Case Title: Rulli v. Fan Co.

Citation: 1997-Ohio-380

Docket Number: 19960249

State: ohio

Court: Ohio Supreme Court

Date: 1997-09-10T00:00:00Z

Document:
RULLI, APPELLANT, v. FAN COMPANY ET AL., APPELLEES. 
[Cite as Rulli v. Fan Co. (1997), 79 Ohio St.3d 374.] 
Civil procedure — Where meaning of terms of settlement agreement is disputed, 
or there is a dispute that contests the existence of a settlement agreement, 
trial court must conduct an evidentiary hearing prior to entering judgment. 
Where the meaning of terms of a settlement agreement is disputed, or where there 
is a dispute that contests the existence of a settlement agreement, a trial 
court must conduct an evidentiary hearing prior to entering judgment. 
(No. 96-249 — Submitted April 1, 1997 — Decided September 10, 1997.) 
 
APPEAL from the Court of Appeals for Mahoning County, No. 94 C.A. 14. 
 
Frank A. Rulli, appellant, initiated an action in 1992 in the Court of 
Common Pleas of Mahoning County against his brothers, appellees Nick and 
Anthony Rulli.  In his complaint, Rulli alleged that his brothers had excluded him 
from the operation of a corporation (Rulli Bros., Inc.), in which he and his brothers 
were equal shareholders, and a partnership (Fan Co.), in which the three were 
equal partners.  Rulli sought a financial accounting of the two businesses as well 
as other property received and distributed, and also sought access to the books and 
records of the corporation and the partnership. 
 
On June 23, 1993, during a hearing before the trial judge on pending 
motions, counsel for both parties indicated that they had reached a settlement 
purporting to resolve all matters involved in the dispute.  Counsel for Frank Rulli 
then read into the record that Frank Rulli would purchase his brothers’ interest in 
both the corporation and the partnership by paying his brothers $950,000 each for 
their interest.  Counsel further stipulated that the corporation would be sold by 
asset sale, with the terms being cash payable within ninety days; the corporation 
would maintain a minimum inventory of $200,000; and all fixtures were to remain 
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intact and in place.  Nick and Anthony Rulli retained the right to use the names 
“Rulli Brothers” and “Rulli Brothers Market” in any future business, and agreed to 
be solely responsible for encumbrances, liens, or liabilities of the two businesses.  
All three brothers agreed to be equally responsible for a mortgage on a parcel of 
real estate owned by the partnership. 
 
In response to a query by the trial court, Nick, Anthony, and Frank Rulli all 
indicated that they understood the parameters of the settlement agreement and 
agreed to be bound by it.  The trial judge then stated that he would “mark the case 
called for hearing, case settled and dismissed,” and gave counsel twenty-one days 
to submit a separate judgment entry.  The court filed a judgment entry on June 23, 
1993, to this effect. 
 
No separate entry was ever filed, nor did the parties ever complete a formal 
purchase agreement.  Anthony and Nick Rulli filed a motion to enforce the 
agreement, in which they disputed the meaning of the statements read into the 
record at the prior hearing.  They asserted that the agreement required Frank Rulli 
to pay $1.9 million for the entire partnership and its assets and for the inventory of 
the corporation free and clear of any liabilities, and that they each were 
responsible for paying one third of an existing mortgage.  Frank Rulli argued that 
he was only responsible for purchasing the assets of the partnership and the 
corporation, and that the partners would then pay off the existing mortgage and 
distribute to each of the parties the balance of their capital and income accounts 
(approximately $45,000 each).  This interpretation would have resulted in 
Anthony and Nick Rulli each receiving $852,500 as a net proceed from the 
transaction.  Frank Rulli also stated that Nick and Anthony Rulli were excluding 
cash, the corporate name, and refunds due from suppliers on return items from the 
3 
assets of the corporation in violation of the agreement.  As a result, Frank Rulli 
filed a motion to vacate the June 23, 1993 judgment entry. 
 
The trial court conducted a proceeding in which the judge allowed oral 
arguments on both motions.  At the hearing, counsel for Frank Rulli attempted to 
admit into evidence two exhibits: an unsigned eleven-page settlement agreement 
and an affidavit by counsel stating his inability to conclude the agreement.  The 
trial court sustained defendants’ objection, concluding that the parties had reached 
a settlement at the prior hearing by stating that the plaintiff’s claim that no final 
agreement had been reached was nothing more than an attempt to renege on the 
settlement.  Judgment was then ordered pursuant to the defendants’ interpretation 
of the agreement, without any consideration of the additional evidence the plaintiff 
had attempted to admit at the hearing.  The trial court awarded two million dollars 
in money damages to the defendants.  The court of appeals affirmed, but modified 
the original judgment awarding damages by ordering specific performance 
pursuant to the sale price as discussed in the original hearing. 
 
