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Say party X wants to sue party Y for $500 in damages. If, after some negotiation, party Y agrees to pay party X $400 if they don't go to court and make things quick and easy and party Y agrees. What would prevent from party X taking the $400 then still going to court? Would the case automatically be dismissed if the judge finds evidence this had been settled? What if party X argues that it had reconsidered and wants the full $500?

I'm assuming some sort of contract would be needed, that says something like "this issue is considered resolved upon receiving $400 from party Y and party X agrees to not initiate litigation relating to the issue". But even then, to my understanding, a contract can't prohibit a party from seeking legal remedies.

  • The contract is formed when party X accepts the $400 in exchange for not going to court, regardless of how the agreement is, or is not, fixed - at least, so far as I know. Can't answer the 'can a contract bind you into not pursuing a legal remedy' thing, and I'm not sure there's enough information out there to answer (i.e. it hasn't actually been litigated yet (binding arbitration being an example).). – Stackstuck Nov 20 '17 at 12:10
  • I don't think this is worth a full answer, but essentially nothing can stop X suing for the same thing. What you are interested in is having the case dismissed at the earliest opportunity, with costs awarded against him (if this is possible in your jurisdiction). – Martin Bonner supports Monica Nov 21 '17 at 15:23
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But even then, to my understanding, a contract can't prohibit a party from seeking legal remedies.

You are mistaken. A contract settling a bona fide dispute regarding people's legal rights can mutually (or unilaterally for that matter) release or waive their legal rights. In fact, a waiver or release of rights is routinely a part of a settlement agreement. Hundreds of thousands, if not millions, of such agreements are entered into every year and they are almost always enforced.

Sometimes, but not always, a settlement agreement will also call for a dismissal of a case with prejudice, which (roughly) means a dismissal that prohibits refiling a case involving the same subject matter.

  • Truth here. OP, your attorney would of course need to make sure the release language is included in any final agreement prior to signing, but you absolutely can contract to not do things. It's called forbearance in contract law. – A.fm. Nov 20 '17 at 21:13
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    Pre-dispute waiver of legal rights is also sometimes allowed but the considerations and body of law that apply are different. – ohwilleke Nov 20 '17 at 21:16
  • From the answer given here it makes it sound like a contract can't force someone not to go to court. law.stackexchange.com/questions/8112/… – Smith Nov 21 '17 at 21:46
  • @Smith There is a grammatical slip in the final sentence of that answer. An arbitration clause can prevent you from seeking a remedy in court in most cases in the pre-dispute context. The only issue in a court would be over whether the arbitration clause was validly entered into. That answer does not address post-dispute settlements. – ohwilleke Nov 21 '17 at 22:06
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Parties can differ in opinion, that's natural. But if the parties (prior to the court case) have come to the agreement that the actual damages were neither $500 nor $0, but $400, and this is paid, then a new situation is created. Party X cannot sue over a prior situation which no longer exists (uncompensated damages).

This inability to sue doesn't come from the contract; it's simply that there is no relevant law. Of course, if the $400 agreement was due to deliberate misleading on the side of Y, other laws may kick in and X might still be able to sue for the last $100.

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