On September 26, 2024, Justice Chan of the New York County Commercial Division issued a decision in GSP Merrimack LLC v. Javelin Global Commodities (UK) Ltd., 2024 NY Slip Op. 33460(U), holding that a settlement agreement was an executory accord, allowing the plaintiff to assert the settled claims if defendant failed to perform as agreed under the settlement, explaining:
Plaintiffs claim under Count I is defendant’s breach of contract under the Old Confirmation by failing to deliver the amount of coal as ordered leaving a shortfall of 63,988.03 short tons. The defendant breached the New Confirmation when the delivery of Barge No. 4 loaded 22,000 short tons of coal had a sulfur concentration of 4.13% and a dry sulfur concentration of 4.44% above the 3.9% sulfur concentration maximum. Defendant breached again when loading Barge No.5A had an even higher sulfur concentration and plaintiff canceled the delivery of Barge No. 5A.
Plaintiff asserts that they are entitled to damages under the Old Confirmation because defendant allegedly breached the New Confirmation. Defendant argues that plaintiff cannot sue under the Old Confirmation because, under the Settlement Agreement, the New Confirmation is a substitute agreement and that they agreed to cancel; and replace the Old Confirmation with the New Confirmation and all obligations thereunder permanently ceased to exist under New York law. Plaintiff responds that the Settlement Agreement is actually an executory accord pursuant to which plaintiff agreed to drop all Old Confirmation claims only upon full performance of the New Confirmation. Thus, the parties dispute centers over whether the Settlement Agreement (and/or New Confirmation) is an executory accord or a substitute agreement. As plaintiff explains, an executory accord means an agreement embodying a promise express or implied to accept at some future time a stipulated performance in satisfaction or discharge in whole or in part of any present claim, cause of action, contract or obligation. In other words, it is an agreement to accept a future performance in satisfaction of defendant’s prior obligations.
A substitute agreement is when the parties have clearly expressed or manifested their intention to substitute for an old agreement. The result of a substitute agreement extinguishes the old one and the remedy for any breach thereof is to sue on the superseding agreement. For example, the court in Napster, LLC v Rounder Records Corp. found that because the new agreement stated “WHEREAS, Company and Napster have previously entered into a certain Content Agreement … which the parties wish to hereby terminate and supersede” did not show an express and explicit reservation of the right to sue under the prior agreement. The Whereas clause expressly states the intention to terminate and supersede the prior contract. The contract in Napster also did not show party’s intention to sue under the prior agreement because there was no other language in the contract that indicated an intention to reserve the claims that arose under the old contract.
Here the Settlement Agreement is an executory accord because of this language: “[a]s of the Effective Date and subject to and conditional upon the execution and full performance of (i) this agreement, and (ii) the New Confirmation, by each Party.” This expressive language shows the intention of plaintiff to release claims under the Old Confirmation only if the defendant completes the New Confirmation in full. The language makes the Settlement Agreement an executory accord due to the intent to release the previous claims only when the New Confirmation is executed with full performance from the defendant.
Defendant focuses on the WHEREAS clause in the Settlement Agreement that state: “the parties wish to cancel all outstanding obligations in respect of the Contract and replace the contract with a new purchase and sale confirmation to memorialize the mutually agreed terms to govern a transaction for the sale and purchase of coal (the New Confirmation).” and “in consideration of (i) the release and discharge of GSP Merrimack’s outstanding obligations under the Contract; (ii) the release and discharge of Javelin’s outstanding obligations under the Contract; and (iii) the execution of the New Confirmation, each party has agreed to release and discharge the other party from its outstanding obligations arising out of or in connection with the contract subject to the terms of this agreement.”
Defendant argues that the court in Napster, stated that under New York law, only an express and explicit reservation of the right to sue under the prior agreement can allow a party to reach back to the terms of the replaced contract. Defendant’s argument is unpersuasive due to three major flaws. The Whereas clauses here are made in consideration of whether the New Confirmation and Settlement Agreement are executed in full. The Whereas clause on which defendant focuses is not an operative clause of the contract. And the court in Napster did not rule solely on the Whereas clauses but also the party’s express intent to preserve the original claims. It is clear that the operative clause that releases the Old Confirmation claims is tied to the full performance of the Settlement Agreement and the New Confirmation. Further, the final Whereas clause states “each Party has agreed to release and discharge the other party from its outstanding obligations … subject to the terms of this Agreement,” which makes the Whereas clauses operative only to the terms the agreement, and the agreement states the discharge is in relation with the performance.
As such, defendant’s motion to dismiss plaintiffs Count I for breach of contract under the Old Confirmation is denied.
(Internal quotations and citations omitted).