Wednesday, July 14, 2010

Final Payment Checks - Watch Out

Have you had a customer dispute an invoice and then tender a check with the words "final payment" or "payment in full" written conspicuously on the check or writes a letter stating same?

In 2006, Michigan adopted most of the Uniform Commercial Code ("UCC"), Article III of which deals with negotiable instruments - most commonly checks. Section 3311 in particular addresses the above situation. That provision states that a debtor who proves that: (1) he, in good faith, tendered payment as full satisfaction of a claim; (2) the claim was subject to a bona fide dispute; and (3) the creditor obtained payment (i.e., cashed the check), the creditor's claim is discharged if the check or a written document sent with the check contained a "conspicuous statement" that the check was intended as payment in full. Even if the notation was not present, if a creditor knows that the check was presented as payment in full, the claim will still be discharged. The payment tendered as payment in full, and the subsequent acceptance by the creditor (by cashing the check, etc.) constitutes an accord and satisfaction, an affirmative defense to a subsequent collections suit.

Michigan case law supports the idea of such a final payment check. Many factors can negate the required good faith element and each case is specific, however, it is important to acknowledge instruments that are received with the notation "payment in full" or "final payment" and handle them appropriately.

Andrea Montbriand at

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