Under existing law, an obligation is a legal duty to do or not to do a certain thing and an obligation may be extinguished in various ways. An obligation is extinguished if a creditor releases a debtor from the obligation either upon new consideration or in writing, with or without new consideration. Under existing law, a general release from an obligation does not apply to claims that the creditor does not know or suspect to exist in his or her favor, as specified, and that would have materially affected his or her settlement with the debtor.

This bill would clarify that the terms creditor and debtor as used in the above provisions include releasing party and released party, respectively. This bill would state that its changes are declaratory of existing law.

Under existing law, an obligation is a legal duty to do or not to do a certain thing and an obligation may be extinguished in various ways. An obligation is extinguished if a creditor releases a debtor from the obligation either upon new consideration or in writing, with or without new consideration. Under existing law, a general release from an obligation does not apply to claims that the creditor does not know or suspect to exist in his or her favor, as specified, and that would have materially affected his or her settlement with the debtor.

This bill would clarify that the terms creditor and debtor as used in the above provisions include releasing party and released party, respectively. This bill would state that its changes are declaratory of existing law.

Under existing law, an obligation is a legal duty to do or not to do a certain thing and an obligation may be extinguished in various ways. An obligation may be is extinguished if a creditor releases a debtor from the obligation in certain circumstances, provided that either upon new consideration or in writing, with or without new consideration. Under existing law, a general release from an obligation does not apply to claims that the creditor does not know or suspect to exist in his or her favor, as specified, and that would have materially affected his or her settlement with the debtor.

This bill would clarify that the terms creditor and debtor as used in the above provisions include releasing party and released party, respectively. This bill would state that its changes are declaratory of existing law.

Under existing law, an obligation is a legal duty to do or not to do a certain thing and an obligation may be extinguished in various ways. An obligation may be extinguished if a creditor releases a debtor from the obligation in certain circumstances, provided that a general release from an obligation does not apply to claims that the creditor does not know or suspect to exist in his or her favor, as specified, and that would have materially affected his or her settlement with the debtor.

This bill would clarify that the terms creditor and debtor include releasing party and released party, respectively. This bill would state that its changes are declaratory of existing law.

 UNFINISHED BUSINESS  

Bill No: SB 1431

Author: Morrell (R)

Amended: 6/14/18

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-0, 5/8/18

AYES: Jackson, Moorlach, Anderson, Hertzberg, Monning, Stern, Wieckowski

SENATE FLOOR: 38-0, 5/17/18 (Consent)

AYES: Allen, Anderson, Atkins, Bates, Beall, Bradford, Cannella, De León, Dodd, Fuller, Gaines, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Newman, Nguyen, Nielsen, Pan, Portantino, Roth, Skinner, Stern, Stone, Vidak, Wieckowski, Wiener, Wilk

NO VOTE RECORDED: Berryhill

ASSEMBLY FLOOR: 75-0, 6/21/18 (Consent) - See last page for vote

SUBJECT: Obligations: release

SOURCE: Conference of California Bar Associations

DIGEST:

This bill clarifies that the terms “creditor” and “debtor,” as used in Section 1542 of the Civil Code, are interchangeable with the terms “releasing party” and “released party,” respectively.

Assembly Amendments

make similar changes to the language in an adjacent statute, Section 1541 of the Civil Code, to harmonize the terminology.

ANALYSIS: Existing law provides that an obligation is extinguished by a release therefrom given to the debtor by the creditor, upon a new consideration, or in writing, with or without new consideration. (Civ. Code Sec. 1541.) 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. (Civ. Code Sec. 1542.)

This bill provides that an obligation is extinguished by a release therefrom given to the debtor or the released party by the creditor or releasing party. 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.

Background

Section 1541 of the Civil Code provides: “An obligation is extinguished by a release therefrom given to the debtor by the creditor, upon a new consideration, or in writing, with or without new consideration.” Section 1542 of the Civil Code provides: “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.” This statute provides an automatic preservation of claims that a releasing party may not know exist at the time of executing a general release. In practice, a waiver of this statute is included in most settlement agreements to ensure that it functions as a true settlement to any and all then-existing claims.

This bill clarifies that the terms “creditor” and “debtor,” as used in these sections, are interchangeable with the terms “releasing party” and “released party,” respectively. This change makes clear that the claims protected by Section 1542, and those lost by waiving it, extend to all claims of the “releasing party” at the point of release. This is declaratory of existing law.

