Plaintiff brought this action, alleging that defendants had failed to pay for work that plaintiff had done on a construction project. Defendants denied that allegation and alleged, as an affirmative defense, that plaintiff had agreed to release its claims against defendants in return for defendants paying plaintiff $896,000. Defendants also counterclaimed for specific performance of that settlement agreement. On defendants’ motion, the trial court bifurcated the trial and agreed to try defendants’ counterclaim for specific performance of the settlement agreement before trying plaintiffs claims for breach of the construction contract.
The primary question that this case presents is whether plaintiff has a state constitutional right to a jury trial on the factual issues that defendant’s counterclaim raised. The trial court concluded that plaintiff had no such right and, sitting as the trier of fact, found that plaintiff had accepted defendants’ offer to settle its claims and entered judgment accordingly. A divided Court of Appeals affirmed the trial court’s judgment.
McDowell Welding & Pipefitting v. US Gypsum Co.,
The relevant facts can be summarized briefly. Defendant United States Gypsum (US Gypsum) was constructing a new plant in Columbia County. Defendant BE&K Construction Co. (BE&K) was the general contractor on that project. BE&K subcontracted with plaintiff to perform work on the project. During construction, defendants asked plaintiff to perform additional tasks, over and above plaintiffs contractual obligations, and defendants promised to pay plaintiff for doing so. After plaintiff completed its work on the project, the parties disagreed over the amount that defendants owed for the additional work that plaintiff had performed.
Plaintiff filed this action against defendants, alleging breach of contract and related claims. All of plaintiffs claims arose out of the modification to the construction contract. BE&K’s answer included an affirmative defense captioned “Compromise and Settlement,” alleging that plaintiff had agreed to settle its claims against defendants. Specifically, defendants alleged:
“112.
“On February 22, 2001, Dan McDowell, President and owner of [plaintiff], agreed to a settlement of all the claims against BE&K and US Gypsum in connection with the US Gypsum construction project.
“113.
“The settlement provided for US Gypsum to pay [plaintiff] the total of $896,000, including direct payments to [plaintiffs] unpaid subcontractors and suppliers, in exchange for a release of the claims [that plaintiff] is now pursuing against BE&K.
“114.
“The agreement reached between the parties on February 22, 2001 was a compromise of [plaintiffs] disputed and unliquidated claims against US Gypsum and BE&K.”
BE&K also included a counterclaim captioned “Declaratory Judgment and Specific Performance of Settlement Agreement.” That counterclaim stated: “As alleged above, on February 22, 2001, the parties reached a compromise and settlement of [plaintiffs] claims.”
BE&K filed a motion asking the trial court to bifurcate the proceedings and try its counterclaim before trying plaintiffs claims against it. BE&K reasoned that, if the trial court found that plaintiff had agreed to settle its claims, that determination would obviate the need to try plaintiffs breach of contract claims against BE&K and US Gypsum. BE&K also argued that, because its counterclaim sought specific performance, the court rather than a jury should resolve the factual issues that the counterclaim raised. The trial court granted BE&K’s motion.
After the trial court granted BE&K’s motion, plaintiff filed a demand for a jury
Based on its resolution of defendants’ counterclaim, 2 the trial court entered a limited judgment directing defendants to tender $800,000 to the court clerk and directing plaintiff, after defendants tendered that sum, to execute releases of its claims against defendants. After the trial court entered the limited judgment, defendants tendered $800,000 to the court clerk and then moved for summary judgment on plaintiffs claims against them. The trial court granted defendants’ motion and entered a general judgment that dismissed plaintiffs claims with prejudice.
On appeal, plaintiff argued, among other things, that the trial court had erred in denying its jury demand on the question whether it had accepted defendants’ settlement offer. As noted, a divided Court of Appeals affirmed. The majority started from the proposition that plaintiff had not assigned error to the trial court’s ruling bifurcating the trial and agreeing to try defendants’ counterclaim first.
McDowell Welding & Pipefitting,
The dissent took a different tack. The dissent did not disagree that plaintiff had no right to a jury trial on defendants’ counterclaim. The dissent, however, would have held that plaintiff had a right to a jury trial on defendants’ affirmative defense; that is, the dissent concluded that defendants’ affirmative defense would have been legal rather than equitable when the Oregon Constitution was adopted.
