Summary
holding after performance it is too late to object to a modification
Summary of this case from Killion v. KeHe Distribs., LLCOpinion
No. 29130
Decided January 27, 1943.
Accord and satisfaction — Acceptance of less than amount due as payment in full — Unliquidated and disputed indebtedness necessary, when — Defense of accord and satisfaction sustained, when — Finding by jury that plaintiff's demand unliquidated — Or that bona fide dispute existed over liquidated demand.
1. The acceptance of less than the amount presently or past due upon a liquidated and undisputed indebtedness in full payment thereof is not an accord and satisfaction.
2. When a plaintiff brings an action for a definite amount of indebtedness which he claims is liquidated by agreement, and an issue is made thereon as to the amount thereof and the admitted acceptance of a less amount in full payment is pleaded by the defendant as an accord and satisfaction, a finding by the jury that the demand of plaintiff is unliquidated is sufficient to sustain the defense of accord and satisfaction.
3. When in such a case the jury finds from conflicting evidence that plaintiff's demand is liquidated and there is a conflict in the evidence as to whether there was a bona fide dispute between the parties at the time of the acceptance of the less amount in full settlement, the jury must go further and determine whether such a bona fide dispute then existed and upon a determination of that issue in favor of the defendant, the defense of accord and satisfaction is made out.
APPEAL from the Court of Appeals of Wood county.
This action was brought on October 13, 1939, in the Court of Common Pleas of Wood county, Ohio, by the plaintiff, Huo Chin Yin, a resident of the state of New York, against Amino Products Company, an Ohio corporation, for commissions alleged to be due him in the sum of $6,764.42, plus interest, on sales of monosodium glutamate, also known as amino salts, a product manufactured by the defendant company and used extensively by the Chinese.
The defendant, Amino Products Company, denied there was any amount due plaintiff and set up the defense of accord and satisfaction.
This case has been tried twice. On the first trial there was a judgment in favor of the plaintiff for $7,183.50 which was reversed by the Court of Appeals of Wood county upon the ground that the verdict was against the manifest weight of the evidence. On the second trial there was a judgment for plaintiff for $7,716.39. The Court of Appeals also reversed that judgment and in addition entered final judgment in favor of the defendant. Thereupon this court allowed a motion to certify.
Upon the second trial, except for the calling of the official court reporter to read from testimony given on the former trial, there were but two witnesses, Huo Chin Yin, the plaintiff, and A.E. Marshall, vice-president of the defendant company.
It is undisputed that early in 1938 the plaintiff was employed by the defendant to sell its product, amino salts, in China and was instrumental in bringing about sales to P.N. Woo, director and factory manager of the Tien Chu Ve-Tsin Manufacturing Company, located in China. The sales to this customer consisted of four separate orders as follows: April 13, 1938, 25,000 pounds; June 13, 1938, 100,000 pounds; September 26, 1938, 200,000 pounds and January 3, 1939, 288,000 pounds.
Previous to the employment of the plaintiff, the defendant had done little business in this product; but in fulfillment of the four orders from May 18, 1938, to January 29, 1940, 475,000 pounds were shipped by the defendant to Woo at an aggregate price of $442,077. Eight separate shipments were made in the year 1938, eight in 1939 and one in 1940, all before the filing of the third amended petition upon which the action was tried. On these shipments plaintiff claims commissions in the sum of $11,764.42 or, $5,000 having been paid thereon, a balance of $6,764.42.
Regarding the first order obtained by plaintiff, which amounted to 25,000 pounds at ninety-six cents per pound or $24,000, there was originally a dispute as to the amount of plaintiff's commission. Plaintiff claimed the agreed commission was five per cent on ninety-two and one-half cents per pound plus half the difference between ninety-two and one-half cents and the selling price (if higher) on all sales to "China customers" brought in by him. Defendant claimed the commission was to be five per cent on ninety-five cents per pound plus half the difference between ninety-five cents and the selling price, if higher. The matter was settled finally by the payment of $1,312.50, the amount due according to defendant's version of the contract. This first order is not in controversy in this case.
Regarding the agreement for a two and one-half per cent commission which plaintiff claims on shipments in fulfillment of orders subsequent to the first, he testified in substance as follows:
After the settlement of the dispute regarding the first order, A.E. Marshall, representing the defendant, insisted to plaintiff that the commission be reduced to two and one-half per cent straight on all orders after the first. Plaintiff protested but finally accepted two and one-half per cent as commission on all sales by defendant to Woo or other Chinese customers and requested the contract be put in writing. Upon being assured by Marshall that he would personally guarantee to him the two and one-half per cent commission on sales to Woo and other customers plaintiff brought in, the plaintiff agreed to the proposal without a writing.
Regarding a proposed order of 150,000 pounds, Marshall testified that about June 1, 1938, he had told the plaintiff that "if the order came along to us and we received that order the amount that we would pay him would be two and a half per cent." Later plaintiff called Marshall over the telephone and told him that he did not think that two and one-half per cent was a sufficient amount and Marshall told the plaintiff to write to Mr. Larrowe, who was president of the defendant company. Thereafter on or about October 5, 1938, Mr. Larrowe in behalf of the defendant company, paid plaintiff a commission of two and one-half per cent on three shipments of 30,000 pounds each, amounting to $2,152.50 and covered 90,000 pounds of the second order.
