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Quealy v. Anderson

LEXSEE 714 p.2d 667

Jay A. QUEALY, Jr., Virginia W. Quealy, his wife, Peter P.
K. Ng, and Wing Jun Ng, his wife, Plaintiffs and Appellants,
v. Bruce B. ANDERSON and Gary S. Anderson, Defendants and
Respondents

No. 19016

Supreme Court of Utah

714 P.2d 667; 1986 Utah LEXIS 742; 27 Utah Adv. Rep. 24

February 3, 1986, Filed

COUNSEL:
[**1]

Tara D. Anderson, Don B. Allen, Salt Lake City for Plaintiffs.

James A. Boevers, Gordon Strachan, Salt Lake City for Defendants.

JUDGES:
Howe, Justice, wrote the opinion. We concur: Stewart, J., and David E. Roth,
D.J. Zimmerman, J., concurring by separate opinion. Hall, C.J., dissenting by
separate opinion. Durham, J., having disqualified herself, does not participate
herein; Roth, D.J., sat.

OPINIONBY:
HOWE

OPINION:

[*668] Plaintiffs appeal from a judgment awarding defendants Bruce B.
Anderson and Gary S. Anderson attorney fees and costs in the sum of $24,877
pursuant to a provision in a contract.

In July 1977, plaintiffs, as sellers, and defendants, as buyers, entered into
an earnest money receipt and offer to purchase, whereby the sellers agreed to
sell and the buyers agreed to purchase a ranch situated in Wasatch County
consisting of more than nine hundred acres. The agreement required purchasers to
satisfy two conditions precedent within sixty days: First, assurance of an
adequate culinary and irrigation water system and, secondly, assurance of
proper zoning to develop the property into residential lots. The agreement also
contained the following provision regarding attorney fees: [**2]

We do hereby agree to carry out and fulfill the terms and conditions specified
above . . . . If either party fails so to do, he agrees to pay all expenses of
enforcing this agreement, or of any right arising out of the breach thereof,
including a reasonable attorneys fee.

In May 1978, the buyers' attorney notified the sellers' attorney that the
buyers had expended more than $50,000 to drill a producing water well but had
been unsuccessful. He gave notice that the buyers would not complete the
purchase of the property and requested that the real estate broker, who was
PAGE 2
714 P.2d 667, *668; 1986 Utah LEXIS 742, **2;
27 Utah Adv. Rep. 24

holding their $5,000 earnest money deposit, return those funds to the buyers.
The realtor complied with that request and returned the $5,000 earnest money to
the buyers without the express consent of the sellers. The sellers afterwards
sold the property to other parties at a lower price than the buyers had offered.
Later, the sellers instituted this lawsuit to recover the damages which they had
sustained by the buyers' failure to perform. The jury found that the condition
precedent to performance of the agreement relating to the assurance of proper
zoning was not satisfied because Wasatch County had failed [**3] to give the
buyers such assurance and the buyers prevailed. The jury further found that the
claims of the sellers were the subject of a "settlement and accord" with the
buyers. In a post trial motion, the buyers moved for and were granted an award
of $24,877 attorney fees and costs pursuant to the contract provision set out
above. From that award, this appeal is taken.

The accord and satisfaction found by the jury in their special verdict
precludes any award of attorney's fees to the buyers. It is true, as pointed out
by the buyers, that an accord and satisfaction may discharge an entire contract
or only a portion thereof if the contract gives rise to several and distinct
obligations or liabilities. However, the buyers err in arguing that the accord
and satisfaction found by the jury here did not discharge the provision in the
contract respecting the remedy [*669] of attorney fees. There is nothing in
the special verdict nor in the evidence which would provide any basis for this
Court to gratuitously impose such a limitation. The scope of an accord and
satisfaction is determined by the intention of the parties, as with any other
contract. As will be hereafter demonstrated, the [**4] conclusion is
irresistible that the parties intended to fully and completely settle with each
other any and all liability arising from their written agreement, together with
the remedies provided therein for its enforcement. Furthermore, the limitation
urged by the buyers is entirely inconsistent with the position taken by them in
the trial court.

