Key Research For Stars Motion To Vacate Judgment2

KEY RESEARCH FOR STARS MOTION TO VACATE JUDGMENT, ETC
TWISSLEMAN
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Penzner v. Foster, 170 Cal.App.2d 106

[Civ. No. 5693. Fourth Dist. May 1, 1959.]
WILLIAM L. PENZNER et al., Appellants, v. BESS FOSTER et al., Defendants; VAN

B. FOSTER, JR., as Executor, etc., Respondent.
COUNSEL
John Amos Fleming and Theodore R. Gabrielson for Appellants.
Hanna & Morton, Harold C. Morton and John H. Blake for Respondent.
OPINION
STONE, J. pro tem. fn. *
This is an appeal from a judgment in an action brought by appellants to quiet title

to a parcel of real property. The trial court decreed that appellants' title is subject to
a lien pursuant to a deed of trust owned by respondent and that the balance due on
the note secured by the deed of trust was $14,156,44 at the time judgment was
entered.
The appellants purchased the parcel of real property which is located in the city of
Fresno from the Normandie Corporation. At the time of the conveyance the
property was encumbered by a deed of trust that secured a promissory note in favor
of respondent. The escrow provided that appellants would take title to the property
subject to the encumbrance in consideration of an allowance on the purchase price
equal to the balance due on the note. There was some delay in communicating with
respondent and the exact amount due could not be determined by the seller. To
expedite the sale the parties agreed to an estimate of the balance due and the escrow
was closed. The seller had underestimated the amount by some $1,800, so the
president of Normandie Corporation paid appellants $1,820.62 in cash. The
appellants then filed a quiet title action against the respondent holder of the note
and deed of trust seeking to have their title quieted against the deed of trust upon
the grounds: First, that the deed of trust was barred by the statute of limitations;
Second, that the original transaction [170 Cal.App.2d 108] was usurious and the
maker of the note had paid more than could legally be collected; and Third, that
title to the property should be freed from the encumbrance because enforcement
would be inequitable to them.
[1] Appellants did not assume the indebtedness; they merely purchased the property
subject to the encumbrance which had been properly recorded and of which they
had received actual notice by the escrow agreement. Their contention that the
statute of limitations vitiated the deed of trust and entitled them to a decree quieting
title against the holders of the note and deed of trust is without merit. The
enforcement of a power of sale contained in a deed of trust is never outlawed by a
lapse of time alone. As was said in Sipe v. McKenna, 88 Cal.App.2d 1001, 1006 [200
P.2d 61]:
"A party may not without payment of the debt, enjoin a sale by a trustee under a
power conferred by a deed of trust, or have his title quieted against the purchaser at
such a sale, even though the statute of limitations has run against the indebtedness.
(Citations.)" See also Welch v. Security First National Bank of Los Angeles, 61
Cal.App.2d 632, 635 [143 P.2d 770]; Summers v. Hallam Cooley Enterprises, 56
Cal.App.2d 112, 113 [132 P.2d 60].
[2] Since the statute of limitations does not bar the exercise of a power of sale
contained in a deed of trust, neither can the statute of limitations be the basis for an
action quieting title against a deed of trust.
[3a] Appellants' second contention is that the transaction between the maker of the
note and the payee was usurious. Based upon this premise, appellants argue that
when the alleged usurious interest is deleted the payments which have been made on
account satisfy the obligation in full. In turn, they contend that this entitles them to
a decree quieting title to the property. The note for the principal sum of $4,000 is
dated December 9, 1929, payable five years after April 30, 1930. It bears interest at
the rate of eight per cent per annum from April 30, 1930, payable semiannually, and
further provides that "Should interest not be so paid it shall become part of the
principal and thereafter bear like interest."
Civil Code, section 1916-2 [Stats. 1919, p. lxxxiii, § 2, Deering's Gen. Laws, Act
3725], provides that compound interest may be charged if an agreement to that
effect is clearly expressed in writing and signed by the party to be [170 Cal.App.2d
109] charged therewith. The note in this case clearly meets such requirements and
the compound interest, as such, is not an illegal charge. The only question is whether
the interest charged or chargeable under the terms of the note as executed exceeded
12 per cent per annum, the limit applicable at that time. Counsel for appellants have
cited computations covering the entire period of approximately 28 years which
intervened between the execution of the note and the time of trial. During a part of
that time the interest exceeded 12 per cent per annum for the reason that no
payments were made on account of either principal or interest from December 9,
1929, to December 15, 1947. During that 18-year period the unpaid interest, when
added to the principal, increased the amount bearing interest to the point where
more than 12 per cent per annum was being charged on the original $4,000
principal. That, however, is not the test. [4] Whether a transaction is usurious is
determined by the total amount of interest required to be paid under the terms of
the agreement between the date of execution and the date of maturity. If the interest
for the full period of the loan exceeds the maximum rate allowed, then the obligation
is usurious. This rule is expressed in Haines v. Commercial Mortgage Co., 200 Cal.
609, at page 625 [254 P. 956, 255 P. 805, 53 A.L.R. 725], as follows:
"We intended to hold that the maximum rate allowed for loans coming under the
act is at the rate of twelve per cent per annum for the full period of the loan, and
that within such limit the parties may freely contract in respect thereto, if done in
writing.
"This means that interest may be compounded, if the maximum rate is not
exceeded." See also French v. Mortgage Guarantee Co., 16 Cal.2d 26, 30 [104 P.2d
655, 130 A.L.R. 67]; Sharp v. Mortgage Security Corp., 215 Cal. 287, 290 [9 P.2d
819]; Pacific Finance Corp. v. Crane, 131 Cal.App.2d 399, 406 [280 P.2d 502].
[3b] In the instant case the principal was $4,000, the date of execution was
December 9, 1929, the due date April 30, 1935. The maximum interest which could
have been charged and actually charged was eight per cent, compounded
semiannually between April 30, 1930, and April 30, 1935. The interest so charged
did not exceed 12 per cent per annum on the principal amount of $4,000.
[5] The fact that more than 12 per cent was charged [170 Cal.App.2d 110] after
maturity by reason of the makers' failure to pay anything on account does not make
the transaction usurious. The makers of the note cannot by their continued refusal
to pay the amounts due convert a transaction legal in its inception into a usurious
one subsequent to maturity. (French v. Mortgage Guarantee Co., supra, 16 Cal.2d
26, 30; Sharp v. Mortgage Security Corp., supra, 215 Cal. 287, 291; Pacific Finance
Corp. v. Crane, supra, 131 Cal.App.2d 399, 406.)
[6] Appellants' third point is that because a great deal of interest has accrued during
the period of nearly 30 years the court should exercise its equity powers and quiet
their title against the deed of trust. We do not see that the principles of equity have
any application to this case. The law is clear that the statute of limitations has not
barred the deed of trust and that the transaction was not usurious. Therefore, there
is no area in which equity can operate to nullify the deed of trust. Nor do the facts of
the case justify such an extension of equity jurisdiction upon the theory of hardship.
The appellants were paid the amount due under the terms of the note which the
deed of trust secures. They received it in the form of a credit on the purchase price,
supplemented by a cash payment of $1,820.62 by the seller. The appellants, if
permitted to quiet their title against the deed of trust, would be receiving a net gain
of the amount the trial court determined to be due on the note without giving any
consideration therefor. It seems doubtful, to say the least, that a windfall could be
the basis for an action in equity.
Judgment affirmed.
Griffin, P. J., and Mussell, J., concurred.
FN *. Assigned by Chairman of Judicial Council.
Cases Citing Penzner v. Foster, 170 Cal.App.2d 106
 7 Cal.App.4th 889
Westbrook v. Fairchild
June 24, 1992. No. E007576.
 40 Cal.App.4th 1547
Curry v. Moody
Dec 12, 1995. No. B085769.
 21 Cal.3d 365
McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
May 30, 1978. L.A. No. 30795.
 51 Cal.3d 701
Southwest Concrete Products v. Gosh Construction Corp.
Nov 1, 1990. No. S012846.
 12 Cal.App.3d 592
First American Title Ins. & Trust Co. v. Cook
October 30, 1970. Civ. No. 9598.
 231 Cal.App.3d 36
Ninety Five Ten v. Crain
May 31, 1991. No. C008321.
 228 Cal.App.2d 605

Hohn v. Riverside County Flood Control etc. Dist.
July 22, 1964. Civ. No. 7301.
New York Life Insurance Co. v. Doane, 13 Cal.App.2d

233
[Civ. No. 10923. Second Appellate District, Division Two. April 15, 1936.]
NEW YORK LIFE INSURANCE COMPANY (a Corporation), Respondent, v. LORENA
A. DOANE, as Executrix, etc., Appellant.
COUNSEL
Randall & Bartlett for Appellant.
Kibbey, Cooper & Dulin and Walter B. Kibbey for Respondent.
OPINION
Crail, P. J.
The sole question presented on this appeal is this: Is a power of sale contained in a
mortgage revoked by the death of the mortgagor? Defendant has placed in her brief the
following statement: "So far as we are able to ascertain, this question, while suggested in
several decisions to which we will refer, has never been directly passed on by the courts
of this state. It has been passed on by the courts of other states, but those decisions are in
conflict." Respondent on its part quotes this statement with apparent approval.
Belle W. Atwood, defendant's decedent, during her lifetime borrowed from the plaintiff's
assignor $9,000 and in return executed her promissory note for said sum secured by a
mortgage on real property. The mortgage was recorded. Among other things, the
mortgage contained the following clauses: "The mortgagors mortgage and warrant to the
mortgagee, its successors and assigns with power of sale, the following described real
estate ... and the mortgagors do hereby release unto the mortgagee, and its successors and
assigns forever, all their right, title and interest in said property ... and that upon request
of the mortgagee they will execute any further necessary assurance of the title to said
property, and that they warrant the title to said property. ... In the event of default in the
payment of the indebtedness hereby secured or any part thereof or in any of the covenants
or conditions of this mortgage, at the option of the mortgagee, without notice ... the entire
indebtedness secured by this instrument shall immediately become due ... and the
mortgagee shall have power to sell said premises according [13 Cal.App.2d 235] to law
without any right of redemption by mortgagors, or assigns, or successors in interest, or
any or either of them." The assignment of the mortgage to the plaintiff was duly
acknowledged and recorded.
Thereafter Belle W. Atwood died and the defendant became the executrix of her will. The
debt had not been paid and plaintiff claimed that the power to sell survived her death.
This claim was denied by the defendant. A controversy arose between the parties and this
action was brought for declaratory relief. The complaint asked that the court declare
affirmatively that the plaintiff had the right to sell the property under the power of sale
contained therein, and that said power did not terminate by reason of the death of said
Belle W. Atwood. The court rendered judgment for the plaintiff as prayed, and it is from
this judgment the appeal is taken.
[1] Whether or not the power to sell contained in the mortgage was revoked by the death
of the mortgagor depends upon whether or not such power of sale was coupled with an
interest. (Civ. Code, sec. 2356.) The appellate courts of California have had this question
before them on several occasions. The early case of Hall v. Boyd, 60 Cal. 443, does not
appear in the briefs of the parties, but this very question was argued in the respective
briefs in that case as indicated in the summaries thereof which precede the opinion itself.
In that case Laskie executed to Matthews a mortgage upon real property containing a
power of sale clause. Thereafter Matthews in his own name as grantor and not as attorney
in fact for Laskie executed to James Hall a quitclaim deed of the premises. In this deed no
references was made to the mortgage or to the power therein contained or to Laskie. Ten
years later one Boyd purchased from Matthews the promissory note and mortgage and
brought an action for the foreclosure of the mortgage. Among other things, the court said,
"It is true that Matthews had a power coupled with an interest, but that power was to act
as an attorney in fact," etc. In the case of Goldwater v. Hibernia Sav. & Loan Soc., 19
Cal.App. 511 [126 P. 861], the question arose again, and among other things the court
said: "Whether or not the power to sell contained in the mortgage is revoked by the death
of the mortgagor depends upon whether or not such power of sale is a power coupled
with an interest. ... Upon this question there is much conflict in the decisions in those [13
Cal.App.2d 236] states where, as in California, a mortgage transfers no title or estate in
the property mortgaged. In this case, however, we do not deem it necessary to determine
this question, for [the reason that the mortgage had ceased to be a lien upon the land]."
The Supreme Court, however, in denying a petition for a hearing in that court, said: "We
deem the opinion of the District Court of Appeal herein correct, regardless of the question
whether a power of sale included in a mortgage is or is not technically a lien on the land.
At the time the defendant attempted to execute the power, the debt, note and mortgage
had become barred and the mortgagor was deceased. The lien of the mortgage was,
therefore, extinguished, and the mortgagee, as holder of the power, was without any
interest whatever in the land, as lienholder or at all. Consequently, on well-settled
principles, the interest once coupled with it had then ceased to exist, it had become a
naked power, and the mortgagor who made it being dead, the power had terminated with
the extinction of the interest." In Faxon v. All Persons, 166 Cal. 707 [137 P. 919, L.R.A.
1916B, 1209], the court quoted the above language with approval and added the
following: "This, of course, was tantamount to saying that the only possible interest
coupled with the power of sale was such interest as was essential to the enforcement of
the lien of the mortgage by the execution of the power, and that such interest, together
with the remaining naked power, necessarily terminated with the extinguishment of the
mortgage lien."
It was upon the authority of these decisions and possibly others, that in 1924 the
following text was inserted into volume 18 of California Jurisprudence, page 262:
"Whether or not a power to sell contained in a mortgage is revoked by the death of the
mortgagor depends upon whether or not such power of sale is a power coupled with an
interest. While there is much conflict in the decisions, in states where, as in California, a
mortgage transfers no title or estate in the property mortgaged, the rule seems to be that
the mortgagee has a power coupled with an interest, prior to the expiration of the period
limited for bringing an action upon the principal obligation." California Jurisprudence, of
course, is not law in itself, but it is read and followed by a large portion of the lawyers of
California as a ready handbook by which to discover the law, and undoubtedly that text
has been followed [13 Cal.App.2d 237] by members of the bar on numerous occasions.
The text as cited is approved in the Ten-Year Supplement of said work, volume 8, page
85, section 543, by citation to 56 A.L.R. 224.
Appellant relies greatly upon the case of Hunt v. Rousmanier's Admr., 8 Wheat. (U.S.)
174 [5 L.Ed. 589, 598], which holds "that the interest which can protect a power after the
death of a person who creates it, must be an interest in the thing itself. In other words, the
power must be engrafted on an estate in the thing." This case has been frequently cited by
the Supreme Court of this state. And defendant relies upon the following cases in which
the Hunt case has been cited with approval: Scott v. Superior Court, 205 Cal. 525 [271 P.
906]; Cox v. Hughes, 10 Cal.App. 553 [102 P. 956]; Boehm v. Spreckels, 183 Cal. 239
[191 P. 5]; Frink v. Roe, 70 Cal. 296 [11 P. 820]; Parke v. Frank, 75 Cal. 364 [17 P. 427].
The contention of the defendant is that the power to sell is merely a lien upon the
property; that it conveys no estate or title to the land, and it is by section 858 of the Civil
Code to be deemed a part of the security; and that as the security of which it is a part is
not an estate or title to the land, the part can have no greater force or effect than the
whole. The final conclusion, however, is "that the exact question before us has not been
decided in California".
In the case of Norton v. Whitehead, 84 Cal. 263 [24 P. 154, 18 Am.St.Rep. 172], the
Supreme Court distinguishes between the Hunt case and a case in which the power of
sale is included within a mortgage as follows: "In the case of Hunt v. Rousmanier, 8
Wheat. 175 [5 L.Ed. 589], there was no sale nor assignment of any interest in the subject-
matter (vessels at sea) of the power of attorney, by way of mortgage or otherwise. The
bill shows that the complainant intentionally and expressly declined to take a mortgage of
the vessels."
In a great majority of the cases in other jurisdictions the courts have held that a power of
sale in a mortgage is one coupled with an interest. It would serve no useful purpose to
review the cases herein or even to cite them. They are collected and reviewed in 56
A.L.R. 224 et seq. In a discussion of the cases the following quotation is taken from
Reilly v. Phillips, 4 S. D. 604, 610 [57 N.W. 780]: "Appellants [13 Cal.App.2d 238]
insist that the rule of these cases is not applicable in this jurisdiction, because, under our
law, the mortgagor retains the title to the estate mortgaged, contrary to the law prevailing
in most of the states whence these decisions come; but we apprehend that, upon principle,
that fact ought not to make any difference in respect to the survival of the power. Even in
the states where the mortgage is held to convey the legal title to the mortgagee, the
transfer is only nominal. It is more of a fiction than a reality. If the mortgagee, who is
said to hold the legal title, die, his interest does not pass to his heirs as real estate, but to
his executor or administrator, as personal property. It is a chose in action, precisely as in
this state." For another collection of cases in support of the statement that the majority of
cases sustains the rule, that a power of sale in a mortgage is one coupled with an interest,
see 41 C.J. 927, sections 1345 to 1348. The recent volume of the American Law Institute
on Agency, page 355, has this to say under the section entitled: "Termination of Powers
Given as Security. (1) Unless otherwise agreed, a power given as security is not
terminated by: ... (d) the death of the holder of the power, or, if the power is given as
security for a duty which does not terminate at the death of the creator of the power, by
his death."
Mortgages with a power of sale as a form of security, although such powers of sale are
strictly construed (Savings & Loan Soc. v. Burnett, 106 Cal. 514 [39 P. 922]), are not
looked upon with disfavor in California. (Godfrey v. Monroe, 101 Cal. 224 [35 P. 761].)
Indeed, such powers of sale are expressly permitted by section 2932 of the Civil Code,
and since July 27, 1917, the exercise of such powers has been carefully regulated. (Civ.
Code, sec. 2924.) In this connection we should also bear in mind section 858 of the Civil
Code, which reads as follows: "Where a power to sell real property is given to a
mortgagee, or other encumbrancer, in an instrument intended to secure the payment of
money, the power is to be deemed a part of the security, and vests in any person who, by
assignment, becomes entitled to the money so secured to be paid, and may be executed
by him whenever the assignment is duly acknowledged and recorded." This indicates to
some extent that California intended that such a power of sale survives until the debt is
paid or barred by the statute of limitations. [13 Cal.App.2d 239]
Such powers of sale have been treated in California as "a power coupled with an interest"
continuously since the early case of Hall v. Boyd, supra. Mortgages containing such
power of sale have become a fixture in our economic life. At this late day to hold by
judicial pronouncement that such powers cannot be effectively exercised would not only
cause confusion but place in jeopardy sales which have been made thereunder, rendering
titles doubtful.
The mere fact that a person does not own an estate in or title to land is not conclusive that
he does not have "an interest" therein. On the contrary, the mortgagee under the
circumstances of this case had "such interest as was essential to the enforcement of the
lien of the mortgage by the execution of the power". (Faxon v. All Persons, supra.) Our
conclusion is that the power of sale was vested in the plaintiff under section 858 by
reason of the assignment, and that, being coupled with an interest in the land, it has not
been revoked by the death of the mortgagor.
Judgment affirmed.
Wood, J., and McComb, J., pro tem., concurred.
Cases Citing New York Life Insurance Co. v. Doane, 13 Cal.App.2d 233
[Civ. No. 10923. Second Appellate District, Division Two. April 15, 1936.]:
O'Neil v. General Security Corp.
Mar 11, 1992. No. D013286.
 30 Cal.App.4th 1712
Cosentino v. Coastal Construction Co.
Dec 20, 1994. No. B081334.
Loretz v. Cal-Coast Dev. Corp., 249 Cal.App.2d 176