The cause is now before the court pursuant to the allowance of a 
discretionary appeal. 
___________________ 
 
Manchester, Bennett, Powers & Ullman, L.P.A., and John F. Zimmerman, 
Jr., for appellant. 
 
Henderson, Covington, Messenger, Newman & Thomas Co., L.P.A., James 
L. Messenger and Jerry M. Bryan, for appellees. 
___________________ 
 
MOYER, C.J.  The question presented in this civil action is whether a trial 
court abuses its discretion by ordering the enforcement of a disputed settlement 
agreement without first conducting an evidentiary hearing.  Analysis of the law 
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and the underlying record in this case causes us to conclude that it is not within the 
province of the trial judge to enforce a purported settlement agreement when the 
substance or the existence of that agreement is legitimately disputed.  
Accordingly, we reverse the judgment of the court of appeals. 
 
Where possible, it is generally within the discretion of the trial judge to 
promote and encourage settlements to prevent litigation.  In re NLO, Inc. (C.A. 6, 
1993), 5 F.3d 154.  A trial judge cannot, however, force parties into settlement.  
See id.  The result of a valid settlement agreement is a contract between parties, 
requiring a meeting of the minds as well as an offer and an acceptance thereof.  
Noroski v. Fallet (1982), 2 Ohio St.3d 77, 79, 2 OBR 632, 633, 442 N.E.2d 1302, 
1304.  To constitute a valid settlement agreement, the terms of the agreement must 
be reasonably certain and clear.  “A court cannot enforce a contract unless it can 
determine what it is.  It is not enough that the parties think that they have made a 
contract.  They must have expressed their intentions in a manner that is capable of 
being understood.  It is not even enough that they had actually agreed, if their 
expressions, when interpreted in the light of accompanying factors and 
circumstances, are not such that the court can determine what the terms of that 
agreement are.  Vagueness of expression, indefiniteness and uncertainty as to any 
of the essential terms of an agreement, have often been held to prevent the creation 
of an enforceable contract.”  (Footnote omitted.)  1 Corbin on Contracts (Rev.Ed. 
1993) 525, Section 4.1. 
 
In addition, the law disfavors court enforcement of contracts laden with 
ambiguity.  “Courts have often said that they do not make contracts for the parties, 
very often in cases in which they wash their hands of a difficult problem that is 
thrust upon them by reason of incompleteness or indefiniteness in the expression 
5 
of some term in a written instrument by which the parties clearly intended to be 
bound.”  Id. at 529, Section 4.1. 
 
We observe that courts should be particularly reluctant to enforce 
ambiguous or incomplete contracts that aim to memorialize a settlement agreement 
between adversarial litigants.  Though we encourage the resolution of disputes 
through means other than litigation, parties are bound when a settlement is 
reduced to final judgment.  Since a settlement upon which final judgment has been 
entered eliminates the right to adjudication by trial, judges should make certain the 
terms of the agreement are clear, and that the parties agree on the meaning of those 
terms. 
 
Though upon first examination, the settlement terms as read into the record 
on June 23, 1993, appear reasonably clear, the parties were subsequently unable to 
agree upon the meaning and effect of those terms.  They were unable to execute a 
formal purchase agreement and they did not provide the court with an entry as 
ordered by the court.  The parties instead offered varying interpretations of the 
terms read into the record, and disputed nearly every major element of the 
purported agreement.  Therefore, the language read into the record at the initial 
hearing reflects, at best, merely an agreement to make a contract. 
 
Given the lack of finality and the dispute that evolved subsequent to the 
initial settlement hearing, we hold that the trial judge should have conducted an 
evidentiary hearing to resolve the parties’ dispute about the existence of an 
agreement or the meaning of its terms as read into the record at the hearing, before 
reducing the matter to judgment.  Where parties dispute the meaning or existence 
of a settlement agreement, a court may not force an agreement upon the parties.  
To do so would be to deny the parties’ right to control the litigation, and to 
implicitly adopt (or explicitly, as the trial court did here) the interpretation of one 
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party, rather than enter judgment based upon a mutual agreement.  In the absence 
of such a factual dispute, a court is not required to conduct such an evidentiary 
hearing.  Mack v. Polson Rubber Co. (1984), 14 Ohio St.3d 34, 14 OBR 335, 470 
N.E.2d 902, syllabus. 
 
