Criteria for Creating an Enforceable Settlement Agreement in Texas
There are two essential terms necessary to create an enforceable settlement agreement: (1) performance of some act, typically the payment of money and (2) release of disputed claims.
Essential Terms for Creating an Enforceable Settlement AgreementFor purposes of formation, there are two, and only two, "essential" terms necessary under Texas law to create a valid and binding settlement agreement. The first "essential" term is the performance of some act, typically the payment of money. The second "essential" term is the release of disputed claims. The Settlement Agreement obviously contains these two "essential" terms as well as additional terms that are not "essential" for purposes of the underlying formation of a valid and binding settlement agreement. Under Texas law, a settlement agreement that contains these two essential terms does not need to resolve all disputed issues to be a binding and enforceable contract. For example, in E.P. Towne Center Partners, L.P. v. Chopsticks, Inc., the court of appeals upheld the parties' signed mediated settlement agreement because it contained both "essential" terms. 242 S.W.3d 117, 122-23 (Tex. App.--El Paso 2007, no pet.). Specifically, the court noted that the parties' agreement described the amount of money that Chopsticks, Inc. ("Chopsticks") was obligated to pay and provided for the mutual release of the parties' claims. Id. Nevertheless, Chopsticks argued that the settlement agreement lacked certain essential terms, because the parties' post-mediation negotiations left the return of a security deposit and the date for vacating the premises unresolved. Id. at 121. Not persuaded, the court held that while these issues "may have been significant to the parties' relationship," they were merely "collateral matters" for purposes of the formation of agreement itself. Id. at 123. In short, the agreement's silence on such unessential "collateral matters" did not affect its validity. Id.
Revocation of Consent to Enforceable Settlement Agreement is IneffectiveTexas courts have long held that once a party decides to accept a settlement offer, that decision is binding and the party is thereafter prohibited from arbitrarily withdrawing their consent from the settlement. In fact, any contrary ruling "would place a heavy and unfair burden on the party who has relied on the opposing party's acceptance of the settlement agreement only to find that the party subsequently withdraws such consent at a time of their convenience." Thus, in Ames, where the parties and their respective attorneys had signed the settlement agreement, the court refused to allow any party to unilaterally repudiate such agreement. 860 S.W.2d at 591. The court explained, "[i]n order to effect the purposes of mediation or other alternative dispute resolution mechanisms, settlement agreements must be treated with the same dignity and respect accorded other contracts reached after arm's length negotiations." Id. at 592. Simply stated, "if a voluntary agreement that disposes of the dispute is reached, the parties should be required to honor the agreement" and should not be permitted to arbitrarily withdraw. Id.