[Civ. No. 23766. First Dist., Div. Four. Mar. 6, 1967.]
EDWARD J. LORETZ et al., Plaintiffs and Respondents, v. CAL-COAST

DEVELOPMENT CORPORATION, Defendant and Appellant.
COUNSEL
Wilson, Jones, Morton & Lynch and Robert G. Auwbrey for Defendant and Appellant.
E. C. Mahoney for Plaintiffs and Respondents.
OPINION
DEVINE, P. J.
This is an appeal from a deficiency judgment which followed the use of the power of sale
under a deed of trust.
Defendant executed a promissory note in amount $25,000 as partial consideration for the
purchase of a motel in Redding. A deed of trust on a lot at Lake Tahoe was given as
security. Because the security was on land other than that being bought, it is not to be
deemed purchase money security. The deed of trust recites that it is to secure the $25,000
note and that "It is agreed that the valuation of the property as described above is to be
$8,000.00."
The note being wholly unpaid on the due date, plaintiffs caused sale to be made under the
deed of trust. The lot was [249 Cal.App.2d 178] sold by the trustee for $2,500 on
December 4, 1964. On April 15, 1965, plaintiffs brought the present action. Although
there was but one note, plaintiffs take the position that the note was unsecured in the
amount of $17,000, the excess of the amount of the promissory note over the agreed
valuation. Plaintiffs divided their complaint into two counts, the first on the asserted
"unsecured" part of the note, the second for the difference in amount between the $8,000
agreed valuation and $2,500, the amount received at the trustee's sale. Judgment went
against plaintiffs on the second count and they do not appeal.
Appellant raised the defenses: (1) that no deficiency judgment may be had because of
section 580d of the Code of Civil Procedure, which reads, in part, "No judgment shall be
rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real
property hereafter executed in any case in which the real property has been sold by the
mortgagee or trustee under power of sale contained in such mortgage or deed of trust";
and (2) that the action is barred by section 337, subdivision 1 of the Code of Civil
Procedure, which has a three months' limitation for actions for deficiency judgments
independently of the bar of section 580d.
[1] We hold for appellant. The law allows a holder of a note secured by mortgage with
power of sale or deed of trust his choice: he may foreclose, thereby permitting the debtor
to have his right of redemption, and have his action for deficiency; or he may use the
power of sale and cut off redemption, but he thereby gives up his right to deficiency
judgment. (Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 43-44 [27 Cal.Rptr. 873, 378
P.2d 97]; Freedland v. Greco, 45 Cal.2d 462 [289 P.2d 463]; Weaver v. Bay, 216
Cal.App.2d 559, 561 [31 Cal.Rptr. 211].)
The attempt by respondents to split the single promissory note into two contracts by the
makers, one secured and the other unsecured, cannot succeed. [2a] The fact that an agreed
valuation of the security, less than the amount of the obligation, is contained in the deed
of trust does not cause the transaction to be severed into secured and unsecured parts
because: (1) The property is security for the whole amount of the note. Section 2912 of
the Civil Code provides that "The partial performance of an act secured by a lien does not
extinguish the lien upon any part of the property subject thereto, even if it is divisible."
Even if, let us say, $24,000 of the $25,000 note were paid, the land would remain
burdened [249 Cal.App.2d 179] with its charge as security. [3] (2) The proscription in
section 580d is against judgment for deficiency upon a note where sale under power has
been used, not upon a debt, which, arguably, might be severable into secured and
unsecured parts. (3) If agreed valuation were to produce a condition by which the excess
of the note over the valuation were deemed unsecured, the situation would be tantamount
to waiver in advance of the provisions of section 580d, which cannot be done because of
public policy. (Freedland v. Greco, supra, p. 467.)
Respondents argue that the purpose of an agreed valuation must have been to set a point
above which the note would be considered unsecured, because, they say, otherwise the
agreement upon valuation would have been an idle act. But it is reasonable to regard the
purpose as having been to establish value had a deficiency judgment been sought upon
foreclosure and not upon sale under the power. [2b] Whether the agreed valuation would
have been effectual to accomplish this purpose, we need not decide; it is sufficient to say
that the agreed valuation does not, as respondents argue, demonstrate that the single note
must be regarded as equivalent to two notes, one secured, the other unsecured.
Respondents cite Christopherson v. Allen, 190 Cal.App.2d 848 [12 Cal.Rptr. 658], in
which section 580b of the Code of Civil Procedure (the statute forbidding deficiency
judgments in purchase money security cases) was involved. It was held that because there
were 12 secured notes and one unsecured note, which was described by its own terms as
representing a personal loan, action on the unsecured note was allowable, although the
proceeds of the unsecured note were used to buy the same real property that was
encumbered by the deeds of trust which secured the other notes. The distinction between
that case and this is obvious. In the case before us, there is a single note which, as said
above, is secured up to its last dollar by the real property.
Respondents say that if the decision were in appellant's favor, it would be getting the
Redding property for $22,500 less than the agreed price. But the Legislature has set down
the law in section 580d. Respondents had the alternative of foreclosing, thus preserving
appellant's right to redeem, and proceeding toward deficiency judgment.
[4] We agree with appellant's contention as to the statute of limitations. Even if there
were no section 580d, or if it were inapplicable to the case, Code of Civil Procedure
section [249 Cal.App.2d 180] 337, subdivision 1, which was pleaded, would bar the
action. In Ware v. Heller, 63 Cal.App.2d 817 [148 P.2d 410], the three months' limitation
created in 1933, as contained in section 337, subdivision 1, was held applicable to a note
which was made in 1931. Deficiency judgments were not barred by section 580d where
power of sale is used, until 1940. Thus, even if the note were divisible into secured and
unsecured parts, the action for deficiency would be barred.
Judgment reversed, with direction to the superior court to enter judgment for defendant.
Rattigan, J., and Christian, J., concurred.
Aviel v. Ng (2008) , Cal.App.4th

[No. A114930. First Dist., Div. Four. Feb. 28, 2008.]
SIMON DAVID AVIEL et al., Plaintiffs, Cross-defendants and Respondents, v.

CHRISTINA NG et al., Defendants, Cross-complainants and Appellants; KHALIL
ABUSHARKH et al. Cross-defendants and Respondents.
(Superior Court of San Mateo County, No. CLJ187792, Carol L. Mittlesteadt, Gerald J.
Buchwald, Judges.)
(Opinion by Reardon, Acting P.J., with Sepulveda, J., and Rivera, J., concurring.)
COUNSEL
Patrick T. Galligan, for Appellants.
Jackson & Wallace, Gabriel A. Jackson, Todd M. Thacker, Christine A. Huntoon, for
Respondents Simon David Aviel and Joann Aviel.
Hoge, Fenton, Jones & Appel, Michael D. McSweeney, Derek L. Austin, for Respondents
Khalil Abusharkh and Dalal Metwally.
OPINION
REARDON, ACTING P.J.-
The commercial lease pertinent to this appeal was extinguished by a trustee sale under a
deed of trust. The deed of trust was senior to the lease by virtue of a clause in the lease
subordinating it to future mortgages. In this appeal from a judgment, after summary
adjudication and court and jury trials, appellants, fn. 1 the former lessees of the
foreclosed property, continue to assert that the lease was not forfeited because the
subordination clause encompassed only mortgages, not deeds of trust. As we explain,
under long-settled legal precedent the two instruments are functionally and legally the
same. Appellants also assert that the trial court awarded damages to respondents for
appellants' postforeclosure occupancy of the premises on {Slip Opn. Page 2} an improper
basis. We conclude the damage award was appropriate. Accordingly, we affirm the
judgment in its entirety.
I. FACTUAL BACKGROUND
In September 1998, the Ngs entered into a commercial lease with Don Junkin for the
basement suite of 415 Grand Avenue, South San Francisco, for the purpose of operating a
restaurant called the Grand Palace Restaurant. It was a six-year lease with three five-year
renewal options. Monthly rent began at $4,780.
The lease included a subordination clause, as follows: "This lease shall be subject and
subordinate to all underlying leases and to mortgages which may now or hereafter affect
such leases or the real property of which the premises form a part, and also all renewals,
modifications, consolidations, and replacements of the underlying leases and mortgages.
Lessee agrees to execute such estoppel letters or other documents required to confirm the
same."
In December 2000, Howard Sylvester borrowed $300,000 from respondent Simon David
Aviel to purchase the property from Junkin, securing the loan with a deed of trust in favor
of Aviel. Aviel acquired the property through a trustee sale in March 2002. Thereafter, he
successfully negotiated a new lease with each of the 415 Grand Avenue tenants except the
Ngs. Aviel attempted to negotiate a new lease with the Ngs and accepted payments from
them totaling $18,739.26 for the period April through August 2002. Thereafter, Aviel
returned the rent checks to the Ngs; they put them in a separate blocked bank account. At
times the parties were close to an agreement but they never actually signed a new lease.
In June 2003, Aviel filed an unlawful detainer action against the Ngs. The Ngs remained
in possession of the property until November 17, 2003, at which time they moved down
the street to 359 Grand Avenue.
Also in November 2003, Aviel sold the property to respondents Khalil Abusharkh and
Dalal Metwally, trustee of a living trust. Thereafter he converted the unlawful detainer
into an action for reimbursement of reasonable rental value. {Slip Opn. Page 3}
Pursuant to Code of Civil Procedure section 1946, the new owners served the Ngs with
notice of termination of tenancy effective January 31, 2004; they vacated that month.
The Ngs cross-complained against Aviel and his wife, as well as Abusharkh and
Metwally, alleging causes of action for breach of contract, wrongful eviction, intentional
infliction of emotional distress, conversion, termination of utility services, interference
with use of the premises, specific performance and abuse of process. The Aviels moved
for summary adjudication of the breach of contract, wrongful eviction and specific
performance claims, arguing that these causes depended on a valid lease but the lease was
extinguished by the subordination clause at the time of the trustee sale. Opposing the
motion, the Ngs maintained that the lease was not forfeited by the subordination clause
because that clause applied only to mortgages, not deeds of trust. As well, the Ngs filed
their own motion for summary judgment against Aviel on his action to recover reasonable
rental value of the property, again asserting that the subordination clause did not apply to
a deed of trust. Ruling on these motions, the trial court concluded that the lease was
subordinated to Aviel's deed of trust under the subordination clause, and thus was
extinguished by the trustee's sale. Accordingly, the trial court granted summary
adjudication in favor of the Aviels on the Ngs' causes of action for wrongful eviction and
specific performance. fn. 2
The matter proceeded to a court trial on Aviel's claim for unpaid rent and utilities and the
Ngs' claim against Abusharhk and Metwally for conversion of restaurant equipment, and
to the jury on the Ngs' remaining causes of action. The court awarded the Aviels
judgment in the amount of $125,763.70 as the reasonable rental value of the Ngs
remaining in possession of the property from April 2002 through November 2003. The
Ngs prevailed on their conversion claim, with an {Slip Opn. Page 4} award of $60,960,
plus costs and reasonable attorney fees. The jury found against the Ngs on their
remaining cross claims. This appeal by the Ngs followed.
II. DISCUSSION
A. The Lease Was Forfeited
The Ngs continue to insist on appeal that a mortgage is not a deed of trust and thus the
subordination clause in their commercial lease, referencing only mortgages, did not
embrace Aviel's deed of trust. Therefore, the lease was not forfeited upon the eventual
trustee sale under the power of sale in the deed of trust. We are not persuaded.
1. Governing Law
Some basic terminology is in order. A "mortgage" is "a contract by which specific

property . . . is hypothecated for the performance of an act, without the necessity of a
change of possession." (Civ. Code, § 2920, subd. (a).) For purposes of the procedures
governing exercise of a power of sale in a security device, the term " 'mortgage' also
means any security device or instrument, other than a deed of trust, that confers a power
of sale affecting real property or an estate for years therein, to be exercised after breach of
the obligation so secured . . . ." (Id., subd. (b).) A mortgage may confer a power of sale
upon the mortgagee or any other person, to be exercised after breach of the obligation for
which the mortgage is given as security. (Id., § 2932.) The forms of deeds of trust
generally in use "provide that the trustor of the deed of trust 'grants, transfers and assigns'
the property to the trustee, who holds the title as security for the performance of the
obligation." (4 Miller & Starr, Cal. Real Estate (3d ed. 2000) § 10:2, p. 15.) There are
three parties to a deed of trust: (1) the trustor, who owns the property that is conveyed to
(2) the trustee fn. 3 as security for the obligation owed to (3) the beneficiary. (Id., § 10.3,
p. 20.) {Slip Opn. Page 5}
Many years ago, our Supreme Court held that the function and purpose of deeds of trust
and mortgages are identical, and "except for the passage of title for the purpose of the
trust, [deeds of trust] are practically and substantially only mortgages with a power of
sale . . . ." (Bank of Italy etc. Assn. v. Bentley (1933) 217 Cal. 644, 657 (Bank of Italy).)
Both are subject to (1) the same procedures and limitations on judicial and nonjudicial
foreclosure; (2) the same redemption provisions prior to and after the foreclosure sale;
and (3) the same antideficiency limitations. (4 Miller & Starr, Cal. Real Estate, supra, §
10:l, pp. 13-14.)
Although technically under a deed of trust legal title passes to the trustee, this
conveyance of title is " 'solely for the purpose of security, leaving in the trustor . . . a legal
estate in the property, as against all persons except the trustees and those lawfully
claiming under them. [Citations.]' " (Bank of Italy, supra, 217 Cal. at p. 656.) As summed
up more recently by our state's high court, "In practical effect, if not in legal parlance, a
deed of trust is a lien on the property. [¶] . . . The deed of trust conveys 'title' to the trustee
'only so far as may be necessary to the execution of the trust.' [Citation.]" (Monterey S.P.
Partnership v. W. L. Bangham, Inc. (1989) 49 Cal.3d 454, 460.)
A lease otherwise senior to a deed of trust may be subordinated to that instrument by way
of a subordination agreement. (Dover Mobile Estates v. Fiber Form Products, Inc. (1990)
220 Cal.App.3d 1494, 1498 (Dover)). A subordination agreement is a contract by which a
party holding a senior lien or other real property interest agrees to lower its priority in
relation to that of another holding an interest in the same property. (Miscione v. Barton
Development Co. (1997) 52 Cal.App.4th 1320, 1327.) The foreclosure of a senior
encumbrance will wipe out all subordinate liens, including leases. (Id. at p. 1326.) Thus,
if the sale of the landlord's interest is forced by one having a superior title to that of the
tenant, the tenant's interest will be defeated by the sale under the deed of trust. (Dover,
supra, 220 Cal.App.3d at p. 1499.) {Slip Opn. Page 6}
2. The Ngs Attempt to Draw Distinctions Which Are Meaningless

