JESS v. HERRMANN

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Court of Appeal, Second District, Division 3, California.

Evelyn JESS, Plaintiff, Cross-Defendant, Appellant and Respondent, v. Faith Marie HERRMANN and Richard Herrmann,* Defendants, Cross-Complainants, Respondents and Appellants.

Civ. 50504.

Decided: March 28, 1978

Patterson, Ritner & Lockwood, and John A. Patterson, Los Angeles, for plaintiff, cross-defendant, appellant and respondent. Reilly, Denver & McLain, and Leon Small, Los Angeles, for defendants, cross-complainants, respondents and appellants.

Plaintiff and cross-defendant Evelyn Jess (hereinafter plaintiff) and defendant and cross-complainant Faith Marie Herrmann (hereinafter defendant) both appeal from the judgment upon jury verdicts determining their respective damages and assessing their respective negligence at 40 percent and 60 percent. Both the complaint and cross-complaint were for damages for negligence arising out of a collision between the vehicles of the parties, in which both plaintiff and defendant were injured. Plaintiff's damages were found by the jury to be $100,000 but were assessed at $60,000 in view of the finding that 40 percent of the negligence was attributable to plaintiff. Defendant's damages were found to be $14,000 but were assessed at $5,600 on account of the 60 percent of negligence attributable to defendant. The court offset the two awards and rendered judgment for plaintiff in the sum of $54,400.

Plaintiff's motion for new trial on grounds of the impropriety of the set-off was denied.

Contentions

Both plaintiff and defendant contend that the court lacked authority to setoff the respective damage awards and was required to enter two judgments, one in favor of plaintiff for $60,000 and one in favor of defendant for $5,600. No brief expressing an opposing view has been filed.

Discussion

The trial court did not err in ordering a setoff. Such action was mandated by the provisions of Code of Civil Procedure sections 431.70 and 666. Our Supreme Court's adoption of the rule of “pure” comparative negligence does not justify this court in judicially amending the Code of Civil Procedure so as to exempt cases involving comparative negligence from the operation of Code of Civil Procedure sections 431.70 and 666.

Section 431.70, enacted in 1971, replaced Code of Civil Procedure section 440. The text of the two sections follows:

“When cross-demands have existed between persons under such circumstances that, if one had brought an action against the other, a counterclaim could have been set up, the two demands shall be deemed compensated, so far as they equal each other, and neither can be deprived of the benefit thereof by the assignment or death of the other.” (Code Civ.Proc., s 440.)

“Where cross-demands for money have existed between persons at any point in time when neither demand was barred by the statute of limitations, and an action is thereafter commenced by one such person, the other person may assert in his answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting his claim would at the time of filing his answer be barred by the statute of limitations. If the cross-demand would otherwise be barred by the statute of limitations, the relief accorded under this section shall not exceed the value of the relief granted to the other party. The defense provided by this section is not available if the cross-demand is barred for failure to assert it in a prior action under Section 426.30. Neither person can be deprived of the benefits of this section by the assignment or death of the other.” (Emphasis added.) (Code Civ.Proc., s 431.70.)

In Hauger v. Gates (1954) 42 Cal.2d 752, 755, 269 P.2d 609, 611, our Supreme Court held: “Section 440 does not require that the cross-demands be liquidated. . . .” The description in section 431.70 of the offsetting demands as “cross-demands for money” does not appear to change this rule. An unliquidated demand for money is as much a demand for money as a liquidated one.

In Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352, 362, 113 Cal.Rptr. 449, 455, 521 P.2d 441, 447, our Supreme Court construed both sections 440 and 431.70 and said:

“Former section 440, on the other hand, took a neutral stance. Recognizing the established principle in equity that either party to a transaction involving mutual debts and credits can strike a balance, holding himself owing or entitled only to the net difference, the statute merely establishes a procedure for asserting such a setoff under the code pleading system of California. Since it does not alter the substantive law of setoff,13 we see no basis for finding that section 440, or its successor section 431.70 was intended to, or did, encourage banks or other creditors to exercise their right of setoff without notice to the debtor. (Jojola v. Wells Fargo Bank (N.D.Cal.1973).) (Fn. omitted.)”

