Have you ever been involved in a disputed transaction and been given a
check labeled "payment in full" but written for less than the
full amount of the claim? If so, and you were unsure whether or not to
deposit the check, you're not alone. California law is unsure too!
California Civil Code _1526 says that you can deposit the check without
waiving any legal rights if you cross out the words "payment in full".
You can still make a claim for any additional amount claim to be owed.
In direct contrast, California Commercial Code _3311 states that when
a claim is disputed and one party offers a check with the conspicuous
written statement that it is intended as full satisfaction of the claim
(i.e., "payment in full"), deposit of the check will constitute
acceptance of the offer of full satisfaction and any clams to additional
amounts is waived. Sections 1526 and 3311 are in direct conflict.
No California court has addressed this conflict. One federal court interpreting
California law did and sided with the Commercial Code in concluding that
depositing a check marked "payment in full" will waive any and
all future claims against the payee. While the federal court decision
is instructive, is it not binding on California state courts.
Ultimately, it appears that if you are involved in a disputed transaction
and the other party offers you a check marked "payment in full",
the safest course of action is not to deposit the check. Otherwise, you
risk waiving any claim for any additional amounts owed.
Keep in mind, however, that this law applies only where there is a bona
fide dispute as to the amount owed. Meaning, you can't pay your undisputed
$200 electric bill with a $100 check marked "payment in full"
and expect to get away with it!