4
Id. at 473 (Armstrong, J., dissenting). Following the reasoning in
Beacon Theatres, Inc. v. Westover,
On review, plaintiff renews its argument that the trial court erred in striking its demand for a jury trial. As we understand plaintiffs argument, it entails two separate but related questions. The first question is whether plaintiff had a state constitutional right to a jury trial on defendants’ counterclaim for specific performance of the settlement agreement. If plaintiff did not have a right to a jury trial on the counterclaim, the remaining question is whether plaintiff had a right to a jury trial on defendants’ affirmative defense (which also is based on the settlement agreement) and, if it did, whether the trial court should have tried the affirmative defense to a jury before trying the counterclaim to the court. We begin with the question whether plaintiff had a right to a jury trial on defendants’ counterclaim.
Two provisions of the Oregon Constitution bear on that question. Article I, section 17, of the Oregon Constitution provides: “In all civil cases the right of Trial by Jury shall remain inviolate.” Article VII (Amended), section 3, provides in part that, “[i]n actions at law, where the value in controversy shall exceed $750, the right of trial by jury shall be preserved.” Reading those provisions together, this court has explained that Article I, section 17, “guarantees a jury trial ‘in those classes of cases in which the right [to a jury trial] was customary at the time the [Oregon] [Constitution was adopted or in cases of like nature.’ ”
Lakin v. Senco Products, Inc.,
To determine whether a claim is legal or equitable, the court looks to the pleadings.
See Thompson v. Coughlin,
In arguing that, under
Thompson,
it is entitled to a jury trial on defendants’ counterclaim, plaintiff does not dispute that “suits in equity, including suits for specific performance of contracts, are ordinarily to be tried to a court without a jury and that the constitutional right to trial by jury does not apply to suits in equity.”
See Phillips v. Johnson,
We note, as an initial matter, that plaintiffs argument is at odds with this court’s practice. This court repeatedly has entertained suits for specific performance of settlement agreements without suggesting that resort to equity was unnecessary because the parties had an adequate remedy at law.
See Michel v. ICN Pharmaceuticals,
As we discuss more fully below, a settlement agreement may take one of three forms: an executory accord, an accord and satisfaction, or a substituted contract. As we also discuss below, when the Oregon Constitution was adopted, only a court of equity would enforce an executory accord. The law courts would not enforce executory accords because they suspended the underlying obligation; they did not discharge it. By contrast, an accord and satisfaction and a substituted contract discharged the underlying obligation, albeit for different reasons, and both were enforceable in the law courts. It follows that the question whether the agreement that gave rise to defendants’ counterclaim would have been cognizable in law or equity turns, at least initially, on whether it is an executory accord, an accord and satisfaction, or a substituted contract. We first describe the distinctions among those types of settlement agreements before considering which type of settlement agreement defendants alleged.
An executory accord is “an agreement for the future discharge of an existing claim by a substituted performance.” Arthur Linton Corbin, 6
Corbin on Contracts
§ 1268, 71 (2d ed 1962). Usually, an executory accord is a bilateral agreement; the debtor promises to pay an amount in return for the creditor’s promise to release the underlying claim. When the parties enter into an executory accord, the underlying claim “is not [discharged] until the new agreement is performed. The right to enforce the original claim is merely suspended,
and is revived by the debtor’s breach of the new agreement.”
Savelich Logging v. Preston Mill Co.,
Because an executory accord does not discharge the underlying claim but merely suspends it, the law courts refused to allow it to be pleaded as a bar to the underlying claim.
See
Samuel Williston, 15
Williston on Contracts
§ 1842, 520 (3d ed 1972) (describing basis for that conclusion);
Smith v. Foster,
Once the promised performance occurs, the accord has been executed or satisfied and the underlying claim is discharged, resulting in an accord and satisfaction.
See State ex rel. v. Funk,
Finally, the parties may enter into a substituted contract; that is, the parties may agree to substitute the new agreement for the underlying obligation. 6
Corbin on Contracts
§ 1293 at 185. A substituted contract differs from an executory accord in that the parties intend that entering into the new agreement will immediately discharge the underlying obligation.
See Eagle Industries, Inc. v. Thompson,
With that background in mind, we turn to the question whether defendants pleaded an executory accord, an accord and satisfaction, or a substituted contract. Here, defendants alleged that they agreed to pay plaintiff $896,000 in exchange for a release of plaintiffs claims against them. Defendants did not allege that they had paid plaintiff the promised sum — an allegation necessary for an accord and satisfaction.
See Harding v. Bell,
Plaintiff, for its part, does not argue that defendants alleged a substituted contract rather than an executory accord. Rather, plaintiffs brief touches on that issue only once. Plaintiff argues that “there is no dispute that [plaintiffs] original cost-overrun claims against BE&K and US Gypsum entitled [plaintiff] to a jury, including the factual determination of the existence of the settlement agreement alleged by BE&K and US Gypsum.” The fact that plaintiffs contract claims against defendants would have been cognizable at law when the Oregon Constitution was adopted does
not mean that an executory accord, asserted as defense, also would have been cognizable at law. As explained above, precisely the opposite was true. When the Oregon Constitution was adopted, an executory accord was not recognized as a defense to an action at law. It could be enforced only in equity.