In a trial brief written by counsel for the buyers, he stated that the
sellers had an alleged claim against the buyers for breach of contract. He
further stated that they agreed to settle that claim if buyers cooperated in
assisting them in reselling the property to one Sheranian, by giving Sheranian a
first option to purchase twenty-nine acres which the buyers owned adjacent to
the sellers' property. Continuing his argument, counsel said:

Defendants [buyers] accepted that offer, creating a new agreement between the
parties, which was executed by the actual granting of a first right to purchase
by letter of June 14, 1978. The consideration is the granting of the first right
of purchase, an obligation different from and in addition to any prior
contractual obligations of defendants. Therefore, the court should find that
[**5] plaintiffs entered into an accord and satisfaction in full settlement of
any dispute between the parties.

(Emphasis added.)

Thus, the buyers in the trial court viewed the accord and satisfaction as a
complete substitute for the earnest money receipt and offer to purchase. That
being so, attorney fees are not recoverable by either party unless there was
provision for them in the accord and satisfaction. In Golden Key Realty, Inc. v.
Mantas, Utah, 699 P.2d 730 (1985), we held that a provision for attorney fees in
a written agreement was rendered inoperative by a later agreement of accord and
PAGE 3
714 P.2d 667, *669; 1986 Utah LEXIS 742, **5;
27 Utah Adv. Rep. 24

satisfaction which contained no such provision. In the instant case, the buyers
pleaded an accord and satisfaction. The jury found that one was made. The
original agreement between the parties cannot now be the basis for awarding
attorney fees. It is undisputed that the oral accord and satisfaction had no
provision for attorney fees.

While it is true that the buyers did not make any request for attorney fees
until after the accord and satisfaction was made, that fact is of no
consequence. Unknown claims and liability may be extinguished if the parties so
intend. A common example [**6] is the release used to settle personal injury
claims. Here, it appears that it was the intention of the parties to fully
extinguish all liability to each other arising out of their written agreement.
This included liability for attorney fees which was part of the remedy provided
for enforcing the agreement. The buyers could not thereafter, on their own,
revive that remedy and rely on it as a source of authority to recover their
attorney fees in enforcing the accord and satisfaction.

When the buyers found that they were unable to meet the conditions precedent
to their obligation to purchase the sellers' land, they notified the sellers
that they would not purchase the land. They asked for a return of their $5,000
earnest money which they received. Sellers, thereafter, commenced negotiations
to sell the property to Sheranian. It was in the course of those negotiations
that the sellers asked the buyers to give Sheranian an option to purchase the
twenty-nine adjoining acres. The buyers complied. No reason has been suggested
by the buyers, and none appears from the evidence, why the buyers at that time
would not want to make and did not intend to make their compliance to the
sellers' request [**7] a full and complete settlement of any and all liability
arising from the earnest money agreement. The agreement was not going to be
performed. There were no duties or obligations arising from it which were
ongoing; neither party at [*670] that time expected anything further out of
the earnest money agreement. It was in the interests of the buyers to fully and
completely extinguish it, and to be completely freed from it.

The buyers freely admit that it was also the intention of the sellers to make
a full and complete settlement. In a brief presented to the trial court in
support of the motion for a directed verdict, the buyers pointed out that Mr.
Quealy, one of the sellers, testified that a settlement had been reached at the
time the buyers gave Sheranian the option. The buyers pleaded and argued that
the settlement was an accord and satisfaction constituting a complete defense to
the sellers' suit for damages. Not one word appears in any brief or pleading
filed in the trial court that the settlement extended to only part of the
earnest money agreement, as the buyers now contend. The buyers do not point to
any conversations, correspondence, or other evidence from which such a [**8]
conclusion could be drawn. It would seem to reasonably follow that if, as argued
so stoutly by the buyers, they intended to fully and completely absolve
themselves of all liability under the agreement, that the sellers would intend
to receive the same protection for themselves. No basis exists to deny the
sellers the same full discharge for which the buyers successfully bargained.
Under the circumstances then existing, the conclusion is inescapable that both
parties intended to make the giving of the option to Sheranian a full and
complete discharge of all rights and obligations arising out of the earnest
money agreement.

