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Monday, April 11, 2011

The Payment-In-Full Check: A Powerful Legal Maneuver



Having a dispute with a creditor? One way to win it (and fast) is to send that creditor a "payment in full" check [hereafter "PIFC"] and end it things in your favor. How does this bit of legal magic work? Read on.

It's always been the law that if you and I have an existing contract, either one of us can propose a modification to that contract, and if we both agree, the contract changes accordingly. There are technical names for this. Say, for instance, that I owe you an undisputed amount of $500. I send you an email and ask if you would take my horse Dobbins is settlement of the debt, and you reply in the affirmative. My offer of something different than what was originally owed (the horse for the money) is called the offer of an "accord." Your agreement to take Dobbins is the "satisfaction." Thus an "accord and satisfaction" in our law is nothing more than a fancy name for a modification agreement. I no longer owe you $500; I owe you a horse. Only if I fail to deliver the horse can you choose to return to the monetary debt.

A "payment in full" check is an accord and satisfaction. To illustrate, let's suppose we have a contract (no matter whether oral or written) and are in dispute as to whether one of us has broken that contract or, if uncertain ("unliquidated") what amount is truly owed. I'm the party who owes the money, so I sit down and write you a letter explaining our disagreement, and enclosing a check for the amount I think I owe, marking both the letter and on the check as "payment in full" of my debt. This is the offer of an accord. If you cash that check satisfaction occurs. It's all over.

The law here is codified as part of a much larger statute (in effect in all jurisdictions in the United States) called "The Uniform Commercial Code." I've taught it for over 40 years. The important section is in Article 3 of the UCC, which I reprint, in relevant part, below. Let me walk you through it.


§ 3-311. ACCORD AND SATISFACTION BY USE OF INSTRUMENT

(a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply.

(b) Unless subsection (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim . . .
[Note: Oregon did not adopt this section and instead reaches the opposite result in this language:
     “The negotiation of an instrument marked ‘paid in full,’ ‘payment in full,’ ‘full payment of a claim’ or words of similar meaning, or the negotiation of an instrument accompanied by a statement containing such words or words of similar meaning, does not establish an accord and satisfaction that binds the payee or prevents the collection of any remaining amount owed upon the underlying obligation unless the payee personally, or by an officer or employee with actual authority to settle claims, agrees in writing to accept the amount stated in the instrument as full payment of the obligation.”  New York never adopted this section either, and in that state a payee who cashes the PIFC has settled the debt unless the payee's indorsement is accompanied by language like "all rights reserved" or "cashed under protest," making it clear no settlement is happening.  Other states may have variations too; check by Googling your state's name plus "UCC 3-311."]

In the Official version of the statute quoted above, there are some interesting bells and whistles. One is that the accord and satisfaction won't occur until the check clears.  Another says that if your creditor has written on the bill or otherwise informed you that notices of a dispute must be sent to a particular office, you must send the PIFC there or it will not operate as an accord, nor trigger the modification (unless it happens to reach the right hands anyway).

Another complication has to do with this following difficulty.

Decades ago, I bought a new washer and dryer from Sears, and after I'd used the dryer a number of times it coughed up a lot of gunk which stopped up my basement drain and caused a minor mess. I brought in a plumber, who unstopped the drain, and told me the dryer was dumping detritus into the pipes where it caught and clogged. He advised me to buy a nylon stocking, put it on the end of the dryer hose, and clean it out once a week (which worked). I phoned Sears and asked what was going on, and the cheerful person on the other end of the phone told me it was their new "self-cleaning" feature, which worked by ejecting the gunk into the pipes. I told him it didn't sound like a "feature," but instead like a "breach of warranty" (I'd just started teaching law). He said, alas, he couldn't help me. That same day I received Sears's bill for the new machines, so I wrote out a PIFC, explaining in the covering letter what had happened and that I was deducting from my payment both the plumber's bill and the cost of the stocking. I then received a reply from Sears saying they would refer my complaint to their Customer Relations Department, and would let me know how it came out. By this time they'd cashed the check, so I wrote another note to them telling them I already knew how it came out. I thanked them for their accord and satisfaction. To their credit, Sears gave up.

But, consider for a moment, just how hard it is for a bureaucracy like Sears to stop themselves from cashing checks. How fast they can do that and access the funds is what keeps them afloat. The use of a PIFC causes them no end of trouble. Professors White and Summers (two famous Commercial Law experts) once called the PIFC "an exquisite form of commercial torture." The statute mentioned above therefore has an escape valve for creditors: if they return the amount of money represented by the check within 90 of receiving it, no accord and satisfaction occurs, and the debt is still in dispute.

Can the creditor just cross off the "payment in full" language, and, say, write "cashed under protect, all rights reserved"? Nope. There was some disagreement as to this legal issue once, but the statute has now clearly settled it .  No matter what the creditor writes on the check, if the check is actually cashed, nothing more is due. Nor should the wise creditor keep the check too long. Another doctrine of the law says that where there is a duty to speak, silence is acceptance. I tell my law students that if they are representing a creditor who has received such a check, the only thing to do is send it back.  However, doing that, so goes against human nature ("SEND THE CHECK BACK???") I also tell my students (as I'm telling you now) that even if the other side isn't expecting to receive a PIFC, go ahead and try it. Send them the check and just wait—see what happens. Really, it's fascinating what often occurs. The creditor sees the check, his name is on the payee line, his attorney tells him sternly to send it back, and, by golly, he means to do that—but then his eyes swim, the room darkens, he passes out, and when he comes to the check has mysteriously been deposited in his bank account and is on its way to collection. This happens a lot.

Once last, very important thing. There's a legal maxim saying "the law favors a compromise," and that thought is the pedestal of a PIFC. But the statute quoted above begins by requiring both good faith and a bona fide dispute before the check is sent. It must be emphasized that a PIFC can only be used where both of those two factual things coalesce.  A PIFC is not a blanket permission for misuse of the law. No matter how bad your current financial situation, you can't just pay all your creditors half, and have a good month. If the person sending the PIFC is the bad guy, the debt will still be owed and a PIFC offers no relief.

    Printed below is the complete text of section 3-111 and its Official Comment.  The Official Comments are not the law, but they were written by the drafters of the statute to explain what the statute  means, so they are persuasive.   An “accord and satisfaction,” mentioned in the title is a legal term meaning a compromise agreement.

     Uniform Commercial Code § 3-311. Accord and Satisfaction by Use of Instrument.


 (a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply.

(b) Unless subsection (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.

(c) Subject to subsection (d), a claim is not discharged under subsection (b) if either of the following applies:
     (1) The claimant, if an organization, proves that (i) within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (ii) the instrument or accompanying communication was not received by that designated person, office, or place.
     (2) The claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the claimant is an organization that sent a statement complying with paragraph (1)(i).

(d) A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.


OFFICIAL COMMENT

1. This section deals with an informal method of dispute resolution carried out by use of a negotiable instrument. In the typical case there is a dispute concerning the amount that is owed on a claim.

      Case #1. The claim is for the price of goods or services sold to a consumer who asserts that he or she is not obliged to pay the full price for which the consumer was billed because of a defect or breach of warranty with respect to the goods or services.
     Case #2. A claim is made on an insurance policy. The insurance company alleges that it is not liable under the policy for the amount of the claim.

     In either case the person against whom the claim is asserted may attempt an accord and satisfaction of the disputed claim by tendering a check to the claimant for some amount less than the full amount claimed by the claimant. A statement will be included on the check or in a communication accompanying the check to the effect that the check is offered as full payment or full satisfaction of the claim. Frequently, there is also a statement to the effect that obtaining payment of the check is an agreement by the claimant to a settlement of the dispute for the amount tendered. Before enactment of revised Article 3, the case law was in conflict over the question of whether obtaining payment of the check had the effect of an agreement to the settlement proposed by the debtor. This issue was governed by a common law rule, but some courts hold that the common law was modified by former Section 1-207 which they interpreted as applying to full settlement checks.

2. Comment d. to Restatement of Contracts, Section 281 discusses the full satisfaction check and the applicable common law rule. In a case like Case #1, the buyer can propose a settlement of the disputed bill by a clear notation on the check indicating that the check is tendered as full satisfaction of the bill. Under the common law rule the seller, by obtaining payment of the check accepts the offer of compromise by the buyer. The result is the same if the seller adds a notation to the check indicating that the check is accepted under protest or in only partial satisfaction of the claim. Under the common law rule the seller can refuse the check or can accept it subject to the condition stated by the buyer, but the seller can't accept the check and refuse to be bound by the condition. The rule applies only to an unliquidated claim or a claim disputed in good faith by the buyer. The dispute in the courts was whether Section 1-207 changed the common law rule. The Restatement states that section “need not be read as changing this well-established rule.”

