Fun with "Payment in Full" Checks
If you've been in business long at all, somewhere along the line there may well have been some sort of dispute about the amount a customer owes. And if you've had any contact at all with an attorney, you have undoubtedly been told to watch out for "payment in full" situations in which you receive checks purporting to be "in full satisfaction" or containing some similar endorsement indicating that the customer intends this payment to be it.  In fact, if you're in Ohio, you have probably been admonished (and maybe even established as policy) that any check accompanied by a such a restrictive endorsement, or any cover correspondence using this language, MUST be returned to the customer.Â
Simple enough. But suppose you receive a cover letter enclosing a check for less than the amount owed which doesn't use these "magic" terms of art? What if the letter specifically states that it is not placing any restrictive endorsement on the check to you, but hastens to add something to the effect that this is all the money we believe is owed to you?
In Ohio, the answer has changed over the years.  Prior to the 1989 Ohio Supreme Court case of AFC Interiors v. DiCello, 46 Ohio St.3d 1, 544 N.E.2d 869 (1989), creditors faced the dilemma of having to choose between accepting the lesser amount offered and writing off the balance or rejecting the partial payment being offered in favor of pursuing the debtor for the entire amount due. If a check offered "in full payment" or "in full satisfaction" was cashed by the creditor, the remaining amount owed simply could not be recovered.
From 1989 through 1994, there followed a glorious period for creditors in which they could rely upon Ohio Rev. Code 1301.13 to take the partial payment AND still pursue the debtor for the balance if they did so while make a "reservation of rights". Thus if the creditor endorsed the check by writing words such as "under protest" or "without prejudice" just above their endorsement before cashing the check, the creditor had managed to have its cake and eat it too. In this way, creditors accepted the partial payment, applied it against the balance owing and then were permittred to continue further collection efforts. Â
All this changed in 1994 when Ohio adopted the revised version of Uniform Commercial Code Articles 3 and 4. As a result of the change in the law, making a reservation of rights was no longer possible. In addition, if the partical payment was accompanied by correspondence indicating that the payment was ended to satisfy the obligation in full. cashing the check meant that the creditor could not pursue the trmaining ballance. New Ohio Rev. Code 1303.40 (A), which remains in effect today, provided that
the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.
 This had the effect of returning Ohio to the pre-1989 common law era.
So, today, do not be fooled if receiving a partial payment check. In addition to the obvious situation in which it is clearly marked as "payment in full", you must also pay attention to the correspondence accompanying the payment. If that correspondence indicates that the sender does not intend to pay the balance, then you are cashing the check at your own risk, even if there is no restrictive endorsement placed on the check. Â
