Corporate & Securities Law

Making a Release Automatic

By Ken Adams

A court opinion doesn’t have to come from an exalted court in order for it to raise an issue of interest to drafters generally.

A case in point is Managment Strategies v. Hous. Auth. of New Haven, 2009 Conn. Super. LEXIS 1550 (Conn. Super. Ct. June 2, 2009). In that case, the following release language was at issue:

Upon completion of the Completion Work, [FNICA] and [the plaintiff] shall, immediately upon full payment by [the defendant] of all amounts due hereunder, release [the defendant] from any and all liability hereunder, under the Contract, and with respect to any action taken by [the defendant] with respect to the Contract, the [Takeover] Agreement, and the Project.

The plaintiff never issued the release, even though the defendant had satisfied the conditions. Then in the lawsuit, the plaintiff objected to the defendant’s motion for summary judgment, claiming that because the plaintiff hadn’t released the defendant, the defendant wasn’t entitled to summary judgment. Sensibly enough, the court held that the plaintiff couldn’t base it its claim on its failure to issue a release that it had been required to issue under the contract.

The plaintiff would have been precluded from making this lame argument if the release had been automatic. And more generally, making a release automatic should simplify matters. Chasing after Acme to get it to issue a release could be a nuisance?if Acme’s not inclined to do you favors, it might be willing to drag its heels.

How do you make a release automatic? Instead of saying If X, Acme shall release Widgetco, you say If X, Acme will be deemed to have released Widgetco. (The former is language of obligation; the latter is language of policy, using deem; see MSCD 12.65.) The release happens automatically, without requiring Acme to do anything.

Making a release automatic would work only if the conditions to the release can easily be established and if the party being released doesn’t need to show someone (for example, a lender) a piece of paper called a release.

The court in Managment Strategies referred to the notion of a release being automatic, but it also expressed the same concept by using the term “self-executing.” Black’s Law Dictioary defines self-executing as “(Of an instrument) effective immediately without the need of any type of implementing action.” But the term is applied primarily to treaties, and I don’t see that anything would be gained trying to apply it to contracts too. I think it makes more sense to refer to an automatic release.
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Full post as published by AdamsDrafting on July 12, 2009 (boomark / email).