Release

A release is a contractual or unilateral relinquishment of a claim against another party. Releases are foundational to settlement practice, most settlements include a release of the underlying claims, often coupled with mutual releases of all claims between the parties. The scope of a release is determined by its language; sophisticated commercial parties are generally bound to the terms they sign, even if the release covers more than was specifically negotiated.

Types of releases

Common release structures: (1) specific release, releases identified claims (e.g., "all claims arising out of the lease dated [date]"); narrowest in scope; (2) broad release, releases all claims, known and unknown, between the parties as of the release date; (3) mutual release, both parties release each other; standard in commercial settlements; (4) unilateral release, only one party releases; common where consideration runs one way (employee severance, loan workout); (5) general release, all claims of every kind, often with broad "including but not limited to" language. The scope of release language is heavily negotiated and often decisive in subsequent disputes.

The Schlumberger framework, disclaimer of reliance

Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997), addressed the enforceability of a release against a fraudulent-inducement claim. The Texas Supreme Court held that a release with a disclaimer of reliance, language stating that the releasing party did not rely on representations of the other side, can defeat fraudulent-inducement claims. Italian Cowboy Partners (Tex. 2011) held that a standard merger clause does not disclaim reliance. The language must disclaim reliance clearly and unequivocally. If it does, courts look to the circumstances of formation, including whether the terms were negotiated rather than boilerplate, whether the parties discussed the issue later disputed, whether the complaining party had counsel, whether the dealing was at arm's length, and whether the parties were knowledgeable in business matters. Id. (citing Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60 (Tex. 2008)).

Release of unknown claims

Standard release language often refers to "claims known and unknown." A release must "mention" the claims it covers, Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 938 (Tex. 1991), but a claim need not be specifically enumerated. In Memorial Med. Ctr. of E. Texas v. Keszler (Tex. 1997), a release of all claims, "known or unknown," relating to a physician's relationship with a hospital barred his later toxic-exposure claim, although the release did not name that claim. A release limited to claims from one described transaction does not reach claims from a different transaction. Victoria Bank, 811 S.W.2d at 938-39.

Statutory limits, DTPA waiver bar

Section 17.42 of the Business and Commerce Code makes consumer waivers of DTPA rights "contrary to public policy and unenforceable" except in narrow circumstances. Section 17.42 applies to waivers by consumers of DTPA provisions, which can affect releases in consumer transactions. A waiver is valid only if all three conditions in § 17.42(a) are met: it is in writing and signed by the consumer, the consumer is not in a significantly disparate bargaining position, and the consumer is represented by legal counsel in seeking or acquiring the goods or services. Counsel directly or indirectly identified, suggested or selected by the defendant does not count, and the waiver must be conspicuous, in bold-face type of at least 10 points, under the heading "Waiver of Consumer Rights" or words of similar meaning, and in substantially the statutory form. Tex. Bus. & Com. Code § 17.42(a)-(c).

Other public policy limits

Texas courts decline to enforce releases of: (1) future intentional torts, generally void as against public policy; (2) statutory rights with anti-waiver provisions, DTPA, certain employment statutes, securities laws; (3) fraud in the execution of the release itself, the release was procured by fraud about its content; (4) release procured by duress. Post-injury releases in settlement, including releases of gross negligence claims, are generally enforceable. Keszler, 943 S.W.2d at 435.

Common drafting pitfalls

Frequent release-drafting failures: (1) scope ambiguity, unclear what claims are covered, leading to litigation over scope; (2) missing affiliated parties, release covers only signatory but not affiliates, parent, subsidiaries, employees; (3) missing future claims, release covers existing claims but not claims arising from same circumstances; (4) no disclaimer of reliance, exposing release to fraud-claim attack; (5) missing severability, leaving the release exposed if one provision is held unenforceable.

Enforcement and challenges

Common challenges to releases: (1) fraud in inducement, release procured through misrepresentation (defeated by Schlumberger disclaimer when properly drafted); (2) mutual mistake, both parties operated under the same factual misunderstanding; (3) unconscionability, release terms or process so unfair as to be void; (4) scope challenge, claim falls outside the release language; (5) capacity, releasor lacked authority or capacity; (6) consideration, release given without consideration.