JOHN HESS, Plaintiff and Appellant, v. FORD MOTOR COMPANY, Defendant and Appellant.
No. S092697
Supreme Court of California
Feb. 28, 2002.
27 Cal. 4th 516
JOHN HESS, Plaintiff and Appellant, v. FORD MOTOR COMPANY, Defendant and Appellant.
Law Offices of Michael J. Piuze, Michael J. Piuze and John Keiser for Plaintiff and Appellant.
Snell & Wilmer and Richard A. Derevan for Defendant and Appellant.
Hugh F. Young, Jr., and Harvey M. Grossman for The Product Liability Advisory Council, Inc., as Amicus Curiae on behalf of Defendant and Appellant.
OPINION
BROWN, J.—This case presents two unrelated issues. First, the plaintiff enters into a release agreement with one tortfeasor and his insurance company. The agreement, however, contains broad language ostensibly releasing all potential tortfeasors from liability. We now consider whether this language bars the plaintiff‘s claims against a tortfeasor who was not a party to the release. Based on the uncontroverted evidence at trial, we conclude it does not.
Second, the plaintiff obtains a judgment more favorable than his offer of compromise under
BACKGROUND
John Hess was a passenger in a Ford pickup truck on Christmas morning. At an intersection, a car driven by Charles Phillips struck the Ford truck, and
Before filing a lawsuit, Hess made a claim against Phillips and his insurance company, Continental Insurance Company (Continental). Hess‘s attorney at the time negotiated with Brad Sommers, the claims adjuster for Continental, and settled Hess‘s claim against Phillips for $15,000, the policy limit. As part of the settlement, Hess signed a one-page boilerplate release form provided by Continental (Release).
The Release stated that Hess “release[s], acquit[s] and forever discharge[s] Charles Phillip[s], Continental Insurance and any and all agents and employees, UAC [the underwriters adjusting company] and any and [all] agents and employees and his, her, their, or its agents, servants, successors, heirs, executors, administrators and all other persons, firms, corporations, associations or partnerships of and from any and all claims, actions, causes of action, demands, rights, damages, costs, loss of service, expenses and compensation whatsoever” that Hess had or might have due to the accident. (Italics added.) The Release further stated that Hess “declare(s) and represent(s) that . . . this Release contains the entire agreement between the parties hereto. . . .”
Several months after signing the Release, Hess hired a new attorney and filed suit against Ford Motor Company (Ford) and others, alleging negligence, strict liability and breach of warranty. Less than one year later, Hess served on Ford a section 998 offer in the amount of $2 million.
Over four years after Hess filed suit, Phillips, as cross-defendant, made a motion for determination of good faith settlement pursuant to
Shortly before the summary judgment, Hess filed a separate lawsuit against Phillips and Continental for reformation of the Release pursuant to
Based on this reformation of the Release, Hess moved for a new trial. The trial court denied the motion. On appeal, however, the Court of Appeal
At trial, Ford was the only defendant left. In support of its position on the scope of the Release, Ford submitted the written agreement and presented no other evidence. In opposition, Hess introduced his own testimony and testimony from his former attorney and the claims adjuster who had negotiated the Release.
Hess testified that, before he signed the Release at his hospital bed, he asked his first attorney about the contractual language at issue, and his attorney told him the Release was a standard form document. Hess then testified that he had not intended to release Ford from liability.
Hess‘s first attorney testified that he recommended settling with Phillips for the policy limit of $15,000, because an asset search revealed that Phillips had no money. He further testified that he had not intended to release Ford, and that he told Hess the Release only covered Phillips, his insurance company, and the adjusting company. Finally, the attorney stated that he had bought the Ford pickup truck involved in the accident for use as evidence in litigation against Ford after agreeing to settle with Phillips but before Hess signed the Release.
Sommers, the former claims adjuster who had settled the case on behalf of Phillips and Continental, testified that he and Hess‘s attorney discussed Hess‘s intention to sue Ford and others and that Hess‘s attorney told him he was settling with Phillips and Continental in order to defray future litigation costs. Sommers then testified that Hess would not have settled and signed the Release if it had released Ford. Finally, Sommers testified that he (1) had not intended to release Ford; (2) had not prepared the Release or chosen the form used; and (3) had intended to protect Phillips and his insurance companies from “future exposure.”
At the close of evidence, Ford moved for a nonsuit based on the Release. The trial court denied the motion. Later, the court granted Hess‘s request for judicial notice of the reformation judgment, and instructed the jury that “the Los Angeles Superior Court . . . ordered that the words ‘and all other persons, firms, corporations, associations, or partnerships’ be taken out of” the Release.
