"Payment in full" is the law | SierraSun.com

"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that statute has probably been “repealed by implication” because of a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.


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.


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.

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