According to testimony given by A.E. Marshall, the plaintiff's commissions covered only the first and second orders. We quote from his testimony:
"Q. Tell us what was said by you and Mr. Yin? A. Mr. Yin reviewed the happenings in connection with the Tien Chu Ve-Tsin Manufacturing Company orders and said that he felt that he had been unfairly treated by Amino Products Company. That in the beginning he had been given a rate of commission on a specified order, that subsequently he had been given a lower rate of commission on a second specific order and that he felt that some arrangement should be made with Amino Products Company that there should be something in writing so that he would be properly protected on the rest and continued commissions on their business that might come to the company from P.N. Woo, or the Tien Chu Ve-Tsin Manufacturing Company. On that particular day I told Mr. Yin that the amounts we had paid him were commissions on specific orders that had reached us, they were allowed on the transactions as we had gotten along, that the payments we had made to him were substantial and regarded as a 'finder's fee' and that as far as Amino Products Company was concerned it was my own view, which I felt was surely Mr. Larrowe's view, that no future commission would be paid him. That was on the 14th day of November [1938]."
On cross-examination Marshall further testified:
"Q. Did you state that if there was prospect of any other business, or other business coming you would give two and a half per cent for any future business. Did you? Yes or no? A. Yes."
On December 30, 1938, plaintiff and Marshall met in New York city. Marshall stated that his company was going to pay plaintiff in all $5,000 or a balance of $1,535. Previously $1,312.50 had been paid as commission on the first order and $2,152.50 to apply on the second order. Plaintiff refused to accept that amount and demanded two and one-half per cent on all sales to Woo and other Chinese individuals.
On January 9, 1939, the plaintiff wrote to the president, James E. Larrowe, and among other things he asked for a check for commissions due him on all shipments and stated that he had talked to Woo about "the possibilities of developing new business at this end." On January 12, 1939, Larrowe wrote a letter to plaintiff advising him that Woo had signed an agreement for a half-year's business but did not mention further payment of commissions other than appears in the last paragraph, which reads:
"In accordance with our agreement with you made by our Mr. A.E. Marshall we are enclosing with this our check for $1,535 as payment in full of any and all amounts due you from us, including finder's fee in connection with our business with Mr. P.N. Woo."
According to plaintiff's testimony no such agreement of settlement was ever entered into between him and Mr. Marshall.
After plaintiff had read this letter in evidence he testified thus:
"Q. Did you ever before, or in any conversation with any representative of Amino Products Company discuss the term finder's fee which is referred to in that letter? A. No. This is the first time I saw these two words. Never seen them or read them before."
On January 13, 1939, the plaintiff in a letter to defendant stated: "I do not propose to submit now to any further reduction or to any alteration of our agreement;" but he kept the check and applied it upon the amount owing for commissions.
As a result of the allowance of a motion to certify, as heretofore stated, the cause is here for review and final determination.
Mr. J. Albert Lowell, Mr. Moses Lane and Mr. Albert E. Kane, for appellant.
Messrs. Marshall, Melhorn, Wall Bloch, Messrs. Bowman, Hanna Middleton and Mr. George F. Medill, for appellee.
The first question is: Did the Court of Appeals commit prejudicial error in entering final judgment for the defendant, Amino Products Company?
The specific error which the Court of Appeals found was that the Court of Common Pleas should have sustained defendant's motion for a directed verdict made at the conclusion of all the evidence. The appellate court, relying upon Gholson v. Savin, 137 Ohio St. 551, 562, 31 N.E.2d 858, based its judgment upon the determination that the evidence showed an accord and satisfaction as a matter of law in that the acceptance of the check for less than the amount of plaintiff's claimed indebtedness upon condition that such acceptance should constitute payment in full was a complete satisfaction and discharged the debt.
In that case, a lesser sum was paid in satisfaction of a judgment and the judgment was released of record by an order of the court which recited the agreement of release and decreed satisfaction of the mortgage upon payment of costs by the judgment debtor. It was deemed that by the entry of satisfaction the judgment, except as to costs, was obliterated and could not be sued over or collected upon execution. This court held that what was done "was sufficient to constitute a complete release." If the sixth paragraph of the syllabus in the Gholson case at first blush seems rather far-reaching when applied to a different factual situation, it should be remembered that a syllabus must always be read in the light of the facts presented.
In the case of Seeds Grain Hay Co. v. Conger, 83 Ohio St. 169, 93 N.E. 892, 32 L.R.A. (N.S.), 380, which relates to the giving of a check for an amount less than the indebtedness in full satisfaction thereof, it is stated:
"Generally, however, the law is applied differently in cases of liquidated and undisputed claims, the reason being, as sometimes stated, that the payor pays no more than he is clearly bound in law to pay and there is therefore no consideration for a release of the remainder of the obligation. But even in such a case, it has been held that when the parties have agreed in settlement of a bona fide dispute between them, that the lesser sum shall be received in satisfaction of the greater, it will be regarded as an accord and satisfaction." (Italics ours.)
