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Legal Formalities of Settlement Agreements

Posted by Chris C. Han | Aug 17, 2021 | 0 Comments

As a general rule,  a settlement agreement must have all the essential elements of a legally binding contract to be enforceable.[1] And formal requirements for contract execution are not needed — for example, the settling parties may use counterparts' signature pages to execute the agreement.

This post discusses the legal formalities of settlement agreements under New York law and what the settling parties in a lawsuit should know when recording their settlement to a dispute.

Settlement Agreement Must Be In Writing.

In some jurisdictions, an oral settlement agreement may be enforceable. In New York, however, the law requires that the settlement be written to be enforceable.

This writing requirement stems from CPLR 2104. Under Rule 2104 of the New York Civil Practice Law and Rules (CPLR),

“An agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered. With respect to stipulations of settlement and notwithstanding the form of the stipulation of settlement, the terms of such stipulation shall be filed by the defendant with the county clerk.”

On this basis, New York courts routinely require the settlement agreement to be in writing to be enforceable.[2]

As to how formal the writing needs to be, the courts tend to be less strict on the formality of the writing. In one case, the court found that emails between the parties were enough to satisfy the writing requirement.[3]

Court Approval Sometimes Required.

Most settlement agreements require no court approval to become effective. In general, the parties do not have to file the signed terms with the court. There are, however, specific instances by which the parties may wish to obtain court approval. These cases typically involve matters brought or defended representatively, and court approval is a requirement there. Common examples of settlement agreements that require court approval include bankruptcy court claims, class actions, and shareholder derivative actions.

Retain Basic Settlement Agreement Components.

Settlement agreements must include the essential elements of legally binding contracts. Businesses can also incorporate the use of counterpart signature pages and clauses.

But they may also require that original signatures appear on the same document. The selected method ultimately depends on the facts of the situation, applicable laws, and the formalities of settlement agreements preferred by the parties.

Take Affirmative Steps to Treat the Settlement Confidential.

Settlement Agreements are not automatically be treated as confidential. Suppose the parties wish to keep their settlement and their terms confidential. In that case, they must do so by including a confidentiality provision in their settlement agreement.

* * *

Settlement agreement enforcement depends on the terms. Speak with a business litigation lawyer to discuss the legal formalities of your settlement agreements and strategies for settling a dispute.

[1] Kowalchuk v. Stroup, 61 A.D.3d 118, 121 (N.Y. App. Div. 2009).

[2] See Apple Corp. Ltd. v. Sony Music Entm't, Inc., No. 91 Civ. 7465, 1993 WL267362 (S.D.N.Y. 1996); Greenidge v. City of New York, 179 A.D.2d 386 (N.Y. Sup Ct. 1992).

[3] Denburg v. Parker Chapin Flattau & Klimpl, 624 N.E.2d 995, 1000 (N.Y. 1993).

About the Author

Chris C. Han

Founding & Managing Partner


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