Know Your Rights Before You Reserve Them
Posted on Jun 30, 2011
Situation: You are engaged in a good faith dispute over how much money someone owes you. That person writes you a check, and writes across it some words indicating that the payment is made in full satisfaction of the claim. If you intend to continue to dispute the claim, do not cash the check. An attempt to reserve rights and cash a check offered in satisfaction of a claim will not be effective.
Vermont law has been settled on this issue for several years, but the rule has wavered historically between this traditional principle and an interpretation of the Uniform Commercial Code as it was originally adopted. The common law rule on this issue was that the claimant could either refuse the check or accept the conditions, but could not accept the check while refusing the conditions. There was subsequently some uncertainty over whether the adoption of the UCC altered this result. In 1993, the Vermont Supreme Court ruled in Frangiosa v. Kapoukranidis that the plain language of former UCC § 1-207 permitted the reservation of rights by the claimant, and that such an attempted satisfaction could therefore be defeated.
The law on this topic was clarified with an amendment to the UCC that took effect in 1995. Subsection (b) of § 1-207 now clearly states that it is inapplicable to an accord and satisfaction. Section 3-311 was added to the code at the same time to govern an accord and satisfaction by use of an instrument such as a check. Comment (3) states that the section “is based on a belief that the common law rule produces a fair result and that informal dispute resolution by full satisfaction checks should be encouraged.” The Supreme Court finally overruled Frangiosa in 2003 in the case of Alpine Haven Property Owners Association v. Deptula.
A claimant may no longer defeat an attempt at satisfaction by writing “rights reserved,” “under protest,” or other similar language. Acceptance of the check will satisfy the claim. The historical vacillation and the relationship to the general rule under § 1-207, which does allow the reservation of rights in other circumstances, make the rule easy to forget. The law is now clear, however, and it is something that lawyers and businesspeople need to understand.