Accepting Partial Payments Can Land You in Trouble
Let’s say that someone owes you money that they have not paid. Suddenly and out of the blue, a payment comes—but not a full payment. Just a payment for a part of the total that is owned.
You know that staying out of court is always a good idea, and that some money is better than no money, and that the debtor is making a good faith effort to pay, so you accept the payment, hopeful that at some point in the future, the balance will be paid.
What you don’t know is that you may have waived your right to ever collect the balance of the debt in the future.
Language Attached to Partial Payments
The first thing to look for is language that is attached to the payment, whether electronic or in hard copy.
Often, partial payments will come with language that says “in full satisfaction of the debt,” or “according to our agreement to resolve the debt,” or similar language that indicates that the partial payment is actually (or was agreed to be) a satisfaction of the entirety of the debt.
By accepting the money, many courts say that you are also accepting the language attached to that money—and thus, depending on the language, that the partial payment is a full satisfaction of the debt.
Accord and Satisfaction
This is because of a legal doctrine called accord and satisfaction. When a claim is open and pending between two parties, and the party owed money accepts a partial payment, it will be seen as a full and complete payment—even if the party being paid says that the payment is not full satisfaction. Accepting and depositing the money is the statement that the debt is paid in full, even if it is not.
Of course, whether an actual accord and satisfaction exists, depends on the language attached to the payment, that is sent by the debtor (or written on the check or on other documents, like emails). But the last thing you want is to have to go to court to enforce a debt owed to you, and have to argue to the court that the money you accepted was not a full satisfaction of debt.
Can You Take Partial Payments?
This doesn’t mean you can never accept a partial payment—you certainly can. The best practice, if you want to work out a payment plan, or accept partial payments, is to have a separate writing between the parties, entered into and agreed to by the parties long before the partial payments start.
That agreement should say things like the total debt owed, and that that debt remains valid, the payment amounts, that there is no waiver of the debt, and enforcement of the payment plan if there is a default.
Are you owed money? We can help you collect and enforce your business agreements. Call our West Palm Beach business litigation attorneys at Pike & Lustig today.