3. As part of the revision of Article 3, Section 1-207 has been amended to add subsection (2) stating that Section 1-207 “does not apply to an accord and satisfaction.” Because of that amendment and revised Article 3, Section 3-311 governs full satisfaction checks. Section 3-311 follows the common law rule with some minor variations to reflect modern business conditions. In cases covered by Section 3-311 there will often be an individual on one side of the dispute and a business organization on the other. This section is not designed to favor either the individual or the business organization. In Case #1 the person seeking the accord and satisfaction is an individual. In Case #2 the person seeking the accord and satisfaction is an insurance company. Section 3-311 is based on a belief that the common law rule produces a fair result and that informal dispute resolution by full satisfaction checks should be encouraged.

4. Subsection (a) states three requirements for application of Section 3-311. “Good faith” in subsection (a)(i) is defined in Section 3-103(a)(6) as not only honesty in fact, but the observance of reasonable commercial standards of fair dealing. The meaning of “fair dealing” will depend upon the facts in the particular case. For example, suppose an insurer tenders a check in settlement of a claim for personal injury in an accident clearly covered by the insurance policy. The claimant is necessitous and the amount of the check is very small in relationship to the extent of the injury and the amount recoverable under the policy. If the trier of fact determines that the insurer was taking unfair advantage of the claimant, an accord and satisfaction would not result from payment of the check because of the absence of good faith by the insurer in making the tender. Another example of lack of good faith is found in the practice of some business debtors in routinely printing full satisfaction language on their check stocks so that all or a large part of the debts of the debtor are paid by checks bearing the full satisfaction language, whether or not there is any dispute with the creditor. Under such a practice the claimant cannot be sure whether a tender in full satisfaction is or is not being made. Use of a check on which full satisfaction language was affixed routinely pursuant to such a business practice may prevent an accord and satisfaction on the ground that the check was not tendered in good faith under subsection (a)(i).
     Section 3-311 does not apply to cases in which the debt is a liquidated amount and not subject to a bona fide dispute. Subsection (a)(ii). Other law applies to cases in which a debtor is seeking discharge of such a debt by paying less than the amount owed. For the purpose of subsection (a)(iii) obtaining acceptance of a check is considered to be obtaining payment of the check.
     The person seeking the accord and satisfaction must prove that the requirements of subsection (a) are met. If that person also proves that the statement required by subsection (b) was given, the claim is discharged unless subsection (c) applies. Normally the statement required by subsection (b) is written on the check. Thus, the canceled check can be used to prove the statement as well as the fact that the claimant obtained payment of the check. Subsection (b) requires a “conspicuous” statement that the instrument was tendered in full satisfaction of the claim. “Conspicuous” is defined in Section 1-201(10). The statement is conspicuous if “it is so written that a reasonable person against whom it is to operate ought to have noticed it.” If the claimant can reasonably be expected to examine the check, almost any statement on the check should be noticed and is therefore conspicuous. In cases in which the claimant is an individual the claimant will receive the check and will normally indorse it. Since the statement concerning tender in full satisfaction normally will appear above the space provided for the claimant's indorsement of the check, the claimant “ought to have noticed” the statement.

5. Subsection (c)(1) is a limitation on subsection (b) in cases in which the claimant is an organization. It is designed to protect the claimant against inadvertent accord and satisfaction. If the claimant is an organization payment of the check might be obtained without notice to the personnel of the organization concerned with the disputed claim. Some business organizations have claims against very large numbers of customers. Examples are department stores, public utilities and the like. These claims are normally paid by checks sent by customers to a designated office at which clerks employed by the claimant or a bank acting for the claimant process the checks and record the amounts paid. If the processing office is not designed to deal with communications extraneous to recording the amount of the check and the account number of the customer, payment of a full satisfaction check can easily be obtained without knowledge by the claimant of the existence of the full satisfaction statement. This is particularly true if the statement is written on the reverse side of the check in the area in which indorsements are usually written. Normally, the clerks of the claimant have no reason to look at the reverse side of checks. Indorsement by the claimant normally is done by mechanical means or there may be no indorsement at all. Section 4-205(a). Subsection (c)(1) allows the claimant to protect itself by advising customers by a conspicuous statement that communications regarding disputed debts must be sent to a particular person, office, or place. The statement must be given to the customer within a reasonable time before the tender is made. This requirement is designed to assure that the customer has reasonable notice that the full satisfaction check must be sent to a particular place. The reasonable time requirement could be satisfied by a notice on the billing statement sent to the customer. If the full satisfaction check is sent to the designated destination and the check is paid, the claim is discharged. If the claimant proves that the check was not received at the designated destination the claim is not discharged unless subsection (d) applies.
   
6. Subsection (c)(2) is also designed to prevent inadvertent accord and satisfaction. It can be used by a claimant other than an organization or by a claimant as an alternative to subsection (c)(1). Some organizations may be reluctant to use subsection (c)(1) because it may result in confusion of customers that causes checks to be routinely sent to the special designated person, office, or place. Thus, much of the benefit of rapid processing of checks may be lost. An organization that chooses not to send a notice complying with subsection (c)(1)(i) may prevent an inadvertent accord and satisfaction by complying with subsection (c)(2). If the claimant discovers that it has obtained payment of a full satisfaction check, it may prevent an accord and satisfaction if, within 90 days of the payment of the check, the claimant tenders repayment of the amount of the check to the person against whom the claim is asserted.

7. Subsection (c) is subject to subsection (d). If a person against whom a claim is asserted proves that the claimant obtained payment of a check known to have been tendered in full satisfaction of the claim by “the claimant or an agent of the claimant having direct responsibility with respect to the disputed obligation,” the claim is discharged even if (i) the check was not sent to the person, office, or place required by a notice complying with subsection (c)(1), or (ii) the claimant tendered repayment of the amount of the check in compliance with subsection (c)(2).
     A claimant knows that a check was tendered in full satisfaction of a claim when the claimant “has actual knowledge” of that fact. Section 1-201(25). Under Section 1-201(27), if the claimant is an organization, it has knowledge that a check was tendered in full satisfaction of the claim when that fact is “brought to the attention of the individual conducting that transaction, and in any event when it would have been brought to his attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless such communication is part of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the information.”
     With respect to an attempted accord and satisfaction the “individual conducting that transaction” is an employee or other agent of the organization having direct responsibility with respect to the dispute. For example, if the check and communication are received by a collection agency acting for the claimant to collect the disputed claim, obtaining payment of the check will result in an accord and satisfaction even if the claimant gave notice, pursuant to subsection (c)(1), that full satisfaction checks be sent to some other office. Similarly, if a customer asserting a claim for breach of warranty with respect to defective goods purchased in a retail outlet of a large chain store delivers the full satisfaction check to the manager of the retail outlet at which the goods were purchased, obtaining payment of the check will also result in an accord and satisfaction. On the other hand, if the check is mailed to the chief executive officer of the chain store subsection (d) would probably not be satisfied. The chief executive officer of a large corporation may have general responsibility for operations of the company, but does not normally have direct responsibility for resolving a small disputed bill to a customer. A check for a relatively small amount mailed to a high executive officer of a large organization is not likely to receive the executive's personal attention. Rather, the check would normally be routinely sent to the appropriate office for deposit and credit to the customer's account. If the check does receive the personal attention of the high executive officer and the officer is aware of the full-satisfaction language, collection of the check will result in an accord and satisfaction because subsection (d) applies. In this case the officer has assumed direct responsibility with respect to the disputed transaction.
     If a full satisfaction check is sent to a lock box or other office processing checks sent to the claimant, it is irrelevant whether the clerk processing the check did or did not see the statement that the check was tendered as full satisfaction of the claim. Knowledge of the clerk is not imputed to the organization because the clerk has no responsibility with respect to an accord and satisfaction.        Moreover, there is no failure of “due diligence” under Section 1-201(27) if the claimant does not require its clerks to look for full satisfaction statements on checks or accompanying communications. Nor is there any duty of the claimant to assign that duty to its clerks. Section 3-311(c) is intended to allow a claimant to avoid an inadvertent accord and satisfaction by complying with either subsection (c)(1) or (2) without burdening the check-processing operation with extraneous and wasteful additional duties.

8. In some cases the disputed claim may have been assigned to a finance company or bank as part of a financing arrangement with respect to accounts receivable. If the account debtor was notified of the assignment, the claimant is the assignee of the account receivable and the “agent of the claimant” in subsection (d) refers to an agent of the assignee.

