What Happens if a Check is Marked as Payment in Full


Sometimes following a dispute between a business and a client or customer, the customer may issue a check marked as "payment in full" to try to avoid paying the full amount that the business is attempting to charge. Sometimes an unscrupulous customer will add a notation that a check is being offered as payment in full, under the belief that if they sneak that notation past the recipient any remaining balance due will become uncollectable. Laws governing checks offered as payment in full vary significantly between states, and are not that simple.

Notations of Payment in Full

There are no "magic words" that reflect when a payment is intended as a full and final payment of a disputed debt. Possible language that might be noted on a check includes:

  • Final Payment
  • Payment in Full
  • Satisfaction in Full
  • Full Settlement
  • Paid in Full

The most common locations for a notation to be included on a check are the comment box on the face of a check, or above the endorsement box on the back of a check:

  • The Memo Box - The purpose of the memo box on a check is for the issuer of the check to make a note for the issuer's own reference. It is thus less likely that a notation in a memo box is going to be deemed to give notice to the recipient of a check that the issuer is attempting to impose a condition that will be triggered by the acceptance of a check.

  • The Endorsement Box - If a notice is placed on the back of a check, over the space where the recipient will endorse the check, the notice is more likely to be deemed sufficient. However, even if placed in the endorsement box, questions of notice may be raised if the check is automatically processed, is endorsed with a rubber stamp, or is deposited without endorsement.

The legal term for the settlement of a debt for less than the total amount due is accord and satisfaction. Although the details may vary between states, it is implicit within the concept of an accord that the settlement be part of an express or implied agreement between a creditor and debtor. The law is not intended as a means of tricking creditors such that they are able to collect only a small portion of what is actually owed. Nonetheless, creditors must take care not to accidentally give up the ability to collect the full balance due to them by accepting a check that is designated as payment in full.

Sales of Goods and the UCC

The Uniform Commercial Code (UCC) is a set of laws that has been passed in every state. The UCC applies to the sale of goods, and included a provision (Section 3-311) defining the rights of a person who receives a partial payment from the sale of goods that is tendered as full satisfaction of the claim. Under the standard provisions of the UCC, in the absence of an agreement or clear understanding that the partial payment is being made as full satisfaction of the debt, before a partial payment is binding on the recipient the following elements must be satisfied:

  • Good Faith - The partial payment must be made in good faith. That is, there must be an actual dispute as to the amount due, and the amount tendered must be reasonable. By way of example, a $10 payment on a $10,000 debt is likely to be seen as an attempt to trick the recipient, not as a good faith effort to resolve a dispute as to the amount owed.

  • Disagreement as to the Amount Due - The person making partial payment must be doing so in relation to an unliquidated debt (a debt that is not certain in amount) or to a debt that is the subject of a bona fide dispute;

  • Conspicuous Notice - The notice that the payment is intended as satisfaction in full must be conspicuous, either on the check, on a notice that accompanies the check, or both;

The UCC also permits a company to designate a specific address to which any disputes as to the amount owed, or any payments offered as settlement in full, must be directed. If that designation is properly made within a reasonable time before a partial payment is submitted, in order to have any legal effect the partial payment offered as satisfaction in full must be submitted to the designated address. If no such address is designated, the UCC permits the recipient to refund the partial payment within ninety days of payment in order to avoid having the payment treated as satisfaction in full.

The provisions of the UCC may conflict with other state laws addressing payment in full. It is also possible for a state to modify the language of the UCC. When a conflict exists between the UCC and other laws that are more protective of the recipients of a partial payment, prior to having the facts of the situation reviewed by a business lawyer, a person engaged in the sale of goods should assume that the UCC will govern the acceptance of the payment. There is no way around this: You need to fully research the laws of your state before you can be certain what will happen if you accept a check marked as payment in full.

Sales of Services

Sales of services are not covered by the UCC, and thus the acceptance of a check marked as payment in full carries more uncertainty.

  • Some states are very protective of the recipients of checks, allowing the recipient to ignore conditions added to a check in the absence of an express agreement that the conditions will be binding.

  • Some states allow recipients to strike added terms or conditions from a check and deposit it without restriction, but other states may look at the act of striking language from a check as evidence that the recipient was aware of the condition and chose to accept the check subject to the condition.

  • Some states require that a recipient either accept a check as payment in full or reject and return the check, but prohibit the recipient from trying to get the best of both worlds by ignoring the conditions on a partial payment and then trying to collect an additional balance.

Due to the significant variation in state law, unless you are willing to give up any claim to collect a greater amount, it is important to fully research the laws of the states in which you conduct business before accepting a check marked as payment in full.

