Plaintiff made a loan to Cascade Corp. which Glaser and Taylor guaranteed.  When Cascade defaulted, plaintiff sued it and the two guarantors.  That suit was settled for a release of claims in return for Cascade’s payment of $308,000.  Cascade made that payment but a month later filed a bankruptcy petition, and the bankruptcy trustee later succeeded in requiring plaintiff to repay part of the settlement funds as a voidable preferential transfer within 90 days of bankruptcy.  This decision holds that a settlement payment that is clawed back in bankruptcy as a voidable preference is not performance of the settlement agreement.  Since Glaser and Taylor were jointly obligated to make the settlement payment, the trial court properly entered judgment against them for breach of the settlement agreement, ordering they pay the clawed back sum.  However, since plaintiff sought to enforce rather than rescind the settlement agreement based on Cascade’s nonperformance, the settlement agreement’s release provision remained effective barring plaintiff from suing Glaser and Taylor for breach of their guarantees of the original debt.

California Court of Appeal, First District, Division 1 (Humes, P.J.); August 11, 2016; 2016 WL 4262162