Comments

The author states:

SB 1431 will avoid needless confusion and costly litigation for the self-represented by clarifying that for purposes of the statute (Civil Code Section 1542) governing a general release, “creditor” includes any “releasing party” and “debtor” includes “released party.” Although this interpretation of the current statutory language has become accepted in the legal community over the years, it is not understood by self-represented parties who expect “creditor” and “debtor” to apply only to cases where money is owed. SB 1431 will remove this confusion, and the additional litigation that sometimes results, as well as make the statutory definition consistent with common practice.

Clarification of existing law

This bill makes clear that the unknown claims of a “creditor,” as used in Section 1542, are the claims of the “releasing party.” By making this clarification, parties to a settlement agreement that contains a waiver of Section 1542 will be fully knowledgeable of its effect, specifically, that the releasing party is in fact waiving all of their claims, known and unknown, at the time of executing the release. The terms used in the existing statute, “creditor” and “debtor,” were inserted in the 1800s and generally connote purely monetary claims. However, case law makes clear that the claims at issue are not so limited. (See Casey v. Proctor (1963) 59 Cal.2d 97, 105-106; Jefferson v. Department of Youth Authority (2002) 28 Cal.4th 299, 306-307.) The terms “releasing party” and “released party” provide greater clarity as to what claims are at stake. Identical changes are made to Section 1541 to ensure consistency in terminology.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/22/18)

Conference of California Bar Associations (source)

OPPOSITION: (Verified 6/22/18)

None received

ASSEMBLY FLOOR: 75-0, 6/21/18

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cunningham, Dahle, Daly, Eggman, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rivas, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Cooper, Flora, Mathis, Mullin, Steinorth

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

6/22/18 13:51:48

**** END ****

Date of Hearing: June 12, 2018

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 1431

Author:(Morrell) – As Introduced Ver:February 16, 2018

PROPOSED CONSENT (As Proposed to be Amended)

SENATE VOTE: 38-0

SUBJECT: OBLIGATIONS: RELEASE

KEY ISSUE: IN ORDER TO ALLEVIATE POTENTIAL CONFUSION BY SELF-REPRESENTED LITIGANTS IN COMMON SETTLEMENT SITUATIONS, should non-controversial CLARIFYING changes IN TERMINOLOGY be made to existing law governing the release of legal obligationS by a party?

SYNOPSIS

This non-controversial bill, sponsored by the California Conference of Bar Associations (CCBA), seeks to clarify the use of the terms "creditor" and "debtor" in Section 1542 of the Civil Code, which limits what debt is extinguished by a general release from a creditor to a debtor. The author and sponsor contend that a waiver of Section 1542 is used in virtually every settlement agreement in the state to ensure that the agreement between the parties functions as a true settlement of any and all then-existing claims. They contend that the statute often confuses self-represented litigants who, because of its use of the terms "creditor" and "debtor," erroneously believe the statute only applies to cases where money is owed, and not their own cases where the statute actually does apply (e.g., employment law or family law cases). In order to address this potential problem, the bill clarifies that the terms "creditor" and "debtor," as used in Section 1542, are equivalent in meaning to the more general terms "releasing party" and "released party," respectively. Proposed author's amendments extend similar clarifying amendments to a related preceding section, Civil Code Section 1541, in order to foster consistency in the use of terminology. The bill provides that these changes are declaratory of existing law, meaning no new substantive rights are created for either party by these changes. This bill has no opposition and previously passed the Senate without receiving a single "No" vote.

SUMMARY: Makes clarifying terminology changes in existing law relating to the release of a legal obligation by a party. Specifically, this bill:

1. Clarifies that the terms "creditor" and "debtor," as used in Civil Code Sections 1541 and 1542, mean the "releasing party" and the "released party," respectively.
2. States that the changes made by this bill are declaratory of existing law.

EXISTING LAW:

1. Provides that an obligation is extinguished by a release therefrom given to the debtor by the creditor, upon a new consideration, or in writing, with or without new consideration. (Civil Code Section 1541.)
2. Provides that 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. (Civil Code Section 1542.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: This bill, sponsored by the California Conference of Bar Associations (CCBA), seeks to clarify the use of the terms "creditor" and "debtor" in Section 1541 and 1542 of the Civil Code.

Background on Section 1542, governing release of claims. Section 1542 is short and reads in its entirety: "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." Functionally speaking, this section provides an automatic preservation of claims that a releasing party may not know exist at the time of executing a general release. In practice, a waiver of this statute is included in most settlement agreements to ensure that it functions as a true settlement to any and all then-existing claims.

