A releasor can annul or cancel a voidable release agreement (release) by instituting an action at law. There must be a valid reason to support such action. An action to avoid a release is initiated by way of a pleading[i]. Some courts have observed that there is no time period fixed for filing an action to avoid release. But in some jurisdictions, because releases are contracts and since they are subject to the usual contract interpretation rules, the time requirement as to filing an action against a release is made mandatory[ii].
An action to avoid a release can be brought in circumstances where it is identified that a substantial injury was not considered while calculating consideration, which was to be given as compensation for injuries. In such circumstances, a release may be avoided for mutual mistake[iii]. But, if such injury was known at settlement time, then release will be binding upon parties even if unknown or unexpected consequences result from such a release[iv].
Parties who bring an action to cancel or set aside a release due to fraud, mistake, or other reason, must satisfy the following conditions[v]:
- rescind a release and;
- give back the consideration received prior to commencement of action.
Generally, the time within which consideration should be given back by a releasor is before commencement of an action to annul a release. The fact that a considerable time period has elapsed between execution of the release and the consideration payment will not make a return untimely, if return is made before commencement of action[vi]. Likewise a return made after institution of an action is timely if such action is based upon the original cause of action. Similarly, a return made at trial and before the jury verdict is timely if annulment is sought for fraud on other party[vii].
However, reform or cancellation of a release is restricted to thing or things intended to be released[viii]. For example, when a settlement is made about one demand, that forms part of a broad general release including several other demands, then the court of equity will reform the release to confine its operation to the matters agreed upon. Annulment of a release helps to restore the rights or property to the injured parties[ix].
In an action to annul a release, the burden of proof is upon the party who seeks such annulment. When duress and fraud is claimed by a party seeking annulment, then s/he must produce evidence to prove such duress or fraud. Proof of mere inadequacy of consideration will not invalidate a release[x].
[i] Wabash R. Co. v. Bridal, 94 F.2d 117 (8th Cir. Mo. 1938).
[ii] Sakon v. Pearl, 2007 Conn. Super. LEXIS 1280 (Conn. Super. Ct. May 16, 2007).
[iii] Richardson v. Chicago M. & S. P. R. Co., 157 Minn. 474 (Minn. 1924).
[iv] Schmidt v. Smith, 299 Minn. 103 (Minn. 1974).
[v] Clanton v. Clanton, 52 Cal. App. 2d 550 (Cal. App. 1942).
[vi] Gould v. Cayuga County Nat’l Bank, 86 N.Y. 75 (N.Y. 1881).
[vii] In re Estate of Gude, 151 Misc. 59 (N.Y. Sur. Ct. 1934).
[viii] Drake & Beemont Mut. Aid Soc. Against Fire & Lightning v. United States, 330 F.2d 548 (8th Cir. Mo. 1964).
[ix] Montrose Sav. Bank v. Landers, 675 S.W.2d 668 (Mo. Ct. App. 1984).
[x] Mueller v. Renkes, 31 Mont. 100 (Mont. 1904).