I cannot allow the majority opinion as written to go into our reports unchallenged. It is I believe subject to two sound criticisms: First, it unjustly imputes bad faith to defendant association; and second, it announces what I believe to be an incorrect statement of the law of accord and satisfaction.
I. The imputation of bad faith is not only unsupported but actually denied by the record. The injury to insured occurred June 25, 1945, in Georgia. Under date July 2, 1945, the beneficiary named in the Membership Certificate executed the proof of loss accompanied by "Attending Physician's Statement", "Undertaker's Statement" and "Statement of Disinterested Neighbor or Friend."
The record does not show when they were received by defendant in Des Moines at its home office. The proof of loss, sworn to by the beneficiary, plaintiff's intestate, stated that the accident happened at 4:45 p.m. and that insured died at 6 p.m. and that he was in "fair" health at time of injury.
In answer to the question: "State fully cause of any disability experienced by member during last two years," the reply was: "See Doctors statement Paragraph No. 11." This paragraph 11, in answer to the question: "State contributory causes of death, if any, in order of importance," answered: "Has had previous attacks of angina, indicating coronary disease."
The proof of loss twice states that there were no visible bodily injuries but there was "extreme shock" and that the physician was called immediately after the injury. To the inquiry for name and address "of all physicians who attended member after member received injury which caused his death" the proof answered:
"Dr. W.A. Mendenhall, Chamblee, Ga." (the doctor who made the "Attending Physician's Statement").
The physician's statement, in addition to the statement at paragraph 11 above quoted gave the following:
"7. State in full cause of death of deceased. Coronary thrombosis. Shock from auto accident about 1 hr. before death. * * * *Page 231
"10. Did the injury of itself independent of all other causes produce death of deceased? It is felt that the accident and subsequent nervous shock initiated the fatal coronary attack. * * *
"13. Did deceased have any * * * physical impairment? See 11 above.
"14. Did the condition described in 13 contribute to death? Yes."
I have set these matters out, not as bearing on the question of the cause of death, but to show what information and claim was made by the beneficiary to defendant association as bearing on its good faith in the transaction.
In spite of the innuendo and hints to the contrary in the majority opinion, there is no slightest evidence that defendant had anything to do with the selection of, or any connection with, Dr. Mendenhall; or had anything to do with the making of the proof of loss. I think it likely the beneficiary relied on the physician whom she presumably called and who says he had known Mr. Flowers one year. Nor was there any sound reason for defendant to doubt the doctor's conclusion as to the real cause of death. The fine spun theories later advanced by the expert Des Moines witness for plaintiff at the trial were not in the picture when defendant's Manager of Claim Department wrote the letter of July 27, 1945, set out in full in the majority opinion, enclosing the check which the beneficiary cashed, and the proposed release which she did not sign.
The letter is straightforward and clear. It honestly gave beneficiary the benefit of what seemed to be the real situation. It is incredible that its recipient was misled. It conformed exactly to her own and the physician's and the disinterested neighbor's belief that while the accident caused the death, it was contributed to by the heart condition reported in the proof. It does mention "our own investigation" and there is nothing to show what that investigation revealed. But it cannot be assumed that plaintiff's attorneys failed to produce and show whatever evidence there was to discover by such investigation. Certainly that evidence would not have justified a tender of *Page 232 the face of the policy by the claim manager. He had a duty to the association he represented.
There is no evidence of any kind to justify a speculation that Mrs. Flowers thought she was receiving a part payment of $500 on the full face of the policy. The suggestion that she may have thought so is slightly ridiculous, if I may be pardoned for saying so. No such interpretation could be placed on the letter and its enclosures. For aught that appears Mrs. Flowers was a person of ordinary intelligence and able to read the English language. We should assume she was honest and that when she accepted and cashed the check for $500 she had no secret intention of claiming more. What may have happened to change her intention later we have no way of knowing.
The majority says the relationship between the beneficiary and the insurer is "closely akin to a fiduciary one, and where the insurer should be most meticulous and conscientiously scrupulous to protect the rights of the beneficiary and to give every opportunity to fully establish her rights. * * * It knew the strong probability that the accident caused Flowers' death."
No authority is cited for this new statement of the relationship between beneficiary and insurer. I have never before heard it announced. It is my understanding the parties were dealing at "arm's length." Defendant owed to the beneficiary the duty it would owe to any other person with whom it dealt — the duty to deal uprightly. This, I submit, the defendant did under this record, and it assumed Mrs. Flowers was doing the same. She and the physician were in a far better position than was defendant to know "how little [or how much] fact basis there was to the `attending' physician's answers." There is nothing here to impeach either his honesty or his ability.
