§ 118.Instrument as payment, 11 Am. Jur.

2d Bills and Notes § 118

11 Am. Jur. 2d Bills and Notes § 118

American Jurisprudence, Second Edition | August 2017 Update

Bills and Notes
Jill Gustafson, J.D., Janice Holben, J.D., Jack K. Levin, J.D., Jeffrey J. Shampo, J.D., and Eleanor L. Grossman, J.D. of the staff of the
National Legal Research Group, Inc.

II. Form, Provisions, Interpretation, and General Operation

J. Operation of Instrument

§ 118. Instrument as payment

Topic Summary | Correlation Table | References

West’s Key Number Digest

•0 West’s Key Number Digest, Payment 15 to 18, 20 to 23

A.L.R. Library
•0 Account stated based upon check or note tendered in payment of debt, 46 A.L.R.3d 1325
•1 Buyer’s note as payment within contemplation of statute of frauds, 81 A.L.R.2d 1355

Forms
•0 Forms relating to payment by check or draft or note, generally, see Am. Jur. Pleading and Practice Forms, Payment
[Westlaw® Search Query]

Law Reviews and Other Periodicals

•0 Turner, Contracting Out of the UCC: Variation by Agreement under Articles 3, 4, and 4A, 40 Loy. L.A. L. Rev. 443
(2006)

Unless otherwise agreed, if a certified check, cashier’s check, or teller’s check is taken for an obligation, the obligation is

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§ 118.Instrument as payment, 11 Am. Jur. 2d Bills and Notes § 118

discharged to the same extent discharge would result if an amount of money equal to the amount of the instrument were taken
in payment of the obligation. Discharge of the obligation does not affect any liability that the obligor may have as an indorser
of the instrument.1 Thus, where a teller’s check is taken as payment, the underlying obligation is discharged, even though the
issuing bank stops payment on the check; 2 in such a case, the bank becomes liable in an action on the check, because the
underlying obligation had been discharged.3

Also, unless otherwise agreed and except as provided above, if a note or an uncertified check is taken for an obligation, the
obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of
the instrument were taken, subject to the following rules. 4 In the case of an uncertified check, suspension of the obligation
continues until dishonor of the check, or until it is paid or certified, and payment or certification of the check results in the
discharge of the obligation to the extent of the amount of the check. 5 Thus, the tendering and acceptance of a check
constitutes conditional payment,6 which becomes absolute if the check is subsequently honored by the bank, 7 and the fact that
a check, otherwise timely delivered, is honored after a payment deadline has passed does not affect the timeliness of the
payment.8 On the other hand, a party who makes payment by an uncertified check takes the risk that the check will not be
honored and the payment obligation will not be fulfilled; this is the case regardless of whether the payor endeavors to have
sufficient funds in the account to cover the check at the time payment is due. 9 Thus, once the bank dishonors the check, and
the period for payment has expired, the payor is in material breach of the agreement, and again presenting the check does not
cure the breach.10 The obligation is no longer suspended on dishonor of the check, because then the holder of the check may
take action either on the check or on the underlying obligation.11

In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid, and payment likewise
discharges the obligation to the extent of the payment. 12 Therefore, the issuance of a note does not discharge the underlying
obligation, but rather suspends it.13

If an instrument other than one described in the provisions discussed above is taken for an obligation, the effect is the same as
for a certified or similar check if the instrument is one on which a bank is liable as maker or acceptor, or the instrument
merely suspends the obligation in any other case. 14

In accordance with the otherwise agreed language, an instrument given in payment of a preexisting debt generally will
extinguish that debt when it is the parties’ express understanding that it will have that effect. 15 The presumption that a
negotiable note given for a simple contract debt pays or satisfies that debt may be rebutted by evidence that satisfaction of the
debt was not the parties’ intention.16

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reserved.

Footnotes
1
U.C.C. § 3-310(a).
2
Malphrus v. Home Sav. Bank of City of Albany, 44 Misc. 2d 705, 254 N.Y.S.2d 980, 2 U.C.C. Rep. Serv. 373 (County
Ct. 1965).
3
Fur Funtastic, Ltd. v. Kearns, 120 Misc. 2d 794, 467 N.Y.S.2d 499, 41 U.C.C. Rep. Serv. 862 (App. Term 1983).
4
U.C.C. § 3-310(b).
5
U.C.C. § 3-310(b)(1).
The acceptance of an instrument suspends the underlying obligation until the instrument is either paid, which
discharges the obligation, or until it is dishonored, which reimposes the obligation. Harper v. K & W Trucking Co.,
725 P.2d 1066, 2 U.C.C. Rep. Serv. 2d 556 (Alaska 1986).
6
Matter of Wegener, 186 B.R. 692, 27 U.C.C. Rep. Serv. 2d 923 (Bankr. D. Neb. 1995); Scalise v. American Employers
Ins. Co., 67 Conn. App. 753, 789 A.2d 1066 (2002); Enriquillo Export & Import, Inc. v. M.B.R. Industries, Inc., 733

