Defendant Ratified Settlement Agreement By Accepting Benefits Despite Failure to Satisfy Express Condition

On December 13, 2018, the First Department issued a decision in GEM Holdco, LLC v. RDX Tech. Corp., 2018 NY Slip Op 08564, holding that a settlement agreement was enforceable, even though a condition of the contract was not satisfied, because the defendant ratified the agreement. (N.B. Schlam Stone & Dolan partner Bradley Nash represented Plaintiff GEM Holdco in this appeal).

The settlement agreement at issue was expressly conditioned upon final approval by the Toronto Venture Exchange, and further provided that, if such approval was not received "within three business days of the execution of this Agreement, the Agreement shall be null and void." Although this condition was never satisfied, the Court rejected the defendants’ attempt to disavow the agreement and sustained the plaintiff’s claim for defendants' breach of the payment obligations, explaining:

Defendants waived the right to enforce the Exchange-approval condition by ratifying the agreement. They failed to act promptly to repudiate the agreement, only seeking to enforce the condition two years after the approval was required to have been received, and they accepted the benefit of the agreement, i.e., they did not have to litigate the claims asserted against them in the prior action, which was discontinued against them with prejudice, and they obtained a release of those claims.

(Citations omitted).

The New York courts generally enforce contracts as written, including conditions to the enforceability of the contract. However, the doctrine of ratification, the parties can waive a contractual condition if they accept the benefits of the contract despite the failure to satisfy the condition. Contact Schlam Stone & Dolan partners Bradley Nash at bnash@schlamstone.com, or John Lundin at jlundin@schlamstone.com if you have a question as to whether the parties have ratified a contract.