Paid in Full

Should you cash a final check marked “paid in full” if you dispute the amount that’s owed?  

May 09, 2019

It might be tempting to cross out a “paid in full” notation and cash the check, but it’s unlikely that will solve the problem. 

You are finally at the end of that large remodeling project. The decking is done, the siding is in, and the new appliances delivered. So, you tally up those few remaining change orders and submit your last payment application. But to your surprise, you hear from the owner that she doesn’t agree with your claim for extras. You explain that the scope of the contracted work increased with some of the changes requested by the owner, but she just isn’t seeing it your way. You then receive a check in the mail for a significant portion of what you are owed, but it is less than the amount you had invoiced. The check is marked “Payment in Full” in the memo line on the front of the check and is enclosed with a letter from the homeowner disputing your claim for some of the extras. She insists that the check represents full payment for your work. You wonder if should you cash the check, and if you do, will you still be able to make a claim for the unpaid balance? Unfortunately, in many states, the answer is no.

Location of the Notation

Cashing a check with any form of full payment designation such as “payment in full” or “final payment” is generally interpreted by many courts as a complete discharge of an obligation, especially when the check is accompanied by a note explaining why it is full payment.

If the “paid in full” notation is found on the bottom of a check, more as a reference, it is less likely to be legally enforceable 

Where the “paid in full” notation is found can make a difference. When written at the bottom of the check, more as a reference, it is less likely to be legally enforceable. However, when placed on the back of the check, above the endorsement line, it becomes a more effective notice since the person receiving the check would be signing directly under the notation. Endorsing and cashing such a check is more likely to be accepted by a judge as satisfaction of the disputed sum. Of course, if the check is received with a letter explaining the owner’s belief that this is all that is rightly due, then you will really be hard pressed to argue you were not aware of her intent when you cashed it. 

So, what about just crossing out the “payment in full” notation, cashing the check, and continuing your claim for the difference? The law is not so clear on this approach. While a few courts have ruled that crossing out the words can nullify the full payment limitation, most others have held that if such a cross out is to be effective it must be agreed to by both parties.

If you and the owner can’t see eye to eye on the issue, avoid the temptation of cashing that large check, and instead return it to the client along with all your calculations and support in an attempt to resolve the dispute for the correct amount. Simply cashing the check and expecting you can argue about it later is a big mistake. 

About the Author


About the Author


Patrick Barthet, founded The Barthet Firm, an 11-lawyer construction law firm in Miami, and regularly contributes to TheLienZone.com construction law blog. pbarthet@barthet.com

Comments

Comments

Very good advice and analysis. I enjoyed reading your explanation.
James M. Parker, Architect / Attorney at Law
Enterprise, Alabama

Wow, this hits home,I’m smarter than that ! I built a pretty expensive home for a friend, actually my brother the HVAC guys good friend. At the end the condenser wasn’t set for A/C, and owner withheld a few thousand dollars. Even though my brother was his good friend. When I sent the bank back the ?? Saying I was not paid in full the owner went ballistic and left a horrible cussed filled message on my machine. Always fun to build for friends and relatives!

This is why it is so critical to get all change orders signed BEFORE performing any work outside of the original scope/contract.
Melissa Barton
J.E.P. Contracting Inc

The authors advice is good, if you already have the problem. Perhaps the plan should be to prevent the problem to begin with and therefore not need the lawyer. Yes to Melissa! Why the heck would you think the customer would pay for extra costs if they were never made aware of them and never agreed to them! Good advice might also include to always get your COs signed, and ALWAYS collect for them in full at the time of acceptance! No exceptions! If the client has to get over the emotional trauma of additional costs, let them do so by writing out that check. If not, they will fret about the extras the whole time the contractor is there and find ways to justify/rationalize why they shouldn't have to pay for them. Be proactive, take control, and protect your business from liabilities before they become liabilities!

Why not place a lien and send back the check? Seem a logical step to place a lien for the outstanding balance.

This article takes the approach the contractor is entitled to additional money "just because" the contractor supposedly did extra work. To me, being a successful remodeler is not just about swinging a hammer but also good business.

I learned a lesson early on that SIGNED change orders are a part of reality and frankly good business. Why in the world would I want to expose my business to the whim of the customer to pay or not without the signed change order. There are many technologies that make this process so easy there is no excuse.
Also, it's just good business, professional and sets a certain level of business expectation on both sides. Why anyone would present a change order at the end with a list of extras without first having this signed off is beyond me. Its simply unprofessional.

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