July 19, 2016
For years, businesses and individuals in North Carolina have quietly settled unliquidated or disputed debts in good faith by tendering a check or other negotiable instrument in full satisfaction of the claim under the common law and in more recent years under Section 25-3-311 of the North Carolina Uniform Commercial Code. It is sometimes referred to as the Full Payment Check Law. In June 2016, the North Carolina General Assembly amended the statute and added another protection for businesses, financial institutions and other creditors that receive payments of this type.
Subject to the protections discussed below, a claim is generally discharged if the person against whom it is asserted presents a check or an accompanying written communication containing a conspicuous statement to the effect that the check was tendered as full satisfaction of the claim even if the payment is less than the amount claimed. N.C. Gen. Stat. § 25-3-311(b).
Before the June 2016 amendment, the statute contained one protection against such practices for organizations, particularly businesses and financial institutions that are automated. That protection has been maintained in the amended statute as N.C. Gen. Stat. § 25-3-311(c)(1). It provides that a business can send a statement to the person against whom the claim is asserted within a reasonable time before a check is tendered, to the effect that communications concerning disputed debts - including an instrument tendered as full satisfaction of a debt - are to be sent to a designated person, office or place. Therefore, if this procedure is not followed by the debtor, the debt would not be discharged.
The North Carolina Legislature has now added an additional protection for businesses to N.C. Gen. Stat. § 25-3-311, as a new subdivision (c)(2), which also addresses the problem of businesses that use automated check processing systems. This amendment conforms the statute to the provision in the national uniform code. Under the amendment, a business or creditor can also prevent discharge of a debt by repaying the amount tendered to the person against whom the claim is asserted within 90 days after payment. This amendment provides an additional protection in the event that a check bearing a “paid in full” notation is not caught by the business or creditor. This protection does not apply if the creditor is an organization that sent a statement that communications concerning disputed debts are to be sent to a designated person, office or place. However, another trap for the unwary creditor has been remedied by the General Assembly.
As before, and notwithstanding the protections that are discussed above, a claim can still be discharged if the person against whom the claim is asserted shows 1) that the check, with the full payment notation or an accompanying written notice, was tendered a reasonable time before collection of the instrument was initiated; and 2) that the claimant or an agent of the claimant, having direct responsibility over the disputed obligation, knew that the check was tendered in full satisfaction of the claim.
The amended N.C. Gen. Stat § 25-3-311 becomes effective on Oct. 1, 2016 and applies to checks or negotiable instruments tendered in full satisfaction of a claim on or after that date.
Peter G. Pappas is a member (partner) of Nexsen Pruet, PLLC in Greensboro, North Carolina. He practices in the firm’s Business Litigation and Employment and Labor Law practice groups. This article was written as a courtesy to business leaders and professionals. It is for informational purposes only, not legal advice. If you have questions, please contact Peter at (336) 373-1600.