By: Thomas S. Tripodianos Published: June 2015

Are Oral Settlement Agreements Binding?

Question.        Are oral settlement agreements binding?

Answer. Yes.

The parties engaged in negotiations to settle. An oral agreement was reached in a June, telephone conversation involving claimant, his attorney, and defense counsel. They agreed that the oral agreement was an immediately binding contract. Material terms of a July 1 written settlement drafted by defense counsel were consistent with the June oral agreement. On July 14, through new counsel, claimant informed the other side that he did not agree to the terms of the proposed settlement.

Although the decision to settle a case rests with the client alone, a client may authorize his attorney to enter into a settlement agreement on his behalf.  Based on claimant's own affirmative representations and conduct in participating in the settlement discussions and agreeing to the settlement's terms, it was reasonable for defendants' counsel to believe that claimant’s attorney had the authority to settle this case on claimant's behalf.

A settlement agreement is a contract that is interpreted according to general principles of contract law.  It is an elementary principle of contract law that a party's subsequent change of heart will not unmake a bargain already made. Thus, once a court concludes that the parties reached a binding settlement agreement, the agreement is enforceable, even if a party has a change of heart between the time he agreed to the settlement and the time those terms are reduced to writing.

Here, shortly after orally agreeing to the terms of their settlement in June, counsel for both sides exchanged a series of emails in which they listed and confirmed their agreement to each term of the parties' settlement. Agreements that address all negotiated terms in an email are generally enforceable in the same manner as more formal written agreements. 

In deciding whether parties intended to be bound in the absence of a formal written agreement, courts consider the following factors: (1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.

Where there is no final document on which to rely, the controlling factor in determining whether parties are bound by an agreement is whether a court has evidence of the parties' intent to be bound.

Here, while the parties intended to memorialize the agreement's terms in a writing, the parties have explicitly agreed that, even in the absence of such a writing, the parties are bound by the terms of the oral agreement that has been reached

Calling the Court together with defendants' counsel to advise the Court of their settlement and to request the dismissal of the action, constitutes partial performance of a settlement agreement.

The record also demonstrates that the parties reached an agreement as to all of the material terms of their settlement.  Simply because the parties did not set forth the language of certain provisions verbatim does not signify that they had not agreed to be bound until a writing containing the wording of those provisions was agreed to and signed.

Settlements of any claim are generally required to be in writing or, at a minimum, made on the record in open court. In analyzing whether the parties intended that a particular settlement agreement be reduced to a writing, the correct question is whether the settlement agreement terms are sufficiently complex or involve long time periods, such that there should be a formal writing. Here, the parties' June settlement agreement is not particularly complex. For the most part, the agreement involves straightforward and fairly standard terms, such as Defendants' provision of a lump sum payment, Claimant’s dismissal of his claims and provision of a release, and confidentiality and non-disparagement provisions.

For the foregoing reasons, the parties' June settlement agreement is enforceable.

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