In all aspects of business and contracting, but especially after a lawsuit has been filed or threatened, one party may approach the other party with a comprehensive release agreement as part of a settlement of the dispute. A release agreement is a form of contract wherein the party who has allegedly committed the wrong requests a written release of the claim from the aggrieved party in exchange for a settlement payment. The release may be specific to the claims involved in the dispute, or it may be a “general release” of all claims of all types between the parties. Once the claim is released, the agreement is binding on both parties, and the claim is rendered inactionable. The terms of the release are negotiable. Just because you didn’t author the document does it mean you do not have a say in what claims you are releasing.
Here is a scenario where a general release was used, which demonstrates the importance of reviewing the specific language used. The example comes from the recent case of Levy v Ford Motor Company (Click here for a PDF of this decision). Party A had a history of contracting with Party B for delivery of construction materials and services. In October 1998, an incident occurred involving a truck owned by Party A and a train owned by Party B. Each party maintained that the other was responsible. Party B issued a debit memorandum in 2001, and thereafter stopped paying invoices to offset its alleged losses from damage to its train. In connection with other contracts, Party A sued Party B for payment for ready-mix concrete shipped after May 2004. The parties settled that case, and their agreement included a release that comprehensively waived any further claims Party A might have against Party B “from the beginning of time,” but “with the sole exception of any claim arising out of damage to the train equipment.
In 2007, Party A filed an action as a claim for payments due under invoices dating from “2001 and before” in connection with deliveries of materials to Party B. Party A sought monetary contract damages plus an accounting. However, the Court held that Party A had already released any and all claims it might have otherwise had against Party B arising from events prior to 2004, despite the fact that the claims were not related to the train accident. Because of the comprehensive language and nature of the release it had signed in the first settlement, Party A wound up releasing any and all claims it could have had against Party B, despite the fact the causes of action were completely different.
Always have an attorney review your settlement and release documents to ensure you are preserving valuable rights and not being taken advantage of in the settlement.
This article was written by , Senior Associate at Demorest Law Firm.
