Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 4

FACTS Adwoa Gyabaah was hit by a bus owned by Rivlab Transportation Corporation. She retained Jeffrey Aronsky, an attorney, to represent her in the lawsuit against Rivlab, and its insurer, National Casualty Company. She agreed to pay Aronsky a contingency fee. (A contingency fee is based on a percentage of the final award received by the client as a result of litigation.)
In October 2010, National Casualty offered $1 million to settle the case. Aronsky discussed the offer with Gyabaah, and she accepted it and signed a release. (A release is a contract in which one party forfeits the right to pursue a legal claim against the other party.) Aronsky did not deliver the documents to Rivlab or National Casualty nor communicate Gyabaah's acceptance of the offer to them. He claimed that Gyabaah still had to make further decisions about the form of the settlement.
In December 2010, Gyabaah retained a new attorney, Kenneth Wilhelm, to represent her in the case. Wilhelm told Aronsky that Gyabaah did not wish to settle the case. Aronsky filed a motion with the court to enforce what he contended was a $1 million settlement and to set his contingency fee, according to his agreement with Gyabaah. The court denied the motion, and Aronsky appealed.
ISSUE Was the $1 million settlement agreement signed by Gyabaah-but never communicated to the defendants, Rivlab and National Casualty-binding?
DECISION No. The state intermediate appellate court affirmed the lower court's order denying Aronsky's motion to enforce a purported settlement and set his contingency fee.
REASON Gyabaah's acceptance of National Casualty's offer was never communicated to Rivlab or its insurer. This omission was fatal to Aronsky's claim of a settlement. Aronsky maintained that Gyabaah's signing of the General Release constituted a binding legal contract. The reviewing court pointed out that, "A general release is governed by principles of contract law." Further, "It is essential in any bilateral contract that the fact of acceptance be communicated to the offeror. Therefore, this action was not settled because the executed release was never forwarded to [the] defendant nor was acceptance of the offer otherwise communicated to [the] defendant or its carrier."
Additionally, because there had been no settlement, the amount of Aronsky's fee could not be determined until the final disposition of the case. Aronsky's legal fees should be a percentage of the fee recovered by Wilhelm, based on the pro rata share of the work the two attorneys performed in obtaining the recovery.
WHAT IF THE FACTS WERE DIFFERENT? If Aronsky had informed Rivlab or National Casualty that Gyabaah had agreed to the settlement, would her later "change of heart" have been sufficient to set aside the agreement? Explain your answer.