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Schwartz v. Chase, C.A. No. 4274-VCP (Del. Ch. June 29, 2010) (Parsons, V.C.)

June 29, 2010

In this memorandum opinion, the Court of Chancery denied a motion to enforce a settlement agreement when at least two conditions precedent to the formation of a binding contract remained unfulfilled—an express confirmation of representations and warranties and a signature by one of the parties.

Petitioner Daniel Schwartz (“Schwartz”) and Respondent Charlie Chase (“Chase”) each held a 50% membership interest in Conquest Flight, LLC (the “Company”). Schwartz filed a complaint seeking dissolution of the Company. Chase authorized his counsel, Bradford Sandler (“Sandler”), to revive earlier settlement discussions regarding the dispute. Perhaps unintentionally, Schwartz delegated authority to his counsel, Adam Balick (“Balick”), to discuss and finalize a settlement agreement with Sandler. For three weeks, Sandler and Balick negotiated the terms of a possible settlement. Sandler sent Balick a settlement agreement signed by Chase, requesting a signature from Schwartz, “[a]ssuming the reps and warrants . . . are true and correct.” Balick sent Sandler an e-mail indicating that Schwartz would make the representations and warranties, but only after Balick confirmed that Chase did not interpret the representations and warranties in a manner contrary to Schwartz. Chase did not respond to Balick’s e-mail. Chase filed a motion to enforce the settlement agreement, which he claims became effective when he signed the document.

The Court denied Chase’s motion, concluding that Chase failed to meet his burden of showing that (1) the parties agreed to all material terms, (2) all preconditions were satisfied, and (3) the parties intended to be bound.

The Court reasoned that while Balick had apparent authority to negotiate the terms of the settlement agreement, even though Schwartz may not have intended to grant such authority, Chase’s insistence on the accuracy of the representations and warranties either attached a condition precedent to formation of the settlement agreement or constituted a counteroffer. The Court also found that the parties mutually recognized that there would be no binding contract until both parties signed the settlement agreement. Further, the Court found that the parties had not entered a binding contract when Balick sent the e-mail regarding representations and warranties to Sandler because Sandler did not respond to the substance of Balick’s e-mail or provide a document Balick requested in the e-mail. As a result, the Court found that the parties had not agreed to all material terms with an intent to be bound.

The full opinion is available here