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

Asked almost 5 years ago - San Francisco, CA

Disputed invoice with a vendor - vendor was under a monthly retainer (always paid in full and on time). Several months in, the vendor sent me an invoice equal to 4 times the value of the retainer - for "setup" costs. These were for services covered under the retainer; however, the vendor felt he did more work than he anticipated and deserved extra compensation. I received no notification of any of this prior to receiving the invoice.

The agreement for the retainer was verbal. I do have notes from the meeting showing the cost and services under the retainer, as well as no indication of any setup costs.

Have tried to settle with no luck - now he is threatening to go to collections. I feel this may be extortion, but will cost more to fight than pay, and will hurt my credit. What can I do?

Attorney answers (4)

  1. Pamela Koslyn

    Contributor Level 20

    Answered . In response to Attorney Ginn's post, please see Commercial Code § 3311, which is irreconcilable with the Civil Code § 1526; 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.

    Citations include: 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 Dist.2 01/13/2005): (unpublished) "Pursuant to Woolridge v. J.F.L. Electric, Inc.,.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)."

  2. Pamela Koslyn

    Contributor Level 20

    Answered . 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 state 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.

  3. David William Ginn

    Contributor Level 13

    Answered . 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 was 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 who wants to understand your case better.

    I disagree with the advice given by the two posters above. 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.

  4. Brian Richard Dinday

    Contributor Level 16

    Answered . 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 altered to grant 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.

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