Court Refuses to Enforce Signed Agreement

While parties may believe they have an enforceable agreement where all parties or their counsel have signed a document, this is not always the case as evidenced by a recent case decided by the Massachusetts Appeals Court.

A company and a former employee had a dispute.  A lawsuit was filed and then the parties proceeded to mediation, a procedure where as independent, neutral third party attempts helping the parties reach a settlement.  A settlement was in fact negotiated, and a two page settlement memorandum was executed.  Problems developed, however, regarding effectuating the settlement so one of the parties filed a motion to enforce the settlement in the pending Superior Court action.  The Superior Court judge allowed the motion to enforce, but the decision was appealed.

While the Appeals Court acknowledged that binding settlement agreements made during a lawsuit are enforceable in the pending litigation, as with other agreements, in order to be enforceable, the terms of the agreement need to be sufficiently complete and definite and there must be a present intent of the parties at the time of the formation to be bound by the terms of the agreement.  Upon review of the matter, the court found the document was not sufficiently complete, nor did the parties intend it to be bound.

The court noted the document was only 2 pages long and the majority of provisions contained therein were not sufficiently complete or definite.  By way of example, one of the provisions concerned a 2 year covenant not to compete, but the scope and extent of the claims were undefined in either its geographic reach or the nature of the business to be included.  As the court noted, subsequent discussions of the parties highlighted the ambiguity of the provision as the parties had different views and interpretations.  Also, there was a liquidated damages clause in the settlement agreement (where the parties agree what the damages will be if there is in fact a breach of an agreement), but there was no amount mentioned or formula for determining an amount.

The court noted other factors that led it to find that the memorandum at issue was not intended as a binding settlement agreement and this was in part evidenced by the extensive negotiations after the signing, which indicated that little of what was contemplated in the settlement memorandum was actually agreed upon as the parties debated almost every material provision and the parties never actually came to a meeting of minds.

Thus, one must be careful in drafting agreements because even where an agreement is believed to be reached, and the parties sign it, it still may not be enforceable.