__________
Related Posts:

"I Threaten To Sure Apple Over an iPad Cover," April 8, 201l;
http://douglaswhaley.blogspot.com/2011/04/i-threaten-to-sue-apple-over-ipad2.html
"What Non-Lawyers Should Know About Warranties," October 11, 2011;
http://douglaswhaley.blogspot.com/2011/10/what-non-lawyers-should-know-about.html 
"How To Write an Effective Legal Threat Letter," October 19, 2011; http://douglaswhaley.blogspot.com/2011/10/how-to-write-effective-legal-threat.html
“How To Win Arguments and Change Someone’s Mind,” August 5, 2012;
"Mortgage Foreclosures, Missing Promissory Notes, and the Uniform Commercial Code: A New Article," February 11, 2013; http://douglaswhaley.blogspot.com/2013/02/mortgage-foreclosures-missing.html
 
"Legal Terms You Should Know," September 11, 2013;
http://douglaswhaley.blogspot.com/2013/09/legal-terms-you-should-know.html

"How To Respond to a Legal Threat," March 29, 2014;
http://douglaswhaley.blogspot.com/2014/03/how-to-respond-to-legal-threat.html

“Clicking on 'I Agree': Sticking Your Head in the Lion's Mouth?” September 27, 2014;
http://douglaswhaley.blogspot.com/2014/09/clicking-on-i-agree-sticking-your-head.html


“I Threaten To Sure Apple Over an iPad Cover,” April 8, 2011;
http://douglaswhaley.blogspot.com/2011/04/i-threaten-to-sue-apple-over-ipad2.html

“The Payment-In-Full Check: A Powerful Legal Maneuver,” April 11, 2011; http://douglaswhaley.blogspot.com/2011/04/payment-in-full-check-powerful-legal.html

“What Non-Lawyers Should Know About Warranties,” October 11, 2011;
http://douglaswhaley.blogspot.com/2011/10/what-non-lawyers-should-know-about.html

"How To Write an Effective Legal Threat Letter," October 19, 2011; http://douglaswhaley.blogspot.com/2011/10/how-to-write-effective-legal-threat.html

“How To Win Arguments and Change Someone’s Mind,” August 5, 2012;
http://douglaswhaley.blogspot.com/2012/08/howto-win-argument-and-change-someones.html 

“Mortgage Foreclosures, Missing Promissory Notes, and the Uniform Commercial Code: A New Article,” February 11, 2013; http://douglaswhaley.blogspot.com/2013/02/mortgage-foreclosures-missing.html

“Legal Terms You Should Know,” September 13, 2013;
http://douglaswhaley.blogspot.com/2013/09/legal-terms-you-should-know.html

“How To Respond to a Legal Threat.” March 29, 2014; http://douglaswhaley.blogspot.com/2014/03/how-to-respond-to-legal-threat.html

“Clicking on 'I Agree': Sticking Your Head in the Lion's Mouth?” September 27, 2014;
http://douglaswhaley.blogspot.com/2014/09/clicking-on-i-agree-sticking-your-head.html  

 “My Battle with Sony To Get a Refund on a DVD Player,” July 16, 2015;
http://douglaswhaley.blogspot.com/2015/07/my-battle-with-sony-to-get-refund-on.html
  

“A Guide to the Best of My Blog,” April 29, 2013; http://douglaswhaley.blogspot.com/2013/04/a-guide-to-best-of-my-blog.html.

136 comments:

  1. Does the U.C.C. apply to the Federal Government; i.e., Federal Student Loan debbts?

    ReplyDelete
  2. Yes, it does. It is the law in all fifty states and D.C.

    Douglas Whaley

    ReplyDelete
    Replies
    1. Douglas, the statement that the UCC applies in all 50 states is inaccurate. Louisiana has adopted the majority of the UCC in Title Revised Statues in Title 10. However, many of the provisions of the UCC are inconsistent with our civilian doctrine and were either altered or omitted.

      On the whole, the UCC is a proposed uniform code and not legally binding in each state as the provisions are subject to amendment in each state. Thus, I would caution against using certainties in regards to the UCC.

      Delete
    2. I'm not aware of any states that made major changes to section 3-311. As far as I can tell Louisiana did not alter the official version in any way.

      Delete
    3. Hmm. That's wrong: Oregon doesn't use the official text, but instead has this:

      OREGON

      Section provides:

      “The negotiation of an instrument marked ‘paid in full,’ ‘payment in full,’ ‘full payment of a claim’ or words of similar meaning, or the negotiation of an instrument accompanied by a statement containing such words or words of similar meaning, does not establish an accord and satisfaction that binds the payee or prevents the collection of any remaining amount owed upon the underlying obligation unless the payee personally, or by an officer or employee with actual authority to settle claims, agrees in writing to accept the amount stated in the instrument as full payment of the obligation.”

      Delete
  3. Do you see any issue with an Ohio bank accepting a check with the words "All Rights Reserved" on the reverse side above the payee's endorsement.

    Thanks
    ajtlibcopies@aol.com

    ReplyDelete
  4. From Douglas Whaley:

    Responding to your question, the law is clear. Writing "all rights reserved" does not avoid the settlement of the dispute, which occurs when the bank cashes the check.

    ReplyDelete
  5. If I have a dispute regarding charges billed by my doctor, and have attempted repeatedly to speak to him regarding the issue and have not received a call, would a PIFC be warranted? I spoke to the office manager and the billing office regarding the situation, and keep getting the runaround on certain questions. They completely refuse to make any compromise. (It is a long complicated issue, but in a nutshell I feel that they breached the contract for ob care that I initially signed and are now overcharging me. I also saw a nutritionist in their practice who bills in 15 minute increments, and was overcharged for that as well, so I feel that I have been overcharged on multiple levels.)

    ReplyDelete
  6. I can't give you specific legal advice without knowing more of the facts, but if this is a good faith dispute the Uniform Commercial Code allows the matter to be settled if you tender such a check, make it clear it's meant as payment in full, and they cash it. At that moment it's all over.

    ReplyDelete
  7. what dose make it clear mean dose writing in memo line count

    ReplyDelete
  8. Don't write the payment in full language on the Memo line. That line is just for your own information, and is not meant to warn others. Put the payment in full on the back of the check and also on an accompanying letter so you can prove you warned the payee that cashing the check will result in the settlement of the debt.

    ReplyDelete
  9. I owe my landlord back rent of $x. If I wrote a check for $500 to him and wrote paid in full through the end of lease on the memo or back and he cashed or deposited it, would it hold up as a "paid in full" payment? Would he than have any legal action?

    ReplyDelete
  10. I can't give specific legal advice, but I can say that "payment in full language" won't work unless there is a bona fide dispute over the amount owed, and the check is sent in good faith.

    ReplyDelete
  11. What kind of bona fide dispute? We have so many repairs that were promised to us and other misc maintenance that they have not repaired. Would that be considered a bona fide dispute? Would this be grounds for eviction?

    ReplyDelete
    Replies
    1. Repair AND deduct is the law in many jurisdictions. Deduct alone isn't enough.

      Delete
  12. Once again, I cannot give you specific information since I'm not your lawyer. You need to talk to one; try calling Legal Aid if you cannot afford one. Good luck with this.

    ReplyDelete
  13. So - I received a letter and a check from a client that states "by accepting and depositing this check you acknowledge the full and final satisfaction of amounts owing ...."
    The check has on the For line: Full satisfaction of obligations per consulting agreement.

    I do not agree with the payment given the client terminated the contract (after many years of working together, with no warning the dumped an entire team and hired an other).

    Given that the check is just a small % of the contract amount I would like to send it back.

    Now, it is unclear to me based on http://www.law.cornell.edu/ucc/3/3-311
    if the fact that they did send the check clears them of responsibility or not.

    Can they say - look, we offered to pay every cent up to the minute we fired them and that cleared us of all responsibility? Or will that be a problem in due diligence if they are to be acquired.

    Thanks

    ReplyDelete
  14. If the payee sends the check back, the dispute goes on. A payment in full check is an offer of settlement of the dispute. Returning it is an answer of "no."

    ReplyDelete
    Replies
    1. But what if you cash it and then try to return it 3 months later.

      Delete
    2. If the check was cashed the payee has 90 days to return it and keep the dispute going.

      Delete
  15. I have an ongoing dispute with a cable television provider. Their rep promised to waive a full month's bill for my trouble but when the next bill arrived, the charges were NOT waived. When I called to inquire, I was basically told to go pack sand. This has escalated to the point where I have switched to satellite television.