The jury returned a verdict for Hess and found Ford liable for 55 percent of Hess‘s injuries. The jury awarded Hess $2,701,813 in economic damages and $8,400,000 in noneconomic damages. After crediting Ford for Hess‘s settlements with other defendants, the trial court entered judgment against Ford in the amount of $6,644,155, plus interest from the date of the section 998 offer. In doing so, the court refused to include prejudgment interest accrued under
Ford appealed, contending, among other things, the trial court erred by instructing the jury that another court had reformed the Release and, in effect, directing a verdict for Hess on the issue of whether the Release covered Ford. Hess cross-appealed, seeking a recalculation of the judgment.
The Court of Appeal affirmed the verdict in an unpublished opinion, holding that any instructional error was harmless because Ford failed to establish that it was an intended beneficiary of the Release. The Court of Appeal also remanded for recalculation of the judgment, ordering that (1) “the judgment shall include” prejudgment interest accrued from the date of the offer of compromise to the date of the judgment pursuant to
We granted review to determine whether: (1) language in an agreement releasing “all other persons, firms, corporations, associations or partnerships” from liability encompasses a tortfeasor who was not a party to the settlement negotiations; and (2) a plaintiff may recover interest on interest accrued under
DISCUSSION
I
The Release discharges “all other persons, firms, corporations, associations or partnerships” from liability. Ford contends this language is unambiguous and releases it from liability notwithstanding the extrinsic evidence presented by Hess. In the alternative, Ford contends the jury—and not the trial court—should have determined whether the Release covered Ford because there was a triable issue of fact. We disagree.
Under subdivision (a) of
A third party beneficiary may enforce a contract made for its benefit. (
Under long-standing contract law, a “contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” (
“When, through . . . mistake . . . , a written contract fails to express the real intention of the parties, such intention is to be regarded, and the erroneous parts of the writing disregarded.” (
To raise mutual mistake as a defense, the aggrieved party does not have to ask “for a reformation of the contract or” have “the same reformed.” (California Packing Corp. v. Larsen (1921) 187 Cal. 610, 612 [203 P. 102].) The party need only allege and prove mutual mistake in order to avoid enforcement of the erroneous terms. (Ibid.; see also Gillis v. Sun Ins. Office, Ltd. (1965) 238 Cal.App.2d 408, 414-415 [47 Cal.Rptr. 868, 25 A.L.R.3d 564] [affirming reformation for mistake where appellant had sufficient notice of respondent‘s claim of mistake]; Pasqualetti v. Galbraith (1962) 200 Cal.App.2d 378, 381 [19 Cal.Rptr. 323] (Pasqualetti) [party who provides sufficient notice he is claiming mistake as a defense to a contract claim may introduce evidence as to that defense].)
In determining whether a mutual mistake has occurred, a court may consider parol evidence. (Chastain v. Belmont (1954) 43 Cal.2d 45, 51 [271 P.2d 498] (Chastain).) Such evidence is admissible to show mutual mistake even if the contracting parties intended the writing to be a complete statement of their agreement. (See
In this case, Hess offered no reasonable alternative construction of the contractual language ostensibly releasing Ford and therefore failed to allege any ambiguity in this language. (See Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115 [90 Cal.Rptr.2d 647, 988 P.2d 568] [contractual language is “ambiguous only if it is susceptible to two or more reasonable constructions despite the plain meaning of its terms“].) Instead, Hess alleged mutual mistake as his only defense to Ford‘s claim of third party beneficiary status and merely argued that this language should have been omitted from the Release. Thus, Hess prevails only if he establishes that the inclusion of language ostensibly releasing Ford was a mistake. Where, as here, the sole defense to a third party beneficiary claim is mutual mistake and the meaning of the relevant contractual language is not in dispute, the party alleging the mistake—and not the party claiming third party beneficiary status (see Garcia, supra, 36 Cal.3d at p. 436 [party claiming third party beneficiary status bears burden of proof where the “interpretation of the written contract” is at issue])—bears the burden of proving that a mistake occurred (see Crail v. Blakely (1973) 8 Cal.3d 744, 750, fn. 3 [106 Cal.Rptr. 187, 505 P.2d 1027] [party alleging mistake bears the burden of proof]).
To determine whether Hess has proven that a mutual mistake occurred, we consider the extrinsic evidence of the contracting parties’ intent introduced at trial.2 (See Chastain, supra, 43 Cal.2d at p. 51.) This extrinsic evidence is uncontroverted and establishes, as a matter of law, that the inclusion of contractual language ostensibly releasing Ford from liability was a mutual mistake. Therefore, any instructional error on this issue was harmless.
