Hoerstman General Contracting, Inc v. Hahn

Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:

Opinion Clifford W. Taylor Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman

FILED MARCH 23, 2006

HOERSTMAN GENERAL CONTRACTING,
INC.,

Plaintiff-Appellee,

v No. 126958

JUANITA REMS HAHN and C. RONALD
HAHN,

Defendants-Appellants,

and

TEACHERS CREDIT UNION,

Defendant.
_______________________________

BEFORE THE ENTIRE BENCH

KELLY, J.

This case calls on us to decide whether an accord and satisfaction existed

between the parties. The Court of Appeals found that it did not. We disagree and

rule that the parties reached an accord and satisfaction. Therefore, we reverse the

decision of the Court of Appeals and remand the case to the trial court for entry of

judgment in favor of defendants.
 SUBSTANTIVE FACTS AND PROCEDURAL HISTORY

This case centers on a contract to remodel and reconstruct a lakeside

residence in Edwardsburg, Michigan,1 made between plaintiff, Hoerstman General

Contracting, Inc., and defendants Juanita and Ronald Hahn, the owners.

Unfortunately, several unforeseen events during construction caused significant

delay and cost overruns. When plaintiff did not meet the expected deadline to

complete the work, Ronald Hahn informed plaintiff’s owner that he wanted the job

finished no matter the expense. Plaintiff agreed to work under these conditions if

Ronald agreed to pay the extra costs. Ronald made it clear that he was not

concerned with the price.

Plaintiff followed Ronald’s oral instructions on changes to the project.

These were not minor modifications. They included moving walls and tearing up

concrete floors. According to plaintiff, a later-compiled written list of the oral

changes to the contract covered over ten pages. Despite these significant

alterations, Ronald refused to agree in writing to any changes to the existing

contract.

Defendants acknowledged that they owed more than the original bid price

and paid plaintiff $125,000. But plaintiff claimed defendants owed an additional

$32,750. In an apparent attempt to settle the dispute, plaintiff sent a letter to

1
Originally, the residence belonged solely to Juanita Rems. Juanita
married during the course of construction and added her husband, C. Ronald
Hahn, to the title.

2

defendants asking for $16,910.79. Plaintiff indicated that it would provide the lien

waiver and close the account in exchange for payment of the amount requested.

Defendants did not pay the $16,910.79. Instead, they replied with a letter

in which they calculated the balance due at $5,144.79. They included with the

letter their check for that amount. They wrote “final payment” on the check. In

the letter, they indicated that they believed that their payment of $5,144.79 closed

the account. The letter provided:

If we send you a check for $5144.79 we will consider this
account closed and will not expect discussion of the other * items.[2]
We will then expect the lein [sic] waiver to be sent. If this is not
acceptable, we will have to resort to arbitration per attorney [sic].

Plaintiff sought legal advice. Its attorney crossed out the words “final

payment” on the check and advised plaintiff to deposit it. Plaintiff followed this

advice, credited defendants’ account in the amount of $5,144.79, and did not close

the account.

When defendants made no additional payments, plaintiff brought suit

seeking damages and foreclosure of its construction lien. Defendants

counterclaimed for amounts they believed they had overpaid. In their answer to

plaintiff’s complaint, defendants asserted the affirmative defense of accord and

satisfaction. After a bench trial, the court awarded plaintiff approximately

2
The “* items” refers to a list of disputed charges for changes made in the
project.

3

$26,000 after setting off $5,800 on defendants’ counterclaim. The court did not

explicitly rule on the issue of accord and satisfaction.

Both parties appealed to the Court of Appeals. The Court of Appeals ruled

that the words “final payment” on the check were not sufficient to inform plaintiff

that acceptance of the check discharged the entire claim. Hoerstman Gen

Contracting, Inc v Hahn, unpublished opinion per curiam of the Court of Appeals,

issued June 15, 2004 (Docket No. 244507). This Court granted leave to appeal

limited to whether an accord and satisfaction occurred in this case. 472 Mich 898

(2005).

STANDARD OF REVIEW

The existence of an accord and satisfaction may be decided as a question of

law if the facts of the case are undisputed and not open to opposing inferences.

Urben v Pub Bank, 365 Mich 279, 286; 112 NW2d 444 (1961). During oral

argument, the parties conceded that the relevant facts here are not in dispute.

Therefore, the case presents a question of law which we review de novo.

Anzaldua v Band, 457 Mich 530, 533; 578 NW2d 306 (1998).

