Originally posted 2013-03-20 08:52:53. Republished by Blog Post Promoter
Many of us have been paid by a check that includes the written endorsement of “payment in full.” By this endorsement, the maker (writer of the check) intends to settle any dispute once the payee (recipient of the check) deposits the check. The payee worries that by depositing the check, he is waiving any right to demand full payment for the service or supply provided. This blog post addresses Virginia law and each party’s rights with respect to the endorsement of “payment in full.”
The Virginia Code defines this situation as an “accord and satisfaction.” In other words, the endorsement of “payment in full” by the maker and the depositing of the check by the payee comprise an “accord,” or agreement, that the debt is “satisfied.”
Article 3 of the Uniform Commercial Code makes very clear the requirements for “accord and satisfaction” when paying by check. For the endorsement “payment in full” to be enforceable, the following conditions must exist:
1. The payment was made in good faith as full satisfaction of a claim. Although it is difficult to prove lack of good faith, routine affixing of “payment in full” to checks would likely show lack of good faith. Also, a minimal payment when the maker of the check is attempting to take advantage of the payee may show lack of good faith. Determination of this issue will depend upon the facts.
2. The amount of the claim was unliquidated or subject to a bona fide dispute. This section is most important to determine whether “accord and satisfaction” applies in payment by check. If the amount of the claim is liquidated (i.e. has been determined), the “payment in full” endorsement has no effect upon the payee’s deposit of the check. For example, a buyer buys 100 boxes at $1.00 per box. When invoiced, buyer, having cash flow problems, pays $50 by check and includes the “payment in full” endorsement. The amount of the claim is known to be $100, therefore, the “payment in full” endorsement may have no effect upon the seller’s enforceability of the entire $100 obligation.
Conversely, the evidence may show that a bona fide dispute exists, and consequently, the debt may be subject to “accord and satisfaction.” Correspondence between the parties may demonstrate that a bona fide dispute exists. For example, in a dispute between a consumer and a plumbing business, the Virginia Supreme Court ruled that when a consumer complained “more than once concerning allegations of overbilling and wasted materials,” and “wrote two letters . . . about his allegations that workers were ‘goofing off’ and ‘wasting time,’” the consumer’s “claim was the subject of a bona fide dispute.”
3. If the payee is an organization, it must show that it sent a statement to the maker of the check, prior to the payment of the check, in which it designated a person, office or place to receive dispute notices, and that the check was not received by that person, office or place. A business can ensure that it is not surprised by a “payment in full” check by designating a person to receive notices of disputes. If that person does not receive the “payment in full” check or communication, the liability is not discharged.
4. Any payee can repay the check within 90 days after payment and preserve his right to claim for the full liability. If the payee repays the check, he preserves his right to make a claim for the full liability. However, the Virginia Supreme Court has stated that the payee cannot cross through the “payment in full” endorsement and accept the check as partial payment. The alteration does not have any effect and the debt would be discharged as “paid in full.”
In conclusion, the maker of check must comply strictly with the Virginia Code to gain the protection of the “accord and satisfaction” code section. Furthermore, protections are available for the payee of the check to ensure that it does not waive its right to full payment. Accordingly, businesses should work with their business law attorney to adopt simple procedures to protect against inadvertent waiver of rights and to clarify the responsibilities of both parties.
Tarley Robinson, PLC, Attorneys and Counsellors at Law, Williamsburg, VA