Court Enforces Settlement Agreement Concerning Defective Home Construction

May 27, 2010 | Erin Herbold

Here, buyers purchased a home from a builder in 2001. Six years later, the buyers sued the builder, alleging that the home was defectively constructed. They sought damages for breach of contract, fraud and breach of an implied warranty of workmanship. 

In 2009, the builder’s attorney sent the buyers’ attorney a proposed settlement agreement, stating that his client would pay the buyers $26,500 to settle the matter. The buyers’ attorney made some minor revisions, sent the settlement agreement back to the builder’s counsel and indicated that his clients would sign the following day. A week later, the buyers’ attorney emailed the builder’s attorney, informing him that “our current settlement is impossible.” 

The builder filed an application to enforce the settlement agreement with the trial court. The trial court judge presided over a hearing between the parties and ruled that the builder had sufficiently shown the existence of a binding settlement agreement between the parties. Thus, the court granted the application to enforce the agreement. 

The buyers appealed and the appellate court affirmed.   While the buyers argued that there was “no meeting of the minds” to create a valid settlement agreement between the parties, the appellate court found that the parties mutually assented to the terms of the contract (this is measured by an objective standard).  An offer was made by the builder and the buyers accepted the offer, creating a binding contract. The terms were reduced to writing and the buyers made revisions to the offer. It was not necessary for the parties to sign the agreement to make it enforceable in this case. 

Next, the buyers argued that it was impossible for them to perform the terms of the settlement agreement. They were unable to get their mortgage payments reduced and the property taxes due on the property were higher than they had originally expected. The appellate court determined that the doctrine of impossibility only “…excuses performance where performance becomes objectively impossible due to no fault of the nonperforming party.” The buyers should have reasonably expected to pay the property taxes owed on the property and should have reasonably expected to pay other expenses associated with being home owners. Thus, the doctrine of impossibility was not satisfied and the parties’ settlement agreement stood, even though the buyers never signed off on the agreement. Rector v. Falbo, No. 0-219/09-1333 (Iowa Ct. App. May 26, 2010).