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Related Articles:Business Law/Commercial Landlord/ Construction
Law
Check Marked "Paid In Full"; Is It?
After
months of calling, you finally receive the "check in the mail"
but is for less than the full debt. And, typed on the back
of the check is the following: "Endorsement of the check is
acceptance as payment in full of the amount owed." Do you
send this long-awaited check back or deposit it in the bank?
Will your endorsement of the check preclude you from seeking
the balance owed?
Several Virginia cases provide you with guidance. In Kasco
Mills v. Ferebee, a check for $8,332.53 was sent as full
payment for turkey feed, which was short by $1575.00 to pay
for the death of "a great number" of turkeys due to the feed.
Kasco wrote back and stated that they do not accept the check
as full payment and several months later had the check certified
by the bank to assure at least partial payment. Kasco then
sued for the balance owed, but the judge dismissed their case
because Kasco had certified the check. The Virginia Supreme
Court reversed the judge and sent the case back for a retrial.
In the Kasco case, the Court looked to Virginia Code
§11-12 which places the burden on the debtor to show that
payment of less than the full amount was "expressly accepted
by his creditor in satisfaction, and rendered in pursuance
of an agreement for that purpose." Although cashing a check
marked full payment is prima facie evidence of acceptance
as full settlement, the court must consider the "circumstances
surrounding the transaction, taking into consideration the
conduct and declaration of the respective parties." Thus,
the letters by Kasco demonstrated that it did not agree to
the terms proposed by the debtor even when it certified the
check.
The courts rely on the principles governing accord and satisfaction
to determine whether cashing a check is acceptance of an agreement
for less than the full amount owed. In Adkins v. Boatwright,
a dissatisfied client sent an architect less than the full
fee together with a letter stating the reasons for the diminution
and a notation on the face of the check as "Paid in full."
The architect cashed the check and sued for the balance. The
Supreme Court found that the architect did not indicate that
the amount of the check would be accepted as settlement. In
order for negotiation of the check to impose a settlement
of the account, the check must be offered as full payment
and the check must be accepted as such by the creditor.
Conclusion
Cashing the check is good evidence that an agreement existed,
but the debtor carries the burden of proving that the check
was offered and accepted as full payment. If you do not want
an agreement imposed by an endorsement of a check, then immediately
inform the debtor of your refusal to accept the lesser sum
as satisfaction of the debt.
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