Lead Opinion
Opinion
In this case we examine a problem that has recurred not only in California but across the nation. An injured party settles with an alleged tortfeasor’s insurer, signing a general release agreement that appears to excuse everyone in the world from liability. Then the injured party proceeds against a different alleged tortfeasor, who raises the general release as a defense. We conclude that principles of contract law governing the rights of third party beneficiaries, and related rules of evidence, provide the best approach for resolving such cases.
Larry Neverkovec sued Joseph Gregory Fredericks for personal injuries suffered in an automobile accident. The trial court granted Fredericks’s motion for summary judgment, on the ground that Neverkovec had signed an unambiguous release of all claims he had against any party with potential liability. Neverkovec appeals from the ensuing judgment. We reverse. Fredericks was not a party to the release agreement, and in order to enforce it as a third party beneficiary he had to show the parties intended their agreement to benefit him. He did not meet this burden.
Background
In September 1994, Larry Neverkovec and Scott Moore were riding in a car driven by Larry’s brother, Jason Neverkovec. Fredericks was driving toward them, with his son Justin as a passenger. As Jason made a left turn, Fredericks’s vehicle struck the right side of the car, seriously injuring Larry and Moore. According to the Highway Patrol collision report, Jason admitted he did not look for oncoming traffic when making the left turn, because he was talking to Larry. The officer who wrote the report testified at his deposition that he found no basis for holding Fredericks at fault.
Jason was driving a car owned by Robert Alexander, who employed the Neverkovecs’
The agreement was forwarded to Philadelphia Insurance Company, which sent back general release forms to the attorneys to be signed by their clients. On April 18, 1996, Moore’s counsel filed a complaint against Fredericks. Howard signed a general release on Larry’s behalf on April 19, 1996. Fredericks signed a similar release on April 24th, 1996. In May 1996, the court appointed Howard guardian ad litem for Larry, and approved the settlement of his claim against Jason. Moore was on a military training mission when a general release on the same form as Fredericks’ release was sent to his counsel. Moore signed the release in June 1996.
The “Parents’ Release and Indemnity Agreement” signed by Howard on Larry’s behalf was particularly broad. Howard agreed to “forever release, discharge and covenant to hold harmless Alexander & Associates d/b/a Rent a Wreck, Jason Neverkovec. Cindy Howard and Philadelphia Indemnity Insurance Companies and any other person, firm or corporation charged or chargeable with responsibility or liability, their heirs, administrators, executors, successors and assigns, from any and all claims, demands, damages, costs, expenses, loss of services, actions and causes of action, belonging to the said minor or to the undersigned arising out of any act or occurrence up to the present time, and particularly on account” of Larry’s injuries resulting from the accident.
On September 16, 1996, Howard filed a complaint on Larry’s behalf against Fredericks. By stipulation, the action was consolidated with Moore’s case against Fredericks. In April 1997, Howard (acting for Jason) and Alexander & Associates moved for a determination of good faith settlement under Code of Civil Procedure, section 877.6.
Only Larry Neverkovec has appealed.
Discussion
A defendant moving for summary judgment may meet the burden of showing the action is meritless by establishing a complete defense. If the defendant makes a sufficient showing, the burden shifts to the plaintiff to present specific facts showing a triable issue of material fact. (§ 437c, subd. (o) (2).) Here, the trial court found that Fredericks established a complete defense based on the release of Larry’s claims executed by Howard. We review the trial court’s ruling de novo, assuming the role of the trial court and redetermining the merits of the motion. We construe the moving party’s papers strictly and the opposing party’s papers liberally, resolving any doubt as to whether there is a triable issue in favor of the opposing party. (Artiglio v. Corning Inc. (1998)
Fredericks’s summary judgment motion relied on two cases involving broad general releases signed in the aftermath of automobile accidents. In General Motors Corp. v. Superior Court (1993)
The Court of Appeal in General Motors granted the manufacturer’s petition for a writ of mandate directing entry of summary judgment. The court held that while a release of one tortfeasor does not discharge other tortfeasors from liability “unless its terms so provide” (§ 877, subd. (a)), a release agreement need not specifically identify the tortfeasors who are released.
