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The Scenario

You had a good year — you finally got that huge OEM account with AcmeCo qualified and the purchase orders are starting to roll in. You figure your hard work over the past 18 months is finally starting to pay off and you’re looking forward to your well-earned reward.

The problem is your principal is starting to think hard about all those commissions you’re about to make. A little friction is starting to build as your principal seems to be a bit slow in making payments on the new AcmeCo purchase orders, making excuses rather than payments. The principal starts complaining that for some reason you shouldn’t receive full commissions on those new orders — maybe suggesting your commission really should be discounted because of all the extra work required of the principal’s sales engineers and the hard bargaining AcmeCo did. You bristle at the suggestion, but you’re hesitant to start an all-out fight right before the big money is expected. “Better wait and see,” you think.

You breathe a sigh of relief when a check arrives unannounced from the principal — maybe it’s a bit less than you expected, but at least it’s a start. You’re so relieved that you don’t take much notice of the words “Final Commissions” written on the memo line of the check or on the accompanying report. To the extent you have any thought about the word “Final,” maybe you assume it is the “Final” commission on that first AcmeCo PO that is shown on the accompanying report. You deposit the check as usual and put it out of your mind, quietly congratulating yourself on your decision to not make too much of a fuss. You feel further vindicated as you learn of more AcmeCo purchase orders on the way.

But eventually you notice that your principal has gone somewhat non-responsive over the past several weeks. Maybe some commissions on other non-AcmeCo orders are paid, or maybe nothing is paid, but everything just seems to get a bit quieter. You begin to think back, “Hey, it’s been quite a while since I got that last commission check on AcmeCo.” Your calls to the principal are met with vague excuses and promises that they’ll get back to you as soon as things settle down and the distribution manager gets back from vacation, and then they’ll be able to catch up on their record-keeping and reporting.

Months pass. You finally lose patience and let your principal have it: “Where are the rest of those commissions for the additional AcmeCo POs?” You’re shocked when the principal responds, “What are you talking about? We settled those months ago. You’re getting nothing more.” You’ve been victimized by an “accord and satisfaction,” and you are anything but satisfied.

The Law of Accord and Satisfaction

Let’s start with the uncontroversial premise that the law favors settlements of disputes. If you and the principal had sat down, hashed through your disagreement over the AcmeCo commissions, written up a detailed and clear comprehensive settlement agreement and signed it, there is little doubt that the new settlement agreement would be enforced and would replace any earlier agreement that you had for commissions on AcmeCo sales. But a settlement does not have to be so elaborate. For many decades, courts have recognized a much simpler method of resolving a dispute through a doctrine known as “accord and satisfaction.”

Many states have long had their own rules of accord and satisfaction, but since about 1990 nearly every state has enacted some form of a model accord and satisfaction statute called Uniform Commercial Code Section 3-311. While some states may have variations, the most common terms of Section 3-311 provide:

(a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument….

(b) [T]he 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.

So what does this legalese mean to you as a sales rep? Potential trouble — big trouble. Putting the legal terms in more plain English, if you and your principal are having a disagreement about commissions owed, the principal can make a good faith offer to compromise by sending you a check with a conspicuous note that the check is offered as full satisfaction of the dispute. In legal parlance, that is referred to as an offer of an “accord.” If you deposit or cash that check, the law will likely conclude that you have accepted the offer, which creates a new agreement called a “satisfaction.” Settlement achieved — dispute resolved — and your claim for more commissions is extinguished. Which claimed commissions were extinguished? Whichever ones were in dispute and within the scope of the offered accord — maybe it was just the AcmeCo commissions, or part of them, or maybe the principal asserts that it meant every commission you may have been owed for any sales to any customer.

But you say, “I didn’t understand that just the note ‘Final Commissions’ on the check meant it was offered in lieu of every commission I would ever be owed.” Notice that Section 3-311 does not require that you actually understood (or even read) the principal’s notation on or accompanying the check — all that is required is that there be a “conspicuous statement” that clearly shows it was “tendered as full satisfaction of the claim.” Official commentary on Section 3-311 says that the statement is sufficient if a reasonable person “ought to have noticed it.” Regardless of whether you actually read or understood the “Final Commissions” notation, if a court determines that it was a sufficiently conspicuous and clear statement, and the partial payment was tendered in good faith after a dispute arose, you can be bound by the “satisfaction” when you deposited that check and some or all of your commission claims may be extinguished.

So What Can You Do?

How do you avoid getting stuck like this? First, be careful. Be very wary of any kind of language that is notated on the front or back of a check saying anything like “Final,” “Settlement,” “Resolution” or “Full Payment” or any similar terms — there is no specific magic language that is required as long as the notation clearly shows an intent to finally resolve a claim.

Some states’ older laws allowed the person receiving the notated check to “strike out” the notations, or to separately “protest” or “reserve rights” and accept the check as a partial payment without sacrificing your claims for the entire amount. Do not rely on those older rules and their popular incantation by people who are not up to date — it is not safe to do that in most states. UCC Section 3-311 was specifically designed to defeat that kind of effort to keep the money offered and avoid the satisfaction of your claims, and most states will enforce Section 3-311 to the letter. With some exceptions not likely to apply in this circumstance, you are at very serious risk of being bound even if you strike out the “Final Commissions” notation before depositing the check. (As an aside, one of those exceptions protects banks, credit card companies and institutional lenders, so it’s probably not a good idea to try this accord and satisfaction trick on them.)

So the best course of action is usually not to accept the check — do not cash it, do not deposit it, and do not keep it. If you are not sure already, promptly ask the principal in writing what exactly is meant by “Final Commissions” (or whatever language the principal used) on the check. Demand a written response — do not rely on a phone call or meeting. If the written response is not completely clear to you that the principal will continue to make all previously-agreed commission payments after you accept the check as partial payment, then it is not safe to cash, deposit or keep the check — return it to the principal with your written protest.

But what if you already deposited the check before you realized the game that the principal is playing? In most states, UCC Section 3-311 offers you one final avenue of escape from an accord and satisfaction: If you act promptly, you can repay what the principal paid you. This escape hatch is found in another part of Section 3311:

(c) [The] claim is not discharged under subsection (b) if…

(2) The claimant…proves that within 90 days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted.

You cannot tender back any less — you must repay the same amount that the principal paid to you with the conspicuous notation — and you must make the repayment within 90 days after depositing or cashing the principal’s check. So remember those weeks when your principal became strangely quiet and evasive after sending that partial check? The principal was probably biding its time waiting for the 90 days to expire so that you will become permanently barred from pursuing further commissions.

An Attempted Accord and Satisfaction Is a Red Flag

If you find yourself in this kind of circumstance — one in which the principal gives even a hint that a partial payment of a disputed commission might be treated as fully settling your commission claim — it is urgent that you get legal advice from a qualified attorney familiar with issues that affect sales reps. Deliberate settlement agreements are one thing, but surreptitious “accord” efforts by a principal are strong indications that you may soon become very unsatisfied.

Even if you catch the principal’s “accord and satisfaction” attempt in time and successfully avoid it, this kind of maneuvering to cut off your rights to commissions should set off blaring alarms for you. It is not safe to assume that you dodged the bullet and it will all be fine now — if the principal tried this once, you are almost certainly in line for more trouble with that principal. Get help from a rep-savvy attorney promptly.

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