Compromise Agreements: How Courts Interpret "Action" and Uphold Contractual Obligations

The Court of Appeals reversed, however, holding that in another section when they meant litigation. Their choice of the broader word "action" in Section 5 was therefore deliberate and significant.

The Court defined "action" by its ordinary meaning—the process of doing something, conduct, or a thing done—not merely a judicial proceeding. Selling the receivables was an to legal proceedings, they should say so explicitly.

• Read contracts as a whole. The parties' use of "legal action" elsewhere in the agreement was key to interpreting the unqualified word "action" in Section 5.
• Compromise agreements are binding contracts. They have the force of law between the parties and must be performed in good faith.
• New agreements can modify old ones. A later compromise may impliedly amend or waive inconsistent provisions of an earlier contract through novation.
• Courts will not allow indirect circumvention. A party cannot do indirectly what it promised not to do directly.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.