The General Motors court rejected claims that a broad interpretation of the release was unconscionable or contrary to public policy. The court also dismissed the argument that the manufacturer lacked standing to enforce the release agreement as a third party beneficiary. It was only necessary for the manufacturer to show that it was one of a class of
Fredericks also relied on Lama v. Comcast Cablevision (1993)
The Court of Appeal in Lama affirmed, holding it was “of no moment” that the employer was not a party to the release. The release of third parties benefited the other driver by shielding her from future exposure to damages arising from the accident. The other driver’s claims representative testified that the release was designed to protect the insured from any causes of action, and that the insurer would not have settled without a full release. There was no mutual mistake of fact regarding the meaning of the release; the plaintiff’s first counsel admitted he paid no particular attention to its terms. The court agreed with the employer’s claim that as a “corporation . . . charged with responsibility for injuries” resulting from the accident, it came within the terms of the release and was thus discharged from liability under section 877, subdivision (a). Although section 877 permits an action against a joint tortfeasor even after a dismissal with prejudice, “that is only in the case in which there has not been a specific discharge of another tortfeasor by the release.” (Lama, supra, 14 Cal.App.4th at pp. 63-64.)
Fredericks argued that, just as in General Motors and Lama, he was covered by the general language of the release and was therefore entitled to judgment in his favor. Neverkovec’s opposition to the summary judgment motion distinguished General Motors on the ground that the extrinsic evidence here showed the parties did not intend to release Fredericks.
The Court of Appeal reversed, holding that the release agreement was not specific enough to include the other driver under section 877, subdivision (a). The Appleton court distinguished Lama on the grounds that the Appleton plaintiff did conduct discovery into the other driver’s relationships with the vehicle’s owner and the broker, realized he was releasing any agents or employees of those entities, advised opposing counsel he would be proceeding against the other driver, and dismissed his action only as to the owner and broker. The court also distinguished General Motors, characterizing the result in that case as “unfortunate.” The court emphasized that the Appleton plaintiff presented the following extrinsic evidence showing the release did not apply to the other driver: the complaint, naming the other driver and alleging his primary responsibility for the accident; correspondence with opposing counsel verifying that the other driver was not an employee or agent of the settling parties; an unchallenged declaration by the plaintiff’s counsel that opposing counsel was always aware the plaintiff would pursue his action against the other driver; the motion for determination of good faith settlement and the ruling on the motion, neither of which mentioned the other driver by name; and the dismissal, which applied only to the owner and the broker. The court reasoned that if the parties had intended to release the other driver they would have named him specifically,' given his important role in the accident. The fact that he was not named made the term “all persons” ambiguous and raised a triable issue regarding the parties’ intent to include the other driver in the release. (Appleton, supra, 27 Cal.App.4th at pp. 554-557.)
We believe the situation presented in General Motors, Lama, Appleton, and the case at bench is best suited to resolution under well-settled contract principles governing third party beneficiaries.
The settlement agreement was jointly negotiated by counsel for Howard (acting for her son Larry Neverkovec), Fredericks, and Moore. The object of the agreement was to divide the proceeds of the policy covering the car driven by Jason Neverkovec, and insured by Howard’s employer, Alexander & Associates. The parties agreed to divide the policy limits and to release their claims against Jason only. Moore’s attorney forwarded the agreement to the insurer with a letter stating: “My understanding is you will either accept this as a full release or send individual releases to each party and pay each party with a separate check.” The insurer took the option of obtaining individual releases on its own terms. Accordingly, the general release signed by Howard on Larry’s behalf
Release agreements are governed by the generally applicable law of contracts. (Appleton, supra,
It is not necessary for the third party to be specifically named in the contract, but such a party bears the burden of proving that the promise he seeks to enforce was actually made to him personally or to a class of which he is a member.
