Rulli v. Fan Co.

• Decision Date: 10 September 1997
• Docket Number: No. 96-249,96-249
• Citation: 79 Ohio St.3d 374,683 N.E.2d 337
• Parties: RULLI, Appellant, v. FAN COMPANY et al., Appellees.
• Court: Ohio Supreme Court

Page 374

79 Ohio St.3d 374

683 N.E.2d 337

RULLI, Appellant, v. FAN COMPANY et al., Appellees.

No. 96-249.

Supreme Court of Ohio.

Submitted April 1, 1997.

Decided Sept. 10, 1997.

SYLLABUS BY THE COURT

Where the meaning of terms of a settlement agreement is disputed, or where there is a dispute that contests the existence of a settlement agreement, a trial court must conduct an evidentiary hearing prior to entering judgment.

Frank A. Rulli, appellant, initiated an action in 1992 in the Court of Common Pleas of Mahoning County against his brothers, appellees Nick and Anthony Rulli. In his complaint, Rulli alleged that his brothers had excluded him from the operation of a corporation (Rulli Bros., Inc.), in which he and his brothers were equal shareholders, and a partnership (Fan Co.), in which the three were equal partners. Rulli sought a financial accounting of the two businesses as well as other property received and distributed, and also sought access to the books and records of the corporation and the partnership.

On June 23, 1993, during a hearing before the trial judge on pending motions, counsel for both parties indicated that they had reached a settlement purporting to resolve all matters involved in the dispute. Counsel for Frank Rulli then read into the record that Frank Rulli would purchase his brothers' interest in both the corporation and the partnership by paying his brothers $950,000 each for their interest. Counsel further stipulated that the corporation would be sold by asset sale, with the terms being cash payable within ninety days; the corporation would maintain a minimum inventory of $200,000; and all fixtures were to remain intact and in place. Nick and Anthony Rulli retained the right to use the names "Rulli Brothers" and "Rulli Brothers Market" in any future business, and agreed to be solely responsible for encumbrances, liens, or liabilities of the two businesses. All three brothers agreed to be equally responsible for a mortgage on a parcel of real estate owned by the partnership.

In response to a query by the trial court, Nick, Anthony, and Frank Rulli all indicated that they understood the parameters of the settlement agreement and agreed to be bound by it. The trial judge then stated that he would "mark the case called for hearing, case settled and dismissed," and gave counsel twenty-one days to submit a separate judgment entry. The court filed a judgment entry on June 23, 1993, to this effect.

No separate entry was ever filed, nor did the parties ever complete a formal purchase agreement. Anthony and Nick Rulli filed a motion to enforce the agreement, in which they disputed the meaning of the statements read into the record at the prior hearing. They asserted that the agreement required Frank Rulli to pay $1.9 million for the entire partnership and its assets and for the inventory of the corporation free and clear of any liabilities, and that they each were responsible for paying one third of an existing mortgage. Frank Rulli argued that he was only responsible for purchasing the assets of the partnership and the corporation, and that the partners would then pay off the existing mortgage and distribute to each of the parties the balance of their capital and income accounts (approximately $45,000 each). This interpretation would have resulted in Anthony and Nick Rulli each receiving $852,500 as a net proceed from the transaction. Frank Rulli also stated that Nick and Anthony Rulli were excluding cash, the corporate name, and refunds due from suppliers on return items from the assets of the corporation in violation of the agreement. As a result, Frank Rulli filed a motion to vacate the June 23, 1993 judgment entry.

The trial court conducted a proceeding in which the judge allowed oral arguments on both motions. At the hearing, counsel for Frank Rulli attempted to admit into evidence two exhibits: an unsigned eleven-page settlement agreement and an affidavit by counsel stating his inability to conclude the agreement. The trial court sustained defendants' objection, concluding that the parties had reached a settlement at the prior hearing by stating that the plaintiff's claim that no final agreement had been reached was nothing more than an attempt to renege on the settlement. Judgment was then ordered pursuant to the defendants' interpretation of the agreement, without any consideration of the additional evidence the plaintiff had attempted to admit at the hearing. The trial court awarded two million dollars in money damages to the defendants. The court of appeals affirmed, but modified the original judgment awarding damages by ordering specific performance pursuant to the sale price as discussed in the original hearing.

The cause is now before the court pursuant to the allowance of a discretionary appeal.

