Have you ever received a check in the mail with the notation “paid in full” or “payment in full?” Sometimes, if a check is not written “paid in full,” the business or person paying might send a letter with the check stating that the payment is for the full amount of the account or debt.
As a business litigation attorney Memphis, TN trusts with its important business matters, we’d like to warn you about the potential consequences of cashing checks with such notations, or which come along with correspondence indicating full payment. Under the laws of some states, if you cash a check marked “paid in full” or with other similar language, or if you cash a check sent with a letter stating that the payment was in full satisfaction of the debt, you might be prohibited from collecting any additional money, even if you are really owed more.
In breach of contract cases, a person who proves an “accord and satisfaction” is relieved of further liability to the creditor. To prove an accord and satisfaction, the person paying must prove that the amount owed to the creditor was disputed; that a check was sent which was clearly marked “paid in full,” or with other language establishing that the payment was in full satisfaction of the debt, or was sent with a letter saying that the payment was in full satisfaction of the debt; and, that the creditor cashed the check.
Here is an example of a breach of contract case where an accord and satisfaction defense was successful.
- Creditor agreed to do certain grading and other work on Debtor’s property.
- The parties orally agreed that Creditor would be paid $2,500 total, and the Creditor was paid $1,000 up front.
- Creditor ended up performing additional work beyond the work to which the parties had agreed, but the parties never discussed what Creditor would be paid for the additional work.
- After the job was complete, Creditor sent Debtor a bill for over $9,000.
- Debtor told Creditor that he did not believe he owed more than the $1,500 he still owed for the total job cost of $2,500 as initially agreed.
- Debtor sent Creditor a check for $1,500 with the notation “pd. in full.”
- Creditor marked through the “pd. in full” notation on the check and cashed it.
The trial judge found in favor of Creditor, finding that Debtor was liable for breach of contract and had not proven accord and satisfaction. But, the Court of Appeals reversed the trial judge, and held that the fact that Creditor had marked through the notation before cashing the check made no difference. The court stated that Creditor’s act of marking through the notation would have prevented an accord and satisfaction only if Creditor had notified Debtor of that fact beforehand and Debtor had agreed that he was willing to allow Creditor to cash the check and to still claim the balance owed.
One important point is that a debtor’s expression that the payment is in full and final satisfaction of the debt cannot be ambiguous. If this is not clear, then the accord and satisfaction defense will not be successful. It is also important to keep in mind that there may be state specific rules or statutes which can affect the analysis and end result of accord and satisfaction cases. For example, in the state of Tennessee, if a creditor pays back the amount paid by the debtor within 90 days, the creditor can avoid an accord and satisfaction defense. Likewise, creditors are allowed in certain states to designate to whom exactly any check marked “paid in full” must be directed in order to be effective.
If you need help with any business litigation matter, contact the trusted a business litigation attorney.
Thanks to our friends and contributors at Patterson Bray who have significant experience in business formation and organization and litigation.
Business Litigation FAQs
Running a business comes with legal challenges—some expected, others not. When a dispute threatens your company’s operations, relationships, or reputation, timely legal advice becomes essential. With over 40 years of combined experience, our attorneys offer business owners practical guidance and skilled representation. Our trusted Memphis, TN business litigation attorney has answered thousands of questions from companies at every stage.
What Is Business Litigation?
Business litigation refers to legal disputes that arise in the course of operating a company. This area of law can include contract disputes, partnership disagreements, intellectual property issues, breach of fiduciary duty claims, and more. These matters often require swift and strategic legal action to protect your business’s financial and legal standing. As experienced litigators, we evaluate your case based on the legal merits, your long-term goals, and potential costs, offering solutions that align with both your bottom line and your business values.
When Should I Hire A Business Litigation Lawyer?
The best time to involve our Memphis business litigation lawyer is before a dispute escalates. Early legal intervention often prevents lawsuits or helps resolve conflicts through negotiation, arbitration, or mediation. If you’ve received a demand letter, are facing breach of contract allegations, or suspect a partner or vendor is acting in bad faith, it’s time to call counsel.
Our business attorneys offer both pre-litigation strategy and courtroom advocacy designed to protect what you’ve built.
What Happens If My Business Is Sued?
If your company is served with a lawsuit, you must act quickly. You’ll typically have a limited time—often 20 to 30 days—to respond. Failing to act could result in a default judgment against your business, even if the claim has no merit. Our lawyers will begin by reviewing the complaint, identifying legal defenses, preserving key documents, and crafting a tailored response. Whether the goal is dismissal, settlement, or trial, our team delivers strategic, experienced, and zealous advocacy every step of the way.
What Does “Paid In Full” Mean In A Legal Dispute?
In business disputes, a check or payment marked “paid in full” can carry legal significance. If you cash such a payment—even if you disagree that the full amount was paid—it could be interpreted as a legal settlement of the entire debt.These cases fall under a legal concept called accord and satisfaction. If there’s a dispute about how much is owed and one party sends a check marked “paid in full,” cashing it may signal agreement. We help businesses avoid unintended consequences by advising on when to reject, return, or conditionally accept such payments.
Can I Still Sue After Accepting A “Paid In Full” Check?
In many cases, no—once you accept a check labeled “paid in full,” courts may consider the matter resolved. However, there are exceptions. If there was no genuine dispute about the amount owed or you notified the payer in writing that you were not accepting the payment as full satisfaction, you may still have a valid claim. Because the rules vary by state and the facts are often nuanced, it’s critical to consult with our litigation lawyer before acting. We help our clients avoid these legal traps and preserve their right to full recovery.
Practical Guidance From A Business Litigation Partner You Can Trust
At our firm, we combine the deep legal experience of a large practice with the personalized service of a dedicated local partner. Our Memphis business litigation lawyer leads with understanding, pursues results with integrity, and advocates for your business with the same zeal we’d use for our own. Have a dispute brewing or already facing a claim? Contact us today to schedule a consultation. Let’s protect your business, your relationships, and your peace of mind.
