REID v. OVERLAND MACHINED PRODUCTS (1960)

This is an appeal from a judgment in favor of plaintiff, James S. Reid, in an action for an accounting for wages and commissions and adverse to defendants, Overland Machined Products, et al. The defendants have appealed.

It is only necessary to consider one of defendants' contentions for a reversal, viz., that the facts show as a matter of law that there was an accord and satisfaction, for this contention is decisive of this appeal. The evidence clearly establishes the following facts: In February, 1952, the plaintiff entered into a written contract of employment with the defendants. By the terms of this contract defendants agreed to employ the plaintiff as their ‘sales representative and engineer’ commencing on the 25th day of February, 1952, and to continue until such time as either party should give 30 days' written notice of their desire to terminate the contract. For his services as sales representative and engineer, plaintiff was to receive a guaranteed salary of $500 per month and a guaranteed expense account of $250 per month, both payable monthly and both to be automatically increased at a later date. In addition to the above guarantee, plaintiff was to receive a commission of 5 per cent of the ‘entire gross business done by defendants.’ This 5 per cent commission was to be paid only to the extent that such percentage of gross business exceeded the guaranteed wages. Plaintiff continued in the employ of defendants until his employment was terminated by the prescribed 30-day notice, effective November 27, 1953. On February 15, 1954, three months after termination of plaintiff's employment, plaintiff demanded in writing that defendants send a check closing his account. Defendants thereafter forwarded to plaintiff a check in the amount of $792.14, which check was endorsed ‘payment in full for all commissions due’ under the contract. On March 31, 1954, plaintiff returned the check to defendants enclosing a letter by which he objected to the endorsement ‘payment in full.’ Further negotiations resulted in the plaintiff being advised that he could at any time examine defendants' books and accounting records, thereby making his own determination as to the accuracy of the payment. Plaintiff sent his own accountant, James Payne, who had been plaintiff's accountant for over six years, to examine the defendants' books and records. After examination of defendants' records and accounts, including purchase orders and invoices and after conducting an audit covering the entire period of plaintiff's employment, Mr. Payne informed defendants that the original check was short $15 and that if they would enclose a check for that amount along with the original check he was sure that that would be satisfactory to the plaintiff. Accordingly, defendants forwarded to James Payne two checks, one for $15 and the other for $792.14, the latter being the same check originally sent to the plaintiff, and accompanied this tender by a letter dated April 20, 1954. In its relevant portions the letter stated ‘these checks are payment in full for commissions due under the contract between James S. Reid and Donald J. Rumsey, Dale M. Rumsey and Paul Hahn, doing business as Overland Machined Products, dated February 25, 1952 and release any further claims thereto.’ Receipt of this letter and the checks was acknowledged on a copy of James Payne, who then forwarded the original letter and the two checks to the plaintiff, who admitted having received the checks and the letter. Plaintiff cashed the $15 check and retained and ‘lost’ the one for $792.14. He made no reply to the letter, nor communicated with the defendants in any way until this suit was filed on September 10, 1957, some three and a half years later.

It seems clear that the foregoing facts establish as a matter of law that there was an accord and satisfaction between the parties. The law is clear that discharge of a claim by way of accord and satisfaction is dependent upon an express or implied contract which must conform with the essentials of valid contracts generally, i. e., there must be a proper subject matter, competent parties, a consent or meeting of the minds, and consideration. Cline v. Zappettini, 131 Cal.App.2d 723, 281 P.2d 35; Gibbons v. Brewster, 82 Cal.App.2d 435, 186 P.2d 459. Whether an agreement amounts to an accord and satisfaction is generally a question of the parties' intention and hence a question of fact. Moore v. Satir, 92 Cal.App.2d 809, 207 P.2d 835. Moreover, there can be no accord and satisfaction in the absence of a bona fide dispute as to an amount due and unless the creditor agrees to accept something different from or less than that to which he is entitled in extinguishment of the debt. Hurley v. Kazantzis, 82 Cal.App.2d 378, 186 P.2d 434; Civ.Code, §§ 1521, 1523. It is also settled that an essential element in accord and satisfaction by tender of check is that the tender by subject to the condition that acceptance thereof constitutes satisfaction in full. Hansen v. Fresno Jersey Farm Dairy Co., 220 Cal. 402, 31 P.2d 359; Biaggi v. Sawyer, 75 Cal.App.2d 105, 170 P.2d 678; and Edgar v. Hitch, 46 Cal.2d 309, 294 P.2d 3. Generally the acceptance by the creditor is evidence by cashing or certifying the check. Edgar v. Hitch, supra. However, retention of the check by the creditor for an unreasonable time after tender without notification by the creditor to the debtor that the check is not accepted may, under certain circumstances, constitute an acceptance. Mathews v. Pacific Mutual Life Ins. Co., 47 Cal.App.2d 424, 429, 118 P.2d 10; Western Pacific Land Co. v. Wilson, 19 Cal.App. 338, 125 P. 1076; Conde v. Dreisam Gold Mining Co., 3 Cal.App. 583, 589, 86 P. 825, 828; 13 A.L.R.2d 738. In the Conde case the court said ‘the circumstances and the conduct of the parties taken together may show an express understanding that the check is taken in satisfaction of the debt or estop the creditor from claiming the contrary. As here, for example, the check was sent for the express purpose of payment and was retained under circumstances implying that it was so accepted. It has been held that unreasonable delay in returning a check may make it equal to payment. Smith v. Miller, 43 N.Y. 171, 3 Am.Rep. 690; Mehlberg v. Tisher, 24 Wis. 607.’ The Conde case was followed in Western Pacific Land Co. v. Wilson, 19 Cal.App. 338, 125 P. 1076. At page 343 of 19 Cal.App., at page 1078 of 125 P., the court said: ‘Where a check is given as payment, unless it be refused, it is the duty of the creditor to return it; and unreasonable delay in returning a check may make it equal to payment.’

