What Is a Settlement Agreement?
When two or more parties who are embroiled in a legal dispute come to an agreement, they will typically enter into a written component of the agreement that is sometimes referred to as a settlement agreement. For example, Carol and Dean may be getting a divorce, and now need to divide both parenting time and property. Susana and Sally are selling a piece of real property together and need to allocate their share of the proceeds. In each of these cases, the parties have probably resolved the legal issues or disputes, but need a written document that delineates exactly what the agreement is so that it can be a court order. Oftentimes , the settlement agreements that the parties enter into are quite complex, especially in commercial litigation matters, and require significant amounts of legal analysis and knowledge.
Parties will enter into settlement agreements for a variety of reasons, including to settle a contentious matter amicably. In other cases, perhaps one party agrees to a settlement because it is the less expensive path. Perhaps parties are willing to forego potential future litigation in order to achieve peace. In any case, it can be a huge relief in both personal and business situations to resolve very complex matters.
Legal Basis for Voiding a Settlement Agreement
While it is always preferred to honour a settlement agreement and move on, there are some circumstances where a Settlement Agreement may be overturned. This is a general overview of some circumstances that have been held to overturn agreements in the past.
Fraud: Fraud occurs when one party has knowingly made a mistake about a material fact to induce the other to act. The court will examine from the context whether or not an agreement was based on misrepresentation and therefore not binding on either party. In particular, fraud has been used successfully to overturn agreements involving tax releases when the parties could not have possibly known what the CRA would choose to do with respect to the family law property. If the court finds that an agreement is based on a fraudulent term, then the court can find it to be not binding on either party.
Duress: Duress occurs when one party has used threats or torturous behaviour to force the agreement. The example below is often used by the court for duress: X and Y are divorcing. X is smaller than Y. Y demands that X sign a Separation Agreement in order to get money from them. Otherwise, Y will use their size to hurt X. X has no way of physically defending themselves so they sign the Agreement.
Duplicitous Settlement Agreements: If you are entering into an agreement, you must be careful about what you are agreeing to. In some cases you may be waiving your rights to something you don’t know you have (such as an inheritance). These types of settlement agreements may be set aside if following a trial it is discovered that there was something which they could not have anticipated would be subject to property division.
Mistake: Mistakes can have several flavours. Mistake can involve the mistaken belief of one or both parties over a material fact such as the date of separation or the value of the asset (called unilateral mistake). It can also involve an omission of a point that both parties both agreed to as part of the agreement (mutual mistake). If there was a mistake, the entire agreement may be set aside. Ordinarily, the court will not ask both parties to return to the table to agree to a new term, they will simply find that the agreement is null and void. Mistake can also involve the misconception of the meaning of the words you are using. Whether you intended something a certain way, or said it in another – the court does not take it lightly on whether the intent of the parties was present when interpreting the agreement.
Challenging a Settlement Agreement
When a party to a contract, whether that contract is real property or a divorce contract, wishes to challenge an agreement under which they have signed, the first step is to go to a lawyer with experience in this niche area of the law. The attorney might recommend that the client pursue a negotiated out-of-court settlement solution with the other party in the hope of saving everyone involved time and money. However, if this is not an option, the client’s lawyer will likely need to seek a court order to set the contract aside.
In such an instance, the party asking the court to set the agreement aside would file a complaint as if the case were being entered into litigation for the first time. This will typically include causes of action for fraud and misrepresentation, along with anything else that could possibly be argued to put the contract in jeopardy. The lawyer who’s representing the party would try to convince the judge that the party has good reason to believe that he or she should no longer be bound by the terms of the settlement agreement. The onus of the burden would be on the party filing the suit to convince the judge to void the contract.
There are two forms in which the party with concern about the settlement agreement can attack the contract in the family law court. An adversarial action, which involves the filing of a petition to set aside a stipulation and order, is one of the options. The other option is a non-adversarial procedure also known as a motion for relief from waiver. The former is better if one or both parties are likely to contest the validity of the order. The latter is used if there is any expectation that one or both parties will consent to the relief sought.
If the court is convinced of its jurisdiction, it can then void the settlement agreement. When it comes to the question of whether to void the order, the judge may consider several factors, including: The general rule of evidence in these matters seeks to favor the enforcement of voluntary settlement agreements. However, if the court does not believe that the settlement agreement in question fulfills the requirements above, it might well void the contract. However, if the parties are in agreement concerning the terms of the contract, it is not likely that the court will overturn the agreement.
Once the court has made its decision on whether to set aside the contract, that order cannot be overturned unless the court itself erred in render the order. The client will not be able to appeal the order after it was entered. It’s of paramount importance to seek experienced counsel in addressing issues with a settlement agreement before it is entered.
Time Limit & Statute of Limitations
Time limits are an important issue when it comes to overturning an agreement or understanding. Every jurisdiction has a specific time frame in which parties may overturn a settlement agreement, and how that time limit can impact your situation may vary depending on what jurisdiction you are in. In California, the statute of limitations for breach of contract is two years, meaning that a party who wants to challenge an agreement must file a lawsuit within that period. In New York, the statute of limitations can run as long as six years . A shorter statute of limitations may make it harder for a party to file a lawsuit, and if too much time passes, the measure of damage may change. For example, if a lawsuit is filed in Alaska and it takes over a year for a trial to commence, the damage may be for the quarter when the trial actually begins rather than the quarter when the lawsuit was filed. This can be important in cases where there is a range of recoverable damages, and one specific year in which the damages are greater than the others.
Possible Results of Voiding
If a settlement agreement is overturned successfully, you should know that this can have a wide variety of consequences. The legal ramifications can be significant. You may decide to pursue other legal actions against the other party. The outcome of these other choices may be different than the settlement was. Because a settlement is basically a compromise where both parties take chances, this creates a special risk if the settlement agreement is overturned.
Financially, you could have potentially better outcomes through subsequent litigation or negotiations, such as the ability to recover more money paid in damages or losses. Or you could potentially have a worse outcome, paying greater legal fees or having a lower award in the final ruling.
Relationally, the other party may feel justified in being angry about your pursuit of the settlement overturn. The proceedings may become more adversarial. On the other hand, the relationship may improve if both parties are willing to renegotiate an agreement that is more fair and just to both people. It is helpful to have an attorney to serve as a buffer and to speak on your behalf.
Involving an Attorney
Often, it can be overwhelming when you have fallen into a bad financial situation and your losses increase to the point that the settlement option doesn’t match your expectations. What now? Unfortunately, it is common to accept a settlement without seeking the assistance of a qualified attorney and ultimately accepting a settlement that does not meet ones’ financial needs. Because your options grow complex and differ from a court decision , handling these uniquely custom terms of a settlement with the proper advisement is essential. Consulting with an attorney can help you understand all alternatives available to you at this point. They will also evaluate the details of your situation and provide you with solid advice that helps improve your chances of getting a better case outcome.
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