What to do When the Check Says “Payment in Full”
During the debt collection process, the debtor may tender payment to you by delivering a check. In this case, the issue many creditors consider is whether depositing the check will constitute an “accord and satisfaction” of the claim.
For those readers who have never heard of these terms, an “accord” is simply an agreement to discharge an obligation, while a “satisfaction” is the legal consideration which binds the parties to the agreement. This contract law concept pertains to the process of a debtor purchasing his release from the debt obligation. In California, if a debtor makes a valid accord and satisfaction with the creditor, the creditor forfeits his right to pursue the remainder of the debt. For example, a debtor who owes $20k payable over the course of the next two years may offer the creditor one lump sum payment of $15k to release him from his debt obligation. If the creditor agrees and accepts the $15k payment, an accord and satisfaction has taken place and the creditor cannot pursue the unpaid debt of $5k. The debtor is ultimately released from the debt.
But what happens if the debtor makes no discernable “offer”, and instead tenders payment in an amount less than the debt owed?
This is where the creditor needs to be careful. If the creditor accepts the payment by depositing the check, he may have unknowingly made an accord and satisfaction with the debtor. California law states that the creditor’s claim for the remainder of the debt will be discharged if (i) the debtor tendered payment in good-faith as a full satisfaction of the claim; (ii) the amount itself was subject to a bona fide dispute; and (iii) the creditor actually obtained payment. Therefore, if a debt obligation is in dispute and you as the creditor receive a check or accompanying note that states something to the extent of, “payment in full” or “in full satisfaction of the debt,” DO NOT CASH OR DEPOSIT THE CHECK until you speak with an attorney. You could easily find that the debt owed to you has been satisfied by a partial payment.
While there are several other issues to consider in the debt collection and settlement process, this is one to make sure that you are on top of. The Lowenthal Law Office assists businesses and creditors with issues such as this and represents creditors in settlement negotiations, business to business collections, and accounts receivable collections. If you need to speak with an attorney about your own particular situation, contact us today.