Thus, to obtain summary judgment on the ground that a general release has discharged him from liability, a third party to the release agreement must affirmatively show that the parties intended to release him. The burden of proof is on the third party, under both contract law and the summary judgment statute. (§ 437c, subd. (o).) Because the court must consider the circumstances of the contracting parties’ negotiations to determine whether a third party not named in the release was an intended beneficiary, it will seldom be sufficient for the third party simply to rely on a literal application of the terms of the release. “The fact that . . . the contract, if carried out to its terms, would inure to the third party’s benefit[,] is insufficient to entitle him or her to demand enforcement.” (Jones v. Aetna Casualty & Surety Co., supra, 26 Cal.App.4th at pp. 1724-1725, following Walters v.
Here, Fredericks offered little extrinsic evidence of the contracting parties’ intent, relying instead on a literal interpretation of the terms of the release agreement and the holdings in General Motors and Lama. Indeed, Fredericks objected to the extrinsic evidence offered by the opposing parties, contending the parol evidence rule precluded consideration of extrinsic evidence contradicting the release term including “any other person . . . charged or chargeable with responsibility or liability” resulting from the accident. He renews that argument on appeal.
Parol evidence is admissible to resolve an ambiguity (see, e.g., General Motors, supra,
Our Supreme Court has held that “[i]n determining the meaning of a written contract allegedly made, in part, for the benefit of a third party, evidence of the [surrounding] 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. . . .’ (4 Corbin, Contracts (1971 supp.) § 776, p. 8; see, e.g., Hoge v. Farmers Market & Supply Co. of Las Cruces (1956)
We note that while the contracting parties may testify regarding their actual intent, the sufficiency of such evidence must be determined according to the usual objective standard of contract interpretation.
With these principles in mind, we turn to the terms of the release in this case and the evidence of the circumstances in which it was signed. The agreement purports to release anyone chargeable with liability for Larry Neverkovec’s injuries.
The General Motors and Lama courts emphasized the benefit to the insured of foreclosing future litigation as a consideration supporting strict enforcement of broad general releases. (General Motors, supra,
Howard’s opposition to the summary judgment motion included a declaration that she understood the release to apply to her son Jason, her employer Alexander, and Alexander’s businesses. She specifically did not intend to release Fredericks,
The problems arising from general releases like those involved in General Motors, Lama, Appleton, and this case have been analyzed by numerous appellate courts in other jurisdictions with statutes like section 877, providing that a release does not discharge other parties “unless its terms so provide.” The cases have been ably collected elsewhere, and we need not review them in detail here. Generally, three different approaches have developed: (1) a minority view holding that a general release absolutely bars the settling party from proceeding against other tortfeasors; (2) a view presuming that parties not named or otherwise specifically identified are not released; and (3) a more or less equally prevalent view that the court must determine whether the parties intended to release the unnamed third party. Among courts following an “intent rule,” some hold extrinsic evidence of the parties’ intentions admissible even if the language of the release is unambiguous, while others hold that extrinsic evidence may only be consulted to resolve an ambiguity. (See, e.g., Noonan v. Williams (D.C. 1996)
As we have explained, California contract law requires a third party to show he was an intended beneficiary of a general release and permits extrinsic evidence of the contracting parties’ intent and the circumstances in which the agreement was executed.
Disposition
The judgment is reversed. The trial court is directed to enter an order denying Fredericks’s motion for summary judgment against Neverkovec. The parties shall bear their own costs on appeal.
Corrigan, Acting P. J., concurred.
Notes
The full text of the agreement signed by Howard is as follows: “In consideration of the payment, to the undersigned, of the sum of Fifteen Thousand Dollars and------XX/100 (Dollars) ($15,000.00) the receipt of which is hereby acknowledged, the undersigned Cindy Howard as parent and guardian of Larry Neverkovec. a minor, do forever release, discharge and covenant to hold harmless Alexander & Associates d/b/a Rent A Wreck. Jason Neverkovec. Cindy Howard and Philadelphia Indemnity Insurance Companies and any other person, firm or corporation charged or chargeable with responsibility or liability, their heirs, administrators, executors, successors and assigns, from any and all claims, demands, damages, costs, expenses, loss of services, actions and causes of action, belonging to the said minor or to the undersigned arising out of any act or occurrence up to the present time, and particularly on account of all personal injury, disability, property damage, loss or damages of any kind sustained'or that may hereafter be sustained by the said minor or by the undersigned, in consequence of an accident that occurred on or about the 15th day of September, 1994, at or near Dixon, CA.
