PAYMENT OF LESS THAN THE FULL FEE: SHOULD YOU CASH THE CHECK?
Yes, but ve-r-r-r-r-r-r-y carefully.
A check is really not a contract. It is a negotiable instrument. A substitute for cash. Since it is therefore a form of money, an extremely complex system of state and federal laws exist to ensure that checks will be readily transferred without any restrictions or conditions. This makes it difficult to convince a court that the check was cashed as only partial payment unless you can specifically show that was the client’s intent.
The four most common situations are:
1. The client sends a check referencing a cover letter promising to pay the balance. (“Partial payment pursuant to letter dated _______.”)
2. The client sends a check without reference to a cover letter promising to pay the balance.
3. The client sends a check with “Payment in full for placement of ____________.” or similar words written on it.
4. The client sends a check with no words written on it.
In the first two situations, the check is usually for one-third, and the letter promises payment of another third 60 days after the start date, with the final third due after 90 days. This is known as a 90-day do-it-yourself pro-rata guarantee. It makes no difference to the client whether you agree. They know that it would take you much longer than 90 days to collect. If that doesn’t stop you, the legal fees and unpredictability of litigation will.
If the client doesn’t refer to the letter on the face or reverse of the check, how will you prove you didn’t accept it as payment in full? And if you write the words on the check, how will you prove the client didn’t intend for it to be payment in full? The burden of proof is on you. What burden? A “preponderance of the evidence.”
The client will argue that there was a dispute over the fee, but that an accord and satisfaction occurred. The accord was your agreement to accept less than the full fee, and the satisfaction was your cashing of the check. Accord and satisfaction is the way courts bind parties to a settlement. They simply refuse to enforce their rights in the original agreement.
Oh sure, you can introduce a letter as evidence of the agreement, but an ambiguity exists. If the letter is dated before the check (a common device used by employers), how can you prove a later oral accord and satisfaction didn’t occur? And even if the dates are the same but the candidate falls off, the ambiguity will probably be resolved in favor of the client. The judge or jury thinks, “The amount already paid to the recruiter exceeds the amount paid to the candidate.” In any case, the burden of proof is on you.
So the answer is to insist that the client reference the letter on the face or reverse of the check. At least that way, you can show the client broke their own rules.
The second two situations of cashing the “payment in full” check can lock you into an accord and satisfaction even more easily. Crossing out the words on the check usually won’t help unless you can prove you gave the client the opportunity to stop payment. You can see why: The court won’t let you have it both ways. Either the check is partial payment or it’s payment in full. Your acceptance of the check is an implied accord and cashing it is a satisfaction.
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As stated in Principles of Business Law by Robert Corley and William Robert:
“The creditor cannot change the language of the check, deposit it, or cash it and still contend that there was no accord and satisfaction … If the creditor cashes the check, this act constitutes the satisfaction of the accord . . .”
Of course, if there are no words on the check, you’re back trying to prove partial payment against the argument of payment in full. As in the second situation, insertion of “Payment on account for placement of __________” is only effective if you can prove the client agreed.
Guarantee provisions make the transaction still more ambiguous. Even if your fee schedule requires payment in full within a specified period (e.g., 10 days from the date of the invoice), acceptance of the check can be deemed “partial” accord and satisfaction as to payment only, and still leave you on the hook for a replacement or refund.
Even if you can’t remember all these rules, acceptance of less than the full fee should be done ve-r-r-r-y carefully. Be sure you can prove that the client agreed it was only partial payment and agreed to pay the balance before you cashed the check.
Now, if the check just clears . . .
Jeffrey G. Allen, J.D., CPC may be reached at: Law Offices of Jeffrey G. Allen, 10401Venice Blvd., Suite 106, Los Angeles, CA 90034 – (310) 559-6000 – email@example.com