Releases: Interpretation May Vary Creating Traps for the Unwary
The following article is the first of three articles discussing releases. This article deals with the general rules of interpretation and the recurring issues growing out of enforcing and changing releases. Articles 2 and 3 deal with the Loy release and Pierringer release respectively with a view towards recent case law.
Litigation seeking to enforce releases, avoid releases and interpret releases often generates appellate decisions. When faced with the prospect of interpreting releases, appellate courts have repeatedly looked behind the language of the releases to what the parties actually intended. Appellate courts look to the intent of the parties because of the unique function of releases: Settlements rarely occur without a release. A release buys the defendants’ peace. A n expansive view of releases encourages settlement.
Consistent with this philosophy, appellate courts support any trial court construction that harmonizes the language of the release with the intent of the parties because, “Such ... construction of the release furthers the goal of encouraging settlements of claims against joint tort-feasors. The encouraging of settlements of personal injury claims contributes not only to the lessening of court case loads but also the lessening of delays and the prompter recovery of damages sustained by those injured in accidents. Chilling out-of-court settlements of personal injury claims would not serve the interests of plaintiffs, defendants or the general public.” i
A RELEASE IS A CONTRACT. ii
As a contract, a release is subject to contractual rules of interpretation. Thus, an interpretation which gives a reasonable meaning to all the provisions is preferable to an interpretation which leaves part of the language useless or inexplicable. iii Another basic rule of contract construction is to construe the contract as a whole in order to carry out the true intent of the parties. In considering the contract as a whole, all parts of the contract must be harmonized as far as possible. “In that endeavor the intent of the parties, as discernable from the contract in circumstances surrounding its execution, is a relevant factor.” iv
A RELEASE IS A UNILATERAL CONTRACT.
The Wisconsin Supreme Court has explained that: “A release is a unilateral contract which means the intent of the parties as to the scope and effect of the release is relevant.” v Theoretically, if the language of the release is not ambiguous in any manner, no evidence is admissible, in keeping with the general rule of contract interpretation that parol evidence is not admissible where the terms of the contract are unambiguous. “Yet, as all language will bear some different meanings, some evidence is always admissible; the line of exclusion depends on how far the words will stretch, and how alien is the intent they are asked to include.” x
The term “release” has a technical meaning in the law. Consequently, if a release implies full satisfaction but there has not been full satisfaction, then there has been no release in the technical sense. vi This could affect the court’s interpretation of the scope of the release. While courts are given great liberality in construing releases, where the terms of the release are general, the release is limited to those things within the contemplation of the parties at the time of execution. vii
As a corollary to the rule that when the terms of the release are general, the release is limited to those things within the contemplation of the parties, when specific language precedes general language in a release, the specific language controls. viii However, the courts have explained that the distinction between specific and general language should not be observed too rigidly if it leads to a construction that defeats the intent of the parties. ix Clearly, the intent of the parties is of paramount importance when construing releases, and should be clearly expressed in the document itself in order to aid the courts in their interpretation of such documents.
Before a court can determine the effect of a release on any cause of action, the court must first resolve the factual question of the intended scope of the release. This question becomes critical in light of the modern trend that a plaintiff should never be compelled to surrender a cause of action unless the plaintiff intentionally does so and unless the plaintiff receives full compensation. xi
The release document and the use of the term “release” does not determine the intended scope of the release. xii Instead, the ultimate test of the intended scope of the release is whether the plaintiff received full satisfaction for that which the law considers as full satisfaction.
Many releases contain boiler plate language releasing all claims and causes of action whether “known or unknown”. A person can discharge a claim which is unknown to him or her at the time but the doctrine of releasing unknown claims is “rooted in equity.” When a release is so general on its terms that it releases rights of the party for which the person was ignorant and for which the person did not contemplate in the bargain, the courts will limit the release to the purposes of the bargain and to what the parties intended to release. xiii On the other hand, “... [i]f the parties did in fact intentionally agree upon a settlement for unknown injuries, such release will be binding. Whether the parties intended the release to cover unknown injuries is usually a question of fact.” xiv Frequently, releases use the word “claim” instead of “injuries”. A claim is “a demand of a right or supposed right;”, “a calling on another for something due or supposed to be due.” xv Regardless, the courts will look at whether the person signing the release intended to release the unknown claims or injuries.