In Messick v. PHD Trucking Service, Inc., Utah, 615 P.2d 1276 (1980), Bennett
PAGE 4
714 P.2d 667, *670; 1986 Utah LEXIS 742, **8;
27 Utah Adv. Rep. 24

v. Robinson's Medical Mart, Inc., 18 Utah 2d 186, 417 P.2d 761 (1966), and
Dillman v. Massey Ferguson, Inc., 13 Utah 2d 142, 369 P.2d 296 (1962), we found
two separate and distinct claims and held that an accord and satisfaction of one
did not affect the other. It is obvious that those cases are not controlling in
the instant case.

Cases from other jurisdictions are in accord with the Utah cases cited above.
They generally hold that an accord and satisfaction reached as to [**9] one
account, contract, purchase of goods, or item does not bar recovery on other
accounts, contracts, purchases, and items unless it appears that such was the
intention of the parties. See Crucible Steel Co. of America v. Premier
Manufacturing Co., 94 Conn. 652, 110 A. 52 (1920) (separate invoices); Garland
v. Linville Improvement Co., 184 N.C. 551, 115 S.E. 164 (1922), and Moore &
Kling v. Legace, 55 R.I. 262, 180 A. 339 (1935) (two accounts); Savannah Sugar
Refining Corp. v. Sanders, 190 N.C. 203, 129 S.E. 607 (1925), and Clark v.
Summerfield Co., 40 R.I. 254, 100 A. 499 (1917) (two distinct contracts); C. &
O. Oil Co. v. Curtis Funeral Home, 106 Vt. 342, 175 A. 9 (1934), and
Krohn-Fechheimer Co. v. Palmer, 282 Mo. 82, 221 S.W. 353, 10 A.L.R. 673 (1920)
(two separate orders of goods); Willred Co. v. Westmoreland Metal Manufacturing
Co., 200 F. Supp. 55 (D.C. Pa. 1959); and Redman Development Corp. v. Pollard,
131 Ga. App. 708, 206 S.E.2d 605 (1974) (two separate items). In many of the
cases there were communications between the parties or written documents or
notations on the settlement check which indicated the limited scope of the
accord, and [**10] made clear that it did not extend to every transaction that
the parties had had between them.

In the instant case, there are not separate contracts, orders, accounts, or
invoices. There was a single, indivisible contract whereby the sellers agreed to
sell and the buyers agreed to buy, subject to certain conditions precedent, a
tract of land. The buyers claimed and the jury found that the buyers'
performance was excused because the conditions precedent were not met. While
that seemingly terminated the duty of the parties to buy and sell to each other,
according to the buyers there was in addition a later accord and satisfaction of
that same obligation. Unlike the cases cited above in which only a partial
accord and satisfaction was found, the buyers can point to no evidence which
supports their contention now advanced in this Court that the accord and
satisfaction was only partial. [*671] The request for attorney fees cannot be
viewed as a separate and distinct claim of the buyers unaffected by the accord
and satisfaction. Indeed, it is not a claim in the usual sense at all, but is a
remedy for enforcing the agreement. See Whiting Stoker Co. v. Chicago Stoker
Corp., Ill., [**11] 171 F.2d 248 (C.C.A. 7th 1948), cert. denied 337 U.S. 915,
93 L. Ed. 1725, 69 S. Ct. 1155 (1949), for a good example of two separate and
distinct claims arising from a single written contract. The buyers admit that
the obligation to buy and sell was discharged. It is only reasonable to conclude
that in the absence of any evidence to the contrary, the parties intended to
likewise discharge all dependent rights and remedies. If the parties intended to
discharge something less than their entire agreement, it was the duty of the
buyers to see that the record contained such evidence. Silvander v. Ploc, 42
S.D. 539, 176 N.W. 516 (1920).

