Horn Waterproofing Corp. v. Bushwick Iron & Steel Co.
488 N.E.2d 56, 66 N.Y.2d 321, 497 N.Y.S.2d 310 (1985)
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Rule of Law:
When a debtor tenders a negotiable instrument as full payment of a disputed claim, Uniform Commercial Code (UCC) § 1-207 supersedes the common-law doctrine of accord and satisfaction, allowing the creditor to preserve their right to the balance of the claim by explicitly endorsing the instrument "under protest" or with similar language.
Facts:
- Horn Waterproofing Corp. (plaintiff) and Bushwick Iron & Steel Co. (defendant) entered into an oral agreement for Horn Waterproofing Corp. to repair the leaking roof on Bushwick Iron & Steel Co.'s building.
- After two days of work, Horn Waterproofing Corp. concluded that a new roof was needed and submitted a bill for the work already done.
- Bushwick Iron & Steel Co. disputed the amount charged by Horn Waterproofing Corp.
- Horn Waterproofing Corp. revised the bill downward from $1,241 to $1,080.
- Bushwick Iron & Steel Co. remained unsatisfied with the charges and sent Horn Waterproofing Corp. a check for only $500.
- The check from Bushwick Iron & Steel Co. bore a notation affixed on the reverse side stating: "This check is accepted in full payment, settlement, satisfaction, release and discharge of any and all claims and/or demands of whatsoever kind and nature.”
- Horn Waterproofing Corp. printed the words "Under Protest" directly thereunder, indorsed the check with its stamp, and deposited the $500 into its account.
Procedural Posture:
- Horn Waterproofing Corp. commenced an action in Civil Court seeking $580 as the balance due on its revised bill.
- Bushwick Iron & Steel Co. moved for summary judgment in Civil Court, arguing that Horn Waterproofing Corp.'s acceptance and negotiation of the check constituted an accord and satisfaction.
- The Civil Court denied Bushwick Iron & Steel Co.'s motion for summary judgment.
- The Appellate Term affirmed the Civil Court's denial of summary judgment, holding that the Uniform Commercial Code was applicable and that, under section 1-207, Horn Waterproofing Corp. was entitled to reserve its right.
- On appeal by leave of the Appellate Term, the Appellate Division reversed, granted Bushwick Iron & Steel Co.'s motion for summary judgment, and dismissed the complaint, concluding that the parties' agreement for services fell outside the scope of the Code, thus applying common-law accord and satisfaction.
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Issue:
Does Uniform Commercial Code § 1-207 supersede the common-law doctrine of accord and satisfaction, thereby allowing a creditor to preserve the right to the balance of a disputed claim by explicitly reserving rights when indorsing a check tendered by a debtor as full payment?
Opinions:
Majority - Jasen, J.
Yes, Uniform Commercial Code § 1-207 supersedes the common-law doctrine of accord and satisfaction, thereby allowing a creditor to preserve the right to the balance of a disputed claim by explicitly reserving rights when indorsing a check tendered by a debtor as full payment. The court reasoned that applying UCC § 1-207 to a "full payment" check situation, to permit a creditor to reserve rights and thereby preclude an accord and satisfaction, more closely aligns with the statutory provision's content, context, legislative history, and the Code's underlying purposes, and promotes a fairer policy in debtor-creditor transactions. The common-law rule created a "cruel dilemma" for creditors, forcing them to surrender partial payment or forfeit the remainder. UCC § 1-207, which states, "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 party does not thereby prejudice the rights reserved. Such words as 'without prejudice', 'under protest' or the like are sufficient," is broadly applicable to full payment checks when liberally construed as the Code intends (§ 1-102). The Report of the State of New York Commission on Uniform State Laws, submitted to the Legislature, clearly indicated that § 1-207 would change the common-law doctrine of accord and satisfaction, specifically referencing the seminal case of Nassoiy v Tomlinson. The court further emphasized that § 1-207's placement in the introductory Article 1 signifies its application to any "Code-covered" transaction. The use of a negotiable instrument, such as a check, for payment or attempted satisfaction of a contract debt falls under UCC Article 3, making it a "Code-covered" transaction regardless of whether the underlying contract was for goods or services. The court also noted that a proposed UCC subdivision, which would have given accord and satisfaction effect to a negotiated full payment check, was deleted because it "would work hardship, and was open to abuse," reinforcing the interpretation that § 1-207 allows reservation of rights.
Analysis:
This case profoundly altered the common-law doctrine of accord and satisfaction in New York, shifting the leverage in disputed payment scenarios from debtors to creditors. By validating a creditor's ability to accept a "full payment" check while explicitly reserving rights, the court prevented debtors from unilaterally dictating terms of settlement. This decision underscores the modernizing and harmonizing intent of the UCC, particularly when commercial paper is involved, even if the underlying transaction is for services rather than goods. While this interpretation of UCC § 1-207 was debated nationally and eventually superseded by revisions to Articles 3 and 1 in many states, this ruling represented a significant judicial move towards greater fairness and flexibility for creditors at the time, influencing commercial law and debt resolution practices within New York.
