sell your goods or services to a customer and send an invoice, and the customer gives you a check covering only part of your invoice.  If this happens, examine the check very carefully.  If the check says “Full and Final Payment” or “In Full Satisfaction” anywhere, do not cash it (unless you are willing to accept the reduced amount as full payment for your invoice).  If you do cash the check, you may be stuck with the reduced payment  under the doctrine of “accord and satisfaction.” 

 Accord and satisfaction occurs when a business tries to get its full asking price for goods or services sold to a consumer, who in turn asserts he or she is not obligated to pay the full price billed because of a defect or breach of warranty relating to the goods and services.  The doctrine is essentially an informal method of resolving a dispute over the amount owed for the goods and services.  The case of Wolfe v. Eagle Ridge, 869 N.E.2d 521 (Ind. Ct. App. 2007) illustrates the pitfalls of this situation for business owners.

 Eagle Ridge Holding Company, LLC contracted with Jerry Wolfe (d/b/a Wolfe Construction) to construct a building on Eagle Ridge’s property.  After Wolfe completed the work, he sent Eagle Ridge a final invoice for $27,031.75.  Eagle Ridge sent Wolfe a check for $12,000.00 as partial payment on the invoice (leaving an unpaid balance of $15,031.75), and a couple of weeks later it sent Wolfe a check for $10,461.94 (leaving an unpaid balance of $4,569.81).  Written on the front and back of this second check were the words “Full & Final Payment,” and enclosed with the check was a document listing several areas for which Eagle Ridge felt it had been overcharged.

 Wolfe attempted to cash the second check, but only after stamping it with the words “Deposited without prejudice & with full reservation of all rights to balance per I.C. 26-1-1-207.  It is not an accord or satisfaction. . . .”  The bank refused to cash the check because it was over six months old, so Eagle Ridge sent Wolfe another check for the same amount, also accompanied by a similar document explaining why it was not paying the full remaining balance.  Wolfe cashed this last check with no “reservation of rights” stamp.

 Eventually Wolfe and Eagle Ridge sued each other for various issues regarding the work and payment.  The trial court decided Eagle Ridge had successfully extinguished the remaining $4,569.81 of debt it owed to Wolfe under the doctrine of accord & satisfaction, and the Court of Appeals affirmed that decision.  The Court concluded that the requirements of an accord and satisfaction had been met, because:  (1) Eagle Ridge in good faith tendered a check conspicuously marked as being in full satisfaction of its debt; (2) there was a genuine dispute over the amount Eagle Ridge owed Wolfe; and (3) Wolfe cashed the check.

 The Court pointed out that, even if Wolfe had successfully cashed the check with its “reservation of rights” stamp, the stamp would have had no impact on the outcome of the dispute.  This is because Indiana Code §26-1-1-207, the provision of Indiana’s Uniform Commercial Code governing performance or acceptance of a transaction under a reservation of rights which Wolfe cited in its stamp, does not govern claims of accord and satisfaction.  Instead, accord and satisfaction claims are governed by their own provision, Indiana Code §26-1-3.1-311.

The takeaway as a business owner is that you should be careful about cashing checks you receive as payment for your goods or services.  If a check is written for less than the amount owed, look for any extra words written or stamped on the check or other documents accompanying the check, and proceed with caution.  Cash the check only if you are willing to accept less the amount owed to you.  If you wish to recover the full amount owed to you, we recommend consulting with an attorney to examine your options.


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