Tennessee Courts will not find a ‘Paid in Full’ Check to be Conclusive Release of Debt

Every once in a while, one of my clients will receive a random check with a note in the Memo line that says “Paid In Full.”

If the creditor accepts that check, the borrower’s argument goes, the creditor also accepts the payment as a settlement…that the account was paid in full. This overlooks (or counts on) the fact that most big creditors process payments by machine or without watching for sneaky notes in the Memo section.

Fortunately, however, the general rule in Tennessee is that a note on a check may be an indication that the account was settled, but it isn’t the only and final proof of settlement.  On this exact issue, the Tennessee Supreme Court has said “Something more is required.” Quality Care Nursing Servs., Inc. v. Coleman, 728 S.W.2d 1, 4 (Tenn. 1987).

Generally, Tennessee courts will look at whether there was any other evidence of a payment dispute and “meeting of the minds” that this payment was tendered as a settlement and a proposal to resolve the disputed account. Was there a cover letter explaining a dispute and that acceptance of the payment was truly a settlement of the debt?

The Supreme Court noted: “It would be unrealistic in the modern business world for a debtor to send an installment payment to a creditor, which may be receiving hundreds or thousands of such checks, and to have the balance of his debt deemed discharged as a matter of law simply because of a legend the debtor placed thereon, absent any other proof of a compromise or settlement.”

So, what do you do if you are faced with a “Paid in Full” check? Well, as a initial matter, be careful.

If you receive one and you notice it, you may well be opening yourself up to an “accord and satisfaction” defense under Tennessee law. The best practice would be to refuse any such payment and return it to the borrower, with a demand that the check be replaced.
The risk in accepting the payment is clear. One court has noted ” a creditor’s action of cashing the check speaks louder than its words, have held that by accepting and cashing a check marked ‘paid in full,’ a creditor has agreed to accept the amount of the check as full payment of a disputed amount.” Ideal Stencil Mach. Co. v. Can-Do, Inc., 85-81-II, 1985 WL 4041 (Tenn. Ct. App. Dec. 4, 1985).


If you like this Blog, You’ll LOVE this Social Media CLE!

On Thursday, July 10, 2014, I’l be presenting a Seminar called “The Attorney’s Online Marketing Essentials: Using Websites and Social Media to Promote Your Practice.”

This one hour CLE is will provide an overview of the options available for online marketing for lawyers, with a discussion of the advantages of the various platforms, disadvantages of some others, and some war stories related to my long-time foray in social media and legal marketing.

Generally, I’ll cover:

  • What is social media and who wants to be Facebook friends with their lawyers?
    • Introduction
    • Popularity of social media
    • How clients are using social media to find and engage with lawyers
  • Law firm website essentials
    • Why you need a website
    • What your website should say (a/k/a What your clients are looking for on your website)
    • Examples of good/bad/ugly
  • Lawyer blogs
    • Why a lawyer would blog
    • Types of blogs available for lawyers
    • What to blog about]
    • How to measure results
    • How to increase results (a/k/a think like your ideal client)
    • Examples
  • Other online marketing options (advantages/disadvantages of each)
    • LinkedIn
    • Facebook
    • Avvo
    • Twitter
    • YouTube
    • Google +
    • YouTube
    • Martindale Hubbell listings
    • Bar association listings

Employers Who Provide False Garnishment Answers May End Up Owing the Money Themselves

I got a judgment a few months ago, and, having found out where the judgment debtor works, I issued a wage garnishment against the debtor’s wages.

And, oh man, did I ever have that guy. Not only did he work there, but he was listed (and pictured) on their website as an executive. It was only a matter of days until I got my money, right?

Well, not exactly. The employer filed a response that said “Terminated.” That was a surprise. I checked the website. The guy was gone.   Did my garnishment get him fired?  Strange.

So, out of curiosity, I called the employer and got the company directory. The debtor was still listed. So, I waited a few weeks, and they were still listed. I tried the extension and, within seconds, I had the debtor on the phone.

Long story short, I think this employer is lying. What do you do?

Tenn. Code Ann. § 26-2-204 requires garnishment responses to be under oath. The law even anticipates that an employer might lie: “The answer of the garnishee is not conclusive.” Tenn. Code Ann. § 26-2-205. To that end, Tenn. Code Ann. § 26-2-206 allows a creditor to get a judgment against the employer if they actually have assets of the debtor in their possession.

So, in the end, a creditor has rights against a dishonest employer, but there are hoops to jump through. Though the statutes don’t lay this out, the procedure would be to subpoena the payroll records or otherwise get testimony from the employer to establish the veracity of the response. Then, the creditor must take the employer back to Court under § 26-2-206 to get a judgment.

It’s a hassle. But, if you lie, employers, I’m happy to take a judgment against you.