Don’t Sign a Release Unless it Says This One Thing - Illinois Webinar

In this blog, presented by SunRay Construction Solutions and David M. Duree, Attorney at Law, David M. Duree and Associates, P.C, construction professionals in Illinois can learn in detail about the importance of reading a release, key terms to look out for, additional clauses and provisions to watch out for, and more.  

Why Should you Read the Release?

One of the most important reasons to read your release thoroughly is that it is treated like any other contract. Once you sign it, you are bound by its terms and conditions, regardless of whether you have read the lien release or not. If any dispute arises later, you cannot use the excuse that you did not read the lien release before signing it.

Here are the steps to follow when going through and checking your release:

Step 1 - Review Terms and Time of Payment

• Ensure you read and understand the terms and time of payment before signing the release.

• Verify if the payment will be made immediately or delayed (e.g., 60 or 90 days post-signing or after an event in a pending lawsuit).

Step 2 - Verify Identity of the Payee

• Confirm that the name of the payee (the person or entity receiving the money) is correctly mentioned.

• Ensure it is your name or the designated party you select as the payee.

Step 3 - Check Identity of Released Parties

• Review the list of released parties thoroughly.

• Ensure it includes only the intended parties (e.g., the party against whom you have a claim, their attorneys, agents, employees).

• Verify that no unintended parties are included in the release.

Step 4 - Consider Attorney Review

• Decide if you want an attorney to review the release.

• This decision is a business choice and may not be necessary for all releases.

Step 5 - Determine Type of Release

• Identify if the release is partial or full.

• Do not sign a release for claims for which you haven’t been paid.

Types of Contracts – Which one to sign?

When we talk about releases being like a contract, there are typically two types of contracts:

• Unilateral Contract - A contract can either be unilateral which means that the other party presents it to you, and you sign and accept it, but the other party does not sign it, and just presents it to you.

• Bilateral Contract - The second type of contract is bilateral which means that the release is signed by both the parties and if it is a multi-party scenario, then all the parties are signing it.  

Types of Releases

As a contract, it's subject to the same contractual defenses that any other contract is subject to. There are two types of releases:

• Typical Release – A typical release is where a claim has occurred, and the other party is paying you the money. So, you know what your claim is and what is being released.

• Group of Releases - There is also a group of releases known as exculpatory clauses that require you to sign a release before the event in question.  

• For example, if you're going to participate in some type of activity, the organization conducting that activity might have you sign a document in advance that says, if anything happens and you get injured, you're releasing the organization conducting the activity from any liability, otherwise known as an exculpatory clause.

Here are some examples of contractual defenses that may arise:

A) Example 1

• There was a case in Illinois that involved a hotel, and the hotel developer ran into some financial problems because of which construction stopped. The developer persuaded a new company to come in as the construction manager and fill out additional roles.

• The construction manager was not paid for the construction work and for the additional roles, so they filed three mechanics lien claims with the Recorder of Deeds. After the construction manager stopped work and filed their three mechanics liens, the developer persuaded the construction manager to release the liens on the grounds that would then permit the developer to obtain money from the lender. The developer would then pay the contractor, the construction manager, at least part of their lien amounts initially, and eventually pay all of them.

• The construction manager unfortunately fell for that, signed a release, which the developer then filed with the Recorder of Deeds, and then the developer didn't pay the contractor. The contractor refiled the mechanics liens, but there's a section of the mechanics lien statute that precludes you from doing that.

• As a result, the construction manager lost his mechanics liens and didn't get paid because the release he signed for the mechanics liens which was recorded with the Recorder of Deeds precluded him from refiling the mechanics liens.

• So, make sure that you do not fall for such false promises and record a release of mechanics lien unless you get paid at the time the release is signed.

B) Example 2

• In 2013, there was a case State versus Association of Illinois Electrical Co-ops. The Association of Illinois Electrical Co-ops conducted a class for potential pole climbers in the utility industry at a community college, but it had each of the students sign an agreement in advance that if they got injured in climbing the poles, that they would release the association from any liability.

• A person then suffered an injury while trying to descend one of the poles, and the association tried to enforce the exculpatory clause.

• The court pointed out that in cases of releases involving exculpatory clauses signed in advance, there are several categories of people that are excluded from such exculpatory clauses. This means that they cannot be enforced for public policy grounds, and it involved a list of such parties and the criteria for identifying them.

• In this case, the appellate court sent the case back to the trial court, saying that it could not rule without additional findings of fact.

C) Example 3

• There was a summary judgment issued in favor of a lender in a mortgage foreclosure case, and the lender had claimed in that lawsuit that it had signed and recorded a release of his mortgage, but it did it by mistake.

• The trial court entered a summary judgment in favor of the lender. A summary judgment means that the trial court determines that there are no material issues of fact in dispute, and the party moving for summary judgment is entitled to judgment as a matter of law.