    I intend to tender payment for what I owe for the services received before I encountered the problems. I want to send a PIFC but the bill says not to send correspondence with payment. Is sending the PIFC without an accompanying letter sufficient?

    Also, the back of my check (and every other check I've ever seen) says DO NOT WRITE, STAMP, OR SIGN BELOW THIS LINE. Should I ignore that or should I write 'payment in full' in the endorsement area?

    Thank you.

    ReplyDelete
  16. I can't give specific advice, but I can say that if a creditor has demanded that payment in full checks or any disputed checks must be sent to a particular office, then you must send the check to that office in order to trigger the payment in full rules described in this blog post. If the creditor did not name a specific place to send such checks, send it to the usual place even if they don't want it sent there. The payment in full language should be written at the top of the back of the check in the box containing the language quoted above. That language does not prevent payment in full language being placed in the box containing the warning. The warning is meant to keep the rest of the check available for bank collection stamps, which will be added as the check moves through the collection system.

    ReplyDelete
    Replies
    1. Dear Mr. Whaley,

      The cable television provider has cashed the check. I made sure to write 'Paid in Full' conspicuously on the front AND the back. They did not try to strike through it or anything like that - they simply cashed it. Now I have some follow up questions.

      First, they never told me to send and disputed payments to a separate address so I sent it they way I normally would - with the payment stub in their pre-addressed envelope. Question - do they still get the grace period in which to return my payment, or are they stuck with the 'accord and satisfaction' ?

      Second question. Assuming they do not attempt to return my payment, if they submit a derogatory remark on my credit report, might that be actionable under the Fair Credit Reporting Act?

      Thank you.

      Delete
    2. I can't give specific legal advice. If the creditor cashes the PIFC and the other rules mentioned above are met, the dispute is over. The creditor legally can't try to collect it without violating the law.

      Delete
  17. I live in Indiana. In May (2013) I got a letter from an attorney's office saying I owed them money. I called them, and they claimed it was for some medical bills from 2007. (Indiana has a 6 year statute of limitations.) They also claimed they were already suing me. And if I wanted details on the doctor bills I could send a self-addresed stamped envelope! About a week later I got served with the papers, so they weren't lying about suing me. But they filed the lawsuit before they ever sent me the letter. It was going to be too difficult to research back six years, so iwth the court date coming up I just paid the original amount. But I wrote "in full payment" on the check, because the small claims suit was asking for court costs and interest at 8% for almost 6 years. I went to court and when I produced the cancelled check they cashed as evidence, the other attorney offered to refund my money so they could pursue the full amount. They claimed they had sent me a letter years ago, but I never got it. They had no proof they had ever sent me anything. The judge said he had to look something up and would send us his decision. Today I get a letter saying he found for the plaintiff and now I supposedly have to pay $215 in back interest, plus court costs, plus 8% interest from the judgement date. I am sooooo angry I want to appeal it. I think before I do I better go down and get a copy of that exhibit (the cancelled check) to prove I admitted it as evidence. Would you appeal?

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  18. It would depend on the reason the judge found for the state. If he said there was no good faith dispute, then the appeal wouldn't succeed. If he just ignored the statute, the appeal might be a good idea,but you'll either need an attorney or have to do it pro se.

    ReplyDelete
    Replies
    1. The judge didn't give any reason at all for his decision, which I thought was really weird.

      Delete
  19. If the creditor cashes the check there is still a 90 day period for returning the money and reviving the dispute. If the creditor does not return the money within that period, the debt is settled. Subsequent false reports about this to credit agencies would be defamation, and federal law requires the agencies to reinvestigate if the consumer complains and remove false information.

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  20. Could the payment-in-full check maneuver be attempted for an ER/hospital bill?

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  21. The PIF check can be used for any bona fide dispute where it is sent in good faith.

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  22. My fiancee just got an emergency room bill for almost $5000. I don't want to get into details, but after checking on https://healthcarebluebook.com/ it looks like they charged her about 5 times the amount the services normally bill for. We called them and told them we were willing to pay cash in the amount of $1,0000 which was reasonable (in the US). They said no. Would the PIF check strategy be something that would work in a situation like this if it was accompanied by a letter explaining our dispute?

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  23. I can't give specific advice, but the PIF check works anytime there is a bona fide dispute and the check is tendered in good faith, cashed, and the amount not refunded within 90 days.

    ReplyDelete
  24. What if you don't have a checking account?

    Can you someone else write the check out of their account with the same result?

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  25. As long as it's clear that the payment is made on behalf of the person who owes the debt, there shouldn't be any problem with the check coming from a source other than the debtor. Or the debtor could send a money order, though in that case the statute would apply only by analogy but the common law rule would reach the same result.

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  26. Frank, slaninger@comcast.netNovember 16, 2013 at 6:26 PM

    Do you have 1-2 common law state law cases supporting accord and satisfaction when the creditor contacted his attorney, and the attorney advised him to cross off "payment in full" and cash the check and sue for the amount not paid?

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  27. All the cases agree that if the creditor first crosses off the PIF language and then cashes the check, the cited statute applies and the debt has been settled for the check's amount, assuming the check was tendered in good faith and there was a bona fide dispute. See, for example, Wolfe v. Eagle Ridge Holding Co., 869 N.E.2d 521 (Ind. App. 2007). An attorney advising otherwise has committed malpractice.

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  28. I paid a hospital bill in Ohio...my bill was for $2,000.00. They had a patient discount (because I had no health insurance) of $800.00. I had my attorney send a check for $1,200.00 (which is what the bill stated). He wrote "payment in full" on the check. They now want me to pay the additional $800.00 even though they already cashed the $1,200.00 "payment in full" check...Do I have to pay it?

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  29. I paid a hospital bill in Ohio...my bill was for $2,000.00. They had a patient discount (because I had no health insurance) of $800.00. I had my attorney send a check for $1,200.00 (which is what the bill stated). He wrote "payment in full" on the check. They now want me to pay the additional $800.00 even though they already cashed the $1,200.00 "payment in full" check...Do I have to pay it? Thanks

    ReplyDelete
  30. I can't give specific legal advice, but as explained in the above blog post, if there is a good faith dispute as to the amount, and the payee cashes a PIFC, the dispute is ended.

    ReplyDelete
    Replies
    1. how do you stop it from being on your credit report? and stop the levy of your bank account?

      Delete
    2. A creditor who has cashed a PIFC has ended the debt. If that creditor subsequently reports the debt as still outstanding that is (a) a lie, (b) slander, and (c) grounds for reporting the creditor to the credit reporting agency as still trying to collect a debt that is not due. Federal law (Fair Credit Reporting Act and Fair Debt Collection Practices Act) requires the credit reporting agency to investigate the dispute and take down the bad credit report if the consumer is right. Of course this all presumes that you have observed all the rules of the statute quoted in the blog post so as to trigger its protection.

      Delete
  31. I paid for a contact lens fitting from an optometrist (mine retired) and I typically also go to an Ophthalmologist for Glaucoma suspect exam once per year. I had and paid for a contact lens fitting and then was given a redundant duplicative eye exam without my request nor understanding that the doctor was doing it. I thought the appointment I was asked to make was included in what I already paid for a contact lens fitting. I was going to stop by and pick up trial contact lenses (that were not in stock and had to be ordered) and the optometrist said I needed an appointment for that so she could look at them on my eyes before I left. I did schedule another appointment (for the lens trial fit) at the time of my contact lens fitting, but I did not ask for a more thorough annual exam since I already had that one with my regular ophthalmologist 6 months earlier. I had asked their optometrist what the cost would be for the next year's exam, but I never asked for that redundant exam. I only said that I would like to know more about it. Then I got a bill for the exam that I didn't want, need, nor did I ask for it!
    My lawyer said to say "cashing this check indicates acceptance as payment in full." Where and how do you write Payment in Full? Is it on the back where it would be endorsed, or on the front? I remember insurance payments in the past where the check stated this (I think on the back of the check - before the newer practice of limiting the area for endorsement). Do you agree? Should it be listed on the front or back?

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  32. The statute does not say where to write the PIF language, but it must be placed on the check. Do not put it on the front's MEMO line, since that is a place where the creator of the check writes notes to him/herself as to what it's about. I always put it on the top of the back in the indorsement area.

