Covenant Not to Sue vs. Release: Key Differences

In legal disputes, parties often seek resolution through written agreements to prevent future litigation. Two common, yet different, agreements used to achieve this are a release and a covenant not to sue. Understanding the specific function and legal consequence of each is a primary consideration for any individual or business navigating a settlement process.

Understanding a Release

A release, sometimes called a release of claims, is a legal instrument that completely extinguishes a legal claim. When a party signs a release, they are giving up their right to pursue that specific cause of action forever. The claim itself is considered satisfied and no longer exists in the eyes of the law.

The primary function of a release is to provide finality. In exchange for a settlement payment or other consideration, the releasing party agrees that the matter is concluded. If that party were to later attempt to file a lawsuit based on the claim that was released, the other party would present the signed release to the court. The release acts as a complete defense, barring the court from hearing the case because the claim has been legally eliminated.

It is not merely a promise to refrain from legal action; it is a declaration that the right to that action has been permanently surrendered. For this reason, releases are frequently used in settlements where the goal is to close the book on a dispute once and for all, such as in the resolution of an insurance claim or the finalization of a business dispute.

Understanding a Covenant Not to Sue

A covenant not to sue is a distinct type of legal agreement that functions as a contractual promise. In this arrangement, one party agrees not to initiate a lawsuit against another party based on a specific, existing claim. It is a formal pledge to forbear from litigation, and the agreement itself becomes a binding contract between the signatories.

Unlike a release, a covenant not to sue does not extinguish the underlying legal claim. The cause of action technically remains in existence, but the party holding the claim has contractually obligated itself not to enforce it through legal proceedings.

If the party who signed the covenant later decides to file a lawsuit on the restricted claim, they are in breach of the covenant agreement. The defending party’s recourse is not to argue that the original claim is invalid, but to file a countersuit for breach of the covenant contract. This action can seek damages that resulted from the breach, such as the legal fees incurred in defending against the prohibited lawsuit.

Key Distinctions and Practical Implications

This distinction is important when multiple parties are potentially responsible for the same harm, a situation involving what are known as joint tortfeasors. Under traditional common law principles, signing a release with one responsible party was often interpreted as releasing all other responsible parties from liability for the same injury, even if they were not part of the agreement. This could unintentionally prevent the injured party from seeking further compensation from others who shared fault.

A covenant not to sue avoids this outcome. Because it is a specific contractual agreement between two parties and does not extinguish the underlying claim, it preserves the injured party’s right to pursue legal action against other joint tortfeasors. This makes the covenant a useful tool in multi-party disputes, allowing for phased settlements with individual defendants without jeopardizing the ability to recover damages from the remaining responsible parties. The agreement only restricts legal action against the specific party named in the covenant.

Common Scenarios for Each Agreement

Releases are most commonly used in situations where a complete and final settlement is desired between all involved parties. A classic example is the resolution of a personal injury claim from a car accident. The injured person, in exchange for a settlement payment from the at-fault driver’s insurance company, will sign a release that fully and finally absolves the driver and insurer from all liability related to the accident, preventing any future claims.

Covenants not to sue are frequently employed in more complex cases, particularly those involving multiple defendants. Consider a homeowner who discovers a significant construction defect in their new house. Several parties could be at fault, including the general contractor, the architect, and various subcontractors. The homeowner might agree to a partial settlement with the plumbing subcontractor, signing a covenant not to sue them in exchange for payment. This allows the homeowner to secure some funds while preserving their right to sue the general contractor and others for the remainder of the damages.