Settlement Case Analysis

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The decision in the case at bar is problematic for a number of reasons.

The court is correct when it finds that the Dec. 20, 2001 letter does not form a contract, inasmuch as the worker’s compensation carrier had not yet agreed.

However, it seems an inescapable conclusion that, on Jan. 4, 2002, an enforceable meeting of the minds was reached. The Dec. 20 letter to ANPAC expressly stated, "This will confirm that the above-entitled claim has been settled for a total of $17,725… (emphasis added)."

The Seventh Circuit, interpreting Wisconsin contract law, concluded, "Even if parties agree, point by point, on all the terms of a contract, if they understand that the execution of a formal document shall be a prerequisite to their being bound there is no contract until the document is executed. On the other hand, if it is agreed that a formal document will be prepared to memorialize a bargain the parties have already made, the bargain is enforceable even though the document has not been executed." Lambert Corp. v. Evans, 575 F.2d 132, 135 (7th Cir.1998).

Inasmuch as the case at bar clearly fits into the latter category, the Seventh Circuit’s interpretation can no longer be considered a correct statement of Wisconsin law.

Nothing in the letters suggested that signing the release was a "prerequisite" to the existence of a contract; instead, the statements that the claim "has been settled" suggested the release merely is intended to memorialize an agreement already reached, subject only to the approval of the worker’s comp insurer, and not subject to signing the release.

The court also makes much of the fact that, within one month of receiving the checks and the release, the Nersesians returned them, as opposed to the parties in Hoffman v. Ralston Purina Co., 86 Wis.2d 445, 273 N.W.2d 214 (1979), who held the checks for seven months without cashing them, but also without informing the issuer that they had an objection.

However, the relevant question is whether there was a contract on Jan. 4. Actions after that date shed no light on the subject. And to the extent they do, the question arises, is it reasonable for a party to hold the checks for almost a month without voicing any objection. If there was some clause in the release to which the Nersesians actually objected, or if the amount was insufficient, a reasonable person would say something within a month.

The court stands the effect of a party’s retention of a check on its head. The question in Hoffman was whether a contract is formed, even if execution of a formal agreement was considered a prerequisite, if one party retains the settlement checks for seven months. The issue in the case at bar is whether a binding contract existed with the issuance of the checks

Properly interpreted, Hoffman holds that an agreement in principle can become a binding contract via unreasonable inaction on one party’s part. It cannot be read, as the court in the case at bar did, to hold that inaction can turn a binding contract into an unaccepted offer.

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In addition, the court states, "Where, as here, it is part of the understanding between the parties that preliminary writings are to be followed by a formal contract containing additional material provisions and signed by the parties, no binding or completed contract will be found."

The statement begs the question, "What additional material provisions?" The court enumerates none, and, presumably, there were none; the only material provisions were that ANPAC would pay money, the Nersesians would give up their right to sue, and take care of the worker’s compensation insurer. All these provisions had been agreed to by the Jan. 4 letters.

The result in the case may seem fair in the circumstances. Assuming that Nersesian genuinely required three surgeries as a result of the accident, after the checks were issued, it would be a shame if he was bound by an unfortunately premature settlement. But that cannot change the fact that, if this decision is published as

recommended, it is a bad precedent that will confuse the case law.

– David Ziemer

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David Ziemer can be reached by email.