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Should I Cash That Check?

Posted August 28, 2015
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Small businesses often call us and ask if they should cash a check they received from a purchaser or customer that still owes them money.  Somewhere at some point they heard that if you do, you are accepting that amount in full satisfaction of the debt, and lose the right to collect any remaining balance.  The legal term for this is "accord and satisfaction."  Since it comes up so often, we want small businesses to understand a little bit about the concept.  "Accord" basically means an agreement.  And "satisfaction" in this scenario means exactly that:  to satisfy the agreement, or to perform the agreement.  In the context of whether to cash that check, "accord and satisfaction" means a new agreement (the "accord") to accept less than what is owed, and the satisfaction is cashing or negotiating the check, or actually accepting that amount.   When a purchaser or customer seeks to pay less than what is owed, and sends a check to the seller for the lesser amount, without clearly indicating the check is in "full satisfaction" of a debt, simply cashing the check does not mean you have given up your rights to collect the balance.  The purchaser or customer has to prove there was a "meeting of the minds," which is a fancy way to say an agreement to accept the lesser amount as "full satisfaction of the debt" and that there was a "good faith" dispute about the amount owed.  Often the purchaser or customer will write on the check "full satisfaction" of the debt or account.  In one Connecticut case, the debtor wrote on the check "Final Payment Upjohn Project Purchase Order # 3302 dated 11/17/81."  Because the parties clearly disputed how much was owed, when the creditor received the check, and cashed it, even after writing on the check that it was done under protest, the creditor forfeited his right to recover the balance.   The statement "final payment" meant that the debtor was making an offer to pay the amount of the check rather than the larger amount, and the creditor accepted that offer by cashing it.  When you cash a check expressly sent in full satisfaction of a disputed claim you could waive your rights to seek to recover the balance. The Uniform Commercial Code, which is a law most states have that governs negotiable instruments (checks for example), has a specific section on this topic, Section 3-311, (Connecticut's section is 42a-3-311) which has a requirement that the debtor include a "conspicuous" statement that the check is in full satisfaction of the claim.

So, look out for any statement, on the check, in a letter accompanying the check, or even an email, that says "full payment" or "full satisfaction."  If you see a statement like that, don't cash the check.

Q4U:  Would your business benefit from having on "on-call" general counsel to run these questions by on a day-to-day basis?  If so, contact us about our General Counsel Service, and lock-in your lawyer without an hourly rate.

About the Author

Business and Employment Litigation Attorney Anthony Minchella

Tony represents Fortune 50 financial services companies, retail giants, and small and large specialty products companies in employment litigation, trade secret and non-competition litigation, and unfair trade practice issues. When acting as local counsel, Tony, an adjunct professor of law on Connecticut Civil Procedure at Quinnipiac Law School, helps lead counsel navigate the nuances of Connecticut state and federal court practice. Tony graduated magna cum laude from Quinnipiac University School of Law. He passed the New Jersey, New York and Connecticut bar exams and then moved on to careers with large and small firms which led to his boutique litigation practice.