Compromise and Settlement

A compromise is an agreement between two or more persons to amicably settle their dispute[i].  It is a settlement of a disputed claim by mutual concession to avoid a lawsuit[ii].  The word compromise contemplates a mutuality of concessions for the purpose of the termination of litigation[iii].  Thus, a compromise is an agreement between two or more persons who, to avoid a lawsuit, amicably settle their differences on such terms as they can agree on[iv].

A settlement agreement is defined as an agreement to terminate, by means of mutual concessions, a claim that is disputed in good faith or unliquidated.  It is an amicable method of settling or resolving bona fide differences or uncertainties and is designed to prevent or put an end to litigation[v].

A valid compromise and settlement, bars all right of recovery on the previously existing claim[vi].  This is so because the compromise agreement is substituted for the claim, and the rights and liabilities of the parties are measured and limited by the terms of the agreement.  The previously existing claim is extinguished by the compromise and settlement and, as a result, any subsequent litigation based upon it is barred[vii].

The purpose of a compromise is to prevent or put an end to litigation [viii].  To effectuate a compromise there must be, as its basis, a contest, dispute, or disagreement between the parties[ix].  The essential elements of a compromise are:[x]

  • mutual intent to put an end to the litigation, and
  • reciprocal concessions of the parties in adjustment of their differences.

The basic element of a compromise is a disputed claim[xi].  Thus, to have an offer of compromise, there must be an offer to settle a dispute.  It is essential to a compromise that there be mutual concessions or yielding of opposing claims[xii].

There is no requirement that settlement should be authorized in writing, however, it is better to have signed authorization[xiii].  An oral authorization of settlement is not invalid or unenforceable.

The courts consider four factors in deciding whether to approve a proposed settlement:[xiv]

  • the probability of success in the litigation;
  • the difficulties to be encountered in the matter of collection;
  • the complexity of the litigation involved, and the expense, inconvenience and delay surrounding it; and
  • the interests of the creditors.

A valid compromise effectively abrogates and nullifies the prior claim or contract, which was compromised by it, so that the only legal recourse of the parties is to enforce their rights within the context of the compromise agreement[xv].

In evaluating a proposed settlement, the courts make an informed, independent judgment that the compromise is fair and equitable[xvi].

A compromise instrument is governed by the same general rules of construction applicable to contracts[xvii].  A compromise agreement, like other contracts, requires an offer and acceptance, consideration, and parties who have the capacity and authority to agree as they do[xviii].

Compromise and settlement is a subcategory of the term accord and satisfaction[xix].  It differs from the latter in that any claim whether disputed, unliquidated, or undisputed and liquidated may be discharged by an accord and satisfaction, but only a disputed or unliquidated claim may be the basis for a compromise.  The law favors compromises.  Thus, a compromise and settlement is actually a type of an accord and satisfaction[xx].

There is no compromise where the claim is undisputed and no concessions are made by the judgment-creditor[xxi].  Further, there can be no valid compromise unless each party believes in good faith that s/he is making a concession that is intended to terminate his/her dispute[xxii].

[i] Cannavina v. Poston, 13 Wn.2d 182 (Wash. 1942)

[ii] Harding v. Will, 81 Wn.2d 132 (Wash. 1972)

[iii] Ross Packing Co. v. United States, 42 F. Supp. 932 (D. Wash. 1942)

[iv] Alexander v. Handley, 123 S.W.2d 379 (Tex. Civ. App. 1938)

[v] In the Interest of Doe, 90 Haw. 200 (Haw. Ct. App. 1999)

[vi] Globe Metallurgical v. Hewlett-Packard Co., 953 F. Supp. 876 (S.D. Ohio 1994)

[vii] id

[viii] Tulane Prop. v. General Star Indem. Co., 2003 U.S. Dist. LEXIS 5751 (E.D. La. Apr. 4, 2003)

[ix] Eaglin v. Southern Kraft Corp., 200 So. 63 (La.App. 1940)

[x] Morehouse Parish Hosp. Serv. Dist. v. Pettit, 630 So. 2d 1338 (La.App. 2 Cir. Jan. 19, 1994)

[xi] Cannavina v. Poston, 13 Wn.2d 182 (Wash. 1942)

[xii] Alexander v. Handley, 123 S.W.2d 379 (Tex. Civ. App. 1938)

[xiii] Shields v. Keystone Cogeneration Sys., 620 A.2d 1331 (Del. Super. Ct. 1992)

[xiv] In re Air Safety Int’l, LC, 326 B.R. 883 (Bankr. S.D. Fla. 2005)

[xv] Morehouse Parish Hosp. Serv. Dist. v. Pettit, 630 So. 2d 1338 (La.App. 2 Cir. Jan. 19, 1994)

[xvi] In re Air Safety Int’l, LC, 326 B.R. 883 (Bankr. S.D. Fla. 2005)

[xvii] Tulane Prop. v. General Star Indem. Co., 2003 U.S. Dist. LEXIS 5751 (E.D. La. Apr. 4, 2003)

[xviii] In the Interest of Doe, 90 Haw. 200 (Haw. Ct. App. 1999)

[xix] Harding v. Will, 81 Wn.2d 132 (Wash. 1972)

[xx] Globe Metallurgical v. Hewlett-Packard Co., 953 F. Supp. 876 (S.D. Ohio 1994)

[xxi] Collection Prof’ls v. Logan, 296 Ill. App. 3d 959 (Ill. App. Ct. 3d Dist. 1998)

[xxii] In the Interest of Doe, 90 Haw. 200 (Haw. Ct. App. 1999)


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