According to the sponsor, the use of the terms "creditor" and "debtor" in Section 1542 is understood by the legal community to mean the "releasing party" and the "released party," respectively, despite those relatively arcane terms dating back to at least 1872 when Section 1542 was first codified in the Civil Code. CCBA contends that Section 1542 is generally accepted as being applicable to all types of settlement situations in which one party may have an unknown claim against the other party. CCBA points to case law that establishes the claims at issue under Section 1542 are not purely limited to monetary claims, as might be suggested by the statute's use of the terms "creditor" and "debtor." (See, for example, Jefferson v. California Dept. of Youth Authority (2002) 28 Cal.4th 299 (release of claims applied to release entered into in workers compensation proceedings, and Section 1542 language releases possible civil claims); Casey v. Proctor (1963) 59 Cal.2d 97 (release of claims under Section 1542 applied to personal injury case); Butler v. The Vons Companies, Inc. (2006) 140 Cal.App.4th 943 (release of claims under Section 1542 applied in employment case).)

According to the author, the bill is needed to help relieve confusion about the application of the statute, particularly among unrepresented parties and pro per litigants. The author states:

SB 1431 will avoid needless confusion and costly litigation for the self-represented by clarifying that for purposes of the statute (Civil Code Section 1542) governing a general release, “creditor” includes any “releasing party” and “debtor” includes “released party.” Although this interpretation of the current statutory language has become accepted in the legal community over the years, it is not understood by self-represented parties who expect “creditor” and “debtor” to apply only to cases where money is owed. SB 1431 will remove this confusion, and the additional litigation that sometimes results, as well as make the statutory definition consistent with common practice.

Likewise, CCBA states that the general accepted understanding of Section 1542 becomes more problematic when a pro per litigant is involved. CCBA notes that such litigants "have pushed back at this (current) language with the belief that they are not a 'creditor' or 'debtor' in the traditional sense, such as family law cases," and that "as a result, it is more difficult to obtain release of claims from those parties who refuse to sign based on the 'creditor' or 'debtor' language."

This bill clarifies existing law using more general terminology. This bill seeks to clarify that the unknown claims of a “creditor,” as used in Section 1542, are the claims of the “releasing party." Similarly, the bill clarifies that "debtor" is the "released party" who has a settlement with the "creditor" or "released party." By making these clarifications, parties to a settlement agreement that contains a waiver of Section 1542 will be fully knowledgeable of its effect, specifically, that the releasing party is in fact waiving all of their claims, known and unknown, at the time of executing the release. Finally, the bill specifies that these minor amendments to Section 1542 are declaratory of existing law.

Author's proposed amendment. Civil Code Section 1541, which immediately precedes the section amended by this bill, also uses the terms “creditor” and “debtor” in establishing when an obligation is extinguished by a release. In order to harmonize the use of terminology in these closely related sections, the author proposes to make similar changes to Section 1541. The amendments are:

On page 1, before line 1, insert:

SECTION 1. Section 1541 of the Civil Code is amended to read:

1541. An obligation is extinguished by a release therefrom given to the debtor or released party by the creditor or releasing party, upon a new consideration, or in writing, with or without new consideration.

On page 1, line 1, strike "SECTION 1" and insert "SECTION 2."

REGISTERED SUPPORT / OPPOSITION:

Support

California Conference of Bar Associations (sponsor)

Opposition

None on file

Analysis Prepared by: Anthony Lew / JUD. / (916) 319-2334

 CONSENT  

Bill No: SB 1431

Author:

:

Vote:

SENATE JUDICIARY COMMITTEE: 7-0, 5/8/18

AYES: Jackson, Moorlach, Anderson, Hertzberg, Monning, Stern, Wieckowski

SUBJECT:

SOURCE: Conference of California Bar Associations

DIGEST:

This bill clarifies that the terms “creditor” and “debtor,” as used in Section 1542 of the Civil Code, are interchangeable with the terms “releasing party” and “released party,” respectively.

ANALYSIS: Existing law provides that 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. (Civ. Code Sec. 1542.)

This bill provides that 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.

Background

Section 1542 of the Civil Code provides: “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.” This statute provides an automatic preservation of claims that a releasing party may not know exist at the time of executing a general release. In practice, a waiver of this statute is included in most settlement agreements to ensure that it functions as a true settlement to any and all then-existing claims.

