by Michael J. Gelfand, ESQ./ Published November 2014
What happens when an owner delivers a check to a Florida community association with the words “payment in full” written on the check, there is some other restriction written on the check, or written on an accompanying piece of paper; but, in fact, the amount of the check is less than the total amount of the association’s claim? If the association accepts the check, then the remaining amounts owed may be compromised forever!
In a recent decision likely to alter many Florida community associations treatment of a partial payment, a Florida appellate court ruled that if a check is delivered for less than the total amount of a disputed claim, then the association’s acceptance of the partial payment may create what the courts call an “accord and satisfaction” of the claim, meaning that the remaining amounts claimed due are, in essence, waived and not able to be pursued, if the delivery is accompanied by an offer to settle for the amount of the payment. In St. Croix Lane Trust v. St. Croix at Pelican Marsh Condominium Association, Inc., No. 2D13-3636 (Fla. 2nd DCA, August 8, 2014), the association foreclosed its lien on a condominium unit for past due assessments. The trust, apparently unrelated to the original unit owner, purchased the property at the clerk’s foreclosure sale for $100.
The association then demanded that the trust pay years of delinquent assessments not paid by the prior owner, totaling more than $38,000. In response, the trust’s attorney delivered a check to the association for only $840, along with a letter stating:
At worst[,] my client only owes the pro rata first quarter assessment for the period of its ownership. However, in a good faith effort to resolve this matter I have enclosed herewith a check in the amount of $840 payable to your trust account for the full January 1, 2012 assessment. Be advised and warned, this check is tendered in full and final satisfaction of all claims made against the trust and the property for the amounts demanded in your May 7, 2012 correspondence. Regardless of intent, negotiations 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 trust and the property … as more particularly set forth in your
May 7, 2012 correspondence.
To which the association’s attorney responded:
We’ve been through this argument before, so I’m not going to recite it here again. You know our position, and the case law used to support it. I have instructed my staff to apply this as a partial payment once it’s received (despite the restrictive endorsement).
The association deposited the $840 check and threatened to sue the trust. The trust filed suit first. The trial court entered summary judgment for the association.
The Florida appellate court reversed the trial court, finding that an accord and satisfaction did occur when the association deposited the trust’s check. The key fact was that the check was delivered with a letter stating that the check was for full and final satisfaction of a disputed claim. The court applied Florida’s version of the Uniform Commercial Code, which regulates how checks are accepted, and which provides:
(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.
Section 673.3111, Fla. Stat. (2011). The appellate court stated that none of the exceptions allowed by the statute applied in this case. Therefore, the court held that the association, by depositing the check after the trust’s offer to settle the disputed claim, created an accord and satisfaction barring collection of the remainder of the claim.
The importance of this case cannot be overstated. Literally invoking the saying “you cannot have your cake and eat it too,” if a Florida association receives a partial payment, such as a check, and wants to retain the right to pursue an entire debt, then the association must determine if there is a restrictive endorsement or accompanying statement that the check is payment in full before accepting the check that is tendered for partial payment.
This means that acceptance of payments is no longer a simple process. Associations should take care with recordkeeping. Documentation retention may be critical.
If there is an endorsement or communication accompanying or contemporaneous with a payment, then the association should confer with counsel. Note that delays may be deadly, so timing is also important.
DOUBLE RECOVERY IN A FORECLOSURE ACTION IS NOT PERMITTED
A Florida appellate court recently ruled that once a foreclosure sale takes place, a creditor, such as a Florida association, must obtain a deficiency judgment before collecting on a money judgment. In Hammond v. Kingsley Asset Management, LLC, Nos. 2D13-4425 and 2D13-4522 (Fla. 2d DCA, August 13, 2014), Kingsley sued Hammond and others to foreclose a mortgage on commercial property, seeking a deficiency judgment, damages on the promissory note, and to enforce a guarantee. A deficiency judgment is a judgment in favor of a creditor for the difference between the amount of the debt and the amount derived from the judicial sale.
The trial court entered final judgment for Kingsley for almost $14 million; however, the foreclosure judgment prohibited the clerk from setting the foreclosure sale until Kingsley made a written application to the court. The judgment on the promissory note claim included the words “let execution issue” meaning that Hammond’s assets could be seized by the sheriff. In response to Kingley’s application for a foreclosure sale, the foreclosure sale occurred and Hammond’s 15.75 percent interest in the property was sold to Kingsley for $1,100.Kingsley did not seek a deficiency judgment but instead served a writ of garnishment upon Kahn, Hammond’s ex-husband. The writ sought money owed by the ex-husband to Hammond. The trial court denied Hammond’s motion to dissolve Kingsley’s writ of garnishment.
The Florida appellate court reversed the trial court’s decision. The court held that because Kingsley sought and obtained a foreclosure sale of the property, it cannot collect purely on the money judgment without first obtaining a deficiency judgment. “To avoid the possibility of a double recovery, before Kingsley can execute on the promissory note, the trial court must conduct a deficiency hearing to determine the amount of set-off from the foreclosure sale,” the court concluded.
The moral of the story may be that if a Florida association believes an owner has liquid assets available to garnish or for the Sheriff to seize, it may be appropriate under the circumstances to first pursue those assets before setting a foreclosure sale. Once a foreclosure sale occurs, then equity requires a determination of how much of the debt was satisfied by the sale process before there are efforts to collect the money due.