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Friday June 2, 2017

posted by David A. Ehsan

After months of negotiation with the other side you have finally reached a settlement. You have avoided going to trial and will no longer have to pay attorneys fees. Settlements are often an ideal outcome for all parties involved. It avoids protracted litigation that costs time and money. There are some important concerns that one needs to keep in mind when drafting or signing a settlement.

The first issue is whether the settlement involves a lump sum payment or will the settlement be paid over a period of time. The reason this matters is that if the settlement is to be paid in installments, what happens if the other party doesn’t pay as promised. A clause to address this concern for settlements that involve installment payments is an acceleration clause. An acceleration clause states that when a party has not satisfied a condition then the defaulting party’s entire obligation becomes immediately due. An example if this provision would be “If John Smith fails to make any payment within five (5) days of its due date, the entire balance shall become due and payable immediately.”

Another issue is releases, which are often incorporated into settlement agreements. A release is the relinquishment, concession, or giving up of a right, claim, or privilege, by the person in whom it exists or to whom it accrues, to the person against whom it might have been demanded or enforced. Releases have to be reviewed carefully by anyone who is the releasing party. One has to make sure the release is accurate in its scope. Parties will usually agree to mutual releases in a settlement where both parties relinquish any claim they may have against the other.

A choice of law provision should be in any settlement agreement. The choice of law provision states that the contract will be interpreted according to the laws of a specific state. For example if a settlement has a choice of law provision stating the settlement will be interpreted according to the laws of the Commonwealth of Kentucky, but the lawsuit is filed in Indiana based on a breach of the settlement. The court in Indiana may decide to dismiss the case, because it should have been filed in Kentucky.

Settlement agreements should be carefully reviewed by all parties. Although, the settlement often signifies the end of a matter, there are many considerations to take into account.


1 Release, Black's Law Dictionary (5th ed. 1983).