AFC Interiors v. DiCello
9 U.C.C. Rep. Serv. 2d (West) 1181, 1989 Ohio LEXIS 248, 46 Ohio St.3d 1 (1989)
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Rule of Law:
Under Ohio law, R.C. 1301.13 (UCC 1-207) supersedes the common-law doctrine of accord and satisfaction, allowing a creditor to accept a check tendered as 'payment in full' for a disputed debt while preserving the right to pursue the remaining balance, provided the creditor makes an explicit reservation of rights.
Facts:
- AFC, a furniture company, sold furniture to Nick DiCello.
- A bona fide dispute arose over the amount DiCello owed, with DiCello claiming he could return unwanted furniture for full credit and that he was charged for items he did not receive.
- DiCello sent AFC a check for an amount less than the balance AFC claimed was due.
- The check tendered by DiCello carried the notation 'PAYMENT IN FULL FOR ANY AND ALL CLAIMS AGAINST NICK DICELLO.'
- Upon receiving the check, an AFC representative crossed out DiCello's notation.
- AFC then wrote 'Payment on Account' on the check before negotiating it.
Procedural Posture:
- AFC sued DiCello in a trial court for the unpaid balance of a debt.
- The trial court entered judgment in favor of DiCello, finding that an accord and satisfaction had occurred.
- AFC, as appellant, appealed the decision to the intermediate court of appeals.
- The court of appeals unanimously affirmed the trial court's judgment for DiCello, the appellee.
- AFC, as appellant, subsequently appealed to the Supreme Court of Ohio.
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Issue:
Does Ohio's codification of UCC Section 1-207 (R.C. 1301.13) supersede the common-law doctrine of accord and satisfaction, thereby allowing a creditor to cash a check marked 'payment in full' while explicitly reserving the right to sue for the remaining disputed balance?
Opinions:
Majority - Sweeney, J.
Yes, R.C. 1301.13 (UCC 1-207) supersedes the common-law doctrine of accord and satisfaction in the 'conditional check' situation. The court reasons that the drafters of the UCC intended Section 1-207 to rectify a perceived injustice to creditors by allowing them to accept partial payment without forfeiting their claim to a disputed balance. This interpretation shifts the risk back to the debtor, who, upon receiving notice of the creditor's reservation, could stop payment on the check. The court finds that AFC's action of crossing out DiCello's notation and substituting 'Payment on Account' constituted an explicit and sufficient reservation of rights under the statute. In reaching this conclusion, the court expressly overrules its prior precedent in Seeds Grain & Hay Co. v. Conger.
Dissenting - H. Brown, J.
No, R.C. 1301.13 (UCC 1-207) does not supersede the common-law doctrine of accord and satisfaction. The dissent argues that the majority misinterprets the purpose of UCC 1-207, which is intended to allow for the continuation of performance under an existing executory contract, not to govern the formation of a new settlement agreement like an accord and satisfaction. Cashing a 'payment in full' check manifests assent to a new settlement contract, extinguishing the prior obligation. The dissent contends that the majority's decision undermines a valuable and convenient method of informal dispute resolution and places Ohio outside the overwhelming majority of jurisdictions, which have held that UCC 1-207 does not alter the common-law rule. This departure from the consensus undermines the UCC's goal of creating uniform commercial law.
Analysis:
This decision significantly alters Ohio contract law by replacing a long-standing common-law rule with a statutory interpretation favored by a minority of jurisdictions at the time. It shifts the balance of power in debt disputes from the debtor, who could previously force a settlement with a conditional check, to the creditor, who can now accept payment and continue to pursue the full amount. This ruling creates a notable split from the majority view on the application of UCC 1-207 to accord and satisfaction, potentially impacting the predictability of commercial transactions involving Ohio parties. The decision forces debtors in Ohio to understand that a 'payment in full' legend on a check is no longer a guaranteed method of finalizing a disputed debt if the creditor explicitly reserves their rights.