ACCORD AND SATISFACTIONS

An accord and satisfaction is an affirmative defense3 grounded in contract

principles. An accord is a contract and requires a meeting of the minds of those

3
MCR 2.111(F)(3) provides:

(continued…)

4

who enter into it. Fritz v Marantette, 404 Mich 329, 334; 273 NW2d 425 (1978),

quoting Gitre v Kessler Products Co, 387 Mich 619, 624; 198 NW2d 405 (1972).

A satisfaction is the discharge of the debt occurring after acceptance of the

accord.4

Cases in which an accord and satisfaction defense is relevant involve a

good-faith dispute about an unliquidated amount owing under a contract. One

(…continued)
Affirmative Defenses. Affirmative defenses must be stated in
a party’s responsive pleading, either as originally filed or as
amended in accordance with MCR 2.118. Under a separate and
distinct heading, a party must state the facts constituting:

(a) an affirmative defense, such as contributory negligence;
the existence of an agreement to arbitrate; assumption of risk;
payment; release; satisfaction; discharge; license; fraud; duress;
estoppel; statute of frauds; statute of limitations; immunity granted
by law; want or failure of consideration; or that an instrument or
transaction is void, voidable, or cannot be recovered on by reason of
statute or nondelivery;

(b) a defense that by reason of other affirmative matter seeks
to avoid the legal effect of or defeat the claim of the opposing party,
in whole or in part;

(c) a ground of defense that, if not raised in the pleading,
would be likely to take the adverse party by surprise.
4
Black’s Law Dictionary (7th ed) provides a useful definition of “accord
and satisfaction”:

An agreement to substitute for an existing debt some
alternative form of discharging that debt, coupled with the actual
discharge of the debt by the substituted performance. • The new
agreement is called the accord, and the discharge is called the
satisfaction. [Emphasis in original.]

5

party makes a tender in satisfaction of the claim (an accord). The other accepts or

rejects the accord. If the second party accepts the tender, there is both an accord

and a satisfaction. See Nationwide Mut Ins Co v Quality Builders, Inc, 192 Mich

App 643, 647; 482 NW2d 474 (1992), citing Shaw v United Motors Products Co,

239 Mich 194; 214 NW 100 (1927).

In this Court’s handling of common-law accord and satisfaction, two lines

of cases developed. The first holds that whether there was a sufficient meeting of

the minds for an accord and satisfaction is a question for the jury.5 The second

holds that the required meeting of the minds is implied as a matter of law by the

acceptance of the offer. The fact that the recipient altered or crossed out the

accord is irrelevant.6

As in this case, the affirmative defense of accord and satisfaction often

involves the use of a check. A check is a negotiable instrument entered into

between the maker and the payee. Huler v Nasser, 322 Mich 1, 6; 33 NW2d 637

(1948). As will be demonstrated later, when the Legislature enacted MCL

5
See Fritz, 404 Mich 329; Gitre, 387 Mich 619; Urben, 365 Mich 279;
Hoey v Ross, 189 Mich 193; 155 NW 375 (1915); Stevens v Michigan Soap
Works, 134 Mich 350; 96 NW 435 (1903); Cleveland v Rothschild, 132 Mich 625;
94 NW 184 (1903); Block v Crawford, 114 Mich 608; 72 NW 602 (1897);
Mortlock v Williams, 76 Mich 568; 43 NW 592 (1889).

6
See Lehany v New York Life Ins Co, 307 Mich 125; 11 NW2d 830 (1943);
Eisenberg v CF Battenfeld Oil Co, 251 Mich 654; 232 NW 386 (1930); Deuches v
Grand Rapids Brass Co, 240 Mich 266; 215 NW2d 392 (1927); Shaw, 239 Mich
194; Stone v Steil, 230 Mich 249; 202 NW 982 (1925).

6

440.3311, it followed the second line of cases. This effectively repudiates any

application of the first line of cases to accord and satisfactions involving

negotiable instruments, leaving MCL 440.3311 to control all accord and

satisfactions involving negotiable instruments.

UCC PREEMPTION IN CASES INVOLVING NEGOTIABLE INSTRUMENTS

In 1964, the Michigan Legislature enacted the Uniform Commercial Code.

