Covenant Not to Sue vs. Release: What Is the Difference?
Discover how settlement agreements differ. One extinguishes a legal claim, while the other preserves your right to pursue other potentially liable parties.
When legal disputes arise, the conflict is often resolved with a written agreement to prevent future litigation over the same issue. The specific document used can have significantly different legal consequences, as its language defines the future rights and responsibilities of everyone involved. The choice of instrument determines whether a lawsuit is barred, how the underlying legal claim is treated, and whether related parties are affected.
Understanding a Release
A release is a legal instrument that completely extinguishes a legal claim or cause of action. When a party signs a release, they give up their right to ever bring a lawsuit on that specific matter again, as the underlying legal right is effectively eliminated. The claim is considered satisfied and can no longer be the basis for any future legal proceeding.
For instance, a business receives a shipment of damaged goods and the supplier agrees to pay compensation. In exchange, the business signs a release, permanently giving up its right to sue the supplier for that specific shipment. If the party who signed the release were to sue on the same matter later, the release would be presented to the court as a complete defense, leading to a dismissal of the case.
Understanding a Covenant Not to Sue
A covenant not to sue is a legal agreement where one party contractually promises not to pursue a specific legal claim against another. In exchange for this promise, the party at risk of being sued may provide compensation or agree to perform a specific action. Unlike a release, a covenant not to sue does not extinguish the underlying legal claim.
The cause of action continues to exist, but the promising party is contractually barred from enforcing it. If the party who made the promise later files a lawsuit in violation of the covenant, the defendant’s recourse is to file a counterclaim for breach of the covenant agreement itself. This action would seek damages for the breach of contract.
Key Distinctions in Practice
The practical consequences of choosing between a release and a covenant not to sue are significant, extending beyond the immediate parties to the agreement. A primary distinction lies in their fundamental effect on the legal claim itself. A release acts as a total extinguishment of the claim, meaning the legal basis for the lawsuit is gone forever. In contrast, a covenant not to sue is merely a contractual promise that leaves the underlying claim intact but prevents its enforcement by the promising party.
A more complex difference arises when multiple parties, known as joint tortfeasors, are potentially liable for the same injury. Historically, releasing one of these parties from a claim could release all the others, even if they were not part of the agreement. However, this rule has been changed by law in many states. In those jurisdictions, a release given to one party does not discharge other liable parties unless the agreement expressly says so. As a result, the effect of a release on other joint tortfeasors depends heavily on the specific state’s law.
This is where a covenant not to sue offers a strategic advantage. Since a covenant does not extinguish the underlying claim, it generally only applies to the specific party named in the agreement. This preserves the injured party’s right to pursue legal action against other joint tortfeasors who may also be responsible for the harm. This makes the covenant a more precise tool when a plaintiff intends to settle with one party while continuing litigation against others.
The legal remedy for a breach of these agreements also differs. If a party signs a release and then attempts to sue on the extinguished claim, the release serves as an absolute affirmative defense, and the defendant can seek immediate dismissal of the lawsuit. However, if a party violates a covenant not to sue, the situation is treated as a breach of contract. The defendant’s recourse is to file a counterclaim for damages resulting from the breach of the covenant, which could include legal fees and other costs incurred in defending the prohibited lawsuit.