Puppy Dispute

I am needing some advise on a poor choice that I made. I have a female dog who I entered into a verbal agreement to breed and only got one puppy. The owner of the male dog initially was to get pick of the litter and when we only got one puppy things were up in the air...We discussed letting the owner of the male get the first puppy and to rebreed and I would get whatever she had the 2nd time. Durring the 8 weeks before the puppy would be ready to go I paid for shots, to have the tail docked and worming. I also found out that the intention of the owners of the male was to breed it to its own daughter...That is something had they been upfront with me about I would have never breed to their dog in the first place! I advised the owner of the male that the puppy would not be given to them that if I had to pay them for my half of the dog or pay them for a stud fee that was fine but that I was keeping the dog I offered $200 for the puppy. I then received a phone call from the woman crying saying that I knew that puppy was worth $1000.00 and that she was going to take me to court. I admit that I paid $800 for my female but that was over 2 years ago and in a completely different market than where I live today. I now live amongst the puppy mill capital in southern Missouri and my dog was purchased around Salina, KS...The dog market is just like cattle or any other livestock...supply and demand and I had already checked around and could easily purchased a registered puppy for under $500.00. I wrote her a check and sent it certified mail which she sign in receipt of. The last I checked she had not cashed the check...in the memo I did write Stud Fee Payment in Full since we had not come to any agreement about my half of the puppy. I am not sure if that was right or wrong, I am not trying to get something for nothing I just do not want to subject any animal to a life of being bred by its father just to produce puppies. I also do not have papers for this puppy due to this disagreement so really I just paid for a pet. This all transpired the month of January 2007...Today I received notice to pick up certified mail at the post office from this woman...my husband suggested not to go pick it up but the last think that I want is a law enforcement officer to come and serve me papers...any advice?

Though you are in the "puppy mill" capital in southern Missouri (and why you think you need to add to the quota with someone who IS a PM) obviously you are not familiar with normal dog/litter contract procedures. One puppy does not make a litter. You should get to keep the puppy along with a repeat breeding.
But, since you have already put yourself into this hole and sent her money along with making promises. In certain situations where dog pedigrees have been thoroghly researched, all medical clearances such as OFA met, and if the breeding is to improve something in the breed a father/daughter breeding is not unusual. Doesn't sound like it in your case. If you feel strongly about this puppy and are willing to keep it w/o papers or sell it as a pet w/o the papers IMO take your chances and pick up the letter at the post office. If it is a small claims notice-you don't have anything to lose.
But-maybe it will teach you a lesson to leave th breeding to the responsible breeders.

If you "discussed" breeding a second time that sounds like in fact you made a second verbal agreement that you are now not keeping. You can't change your mind because you don't like the intentions that you discover later. What they want to do is not illegal and not cruel although not really good breeding procedures. You will probably lose in court, so think about turning over the puppy, cancel the check, before it cost you any more money.