Navigating the Complexities of Accord and Satisfaction in Contractual Agreements: Lessons from Recent Case Law

20 May 2023

It is generally clear whether these elements of offer, acceptance, intention to create an enforceable agreement and consideration (being money or something of value) are present or not. However, issues do arise where it is alleged that an agreement was reached between parties to take a lesser sum than may have been due or where one party argues that there was a binding settlement agreement which the other party does not accept.

When parties agree to vary a contract there must be accord (in other words mutual agreement) and satisfaction (money or monies worth) for such a variation to be enforceable. The Rule in Pinnel’s case which dates to 1602, held that an agreement to pay a lesser sum than a contractual debt will not bind a creditor for lack of consideration. It was found that: “It appears to the Judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff for a greater sum: but the gift of a horse, hawk or robe etc in satisfaction is good. For it shall be intended that a horse, hawk or robe might be more beneficial to the plaintiff than the money.”

The Rule in Pinnel’s case and the law relating to recission (cancellation) of a contract through accord and satisfaction or a submission that a claim has already been resolved can be surprisingly complex as set out in the case law below.

ACCORD AND SATISFACTION

Whether a binding settlement agreement exists should be a simple matter of fact, to be determined by way of a preliminary issue, potentially saving a considerable amount of time and money rather than proceeding through a full trial. The cases below set out the difficulties that arise in such cases.

Eileen Ryan v Brigid Leonard & Denis Leonard [2017 IEHC566]

This is a judgment of Ms. Justice Baker (who was then on the High Court bench) in the trial of a preliminary issue directed by Mr. Justice Twomey as to whether the claim of the Plaintiff against the Defendants has been subject to prior accord and satisfaction (in other words that it had settled).

The Plaintiff had been injured in a road traffic accident and liability was not in issue. On 19 June 2013 (14 days after the accident) the Plaintiff agreed to accept a sum of €4,000 in full compensation of her claim for damages and personal injuries from a representative of AXA Insurance Limited. She subsequently issued personal injury proceedings arising out of the same RTA. The Defendants argued that the proceedings had been compromised and therefore the law of accord and settlement applied, and the case should not proceed to hearing. Ms. Justice Baker noted the proposition of Lord Romilly in Plumley v Horrell [1869 20L.T.473] that “Prima facia everybody would suppose that a compromise means that the question is not to be tried all over again. That is the first meaning of compromise. When I compromise a lawsuit with my adversary, I mean that the question is not be tried over again.” He went on to state that the mere fact that a person is dissatisfied with the terms of a contract, including a contract of compromise, is not sufficient to enable a Court to disregard the settlement or set it aside.

Mr. Justice Charlton, when he was on the High Court bench, considered what is required for a Court to set aside a bargain, which was entered into where there was an inequality of bargaining power or in the case of Irish Bank Resolution Corporation Limited v Camborne Investments Incorporation & Others [2012 IEHC262] where he noted: “The nature of the terms agreed between the parties in many loan cases may ultimately have largely been produced as a result of an inequality of bargaining power. That the terms of a contract, while not expressly, may nevertheless implicitly be by and large to the benefit of a bank, can be said to be merely reflective of the position of comparative economic strength that financial institutions tend to find themselves in. On the basis of the objective principle, there was a precedent authority in this jurisdiction in favour of the proposition that it is for the Court to seek to subjectively assess the value of the consideration that passes between the parties to a transaction.

In the Ryan v Leonard case, Ms. Justice Baker ultimately determined that a letter sent by AXA Insurance to the Plaintiff the day after the accident in performance of its obligations under the Central Bank Consumer Protection Code, as it existed at that time, was deficient in that it did not inform the Plaintiff of all of the options available to her to deal with her claim. Therefore, the contract by which the claim was compromised might be avoided on account of the fact that the Plaintiff was not fully informed of matters that AXA was required to explain and identify. Due to the incompleteness of this correspondence, the Court could not decide on a preliminary point of law. The Court held that the case would have to proceed to full hearing of the evidence and submissions regarding the role of the consumer protection code and the accuracy or completeness of the correspondence sent by AXA to the Plaintiff.

