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Chancellor Inc. v. Hamilton Appliance Co.

June 26, 1980

CHANCELLOR, INC., PLAINTIFF,
v.
HAMILTON APPLIANCE COMPANY, INC., DEFENDANT



Saunders, J.s.c. (temporarily assigned).

Saunders

This contract action raises the novel issue whether the Uniform Commercial Code (N.J.S.A. 12A:1-207) has altered the common law principle of accord and satisfaction affecting "full payment checks". More specifically, the question is whether a disputed claim is extinguished when the debtor tenders to the creditor a check marked "paid in full" and the creditor deposits the check after endorsing it "without prejudice" and notifies the debtor he is reserving his right to contend for the balance of the claim.

There is no dispute between the parties with respect to those facts necessary to decide the issue whether, prior to this litigation, an accord and satisfaction had been reached by the parties. On June 15, 1978 defendant, a retail store, purchased from plaintiff, a wholesale distributor, 12 Pioneer home stereo systems at a total cost of $2,785.64. A dispute arose as to the quality of the merchandise and the repair services offered by plaintiff, and thereafter it was agreed that eight of the units would be returned to plaintiff for full credit. A credit of $1,805.76 was issued to defendant, leaving a balance of $979.88.

Four of the units were not to be returned because the cartons had been opened, but a dispute arose as to the wholesale price to be paid by defendant for this merchandise. Subsequent to the delivery of the merchandise to defendant, and before payment by defendant, the wholesale price for each item had been reduced by $41. In addition, defendant claims an additional $81 credit on account of improperly substituted merchandise returned by plaintiff to defendant.

Shortly after this controversy arose defendant forwarded to plaintiff defendant's check in the amount of $734.88 with a notation on the front "paid in full." Along with the check defendant sent a letter of transmittal to plaintiff's attorney which summarized the dispute between parties, and attaching a "correct statement" explaining how the amount of the check

was calculated. The court finds that there was a genuine dispute between the parties as to the amount of money due from defendant to plaintiff.

The general rule in New Jersey as to the effect of the acceptance of a full payment check was announced in Decker v. Smith & Co. , 88 N.J.L. 630 (E. & A. 1916). When a claim is unliquidated and a check is tendered in full settlement, giving the creditor notice of this condition, the creditor's retention and use of the check constitutes an accord and satisfaction. Id. at 633; Rose v. American Paper Co. , 83 N.J.L. 707 (E. & A. 1912).

Sixty years later another court was faced with the issue whether an explicit reservation of rights preventing an accord and satisfaction arose when the creditor obliterated a statement that the check was in full payment and substituted his own notation that it was in partial payment only. A.G. King Tree Surgeons v. Deeb , 140 N.J. Super. 346 (Cty.D.Ct. 1976).

However, it is clear that plaintiff had no right to alter the check. If the check was unacceptable as a final settlement, plaintiff's remedy was to return the check to defendant and sue for the full amount claimed due. Plaintiff chose rather to alter the check, accept the $100 'in partial payment' and sue for the difference. Id. at 349; [emphasis supplied].

The court found that once the check was deposited by the creditor, no matter what alterations its president personally made on the reverse side, an accord and satisfaction was reached. Hence, the New Jersey rule has been that when a check is tendered as payment for an unliquidated claim on the condition that it be accepted in full payment, the creditor is deemed to have accepted this condition by depositing the check for collection notwithstanding any obliteration or alteration. See, also, Loizeaux Builders Supply Co. v. Ludwig Co. , 144 N.J. Super. 556 (Law Div. 1976); U.S. for Use of Glickfeld v. Krendel , 136 F. Supp. 276 (D.C.N.J. 1955).

Based upon the above facts, defendant argues that an accord and satisfaction was reached between the parties at the time the check was deposited notwithstanding the fact that plaintiff endorsed the reverse side of the check "without prejudice" and advised defendant by its attorney ...


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