Invoice dispute - vendor is threatening to take me to collections for charges that are a breach of our contract - what can I do?

Send the vendor a letter by certified mail, Fed-Ex, messenger, or some other provable method of delivery, and enclose a check.

The letter should say thanks for your services, you're terminated effective immediately (if you haven't done that yet) and stating that you regret the dispute that's come up and you hope the enclosed check will resolve it.

The amount should be what you think the contract was, the retainer amount, and if you want to sweeten the offer, add something so he can think he "won." On the memo line of the check in the front, and on the back where the payee signs, put a "restrictive endorsement" that says "full and final payment for all services." If he cashes your check, he'll have accepted your settlement offer. If not, you may still have to deal with him. But it's often hard for people to resist a check, and some people mistakenly believe that they can cross out the restrictive endorsement and cash the check and still pursue their claim, but they're wrong.

Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

Ms. Koslyn's advice is good, but remember to make a photocopy of your check with the restrictive endorsement BEFORE you mail it. His cashing a check for less than what he thought he should get does not stop him from submitting a bad credit report however. Another approach is to sue him in Small Claims Court and seek equitable relief in the form of having the contract rescinded, reformed or granting specific performance (making him do what he agreed to do). Then you could have a judgment to give to the credit reporting agencies to make them take the negative report off your record. Equitable relief (which is a legal remedy other than the award of money) is authorized in Small Claims Court under California Code of Civil Procedure Section 116.220 (b). You could also ask the judge to set the terms of the contract in writing, or to make him pay you back money you paid but should not have had to pay. Good luck.

Your post does not contain enough information to provide you with some direction. Did the vendor send you invoices for the retainer? Was there any form of advertising or circular that might imply the terms of your agreement? What were the nature of the services provided? What evidence has the vendor provided you that the expenses were as agreed? These are the sorts of questions I would expect a lawyer to ask you wants to understand your case better.

I think the above two posters are giving you terrible advice. Apparently, they are unaware of California Civil Code section 1526, which allows the recipient of a check with "paid in full" on it to cross out the notation and cash the check with no consequences. I suggest you take a look at the statute and speak to a lawyer about your concerns. I am in Walnut Creek and can help you if you wish.

I am the poster of this question - I'd like to offer a little more information (they limit the space in the questions):

- Yes - the monthly retainer was invoiced (at the agreed upon amount) and paid in full on time for several months (May, June, July of this year). I believe this establishes some sort of precedence?
- In early August, the vendor approached me about an additional invoice he would be sending me as he felt the time spent performing the services (general accounting and payroll services) was more than he anticipated, and that there was some time spent in setup functions (i.e. migrating the payroll over to his system). There had previously been no indication or agreement to any setup costs. In addition, these costs were at the full rates of the company, and not the discounted "rates" I received under the monthly retainer (based on his estimate of hours spent per month over monthly fees).

When we tried to resolve the dispute he acknowledged that he neglected to mention any setup fees, but that he felt entitled given the work performed. As a side note, it later turned out the work was incomplete and erroneous in some cases. I offered to meet him in the middle and pay 50% of the invoice value. Originally he accepted this offer, but before payment was made he changed his mind. When I asked him to provide some documentation on the work performed and explanation of the errors I found, he refused to do so.

In response to Attorney Ginn's post, please see Commercial Code § 3311, which is irreconcilable with the Civil Code § 1526, and since the Commercial Code statute was enacted after the Civil Code statute, it governs, as the case law confirms.

You cannot cross out a restrictive endorsement, cash a check tendered as a settlement or "accord and satisfaction" of that dispute, and reserve your rights to go after more money. Once you cash the check with that "offer," your acceptance of the check is an acceptance of the offer.

Church v. Jamison, 50 Cal.Rptr.3d 166, 143 Cal.App.4th 1568 (Cal.App. Dist.5 10/23/2006): "Reliance on [Civil Code § 1526] has been suspect since . . . Directors Guild of America v. Harmony Pictures, 32 F.Supp.2d 1184 (C.D.Cal. 1998)." First North American National Bank v. Superior Court of Los Angeles County, No. B176618 (Cal.App. Dist.2 01/13/2005): (unpublished) "Pursuant to Woolridge v. J.F.L. Electric, Inc.,. . .and Directors Guild of America v. Harmony Pictures. . . the controlling California statute on the issue of the legal validity of an accord and satisfaction is now Commercial Code § 3311. "

The Official Comment no. 2 to Uniform Commercial Code § 3311 reads: "This [acceptance of compromise by cashing a check] result is the same if [the creditor] adds a notation to the check indicating that the check is accepted under protest or in only partial satisfaction of the claim. Under the common law rule [the creditor] can refuse the check or can accept it subject to the condition stated [ ], but [the creditor] can't accept the check and refuse to be bound by the condition. Id., (emphasis added)."