The Promissory Note ("PN") in the amount of $30K calls for six monthly $5K payments. Debtor sends the 5th check short ($4,5K) and with obvious intent to not pay the remaining $5.5 balance he writes "Final Payment" in the memo section of the check. If the creditor deposits the check, is he/she giving his/she right to receive the $5,5K balance owed per "PN" after the fifth check clears? - What are debtors options? - Thank you.
California has statutes that conflict on this issue:
-- Civil Code section 1526 states that the creditor can simply strike through the "payment in full" language to render it ineffective.
-- Commercial Code section 3311 states that the "payment in full" condition is binding whether or not the creditor strikes the language.
In the Directors Guild case, the court resolved the statutory conflict by ruling that the more recent of the two statutory enactments, Commercial Code section 3311, would control. Thus, the court concluded, a party may not simply strike out the words on the check, cash it, and continue to press for the balance due. Rather, to avoid the application of accord and satisfaction, the creditor must return the check to the debtor
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
I agree with Attorney Doland.
The post at the link below cites the two statutes that he cited and includes the following summary:
"In California, a restrictive endorsement on a check generally will be enforced."
This information does not constitute legal advice and does not establish an attorney-client relationship.
As Mr. Shultz points out, there needs to be a bona fide dispute for the "final payment" check to clear the debt. This seems like the kind of situation where you are going to wind up in court. The question will be whether it's for $10,000 or $5,500. The cleaner approach is to return the check and require payment according to the terms of the note.
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General Practice Lawyer
Don't cash the check and ask for the proper payment(s). If you cashed the check already, consider it an expensive lesson.
I am an Attorney-at-Law, licensed to practice law only in the state of California. Unless we have both signed a formal retainer agreement, you are not my client, and my discussion of issues does not constitute legal advice. Opinions expressed herein are those of the author, and do not necessarily represent the opinions of those who hold other opinions.