Paperwork Blunders

Chances are pretty good that managing the details of your transaction documentation is not your favorite part of the job. Before long, however, sloppy work in this area will catch up with you. In this article we identify six blunders that can cause costly setbacks, but can also be easily managed.

#1 Carelessly cashing a “paid in full” check
Receiving a check for less than the amount sought is a common occurrence in the produce industry. Perhaps the buyer is having cash flow problems or alleges that problems with the shipment justify a deduction from the original invoice price.

Typically, depositing a check for less than the amount due is harmless, with the creditor retaining the right to recover the balance of the invoice. However, when words such as “paid in full” or “full settlement” appear on the front or back of a check, or on a letter accompanying the check, the situation changes—sometimes with harsh consequences for the creditor.

Provided certain conditions are met, depositing a check with “paid in full” language will discharge any further obligation the debtor may have had. This can be a bitter pill for unwary creditors to swallow. And although the Uniform Commercial Code (UCC), provides a number of conditions that must be satisfied in order for the “accord and satisfaction” to be effective, none of these are particularly unusual or difficult for the debtor to meet.

Specifically, Section 3-311 of the UCC provides the following conditions that must be met for a debt to be discharged in this manner: (1) the check must be tendered in good faith; (2) the amount due must be subject to a bona fide dispute (or be “unliquidated”); (3) the check (or accompanying letter) must include a “conspicuous statement” indicating that the check is tendered in full satisfaction of the obligation; and (4) the creditor must have deposited the check. Checks with preprinted “paid in full” language, however, fail to effect an accord and satisfaction for lack of good faith, according to the UCC’s Official Comment 4.

#2 Failing to specifically note problems on the delivery receipt
A receiver that fails to specifically note problems upon arrival of the shipment, such as a missing temperature recorder, missing product, warm pulp temperatures, or crushed boxes, needlessly undermines the strength of its claim, particularly against carriers.

Blue Book’s Transportation Guidelines state—“Consignees are expected to note, with specificity, any problems or objections before signing the original delivery receipt. A generic notation included on delivery receipts as a matter of general practice will not preserve or advance a consignee’s claim.”

Specific notations, such as “150 cartons missing,” give the carrier a fair opportunity to investigate the facts for itself. Receivers must remember that it is the carrier’s failure to object to the specific facts alleged that gives their notation its evidentiary weight. Generic notations like, “subject to count” or “subject to USDA inspection” do not allege a specific problem, and therefore the carrier has no reason or opportunity to investigate the facts that may later be alleged. If the problem is apparent upon arrival, simply identifying the specific problem on the delivery receipt and notifying all interested parties is a fundamental best practice.