Special rules apply if the drawer stopped payment on a check. The drawer is not liable for a service charge, cost of mailing a written demand, or treble damages if he or she stopped payment in order to resolve a good faith dispute with the payee. The payee is entitled to statutory damages only on proving by clear and convincing evidence that there was no good faith dispute. [CC §1719(a)(3).]
A good faith dispute is one in which you find that the drawer had a reasonable belief of his or her legal entitlement to withhold payment. Grounds include [CC §1719(b)]:
- Services were not rendered;
- Goods were not delivered;
- Goods or services are faulty, not as promised, or otherwise unsatisfactory; or
- There was an overcharge.
In the case of a stop payment, CC §1719(c) sets forth the required contents of a demand notice by the payee to the drawer. You may not award damages or costs unless you receive into evidence a copy of the written demand and a signed certified mail receipt showing delivery, or attempted delivery if refused, of the demand sent to the drawer’s last known address. [CC §1719(d).] To recover damages, the payee also must show to your satisfaction his or her reasonable efforts to resolve the dispute with the drawer prior to filing a court action. [CC §1719(e).]