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D is corrent. At the time the contract was made, the debt was liquidated since the amount was certain ($500). However, the bona fide dispute changed the debt to an unliquidated debt. Payment of a lesser sum to discharge an unliquidated debt will be effective if accepted as payment in full since each party gives consideration in the form of forfeiting a claim to dispute the amount of the debt. Smith’s cashing of the check was acceptance of a settlement for the full amount of the debt.
A is incorrect because the debt is unliquidated (e.g. a bona fide dispute makes a liquidated debt unliquidated).
B is incorrect since the fact that Smith crossed out the words "paid in full" has no effect. The check must be accepted in the manner offered and Smith’s cashing of the check discharges the entire unliquidated debt.
A is incorrect because the debt is unliquidated (e.g. a bona fide dispute makes a liquidated debt unliquidated).