Stipulated Judgment vs Settlement Agreement

After a long day of negotiations, the parties have finally agreed on a way to resolve the case and settle their dispute, however, there is still one more decision to make—whether to put that agreement in a stipulated judgment or a settlement agreement.  On the surface, the two options look very similar.  Both include the terms of the agreement and both will be signed by the parties and are enforceable contracts.  However, there are several key differences between the operation of each type of agreement, and knowing how and when to use each one is important to accomplishing the desired outcome. Because an agreement means that the parties would like to create their own resolution, it is important to ensure that this outcome is actualized.  

This article looks to explain these key differences and the effects that they have on an agreement once it is reached.  It will begin by defining a stipulated judgment and then compare the judgment to a settlement agreement, highlighting the key differences and how it affects the enforcement of the judgment.  Next, it will look at some of the effects that a stipulated judgment will have moving forward from the lawsuit.  After that, the article will discuss some of the particularities of stipulated judgments in California.  Finally, it will discuss some of the benefits of using a stipulated judgment over a settlement agreement.

Stipulated Judgement Defined: 

A stipulated judgment is a judgment that the parties agree to and write out ahead of time.  It is called a stipulated judgment because the parties agree on the term that they would like to have, and then a judge will sign it into order if it is enforceable.  A judgment means that it is enforceable against the parties, and a stipulated judgment will carry the same weight as a regular judgment.  There are some benefits to a stipulated judgment, such as enforcement and self-determination.  However, agreeing to a judgment does require that certain rights are given up or admissions occur.  

  • Burden: First, the parties lose the ability to litigate the case and must accept any fault or debt that is contained within the judgment.  This also means that the party that instigated the action no longer has to prove that they had a right to bring that claim and that they were entitled to recovery.  
  • Defenses: Second, any potential defenses that either party may have to the judgment and the ability to litigate those.  This means that the parties cannot defend against any allegations within the signed judgment.  Therefore, the parties need to consider what effect each provision may have.  
  • Liability: Third, there is some admission of guilt or liability.  This means that one or both parties may admit some fault to the underlying dispute or issue, which can expose the parties to liability outside of the judgment or may cause problems in other areas.  
  • Appeal: Fourth, the parties lose the ability to appeal the judgment after it is entered if it is a stipulated judgment.  This means that a party cannot challenge the judgment if they do not agree with it.  When the parties submit a stipulated judgment, they are agreeing that it will have a lasting effect.  

Overall, a stipulated judgment is an agreement to end the case that will be enforced as an order by the court.  

Debt Collection and Stipulated Judgments:

Stipulated judgments are commonly used by collectors in debt lawsuits.  This is commonly used to avoid the debtor from having to go to court and potentially lose a lawsuit that may affect their life moving forward.  In collection cases, the judgment will require that the debtor pays all or some of the debt to the collector, usually on a set schedule.  Such a judgment stops the creditor from being able to seek wage garnishment, levies, or liens.  It specifically requires that the debt collector does not need to prove the debt, that the debtor loses all defenses, and that the debtor loses the ability to appeal the judgment.  Because it avoids the full judgment and the ability to collect through harsh methods, many debtors will agree to such judgments.  

Differences between a Stipulated Judgment and a Settlement Agreement: 

There are some key differences between a settlement agreement and a stipulated judgment that affect the ways that they are enforced and how they interreact.  While a settlement agreement is usually the basis for a stipulated judgment, a stipulated judgment is not always a part of the settlement agreement.  What this means is that most stipulated agreements are based on a settlement agreement, but not all settlement agreements result in a stipulated judgment.  This distinction is important because it affects how the parties choose to resolve a dispute and the possible enforcement mechanisms. The differences in these two agreements are: 

  • Scope: A settlement agreement will often cover all aspects of a case and detail how each specific action or inaction will affect the relationship between the parties.  A stipulated judgment will often include some of this, but can often include only the aspects that the parties need or would like to be enforceable by the court.  Because it is a public record and an order, it may not include as many details in the agreement. 
  • Liability: While it is not always the case, stipulated judgments will often include some kind of determination of liability.  This may not be as noticeable as an outright statement of liability.  Instead, it is often an admission through an agreement to pay money to the other.  Settlement agreements may have some liability in them; however, they often resolve the case outside of a judgment, so there is not as much of a public record of potential or actual liability determination.  
  • Enforcement: Both types of agreements may be enforced by the court; however, because a stipulated judgment is then put in an order, it often carries more weight and enforcement ability than a pure settlement agreement.  A settlement agreement will often carry penalties, but they may not be enforceable if the court is not assigned jurisdiction through an order.  
  • Partiality: While a stipulated judgment will resolve the lawsuit in its entirety, a settlement agreement can settle the case in full or in part.  If the parties can only agree to certain aspects, they may submit a settlement agreement on those parts and let the court decide the rest.  

The two types of agreements are often very similar, and these differences may often present in minor ways.  However, understand the differences is important to consider which type of agreement may be the best in a particular suit.  

Effects of a Stipulated Judgment:

When considering a stipulated judgment, one must also consider the effects that such an agreement will have on the suit.  While a stipulated judgment will resolve the case, it is important to understand the ways that the case will be resolved and how that will affect the parties and their relationship moving forward.  Some of these effects are: 

  • Credit Scores: Because a stipulated judgment is not an award granted after a full trial, the judgment is recorded as a judgment in the same way on a credit report.  This is particularly important when you are the party that needs to pay the other, whether through debt or through a determination of liability:  Judgments on credit reports are often a large obstacle to overcome when improving credit, and a stipulated judgment may avoid the judgment on the credit report fully, but it also gives the debtor a chance to remove the judgment through a smaller payment over time.  
  • Enforcement: A stipulated judgment also often includes a provision for the enforcement of the judgment, particularly if the party that owes the debt falls behind.  For example, in the debt-collection world, a creditor may receive a stipulated judgment for the whole amount of the debt but will agree to only collect a certain amount over time.  In this case, the creditor will still be able to collect the entire judgment if the debtor fails to make payments or falls behind again.  
  • Loss of Rights: As noted above, certain rights are given up when a party agrees to a stipulated judgment, such as the ability to appeal and any defenses that may be in play.  

