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YOUNG v. LANE REALTY

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Court of Appeal, Third District, California.

Alice M. YOUNG, Plaintiff and Respondent, v. LANE REALTY, Defendant and Appellant.

Civ. 17605.

Decided: August 24, 1979

Rust & Armenis, Glenn H. Ehlers, and Bullen, McKone, McKinley, Gay & Keitges, Sacramento, for defendant and appellant. Gessford, Sevey & Alpar, Michael C. Gessford, Sacramento, and Leonard Sacks, Encino, for plaintiff and respondent.

Plaintiff, injured when she slipped on a public sidewalk adjoining a home sales office, entered into a sliding scale settlement of her pending action with five willing defendants and cross-defendants which guaranteed her a recovery of $50,000 but did not provide for immediate payment.   The responsibility of the settling defendants was limited to their agreement to supplement any judgment secured by plaintiff against a sixth defendant, Lane Realty (hereinafter Lane), in order to achieve a total minimum recovery of $50,000.   The agreement was reduced to writing filed with the court and disclosed to Lane, which had been unable to reach a settlement compromise with plaintiff and the other defendants.

At the conclusion of trial, plaintiff recovered judgment against Lane for $67,143.41.

I

Lane contends that its liability under the judgment must be reduced by the amount of the settlement guarantee or the agreement must be held invalid as violative of public policy.   We disagree with both assertions.

By the terms of the initial agreement as disclosed to the trial court, the difference between the amount of any judgment received by plaintiff and $50,000 would be made up by the settling defendants.   The agreement was fully revealed to all parties and the court.   This type of agreement is now statutorily referred to as a “sliding scale” agreement.  (Code Civ.Proc., § 877.5.)

Prior to the sliding scale settlement agreement, Lane had refused to participate in a proposed settlement agreement which required contribution by Lane of an amount it considered excessive.

 Initially, by brief and oral argument, Lane attacks the written form of the agreement, asserting that it does not articulate a guaranteed sliding scale settlement, but rather constitutes a settlement agreement by which those defendants bound themselves to pay plaintiff $50,000 in any event, thus allowing Lane the claimed setoff.

We reject the contention.  “In this state,  ․ ․ ․  the intention of the parties as expressed in the contract is the source of contractual rights and duties.  [Fn. omitted.]  A court must ascertain and give effect to this intention by determining what the parties meant by the words they used.  ․ ․ ․  [¶]  [T]he meaning of a writing ‘․ ․ ․  can only be found by interpretation in the light of all the circumstances that reveal the sense in which the writer used the words.  ․ ․ ․’ ”  (Pacific Gas & E. Co. v. G. W. Thomas Drayage, etc., Co. (1968) 69 Cal.2d 33, 38–39, 69 Cal.Rptr. 561, 564–65, 442 P.2d 641, 644–45.)   In that regard the following colloquy involving the court, plaintiff's counsel, counsel for settling defendants, and counsel for Lane reveals the intent of the parties at the time the agreement was undertaken and which was attempted, although inartfully to be reduced to written agreement form.

“THE COURT:  ․ ․ ․  Let me ask a question.   What would happen if a jury came back for $5,000?

“MR. GESSFORD:  He would pay five, they would pay 45.

“MR. HOFFMAN:  We would pay $45,000.

“THE COURT:  Suppose it came in for 10.

“MR. EHLERS:  [Counsel for Lane Realty] I'd pay 10, they'd pay 40.   They keep paying the difference between any verdict against me up to $50,000 and beyond that they pay nothing.”

The intent of the parties was obviously clearly understood by Lane which now asserts that the written settlement agreement was not in fact a guaranteed sliding scale agreement.

Although the written agreement presented to the court and to us for our consideration and interpretation may have suffered drafting deficiencies, the intent of the parties was clearly stated and remained unaltered.

 Lane further attacks “sliding scale settlement agreements” as being against public policy and urges that they must be presumed to have been induced by bad faith.   That contention is equally without merit.

The Legislature has recognized the value in certain instances of sliding scale type settlement agreements and has given its sanction to them.  Code of Civil Procedure section 877.5 provides for use of the sliding scale settlement agreement which limits the liability of the agreeing defendants to an amount that is dependent upon the amount of recovery which the plaintiff receives from the nonagreeing defendant.   The section does require that the agreement, when made, be disclosed to the court;  the disclosure requirements were met here.

