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Parker Fabricators v. Montague Twp, Volunteer Fire Dept.

A-2997-99T1 (N.J. Super. App. Div. 2001) (Unpublished)

SETTLEMENTS; ATTORNEYS—After principals have resolved a business dispute, a seemingly successful effort by one party’s attorney to negotiate a lower settlement payment and get a release from the other party can be a nullity if such efforts were unauthorized by the attorney’s client and the release cannot be used later as an escape hatch by the client when it changes its mind.

A vehicle repair company and its customer resolved a dispute about the remaining balance for the repair of a truck. It was agreed that the remaining balance would be paid at the time that the customer closed a permanent mortgage on real property. Due to confusion as to time, the repair company did not attend the closing but showed up two hours later. At that time, it was informed by the truck owner’s attorney that because of various items related to the closing, the repair company would receive about two-thirds of the agreed-upon balance. Furthermore, the repair company was told by the debtor’s attorney that it would not receive anything unless it signed a general release. Due to economic constraints, it signed the release and received the check. Later that day, the owner of the repair company called the truck owner and complained. The truck owner subsequently agreed to pay the balance. It did so partly by paying cash and partly by giving two promissory notes to the truck repair company. After a small payment was made against one promissory note, the truck owner, on the advice of its attorney, stopped making payments. The basis for this was the attorney’s contention that the general release relieved the truck owner of any further legal obligation. The lower court found that neither party intended the release to operate as full satisfaction of the debt owed by the truck company to the repair company. In addition, the lower court found that the truck owner’s attorney’s refusal to pay the balance due at the time of the closing and obtaining the general release was unauthorized. According to the Court, the attorney was “at most [the truck owner’s] agent. ... [The attorney] exceeded any authority given to her; ... indeed she was operating contrary to her principal’s wishes.” According to the Court, “[t]he decision to withhold the moneys from proceeds to the loan and obtain a release was strictly a business decision to be made by the principal. The legal nullity of [the attorney’s] unauthorized actions are not affected by the fact that after giving notes and making payments, [the truck owner] later changed its mind upon being advised by their attorney of the legal escape hatch from the acknowledged indebtedness.”

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