Full and Final or Foolhardy?

The following is an article reprinted with permission from the Summer 2010 edition of Viewpoint (WWR’s Governmental Collections newsletter):

By: Jennifer M. Monty, Associate

“Full and Final Payment”—these four words that appear on the bottom of a check can incite fear and questions for many creditors. Should you cash the check? If you cash the check, can you still collect any of the remaining balance? What should you do with the check? Can any bill be partially paid merely by writing “full and final payment” in the memo line? In tough economic times, more debtors are turning to creative methods to avoid payment or continued collections.

The Ohio Revised Code and Ohio case law provide answers to all questions regarding accord and satisfaction. The Code provides that full and final payment checks are only a bar to future collections when certain elements are established:

• The person tendering the full and final payment is doing so “in good faith”
 
• The amount of the claim or debt is the subject of a “bona fide dispute”

• The payment is accompanied with a written communication that fully discloses the debtor’s attempt to fully settle the claim.

Essentially, for a full and final payment to act as full satisfaction, the borrower has to meet all of the above requirements. The first step of the analysis is to determine what debt is at issue and whether there is an underlying dispute. If there is no dispute, then there can be no satisfaction merely by offering a partial payment.  If there is a dispute, it has to be a bona fide dispute.  For example, on a credit card account, a debtor may have a bona fide dispute if they have properly contested charges. Disputing whether the United States allows credit cards to loan money is not a bona fide dispute. Finally, the creditor has to be put on sufficient notice to understand that cashing the check will result in full satisfaction. Merely writing “full and final payment” on the memo line of a check may not be sufficient enough notice, as most creditors electronically process payments and never see or read the actual check.

The Ohio Supreme Court has long upheld these elements and explains its position in terms of contract law. Under the Supreme Court analysis, there is no satisfaction unless the debtor can prove:

• That the parties went through a process of offer and acceptance—an accord

• That the accord was carried out—satisfaction

• That the accord and satisfaction were supported by consideration. 

The Court has further clarified this and provided that if there is not an actual dispute between the parties, there cannot be an accord and satisfaction. The Court explained that unless both the debtor and creditor give up something, then there can be no accord and satisfaction.

What should you do when you receive a full and final payment check? First, review your notes and file to see if there is any actual dispute between the parties. Second, look to see if the check is accompanied by a letter explaining a dispute. Also, if you have a policy in place to notify your consumers that they must send dispute letters to a certain place, and the consumer does not send it to that address, the consumer’s full and final payment check will not serve as a bar to future collections. In advance (i.e. on a monthly basis) a creditor should inform the consumer that if they want to dispute a debt or tender a partial payment that it must be sent to a specific person or place (this is routinely provided on a billing statement). Then, if the dispute letter is not sent to that specific person or place, the check can be cashed. Otherwise, the check should be returned.

Jennifer M. Monty is an Associate in Litigation & Defense; Consumer Finance Litigation, Commercial Business, Real Estate Default, Commercial Real Property and Federal Court Litigation Groups. She is based in the Cleveland office. She can be reached at (216) 685-1136 or jmonty@weltman.com.

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