UCC question - if a check is marked paid in full which of the following is true

Wait, so if I owe someone $1000 and send them a $500 check marked 'paid in full' they can't come after me for the other $500 if they cash it?

Not exactly that simple. The debt has to be disputed in good faith, and the debtor has to reasonably believe the amount on the check is all that's owed. You can't just write 'paid in full' on any partial payment and make it stick.

This is why my company has a policy about partial payments. We either reject them entirely or deposit them with explicit written notice that we're not accepting them as full satisfaction.

Ok that makes more sense. So it's not just any old check with 'paid in full' written on it. There has to be an actual dispute about how much is owed.

Exactly! And courts look at whether the dispute was reasonable. You can't just claim you dispute a clearly established debt amount and expect 3-311 to apply.

What did you end up doing? Did you reject the check or find another way to handle it?

We deposited it but sent a written notice within 90 days stating we weren't accepting it as full satisfaction. UCC 3-311 allows that if you give proper notice.

Smart move. The 90-day notice provision is in subsection (c) if I remember right. Really important safety valve for creditors who accidentally cash these checks.

Article 3 is negotiable instruments (checks, notes, drafts) and Article 9 is secured transactions. Totally different areas but yeah they can overlap in practice.

Right, I keep mixing them up because we deal with both when customers default on secured loans. The check collection stuff and the UCC filing perfection requirements all blur together in my head.

Oh interesting, so it's more about the intent than the exact wording? That actually helps clarify things for me.

Yep, courts look at the totality of circumstances. Though 'paid in full' is pretty clear evidence of intent to satisfy the debt.

I've seen cases where even without any notation on the check, the surrounding correspondence made it clear it was intended as full satisfaction. Context matters a lot.

Perfect, that's exactly the kind of summary I needed. Thanks! I think I was overcomplicating it in my head.

Good luck on your exam! Article 3 is tricky but once you get the basic concepts down it starts making sense.

True, though for a basic banking exam they probably want the standard UCC rule. State variations are more advanced level stuff.

Yeah this is just an entry level certification so I'll stick with the basic uniform version for now.

Wow $50k! Did you guys manage to use the 90-day notice provision to fix it?

Luckily yes, our legal team caught it in time and we sent the notice. But it was way too close for comfort. Now we have much stricter procedures for any check with satisfaction language.

I thought restrictive endorsements didn't work under UCC 3-311? Once you cash the check with knowledge of the satisfaction intent, you're stuck?

That's generally true, but the 90-day written notice provision in 3-311(c) is the proper way to preserve your rights. Restrictive endorsements are more of an Article 4 collection concept.

Correct, the UCC is pretty clear that the 90-day notice is the way to go. Restrictive endorsements might help show intent but they're not the safe harbor that the notice provision provides.

That's actually a really helpful way to think about it! Understanding the 'why' behind the rule makes it easier to remember the specifics.

Exactly, commercial law is all about facilitating business while preventing fraud and unfairness. Once you get that framework the details fall into place.

Great question! The key is whether there's a good faith dispute about the amount owed, not necessarily that the entire debt is disputed. In your example, if there's a legitimate $50 dispute and the debtor reasonably believes they only owe $9,950, then UCC 3-311 could apply. The dispute doesn't have to be about the whole amount - it just has to make the total amount "unliquidated or subject to a bona fide dispute." Courts will look at whether the debtor's belief about what they owe is reasonable under the circumstances.