Legal Question in Business Law in California

The California law on mistaken payments is as follows:

The recipient of an overpayment need not refund the overpayment upon request from the payor if all of the following are true:

1) The over-paid party did not recognize that it was being overpaid at the time it received and accepted the overpayment;

2) The over-paid party was acting reasonably and not negligently at the time it received and accepted the overpayment; and

3) The over-paid party has changed its (financial) position in reliance upon its (mistaken) belief that it was entitled to the overpayment in such a way or to such an extent that it would be unfair to require that it return the overpayment.

These three requirements might be phrased a little differently from court to court or from state to state, but I think these are pretty much the requirements everywhere.

I think if your business is very small, offering to repay in monthly installments would be considered to meet your legal obligations. In fact, if you were really struggling and unable to pay it back, a court might excuse you from repaying, provided accepting the check in the first place was done without any suspicion that it was a mistaken payment, and the cash proceeds had already been spent in the four months.

If what you are saying is that your business provided no goods or services to the person or entity that wrote the check to you, implying that it was sent in error, then of course they can ask for it back and you should give it back. I'm not sure what kind of options you are expecting exactly. Their mistake does not become a windfall for you and you guys should have questioned this before just keeping the funds. This is considered unjust enrichment in the eyes of the law and this is for $1700 not $17000 or $170000, so how long do you expect them to wait exactly? I would borrow the money if you must and pay them in full so not to invite a hassle. Remember, they are now very circumspect here because you thought you could get away with keeping their money so they may not be so willing to work with you and they may just sue you if even in small claims court.

If you are still unclear about whether you have any rights to these funds, I suggest that you consult with a lawyer in private and discuss your objectives in more detail. You can start by calling around to several for a free phone consultation, get some insights then pick the best fit to work with.

Kind regards,

Frank

www.LanternLegal.com

866-871-8655

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DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.