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Make Sure that Your Release Means What It Says

Title page from the California Civil Code enacted in 1872 for a post about the potential effect of Civil Code Section 1542 on a contractual release

Title page from the California Civil Code enacted in 1872 and published in 1880

I recently prepared a Stock Redemption Agreement pursuant to which one of the founders would leave a corporation (my client). The agreement included a General Release by which the parties would release one another from all liability. The corporation’s CEO had a difficult time understanding the need for, and the significance of, a provision that cited a particular Section of the California Civil Code.

California Civil Code Section 1542 says:

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 known by him or her must have materially affected his or her settlement with the debtor. (more…)