This bill clarifies that the terms “creditor” and “debtor,” as used in Section 1542 of the Civil Code, are interchangeable with the terms “releasing party” and “released party,” respectively. This change makes clear that the claims protected by Section 1542, and those lost by waiving it, extend to all claims of the “releasing party” at the point of release. This is declaratory of existing law.

Comments

The author states:

SB 1431 will avoid needless confusion and costly litigation for the self-represented by clarifying that for purposes of the statute (Civil Code Section 1542) governing a general release, “creditor” includes any “releasing party” and “debtor” includes “released party.” Although this interpretation of the current statutory language has become accepted in the legal community over the years, it is not understood by self-represented parties who expect “creditor” and “debtor” to apply only to cases where money is owed. SB 1431 will remove this confusion, and the additional litigation that sometimes results, as well as make the statutory definition consistent with common practice.

Clarification of existing law

This bill makes clear that the unknown claims of a “creditor,” as used in Section 1542, are the claims of the “releasing party.” By making this clarification, parties to a settlement agreement that contains a waiver of Section 1542 will be fully knowledgeable of its effect, specifically, that the releasing party is in fact waiving all of their claims, known and unknown, at the time of executing the release. The terms used in the existing statute, “creditor” and “debtor,” were inserted in the 1800s and generally connote purely monetary claims. However, case law makes clear that the claims at issue are not so limited. (See Casey v. Proctor (1963) 59 Cal.2d 97, 105-106; Jefferson v. Department of Youth Authority (2002) 28 Cal.4th 299, 306-307.) The terms “releasing party” and “released party” provide greater clarity as to what claims are at stake.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 5/11/18)

Conference of California Bar Associations (source)

OPPOSITION: (Verified 5/11/18)

None received

Prepared by:

5/11/18 13:01:56

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: SB 1431 (Author:Morrell)

Version: February 16, 2018

Hearing Date: May 8, 2018

Fiscal: No

Urgency: No

Consultant: CK

SUBJECT

Obligations: release

DESCRIPTION

This bill would clarify that the terms “creditor” and “debtor,” as used in Section 1542 of the Civil Code, are interchangeable with the terms “releasing party” and “released party,” respectively.

BACKGROUND

Section 1542 of the Civil Code provides: “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.” This statute provides an automatic preservation of claims that a releasing party may not know exist at the time of executing a general release. In practice, a waiver of this statute is included in most settlement agreements to ensure that it functions as a true settlement to any and all then-existing claims.

This bill would clarify that the terms “creditor” and “debtor,” as used in Section 1542 of the Civil Code, are interchangeable with the terms “releasing party” and “released party,” respectively. This change would make clear that the claims protected by Section 1542, and those lost by waiving it, extend to all claims of the “releasing party” at the point of release. This is declaratory of existing law.

CHANGES TO EXISTING LAW

Existing law provides that 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. (Civ. Code Sec. 1542.)

This bill would provide that 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.

COMMENT

1. Stated need for the bill

According to the author:

SB 1431 will avoid needless confusion and costly litigation for the self-represented by clarifying that for purposes of the statute (Civil Code Section 1542) governing a general release, “creditor” includes any “releasing party” and “debtor” includes “released party.” Although this interpretation of the current statutory language has become accepted in the legal community over the years, it is not understood by self-represented parties who expect “creditor” and “debtor” to apply only to cases where money is owed. SB 1431 will remove this confusion, and the additional litigation that sometimes results, as well as make the statutory definition consistent with common practice.

2. Clarification of existing law

This bill would make clear that the unknown claims of a “creditor,” as used in Section 1542, are the claims of the “releasing party.” By making this clarification, parties to a settlement agreement that contains a waiver of Section 1542 will be fully knowledgeable of its effect, specifically, that the releasing party is in fact waiving all of their claims, known and unknown, at the time of executing the release. The terms used in the existing statute, “creditor” and “debtor,” were inserted in the 1800s and generally connote purely monetary claims. However, case law makes clear that the claims at issue are not so limited. (See Casey v. Proctor (1963) 59 Cal.2d 97, 105-106; Jefferson v. Department of Youth Authority (2002) 28 Cal.4th 299, 306-307.) The terms “releasing party” and “released party” provide greater clarity as to what claims are at stake.

Support: None known

Opposition: None Known

HISTORY

Source: Conference of California Bar Associations

Related Pending Legislation: None Known

Prior Legislation: None Known

**************