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When “Payment in Full” Isn’t Payment in Full – Protecting Your Accounts Receivable

When you or your business receives a check with language such as “payment in full” on the front or back but the amount is less than what is actually owed, what are the ramifications of that statement’s presence on the check? More importantly, should you or your company cash the check? What if you already have? Maryland, Virginia, and the District of Columbia have all enacted laws adopting language from the Uniform Commercial Code that addresses such situations. Understanding the basics of how, practically speaking, these laws can work for or against you and why may be able to save you both money and the hassle of a lawsuit.

Accord and Satisfaction

Often, contracting parties fall into a dispute over some aspect of their agreement. When this happens, one party may decide to offer a partial payment to resolve the dispute and mark their check for partial payment with words such as “final payment,” “paid in full,” or “full satisfaction.” Under many circumstances, the other party’s cashing of that check will negate any claim for additional amounts owed. In other words, if you are the party cashing the check, you may now have eliminated any possibility of recovering the full amount you believe is owed even if you were legitimately entitled to that money. Legally, this is known as the defense of “accord and satisfaction.”

Ensuring Your Right To Collect Full Payment

If you and the person you have contracted with intend to resolve your dispute and settle for the partial payment, using the “paid in full” terminology on a check is a great and simple way to ensure finality of the dispute and move on. If, however, you intend to try to recover the full amount owed, you need to be aware of the possibility of—and take precautions against—an unintended accord and satisfaction. One such precaution can be to consult with an attorney before cashing any check that includes language indicating that a partial payment is “payment in full.” If you operate a business, other precautions include (1) ensuring your employees are educated about accepting partial payments; and/or (2) ensuring you properly notify the business’s customers that attempts to resolve disputes—including by tendering a partial payment—must be made through a designated person or office. This latter step, when done properly, can eliminate the possibility of losing legal rights if one of your employees accidentally cashes a check without appreciating the significance of the “final payment” language.

There are other precautions that individuals and businesses can take to avoid being caught off guard and losing money when presented with a check for partial payment. Further, there are times when, even if you cashed a check marked “final payment,” you may still be able to avoid the defense of accord and satisfaction and pursue a full recovery. The law on accord and satisfaction contemplates that parties will understand the ramifications of the defense and act accordingly, but frequently that is not the case. Consulting an attorney before or, if necessary, after you are presented with or have cashed a partial-payment check may be the best way to make sure you and your business are protected against losing money unnecessarily.

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