When parties settle without going to court, what prevents from suing for same thing?

Question

Say party X wants to sue party Y for $500 in damages. If, after some negotiation, party Y agrees to pay party X $400 if they don't go to court and make things quick and easy and party Y agrees. What would prevent from party X taking the $400 then still going to court? Would the case automatically be dismissed if the judge finds evidence this had been settled? What if party X argues that it had reconsidered and wants the full $500?

I'm assuming some sort of contract would be needed, that says something like "this issue is considered resolved upon receiving $400 from party Y and party X agrees to not initiate litigation relating to the issue". But even then, to my understanding, a contract can't prohibit a party from seeking legal remedies.

Answer 1

But even then, to my understanding, a contract can't prohibit a party from seeking legal remedies.

You are mistaken. A contract settling a bona fide dispute regarding people's legal rights can mutually (or unilaterally for that matter) release or waive their legal rights. In fact, a waiver or release of rights is routinely a part of a settlement agreement. Hundreds of thousands, if not millions, of such agreements are entered into every year and they are almost always enforced.

Sometimes, but not always, a settlement agreement will also call for a dismissal of a case with prejudice, which (roughly) means a dismissal that prohibits refiling a case involving the same subject matter.

Answer 2

Parties can differ in opinion, that's natural. But if the parties (prior to the court case) have come to the agreement that the actual damages were neither $500 nor $0, but $400, and this is paid, then a new situation is created. Party X cannot sue over a prior situation which no longer exists (uncompensated damages).

This inability to sue doesn't come from the contract; it's simply that there is no relevant law. Of course, if the $400 agreement was due to deliberate misleading on the side of Y, other laws may kick in and X might still be able to sue for the last $100.