Plaintiff's recovery after trial should in all instances be diminished only by the amount actually recovered in a good faith settlement rather than by an amount agreed upon as a guaranteed recovery against other defendants.   (Pease v. Beech Aircraft Corp. (1974) 38 Cal.App.3d 450, 470–474, 113 Cal.Rptr. 416;  McGee v. Cessna Aircraft Co. (1978) 82 Cal.App.3d 1005, 1021–1022, 147 Cal.Rptr. 694.)

 Lane's initial argument that the judgment must be reduced by the amount of the settlement is primarily predicated upon the provisions of section 877 which provides, “Where a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment 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—[¶] (a) It shall not discharge any other such tortfeasor from liability unless its terms so provide, but it shall reduce the claims against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it whichever is the greater;  and [¶] (b) It shall discharge the tortfeasor to whom it is given from all liability for any contribution to any other tortfeasors.”  (Emphasis added.)

However, Lane fails to address the meaning and effect of Code of Civil Procedure section 877.5 and in support of its argument relies upon Black v. County of Los Angeles (1976) 55 Cal.App.3d 920, 934, 127 Cal.Rptr. 916, and three additional cases in which the judgments were reduced by the amounts of the settlement.  (See Lemos v. Eichel (1978) 83 Cal.App.3d 110, 118, 147 Cal.Rptr. 603;  McGee v. Cessna Aircraft Co., supra, 82 Cal.App.3d at pp. 1021–1022, 147 Cal.Rptr. 694;  Jaramillo v. State of California (1978) 81 Cal.App.3d 968, 970–972, 146 Cal.Rptr. 823.)   Inasmuch as Black and the other cited cases did not involve sliding scale settlement agreements, their holdings are inapposite to defendant's contention.

The Supreme Court in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899, at least inferentially recognized the validity of sliding scale agreements provided in section 877.5.   The court stated, “[T]o preserve the incentive to settle which section 877 provides to injured plaintiffs, we conclude that a plaintiff's recovery from nonsettling tortfeasors should be diminished only by the amount that the plaintiff has actually recovered in a good faith settlement, rather than by an amount measured by the settling tortfeasor's proportionate responsibility for the injury.  ․ ․ ․”  (Id., at p. 604, 146 Cal.Rptr. at p. 199, 578 P.2d at p. 916.)   The court acknowledged that the strong public policy in favor of encouraging settling litigation as embodied in section 877 would be undermined by the application of comparative indemnity.   In Stambaugh v. Superior Court (1976) 62 Cal.App.3d 231, 238, 132 Cal.Rptr. 843, 848, the court stated, “Except in rare cases of collusion or bad faith, such as were claimed in River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d 986, 103 Cal.Rptr. 498, and Lareau v. Southern Pac. Transportation Co., supra, 44 Cal.App.3d 783, 118 Cal.Rptr. 837, a joint tortfeasor should be permitted to negotiate settlement of an adverse claim according to his own best interests, whether for his financial advantage, or for the purchase of peace and quiet, or otherwise.   His good faith will not be determined by the proportion his settlement bears to the damages of the claimant.   For the damages are often speculative, and the probability of legal liability therefor is often uncertain or remote.   And even where the claimant's damages are obviously great, and the liability therefor certain, a disproportionately low settlement figure is often reasonable in the case of a relatively insolvent, and uninsured, or underinsured, joint tortfeasor.”

 It cannot be argued that the settlement here involves skulduggery or that it was manipulative of the parties or the court.

Shortly before trial, plaintiff and the settling defendants had achieved an actual settlement in the amount of $66,100 with the assistance of the court.   Lane refused to bear its proportionate share and on the morning of trial, the other defendants entered into the guaranteed settlement with plaintiff.   In such antiseptic circumstances, void of any collusion or attempted fraud, manipulation, or concealment, the joint tortfeasors should be permitted to negotiate adverse claims in their best interest, whether they be for financial reasons or to achieve freedom from the perils of the litigation.

Lane was left with the privilege of attempting to absolve itself of any liability through the process of trial.   In that eventuality, the settling defendants' responsibility to pay would have been invoked.   After availing itself of the opportunity to cast total liability on the settling defendants, Lane failed and must now bear the burden of its gamble.

The settlement was undertaken in good faith and does not require contribution by those defendants who were parties to the sliding scale settlement agreement.

II

We disagree with Lane's contention that the trial court abused its discretion by refusing to grant a continuance when the settlement agreement was announced.   Lane claimed it was surprised by the agreement, and should have had a continuance to enable it to file a cross-complaint against the settling defendants.