Manchester, Bennett, Powers & Ullman, L.P.A., and John F. Zimmerman, Jr., Youngstown, for appellant.

Henderson, Covington, Messenger, Newman & Thomas Co., L.P.A., James L. Messenger and Jerry M. Bryan, Youngstown, for appellees.

MOYER, Chief Justice.

The question presented in this civil action is whether a trial court abuses its discretion by ordering the enforcement of a disputed settlement agreement without first conducting an evidentiary hearing. Analysis of the law and the underlying record in this case causes us to conclude that it is not within the province of the trial judge to enforce a purported settlement agreement when the substance or the existence of that agreement is legitimately disputed. Accordingly, we reverse the judgment of the court of appeals.

Where possible, it is generally within the discretion of the trial judge to promote and encourage settlements to prevent litigation. In re NLO, Inc. (C.A.6, 1993), 5 F.3d 154. A trial judge cannot, however, force parties into settlement. See id. The result of a valid settlement agreement is a contract between parties, requiring a meeting of the minds as well as an offer and an acceptance thereof. Noroski v. Fallet (1982), 2 Ohio St.3d 77, 79, 2 OBR 632, 633, 442 N.E.2d 1302, 1304. To constitute a valid settlement agreement, the terms of the agreement must be reasonably certain and clear. "A court cannot enforce a contract unless it can determine what it is. It is not enough that the parties think that they have made a contract. They must have expressed their intentions in a manner that is capable of being understood. It is not even enough that they had actually agreed, if their expressions, when interpreted in the light of accompanying factors and circumstances, are not such that the court can determine what the terms of that agreement are. Vagueness of expression, indefiniteness and uncertainty as to any of the essential terms of an agreement, have often been held to prevent the creation of an enforceable contract." (Footnote omitted.) 1 Corbin on Contracts (Rev. Ed.1993) 525, Section 4.1.

In addition, the law disfavors court enforcement of contracts laden with ambiguity. "Courts have often said that they do not make contracts for the parties, very often in cases in which they wash their hands of a difficult problem that is thrust upon them by reason of incompleteness or indefiniteness in the expression of some term in a written instrument by which the parties clearly intended to be bound." Id. at 529, Section 4.1.

We observe that courts should be particularly reluctant to enforce ambiguous or incomplete contracts that aim to memorialize a settlement agreement between adversarial litigants. Though we encourage the resolution of disputes through means other than litigation, parties are bound when a settlement is reduced to final judgment. Since a settlement upon which final judgment has been entered eliminates the right to adjudication by trial, judges should make certain the terms of the agreement are clear, and that the parties agree on the meaning of those terms.

Though upon first examination, the settlement terms as read into the record on June 23, 1993, appear reasonably clear, the parties were subsequently unable to agree upon the meaning and effect of those terms. They were unable to execute a formal purchase agreement and they did not provide the court with an entry as ordered by the court. The parties instead offered varying interpretations of the terms read into the record, and disputed nearly every major element of the purported agreement. Therefore, the language read into the record at the initial hearing reflects, at best, merely an agreement to make a contract.

Given the lack of finality and the dispute that evolved subsequent to the initial settlement hearing, we hold that the trial judge should have conducted an evidentiary hearing to resolve the parties' dispute about the existence of an agreement or the meaning of its terms as read into the record at the hearing, before reducing the matter to judgment. Where parties dispute the meaning or existence of a settlement agreement, a court may not force an agreement upon the parties. To do so would be to deny the parties' right to control the litigation, and to implicitly adopt (or explicitly, as the trial court did here) the interpretation of one party, rather than enter judgment based upon a mutual agreement. In the absence of such a factual dispute, a court is not required to conduct such an evidentiary hearing. Mack v. Polson Rubber Co. (1984), 14 Ohio St.3d 34, 14 OBR 335, 470 N.E.2d 902, syllabus.

Where the meaning of terms of a settlement agreement is disputed, or where there is a dispute that contests the existence of a settlement agreement, a trial court must conduct an evidentiary hearing prior to entering judgment. The judgment of the court of appeals is reversed and the cause remanded to the trial court for further proceedings consistent with this opinion.

Judgment reversed and cause remanded.

DOUGLAS, RESNICK, FRANCIS E. SWEENEY, Sr. and PFEIFER, JJ., concur.

COOK and LUNDBERG STRATTON, JJ., dissent.

COOK, Justice, dis...