Are Checks with “Payment In Full” In Memo Field Legally Binding? Do They Effect Mechanics Lien Rights?

construction payment checks and joint checksShort Answer:  Beware checks with “Payment in Full,” “Full and Final Settlement” or similar language written in the memo field or endorsement area. When these checks are cashed, they are very often binding, and can eliminate your rights to recover under contract or the mechanics lien laws.

Long Answer:  I was contacted recently with this exact question, and it’s not the first time. I’ve been asked this question by clients more than necessary, as it seems to be a pretty common practice for companies to write checks and designating them as  a “final settlement” whenever the parties are in a dispute of any kind.

It’s a great ploy by the paying party. The one who is owed money is obviously very interested in getting paid, and the non-payment to their company may even be causing serious cash flow problems. The paying party throws a check on their desk, and the check – while not a full payment – looks awfully tempting.

As I’ll explain in this post, however, the temptation should be resisted, unless you’re willing to take that single amount as a full settlement of your entire claim.

“Payment-in-Full” Checks Are Often Legally Binding

I’ve researched this question quite a while ago for a Wolfe Law Group client in Louisiana who had a $55,000 check on his desk with “full settlement” written on the back. In his mind, the debt was closer to $75,000. He wondered whether cashing the check would prevent him from seeking the remaining $20,000.  After conducting my research, I advised that it certainly would.

This precise scenario came up in the Louisiana case Thompson v. Stacy, 148 So.2d 834 (La. 4th Cir. 1963), and the court reasoned as follows:

Where a dispute exists between parties as to amount due, a mutual settlement and payment of the amount agreed upon is binding on both. Plaintiff contends that an agreement of compromise must be in writing. Under LSA-CC art 3071 and the jurisprudence, an agreement of compromise need not be in writing, unless it deals with an immovable. Here, there was a writing, to-wit, both the checks and the invoice were marked ‘Paid in Full’…The checks were deposited in Plaintiff’s bank account and paid without question. Hence, Defendant’s indebtedness to Plaintiff was fully liquidated.

Louisiana courts didn’t blink on this concept when faced with a more confounding situation twenty years later in Spalitta v. Hartford Fire Ins. Co., 428 So.2d 824 (La. 5th Cir. 1983). In this case, a check was issued marked “Full and Final Settlement” on its face, and was cashed with a restrictive endorsement stating “Receipt acknowledged of amount not in dispute.” Even though the party depositing the check had indicated his disagreement with the “full and final settlement” offer, the court nevertheless held that the restrictive endorsement was not effective and that the depositing of the check was an acceptance of the final settlement offer.  The court reasoned as follows:

[A]ccord and satisfaction is reached when there is a disputed claim, a tender by the debtor for less than the sum claimed, and acceptance of the tender by negotiation of the check…Unilateral action of the creditor in changing the provision denoting full payment does not change the legal import of its acceptance by the payee as an acknowledgment of payment in full…In our case, there is no question that Spalitta knew the draft was offered as full settlement. Therefore, for the reasons stated above, and only for those reasons, we find that plaintiff’s claim for additional payment must fail.

This is not a legal concept unique to Louisiana law. In a great article titled “Beware the ‘Payment-In-Full’ Check,” Jeffrey Snyder of Thoits, Love, Hershberger & McLean analyses the situation under California law, and specifically California’s construction of the Uniform Commercial Code (UCC), which is applicable nationwide. Here is his take on the situation:

The Code (Section 3311) describes this procedure as an informal method of dispute resolution carried out by the use of a negotiable instrument, typically a check. Upon receiving the check, the employer was faced with a choice. Either accept the check in full satisfaction of the claim, or return the check and sue for the full balance. But the creditor (the employer in this case) cannot have it both ways ñ cashing the check in part payment and filing a lawsuit.

Do These Checks Effect Mechanics Lien Rights?

This is actually a very interesting question, and I couldn’t find anything directly on point. The thing about mechanics lien rights is that a supplier or contractor has these rights as a matter of law, and by virtue of furnishing materials or labor to a project. By improving a particular project, the law affords these parties a right to encumber the property owner’s property.

