A settlement release is a contract whereby one or more parties agree to abandon, or give up rights, or claims, that otherwise could be pursued or enforced. Releases are commonly incorporated into settlement agreements, or can be prepared as stand-alone documents in connection with the settlement of claims in litigation. They are governed by the same principles of contract formation, interpretation, and enforceability that apply to all contractual agreements. The parties are free to negotiate the scope of the release (i.e., whether it will be general or specific regarding the subject matter), its contents, and whether it will be unilateral or mutual concerning the parties.
Although settlement release agreements typically apply to all known and unknown claims, in California “[a] general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if know by him or her must have materially affected his or her settlement with the debtor. [Civ. Code § 1542.] The intent of this statute is to prevent the person releasing claims from inadvertently waiving unknown claims merely by signing a general release. [Casey v. Proctor ( 1963) 59 Cal.2d 97.]
Merely reciting that Civil Code section 1542 is waived, or that the releasing party intends to waive unknown claims, is not sufficient. There must be independent evidence that the releasing party intended to release unknown claims. [McCray v. Casual Comer, Inc. (C.D. Cal. 1992) 812 F.Supp. 1046.] The contract drafter should include separate lines for initials or signatures by the parties to the waiver, indicating their acknowledgment of Civil Code section 1542 waiver, along with a statement that the releasing party is aware of the meaning of the statute and intends, by signing the release, to assume the risk of then-existing but as yet unknown claims.
Having the injured party sign a release of unknown claims is very important. Without having such a release, the litigation may never end. By signing and releasing claims that are unknown to him at the time he signed the settlement agreement, he will not be able to bring another lawsuit once he becomes aware of a condition that had not yet manifested at the time he signed the settlement release. The releasing party may, however, void a settlement release agreement by showing he was induced to grant the release by fraud, mistake, or undue influence. [Kaufman & Broad-South Bay v, Unisys Corp. (N.D. Cal. 1993) 822 F. Supp. 1468.]
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