 The grant or denial of a request for a continuance rests in the discretion of the trial court, and its ruling will not be disturbed in the absence of an abuse of discretion.  (Schlothan v. Rusalem (1953) 41 Cal.2d 414, 417, 260 P.2d 68.)   In considering such a request, the court should be governed by that which seems most likely to accomplish substantial justice;  it may take into consideration the legal sufficiency of the showing in support of the motion and the good faith of the moving party.  (McElroy v. McElroy (1948) 32 Cal.2d 828, 832, 198 P.2d 683.)   In the legal sense, an abuse of discretion may occur when it may be said that the exercise of discretion exceeds the bounds of reason after all the facts and circumstances have been considered;  the complaining party must then affirmatively establish the abuse of discretion.   It is never presumed.  (Muller v. Tanner (1969) 2 Cal.App.3d 445, 457, 82 Cal.Rptr. 738.)

 The trial court was entitled to consider the fact that Lane had been a party to the settlement negotiations which had been in process for over four months prior to trial.   The court was also free to consider the fact that prior to trial, all other defendants had filed cross-complaints against one another, an additional factor in making its determination whether the continuance was necessary to render substantial justice.   Finally, and most importantly, Lane has failed to establish any showing of prejudice by the failure of the trial court to allow it a continuance to file a cross-complaint.

The order denying the requested continuance was not an abuse of discretion.

III

 Lane contends that the trial court committed prejudicial error in refusing certain offered instructions.

The first instruction provided, inter alia:  “In this action, the plaintiff has the burden of establishing by a preponderance of the evidence all of the facts necessary to prove the following issues:  [¶] 1.   That defendant Lane Realty had a duty to warn plaintiff of the condition of the sidewalk.”   This instruction would have had the jury determine whether a duty was owed by defendant to plaintiff and as such was erroneous.   The determination of the existence of a duty owed to a plaintiff by a defendant is for the court, not the jury.  (Amaya v. Home Ice, Fuel & Supply Co. (1963) 59 Cal.2d 295, 307–309, 29 Cal.Rptr. 33, 379 P.2d 513;  Fuller v. State of California (1975) 51 Cal.App.3d 926, 946, 125 Cal.Rptr. 586;  Schauf v. Southern Cal. Edison Co. (1966) 243 Cal.App.2d 450, 458, 52 Cal.Rptr. 518;  Prosser, Torts (4th ed. 1971) § 37, p. 206;  see Schwartz v. Helms Bakery Limited (1967) 67 Cal.2d 232, 239–240, 60 Cal.Rptr. 510, 430 P.2d 68;  Canifax v. Hercules Powder Co. (1965) 237 Cal.App.2d 44, 55, 46 Cal.Rptr. 552.)

 Plaintiff's burden is not to prove defendant's duty as such but the existence of facts which give rise to duty.   Thus the other offered instruction provided, inter alia, “There is no duty to warn of an obvious danger but the possessor of land does have a duty to warn an invitee not only of conditions known by him to be dangerous but also of conditions which might have been found dangerous by the exercise of ordinary care.”   Its rejection requires reversal of the judgment.

The offered instruction was a correct statement of the law, extracted verbatim from the decision in Beauchamp v. Los Gatos Golf Course (1969) 273 Cal.App.2d 20, 27, 77 Cal.Rptr. 914.   The record reveals sufficient evidence to support an inference that the defect was apparent to plaintiff as well as to Lane;  in such circumstances the court upon application by the defendant must alert the jury to the rule of law enunciated by the offered instruction.

Inasmuch as the judgment must be reversed for instructional error, a final comment is required on Lane's underlying contention that since it was not the owner of the sidewalk, it could not be held liable.   The contention is without merit.

 A real estate agency which, at the request of the owner, shows property to prospective buyers is a possessor of land and bears the attendant duty of care.  (Coughlin v. Harland L. Weaver, Inc. (1951) 103 Cal.App.2d 602, 605–606, 230 P.2d 141;  Merrill v. Buck (1962) 58 Cal.2d 552, 561–564, 25 Cal.Rptr. 456, 375 P.2d 304;  see Annot. (1965) 3 A.L.R.3d 965, 999–1001.)   The duty extends to appurtenant sidewalk use as access to the property.  (Oettinger v. Stewart (1944) 24 Cal.2d 133, 136–137, 148 P.2d 19;  Johnston v. DeLaGuerra Properties, Inc. (1946) 28 Cal.2d 394, 399, 170 P.2d 5;  Wade v. Buyers (1941) 47 Cal.App.2d 168, 170, 117 P.2d 392.)

The jury was correctly instructed in this regard.

