Agreement in Principle Not Enforceable

Michigan’s Court of Appeals decided this week that a mediation agreement was too vague to be enforceable.

It’s not unusual for a mediation to end with a hand-written document that contemplates another document to finally settle the dispute. In fact, it’s fairly common for the mediation of a litigated case, where parties are represented by attorneys, to end with a “memorandum of understanding” outlining the basic agreement and what needs to be done to settle the case and dismiss the lawsuit.

In Control Room Technologies v Waypoint Fiber Network, the mediation of a business dispute ended with a three-page handwritten agreement that began by noting that the parties agreed “in principle to the following, subject to execution of a definitive agreement by the parties.” The agreement went on to describe various aspects of the parties’ contractual relationship going forward, but several items were left “to be determined.” It stated that the parties’ lawsuit would be dismissed “upon execution of [a] definitive agreement.”

A majority of the three-judge panel in the Court of Appeals found this too vague to constitute an enforceable agreement. “To be enforceable, a contract to enter into a future contract must specify all its material and essential terms and leave none to be agreed upon as the result of future negotiations.”

Nonsense, said the dissenting judge, Peter O’Connell. The agreement identifies the parties, the property, and the consideration. All that’s left “to be determined” is the period of time, and courts have traditionally supplied such omissions with a “reasonable” time.

While this is an unpublished case, so binding only on the parties, it gives all mediation participants guidance on mediation agreements. During the tedious agreement-drafting phase at the end of mediation, everyone is tempted to put just the bare minimum in the agreement, and leave the details for another day. This case reminds us that the agreement, to be enforceable, needs to specify the essential elements of a contract, and not leave much “to be determined” at a later, unspecified date.

In my experience, the document these parties drafted at the end of their mediation is not a typical mediation agreement. Usually the missing details pertain to “boilerplate” items like release language. Usually even the hand-written agreement doesn’t say it’s “subject” to “a definitive agreement.” Instead, it typically starts with language to the effect that “the parties have reached the following agreement” and includes how to determine the missing details. Apparently this agreement didn’t say when or how the missing items would be “determined.”

I think as a mediator I might have raised the question here whether these parties intended this document to be enforceable. Maybe this mediator did—and maybe the fact that it doesn’t say anything about its enforceability is a clue that the parties didn’t quite feel like they were there yet. Based on this opinion, we now know that, if parties intend their “in principle” agreement to be enforceable, it needs to contain essential terms and cannot provide for them to be figured out later.

So I think I agree with the majority that this agreement wasn’t enforceable.

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