While these are only a few of the effects, they are important in the determination of whether a stipulated judgment is the best course of action.  They apply to all stipulated judgments but have stronger applicability when one party is required to pay the other, especially in debt collections.  

Particularities in California: 

Stipulated judgments are important to consider no matter where a dispute takes place, but especially in California. A stipulated judgment in California must overcome some particular rules that enforce judgments while encouraging oversight of stipulations.  This has to do with the strict rules surrounding liquidated damages in contracts in California.  Because a stipulated judgment is a contract between the parties for the resolution of the dispute, it must follow the contractual rules for liquidated damages.  In California, liquidated damages are allowed unless a party can establish that the provision was unreasonable under the circumstances that existed at the time the contract was made.  What this means is that the penalty for the breach of stipulated judgment may not be a penalty or consequence that was outside the realm of possible penalties for breach when they made the agreement.  

For example, assume that you and I had a contract where I provided you the use of my home as a place to stay while you are in town, and you pay me an agreed-upon rate based on the length of your stay.  You come and stay at the home, but you then refuse to pay me.  At the end of the contract, you owe me $1000 for the week you stayed.  Under California law, I cannot write into my contract that you must pay me $5000 if you refuse to pay for your stay because that is outside the realm of possibilities of penalties at the time of the contract.  I could require that you pay $1250 if I state that there is a $250 late fee if you do not pay by the date you leave.  that was contemplated at the time of the contract.  Similarly, we cannot sign a stipulated judgment where we agree that you will pay me $5000 if you do not pay the $1000 in four monthly payments of $250.  Again, this penalty exceeds the realm of possible consequences when the contract was formed.   

Therefore, there are limits imposed on the agreements that may be made in stipulated judgments in California to avoid a liquidated damages assessment.  The damages must reasonably compare to the anticipated damages in the event of a breach of the contract.  The best way to create a stipulated judgment that is enforceable under California law is to ensure that any damages based on a breach are reasonable.  This includes listing any facts that support the reasonableness of damages, such as the calculations used to arrive at the number and any special considerations used to determine the amount.  It is also important to avoid or explain any significant differences between the settlement amount and the judgment damages.  Consider granting a benefit for early payment over punishment for late payment.  Finally, it is best to include other costs separately in the agreement, such as attorney fees, costs, and interest if needed.  While these rules do impose some new considerations on stipulated judgments in California, they do protect the parties from large, unrelated payments in the instance of late or missed payments.  

Benefits and Drawbacks of Stipulated Judgments: 

When considering signing a stipulated judgment, it is important to consider the benefits and drawbacks that such an agreement will provide.  In some cases, the benefits of settling through a stipulated judgment will outweigh the drawbacks, but understanding when they will not is important to finding the best resolution to a dispute.  Some of the benefits of a stipulated judgment include: 

  • Resolution: This is the largest benefit that a stipulated judgment may produce.  Because the judge will resolve the case, there will be no need for further litigation and the part forward will be clear.  
  • Avoiding Garnishment: A regular judgment against a debtor or another person required to pay a money amount in a judgment may be recovered through garnishment of wages or other tactics used to allow the creditor to collect the judgment.  A stipulated judgment does not allow this type of collection unless the payments are missed.  
  • Smaller Judgments: A creditor or other party will often agree to a smaller amount on the judgment if the other party agrees to pay it in full or in payments.  This will reduce the overall amount owed and can make sure one party receives the money and that the other can pay it. 
  • Encourages Compliance: Because the penalty for not complying with the judgment is often that the whole amount is owed immediately, parties are more likely to comply with the payment plan or the smaller amounts.  It encourages the parties to comply with the judgment rather than face a large amount faster.  
  • Enforceability: A stipulated judgment is enforceable unless it violates contract law.  This means that it is a guaranteed recovery if wither the contract is broken or the parties comply with the agreement.  This gives parties the peace of mind to know that there will be enforcement and resolution.  

Some drawbacks of signing a stipulated agreement include: 

  • No Defenses: Signing a stipulated judgment, especially in a debt collection lawsuit, does not allow the parties to litigate the case, particularly any possible defenses to the debt that the debtor may have.  This could cause the debtor to pay more money to the creditor that they are entitled to.  
  • Harsh Penalties: The flip side of the enforcement and compliance benefits mentioned above includes that the parties may face a harsh penalty if they cannot afford or are late on a payment.  This may include a judgment for the full amount and may allow wage garnishments and other collection methods.  

Conclusion: 

Stipulated agreements are a useful tool in resolving disputes, especially within the debt collection sphere.  They encourage the parties to find a resolution that works for all parties while providing a way for the agreements to be enforced.  It carries more weight and fulfills a smaller scope than a settlement agreement, but gives the parties a clear picture of how their dispute will resolve.  A stipulated judgment may end up on a credit report, but it is a softer application than a full judgment and does not allow the parties to garnish wages or enforce the debt in other ways.  In California, the parties need to ensure that they are not violating the rules for liquidated damages. But otherwise, the process has the same protections, benefits, and drawbacks as any other state.  Settling a case with a stipulated judgment is a great way to use self-determination and ensure that the agreement reached is enforced.  

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