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§ 118.Instrument as payment, 11 Am. Jur. 2d Bills and Notes § 118

So. 2d 1124 (Fla. Dist. Ct. App. 4th Dist. 1999); Mariano’s Pizzeria Inc. v. Associated Mut. Ins. Co-op., 24 A.D.3d
206, 806 N.Y.S.2d 46 (1st Dep’t 2005); Deep Nines, Inc. v. McAfee, Inc., 246 S.W.3d 842 (Tex. App. Dallas 2008).
7
Scalise v. American Employers Ins. Co., 67 Conn. App. 753, 789 A.2d 1066 (2002); Deep Nines, Inc. v. McAfee, Inc.,
246 S.W.3d 842 (Tex. App. Dallas 2008).
8
Deep Nines, Inc. v. McAfee, Inc., 246 S.W.3d 842 (Tex. App. Dallas 2008).
Checks received by a Chapter 7 debtor before the sale of its assets closed, but not cleared until after the closing, were
not for accounts receivable included in the assets sold, since those debts were conditionally satisfied on receipt of the
checks and unconditionally satisfied when the checks cleared, with satisfaction deemed to relate back to the date of
receipt. In re Old Summit Mfg., LLC, 523 F.3d 134 (3d Cir. 2008) (applying Pennsylvania U.C.C.).
9
Deep Nines, Inc. v. McAfee, Inc., 246 S.W.3d 842 (Tex. App. Dallas 2008).
10
Deep Nines, Inc. v. McAfee, Inc., 246 S.W.3d 842 (Tex. App. Dallas 2008).
11
Probus Properties v. Kirby, 200 S.W.3d 258 (Tex. App. Dallas 2006), reh’g overruled, (Sept. 11, 2006) and review
denied, (Dec. 1, 2006).
As to enforcement of the check or obligation, see § 119.
12
U.C.C. § 3-310(b)(2).
13
Ingram v. Earthman, 993 S.W.2d 611, 40 U.C.C. Rep. Serv. 2d 500 (Tenn. Ct. App. 1998).
14
U.C.C. § 3-310(c).
The giving of a draft by a debtor to the creditor does not discharge the debt itself until the draft is paid, it being a
means adopted to enable the creditor to obtain payment of the debt and remains, until honored or paid, only evidence
of the debt. Scalise v. American Employers Ins. Co., 67 Conn. App. 753, 789 A.2d 1066 (2002).
15
In re Alliance Aerospace, LLC, 280 B.R. 752 (Bankr. M.D. Ga. 2002) (promissory note).
Where the circumstances of the case indicated that the parties had implicitly agreed that the acceptance of uncertified
checks was to be considered as an absolute, rather than a conditional, payment of the purchase price, the obligation to
pay the purchase price was discharged. Burnett v. Vance, 126 Misc. 2d 402, 483 N.Y.S.2d 595 (Sup 1984).
16
St. Agatha Federal Credit Union v. Ouellette, 1998 ME 279, 722 A.2d 858 (Me. 1998).

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Works.

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§ 118.Instrument as payment, 11 Am. Jur. 2d Bills and Notes § 118

Citing References (5)

Title Date Type Depth

1. Anderson on the Uniform Commercial Code s 3-110:8, 2017 Other —
Maker or drawer as payee Secondary
Source
The maker or drawer may be the payee of a negotiable instrument.
When this is the case, the instrument is not to be deemed issued
until indorsed and delivered by the drawer-payee...

2. Am. Jur. Pl. & Pr. Forms Uniform Commercial Code s 3:60, 2017 Other —
Introductory comments Secondary
Am. Jur. Pl. & Pr. Forms Uniform Commercial Code Source
Unless otherwise agreed, if a certified check, cashier’s check, or
teller’s check is taken for an obligation, the obligation is discharged
to the same extent discharge would result...

3. Am. Jur. Pl. & Pr. Forms Uniform Commercial Code s 3:61, 2017 Other —
Answer-Defense-Obligation for which check given discharged Secondary
by payment Source
Am. Jur. Pl. & Pr. Forms Uniform Commercial Code
See generally, U.C.C. § 3-310(b).

4. Am. Jur. Pl. & Pr. Forms Uniform Commercial Code s 3:62, 2017 Other —
Instruction to jury-Effect of payment by certified check Secondary
Am. Jur. Pl. & Pr. Forms Uniform Commercial Code Source
See generally, U.C.C. § 3-310(a).

5. Am. Jur. 2d Insurance s 854, As conditional or absolute 2017 Other —

payment Secondary
Am. Jur. 2d Insurance Source
Payment by check suspends the underlying obligation until the check
is paid or dishonored, but the obligation is discharged only by the
payment of the check. Thus, an insurer has...