In 1993, the Legislature added to Article 3 of the UCC a provision governing

accord and satisfaction. Article 3 is known as the “Uniform Commercial Code-

Negotiable Instruments.” MCL 440.3101. It is compendious and by its terms is

intended to apply to all negotiable instruments with limited exceptions not relevant

here.7

MCL 440.3311 of Article 3 provides:

(1) 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

7
MCL 440.3102 specifically provides:

(1) This article applies to negotiable instruments. It does not
apply to money, to payment orders governed by article 4a, or to
securities governed by article 8.

(2) If there is conflict between this article and article 4 or 9,
articles 4 and 9 govern.

(3) Regulations of the board of governors of the federal
reserve system and operating circulars of the federal reserve banks
supersede any inconsistent provision of this article to the extent of
the inconsistency.

7

 unliquidated or subject to a bona fide dispute, and (iii) the claimant
obtained payment of the instrument, the following subsections apply.

(2) Unless subsection (3) applies, 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.

(3) Subject to subsection (4), a claim is not discharged under
subsection (2) if either of the following applies:

(a) The claimant, if an organization, proves that (i) within a
reasonable time before the tender, the claimant sent a conspicuous
statement to the person against whom the claim is asserted that
communications concerning disputed debts, including an instrument
tendered as full satisfaction of a debt, are to be sent to a designated
person, office, or place, and (ii) the instrument or accompanying
communication was not received by that designated person, office,
or place.

(b) The claimant, whether or not an organization, 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. This subdivision does not apply
if the claimant is an organization that sent a statement complying
with subdivision (a)(i).

(4) A claim is discharged if the person against whom the
claim is asserted proves that within a reasonable time before
collection of the instrument was initiated, the claimant, or an agent
of the claimant having direct responsibility with respect to the
disputed obligation, knew that the instrument was tendered in full
satisfaction of the claim.

Whether a statutory scheme such as MCL 440.3311 preempts the common

law is a question of legislative intent. Millross v Plum Hollow Golf Club, 429

Mich 178, 183; 413 NW2d 17 (1987).

In general, where comprehensive legislation prescribes in
detail a course of conduct to pursue and the parties and things
affected, and designates specific limitations and exceptions, the

8

 Legislature will be found to have intended that the statute supersede
and replace the common law dealing with the subject matter. [Id.,
citing 2A Sands, Sutherland Statutory Construction (4th ed), § 50.05,
pp 440-441.]

The Legislature has the authority to abrogate the common law. Rusinek v

Schultz, Snyder & Steele Lumber Co, 411 Mich 502, 507-508; 309 NW2d 163

(1981). When it does so, it should speak in no uncertain terms. Marquis v

Hartford Accident & Indemnity (After Remand), 444 Mich 638, 652 n 17; 513

NW2d 799 (1994), quoting Bandfield v Bandfield, 117 Mich 80, 82; 75 NW 287

(1898).

As already noted, Article 3 of the UCC is comprehensive. It is intended to

apply to nearly every situation involving negotiable instruments. See MCL

440.3102. The language contained in MCL 440.3311 completely covers the

details of accord and satisfactions.

MCL 440.3311(3) and (4) contain exceptions or conditions. Their

enumeration eliminates the possibility of their being other exceptions under the

legal maxim expressio unius est exclusio alterius.8 The maxim is a rule of

construction that is a product of logic and common sense. Feld v Robert &

Charles Beauty Salon, 435 Mich 352, 362; 459 NW2d 279 (1990), quoting 2A

Sands, Sutherland Statutory Construction (4th ed), § 47.24, p 203. This Court

long ago stated that no maxim is more uniformly used to properly construe

8
“The expression of one thing is the exclusion of another.” Black’s Law
Dictionary (7th ed), p 1635.

9

statutes. Taylor v Michigan Public Utilities Comm, 217 Mich 400, 403; 186 NW

485 (1922).

Therefore, the language of the statute shows that the Legislature covered

the entire area of accord and satisfactions involving negotiable instruments. It

clearly intended that the statute would abrogate the common law on this subject.9

Our conclusion is buoyed by the UCC comment to MCL 440.3311. It notes

that conflict existed previously over whether the common law was modified by the

predecessor of MCL 440.3311, former section 1-207. By updating Article 3, it

informs us, the Legislature intended to alleviate these conflicts and update the law

of accord and satisfaction. Specifically, the comment provides:

As part of the revision of Article 3, Section 1-207 has been
amended to add subsection (2) stating that Section 1-207 “does not
apply to an accord and satisfaction.” Because of that amendment
and revised Article 3, Section 3-311 governs full satisfaction checks.
Section 3-311 follows the common law rule with some minor
variations to reflect modern business conditions. [MCLA 440.3311,
comment 3.]

