We have so many Michigan and California cases to attack because Howard Lax and Chuck Trainor (among others) send them to me for consideration.  Be like Howard and Chuck.  Send me interesting cases and I'll insult your courts too!!

 

Daily Development for Tuesday, December 11, 2001

 

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

 

LANDLORD/TENANT; RENT; ACCORD AND SATISFACTION:

Tenant's tender of rent accompanied with statement that tenant disputes that rent is owed and views payment as an accord and satisfaction is binding on landlord, and landlord cannot proceed to recover balance of any claimed rent unless it tenders back the amount paid.

 

Faith Reformed Church of Traverse City, Michigan vs. Thompson, 2001 WL 1543441 (Mich. App. 12/04/01)

 

Landlord's lease to Tenant lasted until December 1997.  Landlord and Tenant, however, were unable to agree on an extended term for Tenant, and Tenant resolved to find other space.  It vacated the premises in December, 1996, but continued to pay rent through, apparently, May of 1997.  It made the payments to Landlord's rental agent.

 

In March of 1997, Landlord allegedly commenced renovating a portion of the vacant space in the Premises for Landlord's own use.  Landlord instructed the rental agent to give Tenant a credit representing the percentage of the premises so renovated, but apparently Tenant did not receive word of this renovation until it had already paid further tent.

 

In June, Tenant sent to the landlord's agent a check in the amount of the monthly rental together with a letter detailing why it felt that it owed no further rent.  It stated that several prospected tenants that Tenant had sent to Landlord had been unable to reach any agreement because Landlord had not been willing to agree to an extended term but insisted that tenants pay for any required renovations.  It also stated that the landlord's renovation of a portion of the space for its own use constituted a termination of the lease as of March, and that, in fact, Landlord owed to Tenant a refund for rental payments made thereafter.  Nevertheless, Tenant indicated that it would drop its claims for a refund and even pay the rent for June in settlement of the dispute.

 

Landlord's agent cashed the check, but Landlord later indicated to Tenant that it did not agree to any settlement and demanded the balance of the rent.  Tenant responded that if Landlord rejected the settlement, then Landlord should refund the check it had sent.  Landlord refused. Landlord filed suit for the rent.  The trial court found that for Landlord.

 

On appeal: Held: Reversed.  The Michigan court here repudiated questionable dicta in a prior case that had confused the trial court, affirming the rule that Michigan recognizes the accord and satisfaction device, and that a party refusing to be bound by such an arrangement has a duty to refund the amounts tendered in connection with such accord.

 

The court noted that a good faith dispute existed as to not only whether Tenant owed any further rent, but as to whether in fact Landlord owed to Tenant a refund.  Tenant's letter made Tenant's position clear, and was also clear on the Tenant's intent that the enclosed check was in settlement of all claims.  Although Landlord claimed that it should not be bound by its agent cashing the check, the court concluded that this was a moot argument, since Landlord, after learning about the letter, still refused to return the amount of the check.  Michigan law encourages settlements of disputes, and will hold a party bound to an accord and satisfaction when it knowingly retains an amount paid relating to a tendered accord, even if it continues to dispute the claims.

 

Landlord argued that there was no dispute about the amount owing - this was rent that the tenant owed under the lease.  The court acknowledged that a payment of an amount that is undisputedly owed will not support an accord and satisfaction, but pointed out that here this was not the case. Tenant was not only arguing that the June rent was not owed, due to the prior lease termination, but that Tenant in fact was entitled to a refund of prior rent paid.

 

Comment 1: A trap for the unwary?  Sure looks like it.  Let us assume that we have a case where the landlord simply is unaware of any dispute, and a regular rent check arrives (as appeared to be the case here) accompanied by a letter disputing any further liability on the lease. That's the first step, and certainly it is easy to imagine a careless or confused landlord cashing that check.

 

But apparently the landlord can duck the consequences of the rule by tendering back the check at the time is seeks to recover on the "disputed" claims.  This, of course, softens the blow quite a bit, but the landlord had better act promptly regarding the dispute, since when it refunds the rent it will already be a month behind.

 

Note also that the dispute must be a "good faith dispute."  In many of the cases, courts have found that the purported dispute was not in good faith. But there are plenty of landlord/tenant disagreements, particularly in the case of an abandoned premises, where it will be possible to make a claim that the landlord's conduct has somehow effected a surrender of the premises.  This will be even more of an issue in those jurisdictions in which there is a duty to mitigate.  It's one of many reasons why the editor does not support a non-waivable duty to mitigate.

 

Comment 2: Veteran practitioners will recall that at one time it was possible for a party given one of these "conditional checks" to keep the money and avoid the accord and satisfaction argument simply by making a disclaimer as part of the endorsement.  Watch out!!  That law has been revised.  Under new UCC 3-311(b) the claim is discharged unless the party who rejects the accord tendered a refund of the money within 90 days of its receipt.  Note that "conditional check" includes checks accompanied by letters offering an accord and satisfaction.

 

The Michigan court here does not cite the UCC provision and does not mention a 90 day requirement.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues.

ABOUT DIRT:

DIRT is an Internet discussion group for serious real estate professionals. Message volume varies, but commonly runs 5 ‑ 10 messages per workday.

Daily Developments are posted every workday.

To subscribe to Dirt, send an e-mail to:

To:

ListServ@listserv.umkc.edu

Subject:

[Does not matter]

Text in body of message

Subscribe Dirt [your name]

To cancel your subscription to Dirt, send an e-mail to:

To:

ListServ@listserv.umkc.edu

Subject:

[Does not matter]

Text in body of message

Signoff Dirt

For information on other commands, send the message Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only commercial and general real estate matters but also focuses specifically upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named "Brokerdirt." But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT, as Brokerdirt carries all DIRT traffic in addition to the residential discussions.

To subscribe to Brokerdirt, send an e-mail to:

To:

ListServ@listserv.umkc.edu

Subject:

[Does not matter]

Text in body of message

Subscribe Brokerdirt [your name]

To cancel your subscription to Brokerdirt, send an e-mail to:

To:

ListServ@listserv.umkc.edu

Subject:

[Does not matter]

Text in body of message

Signoff Brokerdirt

DIRT is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law, but Professor Randolph grants permission for copying or distribution of Daily Developments for educational purposes, including professional continuing education, provided that no charge is imposed for such distribution and that appropriate credit is given to Professor Randolph, DIRT, and its sponsors.

DIRT has a WebPage at: http://www.umkc.edu/dirt/