Under New York law, “strong policy considerations favor the enforcement of settlement agreements” because they preserve judicial resources and provide parties the autonomy to shape their own resolution of the conflict.1 Nonetheless, if a settlement agreement is valid on its face and was not entered into under circumstances that would render the agreement invalid, such as fraud or incompetence of a party, must a settlement agreement be enforced as written? In New York, the answer is: Not always. There are circumstances where a settlement agreement, including the releases contained therein, can be rescinded.
Rescission
Rescission is an “extraordinary remedy” and an equitable one under New York law.2 It is designed to restore the status quo ante between the parties prior to execution of the settlement agreement, and enable the non-breaching party to assert the claims that it possessed prior to the settlement.