Here there was a subordination clause within the lease rendering the lease subordinate to
"mortgages which may now or hereafter affect" the real property. The Ngs, however,
emphasize distinctions between mortgages and deeds of trust which are either illusory or
unimportant. For example, they underscore that a deed of trust conveys legal title, and,
citing Anglo-California T. Co. v. Oakland Rys. (1924) 193 Cal. 451, 452, urge that "the
interest in the property [vests] as an estate and not as a lien." Anglo-California T. Co.
predates Bank of Italy and is predicated on the obsolete lien versus title theory historically
relied on to differentiate the two security instruments. That theory has been discredited by
the more contemporary jurisprudence discussed above which functionally equates the two
instruments and recognizes that a deed of trust, for all practical purposes, is a lien on the
property.
The Ngs also stress that a "straight mortgage" requires a judicial foreclosure, as compared
with a deed of trust which also allows a trustee sale in the event of a default. In a judicial
action, they argue, a tenant would be named as an interested party and have the
opportunity to defend its leasehold interest during the proceeding. They are adamant that
their bargain with the owner of the building "was limited to subordinating to mortgages."
But of course the subordination clause here is not limited to a "straight mortgage" and it
does not exclude a mortgage with a power of sale, which is the functional equivalent of a
deed of trust. Moreover, only tenants with a recorded interest in the property need be
made a party to a judicial foreclosure action. (Code Civ. Proc., § 726, subd. (c).) The Ngs
have not shown that they recorded their leasehold interest.
The Ngs further contend that the limitation period for enforcing a debt secured by a deed
of trust is longer than the period applicable to a mortgage. From this they suggest that the
subordination clause could not be construed to apply to deeds of {Slip Opn. Page 7} trust.
While there is a difference between the two limitation periods, fn. 4 case law has
nonetheless consistently held that the two security instruments serve identical functions
and purposes and the same rules should apply to both. (Bank of Italy, supra, 217 Cal. at p.
655.) And in any event, the Ngs have failed to show how this minor difference is of any
consequence. They were not beneficiaries of the deed of trust, nor were they mortgagees
of any mortgage on the property.
Additionally, the Ngs attempt to establish that a deed of trust differs from a mortgage
because both real and personal property can be mortgaged, but a deed of trust conveys
only an interest in real property. This is significant, they urge, because although the lien
of a deed of trust can be imposed on a leasehold estate for years, which is an interest in
real property, it cannot be imposed on lesser tenancies, such as a month-to-month
tenancy. The implication the Ngs are trying to draw, we gather, is {Slip Opn. Page 8} that
one could mortgage a month-to-month tenancy but could not subject the same to a deed
of trust. While possibly within a hypothetical realm of reality, this distinction, in the real
world, is meaningless.
Further, we wonder on what basis the Ngs declare that a master tenant wishing to assist
tenants who need financing to build out the interior of their leased premises could "more
easily" obtain a mortgage than a deed of trust "without affecting the landlord's title or
interest in the real property." We are not sure what the Ngs are driving at, but neither a
deed of trust nor a mortgage on the master tenant's leasehold interest would encumber the
landlord's title because only the trustor's or mortgagor's own property interest can be
encumbered. (See Hoppe v. Fountain (1894) 104 Cal. 94, 101; Weisberg v. Ashcraft
(1961) 194 Cal.App.2d 225, 231.) Moreover, we are not aware of any law or facts subject
to judicial notice which support the Ngs' conjecture that a master tenant could more easily
obtain a mortgage. (See, e.g., Indusco Management Corp. v. Robertson (1974) 40
Cal.App.3d 456, 458 [action involved deed of trust on leasehold estate in medical
building].)
3. Contract Interpretation
The Ngs urge that the subordination clause should not be interpreted to include deeds of
trust because this interpretation leads to forfeiture, citing Civil Code section 1442. That
statute states: "A condition involving a forfeiture must be strictly interpreted against the
party for whose benefit it is created." Section 1442, by its terms, is premised on a
condition which the promisor must perform or not perform on pain of forfeiture in favor
of the promisee. The statute requires a clear statement of the required performance or
nonperformance so that the promisor can conform his or her behavior and avoid a
forfeiture. Here, the subordination clause is triggered by events entirely independent of
any performance by the Ngs. Civil Code section 1442 does not apply.
In any event, we give the terms of the subordination clause their meaning as "understood
in their ordinary and popular sense, rather than according to their strict legal meaning;
unless used by the parties in a technical sense, or unless a special {Slip Opn. Page 9}
meaning is given to them by usage, in which case the latter must be followed." (Civ.
Code, § 1644.) For years, California appellate courts have held that a deed of trust is
functionally equivalent to a mortgage. The Ngs would have us understand the term
"mortgage" to carry a more technical or special meaning that defines a mortgage as so
distinct from a deed of trust as to render it outside the purview of the subordination
clause. But there is no evidence that the commercial leasing community understands the
term "mortgage" in this limited fashion.
In Bank of Italy, the plaintiff attempted to sue on a promissory note secured by a deed of
trust without first exhausting the security. The plaintiff argued that Code of Civil
Procedure section 726 fn. 5 only referred to mortgages, and a deed of trust was not a
mortgage. (Bank of Italy, supra, 217 Cal. at p. 653.) Rejecting the plaintiff's attempt to
exclude deeds of trust from the purview of Code of Civil Procedure section 726, the court
stated: "Fundamentally, it cannot be doubted that in both situations the security for an
indebtedness is the important and essential thing in the whole transaction. The economic
function of the two instruments would seem to be identical. Where there is one and the
same object to be accomplished, important rights and duties of the parties should not be
made to depend on the more or less accidental form of the security." (Bank of Italy,
supra, at pp. 657-658.) We see no reason to diverge from this reasoning. The purpose of
the subordination clause is to rearrange lien priorities so that the priority of a future
lender's lien will overtake that of a lessee whose interest in the property otherwise is first
in time and thus ahead of the deed of trust. A future lender's ability to rely on a
subordination clause should not depend on whether the security instrument is called a
mortgage or a deed of trust. {Slip Opn. Page 10}
B. The Court Properly Awarded Damages for Lost Rent
The trial court determined that the proper basis for determining rent and utility costs for
the Ngs' postforeclosure tenancy was the reasonable value of their use of the premises,
rather than the preexisting lease terms. The Ngs contend that rent and utilities should be
determined with reference to the prior lease.
A tenant under a subordinated lease who remains in possession after the foreclosure sale
does so as a holdover tenant (tenant at sufferance). (Principal Mutual Life Ins. Co. v.
Vars, Pave, McCord & Freedman (1998) 65 Cal.App.4th 1469, 1478 (Principal Mutual).)
There is no contractual relationship between a holdover tenant and the landlord; the
tenant has but "naked possession." (Stephens v. Perry (1982) 134 Cal.App.3d 748, 757,
fn. 4; see McDermott v. Burke (1860) 16 Cal. 580, 589.) However, contrary to the Ngs'
assertion that Aviel's only remedy was to sue for ejectment, the holdover tenant is liable
for the value of the use and occupation of the premise during the time of holding over.
(Stephens v. Perry, supra, at p. 757, fn. 4; Colyear v. Tobriner (1936) 7 Cal.2d 735, 742.)
In the case of a foreclosed subordinate lessee, absent a new consensual agreement, the
purchaser is entitled to recover the fair rental value of the premises from the date of sale
until the tenant vacates. (5 Miller & Starr, Cal. Real Estate, supra, § 11:95, p. 243.)
However, if the purchaser of foreclosed property accepts rent from the former tenant, a
month-to-month tenancy is created under the terms of the terminated lease. (Civ. Code, §
1945 [where lessee remains in possession after expiration of lease and lessor accepts rent,
parties are presumed to have renewed lease on same terms, not exceeding one month
where rent paid monthly]; Principal Mutual, supra, 65 Cal.App.4th at p. 1478; see
Renner v. Huntington etc. Oil & Gas Co. (1952) 39 Cal.2d 93, 102.) The Civil Code
section 1945 presumption is rebuttable. (Miller v. Stults (1956) 143 Cal.App.2d 592,
598.) For example, the presumption will be rebutted with substantial evidence that the
parties began operating under a new agreement. (Id. at pp. 599-600.) {Slip Opn. Page 11}
Here the trial court found that for 20 months Aviel and the Ngs were consumed in
extended lease negotiations but never signed a new lease. During these negotiations, "the
Ngs remained in an undefined, uneasy tenancy and deducted utility payments from the
rent. Mr. Aviel also paid some of the utilities, all the while taking the position that the
Ngs should pay for what utilities they used. At first, Mr. Aviel accepted the Ngs' rent
payments; but after the first five months, and on advice of an attorney, he returned the
rent checks." (Italics added.)
The extinguished lease provided that the lessor would pay for electricity, water and
garbage, while the lessee was to pay and maintain an individual gas account. At the court
trial the parties stipulated that the Ngs paid five months' rent "under [the] old lease." The
"net amount" of rent paid during that period varied, presumably because, as the trial court
found, the Ngs deducted utility payments from their payments. The parties further
stipulated that Aviel "still claims additional utilities and sewer tax" for the five-month
period. Based on these stipulations and the court's findings, it is apparent that Aviel did
not consent to the Ngs' occupancy under the terms of the extinguished lease. This is so
because all the time he insisted, contrary to the lease, that postforeclosure the Ngs should
pay for all the utilities they used. The Ngs have not provided us with a transcript of the
court trial and have pointed to nothing in the record to refute this characterization or the
trial court's findings. Therefore, the trial court properly proceeded to award
postforeclosure rent and utilities on a reasonable market value basis.
C. Jury Verdict
Finally, the Ngs request "that the jury verdict [on their abuse of process and breach of the
covenant of quiet enjoyment causes of action] be reversed with a new trial ordered on all
issues." They point out that the jury was instructed that the lease had been "legally
forfeited" and Aviel had the right to seek possession of the premises. In their opening
brief, the Ngs present no argument or explanation as to why the jury verdict must be
reversed. Therefore, we treat this issue as waived for want of cognizable legal argument.
(Berger v. California Ins. Guarantee Assn. {Slip Opn. Page 12} (2005) 128 Cal.App.4th
989, 1007.) They attempt, in their reply brief, to develop the argument, but it is too late.
We disregard issues not properly addressed in the appellant's opening brief. (Julian v.
Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747, 761, fn. 4.) In any event, their
argument has no merit because it is based on the assumption that the lease was not
forfeited, which it was.
III. DISPOSITION
The judgment is affirmed in its entirety.
Sepulveda, J., and Rivera, J., concurred.
FN 1. Appellants are Christina Ng, Francis Ng, Jun Yu Wu and Fu Yuan Enterprises, Inc.,
doing business as Grand Palace Restaurant (collectively, the Ngs). Respondents are
Simon David Aviel, Joann Aviel, Khalil Abusharkh and Dalal Metwally, trustee of the
Metwally Trust.
FN 2. The court denied summary adjudication on the breach of contract cause of action,
ruling that the Aviels failed to comply with certain statutory requirements.
FN 3. The trustee of a deed of trust serves merely as a common agent of both parties.
(Vournas v. Fidelity Nat. Tit. Ins Co. (1999) 73 Cal.App.4th 668, 677.)
FN 4. The running of the statute of limitations on an obligation underlying a mortgage or

deed of trust bars judicial foreclosure as well as an action to enforce the obligation. (See
Carson Redevelopment Agency v. Adam (1982) 136 Cal.App.3d 608, 611; see also Miller
v. Provost (1994) 26 Cal.App.4th 1703, 1707; 1 Bernhardt, Cal. Mortgage and Deed of
Trust Practice (Cont.Ed.Bar 2007) § 3.18, p. 166.) However, historically the rule has been
that time does not outlaw the trustee's power of sale under a deed of trust, although the
same power in a mortgage would be subject to the statute of limitations on the underlying
debt. (See Travelli v. Bowman (1907) 150 Cal. 587, 590; Sipe v. McKenna (1948) 88
Cal.App.2d 1001, 1005-1006; Civ. Code, § 2911; 1 Bernhardt, Cal. Mortgage and Deed
of Trust Practice, supra, § 1.31, p. 27.) This is so because the power of sale in the hands
of a mortgagee is a mere incident of the mortgage lien and is lost with the running of the
statute of limitations on the underlying debt. (Civ. Code, § 2911, subd. 1 [lien is
extinguished by passage of time within which action may be brought on principal
obligation]; Faxon v. All Persons (1913) 166 Cal. 707, 715-716; see Flack v. Boland
(1938) 11 Cal.2d 103, 106.) The rule that the power of sale in a deed of trust is never
outlawed has been tempered by the Marketable Record Title Act (Civ. Code, § 880.020 et
seq.), which operates like a statute of repose by imposing outside limits on the
enforceability of all real property security instruments (id., § 882.020). Subject to
provisions extending the expiration date, the duration of the power of sale in a deed of
trust is now limited to (1) 10 years from the final maturity date or last date set for
payment, if such date is ascertainable from the recorded evidence of indebtedness, or (2)
60 years if such date is not so ascertainable or there is no final maturity date or last date
fixed for payment. (Id., § 882.020, subd. (a)(1), (2).)
FN 5. This statute provides that there shall be but one action for recovery of any debt or
enforcement of any right secured by a mortgage on real property. (Code Civ. Proc., § 726,
subd. (a).)
Elmore Jameson Co. v. Smith, 34 Cal.App.2d 609

[Civ. No. 2332. Fourth Appellate District. September 20, 1939.]
ELMORE JAMESON COMPANY (a Corporation), Appellant, v. LESLIE SMITH et al.,

Defendants; T. N. MONTGOMERY, Respondent.
ELMORE JAMESON COMPANY (a Corporation), Respondent, v. LESLIE SMITH et

al., Appellants.
ELMORE JAMESON COMPANY (a Corporation), Respondent, v. LESLIE SMITH et

al., Appellants.
COUNSEL
S. P. Williams for Appellant Elmore Jameson Company.

