Handling Less Than “Full Payment” Checks in New York

by Bryan Lane Berson, Esq. 

Suppose a customer owes a vendor $75,000, but he gives a check for $50,000 and the memorandum says “full payment.” The “full payment” notation is a “restrictive endorsement.” Perhaps the customer is playing a stealthy trick. Perhaps he genuinely believes he owes $50,000. Regardless, the check is $25,000 short, and the vendor earned the money.

Now what? Should the vendor deposit it? Give it back? Demand full payment? Sue?

Because this is a matter of state law, the answer varies depending on the state law that applies. Each state has adopted the Uniform Commercial Code (U.C.C.), but state legislatures may change its wording through nonstandard amendments, and courts may apply it differently. (Louisiana has chosen not to adopt several articles of the U.C.C.)

In the case, Horn Waterproofing v. Bushwick Iron and Steel, 488 N.E.2d 56 (1985), the New York Court of Appeals held that under U.C.C. § 1-207, a depositor could cash the mis-described “full payment” check and protect his rights to the balance owed. The case held that if the depositor writes “without prejudice,” “under protest,” or similar language under the payer’s endorsement or above the depositor’s own endorsement, the depositor can deposit the check without forfeiting his rights to recover the balance.

After the check has cleared and the money is safely deposited, then it makes sense to demand the balance. A thoughtful attorney can help explore one’s options, including a negotiated settlement or a lawsuit. If the payer wrote “full payment” in bad faith, end the business relationship. Find better business partners. You can’t change bad people, and it isn’t worth trying.

Contact The Berson Firm, P.C. if you have questions about your particular situation and options.

About the Author:  Bryan L. Berson, Esq. is an attorney and mediator at The Berson Firm, P.C., a commercial and civil law firm that handles estate administration and planning, real estate, commercial transactions, mediation, and commercial litigation.  His e-mail is bberson@bersonfirm.com.  His phone number is (631) 517-1055.  Connect with The Berson Firm on Facebook and Bryan L. Berson on LinkedIn.  The firm’s website is www.bersonfirm.com.

Disclaimer:  Constructive Knowledge is published by The Berson Firm, P.C. (the “Firm”).  The information contained in this column is provided for informational purposes only.  It is not tax or legal advice on any subject matter.  No readers, clients or otherwise, should act or refrain from acting on the basis of any content without seeking appropriate legal or other professional advice with respect to one’s particular circumstances.  This column reflects a general discussion of the law in New York.  It may not accurately reflect the law of other states.  The content is general information and may not reflect current legal developments, verdicts, or settlements.  The Firm expressly disclaims all liability with respect to acts taken or not taken based on any or all content of this column.  This column is Attorney Advertising.  IRS Circular 230 Legend:  Nothing in this column is intended to be used and cannot be used to avoid U.S. federal, state, or local taxes.  It was not written to promote, market, or recommend any tax planning strategy or action.  Copyright:  All rights reserved.  No part of this publication may be reproduced without prior written consent.  Readers may share this column through, but not limited to, social networks.


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