Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

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FACTS Defendant United States Gypsum (U.S. Gypsum) hired B E Kas general contractor on a new plant U.S.Gypsum was building in Columbia County. B E K subcontracted with the plaintiff (McDowell Welding Pipefitting, Inc.) to perform work on the project. During construction, the defendants asked the plaintiff to perform additional tasks, over and above the plaintiff's contractual obligations, and the defendants promised to pay the plaintiff for the additional work. After the plaintiff completed its work on the project, the parties disagreed over the amount that the defendants owed the plaintiff for the additionalwork.
The plaintiff filed an action against the defendants, alleging breach of contract. All of the plaintiff's claims arose out of the modification to the construction contract. B E K's asserted an affirmative defense alleging that the plaintiff had agreed to settle its claims for a total payment of $896,000.
The trial court granted B E K's motion to try its counterclaim before trying the plaintiff's claims against it. The plaintiff then filed a demand for a jury trial, which B E K moved to strike, arguing that because its counterclaim was equitable, the plaintiff had no right to a jury trial on the counterclaim. The trial court granted B E K's motion to strike the plaintiff's jury trial demand and, sitting as the trier of fact, found that the plaintiff had accepted the defendants' offer to settle its claims in return for the defendants' promise to pay the plaintiff $800,000. Although the defendants alleged that they promised to pay the plaintiff $896,000 in return for the plaintiff's promise to release its claims against them, the trial court found that the defendants had promised to pay only $800,000.
Based on its resolution of the defendants' counterclaim, the trial court entered a limited judgment directing the defendants to tender $800,000 to the court clerk and directing the plaintiff, after the defendants tendered that sum, to execute releases of its claims against the defendants. The plaintiff appealed, claiming a state constitutional right to a jury trial on the factual issues that the defendant's counterclaim had raised. A divided Court of Appeals affirmed the trial court's judgment. The Oregon Supreme Court allowed the plaintiff's petition for review.
DECISION Judgment of the Court of Appeals is affirmed in part, reversed in part, and remanded.
OPINION Kistler, J. 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.'' [Citation.] 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.'' [Citation.]
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. [Citations.] Once the promised performance occurs, the accord has been executed or satisfied and the underlying claim is discharged, resulting in an accord and satisfaction. [Citation.] [Court's footnote: 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.'' [Citation.] Because an accord and satisfaction discharges the underlying claim, that defense is legal, not equitable. [Citation.]
Finally, the parties may enter into a substituted contract; that is, the parties may agree to substitute the new agreement for the underlying obligation. [Citation.] 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. [Citations.] A substituted contract discharges the underlying obligation and could be asserted as a bar to an action at law. [Citation.]
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 plaintiff's claims against them. Defendants did not allege that they had paid plaintiff the promised sum-an allegation necessary for an accord and satisfaction. [Citations.] Nor did they allege that, by entering into the settlement agreement, they extinguished the underlying obligation-an allegation necessary to allege a substituted contract. [Citations.] Rather, defendants alleged that plaintiff agreed to release its claims only after defendants made the promised payment. In short, defendants alleged an executory accord.
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[The Oregon constitutional right to a jury trial in civil cases does not extend to the defendants' counterclaim of an executory accord. We affirm the Court of Appeals decision on the plaintiff's jury trial claim but reverse its decision on a subsidiary issue regarding prejudgment interest.]
INTERPRETATION When a debtor and a creditor 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.
CRITICAL THINKING QUESTION In settling a contract dispute, what are the advantages and disadvantages of using an executory accord compared with using a substituted contract?