How to Handle Dismissals in Small Claims Court
How to Appeal a Small Claims Case if You Win
How to Get Additional Money from Your Small Claims Win

What You Should Know if You Choose to Settle Your Small Claims Suit

At some point the defendant may contact you and offer to settle the small claims case. You can settle a case at any point before you actually walk through the courtroom doors, and you have several very good reasons to do so:

  • There’s a big difference between winning a case and getting paid the money you’re owed. Settling the case in theory eliminates the problem of trying to collect money from someone who doesn’t want to give it to you.

  • Settling guarantees timely payment of the money the defendant owes you, because he’ll want to pay up before you change your mind and file the case.

  • You don’t need to go to trial to prove your case, and you don’t run the risk of losing.

    Failure to prove the case usually occurs because of lack of preparation or experience in court. Small claims cases also fail because plaintiffs don’t understand the statutes that often relieve the defendant of liability in a case.

Because the stipulation is an agreement settling the dispute, you may be accepting less money than you sued for. As the plaintiff, you’re trading the risk of proving your case at trial and perhaps collecting nothing for a guaranteed payment from the defendant in a timely manner. As the defendant, you’re paying less than the amount the plaintiff is asking for but agreeing to make payments voluntarily.

Often court personnel or volunteer mediators can help you prepare a settlement agreement. If you decide to settle the case, spend some time preparing the settlement agreement. A badly drafted agreement is worse than no agreement at all.

Where to settle

Often, it makes sense to settle the case when you and the defendant appear at the courthouse for the trial. Although this may seem a bit last minute, settling in the courtroom allows the settlement agreement to be allocuted, which means that the judge swears you and the defendant in and reviews the settlement with the two of you to make sure you each understand the terms of the settlement.

The judge may then so order the settlement agreement. By so ordering the agreement, it becomes an order of the court subject to enforcement by either party if the terms are not met.

A settlement agreement is usually called a stipulation. If the stipulation is so ordered and then the terms are violated — for instance, the defendant doesn’t make the payment as agreed — the party violating the terms of the agreement may be subject to sanctions for being in contempt of a court order.

If the stipulation is not so ordered, and the defendant breaks the contract between the two of you by not paying as agreed, you may have to take steps to have the case restored to the trial calendar to determine liability, damages, or both.

If the judge asks you if you understand the terms of the agreement when he allocutes it with you and you don’t, say so. Ask any questions you have.

Oral agreements

Never enter into an oral settlement agreement. If you do so, you basically have nothing to back you up if the defendant decides to back out of the arrangement, and you’ll be back in court. In the meantime, the defendant may have taken the time to make himself judgment proof by disposing of or transferring his assets, making it impossible for you to collect if you win the case.

There is an exception to “never” enter into an oral agreement — if the oral agreement is recited on the record either by a stenographer or a system that records everything being said in court. This is an exception because even though the agreement was oral, it can be reduced to a printed transcript relatively easily to show that everyone swore or affirmed on the record.

Spell out the terms

Like all agreements you enter into, the agreement that settles your case without a trial should clearly spell out what happens if either party fails to live up to the terms of the agreement. For example:

  • If the defendant doesn’t pay what he agreed to pay, do you have to notify the court and reschedule the matter for a trial on the merits, that is a trial at which you’ll have to prove all the essential elements of your case and the defendant can assert all of his defenses, or can you enter a judgment against him?

  • Do you have to give the defendant a notice to cure, which is the opportunity to correct any default before entering the judgment?

    There is a good reason to send a notice to cure because sometimes believe it or not the check is really in the mail or has been lost. This gives the defendant who was acting in good faith the opportunity to make good on his word and live up to the terms of the agreement.

    It also may save you one or more trips back to the court. For example, if the defendant finds out about the judgment being entered when the sheriff freezes his bank account, he may file an application in court to unfreeze his account and shows the court that the payment was made but lost in the mail.

  • If the defendant pays you what he owes and you’re supposed to return the item that was the subject of the dispute to him upon payment, what happens if you don’t deliver the item? Does he now have to bring a new lawsuit against you to either get his money back or compel you to deliver the goods?

  • If the defendant doesn’t pay, can you enter a judgment for the amount you sued for or only for the amount that you settled for?

  • If the defendant doesn’t pay can you get interest and costs that you may have waived in the settlement agreement?

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