Out-of-Court Settlement Definition:
An agreement between two litigants to settle a matter privately before the Court has rendered its decision.
An agreement, usually but not always a compromise, between two litigants to end a claim which is the matter of a live dispute before a court of law.
From the Australian Legal Dictionary:
"Out of court settlement: In civil proceedings, parties to proceedings may, without reference to the Court, at any time before final judgment, offer to settle or compromise all or any of the matters in issue between them. To record and give expression to the terms of an out of court settlement or compromise the parties may enter into a formal agreement ... taking effect as a contract, and providing for the discontinuance of the proceedings.""
In the event of an out-of-court settlement which is a compromise, the litigants extend to each other concessions.
An out-of-court settlement is an amicable agreement which resolves litigation. In an out-of-court agreement, the litigants agree on a new set of obligations which replace whatever they had claimed in their pleadings as otherwise due.
In American law, the out-of-court settlement is often referred to as a compromise agreement. For example, note these words of Justice Kinneary of the United States District Court (Ohio) in Globe Metallurgical v. Hewlett-Packard:
"A compromise agreement is an agreement to settle a previously existing claim with a substituted performance. A valid compromise and settlement bars all right of recovery on the previously existing claim. This is so because the compromise agreement is substituted for the claim, and the rights and liabilities of the parties are measured and limited by the terms of the agreement. The previously existing claim is extinguished by the compromise and settlement and, as a result, any subsequent litigation based upon it is barred. A compromise agreement is a contract and, as such, there must be mutual assent of the parties and consideration."
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