Settlement Agreements – Get Them in Writing
Sarah Johnson, Esq.
It’s often beneficial for the parties of a dispute to consider an early resolution via compromise. Settlements can offer a mechanism for a cost-efficient resolution, the preservation of business relationships, and peace of mind. Accordingly, it’s not unusual for design professionals to pursue settlements prior to litigation or even during litigation.
Design professionals may believe that a so-called ‘handshake,’ or a verbal settlement agreement, is a simple and easy way to resolve disputes. In a perfect world, both sides to a dispute would always honor the commitments made in these ‘handshake’ agreements. But such is not always the case, and the design professional will likely find that verbal settlement agreements are difficult or (in some circumstances) impossible to enforce when the other party refuses to honor what they agreed to.
Although verbal settlement agreements are typically subject to the law of contracts and thus enforceable to the same extent that a verbal contract is enforceable, proving the terms of a settlement agreement when there is conflicting testimony can be difficult.1 In order to show that an enforceable settlement agreement exists, the party seeking to enforce it must show an offer, acceptance, and meeting of the minds as to the essential terms of the agreement.2
In disputes over the enforcement of a settlement agreement, the party’s opposing enforcement frequently challenges the aforementioned acceptance and meeting of the minds. It is the burden of the party seeking to enforce the settlement agreement to show that the opposing party agreed to every essential term of the settlement.3 Given that the burden is on the party seeking to enforce the agreement, courts will often refuse to enforce the settlement agreement in the face of conflicting testimony and the absence of any writing.4
Indeed, in Georgia, an oral settlement agreement is enforceable only if its existence is undisputed.5 In other words, if the existence of a settlement agreement is disputed, it may only be established by writing under Georgia law. Additionally, there are certain instances where the courts of various jurisdictions have mandated that a settlement agreement be in writing to be enforceable from the beginning.6
While the impulse to compromise and obtain a settlement is laudable, it’s important to proceed in a careful and organized manner with the goal of obtaining a written, enforceable settlement agreement. If the design professional believes that a settlement agreement is an advantageous way to resolve a dispute, they should still notify their professional liability carrier prior to negotiating the settlement. This will help to ensure they’re not jeopardizing their insurance coverage by admitting liability or settling a claim without the insurance company’s knowledge or consent.
Additionally, the insurer can assist the design professional in drafting and obtaining a written settlement agreement, ensuring that the dispute is fully and finally resolved. In some instances, the claimant need not even know of the insurance company’s involvement, as the insurer may be able to simply provide the design professional with the necessary settlement documentation.
Claims Retrospective: The Improper Termination of Contracts Lead to Claims that Are Difficult to Defend
While it may not be a common occurrence, most engineers have had to terminate their contracts with clients on at least a few occasions. Typically, the engineer reluctantly terminates the contract after the client refuses to pay for services, fails to return communications, and/or engages in other actions or inactions making it impossible for the engineer to continue to perform their duties. The termination of contracts in these circumstances may be inevitable. However, engineers should act carefully in terminating contracts to either avoid claims or, at the very least, put themselves in the best possible position for defending such claims.
The engineer’s first step in evaluating how to terminate a contract should be to review all terms governing any applicable written contract. While it’s certainly good practice to include a termination clause in one’s written contracts, it does no good if the engineer fails to follow such clause when actually terminating the contract. Accordingly, engineers should consult and follow the termination clause in the applicable written contract.
If there is no termination clause in the engineer’s written contract or the engineer does not have a written contract, the engineer will likely still be able to terminate the contract, verbal or written, if the client breaches said contract. The most obvious breach being a failure to pay for the engineer’s services.
Please note that it is unlikely that an engineer will be able to terminate a contract due to the client’s failure to make a payment in relation to a different, separate contract.7 Where engineers have ceased all services for a particular client—including services under contracts for which the client has paid in full or has made timely payments—for failure to pay under only one or some (but not all) contracts, engineers have often faced claims and even licensing complaints. Moreover, in the aforementioned scenario, the clients have often obtained judgments against the engineers and/or the engineers have been disciplined as it has been determined that such practice is not proper. An engineer should consult a local attorney if they have any questions about whether there are grounds to terminate a contract.
Assuming the engineer has grounds for terminating the contract, they should still proceed carefully. The engineer cannot simply walk away from the project without any communication. Rather, the engineer should provide the client with written notice of the termination of services. The notice should include a citation to any relevant contractual terms, the reason for the termination, and what—if anything—can be done to cure the breach(es). Additionally, any advances or payments for services not yet rendered should be promptly returned to the client.
Although the pre-completion termination of services often leads to claims, an engineer who properly terminated their contract with the client will be in a much better position to defend said claims than an engineer who simply walked away from the project without considering the required or best way to terminate services. Depending on the complexity of the project and the nature of the relationship with the client, an engineer should consider enlisting the aid of a local attorney and/or their professional liability carrier in terminating services under a contract.
1Williams v. Ingram, 605 So.2d 890, 893 (Fla. Dist. Ct. App. 1992) (“Settlement agreements are to be interpreted and governed by the law of contracts.”); County Line Nurseries & Landscaping, Inc. v. Glencoe Park Dist., 46 N.E.3d 925, 932 (Ill. App. Ct. 2015) (finding that settlement agreements are governed by the principals of contract law); see also Sementa v. Tylman, 595 N.E.2d 688, 691 (Ill. App. Ct. 1992) (finding that the law of contracts is applicable to settlement agreements).
2County Line Nurseries, 46 N.E.3d at 932; Sementa, 595 N.E.2d at 691.
3Williams, 605 So.2d at 893.
4See Walz v. Walz, 652 So.2d 929, 930-31 (Fla. Dist. Ct. App. 1995) (finding no meeting of the minds as to essential terms and thus no enforceable settlement agreement where one party to a divorce responded “okay, okay” to certain requests, but the parties walked away with a written agreement only as to household and personal items); Metro. Dade County v. Estate of Hernandez, 591 So.2d 1124, 1124-25 (Fla. Dist. Ct. App. 1992) (finding that there was no enforceable contract in a case where there was conflicting testimony as to whether the $10,000 offer was accepted).
5Walker v. Lewis, 600 S.E.2d 773, 774 (Ga. Ct. App. 2004).
6See Cal. Civ. Proc. Code § 664.6 (Deering 2023) (“If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.”); see also Meyer v. Lipe, 14 S.W.3d 117, 119-21 (Mo. Ct. App. 2000) (finding that the statute of frauds prohibits the enforcement of an oral settlement agreement involving the transfer of land).
7For example, if the engineer has multiple contracts with the same client, they cannot cease work on a project for which they’ve been paid because the engineer was not paid on a different project unless there is contract language allowing for it.