See Smith,
Plaintiff advances an alternative argument. It contends that, even if it had no constitutional right to a jury trial on defendants’ counterclaim, it had a right to a jury trial on defendants’ affirmative defense. Plaintiff assumes that defendants’ affirmative defense presents a legal claim that would have been tried to a jury in 1859. Plaintiff then reasons that, in interpreting Article I, section 17, of the Oregon Constitution, we should follow the United States Supreme Court’s interpretation of the Seventh Amendment in Beacon Theatres-, that is, plaintiff argues that, when a case includes an equitable claim and a legal claim and those claims share common factual issues, Article I, section 17, requires that a court try the legal claim first in order to give effect to the parties’ right to a jury trial.
Plaintiff recognizes that the Seventh Amendment does not apply to the states and that we interpret state constitutional provisions independently of their federal counterparts. Plaintiff argues, however, that the Court’s reasoning in Beacon Theatres is persuasive and urges us to adopt that reasoning in interpreting Article I, section 17. Applying that reasoning, plaintiff argues that the trial court should have tried defendants’ affirmative defense to a jury before trying defendants’ counterclaim to the court.
The difficulty with plaintiffs argument is its premise. As explained above, both defendants’ affirmative defense and their counterclaim allege an executory accord and were cognizable only in equity when the Oregon
There is some suggestion in plaintiffs brief on the merits that the reasoning in
Beacon Theatres
required the trial court to try plaintiffs breach of contract claims, which were concededly legal, before trying defendants’ equitable counterclaim. To the extent that plaintiff makes that argument, it fails for three reasons. First, the premise of
Beacon Theatres
is that the legal and equitable claims share common issues of fact.
The second reason follows from the first. If, as the trial court found, plaintiff agreed to settle its claims (and defendants subsequently performed their part of the settlement agreement), then the executed settlement would obviate any need to try the factually separate question whether plaintiff is entitled to prevail on the underlying agreement. Trying plaintiffs claims for breach of the construction contract first would serve no purpose if, as the trial court found, plaintiff promised to release those claims as part of a later settlement agreement.
Third, as the Court of Appeals majority observed and as plaintiff has not disputed, plaintiff did not assign error to the trial court’s ruling bifurcating the trial and deciding to try defendants’ counterclaim for specific performance of the settlement agreement before trying plaintiffs claims against defendants. If plaintiff did not assign error to that ruling, then plaintiff necessarily failed to take the steps necessary to pursue any argument that the trial court should have tried its contract claims before trying defendants’ counterclaim. Having considered plaintiffs arguments, we hold that Article I, section 17, of the Oregon Constitution did not require the trial court to try either defendants’ counterclaim or their affirmative defense to a jury.
Plaintiff raises an alternative issue on review. Plaintiff argues that, if we affirm the trial court’s ruling on its jury trial claim, then we should reach the issue whether the trial court erred in denying plaintiff prejudgment interest. Regarding that issue, the trial court found that, on February 22, 2001, plaintiff agreed to release its claims against defendants in return for a payment of $800,000. The parties also agreed that, to the extent that plaintiff owed money to its suppliers, defendants would issue joint checks to plaintiff and its suppliers out of the $800,000 payment. Defendants asked plaintiff to provide them with the suppliers’ names and the amount that plaintiff owed each supplier so that defendants could prepare joint checks. Approximately a week later, plaintiff repudiated the settlement agreement; plaintiff took the position that the parties’ discussions on February 22, 2001, had not resulted in a final, binding agreement.
When defendants submitted a proposed judgment to the trial court, plaintiff objected because the judgment entered in 2004 did not require defendants to pay prejudgment interest on the $800,000 that defendants had promised to pay plaintiff in 2001. The trial court overruled plaintiff’s objection, and the Court of Appeals affirmed that ruling without discussion.
McDowell Welding & Pipefitting,
Plaintiffs claim for prejudgment interest arises in a different posture than many prejudgment interest claims. Typically, the person from whom prejudgment
This case arises in a different posture. In this case, defendants did not breach any duty that they owed plaintiff under the settlement agreement. Rather, plaintiff had repudiated the settlement agreement, excusing defendants from fulfilling their promise to pay $800,000.