The buyers cite no cases in support of their contention that the remedy of
attorney fees can survive the discharge of the duty to perform under a contract.
We have found none. The buyers cite two cases in support of their thesis that
they had two separate claims. Neither case is on point. Neither case deals with
PAGE 5
714 P.2d 667, *671; 1986 Utah LEXIS 742, **11;
27 Utah Adv. Rep. 24

the survival of a remedy. In Scantlin v. Superior Homes, Inc., 6 Kan. App. 2d
144, 627 P.2d 825 (1981), a dispute arose between the builder of a home and a
buyer over certain defects of construction. An accord and satisfaction was
reached [**12] by the buyer placing $1,000 of the purchase price in escrow
pending correction of a specific list of defects which was prepared by the
parties. Later, additional defects not listed were discovered by the buyer, and
she brought suit against the builder. It was held that the accord and
satisfaction extended only to those defects which were known, or should have
been known by the buyer, at the time the accord and satisfaction was made.

In Plywood Marketing Association v. Astoria Plywood Corp., 16 Wash. App. 566,
558 P.2d 283 (1976), the court held that the defendant's payment of $33,287 as
its pro-rata share of the 1966-69 losses of the plaintiff cooperative of which
it was a member, did not constitute an accord and satisfaction for other losses,
the existence of which was not then known and which could not have been within
the contemplation of the parties. We have no quarrel with these cases since in
each of them the plaintiff had two separate, unrelated and distinct claims.
However, in the instant case, we are confronted with the accord and satisfaction
of a single indivisible written agreement. All of its provisions, including the
remedy of attorney fees, were well known to the [**13] parties when the accord
was made. There is no evidence that the parties intended, or that it would have
made any sense for the parties to have intended, to discharge their respective
duties to perform under the agreement but not discharge the remedy for enforcing
the agreement.

The buyers successfully pleaded and the jury found that a substitute
agreement had been made. This later agreement was oral and contained no remedy
of attorney fees. We cannot go behind the accord and afford the buyers a remedy
contained in the agreement it replaced. The breach of the substitute agreement
cannot be redressed by a remedy contained only in the earlier agreement. Golden
Key Realty, Inc. v. Mantas, supra.

The judgment is reversed. Costs awarded to plaintiffs.

WE CONCUR: I. Daniel Stewart, Justice and David E. Roth, District Judge.

Durham, J., having disqualified herself, does not participate herein; Roth,
D.J., sat.

CONCURBY:
ZIMMERMAN

CONCUR:

ZIMMERMAN, Justice: (Concurring)

I join reluctantly in the opinion of the majority only because I see no
legitimate way of avoiding the result.

The contract in question is a standard form agreement entitled "Earnest Money
Receipt and Offer to Purchase." [**14] This preprinted [*672] contract was
prepared under the auspices of the National Association of Real Estate Brokers.
It is used by countless thousands each year in what is for most of them the
largest financial transaction of their lives--the purchase of a home. The terms
PAGE 6
714 P.2d 667, *672; 1986 Utah LEXIS 742, **14;
27 Utah Adv. Rep. 24

of an agreement so widely used among lay persons should be construed carefully
by the courts to assure that they work in the fairest manner possible. In the
present case, a serious flaw in the contract's wording has come to light. If one
party attempts to enforce the agreement, but the other party successfully
defends by showing that the contract no longer is in force because of an accord
and satisfaction or a rescission, the defendant cannot recover his attorney
fees. Yet if the plaintiff is successful in his suit, he can recover his fees.
This gives the plaintiff a monetary advantage in bargaining and in any suit.