The doctrine that the payment of a lesser sum in satisfaction of a liquidated and undisputed obligation for a greater amount presently or past due is not an accord and satisfaction is said to stem from Pinnel's Case, 3 Coke's Reports (Part V, page 117a), 238, 77 Eng. Rep. R., 237, decided in 1602. Upon an examination of the authorities it appears that that doctrine now prevails in most jurisdictions in this country. A good review of the adjudicated cases may be found in the case of State v. Mass. Bonding Ins. Co., 40 Del. (1 Terry), 274, 9 A.2d 77. See, also, Clay v. Rossi, 62 Idaho, ___, 108 P.2d 506; Bellingham Securities Syndicate, Inc., v. Bellingham Coal Mines, Inc., 13 Wn. (2d), ___, 125 P.2d 668; Shawnee Sanitary Milk Co. v. Fulkerson's Garage Machine Shop, 258 Ky. 639, 79 S.W.2d 229; Ortiz Oil Co. v. Geyer, 138 Tex. 373, 159 S.W.2d 494; Aston v. Elkow, 279 Mich. 232, 271 N.W. 742; Haynes Auto Repair Co. v. Wheels, Inc., 115 N.J.L. 447, 180 A. 836; Vilter Mfg. Co. v. Rolaff, 110 F.2d 491; Browning v. Equitable Life Assurance Soc. of United States, 94 Utah 532, 72 P.2d 1060; annotation 34 A. L. R., 1035; annotation 119 A. L. R., 1123; 1 American Jurisprudence, 236, Section 39; 1 Corpus Juris Secundum, 498, Section 29.
Our attention has been called to Rye v. Phillips, 203 Minn. 567, 282 N.W. 459, 119 A. L. R., 1120, in which there is criticism of the well-grounded doctrine. An analysis thereof discloses that the question arose on plaintiff's objection to the introduction of evidence by the defendant on the ground that the answer which pleaded an accord and satisfaction did not state a defense. The allegations of the answer clearly show that there was a consideration to support the agreement out of which the alleged accord and satisfaction arose. Thus through the authorities generally it is found that, where the payment of a lesser in full of a greater amount of indebtedness has been held to constitute an accord and satisfaction, the determination is based upon the presence of some consideration though it may be deemed slight. The consideration in the case of the settlement of an admittedly unliquidated claim or a claim disputed in good faith lies in the mutual concessions of the parties. So far as we are able to discover no court has ever made the express pronouncement that a mere nudum pactum affords a valid basis for an accord and satisfaction. As in any other contract all the essential elements of validity must be present.
What is meant, then, when it is stated that an accord and satisfaction does not arise by the payment and acceptance of a lesser amount in full payment of a "liquidated and undisputed claim?" A liquidated claim is one that can be determined with exactness from the agreement between the parties or by arithmetical process or by the application of definite rules of law. State v. Mass. Bonding Ins. Co., supra; Wood Co. v. Sutton, 177 Okla. 631, 61 P.2d 700, 701; Chicago, Milwaukee St. Paul Ry. Co. v. Clark, 178 U.S. 353, 372, 44 L.Ed., 1099, 20 S. Ct., 924; Gasper v. Mayer, 171 Okla. 457, 43 P.2d 467. Moreover a liquidated claim may be disputed or undisputed. 1 Williston on Contracts (Rev. Ed.), Section 128. The amount due a plaintiff may be fixed and certain and the dispute relate to a counterclaim or the defense of payment or some other defense that does not concern the amount of plaintiff's claim. Yet if there is no counterclaim and no such defense and plaintiff's claim is admitted by all parties to be liquidated, it is ipso facto undisputed as to the amount. On the other hand if there is a question of fact as to whether the plaintiff's claim is liquidated with respect to its amount, the jury may find that the claim is liquidated and then, that there was such evidence of a dispute between the parties with respect to the amount due and owing on the claim as to establish the defense of accord and satisfaction.
There is little difficulty in applying the established principles to the case at bar. In determining whether a motion for a directed verdict should be sustained the court considers only the evidence favorable to the party against whom the motion is directed. Hamden Lodge v. Ohio Fuel Gas Co., 127 Ohio St. 469, 189 N.E. 246.
Looking to the evidence of the plaintiff herein we find that an agreement was made with the defendant for two and one-half per cent commission on all future sales to Chinese customers and that this contract though indefinite in duration was not terminated until after all orders on which the plaintiff bases his right of action were given by Woo to the defendant. Moreover, the amounts of the orders and shipments not being in controversy, the amount due and owing to plaintiff could readily and definitely be ascertained by arithmetical computation and so according to plaintiff's testimony would be liquidated for the full amount claimed by him.
The defendant's evidence, however, warranted the inference that the commission of two and one-half per cent applied only to the second order which amounted to 100,000 pounds of amino salts. In addition there was conversation between the plaintiff and Marshall, the vice president, in which they entered into a dispute as to the amount due and owing to the plaintiff. However, on the witness stand Marshall admitted that he had made a previous statement to the effect that the two and one-half per cent commission would apply to any future business. Thus the question of a bona fide dispute would become one for the jury alter it found that the claim was liquidated as contended by plaintiff.
Here, then, is a conflict in the evidence as to whether the plaintiff's claim was liquidated or unliquidated as to its amount. If the jury found that the claim was unliquidated plaintiff could not recover for in that event the acceptance of the check would constitute accord and satisfaction; but if the jury found that the claim was liquidated, it would be compelled to go further and determine whether there was a bona fide dispute as to the amount of plaintiff's claim at the time the check was given. The debtor's contention may turn out ultimately to be groundless in fact yet be so far tenable as to be the foundation of a bona fide dispute. If the jury finds that such a dispute existed, then the defense of accord and satisfaction is made out.
Consequently the trial court properly overruled the motion for a directed verdict and the Court of Appeals erred in entering final judgment for the defendant.
