Accord and Satisfaction Collections…Another Kick in the Pants from the Bench

Accord and Satisfaction Decision

Early in August 2014, the Second District Court of Appeals of Florida (the “Appellate Court”) issued an important decision that may impact your community association’s practices as the decision relates to the acceptance of a unit owner payment accompanied by a restrictive endorsement.

In summary, in St. Croix Lane Trust & M.L. Shapiro, Trustee v. St. Croix at Pelican Marsh Condominium Association, Inc., the Appellate Court held that if a check is tendered for less than the total amount of a disputed debt, along with written communication that acceptance is considered an accord and satisfaction of the disputed amount, then acceptance creates an accord and satisfaction of the debt by operation of Section 673.3111 of the Florida Statutes. In reaching this decision, the Florida Appellate Court held that if an association wanted to retain the right to pursue the entire debt, then the check should not be tendered (to the association’s financial institution) for payment.

Accord and Satisfaction Case Study Background

The underlying dispute followed an association’s foreclosure of its assessment lien against a condominium unit.  The St. Croix Lane Trust (the “New Owner”) was the third party purchaser of the unit at the Association foreclosure sale.  After a certificate of title was issued to the New Owner, the Association demanded that the New Owner pay years of delinquent assessments and related interest, late fees and costs of collection of over $38,000 not paid by the prior, foreclosed, owner – a consistent practice in association collections in Florida.

In response, the New Owner’s counsel tendered a check to the Association’s counsel for a small portion of the amount due, $840.00, together with correspondence that provided that “this check is tendered in full and final satisfaction of all claims made against the [New Owner] and the property for the amounts demanded… negotiation of the enclosed check shall be deemed an acceptance of the offer of settlement made herein, and shall be in full and final satisfaction of all claims against the [New Owner] and the property…” The Appellate Court considered this tender to be an “offer of settlement.”

In response, the Association’s counsel advised that he had instructed his staff to apply the payment as a partial payment upon receipt (despite the restrictive endorsement). In advising the New Owner of the Association’s intent, the Association’s counsel relied upon the ruling of the Third District Court of Appeal of Florida in Ocean Two Condominium Association, Inc. v. Kliger. In that case the Third District Court of Appeals cited to Section 716.116(3) of the Florida Condominium Act which provides that payments tendered by unit owners shall be applied as specified in the statute notwithstanding any restrictive endorsement, designation or instruction placed on or accompanying a payment. As advised by the Association’s counsel, the Association deposited the $840.00 check, and threatened to sue the New Owner for the remainder the Association claimed due.

The New Owner filed suit first, including claims for declaratory relief and lost rental income asserting that seeking lease approval would be futile. The trial court entered a summary judgment finding that the Association’s acceptance of the partial payment did not create an accord and satisfaction. The New Owner appealed this ruling to the Appellate Court.

The Holding – New Owner Wins… Associations Beware!

The Appellate Court reversed the trial court, holding that in spite of the Condominium Act’s specific allocation provisions, “[w]hen the Association negotiated the New Owner’s check that was tendered in full and final satisfaction of the Association’s disputed claim, an accord and satisfaction resulted.” The Appellate Court applied §673.3111 which provided in part:

(1)  If a person against whom a claim is asserted proves that that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, that the amount of the claim was unliquidated or subject to a bona fide dispute, and that the claimant obtained payment of the instrument, the following subsections apply.

(2)  Unless subsection (3) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.

The exceptions allowed by the statute did not apply in this instance. Thus, the Appellate Court held that by depositing the check after the New Owner’s offer to settle the unliquidated debt, the Association created an accord and satisfaction.

The Appellate Court rejected what it referred to as the “discussion” of §718.116(3) in Ocean Two Condominium Association v. Kliger. Specifically, the Appellate Court stated that they did not believe that the legislature had intended that the language contained in Section 718.116(3) of the Condominium Act would amend Section 673.3111 tacitly or to otherwise alter the law of accord and satisfaction in favor of condominium associations when they accept payments for assessments and related charges. Moreover, the Appellate Court believed that the pertinent legislative history confirmed its interpretation of the statute. In reaching this conclusion, Appellate Court determined that the Condominium Act merely provided an allocation formula to invalidate restrictive endorsements that would mandate a contrary allocation of the payment, and did not override “the law of accord and satisfaction…”

Conclusion

Given this uncertainty regarding the interplay between applicable provisions of the Condominium Act and the Florida law of accord and satisfaction, many attorneys believe that it would be in your Association’s best interests to carefully consider the consequences before accepting and tendering for payment any payment made in respect of a disputed amount which is accompanied by a restrictive endorsement or other instrument purporting to be in satisfaction of a disputed debt. Absent consultation with your association’s legal counsel, we suggest that any such partial payments which provide restrictive endorsements stating “full and final payment” of amounts due or any other similar language be rejected in order to preserve your Association’s rights to pursue the full amount due and owing in light of the recent ruling of the Appellate Court.

Finally, the Appellate Court’s ruling in St. Croix Lane Trust & M.L. Shapiro, Trustee v. St. Croix at Pelican Marsh Condominium Association, Inc. provides further support for your association to have a professional collections company collect delinquent payments on your behalf. These issues are hard to understand and a misstep could cost your association hard dollars that should not have been lost. It is always in the best interest of the community association to have an experienced collections company who has experience in collections and familiarity and understanding of changes occurring in the association collections landscape.