Again it is said in the opinion: "It [defendant] should have given it [the $500] to her unconditionally, absolutely, and with no strings attached * * *." This seems to me to indicate an entirely distorted conception of the contract. It brings us to a discussion of the question of accord and satisfaction.
II. The contract here is a single, indivisible contract not similar to the familiar life policy with provision for double *Page 233 indemnity in case of death by accident. These latter policies are held to be in effect two contracts. Payment of the life insurance is not inconsistent with possible liability upon the accident feature. That is not the case here as I shall demonstrate.
The whole difficulty in application of the principle of accord and satisfaction is the matter of consideration. An accord, in legal contemplation, is a new contract, necessitating a meeting of the minds upon a new consideration. Immediately there arises the inquiry, was the original demand for a "liquidated" amount, that is, does the debtor owe a definite, determined sum, if he owes anything — does he owe all or none? In such a case, payment of a lesser amount cannot constitute a consideration for an accord unless there was an honest dispute as to whether anything was due. If there was, the accord might be supported by a consideration in that each party yields some part of his contention in order to settle the controversy.
That is the familiar pattern where the claim is "liquidated." It is not applicable to our situation here. Plaintiff's claim, under what seems to be the rule in Iowa, was unliquidated. This court has said that even "if it is admitted that one of two sums is due, but there is a dispute as to which is the proper amount, the demand is unliquidated within the meaning of accord and satisfaction." Schultz v. Farmers Elevator Co., 174 Iowa 667, 675, 156 N.W. 716, 719, citing Greenlee v. Mosnat, 116 Iowa 535, 90 N.W. 338, and Sparks v. Spaulding, 158 Iowa 491, 139 N.W. 1083.
In the cited Greenlee case it is said:
"As related to the subject of accord and satisfaction, the term `liquidated,' * * * means one where the amount due has been ascertained and agreed upon by the parties, or is fixed by operation of law. [Citing authorities.] When not so determined, it is the subject of compromise. To avoid any confusion in the definition of the word, the books quite generally refer to disputed as well as unliquidated claims as those which may be adjusted without full payment." (At page 538 of 116 Iowa, page 339 of 90 N.W.)
The case then quotes approvingly from Nassoiy v. Tomlinson,148 N.Y. 326, 330, 42 N.E. 715, 716, 51 Am. St. Rep. 695: *Page 234
"A demand is not liquidated even if it appears that something is due, unless it appears how much is due, and when it is admitted that one of two specific sums is due, but there is a genuine dispute as to which is the proper amount, the demand is regarded as unliquidated, within the meaning of that term as applied to the subject of accord and satisfaction."
That this is the general rule seems well established. This same language of the New York court is quoted with evident approval by the United States Supreme Court in Chicago, M. St. P. Ry. Co. v. Clark, 178 U.S. 353, 367, 20 S. Ct. 924, 44 L. Ed. 1099. The principle is announced in 1 Am. Jur., Accord and Satisfaction, section 61 (citing the New York case), and in 1 C.J.S., Accord and Satisfaction, section 32c (2) (citing among various other cases, Schultz v. Farmers Elevator Co., supra). See, also, Ferguson v. Grand Lodge, 174 Iowa 61, 74, 156 N.W. 176; Addison Miller, Inc. v. American Cent. Ins. Co., 189 Minn. 336,249 N.W. 795, 797, 798.
I cannot doubt under this record that plaintiff's claim was unliquidated upon the death of Mr. Flowers. The amount due, if any, had not been "ascertained and agreed upon by the parties," or "fixed by operation of law." Greenlee v. Mosnat, supra. The proof of death constituted an admission by the beneficiary against interest. Noble v. United Ben. L. Ins. Co., 230 Iowa 471, 483, 297 N.W. 881. When it was submitted three alternatives confronted defendant: to deny the claim in toto, pay it in full, or concede partial liability and tender payment of one tenth of the full amount. There was abundant reason on the showing submitted for an honest, good-faith difference of opinion as to the last two. The subsequent verdict of a jury does not prove a defense was not made in good faith. Greenlee v. Mosnat, supra; 1 C.J.S., Accord and Satisfaction, section 32b (2), note 17; Graf v. Employers Liability Assur. Corp., 190 Iowa 445, 451, 180 N.W. 297.
I think the claim was unliquidated and honestly in dispute.