• The issue there was that the release of the mortgage that the lender recorded with the Recorder of Deeds was assigned and recorded by mistake and the appellate court determined, reversed the summary judgment and said there are disputed issues of fact.

• You will have to have a fact-finding trial before the court can rule on that and pointed out that a party may avoid enforcement of a release where the release was obtained by fraud, duress, illegality or mistake and included in that would be the doctrine of unconscionability that if a release or any other contract is so one-sided and so unfair then it cannot be enforced.

So, these are typically some of the contract issues that might come up.

What is the Confidentiality/Non-Disparagement Clause?

Another issue with releases is that the party paying the money often demands that the receiving party include confidentiality and non-disparagement clauses in the agreement. Although this is generally considered poor public policy, most parties receiving the money will agree to these terms because they want to get paid quickly. Here are a couple of things that you need to look out for:

1. Check for Non-Disclosure/Non-Disparagement Clauses:

• Verify if the release includes any non-disclosure or non-disparagement clauses.

• Understand that these clauses prevent you from saying anything negative about the settling party and require confidentiality about the settlement details (e.g., the existence of the settlement, terms, and payment amount).

2. Identify Parties Entitled to Enforce Non-Disclosure Clauses:

• Read the release to determine who can enforce these clauses.

• Ensure that only the party making the payment or closely affiliated parties can enforce these clauses.

3. Determine Parties Bound by Non-Disclosure Clauses:

• Identify who is bound by these clauses.

• Check if the language binds parties other than those you intended to be bound.

4. Evaluate the Scope of Non-Disclosure Clauses:

• Determine what information can and cannot be disclosed under these clauses.

• Clarify the scope of the non-disclosure obligations.

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5. Identify Exceptions to Non-Disclosure Clauses:

• Look for exceptions to these clauses.

• Understand that there might be exceptions for court proceedings or if a court order or subpoena requires disclosure, ensuring you are not in violation of the non-disclosure agreement in such situations.

How to Deal with Attorney Fee Shifting and Penalty Clauses?

The final category under this topic is regarding attorney fee shifting and penalty clauses.

• You need to check if the non-disclosure clauses and the confidentiality/non-disparagement clauses provide for the payment of attorney fees. If you can negotiate the terms of the release, then you need to check if in case there is any alleged violation of the non-disclosure and non-disparagement clauses, then whether the attorney fees will be paid to the prevailing party or only to the released party, i.e., the party making the payment.

• This is useful in case there is any frivolous lawsuit filed against you claiming disclosure or disparagement or breach of the confidentiality clause. If you prevail on that lawsuit, then the other side will have to pay your attorney’s fees. It provides some reason for discouragement of the released party from filing frivolous lawsuits against you claiming that you violated the terms of the release.

• Next, you also need to check if there are any penalties other than the Award of Attorney’s Fees and Actual Damages for Violations of the Non-Disclosure Clauses. Typically, a confidentiality clause could provide that if the released party establishes that you breach the confidentiality clause, it would be entitled to recover its actual damages resulting from that disclosure, as well as its attorney's fees.

• In some cases, the actual damage might be minimum or hard to prove. It might just be a matter of the released party feeling that it's been slighted, but there is no real financial damage that it suffered because someone disclosed the settlement amount.

• However, these clauses may also include penalties which is another reason why you need to read them thoroughly. They might provide for liquidated damages, which means that the parties assume that these are the damages that the released party would have suffered, or it might even provide penalties. And those kinds of clauses are especially of interest in the case of the settlement of a case where there were very hard feelings on both sides.

Key Takeaway

Overall, it goes without saying that you should never sign a release without reading it thoroughly so that you don’t end up giving up on your claims unnecessarily and to ensure that you are not agreeing to huge penalties for any minor violation or alleged violation of the confidentiality clause.  

For further guidance or assistance with complex situations, consulting experts at SunRay, who specialize in Illinois lien laws, is always a smart choice. We offer personalized advice to protect your rights and ensure a successful project outcome. Call us today at 800-403-7660 to get the payment you deserve!

Common Questions Contractors Ask

1. Why is it important to read a release before signing it?

Reading a release is crucial because it binds you to its terms and conditions. If you sign without understanding the details, you may face unfavorable consequences, such as delayed payments or releasing unintended parties from claims.

2. What should I look for in the terms and time of payment in a release?

Ensure the payment terms are clear, including the timing of the payment. Be wary of clauses that delay payment until 60 or 90 days after signing or dependent on other events.

3. Who should review my release before I sign it?

While you don't always need an attorney to review every release, it's a business decision that depends on the complexity and importance of the release. Consulting an attorney can help identify potential issues.

4. What are exculpatory clauses in releases?

Exculpatory clauses are agreements signed before an event, releasing an organization from liability if you get injured. These clauses are common in activities that carry inherent risks.

5. How do confidentiality and non-disparagement clauses affect me?

These clauses prevent you from disclosing settlement details or making negative comments about the other party. Ensure you understand the scope and parties bound by these clauses, as well as any exceptions for legal proceedings.

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