People settle claims out of court all the time, and that is often the smart thing to do. But, most people forget one simple step that is crucial to the process. This simple step, if omitted, can result in a future lawsuit against you, even if you allegedly settled the claim.
Consider the act of settling with a tenant who his behind on his rent: you accept the keys, waive his back rent and he moves out quietly. But, the tenant can always come back and sue you years later regarding damage to his property because of a leaky pipe. There is a simple way to avoid this lawsuit from happening.
Consider the times you may have accepted or given an earnest money deposit on a real estate contract. The closing never happened, and you either kept or forfeited the earnest money. Does this mean you can’t be sued in the future for breach of the contract? Don’t bet on it!
Consider the times you may have settled a claim with your neighbor regarding any controversy that may have allowed him to sue you. It may have been a situation where he fell on your property and was injured. You offered to pay his medical bills and he graciously accepted. However, two years later, what is to stop him from suing you for additional damages for pain and suffering? The answer: nothing!
OK, so now you are begging me to reveal the secret of how to avoid future liability on transactions such as these. The answer is simple: you need to get a written release of liability. A release, also known as a “general release,” is a simple document by which someone agrees to release you from all liability. A properly drafted release will prevent the signor of the document (the “releasor”) from bringing any claims against you in the future that he had as of the date of the release. Keep in mind that the release will not prevent the releasor from suing you for new claims related to events that arose after he signed the release.
So, whenever you have a dispute with any other party that is settled, make sure you have that party sign a general release form before you give any money or consideration. And, speaking of consideration, there must be consideration given for the release to make it legally binding. In other words, you can’t just get someone to sign a release with nothing in return. A promise to waive your own legal rights against the releasor is sufficient consideration (i.e., you may have to sign a release against the other party as well). If you can’t think of any consideration, consider any counterclaim you may have against the opposing party, and threaten legal action to create a “dispute.” For example, if someone threatens to sue you over monies owed for services, consider questioning any part of the services provided that may have been performed inadequately.
Of course, you may have to visit with a lawyer to determine what claims, if any, you may have against the party threatening you. In other words, don’t lie or make something up. Do what lawyers do: use your imagination, find a creative argument that might hold water, then bluff! Even if you have a very small chance of winning on your counterclaim in court, it is sufficient consideration to waive that claim in exchange for the opposing party waiving their own claim.