Kowalchuk v. Stroup

• Decision Date: 10 February 2009
• Docket Number: 4491.
• Citation: 873 N.Y.S.2d 43,2009 NY Slip Op 01014,61 A.D.3d 118
• Parties: PETER KOWALCHUK et al., Respondents, v. MATTHEW STROUP, Appellant.
• Court: New York Supreme Court — Appellate Division

61 A.D.3d 118

873 N.Y.S.2d 43

2009 NY Slip Op 01014

PETER KOWALCHUK et al., Respondents, v. MATTHEW STROUP, Appellant.

4491.

Appellate Division of the Supreme Court of New York, First Department.

Decided February 10, 2009.

Burkhart Wexler & Hirschberg, LLP, Garden City (Norman B. Arnoff of counsel), for appellant.

McCormick & O'Brien, LLP, New York City (Liam O'Brien of counsel), for respondents.

OPINION OF THE COURT

SAXE, J.

This appeal, concerning a dispute regarding the time at which a negotiated settlement becomes an enforceable contract, requires consideration of some of the most fundamental aspects of the law of contracts: offers, acceptance, and consideration.

Facts

Plaintiff Evelyn Kowalchuk, an 88-year-old widow, and her son, plaintiff Peter Kowalchuk, had invested in brokerage accounts managed by defendant Matthew Stroup. In December 2005, they commenced an arbitration proceeding before the National Association of Securities Dealers (NASD) asserting that Stroup had fraudulently or negligently handled their accounts, and seeking judgment for losses of $832,000. After the arbitration hearing was completed, but before a decision was rendered, the parties agreed on a settlement. On February 6, 2007, plaintiffs' counsel e-mailed defendant's counsel:

"As discussed, my clients have agreed to accept Mr. Stroup's settlement offer. The terms of the offer are as follows:

"Total settlement amount of $285,000 with $125,000 payable upon execution of the settlement paperwork but no later than 20 days. The remainder to be paid in nine equal monthly installments on the 15th of each month beginning on March 15, 2007. Confession of judgment and security interest sufficient to cover the outstanding amounts.

"We have also agreed to provide you with a letter that you may use in negotiations with Mr. Stroup's insurance carrier "ps. Let me know if you would like me to contact the NASD and inform them that we have reached a settlement and will advise them as soon as the settlement is finalized."

Plaintiffs' counsel then sent defendant's counsel a draft settlement agreement. Defendant's counsel responded on February 12 with his own draft, and later that day advised plaintiffs' counsel:

"The insurance company is considering making a dollar contribution to the settlement agreed upon ... However they want to know the dollar amount of your settlement ... and I have advised that you have agreed on confidentiality. I would appreciate your waiving this confidentiality ... I would appreciate your consideration in order to facilitate the settlement."

Plaintiffs' counsel declined to waive confidentiality, but indicated that he had reviewed his adversary's changes, and would respond the next morning with his own. On February 14, defendant's counsel advised:

"My client has executed the settlement agreement, which I will forward to you tomorrow for your clients to execute. If you are agreeable, I would like to advise the NASD tomorrow we have a settlement and/or an agreement in principle that will be documented and formalized shortly."

On February 16, plaintiffs' counsel responded: "Please fax your client's executed agreement to me ... and notify the NASD. I will forward my clients' executed copies as soon as they are received." That same day, defendant's counsel faxed plaintiff's counsel a "signed and approved settlement agreement," and stated that he would be forwarding to plaintiff's counsel and to the NASD a "confirmation of settlement." He asked that plaintiffs' counsel send him "your signed counterpart." Also that day, defendant's counsel faxed the NASD advising that the arbitration "has been settled," asking that the arbitrators be so advised so that no award be entered.

Meanwhile, on February 15, the NASD had issued its award and sent it by regular mail to respective counsel. It is apparent that both sides' counsel received it after the foregoing faxed exchange. The award was in favor of plaintiffs in the amount of $88,787.50, far less than the settlement amount of $285,000.

On February 20, defendant's counsel, having received a copy of the award, advised plaintiffs' counsel that defendant had instructed him to "withdraw the offer of settlement," and advised the NASD that defendant intended to honor the award and had withdrawn the "offer of settlement" because he "did not receive the settlement and release documents executed by [plaintiffs] accepting the settlement."

