NO. 91-602
IN THE SUPREME COURT O F T H E STATE O F MONTANA
1993
JAMES B. HETHERINGTON, SUSAN K. SPILMAN,
and ANITA EDDINGS, Co-Personal Representatives
of the Estate of KATHRYN E. HETHERINGTON,
Deceased,
Plaintiffs and Respondents
and Cross-Appellants,
FORD MOTOR COMPANY, a Delaware Corporation,
Defendant and Appellant
and Cross-Respondent.
APPEAL FROM: ~istrictCourt of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Leif B. Erickson, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
John D. Stephenson, Jr .
(argued), Jardine,
Stephenson, Blewett & Weaver, Great Falls, Montana;
John M. Thomas, Office of the General Counsel Ford
Motor Company, Dearborn, ~ichigan,Of Counsel for
Ford Motor Company
For Respondent:
Erik B. Thueson, Thueson Law Office, Helena, Montana
Argued: November 19, 1992
MAR 3 0 1993.
D Submitted:
Decided:
February 17, 1993
March 30, 1993
Filed:
SQPi?E.?.iZ COURT
c l . 5 ~ ~
.;.rxrE OF ~vi~id'rANC\
Justice R. C. McDonough delivered the Opinion of the Court.
Ford Motor Company (Ford) appeals from a judgment rendered by
the District Court of the Eleventh Judicial District in favor of
respondents, the husband and children (Hetheringtons) of the
deceased Kathryn Hetherington. We reverse.
In May of 1987 Kathryn Hetherington was severely injured when
she was run over by her own automobile, and as a result of these
injuries she subsequently died. Hetheringtons retained counsel to
represent them against the manufacturer of the car, Ford Motor
Company, and against the dealer which sold them the vehicle, Ronan
Auto Body Sales (Ronan). Settlement negotiations went on for over
two years. Finally, in August of 1989, it appeared as if a
settlement agreement had been reached. Ford offered to pay
Hetheringtons $175,000 and Ronan offered to pay $10,000. This
offer was in exchange for a full and final release of all claims by
the Hetheringtons. Hetheringtons met with their counsel and agreed
to the offer and gave him authority to accept. Immediately after
this meeting counsel for the Hetheringtons sent the following
letter to the agent negotiating on behalf of Ford and Ronan:
Please be advised that my clients have decided to accept
your clientst combined offer of settlement in the amount
of $185,000. Of the total amount, $10,000 will be
contributed by Ronan Auto Body and $175,000 will be
contributed by Ford Motor Company .... [Elach of you
will be sending me settlement drafts and the appropriate
releases.
Counsel for Hetheringtons asked for "drafts and settlement
documents within 10 days." Four days after their counsel sent this
letter the Hetheringtons wrote a letter to their counsel indicating
2
that they were discharging him and his firm. Hetheringtons further
indicated that they were not interested in the settlement which had
been offered and did not wish him to negotiate further on their
behalf. Hetheringtons retained different counsel and later a suit
was filed by them against Ford. Hetheringtons also sued Ronan,
however Ronan settled prior to trial and is not a party to this
appeal. Hetheringtons contend it was their understanding that "our
right to bring the claim . . . would not be lost until that written
settlement agreement was formally approved and executed."
Ford alleged as an affirmative defense that Hetheringtons had
agreed to compromise and settle their claims with Ford prior to
filing the action. Ford also asserted a counterclaim seeking
specific performance of the alleged settlement agreement. Prior to
trial Ford moved for summary judgment on its affirmative defense
and counterclaim. The District Court denied Ford's motion for
summary judgment on the basis that there remained a question of
fact as to whether the parties intended to be bound in the absence
of a written signed agreement. Hetheringtons also filed a motion
for summary judgment which was denied.
Ford's counterclaim was bifurcated from the main wrongful
death suit and tried first. During this trial the District Court
indicated there was not a question of fact as to the parties'
intention to be bound, but did direct a verdict in favor of the
Hetheringtons on the basis that no meeting of the minds had
occurred concerning what an "appropriate release" provision in the
settlement agreement would have included. The District Court
certified the judgment as final pursuant to Rule 54(b), M. R. Civ. P.,
allowing Ford to appeal from the directed verdict.
Ford raises two issues for consideration on appeal:
1. Did the District Court err in refusing to grant Ford's
motion for summary judgment on the basis that a question of fact
existed as to whether the parties intended to be bound prior to the
execution of a signed written agreement?
2. Did the District Court err in granting a directed verdict
in favor of Hetheringtons on the grounds that there was no meeting
of the minds concerning what constituted an "appropriate release"?
