Cashing Checks Marked Payment in Full
Kegler Brown Construction Newsletter February 1, 1996
Ohio has a new statute governing when a "payment in full" endorsement on a check extinguishes the debt. O.R.C. §1303.40. Persons seeking to tender checks as payment in full through restrictive endorsements must now prove:
- that they tendered the check in good faith as full satisfaction of the claim;
- that the amount of the claim was unliquidated or subject to a bona fide dispute; and
- that the payor cashed the check containing a conspicuous statement to the effect that the check is tendered as full payment.
The check will not be considered payment in full if the payee:
- sent a conspicuous statement to the payor that communications concerning disputed debts are to go to a designated person and the check did not go to that person; or
- The payee repays the amount of the check within 90 days after payment (presumably when the person first realized the payment in full designation).
A check cashed with "payment in full" language can also be considered to extinguish the debt if the payor proves the payee knew that the check was tendered in full satisfaction of the claim.
The goal of the statute appears to be to permit "payment in full" endorsements if they are conspicuous and go to the right people, but to prevent sneaking payment through a person who is not knowledgeable about the dispute, or a large organization who receives mass checks.