These comments support a finding of preemption. They demonstrate the

Legislature’s intent to modify and update the common law. Therefore, we hold

that MCL 440.3311, not the common law, applies to an accord and satisfaction

involving a negotiable instrument such as a check. And we apply this statute to

the case at hand.

9
We note that this conclusion does not eliminate common-law accord and
satisfactions entirely. An accord and satisfaction can exist without the use of a
negotiable instrument. For instance, the parties could use cash or goods to satisfy
a debt rather than a check. MCL 440.3311 would not apply in those situations.

10

 APPLYING MCL 440.3311 OF THE UCC TO THIS CASE

The first requirement of an accord and satisfaction is a good-faith tender to

the claimant as full satisfaction of the claim. MCL 440.3311(1)(i). Article 3

contains an internal definition of “good faith”: “‘Good faith’ means honesty in

fact and the observance of reasonable commercial standards of fair dealing.”

MCL 440.3103(1)(d).

Defendants demonstrated “honesty” in their settlement offer to plaintiff.

They offered plaintiff what defendants thought was a fair deal. In their letter to

plaintiff, as part of the accord, defendants went through the various additions to

the construction contract. They estimated what each cost and listed each disputed

item. Juanita Rems Hahn gave a full explanation of why defendants thought they

should not have to pay for the disputed items. Defendants’ accounting also

included a detailed list of all payments made. In total, the accounting covers

several pages.

After adding their estimation of all costs and subtracting all the payments,

defendants arrived at $5,144.79 as the amount of the accord and tendered it to

plaintiff. Given that this tender was made in such detail and with clear

explanations of its reasoning, we conclude that defendants’ tender was made in

“good faith” as required by MCL 440.3311(1)(i).

The second requirement of an accord and satisfaction involving a

negotiable instrument is that the claim be unliquidated or subject to a bona fide

dispute. MCL 440.3311(1)(ii). Black’s Law Dictionary (7th ed) defines an

11

“unliquidated claim” as “a claim in which the liability of the party or the amount

of the claim is in dispute.”10

Plaintiff performed extra work without an agreement regarding the amount

to be paid. Because the cost of the changes and overruns were left unspecified and

are in dispute, the claim for them is unliquidated.

Plaintiff argues the contrary. It asserts that, to the extent that defendants

conceded that they owed part of the disputed debt, that portion of the debt was

liquidated. This Court previously rejected this argument:

“The fact that part of the claim was conceded did not divide
the liability into two liquidated claims. Whatever the rule in other
jurisdictions, this court holds that such a claim is unliquidated and
payment of the conceded amount furnishes consideration for
settlement of the whole.” [Lehaney v New York Life Ins Co, 307
Mich 125, 131; 11 NW2d 830 (1943), quoting Long v Aetna Life Ins
Co, 259 Mich 206, 209; 242 NW 889 (1932).]

See also Tanner v Merrill, 108 Mich 58; 65 NW 664 (1895). Defendants’

concession of part of the debt has no effect on the question whether the claim was

liquidated.

The third requirement contained in MCL 440.3311(1) is that the claimant

must obtain payment of the instrument. MCL 440.3311(1)(iii). The requirement

was satisfied here because plaintiff negotiated defendants’ check by depositing it.

10
The claim must be in dispute at the time of the accord. Contract
principles apply to it. Fritz, 404 Mich 334. The unliquidated nature of the claim
allows for consideration on both sides and a meeting of the minds. “[T]he
compromise agreement of one party became the supporting consideration for that
of the other.” Empire Industries, Inc v Northern Assurance Co, Ltd, 342 Mich
425, 430; 70 NW2d 769 (1955).

12

 Once the first three requirements are satisfied, the question becomes

whether the claim was discharged. Under the statute, there are two ways to

discharge a claim. According to MCL 440.3311(2), a claim is discharged if the

instrument, or an accompanying written communication, contains a conspicuous

statement that the tender is in full satisfaction of the claim.11 Second, under MCL

440.3311(4), a claim is discharged if the claimant, or the claimant’s agent, knew

that the defendant tendered the instrument in full satisfaction of the claim.

MCL 440.3311(4) controls this case. Plaintiff’s president testified that he

knew defendants’ intention in sending the letter and check. He stated that

defendants intended the check as a final payment. He claimed merely that he

believed that defendants’ attempt to establish an accord did not satisfy Michigan

law. Plaintiff’s president consulted an attorney on this question, and counsel

erroneously informed him that the accord would be valid only in Indiana, not in

Michigan.

