Under California Labor Code Section 221, once an employer pays wages to an employee, the employer cannot recover them -- period. If you were paid $50K wages up front, then when you finished your work, even if that work was for 30 seconds, you were entitled to the entire $50K, and your employer cannot recover any part of those wages from you.
I don't know what your friend is doing with the payroll checks (it seems as though he's stealing from his own corporation). If he is, then he could be in big trouble (criminal) if he has investors or partners, etc. But this has nothing to do with you. You did your job, you were paid, and you're done.
Sigh...okay, totally different sitution. Lemme see here...
You signed a general promissory note for a $50K loan, and then each paycheck was deposited to pay your friend back. So, if you haven't worked off the loan then you owe the remaining amount, whatever that is.
If your friend is paying himself from his corporation with wage checks written in your name, then your friend is paying off your loan with someone else's money. That would be embezzlement and civil conversion by your friend from the corporation. However, if your friend is 100% owner of the corporation, then he's embezzling from himself, so there's no crime. Otherwise, there is a crime, but you're not committing it, because you have no control over what your friend does. If he wants to write checks in your name and deposit them in his account, then as long as he pays your taxes, you're not being injured.
In the event that your friend has partners, then those partners could sue your friend for breach of fiduciary and conversion (and they could call the police), and they could sue you for the taxes paid on your behalf, but they wouldn't have to do that, because they could simply report the issuance of the payroll checks to the IRS as being in error and get the money back from the government, at which point you wouldn't owe any taxes for those checks, because you would have had no income -- and you would be all square.
On the other hand, you would still owe your friend whatever amount remains unpaid on the note.
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