Flambeau Products Corp. v. Honeywell Information Systems, Inc.

• Citation: 116 Wis.2d 95,341 N.W.2d 655
• Decision Date: 04 January 1984
• Docket Number: No. 82-307,82-307
• Court: United States State Supreme Court of Wisconsin
• Parties: , 37 UCC Rep.Serv. 1441 FLAMBEAU PRODUCTS CORPORATION, a Wisconsin corporation, Plaintiff-Respondent-Petitioner, v. HONEYWELL INFORMATION SYSTEMS, INC., a foreign corporation, Defendant-Appellant.

Page 655

341 N.W.2d 655

116 Wis.2d 95, 37 UCC Rep.Serv. 1441

FLAMBEAU PRODUCTS CORPORATION, a Wisconsin corporation, Plaintiff-Respondent-Petitioner, v. HONEYWELL INFORMATION SYSTEMS, INC., a foreign corporation,

Defendant-Appellant.

No. 82-307.

Supreme Court of Wisconsin.

Argued Oct. 31, 1983.

Decided Jan. 4, 1984.

Clyde C. Cross, Baraboo, argued, for plaintiff-respondent-petitioner; there were briefs by Karen A. Mercer and Cross, Mercer & Maffei, Baraboo, on brief.

J. Leroy Thilly, Madison, argued, for defendant-appellant; Barbara L. Block, James E. Bartzen and Boardman, Suhr, Curry & Field, Madison, on brief.

ABRAHAMSON, Justice.

This is a review of a published decision of the court of appeals, Flambeau Products Corp. v. Honeywell Information Systems, 111 Wis.2d 317, 330 N.W.2d 228 (1983) (Flambeau II ), reversing an order of the circuit court for Sauk county, Howard W. Latton, circuit judge. The circuit court entered an order for an interlocutory judgment extinguishing the obligations of Flambeau Products Corporation to Honeywell Information Systems, Inc., under an installment purchase contract and discharging Honeywell's security interest in the purchased equipment. ¹ The circuit court concluded that sec. 401.207, Stats. 1981-82, was not applicable to this case in which Flambeau tendered a check in full satisfaction of Honeywell's claim and that Honeywell's acceptance of Flambeau's check constituted an accord and satisfaction discharging the balance of Honeywell's claim, notwithstanding Honeywell's reservation of rights to claim the balance due. The court of appeals reversed the judgment of the circuit court, holding that sec. 401.207 is applicable to Flambeau's check offered in full payment of the claim and that Honeywell effectively reserved its rights under sec. 401.207. Because we agree with the circuit court's interpretation of sec. 401.207 and its application of the common law doctrine of accord and satisfaction, we reverse the decision of the court of appeals and affirm the circuit court's order for an interlocutory judgment.

I.

The facts are set forth in detail in the decision of the court of appeals in Flambeau II, and it is sufficient for us to summarize them briefly here.

Flambeau Products Corporation (plaintiff-buyer) entered into purchase contracts with Honeywell Information Systems, Inc. (defendant-seller) in September 1975 for the acquisition of computer equipment. Under the purchase contracts Flambeau was obligated to pay 60 monthly installments over a period of five years and had the right to prepay the entire amount at any time. In connection with the equipment purchase and as part of the purchase price, Flambeau was to receive $14,000 worth of computer programming services that Flambeau could use until October 1, 1976. Flambeau used part of these services prior to October 1, 1976 but stopped requesting programming services when it unilaterally decided they were not helpful.

In late 1976 or early 1977, at Flambeau's request, Honeywell advised Flambeau that the amount due to prepay the contract was $109,412. Without further discussion, Flambeau sent Honeywell a check for $95,412. On the back of the check were the words "in full payment of liability to you for equipment...." Flambeau's check was accompanied by a letter which stated that the "check in the amount of $95,412 [is] in full settlement of notes we owe to Honeywell in connection with purchase of our computer system." The calculations set forth in the letter show that $14,000 for "unused programming" was deducted from the sum of $109,412 to arrive at the net payment. Honeywell cashed the check, retained the proceeds, notified Flambeau that the check was not accepted as payment in full, and requested Flambeau to remit the balance due plus interest. Honeywell does not on this review assert that the check cashing or retention of the proceeds was unauthorized.