As an initial matter, the uncontroverted testimony about the circumstances surrounding the formation of the Release demonstrates that the contracting parties did not intend to release Ford. Ford was not involved in the negotiations and did not sign the Release. Hess‘s attorney at the time and Sommers, the claims adjuster who negotiated the settlement on behalf of Phillips and Continental, openly discussed Hess‘s intention to sue Ford after the settlement and to use the settlement proceeds to fund future litigation against Ford. Sommers even acknowledged that Hess would not have settled or signed the Release if Phillips and Continental had wanted to discharge Ford from liability. The purchase of the Ford truck by Hess‘s attorney after agreeing to the settlement further confirms that Hess did not intend to release Ford.
The uncontroverted testimony also explains how the mistake occurred. Continental provided the Release and used a standard form with boilerplate language. Sommers, the claims adjuster who negotiated the terms of the settlement on behalf of Continental, did not choose or review the form before Continental mailed it. While the failure of both sides to catch the erroneous language under these circumstances may not be excusable, it is hardly uncommon. (See Annot., Release of One Joint Tortfeasor as Discharging Liability of Others Under Uniform Contribution Among Tortfeasors Act and Other Statutes Expressly Governing Effect of Release (1992) 6 A.L.R.5th 883.)
None of the testimony cited by Ford conflicts with the testimony cited above. Sommers‘s testimony that he intended to protect Phillips and Continental from “future exposure” does not contravene his unequivocal testimony that the Release was not intended to cover Ford. Indeed, Phillips‘s filing of a motion for determination of good faith settlement in response to cross-complaints asserted against him instead of relying on the language of the Release confirms that Phillips and Continental had no intention to release Ford. (Neverkovec, supra, 74 Cal.App.4th at pp. 352-353.)
Sommers‘s speculation that the phrase “all other persons, firms, corporations, associations or partnerships” covered Fidelity Casualty and Insurance
Where, as here, the extrinsic evidence is not in conflict, the determination of whether a mutual mistake occurred is a question of law. (See Alderson v. Insurance Co. of North America (1990) 223 Cal.App.3d 397, 412 [273 Cal.Rptr. 7] [affirming finding of mutual mistake on summary judgment where the extrinsic evidence was uncontroverted]; cf. WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1710 [50 Cal.Rptr.2d 323] [“The trial court‘s resolution of an ambiguity [in the contract] is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict“].) “It is solely a judicial function to interpret a written contract unless the interpretation turns upon the credibility of extrinsic evidence, even when conflicting inferences may be drawn from uncontroverted evidence.” (Garcia, supra, 36 Cal.3d at p. 439.) Here, the extrinsic evidence is uncontroverted, and all of this evidence points to a mutual mistake and establishes that the parties to the Release did not intend to discharge Ford from liability. Hess was therefore entitled to a directed verdict on the Release issue despite the contractual language. (See Campbell v. Republic Indemnity Co. (1957) 149 Cal.App.2d 476, 480 [308 P.2d 425] [where “[t]here was no conflict in the evidence as to the material facts,” reformation of the contract “could not reasonably have been refused“].)
In any event, the language of the Release is hardly conclusive because it arguably supports a finding that the contracting parties did not intend to release Ford from liability. For example, the small amount of the settlement—$15,000—despite the severity of Hess‘s injuries strongly suggests that the Release did not cover Ford. The failure of the Release to specifically name Ford even though the signatories to the Release had counsel and were aware of Hess‘s claims against Ford also suggests that the Release did not cover those claims. (See Appleton, supra, 27 Cal.App.4th at pp. 555-556 [failure of release to expressly mention defendant even though he was a key actor in the accident suggests that the parties did not intend to release him]; Asare v. Hartford Fire Ins. Co. (1991) 1 Cal.App.4th 856, 863 [2 Cal.Rptr.2d 452] [failure of release to refer expressly to discrimination claims indicates that the parties did not intend the release to cover such claims where parties had counsel and were aware of the claims].)
Ford‘s challenge to the admissibility and relevance of the contracting parties’ testimony is unavailing. At oral argument, Ford contended that this
Likewise, Ford‘s claim that Sommers‘s testimony cannot support the judgment because he only testified as to his personal intentions is meritless. Ford does not dispute that Sommers negotiated the Release on behalf of Phillips and Continental and had the authority to settle the matter on their behalf. Because Sommers was the only agent of Phillips and Continental who negotiated the Release, his intentions necessarily represented the intentions of Phillips and Continental. (See Garcia, supra, 36 Cal.3d at p. 439, fn. 7 [testimony of agent who negotiated contract on behalf of contracting party is relevant for determining the intent of that party].)