Nevertheless, counsel for the defendant Amino Products Company maintain that the trial court did commit reversible error in giving certain requests before argument and in charging the jury. A careful examination of the requests given and of the charge discloses that certain statements of law made by the trial judge, taken separately and alone, do not fully cover the issues in the case but we are of the opinion that the instructions as to the law when read together and considered as a whole are not prejudicially erroneous. It is our judgment that substantial justice has been done and that there is no reversible error apparent on the face of the record of proceedings in the trial court.
For the reasons given the judgment of the Court of Appeals is reversed and that of the Court of Common Pleas affirmed.
Judgment reversed.
WEYGANDT, C.J., ZIMMERMAN and TURNER, JJ., concur.
HART, J., concurs in paragraphs two and three of the syllabus but dissents from paragraph one and from the judgment.
MATTHIAS and BELL, JJ., not participating.
Unquestionably the acceptance of a check for a lesser sum on condition that it shall constitute a satisfaction of an unliquidated or disputed claim of greater amount, presently or past due, constitutes an accord and satisfaction. Here there is said to be a consideration for the release of the debt because of the uncertainty of its amount or because of uncertainty as to its validity. In this I fully agree with the majority opinion of this court.
But what must be the rule where the debtor tenders a check to his creditor conditioned that it shall be in full satisfaction of the latter's liquidated or undisputed claim of a larger amount and the check is retained and cashed by the creditor with a full and complete understanding of all the facts concerning the nature and character of the debt and the situation of the parties? Many courts have held, and quite unanimously so until recent years, that an accord and satisfaction may never take place under such circumstances because there is a lack of consideration to support the settlement.
My apology for the length of this dissenting opinion lies in the fact of the great importance of the question involved, of the frequency of its recurrence as an issue to be determined by the courts, of the confusion which I fear may result from the decision of the court in this case in connection with the case of Gholson v. Savin, 137 Ohio St. 551, 31 N.E.2d 858, 139 A. L. R., 75, decided by this court only two years ago, and of an effort to restate with some particularity the present state of the law on this subject as I view it.
The doctrine that a liquidated or undisputed debt cannot be compromised by the payment of a lesser sum unless there is some collateral consideration for the settlement is perhaps mistakenly said to rest on Lord Coke's dictum in Pinnel's Case, 3 Coke's Reports (Part V, page 117a), 238, 77 Eng. Rep. R., 237 (1602), which was as follows:
"Resolved by the whole court, that payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff for a greater sum; but the gift of a horse, hawk, or robe, etc., in satisfaction is good. For it shall be intended that a horse, hawk, or robe, etc., might be more beneficial to the plaintiff than the money, in respect of some circumstance, or otherwise the plaintiff would not have accepted of it in satisfaction. But when the whole sum is due, by no intendment the acceptance of parcel can be a satisfaction to the plaintiff."
Under the modern law of contracts, as I view it, the rule in Pinnel's Case, above quoted, has no application to an executed agreement of settlement and release. Some authorities take the position that such an agreement of settlement constitutes a secondary contract having sufficient consideration to support it, while others hold that the executed agreement resulting in mutual release cannot be attacked for want of consideration.
It will be noted that in Lord Coke's dictum there is no indication that the resolution of the court was based upon the doctrine of consideration. As a matter of fact, the doctrine of consideration had not, at that date, been adopted as an essential element of contracts. Besides, Coke's position on that subject is not a matter of mere inference. We have his own explicit statement discriminating in the sharpest way between the operation of part payment as a satisfaction, and as a consideration. In the later case of Bagge v. Slade, 3 Bulst., 162, 1 Rolle, 354, 81 Eng. Rep. R., 137, 530, he said:
"If a man be bound to another by a bill in £1000 and he pays unto him £500 in discharge of this bill, the which he accepts of accordingly, and doth upon this, assume, and promise to deliver up unto him his said bill of £1000, this £500 is no satisfaction of the £1000, but yet this is good, and sufficient to make a good promise, and upon a good consideration, because he hath paid money five hundred pound, and he hath no remedy for this again."
It is interesting to note the interpretation which James Barr Ames, former Dean of Harvard Law School and a learned legal historian, has given to the pronouncements in the two cases above referred to, when he said:
"The frank way of dealing with these cases [in which two or more creditors compromise with their debtor upon payment of a percentage of their claims] is to say that they can be supported only upon Coke's view, that the payment of part of a debt is a good consideration for the creditor's promise to relinquish all claim to the rest. In his day, it is true, the only way in which the debtor could make use of such a promise was by a cross action. But in recent times such a promise would serve as a bar to an action upon the partially paid debt, on the ground of avoiding circuity of action, since what the creditor recovered in his action against the debtor, he would have to repay as damages in the cross action." 12 Harvard Law Review, 526.
The rule or doctrine of "no consideration," attributed to Lord Coke in Pinnel's Case, was, it is said on good authority, first announced by Lord Ellenborough in the case of Fitch v. Sutton, 5 East, 230, 102 Eng. Rep. R., 1058 (1804), wherein he assumed to interpret but, according to Dean Ames, misinterpreted the holding in Pinnel's Case, because he was unaware of, or failed to give consideration to the case of Bagge v. Slade, supra.
