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Head’s Up: Changes Made to California Civil Code Section 1542

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.”[1]

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.

[1] A comparison to the prior version better highlights the slight changes: “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, which and that, if known by him or her must, would have materially affected his or her settlement with the debtor or released party.”

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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About this Author

David Hymer Lawyer at Sheppard Mullin for Real Estate, Land Use and Environmental Law
Paartner

David Hymer is a partner in the Real Estate, Land Use and Environmental Practice Group in the firm's San Diego office.

Areas of Practice

Mr. Hymer has significant experience in real property acquisitions, development, leasing and sales. His experience includes complex real estate purchase and sale transactions representing developers of master planned communities in all aspects of development and sale; representing public and privately-held homebuilders in land acquisitions and related matters; landbanking transactions; representing shopping center...

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Robert Bello Real Estate Sttorney Sheppard Mullin Law Firm in San Diego
Associate

Robert J. Bello is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Diego office.

Areas of Practice

Mr. Bello’s practice focuses on commercial and residential real estate transactions related to the leasing, acquisition, development, disposition, and financing of various types of real estate assets. He has experience in all aspects of transactional real estate matters, including drafting, negotiating, and analyzing leases, purchase and sale agreements, SNDAs,...

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