Ford‘s invocation of third party beneficiary status does not compel a contrary conclusion. Determining whether Ford was a third party beneficiary of the Release is a question of ordinary contract interpretation. (See Garcia, supra, 36 Cal.3d at p. 436.) Because the rules of contract law establish that the parties to the Release did not intend to benefit Ford (see ante, at pp. 526-527), Ford is an “intermeddler” and cannot enforce the terms of the Release (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 944 [132 Cal.Rptr. 424, 553 P.2d 584]). In any event, Ford acquired no rights for value and could therefore suffer no prejudice from any reformation of the Release. (
Ford‘s reliance on Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394 [58 Cal.Rptr.2d 875, 926 P.2d 1061] is also misplaced. In
Here, the contracting parties knew Hess intended to sue Ford after signing the Release, but mistakenly used a boilerplate form with overly broad language to memorialize their agreement. Under these facts, Hess is, at most, guilty of ordinary negligence and not the gross negligence necessary to preclude relief. (See Van Meter, at p. 595.)
Finally, we note that our conclusion is consistent with those Court of Appeal decisions broadly construing analogous language in a release as a bar to claims against all potential tortfeasors. In two of those cases, the party opposing enforcement of the release either presented no competent evidence that the contracting parties did not intend to release all potential tortfeasors (see General Motors Corp. v. Superior Court (1993) 12 Cal.App.4th 435, 441 [15 Cal.Rptr.2d 622]), or evidence only of the undisclosed intentions of the contracting parties (see Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 560-561 [90 Cal.Rptr.2d 469]). In the other case, there was extrinsic evidence that the contracting parties intended to release all potential tortfeasors and no evidence that the contracting parties intended to exclude the defendant from the scope of the release. (See Lama v. Comcast Cablevision (1993) 14 Cal.App.4th 59, 63 [17 Cal.Rptr.2d 224].) Unlike those cases, Hess presented extrinsic evidence of the disclosed intentions of
Indeed, our Courts of Appeal have consistently reversed summary judgment for defendants seeking to enforce a release where the extrinsic evidence suggests that the contracting parties did not intend to benefit the defendants. (See Vahle v. Barwick (2001) 93 Cal.App.4th 1323, 1329-1330 [113 Cal.Rptr.2d 793]; Neverkovec, supra, 74 Cal.App.4th at pp. 352-353; Appleton, supra, 27 Cal.App.4th at pp. 555-556.) Because the uncontroverted evidence establishes, as a matter of law, that the parties to the Release made a mutual mistake and did not intend to release Ford, the trial court properly removed the issue of the scope of the Release from the jury. Accordingly, the jury instruction judicially noticing the reformation judgment, even if erroneous, was harmless and does not warrant reversal.3 (See Rutherford v. Owens-Illinois, Inc. (1997) 16 Cal.4th 953, 983 [67 Cal.Rptr.2d 16, 941 P.2d 1203] [“instructional error requires reversal only ‘where it seems probable’ that the error ‘prejudicially affected the verdict’ “].)
As a final note, we echo the advice of the Court of Appeal in Neverkovec and urge counsel to be wary of “overly broad, loose terms in release agreements.” (Neverkovec, supra, 74 Cal.App.4th at p. 354.) “The adage that an ounce of prevention is worth a pound of cure applies here—attorneys’ energies are better spent making sure that release agreements accurately reflect their clients’ intentions than in litigating what their clients really intended when they signed agreements. . . .” (Id. at p. 355, italics omitted.)
II
Under
As always, we begin by construing the relevant statute—
Here, the controlling statutory language does not appear to permit the compounding of interest.
Indeed,
Even if the language of
Rule 875 does not dictate a contrary result. Rules promulgated by the Judicial Council may not conflict with governing statutes. (People v. Hall (1994) 8 Cal.4th 950, 960 [35 Cal.Rptr.2d 432, 883 P.2d 974].) If a rule is inconsistent with a statute, the statute controls. (In re Robin M. (1978) 21 Cal.3d 337, 346 [146 Cal.Rptr. 352, 579 P.2d 1].) Here, the language and history of
The cases cited by Hess and the Court of Appeal are inapposite. These cases involved statutes or contracts with different language and/or legislative histories than
Finally, our ruling does not contravene the purpose behind
Accordingly, we agree with the Courts of Appeal in Steinfeld v. Foote-Goldman Proctologic Medical Group, Inc. (1997) 60 Cal.App.4th 13, 23 [70 Cal.Rptr.2d 41] and Mendez v. Kurten (1985) 170 Cal.App.3d 481, 487 [215 Cal.Rptr. 924]. Prejudgment interest accrued under
CONCLUSION
We reverse the judgment of the Court of Appeal remanding for recomputation of the judgment, affirm the judgment in all other respects, and remand for further proceedings consistent with this opinion.