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  33. My creditor sent me a settlement letter for 297.00 on a 358.00 bill. I sent 100.00 and PIFC written in the memo line of my check. It was in collections and that is where i sent the money. Check was cashed and now it's clinched on with a firm grip to my credit report and I can't make any of the 3 bureaus remove it and the creditor calls me like clockwork. What can I do to make them go away? I think if they were not going to accept the payment they should have immediately sent the finds back. I work in Finance and we give back money all the time and sometimes for reasons such as this. Any option welcome...thank you.

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  34. I cannot give specific legal advice. If there was a bona fide dispute as to the amount due and the check was sent in good faith (questions of fact), a creditor who cashes the check has settled the debt. It is no longer due. Cite the creditor to the statute discussed in this post: Uniform Commercial Code section 3-311. It is the law of the land in all jurisdictions except New York, where the common law reaches the same result. A federal statute, the Fair Debt Collection Practices Act, allows you to notify a debt collection in writing that the debtor refuses to pay the debt, and the debt collector must thereafter stop contacting the debtor. See FDPCA section 1692c(c). There are significant penalties under the Act for violations; see section 1692k. A creditor who keeps harrassing a debtor when there is no debt due should be reported to the Federal Trade Commission and the state Attorney General Consumer Affairs, as well as the Better Business Association.

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  35. What if the person that cashed the check on behalf of the business, did not have the authority to settle the debt but had the authority to cash the restrictive check. For example, a loan servicer for a mortgage company receives a restrictive check and cashes it. Does accord and satisfaction apply to preclude the mortgage company, as it would if the loan servicer owned the debt?

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  36. Subsection (d) of the statute says that if the check is cashed by someone "having direct responsibility with respect to the disputed obligation" who knew it was tendered in full satisfaction, the dispute is settled. Thus the question will be whether the mortage servicer had such responsibility. If not, the check was still cashed and settles the debt unless the money is refunded within 90 days, as explained above. If so, there is no such grace period and the debt is over.

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  37. I am an individual building permit consultant. My contracts are small amounts ranging from $500 to $3000. In some case clients terminates the contracts and ask for the refund. Where as in my work 80% of the work is carried out in the starting of the contract. I need help in how to write a condition in my agreement saying that the contract amount is payable in full even the contract terminates or discontinuous.

    ReplyDelete
    Replies
    1. I would simply write that 80% of the cost is due upfront before any work is started and that the balance is due in full upon completion of any work, and that payment must be made by money order or certified Bank check. And perhaps I would say that any checks with restrictive endorsements or any writing on the back of the instrument is an unacceptable form of payment.

      Delete
  38. I can't approve specific language. I do note in the blog post above that cashing a check marked payment in full would settle the debt under statutory law, and this is probably true no matter what the original contract says. Were the law otherwise the statute would be too easily avoided, and it has always been true that the law favors a compromise when there is a dispute. Creditors getting a PIF check should send it back if they want to avoid a settlement. Cashing it doesn't work no matter what conditions are attached to the act of cashing.

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  39. Thanks to your topic and following discussions, I was able to negotiate an Accord and Satisfaction. My question now is this: Is there a time frame that the company I negotiated with can resend their agreement?

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  40. As explained in the blog post above, if the recipient of the check cashes it, there is a 90 period in which to return the money and revive the dispute.

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  41. I wrote a check to my mortgage company with "Paid in Full" across the top of the check just to see if they would cash it, which they did. If this is acceptable in Alabama how do I now enforce this statute. I currently still paying them, does that imply that I still owe them?

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  42. Before a PIF check will work to settle the dispute there must first be a bona fide dispute as to the amount owed and the check that is sent must be a good faith estimate of the true amount totally owed. If you did that the statute would apply. But you can't just send a PIF check for a partial amount when you know you really owe more because then there is no such dispute and you're not in good faith.

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  43. I have a $13k judgment against my ex-husband from our divorce. I had one car seized and sold at auction. I bought the car to resell it, and since the amount I paid only covered the constable's fees and storage fees, it did not satisfy any of the judgment. My ex-husband wants to buy the car back and wrote me a check for $1k with a note on it "Judgment $1,000 + $3k mitsubishi = $4k". After giving me the check, he sent me a text message stating that the check "sums to $4k. If you disagree then do not deposit. If u deposit then you acknowledge value of truck and past insure total to $4k. Remaining balance (of judgment) is $8k. I will pay out when I can." My question is, if I cash this check does it operate as an accord and satisfaction of $4k of the $13k judgment?

    ReplyDelete
    Replies
    1. I can't give specific legal advice. Cashing a check anyone knows to be offered as a settlement will work an accord and satisfaction if it is offered in good faith and there is a dispute about what is owed. When in doubt the check should be returned by the payee.

      Delete
  44. How long is too long for a company to hold a PIF check before cashing or returning to sender and what should be done by sender after that amount of time.

    ReplyDelete
    Replies
    1. The statute says nothing about what happens if the check is not cashed. In effect the dispute just goes on. Anyone who writes a check can stop payment on it by notifying his/her bank to do so, which is what is often done with outstanding checks that have not been cashed.

      Delete
  45. It's always been the law that if you and I have an existing contract, either one of us can propose a modification.
    Debt settlement lawyers in Massachusetts

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  46. Great Article! I had a quick question I was hoping you could help me with? I have a reimbursement check issued to me from my university because of an agreement with the department of education and my school. The check however says "legal settlement". I informed the department of education about the U.C.C and I got a letter from the school indicating it is a reimbursement check and they use the term "legal settlement" for their accounting purposes. If I cash the check, does this mean I am accepting full payment with no legal right to sue them in the future for further damages?

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  47. I can't give specific legal advise, but a payment in full check only settles the dispute if the sender of the check made it clear that is what is intended.

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  48. Douglas, I reside in Nevada and have a dispute over how they handled a dispute of mine w a merchant. They cashed the PIF check and 100 days later I sent them certified mail a letter explain UCC provisions and a copy of the check. They replied saying they would not honor my request. SO, how do I get this enforced? Or who enforces this and how do I raise hell?? Bobby Rmorcom33@gmail.com

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  49. I can't give specific legal advice. Any time a payee cashes the check tendered in good faith in a bona fide dispute and clearly marked as PIF, the debt is paid. If the payee then tries to collect the debt in some way, he/she can't. The same as if it had been paid in full in cash.

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  50. Douglas, I'm not asking specifically sir. I'm asking, in general, if CapitalOne continues this way, who regulates this or enforces the UCC 3-311?

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  51. UCC 3-311 is self-enforcing. If a creditor tries to collect a discharged debt the answer is "go away." The debt has been paid and the creditor has no legal remedy.

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  52. What about the reverse? I have my security deposit returned with what appears to be a PIF letter. Yes, there is a bona fide dispute (renegotiated terms and subsequent broken promises by LL during lease term), but b/c I'm the creditor (former residential tenant), I can only speculate as to the good faith of my former landlord. (I paid my rent on time each month and - after correspondence and unfulfilled promises by LL, I chose not to renew the lease.) Does PIF work with lease contracts or does another statute supersede UCC 3-311?

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  53. I cannot give specific legal advise. Any person who receives a PIF check on which he/she is the payee and who cashes it has settled the dispute unless he/she can win a lawsuit and convince the court that the other side was not in good faith and there was no bona fide dispute. The only safe thing to do if there is a dispute and a the payee on the check receives a PIF check is to send it back. It's the same thing as if they handed you cash and said, "This settles the dispute" and you kept it. Section 3-311 is applicable to all checks, no matter what the underlying dispute is about.

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  54. Hi Doug -
    Great article! And it's so gracious of you to answer questions for people 3+ years after you wrote it.

    I'm a CPA and I remembered this tactic from my business law classes so when I wanted to execute it, I did a little searching and found your great article. I've since executed it and now have a couple follow-up question for you.

    Some background...
    We run a family owned restaurant in California. We bought a new $14,000 piece of equipment and needed to have it installed. It was supposed to be a really simple job - connect the water and gas lines and test to make sure it works. We used the manufacturer's recommended installer - an international company called Ecolab.

    They performed a site visit and estimated it was a one day job they could do for $1,150. Well, they made 5 separate visits over the course of a month and ended up billing for $4,150. First we suggested there must be an error and asked to have the bill adjusted - they simply said no. Then we began the process of trying to get information about what caused the unexpected charges. We've been at it for several weeks now and we've not received any substantive answers. So now, I decided to pursue the Payment in Full check approach.

    Our approach...
    We sent a check to Ecolab's remittance address for roughly $1,100 which was the amount the manufacturer told us was reasonable (they seem to be on our side).

    We wrote Payment in Full for invoice #XXXXXXX on the back of the check along with an accompanying letter that said, "Please accept this check as payment in full for invoice #XXXXXXX that was previously disputed. (See Ecolab case #XXXXXXX)".