Flambeau sought a declaratory judgment that it had no further obligations to Honeywell and that Honeywell had no valid security interest in its equipment. Honeywell counterclaimed for $14,000. The circuit court granted summary judgment to Flambeau on the ground that there was an accord and satisfaction. On appeal the court of appeals reversed the circuit court in an unpublished decision, 97 Wis.2d 759, 295 N.W.2d 834, filed on June 17, 1980 (Flambeau I ). It is not entirely clear whether the court of appeals held that summary judgment was not appropriate because there was a dispute of material facts or that as a matter of law Flambeau could not, on the basis of the facts presented in the record on summary judgment, claim an accord and satisfaction. In any event on remand a trial was held on the issue of accord and satisfaction.

After trial to the court, the circuit court held that sec. 401.207 was not applicable to this case and that the offer and acceptance of Flambeau's check constituted an accord and satisfaction discharging the balance of Honeywell's claims. The circuit court ordered judgment in favor of Flambeau. In Flambeau II, the court of appeals reversed the circuit court's order, addressing only the issue of the applicability of sec. 401.207 to this case, not the issue of accord and satisfaction. ²

Two issues are raised on review:

(1) Does the Uniform Commercial Code sec. 1-207 (sec. 401.207, Stats. 1981-82) alter the common law rule of accord and satisfaction as it relates to full payment checks? ³

(2) If sec. 401.207, Stats. 1981-82, does not alter the common law rule, may Flambeau claim an accord and satisfaction in this case?

II.

Under the common law rule of accord and satisfaction, if a check offered by the debtor as full payment for a disputed claim is cashed by the creditor, the creditor is deemed to have accepted the debtor's conditional offer of full payment notwithstanding any reservations by the creditor. In other words, the creditor's cashing the full payment check constitutes an accord and satisfaction which discharges the entire debt.

The common law rule of accord and satisfaction promotes fairness by protecting the bona fide expectations of a debtor who tenders payment on condition that it will be accepted as payment in full. The rule also provides a method of settling disputes without litigation.

Honeywell argues that sec. 1-207 of the Uniform Commercial Code (UCC) (sec. 401.207, Stats. 1981-82) alters the common law rule of accord and satisfaction and permits the seller-creditor to accept and cash the check offered as payment in full and to explicitly reserve the right to obtain payment from the buyer-debtor of the balance due.

Sec. 1-207 (sec. 401.207, Stats. 1981-82) provides as follows:

"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."

Sec. 1-207 of the UCC became sec. 401.207 of the law of Wisconsin on July 1, 1965. Although the language of sec. 1-207 can be read to apply to a full payment check, the words of sec. 1-207 do not compel this conclusion. It is generally conceded that the scope and meaning of sec. 1-207 are unclear, Farnsworth, Contracts sec. 4.23, p. 283 (1982), and courts and commentators are divided as to whether sec. 1-207 has changed the common law principles relating to full payment checks. ⁴ The issue of the applicability of sec. 1-207 (sec. 401.207, Stats. 1981-82) to the full payment check is one of first impression in this state.

Since the language of sec. 1-207 does not provide an answer to the question of whether the section redefines the common law of accord and satisfaction as it applies to full payment checks, we attempt to determine the drafters' intent ⁵ by examining the official comments to sec. 1-207 and the legislative history and by applying the rules of interpretation set forth in the UCC.

The official UCC Comments generally point out any significant changes which a section makes in existing law. If the drafters of the UCC intended sec. 1-207 to effect a change in the full payment check rule, one would suppose that the official UCC Comment and commentary of the Commercial Code Committee ⁶ of the Wisconsin Legislative Council would have described such a significant change. They do not. Professor Hawkland notes that "a strong argument can be made that the failure of the comment to 1-207 to mention such a sweeping change as would be caused by the application of the section" to the full payment check, indicates that no such result was intended. Hawkland, The Effect of U.C.C. Section 1-207 on the Doctrine of Accord and Satisfaction by Conditional Check, 74 Comm.L.J. 329, 331 (1969).

Significantly both the official UCC Comment to sec. 1-207 and the commentary of the Commercial Code Committee of the Wisconsin Legislative Council to sec. 401.207 suggest that sec. 1-207 does not apply to a full payment check.

The official UCC Comment to sec. 1-207 reads as follows:

"1. This section provides machinery for the continuation of performance along the lines contemplated by the contract despite a pending dispute, by adopting the mercantile device of going ahead with delivery, acceptance, or payment 'without prejudice,' 'under protest,' 'under reserve,' 'with reservation of all our rights,' and the like. All of these phrases completely reserve all rights within the meaning of this section. The section therefore contemplates that limited as well as general reservations and acceptance by a party may be made 'subject to satisfaction of our purchase,' 'subject to acceptance by our customers,' or the like.

"2. This section does not add any new requirement of language of reservation where not already required by law, but merely provides a specific measure on which a party can rely as he makes or concurs in any interim adjustment in the course of performance. It...