Release of Claims: Potential Benefits and Pitfalls

In drafting contracts, it’s a good idea to keep in mind current and future areas of potential liability. One way to keep these possible issues at bay is through a release of claims. A release of claim is essentially a waiver of claims or causes of action, and can be mutual or unilateral. A common version of a release of claims is a settlement agreement, in which one party relinquishes the right to a cause of action against another for some type of consideration. (Remember consideration? It’s an integral part in contract formation, along with offer and acceptance. In a nutshell, consideration is something of value that induces each party to enter into a contract. Refer to our previous blog posts on business negotiation and contract drafting here for more tips on general contract drafting.)

A release of claims is generally valid, as long as they meet some core criteria.  Two general principles guide the law on releases: First, a general release is valid as long as it does not violate any statute. As such, you cannot circumvent legislative decisions and contract to waive any claim or cause of action if the legislature has expressly said otherwise. This is usually only in the case where lawmakers find a certain cause of action or claim so important that they believe that parties should not be able to waive it under any circumstance.

Second, a general release is valid as long as it does not violate public policy. “Public policy” is a vague, and somewhat ambiguous concept—but in essence, voiding a general release using the doctrine of public policy is to discourage the upholding of a compromise or settlement in the face of fraud, mistake or accident. After all, courts want to encourage settlement, compromise, negotiation, and mediation outside of the courtroom, and if parties have willingly and voluntarily come to an agreement, a court sees no reason not to uphold such an agreement unless some other unsavory factors have been at play.

There are some other additional factors which courts take into consideration when interpreting contracts, and which could be important to your case, so always be sure to consult your own attorney first if you’re contemplating the use of a release of claims in your business arrangements.