November 6, 2019

The Parol Evidence Rule and Forming a Contract; Downs v. Radentz

Category: Indianapolis Law Club | Author: | Share:

Every lawyer deals with the formation of contracts. This fundamental rule does not escape litigators who, at the very least, do so when they sign representation agreements with their clients and when they settle cases. And, as this case shows, the words in the contract matter more than the ones said during negotiations.

This case involves a transaction over a piece of real estate between Buyers and Sellers. In late 2017, the parties agreed to a purchase price and executed a purchase agreement. However, disagreements arose over inspections and appraisals. Buyers filed a complaint seeking specific performance, which led to a settlement agreement executed by Sellers on August 12, 2018.

The settlement agreement provided that the Sellers would provide a survey “certified as of a current date” and that was “reasonably satisfactory to Buyer.” But they did not do so, sending a survey from 1996 instead. The Buyers refused to provide another survey.

Despite not getting a new survey, the Buyers executed the settlement agreement on August 30. However, Sellers refused to permit inspections or appraisals. Buyers moved to enforce the settlement agreement. After an evidentiary hearing, the trial court granted that motion. Sellers appealed.

On appeal, Sellers argued that the settlement agreement was never formed as a contract, citing an August 9 email from their attorney, which insisted that Buyers execute the settlement agreement by August 13. But the Court found that this was properly excluded parol evidence.

When Sellers signed the settlement agreement on August 12, they were bound by that agreement. And the plain language of the agreement gave Buyers “a reasonable period of time (as long as they deemed necessary) to consider this agreement before signing.” Thus, the email from Sellers attorney directly contradicted this contractual term, and could not create an extra-contractual deadline for the Buyers to agree to the settlement agreement. Put simply, if the Sellers wanted to enforce that August 13 deadline, then they needed to take affirmative steps to revoke their offer (the signed agreement).

The fact that the settlement agreement may not have been fully integrated did not change this conclusion because the August 9 email was not “the final and complete agreement” between the parties—the agreement signed three days later was.

Sellers then argued that the settlement agreement was not enforceable because the rejection of the 1996 survey was a counteroffer, nullifying the Sellers’ August 12 offer.

Sellers’ argument on this issue misses the mark. The parties’ purchase agreement, which was incorporated by reference in the settlement agreement, clearly states that Sellers would provide a survey “certified as of a current date” and that is “reasonably satisfactory to Buyer.” Buyers rejected the 1996 survey provided by Sellers because it was not certified as of a current date, and they requested an ALTA survey, which is consistent with the provision that the survey be “reasonably satisfactory” to Buyers. Thus, nothing about Buyers’ demands regarding the survey constituted a “counteroffer” or otherwise sought to alter the terms of the proposed settlement agreement.

It seems like Sellers tried driving a hard bargain, but gave threats and bluster without backing them up. This backfired when Buyers called their bluff and enforced the terms of the settlement agreement. This was a costly mistake, as Sellers ended up paying Buyers’ attorney’s fees, in addition to whatever loss Sellers were trying to avoid.

Lessons:

  1. An offeree is bound by the terms of a contract unless the contract says otherwise.
  2. Extra-contractual limitations on the time within which a party may execute a contract are parol evidence if the contract specifically gives the parties as long as they deemed necessary to sign the contract.
  3. A response to an offer is not a counteroffer if it does not alter the terms of the proposed agreement.