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Settlement Agreement Enforceability

It is a common practice in settlement agreements providing for payments over time to include a provision for entry of a stipulated judgment in the event of default, in an amount greater than the balance of the payments due. This provides an obvious incentive to make the payments that the parties have agreed upon. Many attorneys seem unaware that these provisions are probably unenforceable in California. InGreentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (4th Dist. 2008), the court reaffirmed a fairly longstanding but somewhat obscure precedent holding that such provisions should be viewed as penalties and cannot be enforced.

I do not expect these provisions to disappear, however. When I recently mentioned to a settlement judge that these kinds of arrangements are unenforceable, he told me that he would not stop advocating them, since they still provide some incentive to perform the agreement (by the paying party), and therefore give some comfort to the receiving party, so they are still helpful to him in concluding settlements. So much for the power of the courts of appeal to affect practice.

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