Civil Code section 1542 waivers are commonly included in a myriad of transactional documents and typically coupled with “as is” provisions. In essence, absent an express waiver of Section 1542 in a contract, the releasing party does not release any unknown claims.
Senate Bill No. 1431 (“SB 1431”) amended Section 1542, effective January 1, 2019, to clarify that the release of unknown claims applies to the “releasing party” and the “released party,” and is not limited to a “creditor” and a “debtor” as provided in the former version of the statute. Section 1542 now reads: “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.”
SB 1431 was drafted to avoid confusion and potentially costly litigation, especially for self-represented parties who may expect “creditor” and “debtor” to apply only to cases where money is owed. The terms “creditor” and “debtor” were used when the statute was first codified in 1872 and generally connote solely monetary claims. This change codifies subsequent case law which established that Section 1542 is not limited to monetary claims but also includes claims in workers compensation proceedings, personal injury cases, and employment cases. These changes provide greater clarity to a releasing party as to what claims are released.
The new version also changes “must have materially affected” to “would have materially affected” the releasing party’s intent. Whether it’s a distinction without a difference remains to be seen.
Neither the legislative history nor the statute directly address whether a court could deem invalid a Section 1542 waiver executed after January 1, 2019 that does not recite the amended language. Due to this uncertainty, and to avoid a rejection of the release of unknown claims, the amended version should be used in documentation moving forward.