California - Tenant Post Dated Check causing Tenant Injury

[AgentSmithers]

What is the name of your state? California
Hi Everyone! Pretty rare but I have myself in a slight situation
I own a home which I rent out, I normally do not have any remote issues with tentants at all but this one threw me a curve ball. Rent lease starts at the 1st of Sept, A lease was signed August 15 and a check for the deposit was given that day. My Agent who received the check agreed to not cash it till the post date. My Agent gave me the check in person and did not give me this detail and I deposited it that same day just hours after. I got a call about an hour after that from the new future tenant letting me know the issue and I offered to reverse the transaction and to give him a check back within that hour for the full amount. The tentant rejected the offer without reason "I can't accept that now" and closed the call. About a 5 days later I receive an email stating that due to the impact of the check removing the funds that the future tentant lost a large client due to not being able to fund a future project. The client no longer does business with the Tenant, The Tenant now is demanding that We give him a discount of $3500 from lost wages from his client and if not received he will refuse to pay rent completely.

So that above being said I have a couple of thoughts that may need to be addressed
1: UCC codes that once a check is signed it becomes legal tender and its the duty of the tenant to inform their bank to hold the check. I assume he waves his pertection by not doing so

2: However my agent did agree to not cash it, Is this considered a verbal modification to the Tentant's Lease contract as our's does not state when I will deposit the check, Only that funds will be received for the deposit, OR is this a completely new Verbal contract that is considered separate from the lease?

3: Does this situation normally void our lease contract with consideration of item 2 above?

4: Is there a rule or CCP anywhere saying that insufficient tender on your own behalf is not considered injury even caused in a situation like this? I think in labor law theres a reason if someone was unlawfully terminated but if a check is written for even $100 and I take the law $100 out of his account, I don't have any control over how much money is in his bank, am I NORMALLY be found liable for his injuries?

Thank you everyone
Lesson learned on my side
Let me know if I can offer any additional details.
-Agent

 

[Zigner]

If he fails to pay rent on time, take the proper legal steps without delay.

 

[HRZ]

1. THe moment the tenant fails to pay as per lease yountake all proper steps to collect or evict .

2. My leases have clear language that only the written terms apply...what's in your lease? An oral deal to hold a post dated check in addition to being unwise would not be enforceable under my written lease. I don't know the issues of presenting a post dated check " early " under the UCC , apparently his bank honored it

 

[xylene]

PITA tenant with tenuous cashflow...

I'd be holding him the exact terms of the lease.

If his business requires operating capital for outlays on new work, he should have a line of credit.

Basically, he can't sue you because he is a broke independant contractor who is a week away from insolvency. That isn't your fault.

 

[reenzz]

Unless he notified his bank, you are under no obligation to cash the check on the post dated date.

 

[adjusterjack]

Your agent is an idiot. Fire him. Get rid of the problem tenant. If you can't handle the rental yourself, sell it.

 

[Gail in Georgia]

And your tenant is nuts with his demand. If he refuses to pay rent based on this nonsense, begin the process of eviction.

Gail

 

[Taxing Matters]

So that above being said I have a couple of thoughts that may need to be addressed
1: UCC codes that once a check is signed it becomes legal tender and its the duty of the tenant to inform their bank to hold the check. I assume he waves his pertection by not doing so

That is not what the UCC says. The UCC does not use the term "legal tender" in the definition of a check and the term "legal tender" is generally misunderstood by nonlawyers. Your situation is not one in which the concept of legal tender is important.

More to the point, the UCC does not say that a check is payable immediately upon being signed, as you imply. California has adopted UCC § 3-113 without change, and it appears in Commercial (COM) Code § 3113 as follows:

(a) An instrument may be antedated or postdated. The date stated determines the time of payment if the instrument is payable at a fixed period after date. Except as provided in Section 4-401(c), an instrument payable on demand is not payable before the date of the instrument.​

​

(b) If an instrument is undated, its date is the date of its issue or, in the case of an unissued instrument, the date it first comes into possession of a holder.​

(Bolding added). Checks are defined, in part, as instruments that are payable on demand. COM Code § 3104(f). Note what the part that I bolded above in the second sentence of subsection (a) says about instruments payable on demand: they are not payable before the date on the instrument. Thus, if you took note of the date on the check you should not have deposited or attempted to cash that check before that date. The tenant's bank would have been within its rights to decline to honor that check when presented before the date on the check. The opening clause of that second sentence mentions an exception for banks: they may pay a post dated check early and not be liable to their customer for doing so unless the customer has notified the bank of the post dated check early enough for the bank to flag that in its system and catch the check. That exception does not help you, however, since it just addresses the bank's liability to its customer (your tenant). Moreover, your agent acting on your behalf had agreed not to cash the check before the date on the check, setting up a contractual problem for you in that you agreed through your agent that the check would not be cashed before that date. Unless the lease specifically states that such verbal agreements are not binding you appear to have had a contractual agreement to wait to cash that check.

Now, that said, your obligation here was likely no more than what you offered to do in the first place: promptly return the funds from the cashed check. The tenant probably should have accepted that. Under contract law, the general rule is that consequential damages are not awarded unless the breaching party had reason to know of those consequences at the time the contract was made. What this means is that the tenant generally cannot recover anything for the loss of his clieent unless the tenant expressly told your agent at the time the agreement was made that cashing the check early would lead to loss of this client.