On February 21, by fax and Fed Ex overnight mail, plaintiffs' counsel sent defendant's counsel a copy of the settlement agreement signed by plaintiffs. The cover letter acknowledged having been advised that defendant did not intend to honor the settlement agreement, and asserted that defendant had clearly approved its terms, and reserved plaintiffs' rights to "enforce the agreement as written."

On March 23, plaintiffs' counsel advised defendant's counsel that defendant was in default of the first payment of $125,000 due under the terms of the settlement agreement, and offered an opportunity to cure the default. When defendant did not pay, plaintiffs commenced this action for breach of contract.

Defendant moved to dismiss pursuant to CPLR 3211(a)(1), (2) and (5) and for summary judgment dismissing the complaint, arguing, essentially, that there was no binding settlement agreement. The motion court, upon converting the dismissal motion to one for summary judgment, searched the record and granted summary judgment to plaintiffs.

Discussion

The motion court correctly awarded summary judgment to plaintiffs, properly holding that, based upon the submissions, it was established as a matter of law that the parties had entered into a binding and enforceable settlement agreement prior to defendant's purported revocation, and properly rejecting defendant's contention that he had withdrawn his offer before the offer was accepted. That the written formulation of the agreement had not yet been signed by plaintiffs at the time defendant sought to repudiate it did not in any way refute its existence or terms.

To establish the existence of an enforceable agreement, a plaintiff must establish an offer, acceptance of the offer, consideration, mutual assent, and an intent to be bound (22 NY Jur 2d, Contracts § 9). That meeting of the minds must include agreement on all essential terms (id. § 31).

The February 6 e-mail sent by plaintiffs' counsel establishes that defendant made an offer, including all the essential material terms of that offer, and that plaintiffs accepted the offer. If any confirmation were needed that plaintiffs' counsel had accurately framed and characterized defendant's offer, the subsequent e-mails satisfy any such concerns.

Nevertheless, defendant contends that the offer was revoked before it was accepted, relying on the fact that plaintiffs had not yet signed the formal writing by the time they heard of the NASD award, after which defendant quickly communicated an intent to revoke his offer. This contention raises the issue of how an offer is effectively accepted.

While an offer normally may be revoked at any time prior to acceptance, the moment of acceptance is the moment the contract is created. "As a general rule, in order for an acceptance to be effective, it must comply with the terms of the offer and be clear, unambiguous and unequivocal" (King v King, 208 AD2d 1143, 1143-1144 [1994], citing 21 NY Jur 2d, Contracts § 53, at 470, and 2 Lord, Williston on Contracts § 6:10, at 68 [4th ed]). Inasmuch as there was nothing unclear, ambiguous or equivocal about plaintiffs' February 6 e-mail responding to defendant's offer, it constituted an effective acceptance.

In order to treat the contract formation process employed here as ineffective to bind him, as well as to contend that his offer was revoked prior to any proper acceptance, defendant relies on the rule that "if the parties contemplate a reduction to writing of their agreement before it can be considered complete, there is no contract until the writing is signed" (ABC Trading Co., Ltd. v Westinghouse Elec. Supply Co., 382 F Supp 600, 601 [ED NY 1974], quoting Williston on Contracts § 28, at 66-67 [3d ed]; see generally 1 Lord, Williston on Contracts § 4:11 [4th ed]). Defendant contends that because the formal writing prepared for both parties' signature contained language making reference to it being "complete and binding" upon signature of all the parties, that writing indicates the parties' intent not to be bound until the point that all parties have signed the document.

"`It is well settled that, if the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed'" (Jordan Panel Sys. Corp. v Turner Constr. Co., 45 AD3d 165, 166 [2007], quoting Scheck v Francis, 26 NY2d 466, 469-470 [1970]).

Under New York law, "when a party gives forthright, reasonable signals that it means to be bound only by a written agreement," that intent is honored (see Jordan Panel Sys. Corp., 45 AD3d at 169, quoting R.G. Group, Inc. v Horn & Hardart Co., 751 F2d 69, 75 [2d Cir 1984] [applying New York law]).

This rule has been explained as distinguishing between a "preliminary agreement contingent on and not intended to be binding absent formal documentation," which is not enforceable, and a "binding agreement that is nevertheless to be further documented," which is enforceable with or without the formal documentation (Hostcentric Tech., Inc. v Republic Thunderbolt, LLC, 2005 WL 1377853, *5, 2005 US Dist LEXIS 11130, *17 [SD NY 2005]). The former is established by a...