Validity and Enforcement.
General problems that result in parties challenging releases include: releasing a jointly liable tort-feasor, inadequate consideration, and mutual mistake. Mental capacity as a basis for voiding a release is rare.
Regarding jointly liable tort-feasors, the old rule held that an unqualified release of one jointly liable tort-feasor released all jointly liable tort-feasors. xvi The new trend, which Wisconsin follows, is to construe an agreement releasing one tort-feasor consistent with the intention of the parties. If the release shows on its face that an injured party: (1) had no intention of relinquishing a claim against other joint tort-feasors; (2) expressly reserved the right of action against the other joint tort-feasor; and (3) received payment not in full satisfaction of the claim, the courts treat the release as a covenant not to sue no matter the form. xvii
Inadequate consideration is closely tied with mutual mistake when seeking to set aside a release. Generally, nominal or wholly inadequate consideration will not justify setting aside a release. Nominal consideration is strong evidence tending to show either mutual mistake of fact, or a mutual mistake of fact on the part of the injured person, and fraud, or constructive fraud, on the part of the releasee. xviii
Inadequate consideration becomes highly significant as the disparity between a settlement and a jury verdict increases because it provides a basis for a finding of mutual mistake of fact. This is particularly true in the case of a small settlement, a large jury award, and a defendant who does not question the large award as a fair measure of damages. xix
Where the consideration paid in a settlement exceeds a nominal amount, consideration has less impact on voiding a release. For example, in Doyle v. Teasdale, xx an insurance adjuster sustained injuries in an automobile accident. His treating physician diagnosed shock, a sprained ankle, a bruised knee and a sprained back. Doyle hired an attorney who settled with the adverse insurance company. Doyle continued to experience pain after the settlement and later learned he had a fractured coccyx. Doyle sought to set aside the release which included all known or unknown, foreseen or unforeseen bodily injuries. xxi After hearing the testimony, the trial court set aside the release. The Wisconsin Supreme Court reversed and held that the release was not executed as a result of mutual mistake.
In reaching its decision, the court analyzed the common bases for setting aside a release. First, Doyle may have made a mistake to settle but a mere mistake of fact on the part of one of the parties to a release, in absence of a showing of fraud, duress, undue influence or mental incapacity, is not sufficient ground to set aside a release. The mistake must be mutual. xxii
Second, innocent misrepresentations by an injured person’s own physician, without any false representation by the releasee, is not sufficient to set aside a release. xxiii This is important because innocent misrepresentations of material facts by the defendant or employer’s physician, even though innocently made, constitute constructive fraud sufficient to set aside the release. Constructive fraud is separate from mutual mistake.
Third, the settlement exceeded mere nominal consideration. In addition, the defendant contended Doyle acted negligently. Contributory negligence is an element in determining adequacy of consideration for a release. xxiv
When seeking to set aside a release, the general rule is, the party seeking to set aside the release must tender back the consideration. However, defendants must raise the issue of failing to tender back consideration in their answer to the complaint. xxv Setting aside a release on the ground of mental capacity appears in one 1912 decision, Charron v. Northwestern Fuel Company. xxvi In Charron, a plaintiff helped a gang of carpenters making repairs on the dock. While plaintiff looked over the dock to the top of a boat 8 feet below, a clam attached to a hoist knocked him over the edge and onto the vessel below. He sustained serious injuries. Weeks after the accident, the defendant’s agent placed a check for $280.00 on a table by the plaintiff. The plaintiff’s wife signed the check and the plaintiff made his mark. The defendant’s agent left the room and the wife took the check and paid for family expenses incurred during the plaintiff’s illness. The plaintiff never had the check nor did he receive any money from the check and he never knew his wife had the money or that she used it to pay family expenses. The jury held that plaintiff was incompetent to act at the time the settlement was made when the check was turned over to his wife and the proceeds used without his knowledge or consent.
This case is indeed rare because defendants are careful to seek court ordered approval in the case of any unrepresented party whose competency is in question.