Harry W. Horton for Appellant Smith et al., and for Respondent Montgomery.
OPINION
Griffin, J.
The above-numbered actions were consolidated on appeal. One action, commenced July
1, 1932, was an ordinary action upon a promissory note and to foreclose a crop mortgage
dated July 19, 1929, executed by Leslie Smith, mortgagor, to John J. Elmore, mortgagee,
which mortgage was given as security for its payment upon all crops to be grown upon
certain premises in Imperial County during the term of a certain lease held by the
mortgagor from David N. Barry and George Diddock.
Plaintiff sought a restraining order and applied for the appointment of a receiver. Leslie
Smith and Grace Smith, by way of answer, alleged the execution of some independent
written agreement between John J. Elmore and Leslie Smith which they claimed was
unfulfilled and repudiated and that by virtue thereof the mortgage "has been abandoned
by the said John J. Elmore". T. N. Montgomery set up in a cross-complaint a request for
an accounting and also alleged that he did on October 9, 1931, accept from Grace Smith
and Leslie Smith two chattel mortgages (duly recorded, but recorded subsequent to the
execution and recordation of the Elmore mortgage), upon certain crops to be grown on
the same premises, believing that John J. Elmore and his assignee, Elmore Jameson
Company, a corporation, had abandoned and repudiated its mortgage and alleged that
Elmore Jameson Company, a corporation, assignee, was now estopped from asserting its
chattel mortgage lien and claimed that his chattel mortgage was first and a superior lien
upon the security. There was also an action in replevin filed by Elmore Jameson
Company, a corporation, as assignee, to recover possession of the barley crop which had
in the meantime been harvested by [34 Cal.App.2d 612] T. N. Montgomery, mortgagee,
in the subsequent chattel mortgages.
In this second action the same general defense was interposed with the additional
allegation of the defendant Montgomery that he had a claim or lien for services in the
harvesting of the crop.
The application for the appointment of a receiver was denied by the court but on the first
day of July, 1932, the court issued a temporary restraining order to defendants, restraining
them from "removing any of said crop of barley ... or from doing anything therewith that
will in anywise affect the lien of plaintiff's mortgage herein". This restraining order was
dissolved July 8, 1932. On July 9, 1932, the present action in replevin was filed and after
giving security in the form of a bond in the sum of $3,000, plaintiff took the crop and
sold it, as it claims under the terms of the mortgage, at a price higher than the then
prevailing market price. Plaintiff also left on the premises sufficient barley to pay all
rental charges. The crop sold for $1621.32, which sum was held by the plaintiff. These
actions were consolidated for the purpose of trial.
The trial court found that Elmore Jameson Company, a corporation, as assignee, had a
crop mortgage upon all of the crops involved in the action and that it was a first and
superior lien thereon and prior to the lien of the second mortgages held by Montgomery.
The court also sanctioned the sale of the grain made by the Elmore Jameson Company, a
corporation, and rendered judgment that it pay to Montgomery $756.08, which
represented three-fourths of the reasonable value of his services in harvesting the crop
and the reasonable value of the sacks which Montgomery furnished for that purpose. The
balance, or one-fourth of the cost, was held to be a charge against the lessee, Leslie
Smith. It also held that plaintiff was entitled to all of the proceeds of the sale of the crop,
except the amount found due Montgomery as his harvesting and threshing charges set
forth, and entered judgment accordingly. Defendants appealed from the judgment
rendered in the consolidated actions, excepting that portion of the judgment in favor of T.
N. Montgomery. Plaintiff appealed only from that part of the judgment awarding T. N.
Montgomery $756.08. The separate appeals are before us solely on the judgment roll
alone. [34 Cal.App.2d 613]
Defendants contend that under section 2910 of the Civil Code the plaintiff's lien under its
mortgage was lost or destroyed by its action in replevying the barley and then selling it
without complying with section 2967 of the Civil Code, and while the barley was in its
possession under the levy; that this was tantamount to a conversion and accordingly the
mortgage lien was extinguished (citing Steele v. Marborough Hall Corp., 100 Cal.App.
491, 494 [280 P. 380]; Bailey v. Security Trust Co., 34 Cal.App. 348, 354 [167 P. 409];
Nelson v. Yonge, 73 Cal.App. 704, 710 [239 P. 67]).
It is further contended that plaintiff's lien was also lost because the sale was illegal, not
being made after notice, as required by sections 2967, 3000, 3001, 3002, and 3005, Civil
Code, citing Metheny v. Davis, 107 Cal.App. 137 [290 P. 91]; Blodgett v. Rheinschild, 56
Cal.App. 728, 738 [206 P. 674]; and that plaintiff's lien having been extinguished,
defendant Montgomery was entitled to the entire value of the grain crop at the time of
trial to satisfy his mortgage and "threshing lien".
John J. Elmore, in his agreement with defendant Smith, the grower, agreed to pay all
harvesting and threshing charges and furnish necessary equipment therefor. Also,
sufficient crops were to be released from the mortgage to pay the rental charges on the
leased premises.
[1] It must be conceded that a power of sale may be given in a chattel mortgage. (Sec.
2932, Civ. Code; Sherlock v. Alturas State Bank, 73 Cal.App. 391 [238 P. 816]; Peet v.
People's Trust & Sav. Bank, 56 Cal.App. 46 [204 P. 413].) It is also settled that where a
chattel mortgage by its terms gives to the mortgagee the right to take possession of the
mortgaged property, upon default in payment, the prior election by the mortgagee to
foreclose the mortgage does not bar an action of replevin by the mortgagee to recover
possession of the property. Such remedy is ancillary and auxiliary to the foreclosure,
resting upon the right of possession given by the contract. (Ely v. Williams, 6 Cal.App.
455 [92 P. 393]; Flinn v. Ferry, 127 Cal. 648, 652 [60 P. 434].)
[2] We are mindful of the provisions of section 2967 of the Civil Code which provides
that "A mortgagee of personal property, when the debt to secure which the mortgage was
executed becomes due, may foreclose the mortgagor's right of [34 Cal.App.2d 614]
redemption by a sale of the property, made in the manner and upon the notice prescribed
by the title on 'pledge', or by proceedings under the Code of Civil Procedure," and of the
general rule that a power of sale, if given in a chattel mortgage or independent
instrument, must be exercised in accordance with the provisions thereof and in the
manner provided by law, and if not so exercised the sale is void, and results in the
extinguishment of the mortgage lien. (Henderson v. Fisher, 38 Cal.App. 270 [176 P. 63];
Helmick v. Holaday, 106 Cal.App. 380, 386 [289 P. 224]; Sherlock v. Alturas State Bank,
supra, at p. 398; Blodgett v. Rheinschild, supra, p. 738.)
[3] The pertinent portions of the contemporaneous agreement authorizing possession and
sale of the crop are as follows: "When said crops mature, the party of the first part
(Elmore) agrees to harvest and thresh the same and to bear and pay all expenses in
connection therewith and furnish the necessary equipment therefor. ... It is further
understood and agreed that as each season's crops are harvested there shall be paid the
rental due on said premises therefrom and commissions due for obtaining leases, the
balance then remaining shall then be divided between the parties hereto; provided,
however, that the party of the first part shall have the right to retain from said second
party's share a sufficient amount to reimburse him in full for all moneys then owing him
by the party of the first part with interest at the rate of 8 per cent per annum. ... It is
understood and agreed that the portion of the barley set apart to the party of the first part
shall constitute full payment to him of services rendered in the threshing and hauling of
said crop ... the party of the first part ... agrees that in the event of said party of the second
part failing to comply with the terms hereof to be by him performed, said party (Elmore)
may enter upon said premises and take full and complete possession and control thereof
and farm the same." The chattel mortgage dated July 19, 1929, provides that the said
mortgagee (Elmore) is to thresh and deliver said barley and sell the same in accordance
with the agreement dated October 15, 1928, and "as said crops mature, the mortgagor
agrees to deliver possession of the same to the mortgagee for the purpose of said
mortgagee harvesting, threshing and making division thereof in accordance with the
terms of said contract hereinbefore mentioned. [34 Cal.App.2d 615] The mortgagor
further agrees that in the event of his failure to perform any of the terms, covenants or
conditions of this mortgage or of said contract, the mortgagee may take immediate
possession of said crops and the premises upon which the same are growing and take the
necessary steps for the caring for and growing of the same until the same have matured
and then gather and harvest the same and from the share thereof to be paid to the
mortgagor under the terms of said contract, deduct and withhold therefrom sufficient
thereof to pay all costs of the caring for and growing of said barley, as well as any other
moneys owing by the mortgagor to the mortgagee, and any and all obligations, ..."
The only finding of the trial court respecting the manner of sale of the barley by plaintiff
under the chattel mortgage and agreement called to our attention was: "After giving
security in the form of a bond in the sum of Three thousand dollars ($3000) plaintiff
Elmore Jameson Company, took said crop and sold the same at a price higher than the
then prevailing market price. That plaintiff Elmore Jameson Company left on said
premises sufficient barley to pay all rental charges on said premises. That the remainder
of the crop sold by plaintiff consisted of 2864 sacks of barley which plaintiff sold for the
total sum of One thousand six hundred thirty one dollars and twenty-two cents
($1,631.22) which sum is now held by plaintiff."
We also find this conclusion set forth in paragraph VIII of the findings: "That by virtue of
the terms of plaintiff's mortgage and contract, said default of the defendant Leslie Smith
entitled and authorized plaintiff Elmore Jameson Company to enter upon the premises
upon which the crops covered by plaintiff's mortgage were growing and to care for,
harvest and dispose of said crops at private sale. ..." It does appear from the record,
however, that appellant requested that findings be made as to the actual facts shown by
the evidence relative to the taking and manner of selling the property in question.
However, no further or additional findings were made. [4] The rule is well established in
California that matters which are not part of the judgment roll cannot be considered on
appeal unless they are embodied in some other appropriate record. (Brown v. Canty, 31
Cal.App. 183 [159 P. 1056].) When an appeal from a judgment [34 Cal.App.2d 616] is
heard upon the judgment roll alone, all intendments will be made in support of the
judgment, and all proceedings necessary to its validity will be presumed to have been
regularly taken. If error relied on to destroy such presumptions consists of matters dehors
the record, such matters must be brought to the attention of the appellate court by bill of
exceptions or other appropriate methods. (Caruthers v. Hensley, 90 Cal. 559 [27 P. 411].)
It must be presumed in the instant case that all proceedings necessary to the validity of
the sale were regularly taken. We are not disposed to hold, therefore, that the taking of the
property in the replevin suit and its subsequent sale under the authority of the chattel
mortgage and agreement amounted to a conversion. The authorities cited by appellants
are clearly distinguishable and not applicable to the facts in the instant case.
[5] In considering the merits of plaintiff's appeal from that portion of the judgment
allowing defendant Montgomery's claim or lien for expenses in harvesting the crop, it
will be observed that it was clearly the obligation of plaintiff under the chattel mortgage
and agreement to "harvest and thresh the same and to bear and pay ALL expenses in
connection therewith ... and furnish the necessary equipment therefor".
It now appears that under the conflicting claim of right, Montgomery harvested, threshed
and paid all expenses in connection with the crop, which inured entirely to the advantage
of plaintiff. Plaintiff now contends that the court should not permit defendant
Montgomery to acquire a lien or be reimbursed for this expenditure when the act of
harvesting was carried on while the restraining order precluding the imposing of any lien
on the crop was in effect, and that Montgomery's failure to claim his lien when the
property was taken by the plaintiff under the replevin action operated as a waiver thereof.
(Citing Civ. Code, sec. 2913; 16 Cal.Jur., p. 331.)
[6] A mortgage foreclosure and an action for an accounting are equitable proceedings.
Under the chattel mortgages of both plaintiff and defendant, Smith, the owner of the crop,
was the one, by virtue of the instruments executed, who occasioned the disputed rights of
all the parties, and thereby caused Montgomery to make the expenditures to preserve the
crop and do the threshing, and all this inured directly to the [34 Cal.App.2d 617] benefit
of the chattel mortgagee, John J. Elmore, and saved him, the chattel mortgagee, that
amount of money.
The trial court, notwithstanding the restraining order which was dissolved, imposed a
charge of some character for this service, upon the proceeds of the sale of the property.
That court acted within its equitable jurisdiction in holding that such a charge should be
imposed and properly ordered it paid from the sum remaining in the hands of the
plaintiff. (McColgan v. Bank of California Assn., 208 Cal. 329, 337 [281 P. 381, 65
A.L.R. 1075]; Pomeroy's Eq. Jur., vol. 3, 4th ed., sec. 1235, p. 2962; Clatworthy v.
Ferguson, 72 Colo. 259 [210 P. 693]; Tulare County v. City of Dinuba, 205 Cal. 111 [270
P. 201]; Mace v. Cole, 50 N. D. 866 [198 N.W. 816, 35 A.L.R. 445].)
[7] The court allowed defendant Montgomery a recovery of $157.58, as being the value
of the sacks furnished and only $598.50, or three-fourths of the cost of harvesting,
holding that the remaining one-fourth was chargeable to the defendant Leslie Smith,
being the cost of the harvesting of the rental share of the barley. If the defendant
Montgomery was entitled to any reimbursement for the harvesting and furnishing of
necessary sacks, it appears to us that under the terms of the agreement and chattel
mortgage, Montgomery was entitled to recover from plaintiff the full amount expended
for that purpose because the contract provided: "party of the first part (Elmore) agrees to
harvest and thresh the same and to bear and pay all expenses in connection therewith",
that is, $798 for harvesting and $157.58 costs of sacks, totaling $955.58. The balance due
or the amount of the deficiency judgment in favor of plaintiff and against the defendant
Leslie Smith should also be increased accordingly.
The judgment of the trial court is reversed with instructions to enter judgment in
accordance with the views herein expressed.
Marks, Acting P. J., concurred.
Cases Citing Elmore Jameson Co. v. Smith, 34 Cal.App.2d 609
[Civ. No. 2332. Fourth Appellate District. September 20, 1939.]:
 49 Cal.App.3d 544
KMAP, Inc. v. Town & Country Broadcasters, Inc.
June 27, 1975. Civ. No. 2035.
 37 Cal.2d 283
People v. One 1941 Chevrolet Coupe
May 25, 1951. L. A. No. 21780.
 155 Cal.App.2d 705
In re Finn
Dec. 3, 1957. Crim. No. 6090.
 242 Cal.App.2d 427

Grover v. Tindall
May 25, 1966. Civ. No. 22792.
Central Nat. Bank v. Bell, 5 Cal.2d 324

[Sac. No. 4929. In Bank. February 11, 1936.]
CENTRAL NATIONAL BANK OF OAKLAND (a National Banking Association),

Respondent, v. HENRY BELL et al., Appellants.
COUNSEL
Garland Ruddle, in pro. per., James F. Peck, Henry C. McPike, C. F. Rafferty, Elizabeth
M. Maxwell and Louis W. Jefferson for Appellants.
Fitzgerald, Abbott & Beardsley and Charles A. Beardsley for Respondent.
OPINION
SHENK, J.
The plaintiff, an insolvent national banking association, acting through its duly qualified
receiver, brought this action to quiet its title to and recover possession of 8,000 acres of
land consisting of town lots and acreage, situated partly in Stanislaus County and partly
in Merced County. Some of the answering defendants denied the plaintiff's title deraigned
through sales under deeds of trust, and alleged fraud and conspiracy in the conduct of the
sales thereunder. The issues were tried, some before the court with a jury, and the
equitable issues by the court without a jury. The court granted the plaintiff's motion for a
directed verdict on the issues tried before the jury. Judgment for the plaintiff was entered
pursuant to the verdict so directed and the findings of the court. This appeal followed. [5
Cal.2d 326]
In 1930 the defendant Louis M. Hickman, a corporation, owned the land in question. In
that year it executed its deed of trust conveying the land as security for the repayment to
the plaintiff of a loan of $71,000. Subsequently the corporation deeded the land to the
defendant Progressive Land and Development Company. The corporation's default in
payment occurred and in 1931 the trustees conducted a sale of the property pursuant to
notice which designated the city of Oakland, county of Alameda, as the place of sale. At
the time and place so noticed the property was offered en masse and was sold to the
plaintiff bank for the sum of $76,000, the plaintiff having been the highest bidder.
Subsequently the bank conveyed the property to the defendant Henry Bell, who was a
nominee of the Progressive Land and Development Company, in return for a note and
deed of trust on the property securing payment of $76,000 to the plaintiff. Default was
committed under this note and trust deed and a second trustee's sale was held in the
county of Stanislaus. The original published time for the sale was April 26, 1933. The
sale was not concluded on the day noticed, but by oral proclamation, in accordance with
the provisions of the trust deed, the sale was postponed four times until it was finally
consummated on August 8th. The land was first offered in parcels with the statement that
the trustees reserved the right to offer the property also en masse and to consummate the
sale pursuant to whichever method brought forth the larger aggregate bid for the property.
At the sale the defendants Ruddle and Niderost, acting for themselves and other
defendants, bid the aggregate sum of $2,027 for the town lots and parcels of 40 acres or
less, the bid including 2,027 acres. No separate bids were made on the remaining acreage.
The trustees thereupon offered the property en masse. The plaintiff bid the sum of
$85,000, and there being no other bids the trustees elected to sell the property to the
plaintiff for that price.
[1] The defendants first contend that the sale under the first deed of trust was invalid
because it was held in Oakland, which is outside the counties where the property is
situated. The first deed of trust, which was executed on January 23, 1930, expressly
provided that the "place of sale may be either in the county in which the property to be
sold is situated or in the city of Oakland, County of Alameda, State of California". [5
Cal.2d 327] In 1931 the legislature amended section 694 of the Code of Civil Procedure,
effective prior to the date of sale under the first deed of trust, to provide that "all sales of
property under execution or under power contained in any deed of trust hereafter
executed must be held in the county where said property or some part thereof is situated".
The trust instrument, however, was not one executed after the effective date of the
amendment to said section. Inasmuch as it expressly authorized the sale to be held in
Alameda County there was no invalidity by reason of the sale having been held in the city
of Oakland. (San Diego Improvement Co. v. Brodie, 215 Cal. 97 [8 PaCal.2d 1027];
Mortgage Guarantee Co. v. Smith, 9 Cal.App.2d 618 [50 PaCal.2d 835].)
[2] The defendants on the trial endeavored to show that the notices required by section
692, subdivision 9, Code of Civil Procedure, did not remain posted for twenty days prior
to the date of sale. The evidence was held inadmissible and excluded by the court. The
court did not err in its ruling. It is sufficient in this respect to note that the trust deeds
provided that in event of sale thereunder, the recitals in the trustees' deeds, of default,
request to sell, publication and posting of notice, postponements of sale, etc., should be
conclusive evidence of all such facts recited. In this action and on the record before us the
defendants were concluded by the recitals in the trustees' deeds. (Sorensen v. Hall, 219
Cal. 680 [28 PaCal.2d 667]; Stevens v. Plumas Eureka Annex Min. Co., 2 Cal.2d 493 [41
PaCal.2d 927].)
[3] The case before us involves only the question of the legal title. The defendants sought
to sustain their allegations of fraud by proof of such matters only as that the notices were
not kept posted for twenty days; that the notices were not posted twenty days prior to the
date of actual sale as distinguished from the day noticed for the sale; that notices of the
various postponements were not posted on the property; that the sales en masse rendered
them invalid; that the procedure followed at the second sale in offering the property first
in parcels and then en masse rendered the sale invalid in the absence of notice to that
effect in the published notice of sale, and that the defendants were entitled to have their
bids at such sale accepted; that the trustees failed to [5 Cal.2d 328] make a personal
examination of the property to acquaint themselves with its value and to see that notices
had been posted, and by such examination to ascertain personally the truth of the recitals
in the trustees' deeds; and that the sales were at prices less than the reasonable market
value of the property. All of these matters either were concluded by the recitals in the
trustees' deeds or were in the exercise of the power expressly conferred by the provisions
of those instruments. Merely alleging fraud cannot be deemed to open wide the door to
the defendants to attack the truth of the recitals in the trustees' deeds and the appropriate
exercise of the powers conferred thereby, in the absence of any proof of actual fraud or
oppression committed by the trustees, and none was offered. None of the matters relied
on by the defendants could, either separately or together, give rise even to a surmise that
any fraud was committed by the trustees in the conduct of the sales under either of the
trust deeds. On the contrary it appears obvious from the facts before us that the trial court
was justified in concluding that at both sales the trustees disposed of the property in the
manner best calculated to induce the greatest return for the property. Furthermore, at the
trial the plaintiff offered to reconvey the property on payment of the amount of the debt,
and its offer was refused. This offer, and the bids averaging $1 an acre made by certain of
the defendants for a portion of the property at the second sale, are scarcely consistent
with the badge of fraud sought to be impressed by reason of any disparity between the
amount for which the property was sold and its market value. [4] It is no new doctrine in
this state that mere inadequacy of price is not sufficient ground for setting aside a
trustee's sale legally conducted, in the absence of proof of some element of fraud,
unfairness or oppression by which the result is brought about. (Stevens v. Plumas Eureka
Annex Min. Co., supra.) The court, therefore, did not err in ruling out evidence of market
value in the absence of any offer to prove the additional essential element.
[5] It is also urged that the plaintiff should have offered evidence of title beyond the proof
of title in the defendant Louis M. Hickman corporation. That corporation was the
common source of the title claimed by the plaintiff and the other defendants. In such a
case it is unnecessary to offer [5 Cal.2d 329] proof of title beyond such common source.
(Sorensen v. Hall, supra.)
Other grounds for reversal have been examined and found to be without merit.
The judgment is affirmed.
Thompson, J., Curtis, J., Conrey, J., Waste, C.J., and Seawell, J., concurred.
Cases Citing Central Nat. Bank v. Bell, 5 Cal.2d 324

