Legal Question in Business Law in California

Re: Contract

After a modest amount of research, I could find no statute or case law specifically allowing you to offset what you owe her on one contract against what she owes you on another contract. In fact, I think the law is otherwise; for example, a merchant who has an open account with a customer is required to apply payments to specific transactions or invoices if requested to do so, and may not arbitrarily apply payments to the oldest invoices or the account as a whole.

On the other hand, the law does excuse performance of a contract where performance is frustrated by the acts of the other party.

It could be argued that her "interception" of the $30,000 that was supposed to be split between you was an act in frustration of your performance, particularly if it is really true that not getting your $15K share of the balloon payment put a serious crimp in your ability to pay her the six payments.

The bottom line is that a court will hand down a judgment that does justice to your complaint and her cross-complaint or defenses, and if you have the moral and legal high ground, your deciding to suspend the $500 monthly payments is probably not going to be held against you. Of course, there may be other factors here that you haven't mentioned.