It is sound business practice to carefully review any check before endorsing and depositing it in the bank. Failure to do so may result in unintended but binding waiver of additional monies due. This legal doctrine is known as accord and satisfaction and it applies where a creditor and debtor agree – accord – to accept a partial payment to resolve a disputed debt between them – satisfaction.
In 2005, MKL Pre-Press Electronics ("MKL") learned about the doctrine of accord and satisfaction the hard way. MKL issued a demand letter to La Cross Litho Supply ("La Cross") claiming an outstanding debt in the amount of $26,453. La Cross denied that it owed that amount. In response, La Cross sent a letter to MKL’s vice president of sales claiming the amount owed was only $2,392 and enclosing a check in that amount with the letter. The check was marked "FINAL PAYM."
MKL did not understand the significance of the "FINAL PAYM" marking and cashed the check. Unfortunately for MKL, the court applied the accord and satisfaction doctrine and barred MKL from proceeding against La Cross for the remainder of the amount which MKL claimed it was owed. The court reasoned that La Cross’ conduct clearly exhibited its explicit understanding that the check constituted full payment of all of MKL’s demand. MKL did not refuse the check or issue a receipt saying that it deemed the check to constitute only partial payment of the greater owed amount.
MKL also argued that the employee who endorsed and deposited the check did not have authority to bind the company to any agreements, including agreements of accord and satisfaction. The court disagreed, stating that any employee whose authority includes depositing a check will be presumed to have acted on behalf of the organization and his or her acts will be imputed to the organization as a matter of law.
Anyone responsible for collecting accounts receivable should carefully review all checks before endorsing and depositing. If you have any questions regarding the doctrine of accord and satisfaction or if you need assistance in collecting your past due receivables, please contact a member of the firm.
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