COMPROMISE AND SETTLEMENT
Resolution of a dispute by mutual agreement to avoid a lawsuit.
Public policy favors the settlement of dis-
putes to avoid lawsuits. Parties to conflicts that
might otherwise end up in court are encouraged
to resolve those conflicts by mutual agreement
through their attorneys, through mediators, or
even on their own. A compromise and settle-
ment can be used for many types of disagree-
ments including contract disputes, civil
disputes, labor-management negotiations, crim-
inal cases, and DIVORCE and custody problems.
The terms of a settlement agreement do not
necessarily need to be equal. One party may give
up more than originally intended. However, as
long as the parties agree to the terms and the
court views the compromise as fair, the settle-
ment will be upheld by the court. A settlement is
considered binding, and the court views it as
final and conclusive. A compromise and settle-
ment will be put aside only if there is evidence of
bad faith or FRAUD.
A valid compromise and settlement can be
in any form, written or verbal. A writing is not
required unless specified by statute, court rule,
or the terms set by the parties.When the agree-
ment is written, it must clearly state the inten-
tions of the parties.
A compromise and settlement must have the
same elements as a contract: parties who have
the capacity and authority to agree, an offer and
acceptance, and valuable consideration (consid-
eration is something of value received or prom-
ised by one party to induce the other party to
enter into an agreement).
Any party competent to enter into a contract
can use compromise and settlement to resolve a
conflict. There must be a meeting of minds in
order to form a valid compromise; in other
words, the parties must have the same under-
standing of the settlement. There must also be
an offer of compromise and an acceptance of
that offer. The offer can be made by either party.
The terms of the offer must be clear and must
show that the party making the offer intends to
assume some obligation.
The offer can be made subject to certain
conditions that must be satisfied for a valid
compromise. For example, a creditor creates a
conditional offer when he or she sends a prom-
issory note for less than the full amount of a
debt. If the debtor signs the note, he or she is
agreeing to forgive part of the debt. If the debtor
refuses to sign the note, the creditor’s offer is
rejected. The offer is conditioned on the debtor’s
signing the note.
An offer of compromise and settlement
must be made within a reasonable time. Accep-
tance of an offer of compromise must likewise
be made within a reasonable time, and on the
terms offered. However, delay in acceptance is
immaterial when the person making the offer is
not prejudiced by it. Acceptance can be implied
or expressed. If it is based on a condition that
proves impossible to perform, no settlement is
possible.
An offer of compromise can be withdrawn
before acceptance, but not after.When an agree-
ment is put in writing, either party may with-
draw before signing. If court approval is
necessary, one party can repudiate the agree-
ment prior to the approval of the court.
Like any other contract, a valid compromise
and settlement must be based on consideration.
Anything of value exchanged by the parties,
including money or property, is sufficient to
support a compromise and settlement. If a
debtor agrees to pay more than she or he thinks
is owed, the additional amount is consideration
in exchange for settlement of the debt. Resolu-
tion of family conflicts can also be considered
valuable consideration. The adequacy of the
consideration, however small or slight it might
be, is usually not a matter for judicial scrutiny.
Unless the consideration is so unfair as to shock
the conscience, inadequacy of consideration
does not justify setting aside a compromise and
settlement.
Disputes involving family matters are fre-
quently the subject of compromise and settle-
ment. Increasingly, courts are encouraging, and
sometimes mandating, that parties in divorce
and custody matters seek settlement before pur-
suing an issue through trial. In a family setting,
where issues are very personal and emotional,
compromise and settlement provides a means of
preserving some sense of the close relationship
between the parties. Because the parties reach
the final agreement together, family matters
resolved through compromise and settlement
tend to be more amicable than those resolved
through litigation.
Compromise and settlement can also be
used to settle disputes with the INTERNAL REV-
ENUE SERVICE (IRS). A taxpayer who owes the
IRS money may propose a compromise for the
method or amount of its payment. When the
government accepts this compromise offer, it
becomes a binding contract (47B C.J.S. Internal Revenue § 1064 [1995]).