Be that as it may, it is now well settled that a creditor may enter into a valid contract with his debtor, in consideration of part payment of the debt, not to prosecute an action to recover the balance of the claim, which such contract has been referred to by the courts and law writers as a "covenant not to sue." Many courts, in order to carry out the intent of the debtor and creditor who have consummated an agreement whereby the debtor has paid and the creditor received a sum on condition that it shall be in full satisfaction of a larger debt, have held that such an agreement is equivalent to a covenant on the part of the creditor not to sue, and thus in effect discharge the original obligation. Such courts hold that the sum paid is sufficient consideration for the secondary contract not to sue on the original obligation, and in case the creditor breaches his covenant by bringing suit on the original obligation, the debtor is entitled to recover as damages for breach of the latter contract an amount equivalent to that remaining unpaid on the original contract. Restatement of Contracts, 763, Section 405 (1), and comment on subsection (1); Reynolds v. Pinhowe, 1 Roll Ab. 28, 78 Eng. Rep. R., 669; Johnson v. Astell, 1 Lev., 198, 1 Keb., 155 S.C. 83 Eng. Rep. R., 367; Wilkinson v. Byers, 1 Ad. E., 106, 110 Eng. Rep. R., 1148; Callisher v. Bischoffsheim, L. R. 5 Q. B., 449 (1869-1870); Shadwell v. Shadwell, 9 C. B. (N.S.), 159, 142 Eng. Rep. R., 62; Connelly v. Devoe, 37 Conn. 570; Courtenay v. Fuller, 65 Me. 156; Rollins v. Marsh, 128 Mass. 116; Rogers v. Rogers, 139 Mass. 440, 1 N.E. 122; Thomas v. Barnes, 156 Mass. 581, 31 N.E. 683; Conkling, Gdn., v. Tuttle, 52 Mich. 630, 18 N.W. 391; Osborne v. O'Reilly, 42 N.J. Eq. 467, 9 A. 209; Stewart v. Keteltas, 36 N.Y. 388.
I concede that executory agreements to accept less than the full amount of a fixed and certain indebtedness without some collateral consideration to supply the quid pro quo for the difference, are voidable and unenforcible before final consummation, but not so when fully executed. "An agreement by one person to discharge another from the obligations of a written contract as a matter purely ex gratia and in the nature of a donation would be of no binding validity as a mere executory agreement and to be effectual must be fully executed by an actual release or surrender of the contract in writing." 12 American Jurisprudence, 986, Section 407, citing Thurston v. Ludwig, 6 Ohio St. 1, 67 Am. Dec., 328.
Many courts, especially in recent years, unwilling to be bound by the absurdities and injustice of the rule said to be announced in Pinnel's Case, have ceased merely to criticize the rule and are now holding that where an agreement has been voluntarily made between debtor and creditor, whereby the latter agrees to receive a less sum than his liquidated or undisputed debt in full satisfaction of his debtor's obligation, and the debtor has actually made payment accordingly, so that the new agreement has been consummated and executed, such settlement will constitute an accord and satisfaction, which cannot later be impeached by the creditor.
"A contract once fully performed will never be disturbed for want of consideration. [12 American Jurisprudence, 987, Section 408, citing Lamb v. Morrow, Treas., 140 Ia., 89, 117 N.W. 1118, 18 L.R.A. (N.S.), 226]. After one party has performed, and the other party has accepted the performance of, a parol agreement modifying a written contract, it is too late to raise the question of a want of consideration for the modification." 12 American Jurisprudence, 987, Section 408, citing La Plante v. Hubbard. 125 Wn. 621, 217 P. 20; annotation L.R.A., 1915B, page 12.
After a contract has been fully executed on both sides, the element of consideration has no function. "If one makes an executory contract which lacks consideration, he may avoid it when called on for performance, but if he executes the contract by performance he cannot undo his voluntary act." 17 Corpus Juris Secundum, 422, Section 71. See, also, In re Estate of Alms, 153 Minn. 256, 190 N.W. 253; Sooy v. Winter, 188 Mo. App., 150, 175 S.W. 132; Dallas Hotel Co. v. Buffington, (Tex.), 294 S.W. 610, 611; Planters National Bank of Fredericksburg v. E.G. Heflin Co., 166 Va. 166, 184 S.E. 216; Peavey v. Wells, 136 Minn. 180, 161 N.W. 508; C.S. Brackett Co. v. Lofgren, 140 Minn. 52, 167 N.W. 274, L.R.A., 1918F, 998; Colby v. Street, 146 Minn. 290, 178 N.W. 599; Kauffman v. Kauffman, 137 Minn. 457, 163 N.W. 780.
Even "a sealed contract may be modified by a subsequent parol agreement if the latter has been executed or has been so acted upon that the enforcing of the original contract would be inequitable." 12 American Jurisprudence, 1008, Section 429, citing Very v. Levy, 54 U.S. (13 How.), 345, 14 L.Ed., 173; Pratt v. Morrow, 45 Mo., 404, 100 Am. Dec., 381; McKenzie v. Harrison, 120 N.Y. 260, 24 N.E. 458, 8 L.R.A., 257, 17 Am. St. Rep., 638; McCreery v. Day, 119 N.Y. 1, 23 N.E. 198, 6 L.R.A., 503, 16 Am. St. Rep., 793; annotation 55 A.L.R., 685, 689. The doctrine here contended for is illustrated by cases involving the agreement of public officers to accept less than the amount of their fixed salaries in full payment thereof. An agreement by a public officer to accept a lesser sum than his fixed statutory salary is void while executory, but such officer will be denied a recovery when the agreement has been executed by the acceptance of the lesser sum as full payment. Barfield v. City of Atlanta, 53 Ga. App. 861, 187 S.E. 407; DeBoest v. Gampbell, 35 Ore., 368, 58 P. 72; Steele v. City of Chattanooga, 19 Tenn. App. 192, 84 S.W.2d 590.
