Considering Cashing a Customer’s Check Marked “Paid In Full”?  Think Again!


While you may be tempted to cash any check received these days, with a memo noted “paid in full”, the cashing of that check may modify your earlier agreement and extinguish your contract.

For example, say you had an agreement to provide goods or services for $5,000.  You invoice the client.  The client sends you a check for $3,500 with a note marked “paid in full”.  If you cash the check, you may be held to effectively amend the agreement to accept the contract price of $3,500.

So, you ask, what are you to do when you get a check for less than the full amount?  Under the Uniform Commercial Code (UCC), you are not required to return the check; therefore, you could simply destroy the check.  As a business point, and this is not in the UCC, you can negotiate a payment plan or other settlement.

Nevada has adopted the UCC.  It has been adopted in most states but is far from uniform; its requirements vary from state to state.  The UCC is a series of laws that attempt to standardize commercial transactions.  In particular, one aspect involves accord and satisfaction.  An “accord” is an agreement where one of the parties agrees to accept something in settlement different from the original amount owed in order to settle a disputed claim.  The “satisfaction” is the acceptance of this agreement and once the satisfaction occurs, the previous contract is amended and extinguished.

There is an underlying requirement in accord and satisfaction that a “bona fide dispute” exists.  Whether a bona fide dispute exists depends on whether the claim is disputed in good faith.  However, as a practical matter, you would be buying yourself a lawsuit to rely on the “bona fide dispute” requirement.

What if you accidentally deposit a check that was marked paid in full?  The UCC gives you ninety days from the date that you cash such a check to repay that amount and put back in place the original terms of your agreement.  Additionally, the UCC provides that you can send a letter to all clients advising them that all disputed checks including any instrument they intend to tender as full satisfaction of a debt are to be sent to a specific person at a specific office and place.  If they fail to send a check as directed, their offer does not qualify as an “accord”, and if it is cashed, it will not be “satisfaction” of the debt.

Do not be tempted to merely add the words “accepted under protest” and cash the check anyway.  The UCC does not permit this modification.  Again, you have two options:  either return or destroy the check or accept the debtor’s offer to reduce the debt by cashing the check.


By: Guest Blogger Mary Drury, Esq.


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