The pre-emptive release of liability (exculpatory contracts) .
Few releases generate more litigation than exculpatory contracts. “By definition, an exculpatory contract is a contract that would seek to release one or more of its parties from at least some liability resulting from any negligent act or omission or other wrongful act by that party.” xxvii In Richards v. Richards, xxviii the Wisconsin Supreme Court carefully outlines the general rules of exculpatory contracts and lists the many cases which deal with the various issues involving exculpatory contracts.
The rules are simple, “Exculpatory contracts are not favored by the law because they tend to allow conduct below the acceptable standard of care applicable to the activity. Exculpatory contracts are not, however, automatically void and unenforceable as contrary to public policy.” xxix Courts recognize public policy is difficult to define. Public policy embodies common sense and the common conscience of the community. Public policy is a principle of law which restricts the freedom of contract for the good of the community. xxx
As a rule, courts will strike broadly written exculpatory agreements that absolve a defendant from any injury to a plaintiff for any reason. When a court examines an exculpatory agreement to determine if it violates public policy, the court attempts to accommodate the natural tension between the principle of contract which protects expectations and secures transactions with the law of torts which compensates individuals for injuries resulting from the unreasonable conduct of another. xxxi Generally, courts find exculpatory contracts void as against public policy when imposing liability on persons whose conduct creates an unreasonable risk or the harm outweighs the public policy of freedom of contract. xxxii
To be enforceable, exculpatory contracts must pass two hurdles. First is the exculpatory contract void and unenforceable as contrary to public policy? Second, are the terms of the contract so unclear and ambiguous as to render the contract unenforceable as a matter of law? xxxiii If exculpatory contracts clear both hurdles, the courts will enforce the contracts.
Where the facts are undisputed, the court decides the scope of the release and intention of the parties that the release shall cover particular claims. xxxiv Otherwise the jury or other triers of facts determine the scope of the release on the intention of the parties. xxxv
As these cases and concepts demonstrate, properly drafting a release is critically important. Failure to indicate the intent or scope of the release may result in its failure to achieve the parties’ goals, and could result in more litigation rather than the settlement the parties hoped to achieve. In coming issues, we will provide a more detailed look at drafting releases aimed at specific factual situations.
i. Peiffer v. Allstate Ins. Co., 51 Wis. 2d 329, 337-338, 187 N.W.2d 182 (1971).
Id. at 336.
Id. at 336.
Id. at 337.
Brown v. Hammermill Paper Company, 88 Wis. 2d 224, 234, 276 N.W.2d 709 (1979).
Kropidlowski v. Pfister & Vogel Leather Company, 149 Wis. 421, 427, 135 N.W.839 (1912).
Rensink v. Wallenfang, 8 Wis. 2d 206, 213, 99 N.W. 2d 196 (1959).
Plummer v. Leonhard, 44 Wis. 2d 686, 691, 172 N.W.2d 1 (1969).
Id. at 692.
Burmeister v. Schultz, 37 Wis. 2d 254, 261, 154 N.W.2d 770 (1967).
Brown, infra. at 237.
Id. at 237.
Rensink, infra. at 213.
Doyle v. Teasdale, 263 Wis. 328, 346, 57 N.W.2d 381 (1953).
Burmeister, infra. at 260.
Brown, infra. at 232.
Id. at 233.
Doyle, infra. at 345.
Id. at 344.
263 Wis. 328 at 346.
Id. at 340.
Id. at 337.
Id. at 342.
Id. at 343.
Id. at 347.
149 Wis. 240, 134 N.W. 1048 (1912).
Dobratz v. Blue Cross/Blue Shield United of Wisconsin, 161 Wis. 2d 502, 512, n. 1, 468 N.W.2d 654 (1991).
181 Wis. 2d 1007, 1015, 513 N.W.2d 118 (1994).
Id. at 1015.
Id. at 1016.
Dobratz, infra. at 506-07
Kellar v. John B. Lloyd, Sports Car Club of America, 180 Wis. 2d 162, 171-172, 509 N.W.2d 87 (1993).
Plummer v. Leonhard, 44 Wis. 2d 686, 692, 172 N.W.2d 1 (1969).