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By: Stacey Bavafa
There are two conflicting statutes that govern the issue of Accord and Satisfaction in California: California Code of Civil Procedure §1526 and California Commercial Code §3311.
Enacted in 1987, California Code of Civil Procedure §1526 states that when a check is tendered by a debtor in furtherance of settlement of a disputed claim, and the words “payment in full,” or other words of similar meaning are noted on the check, the acceptance of the check does not constitute an accord and satisfaction if the party accepting the check crosses out the satisfaction language on the check prior to its deposit. In other words, a Claimant could cross out the satisfaction language, cash the check, then continue to bring a claim for the balance they believe is owed.
In 1992, the California Legislature enacted §3311 of the California Commercial Code which contradicts California Code of Civil Procedure §1526 in that it states:
(a) If a person against whom a claim is asserted proves that (1) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (2) the amount of the claim was unliquidated or subject to a bona fide dispute, and (3) the claimant obtained payment of the instrument, the following subdivisions apply.
(b) Unless subdivision (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.
(c) Subject to subdivision (d), a claim is not discharged under subdivision (b) if either of the following applies:
(1) The claimant, if an organization, proves that (A) within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (B) the instrument or accompanying communication was not received by that designated person, office, or place.
(2) The claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the claimant is an organization that sent a statement complying with subparagraph (A) of paragraph (1).
(d) A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.”
In essence, under California Commercial Code §3311, if a Claimant accepts and cashes a check marked with conspicuous language that the check was tendered in full satisfaction of the claim, the entire debt is discharged regardless of whether the Claimant had crossed out the satisfaction language on the check. The UCC defines conspicuous language as a “term or clause… so written that a reasonable person against whom it is to operate ought to have noticed it.”
So, which law controls?
A California Appellate Court – Woolridge v. J.F.L. Electric, Inc. (2002) 96 Cal.App.4th. Supp. 52, and a Federal District Court – Directors Guild of Am. v. Harmony Pictures, Inc., 32 F. Supp. 2d 1184, 1192 (C.D. Cal. 1998) acknowledged that when two statutes governing the same subject matter cannot be reconciled, the latter in time prevails. As such, both courts held that the provisions of §3311 supersedes §1526.
Therefore, when it comes to settling a claim, ensure the check itself or a written communication accompanying the check contains conspicuous language (e.g. “PAYMENT IN FULL”) to prevent any issues. Thereafter, if a Claimant accepts the check and cashes it, the entire debt is discharged. If a Claimant accepts the check, does not cash it, but instead holds onto it for a period of 90 days or more, the entire debt is discharged. If a Claimant wants to argue that they are still owed additional settlement funds, a remedy may be to file a Motion for Summary Judgment based on the Doctrine of Accord and Satisfaction, citing the statutes and case law above.
If you have any questions or would like more information, please contact Stacey Bavafa at [email protected].