“13 Arguably former Code of Civil Procedure section 440, went beyond the prior law in providing for automatic setoff of claims (see Comment, 53 Cal.L.Rev. 224, 252-266), but defendant bank does not rely on this feature of the statute.”

Section 431.70 thus has the same effect as section 440 except that it requires the defendant to “assert in his answer the defense” that the claims are compensated. Though a cross-complaint is no longer technically a part of the answer (Code Civ.Proc., s 428.40), it is equally effective to notify the plaintiff of the claimed compensating demand. It would, therefore, be exalting form over substance to say that a compensating demand asserted by way of cross-complaint is not effectively pleaded as an offset. This is acknowledged by the provisions of Code of Civil Procedure section 666 which provides:

“If a claim asserted in a cross-complaint is established at the trial and the amount so established exceeds the demand established by the party against whom the cross-complaint is asserted, judgment for the party asserting the cross-complaint must be given for the excess; or if it appears that the party asserting the cross-complaint is entitled to any other affirmative relief, judgment must be given accordingly.

“When the amount found due to either party exceeds the sum for which the court is authorized to enter judgment, such party may remit the excess, and judgment may be rendered for the residue.”

Section 666 clearly provides that a cross-complaint offsets a claim asserted in the complaint which in turn offsets the cross-complaint so as to result in a judgment only for the “excess.” Both parties argue that this section only has that result when the amount awarded on the cross-complaint exceeds that awarded on the complaint, thus making the right to offset depend upon who wins the race to the courthouse. We cannot ascribe to the Legislature an intent to establish any such arbitrary classification.

Thus, both the “established principle in equity that either party to a transaction involving mutual debts and credits can strike a balance” (Kruger v. Wells Fargo Bank, supra, 11 Cal.3d at p. 362, 113 Cal.Rptr. at p. 455, 521 P.2d at p. 447) and the express provisions of Code of Civil Procedure sections 431.70 and 666 not only authorized but also required the court to take the action it did in offsetting the two demands.

Both parties, however, urge that in light of the alleged existence of liability insurance covering both parties, “public policy” demands that the awards not be offset so that each party can recover from the other party's insurance carrier.

There is nothing in the record to indicate that there is any liability policy covering either party. Moreover, no insurance carrier is in any respect a party to this appeal. It is, therefore, patent that this court cannot adjudicate the effect of the offsetting verdicts upon the rights of the respective parties' insurers.1 In any event, we seriously question the propriety of any attempt on the part of this court to judicially amend Code of Civil Procedure sections 431.70 and 666 so as to exempt comparative negligence cases from the offset requirements therein stated.

Widely divergent opinions have been expressed on the policy issue posed by the impact between the law of offset and new rules of pure comparative negligence. Two state supreme courts which have passed upon it have held that the adoption of pure comparative negligence does not call for abrogation of the rule of setoff. In Hoffman v. Jones (1973) 280 So.2d 431, 439, the Florida Supreme Court, in the adoption of pure comparative negligence, said in this respect:

“In the usual situation where the negligence of the plaintiff is at issue, as well as that of the defendant, there will undoubtedly be a counterclaim filed. The cross-plaintiff (just as plaintiff in the main suit) guilty of some degree of negligence would be entitled to a verdict awarding him such damages as in the jury's judgment were proportionate with his negligence and the negligence of cross-defendant. This could result in two verdicts one for plaintiff and one for cross-plaintiff. In such event the Court should enter one judgment in favor of the party receiving the larger verdict, the amount of which should be the difference between the two verdicts. This is in keeping with the long recognized principles of ‘set off’ in contract litigation. The Court's primary responsibility is to enter a judgment which reflects the true intent of the jury, as expressed in its verdict or verdicts.”

