Payment in Full Checks for Construction: Risks and Benefits

Payment in full checks can be a contentious issue in construction projects.

This is because they can be used as a means to delay payment to subcontractors and suppliers.

Construction projects often involve multiple stakeholders, including contractors, subcontractors, and suppliers.

Payment in full checks can disrupt the cash flow of these stakeholders.

Payment in full checks can also create a risk of disputes and litigation.

If a check is marked "Paid in Full" and deposited into your bank account without question, it can be binding on both parties, eliminating your rights to recover missing payment.

Courts have recognized this concept in cases like Thompson v. Stacy, where the Louisiana court ruled that a mutual settlement and payment of the amount agreed upon is binding on both parties.

A check with "Paid in Full" in the memo field or endorsement area can be a red flag, indicating that the payment may be considered final.

In the Spalitta v. Hartford Fire Ins. Co. case, a check was issued marked "Full and Final Settlement" and was cashed with a restrictive endorsement, further emphasizing the importance of being cautious with such checks.

If you're concerned about losing your rights to recover missing payment, it's best to ask your customer to cut a new check without the "Paid in Full" or similar language.

Cashing a "payment in full" check can have serious consequences for contractors and suppliers.

If a check has "Paid in Full", "Full and Final Settlement" or similar language written in the memo field or endorsement area, it's best to ask for a new check.

These checks can eliminate your rights to recover missing payment under contract or mechanics lien laws, so it's crucial to be aware of this potential circumstance.

A subcontractor who cashed a "payment-in-full" check from the prime contractor may be prevented from filing suit against the prime contractor for any additional payments.

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The subcontractor may still be able to file a mechanics lien and seek the remaining portion from the property owner under mechanics lien laws, but this is likely not the case.

In one instance, a subcontractor received partial payment for work performed at Enterprise Products in Mont Belvieu, TX, but the check had "Paid in Full" written in the memo field.

This situation highlights the importance of carefully reviewing checks before depositing them.

A supplier who sold a load of Plywood to Selected Furniture LLC in Knox, Indiana, also experienced issues with a "payment in full" check.

They received partial payments, but the remaining balance of $9,372.39 was not covered by the check.

In this case, the supplier pursued collections through small claims court in Starke County.

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Mechanics lien rights are automatic for suppliers or contractors who furnish materials or labor to a project.

A "payment-in-full" check can resolve contract claims between the paying party and the receiving party, but it doesn't affect mechanics lien rights.

If the paying party is the property owner, a binding settlement with the payer can extinguish lien rights.

If a property owner issues a "payment-in-full" check for less than the amount owed, the receiving party still has lien rights.

A contractor who endorses and deposits a "payment-in-full" check for less than the amount owed loses their contract rights and lien rights.

Punch list work can have a disproportionate impact on payment, but it's not directly related to mechanics lien rights.

The construction process for a payment in full check is a straightforward one. A payment in full check is typically issued after a project is completed and the final payment has been verified.

The check is usually drawn from the client's account, and the funds are transferred directly to the contractor's account. This process can take anywhere from a few days to a week, depending on the bank's processing time.

The contractor will typically review the payment in full check to ensure it meets the agreed-upon terms and conditions. This includes verifying the amount, payment date, and any other relevant details.

The payment in full check is usually mailed or delivered to the contractor's office, where it is reviewed and processed.

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