Hypothetical.
Mr A owes Mr B $ 5,000. He issues a check payable to Mr B for $4,000. The check contains a notation
stating balance paid in full. Is Mr A responsible for the balance, or in fact is it paid in full ?
1 reply
Jan 3, 2020
This is a tricky situation. For the most part, a check that reads "paid in full" or "final payment" could potentially have some effect on the ability to recover the remaining balance. If the parties are in dispute over the amount due, then accepting and cashing a check could be deemed a settlement which discharges the amount in dispute. This is legally known as "accord and satisfaction."
Clearly, if other progress payments are due on a project, accepting a paid in full check won't affect future payments due under the contract. But given the potential troubles with this practice; it's best to avoid the temptation. Maintaining cashflow on a construction project is always a problem, but cashing a "paid in full" check now, and disputing it later could be a costly error.
For more reading: Are checks with "payment in full" in the memo legally binding? Do they affect mechanics lien rights?