IV

Lane's remaining contention that the trial court's failure sua sponte to give specific verdict forms to the jury was prejudicial error is patently wrong and so inconsequential it does not require further discussion.  (See Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 824, fn. 18, 119 Cal.Rptr. 858, 532 P.2d 1226.)

The judgment, for the reason stated, is reversed.

I concur in the majority opinion, but find myself compelled to utter a few words of lament over the plight of Lane and future defendants who will be similarly mousetrapped by Code of Civil Procedure section 877.5.

There is no one in the California judiciary more supportive of settlements and settlement procedures than I.   But with equal vigor I support the freedom of all litigants, plaintiff or defendant, to insist upon a trial where they feel sincerely that an available settlement is to them unfair or unjust;  the courts exist for just such persons.   The establishment of rules tending to encourage out of court settlements (e. g., rules 19.5, 207.5, Cal. Rules of Court), even reasonable penalties for refusal to make realistic settlements (e. g., Code Civ.Proc., §§ 998, 1250.410), are very much in order.   But no litigant should ever find himself in the position of considering a proposal for settlement figuratively at the point of a gun, something which section 877.5 now condones and promotes.

Plaintiff was injured when she slipped and fell on a defective sidewalk in a model home development.   The owner and developer of the property were two of Lane's codefendants;  Lane was their selling real estate broker, conducting its sales activities from a model home within the development.   The dangerous condition was adjacent to the model home and had been created by certain cross-defendants at the behest of the owner and developer, not by Lane.   Hence the asserted liability of this trio was grounded upon the duty owed by owners and occupants of land to persons on their premises (Rowland v. Christian (1968) 69 Cal.2d 108, 113, 70 Cal.Rptr. 97, 443 P.2d 561);  manifestly the blame for the defective sidewalk lay as much, if not more, with the two codefendants as with Lane.

Thus with trial about to commence, assuming no settlement at all, Lane could anticipate at the very least that it would share the burden of any ultimate judgment equally with the landowner and the developer.  (Code Civ.Proc., § 875.)   More realistically, Lane could minimally anticipate a division of the judgment's burden with the cross-defendants as well.   Assuming a settlement by other defendants, Lane could anticipate a setoff against any ultimate judgment of the sums paid pursuant thereto.  (Code Civ.Proc., § 877.)   And by virtue of this court's decision in River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 103 Cal.Rptr. 498, absent Code of Civil Procedure section 877.5, Lane also could anticipate that a settlement such as that involved here would probably be deemed in bad faith and hence unenforceable in any fashion which would work a prejudice to Lane.   Lane's counsel therefore would be at liberty to advise trial rather than settlement (there is nothing to suggest that Lane's refusal to pay the amount demanded of it as a contribution to the proposed settlement package was arbitrary), appropriately weighing Lane's monetary exposure against its costs of defense, the potential for a favorable verdict, seriousness of the injury, plausibility of witnesses, policy limits, and the like, as wise, sensible, and careful litigants do.1

But as it turned out, these otherwise normal and reasonable expectations of Lane were thwarted by section 877.5.   Instead of risking its proportionate share of the financial burden of an adverse judgment with equally or more seriously responsible defendants, by choosing to litigate rather than settle Lane risked full indemnification of all codefendants and cross-defendants, each of whom now pays nothing, with the entire burden of the judgment falling upon Lane.   The price of refusal to settle, no matter how sincere and reasonable that refusal, has been to distort Lane's exposure from fractional to entire, and to free culpable codefendants of all financial responsibility.

Section 877.5 has bestowed the Legislature's blessing upon such settlements, heretofore condemned in our River Garden Farms decision.2  Lane's argument that the type of sliding scale settlement involved herein is void as against public policy must die aborning, for who else but the Legislature makes public policy?   This type of agreement, which potentially absolves the settling defendants of all financial contribution to the injured plaintiff, is so clearly within the contemplation of section 877.5 (see subd. (b) ) as to admit of no serious dispute on that score.   Thus I am forced to accept the settlement as valid despite my personal adherence to the principles enunciated in River Garden Farms.   Nevertheless, Lane's chagrin at the result is certainly understandable, and its position sympathetic.   As to Lane the so-called “settlement” was “falser than vows made in wine.”

Plaintiff responds by asserting dictatorially that Lane brought its own misfortune upon itself by refusing to contribute to the settlement package in the amount recommended by the settlement conference judge.   That argument begs the question, which is that Lane's financial risk should not be enlarged against its will merely because it has refused to pay that which others arranged for it to pay.   The very blackjack which victimized Lane is now being used as the argument to support the asserted propriety of its use, bootstrapping of the worst kind.   Yet in view of section 877.5, it is a valid argument.

