Tennessee Business Litigation Lawyers Blog
It happens with some frequency in Tennessee that a check is written and notated “paid in full” or “payment in full.” Sometimes, if a check is not written “paid in full,” the business which owes the debt may send an accompanying letter stating that the payment is for the full amount of the account or debt. Sometimes, when the debtor is very prudent, it so notates the check and also sends such a letter with the check.
Under Tennessee common law, as well as under a Tennessee statute, T.C.A. §47-3-311, if a person or business owed money (a creditor), cashes a check marked “paid in full” or with similar language, or cashes a check sent with a letter stating that the payment is in full satisfaction of the debt, that creditor may well be barred from collecting any additional money.
In Tennessee breach of contract cases, a party who proves an accord and satisfaction is relieved of further liability to the creditor. To prove successfully an accord and satisfaction, the debtor must prove that the amount it owed the creditor was disputed; it sent a check conspicuously marked “paid in full,” or with other language establishing that the payment was in full satisfaction of the debt, or sent the check with a letter indicating that the payment was in full satisfaction of the alleged debt; and, that the creditor cashed the check.
For an example of a breach of contract case where an accord and satisfaction defense was successful, take a look at Pendergrass v. Ingram (Tenn. Ct. App. 2016). Here are the basic facts of that case:
- Plaintiffs agreed to do certain grading and other work on Defendant’s property
- The parties orally agreed that Plaintiffs would be paid $2,500
- Plaintiffs were paid $1,000 up front
- After the Plaintiffs began working, the Plaintiffs performed additional work beyond the work to which the parties had agreed
- The parties never discussed what Plaintiffs would be paid for the additional work
- After the work was finished, the Plaintiffs sent Defendant a bill for $9,073
- Defendant let the Plaintiffs know that he did not believe he owed more than $1,500
- The Defendant then sent Plaintiffs a check for $1,500 with the notation “pd. in full”
- The Plaintiffs marked through the “pd. in full” notation on the check and cashed it
The trial court held for the Plaintiffs finding that Defendant was liable for breach of contract and had not proven an accord and satisfaction. The Court of Appeals of Tennessee reversed the trial court. It held that the fact that the Plaintiffs had marked through the notation before they cashed the check made no difference. The court stated that the Plaintiffs’ act of marking through the notation would have prevented an accord and satisfaction only if they had notified Defendant of that fact beforehand and the Defendant had agreed that he was willing to allow the Plaintiffs to cash the check and to still claim the balance owed against him.
There are several important additional points to keep in mind in cases like Pendergrass. First, under T.C.A. §47-3-311, if the creditor repays the amount paid by the debtor within 90 days, the creditor can avoid an accord and satisfaction. Second, a part of that statute, which seems to have been put in for large creditors who handle large volumes of payments, allows a creditor to designate to whom exactly any check marked “paid in full” must be directed in order to be effective.
The third and perhaps most important point to make is that the debtor’s expression that the payment is in full and final satisfaction of the debt cannot be ambiguous. In Tennessee breach of contract cases where the debtors did not make it clear that the payments were in full satisfaction of the debts, the accord and satisfaction defense has not been successful. See, R. J. Betterton Management Services, Inc. v. Whittemore (Tenn. Ct. App.1987); and Liberty Mut. Ins. Co. v. Friendship Home Health Agency, LLC (Tenn. Ct. App. 2009).
This blog is an accurate and useful summary of Tennessee law on the subject addressed, but the relevant law is more complex than can be addressed in a blog. Before you make any decision about whether or not to cash a check marked “paid in full” or to write one, be sure and obtain the opinion of an experienced lawyer.