Van M. White III

Construction Liens in Oregon

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House under Construction

Contractors and suppliers on construction projects not paid on time may not be able to keep current or meet their financial obligations. Lack of payment and late payments also leads to wasted resources and reduced profits. Industry surveys indicate that contractors and suppliers on construction projects are often paid late and many of them don’t consider filing a construction lien when payment is not made on time.

With current interest rates relatively high, banks are tightening up and construction financing may be difficult to obtain. In addition, there are concerns about a recession. These factors could very well cause contractors and suppliers on construction projects to encounter payment issues. Thus, it is important that contractors and suppliers take advantage of their construction lien rights to avoid late payments and help ensure they are paid. Just the simple step of providing notice of lien rights to the property owner at the beginning of a project can cause payment to be made in a timely manner. If a general contractor or owner is having cash flow issues, they are more likely to pay the contractors and suppliers who secured their lien rights by providing notice to the owner.

Construction liens are a very effective collection device for construction contractors and suppliers. To read more about what construction liens are and how they work in Oregon, click here.

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Does a Check Marked “Payment in Full” Actually Constitute Full Payment?

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I was recently asked about the ramifications of cashing a check marked “payment in full” when the amount of the check wasn’t for the full amount owed.  I get this question every once and a while, especially for clients involved in construction.  The question caused me to update myself on the current state of the law in Oregon regarding checks marked as “payment in full” or with similar language.

In the situation posed to me, the company who owed the money wrote “payment in full” in the memo line of their check.  In addition, the check was accompanied by a note which stated that the enclosed payment represented full payment of a final invoice.  However, the check was less than the amount of the final invoice and the company that issued the final invoice was adamant that they were entitled to the full amount of their final invoice.  To complicate matters, they were having some cash flow issues at the time they received the check because of a delay in payment from someone else.  While they desperately needed the money, they didn’t want to give up the remaining balance of their final invoice by cashing a check marked “payment in full.”

From a legal perspective, this dilemma raises the doctrine of accord and satisfaction.  The idea being that the payor’s offer of something less than what is actually owed would be in  satisfaction of the entire debt when the payee cashes a check marked “payment in full.”  In this situation, accord generally means to agree or concur.  From a practical perspective, especially for a creditor who badly needs the money, this potentially puts the creditor in a tough spot.

Cashing a check which includes various written designations by the issuer of the check such as “payment in full,” “paid in full,” “final payment,” and “full settlement” is interpreted by some states and courts as a complete satisfaction or discharge of the underlying debt even if the amount of the check didn’t actually constitute payment in full.  That used to be the case in Oregon a number years ago.  Fortunately, that isn’t the case anymore.

In 1997, Oregon amended the statute (i.e., ORS 73.0311) regarding accord and satisfaction.  The statute is fairly short and concise, so I’ve quoted it below:

“The negotiation of an instrument marked “paid in full,” “payment in full,” “full payment of a claim,” or words of similar meaning, or the negotiation of an instrument accompanied by a statement containing such words or words of a similar meaning, does not establish an accord and satisfaction that binds the payee or prevents the collection of any remaining amount owed upon the underlying obligation unless the payee personally, or by an officer or employee with actual authority to settle claims, agrees in writing to accept the amounts stated in the instrument as full payment of the obligation.” (emphasis added).

In the situation posed to me, the recipient of the check (i.e., the payee) didn’t (nor did anyone else with authority at the payee company), agree in any form of writing to accept the amount stated in the check as payment in full.  In addition, they had sent a few e-mails to the company that wrote the check (i.e., the payor) which stated they disputed the payor’s position that the payor didn’t owe the full amount of the final invoice from the payee.

After becoming aware of ORS 73.0311 and the current state of the law in Oregon with regard to checks marked “paid in full” and the like, the payee proceeded to notify the payor that: (1) the check did not constitute payment in full; (2) they were going to cash the check; and (3)  they would continue to seek payment of the remaining balance.  Fortunately, the check cleared the bank.  I haven’t heard if they collected the remaining balance owed on their final invoice.

Despite the language of ORS 73.0311, be careful when dealing with checks marked “paid in full” or with similar language.  I say this, in part, because of the “agreeing in writing” language in ORS 73.0311.  In my experience, I have seen some crafty (to be kind) payors send cover letters with their checks which state that that the payee’s right to endorse the check is conditioned on acceptance of the reduced amount as full payment.  In addition, crafty payors sometimes add endorsement language to the back of the check which states that endorsement of the check is an acknowledgement of payment in full.

Every fact situation is different.  As such, it is important to be cautious if faced with a situation where a party who owes money to you tries to force you to accept less than what is owed by adding restrictive “paid in full” type language to the check.  However, per Oregon law, if a payee receives a check that is marked “paid in full” or with similar language but said check does not actually constitute payment in full, the payee can confidently cash it and still seek the remaining balance as long as the payee personally, or an officer or authorized employee of the payee, does not agree in writing to accept the amounts stated in the check as payment in full of the obligation.

