Schnell v. . Perlmon
144 N.E. 641, 34 A.L.R. 1023, 238 N.Y. 362 (1924)
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Rule of Law:
A claim is considered unliquidated for the purpose of accord and satisfaction if there is a genuine and honest dispute between the parties over the amount owed, and acceptance of a lesser sum tendered in full satisfaction of such a disputed claim constitutes an accord and satisfaction.
Facts:
- On November 14, 1921, H. Schnell & Co. (plaintiffs) sold ten carloads of Spanish onions (2,500 crates) to Sol Perlmon, trading as Detroit Celery & Produce Co. (defendant), under a written contract specifying delivery F.O.B. New York.
- Upon arrival in Detroit, many of the onions were found to be in a defective condition due to various forms of decay, including fusarean rot and slimy soft rot, affecting 10% to 50% of the contents.
- The defendant had the onions inspected by the United States Department of Agriculture Food Products Inspector, who issued five certificates confirming the extensive decay.
- The defendant notified the plaintiffs of the onions' condition and sent them copies of the government inspection reports.
- On December 13, 1921, the defendant sent the plaintiffs five checks for five of the cars, deducting a total of $425 to cover the percentage of decay, accompanied by a letter explaining the deductions and noting that each check was marked "in full payment."
- On February 11, 1922, the defendant sent the plaintiffs a check for $2,000 and a promissory note for $2,328.70 for the remaining five cars, with the note stating, "Payment in full of balance owing you on the following cars of Onions."
- This second payment was also accompanied by a letter detailing further deductions due to the decay and its impact on the sale of the onions, asserting that the deductions were less than what should have been taken.
- Evidence was presented that fusarean rot is inherent in the plant, not a result of transportation, and government reports indicated a large portion of the shipment was decayed upon reaching Detroit.
Procedural Posture:
- H. Schnell & Co. (plaintiffs) sued Sol Perlmon (defendant) in a trial court to recover an alleged balance due for goods sold.
- The trial court directed a verdict in favor of the plaintiffs for the full amount claimed.
- The Appellate Division unanimously affirmed the judgment of the trial court.
- The Appellate Division granted leave to appeal to the Court of Appeals, certifying a question of law.
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Issue:
Does the acceptance and retention by a creditor of checks and a promissory note, which were tendered by a debtor as "full payment" for a balance on a sales contract and explicitly stated to include deductions for genuinely disputed product defects, constitute a valid accord and satisfaction, thereby discharging the entire debt?
Opinions:
Majority - Crane, J.
Yes, the acceptance and retention by the plaintiffs of the defendant's payments, which were explicitly tendered in "full payment" for a disputed claim, constituted a valid accord and satisfaction, thereby discharging the entire debt. The court reasoned that the full amount claimed by the plaintiffs was not "liquidated" because the defendant genuinely and in good faith disputed the amount due for the defective goods. The onions were rotten and decayed, and not as warranted, meaning the contract had not been fulfilled as called for. Whether the defendant had a claim for breach of warranty or a right to reject the imperfect goods, the critical fact was his insistence that he should not pay for articles he had not purchased, backed by government inspection reports. A claim is not liquidated, even if an amount is due, unless it appears how much is due, and a genuine dispute as to the proper amount renders a demand unliquidated (Nassoiy v. Tomlinson). The plaintiffs knew the claim was disputed and that the payments were offered in full settlement. By accepting and cashing the checks and notes, the plaintiffs also accepted the conditions attached to the payment. The court emphasized that the law favors settlements where there is an honest and genuine contest between parties, and such compromises, if made without fraud, should be upheld even if the amount is less than what was originally claimed (Post v. Thomas). Furthermore, the court found additional consideration for the release of the balance in the defendant's surrender of his potential claim for damages under breach of warranty.
Analysis:
This case significantly clarifies the concept of a "liquidated" claim in the context of accord and satisfaction under New York law, particularly in sales disputes involving defective goods. It establishes that a genuine dispute over product quality, even with a fixed contract price, renders the claim unliquidated, allowing a lesser payment tendered in full satisfaction to be binding if accepted. This ruling strengthens the enforceability of compromise settlements and incentivizes parties to resolve commercial disputes outside of litigation. It also serves as a warning to creditors to either reject conditional payments or risk losing the right to pursue the full original amount.
