“Can I deposit this check?” is a question
we receive several times a month.
A delinquent owner has written a message on the memo line of the check that is questionable. For example, the owner is in arrears and has written “August condo fees” in the memo line. The question is whether this check must be applied only to the August
condominium assessment. The memo the unit owner has written is insufficient to serve as a directive and the payment should be applied as a partial payment to the oldest outstanding balance on the account. However, writing “payment in full” on the check raises more serious questions as the owner may be trying to affect an accord and satisfaction.
Whether an accord and satisfaction has
taken place is a question of fact that must be asserted by the debtor.
An “accord” is a mutual agreement between
a debtor and creditor where the creditor agrees to accept a lesser amount of
the debt owed. The debt is then satisfied when the debtor actually performs. Cox
Engineering Co v. R.F. Cox Associates, Inc., (1971).
Whether an accord and satisfaction has
taken place is a question of fact that must be asserted by the debtor.
Under G.L. c. 106, § 3-311, the individual
asserting an accord and satisfaction must prove:
(a)(i) that person
in good faith tendered an instrument to the claimant as full satisfaction of
the claim;
(ii) the amount of
the claim was unliquidated or subject to a bona fide dispute; and
(iii) the claimant
obtained payment of the instrument.
The claim is discharged if the check or an
accompanying letter contained a “conspicuous statement” claiming the payment constitutes
full satisfaction of the claim and the creditor accepts and cashes the check.
Conspicuous, as defined in § 1-201(10), is if “it is so written that a
reasonable person against whom it is to operate ought to have noticed it” upon
examination of the check. Subsection (c)(1) acts as a limitation on discharge
of a claim if the claimant is an organization, such as a property management
company that has monthly payments sent to a designated office or bank where
employees or machines process payments and provides notice of where all
disputed debts, including claims of satisfaction in full are to be sent.
Subsection (c)(2) also prevents inadvertent accord and satisfaction by
providing the claimant 90 days to reject the payment or tender repayment.
Despite the adoption of § 3-311, numerous
Massachusetts courts have held that the common law principles originally set
forth in the 1913 case of Whitaker Chain Tread Co. v. Standard Auto Supply
Co.,(1913), still apply. Under these cases, they cite three elements of
accord and satisfaction:
(i) that there has
arisen between the parties a bona fide dispute as to the existence or extent of
the liability;
(ii) that
subsequent to the arising of that dispute the parties entered into an agreement
under the terms of which the dispute is compromised by the payment by one party
of a sum in excess of that which he admits he owes and the receipt by the other
party of a sum less in amount than he claims is due him, all for the purpose of
settling the dispute; and
(iii) a performance
by the parties of that agreement.” Rust Engineering Co. v. Lawrence Pumps,
Inc., 401 F.Supp. 328 (1975).
The main difference between § 3-311 and
the common law is that good faith is replaced by the requirement of a mutual
agreement between the parties. Applying this to the condominium realm, we have
the additional issue that a condominium lien is a statutory lien and is a
covenant that runs with the property. As held in Blood v. Edgars, 36
Mass.App.Ct. 402 (1994), owners have an absolute statutory obligation to pay
assessed condominium common expenses: “absent a prior judicial determination of
illegality, a unit owner must pay its share of the assessed common expenses.” A
unit owner must pay the common expenses due and owing in full under protest and
bring a separate legal action to determine the legality of the assessment.
Further, under. G.L. c. 183A, § 7, “no owner shall be entitled to an offset,
deduction or waiver of common expenses or other charges levied or lawfully
assessed by the organization of unit owners.” Consequently, absent the presence
of a mutual agreement between a unit owner and a condominium trust, accord and
satisfaction should not be available to the unit owner.
While the defense of accord and
satisfaction may not be available to a unit owner, remember that whether it
exists is a question of fact, and therefore, condominium trusts still need to
exercise due caution and have procedures in place when checks are received that
contain questionable language. As mentioned, stating “August condo fees” on the
memo line of a check does not require a condominium trust to specifically apply
the payment to the August condominium assessment – the condominium trust still
needs to apply the check to the oldest outstanding balance as done in the normal
course of business. Unit owners are not allowed to make Swiss cheese out of
their ledgers. More concerning are cover letters or checks that contain
language in the memo line or endorsement side of the check, or are accompanied
by correspondence stating that the condominium trust shall only apply the
payment as instructed or that the payment constitutes payment in full of all
amounts due and owing. Absent a prior agreement between the parties, such
checks should be immediately returned to the owner with a request for
resubmission in an acceptable form. Should the account be in collection,
collection counsel can send correspondence to the owner advising that the
payment is being applied as a partial payment only, and to contact collection
counsel for a refund of the payment should the owner object to its treatment as
a partial payment and not payment in full.
An accord and satisfaction may
legitimately arise should the condominium trust issue a clean 6(d) Certificate.
By the statutory language of G.L. c. 183A, § 6(d), the statement is acting as a
discharge of any amounts due and owing. Should a condominium trust accept
payment in exchange for a clean 6(d) Certificate it will be unable to collect
later on any fees or other amounts it failed to include in the payoff.
The following are recommended in order to
prevent possible disputes or legal actions with unit owners, both under § 3-311
and common law:
1. Do not specify
on owner ledgers how a payment is being applied. Owners should see a ledger
that simply lists charges, payments and the balance due and owing;
2. Whether the
condominium trust issues monthly statements/invoices or makes account
information available to owners online, include conspicuous language (bolded
and/or larger font will constitute conspicuous) on the account that all
payments are applied to the oldest outstanding balance on the owner’s account
and that any payments submitted for less than the total shown as due and owing
on the statement shall be accepted as partial payments only. Should the account
be in collections with trust counsel, a final payoff of the amounts due and
owing must be obtained from said trust counsel in order to effectuate payment
in full. Such conspicuous language should defeat any argument of mutual
agreement. However, the trust should still have the policy in place that any
checks stating “payment in full” be returned to the owner;
3. With assistance
of condominium counsel, record changes to the Rules and Regulations of the
condominium trust which fully, clearly and transparently set forth in writing
to all unit owners and all future unit owners exactly what the trust’s policies
are as to the trust’s collection policies specifying when payments are due,
where to send payments, how payments shall be applied, late fees and other
charges and when an account shall be referred to legal counsel.
A special thank you to Madeleine Laffitte
for her legal research for this article.
Laura, who practices with the firm of Moriarty Troyer & Malloy LLC,
has over twenty-five years of experience as a practicing attorney in
Massachusetts and New Hampshire. Laura specializes in the area of time share
condominiums and vacation clubs and provides representation to national clients
in connection with resort and time share developments, as well as to
traditional condominium associations in Massachusetts and New Hampshire. She can be contacted by email at lbrandow@lawmtm.com.