Professor Williston in 1 Williston on Contracts, 417, Section 120, after stating the common-law rule, says:
"It has been held in several cases that payment of a reduced rent in accordance with a parol agreement satisfies the tenant's obligation under the lease to pay a larger sum." Citing Julian v. Gold, 214 Cal. 74, 3 P.2d 1009; Hurlbut v. Butte Kansas Co., 120 Kan. 205, 243 P. 324; Eisenberg v. C.F. Battenfield Oil Co., 251 Mich. 654, 232 N.W. 386; William Lindeke Land Co. v. Kalman, 190 Minn. 601, 252 N.W. 650, 93 A. L. R., 1393, and annotation, 93 A. L. R., 1404, commented on, 32 Michigan Law Review, 1001; Bowman v. Wright, 65 Neb. 661, 91 N.W. 580; McKenzie v. Harrison, supra; Conlan, Exrx., v. Spokane Hardware Co., 117 Wn. 378, 201 P. 26; In re Estate of Dohm, 188 Wis. 626, 206 N.W. 877; Ossowski v. Wiesner, 101 Wis. 238, 77 N.W. 184; Sherman, Clay Co. v. Buffum Pendleton, 91 Ore., 352, 179 P. 241.
Also in a note to the same section appears the following:
"In Barnett v. Rosen, 235 Mass. 244, 126 N.E. 386, 387, a wife's payment of less than her own judgment debt in return for the creditor's indorsement of satisfaction in full not only on the execution against her, but also on an execution which he held on a judgment for a larger sum against her husband, was sustained."
The rule as applied to executed contracts has been directly repudiated by judicial decision in the following cases: Rye v. Phillips, 203 Minn. 567, 282 N.W. 459, 119 A. L. R., 1120; Clayton, Admr., v. Clark, Exr., 74 Miss. 499, 21 So. 565, 37 L.R.A., 771; Frye, Exr., v. Hubbell, 74 N.H. 358, 68 A. 325, 17 L.R.A. (N.S.), 1197; Dreyfus v. Roberts, 75 Ark. 354, 87 S.W. 641, 69 L.R.A., 823; Ford v. Hubinger, 64 Conn. 129, 29 A. 129; Draper v. Hitt, 43 Vt. 439, 5 Am. Rep., 292. The rule has also been abrogated by broad statutory enactments by at least a dozen states, including the state of New York. The form of the New York statute, adopted in 1936, is as follows:
"An agreement hereafter made to change or modify, of to discharge in whole or in part, any contract, obligation, or lease, or any mortgage or other security interest in personal or real property, shall not be invalid because of the absence of consideration, provided that the agreement changing, modifying or discharging such contract, obligation, lease, mortgage or security interest, shall be in writing and signed by the party against whom it is sought to enforce the change, modification or discharge." Vol. 1, Laws of N.Y. (1936), 614, Chapter 281, Section 279.
The same effect is given without the aid of statute to a receipt in full in a few states, most of which have modified by statute the common-law rules as to sealed instruments. See Dreyfus v. Roberts, supra; Aborn v. Rathbone, 54 Conn. 444, 8 A. 677; Johnson v. Cooke, 85 Conn. 679, 84 A. 97; Marysville Development Co. v. Hargis, 41 Idaho 257, 239 P. 522; Finlayson, Admx., v. Harris, 49 Idaho 697, 291 P. 1071; Diehl v. McKinnon, 173 Ia., 32, 155 N.W. 259, L.R.A. 1916C, 384; Flynn v. Hurlock, 194 Pa. 462, 45 A. 312, Lorenzo v. Rinn, 298 Pa. 108, 148 A. 53.
In this connection the editors of American Law Reports, in an annotation appearing in 119 A. L. R., 1123, call attention to a large number of cases wherein the rule in question has been severely criticized and its application generally denied through some fantastic device of the courts to escape an unjust or improper result. In connection with this annotation the editors, in commenting upon the rule, say:
"In the course of its history there have been so many additional exceptions engrafted upon it by the courts in this country, that even in jurisdictions where it is not entirely repudiated by statute or judicial decisions, the rule, while still theoretically obtaining at the present time, largely serves as the background for the application of some exception to it which in the great majority of the cases precludes or forecloses its applicability." See also Cantrall v. Waterman, 70 Cal.App. 184, 188, 232 P. 997; McGregor v. Farmers' State Bank of Washington, 114 Kan. 356, 219 P. 520; 27 Yale Law Journal, 535, 31 Yale Law Journal, 15; 50 Harvard Law Review, 1314; 54 Law. Quar. Review, 233.
In line with what I believe is a modern trend represented by these authorities, this court two years ago in the case of Gholson v. Savin, supra, held that:
"While an executory agreement on the part of a creditor to accept in payment and full satisfaction of a liquidated claim a sum less than the amount of such claim, without any additional consideration to support such agreement, is ordinarily not enforcible at law, yet if such agreement has been executed and settlement made accordingly, or has been made with some benefit or advantage to the creditor, however slight, it will operate as a full discharge of the debt in accordance with the intention of the parties."
That case, since its decision, has been cited and commented upon by commentators and the law magazines of this country with general approval and commendation. See 15 University of Cincinnati Law Review, 319; 40 Michigan Law Review, 317; 50 Yale Law Journal, 1485; 7 Ohio State Law Journal, 463.
