Clark v. Elza 286 Md. 208, 406 A.2d 922, (1979)

Facts

ELDRIDGE, J, This case presents the question of whether an executory oral agreement to settle a pending law suit may be raised as a defense to prevent a plaintiff from pursuing his original cause of action. It also presents the threshold issue of whether a trial court's refusal to enforce such a settlement agreement, where: enforcement was sought in the underlying legal action, may be immediately appealed. We answer these questions in the affirmative.

As a result of the injuries sustained in an automobile accident, the plaintiffs, Floyd L. Elza and his wife Myrtle E. Elza, filed suit in the Circuit Court for " Baltimore County. They alleged that the defendants, Swannie B. Clark and Linda Sue Woodward, were legally responsible for their injuries. After the case was scheduled for trial, settlement negotiations ensued between the parties. A figure of $9,500.00 was verbally agreed upon; the trial judge was notified; and the case was removed from the -trial calendar. The defendants forwarded a release and an order of satisfaction to the plaintiff's attorney, and later sent a settlement draft to the plaintiffs' attorney. Thereafter, these papers were returned unexecuted with the statement that the $9,500.00 settlement was no longer adequate. The reason given for this change of mind was that on the day after the oral agreement, Mr. Elza had visited a new physician who informed him that his injuries were more extensive than he originally believed.

The plaintiffs then advised the court that they were no longer willing to go through with the settlement. In response, the defendants filed in the tort action a "Motion to Enforce Settlement." At a hearing on the motion the plaintiffs argued that the settlement agreement was not binding on them because it was merely an executory accord, and could only be enforced upon satisfaction. The court observed that if the agreement were a substituted contract, as opposed to an executory accord, then it would be binding. Finding that the intention of the parties was to create an executory accord, the trial judge denied the motion of the defendants to enforce the settlement. The effect of this ruling was that trial upon the original tort action could proceed, notwithstanding the supposed settlement.

The defendants then took an appeal to the Court of Special Appeals,
and the plaintiffs moved to dismiss the appeal. The Court of Special Appeals, in an unreported opinion, dismissed the appeal as premature because the trial court had not yet rendered a final judgment in the ton case. The court reasoned:

Here, the order, .. denying appellants' motion to enforce settlement did not deny appellees the means of further prosecuting their claims nor did it deny appellants the right to defend against those claims. In short. it did not settle and conclude the rights of the parties involved in the action and, thus, constituted an interlocutory order which is not appealable at this time.

The defendants petitioned this Court for a writ of certiorari, challenging the ruling that the case was not appealable and arguing that the purported settlement was effective. We granted the petition with respect to both issues.

[The court first concluded that the case was appealable.] ~
As previously mentioned, the trial court refused to enforce the settlement agreement on the ground that it was an "executory accord" and not a "substitute contract." An executory accord is defined in 6 Corbin on Contracts §1268, p.71 (1962) as follows:

The term "accord executory" is and always has been used to mean an agreement for the future discharge of an existing claim by a substituted performance. In order for an agreement to fall within this definition, it is the promised performance that is to discharge the existing claim, and not the promise to render such performance. Conversely, all agreements for a future discharge by a substituted performance are accords executory. It makes no difference whether or not the existing claim is liquidated or unliquidated. undisputed or disputed, except as these facts bear upon the sufficiency of the consideration for some promise in the new agreement. It makes no
'difference whether or not a suit has already been brought to enforce the original claim; or whether that claim arised out of an alleged tort or contract or quasi-contract.

See also J Calamari andJ Perillo, The Law of Contracts §21-4 (2d ed.
1977); II Restatement of Contracts §417 (1932). See generally Gold, Executory Accords, 21 Boston U. L. Rev. 465 (l941);Comment, Executory
Accord, Accord and Satisfaction, and Novation - The Distinctions, 26 Baylor L. Rev. 185 (1974). On the other hand, where the parties intend the new
agreement itself to constitute a substitute for the prior claim, then this substituted contract immediately discharges the original claim. Under this latter type of arrangement, since the original claim is fully extinguished at the time the agreement is made, recovery may only be' had upon the substituted contract. 6 Corbin, supra, pp. 74-75; Calamari and Perillo,supra

It is often extremely difficult to determine the factual question of
whether the parties to a compromise agreement intended to create an executory accord or a substitute contract. However, un less the evidence demonstrates that the new agreement designed to be a substitute for the original cause of action, it is presumed that the parties each intended to surrender their old rights and liabilities onlv upon performance of the new agreement. III other words, unless there is clear evidence to the contrarv, an agreement to discharge a pre-existing claim will be regarded as an executory accord. Porter v. Berwyn Fuel & Feed, 244Md. 629, 639,, 224A.2d 662 (1966);15 Williston on Contracts section 1847 (3d ed. Jaeger 1972)

In light of the above-discussed principles, we agree with the trial court that the settlement agreement in this case was an executory accord and not a substitute contract. This conclusion is supported by the fact that-a "release" was to be executed upon performance of the settlement contract.