However, in its later opinion in Stuyvesant Ins. Co. v. Bournazian, supra, 342 So.2d at page 474, where the insurers of the respective drivers were parties, the same court said:

“We conclude, therefore, that the concept of ‘set-off’ (more properly ‘recoupment’) as announced in Hoffman applies only between uninsured parties to a negligence action, or to insured parties to the extent that insurance does not cover their mutual liabilities. The doctrine has no effect on the contractual obligations of liability insurance carriers. . . . ”

In Johnson v. Richardson (1959) 234 Miss. 108, 108 So.2d 194, the Supreme Court of Mississippi reached the same result as that reached in Hoffman, supra. Section 1483.5 of the Mississippi Code expressly provided that judgment be only for the excess of either of two cross-demands. The court said (108 So.2d at p. 199):

“(7) The appellant contends that Section 1483.5, supra, is in irreconcilable conflict with Section 1454 of the Code, which is the comparative negligence statute. The Court does not think so. . . . ”

The opposite result has been reached by legislation in Rhode Island where the pure comparative negligence statute contains an express provision that “there shall be no setoff of damages between the respective parties.” (Annot., R.I.Gen.Laws (1956) s 9-20-4.1 (1975 Supp.).)

Commentators have likewise differed in their views. In George & Walkowiak, “Blame and Reparation in Pure Comparative Negligence: the Multi-Party Action” (1976) 8 Sw.U.L.Rev. 1, 22, fn. 59, the authors “conclude that the fundamental purpose cannot be served if responsibility is assigned for the purpose of discounting gross damages for self-caused elements, and then the tortfeasor's culpability for the effects of his fault upon others is used to further reduce his own damages.” On this basis, the authors state: “Judgments for fault-discounted net damages are never to be offset against each other; they represent real and compensable injuries.” (Id., at p. 60.)

On the other hand, in Schwartz, Comparative Negligence (1974), section 19.3, page 323, the author states: “The proposal of disallowing setoffs when casualty insurance companies are parties is thoughtful, but has obvious earmarks of invidious discrimination. Nevertheless, its potential benefit suggests that the proposal be given careful consideration by legislatures.”

In a later law review article, “Li v. Yellow Cab Company: A Survey of California Practice Under Comparative Negligence” (1976) 7 Pacific L.J. 747, 750-751, Schwartz discusses the question under California law and states:

“The matter of setoffs will probably have to be left to legislative determination. In that regard, one commentator has suggested that under a pure comparative negligence system, casualty insurance companies should be prohibited from obtaining setoffs for their insureds. Since there never has been such a statute enacted in any state, the constitutionality of that proposal remains untested. (Fn. omitted.)”

Another article, “Comparative Negligence in California: Multiple Party Litigation” (1976) 7 Pacific L.J. 770, does not offer any detailed discussion of the matter. It notes, however (id., at p. 773, fn. 19): “If the defendant suffers damage, as the result of the plaintiff's activity, the procedure described in the text would be applied in terms of the defendant. The court could then setoff damages.”

In “Comparative Negligence: Problems for Trial Judges” (1975) 3 Cal. Center for Judicial Educ. & Research Journal C.17, C.21, Paul Peyrat notes that “it can be argued that there should be no setoff in favor of a party's liability insurer . . . . any more than it can setoff his other assets against its obligation to pay the other party's damages. . . .”

In “Pure Comparative Negligence: Set-Offs, Multiple Defendants and Loss Distribution” (1976) 11 U.S.F.L.Rev. 405, Neil M. Levy analyzes all the alternatives involving insured and uninsured parties on both sides. His conclusion is that “courts should refrain from requiring set-offs. (Fn. omitted.)” (Id., at p. 415.)

