Category Archives: unilaterally modify

May Courts Unilaterally Modify the Terms of an Oral Settlement Agreement to Which the Parties Agreed on the Record?

In Highland Capital Corp., v. Donna P. Denier M.D., P.C. et al., No. A-4832-10T4 (N.J. Super.  App. Div. 2013), Donna Denier, M.D. (“Defendant”) entered into a lease with Digirad Corporation (“Lease”) for a piece of equipment named “Cardius 1”. Id. at 2.  Highland Capital Corp., (“Plaintiff”) was the party that financed the Lease. Id.
 
This dispute arose when Defendant stopped making the agreed upon payments to Plaintiff. Id.  As a result of Defendant’s failure, Plaintiff sued her for breach of contract in the Law Division of the New Jersey Supreme Court (“Lower Court”). Id. Instead of proceeding with litigation, the parties entered into a settlement agreement. Id. at 3. Following discussions among each party’s counsel and the Law Division Judge, the parties orally placed the terms of their settlement on the record (“Settlement”). Id. Some of the main points of the Settlement were as follows:

1.      Defendant is to make monthly payments to Plaintiff in the amount of $2,778.00 plus tax for 36 months; and
2.      If Defendant made all monthly payments, at the end of the 36 months Plaintiff will transfer ownership of Cardius 1 to Defendant.

Id.
 
However, the parties were unable to agree on how best to put the terms of the Settlement in writing. Id. at 5.Unable to come to an agreement, the parties participated in a telephone conference with the Lower Court. Id. at 6. Based upon this conference, Plaintiff submitted a proposed written agreement to the Lower Court for signature. Id.  The Defendant objected, stating that it did not accept the terms of Plaintiff’s proposed written agreement. The Defendant argued that it encompassed different terms than those placed on the record (“Proposed Agreement”). Id. Nonetheless, the Lower Court signed Plaintiff’s Proposed Agreement. This meant that the Plaintiff’s terms of the agreement, which were not agreed to by Defendant, were now enforceable against Defendant. Id.
 
Defendant appealed to the Appellate Division of the Supreme Court of New Jersey (“Appellate Court”). Id. at 7.  In its appeal, the Defendant argued that the Lower Court did not have the authority to sign the agreement because she never consented to it and it “materially changed the terms of the settlement placed on the record.” Id.
 
In its analysis the Appellate Court explained that as a matter of public policy, New Jersey courts favor the enforcement of settlement agreements. Id. at 8.  This policy acknowledges the notion that the parties to a dispute are in the best position to determine how to resolve a contested matter in a way that is least disadvantageous to everyone. Id. Thus, courts strain to give effect to the terms of a settlement agreement wherever possible. Id.  Importantly, the Appellate Court noted that a settlement agreement does not have to be in writing to be enforceable “…the fact that an agreement is oral, rather than written, ‘is of no consequence.’” Id.
 
However, the Appellate Court explained that settlement agreements are contractual in nature. Id. at 9. Thus, no settlement agreement exists unless the parties agree to the essential terms of the agreement and manifest an intention to be bound by those terms. Id.  Appellate Courts do not have the power to modify and/or add to the terms of the settlement agreement. “It is not the court’s function to make a contract for the parties or to supply terms that have not been agreed upon.” Id. at 10.
The Appellate Court explained that the terms of the Proposed Agreement was not an accurate representation of the Settlement the parties agreed to on the record. Id. at 12. For instance, under the Proposed Agreement, the Plaintiff was permitted to retain title to Cardius 1 and all proceeds of sale even if Defendant made all payments to Plaintiff in accordance with the Settlement. Id.  To the contrary, the Settlement indicated that the Defendant would retain ownership of Cardius 1, provided she made all payments to Plaintiff in accordance to its terms. The Appellate Court stated that the Lower Court unilaterally modified the terms of the Settlement. Id. The Lower Court’s improper modification of the Settlement clearly benefited the Plaintiff and harmed the Defendant.  Id.
 
Accordingly, the Appellate Court reversed the Lower Court’s approval of the Proposed Agreement. Id. at 13. In that regard, the Appellate Court directed the Lower Court to either form an agreement to which both parties agreed or, if the parties are unable to come to an agreement, simply to dismiss the case and enforce the terms of the original oral Settlement.   Id.