Hetheringtons brought a cross-appeal addressing an additional
issue:
3. Whether the District Court should have granted summary
judgment in favor of Hetheringtons because the facts showed an
incomplete accord and satisfaction?
Ford asserts the District Court erred in not granting its
motion for summary judgment. The District Court was of the opinion
there was a question of fact as to whether the parties intended to
be bound prior to signing of a written agreement.
The court based its denial on the affidavit of Susan Spilman,
one of the Hetherington children, that it was their understanding
and intent that their right to bring a claim would not be lost
until a written agreement was reviewed, agreed upon and signed.
The court originally felt this created a question of fact as to the
intent of the parties to be immediately bound.
An agreement is binding if made by an unconditional offer, and
accepted unconditionally. Here the attorney's letter, and the
conference between the Hetheringtons and their attorney, disclosed
no conditions or manifestations of conditional intent.
The alleged intentions of the plaintiffs to be bound only by
a written agreement were not disclosed to their attorney or to the
other parties. Restatement (Second) of Contracts, 21 is
applicable:
Neither real nor apparent intention that a promise be
legally binding is essential. to the formation of a
contract, but a manifestation of intention that a promise
shall not affect legal relations may prevent the
formation of a contract.
The intentions of the parties are those disclosed and agreed
to in the course of negotiations. A partyqs latent intention not
to be bound does not prevent the formation of a binding contract.
Such a condition, that it will not be effective until signed, must
be part of the agreement between the parties. See Hanson v. Oljar
(1988), 231 Mont. 272, 277, 752 P.2d 187, 190; Hunt v. S Y Cattle
Co. (1926), 75 Mont. 594, 606, 609, 2 4 4 P. 480.
We conclude there was not a question of fact as to whether the
parties intended to be bound only by a written agreement, reviewed
and signed by the Hetheringtons. Summary judgment should have been
granted an this issue.
Did the District Court err in granting a directed verdict in
favor of Hetheringtons on the grounds there was no meeting of the
minds as to what constituted an "appropriate release" as set forth
in Hetherington's attorney's letter to Ford?
Testimony was taken as to the meaning of those two words.
Ford's agent testified he intended it to mean a standard release
and he did not know for sure whether a confidentiality clause would
be inserted. Hetheringtons introduced evidence of a release which
Ford would have requested, containing an indemnification claim and
a clause that claims were doubtful. The clause concerning doubtful
claims was particularly repugnant to the Hetheringtons. No release
was ever prepared or rejected.
The District Court ruled that the two parties did not reach an
understanding as to what was considered an "appropriate release,"
and could not enforce a contract based solely upon the language
"appropriate release." The court therefore entered a directed
verdict in favor of Hetheringtons.
Section 28-3-201, MCA, provides:
A contract must receive such an interpretation as will
make it lawful, operative, definite, reasonable, and
capable of being carried into effect if it can be done
without violating the intention of the parties.
The material elements of this settlement agreement were two:
1. The amount of settlement, $185,000; and
2. The release of all claims.
Ford and Ronan offered to pay $185,000 for a Itfull and final
release of all claims.8t Hetheringtons accepted and asked for the
"appropriate release." Such material elements are capable of being
carried into effect and will not violate the intentions of the
parties.
We stated in Van Atta v. Schillinger (1981), 191 Mont. 472,
Matters which are subsidiary, collateral, or which
do not go to the performance of the contract, are not
essential and do not have to be expressed in the
contract. Steen v. Rustad (1957), 132 Mont. 95, 313 P.2d
1014, 1020.
It is true that the plaintiffs had no right to
obtain a warranty deed, and they had no right to obtain
the signature of defendant's wife on the deed. But we do
not regard this demand as a fatal variance from the terms
of the option agreement. The option agreement did not
specify the kind of deed, and in such case, it is
presumed that a fee simple is intended to pass. See,
section 70-20-301, MCA. In Morris v. Goldthorp (1945),
390 Ill. 186, 60 N.E.2d 857, the court held that the
demand for a warranty deed, where one was not specified
in the agreement, was a material variance of an option
agreement. This may be true in a particular case, but we
do not adopt such a hard and fast rule here. When
defendant Schillinger responded on December 7, he did not
object to plaintiffs' demand for a warrant deed.
Although the court could not order that plaintiffs get a
warranty deed, we have no doubt that a court of equity
can properly grant specific performance by ordering only
that a deed passing the fee simple estate, without the
warranties, pass by the terms of the option agreement.
xan Atta, 191 Mont. at 477.
