Appellate Ruling Creates New Wrinkle Over Acceptance of Partial Payments That Are Endorsed as Full Payments

As if collections of delinquent accounts were not already difficult enough for condominium associations and HOAs in Florida as the state recovers from the foreclosure crisis, a recent ruling by the Second District Court of Appeal has unfortunately created a new wrinkle that will require community association managers, directors and their legal counsel to pay close attention when accepting partial payment of assessments from owners. The court’s ruling in the case of St. Croix Lane Trust v. St. Croix at Pelican Marsh Condominium Association essentially now makes it a necessity for associations to consult with experienced legal counsel when they receive checks that are in any way endorsed as representing the full and final payment of assessments owed by the owner on whose behalf the payment is made.

Prior to this ruling, associations and their attorneys were guided by the 2008 ruling by the Third District Court of Appeal in the case of Ocean Two Condominium Association v. Kliger which held that associations cannot refuse partial payments of assessments made by or on behalf of owners. In its opinion, the court in Ocean Two further suggested that its conclusion might even apply in the event that the partial payment included a restrictive endorsement such as “Paid in Full” or “Full and Final Payment.”

However, in the St. Croix case, the unit owner’s attorney specifically wrote to the association attorney stating that the payment made by the owner in the amount of $840 was to be considered as the full and complete payment for the settlement of the account, which the association claimed was delinquent in excess of $38,000. While the association responded to the owner’s attorney by denying that the partial payment was the full and final payment of the amount owed, it accepted and deposited the check, applying the funds as a partial payment in accordance with Florida condominium law.

Despite the previous ruling in the Ocean Two case, the appellate panel in St. Croix reversed the trial court’s ruling, finding that the association’s depositing of the check containing the above-described restrictive endorsement operated as an “accord and satisfaction,” resulting in a waiver of the association’s right to collect the remaining debt alleged to be owed by the owner.

This ruling appears to create a conflict with regard to the extent to which the appellate courts will consider the partial payment of assessments including restrictive endorsements to constitute an “accord and satisfaction” of a larger debt owed by the owner on whose behalf the partial payment is made. As such, it is possible that this conflict may ultimately be taken up for resolution by the Florida Supreme Court or may result in action by the state legislature.

In the meantime, associations should pay very close attention to any payments that are made with restrictive endorsements of any kind indicating that such payments reflect the complete and final payment of the amount owed to the association. Managers and directors presented with similar circumstances would be well advised to consult with experienced and qualified legal counsel before depositing such payments if they are not indeed for the full and final amount owed.

Our community association attorneys will continue to monitor and write about the consequences of this ruling as they relate to the handling of partial payments that are made with restrictive endorsements indicating such payments to be full payments. We encourage association directors and members as well as property managers to submit their email address in the subscription box at the top right of this blog in order to automatically receive all of our future articles.