Tag Archives: substituted contract

Settlement as Substituted Contract or Accord–Lane House Construction

Lane House Construction, Inc. v. Ogrowsky, 2013 WL 5775046 (Mo. App. E.D.), presents the question whether a settlement, in the form of a promise to pay a sum, operates as an accord or a substituted contract.  The important distinction here is that if the payment is not made:

  • If the settlement is an accord, the failure to satisfy the accord allows the party owed payment to sue on the original obligation.
  • If the settlement produces a substituted contract, the failure to perform the substituted contract does not allow the payee to seek recovery under the original contract.

See Restatement (Second) of Contracts §§ 279, 281.

In a dispute concerning installation of a roof, the parties apparently agreed to settle the dispute with the homeowner to pay a portion of the amount sought by the contractor.  There was it appears not payment under the settlement.  So, the question, of course, is whether the settlement was for a substituted contract or an accord.

Appellant’s (customer’s) brief recites:

The case was set for a bench trial on May 3, 2012. On that day, May 3, 2012, Plaintiff Lane House Construction and Defendant Ogrowsky met at the courthouse and after some discussion, it was agreed that Defendant would pay Plaintiff $2,000.00 and the lawsuit would be settled. LF 64. Accordingly, the parties announced that the matter could be passed for settlement. LF 14. The “passed for settlement Order” was signed by the attorneys for Plaintiff Lane House and Defendant Ogrowsky, endorsed by the Judge in Division 42W, and filed by the Clerk. Id.

Plaintiff Lane House and Defendant Ogrowsky, through their attorneys, agreed to ask for a continuance from the May 11, 2012 date the Court set for disposition of the lawsuit. LF 15-16, 64. There also were discussions about the contents of a settlement agreement or release; whether or not a mutual dismissal with prejudice would serve as a complete and adequate settlement agreement; and whether Defendant Ogrowsky would pay the $2,000.00 before or after the fully-executed mutual dismissal with prejudice would be filed with the Court. Id. There is no record that the May 11, 2012 court date was continued or that any appearance was made on that day. In any event, the trial court dismissed all claims for failure to prosecute June 4, 2012, on its own motion. LF 17.

The appellant references Wenneker v. Frager, 448 S.W.2d 932 (Mo. App. 1969), which states:

These two cases lead us to conclude that an open court agreement to settle a pending lawsuit, accompanied by a stipulation that the cause be passed for settlement, terminates the cause of action and creates a new obligation warranting a judgment in accordance with the terms of settlement. In Farmer v. Arnold, Mo., 371 S.W.2d 265(3) the court said ‘a compromise and settlement ‘operates as a merger of, and bars all right to recover on, the claim or right of action included therein“, citing 11 Am.Jur., Compromise and Settlement, ss 23—24, p. 271.

On the other hand, the contractor, now seeking to recover on the original contract, references assorted authority treating the settlement as an accord.

A Question of Interpretation

More after the break ….

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