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Where a statement was conspicuously contained in a letter transmitting a check for final payment to a contractor stating that the check will constitute full satisfaction of a contractor claim, a court held this to be an accord and satisfaction, barring the contractor from claiming additional monies under its contract.  In Gelles & Sons General Contracting, Inc. v. Jeffrey Stack, Inc. (No. 012319, Fairfax County, VA 2002),  the contractor (“Gelles”) had performed brick laying work, and the its customer (“JSI”)  took issue with the amount and quality of the work and disputed the amount of compensation due.  The final paragraph of its letter transmitting the check in question stated, “JSI Paving and Construction stands by its final amounts as stated on the latest correspondence…. Enclosed, please find a check …. representing final payment of the contract.” Gelles cashed the check.  Then Gelles sued JSI for the balance that it deemed owed.  In response, JSI asked the court for summary judgment on the basis of accord and satisfaction.  The court granted the summary judgment for several reasons.

Under the Virginia Code, section 8.3A-311, if a person tenders a payment instrument to a claimant as full satisfaction of the claim which was unliquidated or subject to a dispute, and the claimant obtained payment of the instrument [i.e., cashed the check], the following conditions apply.  “b) … 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.”

“Conspicuous,” as defined in the Code, means a term or clause that a reasonable person “ought to have noticed.”  There is no statutory requirement that the term or clause must be displayed in a particular font or size type.  Gelles argued that the language was ambiguous and would not lead a reasonable person to conclude that full satisfaction of the claim was intended.  The trail court found that a reasonable person could not have considered the language of the letters to be anything other than “a drop-dead letter that says, ‘This is it.  This is what we’re going to pay you.’”  The appellate agreed that “the entire course of conduct and communication between these parties made clear that JSI offered the [amount] as the final payment that it intended to make and that JSI considered that amount to represent the proper accounting under the contract.”

Risk Management NOTE: I have had the experience while litigating a contractor claim to have a project owner successfully persuade a judge that through a combination of a change order, payment authorization, and partial waiver and lien release, the contractor had agreed to a total accord and satisfaction of any and all claims related to any work related to the change order.   This came as a surprise to the contractor who never intended by signing the documents and cashing the check to waive its entitlement to the amount that it alleged to remain contested.  Despite correspondence and documentation submitted to the owner by the contractor prior to the “accord and satisfaction,”demanding payment and seeking to preserve its rights, a court held that the subsequent contractor claim for the outstanding balance could be barred.  The lesson learned is that language asserting a release and satisfaction must be taken most seriously, and, to assure that any right to a claim for additional monies is preserved, appropriate communication and action must be taken

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 5, No. 4 (May 2003).

Copyright 2003, ConstructionRIsk.com, LLC