The general rule in community association collections is that any payment on a delinquent account is a good thing, even if the payment is for less than the full amount owed. However, depositing a payment of less than the full amount owed can be dangerous if the owner includes language on the check or other negotiable instrument, or accompanying letter, indicating that the owner intends the payment to be payment in full. The danger stems from the legal principle of accord and satisfaction.
Under the doctrine of accord and satisfaction, if a genuine dispute exists between a debtor and a creditor over the amount due, and the debtor pays the creditor less than the amount actually due upon the condition, either express or implied, that the payment is in full satisfaction of the creditor’s claim, and the creditor accepts and retains the money, then the law deems that the debtor has paid the creditor in full. Thus, the creditor cannot seek additional payment from the debtor.
In a case decided in August of this year, St. Croix Lane Trust & M.L. Shapiro, Trustee v. St. Croix at Pelican Marsh Condominium Association, Inc., a Florida condominium association learned about the doctrine of accord and satisfaction the hard way. In this case, the condominium association demanded that an owner pay $38,586.11 in delinquent assessments and other charges. The owner sent the association payment of $840 with an accompanying letter disputing the amount of the association’s claim and stating that the payment of $840 was “in full and final satisfaction of all claims” against the owner. The association replied to the owner by email stating that the association would be applying the check as a partial payment to the owner’s account and that it still considered the remaining amounts to be owed, and deposited the check. When the association tried to take further collection efforts against the owner for the remaining $37,000, the owner sued for a court order finding that the association was barred from collecting the remaining amount.
The Florida appeals court held in favor of the owner, finding that when the association accepted and deposited the owner’s check in the amount of $840, knowing that it was tendered in full and final satisfaction of the association’s disputed claim, an accord and satisfaction resulted and the association could not collect the additional amounts it claimed were owed. In so holding, the Court stated that if the association did not want to accept the $840 check in full satisfaction of its $38,586.11 claim, it should have returned the check.
As the above case demonstrates, the consequences of ignoring conditional language on a check or in an accompanying letter can be serious. However, an association can protect itself from accord and satisfaction by carefully reviewing partial payments it receives for notes on the check or other negotiable instrument, as well any accompanying correspondence, for language stating or implying that the payment is intended as payment in full. If there is any such language, the association should consult with its attorney about whether to deposit the check. An accord and satisfaction occurs immediately upon depositing a check or other negotiable instrument, so if there is any doubt as to whether a payment could constitute an accord and satisfaction, the association should not deposit the check without first consulting with an attorney. As illustrated by the above case, if the association deposits the check, it cannot stop an accord and satisfaction from occurring by sending a letter, e-mail or phone call protesting that the payment was payment in full. It also cannot avoid an accord and satisfaction by striking out the conditional language on the check prior to depositing.