Chicago Business Litigation Lawyer Blog
The lawyers shook hands in the hallway, or the owners worked it out in the judge’s chambers. Everyone reported the case as settled. Then the written agreement came back with terms nobody remembered, the other side stopped returning calls, and the first payment never arrived. Now you are asking whether you have a settlement or only a memory of one.
In Illinois you may well have an enforceable agreement even with nothing signed. Settlement is a contract, an oral settlement can bind the parties, and a court can enforce it. But a court will enforce only the terms the parties actually agreed on. The side that wants certainty has to get those terms down early, in writing, and with thought for what happens if someone does not pay.
Is an oral settlement enforceable in Illinois?
It can be. “A settlement agreement is in the nature of a contract and is governed by principles of contract law,” and “[o]ral agreements are binding so long as there is an offer, an acceptance, and a meeting of the minds as to the terms of the agreement.” K4 Enterprises, Inc. v. Grater, Inc., 394 Ill. App. 3d 307, 313 (1st Dist. 2009). The material terms must be definite and certain. Id.
K4 is the case to read. During a jury trial, the principals of the two companies met with the judge in chambers, without their lawyers, and negotiated a settlement. Id. at 308-09. A dispute over the terms followed, including a letter acknowledging “considerable disagreement.” Id. at 309. The plaintiffs moved to enforce, the trial court found an oral settlement agreement, and the appellate court affirmed that finding. Id. at 308. A party who assumes that no deal exists until the paper is signed could be badly surprised.
Can a court add terms the parties left out?
That is the other half of K4, and it is just as instructive. The trial court had also accelerated the payments and entered judgment for the full $2.8 million due under the agreement. Id. at 308. The appellate court vacated that order, because the record did not show that the parties agreed to an acceleration clause when they negotiated their settlement. Id. at 319. So the winner of the enforcement fight received the deal, but not a remedy the deal did not contain. If you want a right to accelerate on a missed payment, you have to get it agreed on.
What does a general release actually release?
That depends on the words and sometimes on more than the words. “A release is a contract, and therefore is governed by contract law,” and the parties’ intention is determined from the instrument itself where there is no ambiguity. Farm Credit Bank of St. Louis v. Whitlock, 144 Ill. 2d 440, 447 (1991). In Whitlock, a release agreement carried general release language but also repeated references to one specific loan, and the parties fought over whether it also wiped out a second loan. Id. at 445-47. The Illinois Supreme Court held that unresolved questions of fact about the release barred summary judgment. Id. at 447. A clause meant to end all disputes produced a further dispute because the document pointed in two directions.
The lesson applies in both directions. A party giving a release should identify anything it means to keep. A party receiving one should make sure that recitals and references do not narrow what it paid for.
What should a settlement say about non-payment?
Many settlements pay over time, and those are the ones that fail. A payment term is only as good as what happens when the payment does not arrive. The agreement should address the deadline, any notice and cure period, whether the remaining balance accelerates, interest, attorney’s fees for enforcement, whether a judgment may be entered for a stated amount on default, and whether the claims remain alive until the money is paid. It should also address when the case will be dismissed. Dismissing before you have been paid, without any arrangement for the court to enforce the deal, can leave you with a new contract lawsuit rather than a quick motion. An agreed order that sets out the payment schedule and the consequences of default can avoid much of that.
What should you do if the other side backs out?
Move promptly, and be careful about what you say. Write down the terms as you understood them while memories are fresh. Gather whatever exists: emails between counsel, the mediator’s proposal, drafts, and any statement to the court that the case had settled. Decide whether you are trying to enforce the deal or walk away from it, because arguing both at once can undercut each position. And be honest about whether the terms were settled. A party that wants enforcement must show agreement on the material terms, not just a general wish to resolve the case. If the term in dispute is material, the other side may say there was never a meeting of the minds.
Three steps help before you ever say the word settled. First, put the material terms in a short signed writing or on the record the same day, including amount, timing, the scope of the release, and confidentiality if it matters. Second, state whether the deal is binding now or only upon a later signed agreement, since that sentence can decide a future fight. Third, write the default terms before you need them, because a court will not supply a remedy just because it would have been a good idea.
Most settlements end disputes. The ones that do not usually fail for the same reason: someone treated the handshake as the end of the work. It is closer to the beginning of the last piece of it.
If a settlement has fallen apart, or you are about to sign one and want it to hold, we can help you decide where you stand. Call DiTommaso Lubin, P.C. at 630-333-0333 for a free consultation, or contact us online.
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Peter S. Lubin and James V. DiTommaso are Chicago business litigation lawyers who try cases throughout Illinois. Peter is a graduate of the University of Chicago Law School, where he has taught trial practice for decades, and he has been recognized as an Illinois Super Lawyer. He has served as lead counsel in more than one hundred class actions and has handled more than one hundred shareholder, LLC, derivative, breach of fiduciary duty, and fraud matters, on both the plaintiff and the defense side. Crain’s Chicago Business credited him with the largest class action settlement of the year for a $40 million recovery in Erikson v. Ameritech, and the firm has been named DuPage County Law Firm of the Year. The firm and its lawyers have represented clients such as McDonald’s, Motorola, and Experian, and have litigated against companies including AT&T and General Motors. James DiTommaso, a graduate of Chicago-Kent College of Law with a certificate in business law, has served with the Illinois Appellate Court and has argued a case before the Illinois Supreme Court. He litigates these disputes in the Illinois trial and appellate courts and in the federal courts. When you hire this firm, the lawyers whose names are on the door are the ones who handle your case.
This post is for general information and is not legal advice.