Paid in Full?

This can depend on your state laws. Here is an Oregon law that says it is not binding:

ORS 73.0311 The negotiation of an instrument marked "paid in full," "payment in full," "full payment of a claim" or words of similar meaning, or the negotiation of an instrument accompanied by a statement containing such words or words of similar meaning, does not establish an accord and satisfaction that binds the payee or prevents the collection of any remaining amount owed upon the underlying obligation unless the payee personally, or by an officer or employee with actual authority to settle claims, agrees in writing to accept the amount stated in the instrument as full payment of the obligation.

Here is a Florida citation, as another example:

725.05 Satisfaction for less than amount due.--When the amount of any debt or obligation is liquidated, the parties may satisfy the debt by a written instrument other than by endorsement on a check for less than the full amount due.

The Uniform Commercial Code is not the same in all states, but section 3-311 can allow a memo line annotation to change an existing agreement. The bottom line is that if there is a dispute between two parties and one writes the other a check and in the memo line writes "payment in full" that could be a binding agreement. The doctrine of accord and satisfaction is a substitute contract between the two parties for the settlement of a debt for a different amount than what was originally agreed to. This could be done with a memo line "payment in full" notation. This substitute contract is an "accord," an agreement between the parties to settle the dispute. "Satisfaction" is the payment of the amount, such as the value of the check. There has to be a bona fide dispute and good faith on the part of the parties involved for this substitute agreement to be binding. This could take a lawsuit to settle if the UCC section below is applicable in your state. It would not be acceptable to cross out the memo notation. If you receive a check like this and dispute it, you are best advised to return the check and make other payment arrangements.

3-311. ACCORD AND SATISFACTION BY USE OF INSTRUMENT.

(a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply.

(b) Unless subsection (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.

(c) Subject to subsection (d), a claim is not discharged under subsection (b) if either of the following applies:

(1) The claimant, if an organization, proves that (i) within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (ii) the instrument or accompanying communication was not received by that designated person, office, or place.

(2) The claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the claimant is an organization that that sent a statement complying with paragraph (1)(i).

(d) A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.

First published on BankersOnline.com 10/22/07