The majority opinion in discussing the case of Gholson v. Savin, supra, seeks to justify the holding in that case and differentiate it from the case at bar because the settlement there related to a judgment which was cancelled of record by means of a court entry. The form or character of proof in that case, in my judgment, was not controlling in its decision. They only emphasized the solemnity with which the parties entered in the contract of settlement. The fact that the cancellation of the judgment was evidenced by a journal entry approved by the court, in my judgment, did not give it any greater efficacy than would a receipt in full signed by the judgment creditor who received the settlement money. The court, after the rendition of the judgment, lost all jurisdiction in the case except to issue process to enforce and satisfy the judgment according to statutory procedure. The controlling principle in the Gholson v. Savin case was based upon the fact that the parties had deliberately entered into a contract of settlement which had been fully executed and carried out according to the intentions of the parties. The character of the evidence of such settlement was unimportant.
While it is elementary that consideration is necessary in the creation of a contract, the act of an obligee in surrendering a part of his claim to his debtor does not create a new contract. A creditor may discharge his debtor without any consideration. Sheehy v. Mandeville, 10 U.S. (6 Cranch), 253, 3 L.Ed., 215. The transaction, if allowed to take effect, is fully executed and the claim extinguished. 31 Yale Law Journal, 15.
Mr. Williston in note 9 to Section 120, 1 Williston on Contracts (Rev. Ed.), 419, says:
"In New York part payment will discharge the obligation where there is evidence of delivery of receipt in full with intention of making a gift of the balance to the debtor." Citing Gray v. Barton, 55 N.Y. 68, 14 Am. Rep., 181; Ferry v. Stephens, 66 N.Y. 321; Carpenter v. Soule, 88 N.Y. 251, 42 Am. Rep., 248; McKenzie v. Harrison, supra, all decided before 1936; Holmes v. Holmes, 129 Mich. 412, 89 N.W. 47, 95 Am. St. Rep., 444; In re Dohm's Estate, supra; 35 Yale Law Journal, 890; Gholson v. Savin, supra: and in note 4, page 417: "For an example of so-called 'waiver' of balance of claim, see Southern, Pacific Co. v. United States, 268 U.S. 263, 69 L.Ed., 947, 45 S.Ct., 500." In the case at bar the main question at issue is whether the acceptance of the check of the defendant under the circumstances constituted an accord and satisfaction. The effect and consequences of the acceptance by the creditor of a conditional tender of payment by the debtor, is well stated in 1 Corpus Juris Secundum, 528, Section 34, as follows:
"The payment of a part of a debt or demand will not discharge the whole thereof without an acceptance of such partial payment as satisfaction. Such acceptance may be actual, by an express and affirmative agreement or consent to receive a partial payment in settlement of the whole debt or demand, or it may be constructive, or implied in law, by the acceptance of a partial payment tendered on the condition that it be accepted in full settlement. In the latter case, actual or express assent or acceptance in satisfaction, apart from acceptance and retention of the payment, is not required, nor is the execution of a receipt necessary, and even an affirmative refusal to consent to the satisfaction and discharge of the demand is unavailing. [ Hudson, v. Yonkers Fruit Co., Inc., 258 N.Y. 168, 179 N.E. 373, 80 A. L. R., 1052]. That is to say, where a claim or demand or the circumstances surrounding it, are such that it is capable of being satisfied by a payment of less than the amount due or claimed, and such a payment is tendered to the creditor on condition that it be accepted, if at all, in full discharge of his claim or demand, or in such manner or under such circumstances that he knows, or is bound to know, that it is intended to be in full satisfaction, he has but two alternatives open to him: [ Hudson v. Yonkers Fruit Co., Inc., supra] he may either reject the payment, and refuse to receive it, in which case no accord and satisfaction is effected, and it becomes the duty of the creditor to return the payment without making use of it, or, at the least, to give the debtor opportunity to say whether he will Waive the condition and allow the payment to be credited on account; or he may accept and retain the payment, in which case, unless such acceptance is clearly and definitely conditional, or unless the debtor waives, or ceases to insist upon, the condition attached to the tender, the creditor takes the payment subject to the condition on which it was tendered, and an accord and satisfaction is accordingly effected, in the absence of fraud, imposition, or mistake, regardless of any protest or contention he may make to the contrary [ Hudson v. Yonkers Fruit Co., Inc., supra], and of his state of mind, purpose or intention [ Drown's Gdn. v. Chesley's Estate ( Jones v. Campbell), 92 Vt. 19, 102 A. 102, L.R.A., 1918A, 1056] or mental reservations, or of any belief on his part, although based on legal advice, that his acceptance will not result in an accord and satisfaction, or of his ignorance that it will so result, and notwithstanding he declares or notifies the debtor that the amount paid is not all that is due, or that he is applying it on account, or as part payment, only [ Whittaker Chain Tread Co. v. Standard Auto Supply Co., 216 Mass. 204, 103 N.E. 695, 51 L.R.A. (N.S.), 315, Ann. Cas. 1915A, 949], and it is immaterial that he sends a receipt for the payment 'on account,' or that he refuses to sign or send a receipt in full."
