Facts

DiCello owed a debt to AFC, but the parties disputed the amount due. DiCello tendered a check to AFC for an amount less than what AFC claimed was owed, with a notation on the check stating that it constituted payment in full for any and all claims AFC might have against DiCello.

AFC crossed out DiCello's notation, inserted the words 'Payment on Account,' and proceeded to negotiate the check. Despite this, AFC sought to recover the remaining balance it alleged was still due on the debt.

In the ensuing litigation, DiCello argued that AFC's actions constituted an accord and satisfaction, discharging the debt. AFC contended that under R.C. 1301.13, which embodies UCC Section 1-207, it had reserved its rights to pursue the balance by endorsing the check with a reservation. The trial court ruled in favor of DiCello, finding accord and satisfaction, and the court of appeals affirmed. AFC appealed to the Ohio Supreme Court, seeking reversal and the ability to collect the disputed balance.

Analysis

Issue #1

Issue

Does R.C. 1301.13, embodying UCC Section 1-207, supersede the common-law doctrine of accord and satisfaction in the context of a full payment check where the creditor explicitly reserves rights?

Legal Rule

Accord and satisfaction is a common-law doctrine where a creditor and debtor contract for settlement of a claim by performance other than that due, with satisfaction occurring upon the creditor's acceptance of the accord. R.C. 1301.13 provides that a party who with explicit reservation of rights performs or assents to performance does not prejudice the rights reserved, using phrases like 'without prejudice' or 'under protest.'

Rule Analysis

The opinion examined whether the creditor's endorsement reserving rights and negotiation of a conditional check constituted accord and satisfaction under Ohio law. Prior case law, such as Seeds Grain & Hay Co. v. Conger, held that a creditor must either accept the check on the debtor's terms or reject it entirely, and negotiating it would effect accord and satisfaction.

However, the analysis considered the purpose of UCC 1-207, as reflected in its official comment, which allows continuation of performance despite disputes by reserving rights through notations like 'under protest.' Scholarly debate and decisions from other jurisdictions, such as Scholl v. Tallman and Horn Waterproofing Corp. v. Bushwick Iron & Steel Co., supported applying UCC 1-207 to supersede accord and satisfaction, allowing creditors to reserve rights and avoid being forced into accepting less than owed.

The reasoning balanced interests, noting that the UCC provision protects creditors from debtors' attempts to settle for less without prejudicing rights, addressing perceived injustices in the common-law rule and shifting risk to the debtor who can stop payment upon notice of protest. This approach was seen as equitable and consistent with the UCC's intent.

Accordingly, the prior rule in Seeds Grain was overruled, and R.C. 1301.13 was applied to permit the creditor's reservation of rights.

Conclusion

Yes, R.C. 1301.13 supersedes the common-law doctrine of accord and satisfaction in such situations. Where a creditor explicitly reserves rights by endorsing a full payment check 'under protest' or with a sufficient legend, acceptance of the check constitutes partial payment without prejudicing rights to the balance owed.

Additional Opinions

H. Brown, J.: Dissent

Justice H. Brown dissents vigorously, arguing that the majority has misread the Uniform Commercial Code (UCC), ignored overwhelming authority from other jurisdictions, and overruled longstanding Ohio precedent, particularly Seeds Grain & Hay Co. v. Conger (1910). He contends the case satisfies common-law accord and satisfaction, where a creditor's acceptance and deposit of a check offered as full payment for a disputed debt extinguishes the original obligation, even if the creditor alters the check or reserves rights. In this case, a bona fide dispute existed over returned furniture and charges, and DiCello's check marked 'PAYMENT IN FULL' was altered and deposited by AFC, manifesting assent to a new contract. Brown disagrees with the majority's view that R.C. 1301.13 (UCC 1-207) supersedes common-law accord and satisfaction for full-payment checks. He proposes maintaining the common-law rule, reasoning that: (1) altering it would hinder informal settlements and shift power balances; (2) UCC 1-207's language and Official Comment apply to continuing performance under executory contracts, not new contracts like accord and satisfaction; (3) common-law rules persist unless explicitly displaced by the UCC, which does not mention accord and satisfaction; (4) other UCC provisions (e.g., R.C. 1303.11, 1303.43, 1303.75) recognize full-payment checks and treat alterations as unenforceable, enforcing the original terms; and (5) the vast majority of courts and scholars hold UCC 1-207 does not affect accord and satisfaction, contrary to the majority's characterization of a 'split' authority. He notes safeguards against abuse, such as requiring good-faith disputes and notice, and UCC unconscionability provisions. Brown would affirm the court of appeals and trial court judgments.