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.”
Creditors Rights 101 