[Sac. No. 4929. In Bank. February 11, 1936.]:
 24 Cal.4th 400
Dreyfuss v. Union Bank of California (2000) 24 Cal.4th 400
Nov. 6, 2000. No. S082261.
 11 Cal.App.3d 1
Munger v. Moore
September 3, 1970. Civ. No. 25853.
 230 Cal.App.3d 424

Homestead Savings v. Darmiento
May 22, 1991. No. B041160.
 6 Cal.2d 389
Cobb v. California Bank
May 15, 1936. L. A. No. 15655.
 68 Cal.2d 864
Gerhard v. Stephens
July 9, 1968. S. F. No. 21805.
 18 Cal.App.2d 331
Bechtel v. Wilson
December 31, 1936. Civ. No. 10095.
 21 Cal.App.2d 527
Peterson v. Corporation of America
June 25, 1937. Civ. No. 10461.
 27 Cal.App.2d 513
Birkhofer v. Krumm
July 11, 1938. Civ. No. 2133.
 33 Cal.App.2d 658
Shelley v. Hurwitz
July 12, 1939. Civ. No. 2336.
 40 Cal.App.2d 620
Bank of America v. McLaughlin etc. Co.
 55 Cal.App.2d 913
Seidell v. Anglo-California Trust Co.
Dec. 7, 1942. Civ. No. 6696.
 61 Cal.App.2d 570
Holland v. Pendleton Mtge. Co.
Dec. 3, 1943. Civ. No. 13958.
 64 Cal.App.2d 244
Blume v. MacGregor
May 5, 1944. Civ. No. 12376.
 104 Cal.App.2d 536

Karrell v. First Thrift of Los Angeles
June 1, 1951. Civ. No. 18284.
 131 Cal.App.2d 208

Pierson v. Fischer
Mar. 2, 1955. Civ. No. 8462.
 144 Cal.App.2d 578

Bank of America v. Taliaferro
Sept. 24, 1956. Civ. No. 16934.
 152 Cal.App.2d 200

Brown v. Busch
July 1, 1957. Civ. No. 9047.
 152 Cal.App.2d 448

Taliaferro v. Crola
July 15, 1957. Civ. No. 17336.
 159 Cal.App.2d 649

Lancaster Security Inv. Corp. v. Kessler
Apr. 24, 1958. Civ. No. 22532.
 230 Cal.App.2d 264

Crummer v. Whitehead
Oct. 19, 1964. Civ. No. 21426.
Rowan v. Pedrotti, 138 Cal.App.2d 647

[Civ. No. 8755. Third Dist. Jan. 24, 1956.]
MARY ELLEN ROWAN, Appellant, v. ANGELO PEDROTTI, Respondent.
COUNSEL
Alfred J. Hennessy and Julien R. Bauer for Appellant.
Lounibos & Lounibos for Respondent. [138 Cal.App.2d 648]
OPINION
VAN DYKE, P. J.
This is an appeal from a judgment in an action brought by appellant to quiet her title to a
residence in Petaluma which had been sold to respondent under a power of sale contained
in a deed of trust of which he was a beneficiary.
Respondent is a single man in his middle seventies. In the latter part of 1945 he was
living with his nephew who was married to appellant's sister-in- law. The two visited
appellant and her family approximately twice a week and a cordial social relationship
existed. Appellant had been recently widowed and was unable to find adequate living
quarters for herself and her three children. In order to assist her, respondent furnished
$10,500 with which she purchased the house and lot, which is the subject of this
litigation. The appellant contended that the money was a gift to her from respondent;
respondent said that he loaned her the money. The court found in accordance with his
assertions. This finding is not here challenged.
The property was conveyed to appellant by two separate deeds executed on November 26
and November 27, 1945. On December 8th, appellant and respondent went to the office
of appellant's attorney, where she executed a deed of trust which had been prepared at her
request. It secured the payment of her promissory note in favor of respondent in the
amount of $10,500 payable at the rate of $50 per month without interest. The note
provided that in "consideration for the loan" appellant would furnish respondent board,
room and personal laundry service for $50 a month to be credited upon the amount of the
note. It may be said here that this obligation was carried out by appellant for a
considerable period of time and until this controversy arose. Concerning the execution of
the note and the deed of trust appellant testified that she executed them in order to assure
to respondent a home, and at the same time protect her children's succession rights to the
property, at a time when she was about to undergo a major operation which she might not
survive. [1] After execution the note and deed of trust were left at the attorney's office.
Six months later he recorded the deed of trust and thereafter, when the instrument was
returned to him by the recorder, he mailed both the note and the deed of trust to appellant,
stating in his letter that he sent the instruments to her for "delivery" to respondent. There
was no direct testimony as to what instructions, if any, were given to the attorney
concerning either the recordation of the deed of trust or the transmittal of the instruments
to [138 Cal.App.2d 649] appellant. She kept them in her possession from that time on
and they were never physically handed over to respondent. Neither did she, until long
after the receipt of the instruments, take any action by way of protest against the
recording of the deed of trust. She received the instruments January 13, 1947, and six
years later, on January 29, 1953, she began a suit to quiet title against the respondent,
which suit was later dismissed without prejudice. On October 4, 1951, appellant recorded
a request for copies of notices of default and sale. On September 15, 1952, the Sonoma
County Land and Title Company, acting as the trustee substituted for the original trustee,
sold the property to respondent at public sale for $10,693.13 and later conveyed the same
to him by its trustee's deed. The trial court upheld the validity of the sale proceedings and
adjudged respondent to be the owner of the property.
Appellant's first contentions are that there was no delivery of the deed of trust, that it was
therefore void and that the sale proceedings thereunder and the trustee's deed vested no
title in respondent. The record sufficiently supports the findings to the contrary.
"In view of the variety of circumstances under which delivery may be accomplished, it is
impossible to state in exact terms what does or does not constitute delivery of an
instrument sufficient to give it full operation as a deed. Generally, it may be said that the
intention of the grantor is the controlling factor. ... [I]n cases where the intention to make
delivery must be inferred from circumstances that are in their nature equivocal, the
determination of the question becomes of extreme difficulty and depends so much on the
subjective state of mind that the law can lay down no certain rule on the subject.
Ordinarily then, the question of delivery is one of fact to be determined from the
circumstances surrounding the particular transaction.
"No particular form of delivery is necessary to give effect to a deed. All that is required
on the part of the grantor is that by either words or acts he make it manifest that he
considers the instrument completely executed and the title to the property or interest
described therein conveyed. ...
"... [M]anual transfer is not essential. Other conduct, accompanied by a clear intention to
pass title, may be equally efficacious to establish delivery. Specifically, a grant not
delivered into the possession of the grantee is deemed constructively delivered where the
instrument (1) is understood, [138 Cal.App.2d 650] by agreement of the parties at the
time of execution, to be delivered, and the circumstances are such that the grantee is
entitled to immediate delivery, ..." (15 Cal.Jur.2d, "Deeds," §§ 87, 88.)
In this case the trial court did not accept the appellant's explanation as to why the deed of
trust and the note were executed. Opposed to that explanation the following appears: The
money with which the property had been purchased was loaned by respondent to
appellant and so appellant was obligated to repay it. Respondent testified that the parties
went to the office of the attorney in order that he might obtain "a paper to show."
Respondent had little education, spoke English with difficulty, and a fair inference from
what he said in view of the circumstances is that, having made the loan to appellant and
the property having been purchased with the money he thus loaned, it was the
understanding of the parties that a proper act on the part of both would be the execution
of such documents as would show that the money had been loaned and was to be repaid.
Coupled with the foregoing was the act of appellant in leaving the executed documents
with her attorney, followed by his recordation of the instruments, by his return to her of
the deed of trust and the note with a transmittal statement that he was returning the
instruments to her for delivery to respondent. Appellant's silence for so long after
recordation justified an inference that the attorney had acted upon instructions from her.
From all of the facts and circumstances the court was justified in finding that, despite
there being no manual transmission of the deed of trust and the note, they had been
executed under such circumstances that the parties intended they take effect immediately
upon execution and that they had been delivered.
[2] Intermediate the execution of the deed of trust and the sale under the power therein
contained, there had been a substitution of the trustee. It was the substituted trustee that
conducted the sale proceedings. An officer of the second trustee company testified that
there had been a substitution and that the covering documents had been recorded. He also
said, however, that his records did not show that notice of the substitution had been given
to appellant. Appellant herself did not testify that she had not received such notice, but
rested for her proof of lack of notice upon the testimony of the officer of the trustee. She
had received, however, notice of default and intended sale mailed to her by the [138
Cal.App.2d 651] substituted trustee. She had also received notice of the time and place
of sale, likewise mailed to her by the substituted trustee. She therefore knew, or was
chargeable with knowledge, that a substitution had occurred. It is true that notice of
default and of sale were not mailed to the addresses (there were two given) designated in
her demand for notice, which she had recorded. Nevertheless, they were sent by
registered mail to her at a different address, and she received and receipted for them. The
failures of the trustee complained of were, under the circumstances here shown,
irregularities which would not invalidate the sale, unless appellant could show that she
was in some manner injured thereby. This she made no attempt to do. (California Trust
Co. v. Smead Investment Co., 6 Cal.App.2d 432 [44 P.2d 624]; American Trust Co. v.
deAlbergaria, 123 Cal.App. 76 [10 P.2d 1016].)
[3] The trial court found that on the date of sale appellant owed the respondent
$10,693.13 and that the property was sold to the defendant for that sum. Appellant
complains that there was never any issue before the trial court as to the exact balance
unpaid upon the note and that appellant had, at the trial, presented only the issue that the
sale proceedings were void. The court was justified in finding that the obligations were in
default whether or not a finding was made as to the exact amount unpaid at the time of
the sale. Respondent, having the right to have the property subjected to sale, does not lose
the title he gained under the trustee's deed even if the sale was for a sum larger than the
amount actually due. (Savings & Loan Society v. Burnett, 106 Cal. 514, 535, 536 [39 P.
922].) But appellant is correct in saying she made no issue as to the amount unpaid on the
note at the time of sale. Respondent set up the sale proceedings and the trustee's deed as
his source of title and under familiar law these affirmative allegations were deemed
denied by appellant. However, the amount unpaid, save as to the fact of default, was
immaterial and appellant made no attempt to produce evidence on that subject. She here
complains that the unnecessary findings as to amount unpaid, followed as it was by a
statement to the same effect in the judgment, has, in some way, prejudiced her. Certainly
that is not true as to this case. We suppose appellant fears that, if she has a claim against
the trustee, based on a failure to pay over to her any excess of amount received over
amount unpaid, the court's finding will preclude her. But the trustee [138 Cal.App.2d
652] is not a party to this suit and if in fact it is holding any sum payable to her it could
not defend because of anything found or adjudged herein.
Peek, J., and Schottky, J., concurred.
Kleckner v. Bank of America, 97 Cal.App.2d 30

[Civ. No. 17408. Second Dist., Div. One. Apr. 18, 1950.]
LEONARD KLECKNER, Appellant, v. BANK OF AMERICA NATIONAL TRUST &