I don't see this issue as likely allowing the tenant to void the lease. The early cashing of the check is not such a fundamental breach that the contract could not be carried out as planned. All you had to do is return the funds that were obtained by cashing it early (assuming that your agent was not on notice of the potential consequential damages) and that would have cured the problem. The tenant's problem with his customer ordinarily is not your problem to deal with and wouldn't allow him to get out of the lease. Certainly the tenant cannot both stay in the leased space and not pay rent. If the tenant won't pay rent as agreed in the lease, you want to start eviction proceedings. If the tenant sues you for damages relating to the loss of the client, consult a civil litigation attorney for help defending that claim. If the tenant wants out of the lease as a result of the this problem, then you need to decide if you are willing to do that. If you aren't willing to do that, take your lease to real estate or contract lawyer in California to review your lease to see just what you can hold him to and for advice on how to proceed.

 

[AgentSmithers]

Amazing Feedback Taxing (And EVERYONE ELSE), That makes a lot of sense, Very much appreciated.
And to confirm that way I read 3-113 is that it makes postdating a legal act vs. being illegal in other states. So by the UCC code state "Determine Time of Payment" That verbiage insinuates that the payee cannot leverage the funds or is there a specific code that touches on that? I appreciate the help, I did a search on this forum before posting and I thought the previous Calfornia state advise conflicts with your stance on Postdating but your position on it still feels to be accurate so I'll try to wrap my head account UCC a bit more. I even went back to pull the check to confirm and the guy didn't even postDate it, He put it in the memo "For Oct 15th" *Facepalm*.

Edit: I think I found the Consequential Damages you where referring to Tax, This bit helps out a ton because we can talk this one outside of court if I can bring enough ammo to sway the tenant's mind. Again much appreciated your post was very helpful!

• “ ‘Contract damages are generally limited to those within the contemplation of
the parties when the contract was entered into or at least reasonably foreseeable
by them at that time; consequential damages beyond the expectation of the
parties are not recoverable. This limitation on available damages serves to
encourage contractual relations and commercial activity by enabling parties to
estimate in advance the financial risks of their enterprise.’ ‘In contrast, tort
damages are awarded to [fully] compensate the victim for [all] injury
suffered.’ ” (Erlich v. Menezes (1999) 21 Cal.4th 543, 550 [87 Cal.Rptr.2d 886,
981 P.2d 978], internal citations omitted.)
• f special circumstances caused some unusual injury, special damages are not
recoverable therefor unless the circumstances were known or should have been
known to the breaching party at the time he entered into the contract.’ ” (Resort
Video, Ltd. v. Laser Video, Inc. (1995) 35 Cal.App.4th 1679, 1697 [42
Cal.Rptr.2d 136], internal citations omitted.)

 

[FarmerJ]

I agree with A & G it appears to me you have a tenant who has a self entitlement / nose out of whack etc problem , Bank proof reading isn't like it was years ago , where I live once you have filled out the pay to the order line and dollar amounts that's all the bank needs to process a check . Years ago I filled out my electric bill check and forget to sign it and this was in the early 80s when banks had people like my step mother who worked in a bank help run proof reading machines and all they looked for was that the long hand dollar amount matched the numbers in the sq to the far right and the machine read the account number off the bottom , she told me they could process checks with out signature and she did it anyway when it was things like utility bills or mortgages if she noticed the lack of a signature. AS to post dating where I live if a post dated check bounces the check writer has no recourse if the check itself is NSF. Hold your tenant to the lease and if they don't follow it get rid of them and don't make the mistake of accepting post dated checks ever again

 

[xylene]

One more point. How was the tenant going to pay both the front for work AND your check?

He's going to get paid in full on a contract in 1 week? Complete BALONEY.

And BALONEY isn't damages.

 

[Taxing Matters]

Amazing Feedback Taxing (And EVERYONE ELSE), That makes a lot of sense, Very much appreciated.
And to confirm that way I read 3-113 is that it makes postdating a legal act vs. being illegal in other states. So by the UCC code state "Determine Time of Payment" That verbiage insinuates that the payee cannot leverage the funds or is there a specific code that touches on that?

What it means is that a post-dated check is not illegal and that the check is not technically good (i.e. payable) until the date on the check. There is nothing in the UCC that says it is illegal for the payee to present the check early, but if the payee presents the check and and the check is dishonored because the check was presented early the payee doesn't have recourse for that like he would if the check was immediately payable.

Thus, it was not illegal for the tenant to give you a post-dated check. Nor was it illegal for you to present that check before the date on the check. It's just that the check isn't good/payable until the date on the check.

Your legal problem here is primarily a contract issue: your agent had agreed not to cash the check early, but you did anyway. While that may be a breach of contract, your liability for damages are likely limited to the return of the funds; the losses the tenant incurs from the loss of the client are consequential damages and he's not likely to get that for the reasons I explained earlier.

 

[xylene]

Thus, it was not illegal for the tenant to give you a post-dated check.

Aparently OP's tenant didn't even post-date - all he did is made a memo line note.

 

[AgentSmithers]

Yeah, I think I have a plan to tackle this convo with the tenant, If he doesn't agree hopefully we can void the whole thing and move on with life.
Thanks everyone for their wonderful feedback and support!

 

[AgentSmithers]

Quote from Taxes "Now, that said, your obligation here was likely no more than what you offered to do in the first place: promptly return the funds from the cashed check. The tenant probably should have accepted that. "

On that note, Is there a CCP that touches on the attempt to "Cure"/mitigate a breach (From the breachers side) or is that just a factor the judge takes into account if a judgment is rendered while he's coming up with a dollar amount for injury?

Thanks!