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Q: Is the memo field on checks legally binding on the person who deposits the check ( Answered 5 out of 5 stars,   5 Comments )
Subject: Is the memo field on checks legally binding on the person who deposits the check
Category: Business and Money > Small Businesses
Asked by: darlingm-ga
List Price: $20.00
Posted: 06 Jan 2003 20:14 PST
Expires: 05 Feb 2003 20:14 PST
Question ID: 138600
I have heard from many other business people that when someone
deposits a check, that by endorsing the check, they are agreeing to
whatever is written in the memo field -- and that this is legally
binding in court.

I need an authoritative source which either confirms or denies this
belief that the memo field is binding on the person who deposits the
check.  I would much appreciate some discussion on the issue rather
than a one sentence statement saying one way or the other.

** While the information below isn't probably needed to answer the question, **
** I wanted to provide it in case it was needed.                             **

Here is my situation:

My company has an account with a Fortune 500 company.  Our account has
been legitimately billed for tens of thousands of rendered services,
accounting for a six figure per year account.  However, they have
billed us for about $3000 in services never rendered.

We have repeatedly submitted requests for credits on our account for
these services not rendered.  No one at this company disagrees that
the services were not rendered (including their database.)

The reason why we're running into red tape on this issue, while most
other accounts don't run into an issue like this, is because we have
had more than our fair share of account executives.  An account of
this size with this company is assigned an account executive -- an
account usually has the same account executive for around 4-7 years,
however in the past 2 years we have had six account executives.  With
our account executives repeatedly being either promoted and moved to
another part of the country, or fired, no one has been able to
complete the long process of issuing the credits.

Our current account executive has been around long enough to be able
to agree with all the credits, but only issued $400 in credits
(leaving $2600 un-credited) because they can only go back to invoices
within the past 6 months, not the whole 2 year period.

I have no doubt that we would prevail in court -- since the services
were not rendered, and no one at the company disputes these services
were not rendered (including their database) -- and that the only
reason why the credits have not been posted is due to a high turnover
ratio on this company's regional account executives, not due to a lack
of us asking for the credits.

On our final payment, I wrote in the memo field "Final payment in full
on account due to $3000 in outstanding credits from <their company
name>."  At the time of writing this check, I knew all the credits
were agreed upon by this company and that they were in the process of
issuing the credits.  I had no knowledge that they would only do a
partial credit.

They have cleared this check.  I am hoping that I can point out this
memo to the company, and that would close the account without them
having any further argument.  I realize this is sort of sneaky, but in
a situation with everyone at the company saying we are owed the
credits, I hope it works.  Before I tell them that the memo field was
binding, I want to have some material to back this up -- that the memo
field is binding on them.
Subject: Re: Is the memo field on checks legally binding on the person who deposits the check
Answered By: pinkfreud-ga on 06 Jan 2003 21:47 PST
Rated:5 out of 5 stars
I have found several reference sources for you to examine. Not all of
these will be applicable to your case, since laws on this matter vary
from jurisdiction to jurisdiction, but the sites I've listed give good
descriptions of the merits and pitfalls of the "paid in full" check.

Orten & Hindman, Attorneys at Law: Associations Lose Hundreds to
Thousands of Dollars on Restrictive Endorsements

Nebraska State Bar Association: When Does Negotiation of a Check
Marked "Paid in Full" Constitute an Accord and Satisfaction?

( NOTE: The two files linked above are in .pdf format. You need to
have Adobe Acrobat reader software installed on your computer in order
to view .pdf files. If you do not already have this software, a free
download is available here: )

Here is the relevant portion of the Universal Commercial Code that is
mentioned in the Nebraska Bar Association article:

Cornell Law School: Universal Commercial Code

More on the use of restrictive endorsements:

Jordan Schrader, Attorneys at Law: New Rules for Restrictive

Carreon & Associates: The Restrictive Endorsement Loop

Carreon & Associates: Using Restrictive Endorsements to Settle Old or
Past Due Debts

Santa Barbara Contractors Association: Do Not Accept "Paid In Full"
Checks Unless Payment in Full

Winston and Winston: Paid-in-Full Checks

Wickens, Herzer, Panza, Cook & Batista: "Paid in Full" Checks

Almaden Valley Lawyers: 'Payment in full' may not really be payment in

Gros & Romanick, PC: Check Marked "Paid In Full"; Is It?

