Are Restrictive Endorsements Restrictive Once Again?

A recent court decision should make community associations, commercial associations, and their respective management companies think twice before depositing payments that contain restrictive endorsements from owners, especially those who are delinquent or seriously behind in the payment of assessments. An example of a restrictive endorsement would be if an owner wrote “Account Paid In Full” on the front or back of a check submitted to the community association or the management company. An owner may also send in a payment with a letter that says the owner is intending the enclosed payment to bring the owner’s account current.

In St. Croix Lane Trust & M.L. Shapiro, Trustee v. St. Croix at Pelican Marsh Condominium Association, there was a dispute in the amount of past due assessments for a condominium unit. The owner of the condominium unit sent in a payment of $840, and the condominium association was seeking in excess of $38,000. Along with the payment, the owner sent a letter to the association stating that the check was being “tendered in full and final satisfaction of all claims” made against the owner and the unit. The association accepted the payment, applied it to the account, and considered it a partial payment pursuant to Section 718.116(3), which describes how payments received by an association are to be applied, regardless of any restrictive endorsement or instruction placed on or accompanying the payment. Chapter 720 contains similar language applicable to homeowners associations.

In the St. Croix Lane Trust case, Florida's Second District Court of Appeal, held that Section 673.3111 of the Florida Statutes rather than Section 718.116(3) applied based on the facts of the case. Section 673.3111 provides in pertinent part that: (i) if a person makes a payment intending for that to be payment in full of a disputed debt; (ii) the amount of the debt is in dispute; (iii) includes a statement on the payment itself or an accompanying written communication that the payment was made to fully satisfy the debt; (iv) and the creditor accepts the payment, the entire debt will be considered to have been settled. This concept is also referred to as “accord and satisfaction”.

The Court held that because the condominium association accepted the $840 payment, which was accompanied by the owner’s letter that the payment was intended to fully pay the disputed debt, the association’s claim was completely settled through accord and satisfaction, and the association was not entitled to the additional $37,000+ on the account.

This court decision was just issued on August 8, 2014, and is subject to possible rehearing or appeal to the Florida Supreme Court. But the implications of this decision could have immediate impact. It is important for a community association and commercial association, if it has delinquent accounts, to discuss the potential impact of this court decision with its association attorney in order to determine how payments with restrictive endorsements or payments accompanied by letters with such language are going to be handled by the attorney, the management company, or whoever else is involved in collections of delinquent accounts in order to avoid potentially disastrous consequences.

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