The record shows conclusively that the above rules regarding accord and satisfaction have been fully satisfied in this case. There was a valid dispute between the parties regarding commissions earned by the plaintiff while in the employ of the defendants. The check originally tendered by defendants to plaintiff constituted payment for commissions on work completed by defendants and for which they had received payment prior to and including the date of plaintiff's discharge. This sum did not represent commissions which plaintiff claims he was entitled to receive on orders solicited by plaintiff, completed by defendants, and for which defendants were not paid until after the date of plaintiff's discharge. The dispute involves an interpretation of the contract of employment and the commissions represent the difference between the amount tendered to plaintiff and the amount of the judgment. The amount being unliquidated at the time of the second tender by defendants, if plaintiff had cashed the endorsed check there would undoubtedly have been an accord and satisfaction. However, plaintiff did not cash the check, but instead retained it and ‘lost’ it. It is undisputed that at all times defendants maintained a sufficient balance in the drawee bank to cover the amount of the check.¹ For a period of 3 1/2 years plaintiff retained the check and, moreover, failed to notify defendants that he was not accepting it. It would seem that the law in this state is settled that such retention and failure to notify the debtor of rejection for such an unreasonable period of time constitutes an acceptance as a matter of law. Mathews v. Pacific Mutual Life Ins. Co., supra; Western Pacific Land Co. v. Wilson, supra; Conde v. Dreisam Gold Mining Co., supra. See also Duncan v. Standard Acc. Ins. Co., 1 Cal.2d 385, 390, 35 P.2d 523. Furthermore, the retention by the plaintiff of the endorsed check constituted an exercise of dominion and control over the instrument. The rule is clear that when a check is tendered upon stated conditions, and the creditor exercises dominion over it under such circumstances, that he may rightfully exercise dominion only by accepting the stated conditions, he will not thereafter be permitted to disavow them and will in fact be bound thereby. Acadia, California, Ltd. v. Herbert, 54 Cal.2d 328, 5 Cal.Rptr. 686.

The court below erroneously concluded that there had been no accord and satisfaction. It therefore becomes unnecessary to consider other contentions advanced by the defendants.

It should also be noted that plaintiff advances the contention in support of the judgment that the ‘attempt to deprive the respondent [plaintiff] of his right to an accounting’ by endorsing the tendered check ‘payment in full’ and by the letter to the same effect, is a violation of Labor Code, §§ 200–227 and that this vitiates any contract which might be implied from the acts of the parties. In this connection, the trial court concluded that ‘there is no violation of Labor Code Sections 200 through 227, or any of them.’ This would seem to be a proper conclusion.

This was an action for an accounting. The Labor Code sections above cited merely provide a penalty for failure of an employer to promptly pay employees wages due them. Plaintiff asserts that section 206² was violated by defendants when they tendered the endorsed check. However, the case of Sayre v. Western Bowl, 76 Cal.App.2d 793, 174 P.2d 466, holds that where wages claimed by a discharged employee are in the nature of a bonus, commission or percentage of profits and where there is a good faith dispute regarding such claim, the employer's tender of a sum, the acceptance of which by the employee would effect a release of further claims, is not a violation of the Labor Code. Moreover, plaintiff did not plead a cause of action for penalty wages as provided by the above sections. This argument is therefore not well taken.

Finally, plaintiff insists that inasmuch as the pre-trial conference order did not specify the defendants' defense of accord and satisfaction as an issue to be tried, that issue was not properly before the trial court and may not be reviewed on this appeal, citing City of Los Angeles v. Mono County, 51 Cal.2d 843, 337 P.2d 465, and Dell'Orto v. Dell'Orto, 166 Cal.App.2d 825, 334 P.2d 97. However, plaintiff made no objection on this ground to the evidence elicited during the trial on the issue of accord and satisfaction. In fact, the issue was thoroughly tried and later briefed at the request of the trial judge. Both parties proceeded on the theory that issue was joined, and the trial court made findings relative thereto. Therefore, plaintiff's contention is unsound, for it is settled law that ‘when a case is tried on the ‘assumption that a cause of action is stated, that certain issues are raised by the pleadings, that a particular issue is controlling, * * * neither party can change this theory for purposes of review on appeal.’' Nelson v. Dept. of Alcoholic Bev. Control, 166 Cal.App.2d 783, 788, 333 P.2d 771, 774. See also Townsend v. Wingler, 114 Cal.App.2d 64, 249 P.2d 613, and Ernst v. Searle, 218 Cal. 233, 22 P.2d 715.

The judgment is reversed with directions to enter judgment in favor of defendants and to order the clerk of the court to pay over to plaintiff the funds now on deposit with said clerk.

FOOTNOTES

1.  Prior to trial, defendants deposited the amount of this check with the clerk of the court.

2.  Section 206 reads: ‘In case of a dispute over wages, the employer shall pay, without condition and within the time set by this article, all wages or parts thereof, conceded by him to be due, leaving to the employee all remedies he might otherwise be entitled to as to any balance claimed.’ (Emphasis added.)

FOX, Presiding Justice.

ASHBURN, J., and RICHARDS, J. pro tem., concur.