“The undersigned do hereby bind Cindy Howard and heirs, administrators, executors, successors and assigns to repay to the said Philadelphia Indemnity Insurance Companies and to any other person, firm or corporation charged with responsibility or liability, their heirs, administrators, executors, successors and assigns, any additional sum (sic) or money that any of them may hereafter be compelled to pay on account of the injuries to said minor because of the said accident.
“To procure the payment of the said sum, Cindy Howard hereby declare (sic): that no representations about the nature and extent of the said injuries, disabilities or damages made by any physician, attorney or agent of any party released, nor any representations regarding the nature and extent of legal liability or financial responsibility of any of the parties released have induced Cindy Howard to make this release and indemnity agreement; that in determining the amount of the said sum there has been taken into consideration not only the ascertained injuries, disabilities and damages, but also the possibility that the injuries sustained may be permanent and progressive and recovery therefrom uncertain and indefinite, so that consequences not now anticipated may result from the said accident.
“It is further understood and agreed that all rights under Section 1542 of the Civil Code of California and any similar law of any state or territory of the United States are hereby expressly waived. Said section reads as follows: ‘1-542. Certain claims not affected by general release. 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 know (sic) by him must have materially affected his settlement with the debtor. Further, all rights under insurance (sic) Code 790.03(n) are expressly waived.’
“The undersigned agree, as a further consideration and inducement for this release and indemnity agreement, that it shall apply to all unknown and unanticipated injuries and damages directly and indirectly resulting from said accident, as well as to those now disclosed.
“The undersigned understand that the parties hereby released admit no liability of any sort by reason or (sic) said accident and that said payment in compromise is made to terminate further controversy respecting all claims for damages that said minor or the undersigned have heretofore asserted or might personally or through personal representatives hereafter assert because of said accident.”
Further statutory references are to the Code of Civil Procedure, unless otherwise specified.
Neverkovec’s counsel has included Moore as a party appellant in the caption on his briefs, and refers to Moore at various points as if he were a party to this appeal. This is an improper practice. Counsel asserts in the appellant’s reply brief that the separate judgments entered against Neverkovec and Moore are not severable. That claim is frivolous. Moore did not file a notice of appeal; the judgment against him is not a part of this record; and our disposition of Neverkovec’s appeal will have no effect on Moore.
Section 877 provides in relevant part: “Where a release ... is given in good faith before verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort... it shall have the following effect:
“(a) It shall not discharge any other such party from liability unless its terms so provide, but it shall reduce the claims against the others in the amount stipulated by the release ....
“(b) It shall discharge the party to whom it is given from all liability for any contribution to any other parties.”
Section 877 was enacted as part of a bill intended to abolish two common law rules—one forbidding contribution among tortfeasors, and another mandating that a release of one joint tortfeasor for consideration released all others. The courts have striven to apply the statute to accommodate the goals of equitable sharing among tortfeasors and encouragement of settlements, which “are not always necessarily harmonious." (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985)
By responding on the merits to Fredericks’s affirmative defense based on the release, Neverkovec waived the objection that Fredericks failed to plead the defense in his answer. (Jones v. Dutra Construction Co. (1997)
Fredericks objects to Neverkovec’s reliance on the third party beneficiary theory, which Neverkovec did not raise in his summary judgment papers. The objection is a proper one, and we have the discretion to deem the argument waived. However, under the circumstances of this case we choose to address the issue. The third party beneficiary theory was mentioned in both Lama and General Motors, which are Fredericks’s principal authorities. The point was briefed in Moore’s motion papers, and thus Fredericks had the opportunity to respond to it below. The underlying facts are undisputed. The situation of third parties seeking to enforce general releases presents important legal issues that have recurred and are likely to recur yet again, and the application of third party beneficiary rules in such cases has not yet received extended consideration from any California appellate court. (Canaan v. Abdelnour (1985)
This long-standing principle of contract law supports the General Motors court’s ruling that section 877 does not require specific identification of all released parties. (12 Cal.App.4th at pp. 439-440.)