Although the record is silent on the matter, there is no reason to believe
that if the parties to the contract before us had considered the issue, they
would have written it to produce the result reached by the Court. Similarly, I
suspect that laymen who routinely enter into these standard form contracts
[**15] with no legal advice assume that the attorney fee provision means that
if any litigation arises out of the contract, the prevailing party will be
awarded his attorney fees. This would not be an unreasonable assumption to one
unfamiliar with the intricacies of the law. Yet I recognize that absent some
other evidence of intent, the language of the contract, when read in light of
the abstruse doctrines of accord and satisfaction or rescission, does require
the result reached by the majority. And I can see no way for this Court to
remedy the problem without doing undue violence to the legal doctrines involved.

I would prefer to join with the Chief Justice. Unfortunately, I cannot agree
with him that the accord and satisfaction left the attorney fee provision in
place. BLT Investment Co. v. Snow, Utah, 586 P.2d 456 (1978), seems to govern
here.

The result reached by the Court today strikes me as unjust. However, the
remedy lies with the draftsmen of such agreements, or with lawyers for parties
using them, and not with this Court.

DISSENTBY:
HALL

DISSENT:

HALL, Chief Justice: (Dissenting)

The opinion of the Court is premised upon what it characterizes as an
irresistible conclusion that the [**16] parties intended to fully and
completely settle with each other any and all liability arising from the
contract, together with the remedies provided therein for its enforcement.
However, plaintiffs were obviously not seized by any such irresistible
conclusion. On the contrary, plaintiffs chose to disregard the accord and
satisfaction reached by the parties and brought this action on the contract,
urging its viability, and seeking damages for alleged breach. Defendants were
thus compelled to defend the contract action. Defendants were successful in
their defense, relying on the theories of failure of a condition precedent and
accord and satisfaction. Given these circumstances, plaintiffs should not be
heard to complain about an award of attorney fees to defendants for
successfully defending their contract position.

In BLT Investment Co. v. Snow, n1 we vacated an award of attorney fees based
on a contract provision. In that case, the defendants had successfully sought
PAGE 7
714 P.2d 667, *672; 1986 Utah LEXIS 742, **16;
27 Utah Adv. Rep. 24

rescission of the contract while the plaintiff sought specific performance of
the contract. We held that the rescission of the contract and return of the
parties to their status quo had completely extinguished the [**17] contract
and, therefore, attorney fees could not be awarded on the basis of the contract
provision.

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n1 Utah, 586 P.2d 456 (1978).

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The rationale of BLT Investment is inapplicable to the instant case because
there was no rescission of the contract. As we held in BLT Investment, when a
contract is [*673] rescinded, the parties are returned to their status quo and
the contract is extinguished in its entirety. n2 Here, defendants prevailed on
the theories that their duty to buy the property was excused by the failure of
a condition precedent and discharged by an accord and satisfaction. Neither
theory necessarily entails the extinguishment of the entire contract. n3

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n2 586 P.2d at 458.

n3 Other courts have also refused to bar a prevailing defendant from
receiving attorney fees under a contract provision where there was no rescission
of the contract. E.g., Usinger v. Campbell, 280 Or. 751, 759, 572 P.2d 1018,
1023 (1977); Woodruff v. McClellan, 95 Wash. 2d 394, 397, 622 P.2d 1268, 1270
(1980).

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[**18]

A condition precedent may qualify the existence of an entire contract or only
the performance of a contractual duty. n4 Where only the performance of a duty
is qualified by the condition, failure of the condition excuses that performance
only and the remaining provisions of the contract remain in effect. In this
case, the condition that assurances of proper zoning be obtained, qualified only
defendants' duty to buy the land. n5 The failure of that condition excused
defendants' performance of that duty but had no effect on the remaining rights
and duties created by the contract, including those arising from the attorney
fees provision.

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n4 See 5 W. Jaeger, Williston on Contracts @ 666 (3d ed. 1961).

n5 The contract states:

52.j. This offer is made subject to the following conditions being satisfied by
purchaser within 60 days from date of acceptance of this offer.

. . . .

