Release Agreement

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Release Agreement

Brief Introduction About the Release Agreement

What is the Release Agreement?

This agreement is usually associated with legal settlements. When the parties do not want to go to court and settle themselves, they usually enter a legal settlement agreement, which in other words can be called as release agreements. One party waives off his right to bring a legal suit against others and compromise things within themselves. The other party is released from his liability and hence called a release agreement. Mutual release agreements, Copyright release agreement, Waiver agreement are few types of release agreements.

A release contract can be better understood with an example. Say If your bike is damaged by a person, and his insurance company is ready to pay for your damages, in such case the insurance company may ask you to sign a release contarct where you agree to accept the amount given for damages in return you agree to give up the right to sue his client under any circumstances.

A release form is very much essential for those businesses where intellectual property plays a major role. The usage rights are very subjective and may bring businesses to a lot of legal disputes. Hence to protect the business from the undue stress of facing the court of law frequently, a release contract is very much needed. A release is a promise to consider the business relationship as a foremost important one. When a release form is filled, it means the parties to the agreement want to protect the interests mutually.

Who Takes the Release Agreement? – People Involved

The persons involved in a release contract are:

  1. Releasee: The person who pays for damages and stop from claiming any further rights and further actions. He is released from the potential legal action on account of non-violation of the contract entered.
  2. Releasor: The person who gets the settlement and waives his right to sue.

Purpose of the Release Agreement – Why Do You Need It?

The main reason for entering the agreement is it has legal validity. The agreement should be as per the principles of the contract of law because it is a contractual agreement. A business has to deal with various parties like vendors, customers, intermediaries, etc. In such cases, the risk of damage or an economic loss is unforeseeable, but they can be anticipated, and the burden of such loss can be shared through a contract. The contract will be of that nature where one party forgoes his right of suing the other party for damages /losses caused to him in return of a consideration.

The matter of consideration plays an important role in a release contract. The main purpose of entering a release contract is to compensate the aggrieved sufficiently for not entering into a legal suit. Another important aspect in assessing the consideration is to value the economic loss suffered by one person as a result of non-adherence of clauses in the business contract.

So, it is imperative that the parties to the contract evaluate the economic losses if any that would arise on violation before entering the contract. If there is indifference with respect to the bargaining power of any of the parties, the court may deny enforcing the release. Hence the purpose of a release is to ensure the best interests of the parties are protected.

Contents of the Release Agreement

A release contract should mandatorily have the following points

  • Name and address of the releasor and releasee. In some cases, it may be essential to include the successor/ legal heirs of the releasor too, in order to avoid any future claims from them.
  • Nature of release – General release or release is about a specific claim. The release deed has to be worded very carefully in this regard. If a release is a general one, the party agrees to forgo all his rights even for mishappenings he may face in the future. He cannot sue the other party for any reason. Hence it is always advisable to consult a legal practitioner for properly wording the deed. In case of a specific release like copyright license, trademarks license, and other licenses, it is very important that the rights of the parties are clearly established. The parties may consider including a list of uses broadly. This is also called a limited release.
  • Consideration – It is important to note that any release agreement without consideration is not a valid one. Hence it is important to specify the value of consideration, which is being agreed for forgoing the right to sue.
  • Other Provisions – The Other provisions may be anything like duration of the agreement (i.e., until when the party waives his right to sue) or the time within which the consideration has to be paid, etc.
  • Termination clause– The existing business contract can be terminated only when all the conditions mentioned in the release are satisfied.

How to Draft the Release Agreement?

  • All the contracts are not the same. A general release contract will be entirely different from that of a Copyright release contract. Also, legal releases and liability releases vary. Due care must be given in explaining the scope of release and terms of payment as per the type of contract.
  • The agreement should mention the activity, the significant risks involved. The party to the contract must know those risks and the decision to waive off the rights.
  • In order to be enforceable, the contract of release must be clear and precise. Often when the contract has too many clauses, those clauses which speak about waiver of the right to sue, holding the other party responsible, setting a cap on damages, etc. should be separately highlighted in Bold font and shown.
  • When the contract is with a layman or basic customers the language, we should be simple and easily understandable. Using jargon or complex sentence structures may make the customer sign without even knowing the content of the form. It is advisable to use an understandable language but holding the spirit of the law.
  • The contract has to be drafted carefully where the interest of both the parties has to be protected.

Negotiation Strategy

The releasor can always make it a mutual release contract where the other party also forgoes his right to claim any damages against you. Always try to leverage up with what the other party offers. Being silent and agreeing to their release doesn’t bring you better. Think in terms of the amount of damage or economic loss and demand for that compensation.

Benefits & Drawbacks of the Release Agreement

The benefits of preparing a release contract are as follows:

  • Small businesses can predict the risk and allocate or transfer them to the extent possible. It rescues them in severe loss/damages.
  • A compensation/consideration for the loss or damage is mandatory to make a release deed valid. Thus, any loss because of disparity is avoided.
  • Grossly unfair or totally single-sided release deeds will not even be enforced by the court. Thus, the interests of the parties are protected.
  • In today’s scenario, when we calculate the expenses on long and expensive court trials, it is worth forgoing some rights in exchange for a consideration.

The following are drawbacks of the contract:

  • Signing a general release deed means giving up all the rights to sue the other party. There may be damages which you will come to know in the later period of time, there may be third parties who will be damaged because of your actions, in such cases, you will become solely responsible for them. You cannot sue the other party in any case.
  • The consideration proposed by the release may not always match the losses suffered. Hence signing a release is an opportunity lost in many cases.

What Happens in Case of Violation?

The violation of a release condition is also called as forfeiture. The violation of a release contract normally happens when

  • The releasee does not settle the agreed consideration.
  • In a mutual release, either of the party doesn’t fulfill the agreed condition.
  • The releasor does not settle or demands for a higher payment. There is a conflict of interest.

In case of a violation of the contract by one party, the other party will have two options.

  1.  To file a civil case against the other party for the breach of contract.
  2. Ask the court for mediation(1) that has jurisdiction over the original conflict only if the release agreement has a clause stating that the court will retain the jurisdiction over any contravention that may arise from this release agreement.

The agreement must be carefully drafted, including the above provision, in order to avail that option. In criminal cases, the court may order arrest for the violation, and the accused be kept in custody until a further hearing. The burden of proof of violation(2) lies with the aggrieved. The court may also require executing a surety bond in favor of the distressed for compensating the losses suffered as a result of a violation of release.

There is no such thing as a perfectly written release. The business understands the need for entering the release contract once it achieves considerable savings by avoiding prolonged legal disputes. Hence, the content of a release is subjective and evolves out of the experience. A release contract can never be considered as a key for ignoring responsibility. It is a way to save the business from losing its reputation and resources.