RMP Industries, Ltd. v. Linen Center

• Decision Date: 29 January 1986
• Docket Number: No. 85-459,85-459
• Citation: 386 N.W.2d 523
• Parties: 1 UCC Rep.Serv.2d 638 RMP INDUSTRIES, LTD., Plaintiff-Appellant, v. The LINEN CENTER and Richard A. Brown, Defendants-Appellees.
• Court: Iowa Court of Appeals

Page 523

386 N.W.2d 523

1 UCC Rep.Serv.2d 638

RMP INDUSTRIES, LTD., Plaintiff-Appellant, v. The LINEN CENTER and Richard A. Brown, Defendants-Appellees.

No. 85-459.

Court of Appeals of Iowa.

Jan. 29, 1986.

Frederick B. Anderson and Linda L. Haley, of Williams, LaMarca, Marcucci, Wiggins & Anderson, P.C., Des Moines, for plaintiff-appellant.

Paul R. Tyler and Charles F. Becker, of Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, for defendant-appellee Brown.

Monte R. Hanson, of Brown, Winick, Graves, Donnelly & Baskerville, Des Moines, for defendant-appellee Linen Center.

Heard by DONIELSON, P.J., and HAYDEN and SACKETT, JJ.

DONIELSON, Presiding Judge.

The plaintiff appeals from a summary judgment for the defendants in this contract action claiming that the district court erred by concluding the pleadings established all the elements of the defense of accord and satisfaction. We affirm.

The defendant, Richard Brown, was the general contractor to perform a remodeling project for a co-defendant, The Linen Center. The plaintiff, RMP Industries, was a subcontractor hired by Brown for $2,850 to erect shelving which was a part of the remodeling project. The shelving was delivered on time, but RMP was unable to perform the installation work because the carpet was not laid. To complete the project on time, overtime work was required. The parties agreed to the overtime wage, but not the amount of time the project would take.

After performing its work, RMP sent Brown a bill for $8,951 representing actual time spent to complete the project. Brown objected to the amount of the bill and offered to pay $4,300, which represented an amount equal to the time Brown thought the job should have taken. RMP rejected this offer. Brown then sent RMP a check for $4,300. The back of the check contained the following language:

The undersigned payee hereby accepts the check as payment in full for all sums due it in connection with installation of shelves and fixtures at 4100 Merle Hay Rd., for the Linen Center subcontracted to Richard A. Brown & Son. (emphasis in original).

Ronald M. Patterson, the president of RMP, cashed this check after consulting counsel; however, he endorsed it with the words "under protest--all rights reserved without prejudice Chapter 554, Iowa Code." Patterson later testified that he was reluctant to cash the check, but felt he had no alternative because he needed the money to pay his workers.

After cashing the check, RMP filed the present suit for breach of contract against Brown and The Linen Center, seeking the remainder of the amount he had billed Brown. Brown asserted as an affirmative defense that the tender and acceptance of the $4,300 check had constituted an "accord and satisfaction" barring any suit for further payment for the same work. Brown and The Linen Center then moved for summary judgment on this ground. The district court found that an accord and satisfaction had occurred and granted the defendants summary judgment.

On appeal, RMP argues the district court erred by concluding that the pleadings established the elements of the defense of accord and satisfaction. RMP also submits the Iowa Uniform Commercial Code governs this transaction.

I.

Iowa authority provides the defendant, in this case Brown, bears the burden of proof to an accord and satisfaction by a preponderance of the evidence. Electra Ad Sign, Inc. v. Cedar Rapids Truck Center, 316 N.W.2d 876, 880 (Iowa 1982). An accord and satisfaction requires valid consideration which is offered, intended, and accepted as full satisfaction of the original claim. Id. at 879. Stated otherwise:

[T]he authorized acceptance of money offered in satisfaction of a genuinely disputed claim, if accompanied by acts and declarations which amount to a condition that, if accepted, it is in satisfaction of the claim, amounts to an accord and satisfaction. A party to whom such an offer is made has no alternative but to refuse and return the money, or to accept, and if he accepts on those conditions, his claim is cancelled. Olson v. Wilson & Co., 244 Iowa 895, 58 N.W.2d 381; Minnesota & Ontario Paper Co. v. Register & Tribune Co., 205 Iowa 1228 219 N.W. 321; Schultz v. Farmers Elevator Co., 174 Iowa 667, 156 N.W. 716.