Should you have any questions about this issue or need any assistance collecting past due amounts, feel free to contact to me at vmw@samuelslaw.com or (503) 226-2966.

COVID-19 & Forbearance Agreements

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With new times come new terms. Six months ago we had never heard of Coronavirus or social distancing.  Now, we hear those terms so often we look forward to the day we never hear them again. Another term we’re starting hear in the wake of the Coronavirus outbreak is forbearance. Prior to COVID-19, most of us probably didn’t know what forbearance meant. Unfortunately, the financial impact of COVID-19 will likely cause many businesses and individuals to seek forbearance agreements with their creditors.

Forbearance means the action of refraining from exercising a legal right, especially enforcing the payment of a debt. A forbearance agreement is an agreement between a lender and a borrower (or a creditor and a debtor) to temporarily suspend the payments owed by the borrower to the lender. Forbearance agreements are often entered into in lieu of the lender filing a lawsuit to foreclose a mortgage or trust deed.

Borrowers, or debtors, adversely affected by the Coronavirus outbreak may need to enter into forbearance agreements with their creditors if unable to make their payments when due. Pursuant to the CARES Act, persons who have a federally backed mortgage can seek forbearance of their mortgage payments for up to nearly a year (they can initially apply for 180 days and then seek a 180 day extension). Many mortgages are federally backed. Interested persons should contact their loan servicer to determine if their mortgage is federally backed.  Even if a mortgage isn’t federally backed, given the widespread financial impact of the outbreak, there is a fair chance the lender has some forbearance or other options available.

Technically, a forbearance agreement is not a loan modification. Forbearance generally means that the lender agrees to forebear from taking action to enforce the borrower’s failure to make a payment when due and triggering the default clause under the agreement for payment failure. Persons facing the inability to pay their debts as a result of the outbreak need to consider promptly seeking forbearance or a modification of the payment terms of the loan or debt. Whether the parties enter into a true forbearance agreement or a loan modification, there are a number of considerations and competing interests.

While it is incumbent on the debtor to seek forbearance or a loan modification if the outbreak is or will likely cause them to not be able to make payments when due, a forbearance agreement can actually benefit both parties. For the borrower, one of the primary benefits of a forbearance agreement is that it gives them some breathing room with regard to their cash flow, cash on hand and long term ability to pay their debts. A forbearance agreement gives the debtor some time to figure out their next steps.

From the debtor’s perspective, it is important to recognize that a forbearance agreement can actually also benefit the lender. While the lender would obviously prefer to receive payment in a timely manner, a forbearance agreement can add certainty to the lender and improve the likelihood and level of repayment of the debt.  It also allows the lender to avoid having to enforce the remedies under their contract, such as foreclosure. Enforcement of contract remedies can be expensive and time consuming. Furthermore, some remedies, such as evictions and foreclosures, have been prohibited by the government during the COVID-19 outbreak.

Some things to keep in mind with regard to forbearance agreements.

Forbearance Period: A forbearance agreement should include language with regard to how long the lender agrees to forebear the debt without taking action to enforce the terms of the agreement (e.g., accelerate the debt for failure to pay in a timely manner) and how much additional time, if any, the debtor might get to repay the debt. In most cases, the balance owed by the debtor continues to accrue interest while the debtor is not making payments pursuant to a forbearance agreement. The forbearance period may be for a specified time period or tied to the occurrence of a specified event (e.g., the governor of Oregon lifting the moratorium prohibiting on-premises consumption of food and drink and gatherings of more than 25 people).

Conditions: The lender will likely require the borrower (and, if applicable, personal guarantors) to meet specific conditions before the forbearance agreement becomes effective. Such conditions might include: providing financial statements; additional reporting requirements; an updated business plan; efforts to seek financial assistance or loans through available government and related programs; and the payment of a forbearance fee and the costs incurred by the lender while negotiating the forbearance agreement.

Acknowledgments and Reaffirmations: The lender will likely require the borrower, in consideration of the forbearance, to make acknowledgements regarding the validity and amount of the underlying debt. The reaffirmations usually also include language that the lender is not waiving the right to exercise their remedies under the contract in the event of future defaults by the borrower. Guarantors are generally also required to re-affirm their guaranties.

COVID-19 has adversely impacted the ability of many persons to pay their debts when due. Adversely impacted debtors should promptly inform their lender if they are encountering financial difficulties. Creditors understand that the outbreak has had a huge financial impact on many businesses and individuals. It is generally in the interest of the creditor to work with their debtors. Negotiated solutions between the parties, memorialized by a forbearance agreement or loan modification, are usually better than engaging in litigation, particularly given the current prohibitions and the fact that the courts are not operating at full capacity and won’t be for some time.

If you need any assistance with regard to a forbearance agreement or modification of a loan, whether you are a creditor or a debtor, please reach out to our team. We’re here to help you during the Coronavirus pandemic.

Van M. White III has more than 20 years of experience as a lawyer in Oregon and Washington. Van has been a partner at Samuels Yoelin Kantor since 2001 and has served on the firm’s management committee since 2010.

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