In several civil lawsuits (not bankruptcy proceedings) in which this author represented the creditor, the debtor — usually without its attorney’s involvement — has tendered to the creditor a check, in the amount of only a portion of the debt owed, marked “payment in full,” “paid in full,” “full payment,” or the like.
In such a scenario, the creditor typically asks this author: “Can I deposit the debtor’s check and still pursue my claim against the debtor for the remainder owed to me?” Alternatively, the creditor may ask: “Can I still pursue my cause of action against the debtor for the remainder owed to me if (i) I endorse the check ‘without prejudice,’ ‘under protest,’ or the like before depositing it and (ii) I notify the debtor that, in the lawsuit, I’ll continue to seek the remainder owed?”
In New Jersey, the answer to both of these questions is “no.”
Specifically, in New Jersey, “where a check bearing a notation that is offered in full settlement of a disputed claim is offered to a creditor, who then retains the check and makes use thereof, an accord and satisfaction may be found.” In re Lifestyle 80’s Inc., 187 B.R. 156, 158 (Bankr. D.N.J.) (quoting Loizeaux Builders Supply Co. v. Ludwig, 144 N.J. Super. 556, 564, 386 A.2d 721 (N.J. Super. Ct. Law Div. 1976)). “The tender having been made upon the condition that it be accepted in full satisfaction or not at all, the creditor is deemed to have accepted the condition by depositing the check for collection.” In re Lifestyle 80’s Inc., 187 B.R. at 158 (quoting Loizeaux Builders Supply Co., 144 N.J. Super. at 564).
Similarly, in the Garden State, “the acceptance by the creditor of a check offered by the debtor in full payment of a disputed debt is an accord and satisfaction of the debt and no condition of protest or attempted reservation of rights” — such as endorsing the check ‘without prejudice,’ ‘under protest,’ or the like — can affect the legal quality of this action.” Chancellor, Inc. v. Hamilton Appliance Co., 175 N.J. Super. 345, 352, 418 A.2d 1326 (N.J. Super. Ct. Passaic County Small Claims Div. 1980); see also Loizeaux Builders Supply Co., 144 N.J. Super. at 564.
New Jersey’s rule — that a disputed claim is extinguished by the creditor’s deposit of a check tendered by the debtor and marked “paid in full” — applies whether or not the transaction from which the debt arose was a transaction in goods governed by the New Jersey Uniform Commercial Code, N.J.S.A. §§ 12A:1-101 et seq. See Chancellor, Inc., 175 N.J. Super. at 348-352.
If a purchaser owes, to your company in New Jersey, a contested debt, beware of any check tendered by the purchaser, in the amount of only part of the debt owed, marked “payment in full” or the like. By depositing the purchaser’s check, your business is extinguishing its right to sue for the remainder of the debt that the purchaser owes to your business, even if your business purports to reserve its right to seek the remainder.