Paid in Full
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CHECKS MARKED "PAID IN FULL"

A common problem for many associations is where an owner owes several months assessments, plus late fees and interest and perhaps collection costs, and sends in a check for the total amount of delinquent assessments only. There is an accompanying note saying the owner will not pay the remaining balance, or else the check is marked "Paid in Full" or something similar.

Can the association cash the check and still try to collect the late fees, interest, etc.? Or if the association cashes the check, is it obligated to write off the balance? Accepting partial payment as payment in full and writing off the balance is called an "accord and satisfaction."

Conflicting Cases. California and federal statutes conflict on this point, but a California appellate case decided in 2002 settled the issue by stating that federal law overrides the California statute. Woolridge v J.F.L. Electric, Inc. (2002, App 4th Dist) 96 Cal App 4th Supp 52. Under federal law, if the check or an accompanying written statement clearly indicates that the check is offered as payment in full, and the recipient accepts the funds, then the unpaid balance is discharged (Uniform Commercial Code §3311) and the association must write off the outstanding amount.

Exceptions. There are two exceptions to this rule. An association may deposit an owner's partial payment offered as payment in full and still hold the owner responsible for the unpaid balance if:
1.   The association notifies the owners ahead of time where to send disputes on their account and the owner does not send the partial check to that address, but delivers it somewhere else; or

2.   The owner does not have a "bona fide dispute" over the unpaid amount. To be safe, you should consider any statement by the owner that he or she should not have to pay the balance as a bona fide dispute.

Warning. Although these two exceptions offer the association a technical excuse to accept an "accord and satisfaction" and then attempt to collect the unpaid balance, both the exceptions have a high amount of risk. A judge could easily rule that the association must write off the unpaid balance despite the technicality. Your safest course is to return the money with a note demanding payment in full.

Returned Payment. If an association accepts a partial payment offered as payment in full, it can return the partial payment or repay the owner for the partial payment within 90 days to avoid waiving its right to collect the full amount owed.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC