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Joseph
Joseph, Attorney
Category: Legal
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Experience:  I have 15 years experience in the legal field, currently specializing in criminal and family law
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This question is about California Civil Code 1542. My small

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This question is about California Civil Code 1542.

My small company was purchased by a larger California corporation a couple of years ago. The acquisition agreement required my company to settle a pending dispute with a third party. In return, the acquiring company would repay my company for the expense of settling with the third party, in installments that were contingent upon my company being profitable after they acquired it (so the idea was that the payments would be coming out of my company's profits).

They've been operating my company at a loss, and so I haven't seen a dime. As a result, I've agreed to settle for a reduced amount in order to get the money now.

In the settlement agreement, it seems they are requiring me to waive my rights under California Civil Code Section 1542. Here is the section language:

" represents to [Acquiring Company] that it is not aware of any claim it has or may have under Section x.x of the acquisition agreement, if any, other than the claims that are released by this Agreement. acknowledges that it has been advised by legal counsel and is familiar with the provisions of California Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
, being aware of said code section, agrees to expressly waive any rights it may have thereunder, as well as under any other statute or common law principles of similar effect."

Let's just say that two years from now I find out that my company could have been profitable but they were operating it at a loss expressly to avoid paying me. Have I waived my right to sue them in that case? That's the only scenario I can think of where I'd sue them, so it's unlikely to happen. Would this waiver cover a situation like that?

At first blush, yes, the language of 1542 would apply to the situation. However, statutory language rarely protects a person or entity from fraudulent actions. Meaning, if you could demonstrate that the acquiring company was intentionally operating at a loss "expressly to avoid paying" you, then you would have a viable lawsuit despite this statutory language.

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Please let me know if you need clarification on anything.

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Also, several customers have asked how they may direct a question to me in particular. If you specifically want me to assist you in your legal matter, just put "FOR JOSEPH" in the subject line and I will gladly pick up the question as soon as I am on-line.

Customer: replied 4 years ago.
Great, fast answer! Thank you! What would you guess is the reason this is in there, then? I can't figure what it is they are trying to protect themselves against.

It's standard procedure for a release to be as all-encompassing as possible. My suspicion is that this language is just that, the author's intent to cover as many things as possible.

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Please let me know if you need clarification on anything.

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Also, several customers have asked how they may direct a question to me in particular. If you specifically want me to assist you in your legal matter, just put "FOR JOSEPH" in the subject line and I will gladly pick up the question as soon as I am on-line.

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