Full settlement: Overview, definition, and example
What is full settlement?
Full settlement refers to the complete payment or resolution of a financial obligation, claim, or dispute, leaving no further liability between the parties. Once a payment or agreement is made in full settlement, the creditor or claimant cannot demand additional amounts or take further legal action regarding the settled matter.
For example, if a business owes $10,000 to a supplier and negotiates a final payment of $8,000 in full settlement, the supplier agrees to accept the reduced amount as complete payment, waiving any right to claim the remaining $2,000.
Why is full settlement important?
Full settlement provides certainty and finality in financial and legal agreements, ensuring that once a payment or resolution is made, no further claims can arise. It helps businesses and individuals avoid ongoing disputes and unexpected liabilities.
For creditors, accepting a full settlement—even if it’s less than the original amount—can provide immediate resolution and prevent costly collection efforts. For debtors, negotiating a full settlement can reduce financial burdens and eliminate outstanding obligations without future risk.
Understanding full settlement through an example
Imagine a freelancer completes a project for a client, but the client disputes part of the work and refuses to pay the full invoice of $5,000. After negotiations, they agree that the client will pay $4,000 as full settlement. Once the freelancer accepts and receives this amount, they cannot later demand the remaining $1,000.
In another case, a company is involved in a lawsuit where a former employee claims unpaid bonuses. To avoid prolonged legal costs, both parties agree to a settlement where the company pays a one-time sum of $15,000. As part of the full settlement, the employee waives any further claims related to the dispute.
An example of a full settlement clause
Here’s how a full settlement clause might appear in a contract:
"The Parties agree that the payment of [$Amount] constitutes full and final settlement of all claims arising from [describe obligation or dispute]. Upon receipt of payment, neither Party shall have any further claims or demands against the other regarding this matter."
Conclusion
Full settlement ensures that financial obligations and disputes are resolved completely, preventing future claims or legal actions. Whether settling debts, invoices, or legal disputes, a well-defined full settlement agreement provides closure and certainty for all parties involved. Businesses and individuals should carefully review settlement terms to ensure they fully understand their rights and obligations before agreeing to a final resolution.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.