All courts recognize that a debtor has the right of disposition of his own money in the payment of his obligations and no creditor can lawfully appropriate the money of his debtor to account or debt against the will of the latter without due process of law, unless the debtor owes the money in the capacity of agent or fiduciary, in which event, it is not his own money but that of his principal or beneficiary. The debtor therefore has the right to attach such conditions to his payment as he sees fit, independently of whether the debt is liquidated or undisputed, and such condition cannot be disregarded by the creditor without legal consequences hereafter discussed. Stewart v. Hopkins, 30 Ohio St. 502, 539; 3 Williston on Contracts (1920 Ed.), 3106, Section 1795; Precker v. London, 73 N.Y. Supp., 145; Hudson v. Yonkers Fruit Co., Inc., supra.
On this subject, Judge Cardozo, speaking for the court in the last case cited, said:
"The question then is whether the acceptance of the check without approval of the deduction is to be viewed as the breach of a condition lawfully imposed. A debtor paying his own money may couple the payment with such conditions as he pleases ( Nassoiy v. Tomlinson, 148 N.Y. 326, 331 [ 42 N.E. 715]; 3 Williston on Contracts [1920 Ed.], 3175, Section 1854). The mere fact that he is a debtor does not deprive him of that privilege. If he has the title to the money, he may pick and choose among his creditors, or refusing to pay any one until coerced by legal process, may keep the money for himself. From this the rule has grown up in connection with the satisfaction of unliquidated demands that one who sends a check to another upon a condition explicitly declared that the demand shall be extinguished or the check sent back unused, may hold the creditor to the condition, however embarrassing the choice. * * * The use of the check in violation of the condition would be an act of conversion. What is said or written by the creditor may be a refusal to assent. The law imputes to him an assent on the basis of his acts. * * *."
The rationale of this rule, as applied to the acceptance of checks conditioned that acceptance shall constitute full payment of an obligation, is that the debtor is disposing of his own money, and may, therefore, attach whatever condition he may choose to the disposition. To take the money and at the same time ignore the condition on which it was offered would amount to a conversion on the part of the creditor. Under such circumstances the law will deem the money to have been taken by the creditor lawfully and not tortiously, and will declare that its retention when tendered in full satisfaction of an obligation gives rise to an irrebuttable presumption that the condition has been accepted. "* * * the creditor is not allowed to assert his tortious conversion, though the effect of such a ruling is to fix upon him a bargain which he never made." 3 Williston on Contracts (1920 Ed.), 3178, Section 1855.
"It is a general principle that where an act may rightfully be done with certain consequence or effect, the actor cannot assert for his own advantage to avoid that effect, that the act was done wrongfully. * * * The imposition of an accord and satisfaction on the creditor against his will can be justified only where his taking the check would be tortious except on the assumption of a taking in full satisfaction." 3 Williston on Contracts (1920 Ed.), 3179, Section 1856; 1 Restatement of Contracts, 77, Section 72 (2); Hudson v. Yonkers Fruit Co., Inc., supra.
The rules of offer and acceptance apply. Where a tender of payment is made upon certain conditions, the creditor has no right to accept the tendered payment and disregard the conditions attached. If he exercises dominion over the thing offered or tendered, he will be bound by the conditions. Grouf v. State Natl. Bank of St. Louis, 76 F.2d 726; Regal Asbestos Mines, Inc., v. Romo, 36 Ariz. 456, 286 P. 935; 1 Restatement of Contracts, 77, Section 72 (2), and illustration 8; Beck Electric Construction Co. v. National Contracting Co., 143 Minn. 190, 173 N.W. 413.
I concede that to constitute an accord and satisfaction by the acceptance of a check conditioned that such acceptance shall constitute a full satisfaction of an unliquidated or disputed debt, or of a liquidated debt for a larger amount, there must be a full understanding of the facts involved; there must be absence of fraud, imposition or mistake; and the circumstances must be such that the law will imply an acceptance by the creditor of the tender and condition attached by the debtor. In some instances, these cases may involve questions of fact to be submitted to a jury; but where the facts are not in dispute, there is only a question of law to be determined by the courts.
In the instant case I agree with the majority opinion that there is a dispute in the evidence as to the amount, if any, due to the plaintiff from the defendant. There is a dispute as to the amount of commissions to be paid and as to how long the contract for commission was to continue in force. But these are disputes as to the interpretation of the facts rather than as to the facts themselves and at most were merged in the settlement if there was one. Consequently, in my judgment, there was an accord and satisfaction and the judgment of the Court of Appeals should be affirmed. On the other hand, if the Court of Appeals cannot be sustained in entering final judgment, the case should be remanded for a new trial, because, in charging the jury before argument, the court failed to submit the issue of accord and satisfaction as requested.
The old rule which has become obnoxious to the law, if applicable to executed agreements of settlement, breeds dishonesty and unnecessary litigation. It encourages duplicity on the part of the creditor to pretend to make a settlement with his debtor and get as much cash as possible from him and then disregard the ethics of fair dealing and sue the creditor for the remainder. The courts also experience difficulty in the application of this rule, in determining whether a claim is liquidated or unliquidated, disputed or undisputed, and if disputed whether the dispute is bona fide or otherwise. This difficulty and expense of litigation is well illustrated in the instant case which has already been twice tried in the Common Pleas Court, twice reversed by the Court of Appeals and is now disposed of by this court, as I see it, without a proper consideration of the issue of accord and satisfaction asserted by the defendant, because of error in its submission to the jury which rendered the verdict upon which the judgment is based.
I concur in paragraphs two and three of the syllabus but dissent from the first paragraph thereof and from the judgment.