The “payment-in-full” check issue only resolves the contractual claims between the paying party and the receiving party.  If the paying party is the property owner (i.e. such as would be the case for a prime contractor), then I think it’s clear that the receiving party would not have a lien right if they agreed to a binding settlement with the payer (as per the above).

So, for example, if a prime contractor claims it is owed $20,000, and the property owner issues a “payment-in-full” check for $15,000 that is endorsed, it’s game over. No contract rights, no lien rights.

What if, on the other hand, a subcontractor cashed a “payment-in-full” check from the prime contractor. The subcontractor is prevented from filing suit against the prime contractor for any additional payments, because it is fully settled. But, can the subcontractor file a mechanics lien and seek the remaining portion under mechanics lien laws?

It’s an interesting argument, and it may be successful under some very limited circumstances, not to mention favorable statutory language within a particular state’s lien laws. However, in all likelihood, they would be prevented from filing a mechanics lien and stuck only with the amount received from the check.

Bad Information on the Internet

In addition to doing legal research on this topic, I also did a general Google search on the question. There is a lot of bad information out there.

Take, for example, this Yahoo Answers post that ranked very high in my search (#2).  Someone asks “Is writing ‘Final Payment’ on a check legally binding?,” and gets a total of 6 answers – all of them very, very wrong.  The chosen “Best Answer” states “If such a scheme would actually work then everybody would just try to do this on their first payment. Thanks for the laugh though.”

Every other answer agreed saying the scheme “won’t work” and that “your friend [who suggested the idea] is dreaming.”

I’d like to see how this particular scenario played out for the original person posing the question, because he or she got some unfortunate advice here. While there are circumstances when the memo field will not be binding, and each state and circumstance warrants research specific to the same, the binding effect of such a memo is not far-fetched at all, and in a large number of scenarios would create a binding settlement.

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  • Jordan

    This law can vary from state-to-state. In Washington, the law is pretty much the same; wherein “paid in full/final payment” language on a check can be accord & satisfaction and binding. However, to the south, in Oregon, the law is different, and that sort of language will not be effective as final payment.

    • Scott Wolfe Jr

      Jordan, thanks for dropping in with the comment and for pointing out the rules in Washington and Oregon. I think this makes a great example of how laws can vary state-to-state, because as you and I know, there is a lot of commerce that crosses state lines between these two. Companies from OR may send checks to companies in WA, and then not only is there the issue of whether the pay in full / settlement language is binding….but now, there’s also a conflict of laws issue. Geesh!

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  • Helen

    Would the amount be considered “disputed” if the disputed amount involves additional fees that were applied on top of an amount owed? I.e. if the underlying amount is paid with a check marked paid in full, but the amount of fees assessed is not paid, do you think that be considered binding in California under 3311?

    • Scott Wolfe Jr

      Thanks for the comment Helen. You make a good point here with your question, but ultimately, I think that “paid in full” would be interpreted to include everything about the debt, including attorney fees, interests, late charges, fees, etc.

  • John

    Would this be binding in the states of NY(Payer) and Missouri (Payee)? The dispute is over late fees and interest charges that have been accumulating. The disputes have been documented in monitored phone calls by the payee since the first month. In addition, the purchase was made in NY from a merchant that uses the credit card company based in MIssouri.

    • Scott Wolfe Jr

      John – Thanks for your comment. You may have a conflict of laws issue on your hands with the diversity between the payer and payee. Unfortunately, I don’t know the answer. I recommend you post your question on, where attorneys will answer at no charge.

  • LMT

    I am interested in learning what the Florida law states on this matter. I am dealing with a collection co called Zwicker and Assoc. Would this action of final and or final payment be binding in Florida courts or will it just make matters worse? I can not afford to pay off the balance but have continued to make small monthly payments.
    Please advice

    • Scott Wolfe Jr

      Thanks for your visit and question. Unfortunately, we don’t give direct legal advice to folks on this blog. You can find an attorney or ask FL attorneys questions like this directly (for free) at Good luck.