Katarzyna Singh v Ian Corbertt [2023 IEHC27]

This is a judgment of Ms. Justice Phelan delivered in January 2023, regarding applications by the Defendant seeking the trial of a preliminary issue as to whether the Plaintiff’s claim against the Defendant had been compromised by reasonable accord and satisfaction (i.e. that the Plaintiff had already accepted a settlement before commencing the case) and seeking the dismissal of the Plaintiff’s personal injury claim on the same basis.

The Plaintiff is a Polish national who had limited English and was involved in a road traffic accident in February 2020 when her vehicle was rear ended. Liability was not in issue and at the time of the accident the Plaintiff was a single parent of four children, the youngest of whom was a new-born infant. She requested the early repair of her car and attended to a used car salesman who was also a Polish national seeking his assistance. He entered into discussions on her behalf with the Defendant’s insurance company for both the repair of her vehicle and compensation for personal injury.

The parties then entered into a written agreement which was alleged to be in full and final settlement of any claim the Plaintiff may have arising out of the accident with a settlement sum of €18,000, in respect of personal injuries, plus a sum of €3,000 for special damages and out of pocket expenses. The Plaintiff subsequently commenced personal injury proceedings in November 2020 and no reference was made to the existence of any settlement agreement in those proceedings.

The Defendant raised a preliminary objection to the proceedings on the basis that the Plaintiff had settled her claim pleading accord and satisfaction. The Plaintiff denied she was stopped from maintaining the proceedings or that she had accepted the sum in satisfaction and discharge of her claim against the Defendant. She argued that the agreement amounted to an “improvident transaction” and should be set aside in circumstances where the Defendant took unfair advantage of the Plaintiff, having regard to her injuries, lack of understanding and ignorance of the Irish legal system, poor understanding of English and both lack of financial resources and independent legal advice. The extent of discussions between the insurance representative and the Plaintiff’s representative were disputed. The Defendant relied on the decision in Alec Lobb Limited v Total Oil (GB) Limited [1983 1ALLER944] which had previously been adopted by the Irish High Court. Three elements needed to be present before the Court would interfere with a contract on the basis of unconscionable bargain, namely:

  • one party must be at a serious disadvantage,
  • that party would have to be exploited in some morally culpable manner,
  • and the resulting transaction would not merely be bad or improvident but over reaching and oppressive. 

The Court in Singh v Corbett noted that the direction of a trial of a preliminary issue could only be exercised with caution, having regard to the difficulty in predicting in advance of a hearing what facts might be critical in determining the issues which they could give rise to. A clear dispute existed as to whether there was a lawful and binding agreement to compromise any claim that the Plaintiff may have arising from the road traffic accident. As the contested facts were relevant to the issues of law to be tried, including an issue as to whether there was an intention to create legal relations, the Court directed that for this reason and given a number of other legal arguments, and did not direct the trial of a preliminary issue, the case would have to proceed to full plenary hearing.

Ms. Justice Phelan referred to and relied on Cafolla v O’Reilly [2017 IESC16 in the Singh v Corbertt case above.In that case the Supreme Court ruled that the question of prior accord and satisfaction could, in principle, be capable of being dealt with by way of preliminary issue without oral evidence, unless it was clear that a determination of a single identified issue was capable of bringing a conclusion to the claim. Where evidence and further argument was necessary before a Court could reach conclusions in relation to either the issue of accord, satisfaction or unconscionable transaction could be reached, it was not possible to decide a case at this stage. The Court was also not satisfied that a determination of the issue of accord and satisfaction would resolve all of the issues and instead the case should proceed to a full hearing.

CONCLUSION

The rule in Pinnel’s case was that part payment of a liability does not stop a creditor pursuing the balance of the liability in the absence of other forms of agreed part payment such as “a horse, hawk or robe etc” is still surprisingly relevant where a debtor alleges (as in many mortgage suits) that there was a binding oral agreement with an agent or servant of the creditor to accept a lesser sum. In the absence of any written evidence of discharge through agreement, the Irish High Court has not hesitated to rely on the rule in Pinnel’s case.

In personal injury claims, the early settlement of a claim by an insurance company with an injured party who does not have legal representation may not in fact be enforceable.

In the words of Mick Jagger “When I’m driving in my car, When a man come on the radio, He’s telling me more and more, About some useless information….” may result in an unenforceable settlement agreement.

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