A further difficulty here, one which I find quite apparent, is that even if Lane had filed a cross-complaint for comparative indemnity or contribution prior to the settlement, it would not have been able to avoid the trap set for it.   Under American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899, a defendant who settles “in good faith” is absolved of liability for partial or comparative indemnity to a codefendant.  (Id., at p. 604, 146 Cal.Rptr. 182, 578 P.2d 899.)   The Supreme Court did not elaborate on the ingredients of good faith in this context, but on analysis it is abundantly clear that it had in mind good faith vis-a-vis a codefendant such as Lane.   For surely any settlement by which a competently represented plaintiff receives money or the promise of money cannot be in bad faith as to him.   Axiomatically it cannot be in bad faith as to a settling defendant.   Only a nonsettling defendant (or cross-defendant) can therefore be the object of a bad faith settlement, a reality corroborated by the fact that the prime issue in American Motorcycle was contribution between and among joint tortfeasors.3  Yet despite the Supreme Court's mindfulness of River Garden Farms and bad faith against a codefendant, there is no way a settlement agreement of the type involved here could ever be found in bad faith, for it is precisely consonant with that which section 877.5 embraces; 4  disclosure is the statute's sole ingredient for good faith against a codefendant.   As above noted, section 877.5 has effectively abrogated the River Garden Farms rule, and so long as there is full disclosure, has placed a nonsettling defendant at the mercy of the plaintiff and one or more settling defendants.

Lane's brief has provided a hypothetical example of the obvious inequity and injustice involved in a sliding scale agreement under section 877.5.   I quote the hypothetical example.  “Plaintiff has a personal injury action against defendants A and B.   Let's assume that plaintiff's case is worth $75,000.   Let's further assume that defendant A is two-thirds at fault and defendant B one-third at fault in causing plaintiff's injury.   Defendant A is willing to pay $50,000 in settlement of the case but plaintiff demands $100,000.   Defendant B is willing to pay $25,000 in settlement of the case but not willing to pay $50,000.   Plaintiff and defendant A enter into a sliding scale agreement which provides for a maximum liability of defendant A of $50,000 and has as a condition that if plaintiff gets a verdict in excess of $50,000 against defendant B that A will pay nothing.   Thereafter plaintiff obtains a verdict against defendant B in the amount of $75,000.   If defendant B had had a cross-complaint against defendant A and if the sliding scale settlement was a ‘good faith’ one, then B would not be liable to maintain the indemnity cross-complaint against A.   Further, B would not be entitled to any reduction from the verdict and would not be entitled to contribution from A and thus would bear the entire verdict alone.   Permitting such a result is simply contrary to the principles of ‘good faith’ settlements enunciated by this court and contrary to the principles of the system of comparative negligence instituted by our Supreme Court.”

The example dramatically illustrates the potential injustice of section 877.5.   Lane has argued that such an absurd result demonstrates that the Legislature could not have intended it.   I disagree, simply because the language of section 877.5 is too plain.   But it is my hope that the Legislature will see fit to repeal section 877.5, now that it can observe the unfairness with which it operates, and thereby revive the River Garden Farms principle.

FOOTNOTES

1.   It should be noted also that at the time of trial Code of Civil Procedure section 877.5, although enacted, was not yet operative.   (See fn. 2., infra.)

2.   I am prepared to concede the retroactivity of section 877.5, making it applicable to this case which was tried less than 30 days before its effective date.  (McBarron v. Kimball (1962) 210 Cal.App.2d 218, 220, 26 Cal.Rptr. 379.)

3.   The Supreme Court expressly referred to River Garden Farms when it mentioned the good faith concept.  (20 Cal.3d at p. 604, 146 Cal.Rptr. 182, 578 P.2d 899.)

4.   I recognize that section 877.5 had already taken effect when the American Motorcycle decision was filed, and that it was cited and quoted in the decision (20 Cal.3d at p. 600, fn. 5, 146 Cal.Rptr. 182, 578 P.2d 899).   One could therefore argue that the Supreme Court spoke of good faith with the statute in mind.   If this indeed be so, I can discern no meaning whatever to the court's good faith language.   Because section 877.5 was only footnoted in passing and was not otherwise mentioned, I respectfully suggest that the Supreme Court did not have it in mind when it uttered the good faith statement.

EVANS, Associate Justice.

PUGLIA, P. J., concurs.

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