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Checks Marked as Payment in Full

Occasionally a debtor will attempt to settle a debt or dispute as to what is owed a merchant by sending a check marked "payment in full" or like terms, or by accompanying such a check with a letter stating that the check is for full payment. The question then arises; does a merchant waive his rights to the difference between the amount of the check and the amount the merchant believes is owed, if the merchant cashes the check?

The general rule is that a liquidated claim, that is, a claim for a fixed amount that is not disputed, will not be discharged by the payment of a sum less than the amount of the claim. The merchant may accept the amount offered and still hold the debtor for the balance.

But where the claim is unliquidated, that is, where a bona fide dispute has arisen between the parties as to the amount due, the taking by the merchant of a check for less than the amount he claims to be due operates to extinguish the debt. The proper course for the merchant to take if he wishes to claim the amount he alleges is due is to return the check along with a statement of what is owed. If the merchant takes and collects the check he is bound by what is referred to in the law of contracts as an "accord and satisfaction."

The general rule does not apply if the language on the check is unclear or not conspicuous. The full payment language is most effective if included in a letter that accompanies the check.

Where a merchant receives a check from a debtor marked "Payment in Full" for a lesser sum than the amount of the debt, he may collect the check if he is satisfied that the debt or claim is liquidated. If there appears to be a bona fide dispute as to the amount of the debt, and if the creditor is not willing to receive the check as full payment, he should return the check to the debtor. Retention of the check for an unreasonable period or depositing the check may prevent the merchant from collecting any further amount.