Contract Glossary
Settlement Agreement
Definition
A legally binding contract that resolves a dispute between parties without going to trial. Both sides agree to specific terms — typically a payment, action, or concession — in exchange for releasing claims against each other. Once signed, the dispute is considered resolved and neither party can sue over the same issue.
In Practice
A former employee files a wrongful termination claim. Rather than spend $100,000+ on litigation with an uncertain outcome, the company offers a settlement: $35,000 payment, a neutral reference, and mutual non-disparagement. The employee signs, releases all claims related to their employment and termination, and both sides move on. The settlement is confidential — neither party can discuss the terms publicly.
Example Clause
In consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the Parties agree to resolve and settle all disputes, claims, and causes of action arising out of or related to [description of dispute]. Upon execution of this Agreement and receipt of the Settlement Payment, Releasor shall fully and forever release Releasee from any and all claims, known or unknown.
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Frequently asked questions about settlement agreement
Yes, once signed by both parties, a settlement agreement is a binding contract enforceable in court. If one side fails to perform (e.g., misses a payment), the other can sue to enforce the settlement terms. Some settlements are also filed with the court as consent judgments, making enforcement even more straightforward.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.