1. Contemplating a Settlement Agreement
2. Negotiating the Agreement
3. Writing the Agreement
4. Executing a Settlement Agreement

Contemplating a Settlement Agreement

First, think about whether a settlement agreement is the best way to settle your dispute. With this type of agreement, one party must complete an action or pay a certain sum in exchange for the other party's promise to cease legal proceedings. Common situations that can be resolved with a settlement agreement include:

You must also understand the legal requirements of this type of contract. For a settlement agreement to be valid, it must be in writing and must contain:

  • An offer, which is what one party promises to do
  • Acceptance of the terms of that offer by the other party
  • Valid consideration on both sides, which can be any tangible item of value or intangible benefit as long as it is reasonable and offered without coercion
  • Mutual assent, which means both parties agree without coercion
  • A legal purpose

Check your state laws to confirm that the terms of your contract are in compliance. You may need to consult an attorney.

Negotiating the Agreement

First, you and the other party will need to agree on a statement of the events surrounding the dispute. A mediator can help you agree on a factual account of the situation if necessary.

Next, decide on consideration, which is the item of value or benefit offered by one party to the other in exchange for discontinuation of legal proceedings. In addition to the type and amount of consideration, you should also indicate whether it will be offered all at once or paid over time.

Decide on whether one party will be deemed liable for the issue in question. In many settlements, particularly corporate settlements, one party may agree to settle only if no wrongdoing or liability must be admitted.

Some settlement agreements include conditions, such as how long a party has to fulfill his or her contractual obligations. Finally, you must agree on whether all current and future claims are resolved by this agreement or whether it fulfills only a single claim or lawsuit.

Writing the Agreement

First, give the document a title that describes the settlement. Next, write a paragraph that identifies all parties involved in the lawsuit and indicates their roles. This should also include their addresses and note that they have the authority and capacity to sign the agreement.

The next section should provide a factual description of the dispute that has been agreed on by both parties. This should be comprehensive and cover all relevant details.

Note what one party will receive in exchange for releasing the other party from legal liability (consideration). Without reasonable consideration the contract is not valid. Consideration can consist of a promise, repair, replacement, or money, but cannot involve illegal or fraudulent activities.

The agreement should also state the scope of claims it covers. This could be all future claims and current claims or it could be limited only to a specific claim.

Be clear about the conditions of the settlement, particularly in a conditional agreement in which the action in question requires time. Indicate whether one party is at fault or claims liability for the disagreement. Note whether the settlement agreement is confidential, which means that neither party can discuss its terms. If litigation is ongoing, the agreement must contain a clause specifically dismissing the pending lawsuit.

The settlement agreement should contain a space for each party's signature and the date. Once both parties have agreed on a draft settlement, you can opt to submit it to the court for approval.

Executing a Settlement Agreement

First, present the draft settlement agreement to the other party. He or she may choose to accept in in full and the contract can be signed and executed. If the offer is rejected, you must attempt to negotiate or resolve the matter in court. If the other party opts to negotiate, he or she will present alternate terms and conditions until you each agree.

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