All, we try to share relevant news as much as possible. Last week a case came down which will undoubtedly affect the way you manage your associations. Specifically, payments made with restrictive endorsements, like checks marked “paid in full”, if deposited, may be interpreted as settlement of the debt owed for the amount paid.
We’ll get into details below, but bottom line, my recommendation is to notify your accountants to be on the lookout for these types of restrictions on checks and to contact your attorney if you come across any before depositing the check.
The case is St. Croix Lane Trust & M.L. Shapiro, Trustee v. St. Croix at Pelican Marsh Cd’m. Ass’n., Inc., Case No. 2D13-3636 (Fla 2nd DCA, Aug. 8, 2014).
The case involves an owner who disputed the debt owed on a condo unit. They tendered partial payment marked “payment in full” and the association deposited the check and continued to try and collect the remaining balance owed from the owner.
The Court held that if a check is tendered for less than the total amount owed, and is marked “paid in full,” then acceptance creates a satisfaction of a debt.
The court addressed the Condominium Act “allocation of payment” statute, Fla. Stat. § 718.116(3), and the general concept of accord and satisfaction in Fla. Stat. § 673.3111.
Fla. Stat. § 718.116(3) says “any payment received by an association must be applied first to any interest accrued by the association, then to any administrative late fee, then to any costs and reasonable attorney’s fees incurred in collection, and then to the delinquent assessment. The foregoing is applicable notwithstanding any restrictive endorsement, designation, or instruction placed on or accompanying a payment.”
The court interpreted the underlined language as applying only to the hierarchy of allocation of payments. Therefore, if the restrictive endorsement on the check said “payment for assessments only,” then the payment will still need to be applied to interest, then late fees, et cetera. However, the Court said the underlined language does not trump the general law of accord and satisfaction. If somebody tenders payment to settle a debt and the other party accepts that payment, it creates an agreement satisfying the debt.
We talked to several other attorneys that are as surprised by this decision as we are. While We would assume it could be clarified by future legislation or invalidated, for the time being it is the law.
Again, notify your accounting staff to review all checks from past due owners for any type of restriction on the check. When there’s any doubt, contact your attorney.