Resource ID: W-010-1866 Release Agreement (CA) TIMOTHY B. MCGINITY, ALLEN MATKINS LECK GAMBLE MALLORY & NATSIS LLP, WITH PRACTICAL LAW COMMERCIAL TRANSACTIONS Search the Resource ID numbers in blue on Westlaw for more. This is a generic form of release agreement under California law for use when parties to a commercial contract are terminating or have terminated the contract (or a portion of it) and have agreed to deliver a mutual release of claims. This Standard Document has integrated notes with important explanations and drafting tips. DRAFTING NOTE: READ THIS BEFORE USING DOCUMENT When a commercial contract is expiring fee or one or more obligations that has or if it is terminated before its natural not been satisfied when the termination expiration, the parties sometimes enter into agreement is executed). a termination agreement to: When termination does not become Settle actual or potential claims. effective until a future date, the parties are Tie up loose ends. unlikely to execute and deliver a release that is effective before termination. Instead, they In many of these situations, it is likely that commonly agree to: one or both of the parties: Execute and deliver releases on the future May claim or has claimed one or more termination date. breaches by the other party. Condition the effectiveness of the release Is concerned that the facts and included in the termination agreement circumstances leading to termination on the satisfaction of specified conditions may give rise to a breach claim by the or covenants (such as delivery of a opposing party. termination payment). Therefore, when entering into a termination Before using a conditional release, the agreement, contracting parties often parties should consider whether the include a release of claims in the termination conditional release is enforceable under agreement. However, sometimes, the applicable state law (see Drafting Note, termination agreement contains: Conditional Releases). In California, A specified future termination date (such a conditional release is enforceable, as the last day of the month or the end of particularly in situations involving the contract year). construction projects. However, instead of Conditions to effectiveness of termination making the release conditional, the parties (for example, payment of a termination may require execution and delivery of the © 2018 Thomson Reuters. All rights reserved. Release Agreement (CA) release concurrently with the performance There are two parties to the underlying of the requisite obligations. agreement and both are legal entities. The parties must make adjustments if: In California, the general rule is that an obligation is extinguished by a release given zeither contracting party is an individual to the debtor by the creditor either: person; or zthere are more than two parties to the With new consideration. release agreement. In writing, with or without new consideration. The releases are being given in connection with the termination of a (Cal. Civ. Code § 1541.) contractual arrangement. This form Especially if given without new of release agreement is for use when consideration, the written release must a commercial contract is expiring or is expressly show the releasor’s intent to being terminated and the parties decide extinguish the obligation (Golden West Credit to execute and deliver mutual releases & Adjustment Co. v. Wilson, 119 Cal. App. 627, relating to the underlying contract. The 635 (1932) (Section 1541 applies to express parties must substantially revise this releases given with intent to extinguish the agreement if they are settling a pending obligation); see also Tenzer v. Superscope, litigation or a non-litigated dispute Inc., 39 Cal. 3d 18, 31 n. 7 (1985)). unrelated to a contractual termination. For a sample release and settlement The interpretation of release agreements is agreement, see Standard Document, governed by the same principles applicable Settlement Agreement and Release (CA) to any other contractual agreement (Winet v. (W-000-0661). Price, 4 Cal. App. 4th 1159, 1165 (1992)). The release agreement is limited This Standard Document is a generic form to certain key terms. This Standard of a stand-alone release agreement that can Document does not include certain be used when parties either: terms that are commonly included in a termination agreement (for example, Have entered into a termination agreement but desire to execute and operative termination language and deliver releases at a future date. modifications to surviving provisions of the underlying agreement). If the parties Desire to exchange releases when a desire to address these and other terms, commercial contract (or a portion of it) they should instead consider entering expires or is terminated without entering into a dedicated termination agreement into a termination agreement. (see Standard Document, Termination For a sample termination agreement, Agreement (7-523-5113)). see Standard Document, Termination The parties to the agreement are US Agreement (7-523-5113). entities and the transaction takes place in the US. If any party is organized or ASSUMPTIONS operates in, or any part of the transaction takes place in a foreign jurisdiction, these This Standard Document assumes that: terms may need to be modified to comply This agreement is governed by with applicable laws in the relevant California law. If the law of another state foreign jurisdiction. applies, these terms may have to be These terms are not industry- or modified to comply with the laws of the transaction-specific. This Standard applicable jurisdiction. Document does not account for any These terms are being used in a industry-specific or transaction-specific business-to-business transaction. This laws, rules, or regulations that may Standard Clause should not be used in apply to certain transactions, products, a consumer contract, which may involve or services. For a sample release used in legal and regulatory requirements and the employment context, see Standard practical considerations that are beyond Document, Separation and Release of the scope of this resource. Claims Agreement (CA) (7-505-8389). 2 © 2018 Thomson Reuters. All rights reserved. Release Agreement (CA) BRACKETED ITEMS or alternative language selections (such as Affiliates, Law, Person, and Representatives) Bracketed items in ALL CAPS should be are defined in either the termination completed with the facts of the transaction. agreement or the underlying contract. If Bracketed items in sentence case are either used, conform them to the defined terms optional provisions or include alternative used in the appropriate agreement. language choices, to be selected, added, or deleted at the drafter’s discretion. DEFINED TERMS This Standard Document assumes that certain defined terms included in optional RELEASE AGREEMENT This Release Agreement, dated [as of] [DATE] (the “Release Agreement”), between [NAME OF PARTY 1], a[n] [STATE OF ORGANIZATION] [TYPE OF ENTITY], [located/having its principal place of business] at [ADDRESS] (”[DEFINED TERM FOR PARTY 1]”), and [NAME OF PARTY 2], a[n] [STATE OF ORGANIZATION] [TYPE OF ENTITY], [located/having its principal place of business] at [ADDRESS] (”[DEFINED TERM FOR PARTY 2]”, and together with [DEFINED TERM FOR PARTY 1], the “Parties”, and each, a “Party”). DRAFTING NOTE: PREAMBLE DATE condition because it is certain to occur. (For more information on contractual conditions, The effective date for a release agreement see Practice Note, Representations, is usually the date on which the release Warranties, Covenants, Rights, and agreement is executed. The general rule is Conditions: Conditions (9-519-8869)). that a release must take effect on either: The execution of the release agreement. A mere promise to discharge an existing obligation in the future only creates a The satisfaction of a condition contained new duty that can itself be released by in the release agreement. In a conditional the parties. The promise is not a release. release, there is a fact that must be true, or (Restatement (Second) of Contracts § 284, an event that must have occurred, before a cmt. a (1981)). party’s obligations or rights are triggered. For example, a release may provide that PARTIES certain obligations are extinguished when the party that would otherwise have the All current parties to the underlying obligations completes performance of agreement should be included as parties to certain other actions or goals. the release agreement. If any of the current parties are an assignee or successor- (See Restatement (Second) of Contracts in-interest to a former party or if a party § 284(1) (1981) (Second Restatement).) has changed its name since it executed the A future effective date is not immediate. underlying agreement, the relevant facts It also does not function as a condition should be identified in the preamble of the because conditions are limited to events, agreement. facts, or performance that may or may not For example, if ABC Suppliers, Inc. was an occur. The passing of time cannot be a original party to the agreement but has © 2018 Thomson Reuters. All rights reserved. 3 Release Agreement (CA) since merged into XYZ Products, Inc., the underlying agreement became parties at preamble should specify XYZ as a party a later point in time, the parties should (instead of ABC) and should identify XYZ consider adding a recital (see Drafting as “successor-in-interest to ABC Suppliers, Note, Recitals) that briefly describes the Inc.” If any of the current