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Does "final payment" written in the memo section of the check overrides the terms of the Promissory Note?

Los Angeles, CA |

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.

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Filed under: Debt
Attorney answers 4

Posted

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.

Asker

Posted

I found that California common law historically provided that where a “good faith dispute” existed to the amount due, a debtor could tender a check with a restrictive notation to the effect of “payment in full” as a proposed accord and satisfaction, and the creditor’s negotiation of the check was deemed a binding acceptance not withstanding any reservation of rights by the creditor. What if there is no "good faith" dispute? I have enails to prove that. he owes me now $10,700.00. If I sue in small claims court I can max get $10,000 and no interest or additional amount he owes me over $10K. If I sue in limited jurisdiction it will take too long. Any suggestions (beside cashing $4650.00 check and call it a day).

Asker

Posted

What if there is no legitimate (bona fide) dispute? The promissory note was created on Dec 4, 2012. The PN calls for 6X5,000 payments. he now invents cost of litigation against third party that took way before he issued me a PN and he claims an offset. The truth is after all the discussions who owns who what he agreed to pay me $30,000 and issued the PN. In light of this facts I believe he has no bona fide dispute. How this changes the situation pursuant to Commercial Code 3311?

Posted

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.

Asker

Posted

Dana, what if there is no dispute? PN in fact resolved the dispute.

Asker

Posted

What if there is no legitimate (bona fide) dispute? The promissory note was created on Dec 4, 2012. The PN calls for 6X5,000 payments. he now invents cost of litigation against third party that took way before he issued me a PN and he claims an offset. The truth is after all the discussions who owns who what he agreed to pay me $30,000 and issued the PN. In light of this facts I believe he has no bona fide dispute. How this changes the situation pursuant to Commercial Code 3311?

Posted

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.

This is a general response to a general question posted openly on-line. Answering this question does not create an attorney-client relationship or any obligation on the part of the attorney to take any action or respond further. There are often deadlines, time limits and procedures which must be followed to enforce legal rights. The failure to take appropriate action as provided by law may lead to the loss of rights. If you would like to hire Mr. Bradley you will need to arrange a consultation and enter into a written fee agreement with him.

Asker

Posted

I understand the concept. The issue is he will and up owing me $10,000 and I will lose even those 4650. This way, because the person spends 6 months out of country I can sue for 5500 and let him prove there is a boni fied dispute. ]

Posted

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.

Asker

Posted

What if there is no boni fide dispute?

Gary Ralph Ilmanen

Gary Ralph Ilmanen

Posted

Doesn't seem to matter. Did you cash the check?

Asker

Posted

I made decision to deposit this check several days ago. after being able to wipe out the note form memo line. He was paying me through our join attorney. As she was getting agitated with the task and arguments, I felt if I returned the check down, he will not replace it and I will then have to sue for 10,000. And even if I got a judgment he will not have that much money in the bank to cease ever. he is 75 yr old and not the US citizen and he doesn't care about credit. Because he leaves country every October for six months, I thought I will sue him for $5,500 and let him prove that there is a dispute in time when there is none. This is preferred because I do not think he will delay his trip to appear in Court and I can always postpone the case to delay it further till i can get unopposed judgment. So if I get smaller judgment I have better chance to get this money ever then $10,000. Thus I made the deposit.

Asker

Posted

I have another question relative to Citibank not properly processing credit card dispute and sustaining unauthorized charges in the amount of 7500. Do you practice Consumer Protection Law?