STEFANAC v. CRANBROOK EDUCATIONAL COMMUNITY (AFTER REMAND)
Case Details
- Citation
- 435 Mich. 155
- Judge(s)
- Riley, C.J., and Cavanagh, Boyle, and Griffin, JJ., concurred with Brickley, J.
- Procedural Posture — the stage the case had reached
- appeal
- State
- Michigan
Related Laws
No specific laws identified for this ruling.
Claim Types
Outcome
Michigan Supreme Court reversed the Court of Appeals and held that a plaintiff challenging a release agreement must tender the consideration recited in the release prior to or simultaneously with commencing suit in contravention of the agreement. Plaintiff's failure to tender before filing suit barred her wrongful discharge and discrimination claims.
Excerpt
STEFANAC v CRANBROOK EDUCATIONAL COMMUNITY (AFTER REMAND) Docket No. 82317. Argued March 8, 1989 (Calendar No. 7). Decided July 5, 1990. Judith Stefanac brought an action in the Oakland Circuit Court against Cranbrook Educational Community, alleging wrongful discharge, sex discrimination, and termination of employment in violation of public policy. The court, Robert C. Anderson, J., relying on Leahan v Stroh Brewery Co, 420 Mich 108 (1984), granted the defendant’s motion for accelerated judgment because plaintiff failed to tender consideration, and therefore the release executed by the plaintiff barred her claims. Thereafter, the plaintiff, on rehearing, sought the court’s consent to tender the disputed consideration and refile her suit. The court affirmed its previous ruling, dismissing the complaint with prejudice. The Court of Appeals, Beasley and C. L. Horn, JJ. (Bronson, P.J., not participating), affirmed in an unpublished opinion per curiam (Docket No. 89512). The Supreme Court vacated the judgment of the Court of Appeals and remanded the case for consideration of plaintiff’s alternate argument whether her offer to tender the disputed consideration was made within a reasonable time. 428 Mich 903 (1987). On remand, the Court of Appeals, Beasley, P.J., and Michael J. Kelly and Maher, JJ., held that the offer to tender the disputed consideration had been made within a reasonable time and instructed the trial court to issue an order allowing the plaintiff thirty days to make restitution (Docket No. 101319). The defendant appeals. In an opinion by Justice Brickley, joined by Chief Justice Riley and Justices Cavanagh, Boyle, and Griffin, the Supreme Court held: Where a plaintiff has entered into a settlement agreement, of consideration recited in the agreement must occur not only within a reasonable time after execution of the agreement, but, in all cases, prior to or simultaneously with the commencement of any proceeding raising a legal claim in contravention of the agreement. References Am Jur 2d, Compromise and Settlement §§ 7, 8,13. Timeliness of tender or offer of return of consideration for release or compromise, required as condition of setting it aside. 53 ALR2d 757. 1. Settlement agreements are binding until rescinded for cause. Tender of consideration received is a condition precedent to the right to repudiate a contract of settlement. The law favors settlements, and a party entering into a settlement agreement, offering adequate consideration, is entitled to rely on the terms of the agreement. A compromise and release should not be confused with the law of contract. The very essence of a release is to avoid litigation, even at the expense of strict right. One who seeks to repudiate or avoid a compromise settlement or release and revert to the original right of action must place the other party in statu quo, absent waiver or fraud in the execution. In this case, the plaintiff’s allegations of fraud are insufficient to bring the claim within the exception, and the defendant has not waived the obligation to tender. The plaintiff made no effort to raise the validity of the release; rather, she merely ignored the existence and terms of the agreement and brought an action in contravention of it, while retaining its benefits. 2. A plaintiff must tender restitution promptly and without unreasonable delay upon discovery of fraud or be held to have ratified the release. Long acquiescence and failure to complain promptly operates, as a matter of law, to reaffirm a contract of settlement and bars litigation. A settlement agreement is binding until rescission by repudiation and tender. Tender is a prerequisite to the right to repudiate. Commencement of a lawsuit is not a proper means to repudiate a settlement. Tender must occur within a reasonable time after learning of the grounds upon which the release and settlement could be repudiated. What is reasonable under the circumstances is a matter of discretion for the trial court. In this case, the trial court had no occasion to rule on the issue because, instead of repudiating the agreement, the plaintiff filed suit in contravention of the terms of the release. 3. Independent of the issue what constitutes a reasonable time within which to repudiate a settlement is the question whether tender is permissible after commencement of an action in contravention of the agreement. As a matter of law, in all cases where a legal claim is raised in contravention of an agreement, the plaintiff must tender the consideration recited in the agreement prior to or simultaneously with filing suit. A defendant is entitled to rely on the binding nature of an agreement. A plaintiff is not entitled to retain the benefit of an agreement and at the same time bring suit in contravention of the agreement. Reversed. Justice Levin, dissenting, stated that where a plaintiff claims, and the court finds, that there would be entitlement to retain recited consideration after a release is set aside because the amount recited as consideration represents payment that accrued and was owing to the plaintiff separate and apart from the claims that were settled by the release, and that no consideration in fact was paid to settle those claims, tender is not required. In deciding whether tender is required before suit in this case the Supreme Court is obliged to accept as true the allegations in the plaintiff’s complaint and in her response to the motion for summary disposition, and to proceed on the assumptions, absent judicial determination at the trial level to the contrary, both that the release in fact was obtained by fraud or duress and that the defendant indeed owes the plaintiff two weeks’ vacation pay and thus an amount equal to the consideration recited in the release. In addition, it exalts form over substance to require tender before suit where it is apparent that the defendant would not have accepted the tender had it been promptly offered. A person who has signed a release should not be permitted to proceed in an action in disaffirmance of the release until the consideration actually paid for the release itself has been returned. The purpose of the tender rule is not to provide a fair and necessary check against the instability of contracts, but rather to provide a check against the unjust enrichment of the rescinding party that would result if the rescinding party were allowed to retain the benefits of the contract attacked. The factual dispute in an action to set aside a release does not involve the merits of the plaintiff’s underlying claim against the defendant that were resolved by the release if it is valid. It is only if and when the release is set aside that the plaintiff should be able to put the defendant to the expense of defending against the underlying claim. The consideration paid by the defendant to the plaintiff at the time the release is signed does not provide protection against a claim that the release itself was procured by fraud or duress, or protect the very instrument that is intended to ensure forbearance of litigation. If it is judicially determined in this case that the plaintiff was coerced into signing the release, the release should be set aside and she should be required to return the payment before obtaining a determination on the merits of her claims of wrongful discharge unless it is also so judicially determined that the defendant owes her that amount as additional vacation pay. The majority’s reading of Leahan is incorrect and contradicts a well-established tenet of the law of contracts. Parol evidence is always admissible to show that a statement in a document is not true. Tender of consideration, although a precondition to an action at law, is not a precondition to commencement of an action seeking equitable relief. The majority errs in concluding that the abolition of the procedural distinction between law and equity in some way diminishes the power of a court to order rescission in accordance with the rules and practices developed in equity. Modem procedural reforms, in conjunction with the consolidation in one court of jurisdiction of both equitable and legal claims, eliminate the necessity of tender as a prerequisite to commencement of an action seeking to obtain rescission. Under unified proceedings, a court may enter a judgment conditioning rescission on the return of consideration received by the plaintiff, thus effectuating the purpose of the tender rule, the avoidance of unjust enrichment of the residing party. Contracts to relinquish the enforcement of legal rights warrant at least as much judicial surveillance as other contracts. Justice Archer, dissenting, stated that an inflexible application in this case of the rule of Leahan that a party to a contract of settlement must tender any consideration received as a condition precedent to repudiating the contract is neither complete nor fair. Where there is a bona fide, good-faith dispute regarding whether consideration recited in a release agreement actually amounted to consideration, the rule of Leahan is unworkable. Where, aside from the transaction, the person seeking restitution would be entitled to retain what the other gave as a result of the agreement, there is no enrichment as a result of the agreement even though what was given is retained, nor does it diminish the net assets of the other. Clearly, a plaintiff who contests the sufficiency of the consideration supporting a release agreement should be allowed to withhold tender of the alleged consideration until there is a judicial determination that consideration was in fact paid. If it is found that the consideration was paid, the plaintiff should be required to tender that amount. However, if the court determines that the amount paid to the plaintiff for the release was already owed to the plaintiff, the plaintiff should be allowed to retain that amount and proceed with any legal action. In this case, the plaintiff unquestionably was owed her wages find accrued vacation pay. A question of fact exists regarding whether additional vacation pay was owed, and any amount determined to be in excess of that owed the plaintiff should be tendered to the defendant within a reasonable time following resolution. However, the plaintiff should be allowed to amend her complaint to request rescission. 