How to Write the Payoff on a Check as a Contract

Adding a restrictive endorsement to a check is a great way to verify that a debt has been settled.

Sometimes a check is issued as payment pursuant to an agreement between two parties, such as to resolve a debt or to settle another dispute. In these instances, it is often helpful if the issuer takes steps to make sure that acceptance of the check constitutes a legal contract. The easiest way to do this is through a restrictive endorsement, which means that signing the check comes with certain restrictions, such as agreeing that all debts are settled and no further action can be taken.

Instructions

1. Verify that you actually owe money as part of a debt. There are some instances, such as in the case of identity theft or even just simple errors, in which you may be asked to settle a debt that you do not owe. Ask for Verification of Debt (VOD) before proceeding. When it comes to proving that money is owed, the burden of proof always rests with the debt collector.

2. Send an Offer of Compromise letter to the creditor or collection agent. The offer should contain any identifying information listed in the Verification of Debt, such as your name, address and account number. Make an offer to pay an amount that you feel is adequate compensation, and explain why you feel that the payment is a fair settlement. Wait for a response before sending a check.

3. Type a legal statement on the back of the check, above where the payee endorses the check. State that an accord (agreement to settle) and satisfaction (acceptance of the offer) has been reached in consideration of the Offer of Compromise. State that acceptance of the check constitutes an agreement to the terms of the accord and that all accounts are considered paid in full.

4. Attach the check to a second copy of the Offer of Compromise. Mail the check to the collector as final payment on the matter.

5. Obtain a copy of the canceled check, complete with the payee's signature, from your bank. Some banks automatically send canceled checks back, while others store them electronically. If your bank stores checks electronically, you will need to request a copy for your records.

Tips & Warnings

• Many states have a Safe Harbor law that allows companies to back out of the agreement as long as they return the value of the check within 90 days of the time the check was cashed. This prevents companies with automatic check clearing procedures from being bound by terms they have not had an opportunity to review. Because of this, do not consider your agreement final until 90 days from the date the check was cashed.

References

• Carreon and Associates: Restricting Terms in Settling Bad Debts
• Bills.com: Restrictive Endorsements to Settle Debt