SAVINGS ASSOCIATION, Respondents.
COUNSEL
Laurence J. Rittenband and Jack Gold for Appellant.
Samuel B. Stewart, Jr., Hugo A. Steinmeyer, Robert H. Fabian, J. G. Moser and Richard
A. Lavine for Respondent.
OPINION
DRAPEAU, J.
Dave's Blue Room, Inc., was the corporate owner of a restaurant property on the Sunset
Strip in Los Angeles. The real property was subject to three trust deeds, junior to each
other in the following order: The first lien was to secure a promissory note to Bank of
America; the second lien was to secure a note to the defendant, Marguerite Bruce
Wetherbee; the third lien was to secure a note to the plaintiff, Leonard Kleckner.
Default was made in monthly payments of principal and interest due under the second
trust deed. Notices of default and of sale were given, and the property was sold under a
power of sale in the deed. The terms of sale prescribed in the trust deed, and recited in the
notice of sale, were "cash in lawful money of the United States, payable at time of sale."
Plaintiff received and read a copy of the notice of sale.
Defendant, Bank of America, is beneficiary under the first trust deed, and trustee under
the second. There is no dispute respecting the first lien, the sale of the property having
been made subject to the first trust deed.
This lawsuit grows out of the conduct of the sale by an assistant trust officer of the bank
trustee, called by all of the parties the "auctioneer."
A number of persons were present at the sale. Some of them at times were argumentative,
to say the least. Some contended with the auctioneer that the sale should be conducted
like a bankruptcy sale, with a day or two allowed to get the money to support bids; others
that he should take personal checks. When he announced that cash offers only would be
accepted, considerable grumbling and rumbling ensued.
The auctioneer read the essential terms of the sale, and called [97 Cal.App.2d 32] for
bids. Fourteen thousand dollars was bid by an attorney for a Mr. Blythe; this covered the
amount due on the second lien. Mr. Blythe was a friend and backer of plaintiff. No
statement was made that this bid was on behalf of the plaintiff, and the auctioneer had no
notice that it was. The auctioneer declared the property sold, pursuant to Mr. Blythe's bid.
The auctioneer asked to whom the trustee's deed should be made, and was informed that
K. B. S. Construction Company would be the grantee. K. B. S. Construction Company
was a corporation controlled by Mr. Blythe. Mr. Blythe testified on the trial that the title
was to be held by his corporation to secure the cash he was advancing to plaintiff if the
restaurant continued in operation, or to insure a part of possible profits for himself if the
property was sold.
The auctioneer then asked for cash, to conform to the bid. He was told that the bidder did
not have the cash, but would give him a check for the amount. The auctioneer stated that
no personal checks would be received; that the sale was for cash; and that if cash was not
immediately forthcoming he would declare the bid invalid and sell the property to some
other bidder.
The bidder for Mr. Blythe stated that they would immediately go to the bank and get the
cash, but the auctioneer refused to delay the sale. The auctioneer would have taken a
cashier's check, a certified check, or a postal money order, but none of these was
tendered.
The plaintiff and his financial backer left the sale and went by automobile to a bank about
14 blocks away. They made good time, six and one half minutes each way, and double
parked in front of the bank. They were back at the place of sale with the money within 15
to 20 minutes. But they didn't make it. The auctioneer was gone, and the property had
been sold to the beneficiary of the second trust deed for the amount due on her lien.
So the restaurant now belongs to the defendant Marguerite Bruce Wetherbee, subject only
to the first trust deed; and the plaintiff finds his junior lien extinguished. And at the time
Dave's Blue Room, Inc., was bankrupt.
The case was tried by a judge of the superior court. Findings were made, and judgment
followed, declaring the beneficiary of the second trust deed owner of the property; that
the sale was duly and properly made by the trustee; and that the trustee was not liable to
the plaintiff for misconduct in the sale. [97 Cal.App.2d 33]
Plaintiff appeals from the judgment, and as grounds for reversal urges the following:
"1. Was the trustee justified in peremptorily demanding the instantaneous payment in
cash of the entire amount bid by the appellant or was it the trustee's duty to procure the
highest price for the property and in effectuating this purpose afford the appellant or any
successful bidder a reasonable time to produce the necessary cash.
"2. Was the trustee obligated under the circumstances disclosed to adjourn the alleged
second sale for a reasonable time to afford bidders at the sale the opportunity to withdraw
currency from their banks to meet any bid made.
"3. Before the trustee could avoid the sale to appellant and hold him in default, was it
under a duty to tender a deed to the property concurrently with its demand that appellant
pay all the cash immediately.
"4. Was there any binding local custom proved on the trial that in sales of real property at
public auction a successful bidder must instantaneously pay the entire amount of his bid
in cash and no reasonable time accorded him to procure it."
[1] A sale under a power in a mortgage or trust deed must be conducted in strict
compliance with the terms of the power. The sale must be made fairly, openly, reasonably,
and with due diligence and sound discretion to protect the rights of the mortgagor and
others, using all reasonable efforts to secure the best possible or a reasonable price. (59
C.J.S. 959.)
[2] If the auctioneer had been advised that the bid was on behalf of the plaintiff as
beneficiary under the third trust deed, to have refused a request for delay of a few
minutes to go to the bank might well have been held an unreasonable exercise of the
trustee's power of sale. (See Winbigler v. Sherman, 175 Cal 270 [165 P. 943].) But no
such advice was given to the auctioneer. And he had a right to deem the bid as it was
made a part of the conversation and argument then going on. Under the circumstances in
this case the sale was not arbitrarily made, as the trial court found.
Moreover, the plaintiff could have tendered to the trustee the amount due on the second
lien, and thereby terminated the power of sale under the second trust deed. (Lichty v.
Whitney, 80 Cal.App.2d 696 [182 P.2d 582].)
It is the duty of a trustee, once it has started, to continue [97 Cal.App.2d 34] with
reasonable dispatch with a sale under a trust deed; the terms being cash, the trustee is not
required to hold up the sale while sundry bidders leave the place to go to banks or
elsewhere to get cash. Such conduct of a sale could well result in confusion, in the
dispersal of bidders present, and in loss to persons represented by the trustee.
In execution sales it is the duty of the sheriff to require immediate payment in cash of the
bid. (Kelly v. Barnet, 24 Cal.App. 119 [140 P. 605].) Civil Code, section 1657, provides
that if an act consists in the payment of money only it must be performed immediately
upon the thing to be done being exactly ascertained. In Wiltsie, Real Property Mortgage
Foreclosure, 5th ed., 1939, volume 2, at page 1081, appears the following: "But if any
person other than the mortgagee becomes the purchaser, where the sale is for cash, he
must comply strictly with the terms of sale, and pay the price bid in cash; a note to the
party entitled to the proceeds of the sale is not cash, and the tender of such note will not
be a compliance with the terms of sale. It has also been held that the officer may refuse to
receive checks."
[3] What has been said disposes of all of plaintiff's contentions except the one that the
trustee had to tender a deed of the property to the plaintiff concurrently with the demand
for cash.
The answer to this is twofold: First, to state the contention is to deny it. Trust deeds are a
part of business transactions. The right to sell property pledged under a power of sale,
properly exercised, implements the security for payment of money loaned. To require
trustees to have with them deeds to property pledged, to be executed and delivered to
purchasers as the very time of sale, would unduly interfere with them. The method used,
as shown by the testimony in this case, is for the auctioneer to give the successful bidder
a receipt for the money paid; whereupon the deed is delivered in a day or two, giving the
trustee time to prepare, and to have the instrument properly executed. And, secondly, the
bid being ineffective, plaintiff had no right to a deed anyway.
White, P. J., and Doran, J., concurred.
Cases Citing Kleckner v. Bank of America, 97 Cal.App.2d 30
[Civ. No. 17408. Second Dist., Div. One. Apr. 18, 1950.]:
 Goffney v. Family Savings and Loan Assn. (2000) *

May 31, 2000. No. B119732.
 39 Cal.3d 281
I. E. Associates v. Safeco Title Ins. Co.
August 1, 1985. L.A. No. 31966.
 45 Cal.App.3d 214
Block v. Tobin
February 10, 1975. Civ. No. 35469.
 111 Cal.App.3d 316

Baron v. Colonial Mortgage Service Co.
October 23, 1980. Civ. No. 45287.
 179 Cal.App.3d 909
WINNETT v. ROBERTS
April 8, 1986. Civ. No. 24354.
 198 Cal.App.3d 113

Bank of Seoul & Trust Co. v. Marcione
February 1, 1988. No. B028692.
 152 Cal.App.2d 200

Brown v. Busch
July 1, 1957. Civ. No. 9047.
 175 Cal.App.2d 714

Bisno v. Sax
Dec. 2, 1959. Civ. No. 24042.
 254 Cal.App.2d 241

Hill v. Gibraltar Sav. & Loan Assn.
Sept. 8, 1967. Civ. No. 30992.
 275 Cal.App.2d 114

Nomellini Constr. Co. v. Modesto S. & L. Assn.
July 24, 1969. Civ. No. 12035."97 Cal.App.2d 30":

May 31, 2000. No. B119732.
 39 Cal.3d 281
August 1, 1985. L.A. No. 31966.
 45 Cal.App.3d 214
Block v. Tobin
February 10, 1975. Civ. No. 35469.
 111 Cal.App.3d 316

October 23, 1980. Civ. No. 45287.
 179 Cal.App.3d 909

WINNETT v. ROBERTS
April 8, 1986. Civ. No. 24354.
 198 Cal.App.3d 113

February 1, 1988. No. B028692.
 152 Cal.App.2d 200
Brown v. Busch
July 1, 1957. Civ. No. 9047.
 175 Cal.App.2d 714

Bisno v. Sax
Dec. 2, 1959. Civ. No. 24042.
 254 Cal.App.2d 241

Sept. 8, 1967. Civ. No. 30992.
 275 Cal.App.2d 114

July 24, 1969. Civ. No. 12035."97 Cal.App.2d 30":

May 31, 2000. No. B119732.
 39 Cal.3d 281
August 1, 1985. L.A. No. 31966.
 45 Cal.App.3d 214
Block v. Tobin
February 10, 1975. Civ. No. 35469.
 111 Cal.App.3d 316

October 23, 1980. Civ. No. 45287.
 179 Cal.App.3d 909

WINNETT v. ROBERTS
April 8, 1986. Civ. No. 24354.
 198 Cal.App.3d 113

February 1, 1988. No. B028692.
 152 Cal.App.2d 200

Brown v. Busch
July 1, 1957. Civ. No. 9047.
 175 Cal.App.2d 714

Bisno v. Sax
Dec. 2, 1959. Civ. No. 24042.
 254 Cal.App.2d 241
Sept. 8, 1967. Civ. No. 30992.
 275 Cal.App.2d 114

July 24, 1969. Civ. No. 12035.
Foge v. Schmidt, 101 Cal.App.2d 681

[Civ. No. 14465. First Dist., Div. Two. Jan. 15, 1951.]
FRANK J. FOGE, Respondent, v. WALTER J. SCHMIDT et al., Appellants.
COUNSEL
William Steinberg for Appellants.
Mancuso, Herron & Winn for Respondent.
OPINION
DOOLING, J.
Defendants appeal from a judgment setting aside a sale of plaintiff's property to them at a
trustee's sale to satisfy an indebtedness under a third deed of trust. The court found that
the property was worth at least $11,000 and that the total indebtedness secured by it did
not exceed $6,600. The property was bought by the trustee for slightly under $700 for
which, on the court's finding, he secured property having a clear equity of at least $4,400.
The facts thus support the finding that the sale price was grossly disproportionate to the
value of the property. The court found that the plaintiff's mother and a real estate agent
who, the evidence showed, was acting for plaintiff, each made a bid of $750 for the
property. Neither had the cash in hand and each asked for not over 10 or 15 minutes to go
to a bank to secure it which the auctioneer refused. The agent had brought a blank check
executed by his firm and the court found that there are many banks in the vicinity of the
place of sale (in downtown San Francisco) which were then open for business and that
the agent could have obtained the cash to support his bid if his request had been granted.
On these facts the court found that the sale was unfairly conducted. [101 Cal.App.2d
683]
[1] While mere inadequacy of price, standing alone, will not justify setting aside such a
sale (Stevens v. Plumas-Eureka Annex Min. Co., 2 Cal.2d 493 [41 P.2d 927]) gross
inadequacy of price coupled with even slight additional evidence of unfairness is
sufficient to authorize setting the sale aside (Winbigler v. Sherman, 175 Cal. 270, 275
[165 P. 943]; 25 Cal.Jur. 90-91).
We need go no further than the Winbigler case to support the finding of unfairness. In that
case the owner, who had learned of the proposed sale 30 minutes before, asked the
auctioneer for a reasonable continuance to procure the cash to make a bid. The
auctioneer's refusal coupled with inadequacy of price was held to make the sale voidable.
Defendants seek to distinguish the Winbigler case on the ground that there the owner had
not known of the proposed sale in time to procure the cash. [2] But whether the particular
facts justify setting the sale aside rests very largely in the trial court's discretion
(Humboldt etc. Society v. March, 136 Cal. 321, 323 [68 P. 968]) and we cannot say that
under the facts of this case discretion was abused. The denial of such a short delay as one
quarter of an hour or less when the agent acting on behalf of plaintiff had a check of his
firm which he could readily cash at a bank indicates a desire to secure the property for the
trustee bidder on any technicality rather than one to obtain the highest and best bid.
[3] Defendants point to the rule that an offer to pay the indebtedness is a prerequisite to a
judgment vacating the sale. (Py v. Pleitner, 70 Cal.App.2d 576, 582 [161 P.2d 393].) In
his complaint plaintiff did offer to pay the indebtedness. This offer was refused by
defendants' election to stand on the sale and to contest plaintiff's right to have it set aside.
The decree merely vacates the sale and orders a new one to be held. Under the
circumstances defendants cannot be heard to assert on appeal that plaintiff refused to do
equity.
Judgment affirmed.
Nourse, P. J., and Schottky, J. pro tem., concurred.
Cases Citing Foge v. Schmidt, 101 Cal.App.2d 681
[Civ. No. 14465. First Dist., Div. Two. Jan. 15, 1951.]:
 165 Cal.App.3d 312

WHITMAN v. TRANSTATE TITLE CO.
March 6, 1985. Civ. No. 29896.
 175 Cal.App.3d 608

NAPUE v. GORPMEY WEST, INC.
December 13, 1985. No. B006108.
 230 Cal.App.2d 264

Crummer v. Whitehead
Oct. 19, 1964. Civ. No. 21426.
Dunbar v. Redfield, 7 Cal.2d 515
[L. A. No. 15122. In Bank. October 19, 1936.]
HOOPER C. DUNBAR et al., Respondents, v. L. V. REDFIELD et al., Appellants.
COUNSEL
Joseph L. Lewinson, Morris E. Cohn, Erwin P. Werner, George L. Hampton, J. W.

Falkner and Joseph Scott for Appellants.
Walter F. Haas, H. C. Johnston, Stanley F. Maurseth, Gerald E. Kerrin, Haas, Johnston,

