Understanding and Utilizing a Contract Settlement Agreement Template

What Is a Contract Settlement Agreement?

The contract settlement agreement is a document that parties to various types of contracts will execute in cases where a party to the contract believes it has been damaged by the conduct of the other party, and the other party agrees to pay a specific dollar amount in order to satisfy the damages suffered by the damaged party. The contract settlement agreement will typically contain the conditions under which the payment will be made, i.e., within 30 days, or if there will be a release of damages, i.e., release of damages under warranty, under contract, etc. The contract settlement agreement will also include a release of all claims related to the subject of the contract, or an express release of all claims arising out of the contract that may exist either presently or in the future.
Common types of contracts under which contract settlement agreements are entered into include supply contracts, employment contracts, employment separation contracts, and contracts for the lease of commercial space. Most contract settlement agreements contain a clause whereby the parties assert that there were no other promises and inducements present at the time of the execution of the contract settlement agreement , and that the contract settlement agreement contains the entire contract reached between the parties. Items to be included in a contract settlement agreement are who are the parties to the agreement, what performance set forth in the contract is not, or could not, be performed, and damages arising from such nonperformance. The contract settlement agreement will set forth the quality of work promised, and the actual performance, and the amount of the contract settlement agreement to be made to satisfy the damages. Depending upon the circumstances of each contract settlement agreement, it is important for the parties to put forth the specific issue to be covered under the contract settlement agreement. The form of contract settlement agreement will be different depending upon whether there is an express release of all claims, a mutual discharge, a general release of all claims, a general release of any and all and all known claims or claims which have been asserted in that particular case, or a release of all non-asserted claims arising from that particular case (non asserted being claims which could be brought).

Benefits of Using a Template

The use of a template can be extremely helpful when creating a contract settlement agreement. This will facilitate the process by ensuring that all the important aspects have been accounted for, while at the same time avoiding unnecessary errors. If an individual is unfamiliar with the legal terms involved in such a document, they may not realize the importance of incorporating every element – this can lead to omissions that could have been avoided by using a template. Not only will this save time on the individual’s part, it will also save them money – particularly if they have already consulted a lawyer to draft the document and haven’t recognized the problem.

Essential Features in a Settlement Agreement Template

A well-drafted settlement agreement template is a form agreement which is intended to address the most typical provisions which would be found in an agreement resolving a dispute between parties. Among the key components to a traditional settlement agreement template would be the following:
Recitals
Recitals are used to give context to the the reader of the agreement. Often referred to as "whereas clauses", these paragraphs would typically set forth the background facts leading to the situation between the parties which is being resolved.
Release of Claims
The release provision is the portion of the settlement agreement under which the settling parties agree that they are waiving any and all claims between them. The release is one of the most important provisions for the parties. It is also one of the most important provisions for the attorney preparing the settlement agreement.
Scope of the Release
The scope of the release is the next element of a settlement agreement template which requires careful consideration and review. The extent of the release should be negotiated between the parties, and may vary significantly between settlement agreements with different parties.
Indemnification Provision
The indemnification provision is intended to protect a party (usually the defendant) from a law suit that is brought against it in the future, and for which another party agrees to assume the defense.
Confidentiality Provision
The confidentiality provision is one of the most common provisions in a settlement agreement template. In many situations, both parties want the terms of the settlement agreement to be confidential, and not disclosed to third parties.
Governing Law Provision
In a settlement agreement template, the governing law clause is another straightforward provision. Typically the parties agree that the laws in a particular state will apply to the settlement agreement.
Amendment Provision
For a settlement agreement template, an amendment clause can be drafted to allow the agreement to be changed pursuant to the written consent of the parties.
Severability Provision
Severability clauses are used in settlement agreement templates to cover situations where a clause in the settlement agreement is considered to be invalid or unenforceable. The severability clause usually states that the remainder of the settlement agreement template shall remain intact.

How to Modify the Template

To customize a generic settlement agreement template for a specific contract dispute, the first step is to identify the effective date of the original contract, the specific facts and circumstances that give rise to the dispute, and the changes in terms the parties intend to incorporate in the settlement with respect to performance, delays, and other issues. You can insert the proper names of the parties to the dispute in the appropriate places throughout the template. For example, there are specific placeholders for the "Effective Date" and what is often referred to as the "Recitals." There may be other placeholders for introductory captions or definitions. You can describe the effective date with approximate dates, but both parties need to agree on what the effective date of the disputes was originally, what events occurred, whether there were notice requirements or other issues, and what occurred in relation to those issues.
It is important to customize the template and eliminate provisions that are not applicable to the dispute. For example, if the parties did not require a release or final resolution to all disputes and disagreements, that portion of the template can be eliminated . Conversely, if liquidated damages or penalties were not being waived or reduced, that provision should be reflected in the settlement agreement template. You should also make sure that the person signing on behalf of an entity and describing his/her capacity is authorized to bind the entity. You should always begin a process for customizing a template by reviewing the prior correspondence between the parties, notices and other communications regarding the specific contract dispute and negotiation of the settlement, which may provide guidance in customizing the template and eliminating unnecessary provisions.
You should also review the template carefully to ensure that the relevant laws are satisfied. You would want to exclude any provisions that could undermine the basic enforceability of the settlement agreement by failing to meet the requirements of the relevant jurisdiction, such as the requirement of consideration in order to form and enforce a binding contract. While not all settlements require the exchange of consideration, all contracts, including settlement agreements, must be supported by valid consideration and include all the elements required for a legally binding contract, including parties with capacity, mutual assent, certain subject matter, and a lawful purpose.

