Case to Allow Restrictive Endorsements on Payments

A new case out of Florida’s Second District Court of Appeal could have very significant consequences for Florida’s condominiums and homeowner’s associations, and the way they process payments from owners. The case deals with restrictive endorsements—messages on a check, or sent with a check, that purport to create a settlement of all debt owed to the Association. For example, placing the words “for deposit only” on the back of a check is a form of restrictive endorsement, because it limits the further negotiation of the instrument. Section 673.2061, Fla. Stat., limits the power of restrictive endorsements when on negotiable instruments, such as checks; but the case involved an entirely separate letter that was sent with a payment, and conditioned the acceptance of the payment on a full settlement of all amounts due to the association.

In St. Croix Lane Trust & M.L. Shaprio, Trustee v. St. Croix at Pelican Marsh Condominium Association, Inc., Case No. 2D13-3636 (Fla. 2nd DCA, Aug. 8, 2014), the association made a demand against a new unit owner, a third-party purchaser at a foreclosure sale, for payment of delinquent assessments dating to before the foreclosure. The attorney for the unit owner sent the association a check for a small amount of the debt, along with a letter notifying the association that the check was provided in full satisfaction of all disputed amounts, and that, if the check was cashed, it would be deemed a full settlement. Despite this limitation, the association cashed the check, and then threatened to foreclose against the unit owner. The unit owner sued the association, and the lower court ruled in favor of the association, citing Section 718.116(3), which provides that an association must apply any payment first to interest accrued by the association, then to administrative late fees, then to attorney’s fees, and then to the delinquency, “notwithstanding any restrictive endorsement, designation, or instruction placed on or accompanying a payment.” This language has long been thought to prohibit restrictive endorsements in the context of payments to a condominium association (note that identical language also appears in the HOA Act, at Section 720.3085(3)(b), Fla. Stat.)).

However, on appeal, the court disagreed, ruling that the accompanying letter served as an “accord and satisfaction” of the debt, and that, by depositing the check, the association had accepted a complete settlement. The court stated that “if the Association did not wish to accept the $840 check in full settlement of its claims in accordance with the [plaintiff’s] conditional tender, then it should have returned the check instead of negotiating it.” As to the protective language in the Condo and HOA Acts, the court interpreted that language to only limit endorsements that change the order in which a payment is applied to the various forms of debt, and ruled that the legislature did not intend to alter the general law of accord and satisfaction in favor of condominiums (and HOAs) when it added the language to the statute.

The court’s conclusion, if followed by other courts, represents a substantive change to the way attorneys have understood CONDO and HOA laws and creates significant risk to associations who accept payments without considering the language of any communications that accompany the payment. Unless and until the issue is resolved in another jurisdiction or by the Supreme Court, associations should consult with their counsel if they receive payment of a disputed amount that is accompanied by any communication that purports to limit the association’s right to cash a check.