Posner, Reeslund and Williams, “Comparative Negligence in California: Some Legislative Solutions Part III” (9-9-77) Report, L.A Daily J., pp. 4-25, discusses the subject of setoff at length and notes the competing considerations supporting several alternative solutions. The authors prefer a solution which would “provide for set-off in actions involving comparative negligence without exception, but retaining in an insured party the right to be reimbursed by his insurer in the amount that his own damages reduced the insurer's liability.” (Id., at p. 6.) Most significantly, however, the authors acknowledge that the matter should be governed by legislation which will “explicitly provide for its application to allay any doubts about the matter” (id., at p. 5) and replace the present “system which would result in reciprocal injury claims arising from the same incident being set off thus yielding a single net judgment” (ibid.).

The suggestions that modification of the rule of setoff is a matter for legislative determination have not gone unheeded. On June 23, 1977, Senator Robert Wilson introduced Senate Bill No. 1269 in the California Legislature to amend Code of Civil Procedure section 666 so as to provide that “in any action in which the law of comparative negligence applies there shall be no setoff of damages between any of the parties to such action.” The Legislative Counsel's Digest attached to the bill stated the purpose of the bill as follows:

“Under existing law conflicting claims are deemed compensated to the extent they equal each other.

“In an action by one claimant the other claimant may assert his conflicting claim by way of answer or cross-complaint, and a single judgment is required to be entered for the excess.

“This bill would make those rules inapplicable in an action to which the law of comparative negligence is applicable to the extent they authorize or require statutory setoff, and would prohibit a setoff of damages in such an action.

“This bill would not apply to preexisting causes of action.” (Emphasis added.)

Senate Bill No. 1269 died in committee. It thus appears that the Legislature, though advised that existing law is as above stated, has not seen fit to amend such law.

We realize that as codifications of the prior common law rule, Code of Civil Procedure sections 431.70 and 666 may be subjected to the interpretative process applied to Civil Code section 1714 in Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 119 Cal.Rptr. 858, 532 P.2d 1226. In Li, our Supreme Court recognized that when adopted, Civil Code section 1714 was intended to codify the existing common law rule of contributory negligence as modified by the emerging doctrine of last clear chance. The court held, however, that the section could “be interpreted so as to give dynamic expression to the fundamental precepts which it summarizes” (13 Cal.3d at p. 822, 119 Cal.Rptr. at p. 871, 532 P.2d at p. 1241) and thereby be reconciled with the adoption of a rule of pure comparative negligence.

In American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 143 Cal.Rptr. 692, 574 P.2d 763, a similar process was applied to the provisions of Code of Civil Procedure sections 875-879 relating to contribution among tortfeasors.

The Legislature did not have in mind cross-demands based upon the doctrine of comparative negligence when it adopted either section 431.70 or section 666 of the Code of Civil Procedure. Nonetheless, the interpretation advocated by both parties in this case would create an exception to the general rule stated in those sections, in effect amend them by judicial fiat. As the above commentaries clearly demonstrate, the question whether such an exception should be created involves serious issues of policy respecting the degree to which loss shifting from the injured party to society in general is justified. This court simply does not have available to it the resources necessary to the valid resolution of such issues. We should, therefore, resist any temptation to engage in judicial amendment of the clearly applicable sections of the Code of Civil Procedure which the Legislature has declined to amend.

The judgment is affirmed; all parties shall bear their own costs on appeal.

I concur in the result reached by the majority.

Under the facts of this case it appears logical to offset the two awards and render judgment for the plaintiff for the difference.

In my opinion the subject of comparative negligence and its many ramifications, including offsets, should be forthwith addressed by the Legislature in order to avoid further judicial legislation on a subject peculiarly within the purview of the legislative branch.

FOOTNOTES

1.  Compare Stuyvesant Ins. Co. v. Bournazian (Fla.1977) 342 So.2d 471, 474, where the insurance carriers were parties.

POTTER, Associate Justice.

COBEY, Acting P. J., concurs.

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