Massachusetts Court of Appeals provides guidance on the enforceability of digitally exchanged settlement agreements
The digital age has ushered in novel methods of conducting business, exploring growth opportunities, and seeking restitution.
All of these opportunities were exploited by Daniel and Lisa Duff, a pair of homeowners in Hingham, Massachusetts who sought enforcement of a putative settlement agreement they executed with their former contractors.
In 2010, plaintiffs Daniel and Lisa Duff hired the defendants to perform a renovation project at their home in Hingham, Massachusetts. Shortly thereafter, a dispute ensued regarding the defendants’ workmanship and their alleged failure to obtain a building permit in a timely manner.
In May of 2012, the Duffs sought redress by initiating arbitration through the State program created in accordance with M.G. L. c. 142A(3).
The following year, on the eve of the assigned arbitrator’s scheduled view of the property, the parties reached an apparent settlement of their dispute.
The email exchange surrounding the announcement of the settlement formed the axis upon which the appellate decision rotated.
The most significant email was dated March 21, 2013, which consisted of vigorous emails between Counsel. Counsel for the Duffs wrote to “confirm what I believe our respective clients have agreed to.” He then listed six terms. Key among those terms were the requirements that the defendants pay the Duffs $27,500, and that the parties “exchange mutual general releases, subject only to the obligations in the settlement agreement.”
Notably, the list of terms did not specify when payment of the $27,500 was due.
The Duffs’ Counsel concluded his e-mail by asking his counterpart to “confirm that I got this right by return e-mail.” Six minutes later, the defendants’ counsel responded, “Confirmed.” Six minutes after that, the Duffs’ counsel sent an e-mail to the assigned arbitrator canceling the scheduled site visit because “I am pleased to report that the parties have reached a settlement agreement.”
The following morning, the coordinator for the arbitration program sent an e-mail to express her happiness “that the parties have settled,” and she requested clarification whether she should “consider this your formal notice of settlement or will you mail written notice of the settlement.”
Counsel for the Duffs responded by stating:
“I believe the parties are planning on preparing and signing a formal settlement agreement and then will file a stipulation of dismissal, with prejudice, of the claims in the arbitration. This may take a week or so.”
Over the next two and one-half weeks, the parties sought to complete a formal settlement document. During that time, Counsel for the Duffs expressed concern over delay, stating that he did not “want to give the clients too much time to rethink this.” As the Duffs acknowledge, some of the delay was caused by a medical issue related to the defendants’ Counsel’s family.
Ultimately, the parties agreed on every provision, except for when payment of the $27,500 was due. The Duffs insisted that payment be made when the agreement was executed, while the defendants insisted that they be given some time to complete payment.
With the final issue at a seeming impasse, on April 8, 2013 the Duffs terminated the still-pending arbitration proceeding by withdrawing their request for arbitration. The following day, they filed suit in Superior Court.
Notably, their complaint did not mention the putative settlement agreement or the abandoned arbitration proceedings. Instead, the complaint simply set forth the Duffs’ underlying claims with regard to the defendants’ work on the renovation project (alleging violations of G. L. c. 93A, breaches of contract, negligence, and misrepresentation).
In response, the defendants filed what was styled as a motion to enforce the settlement agreement and to dismiss the complaint.
The trial court judge allowed motion to dismiss and entered judgment requiring the defendants to pay the agreed-to amount within ten days.
The Duffs promptly appealed.
The Duffs rested their appeal on two alternative theories that lie in opposition to one another.
Argument one is that because the parties never agreed on a specific date when payment was due, any agreement they had reached was too indefinite to constitute an enforceable contract. Without an enforceable contract in place, they argue, they were free to sue on their underlying claims.
Argument two is that the two sides reached a fully enforceable agreement on March 21, 2013, with payment due immediately upon execution of a formal settlement agreement. The Duffs thusly argue that the defendants breached the agreement by refusing to make timely payment, and this breach justified the Duffs in repudiating the agreement.
What followed was an exhaustive examination of what the necessary ingredients are for an enforceable contract.
In their decision, the Massachusetts Court of Appeals maintained that “An enforceable agreement requires (1) terms sufficiently complete and definite, and (2) a present intent of the parties at the time of formation to be bound by those terms.” Targus Group Intl., Inc. v. Sherman, 76 Mass. App. Ct. 421, 428 (2010).
Saliently, the Court noted that there was no suggestion in the record that the parties ever discussed when payment of the agreed-to settlement amount would be due. To the contrary, each side faulted the other for not raising the issue sooner. The Court cautioned, however, that “the presence of undefined or unspecified terms will not necessarily preclude the formation of a binding contract.” Situation Mgmt. Sys., Inc. v. Malouf, Inc., 430 Mass. 875, 878 (2000).
The discussion then hinged on whether the absence of an agreed-upon specific payment date meant that “significant, material terms were still to be negotiated.” Ibid.
In short, the dispositive issue was whether the absence of a date of remittance would render the contract unenforceable. The court opined that this absence would not destroy the enforceability of the contract.
As authority for their decision, the Court referenced Shea v. Bay State Gas Co., 383 Mass. 218, 223 (1981), quoting from Bryne v. Gloucester, 297 Mass. 156, 158 (1937) (contracts should be interpreted “with reference to the situation of the parties when they made it”). See also McCarthy v. Tobin, 429 Mass. 84, 87-88 (1999) (offer to purchase real estate was binding despite subsequent dispute over entering into purchase and sale agreement)
Addressing the deadline issue directly, the Court stated where a written agreement fails to specify a deadline by which a contractual obligation or right must be exercised, courts may infer that the parties intended a “reasonable” date if this can be done without changing the essence of the contract. See Plymouth Port, Inc. v. Smith, 26 Mass. App. Ct. 572, 575 (1988); Middleborough v. Middleborough Gas & Elec. Dept., 47 Mass. App. Ct. 655, 658 (1999). In turn, “[w]hat is a reasonable period of time depends on the nature of the contract, the probable intention of the parties, and the attendant circumstances.” Plymouth Port, Inc. v. Smith, supra.
Paying careful attention to the digital exchange of communication in this action, the court quoted Accord Fecteau Benefits Group, Inc. v. Knox, 72 Mass. App. Ct. at 212 holding “[E]-mail exchanges between the parties formed a clear and complete agreement . . . [under which t]he material terms were set and agreed upon).
With these principles in mind, the Court concluded that “the agreement the parties reached in their March 21, 2013, e-mail exchange was not fatally indefinite.”
Daniel Duff & Another v. John McKay & Others
Massachusetts Court of Appeals Docket No.: 15-P-634
Date of decision: June 14, 2016.
Anthony J. Low, Esq. is a Managing Partner at the Shapiro Law Group, who focuses his practice in highly charged custody disputes, complex divorce litigation, and general defense litigation. Anthony may be reached at [email protected]