Maurseth & Kerrin, Cullinan, Hickey & Sweigert, Haight, Trippett & Syvertson,
Raymond L. Haight, Arthur L. Syvertson, Eustace Cullinan, William T. Sweigert, Evans,
Pearce & Campbell and Albert D. Pearce for Respondents.
OPINION
THOMPSON, J.
A hearing was granted in this case, after decision by the District Court of Appeal, Fourth
Appellate District, in order to give further consideration to two questions involved, which
are discussed hereinafter. We were and are in accord with the remainder of the opinion
rendered by the District Court of Appeal, and it is hereby adopted as a portion of our
opinion and is as follows: [7 Cal.2d 518]
"This is an action for declaratory relief brought by the trustees of a common law trust for
the purpose of establishing the meaning and intent of the declaration of trust upon which
the association was founded.
"The Bell View Oil Syndicate, which will hereinafter be referred to as the syndicate, was
organized on January 20, 1922, for the purpose of drilling for oil on a town lot in Santa
Fe Springs consisting of about one-third of an acre. The declaration of trust which was
signed on that day by the five organizers appointed the signers thereof as trustees with the
power to fill any vacancies. One of these trustees resigned shortly thereafter and the
plaintiff Morris took his place. Two of the trustees died in 1925 and, without filling the
vacancies, the three plaintiffs have continued to administer the affairs of the trust.
"The declaration of trust, after providing that the trust estate should consist of 5000 units
of the par value of $100 each, provided that 1000 of these units should be given to H. W.
McFarlane, one of the original trustees, in consideration of the transfer to the trust estate
of a lease on this town lot. It was then provided that the trustees were to sell such
additional units as might be necessary to provide funds for carrying out the objects of the
trust, subject to the approval of the commissioner of corporations. The lease was
transferred to the trust by McFarlane and 1000 units were issued to him. In order to
secure funds with which to drill for oil the trustees sold units of beneficial interest in this
trust and at the time of the trial of this action there were outstanding such units of the par
value of $300,000, of which the three plaintiffs owned nearly one-fifth. The venture was
highly successful and, at the time of the trial, more than $5,000,000 had been received for
oil produced from this lot and the dividends paid to the unit holders averaged 64 per cent
a year on the par value of the units.
"A number of suits were brought against the trustees by various unit holders, and finally
this action was brought by the trustees for the purpose of having an adjudication as to the
meaning and intent of the declaration of trust and as to their rights under this instrument.
The complaint sets out all of the claims that had theretofore been raised by any unit
holders with regard to the manner in which the trust had been administered, with a
statement of the [7 Cal.2d 519] trustees' contentions with respect thereto. Cross-
complaints were filed by certain of the unit holders alleging that the trustees had taken
secret profits, that they had wasted funds of the trust in wildcat operations, that they had
taken compensation as trustees to which they were not entitled, that in various other
respects they had been guilty of mismanagement of the trust and praying for their
removal as such trustees. The trial court found in all respects in favor of the plaintiff
trustees and this appeal followed.
[1] "The first point raised is that the units issued to McFarlane in exchange for the lease
were divided among the five original trustees and constituted a secret profit which, under
the law, must be returned to the trust estate, together with all income therefrom. It is
argued that the original trustees planned the organization of this syndicate before they
secured the lease in question, that they became trustees from that moment, and that
anything done by them thereafter must accrue to the benefit of all subsequent unit holders
since there was no disclosure of the facts.
"The appellants rely upon Burbank v. Dennis, 101 Cal. 90 [35 P. 444], and Victor Oil Co.
v. Drum, 184 Cal. 226 [193 P. 243]. In the first of these cases the promoters of a
corporation falsely represented to the proposed stockholders that they were conveying
lands to the corporation at cost, when in fact they turned in the land at an increased price
and took the resulting profit out of the cash paid by purchasers of stock. In the second
case, one of the promoters concealed the facts that he was making a profit from a similar
transaction and that he was one of the organizers of the corporation. It was there held that
after starting such an enterprise one of the organizers thereof could not purchase property
and sell it to the company at an advance in price in the absence of a full disclosure of the
facts. It was further held that this duty of disclosure was owed to those persons who were
induced to come into the enterprise and that, in that case, a subscription agreement which
was signed by subsequent purchasers of stock failed to make such a disclosure.
"The appellants rely upon the following facts as bringing this case within the rules laid
down in the cases just referred to. On January 10, 1922, the five persons who later
became the original trustees in this syndicate signed a [7 Cal.2d 520] written agreement
setting forth that they were desirous of forming a syndicate for the purpose of acquiring
an oil lease from H. W. McFarlane, one of the five, covering this lot in Santa Fe Springs;
that it was essential to this plan to secure a lease of the property; that they authorized
McFarlane to take the lease in his own name for the purpose of transferring it to a
syndicate to be organized; that such a syndicate should be capitalized on a unit basis with
5000 units of $100 par value each; that the parties to this agreement should constitute the
trustees; that each party thereto would subscribe for ten units at $100 each when the
syndicate was organized; that 1000 of these units should be taken as promotion stock for
and in consideration of the lease; that a portion of the thousand shares should be given as
a bonus to the first purchasers of units in the syndicate; and that twenty units out of the
1000 should be given to certain persons named for services already rendered. On January
12, 1922, McFarlane secured a written lease, providing that the lessor should receive one-
third of all oil produced and should receive, within fifteen days, $4,000 in cash to be
treated as an advance on his first royalty. This $4,000 was later paid out of the proceeds
of the sale of units, each trustee paying in $1,000 for ten units in accordance with their
agreement. It should also be observed that, in accordance with the agreement, 245 of the
units exchanged for the lease were given as bonuses to the first purchasers of units and
the remaining 755 of these units were divided among the five trustees.
"The controlling question is whether there was such a disclosure of the essential facts to
subsequent purchasers of units as is required by the rule laid down in the cases above
referred to. Certain other facts have a bearing on this question. The respondent Horton
spent three months looking over the Santa Fe Springs field in search of a lease which he
might develop. He found the property in question, and before associating himself with
anyone else he agreed with the owner of the land on the terms of the lease. He then
selected the persons who became the other trustees to assist him in raising funds with
which to develop the property. The agreement of January 10, 1922, the securing of a
written lease, and the organization of the syndicate followed. For convenience the lease
was taken in the name [7 Cal.2d 521] of McFarlane and transferred by him to the
syndicate. The agreement of January 10, 1922, was kept at all times in the office of the
syndicate in a file marked 'Trust Papers', was always available, was handed with the other
papers to an auditor examining the records of the syndicate on behalf of certain unit
holders and was produced at the trial.
"A permit to issue and sell units was obtained from the commissioner of corporations,
copies of the declaration of trust and the lease being attached to the application therefor.
The application set forth that McFarlane, as owner of the lease, was to transfer it to the
syndicate, in exchange for 1000 units, subject to the approval of the commissioner, and
that each of the applicants had subscribed for ten units and had paid $1,000 into the
treasury, out of which it was proposed to pay the $4,000 called for by the lease.
Permission was asked for the issuance of 1000 units to McFarlane in exchange for the
lease and for the sale of other units to be sold so as to net 80 per cent of the selling price.
The commissioner was also asked to approve the plan of using a portion of the units to be
issued to McFarlane for the purpose of giving a 50 per cent bonus in units on the first 300
units actually sold and a 25 per cent bonus on the next 300 units sold. A permit was
issued, reciting the general facts outlined in the application, and granting permission to
sell units as requested and to issue 1000 units to McFarlane in exchange for the lease,
describing the same and giving the book and page where it was recorded. The permit
further provided that these units should be placed in escrow and not released until the
further order of the commissioner, and that a copy of the permit be delivered to each
prospective purchaser of units. The McFarlane units were placed in escrow and were later
released and divided among the five trustees, after a showing as to the amount already
paid to other investors. The certificates of beneficial interest issued to purchasers
contained a reference to the declaration of trust, with a statement that it was recorded in
the office of the county recorder of Los Angeles county, and each purchaser signed a
written acknowledgment that he had received and read a copy of the permit. Other
permits were later issued with relation to which similar facts appear. [7 Cal.2d 522]
"Assuming that these persons were acting as trustees from the date of their original
agreement, January 10, 1922, we think the evidence sustains the court's finding that there
was a sufficient disclosure of the material facts to subsequent unit holders, and that it
cannot be said that secret profits were taken which must be returned to the trust estate.
(Garretson v. Pacific Crude Oil Co., 146 Cal. 184 [79 P. 838].) The original trustees
acquired the lease before this syndicate was organized and before any other unit holder
acquired any interest therein. While they agreed upon the general plan to be followed
before acquiring a written lease, they had sought out and discovered the property and
come to an understanding with the owner thereof before entering into the agreement of
January 10, 1922. The lease was on record, its exact terms were set forth in the
declaration of trust, and both were furnished to the corporation commissioner. The permit
fully referred to both instruments and clearly set forth what McFarlane, one of the
trustees, was to receive. [2] So far as subsequent unit holders were concerned the material
fact was that such a consideration was to be paid. This being well understood and agreed
to, a subsequent unit holder was in no way injured by the fact that the consideration he
was willing to pay in order to acquire an interest in the lease was to be divided with the
other organizers of the syndicate. (Victor Oil Co. v. Drum, supra.)
[3] "It is contended that the trustees secured an amendment to the trust agreement by false
representations and that the amendment is invalid. The trust agreement provided that it
might be amended with the consent of two-thirds of the unit holders. In 1925, it was so
amended as to permit the trustees to build up a reserve fund and to invest in new ventures
aside from the original lease. It is argued that a letter which the trustees sent out asking
consent to this amendment gave certain reasons therefor, whereas their testimony
discloses other reasons. It is also argued that this letter was fraudulent because it
contained a dividend check for 10 per cent which was calculated to put the unit holders in
a mellow frame of mind, and because it falsely stated that the trust estate had lost
valuable opportunities, and held out the hope that other lucrative properties in the Santa
Fe Springs field might be obtained [7 Cal.2d 523] if the trustees were permitted to build
up a reserve which might be used for that purpose. More than two-thirds of the unit
holders consented in writing to this amendment and the trial court found against the
appellants on all allegations of fraud with respect to this transaction. The evidence fully
sustains these findings and we find nothing therein which would have sustained a finding
to the contrary.
[4] "It is next contended that the trustees exceeded their powers by investing portions of
the trust funds in leases and properties other than in the Santa Fe Springs field. It is
claimed that the trustees spent approximately $400,000 in an effort to develop oil on
some fifteen leases or projects outside of that field, without success except for one in the
Signal Hill field which was only moderately successful. This entire project was started
for the purpose of discovering and developing oil wells and, after a considerable measure
of success had been obtained, the unit holders amended the trust agreement for the
specific purpose of authorizing and enabling the trustees to extend their operations and
attempt to develop and produce oil on other properties. The fact that most of the later
ventures were not successful in no way indicates that the trustees exceeded the authority
thus given in attempting to carry out the wishes of the unit holders. The appellants argue
that the trustees were only authorized 'to develop ... oil properties', that most of the new
projects failed to produce oil, and that, therefore, they were not developing oil properties
and were acting in excess of their power. The trustees made a full and complete report of
all of these transactions to the successive annual meetings of unit holders, the trust
agreement was amended to permit them to do just such things, and the entire
circumstances, as shown by the evidence, do not support the narrow construction now
sought to be placed upon the power granted.
"Some contention is made that the trustees improperly accumulated a large reserve and
that the original provision that 90 per cent of the income should be paid out in dividends
must be taken as showing the real intention of the parties. We are unable to follow this
line of reasoning in view of the amendment adopted and the subsequent conduct of all of
the parties." [7 Cal.2d 524]
[5] It is also asserted that the trustees should return certain commissions they paid
themselves on the sale of units. It appears that each of the original trustees sold units on
which he was given the 20 per cent commission allowed by the terms of the permit. The
trial court found that these trustees were licensed brokers, that the sales upon which they
received commissions were made by them in their individual capacities and not as
trustees, nor within the scope of their duties as trustees, or in the handling of the trust
estate, nor were they "in derogation of said trust estate". It is specifically found that they
"were not called upon or required by the terms and provisions of said Declaration of Trust
to make such sales as trustees thereof and/or without compensation therefor". The court
also found that the trustees at all times endeavored faithfully to perform all of their duties
as trustees for the best interests of the trust estate. There is ample testimony to the effect
that, although the trustees were charged with the responsibility of getting a well drilled on
the property and, after losing the first one at a depth of about 2,900 feet, with the
obligation of starting another, in order to maintain the good standing of the lease; and that
it was practically impossible to secure salesmen at the percentage of 20 per cent allowed
by the permit to cover commissions and costs, because they were among the first in the
Santa Fe Springs field, which was not only a deep field but also the leases covered small
lots, to which the public was not then accustomed, and also because other operators were
finding means by which they were paying more than 20 per cent. In order to prevent the
undertaking from becoming a failure, the trustees were obliged to sell a good many units
personally and, in order to do this, were obliged in effect to remit to the purchaser the
commission taken, so that, while they are charged with commissions on the books, a large
portion thereof was not in fact collected by them. It is also to be observed that the
declaration of trust provides that the trustees shall fix the compensation of all agents and
"pay to themselves such compensation for their own service as they may deem
reasonable".
The question at this juncture is whether, under these circumstances and the findings of the
trial court, the respondents were bound to account for the compensation they received [7
Cal.2d 525] by way of commissions. The trial court held that they were not. [6] We feel
compelled by reason and the authorities to sustain this conclusion. In a comparatively
early case, Graves v. Mono Lake Hydraulic Min. Co., 81 Cal. 303 [22 P. 665], this court
announced what we conceive to be the true rule which should govern trustees of
corporations or business trusts. It is there held that a contract adopted by a board of
directors, to which the vote of the interested director or directors is necessary, is voidable
at the instance of the corporation or, in the event of its failure to act, at the election of a
minority of the stockholders "without regard to whether they [the resolutions] were fair
and honest or not". However, the court was careful to point out in that case that no
question of the value of the services rendered was involved, and quoted with approval
from Gardner v. Butler, 30 N. J. Eq. 702, as follows:
"The rule is, that the trustee cannot fortify himself by a contract which he makes with
himself or for his own benefit, and set it up either at law or in equity as a valid obligation.
... But while the express undertaking is without legal force, the directors of a company
have a right to serve it in the capacity of officers, agents, or employees, and for such
services the law will enable them to recover a just and reasonable compensation. ... No
claim which they may make against their company can acquire any support or validity
from the fact that they have expressly sanctioned it; it must rest exclusively upon its
fairness and justice, and be enforced upon the quantum meruit." To the same general
effect reference may be had to San Leandro Canning Co. v. Perillo, 84 Cal.App. 635, 639
[258 P. 670]; Bassett v. Fairchild, 132 Cal. 637, 643 [64 P. 1082, 52 L.R.A. 611], and
cases there cited. In Voorhees v. Mason, 245 Ill. 256 [91 N.E. 1056, 1059], where a
similar question was involved, it was held that a resolution allowing the directors
commissions could not govern, but it was said: "The services of the secretary and other
officers of the corporation in making sales of stock and income certificates were of value
to the corporation, and upon proof of the value of such sales, regardless of the resolution,
they may rightfully be allowed compensation for making such sales." [7 Cal.2d 526]
(See, also, Palmer v. Taylor, 168 Ark. 127 [269 S.W. 996, 1001].)
The other question is quite similar to the one just discussed. The appellants contend that
the trustees took compensation for themselves which was unreasonable and not justified
by the terms of the trust agreement, after they had fixed their compensation in lesser
amounts. There is a clause of the agreement which provides as follows: "Said trustees are
hereby vested with the sole power and discretion to discern what will constitute principal
and what will constitute gross income and net income available for payment or
distribution under the terms of this trust, provided, however, that not to exceed ten (10)
per cent of all moneys received by the trustees shall be used to defray office expenses,
officers' salaries and all overhead expenses." As we have already observed, the trust
provided that, subject to the limitation just quoted, the trustees were authorized to pay
themselves such compensation as they deemed reasonable. On April 7, 1922, the board
fixed a salary for respondent Horton, as secretary, of $350 a month and, on April 22,
1924, they voted themselves a salary of $150 a month from January 20, 1922, to April 20,
1924, "in consideration of the time given by each of the trustees to the affairs of the
syndicate, and of the value of the services rendered". Beginning August 8, 1929, Horton
was raised to $500 a month and respondent Dunbar was paid $350 a month. Beginning
January, 1932, Morris was given a salary of $100 a month. In addition to the amounts
thus paid and beginning in December, 1924, and at intervals thereafter, the trustees paid
to themselves as compensation considerable sums of money, but kept within the limit of
10 per cent of the moneys received, after deducting other office expenses and overhead.
Two of the trustees died in 1925, and the vacancies were not filled.
The trial court found that the respondent trustees had not taken more compensation than
allowed by the terms of the trust agreement and had taken less than the 10 per cent named
in the trust agreement, after deducting office and other overhead expenses. It also found
that the salaries which we have mentioned were not intended to compensate the trustees
for their services in full, but "were fixed in [7 Cal.2d 527] such amounts among the
trustees alone for extraordinary services rendered said Trust as such officers as aforesaid,
in equalizing their total compensation and the drawing thereof as between themselves".
And more important still, the court found that the sums taken by respondents as
compensation did not exceed the reasonable value of the services rendered by them to the
Bell View Oil Syndicate.
The appellants contend that the resolutions fixing the salaries preclude the respondents
from paying other compensation, but the answer to this assertion is contained in the
finding to the effect that such resolutions were intended only to equalize the
compensation as between the trustees. It cannot be denied that the testimony of the
trustees amply supports the finding of the court in this regard. Nor can it be denied that
the court's finding that the compensation was reasonable was abundantly supported.
Starting with nothing, the trustees, in the course of 12 years, with an issued capital of
$300,000, paid out in dividends to the unit holders practically $2,000,000, at the same
time accumulating physical assets valued in round figures at $500,000. Undoubtedly the
court took into consideration that, while in times when the income of the trust was large,
the compensation of the trustees was large, in times when the income was small, the
compensation would be small and perhaps, under the limitation, nothing at all. Averaging
the total compensation over the period in question, Horton received approximately $1200
a month and Dunbar about $962 a month, while Morris received an average of around
$842 a month. We cannot say that the court was not justified in concluding that the
compensation was reasonable. In fact, as the record appears to us, it would hardly have
been possible for the court to have decided otherwise. We should mention, however, that,
in our opinion, the trustees must not only be restrained by the 10 per cent limitation, but
also by the reasonable value of the services rendered.
[7] It is also argued that the limitation of 10 per cent was intended to apply to net income
instead of gross income. After an exhaustive hearing, the trial court concluded otherwise,
and we are not inclined, under the circumstances, to disagree therewith. The language of
the trust agreement indicates that it was intended to mean a percentage of the gross--"all
moneys received by the trustees". [7 Cal.2d 528] Indeed, we doubt that it could be
construed differently.
[8] "The last point raised is that the respondent trustees were guilty of such fraud in
settling a prior action brought against them as necessitates their removal. An action was
brought against the respondents by one Penn, raising most of the claims which are
involved in the present action. That action was tried, and the judge entered a minute order
finding in favor of the trustees on all points except with respect to the matter of the
compensation taken by them. On that point he found against them and ordered that
judgment be entered against them in the sum of $247,500. Before findings were made
and formal judgment entered the attorneys for all parties to that action entered into a
compromise agreement under which that action was dismissed. These three trustees
agreed to pay $25,000 to Penn's attorneys for attorney fees and costs, some $6,000 of
which was paid by the trustees personally, the rest to be paid after a successful
termination of this action. It was further agreed that the trustees would bring an action for
declaratory relief, raising the question of compensation and all other claims that had been
made against them by any of the unit holders, and for the purpose of obtaining an
adjudication as to the meaning of the trust agreement on all disputed points. This action
followed immediately. The former judgment had not become final and, in any event,
applied only to the parties thereto and left unsettled the claims of many other unit holders.
There is much to be said in favor of having the entire controversy between the various
parties settled in one action in an orderly manner. This plan having been agreed upon, and
at once carried into execution, it does not conclusively appear that the trustees were
actuated by fraudulent motives. After a full hearing on this point the trial court found in
favor of the respondents and we see no reason for setting aside that finding."
It follows that the judgment should be and it is hereby affirmed.
Waste, C.J., Seawell, J., Langdon, J., and Curtis, J., concurred.
Cases Citing "7 Cal.2d 515":
 21 Cal.2d 718
Austin v. Hallmark Oil Co.
Mar. 11, 1943. L. A. No. 17989.
Return to California Case Law

