Full-Payment Checks: To Cash or Not To Cash?
By: PAUL B. JONES
August 2000
A customer comes to you with a question about a dispute over payment on a check. The customer has received a check in payment of an undisputed (but not the full) amount with the notation "Payment in Full" conspicuously written on the face of the check. The customer wants to know if it can cash the check and still reserve its rights to pursue the drawer for the balance (the disputed amount).
You look at the check and recall that in the "old" days, a party could cash a check and reserve its rights. Section 1-207 of the Uniform Commercial Code (UCC) allowed the check to be negotiated if the words "without prejudice," "under protest" or the like were used in the negotiation of the check. Courts in most jurisdictions allowed a party to a dispute to reserve its rights to continue to pursue the disputed amount notwithstanding the negotiation of a check marked "Payment in Full" if the magic language of Section 1-207 was added to the endorsement.
Fortunately, you know the "old" days are gone. The National Conference of Commissioners on Uniform State Laws approved revisions to Articles 1 and 3 of the UCC in 1990 which allowed checks tendered as payment in full (either with the words "Payment in Full" or the like written on the check or where the check is accompanied by a writing conspicuously stating that the check is tendered in full payment) to operate as an accord and satisfaction if negotiated. You quickly check your state's version of UCC sections 1-207 and 3-311 to see if your state has adopted the 1990 revisions to these sections. If your state has adopted these revisions (as it probably has), you may give your customer the news: the customer can either take the money and run, giving up its right to sue on the disputed amount, or hold onto (or return) the check and pursue the dispute.