In the often chaotic negotiations to resolve a lawsuit, the parties sometimes have different intentions regarding the terms of a settlement. Although they may appear to resolve their differences orally and then sign a formal settlement agreement that they intend to be binding, the executed settlement agreement may sometimes reflect some of that chaos. What happens if the language of the settlement agreement is ambiguous? A number of possible resolutions to this dilemma were presented in older New York federal and state cases, but more recently, a few opinions have declared ambiguities in material terms of settlement agreements to be unresolvable. Even after considering the parol evidence, courts have tossed in the hat and declared the settlement agreement to be unenforceable for failure of mutual assent. This article describes this recent trend in the law of settlement agreements, and explains how this trend differs from the resolution in older New York cases.
Ambiguous Agreements
Within the past year and a half, two New York cases have declared settlement agreements unenforceable due to irresolvable ambiguity of material terms. In Gessin Electrical Contractors Inc. v. 95 Wall Associates, LLC,1 a contractor on a construction project met with the owner of the premises and agreed to settle its construction claims for $500,000. However, at the time of the agreement, the premises owner did not realize that $1.09 million of the full $1.7 million claim had already been paid to the contractor by the general contractor. Thus, the owner thought that a $1.7 million claim was being settled for $500,000, whereas the contractor thought it was settling a $580,000 balance for $500,000.2 After the meeting, the owner’s in-house counsel drafted a one-page settlement agreement, settling “all change orders and extras…arising from the date of the inception of the Contract at the sum of $500,000″ plus future weekly payments totaling $500,000 and a future credit of $350,000 for certain rebates.3 The contractor signed this agreement without the benefit of counsel.
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