Mayrath Co. v. Helgeson, 258 Iowa 543, 547, 139 N.W.2d 303, 305 (1966). RMP does not dispute that the funds were offered as a satisfaction of claims and that Brown intended such funds to constitute full payment. RMP contests the finding of a genuine dispute, an unliquidated debt, and its purported intent to accept the check as full payment.

II.

RMP goes to great lengths to claim Brown unilaterally created a dispute so that the defense did not constitute valid consideration. We disagree with RMP's assertions. The parties entered into an agreement to pay various hourly wages for overtime work, but did not mention how many hours such work would take. RMP submitted its bill for overtime wages of $6,100. Brown felt too many overtime hours were billed and offered $1,450 as a figure representing an amount of overtime wages he felt the project should have cost.

RMP's bill was nearly four times that of the original agreement which prompted Brown to contact RMP and discuss the matter. A dispute naturally arose as to the amount owed for RMP's services. RMP contends there was no genuine dispute about the amount owed it, that Brown's $4,300 check was merely an attempt to avoid part of Brown's undisputed $8,951 obligation, and that the defense of accord and satisfaction therefore does not bar this suit. We, nevertheless, conclude a genuine dispute existed as to the amount of overtime hours RMP billed which Brown was responsible to pay.

Notwithstanding RMP's contentions to the contrary, we also find that the debt was not a liquidated amount under Iowa law. See Olson, 244 Iowa at 901, 58 N.W.2d at 385 ("If it is admitted that one of two sums is due, but there is a dispute as to which is the proper amount, the demand is unliquidated within the meaning of accord and satisfaction." (citations omitted)).

RMP cites Acton Construction Co. v. State, 363 N.W.2d 130 (Minn.Ct.App.1985), as authority for the proposition that when a check is negotiated which is for less than the total disputed amount with "under protest" language or similar terms, an accord and satisfaction does not result. Our case, however, is distinguishable. In Acton, a dispute arose regarding the amount of liquidated damages in a construction contract. The State sent a certificate indicating that the contractor had performed the required services and the State provided an amount it would pay. The contractor returned the certificate but expressly reserved its rights for additional compensation. After receiving the reservation letter, the State, nevertheless, issued a check which was negotiated. The court stated:

[The contractor's] negotiation of the check did not constitute an accord and satisfaction. The State was aware of the reservation of rights when it sent the check to Acton. Acton was not thereafter contacted by the State, so when it negotiated the check it was entitled to presume that the State accepted its reservation of rights. Thus it cannot be said that both parties understood that the State was paying all demands in full.

Id. at 134.

In our case, Brown was not aware of RMP's reservation of rights when the check was issued so that RMP could not have reasonably believed Brown would pay the higher amount. RMP negotiated the check without Brown having any prior knowledge of the "under protest" language. Thus, RMP was not entitled to presume Brown accepted its reservation of rights.

III.

The most challenging issue presented is whether RMP's adding the "under protest" language before cashing the check for $4,300 which purported to be payment in full from Brown constituted an acceptance under accord and satisfaction law. RMP contends it was not an acceptance because it conditionally cashed the check; whereas, Brown submits the act of cashing a check can only be interpreted as accepting the offer under the common law so that the "under protest" language was, in effect, irrelevant.

Arguably, the outcome of this could depend upon whether the Iowa UCC or common law rule of accord and satisfaction applies. Not surprisingly, RMP contends the UCC does apply and that the "under protest" language is valid under Iowa Code section 554.1207 (1985) so as to negate any purported acceptance. Brown takes the opposing view by contending the UCC does not apply and, even if the UCC does apply, the reservation of rights is inconsequential.

One commentator has cogently discussed the apparent tension between the common law and UCC on accord and satisfaction:

Under common law principles, the debtor can feel secure in tendering to his creditor an amount less than that claimed by the latter by a check that clearly indicates that it is in full settlement of a bona fide dispute. The tender is considered to be an offer by the debtor to compromise the disputed claim by paying more than he believes to be due but less than the creditor claims. The creditor either may reject the offer by returning or destroying the check or accept it by cashing the check. If he chooses the latter course of action, an accord and satisfaction is effected at the moment he receives payment on the check....

With the enactment of the Uniform Commercial Code, the validity of the common law doctrine of accord and satisfaction in the case under discussion is seriously in doubt. Section 1-207 of the U.C.C. appears on its face to provide the machinery for a creditor to cash a check tendered by his debtor in full settlement of a disputed claim and still preserve his right to sue for the balance of his claim provided he explicitly reserves that right. If the section is applied literally, such a reservation could be made merely by indorsing the check "under protest" or "without prejudice" or by giving notice to the...