III. I come next to the more controversial question of consideration. Here indeed we meet conflict of opinion. Even the original principle that "where a liquidated sum is due, the payment of a less sum in satisfaction thereof, though accepted *Page 235 as satisfaction, is not binding as such for want of consideration" has come in for much criticism.
In Chicago, M. St. P. Ry. Co. v. Clark, supra, the court says:
"The rule * * * has been much questioned and qualified" (citing cases) and goes on to say: "The result of the modern cases is that the rule only applies when the larger sum is liquidated, and when there is no consideration whatever for the surrender of part of it; and while the general rule must be regarded as well settled, it is considered so far with disfavor as to be confined strictly to cases within it." (At pages 364, 365 of 178 U.S., page 928 of 20 S. Ct., page 1105 of 44 L. Ed.)
See Tanner v. Merrill, 108 Mich. 58, 61, 65 N.W. 664, 665, 31 L.R.A. 171, 62 Am. St. Rep. 687, where it is said:
"The general rule is a technical one, and there are many exceptions. It has been said that it `often fosters bad faith,' and that `the history of judicial decisions upon the subject has shown a constant effort to escape from its absurdity and injustice.' [Citing cases.] Again, it is said to be `rigid and unreasonable,' and `a rule that defeats the expressed intentions of the parties, and, therefore, should not be extended to embrace cases not within the letter of it.' Wescott v. Waller, 47 Ala. 492; Johnston v. Brannan, 5 Johns. 268; Simmons v. Almy,103 Mass. 35."
The supreme court of Alabama says: "But judicial policy, as well as public policy, favors the upholding of compromises deliberately and understandingly made." Ex parte Southern Cotton Oil Co., 207 Ala. 704, 706, 93 So. 662, 664, 665.
Our own court has said the rule is "purely technical, and subject to many exceptions which the courts have ingrafted upon it from time to time in order to avoid to some extent the injustice which is recognized as frequently resulting from its strict application." Engbretson v. Seiberling, 122 Iowa 522, 525, 98 N.W. 319, 320, 64 L.R.A. 75, 101 Am. St. Rep. 279.
The real difficulty arises when we have as here to inquire whether payment of the conceded part of a single, indivisible, *Page 236 unliquidated or disputed claim may constitute a good accord and satisfaction if received in discharge of the whole.
The writer of the annotation in 112 A.L.R. 1221, 1223, et seq. says there is a conflict of authority with a "fairly even division" and that a "majority rule cannot be stated with any degree of assurance that it is correct." He says the reason for one rule is "that a payment by a debtor of what he admits to be due is no consideration" and for the other "that a dispute as to a part of a debt makes the whole debt a disputed one so as to come within the general rule that payment of part of an unliquidated debt in full satisfaction thereof discharges the entire debt." He lists Iowa among the states that hold suchpayment as sufficient basis for accord and satisfaction, citing Schultz v. Farmers Elevator Co., supra.
Turning to the textbooks we find in 1 Am. Jur., Accord and Satisfaction, section 64, the statement:
" * * * the tendency of the later cases, evidently influenced by a desire to avoid the rigid and unjust rule of the old law, seems to be to sustain the discharge where there is a dispute as to any part of the claim made by the creditor, although the payment is only of the smaller amount which was conceded by the debtor to be due. In other words, the general rule that acceptance of a part of an indebtedness with a promise to discharge the whole is not binding does not apply where there is a dispute as to whether a larger or smaller amount is due, although the payment upon receipt of which the promise to release is made is only the smaller amount conceded to be due."
In 1 C.J.S., Accord and Satisfaction, section 29a (2) the general rule is first stated (page 502):
"The payment of a sum admittedly due and payable furnishes no consideration for the discharge of an additional and distinct amount or item of liability, and does not effect an accord and satisfaction thereof." (Italics supplied.)
The text then discusses the proposition as applying to divisible or separable claims and adds this caution (page 504):
"It is to be noted that a transaction of this character is *Page 237 clearly distinguishable from one in which the whole of a claim or demand is in dispute, and there is paid and received, in settlement, the amount which the debtor believes or concedes to be due, or is willing to pay, although it is less than the creditor claims; in the latter instance, as elsewhere appears, a good accord and satisfaction is effected (infra § 32)." (Italics supplied.)
