What Is a Settlement Agreement?
A settlement agreement brings closure to a dispute. It is a contract between two or more parties who choose to avoid litigation over their different claims, instructions, assertions and rights. Those who enter into settlement agreements must consider various issues. They must agree on the terms of the settlement agreement and how to write the contract so that it conforms to the law. They must agree on the most convenient method for resolving the problems that lead to the dispute. Finally, they should ensure that the provisions of the agreement match what they want and expect to achieve.
Most settlements identify the parties involved, the facts of the case and the issues at dispute . Then, the provisions of the settlement, what the parties agree to, come next. Finally, it includes the signatures of those involved to show that they agree to the terms of the settlement agreement.
Settlement agreements aim to resolve problems, whether the parties are negotiating a factual dispute or legal issue. The parties discussed the problems, and once they carefully detail the issues in the written settlement agreement, they adopt a voluntary agreement to resolve their problem.
Once the parties sign a settlement agreement, the judge may want to approve the settlement to minimize the risk of a party in a personal injury claim later challenging the legitimacy of the settlement.
Common Reasons for a Settlement Agreement Breach
Fortunately, breach of contract actions involving settlement agreements are less frequent than contractual breaches which don’t involve settlement agreements. However, breaches related to settlement agreements do still happen, and there are several ways in which they may be breached, including: noncompliance with payment terms or deadlines; failing to comply with other specific conditions set forth in the settlement agreement or any related contract(s) or agreements; unenforceability of an agreement due to illegality or some other legal defect; and failure to sign an agreement. In most settlement agreements, it is not uncommon for a deadline to be set by which the parties must abide by, and failure to meet the deadline set in the agreement will likely constitute a clear breach the agreement.
Legal Consequences of a Breach of a Settlement Agreement
Legal Consequences of Breach of a Settlement Agreement
A breach of a settlement agreement can result in damages. Damages are generally compensation for losses that have resulted from the breach. Damages are meant to make a party whole, or put the injured party back in the position they would have been in if the settlement agreement had been performed. As a remedy for breach of an agreement, courts will generally "measure damages by the degree of the non-breaching party’s lost benefit." The measure of damages may include the direct and consequential losses to the party due to the other party’s breach of the agreement.
As settlement agreements are generally contracts, the rules and remedies concerning breach of contract apply. Courts may enforce the agreement by ordering that the breaching party take the appropriate actions, make payments, or compensate the innocent party. Courts can order the breaching party to comply with the agreement and even enforce specific performance when the subject of the agreement is the only remedy for the breach.
In a legal action to enforce a settlement agreement, if the breaching party has failed to perform to the agreement, the innocent party may be entitled to attorneys’ fees and costs, but if the agreement is deemed unclear, ambiguous, or vague, the breaching party will not be liable for attorneys’ fees and costs. Courts will consider the clarity of the agreement when stated in the complaint.
If the breached settlement agreement was prejudicial to the innocent party and left them in a worse position than they would have been without the settlement, the court will likely enforce the agreement to the fullest extent allowed or when they have been prejudiced by the breach. If the breach or failure of an agreement left the innocent party with substantial damages, a court may enforce the agreement to exact the specific outcome intended.
Your Options When a Settlement Agreement Is Breached
When a settlement agreement is breached, often the initial step taken is to file a petition to enforce the settlement agreement or the arbitration award entered pursuant to it (if the settlement was reached during the pendency of litigation that was later voluntarily dismissed, such as an action for divorce). Such a petition is normally brought in the court in which the action was pending, however, a petition to enforce an arbitration award pursuant to a settlement agreement may also be brought in any Court of competent jurisdiction. An action seeking damages for breach of a settlement agreement may also be available, if you can prove that the settlement agreement is actually a contract rather than just merely a contract to enter a contract.
While most parties to a settlement agreement cannot appeal the entry of a judgment thereto (there are exceptions under Alabama law, such as an arbitration award), they may wish to pursue appeals relating to validity of the arbitration award itself, if appealed by the other party in the litigation, if there was a hearing on the breach issues and judgment entered, or if the Settlement Agreement, which is incorporated into the judgment, is separately appealed.
