Settlement Agreement - What language in a settlement agreement is necessary to make sure all claims are settled?

Posted on Dec 11 2012 10:47PM by Attorney, Jason A. Lee

Analysis:  The recent Tennessee Court of Appeals decision of Timothy Scott Marcum v. Haskel Ayers, No. E2012-00721-COA-R3-CV, 2012 WL 4859126 (Tenn.Ct.App. October 15, 2012) discussed a basic settlement agreement between two parties and the validity of the agreement.  The plaintiffs and defendants entered into a contract of sale for property in 2005.  Marcum at 1.  The real estate purchase contract consisted of an agreement that the property was sold by the defendants to the plaintiffs on an "as is" basis.  Marcum at 1.  After the purchase the plaintiffs began to experience problems with the house and raised concerns about these problems with the defendants.  Marcum at 1.  In June 2006, the parties executed a "settlement letter" which provided as follows: "The fifty-two hundred dollars ($5200) [sic] is accepted, in full, for damages to Mountain Ayers. This will be the final settlement paid on this property." 


Sometime after the execution of the settlement agreement the plaintiffs experienced further problems and therefore sued the defendants.  Marcum at 1.  The defendants asserted that the June 2006 settlement letter was a settlement of all claims.  Marcum at 1.  The trial court granted summary judgment for the defendants and found the settlement letter was “not ambiguous and constituted a full and complete release of any and all claims growing out of the sale of Defendants' residence to Plaintiffs, whether past, present or future.”  Marcum at 1.  The plaintiff’s appealed and the question on appeal was whether the basic broad language in the "settlement agreement" prevented the plaintiff from filing suit for later discovered damages. 


The Tennessee Court of Appeals found the language in this settlement agreement was a complete release of all claims including future undiscovered claims.  The court found that a settlement letter with a release is considered a contract and therefore standard rules of construction for interpreting a contract are used in construing a release.  Marcum at 3. (citing Jackson v. Miller, 776 S.W.2d 115, 117 (Tenn. Ct. App. 1989)).


The court then discussed the specific rules of contract interpretation that should be used to determine the validity of a release.  Marcum at 3.  The court relied upon the Tennessee Court of Appeals decision of Kafozi v. Windward Cove, LLC, 184 S.W.3d 693, 698-99 (Tenn. Ct. App. 2005) which found as follows:


In resolving a dispute concerning contract interpretation, our task is to ascertain the intention of the parties based upon the usual, natural, and ordinary meaning of the contract language.  A determination of the intention of the parties “is generally treated as a question of law because the words of the contract are definite and undisputed, and in deciding the legal effect of the words, there is no genuine factual issue left for a jury to decide.”  The central tenet of contract construction is that the intent of the contracting parties at the time of executing the agreement should govern.  The parties' intent is presumed to be that specifically expressed in the body of the contract. “In other words, the object to be attained in construing a contract is to ascertain the meaning and intent of the parties as expressed in the language used and to give effect to such intent if it does not conflict with any rule of law, good morals, or public policy.”


This Court's initial task in construing the Contract at issue is to determine whether the language of the contract is ambiguous.  If the language is clear and unambiguous, the literal meaning of the language controls the outcome of the dispute.  A contract is ambiguous only when its meaning is uncertain and may fairly be understood in more than one way.  If the contract is found to be ambiguous, we then apply established rules of construction to determine the intent of the parties.  Only if ambiguity remains after applying the pertinent rules of construction does the legal meaning of the contract become a question of fact.  (citations omitted) Kafozi at 698 - 699. 


As a result, the court found that the basic two sentence settlement agreement between the parties was a complete settlement of all claims regarding the sale of the property and any damages discovered after the settlement were also included.  Marcum at 3.  The plaintiff tried to argue certain terms were not defined and were ambiguous such as "home," "damages," and "this property".  Marcum at 3.  However, the court found this argument was disingenuous and the language in the release was clear and unambiguous enough to constitute a full and complete settlement of all claims. Marcum at 4.  The court then noted, “it is an often-cited principle in this jurisdiction that ‘[i]n the absence of mistake or fraud, the courts will not create or rewrite a contract simply because its terms are harsh or because one of the parties was unwise in agreeing to them."  Marcum at 4. (citing Towe Iron Works, Inc. v. Towe, 243 S.W.3d 562, 569 (Tenn. Ct. App. 2007). 


This case shows the strength of even basic settlement agreement language between two parties.  Now don’t get me wrong, I am not suggesting that all settlement agreements should be this basic and broad.  It is much better to have a full detailed description of the terms of the settlement and the understanding of the parties.  However, this case shows that even the most basic language can effectively bar a subsequent suit over the same issues if the language is clear and unambiguous.


Follow me on Twitter at @jasonalee for updates from the Tennessee Defense Litigation site.

TAGS: Settlement, Defenses, Contracts
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Jason A. Lee is a Member of Burrow Lee, PLLC. He practices in all areas of defense litigation inside and outside of Tennessee.

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