If a substitute contract were intended, the underlying ton cause of action would have been released when the agreement was made, notwithstanding the fact that performance had not yet been rendered. Holding in abeyance the release of the tort claim until the settlement agreement was performed would be inconsistent with the principle that (substitute contract serves to replace the initial claim. See Warner v. Rossignol, 513 F.2d 678, 682 (1st Cir. 1975). Furthermore, to the extent that there is any doubt, under this Court's decision in Porter v. Berwyn Fuel & Feed, supra, 244 Md. at 639, 224 A.2d 662, such doubt is resolved in favor of finding an executory accord.

After concluding that the: oral settlement agreement was an executory
accord, tile circuit court permitted the plaintiffs to proceed to trial On their original cause of action. In so ruling, we believe that the circuit court erred as to the effect of an unexecuted accord,

It is true that several cases set forth the principle, adopted by the
court below; that an executory accord is unenforceable and is no defense
against a suit on the prior claim. See the discussion in 6 Corbin on Contracts §1271-1275 (1962). See also Addison v. Sommers. 404 F. Supp. 715 (D. Md.1975). Nevertheless the modern view, and in our judgment the better view, is summarized bv 6 Corbin, supra. Section 1274. p. 104. as follows:

An accord executory does not in itself operate as a discharge of the previous claim. For the reason that it is not so intended or agreed. In nearly everv case, however, the parties intend that the duty created by the previous transaction shall be suspended during the period fixed for performance of the accord. As long as the debtor has committed no breach of the accord. therefore, the creditor should be allowed to maintain no action for the enforcement or the prior claim. His right of action should be held to be suspended as the parties intended.

This is also the position adopted by the Restatement or Contracts. Vol. Il, §417 (1932):

§417. An Accord; Its Effect When Performed and When Broken
Except as stated in section 142,143 with reference to contracts for the benefit or third persons and as Stated in section 418. the following rules are applicable to a contract to accept in the future a stated performance in satisfaction of an existing contractual duty. or a duty to make compensation:

(a) Such a contract does not discharge the duty. but suspends the right to enforce it as long -as there has been neither a breach of the contract nor a justification for the creditor in changing his position because of its prospective non-performance.
(b) If such a contract is performed. the previously existing duty is
discharged.
(c) If the debtor breaks such a contract the creditor has alternative rights. He can enforce either the original dun' or the subsequent contract.
(d) lf the creditor breaks such a contract, the debtor's original duty is not discharged. The debtor acquires a right of action for damages for the breach, and if specific enforcement of that contract is practicable, he acquires an alternative right to the specific enforcement thereof. If the contract is enforced specifically, his original duty is discharged,
Comment . . .
b. The rules governing the validity and effect of accord and satisfaction
are applicable as well where the pre-existing duty arises from a tort as where it is based on contract.

Thus, an executory accord does not discharge the underlying claim until it is performed. Until there is a breach of the accord or a justifiable change of position based upon prospective nonperformance, the original cause of action action is suspended. As long as the "debtor" (i.e., the defendant in a tort case) neither breaches the accord nor provides a reasonable basis for concluding that he will not perform, the "creditor" (i.e., the plaintiff) has no
right to enforce the underlying cause of action ....

Although the precise question here presented does not appear to have been discussed by this Court in any prior opinion, nevertheless our decisions seem to reflect the position of the above-cited cases, the Restatement, and Corbin. See, e.g., Chicora Fer. Co. v. Dunan, 91 Md. 144,46 A. 347 (1900).

Moreover, it is logical to hold that executory accords are enforceable. An executory accord is simply a type of bilateral contract. As long as the basic requirements to form a contract are present, there is no reason to treat such a settlement agreement differently than other contracts which are binding.

This is consistent with the public policy dictating that courts should "look with favor upon the compromise or settlement of law suits in the interest of efficient and economical administration of justice and the lessening of friction and acrimony." Chertkof v. Harry C. Weiskittel Co., 251 Md. 544 550, 248 A.2d 373, 377 (1968), cert. denied, 394 U.S. 974, 89 S. Ct. 1467, 22 L. Ed. 2d 754 (1969).

In sum, the circuit court should not have permitted the plaintiffs to
proceed with the under lying tort action in violation of their settlement
agreement.

Judgment of the court of special appeals reversed and case remanded to
that court with directions to reverse the judgment of the circuit court for Baltimore Countv and remand the case for further proceedings nor inconsistent with this opinion. Respondents to pay costs.