Stefanac v. Cranbrook Educational Community

• Decision Date: 05 July 1990
• Docket Number: Docket No. 82317
• Citation: 458 N.W.2d 56,435 Mich. 155
• Parties: , 55 Empl. Prac. Dec. P 40,571, 61 Ed. Law Rep. 1347 Judith STEFANAC, Plaintiff-Appellee, v. CRANBROOK EDUCATIONAL COMMUNITY, Defendant-Appellant.
• Court: Michigan Supreme Court

Page 56

458 N.W.2d 56

435 Mich. 155, 55 Empl. Prac. Dec. P 40,571,

61 Ed. Law Rep. 1347

Judith STEFANAC, Plaintiff-Appellee, v. CRANBROOK EDUCATIONAL COMMUNITY, Defendant-Appellant.

Docket No. 82317.

Supreme Court of Michigan.

Argued March 8, 1989.

Decided July 5, 1990.

[435 Mich. 159] Bell & Gardner, P.C. by Mary E. Rosick and Cynthia Yott, Detroit, for plaintiff-appellee.

Dickinson, Wright, Moon, Van Dusen & Freeman by John Corbett O'Meara, Thomas G. Kienbaum, and Elizabeth Hardy, Detroit, for defendant.

OPINION

BRICKLEY, Justice.

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 Education 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. ¹

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. ² 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 N.W.2d 524 (1984). ³ 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. ⁴ The trial court interpreted Leahan as dispositive of the issue and granted defendant's motion. ⁵

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. ⁶ [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, 406 N.W.2d 824 (1987).

On remand, the Court of Appeals ruled that "plaintiff's offer to tender back the disputed consideration was within a reasonable time." ⁷ 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. ⁸ We granted defendant's application for leave to appeal. 430 Mich. 892, 425 N.W.2d 77 (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 N.W. 435 (1921); Kirl v. Zinner, 274 Mich. 331, 264 N.W. 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. at 334-335, 264 N.W. 391 (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 ⁹ and that the recited consideration was received. ¹⁰ Porth v. Cadillac Motor Car Co., 198 Mich. 501, 165 N.W. 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 ¹¹ and fraud in the execution. ¹² 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 N.W. 1028 (1902), we held:

The law is well settled that, if one seeks to rescind a settlement on the ground of fraud or mistake, he must, after discovering the fraud, place the other party in statu quo.

In Randall, supra 215 Mich. at 420, 184 N.W. 435, Justice Stone wrote:

While there is still some real conflict in the cases as to whether or not there has to be a tender of the amount received when it is sought to set a release aside on the ground of fraud,...