CHAPTER XIX.

DISCHARGE OF RIGHT OF ACTION.

208. Modes of discharge of right of action.— Where A breaks his contract with B, a right of action arises in favor of B. This right of action may in turn be discharged either by the terms of the contract, or by the acts of the parties, or by operation of law.

209. Discharge by terms of contract. If the parties agree that in the event a right of action arises in favor of one party, he must do something, the right of action is discharged if the latter fails to fulfill such terms. Thus, in insurance policies there is often a provision that the right of action shall be barred if a claim is not filed within a certain time after a loss

occurs.

210. Discharge by acts.-The voluntary acts which may discharge the right of action are waiver, gift, release, accord and satisfaction, and award and arbitration. The subjects of waiver, gift and release have been discussed.

211. Accord and satisfaction.-By accord and satisfaction is meant an agreement, not necessarily under seal, the effect of which is to discharge the right of action possessed by one of the parties to a contract.79 Accord without satisfaction does not operate as a discharge. It is an agreement whereby

79 Anson, Contracts (Huffcut's 2d ed.), § 405; Harriman, Contracts (2d ed.), § 39.

one of the parties undertakes to give or to perform, and the other agrees to accept in satisfaction of a claim, something other than or different from what he is or considers himself entitled to. This claim may be liquidated or in dispute, and may be based on an alleged claim arising either from a contract or a tort. Satisfaction is the execution of such agreement; that is, it is an executed accord. Accord and satisfaction, but never an accord alone, may be pleaded as a bar to an action on the original contract.80

Where A owes B $100, and B promises to release A upon the delivery of a horse, B may nevertheless sue A for that sum up to the time he has actually accepted the horse. Even if A promises to deliver a horse and B to give a release, the new contract is no defense to the original cause of action until it is performed and executed. In order that an accord without satisfaction may constitute a defense, the parties must have further agreed that it shall take the place of the old obligation.81

An accord is to be distinguished from a compromise. In Flegal v. Hoover,82 the defendants contracted with C for the cutting of timber. C assigned the contract to the plaintiff, who performed for some time, when the defendants ousted him, claiming he was not fulfilling the terms of the contract. The plaintiff then ousted the defendants. In order to effect a settlement, the plaintiff and defendants entered into a new written agreement. This was held to be a compromise and not an accord.

80 Alden v. Thurber, 149 Mass. 271; Kromer v. Heim, 75 N. Y. 574. 81 Morehouse v. Second National Bank, 98 N. Y. 503.

82 156 Pa. St. 276.

83

Where A has an unliquidated claim against B, and demands $50, it is held that A's retention of a check from B in the sum of $25 is an accord and satisfaction. The claim is thereby discharged. This is true even if the claimant states that he is accepting it in part payment. But if the claim is liquidated, acceptance of a check of a smaller amount is not satisfaction.

Similarly, in the case of a composition with creditors, they may agree to accept the composition agreement itself as satisfaction,84 or they may agree to accept only the actual payment of the composition.85 The satisfaction, it seems, must be furnished by the party liable, or by some one in his behalf.&

86

212. Arbitration and award.-Where a cause of action has arisen in favor of B under a contract, and A and B agree to submit the matter to arbitrators who make a valid award, the contract is thereby discharged.87 Generally there are two possible situations: either the award determines what is due on a preëxisting cause of action, or it substitutes a new duty or debt on such an action. In the first situation, either the plaintiff may sue on the original cause of action, but the defendant may set up the award as a bar to any amount in excess of the awarded amount, or the plaintiff may sue on the award itself. In the second case, the plaintiff's remedy is exclusively on the award.

At common law, submissions of controversies to

83 Nassoiy v. Tomlinson, 148 N. Y. 326; Flynn v. Hurlock, 194 Pa. St. 462; contra, English rule in Day v. McLea, L. R. 22, Q. B. D. 610 (Eng.). 84 Good v. Cheeseman, 2 B. & A. 328 (Eng.).

85 Re Halton, L. R. 7 C. A. 723 (Eng.). 86 James v. Isaacs, 12 C. B. 791 (Eng.). 87 Wiberly v. Matthews, 91 N. Y. 648.

arbitration and award were not favored. Courts regarded arbitrators as bodies who attempted to "oust the jurisdiction of the courts," and consequently they were limited in their operation by judicial decisions.88 Statutes, however, have been passed in most states providing for the settlement of differences by arbitration agreements. The requirements of such acts must be strictly followed in order to obtain a valid award. Generally, it must completely dispose of the matter submitted to the arbitrator. Furthermore, it must be certain, and the arbitrators may not go beyond the powers conferred by the agreement to submit.

The agreement to submit to arbitration is no defense to a suit on the original cause of action, unless there is an award by the arbitrators. Until the award is actually made, the original contract continues to exist, and courts treat the situation as an analogy to an unexecuted accord. Moreover, such a submission is revocable at any time before an award is made.89

213. Discharge by operation of law. The right of action for breach of contract may be discharged not only by the alteration or loss of a written instrument, by merger, and by marriage, as in the case of discharge of the contract, but also by Statutes of Limitations and by Bankruptcy Acts.

214. Statutes of Limitations.-At common law lapse of time did not affect contractual rights. Statutes have been passed which, although they do not

88 Scott v. Avery, 5 H. L. C. 811 (Eng.).

89 People v. Nash, 111 N. Y. 310.

affect the inherent character of the contract, yet do bar remedies on the contract after a certain period of time. Such statutes are called "Statutes of Limitations." Strictly speaking, they discharge the right of action, but not the contract.

Such statutes begin to take effect so soon as the cause of action arises, but usually there are certain circumstances, such as infancy, imprisonment, or absence outside of the jurisdiction, which are not included in the time of the statute. If A owes B $500 on a note, and does not pay him within a year as provided by the note, B must sue within ten years after the maturity of the note, in order to obtain a judgment against A, if the Statute of Limitation is for ten years. Such statutes further provide that if A by a written acknowledgment admits the debt, then the period is to be counted only from the time of such acknowledgment. Other statutes also provide that the payment of interest is a sufficient acknowledgment to take the debt out of the statute, so as to begin a recounting of years.9°

215. Bankruptcy. The bankruptcy of a party when determined by a competent court discharges previous debts. Where A obtains an order of discharge he is relieved from all debts provable under the bankruptcy act in question. This is true whether B's claim against A was proved or not, and even if the creditor was in ignorance of the proceedings.91

90 See Stimson, American Statute Law, 8 4147; Wood, Limitation of Action, pp. 82, 96; Allen v. Collier, 70 Mo. 138, and Schmidt v. Pfau, 114 Ill. 494.

91 As to state acts, see Sturges v. Crowninshield, 4 Wheat. 122 (U. S.); see subject, BANKRUPTCY.