Challenging Releases in Commercial Setting Gets Strict Scrutiny
Challenging Releases
Under the seminal New York Court of Appeals decision in Centro Empresarial Cempresa S.A. v AmÉrica MÓvil, S.A.B. de C.V., 17 NY3d 269 (2011), a release of claims can be challenged and set aside for a number of well-defined reasons. As the Court in Centro succinctly explained:
A release may be invalidated … for any of “the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake” … .
Although a defendant has the initial burden of establishing that it has been released from any claims, a signed release “shifts the burden of going forward . . . to the [plaintiff] to show that there has been fraud, duress or some other fact which will be sufficient to void the release” (Fleming v Ponziani, 24 NY2d 105, 111 [1969]). A plaintiff seeking to invalidate a release due to fraudulent inducement must “establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury” (Global Mins., 35 AD3d at 98).
The Court in Centro went on to mention the concept of a release being “fairly and knowingly made”—in the context of whether the release is deemed to include “unknown claims, including unknown fraud claims.” The Court noted:
Notably, a release may encompass unknown claims, including unknown fraud claims, if the parties so intend and the agreement is “fairly and knowingly made” (Mangini, 24 NY2d at 566-567; Alleghany Corp. v Kirby, 333 F2d 327, 333 [2d Cir 1964]). As the Appellate Division majority explained below (Centro, 76 AD3d at 318), a party that releases a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release (see Bellefonte Re Ins. Co. v Argonaut Ins. Co., 757 F2d 523, 527-528 [2d Cir 1985]). Were this not the case, no party could ever settle a fraud claim with any finality.
This “fairly and knowingly made” concept has taken on its own life as a ground to challenge releases apart from claiming actual fraud or fraudulent inducement related to the release. As I have explained, the courts are particularly receptive to such claims in the context of personal injury lawsuits where the injured plaintiff is trying to avoid a release that was signed under questionable circumstances. See, e.g., Insurance Rep Overreaching Could Prevent Release from Being “Fairly and Knowingly” Made; Plaintiff’s Claim that Release Was Not “Fairly and Knowingly Made” Defeats Motion to Dismiss.
Commercial Setting
Whether the courts would be as lenient and understanding in a commercial setting in which a release is claimed not to have been fairly and knowingly made has been an open question. A recent decision of the New York Appellate Division, Third Department, has explicitly answered that question—not so fast, in the commercial context: Benowski v Track Dr., LLC, 2026 NY Slip Op 04466 (3d Dep’t Decided July 16, 2026).
In Benowski, the plaintiff “John Benowski, Doing Business as Sprague Electric Co.” was an electrical contractor engaged in the business of installing and maintaining electrical systems in residential and commercial properties. The subject of the lawsuit was plaintiff’s work installing electrical systems at a renovated commercial property for companies with which plaintiff had a longstanding business relationship. While no formal written agreement was executed to memorialize the scope of the work or the terms of the project, plaintiff provided the owners with a written project proposal at the outset of the project that detailed the nature of the work and the expected total price, approximately $1.14 million. Although not specifically delineated in the project proposal, the amount listed also reflected a 10% retainer fee plaintiff expected to be paid at the end of the work.
After delays on the project, the owners asked plaintiff to waive the additional 10% fee. Defendants maintained that plaintiff signed a release to that effect. Plaintiff went ahead and sued to recover that fee and an additional amount related to other work, and defendants moved to dismiss based upon the written release. “Plaintiff opposed the motion and cross-moved for partial summary judgment dismissing defendants’ affirmative defense of waiver and release, arguing that he did not sign the release, it was not fairly and knowingly made, and it pertained only to the release of liens against defendants’ property and not claims against defendants for money owed under the project. Supreme Court (McBride, J.) granted defendants’ motion for summary judgment, denied plaintiff’s cross-motion and dismissed the complaint, finding that the clear and unambiguous language of the release barred plaintiff’s claims and that plaintiff failed to establish a genuine issue of material fact as to whether he signed the release and whether it was fairly and knowingly made.”
