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Authored - NJ Contract Law Update - Wolf V. Galex: When Are Basic Contract-Formation Issues For The Court In An Arbitration Setting; When Is A Settlement Conditional; And When Is It Binding?
JULY 17, 2013 | Windels Marx - Commercial Litigation

Wolf v. Galex, 2013 WL 185872 (N.J.App.Div. May 6, 2013), addressed two important issues:

  1. The arbitrability of contract-formation issues.
  2. The question of when an ostensible settlement is enforceable, or when it is merely a conditional possibility of a settlement.

These issues arose in the context of a motion for arbitration. In that context, the decision on arbitratability turned on whether certain non-arbitration language was a condition precedent to the settlement agreement going into effect. In other words, was the language (quoted below): (a) a literal condition; or (b) simply an additional term affecting the final form, but not the enforceability, of the settlement agreement?

The issue of arbitration revolved around a potential condition to enforceability of the settlement. The settlement's agreement to arbitrate itself seemed clear enough, including even selection of the precise arbitrator--assuming only that the overall agreement was binding. Thus, the true issue was whether the phrase, "This agreement is subject to the parties agreeing to the personal property.", was a condition precluding enforcement of the settlement which otherwise seemed to be an enforceable "term sheet" (and arbitrable at that).

The trial court viewed the language to mean what it could be taken literally to say; i.e., to be a condition precluding enforcement of the settlement. The appellate court disagreed; holding the deal to have been binding, and indicating in effect that non-essential terms could be 'filled in' by the court. (Under further unpublished authority known to this author, reasonable commercial terms may be implied to finish 'fleshing out' a settlement.)

Given (1) the strong public policy favoring settlement--not to mention (2) the further public policy favoring arbitration, though ostensibly that was not a factor in the settlement determination (since the arbitration agreement's very existence was at issue1)--the Court held the "subject to" language to be a supplemental term, not at condition precedent. A fortiori where (a) the "term sheet" was actually signed by the parties; and (b) one of the subsequent emails referred to that document as "the agreement reached in this matter", and talked about the agreement being "violated" (and thus not conditional).

The moral of the story is that when the parties get 'so close' to a settlement that the 'minds met' on the key issues, it should not be unexpected that the court will strive to deem the matter settled, and do what is necessary to finish fleshing out the terms of the settlement, even if some of the language sounds somewhat conditional. (More so where the result is arbitration of any future issues.) Therefore, if there is a true condition precedent, make that fact as clear as day in your drafting, and in articulating (even orally) any conditions to a settlement.2

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 Issues of agreement formation--as a condition precedent to the enforcement of arbitration clauses themselves--seem to be increasingly featured in current case law. See, e.g., Guidotti v. Legal Helpers, __ F.3d __, 2013 WL 2302324 (May 28, 2013).

2 E.g., "There is no deal unless _______________________".

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