May My Business Deposit The Check And Still
Sue The Debtor For The Remainder? Can My Business In New Jersey Still Sue If It
Endorses The Check "Without Prejudice"?
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.
If your company wants to bring, or needs a lawyer to
defend it in, business litigation and you are located in the New York
City area, call Attorney David S. Rich at (212) 209-3972.
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