The Demand Letter Is Partly Right. How to Respond When You Owe Something

Why partly right is the usual case

Most demand letters to businesses are not fabrications. They are overstatements of a real grievance: the invoice is unpaid, but two of the shipments were short; the project did run late, but the owner caused half the delay; the commission is owed, but not on the deals closed after the employee left. The recipient's instinct is one of two mistakes: pay the whole thing to make it stop, or dispute the whole thing because part is wrong. Texas law rewards a third approach, and it is the one litigators use.

The general method for answering a demand letter, including what to read first and what to leave out, is covered in how to respond to a demand letter without making it worse. This article is about the specific problem of a letter that is partly correct.

Step one: split the claim

Lay the letter next to your records and sort every item into three piles: amounts you agree are owed, amounts you dispute, and amounts you cannot yet verify. Do this on paper, for your own file and your lawyer's, before anyone talks to the sender. The disputed pile needs a reason for each item, tied to a document: the credit memo, the rejection notice, the contract clause, the email where the scope was changed. The unverified pile needs a plan for verifying it quickly.

Be honest in the first pile. A business that disputes an amount its own records show it owes loses credibility on the amounts it has real reasons to contest.

Step two: tender the undisputed amount, and why 30 days matters

Texas Civil Practice and Remedies Code § 38.001 allows a party who prevails on a claim for a contract, services, labor, materials or a sworn account to recover its attorney's fees. Section 38.002 conditions that right: the claimant must be represented by an attorney, must have presented the claim, and payment of the just amount owed must not have been tendered before the thirtieth day after presentment.

Read from the recipient's side, that rule is an opportunity. If you tender the just amount, the part you actually owe, within 30 days of the demand, the sender cannot later recover attorney's fees on that amount. The sender may still sue for the disputed balance, but the fee exposure on the undisputed part is gone, and a sender who sues for a disputed remainder after receiving the undisputed part has a harder case to justify.

Tender means an unconditional offer to pay, made in a form the sender can accept. Sending a check or wire for the undisputed amount, with a letter that identifies which items it covers, is the cleanest form. Offering to pay "if you drop the rest" is a settlement offer, not a tender, and does not have the same effect under the statute.

The "payment in full" question

Recipients sometimes ask whether writing "payment in full" on a check for the undisputed amount will discharge the whole claim if the sender cashes it. Texas Business and Commerce Code § 3.311 addresses this. A claim that is unliquidated or subject to a bona fide dispute can be discharged if the debtor tenders an instrument in good faith as full satisfaction of the claim, the instrument or an accompanying writing contains a conspicuous statement to that effect, and the claimant obtains payment. But the statute gives organizational claimants a defense if they had sent a conspicuous notice directing disputed-debt communications to a designated person or office and the instrument did not go there, and it allows a claimant to undo the discharge by repaying the amount within 90 days in most cases.

Two practical points follow. Trying to use this provision as a trick on an unsuspecting sender usually fails, often damages the negotiation, and does not count as a tender of the just amount under § 38.002. On the other hand, when both sides have genuinely agreed that a payment resolves the dispute, documenting that agreement in a signed writing is more reliable than a notation on a check. And if you are the one receiving a check marked "full satisfaction" for less than you are owed, do not deposit it without advice.

Step three: dispute the rest, with documents

The response to the disputed items should be factual and specific. For each item: what the sender claims, what your records show, and the document that shows it. Attach the documents or offer to provide them. Avoid characterizing the sender's conduct; the documents do that work.

Statements made during compromise negotiations are protected by Texas Rule of Evidence 408 only against use to prove the validity or amount of the claim, and only when they are part of an effort to compromise. Factual statements in a response can be used for other purposes. Write the dispute section as if it will be an exhibit, because it may be. If the sender later files a suit on a sworn account under Rule of Civil Procedure 185, your written denial will need to be verified under Rule 93, and it will need to match what you said now.

Step four: propose the path to resolution

A response that pays the undisputed part and disputes the rest should end with a proposal: a call between counsel, an exchange of the documents each side relies on, a short meeting. If cash flow is the problem rather than the amount, propose a payment plan in writing, with dates, amounts, what happens on default, and a release of the disputed portion on completion. A payment plan that is not written down is an invitation to a second dispute. The terms that make settlements hold are covered in how a business settlement is structured.

If the letter is a DTPA notice

A demand that invokes the Texas Deceptive Trade Practices Act carries its own rules. The sender must give 60 days' written notice before suing for damages, and within those 60 days the recipient may make a statutory settlement offer under Business and Commerce Code § 17.5052, stating separately an amount for the consumer's damages and an amount for the consumer's attorney's fees to date. The consumer has 30 days to accept. If the offer is rejected and the consumer later recovers no more than the damages tendered, the recovery is capped at the lesser of the two amounts and fees are capped at the amount offered. For a recipient who owes something on a DTPA claim, this offer is the most important tool available, and it has to be made within the window and in the statutory form. The full procedure is covered in the 60-day DTPA notice letter.

Example

Suppose a Dallas event production company receives a demand from a venue's lawyer for $54,000: $36,000 in unpaid rental fees under a signed agreement and $18,000 in damage charges for a stage floor. The company's records confirm the rental fees are owed and were held back only because of the floor dispute, which its crew's photographs show was already scratched at load-in. Within 30 days of the letter the company wires $36,000 with a cover letter identifying the invoices paid, stating that the payment admits nothing as to the damage claim, and disputing that claim with the time-stamped photographs attached. It proposes a call between counsel. The venue's lawyer now has a client with a $18,000 dispute, no fee recovery available on the $36,000, and photographs that undercut the damage claim. The call produces a $4,000 compromise on the floor and a mutual release. Had the company instead disputed the whole amount, the venue would have sued on the account, recovered the rental fees plus attorney's fees, and litigated the floor with the company paying its own lawyer for both halves.

Mistakes to avoid

• Paying everything to end it. You have conceded the disputed items and taught the sender that overstatement works.
• Disputing everything because part is wrong. You have given up the 30-day protection on the part you owe and lost credibility on the part you contest.
• Negotiating the split by phone. Nothing said is protected unless it was part of a compromise negotiation, and even then only partially. Put the split in writing.
• Admitting facts about the disputed items. "We know the floor was damaged but we think the charge is too high" is a different response from "the photographs show the floor was already damaged."
• Letting the 30 days pass while you investigate the unverified pile. Tender what you can confirm; say that you are reviewing the rest and will respond by a stated date.

When a litigator should handle the response

When the undisputed amount is significant, when the disputed part turns on contract interpretation, when the letter invokes a statute such as the DTPA, or when the sender is someone you expect to litigate with over more than this letter. A litigator can structure the tender so it does what § 38.002 requires, write the dispute so it serves as your later pleading, and judge whether the sender's remaining claim is worth their filing. Tina Wysk answers demand letters for Dallas businesses that owe part of what is claimed and intend to pay exactly that.