And at section 32 of the same article the text writer makes the distinction:
"The payment and acceptance of a lesser amount than is claimed by a creditor may constitute a good accord and satisfaction of the whole claim, where it is unliquidated or in dispute, even though the creditor was not bound to make any reduction in his claim, or the amount paid is no more than the debtor concedes to be due." And later at pages 513, 514, of the same section: "* * * there is a plain distinction in theory, although one sometimes difficult to apply in practice, between the payment of what the debtor conceives to be the correct amount due where the claim asa whole is disputed or unliquidated, and the payment of what is concededly and indisputably due in an attempt to satisfy anadditional and distinct liability which, alone, is the subject of a dispute between the parties." (Italics supplied.)
The distinction pointed out in these quotations from the textbook writers will explain some of the apparently contradictory judicial pronouncements and will reconcile many, though not all, apparently conflicting decisions.
As said by Judge Learned Hand in Matlack Coal Iron Corp. v. New York Quebracho Extract Co., 2 Cir., N.Y., 30 F.2d 275, 276:
"The situation is plain when two claims arise under separate contracts, since it cannot be regarded as a detriment to pay what is concededly due under a promise which can be separately enforced. * * * The contrary is also plain, when the payment is a part of what is due, though concededly due, under a single promise, since the promisor cannot be said to be under separate obligation to pay the conceded part." *Page 238
There is a clear difference between cases where the claim is composed of separable items and those where the indebtedness is single and incurred in a single transaction. See Lindenman v. Norwalk, 185 N.Y. Supp. 356, 357. In the former instance the payment of items admittedly due would not form the basis of an accord and satisfaction of the balance. But in the latter the phrase "amount admittedly due in any event" could not refer to so much of the entire claim as the debtor conceded to be due since the claim as a whole was unliquidated. Lindenman v. Norwalk, supra. See, also, Wilson v. Palo Alto County, 65 Iowa 18, 24, 21 N.W. 175, where the same clear distinction is drawn between separable and inseparable claims.
In the instant case there was one indivisible claim. One amount only could be due. Which one, if either, depended on undetermined facts. The majority opinion speaks of "two liabilities under the contract" and adds: "They were distinct and separate." This is a mistake. There were not "two liabilities" but only one. The question was, which? If the sum due was in fact $500 there could be no liability for an additional $4,500. If $5,000 was due it represented an indivisible sum. There was no $500 item included in it. Payment and acceptance of $500 in settlement wascompletely inconsistent with any theory of it being a partpayment upon the larger amount.
Nor was the $500 a liquidated sum. It was not agreed upon by the parties or fixed by operation of law. Greenlee v. Mosnat, supra. It could only become liquidated by the accord and then not as a part, but in lieu, of the larger amount. Defendant by tendering the payment stated the amount it considered to be due. It was in that sense an admission. That tender and admission however did not make the tendered amount "liquidated." But when the beneficiary accepted the tender she relinquished any right to demand the full face of the contract and the accord became complete.
In Ferguson v. Grand Lodge, supra, defendant claimed an accord and satisfaction by reason of its payment and plaintiff's acceptance of the sum defendant contended was the amount due under the certificate and bylaws of the society. We upheld the claim. *Page 239
Plaintiff argued (as appellant does here): "defendant alwaysadmitted that it owed the plaintiff just what it paid her," andthat such payment therefore could not constitute a considerationfor the claimed settlement "there being no dispute as to theamount paid." We said:
"This contention would be sound if plaintiff had conceded that $1,181 [the amount paid] was the correct amount owed. This she did not do; but, as stated, claimed the full amount of the certificate, $2,000." (174 Iowa, at page 74, 156 N.W., page 180.)
This case is conclusive of appellant's argument here. Assuming, as we should under the authorities and this record, that the original claim was unliquidated, we should hold there was a good consideration for accord and satisfaction by payment of the lesser amount when intentionally so made and received.
Any apparent conflict in our own cases is readily resolved: If a claim is composed of separable items or elements not inconsistent with each other (whether arising under different contracts or separable provisions of one contract) payment of one admitted separable item or part would not be sufficient consideration for a settlement of the disputed items. But if the claim is indivisible and unliquidated because there is uncertainty as to which of two sums is due, an admission of liability for, and tender by the debtor of, the lesser amount in settlement of the whole will if accepted be an accord and settlement supported by a good consideration.
I have cited authorities that support the reasoning which I believe sound. The conclusion I have reached seems to have been the rule in Iowa until now. The decision of the majority is an invitation rather than a rebuke to bad faith in matters of this kind. I would affirm the decision of the trial court.
HALE and MANTZ, JJ., join in this dissent. *Page 240