Settlement Agreement Basics
| Citation | Vol. 18 No. 2 Pg. 0020 |
| Pages | 0020 |
| Publication year | 2012 |
Settlement Agreement Basics
by John K. Larkins Jr.
Measured by the number of appellate decisions, it seems that disputes concerning settlement agreements are the most common type of contract litigation. Many of those disputes deal with basic issues of contract formation.[1] Fundamentally, a settlement agreement "must meet the same requisites of formation and enforceability as any other contract,"[2] i.e., "parties able to contract," consideration, assent and certainty as to subject matter.[3] This article discusses the somewhat particularized body of Georgia case law that has developed relating to core issues of settlement agreement formation and enforcement.
When Can a Lawyer Contract on Behalf of the Client?
Parties able to contract are a basic requirement for any contract. Many settlement agreements, of course,
result from communications entirely between counsel for the parties to the dispute. A common issue, therefore, is whether a party's attorney had authority to enter into an agreement on behalf of the client.
In Brumbelow v. Northern Propane Gas Co.,[4] the Supreme Court of Georgia considered whether a settlement agreement was enforceable where an attorney for a party accepted an offer, but the client did not. The Court in Brumbelow found that the agreement was enforceable, holding that an attorney of record ipso facto has apparent authority to enter into an agreement on behalf of the client.[5] Although the attorney's actual authority may be limited by the terms of the attorney-client contract, or by instructions from the client, the authority will be considered plenary unless the limitation is communicated to the opposing party.[6]In the absence of such communication, "the opposing party may deal with the attorney as if with the client," and the client is bound by the acts of the attorney within the scope of the apparent authority.[7]If the attorney oversteps his or her actual authority, the client's remedy is against the attorney.[8]
Under Brumbelow, a settlement agreement by an attorney with apparent authority is enforceable even if the client does not sign or otherwise expressly consent to it.[9]The client's denial that an agreement was reached is simply "immaterial where it is undisputed that the attorney for the party denying the agreement communicated acceptance of the settlement offer."[10]Where there is no attorney-client relationship, however, the attorney has no authority of any kind.[11] But if the lawyer is discharged, a party is entitled to rely on the attorney's apparent authority until notice of the discharge is given.[12]
The holding in Brumbelow is consistent with O.C.G.A. § 15-19-5, which provides that "[a]ttorneys have authority to bind their clients in any action or proceeding by any agreement in relation to the cause,"[13] and Rule 4.12 of the
Uniform Superior and State Court Rules, which states "[attorneys of record have apparent authority to enter into agreements on behalf of their clients in civil actions."[14]
A recent case, Omni Builders Risk, Inc. v. Bennett,[15] presented an interesting twist on the apparent authority issue. In that case, a purported settlement agreement was claimed to have been reached at a mediation. The settlement agreement was executed by counsel for both parties, but the agreement also contained a signature line for Omni's principal, Dillard. Dillard refused to sign. The Court held that, in light of Dillard's attendance at the mediation, his signature on the agreement to mediate, and the signature line for him on the settlement proposal, "there was nothing in these circumstances indicating that Dillard's attorney had apparent authority to act for Dillard."[16]Thus, it appears that the Brumbelow rule does not prevent a party from contesting a settlement agreement by proving "circumstances" showing that the other party should have understood that the attorney's authority was limited.
The Brumbelow rule concerns the authority of an attorney to settle a case on behalf of the client; the rule does not control the issue of whether an agreement was in fact formed-an issue that turns on other factors, such as offer and acceptance, certainty and consideration.[17] Thus, for example, if an attorney with plenary authority conditions acceptance on confirmation that the client has no comments, an agreement is not formed.[18]
When is a Settlement Offer Accepted?
Because a settlement agreement is a contract, the typical principles of offer and acceptance apply, including the rule "that an agreement between two parties will occur only when the minds of the parties meet at the same time, upon the same subject matter, and in the same sense."[19] Where an offer is made, a valid acceptance must be unconditional, unequivocal and identical with the terms of the offer, without variance of any sort.[20] This is the traditional "mirror image" rule, under which a purported acceptance that seeks to impose conditions will be construed as a counteroffer.[21] Material alteration of a settlement document before signing will create a counteroffer.[22]
As in other types of agreements, an offer to settle may be accepted by conduct.[23] A party's "subsequent conduct" is not competent to show the absence of an agreement, however.[24] Similarly, where a settlement agreement has been reached, subsequent negotiations regarding other terms will not vitiate the agreement.[25]
If there is any essential part of the contract on which there was no meeting of the minds, then there is no valid contract.[26] The key term is "essential." Because the core intent of a settlement agreement is the compromise of a dispute, and compromises are viewed with favor, it is not uncommon for a court to find a proposed term to be immaterial and thus insufficient to defeat acceptance of the agreement's essential terms.[27] In short, an immaterial variation between the offer and the response to the offer will not prevent acceptance.[28]
It appears that if a proposed additional term is a condition to an agreement, then no acceptance will occur. If, however, the additional term is merely precatory, i.e., words of "entreaty, recommendation, or expectation," such as a suggestion as to the form to terminate the controversy, then it will not prevent acceptance.[29]
When is a Settlement Sufficiently Certain?
For a valid agreement to exist, "the parties must have a distinct intention common to both and without doubt or difference""”a "meeting of the minds."[30] The terms of the agreement cannot be incomplete, vague, uncertain or indefinite, although any uncertainty and indefiniteness must be "extreme" to destroy the agreement.[31]
Nevertheless, it is not necessary that the contract "state specifically all facts in detail to which the parties may be agreeing" if the contract contains enough information to allow a court, using rules of construction, to determine the parties' intent as to terms and conditions.[32] Terms may be implied. For example, because "settlement" is construed to be a final disposition of any claim arising out of the subject incident, a dismissal of an action with prejudice is implied.[33]Similarly, an "offer to settle" implicitly promises "to execute some instrument terminating the controversy" between the parties.[34]
What Consideration is Sufficient?
Valid and sufficient consideration is one of the requisites of a contract.[35] Consideration for a settlement agreement typically is described as "forbearance to prosecute a legal claim,"[36] or "compromise of a doubtful right,"[37] either of which is sufficient. Moreover, "it is not essential that the matter should really be in doubt. . . . [i]t is sufficient if the parties consider it so far doubtful as to make it the subject of compromise."[38] Thus, it is immaterial whether the parties afterwards discover that one of the contentions is without foundation in the law.[39]
Under the "pre-existing duty rule," a settlement agreement that merely contains a promise to pay what a party indisputably already owes lacks consideration.[40] Where there is a danger posed by this rule, a careful practitioner will assure that there is some sort of "new consideration" for the agreement (such as money).[41]
Because settlement of family controversies is highly favored, the termination of the controversy "affords a consideration which is sufficient to support a contract made for such purpose,"[42] although
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it is also required that the settlement be fair and honest.[43] When such an agreement is established, it will be enforced without an inquiry into the adequacy of the consideration.[44]
Settlement agreements frequently consist of multiple promises supported by separate consideration, so typically the failure of one promise for illegality is not fatal to the entire agreement.[45] Also, it is possible to settle one claim without relinquishing another, provided the agreement contains clear and specific language to this effect.[46]The prohibition against claim-splitting, i.e., dividing a single claim into two or more claims, does not apply to a partial settlement.[47]
Does a Settlement Agreement Need to be in Writing?
A valid settlement agreement may be oral, provided its existence is established without dispute.[48]Further, "[a]n oral settlement agreement must be definite, certain, and unambiguous," and, to be binding, "it should be dear that it is full and complete...
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