MCL 440.3311(4) contains no exception for a mistaken understanding of

the law. It requires only that a claimant know “that the instrument was tendered in

full satisfaction of the claim.” Plaintiff knew that defendants intended the

payment to be final and in full satisfaction of the claim. Therefore, an accord and

satisfaction exists, despite plaintiff’s mistake of law.

11
MCL 440.3311(3) contains two exceptions to MCL 440.3311(2). Neither
is applicable here.

13

 Even if we did not find a discharge of the debt under MCL 440.3311(4), we

would find one under MCL 440.3311(2). That subsection provides:

Unless subsection (3) applies, 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. [MCL 440.3311(2).]

MCL 440.1201(10) defines “conspicuous.”

“Conspicuous”: A term or clause is conspicuous when it is so
written that a reasonable person against whom it is to operate ought
to have noticed it. A printed heading in capitals (as: non-negotiable
bill of lading) is conspicuous. Language in the body of a form is
“conspicuous” if it is in larger or other contrasting type or color. But
in a telegram any stated term is “conspicuous”. Whether a term or
clause is “conspicuous” or not is for decision by the court.

The Uniform Commercial Code comment further discusses the meaning of

“conspicuous.” Comment 4 of MCL 440.3311 opines: “If the claimant can

reasonably be expected to examine the check, almost any statement on the check

should be noticed and is therefore conspicuous.”

In this case, defendants wrote the words “final payment” on the comment

line of the check. They were in capital letters and not obfuscated in any way.

They meet the definition of “conspicuous” because they were written so that

someone would notice them. MCL 440.1201(10). Therefore, inclusion of “final

payment” on the check satisfied the requirements of MCL 440.3311(2).

The letter sent with the check also contains a conspicuous statement that the

check discharges the claim. Specifically, the letter provided:

14

 If we send you a check for $5144.79 we will consider this
account closed and will not expect discussion of the other * items.
We will then expect the lein [sic] waiver to be sent. If this is not
acceptable, we will have to resort to arbitration per attorney [sic].

This statement was the concluding paragraph, directly above the signature

line. It was not placed in a footnote or other location that plaintiff might skip over

while reading. Therefore, it too was a “conspicuous” statement that the check was

tendered as full satisfaction of the claim, and that the claim was discharged.12

Two exceptions to MCL 440.3311(2) exist in MCL 440.3311(3). Neither

applies to this case. Defendants’ tender satisfied all the requirements of MCL

440.3311. Therefore, an accord and satisfaction occurred. Plaintiff’s acceptance

of the check discharged the claim.

CONCLUSION

12
Plaintiff failed to note the existence of MCL 440.3311 even on appeal.
Therefore, it argued that the tender must be so clear that it is not susceptible to any
other interpretations. It argued that use of the word “expect” and reference to
arbitration meant that the tender did not meet this mark.

We first note that, despite what the common law may state, MCL 440.3311
of the UCC contains no such requirement. Regardless, we find plaintiff’s
argument unconvincing. The statement contained in the letter specifically
provides that the account will be closed and no further discussion will occur.
Moreover, defendants state that they expect to receive the lien waiver from
plaintiff. Plaintiff admits that lien waivers issue only after final payment. The
reference to arbitration does not detract from this. Defendants were simply
informing plaintiff what would happen if it chose not to accept the check. Any
other reading of the reference to arbitration would violate common sense.
Therefore, the statement in the letter was sufficient to inform plaintiff of the
meaning of the tender.

15

 We find that by enacting MCL 440.3311 of the Uniform Commercial Code,

the Legislature intended to preempt the common law on accord and satisfactions in

the area of negotiable instruments.

Therefore, the trial court erred in not applying the UCC to this case. The

Legislature used clear language to describe in detail a course of conduct to pursue

in order to accomplish an accord and satisfaction. It designated specific

limitations and exceptions to the rule.

Applying MCL 440.3311, we find that defendants sufficiently met their

burden of proof on the affirmative defense of accord and satisfaction. Therefore,

we reverse the decision of the Court of Appeals and remand the case to the circuit

court for entry of judgment in favor of defendants.

Reversed and remanded to the circuit court.

Marilyn Kelly
Clifford W. Taylor
Michael F. Cavanagh
Elizabeth A. Weaver
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman

16