Bart Skinner, a valued client, called the other day to discuss a problem. A few months ago, Bart had shipped $10,000 worth of parts to a new customer. The customer claimed that some of the parts were defective, and refused to pay Bart’s invoice. Then today, Bart opened the mail and the guy had sent him a $7,000 check, with "Payment in Full" written on the front. Bart wants to deposit this check in his account and sue the guy for the other three grand! "Can I do that?" Bart asks.

If you want to try to collect the entire $10,000, you’d better not negotiate the check, Bart. Under North Carolina law, that would be an "accord and satisfaction." By accepting the check, you would be deemed to have agreed to settlement of the account for the $7,000. You wouldn't be able to collect the other $3,000.

"What if I cross out the words "Payment in Full" before I deposit the check?"

That won’t work. North Carolina courts have held that attempts to alter the terms of a "full payment" check are ineffective, and that the check must be accepted on its own terms or not at all. In one case, the payee scratched out "full payment" language and wrote in, in all capital letters, "THIS CHECK IS ACCEPTED AS PARTIAL PAYMENT OF THE CLAIM AND PAYEE’S ENDORSEMENT HEREON IS LIMITED TO THAT PURPOSE." The court held that the disclaimer was ineffective and the negotiation of the check was a complete satisfaction of the claim.

"Wait a minute. Do you mean if I write ‘Payment in Full’ on my next mortgage payment, and the bank accepts it, I’ll own my house free and clear?"

Nice try, Bart, but that won’t work either. Generally speaking, the amount of the debt must be in dispute. I don’t think that’s true of your mortgage.

"So at least I don’t have to watch every check that comes into this place."

As a general rule, you only face the risk of an accord and satisfaction when the amount is disputed; however, whoever processes your receipts should be on the lookout for any "extra" language appearing on checks, and should read any correspondence received with a tendered check.

"Is ‘Payment in Full’ the magic phrase?"

No. A court may accept any language which in its opinion indicates that the check is tendered in full satisfaction of the disputed claim. Other phrases accepted by North Carolina courts include "for account in full" and "Full payment unless otherwise indicated on stub." In a case involving a disputed payment to a house painter, the court found the words "painting in full" to be sufficient evidence of an accord and satisfaction.

Also, the words don’t have to be on the check itself. The "full payment" language may be on a voucher attached to the check or in a cover letter accompanying the check.

"All right, so I can’t cash this check, unless I want to accept the $7,000 as full payment of my $10,000 invoice. Can I hold on to it for a few days while I think it over?"

That should be okay, but be careful, and be sure to give it back if the customer asks for it to be returned. Courts in some states have held that retention of a check for an unreasonable period of time can constitute an accord and satisfaction. North Carolina courts have not adopted this rule; however, in one case in North Carolina a court held that an accord and satisfaction had occurred when the payee kept a cashier’s check and refused to return it to the makers upon their request.

"All right, I’ll think it over. I may not be able to get anything more out of this guy anyway, and I know if I have to sue him, that’ll cost me in money, time and aggravation. By the way, you’re not going to bill me for this call, are you?"