Before 1979, the parol evidence rale did not apply in an action between á contracting party and a stranger to the contract. The Legislature abolished this limitation in 1978 by revising section 1856. Therefore, Fredericks is free to object on parol evidence grounds. (Kern County Water Agency v. Belridge Water Storage Dist. (1993)
We note that the situation before us is not implicated in the criticism of the former restriction against third party use of the parol evidence rule found in the authorities cited by Witkin and the Kern County court. Corbin declares that his criticism of the restriction “is not in the least applicable” to a case involving the actual intention of parties to a release regarding the operation of the instrument on the legal relations between one of them and a third party. (3 Corbin on Contracts (1960) § 596, p. 577, fn. 11.5.) Wigmore states that the proper application of the rule is to exclude extrinsic utterances, even in cases involving third parties, if they are offered “for the very purpose for which the writing has superseded them as the legal act." (9 Wigmore on Evidence (Chadbourn rev. 1981) § 2446, p. 156, italics in original.) Here, excluding extrinsic evidence would beg the question of the writing’s purpose, since the very issue to be resolved is whether the parties actually intended to bar all future third party claims when they executed the release. As Wigmore notes, “[t]he theory of the rale is that the parties have determined that a particular document shall be made the sole embodiment of their legal act for certain legal purposes [citation]. Hence, so far as that effect and those purposes are concerned, they must be found in that writing and nowhere else, no matter who may desire to avail himself of it. But so far as other effects and purposes are concerned, the writing has not superseded their other conduct, nor other persons’ conduct, and it may still be resorted to for any other purpose for which it is material, either by other persons or by themselves.” (Ibid., italics in original.)
We share our concurring colleague’s suspicion of testimony by contracting parties regarding their undisclosed intentions. However, we are satisfied that in the third party beneficiary context, Garcia and the authorities it cites stand for the proposition that such testimony is properly admitted to assist the trier of fact in understanding the surrounding circumstances and negotiations, but is not controlling on the ultimate issue of contract interpretation. (See Garcia v. Truck Ins. Exchange, supra,
The release also purports to release anyone liable to Larry for damages arising from “any act or occurrence up to the present time,” not just from the accident with Fredericks. Thus, literally construed, the release would bar Larry from pursuing a claim against someone who stole property from him, or committed any other actionable offense.
Since the court found that the settlement was entered in good faith, Jason and Alexander & Associates were protected from any liability in Larry’s action against Fredericks, without having to rely on the release signed by Howard. The General Motors court cited Singer Co. v. Superior Court, supra,
Several courts have expressed the view that a third party should not enjoy the same privilege to rely on the four comers of a release agreement as the parties themselves. “A tortfeasor who has taken no part in the satisfaction of a plaintiffs claim should not gratuitously benefit from settlement arrangements undertaken at the time and expense of others .... Interpreting a release by looking only to the four comers of the document poses too great a risk that a plaintiff will be trapped into surrendering a separate cause of action when this was not his or her intent.” (Hansen v. Ford Motor Co., supra,
Concurrence Opinion
I concur, but write separately to clarify a point addressed by the majority. While concluding, correctly, that a party’s subjective intent cannot create a triable issue of material fact regarding a contract’s objectively reasonable meaning, the majority suggests that such evidence is nonetheless admissible. (Maj. opn., ante, at pp. 350-351, 352.) I believe that such evidence is not only insufficient to create a triable issue, but is irrelevant as proof of the party’s contractual intent, and therefore inadmissible. (See Zurich General Acc. & Liability Assur. Co. v. Industrial Acc. Commission (1933)