To ensure that a mediation ends with a binding agreement, it has been my practice as a mediator to recommend that the parties sign a term sheet specifically stating that it contains “all the material terms of the agreement and is a binding contract,” even though the parties intend to later draft a more formal document. Is that sufficient?
In Hoffman v. Board of the Local Improvement District, __P.3d___ (Idaho 2017), the mediator prepared a “Memorandum of Settlement” which stated that the parties agreed to dismiss all claims, but made no reference to a release. Defendants insisted that the parties intended to have a release, but the plaintiff sought to enforce a settlement that required nothing more than the dismissal of the pending claims on file, with no release. The Court first ruled that the Memorandum of Settlement was not a fully-integrated contract, and then, after looking at parol evidence, further ruled that the parties intended to have a release of some kind. Based on this, the Court concluded that the missing release was a material term, it was not agreed upon, and therefore there was no enforceable settlement agreement. Had the Court decided that the Memorandum of Settlement was a fully-integrated agreement, it would not have looked beyond the four corners of the document.
So, should a mediation term sheet contain a statement that it is a fully-integrated agreement in order to forestall efforts to claim that there are additional terms? In my view, the answer is no, because an integration clause is not appropriate in a settlement term sheet. Since there will be additional terms and conditions included in the complete settlement agreement, even if those additional terms cover minor matters, an integration clause probably does not make sense in a settlement term sheet.
The inability to include an integration clause, however, should not pose a problem. The clause I recommend – a statement that the term sheet contains all the material terms of the agreement – should be forestall attempts to include new settlement terms of any consequence after the mediation has concluded. In the Hoffman case, for example, a statement that the term sheet contained all the material terms of the agreement should have precluded the argument that the parties intended to have releases in the final settlement because a release would likely be deemed a “material” term.