PAGE 8
714 P.2d 667, *673; 1986 Utah LEXIS 742, **18;
27 Utah Adv. Rep. 24

2. Assurance of proper zoning to develop the property into residential lots . .
. .

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Similarly, an accord [**19] and satisfaction may discharge an entire
contract or only a portion thereof. n6 While claims within the scope of an
accord are discharged upon satisfaction of the accord, any other rights or
duties created by the contract remain in effect. n7 The scope of an accord is
primarily a matter of the intention of the parties. n8 Claims that are unknown
or not yet in existence when an accord is reached are outside the scope of the
accord. n9 In the present case, defendants' claim for attorney fees, having
arisen only after the accord and satisfaction occurred, was not within the scope
of the accord and was thus not discharged upon satisfaction of the accord.

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n6 1 C.J.S. Accord and Satisfaction @ 19, at 486 (1985), states:

Even though a contract appears to be entire, if it gives rise to several and
distinct obligations or liabilities the parties may make an accord and
satisfaction of one or more of them without affecting the others . . . .

(Footnote omitted.)

n7 1 C.J.S. Accord and Satisfaction @ 19, at 486 (1985).

n8 See Messick v. PHD Trucking Serv. Inc., Utah, 615 P.2d 1276, 1277-78
(1980). [**20]

n9 See Messick, 615 P.2d at 1278. See also Scantlin v. Superior Homes, Inc.,
6 Kan. App. 2d 144, 627 P.2d 825, 831 (1981); Plywood Mktg. Assocs. v. Astoria
Plywood Corp., 16 Wash. App. 566, 574-75, 558 P.2d 283, 289 (1976).

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The provision for attorney fees is contained in a preprinted document
denominated as a "Uniform Real Estate Contract" which is in general use in this
jurisdiction. Plaintiffs argue the provision creates a right to attorney fees
only for enforcing the contract or a right arising from breach of the contract
against the defaulting party. Thus, under plaintiffs' interpretation, defendants
would be entitled to attorney fees only if they brought an action against the
plaintiffs in the event of plaintiffs' default. Relying on our recent decision
in White v. Fox, n10 plaintiffs assert that defendants, not having bargained for
an express contractual right to attorney fees incurred in defending a lawsuit on
the contract, [*674] have no legal basis for claiming such fees.

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n10 Utah, 665 P.2d 1297 (1983).

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[**21]

PAGE 9
714 P.2d 667, *674; 1986 Utah LEXIS 742, **21;
27 Utah Adv. Rep. 24

Plaintiffs' construction of the attorney fees provision is unreasonably
narrow and contrary to the intent behind the provision. Unlike the provision at
issue in White, the provision in this case, even under plaintiffs'
interpretation, applies to both parties to the contract. In White, we held that
where the parties had equal bargaining power an agreement by one party to pay
attorney fees could not be read to impose a reciprocal duty on the other party.
n11 In this case, by the terms of the provision itself, the duty to pay attorney
fees is reciprocal, and the issue is whether the duty includes liability for
fees incurred by either party in successfully defending an action on the
contract. I think it does. In successfully asserting that their contractual duty
to buy the property had been excused, defendants in effect enforced their
contractual rights. Thus, payment of their attorney fees by plaintiffs was
required by the contract provision.

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n11 665 P.2d at 1300.

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Moreover, the intent behind an attorney [**22] fees provision is to protect
the party in whose favor the provision runs (in this case both parties) from the
costs of litigation in the event such protection is warranted, i.e., in the
event that the party prevails. This intent is fostered by requiring payment of
attorney fees, regardless of which party initiated the lawsuit. To limit the
award of attorney fees to the party commencing the action in no way advances the
purpose of an attorney fees provision. Rather, it serves the counter-productive
end of penalizing one who is the target of an unsuccessful lawsuit on the
contract. Thus, the more reasonable interpretation of the contract provision is
that which provides for an award of attorney fees to the prevailing party in
litigation on the contract, regardless of whether that party initiated the
lawsuit.

I would affirm the judgment of the district court.

   

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