North Carolina Court Of Appeals Rules That Electronic Signature Satisfied The Statute Of Frauds

Digital signatures and medieval law met today in the North Carolina Court of Appeals decision in Powell v. City of Newton, and the twenty-first century emerged the winner.

The Court enforced a settlement agreement involving a conveyance of land, even though no agreement reflecting the transaction had been signed as required by the Statute of Frauds. It relied, in part, on emails between counsel reflecting the settlement and circulating the necessary deed. It held that these satisfied the signature requirement, relying on North Carolina's Uniform Electronic Transactions Act.

The case arose from the settlement by the parties of their lawsuit in open court, during trial. The transcript reflected Plaintiff's agreement to convey property to the Defendant as a part of the settlement. A settlement agreement was circulated by email between the lawyers for the parties after that, but Plaintiff refused to sign.

The Electronic Signature Of Plaintiff's Counsel Satisfied The Statute Of Frauds

Plaintiff based his refusal to follow through on the Statute of Frauds, which requires an agreement to convey land to be in writing, and "signed by the party to be charged." The trial court ordered Plaintiff to sign the settlement papers, and the Court of Appeals majority affirmed. It held that there had been "total compliance" with the Statute of Frauds. It based its decision, in part, on North Carolina's Uniform Electronic Transactions Act, N.C. Gen. Stat. §66-311 et seq). As far as I know, this is the first mention of that statute by the Court of Appeals.

Judge Jackson, writing for the majority, said:

We note that this was not some barroom conversation between drunken neighbors, agreed to in jest, and written on a random scrap of paper. See Lucy v. Zehmer, 84 S.E.2d 516 (1954). This was an agreement among four parties represented by counsel, in a court of law, supervised by the presiding judge, who inquired of each party whether the terms were agreeable. The party to be charged -- plaintiff -- confirmed, 'Yes, that's my agreement.'

The Court observed that emails had then passed back and forth between counsel regarding the settlement, including drafts of a settlement agreement and a deed. This led to the Court's first impression reliance on the Uniform Electronic Transactions Act. The Court said:

Pursuant to that Act, plaintiff's counsel affixed his electronic signature to emails concerning the transaction. . . . When the hearing transcript, draft agreement, draft quitclaim deed, and associated emails are read together, as permitted by the statute of frauds, the settlement agreement that plaintiff was ordered to execute is in total compliance with the statute of frauds.

Other Grounds

The majority also provided other grounds for its decision, including the doctrine of judicial estoppel and a discussion whether the Statute of Frauds should apply at all to court announced settlements.

On the point of judicial estoppel, the Court said "[t]he primary concern of the doctrine of judicial estoppel is to protect the integrity of the judicial process. That concern would be ill served if those intimately involved in that process, litigants, attorneys, and judges, could not rely on declarations of settlement made to the court." (quoting Correia v. DeSimone, 614 N.E.2d 1014, 1016 (Mass. App. 1993)).

There's also some discussion in the case -- and references to decisions in other jurisdictions -- that the Statute of Frauds simply shouldn't apply to court announced settlements which are transcribed by a court reporter. This is the position of Professors Calamari and Perillo, who say in their treatise that "it seems to be well settled that an oral stipulation made in open court satisfies the Statute of Frauds even though the record is not signed by the party to be charged."

Judge Wynn dissented based on the failure to meet what he termed "the exceptional safeguards . . . devised for the preservation and security of" title to land, so it's on to the Supreme Court.

The Truth And Nothing But The Truth, But Not Necessarily In Settlement Negotiations, Says The North Carolina Court Of Appeals

Lawyers don't have any obligation to disclose information harmful to their client's position during settlement discussions, the North Carolina Court of Appeals ruled today in Hardin v. KCS International, Inc.

The parties in Hardin had settled an earlier lawsuit involving plaintiff's claims over problems with his new yacht. Plaintiff then was dissatisfied with the repairs to the yacht undertaken pursuant to the settlement, and filed a second lawsuit notwithstanding the settlement agreement's full release.

The plaintiff asserted that the release had been procured by fraud. He pointed to documents produced in the second lawsuit which showed that his yacht had been involved in a collision while being delivered to North Carolina. Plaintiff said he had never been told that his yacht had hit a tree while being transported down the road (really), and that he should have been informed of this fact during the settlement negotiations. He said he wouldn't have settled in the first place if he had known about the accident.

Judge Geer disagreed that the defendants had any obligation to disclose the fact of the collision, observing that plaintiff had been obligated to use reasonable diligence to find out about the damage and that he could have easily done so through discovery. She furthermore emphasized the arms length nature of the settlement negotiations, and said that "no negotiation could be more arms length" than negotiations during "the course of on-going litigation."

The Court held that Plaintiff:

cites no authority — and we have found none — requiring opposing parties in litigation to disclose information adverse to their positions when engaged in settlement negotiations. Such a requirement would be contrary to encouraging settlements. One of the reasons that a party may choose to settle before discovery has been completed is to avoid the opposing party's learning of information that might adversely affect settlement negotiations. The opposing party assumes the risk that he or she does not know all of the facts favorable to his or her position when choosing to enter into a settlement prior to discovery. On the other hand, the opposing party may also have information it would prefer not to disclose prior to settlement.

On a first impression point of appellate procedure, the Court held that a motion to enforce a settlement agreement should be reviewed under the same standard applicable to a motion for summary judgment.

Fourth Circuit Enforces Class Action Settlement Agreement

The Fourth Circuit ruled yesterday in Huttenstine v. Mast on the Defendants' effort to back out of a class action settlement to which they had agreed, and affirmed an entry of judgment against the Defendants for the full amount of the settlement.

The Defendants, who apparently had second thoughts about their deal, refused to make the $425,000 payment called for by the agreement.  They took the position that their payment was a condition precedent to the effectiveness of the settlement agreement, and that their failure to comply with the condition precedent resulted in the entire agreement being void.

The Fourth Circuit rejected that argument in an unpublished opinion, finding it to be "incomprehensible."  The Court drew a distinction between promises and conditions precedent, ruling that the obligation to make the settlement payment was a binding promise on behalf of the Defendants, not a condition precedent.  When the Defendants failed to pay, they breached their promise, and the District Court had properly entered judgment against them in the full amount of the settlement, plus interest.

The Court further observed that the Defendants were not entitled to refuse to make the payment and to then benefit from their own failure to satisfy the condition.  It held, relying on a line of North Carolina cases, that "one who prevents the performance of a condition, or makes it impossible by his own act, will not be permitted to take advantage of the nonperformance."