    Additionally, we sent the account manager:
    a) a carbon copy of the letter that accompanied the check
    b) a more lengthy letter indicating that despite the fact our questions had not been answered, we thought it best to submit this payment as payment in full.

    Ecolab's response...
    The account manager opened her response by saying, "This is not an acceptable payment and should payment in full not be made, we will be forced to pursue further action"... and closed her response by saying "Again, please know Ecolab expects payment in full." (There was more but these are the critical statements for my questions below.)

    Our questions...
    1) Did we need to send the Account Manager the detailed letter or does just sending the check to the remittance address with a scant note suffice?

    2) If they the Accounts Receivable organization cashes the check Ecolab doesn't return the funds for 90 days then does it matter that the Account Manager said the payment was unacceptable?

    3) If the company doesn't return the funds but the Account Manager - or the company's legal department - keeps asking for additional payment - are we obligated to respond. And what would be the effect of not responding for 90 days? Once we hit the 90 day mark - assuming they hadn't returned the money - would we have grounds to tell them they had effectively accepted our accord?

    Thanks again for being so gracious as to answer everyone's questions!
    P.S. I've already found my way to a number of your other article and find them both funny and informative. Next I'll look for one of your albums. I hope that new heart is serving you well!

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  55. I can't give specific legal advise without getting myself into trouble. I can only repeat what the blog post says: it must be clear the check is tendered as PIF, in a good faith dispute, and if so, when it's cashed and the money not returned within 90 days, the dispute is settled as far as the law is concerned. Scratching off the PIF language and cashing it under protest does not avoid the settlement of the dispute. There is a legal maxim that says "the law favors a compromise." Cashing a PIF check without meaning to settle the dispute is legally stupid. I always advise payees getting such a check to send it back and thus keep the dispute alive.

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  56. What if my Home Appliance Warranty company's contract language is, in my opinion, written deceptively and they're forcing me to accept a cash payment in lieu of covering all costs associated with replacing an a/c evaporator coil which has a leak but is obsolete because it uses the old R22 freon and must be replaced with a newer coil that is bigger. They're denying all costs associated with connecting the new with the old (about $2,000) by referring me to a limits of liability exclusion item in the contract. That item says they're not required to match size and dimension on replacement of equipment. I've been going round and round saying I interpret that to mean they will not replace a double door brown fridge with the exact same thing and that it doesn't pertain to a/c parts. The claims manager went silent with me on email and all at once I received a letter forcing me to accept a cash payment of $623, and two weeks later a check for only $600 arrived with a statement on the back that says endorsement constitutes full release to further repairs to my a/c coil. However, the accompanying letter says acceptance of the check releases them for repairing any of my a/c unit components in the future unless I buy a whole new system and send them proof of purchase. I was going to cash the check with a statement "with reservation or prejudice" or "in dispute" and then send a deceptive practice complaint to the Texas Attorney General. Do you think I'm wasting my time sending this to the Attorney General? Do these type of insurance companies get to use ambiguous contract language to get out of paying for expensive costs related to replacements or repairs?

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  57. I cannot give specific legal advice, but only repeat what I say in the blog post: cashing the check ends the dispute. There is no way to cash it and keep the dispute going.

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  58. What is the difference been accord and satisfaction vs. lack of consideration? A debtor owes $35k debt which is in dispute for about $24k. The debtor tenders a check in the amount of about $13k marked on the front, "Payment in Full, Accord and Satisfaction of Account # XXXX-XXX", and on the back language that states, "By negotiation this instrument, the payee agrees to be bound by the terms and conditions in the accompany correspondence.". The accompanying correspondence details the nature of the check and provides the creditor an opportunity to either accept or reject the check as a payment in full, accord and satisfaction. Despite the restrictive nature of the language contained on the face and back of the check and included in more detail in the accompany correspondence, the creditor cashes the check, and a year later attempts to collect on the full amount of the debt, including the amount of the face of the check. How does accord and satisfaction apply when the creditor claims a lack of consideration, despite retaining the benefit of the check?

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  59. I can't give specific legal advice. If the check was tendered in good faith and there was a bona fide dispute (also meaning that the check is a reasonable amount) and the creditor cashes it, the dispute is over. The law favors a settlement, and the payee can't cash the check free of the condition (settlement) under which it was tendered. The consideration is the settlement of the dispute.

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  60. Mr. Whaley,
    I am having troubles. Back in July, I found your article and applied your advice in my situation. I thought I had resolved the matter, but I recently discovered that my efforts to resolve the debt to the creditor isn't working out. I sent. In late July, I sent a "paid in full to creditor" letter and a check marked PIF on the back. The creditor cash the check about 7 days later. There was no further contact from the creditor for almost 5 months, well passed the 90 days for them to reject my settlement payment. A few weeks ago, I received a call from a collection agency. I explained that I had paid the debt and provided them proof. Now, they have sent me a letter and have called me to collect on a debt I had paid. When I spoke to another collection agent, she told me that the creditor did not agree to my settlement, but yet they cashed the check. In my letter the following statement says, "Acceptance of this final payment is proof that you agree the account is settled." The collection agency is attempting to collect on a paid debt and threatening to report the debt to the credit bureaus. I have already reported both the creditor and the collection agency to the FTC and the Texas State Attorney General office. I would like to know if I have any other course of action in the meantime.

    ReplyDelete
    Replies
    1. Carolyn, to put an end to the collection agency, write them a certified letter stating that you do not owe the amount claimed because the debt was paid in full, by accord and satisfaction, and that you demand that they cease and desist further contact with. You can also sue them and allege violation of the Fair Debt Collection Act because they are attempting to collect a debt that they can not legally collect. Do not re-affirm the debt by agreeing to pay them anything because if you do, it starts a new agreement. Your PIF check ended the matter. You are in control: they are not. There are plenty consumer lawyers in Texas. You can find them by going to: http://www.consumeradvocates.org/find-attorney

      Most attorneys will take these cases on a contingency basis meaning you pay nothing unless you recover...Good luck...

      Delete
  61. If a debt is not owed a creditor has no legal right to collect it. The Fair Debt Collection Practices Act (a federal statute) permits any consumer to inform the creditor in writing to stop collecting the debt and this then requires the creditor to stop contacting the debtor. The creditor can try a law suit, and can report the debt to the credit reporting agencies. The Fair Credit Reporting Act (another federal statute) permits the consumer to demand the credit agency investigate and if the debt is not owed take off the phony report (or pay damages to the consumer). Anyone falsely reporting a debt is owed is guilty of defamation, an actionable tort providing for punitive damages if the lawsuit is successful. Both federal statutes mentioned above provide for attorneys fees, actual damages, and punitive damages. These statutes can be pulled up online, and their sections cited in communications with the other party.

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  62. Mr. Whaley,
    Thank you for this informative post. I am in a situation quite similar to the above poster's, where I sent a hospital a check marked paid in full with a letter, they cashed it, continued to bill me and are now sending it to collections. Is there any proactive action I can take to end this? I would rather not wait for the collection calls or an attempt at a judgment against me to come. I had a lawyer send them a letter, but it didn't help. What can one do in such a situation?
    Thank you!

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  63. When people don't follow the law because they are ignorant, the best thing to do is get their attention through some non-legal channel. Call the hospital billing department and ask for the name of the manager, explaining you want to get it right when you report the hospital to the local TV news show that helps consumers when they are being railroaded by businesses and to the state Attorney General Consumer Division. Leave your phone number so he/she can call you back before you make the reports, and then if you get a call, explain that the bill is settled. Cite to my blog and the Uniform Commercial Code, which is the law in all states. If the hospital doesn't give up, make the reports. See my answer to the last Comment about your rights in the event of a lawsuit, and how to stop any harassment.

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  64. Hi, New Mexico here. My husband had a judgment placed against him in 2006, for a credit card debt. Judgments are 14 years in NM with no renewal. We have tried to work with them in the past even offering RE to pay this, but no luck. I would like to try your approach in this matter as I am on SSA, my husband is disabled and we would like to take care of this. We have some savings that we would be able to pay towards this $7k and would like to know if you think this would work. Any advice, legal or not would be appreciated, even hiring you if you think you can take care of this for us.
    Regards,
    Mary Lou

    ReplyDelete
  65. New Mexico again. I forgot to ask if the cancelled check meant that they had to forward the Release of Lien, or is the cc enough proof to get it yourself? At our age I'm not sure we will make it to 2020, when the judgment comes off, but want to leave our estate clear to the kids when it comes around.
    Regards

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  66. I can't give specific legal advice and am not authorized to practice in New Mexico. You need to get a NM lawyer. As I saw in the above post a PILF check does not work unless the amount of the debt is in dispute. Sending less than what you know is really owed and marking it PIFL will not discharge any of the remainder of the debt because there is no "good faith dispute."

