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CALIFORNIA CORPORATE & SECURITIES LAW

When “The Check Is In The Mail” Extinguishes A Debtor’s Obligation

Most creditors likely assume that they have not been paid unless and until they receive checks from their debtors.  In many cases that assumption may be correct, but in some cases it won’t be.  Section 1476 of the California Civil Code provides:

If a creditor, or any one of the two or more joint creditors, at any time directs the debtor to perform his obligation in a particular manner, the obligation is extinguished by performance in that manner, even though the creditor does not receive the benefit of such performance.

The application of this statute is illustrated by a case, Sleep EZ v. Mateo, Cal. Ct. Appeal Case No. BV 031618 (July 4, 2017).  The contract at issue in the case was an apartment lease.  The lessor’s manager had instructed the tenant to pay the rent by mail to a post office box and to always pay by money order.  The tenant had done so for 30 years until one day the lessor didn’t receive the rent.  The trial court gave judgment for the defendant finding that the tenant had purchased a money order for the full amount of the rent due and the lease required that rent be paid “to landlord by U.S. Mail”.  The Court of Appeal affirmed, citing Section 1476.  In doing so, the Court rejected the landlord’s argument that under Section 3310 of the California Uniform Commercial Code a money order remains unnegotiated until it is honored.

Several facts may distinguish this case from other cases in which a debtor defends on the basis that the check was mailed.  First, the record established that the creditor had required rent to be paid only by mail and prohibited payment in person.  Second, the record established that the tenant had performed in this manner for several decades.  Third, the tenant was able to introduce evidence that she had performed as directed by the landlord (i.e., the receipt for the money order).

 

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