Making a settlement deal enforceable, and arbitration clauses

Terms used

• Transacción — The transacción is a contract in which the parties settle a dispute, or prevent one, by each giving up or giving something.
• Escritura pública — The escritura pública is a document issued by a notary that gives an agreement official force and makes it directly enforceable.
• Homologación judicial — The homologación judicial is a court's approval of a settlement reached in a pending case.
• Convenio arbitral — The convenio arbitral is a written agreement to send disputes to arbitrators instead of the courts.
• Declinatoria — The declinatoria is the objection you raise in court to say the case belongs to arbitration, not the court.
• Sistema Arbitral de Consumo — The Sistema Arbitral de Consumo is the free official arbitration system for consumer disputes.

Key rules

• Settlement: A signed settlement binds you as a contract, but you cannot enforce it directly unless it takes one of the enforceable forms.
• Public deed: A notary's public deed is the usual way to make a private settlement enforceable.
• Arbitration clause: A valid written arbitration clause between private parties keeps the dispute out of court.
• Court objection: If you are sued despite a clause, raise the objection when you answer the claim or the court keeps the case.
• Consumers: As a consumer, you are generally not bound by a clause that forces private arbitration before a dispute arises.

A private settlement binds you, but you cannot enforce it directly

A private settlement (transacción) is a contract. Both sides give, promise or keep something to avoid a dispute or end one that has started. Once signed, it settles the matter between you, and neither side can reopen the same dispute.

The catch is that it is not directly enforceable. If the other side does not pay or does not do what they promised, you cannot go straight to enforcement. You would have to bring ordinary court proceedings first. The next section shows how to avoid that.

What a valid settlement needs

• Each person must have the legal capacity to dispose of what is being settled.
• Everyone must freely agree.
• The matter must be one that can be settled.

The law sets no required form, but put it in writing and have everyone sign. Some matters cannot be settled, such as your civil status, future support, or criminal liability. A settlement can also be cancelled if it rested on error, fraud or violence, or on documents later found to be false.

How to make a settlement directly enforceable

A settlement becomes directly enforceable only in one of these forms:

1. Public deed. Take the agreement to a notary and have it raised to an escritura pública.
2. Court approval. If a case is already pending, ask the court to approve the deal (homologación judicial).
3. Conciliation. Reach the deal in conciliation before a court clerk (LAJ), a notary or a juez de paz.
4. Mediation. Reach the deal in mediation, then raise it to a public deed.

If the settlement is for a money debt, the deed also needs a clear, fixed amount that is already due. A vague or conditional sum will not work. The documents and checklist below list what to prepare.

Does an arbitration clause bind you?

Generally, yes. If you and the other side signed a valid arbitration clause (convenio arbitral), disputes it covers go to arbitrators, not to the courts. The clause must be in writing, and electronic means count.

Courts still have a role. They can order interim measures, help gather evidence, and appoint arbitrators if you cannot agree. They also hear actions to annul an award and enforce it.

Matters the parties cannot freely dispose of, such as certain family or criminal issues, cannot go to arbitration.

If the other side sues you in court anyway

You must raise the arbitration objection (declinatoria) within the period for answering the claim, or at your first appearance. If you do not, the court keeps the case.

Consumer contracts are different

If you are a consumer dealing with a business, arbitration is voluntary for you. A clause that forces you into private arbitration before any dispute arises is generally void.

The exception is the official consumer arbitration system (Sistema Arbitral de Consumo). It is free and quick. It applies if the business has joined it, or if you both agree after the dispute starts. Its award binds both sides and is enforced like a court judgment. It does not cover cases involving poisoning, injury, death or signs of a crime.

This does not apply to contracts between businesses. There, the general rule above applies.

Documents you need

• A written settlement agreement (transacción) signed by everyone involved. The law sets no required form, but a written one is the safest proof of what you agreed.

• A public deed (escritura pública) issued by a notary, if you want the settlement to be directly enforceable. Without it, you would have to enforce the agreement through ordinary court proceedings.

Checklist

• Put the settlement in writing and have every party sign it.

• Take the agreement to a notary and ask to raise it to a public deed (escritura pública) so it is directly enforceable.

• Reach the deal in conciliation before a court clerk (LAJ), a notary or a juez de paz, or in mediation followed by a deed, if you want an enforceable title that way.

• Check that a settlement of a money debt describes a clear, fixed amount that is already due, so the deed can be enforced.

• Read any contract for an arbitration clause and check that it is in writing, including by electronic means.

• Raise the arbitration objection (declinatoria) within the period for answering the claim if you are sued in court despite the clause.

What to watch out for

• A signed settlement is not directly enforceable: A private settlement binds you both as a contract and stops the same dispute from being reopened. If the other side does not pay, you cannot go straight to enforcement. Raise it to a public deed before a notary, or have a court approve it, while the other side still cooperates.

• A settlement can be cancelled: A settlement can be annulled if it was signed because of error, fraud or violence, or based on documents later found false. Keep proof of what was said and shown, and put the agreement in writing.

• Some matters cannot be settled: A settlement cannot cover civil status, future support or criminal liability where public policy applies. Take advice before including those matters in any deal.

• A consumer arbitration clause may be void: If you are a consumer, a clause forcing you into private arbitration is generally void. Only the official consumer arbitration system can bind you, and only if the trader joined it or you agree after the dispute arises. Do not sign away your right to go to court. Contact your town hall's consumer office before agreeing to arbitrate.

Frequently asked questions

Can I cancel a settlement I signed if the other side lied to me?

Yes, a settlement can be annulled if you agreed because of error, fraud or violence, or if documents it relied on turn out to be false. Act quickly once you find out, and keep the evidence of what you were told.

What happens if I am sued in court despite an arbitration clause?

You must object by declinatoria, a jurisdictional objection, within the period for answering the claim or at your first appearance. If you do not raise it, the court keeps the case. Courts still help arbitration by granting interim measures and appointing arbitrators if the parties cannot agree.

Can a court review an arbitration award?

Yes, courts can hear an action to annul the award, but only on limited grounds. They also enforce the award if the losing side does not comply.

Can I choose the free consumer arbitration system after a dispute starts?

Yes, if the trader joined the consumer arbitration system beforehand or agrees to it after the dispute arises. It is free and quick, and the award is enforceable like a judgment.