"Payment in Full" checks...

“Payment in Full” Checks

This is one of those urban legend legal issues that comes up every so often and we are never sure of the correct answer. What happens if a person who owes you money sends a check with a notation that the check is being sent to settle the account?

Can you deposit the check with an endorsement such as “without prejudice” or other limiting language and still seek the balance that you say is owed?

The answer is “Nope”. In a series of cases New Jersey courts have consistently held that if a check is sent conditioned upon the satisfaction of the disputed transaction, the other person can not hedge his/her bet by cashing the check and then seeking any balance. The proper response is to return the check and indicate how much is needed to resolve the claim. If the other person pays that amount, then the claim is satisfied. If they do not, then the claim remains unsatisfied and creditor will have to consider his/her options carefully.

Questions do come up when the check is not sent in a way that emphasizes its conditional nature, so if you send such a check, be sure to keep a copy of your letter of transmittal to prove that the condition was clearly expressed. A memo notation or other markings that say “payment in full” along with a note stating same.

-Tom Barron

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.