Where the meaning of terms of a settlement agreement is disputed, or where 
there is a dispute that contests the existence of a settlement agreement, a trial court 
must conduct an evidentiary hearing prior to entering judgment.  The judgment of 
the court of appeals is reversed and the cause remanded to the trial court for 
further proceedings consistent with this opinion. 
Judgment reversed 
and cause remanded. 
 
DOUGLAS, RESNICK, F.E. SWEENEY and PFEIFER, JJ., concur. 
 
COOK and LUNDBERG STRATTON, JJ., dissent. 
 
COOK, J., dissenting.  I respectfully dissent.  An oral settlement agreement 
entered into in the presence of the court constitutes a binding contract. Spercel v. 
Sterling Industries, Inc. (1972), 31 Ohio St.2d 36, 60 O.O.2d 20, 285 N.E.2d 324.  
As a contract, the settlement agreement is subject to contract defenses such as 
mistake and indefiniteness.  A settlement agreement, however, is also subject to 
common rules of contract construction.  Application of these rules prevents Frank 
Rulli from avoiding his agreed-to settlement obligations. 
I 
Indefiniteness  
 
The majority concludes that the settlement agreement read into the record is 
too indefinite for the court to enforce and that the terms of that agreement, at best, 
reflect an agreement to make a contract.  I disagree in both respects. 
7 
 
“Vagueness, indefiniteness, and uncertainty are matters of degree, with no 
absolute standard for comparison.  It must be remembered that all modes of human 
expression are defective and inadequate.”  1 Corbin on Contracts (Rev. Ed. 1993) 
528, Section 4.1.  “The courts must take cognizance of the fact that the argument 
that a particular agreement is too indefinite to constitute a contract frequently is an 
afterthought excuse for attacking an agreement that failed for reasons other than 
the indefiniteness.”  Id. at 535-536, Section 4.1. 
 
For a court to enforce a contract it must be capable of understanding, from 
the parties’ expressions, the terms upon which the parties have agreed. See id. at 
525, Section 4.1. “[A]n agreement can constitute an enforceable contract despite 
the fact that the parties have agreed to agree later on important terms or have 
agreed that final agreement will be memorialized in a final writing.” Id. at 532, 
Section 4.1.  Moreover, while indefiniteness of an agreement may be an indicium 
of a lack of contractual intent, a “court should be slow to come to this conclusion 
if it is convinced that the parties themselves meant to make a ‘contract’ and to bind 
themselves to render a future performance.”  Id. at 569, Section 4.3. 
 
Counsel for appellant concedes that “the parties and their counsel * * * 
stipulated on the record * * * that they had reached a settlement of all issues then 
in dispute between them, and that this settlement was to be effected by the 
purchase and sale of Appellees’ interests in the two businesses in question.” 
Review of the record reveals that appellant’s attorney entered a reasonably 
detailed buy-out agreement concerning the partnership and corporation.  The 
agreement included the purchase price of the businesses, the terms and time for 
payment, and the required inventory on transfer of the corporation.  The agreement 
also specifically designated the sale of the corporation as an asset sale, addressed 
the parties’ continued use of the trade name “Rulli Brothers,” contained a 
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geographically limited covenant not to compete, and required each party to pay an 
equal share of the remaining partnership mortgage.  Each party assented to this 
agreement on the record. 
 
Despite the existence of this detailed settlement agreement, appellant argues 
that the parties’ later inability to complete a draft purchase agreement setting out 
more complete sale terms establishes that the parties initially lacked the requisite 
intent to enter into a contract.  As aptly demonstrated in the court of appeals’ 
opinion, however, the terms of the oral settlement agreement are detailed enough 
to determine contractual intent.  While the parties were free to supplement the oral 
contract with parol agreements and to further incorporate them into an integrated 
purchase agreement, nothing required the parties to do so and failure to agree to 
parol terms did not vitiate the parties’ original intent to contract. 
 
Appellant specifically addresses four issues as “material” to the transaction, 
yet unresolved in the oral settlement agreement: “1) there is no allocation of the 
purchase price among assets to be conveyed by Appellees to Appellant, even as 
between the partnership and corporation; 2) there is no provision for the standard 
warranties and representations customarily given by a seller to a buyer in an asset 
sale, such as a warranty of corporate good standing, a warranty of title, a warranty 
of authority to convey, etc.; 3) although provision is made for a ‘minimum 
inventory of $200,000.00 value[d] at cost,’ no procedure is established for 
determining which items (such as perishables, ‘out of date’ materials, packaging 
materials, etc.) are to be excluded from inventory for purposes of determining the 
minimum required amount of inventory to be transferred, or for resolving disputes 
between the parties with respect to the valuation of inventory; and 4) there is no 
provision allocating the risk of loss or damage to the assets to be conveyed 
pending closing of the sale.” Appellant additionally cites the lack of a provision 
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“allocating taxes and other expenses associated with the purchase and sale of the 
assets in question” as a factor rendering the settlement agreement fatally 
indefinite. 
 