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  67. We followed the procedure to the letter but we made one small error. I'd love to get your take on the implications of that mistake.

    We were billed $5,000 for what we believe should have been roughly $2,000 of work per the original estimate and time spent on-site. We sent a check for $2,000 and an accompanying letter to the A/R department that said the enclosed check for $2,400 was for payment-in-full for the disputed invoice.

    Do you see the error? We sent a check for $2,000 but the letter said $2,400? That said, we sent the account manager an email and a letter that correctly stated we'd made payment of $2,000 as payment in full. The account manager wrote back that this was unacceptable but the company still cashed the check.

    Do you think that the belt and suspenders approach of notifying multiple parties puts us in the clear?

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  68. I can't give specific legal advice, but it's always a bad idea for the payee of a PIF check to cash it and argue that the whole debt is still due. Now you're into an argument as to how much was settled and whether the payee was deceived by an obvious mistake.

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  69. We sent the check and letter to the vendor at the address specified on their invoice (which looked like a corporate address in the company's name).

    They cashed the check and didn't return the payment within 90 days.

    Now they're saying the accord and satisfaction doesn't count because their payments are received at a lockbox account at their bank and not reviewed by their employees.

    Have you seen this situation before? Is that a valid argument for why they could cash the check, keep the money and still be requiring additional payment?

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  70. I can't give specific legal advice, but if a check is sent to the address specified by the creditor and then cashed, their own internal problems with reading and understanding their mail shouldn't relieve them of their legal duties under the law. That's like saying "my own business practices are too legally sloppy to hold me responsible for my own actions."

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  71. My student loans are in default. I was contacted by the collection agency to settle the debt. I refused the settlement amount. But that shows a willingness on their part to negotiate the amount of the debt.

    So if I were to send them a settlement check for an amount and put Paid in Full conspicuously on the check, and they cash it, didn't return the money for 90 days, that would settle the debt?

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  72. I can't give specific legal advise. The question is whether there is a dispute as to the amount owed. If so a PIFC tendered in good faith and cashed without a refund within 90 days does satisfy the debt if clearly so marked.

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  73. Hello Douglas; very interesting post! Can I email you a question please? Thank you.
    -Emre

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  74. Yes. My email address is dglswhaley@aol.com. But I cannot give specific legal advice, only repeating what the law states as to PIFC issues in general.

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  75. Hi Douglas:
    I too have a question. I was involved in a divorce proceeding after many years of marriage and 6 children. During the Court case I was ordered to pay 1/3 fee to a Pension evaluation company and my husband was to pay the 2/3rds fee since he took out a major portion of our family IRA. I did pay the fee and my former spouse did not. Our case was settled without the evaluation taking place. I asked the company for a refund of the amount. As a side note their receipt states: NO work will be performed until both parties pay, and also was told if we settle before this happens it will be refunded. It was settled and I asked now for 2 months for a refund of an electronic payment. THey will only refund the amount minus $100 stating this was for administrative work. I called and advised the statement on the receipt and the verbal statement. The answer was that a refund does not mean the entire amount. He made several calls to the opposing side , who never answered or made payment and I am now being charged for this. I know he is sending a check and not a refund on the credit card for the purpose you have listed above. What recourse do I have to hopefully get the full amount due?

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  76. I'm sorry, but I'm not authorized to practice in your jurisdiction and can't advise you on a specific case. You need to talk to a local lawyer or Legal Aid. Good luck with this.

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  77. Hi Douglas, thanks for this great blog post. i've done a quick scroll of the comments section and do not believe this was asked yet. I'm in dispute with my former employer over how much they owe me. they sent me (what i consider to be 1/2 of what i'm owed) there is no verbiage on the check making any note of PAYMENT IN FULL. just a clean and simple check. I'm in the process of finding a contract lawyer in my area, but in the meantime, can i cash the check and write something to the effect: my endorsing this check does not constitute payment in full" ? many thanks

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  78. I can't give you legal advice, just state the rules of law. Before a PIFC check works its magic to settle the dispute it has to be conspicuously marked as payment in full.

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  79. If someone was sued and the court stated that person has to pay $10,000 to the person who sued them, if they send $2,500 explaining that's all they can pay but cannot afford the $10,000 and the person cashes the check that is written with PIF on it, does that satisfy the judgement? The person who was awarded the judgement cashed it so doesn't this same law apply?

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  80. I can't comment on specific cases. However, as the above post states, no one can just pay whatever they like and use a PIFC to get rid of the rest. There has to be a good faith dispute about what is owed before the PIC works its magic.

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  81. Dear Douglas,

    I wrote a threat letter for SIV program but I am not sure is it written professionally or not, may send it to you for a review and comment please.

    Regards

    Edris Sadeqy
    Email: adris_sadeqy@yahoo.com

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  82. Sorry, but I cannot give legal advice in a state where I am note admitted to practice. Do look at my blog post on how to write a legal threat letter in Related Posts above.

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  83. Is it legal to put the PIFC statement on the back of the check just below the payee signature line?

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  84. You can put it anywhere that the payee will see it, as the above post states. Also it is a good idea to use a cover letter explaining the check is tendered as payment in full of the disputed debt and that cashing it will settle the debt.

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  85. Though I won't identify myself, you are correct about the process of accord and satisfaction using a check. It has been upheld in the U.S. Bankruptcy Court for the Western District of Missouri as to disputed debts for which a debtor presented a putative creditor a check as full satisfaction of the alleged debt. When the creditor later filed a proof of claim in the subsequent bankruptcy case, the putative creditor was not only told by the Judge to take a hike, but to pay the costs of the hearing. Likewise in state court, the same has been held true. Many thousands of dollars of claims have been legally eliminated with the use of an accord and satisfaction (PIFC) check. What many may not fully appreciate is how many of their creditors are the subject of bona fide class action litigation (for example, due to violating the Telephone Consumer Protection Act in calling a consumer's cellphone to dun them for the debt), in which the debtor fits all the criteria to be a member of the class. This is both a bona fide dispute, and as the creditor is fully willing to settle (hence the many class action settlements), you may in good faith reject the class action settlement (in writing to both the creditor and the court) and use a PIFC/accord and satisfaction check to eliminate the original underlying debt. Once again, this has been upheld here.

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  86. In a landlord/tenant situation, is a money order received from a tenant with "Rent (final)" on the memo line considered PIFC here in the State of Ohio? The tenant is actually $140 short on the March rent. We've terminated the tenant's month to month rental agreement effective 3/31 and have not been advised either in writing or verbally by the tenant that there is a dispute over the amount of rent owed. We always provide a receipt to the tenant and the amount due was clearly stated on the last receipt we provided. We are concerned cashing the money order will be considered a "satisfaction" of the tenant's March rent obligation.

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  87. I can't give specific legal advise. As the blog says, however, the statute requires the check to be sent as "full satisfaction" of the claim so the recipient will know that it is meant to end the dispute. There must also be a bona fide dispute as to the amount owed. I hope this helps.

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  88. mr. Whaley, if a check is endorsed in the back but not deposited and sent back to checkwriter, is that still considered a binding contract,if check says payment in full...and money is not collected yet as check was not processed....

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  89. If the check is returned, even though indorsed,no "payment" has occurred. Payment would occur when the check is paid by the bank on which it is drawn. As the above post says the only way the recipient of a PIFC can avoid the PIF is to send it back, and as I understand your question that is what happens in your hypothetical.

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  90. I paid off an account that was sent to a law firm. The payment has been sent to the creditor. I received a paid in full letter from the lawfirm with the original creditor information and loan amount. This letter is not sufficient for a credit rescore for a mortgage. They want the letter from the original creditor. The lawfirm confirmed they have remitted payment to the creditor. This creditor is saying it will take up to 60 days for the payment to go through their system and even thought they know they have been paid they will not send out a paid in full letter. Is there anything I can do.

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  91. I am not licensed to practice in your jurisdiction, so I can't give you specific legal advice. Good luck with this.

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  92. Hello, first let me tell you the blog post is really informative and logical. I have one question.. you described in your blog post that to return such checks.. I received a check as full and final settlement alongwith an undertaking saying 'I have received the checks and that the company does not owe anything in this regard'. It also mentioned that the undertaking to be returned back to the specified office .. Now I want to return the check .. my question is that should I just return the check and the undertaking or should I also write something on the check or file an additional application stating that i am not accepting checks or what ?

