A: Black's Law Dictionary defines Restrictive Endorsement as "An endorsement so worded as to restrict further negotiability of the instrument." As a collection attorney, however, I apply a more expansive approach to the concept. I consider all instructions associated with a payment to constitute a restrictive endorsement, even if the instruction is in a cover letter and/or the payment is cash. I always comply with the instructions as worded. If the client is not willing to do so, I suggest rejecting the payment. I would never process a payment contrary to expressed terms. So, if a payment is received with instructions that it be applied to a particular invoice, that is what I would advise my client to do. I would not advise my client to simply apply such a payment to the oldest invoice. If a lesser amount is submitted as payment in full, I would advise my client not to accept that payment unless it is willing to risk the account being considered as paid in full. Not honoring restrictions places unnecessary defenses in the hands of the debtor that can delay collection of the account. It is best that your case be kept clean of these issues so the remaining balance is the focus. I can offer three practice tips on this subject: First, be clear on application in your negotiation efforts to prevent the payment being submitted contrary to your desires. State how it will be applied in advance. Second, if you receive a payment with terms you cannot accept, advise the debtor that you intend to apply it a different manner and obtain written confirmation of the debtor's approval. This is extremely effective. Many debtors issue restrictions they did not really intend and back away when a reasonable explanation is provided. Finally, if a payment is accidentally processed contrary to debtor instruction, I advise the client to seek the confirmation above. If that cannot be obtained, I suggest returning the funds via a separate payment to the debtor. The debtor now has the creditor's dilemma of accepting the payment or not.   

Bradley J Chauvin, Esq.

Couch, Conville & Blitt LLC
New Orleans LA

A: Checks tendered with restriction generally relate to attempts by debtor to reduce the amount to be paid and extinguish an outstanding debt.  That is to say, debtor's generally will draft a check with a notation either on the back or front or in an accompanying letter that the check is tendered as "full and final payment" or other similar language.  If the recipient of the check does not agree with the amount of same, they can of course reject a check in its entirety, i.e return it to the drafter, or, if the check is negotiated in New York State, restrictively endorse same.  That is to say, on the back of the check above the endorsement, the language "Under protest and without prejudice and with full reservation of rights," or similar but inclusive language will serve to protect the creditor recipient of the check and allow the creditor to pursue the debtor for the additional sum that may remain due.  It should be noted, however, that that's the New York view as a result of case law and New York's enactment of the appropriate provision of the Uniform Commercial Code.  A caveat should be noted here and that is that New York is in the minority with regard to that provision's enactment in the Uniform Commercial Code.  It is but another example of where the Uniform Commercial Code is often not at all uniform.

Lester Taroff, Esq.

Row, Taroff, Taitz & Portman LLP

Bohemia NY

A: When the check is submitted with words on the front or back of the check indicating that it is submitted as full and final settlement of all claims between the parties or the check is submitted with a separate letter or writing indicating that it is submitted in full and final settlement of all claims between the parties and there is a legitimate dispute between the parties, then cashing of the check constitutes accord and satisfaction and is accepted in full settlement of those claims. However, under the Universal Commercial Code, if the creditor advises the customer that any communication of any disputed debts must be sent to a designated person, office or place and it is not sent to that place, then the creditor has 90 days to return the money to the debtor. Once the money is returned the creditor can proceed ahead for the full amount of their claim. It is necessary that the amount of the claim be unliquidated or the subject of a bona fide dispute. If the debtor simply submits a check marked payment in full and no dispute exists between the parties, then acceptance of that check is not full and final settlement of the matter. 

The safest avenue if a check is submitted to a Post Office Box or mail drop of any type and therefore is accidentally deposited is to immediately upon discovery of that fact, to return the amount of the restrictively endorsed check. Of course creditors should contact the debtor first to determine if the matter can be worked out and if a further agreement is reached where the debtor will submit additional funds to supplement the restrictively endorsed check, all of that should be confirmed in writing and should be done well before the 90 days so that the creditor is not bound by the restrictively endorsed check.