Q: I am a licensed contractor and have a dispute with a customer. He makes various claims and has offered to pay one half of the total due. I do not agree to that reduction, but just got his check payment for half, which has a memo note written on it that says: “Full Payment Due.” If I cash it, am I then stuck and that’s all I get?
V.C., Fountain Valley
Ron Sokol
A: There are two statutes in California and they seem to be inconsistent. California Civil Code Section 1526 provides that if you get a check that has the words “payment in full,” or a similar phrase, the payment is not treated as complete if you protest acceptance by striking out or deleting that notation, or if you can show acceptance was either inadvertent or unknowing. California Commercial Code Section 3311, on the other hand, gives you two choices: Reject the check, or accept it and waive any claimed balance.
Commercial Code Section 3311 is more recent than Civil Code Section 1526. So, if I were you, I would reject the half payment, if you continue to claim that the full amount due is what has to be paid to settle the account. Note that you could cross out the written part of the check (payment in full), negotiate it and write to the customer showing what you did, making clear that the balance remains due. There is a risk, however, that a court would say you are stuck with the half payment since you negotiated it, even though you crossed out the writing on it. I am not saying that is fair, but given the difference in the law noted above, it is not out of the question.
In sum, this is not the simplest decision. Consultation with counsel therefore is advisable.
Q: Along with my question about the check that has the note “payment in full,” what happens to my company’s mechanics lien rights if we negotiate that half payment check?
V.C., Fountain Valley
A: Mechanic liens are creatures of statute. Thus, here too it is most prudent to go over things with a qualified attorney who is familiar with the rules.
In my view, you may lose a mechanics lien if it is determined that you accepted the partial payment. This is because mechanics liens are based on the contract. If the contract has ended because you are deemed to have negotiated “the full payment,” then your lien may no longer be enforceable.
I understand that rejecting the partial payment could be an uncomfortable decision for you, for a variety of reasons; after all, it is at least some of the money in hand. But, if you are determined to recover the total amount billed, it might be wisest to stick to your position and not negotiate any partial payment(s).
Ron Sokol has been a practicing attorney for over 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.
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