  • Jaime

    Would this be binding in Illinois? (Both payor and payee are from Illinois)

    • Scott Wolfe Jr

      Jaime – thank you for your comment. Unfortunately, I don’t know the exact rule in Illinois.

  • Tiffany

    Does this also apply to consumers paying back debt to creditors or debt collectors?

    • Scott Wolfe Jr

      I would think so. Don’t know why the law would be different for consumers here.

  • Julie

    State of Texas…I received a statement from a physicians billing office. I called to negotiate settlement and was told that I need to send in writing a letter of concern to the doctor for this request. I sent a letter with my proposed settlement amount and a check for that amount. On the check I wrote paid in full in the memo line. I did not receive any response to my letter, but they did cash my check. I am now receiving collection calls for the balance. Would their acceptance of my check not be full settlement? This was sent to the doctor’s office and not to a payment clearinghouse.

    • Scott Wolfe Jr

      Julie, thank you for reading and for your question. You sound like you need to speak to a lawyer about your particular situation. You may want to try posting your question on

  • Joanne

    Would this be binding with the New York law and citibank? If it doesn’t bin, what will be the best way to write final payment?? Please advise.

    • Scott Wolfe Jr

      Joanne – Thank you for your comment, and reading. The answer to your question has nothing to do with the bank (i.e. citibank). The answer to your question will hinge on whether the “payment in full” memo is enough to rely intent on both parties to exchange an “offer and acceptance,” and unfortunately, most of these things boil down to a court and judge looking at all the facts and making a determination. You will want to consult with a NY attorney to get specific advice about your situation. However, if you are looking for a full and final settlement, it is better to just be forthright about it with the other party, get it in a formal writing, and not rely on something as lucid as a check memo. Both parties (payee and payor) are really just asking for it, if they rely upon or ignore the payment memo language. That is a landmine.

  • Scott Wolfe Jr

    Sjg – thank you for your comment. This is a very specific question about very specific facts. It’s a hard one to answer without knowing your situation intimately, which is why you should consult with an attorney about this question. Another option is to post your question (include a lot more detail) to attorneys over at

  • tandee

    I sent a payment by check to an agency in Nevada with “paid in full” to ensure that they did not renig on the amount that they had stated in a letter to me would be considered paid in full if paid on time. They sent it back saying they could not cash a check with a restrictive endorsement. Does this mean they don’t intend to adhere to their agreement?

    • Scott Wolfe Jr

      Tandee – this is a good question. Of course, it’s impossible to know what they intent, and accordingly, just because they refuse to sign the check with that endorsement doesn’t mean you can read intent into that action. The company, for example, may just have a policy that doesn’t allow the front lines to accept that endorsement under any circumstances. Perhaps it will be best to deal with the underlying problem instead of trying to read intent, and just ask them out-right or get them to acknowledge / agree to a final payment amount as a settlement of all accounts.

  • DB

    What if you are making monthly payment to another party for a year (court mandated) you maintain the total to date in the memo line for reference purposes. The other party deposits the checks in their account but now is trying to say payments are not complete and that i still owe over $1200. If the last check stated that the running total was 5650 out of 5900. would this person be able to say they still need to be paid more?

    • Scott Wolfe Jr

      DB, thank you for your comment here and reading. As the article indicates here, these situations very frequently hinge upon very specific factual circumstances. Your memo line is going to be pretty unique, and therefore, it may not have a black and white answer (the law, unfortunately, rarely never has such an answer).

      The short answer for you is that the memo line, if kept consistent and clear, will likely be an asset to your argument should it proceed to court. The court will certainly look to it and determine if it means anything, and if it does, the party depositing the checks with the memo field will have to convince the court that the terms of the memo should not apply. The more consistent and clear the memo, the harder that argument will be.

      You may want to consult with an attorney…but, given that the dispute is only $1200, that may not be cost effective. Good luck.