Idaho Credit Union League: Accord & Satisfaction Collections, Uniform
Commercial Code

As you can see, this is not a question that has a simple, "blanket"
answer. Please check with your State Attorney General or consult a
local attorney to see whether or not this type of agreement is binding
in your state, since state laws vary. Do keep in mind that Google
Answers is not a source of authoritative legal advice; the material
above is for informational purposes only, and should not be regarded
as a substitute for the services of a legal professional.

These are only a few of the online articles dealing with this subject.
If you would like to investigate further, you may want to use Google
to find further references. These are the search terms I used which
obtained the best results:

"restrictive endorsement" + "paid in full"
"accord and satisfaction" + "paid in full"
"conditional endorsement" + "paid in full" 

I hope this helps to partially clarify a murky situation. If anything
above is unclear, or if any of the links do not function, please
request clarification before rating my answer, and I'll gladly offer
further assistance.

Best regards,
darlingm-ga rated this answer:5 out of 5 stars

Subject: Re: Is the memo field on checks legally binding on the person who deposits the check
From: tutuzdad-ga on 06 Jan 2003 20:36 PST
For what is is worth, I suspect that it is not. While the rendering or
depositing of a check may indeed become a means of establishing one's
particpation in an agreement I doubt that a court would recognize the
check itself as an adendum to an establish contractual agreement.
Moreover, the person who deposited/cashed the check may very well have
been a designee, such as a third party accountant, who would have no
knowledge or or authority to enter into a contractual agreement on
behalf of the collecting party.

The purpose of your check was merely to convey funds and it would hold
contractually binding powers no greater than if you were to write a
note on a $20 bill that said "For Deposit Only" and hand it to your
paper boy. What he does with it after that, even though services were
rendered, he may do at his discretion.

You might very well prevail in court, but I doubt that you would do it
based on this presumption of the evidence alone.

Subject: Re: Is the memo field on checks legally binding on the person who deposits the c
From: expertlaw-ga on 07 Jan 2003 05:30 PST
A couple of things to keep in mind:

* Your contract may with this company may permit it to deposit a check
marked "paid in full" without being held to the language. This is
common for contracts of credit, but less common for other types of

* The best place to put language of this nature may be on the back of
the check, above the place where the recipient will endorse the check.
Placing such language in the memo section leaves you subject to the
defense that the person or entity endorsing the check did not see the
language, and is least likely to be binding under the laws of a given
state. You will note, for example, if you have ever received a check
from a long distance carrier in relation to changing your service,
that contractual language appears on the back of the check, not in the
memo section. Please note, though that in the context of your
question, defenses would likely remain available to the recipient. For
an example of such a clause, and the reasons why it may not be
binding, see, e.g., the analysis under Oregon law from the Jordan
Schrader law firm website, previously presented by researcher
Subject: Re: Is the memo field on checks legally binding on the person who deposits the c
From: expertlaw-ga on 07 Jan 2003 05:35 PST
One more thing comes to mind. There may be a "choice of law" clause in
your contract with this company, or your check may be sent to another
state for processing. (A "choice of law" clause holds that disputes
under the contract will be resolved using the laws of a particular
jurisdiction.) Depending upon the language of such a clause, or the
location where the check was processed, the law governing the effect
of depositing a check marked "paid in full" may vary from the law of
the state where the check was issued.
Subject: Re: Is the memo field on checks legally binding on the person who deposits the check
From: ddelphi-ga on 07 Jan 2003 08:00 PST
There is an Urban Legend about the memo field of a check.  Check it
out here

I would suspect that anything written into the memo field would *not*
be legally binding, since I receive my cancelled checks from the bank
each month, and there would be nothing to stop me from entering
something into the memo field *after* the check has been cashed.

Sorry to hear about your problems getting a credit on your account. 
While in the "big picture" it may be a small amount, it is none the
less irratating.

- ddelphi
Subject: Re: Is the memo field on checks legally binding on the person who deposits the c
From: expertlaw-ga on 07 Jan 2003 09:04 PST
What would stop you there, at least after-the-fact, would be my
ability to subpoena the scanned/microfilmed copy of your check to
demonstrate that the notation was added after-the-fact.

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