06-14-2007 02:32 PM - edited 06-14-2007 02:57 PM
Originally published: 2/23/2005
This article was submitted to Credit-to-Cash Advisor as an addendum to the January 2005 Q&A on the same topic. This information applies in particular to states such as MD, Wash. DC and VA where UCC endorsements are not valid.
Thank you, Bente Selby, Credit Manager, Printing & Graphic Communications Association.
Customers will sometimes send checks that contain a "restrictive endorsement" on the back or in the memo portion. Restrictive endorsements include language such as "in full payment of account", "full and final settlement", "final payment", or other language denoting that depositing the check will operate as a release of all claims against the customer. The exact wording of the restrictive language is not significant. However, depositing a check bearing restrictive language may result in a loss of your right to pursue the customer for any additional money.
You cannot cancel the effect of restrictive language merely by crossing it out or obliterating it. Courts in the Washington metropolitan area have also held that creditors cannot trump the customer’s restrictive language by placing "reservation of rights" language in the endorsement portion of the check, such as "under protest", "without prejudice", or "with reservation of rights."
The law may vary from state to state. You should consult an attorney if you receive a check from an out-of-state customer to determine handling of these kinds of payments.
A check bearing a warning endorsement is a time bomb. Turning down any payment, especially on an account that is severely past due, is difficult to do. However, any customer who goes to the trouble of placing a restrictive endorsement on a check probably did so for a reason. By depositing the check, it is likely that you will either have to write off the remainder of the account or expend additional legal fees litigating whether this is an "accord and satisfaction."
No check bearing restrictive language should be accepted unless: (1) It is a significant portion of the total account, or (2) the account is otherwise going to be written off.
If a decision is made not to deposit a check, it should be immediately returned to the customer. Some courts have ruled that a creditor receiving a check purporting to be payment in full must return it promptly or risk having a presumption arise that the creditor’s retention of the check is in satisfaction of the entire obligation.
The period of retention is the most significant factor in determining whether an accord and satisfaction has resulted. Therefore, if you are going to hold on to a check while negotiating further payments, make sure to put in writing that you are merely holding the check for a short period in order to attempt to negotiate an amicable resolution. Once negotiations have failed, return the check immediately. If you use a lockbox for customer payments, you should conspicuously designate in writing an office outside of the normal check-processing unit to whose attention restrictively endorsed checks must be sent. This designation could be made, for example, in bold on the bottom of every invoice.
Disclaimer: This article is not intended to be legal advice and is not a substitute for competent legal advice on the referenced subject.
Information provided by ABC-Amega Inc. Since 1929, providing first party accounts receivable collections outsourcing and third party debt collection for management of your commercial receivables portfolio."
06-14-2007 06:12 PM
06-15-2007 12:48 PM
Why do i need to consult a lawyer am my AG?
Tuscani wrote:This is an old school tactic that can be effective. The laws regarding restrictive endorsements vary greatly between each state. Always consult a lawyer or your local AG before attempting.
06-15-2007 12:49 PM
I used one with my Cable bill that went to CA.
06-15-2007 06:19 PM - edited 06-15-2007 06:25 PM
I used one with my Cable bill that went to CA.What was the outcome?
06-15-2007 06:23 PM
06-15-2007 07:02 PM
06-15-2007 09:15 PM
Noah_Bodie wrote:There has been a LOT of caselaw on RE, and it is almost never clearcut.The basic problem with RE is this. If they were a rock solid, bulletproof means of satisfying a debt, then a person could obtain a $250K mortgage, pay the first month's payment, write "Paid In Full" in the memo box, and they'd own their home free and clear.If you honestly believe that's going to happen, then I have a bridge I'd like to talk to you about.If it did happen, and it ain't gonna, the bank would simply run your check electronically. The RE would not be there.