Civil Code section 1542 provides, “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.”
Settlements are a key aspect of litigation. As roughly 95% of all civil suits end with settlements, litigants are bound to come across these agreements, because that’s what settlements ultimately are – agreements. And though each settlement will ultimately differ depending on the circumstances, there are some settlement terms in California that are simply ubiquitous.
These, of course, are agreements related to “release” and “waiver.” These are legal terms that relate to settlement provisions whereby both parties agree to release any claims they may have against each other. Almost every settlement has a section related to a “release.”
But just because parties sign a general release does not mean that they waive all claims. In fact, certain types of “unknown” claims are expressly excluded from a general settlement release, unless they are waived. Binding waivers, however, are difficult to achieve, and without them, parties could wind up back in the courtroom despite having signed a settlement.
In these situations, the right lawyer can make all the difference. At the Underwood Law Firm, our attorneys are well-versed in settlements, accords, and release agreements as they relate to co-ownership disputes. If you’ve found yourself in one of these situations, please do not hesitate to reach out to our office.
What is a “release” in a settlement (Civ. Code § 1541)?
When it comes to settlements, most, if not all, in California include a section related to “release” or “release of claims.” Legally speaking, a release is the “abandonment, relinquishment or giving up of a right or claim to the person against whom it might have been demanded or enforced … and its effect is to extinguish the cause of action.” (Pellett v. Sonotone Corp. (1945) 26 Cal.2d 705, 711.)
In plain English, this means that in exchange for settling, both parties give up their claims against each other. For instance, consider a lawsuit between “Shawn,” and “Julie,” related to co-owned property. Julie sues Shawn for waste because he’s been dumping raw materials on the property. And Shawn counter-sues for breach of fiduciary duty. Eventually, though, cooler heads prevail and both parties realize that ending the litigation is in their best interest financially.
The settlement they sign includes a “release” of all claims they presently have against each other. This means that, after signing, Julie cannot continue her waste claim against Shawn, and Shawn cannot continue his breach of fiduciary duty claim against Julie. What claims they had against each other have been released.
Does a settlement release extend to all potential claims?
In the example above, both Shawn and Julies released their “present” claims against each other. But the truth is that most settlements never contain such a simplistic agreement. Instead, competent attorneys will try to effectively end any and all disputes that have arisen or could arise between the parties, in the past or future.
To that end, most release provisions contain language to the effect of, “each party agrees that they will not assert a claim that arises from or relates to the pending litigation.” This is called a “general release,” and its function is to release essentially every claim that the parties could have asserted against each other, but did not.
While this may seem broad in scope, it is California’s policy to give such language its desired effect. As the Courts of Appeal have stated many times, “the release of ‘all claims and causes of action’ must be given a comprehensive scope.” (Shine v. Williams-Sonoma, Inc. (2018) 23 Cal.App.5th 1070, 1079.) If this wasn’t the rule, then the general release would be effectively meaningless. There would always be certain claims that fall through the cracks that open the door to additional litigation, even though the point of settlement is to end the dispute once and for all.
Are any claims not affected by a settlement release (Civ. Code § 1542)?
Yes, at least statutorily speaking. A general release occurs under Civil Code section 1541. That statute provides that “an obligation is extinguished by a release…” Per the above, all this section does is provide that a valid release extinguishes claims between the parties.
But under Civil Code section 1542, certain claims are not released, even if the parties sign a general release as part of a settlement. Under that section, “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.” (Civ. Code § 1542.)
Put simply, this means that even if the parties sign a general release, it does not apply to claims that were unknown at the time of signing the settlement, provided those claims would materially affect the settlement.
The logic behind this rule makes sense. It’s a protectionary measure. The courts want to prevent a releasor from inadvertently waiving unknown claims merely by signing a general release. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1170.)
Can parties waive the protection of a general release?
Yes, and this is where the concept of the “1541 waiver” finally comes into play. Recall that under Civil Code section 1541, the parties can release claims against each other under a general release. However, under Civil Code section 1542, the general release does not affect unknown claims.
Well, as another staple of settlement contracts, the parties can actually waive the protections of Civil Code section 1542 in their 1541 release. Put simply, the parties can agree to release all claims, including unknown claims.
This is obviously a huge decision. If a party chooses to release unknown claims, they are effectively deciding to waive the ability to sue the other party at any point in the future, other than for breach of the settlement. As such, even though a 1541 waiver may appear frequently in settlement drafts, they are often ineffective.
And that is because “mere recital…that the protection of Civil Code, section 1542 is waived, or that the release covers unknown claims or unknown parties is not controlling.” (Leaf v. City of San Mateo (1980) 104 Cal.App.3d 398, 411.) Instead, the parties to the settlement must actually intend to waive the protections of section 1542. If that intention is proven to have never existed, then the waiver is ineffective.
How the Lawyers at Underwood Law Firm Can Help
Negotiation and litigation related to settlement can be a trying experience for all parties. The prospect of finally ending the dispute can be great, but there’s always the possibility of a mistake looming over the entire situation. For the inexperienced litigant, the next steps might seem impossible to determine. Fortunately, the lawyers at the Underwood Law Firm specialize in partition actions and solving the difficult problems that can accompany them. If you have found yourself in one of these situations, then please do not hesitate to contact us to discuss Civil Litigation.