164 Mich App 709; 417 NW2d 582 (1987) reversed. Compromise and Settlement — Release — Consideration — Tender — Reasonable Time. Where a plaintiff has entered into a settlement agreement, tender of consideration recited in the agreement must occur not only within a reasonable time after execution of the agreement, but, in all cases, prior to or simultaneously with the commencement of any proceeding raising a legal claim in contravention of the agreement. Bell & Gardner, P.C. (by Mary E. Rosick and Cynthia Yott), for the plaintiff. Dickinson, Wright, Moon, Van Dusen & Freeman (by John Corbett O’Meara, Thomas G. Kienbaum, and Elizabeth Hardy) for the defendant. AFTER REMAND Brickley, J. The issues presented in this case are whether a plaintiff, before commencing a suit which disregards the terms of a release, must tender the consideration recited in the release and, if so, at what point before or during the proceedings must this tender take place. We hold that when a plaintiff has entered into a settlement agreement tender of consideration recited in the agreement must occur not only -within a reasonable time after execution of the agreement, but in all cases prior to or simultaneously with the commencement of any proceeding raising a legal claim in contravention of the agreement. i On November 16, 1983, plaintiff resigned as personnel director of Cranbrook Educational Community. In connection with her termination, plaintiff signed a document entitled "Release of Claims.” The release is dated November 16, 1983, and reads in pertinent part as follows: For and in consideration of Cranbrook Educational Community’s (Cranbrook) acceptance of the voluntary resignation of Judith Stefanac (Stefanac) and Cranbrook’s further agreement to pay Stefanac for two weeks, less applicable state and federal withholding taxes, Stefanac, for herself, her heirs, administrators and executors, does hereby fully and forever release, acquit and discharge Cranbrook, its agents, servants and representatives, of and from any and all claims, demands, actions and causes of action of every kind, nature and description which Stefanac may have had, may now have or may hereafter have by reason of any matter, cause, act or omission arising out of or in connection with Stefanac’s employment with and/or resignation from Cranbrook. After signing the release plaintiff received a check from defendant for $2,090.65. The check was purportedly intended to be payment for four weeks accrued vacation time and two weeks’ severance pay. Plaintiff filed suit against Cranbrook on August 9, 1984, alleging wrongful discharge, sex discrimination, and termination in violation of public policy. Subsequently, defendant filed a motion for accelerated judgment, arguing that the release barred plaintiff’s claims. In response, plaintiff filed an affidavit challenging the validity of the release. The parties agreed that plaintiff's affidavit raised a question of fact, and therefore the motion was denied without prejudice. Following a discovery period of one year, defendant again moved for dismissal of the action on the grounds that the release barred suit. Defendant also argued at this point, that plaintiff’s failure to tender the consideration received in exchange for the release prevented her from now attempting to rescind the agreement. Defendant’s position was based on this Court’s decision in Leahan v Stroh Brewery Co, 420 Mich 108; 359 NW2d 524 (1984). Plaintiff conceded that Leahan merely reaffirmed the law as it had existed in the past, but asserted that the facts of Leahan differed from the instant case. Further, plaintiff maintained that the release was void for lack of consideration and that she was entitled to all money received as a result of her termination. The trial court interpreted Leahan as dispositive of the issue and granted defendant’s motion. Three weeks later, plaintiff filed a motion for rehearing. On rehearing, plaintiff sought the trial court’s consent to tender the disputed consideration and, following tender of the money, the opportunity to refile her suit against defendant. This is the first indication that plaintiff was willing to repay the consideration recited in the release. The trial judge affirmed the previous ruling, dismissing plaintiff’s complaint with prejudice. Plaintiff appealed as of right, raising two issues. Plaintiff continued to argue that she was entitled to all the money received and therefore that tender was not required in order to maintain the action. Alternatively, plaintiff argued that her offer to tender back the disputed consideration was within a reasonable time under the circumstances of the case. Basing its analysis on an examination of Leahan, the Court of Appeals held: [T]he consequence of the Leahan decision is that if a release recites that consideration was paid and if money was in fact paid, a plaintiff may not argue that the money was not actually consideration, regardless of any evidence to that effect. That seems to be what Leahan holds. If not, we believe it is up to the Supreme Court to say so. Consequently, we affirm.