Goldbard v. Empire State Mutual Life Insurance
5 A.D.2d 230, 171 N.Y.S.2d 194, 1958 N.Y. App. Div. LEXIS 6798 (1958)
Rule of Law:
An agreement to settle a disputed claim is presumed to be an executory accord—which is unenforceable under New York law unless in writing—rather than a substituted agreement, unless there is clear evidence that the parties intended the new promise itself to immediately discharge the prior obligation.
Facts:
- The plaintiff, a barber, held a renewable accident and health insurance policy issued by the defendant insurer.
- The plaintiff suffered a fungus infection on his hand and filed a claim for total disability indemnity.
- The insurer disputed the nature of the illness and the extent of the disability, leading to a conflict over payment.
- The plaintiff filed a complaint with the State Insurance Department regarding the dispute.
- During a meeting at the Department, the insurer offered to settle the claims for $800 on the condition that the plaintiff surrender the policy.
- Later that day, the plaintiff telephoned the Department representative and stated he would accept the $800 settlement.
- The Department representative relayed this acceptance to the insurer.
- The insurer wrote to the plaintiff requesting he sign a release and surrender the policy to receive payment, but the plaintiff ignored the letter and pursued his original claim.
Procedural Posture:
- Plaintiff sued the Defendant insurer in the Municipal Court.
- The Municipal Court (trial court) entered judgment in favor of the Plaintiff for $2,800, rejecting the defense that the case had been settled.
- Defendant appealed the judgment to the Appellate Term.
- The Appellate Term modified the judgment, reducing the plaintiff's recovery to $800 based on the finding that a binding settlement existed.
- Plaintiff appealed to the Appellate Division.
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Issue:
Is an oral agreement to settle an insurance dispute for a fixed sum considered a binding substituted agreement that immediately extinguishes the original claim, or is it an unenforceable executory accord because it was not reduced to writing?
Opinions:
Majority - Breitel
No, the oral arrangement was an unenforceable executory accord rather than a binding substituted agreement. The court reasoned that the validity of the settlement depends on the intention of the parties: did they intend to extinguish the old obligation immediately via the new agreement (substituted agreement), or did they intend to extinguish the old obligation only upon actual future performance (executory accord)? There is a strong presumption in law that a creditor does not intend to surrender an existing claim for a mere promise of future payment, but rather for the payment itself. In this case, the negotiations were informal, 'staccato,' and triangular (conducted through an intermediary), lacking the formality usually associated with substituted agreements. Because the facts suggested the plaintiff only intended to discharge his claim upon receipt of the $800, the agreement was an executory accord. Under New York Personal Property Law § 33-a, an executory accord is unenforceable unless it is in writing and signed. Since there was no writing, the settlement was not binding, and the plaintiff retained the right to sue on the original insurance policy.
Analysis:
This decision provides a critical framework for distinguishing between 'substituted agreements' and 'executory accords' in New York contract law. The court emphasizes a 'bird in the hand' philosophy: unless explicitly stated otherwise, courts will assume a party settling a claim wants the actual money (performance), not just a new promise to pay (agreement). This distinction determines enforceability. If it is a substituted agreement, the old claim is dead immediately, and the new verbal contract stands. If it is an executory accord, the old claim remains alive until the money is paid. Crucially, the court highlights the statutory impact of Personal Property Law § 33-a, which renders executory accords unenforceable if they are not written. Practically, this warns attorneys that informal oral settlements are vulnerable to repudiation unless they clearly manifest an intent to replace the old obligation immediately.
