Court Examines the Use of a Settlement Check as a Compromise and Release

The parties to a legal dispute, such as the payment of damages resulting from a car accident, can reach an agreement between themselves to resolve the matter and avoid litigation. This agreement, under which the parties “give and take” to arrive at a solution that is satisfactory to both, is called a compromise. Under Louisiana law, a compromise is considered a contract which must be made in writing, but there is no specific requirement as to the form. What is important is that a compromise resolves only those differences that the parties clearly intend to settle, which under general contract law requires a “meeting of the minds.”

Louisiana courts have recognized that a check can serve as a compromise if it recites that it is in full payment for all claims and the check is endorsed and deposited by the payee. But as the parties in the case American Century Casualty Company v. Sale, discovered, the courts will scrutinize a compromise based entirely on the endorsement and deposit of a check to ensure both parties’ objectives were in alignment.

On August 9, 2008, a car accident occurred between Dr. Charles F. Sale and Michelle Barett. Barrett, who was at fault, was driving a vehicle owned by her parents and insured by American Century Casualty Company (ACCC). A short time thereafter, an ACCC representative contacted Sale and discussed settlement. ACCC then mailed the following to Sale: a letter describing the steps that Sale would be required to take to resolve the claim; a settlement and release form; and a settlement check in the amount of $1,820. The enclosed letter directed Sale to sign the release and return it to ACCC, at which point ACCC would issue the settlement check. (Although the letter indicated that a settlement check would follow a “properly executed release,” ACCC erroneously mailed all three documents in the same envelope at the same time to Sale.) The front of the settlement check included the following text: “CHARLES SALE, ONLY: IN F/F SETTLMT/RELEASE OF ACCC/… BARRETT FROM ANY/ALL CLMS/LNS ON D/L 8/9/08, CLM 10995-9.” Sale, finding the amount of the settlement check insufficient, put the documents aside. Later, Sale’s wife discovered the check and deposited it without his knowledge. When Sale filed suit against Barrett and ACCC in August of 2009, ACCC filed a motion for summary judgment contending that Sale had previously compromised and released his claims against the company and Barrett by endorsing and depositing the settlement check issued to him. The trial judge granted summary judgment in ACCC’s favor and found that Sale had released all future personal injury claims. Sale appealed.

The Second Circuit declared that “a review of the entire record, including the settlement documents sent to Dr. Sale by ACCC, indicates that there was not a ‘meeting of the minds’ between Dr. Sale and ACCC as to what they intended when the purported compromise was reached.” Additionally the court found, “it is apparent from the statements made by Dr. Sale during his deposition that he believed that his claims would not be settled or compromised until he signed the release form,” which he never did. The court noted that the wording of ACCC’s letter, which directed Sale to sign the release if he wanted to accept the offer to settle the claim for the amount on the enclosed check, further indicated that an endorsed check, alone, was insufficient to form a compromise. Accordingly, the court reversed the trial judge’s decision and remanded the case for a trial.

The Sale case serves as a reminder that even out-of-court settlements can be confusing and potentially disastrous for plaintiffs who proceed without solid legal advice. Although Sale was ultimately able to move ahead with his lawsuit, the appellate process added considerable delay to the resolution of his claims. Had Sale referred the letter from ACCC to his attorney immediately, this appellate proceeding would likely never have been necessary.

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