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  93. It never hurts to make it clear what is going on. Explain why you are returning it is what common sense suggests.

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  94. Alright thanks .. also if I send the check back through courier and they later deny that we just received your courier but the checks were not accompanied with that .. in this case they can assert that the checks are with me for a long time and silence is acceptance as you said .. so what should i do so they cannot deny they received the checks?

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  95. This isn't likely to come up, so I wouldn't worry about it. If you are still concerned have someone who would make a good witness watch you send the check back so if they should (improbably) deny they got it the witness could back up your story.

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  96. Does the same principle apply for electronic payments if "paid in full" is included in the memo line attached to the payment?
    Thanks!

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  97. In that case the UCC section quoted in the post would not apply. But the law in that section is based on "common law," meaning what the courts would likely decide if there were no statute. The common law reached a similar result based on the concept that "the law favors a compromise." Marking any payment clearly as "payment in full" when there is a good faith dispute might well succeed in an electronic payment, but it will take a court decision to be sure.

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  98. How do I deal with had written a check for my son and only half of the balance was paid due to other issues but made the attempt to make payments towards the balance but now being threatened by the collector to pay the balance, but my intentions are to pay off the balance without legal issues what do you suggest

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  99. The PIFC only works if your check is payment IN FULL of a good faith settlement of a debt. In cases of partial payment it has no effect at all. Sorry.

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  100. Would a good dispute be that the money owed it not real money because it was print created by the FED?

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  101. MR Whatley. Do you believe an MRI bill that was not agreed to prior to service and was more than 500% in excess of the market price and was the subject of rerouted protests and negotiations after the bill arrived, can be considered unliquidated and the proper subject of an accord and satisfaction? After all of the above I sent them a letter and check which fully stated it was an accord and satisfaction of a disputed bill and payment in full, and they cashed it.

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  102. I cannot give specific legal advice. The statute quotes in the above post mandates there be a "bona fide dispute" and that the check be sent in good faith. If those tests are met and the check is cashed the dispute is settled.

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  103. 1) If the insurance company says on the back of the check that the check releases them from liability, then if I endorse and deposit this check, am I accepting this as payment in full (I am in CA)? Since that is not the case, do I need to send back the check?

    2) If I owe a public adjustor 10 % for their negotiations, and the public adjustor insists that I endorse an AAA insurance check (which they have) over to them and says they will pay the balance to me, would you do this, or how would you handle it? It seems to me that this is not safe or reasonable. I want to pay them from the proceeds, which they will not release to me.

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  104. I cannot give specific legal advice. Endorsing a PIFC check in a good faith dispute does settle the debt, and payees not wishing to settle should return the check, as explained in the post. As to the specific fact situations you describe you need to talk to a CA lawyer about them.

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  105. I have a question and hope that you can can help.

    20 months ago we purchased a dual reclining loveseat from a furniture store that offered 24 months free financing. We signed the loan agreement and authorized the finance company to automatically withdraw the
    payments from our checking account, which they did for 19 months. In early July, we received a copy of the agreement that said it was paid in full on June 26, 2016. Now they say we owe $291.72 before 12/31/16 or they'll charge us that plus $800 in interest. Do we owe the $291.72 legally?

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  106. I have a question and hope that you can help.

    About 20 months ago, we purchased a dual loveseat from a furniture store that offered free financing for 24 months, through a finance company. We signed the agreement and allowed the finance company to automatically deduct the payment from our checking account, which they did for 19 months. In early July, we received a copy of the agreement that was marked paid in full on June 26, 2016. The company went ahead and took out another payment in July, and hasn't since. They called and say we owe $291.72 before 12/31/16 or we'll have to pay the $291.72 and $800 in interest. Do we legally owe the $291.72?

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  107. I'm sorry but I can't give specific legal advice without getting myself into trouble. You need to talk to an attorney about this.

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  108. In the state of New York could a debtor still be obligated to pay the remainder of a debt if the debtor has in writing disputed the amount owed and also sent the creditor a check for partial payment with the following stipulation on the back of the check: "Endorsement of this check acknowledges payment in full for labor, services, and/or materials supplied by Payee, and release and satisfaction of any and all claims of Payee arising out of the referenced Project, and Payee receives and collects under this instrument under the condition that THERE IS NO RESERVATION OF RIGHTS of any nature on the part of Payee."

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    1. Yes. New York has not adopted the UCC provision described in this section. Instead in that state if the payee of a PIFC cases it, the debt is settled, but if the payee adds "cashed under protest" or "all rights reserved" to the indorsement, the dispute is not settled.

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  109. I can't give specific legal advice as I'm not admitted to practice in New York. Sorry.

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  110. This comment has been removed by a blog administrator.

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  111. This comment has been removed by a blog administrator.

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  112. Mr. Whaley,

    Many thanks for sharing your knowledge and time.

    In my case, the collection agency cashed my check that was clearly marked PIF on front and back, the check was accompanied by a letter noting that payment was to be considered in full and noting the dispute, and payment was to the address the collection agency requested. The check was cashed 10 days ago, and now the collection agency is attempting to continue collection on the account. Do I need to respond to them? If I do not respond and attempt to let the 90 day reimbursment window expire, is there any precedent for a court deciding that I owe the original amount and voiding the accord and satisfaction that has been accepted? I am in Ohio (and fully realize that you cannot provide direct legal advice).

    Thanks,

    JP

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  113. If there was a good faith dispute as to the amount owed the PIFC, on being cashed, settles the issue. If collection persists the collector is wrong in trying to collect a debt that is no longer owed, and on being told of this should cease collection. The Fair Debt Collection Practices Act, a federal statute protecting consumers from invalid collection activity, should be useful here. Google that statute and look it over. Good luck.

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  114. Mr. Whaley: My brother divorced his wife years ago; however, in 2012, he appointed her as the executrix of his estate, at the request of his adult daughter. He subsequently died, and my ex SIL was going to cremate him, but I volunteered to pay funeral/burial expenses and erect a stone for him. She and I do not talk now, but in her role as executrix, she sent me a check she labeled "burial expense," although her dollar amount is way low. I tried to return the check because I want to be the one who paid for everything, but she refused to sign and accept it. Do I have a further duty regarding what you called a "duty to speak" and "silence is acceptance?" I wish to clearly establish that I rejected her efforts to have the estate pay these expenses.

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  115. Sorry, but I can't give specific legal advice since I'm not licensed to practice in your jurisdiction. Good luck with this.

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  116. Mr. Whaley,
    Great stuff. Thanks. The COUNTY is demanding $5000.00 for alleged taxes. I have filed demurrers and affidavits for years. They never respond. This is simple terrorism. I plan to make an Offer of an Accord and attach it to the check. On the back of the check, I will put, "This instrument tendered in full satisfaction of claim 504218-17-1150 after BROWARD complies with the terms of the attached Offer of an Accord." I am simply trying to force them to submit evidence of a legal nexus before they cash the check. If they cash the check w/o responding to the terms of the Offer (one page) then there is full satisfaction of the alleged tax due (and they can't sell my home) but now, they will be setting themselves up for theft, conversion and failure to negotiate in good faith. Argh. Sound Logical ?

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  117. or to put my question more simply ... what language would you suggest to attach a one page document to a check? Said document containing actions that must be taken before the check is technically, "Tendered" ?

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  118. Before a PILF check will work its magic there has to be a bona fide dispute and a good faith attempt to settle it. You can't just get rid of an amount you actually owe by using this section. That won't work. If you have such a good faith dispute as to the amount owed, then the statute does apply. Just make is clear in the accompanying letter that cashing the check will work a settlement of the dispute. Cite to the statute so they go read it: Uniform Commercial Code section 3-311. Keep records. Put "Payment in Full" on the back of the check where it must be indorsed. That's all the advise that I gave in the blog post and that I repeat here. I cannot give you specific legal advice.

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  119. Douglas,
    I have disputed the matter for years, and filed an untold number of documents, in good faith to settle and controvert their claim. Their refusal to respond to signed / notarized affidavits and even a court case, again, amounts to simple terrorism. But, alas They are the govt. I will do the best I can with the excellent info you have put forth and will let you know how it goes. If you want to see the one page doc that I plan to attach text your email to 8507926535. All for now. Thanks again.

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  120. Ok, I am going to put the following on the back of the check .... "Tendered as Payment in Full if the terms of the attached ‘Offer of an Accord’ are satisfied." This should be interestin.

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