PROBLEM SOLVED: “PAID IN FULL”
Problem: An owner wrote ‘paid in full’ on a check that was less than the amount actually owed. The association manager didn’t notice the discrepancy and deposited the check.
Solution: Just because the owner wrote ‘paid in full’ on the check doesn’t make it so. The controlling law in this area is found in the Uniform Commercial Code (UCC), which says that a check is deemed to have been accepted only if there is “accord and satisfaction” – a concept requiring a meeting of the minds. In this case, that means both the owner and the association must agree that the check is in fact “payment in full” for the debt or, if not, that the association is willing to accept less than the amount owed and forgive the balance. In short, both parties have to agree to the reduction.
To meet the conditions for accord and satisfaction, the UCC says:
There must be a “bona fide” dispute about the amount owed.
The check must contain a “conspicuous claim” that it was intended as “full satisfaction of the debt. That means the ‘paid in full’ notation must be written clearly (not in miniscule letters – or in invisible ink)) and must appear in a spot where it is likely to be noticed.
The recipient of the check (or an agent of the recipient) must be aware that it was intended as full satisfaction of the debt.
These conditions can’t possibly be met if a check is submitted through a lockbox and processed en masse by a computer rather than by a person who reviews each check. If you inadvertently cash a ‘paid-in-full’ check that isn’t, promptly refund that amount to the debtor with an explanation that it did not cover the amount due, and provide the owner with a current payoff amount.
Although payment-in-full disputes are rare, to avoid them, associations should adopt a policy consistent with the UCC requirements, directing owners to send communications about disputed debts, including ‘payment-in-full’ checks, to a designated individual (the manager, a board member or the association’s attorney) and/or to a specified address. This policy would make an inadequate check slipped into a lockbox unacceptable by definition.
If board members or managers have questions about a check – if they can’t read a notation or don’t understand it – they should err on the side of caution.
Contact the owner for an explanation or, if necessary, have the association’s attorney review the check before depositing it.
If you have questions, concerns or require a review of payment and/or policy, please contact Dean Lennon..