[] [Emphasis added.] However, the Court of Appeals did not directly address plaintiff’s alternate argument that tender of the disputed consideration occurred within a reasonable time. Consequently, we issued an order vacating the judgment of the Court of Appeals and remanded the case for consideration of the second issue raised by plaintiff. 428 Mich 903 (1987). On remand, the Court of Appeals ruled that “plaintiff’s offer to tender back the disputed consideration was within a reasonable time.” The Court instructed the trial judge to issue an order which would allow plaintiff thirty days to make restitution to the defendant. Further, the trial court held: If such restitution is made, trial shall be had on the merits, including determination of the validity of the release. If such restitution is not made, judgment may enter for defendant. Nothing in this opinion is intended to preclude the trial judge from making appropriate findings of fact after trial, including resolution of how much, if any, of the monies paid plaintiff were in consideration of the release.[] We granted defendant’s application for leave to appeal. 430 Mich 892 (1988). ii It is a well-settled principle of Michigan law that settlement agreements are binding until rescinded for cause. Further, tender of consideration received is a condition precedent to the right to repudiate a contract of settlement. See, generally, Randall v Port Huron, St C & M C R Co, 215 Mich 413; 184 NW 435 (1921); Kirl v Zinner, 274 Mich 331; 264 NW 391 (1936); Leahan v Stroh Brewery Co, supra. The policy consideration underlying the general rule is that the law favors settlements. A party entering into a settlement agreement, offering adequate consideration, is entitled to rely on the terms of the agreement. The rationale for the rule was explained further by this Court in Kirl v Zinner:___ A compromise and release is not to be confused with the law of contract, in which equivalents are exchanged, for the very essence of a release is to avoid litigation, even at the expense of strict right. * * * It is a general and salutary rule that one repudiating or seeking to avoid a compromise settlement or release, and thereby revert to the original right of action, must place the other party in statu quo, otherwise the very fact of payment, in consideration of the compromise or release, will likely operate as a confession of liability. [274 Mich 334-335. Emphasis in original.] Plaintiff asserts that she should be excepted from this rule because the release was void and not merely voidable. The validity of the release was challenged by plaintiff on the grounds that it lacked consideration and was procured under duress and fraud. Specifically plaintiff asserts that defendant misrepresented the terms of the agreement. Moreover she asserts that defendant knew that plaintiff was legally entitled to the money she received, that she needed the money to support her family, and that defendant waved the checks at her refusing to give plaintiff any funds unless she signed the release. Plaintiff contends that although the release recites that consideration was received, she in fact did not get anything in exchange for signing the settlement agreement. Therefore tender was not necessary prior to filing suit because "there is nothing to be returned to restore the status quo ante.” However, plaintiff admits that she signed the release and that she received four checks. Subsequently she endorsed and cashed the checks received. We start with the presumption that the plaintiff executed the release knowingly and that the recited consideration was received. Porth v Cadillac Motor Car Co, 198 Mich 501; 165 NW 698 (1917). Kirl v Zinner, supra. The plaintiff has the burden of showing, by a preponderance of the evidence, that the release is unfair or incorrect on its face. Id. Even in light of these presumptions and the plaintiff’s burden, the plaintiff must tender the recited consideration before there is a right to repudiate the release. Id. The only recognized exceptions in Michigan are a waiver of the plaintiff’s duty by the defendant and fraud in the execution. Plaintiff has not raised either exception and thus is not relieved of the duty to tender the consideration recited in the release. Our reports are replete with authority that negate plaintiff’s contentions. In Niederhauser v Detroit Citizens’ St R Co, 131 Mich 550, 552; 91 NW 1028 (1902), we held: The law is well settled that, if one seeks to rescind a settlement on the
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