How Would You Explain California Civil Code, Section 1542?

California Civil Code, section 1542, allows for a creditor to collect from a debtor even after a lawsuit has been settled. Under this section of the California Civil Code, if a circumstance or claim exists without the creditor’s knowledge at the time of the settlement that materially affects the creditor, the debtor can still be legally liable to provide additional restitution, according to

The Business Law Journal notes that in many instances, a waiver of section 1542 is placed into the settlement agreement or release that removes responsibility from the debtor in the event that a previously unknown circumstance comes to light at a later date. An issue with waiving section 1542 on behalf of the creditor is that once the lawsuit is settled, the creditor cannot demand further monies or other types of payments from the debtor. The Business Law Journal recommends a full investigation of any potential claims by the creditor prior to waiving rights under section 1542 to prevent the creditor from potentially losing money in a settlement. In order for a creditor to claim additional funds after a release has been accepted by both parties, the creditor must be able to prove that the previously unknown circumstances work in the creditor’s favor and materially affect the outcome of the lawsuit.