Tip: How to Make the MSA Binding!

Most successful mediations result in a written “Mediated Settlement Agreement” (MSA). Advocates usually agree that it is best to reduce the settlement agreement to writing, even if the MSA is merely an outline of the essential terms of the settlement.

What if the agreement breaks down over the terms of the more elaborate settlement documents that everyone assumed would not be a problem”? Fortunately the Houston (14th) Court of Appeals, in a recent decision, helps us with this perplexing issue! In Border Gateway, LLC v. Gomez the parties obligated themselves, in an MSA, to “enter into a formal settlement agreement within ten business days”. In a trial over an alleged breach of the MSA, it was argued that the failure of this condition precedent rendered the “agreement” non-binding on the parties. Citing established precedent, as well as the Restatement (2nd) of Contracts, the Court opined, “the fact that the parties intend for an informal agreement to be reduced to a more formal writing will not necessarily prevent present, binding obligations from arising”. The party challenging the MSA could not establish that the MSA manifested an intent to not be bound.

Practice tip? An expression in an MSA of “the parties intend to be bound by this agreement, notwithstanding the fact that more formal settlement documents are contemplated”, should go a long way in bolstering the enforceability of the agreement. Conversely, if you have any reservations about the “more formal settlement documents” to follow, the MSA should clearly state that the MSA is non-binding (in which circumstance why even sign the MSA?).