See Howard v. Thomas,
Plaintiff argues, however, that defendants had the use of the $800,000 from the time that the parties entered into the settlement agreement in 2001 until the court issued its judgment in 2004. Plaintiff contends that conditioning the judgment entered in 2004 on defendants’ paying plaintiff in 2001 dollars fails to take into account the time value of money, unjustly enriching defendants. Plaintiff reasons that, once defendants chose to seek the benefits of the settlement agreement and asked the trial court to order specific performance, the trial court should have conditioned plaintiffs performance of the settlement agreement on defendants’
payment of the agreed sum plus interest.
See Wittick v. Miles,
Wittick is squarely on point and supports plaintiffs argument. In
Wittick,
the plaintiffs sought specific performance of an earnest money agreement for the sale of land.
In
Wittick
and also in this case, the party seeking specific performance of the agreement had not breached its terms, and the party against whom enforcement of the agreement was sought had repudiated it. In
Wittick,
even though the plaintiff had not
Defendants argue that, even if they otherwise would be liable for prejudgment interest, they tendered payment to plaintiff and thus cut off plaintiffs right to seek prejudgment interest.
See Bembridge v. Miller,
The trial court’s findings do not show that defendants tendered payment to plaintiff. Rather, as the trial court found, the record reflects that the parties entered into a settlement agreement, that defendants requested information that would permit them to issue checks to plaintiff and its suppliers in the future, and that defendants were prepared to do so. The prospect, however, that payment might occur at some point in the future is not sufficient to defeat plaintiffs claim for prejudgment interest.
Because we conclude that plaintiff is entitled to prejudgment interest, we reverse the Court of Appeals decision and the trial court’s judgment on that issue so that the trial court can determine that amount of prejudgment interest owed and condition plaintiffs specific performance of the settlement agreement on defendants’ payment of $800,000 plus interest. In all other respects, the Court of Appeals decision and the trial court’s judgment are affirmed.
The decision of the Court of Appeals is affirmed in part and reversed in part. The judgment of the circuit court is affirmed in part and reversed in part, and the case is remanded to the circuit court for further proceedings.
Notes
Although defendants alleged that they promised to pay plaintiff $896,000 in return for plaintiff’s promise to release its claims against them, defendants proved and the trial court found that defendants had promised to pay only $800,000.
After plaintiff filed its complaint, US Gypsum filed for bankruptcy and the case proceeded only against BE&K. Midway through the proceeding, the bankruptcy court lifted the automatic stay. US Gypsum adopted BE&K’s pleadings and participated in the bifurcated trial on what became both defendants’ counterclaim.
The Court of Appeals majority understood the dissent to be arguing that Article I, section 17, which guarantees the right to a jury trial in civil cases, required the trial court to try plaintiffs claims before defendants’ counterclaim. Starting from that understanding, the majority found it significant that plaintiff had not assigned error to the ruling bifurcating the trial and agreeing to try plaintiffs claims second.
See McDowell Welding &
Pipefitting,
In reaching that conclusion, the dissent observed that the settlement agreement, as alleged, could be either an executory accord or a substituted contract.
The dissent refers to defendants’ affirmative defense as if it were part of plaintiffs claims and also refers to trying plaintiffs claims before trying defendants’ counterclaim.
See, e.g.,
An accord and satisfaction may occur in one of two ways:
“The two parties may first make an accord executory, that is, a contract for the future discharge of the existing claim by a substituted performance still to be rendered. When this executory contract is fully performed as agreed, there is said to be an accord and satisfaction, and the previously existing claim is discharged. It is quite possible, however, for the parties to make an accord and satisfaction without any preliminary accord executory or any other executory contract of any kind. [For example, a] debtor may offer the substituted performance in satisfaction of his debt and the creditor may receive it, without any binding promise being made by either party.”
6
Corbin on Contracts
§ 1276 at 115-16 (footnote omitted);
see also Coover v. G & J Electric,
Corbin explains that:
“[t]he reason that [an executory accord] is not in itself at once operative as a discharge of the claim is that the agreement does not so provide. If it does so provide, it operates accordingly and is a substituted contract.”
6 Corbin on Contracts § 1269 at 75.
We note that the limited judgment that the trial court entered is consistent with an executory accord and inconsistent with an accord and satisfaction and also with a substituted contract. The limited judgment directed defendants to pay $800,000 to the court clerk, which would have been unnecessary if defendants had already satisfied their promise to pay that amount. Similarly, if the parties had entered into a substituted contract, the court would not have conditioned plaintiffs obligation to release its claims on defendants’ payment of the funds to the court clerk. Rather, plaintiffs release of its claims would have occurred when the parties entered into the settlement agreement.
We express no opinion on whether the reasoning stated in Beacon Theatres applies under Article I, section 17. This case does not require us to decide that issue.
Because the amount that defendants owe under the agreement is readily ascertainable, that condition poses no bar to requiring payment of prejudgment interest.