EDITH M. RUCKER, Personal Representative of the Estate of Clarence W. Rucker, Plaintiff,
LINDA RUCKER and LEWIS RUCKER, Defendants-Respondents Cross-Appellants. and BARBARA LAHMON, LOIS MONET LARSON, ARTHUR DOUGLAS LAHMON, and ARTHUR DOUGLAS LAHMON, JR., Plaintiffs-Appellants Cross-Respondents, LINDA RUCKER and LEWIS RUCKER, Third Party Plaintiffs,
EDITH M. RUCKER, Personal Representative of the Estate of Clarence W. Rucker, Third Party Defendant.
Argued and submitted on March 28, 2012.
Lane County Circuit Court 160821176 Mustafa T. Kasubhai, Judge.
Donald A. Bick argued the cause for appellants - cross-respondents. With him on the briefs was Donald A. Bick, PC.
Megan I. Livermore argued the cause for respondents - cross-appellants. With her on the brief were Molly A. Danielson and Gaydos, Churnside & Balthrop, P.C.
Before Ortega, Presiding Judge, and Sercombe, Judge, and Hadlock, Judge.
ORTEGA, P. J.
In this action on a promissory note, plaintiffs sought to recover damages from defendants based on defendants' failure to make all payments due under the note. Defendants responded, in part, that a settlement agreement entered into before plaintiffs initiated litigation "satisfied and extinguished the promissory note." The case was tried to the court, which entered a general judgment in favor of defendants based on its conclusion that the settlement agreement constituted "a substituted contract which replaced the Promissory Note and discharged any obligation under the Promissory Note." Plaintiffs appeal, asserting that the trial court erred in concluding that the settlement agreement was a substituted contract. Defendants, on cross-appeal, contend that the trial court erred when, in the general judgment, it dismissed without prejudice a claim that was not included in the operative complaint. For the reasons explained below, we affirm on appeal and, on cross-appeal, reverse and remand for entry of a judgment consistent with this opinion.
We are bound by the trial court's findings if they are supported by any competent evidence. See Allco Enterprises v. Goldstein Family Living Trust, 183 Or.App. 328, 330, 51 P.3d 1275 (2002). We recount the facts consistently with those findings and with the court's ruling. In 2004, Clarence Rucker (Clarence) loaned defendants a sum of money and defendants signed a promissory note. Although defendants made some payments on the note, at some point they failed to pay as agreed. Clarence sought payment, and in response defendants asserted that they should receive an offset for care they had provided to Clarence. Thereafter, the parties agreed to participate in mediation, which Judge Douglas Mitchell facilitated as mediator. During the mediation, the parties reached a settlement that they then recorded in the courtroom. Defendants were to pay Clarence $35, 000 within 180 days, and that promise would be secured by a trust deed on property owned by defendants. If that amount was not paid in 180 days, then "a confession of judgment [would] be recorded for $50, 000.00" in favor of Clarence. Each party to the settlement was asked whether the agreement as recorded accurately represented what they had assented to and each answered in the affirmative. Clarence, in particular, stated to the court that he considered the agreement to be "pretty good." The parties also agreed that if "any glitches" came up in putting together the documents relating to the deal, Judge Mitchell would have the power to resolve those issues. The parties later signed a written agreement that reflected the understanding of the parties flowing from the settlement. Clarence died shortly after signing the agreement.
Sometime after Clarence's death, his estate distributed the original promissory note to plaintiffs. In their amended complaint, plaintiffs sought to collect on the note. Defendants, as an affirmative defense, alleged that the parties' settlement agreement replaced the promissory note:
"On or about January 24, 2008, Clarence * * * and Defendants made, executed and entered into a Settlement Agreement which fully paid, satisfied and extinguished the promissory note [that is] the subject of Plaintiffs' Complaint, and Plaintiffs' Complaint should be dismissed. Such Settlement Agreement has superseded, replaced and extinguished the promissory note and should be fully enforced by the Court."
The case was eventually tried to the court. Plaintiffs asserted that "all the settlement agreement created was an 'executory accord, '" and, therefore, there was no intent to discharge the note until the agreement was fully performed. Defendants responded that "Clarence and [defendants] intended the settlement agreement to be a replacement contract extinguishing the obligations under the promissory note[.]" Ultimately, the court found for defendants, concluding that the settlement agreement was a substituted contract that extinguished the promissory note and became the operative agreement between the parties. On reconsideration, the court adhered to that ruling, noting that "the written settlement agreement merely reduced to writing a settlement in which both parties actively participated and was placed on the record in Court before [Judge] Mitchell. An enforceable settlement agreement came into being the day the parties placed the settlement on the record." The court entered a general judgment providing that "[a]n enforceable Settlement Agreement came into being the day the parties placed the settlement on the record before [Judge] Mitchell" and "[t]he Settlement Agreement was not an executory accord. It was a substituted contract which replaced the Promissory Note and discharged any obligation under the Promissory Note." Thus, it dismissed plaintiffs' claim on the promissory note with prejudice.
On appeal, plaintiffs contend that the trial court erred in concluding that the settlement agreement was a substituted contract that replaced the promissory note. According to plaintiffs, the agreement arrived at during the mediation "was not intended to be a final agreement between the parties." According to plaintiffs, "[t]here is simply no evidence to show that the parties intended the mediation agreement to discharge the promissory note without full performance by defendants of the terms they agreed to at the mediation." In other words, plaintiffs assert that the parties intended only an executory accord rather than a substituted contract, as found by the trial court. Defendants counter that the parties to the settlement agreement intended it "to be a replacement contract extinguishing the obligations under the promissory note."
"An executory accord is an agreement for the future discharge of an existing claim by a substituted performance." McDowell Welding & Pipefitting v. U.S. Gypsum Co., 345 Or 272, 281, 193 P.3d 9 (2008) (internal quotation marks omitted). It does not immediately discharge the underlying claim, but "merely suspends it" pending full performance. Id. at 282. "A substituted contract differs from an executory accord in that the parties intend that entering into a new agreement will immediately discharge the underlying obligation. A substituted contract discharges the underlying obligation * * *." Id. at 283 (footnote and citations omitted). Whether a new agreement is a substituted contract operating as an immediate discharge or is an executory accord depends on the intent of the parties. The "intent to substitute the new promise for the original liability must be clearly shown." Savelich Logging v. Preston Mill Co., 265 Or 456, 463, 509 P.2d 1179 (1973).
Plaintiffs' argument centers on what Clarence intended: They assert that the oral and written agreements were not intended to substitute for the promissory note and, specifically, that Clarence "would not intend to swap a promissory note for a larger sum for an unsecured promise of a lesser sum and it is apparent from the mediated agreement that he did not so intend." Here, as noted, the trial court disagreed with that argument. It concluded that the settlement agreement was indeed intended to operate as a substituted contract and to immediately discharge the obligation on the promissory note. We agree with the trial ...