It may have been prudent for appellant and his counsel to include some, if 
not all, of these terms in the initial settlement agreement.  These terms, however, 
are not so essential to the core agreement that failure to include them should 
render the contract unenforceable.  The rule of indefiniteness restrains courts from 
enforcing contracts where the parties’ expressions are inadequate to reveal their 
contractual intent.  Where, however, the parties express a contractual intent to 
undertake discernible mutual obligations, courts should not defeat those intentions 
because one or both of the parties lacked the foresight to negotiate terms that 
would have been more prudently included in the agreement.  Accordingly, I 
disagree with the majority that the oral settlement agreement is so incomplete that 
it, at best, reflects an agreement to make a contract. 
II 
Mistake 
 
Appellant cites several additional conflicts to demonstrate a failure of 
mutual assent.  These conflicts focus on the parties’ varying interpretations of the 
terms of the oral settlement agreement, rather than a failure of operative terms to 
create an enforceable contract.  Accordingly, these issues are most appropriately 
analyzed as concerning the contract defense of mistake. 
 
Review of the procedural history of this case reveals that most of the 
“mistakes” that appellant now asserts as demonstrating a lack of mutual assent 
could be raised as defenses by appellees, but not by appellant himself.  Consistent 
with the meanings ascribed to the settlement agreement by appellant, the appellate 
court concluded that the agreement required appellees to transfer, as assets of the 
10 
corporation, the corporate name and all business records, cash, licenses, and leases 
belonging to the corporation.  The subject of unilateral mistake is addressed in 1 
Restatement of the Law 2d, Contracts (1981) 394, Section 153, as follows: 
 
"When Mistake of One Party Makes a Contract Voidable 
 
"Where a mistake of one party at the time a contract was made as to a basic 
assumption on which he made the contract has a material effect on the agreed 
exchange of performances that is adverse to him, the contract is voidable by him   
* * *[.]”  (Emphasis added.) 
 
Accordingly, even assuming that these issues create an avenue to defeat the 
settlement agreement, the agreement would be voidable at the option of appellees, 
not the appellant. 
 
Appellant additionally argues that the parties disagreed over the meaning of 
the language of the settlement agreement concerning the covenant not to compete.  
The appellate court, however, properly concluded that the language of the 
covenant was clear and unambiguous, needing no interpretation.  
 
“When two parties have reduced their agreement to writing [or have orally 
expressed their intentions to contract in identical words (Corbin at 619-620, 
Section 4.10)], using the words that each of them consciously intends to use, it is 
often not a sufficient ground for declaring that the agreement is void or subject to 
cancellation by the court that the parties subsequently gave different meanings to 
the agreed language, or even that they gave different meanings thereto at the time 
the agreement was expressed.  If the meaning that either one of them gave to the 
words was the only reasonable one under the existing circumstances, as the other 
party has reason to know, the latter is bound by that meaning and there is a 
contract accordingly.”  (Footnote omitted.)  Corbin at 617, Section 4.10. 
11 
 
Courts have an obligation to give plain language its ordinary meaning and 
to refrain from revising the parties’ contract.  See Alexander v. Buckeye Pipe Line 
Co. (1978), 53 Ohio St.2d 241, 246, 7 O.O.3d 403, 406, 374 N.E.2d 146, 150, and 
paragraph two of the syllabus.  Accordingly, interpretation of a clear and 
unambiguous contract term, such as this one, is a matter of law, and a court should 
not admit extrinsic evidence to establish its meaning. Shifrin v. Forest City Ent., 
Inc. (1992), 64 Ohio St.3d 635, 638, 597 N.E.2d 499, 501. 
III 
Conclusion 
 
Appellant has not demonstrated that he is entitled to have the settlement 
agreement voided as a matter of law, or that he was improperly denied an 
evidentiary hearing.  This is not to say that there are no circumstances where an 
evidentiary hearing might be required to enforce an oral settlement agreement 
entered into before the court.  Such a hearing is proper to resolve ambiguity in the 
terms of the agreement, to collaterally enforce parol agreements supplementing the 
contract, and to determine whether fraud or mistake occurred during contract 
formation that would render the contract voidable by the party seeking to avoid its 
force.  Because none of those circumstances is present in this case, I would affirm 
the judgment of the appellate court. 
 
LUNDBERG STRATTON, J., concurs in the foregoing dissenting opinion.