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.