Things have changed when it comes to getting paid. Originally, depositing a partial payment meant you accepted that payment as full compensation. But following changes in the Uniform Commercial Code (UCC), most courts today – including New York’s Court of Appeals – let creditors deposit a partial payment while still pursuing efforts to collect what they’re owed as long as they take steps to deposit the check “under protest.”
The older law placed creditors in a terrible bind. A vendor, perhaps a website designer, might deliver services – let’s say a completed, working website – and bill her client for the agreed-upon $1,500. The client, either believing the work wasn’t worth that much, or misunderstanding the terms of the bargain, might send payment for only $900.
Under the common law, just as on a game show, this vendor would have had to ask herself the tough question: Should I accept partial payment now, knowing that might be all there is – or keep trying to collect, knowing I might end up with nothing? The former would have required her to accept a $600 loss for work she’d already done – but the alternatives were often untenable as well.
Even more unfair, vendors who were less legally aware did not realize that accepting partial payment meant forfeiting further payment down the line. Clearly, the situation was ripe for change.
Today, under UCC Section 1-207, the simplest way for creditors to protect their rights is by endorsing a check with the comment “without prejudice” or “under protest” on the back before depositing it. (Other payment types, such as cash or bank transfer, are more complex – please consult an attorney.)
However, many courts originally held that the UCC provision only applied to goods, rather than services. So unless the website designer was offering computer hardware for sale as well, she might still have been out of luck.
In 1985, the Court of Appeals put that issue to rest and determined that any partial payment is subject to the rules of disputed payments, whether the parties were buying and selling goods or services. See Horn Waterproofing Corp. v. Bushwick Iron & Steel Co., Inc., 66 N.Y.2d 321 (1985).
This single change to the UCC has vastly simplified commercial transactions, both for goods and for services. But awareness is still a barrier: if you don’t know the law, you won’t realize the importance of endorsing checks under protest. In this case, knowledge is power. Just a few quick words stamped or written on the back of a check could make all the difference when it comes to collecting what you’re owed.
Image Credit
The older law placed creditors in a terrible bind. A vendor, perhaps a website designer, might deliver services – let’s say a completed, working website – and bill her client for the agreed-upon $1,500. The client, either believing the work wasn’t worth that much, or misunderstanding the terms of the bargain, might send payment for only $900.
Under the common law, just as on a game show, this vendor would have had to ask herself the tough question: Should I accept partial payment now, knowing that might be all there is – or keep trying to collect, knowing I might end up with nothing? The former would have required her to accept a $600 loss for work she’d already done – but the alternatives were often untenable as well.
Even more unfair, vendors who were less legally aware did not realize that accepting partial payment meant forfeiting further payment down the line. Clearly, the situation was ripe for change.
Today, under UCC Section 1-207, the simplest way for creditors to protect their rights is by endorsing a check with the comment “without prejudice” or “under protest” on the back before depositing it. (Other payment types, such as cash or bank transfer, are more complex – please consult an attorney.)
However, many courts originally held that the UCC provision only applied to goods, rather than services. So unless the website designer was offering computer hardware for sale as well, she might still have been out of luck.
In 1985, the Court of Appeals put that issue to rest and determined that any partial payment is subject to the rules of disputed payments, whether the parties were buying and selling goods or services. See Horn Waterproofing Corp. v. Bushwick Iron & Steel Co., Inc., 66 N.Y.2d 321 (1985).
This single change to the UCC has vastly simplified commercial transactions, both for goods and for services. But awareness is still a barrier: if you don’t know the law, you won’t realize the importance of endorsing checks under protest. In this case, knowledge is power. Just a few quick words stamped or written on the back of a check could make all the difference when it comes to collecting what you’re owed.
Image Credit