Does cashing a check marked “paid in full” mean I can’t collect the balance still owed?

It is a common myth that if someone writes “paid in full” on the memo line of a check, and the check is cashed, then the person cashing it has actually agreed to accept that amount as payment in full and is barred from attempting to collect any further balance due. Fortunately for creditors, businesses, merchants and service people—though unfortunately for debtors—this is not the case at all.

One person may not unilaterally alter a contract, such as a contract for the provision of goods or services or a promissory note. This includes oral, or spoken, agreements as well as written ones. Instead, changing the terms, such as to reduce the amount owed, requires the agreement of both parties.

The person writing the check may attempt to argue that by writing “paid in full,” he offered to settle the debt for that amount, and that by cashing the check the other party accepted the offer, forming a new agreement to accept that amount as full payment.

However, a contract requires consideration; one party must pay or provide something to the other party. Furthermore, the consideration must be something that the party is not already obligated to pay or provide.

In this case, person A owes money to person B. If person A offers person B some portion of that, that money will not constitute consideration since A had to pay that much—and more!—any way.

The preexisting obligation negates the check’s value as consideration, and without consideration, no agreement or contract would be formed. Without a new agreement or contract being formed, the first person, person A, cannot unilaterally (on his own) alter the terms of the existing obligation.

When you are owed money by a person, you can cash a check for less than the full amount due to you without writing off the balance or accepting that check as payment in full. You’d have to credit it against the balance owed, but that’s the only obligation.

Of course, you can decided to accept less than full payment, if you’re in a charitable mood, or think that’s the most you’re going to get, or think that the relationship with the client is sufficiently important. But that must be your choice—it can’t be unilaterally forced on you.

Case Studies: Cashing a Check Marked “Paid in Full” and Collecting the Balance Owed

Case Study 1: John’s Plumbing Services

John, a professional plumber, provided plumbing services to a client and invoiced them for $2,500 based on the agreed-upon work. However, upon receiving the invoice, the client disputed the amount, claiming that the services rendered were not worth the full price. The client mailed a check marked “paid in full” for $1,500, indicating that they believed this amount settled the entire debt. John, in need of funds, decided to cash the check, but he still believed that the client owed him $1,000 for the work he had completed.

After cashing the check, John communicated with the client to address the remaining balance. He explained that by cashing the check, he did not waive his right to collect the outstanding $1,000. John provided a detailed breakdown of the services performed and their associated costs to support his claim.

The client, upon understanding John’s perspective and reviewing the breakdown, acknowledged that they still owed him the remaining balance. They agreed to pay the outstanding $1,000, and both parties reached a resolution.

Case Study 2: Smith Electronics

Smith Electronics sold a computer system to a customer for $3,000. The customer later sent a check marked “paid in full” for $2,000, believing it would settle the debt entirely. Despite the check being cashed, Smith Electronics had the right to collect the remaining balance of $1,000. This situation illustrates that cashing a check marked “paid in full” does not automatically waive the right to pursue the outstanding balance.

Upon receiving the check for $2,000, Smith Electronics carefully assessed their options. They recognized that cashing the check did not indicate acceptance of the lesser amount as full payment. Instead, it could be viewed as a decision to use the funds while still asserting the claim to the remaining balance.

Smith Electronics took a proactive approach by contacting the customer to address the situation. They explained that the check received did not absolve the customer from their payment obligation for the full amount of $3,000. Smith Electronics provided a breakdown of the original invoice, outlining the product’s cost and the remaining balance.

The customer understood the situation and acknowledged their responsibility to pay the outstanding $1,000. They realized that their check marked “paid in full” did not release them from the full payment obligation. Both parties reached an agreement, and the customer agreed to settle the remaining balance. Smith Electronics successfully collected the entire amount owed, even after cashing the check.

Case Study 3: Mary’s Design Studio

Mary, the owner of a graphic design studio, found herself in a situation where a client facing financial difficulties sent a check marked “paid in full” for $3,000, despite owing her $5,000 for design services rendered. Rather than immediately demanding the full amount, Mary chose to approach the situation with empathy and flexibility. She initiated a conversation with the client, acknowledging their financial challenges and expressing a willingness to find a mutually beneficial resolution.

During their discussion, Mary proposed accepting the $3,000 as a partial payment and credited it towards the remaining balance of $2,000. This decision demonstrated her understanding of the client’s constraints while ensuring that progress was made towards settling the debt. By updating the client’s account to reflect the $3,000 payment as a credit towards the outstanding balance, Mary provided a tangible acknowledgment of their commitment.

The client, appreciative of Mary’s accommodating approach, responded positively to the revised payment plan. Both parties maintained a professional relationship as they agreed on a timeline for the client to fulfill the remaining $2,000 balance. This arrangement not only addressed the client’s financial constraints but also ensured that Mary would ultimately receive the full amount owed for her design services.