On plaintiff’s appeal, the Third Department first rejected plaintiff’s arguments as to the scope of the release and whether he actually signed it:
Plaintiff’s contention that the January 2020 final release is a release of liens against defendants’ property and not a release of claims against defendants to recover money for work performed under the project is flatly contradicted by the plain and unambiguous language of the document, which listed $233,797.23 as the “entire unpaid balance” owed to plaintiff and stated that receipt of such amount would “constitute payment in full and [would] fully satisfy any and all liens, claims, and demands which the [c]ontractor may have or assert against the [o]wner in connection with said contract or project” (emphasis added). Plaintiff also did not come forward with sufficient admissible proof to raise a genuine issue of fact as to whether he signed the final release, as “[s]omething more than a bald assertion of forgery is required to create an issue of fact contesting the authenticity of a signature” and, notably, plaintiff did not deny having signed the document but merely confirmed that he could not recall doing so (Banco Popular N. Am. v Victory Taxi Mgt., 1 NY3d 381, 384 [2004]; see Community Bank, N.A. v Sharkey, 182 AD3d 681, 683 [3d Dept 2020]; Ginty v American Funds Serv. Co., 121 AD3d 1452, 1452 [3d Dept 2014]; Wood v Converse, 263 AD2d 860, 861 [3d Dept 1999]).
The Third Department then addressed plaintiff’s argument that he did not fairly and knowingly enter into any such release. The Third Department explicitly distinguished the cases in the personal injury context and even in the employment setting, ruling that plaintiff failed to establish any ground for avoiding the release in this commercial setting:
We also are unpersuaded by plaintiff’s argument that there are questions of fact as to whether the January 2020 final release was “fairly and knowingly made.” A release may be set aside on this basis in situations falling short of actual fraud when, “because the releasor has had little time for investigation or deliberation, or because of the existence of overreaching or unfair circumstances, it [would be] inequitable to allow the release to serve as a bar to the claim of the injured party” (Johnson v Lebanese Am. Univ., 84 AD3d 427, 430 [1st Dept 2011] [internal quotation marks and citation omitted]; see Mangini v McClurg, 24 NY2d 556, 566 [1969]; Wei Qiang Huang v Llerena-Salazar, 222 AD3d 1033, 1034 [2d Dept 2023]). However, unlike many of the cases relied upon by plaintiff that have found questions of fact as to whether a release should be set aside on this ground, this is not a personal injury action in which an injured party signed a broad release waiving the ability to recover damages from an accident (compare Pastrana-Ortiz v Wemple, 239 AD3d 1290, 1293 [4th Dept 2025]; Wei Qiang Huang v Llerena-Salazar, 222 AD3d at 1034; Pacheco v 32-42 55th St. Realty, LLC, 139 AD3d 833, 834 [2d Dept 2016]; Powel v Adler, 128 AD3d 1039, 1040 [2d Dept 2015]). Nor is this an employment discrimination case where a plaintiff signed a release purporting to preclude additional employment discrimination claims that were unknown at the time the release was signed (compare Johnson v Lebanese Am. Univ., 84 AD3d at 427-428). Rather, plaintiff’s argument in support of setting aside the release on this ground is based primarily on an assertion that there was a misunderstanding as to the scope of the January 2020 release and whether it precluded his ability to recover the additional 10% retainer fee. However, plaintiff’s own unilateral mistake about the scope of the January 2020 release is an insufficient ground to set it aside (see M.M. v Church of Our Lady of the Annunciation, 203 AD3d at 1279-1280; Matter of Walter, 180 AD3d 1201, 1204-1205 [3d Dept 2020]; Ford v Phillips, 121 AD3d at 1235). Upon reviewing the evidence plaintiff submitted in support of his cross-motion and in opposition to defendants’ motion, we conclude that plaintiff fell short of raising a triable issue of fact as to whether the release was fairly and knowingly made (see Trepeta v Mobiquity Tech., Inc., 241 AD3d 967, 970 [2d Dept 2025]; Rivera v Wyckoff Hgts. Med. Ctr., 113 AD3d 667, 671 [2d Dept 2014], lv denied 24 NY3d 910 [2014]). Our determination renders academic plaintiff’s remaining argument that his cross-motion for partial summary judgment should have been granted.
Commentary
While the Court of Appeals in Centro has written the blueprint for how to challenge releases, particularly on the grounds of fraud or fraudulent inducement, courts have taken additional approaches as to whether a release can be avoided if it was not allegedly “fairly and knowingly made.” In the context of personal injury lawsuits, the courts are particularly receptive to such avoidance. As indicated by the Third Department in Benowski, however, a plaintiff in a commercial setting is unlikely to receive any such welcome from the court in a quest to avoid a release of claims.