Frequnt Mistakes

While there are many benefits to using a settlement agreement template, there are also common mistakes to avoid. One of the most significant of these is creating a settlement agreement that is missing important terms or clauses. Any time you choose to use a template to facilitate a contract or agreement, you need to be fully aware of the regulations in your particular jurisdiction. Those regulations can vary by state and even by city, so you should understand your local laws and how they are relevant to the agreement you want to prepare.
There are a number of reasons why you could end up with a settlement agreement that is missing a crucial element. You might forget to include it, or the settlement agreement template you are using may not have contained a place for it. For example, there may be no discussion of confidentiality, which could mean that you might end up revealing confidential or embarrassing aspects of your case in public if it’s not mentioned in the final settlement agreement. Sometimes, a settlement agreement template is missing language in certain areas because the author of the template was not familiar with all the specific details of a particular case.
The main things to check for when considering whether or not your settlement agreement is missing any important terms include: Other common mistakes include not reading the entire agreement and only focusing on the specific parts that concern you, using words that are open to interpretation and aren’t adequately defined, and not including all the parties who will be bound by the contract. In some cases, one party may believe it is only binding on them and does not affect them or any of their relatives or business associates. You can also use the opportunity presented by the settlement agreement to clarify any potential ambiguities to ensure that you are all starting with the same expectations.
Think about whether the language of your settlement agreement could be interpreted in more than one way, or whether you fail to adequately consider whether all parties’ interests are sufficiently represented.

When to Consult a Lawyer

When using a settlement agreement template, you may be able to get away with using that template without speaking to a lawyer. If you are in a situation where the parties who are entering into the agreement are sophisticated and can help each other to negotiate an agreement that fairly reflects the deal that they would make if they were both to go to trial, then the, it’s possible that you won’t need to have legal advice. However, you probably will want to get legal advice.
For example, imagine that the parties are in two separate legal departments for two large companies and they’ve done this routine three or four times in the previous month, the likelihood that you actually need legal advice is small. But, there are several situations where you probably will have to consult with a lawyer. I’m going to run through a bunch of them now.
The first is if the other party is represented, meaning you have already been negotiating for 30 hours without lawyers and then the other party decides to hire a lawyer and they want their lawyer to draft the agreement, you probably need some lawyer advice and you need some serious help.
The next situation is if the agreement is more complex than just a simple exchange of money for services rendered. For example, if there is a confidentiality clause, if there is a non-competition clause, if there is an indemnification clause or a non-disclosure clause, or a release of claims clause, you probably need some serious lawyer help.
The next situation is if there is something unusual about the transaction that’s being memorialized in the agreement. For example, when we represent a person who meets with an accident and there are workers compensation issues and there are personal injury issues and there’s criminal liability , and there are problems with the license, we usually have to negotiate a settlement agreement that takes 90 days to negotiate and probably takes $50,000 or $60,000 to draft the agreement. That agreement, in the end, is like 38 pages long and almost 800 bilateral paragraphs. That’s extraordinary, but the lawyer need is extraordinary too.
Next situation is if you are not competent to negotiate the agreement for any reason whatsoever, you have to get some advice from a lawyer.
The next situation is if you don’t understand the deal, and sometimes you just don’t understand the deal, you just got to call a lawyer and say, "Can you give me an hour of your mind so that I can understand this deal? I don’t get it." If you don’t get it, you don’t get it and you need legal help.
The next situation is if you have a conflict of interest that has been disclosed and discussed but not waived in the agreement. For example, if you’re negotiating an agreement with one party, but you know that it’s very likely that you will want to negotiate an agreement with the other party later on in the year, it’s important that the agreement between the original party and your client is clear that there is a potential conflict of interest and that it hasn’t been waved and that you’re both on the same page. Otherwise, you need a lawyer to help you out.
Finally, the last situation is that if the lawyer preparing the agreement needs to talk to a client prior to signing the agreement. That’s like a secretary needs to get an answer from the client before she can send out the agreement, you need to get some legal help.