Protecting Yourself from a Check Marked as Payment in Full

If you are a major company that has followed proper procedures to avoid accidentally accepting checks as payment in full, by providing appropriate addresses for disputed addresses, use of a qualified lock box facility for the processing of checks, and having procedures in place that are consistent with the laws of the states in which you do business, and have an established collections staff in place, you're probably in good shape when dealing with difficult customers.

Some businesses that process large numbers of checks use automated processing facilities (lock boxes) to process the checks. In many of these facilities the checks will be processed without being touched by human hands. Companies that use lock boxes are protected from the effects of conditions added to payments, as the employees of the lock box facility do not have the legal right to bind the payee to any conditions noted on or with the payment. If you are using a lock box facility, your business lawyer can help you confirm that it is following your state's lock box laws.

For the rest of us, the issues are more complex.

A simple rule of thumb: Don't accept a check that is marked as payment in full unless you are willing to accept the amount as a full and final payment. You should consider the possibility that accepting a check marked as "payment in full" may be legally binding and, even if not, may make it difficult to collect any additional money. Even if the law is on your side, as a practical matter it may not be worth the investment of time, effort and possibly money that it will take to collect a greater amount.

  • Establish Procedures - Any employee who receives a check marked as payment in full should be instructed to have the payment reviewed by a manager or supervisor before it is deposited.

  • Consider Returning the Check - If you are concerned about being legally bound to a notation on the check, or are concerned that it will be difficult to obtain additional funds from the customer if you accept the check, you have the option of returning the check and requesting either an unconditional partial payment or payment in full.

  • Don't Strike Language from the Check - Unless you are in one of the few states that specifically allows you to strike language from a check and then deposit the check as if it was submitted without conditions, the very act of striking the language may be used by the debtor to prove that its notice was conspicuous and that you accepted the check despite that clear notice.

  • Follow UCC Procedures - If you are engaged in the sale of goods, such that the provisions of Section 3-311 of the UCC apply, consider designating a special address for payment disputes consistent with that statute.

  • Consider the Amount in Dispute - If the disputed amount is relatively small, it may be worth accepting a lesser payment to resolve a problem with a disgruntled or dishonest customer.

Be cautious about adding your own note to the payment, such as "accepted under protest", "without prejudice", or "accepted with reservation of rights". Such a note acknowledges that you saw the notice provided by the person who submitted the check, while not actually having any significance under state law in relation to your desire to collect additional funds. For example, under the UCC, no note added by the recipient will affect whether or not the payment is treated as satisfaction in full of the underlying debt.

Returning a partial payment may represent a difficult choice for a business that may be concerned that a client or customer will not reissue a check without conditions, or for a greater amount. However, you need to consider how your customer will respond:

  • Will they issue a check for the full amount that is due?

  • Will they re-issue a check for a partial payment, while following a more formal dispute process?

  • Will they decline to re-issue payment in any amount, forcing you to try to collect the debt through other means?

Even if you know that you have a legal right to collect the balance, keep in mind that if the matter ends up being litigated in small claims court you may find your case being heard by a judge or magistrate who focuses on the fact that you accepted the check despite the notation of payment in full, and has little interest in hearing the details of the law.

Protecting Yourself When Making Payment in Full

If you are in fact paying the full balance due on an invoice or account, marking the final payment as payment in full is not a controversial act. However, if you are in an actual dispute with a business or service provider about how much money you owe, you can best protect yourself by discussing your concerns with the business and trying to reach an actual agreement as to how much you will pay to settle the debt. If you reach an agreement, ask that the business send you written confirmation of the agreement, dated and signed by a person who has the authority to bind the company to the agreement.

If you are unable to reach an actual agreement, the laws of your state may significantly affect the degree to which you can limit the business's future remedies. The following steps may not be sufficient in every state, but will generally be helpful:

  • Give Clear Notice - Inform the company that you are going to make a partial payment that is intended as payment in full. Include a cover letter with your payment that clearly and conspicuously states that the payment is in full satisfaction of the disputed amount. Include a conspicuous notice above the endorsement box on the back of the check to the effect that it is "Accepted as Payment in Full".

  • Send Disputed Amounts to the Proper Address - If the business has designated an address to which payment disputes and partial payments are to be submitted, make sure that you use that address for your correspondence.

  • Keep Good Records - When you speak to somebody within the company, make a note of their name, position, the date and time of your conversation, and what you discussed. Confirm any promises in writing. Keep copies of all correspondence associated with the dispute, to or from the business. Keep copies of the front and back of any check that you submit as payment.

Keep in mind that in some states, no matter what you do, a court is not likely to find that a notation of payment in full is binding on the recipient of a check unless you can prove an actual agreement to that effect with the recipient.

Copyright © 2016 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on Aug 17, 2016.