CIT Group Inc , the cash-strapped corporate lender struggling to avoid bankruptcy, made an out-of-court settlement with small apparel maker Scherr Inc, which had sued to end its relationship with the company, the two parties confirmed on Friday.

This was a unique situation and following consultation between the plaintiff Scherr Inc and CIT, Scherr Inc has withdrawn its complaint with prejudice, CIT spokesman Curt Ritter said.

Vano Haroutunian, a lawyer at the firm Ballon Stoll Bader & Nadler representing Scherr, confirmed that the suit, which was filed in New York state court about two weeks ago, had been withdrawn and would not be refiled.

Under the settlement, CIT gave in to its client's demands to be freed from its contract, the New York Post reported earlier on Friday, citing sources. Haroutunian told Reuters last week that the parties were in settlement talks but would not comment on the nature of the settlement.

Since Scherr sued CIT, numerous apparel companies have been mulling similar court actions, the paper quoted industry insiders as saying.

Scherr, based in Livingston, New Jersey, has said in court documents that CIT has not been able to give it the assurances it needs that it will hold up its end of the factoring agreement it signed earlier this year. Scherr had asked the court to terminate that agreement.

A factoring agreement is a type of credit agreement typically used by smaller companies that ship goods in which CIT is paid a fee to ensure payment by acting as a middleman between the company and its customers.

(Reporting by Caroline Humer in New York and S. John Tilak in Bangalore; editing by Simon Jessop and Gerald E. McCormick)