Civil Code Sections 1541 and 1542, California laws that govern the extinguishment of certain obligations, were recently amended by Senate Bill No. 1431. The subtle amendments made to these code sections not only impact ordinary settlement agreements but also impact a variety of other releases that intend to be a complete release of all potential claims, known or unknown. These other releases include sweepstakes prize acceptance forms, liability releases for potentially dangerous activities (think zip lines), rights of publicity, life rights release for TV and releases for film and advertising.
To give some background, Section 1541 allows for a party to be released from obligations to another party. Section 1542 clarifies that a general release does not extend to claims that a party does not know about at the time a release is signed. Therefore, if parties agree to a general release but in fact intend to release all possible claims, then the release must specifically waive all known and unknown claims as well as waiving Section 1542.
The amendments made to both Sections 1541 and 1542 help clarify that the code sections apply not only to debtors and creditors but also to “released” and “releasing” parties. The amendments of language do not change the overall concept of either section but instead seem to only broaden the scope of whom the sections apply to.
Effective Jan. 1, 2019, the language of Section 1542 was amended to read:
A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.
Below reflects the changes made to the previous Section 1542:
A general release does not extend to claims which that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, which if known by him or her must, would have materially affected his or her settlement with the debtor or released party.
It is important to update all forms of releases that include a Section 1542 waiver to ensure the enforceability of a party’s waiver of unknown claims. Aside from including a provision waiving Section 1542, releasing parties should consider incorporating provisions into releases that waive rights under other laws or legal principles that also limit waivers exclusively to known claims.