Appellate Court Reverses Itself On The Issue Of Accord And Satisfaction As A Defense In A Condominium Foreclosure

In 2014, the Second District Court of Appeal published its decision in St. Croix Lane Trust v. St. Croix at Pelican Marsh Condominium Ass’n., which created confusion in association collection cases (See our Legal Morsel article on this case from August 14, 2014, at: www.kbrlegal.com/appellate-court-decision-alters-23-years-collection-practices-condominium-associations/).  The Court ruled at that time that the provisions of Section 718.116(3) of Florida Statutes, regarding the application of partial payments made on a delinquent account, would not affect certain situations in which the party paying identified the payment as full satisfaction of the debt, called “accord and satisfaction.”  The Court held that these situations are governed by another provision in the Statute, Section 673.3111 F.S.

In St. Croix, an owner made a fairly small payment (under $900) and included a letter indicating it as “payment in full” against a claim of over $36,000.  The Circuit Court applied the provisions for the application of payment in the Statute.  After reviewing the facts, the Appellate Court reversed and ruled that by accepting the payment under those circumstances, the association was bound by the “accord and satisfaction” Statute in Section 673.3111 F.S. and that the application of payment provision of Section 718.116(3) F.S. would not apply.  In making that ruling, the Court indicated that because Section 718.116 F.S. did not expressly identify the accord and satisfaction issue, rather making reference only to “restrictive endorsements” on a payment, it was not the intent of the Legislature for this protection to apply to condominiums.  The Court further noted that there was no indication in the Legislative history to reach the conclusion that Section 718.116 F.S. should apply when there is a clear intent by the paying party to satisfy the entire obligation with the partial payment.

Immediately following that decision, there was much concern among attorneys and associations regarding its effects as, up to that point, it had been understood for roughly 23 years since Chapter 718 F.S. was changed to include that the intent of the application of payment provision in Section 718.116(3) F.S. (and subsequently included in Section 720.3085 F.S. for homeowners associations) was to eliminate claims of “payment in full” on partial payments, and for all payments to be applied in accordance with the Statutory formula.  It had also been the decisions of other District Courts that Section 718.116 F.S. applied in such situations.

In response to the St. Croix decision, the Legislature acted during the next Legislative Session in 2015, adding the express provisions to the Statute which clearly indicates that Section 673.3111 F.S. does not apply, and that the changes were made “to clarify existing law” (see Legal Morsel from June 30, 2015 at: www.kbrlegal.com/2015-legislation-affection-community-associations/.)  This last portion of the change is important as it allows for retroactive application of the change in the Statute which otherwise would not be available.

While this legislative change was pending, waiting for the governor to sign it into law, the case of Madison at Soho II Condominium Association, Inc., v. Devo Acquisition Enterprises, LLC was being litigated.  In Madison, there were similar facts to the St. Croix case, with a small partial payment expressed as payment in full on a large debt.  As it was required to, even with pending legislation to change the result, the Circuit Court applied the principles expressed in St. Croix, finding for the unit owner as an accord and satisfaction, which was appealed by the Association.  The Appellate Court expressly reversed itself on St. Croix, acknowledging that the Legislature clearly expressed the intention of the Statute and further, by including the language that the change was intended to clarify existing law, meaning it could be applied to existing cases.

The result of the Madison decision is, at least for condominiums, that partial payments on the account of a delinquent unit owner will be applied in accordance with the Statute, first to interest, then to any late fees, then to any costs of collection, then to any attorney’s fees, and then, whatever is left is applied to the unpaid assessment.  This application will apply even if the paying party includes a letter or notation or otherwise makes the claim that the partial payment was intended to be payment in full or an accord and satisfaction.  (It remains an issue as to whether the St. Croix decision will cause issues for homeowners associations as the provisions of Section 720.3085 F.S. have not been changed from what the St. Croix court applied in 2014.)