Is an Oral Settlement Agreement EnforceableYou’ve gone through negotiations or a mediation. Though there are some differences between the parties the major issues have been resolved though some minor ones remain and a finalized, signed, written agreement hasn’t been completed yet. In this situation could the other party successfully go to court and enforce the oral agreement on the major issues?

Recently the Ohio Supreme Court enforced a settlement agreement that was never signed. It only got as far as emails spelling out terms, subject to the completion of a settlement agreement. The lawsuit at issue was filed in 2014 in which Lucas Contracting, Inc. sued Berghorst  Enterprises,  LLC,  and  Heritage  Home  Solutions,  LLC, for a statement on an account, breach of contract, promissory estoppel, implied contract and alter ego liability.

The dispute arose concerning property preservation services that Lucas Contracting alleged the defendants had purchased from it.  The plaintiff claimed neither Berghorst nor Heritage had ever had a separate corporate existence from the other and that it was owed a total of $65,187.75.

Negotiations were done over the telephone, a tentative agreement was reached and the two sides exchanged correspondence. An email from Lucas’ attorney spelled out three specific terms and stated “…all of this is subject to approval of settlement documents.” Counsel for Altisource emailed a response which didn’t accept, contradict, repeat or discuss the stated terms. That email indicated the “…executed settlement and release agreement will establish the parties’ respective obligations.”

Lucas asked the trial court to enforce the agreement. Other than their pleadings neither side introduced any evidence showing who did or didn’t agree to what terms. The trial court ruled the agreement was enforceable. The Ohio Supreme Court agreed stating, “Appellee clearly set out the terms of the settlement in its November 10, 2014 e-mail and in its response the same day, appellant never contradicted or challenged the same. We concur with the trial court that the parties, through their respective e-mails, agreed to the terms of the settlement.”

In California a settlement agreement need not be in writing to be enforceable. An oral settlement agreement by the parties may be enforceable if it doesn’t violate the statute of frauds. It would be interpreted by a court like any other contract but it would not be enforceable under summary and expedited procedures under Code of Civil Procedure section 664.6, which is the preferred method of enforcing settlement agreements, unless the oral agreement is made before the court. For that oral agreement to be binding,

  • It must be placed on the record during a judicially supervised hearing,
  • The judge could question the parties about their understanding of the agreement’s material terms, and
  • The parties must expressly acknowledge their understanding of the terms and the agreement in order to be bound by those terms.

A verbal settlement agreement may be enforceable depending on the facts of the situation. As you can see if the parties truly are on board with a settlement agreement it would be much easier for the parties to execute a written agreement than appear before a judge, be subjected to questioning and verbally confirm the agreement.