Release from Mechanics Lien

I would appreciate your thought on the following wording which I plan to use on the backside of checks that are issued to contractors.

"Endorsement of this check , by the party to whom it is made and if in the name of a company by their duly authorized Agent, including their official capacity with the company, creates an agreement to release any rights to a mechanic’s lien which could be caused to be executed for work and/or materials furnished to date against the issuer of the check."

RogerB - Since I know absolutely nothing about printing checks, let me ask a dumb question. Are there any rules by the Federal Reserve (or others) that dictate what can be put on the back of a check? I know we are all warned not to write anything below the signature line which is some specific distance from the left of the check on the back.

I found a related discussion on a law site here:
http://community.lawyers.com/messageboards/message.asp?channelId=&subId=&mId=952903&mbId=3&threadId=2944

An excerpt indicates that it may not matter what you write, since it could be unenforceable, depending on state laws:

"I don't know what the law is in AZ, but, in CA,

"Where a claim is disputed or unliquidated and a check or draft is tendered by the debtor in settlement thereof in full discharge of the claim, and the words "payment in full" or other words of similar meaning are notated on the check or draft, the acceptance of the check or draft does not constitute an accord and satisfaction ***IF*** the creditor protests against accepting the tender in full payment by striking out or otherwise deleting that notation or if the acceptance of the check or draft was inadvertent or without knowledge of the notation." Civil Code Section 1526(a) (emphasis added).

Thus, unless one of the conditions in the last phrase above is satisfied, the "paid in full" notation IS effective to discharge the obligation.

Again, I don't know what the law is on this in AZ."

For example, at least in CA, if a secretary normally just stamps the signature on a check and deposits it, then the company could claim "acceptance of the check or draft was inadvertent or without knowledge of the notation.".

These conditions should NOT be put on the check. A check is NOT a contract, it's a payment. The conditions should be put in a Contract whenever you sign up a contractor to do the work. There should be a contract signed defining the work to be completed with any contractor. The state laws will then allow for the liens or probate process. It's kind of an "understood" thing that if you fail a contract you face consequences anyways. Having them in writing just may "boost" your case.

Why would you put the conditions on a check anyway? One can use the memo section to put down the payment information. For example: Payment # 3 of 12 or put it like 3/12 payment. It's always suggested that the memo section of the check be filled out showing the complete payment schedule and minus the number already completed. I do this with my rental checks as well. That way I can keep up with the lease dates.

Do you have a Management company? They should keep track of the payments as well. If not, use a calender to record that is SPECIFIC to that account ONLY. That way if you have to go to court on one issue, you won't lose ALL the information. Plus it looks better in court to have just one subject noted in the calendar. Whatever discussions, agreements, modifications, or notes can be written there on the date and times they occurred acurately.

Larry, thanks for your response, good points. How does one get releases from the contractor's suppliers? I guess we could require documentation proving the contractor has paid for all of their supplies as part of their agreement. However, sometimes the funds received when cashing a check could be partially used to pay for supplies. I think the original executed agreement, the agreement created by signing the check, and an unconditional release all need to be considered based on the circumstances. When major expenses are involved one can not be too careful

Melissa:

As Jade said a check is a contract, we had a homeowner who was late on dues one time and wrote us a check for the dues only and not interest and put paid in full on the memo line. Now if we had cashed that check we were agreeing with her that she was paid in full. I sent the check back and asked for a different one. You have to be careful because you can't cross it off either without their approval.