"Payment in full" is the law
“payment in full?”
Sending “payment in full” checks is common practice among business people
when there is a dispute over the balancing owing on an account or
There is a code in California that specifies that if you have a bonafide
dispute and tender partial payment on a check marked “paid in full,” and if
the creditor/payee cashes the check, they have been paid in full. However
that statute has probably been “repealed by implication” because of a
California court case.
Mr. Woodridge’s 1986 BMW was damaged in October of 1998 when J.F.L.
Electric rear-ended Woodridge. J.F.L.’s insurance company paid some money
to Woodridge and in an effort to finally settle the matter sent a check
which bore the notation “for full and final settlement.”
Woodridge wrote “partial payment” next to his endorsement on the final
check, but did not cross out the “full and final settlement” language, and
cashed the check.
J.F.L.’s insurance company contended Woodridge was paid in full. He argued
he had only been partially paid and was entitled to sue the insurance
company for more money.
At the trial, the insurance company testified they sent the final check
after reaching a verbal settlement with Mr. Woodridge. He contended there
was no such settlement.
PAYMENT IN FULL
There are two laws on this topic. The first in time is Civil Code 1726.
Essentially it reads that where there is a disputed claim and final payment
is sent with the words “payment in full” or something similar, acceptance of
the check does not constitute payment in full if (1) the creditor objects to
full payment by “striking out” or otherwise “deleting” the payment in full
notation, or (2) if the acceptance of the check is inadvertent and without
knowledge of the “payment in full” notation. “Take it or leave it” is not
the law under the Civil Code.
UNIFORM COMMERCIAL CODE
However, four years later, the legislature enacted UCC section 3311 which
contradicts the civil code. Under the UCC, if a check is sent in good faith
to settle an honest dispute, it constitutes payment in full if the check or
accompanying letter contains a conspicuous statement to the effect that the
check is tendered “as full satisfaction of the claim.”
In other words, the rule is exactly the reverse. If a debtor sends a check
as payment in full and the creditor cashes it, even if they cross off
“payment in full,” the payment constitutes payment in full.
The Court in the Woolridge case said that the latter in time of the two
conflicting codes prevails, so the check to Mr. Woodridge was deemed payment
in full because he cashed it, even though he wrote “partial payment” on the
The Court said even if 1526 had not been superseded, Mr. Woodridge would
still have lost because he didn’t “strike out” or “delete” the full and
final payment language put on that check by J.F.L.’s insurance company.
Bottom line, if you cash a check marked “payment in full”, even if you
contend or write otherwise, and probably even if you cross off “payment in
full,” the check will be payment in full. The same holds true if you
receive a check with a letter claiming it is payment in full. Chances are
if you cash it, you bought it.
Jim Porter is an attorney with Porter Simon, with offices in Truckee,
South Lake Tahoe and Reno.