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§ 118.Instrument as payment, 11 Am. Jur. 2d Bills and Notes § 118

Table of Authorities (16)

Treatment Referenced Title Type Depth Page

Number
— 1. Account stated based upon check or Secondary — s 118
note tendered in payment of debt Source
Account stated based upon check or note
tendered in payment of debt
1972 WL 32011, 1972
This annotation collects the cases which have
determined whether and under what
circumstances an account stated may be
based upon a check or note tendered by the
debtor in payment...

— 2. Burnett v. Vance Case — s 118

483 N.Y.S.2d 595, N.Y.Sup., 1984
Vendor brought action against purchaser to
recover unpaid portion of purchase price for
certain real property. The Supreme Court, Trial
Term, Queens County, Sidney Leviss, J.,...

— 3. Buyer’s note as payment within Secondary — s 118

contemplation of statute of frauds Source
Buyer’s note as payment within contemplation
of statute of frauds
1961 WL 13089, 1961
Section 4 of the Uniform Sales Act, which has
been adopted in 32 states, provides in part
that a verbal contract to sell or oral sale of any
goods or choses in action of the value...

— 4. Deep Nines, Inc. v. McAfee, Inc. Case — s 118+

246 S.W.3d 842, Tex.App.-Dallas, 2008

COMMERCIAL LAW - Contracts. Time was of the
essence with respect to agreement, such that
defendant’s failure to timely pay was material
breach.

— 5. Enriquillo Export & Import, Inc. v. Case — s 118

M.B.R. Industries, Inc.
733 So.2d 1124, Fla.App. 4 Dist., 1999
Creditor brought action against debtor for
breach of settlement agreement. The Circuit
Court, Broward County, John T. Luzzo, J.,
entered judgment for debtor. Creditor
appealed....

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§ 118.Instrument as payment, 11 Am. Jur. 2d Bills and Notes § 118

Treatment Referenced Title Type Depth Page

Number
— 6. Fur Funtastic, Ltd. v. Kearns Case — s 118

467 N.Y.S.2d 499, N.Y.Sup.App.Term, 1983

Appeal was taken from an order of the Civil
Court, New York County, Lane, J., denying
indorser’s motion for summary judgment on
cause of action against drawer bank. The
Supreme...

— 7. Harper v. K & W Trucking Co. Case — s 118

725 P.2d 1066, Alaska, 1986

After receiving settlement from employer and
employer’s worker’s compensation insurance
carrier, claimant applied to Workers’
Compensation Board for 20% late payment
penalty plus...

— 8. In re Alliance Aerospace, LLC Case — s 118

280 B.R. 752, Bkrtcy.M.D.Ga., 2002
BANKRUPTCY - Claims. Principals’ contingent
claim became fixed to the extent of their
postpetition payment to debtor’s creditor.

— 9. In re Old Summit Mfg., LLC Case — s 118

523 F.3d 134, 3rd Cir.(Pa.), 2008
BANKRUPTCY - Bankruptcy Estate. Checks
debtor received before asset sale closed were
cash equivalents excluded from sale.

— 10. Ingram v. Earthman Case — s 118

993 S.W.2d 611, Tenn.Ct.App., 1998

COMMERCIAL LAW - Commercial Paper. Note
was not for sum certain and thus was not
negotiable instrument.

— 11. Malphrus v. Home Sav. Bank of Case — s 118

City of Albany
254 N.Y.S.2d 980, N.Y.Co.Ct., 1965
Seller of automobile brought action against
bank for amount of teller’s check, which bank
had issued at request of depositor payable to
order of seller, and on which trust company...

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§ 118.Instrument as payment, 11 Am. Jur. 2d Bills and Notes § 118

Treatment Referenced Title Type Depth Page

Number
— 12. Mariano’s Pizzeria Inc. v. Associated Case — s 118
Mut. Ins. Co-op.
806 N.Y.S.2d 46, N.Y.A.D. 1 Dept., 2005
INSURANCE - Premiums. Property coverage
lapsed by operation of law five days before fire
due to dishonor of premium check for
insufficient funds.

— 13. Matter of Wegener Case — s 118

186 B.R. 692, Bkrtcy.D.Neb., 1995
Claims. gaming company had valid claim
against Chapter 7 debtor for keno tickets that
debtor paid for with subsequently dishonored
checks and for tickets that debtor obtained...

— 14. Probus Properties v. Kirby Case — s 118

200 S.W.3d 258, Tex.App.-Dallas, 2006
REAL PROPERTY - Landlord and Tenant. Tenant
failed to perform condition precedent to
extend option to purchase under commercial
lease.

— 15. Scalise v. American Employers Ins. Case — s 118+

Co.
789 A.2d 1066, Conn.App., 2002
INSURANCE - Automobile. Motorist’s
automobile carrier exhausted by payment its
settlement with insured, and as such, insured
could have maintained cause of action against
his own...

— 16. St. Agatha Federal Credit Union v. Case — s 118

Ouellette
722 A.2d 858, Me., 1998
REAL PROPERTY - Mortgages and Deeds of
Trust. Fact questions regarding note that
refinanced debt precluded summary judgment
in foreclosure action.

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