Ciaramella v. Reader’s Digest Association

Citation. 131 F.3d 320 (2d Cir. 1997)

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Citation131 F.3d 320 (2d Cir. 1997)

Brief Fact Summary.

Plaintiff filed an employment discrimination suit against Defendant. Both parties began negotiating a settlement. All drafts of the settlement agreement contained the following language: “This Settlement Agreement . . . shall not become effective . . . until it is signed by Mr. Ciaramella, [the attorneys, and Defendant].” When Plaintiff received the agreement to be signed, however, he was not satisfied with the sample letter and decided not to sign the agreement. The trial court granted Defendant’s motion to enforce the settlement agreement. Plaintiff appealed.

Synopsis of Rule of Law.

Parties will not be bound by an oral agreement if the parties intend not to be bound until the agreement is set forth in writing and signed.

Points of Law - Legal Principles in this Case for Law Students.

Because of this freedom to determine the exact point at which an agreement becomes binding, a party can negotiate candidly, secure in the knowledge that he will not be bound until execution of what both parties consider to be the final document.

View Full Point of Law

Ciaramella (Plaintiff) filed an employment discrimination suit against his employer, Reader’s Digest Association (Defendant). After he filed the suit, the parties began negotiating a settlement. All drafts of the settlement agreement contained the following language: “This Settlement Agreement . . . shall not become effective . . . until it is signed by Mr. Ciaramella, [the attorneys, and Defendant].” In addition, the drafts contained a merger clause stating that “No other promises or agreements shall be binding unless in writing and signed by the parties.” Eventually, Plaintiff authorized his attorney to sign the settlement agreement. After requesting final changes, Plaintiff’s attorney orally told Defendant’s attorney “We have a deal.” The draft settlement agreement required that Defendant write a letter of reference for Plaintiff, and the final draft sent to Plaintiff added a sample reference letter as an exhibit. When Plaintiff received the agreement to be signed, however, he was not satisfied with the sample letter and decided not to sign the agreement. Defendant filed a motion to enforce the settlement agreement, arguing that the parties reached an oral agreement and the agreement was binding. The United States District Court for the Southern District of New York granted the motion. Plaintiff appealed. 

Issue.

Whether parties may be bound by an oral agreement if the parties intend not to be bound until the agreement is set forth in writing and signed.

Held.

No. The trial court’s ruling is vacated and the case is remanded. Parties will not be bound by an oral agreement if the parties intend not to be bound until the agreement is set forth in writing and signed.

Discussion.

While parties may bind themselves orally even if they contemplate recording the agreement in writing later, if the parties intend not to be bound until the agreement is set forth in writing and signed, they will not be bound until then. The court uses four factors to determine whether the parties intended to be bound by an unsigned settlement agreement: (1) whether there was an express reservation to not be bound until the agreement is signed; (2) whether the agreement was partially performed; (3) whether the parties agree on all terms of the agreement; and (4) whether the agreement is of a kind usually reduced to writing. No individual factor is decisive, but in the case at bar, all factors weigh in favor of finding that the parties intended not to be bound without a signed agreement. First, the agreement contained a clause specifically stating that the agreement would not be effective until it was signed. The agreement also contained merger clause stating that any other agreements had to be in writing. These clauses clearly indicate that the parties intended not to be bound until they signed the agreement. Second, neither party partially performed the contract, which is another indication that the parties intended not to be bound until they signed the agreement. Third, the parties did not agree on all terms of the agreement. RDA added a sample reference letter to the final draft and Plaintiff was not happy with the letter, and in fact chose not to sign the agreement because of the added letter. Accordingly, the parties did not agree on all terms. This is another indication that they intended not to be bound by the attorney’s oral statement. Fourth, under the final factor, settlement agreements are generally reduced to writing. In sum, all of the factors indicate that the parties intended not to be bound until they signed the agreement. Because Plaintiff never signed the agreement, he is not bound by it.