Similarly here the instrument to be signed by the
Hetheringtons need only give Ford a release of all claims. The
court acting as a court in equity can grant specific performance by
ruling that a simple release of all Hetherington's claims be
executed, the form of which it would approve, and dismiss the
lawsuit with prejudice. Ford does not have the right to add
conditions such as confidentiality of the settlement,
indemnification, or doubtfulness of claim, nor dothe Hetheringtons
have the right to impose such a condition as acknowledgement of
liability. The wording of a release under these circumstances is
a matter of law,
We conclude the District Court erred in granting the directed
verdict on the grounds there was no meeting of the minds as to what
constituted an appropriate release.
111
The cross-appeal brought forward the issue of whether or not
the District Court should have granted summary judgment in favor of
Hetheringtons because the facts showed an incomplete accord and
satisfaction.
This issue raises the question of whether the settlement
agreement is an executory accord or a substituted contract. An
executory accord is a contract which provides for the acceptance in
the future of a stated performance and satisfaction of the
antecedent claim, In this case the stated performance in the
future would be the payment of $185,000 which would satisfy the
claim of Hetheringtons.
However, if the agreement arrived at by the parties is itself
accepted as a substitution for an extinguishment of the antecedent
claim, then the agreement is a new substituted contract, and the
old claim is extinguished and recovery is limited to rights under
the substituted contract. C l a r k v . Elza (1979), 4 0 6 A.2d 922;
6 Corbin on Contracts, 5 1268, p. 71 (2962).
~etheringtons contend the settlement was not a binding
settlement because it was an incomplete accord and satisfaction and
therefore an executory accord and is not a legally binding contract
until payment is actually made.
This contention does not comply with our statute. Section 28-
1-1401, MCA, provides:
Accord--definition and effect. An accord is an
agreement to accept in extinction of an obligation
something different from or less than that to which the
person agreeing to accept is entitled. Though the
parties to an accord are bound to execute it, yet it does
not extinguish the obligation until it is fully executed.
Here the parties are bound to execute but the obligation of
Ford under the claim is not extinguished until the accord is
completed. An executory accord is an interim agreement and if it
is not executed the original obligation remains.
The difference between an executory accord and a substituted
contract is in the remedies available upon breach of the contract.
In this case if Ford had breached interim contract and did not pay
the money, and if it was considered to be an executory accord,
Hetheringtons could rescind the contract and continue with their
original tort claim; or they could have enforced the interim
contract and asked for contract damages. If it were a substituted
contract, Hetheringtons could only bring an action for contract
damages. Clark v. Elza, supra, and Warner v. Rossignol (1st
Cir. 1975), 513 F.2d 678, 94 A.L.R.2d, p. 516-522.
Usually, the question of whether the agreement is an executory
accord or a substituted contract depends on the intention of the
parties. However, under the uncontested facts here it does not
make any difference because it was the Hetheringtons who breached
the interim agreement four days after it was reached, by informing
9
their attorney they were not going through with the agreement. Due
to this breach, whether the interim agreement is an executory
accord or a substituted agreement is moot because it is Ford which
has the option of suing for damages or, as it has done, to ask for
specific performance of the contract. We conclude the interim
agreement is enforceable and not an incomplete accord and
satisfaction.
For reasons stated above in discussing Issues I and 11, we
find the interim contract is specifically enforceable and that
judgment should be granted to Ford on the counterclaim. The
District Court is reversed and the cause remanded to the District
Court for entry of judgment in favor of Ford, and any further
proceedings in conformance with this opinion.
Justice //
We Concur:
/
Justices
,
ner sitting
. Trieweiler.
Justice William E. Hunt, Sr., dissenting.
I dissent. It is clear from testimony of the witnesses and
the exhibits that there was not a meeting of the minds regarding
the release, and therefore, as the District Judge who was present
in court clearly found, no contract existed. It is incredible for
the majority to hold that confidentiality, indemnification, and
doubtfulness of claims provisions contained in standard releases
are not material. At the time of the alleged contract, Ford Motor
Company was responsible for drafting the release. Ford's claims
adjuster, Martin Simmonsen, the only person who negotiated with the
Hetheringtons, admitted that the provisions contained in the
release were material to Ford and that the settlement agreement
would not be completed until the parties read and understood the
agreement, agreed to the terms, and executed the agreement. This
was also the Hetheringtons' understanding, as sworn to by Susan
Spilman. Finally, the sample release submitted by Ford during
discovery would had to have been amended to include a
confidentiality agreement to make it consistent with what Ford
intended in August 1989.
I would affirm the District Court and deny the motion for
summary judgment. I would also affirm the court's granting of a
directed verdict in favor of the Hetheringtons.