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Port Authority Trans-Hudson Corporation v. Newport Associates Development Company

A-2342-96T3 (N.J. Super. App. Div. 1999) (Unpublished)

LETTERS OF INTENT; ENFORCEABILITY—A settlement agreement confirming and memorializing the terms of a tentative agreement which, by its terms, must be reduced to a more formal detailed written agreement, can be enforced as a contract.

A complicated set of claims involving a public authority and two development companies appeared to be settled in writing by an agreement that stated: “this will serve to confirm and memorialize the terms of a tentative agreement. . The following represents the basic terms of our current understanding. The terms set forth below are general and therefore are subject to further negotiation and agreement by both parties. This understanding must be reduced to a formal more detailed written agreement and is, of course, subject to approval of the [public authority’s board of directors].” It further went on to state “[o]ur formal agreement may contain such additional or different terms and conditions as are mutually agreeable to both parties.” The development company proceeded to take steps to effectuate the settlement and to prepare appropriate documents in furtherance of the settlement. The public authority’s board of commissioners authorized the authority’s executive director to effectuate the settlement, subject to some environmental testing of a property affected by the settlement. The testing proved satisfactory. Notwithstanding the foregoing events, the public authority advised the developer that the letter was not a settlement, but a “list of general principles regarding the authority’s proposed acquisition of certain real property from the developer.” Further, it is asserted that the its board’s resolution “only authorized and did not direct, our Executive Director to execute and consummate such agreement… .” As a result, the parties returned to court.

The lower court found in favor of the developer, holding that even if the settlement agreement was tentative, it certainly became final and enforceable based on subsequent events. In its view, although the formal agreement might permissibly have contained additional or different terms and conditions mutually agreeable to both parties, there were in fact no such terms. Furthermore, a public authority is bound to the same contract rules as private parties, with the difference that settlements involving public bodies must be subject to formal approval by that body in a public forum. It appeared to the lower court that what had actually happened was that after the board indicated its approval, its Audit Committee issued an unfavorable report based upon an appraisal that it had obtained for the property in question. According to the appraisal, the property was worth about one-half of what the public authority had agreed to pay in settlement.

The Appellate Division agreed with the lower court and rejected the public authority’s argument that the settlement document was no more than an expression of a “current understanding,” subject to “further negotiation and agreement.” It rejected that argument based in part on the events that transpired after the document was signed. Conduct by parties after the execution of an agreement is “entitled to great weight in determining its meaning.” Further, it observed “[w]here the parties agreed upon the essential terms of the settlement, so that the mechanics can be ‘fleshed out’ in a writing to be thereafter executed, the settlement will be enforced notwithstanding the fact the writing does not materialize because a party later reneges.” As to the board’s resolution to “acquire” the property in question, “effectuate” the dismissal of pending litigation, “release” all claims in connection with that litigation, and to “pay $7 million” for the property in question, it was a clear affirmation of the terms of the agreement. The public body’s argument that the resolution merely “authorizes” but does not “direct” its Executive Director to consummate the agreement was found to be a play on words. Lastly, the Court said that even if it were to assume the accuracy of the Audit Committee’s undocumented report about the value of the property to be conveyed, and even if it further assumed that the board resolution did not constitute final approval of the settlement, there was no indication that the additional consideration being paid over the appraised value was not reflective of the public body’s litigation exposure to judgment and trial costs. Thus, the Court ordered that the settlement agreement be honored.


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