If you are unsure of your recourse due to the specific circumstances of a breach of a settlement agreement involving your case, it is often prudent to contact an attorney for assistance in evaluating your options, and whether or not legal action should be considered.
How to Avoid Breaching
To avoid a breach of a settlement agreement, it is vital to keep open lines of communication with the other party. The parties should work together to clarify the terms of the agreement as necessary. Moreover, the parties should make sure that there is complete transparency regarding what actions constitute a breach and whether or not an action will be considered a breach at a particular time.
To prevent the parties from arguing about whether certain acts or terms in a settlement agreement are ambiguous or vague, the parties may expressly define those terms in the agreement itself. For example, the parties may define the term "good faith" in the settlement agreement . When defining a term, care should be taken to ensure the terms are not so broad as to encompass everything, and also that they are not so narrow that they would exclude actions that could occur.
If a dispute arises regarding the breach of a settlement agreement, once the parties’ lawyers have discussed the issue, the parties should discuss the matter directly with each other as well.
With respect to monetary payments, the parties should stay current on any payment schedule set forth in the settlement agreement or make alternative arrangements if necessary. As to where the monetary payments need to be sent, the parties should clearly specify who is to receive the payments and at what address.
Real-World Examples
The following examples illustrate cases where a settlement agreement has been breached, the subsequent outcome, and how these cases set new legal precedents.
In Suffern v. Grace Full Gospel Church, Inc., the dispute arose over unpaid promissory notes. The plaintiff wished to add to the settlement agreement a "not waiver" clause for other notes. The Superior Court of New Jersey held that it was an invalid attempt to add to a settlement agreement that already existed. Therefore, the Court held that the plaintiff’s subsequent lawsuit could go forward since these provisions were not part of the original agreement.
In Lewis v. Shears, et al., several plaintiffs and defendants settled their case for a sum of money and signed a release of all claims arising out of the matter. One of the plaintiffs later filed suit for a criminal conversation, which alleged that the defendant had sexual intercourse with her wife and that they bore a child as a result of that relationship. The plaintiffs attempted to exclude the settlement funds they received from being set off against the criminal conversation claim.
The Court found that in order to prevent double recovery, the amount received by the plaintiff in settlement would be set off against any recovery against the defendants.
In Ellis and Associates, Inc. v. London, the plaintiff entered into a consulting agreement with the defendant and his employees. The consulting agreement contained a non-disclosure provision prohibiting the defendant from divulging any confidential information regarding the plaintiff’s business. The defendant failed to do this, and the parties entered into an agreement clarifying the terms of the first agreement.
The next day, the defendant sent an e-mail to the plaintiff’s largest contractor stating that the contract between them had expired and he was no longer the point of contact for the project. The Court held that the defendant breached the first agreement and that it had no legal basis to request the plaintiff pay the remainder of the funds from the consulting agreement.
In Monmouth Medical Center v. Jacober, the Court held that a case was "compromise and settlement of the dispute" pursuant to the Uniform Trade Secrets Act when consent was given to the trial court to enter a judgment on the terms agreed upon in the settlement agreement. The Court further held that the settlement agreement filed with the trial court was in no way vague or ambiguous.
These real-world cases show that the breach of a settlement agreement can have real-world consequences on both parties involved. Legal precedents set by these cases show that drafting and understanding all terms and provisions of a settlement agreement is essential to the litigation process.
When To Seek Help for a Breach of a Settlement Agreement
If you believe a settlement agreement has been breached, you may be able to pursue a lawsuit. Having strong legal counsel, with experience in dispute resolution, mediation and trials, can keep an agreement from dissolving into a lengthy and expensive legal battle . If an agreement cannot be settled informally, or the other party cannot be persuaded to comply, legal remedies or litigation often remain as your only course of action. An attorney can review the situation, ensure you have exhausted other options and take action to protect your rights and the interests you signed away.