Baxter, J., Chin, J., and Moreno, J., concurred.
KENNARD, J.—I concur in the majority‘s opinion. I write separately to express a different view as to the analysis of the issue pertaining to the release. Unlike the majority, which applies the defense of mutual mistake, I would analyze this issue under the third party beneficiary theory. Although here the majority and I reach the same result on this issue, in a future case the mode of analysis could make a difference because it affects the allocation of the burden of proof.
Plaintiff John Hess was a passenger in a Ford pickup truck that was hit by a car driven by Charles Phillips. Plaintiff‘s injuries rendered him a paraplegic. Plaintiff settled his claim against Phillips and the latter‘s insurance company, Continental Insurance Company (Continental), for the policy limit of $15,000. Plaintiff signed Continental‘s one-page release form, agreeing to “forever discharge” his claims against Phillips, Continental, and “all other persons, firms, corporations, associations or partnerships,” the phrase at issue here. The Ford Motor Company (Ford) was not a party to the release.
At trial, plaintiff and the attorney who had represented him in the settlement with Phillips and Continental testified they did not intend to release Ford from liability. Continental‘s claims adjuster, Brad Sommers, corroborated that testimony. Sommers testified that in the settlement discussions he had with plaintiff‘s former attorney, the latter made clear that the purpose of plaintiff‘s signing Continental‘s release form was to “protect Phillips and Continental from future exposure,” not to release Ford.
The jury returned a verdict in favor of plaintiff, finding Ford liable for 55 percent of plaintiff‘s injuries. It awarded plaintiff $2,701,813 in economic damages and $8.4 million in noneconomic damages. After deducting the amount plaintiff had received in settlement from other defendants, the trial court entered judgment against Ford in the amount of $6,644,155 plus interest. The Court of Appeal upheld the jury‘s award of damages because Ford had failed to establish that it was an intended beneficiary of the release. We granted review.
II.
Ford contends that the generic language of the standard release form discharging plaintiff‘s claims against “all other persons, firms, corporations, associations or partnerships” made Ford a third party beneficiary of the release. According to the majority, plaintiff had the burden of establishing “mutual mistake as his only defense to Ford‘s claim of third party beneficiary status.” (Maj. opn., ante, at p. 525.) Implicit in that statement is the assumption that Ford did show it was a third party beneficiary of the release form that Phillip‘s insurer, Continental, had plaintiff sign. But Ford never made that showing.
When a party not specifically identified in an agreement claims third party beneficiary status, it has the burden of proving that the contracting parties intended to benefit it. (E.g., Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d
Here, Ford was not a party to the release. In claiming it was a third party beneficiary, Ford relied solely on the standard release form‘s language that the release agreement between plaintiff and Continental also applied to “all other persons, firms, corporations . . . .” Ford presented no evidence that the parties to the release agreement intended its provisions to apply to Ford. Thus, Ford has not met its burden of establishing it was a third party beneficiary.
Moreover, even if we were to consider the release as evidence supporting Ford‘s claim to be a third party beneficiary, the properly admitted evidence overwhelmingly refutes its claim. “In determining the meaning of a written contract allegedly made, in part, for the benefit of a third party, evidence of the circumstances and negotiations of the parties in making the contract is both relevant and admissible. And, ‘[i]n the absence of grounds for estoppel, the contracting parties should be allowed to testify as to their actual intention . . . .’ [Citations.]” (Garcia v. Truck Ins. Exchange, supra, 36 Cal.3d at p. 437.) Here, plaintiff presented compelling evidence that he did not intend to have Ford benefit from the release agreement.
Because Ford is not a third party beneficiary here, there is no need to get into any discussion of mutual mistake by plaintiff, Phillips, and the latter‘s insurer, Continental.
Although the majority‘s analysis and mine reach the same conclusion in favor of plaintiff, that may not be the situation in another case. Anyone claiming to be a third party beneficiary, as Ford does here, has the burden of showing the contracting parties’ intent to confer such a benefit. In contrast, anyone claiming mutual mistake, as plaintiff does here, has the burden of
George, C. J., and Werdegar, J., concurred.