Lazar v. Superior Court (Rykoff-Sexton, Inc.) (1996) 12
Cal.4th 631 , 49 Cal.Rptr.2d 377; 909 P.2d 981
[No. S044234. Jan 29, 1996.]
ANDREW LAZAR, Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES
COUNTY, Respondent; RYKOFF-SEXTON, INC., Real Party in Interest.
(Opinion by Werdegar, J., with Lucas, C. J., Arabian, Baxter and George, JJ., concurring.
Concurring opinions by Mosk, J., and by Kennard, J.)
COUNSEL
Ross & Morrison, Gary B. Ross, Andrew D. Morrison, Schulman & Miller, Barry A.
Schulman and Jerry Miller for Petitioner.
William G. Hoerger, Luis Jaramillo, Joseph Posner, Quackenbush & Quackenbush and
William C. Quackenbush as Amici Curiae on behalf of Petitioner.
No appearance for Respondent.
Gibson, Dunn & Crutcher, Martin C. Washton and Jeffrey F. Webb for Real Party in
Interest.
Musick, Peeler & Garrett, Richard J. Simmons, Michael G. Morgan, Morrison &
Foerster, Kirby Wilcox and James E. Boddy, Jr., as Amici Curiae on behalf of Real Party
in Interest.
OPINION
WERDEGAR, J.
We granted review in this matter to clarify, following our decisions in Foley v. Interactive
Data Corp. (1988) 47 Cal.3d 654 [254 [12 Cal.4th 635] Cal.Rptr. 211, 765 P.2d 373]
(Foley) and Hunter v. Up-Right, Inc. (1993) 6 Cal.4th 1174 [26 Cal.Rptr.2d 8, 864 P.2d
88] (Hunter), whether or under what circumstances a plaintiff may state a cause of action
for fraudulent inducement of employment contract. The Court of Appeal concluded the
allegations of the plaintiff in this case are adequate to state such a cause of action. For the
reasons that follow, we agree. Accordingly, we affirm the judgment of the Court of
Appeal.
I. Background
[1] Because this matter comes to us after the trial court sustained the defendant's
demurrer, "we must, under established principles, assume the truth of all properly pleaded
material allegations of the complaint in evaluating the validity" of the decision below.
(Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170 [164 Cal.Rptr. 839, 610 P.2d
1330, 9 A.L.R.4th 314]; see also Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493,
496 [86 Cal.Rptr. 88, 468 P.2d 216].)
Andrew Lazar alleged as follows:
Lazar was born in New York in 1950. He lived and worked in Long Island, New York
until 1990. From 1972 to 1990, he was employed with a family-owned restaurant
equipment company. As of 1990, he was president of the company, earning $120,000
annually and living in New York with his wife of 21 years and his 2 children, ages 17 and
15.
In September 1989, a vice-president of real party in interest Rykoff-Sexton, Inc. (Rykoff
or defendant) contacted Lazar and tried to persuade him to come to work in Los Angeles
as Rykoff's West Coast general manager for contract design. Rykoff, through its vice-
president and, later, through its president and its chief executive officer, intensively
recruited Lazar through February 1990. For recruitment purposes, Rykoff brought Lazar
and his wife to Los Angeles to visit Rykoff's offices, to visit realtors and to see the city.
During this recruitment process, Lazar told Rykoff he was concerned about relocating to
Los Angeles, as the move would entail relinquishing a secure job as president of the
family company where he had worked all his adult life, separating his children from their
friends at an important time of their lives and leaving his home of 40 years. As a
condition of agreeing to relocate, Lazar required Rykoff's assurance that his job would be
secure and would involve significant pay increases.
In response to Lazar's concerns, Rykoff made representations to Lazar that led him to
believe he would continue to be employed by Rykoff so long [12 Cal.4th 636] as he
performed his job and achieved goals. Rykoff represented that Lazar would enjoy
continued advancement within the organization, would be welcomed as part of the Rykoff
"family" and, as a Rykoff employee, would enjoy security and a strong future. Rykoff
represented that Lazar would have a long-term relationship with the company.
Additionally, Rykoff implied the current head of the department in which Lazar would
work had plans to retire and Lazar would be groomed to assume that position.
Rykoff further represented that the company was very strong financially and anticipated
solid growth and a stable, profitable future. In particular, Rykoff represented that the
department in which Lazar would work was a growth division within the company and
that Rykoff had plans to expand it. Rykoff also stated Rykoff would pay Lazar $130,000
annually to start and, if Lazar performed his job, his yearly income would quickly rise to
$150,000. Rykoff told Lazar he would receive annual reviews and raises accordingly.
Lazar asked for a written employment contract, but was refused. Rykoff stated a written
contract was unnecessary because "our word is our bond." In or about February 1990,
Lazar accepted Rykoff's offer of employment on terms including the foregoing.
Rykoff's representations to Lazar regarding the terms on which he would be retained,
Rykoff's financial health and Lazar's potential compensation were false and, when
making them, Rykoff's agents knew they were false. Rykoff had in the immediately
preceding period experienced its worst economic performance in recent history, and the
company's financial outlook was pessimistic. In fact, Rykoff was planning an operational
merger that would eliminate Lazar's position. Rykoff had no intention of retaining Lazar
so long as he performed adequately. Instead, Rykoff secretly intended to treat Lazar as if
he were an "at will" employee, subject to termination without cause. Rykoff knew the
promised compensation increases would not be given, as company policy limited annual
increases to 2 to 3 percent.
Based on Rykoff's representations, Lazar resigned his New York position and, in May
1990, commenced employment at Rykoff. The following month, Lazar bought a home in
California and moved his family there.
Lazar performed his job at Rykoff in an exemplary manner. He obtained sales increases
in his assigned region, and soon after he commenced employment his West Coast region
achieved its sales budget for the first time. Lazar accomplished continued improvement
in sales and lowered overall operating costs within his department.
In April 1992, Rykoff failed to pay Lazar certain bonus compensation to which he had
become entitled under a company incentive program. Subsequently, in July, Lazar was
terminated. Rykoff told Lazar his job was being [12 Cal.4th 637] eliminated owing to
management reorganization. A Rykoff vice-president told Lazar his termination was not
performance related and was for cause.
The Rykoff vice-president further stated Lazar could leave the company with dignity by
tendering a letter of resignation and by keeping his regular status (and all the appearances
of job stability) for three months so that he could better search for a new job. In fact,
Lazar was given a desk in Rykoff's warehouse, where noise from forklifts made use of the
telephone an absurdity. The fact Lazar was leaving Rykoff was not maintained as a secret
and became common knowledge. Lazar has been unable to find comparable employment.
As a consequence of Rykoff's conduct and Lazar's reliance on Rykoff's representations,
Lazar lost past and future income and employment benefits. He lost contact with the New
York employment market so that reemployment there is difficult or impossible. Lazar is
burdened with payments on Southern California real estate he can no longer afford. Lazar
and his family have experienced emotional distress, with both psychological and physical
manifestations.
Lazar further alleged Rykoff acted with oppression, fraud, or malice within the meaning
of Civil Code section 3294.
Based on these allegations, Lazar set forth causes of action for: (1) violation of Labor
Code section 970 (false representations to induce relocation), (2) wrongful termination in
violation of public policy, (3) fraud and deceit, (4) negligent misrepresentation, (5)
breach of contract, (6) promissory estoppel, (7) intentional infliction of emotional
distress, and (8) negligent infliction of emotional distress.
Rykoff demurred to all causes of action except the Labor Code and breach of contract
claims. The trial court sustained Rykoff's demurrer in its entirety without leave to amend,
leaving Lazar with only the Labor Code section 970 and breach of contract causes of
action. Lazar unsuccessfully sought reconsideration, then a writ of mandate. (Lazar did
not seek review of the trial court's sustaining of Rykoff's demurrer to his cause of action
for promissory estoppel.)
The Court of Appeal issued a writ of mandate directing the superior court to vacate its
order, insofar as it sustained Rykoff's demurrers to Lazar's causes of action for wrongful
termination in violation of public policy, fraud and deceit, negligent misrepresentation,
and intentional infliction of emotional distress, and to enter a new order overruling the
demurrers to those causes of action. [12 Cal.4th 638]
We granted Rykoff's petition for review. Subsequently, we specified that the issues to be
argued would be limited to whether, or under what circumstances, a plaintiff may state a
cause of action for fraudulent inducement of employment contract. (Cal. Rules of Court,
rule 29.2(b).)
II. Discussion
A. Promissory fraud
[2a] "The elements of fraud, which give rise to the tort action for deceit, are (a)
misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of
falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance;
and (e) resulting damage." (5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 676,
p. 778; see also Civ. Code, § 1709; Hunter, supra, 6 Cal.4th 1174, 1184; Molko v. Holy
Spirit Assn. (1988) 46 Cal.3d 1092, 1108 [252 Cal.Rptr. 122, 762 P.2d 46].)
[3] "Promissory fraud" is a subspecies of the action for fraud and deceit. A promise to do
something necessarily implies the intention to perform; hence, where a promise is made
without such intention, there is an implied misrepresentation of fact that may be
actionable fraud. (Union Flower Market, Ltd. v. Southern California Flower Market, Inc.
(1938) 10 Cal.2d 671, 676 [76 P.2d 503]; see Civ. Code, § 1710, subd. (4); 5 Witkin,
Summary of Cal. Law, supra, § 685, pp. 786-787.)
An action for promissory fraud may lie where a defendant fraudulently induces the
plaintiff to enter into a contract. (Chelini v. Nieri (1948) 32 Cal.2d 480, 487 [196 P.2d
915] ["tort of deceit" adequately pled where plaintiff alleges "defendant intended to and
did induce plaintiff to employ him by making promises ... he did not intend to (since he
knew he could not) perform" (fn. omitted)]; Kuchta v. Allied Builders Corp. (1971) 21
Cal.App.3d 541, 549 [98 Cal.Rptr. 588], citing Horn v. Guaranty Chevrolet Motors
(1969) 270 Cal.App.2d 477, 484 [75 Cal.Rptr. 871]; Squires Dept. Store, Inc. v. Dudum
(1953) 115 Cal.App.2d 320, 323 [252 P.2d 418].) In such cases, the plaintiff's claim does
not depend upon whether the defendant's promise is ultimately enforceable as a contract.
"If it is enforceable, the [plaintiff] ... has a cause of action in tort as an alternative at least,
and perhaps in some instances in addition to his cause of action on the contract." (Rest.2d
Torts, § 530, subd. (1), com. c., p. 65, cited with approval in Tenzer v. Superscope, Inc.
(1985) 39 Cal.3d 18, 29 [216 Cal.Rptr. 130, 702 P.2d 212].) Recovery, however, may be
limited by the rule against double recovery of tort and contract compensatory damages.
(Tavaglione v. Billings (1993) 4 Cal.4th 1150, 1159 [17 Cal.Rptr.2d 608, 847 P.2d 574].)
[12 Cal.4th 639]
[4a] Lazar's allegations, if true, would establish all the elements of promissory fraud. As
detailed above, Lazar alleges that, in order to induce him to come to work in California,
Rykoff intentionally represented to him he would be employed by the company so long as
he performed his job, he would receive significant increases in salary, and the company
was strong financially. Lazar further alleges that Rykoff's representations were false, and
he justifiably relied on them in leaving secure New York employment, severing his
connections with the New York employment market, uprooting his family, purchasing a
California home and moving here.
Lazar alleges that Rykoff knew its representations regarding the terms upon which he
would be retained in Rykoff's employ, potential salary increases and the financial strength
of the company were false at the time they were made. He also alleges that, at the time
Rykoff represented to him his job would be permanent and secure, Rykoff was planning
an operational merger likely to eliminate Lazar's job, and Rykoff had no intention of
retaining him so long as he performed adequately. Instead, Lazar alleges, Rykoff secretly
intended to treat him as if he were subject to termination without cause. Lazar further
alleges Rykoff knew the purported potential salary increases would not materialize,
because company policy was to limit annual increases to 2 or 3 percent. These allegations
adequately state a cause of action for promissory fraud as traditionally understood.
Rykoff and employers' groups appearing as amici curiae in support of Rykoff contend
Lazar's fraud action is barred by our decisions in Foley, supra, 47 Cal.3d 654, and Hunter,
supra, 6 Cal.4th 1174. Rykoff argues that, following Foley and Hunter, a California
employee cannot state a tort claim arising from employment termination, other than
wrongful termination in violation of public policy.
After cursory discussion, the Court of Appeal concluded, "Hunter did not preclude all
fraud claims in the employment context. It merely bars the limited category of fraud
claims arising from employer misrepresentations which are made to effect termination."
We agree with the Court of Appeal's disposition permitting Lazar's fraud claim, but
believe an adequate explanation of that result requires a somewhat fuller explication and
clarification of our rationale in Hunter. In addition, we believe Rykoff is mistaken about
the degree to which the policy considerations underlying our decision in Foley apply in
fraudulent inducement of contract cases.
B. Hunter
In Hunter, supra, 6 Cal.4th 1174, we considered whether a terminated employee may
recover tort damages for fraud and deceit predicated on a [12 Cal.4th 640]
misrepresentation used to effect the termination. Hunter, a welder, was falsely told by his
supervisor a corporate decision to eliminate his position had been made. (Hunter, supra, 6
Cal.4th at pp. 1179, 1186.) After being refused an opportunity to work in a lesser position
within the company, Hunter signed a document setting forth his resignation. (Id. at p.
1179.) The jury found that Up-Right, Hunter's employer, had breached an implied
contract not to dismiss him without good cause. We noted that Up-Right could have
accomplished Hunter's termination directly (incurring the risk of contract liability only)
and had merely introduced the element of misrepresentation in the course of effecting that
result. (Id. at pp. 1178, 1184.) Hunter, therefore, could not be said to have "relied to his
detriment on the misrepresentations in suffering constructive dismissal." (Id. at p. 1184.)
Analyzing these circumstances in light of Foley, supra, and of the traditional elements of
fraud, we concluded wrongful termination of employment ordinarily does not give rise to
a cause of action for fraud or deceit, even if a misrepresentation is utilized to effect the
termination. (Hunter, supra, 6 Cal.4th at p. 1178.) We reasoned that "such representations
are merely the means to the end desired by the employer, i.e., termination of
employment." (Id. at p. 1185.) The effect of Up-Right's misrepresentation was simply to
transform Hunter's resignation into a constructive termination. (Id. at p. 1184.)
Seizing upon language in Hunter indicating tort recovery is available only "when the
plaintiff's fraud damages cannot be said to result from [the] termination itself" (Hunter,
supra, 6 Cal.4th at p. 1178), Rykoff argues Lazar's damages resulted from his termination
and that Hunter, therefore, bars any tort recovery. According to Rykoff, Hunter stands for
the general proposition that terminated employees should be limited to contract damages
and, after Hunter, a terminated employee can obtain tort damages only by alleging the
termination violated a fundamental public policy of the state. We disagree.
[5a] First, on its face Hunter does not preclude Lazar's fraud claim. As Lazar correctly
points out, we expressly left open in Hunter the possibility "that a misrepresentation not
aimed at effecting termination of employment, but instead designed to induce the
employee to alter detrimentally his or her position in some other respect, might form a
basis for a valid fraud claim even in the context of a wrongful termination." (Hunter,
supra, 6 Cal.4th at p. 1185, italics in original.) The misrepresentations Lazar alleges were
not aimed at effecting his termination, but, rather, at inducing him to accept Rykoff's offer
of employment.
In Hunter, moreover, we specifically preserved promissory fraud claims. Indeed, despite
this court's division over the issue of tort recovery for [12 Cal.4th 641] misrepresentation
used to effect termination, all seven members of the court either expressly or impliedly
agreed that the action for promissory fraud remains viable in the employment context.
(Hunter, supra, 6 Cal.4th at p. 1186, fn. 1 (maj. opn. by Panelli, J., Lucas, C. J., Baxter, J.,
and George, J., conc.) ["This is not a case of promissory fraud, and nothing in this
opinion affects the availability of tort damages in any case in which the elements of
promissory fraud are pleaded and proved."]; id. at p. 1188 (dis. opn. of Mosk, J., Arabian,
J., conc.) ["[I]n cases of promissory fraud ... both the breach [of contract] and the fraud
leading to the breach are separately actionable."]; id. at p. 1197 (dis. opn. of Kennard, J.)
["[W]hen ... the employer's conduct is not within the scope of the contractual
employment relationship" the "defrauded employee is entitled to recover tort
damages."].) As previously discussed, Lazar has adequately pled a cause of action for
promissory fraud.
Looking deeper, it is clear the rationale for our decision in Hunter does not apply to this
case. In Hunter, while we identified a situation in which a terminated employee was
unable to plead all of the elements of fraud, we did not thereby intend to call into
question generally the viability of traditional fraud remedies whenever they are sought by
a terminated employee. Our decision in Hunter was not meant to alter fundamentally the
law of fraud or to suggest it necessarily applies differently in the employment context
than in other contexts. Rather, we applied traditional fraud analysis in the context of a
termination "desired by the employer," where misrepresentation was introduced only "in
the course of" effecting the desired termination, and where the employer "could have
accomplished [the termination] directly." (Hunter, supra, 6 Cal.4th at pp. 1179, 1184,
1185.) Under such circumstances, we concluded, the Court of Appeal had "erred in
inferring" the employer had committed a fraud. (Id. at pp. 1184-1185.)
Hunter dealt with a situation atypical of the usual fraud situation, in that there the alleged
perpetrator of the fraud (the defendant employer, Up-Right) was attempting to
accomplish by deception something it actually had power to accomplish forthrightly-
termination of the plaintiff's employment. (See Hunter, supra, 6 Cal.4th at pp. 1184-
1185.) Hunter's rationale does not readily extend beyond the termination context because,
in the ordinary fraud case, the alleged perpetrator of the fraud lacks the power to
accomplish his objective without resort to duplicity.
We reasoned in Hunter that "no independent fraud claim" arose from Up-Right's
"misrepresentation aimed at termination of employment" (Hunter, supra, 6 Cal.4th at p.
1185), because Hunter could not allege all of the elements of fraud. (See Hunter, supra, 6
Cal.4th at p. 1184, citing 5 Witkin, [12 Cal.4th 642] Summary of Cal. Law, supra, Torts,
§ 676, p. 778; Civ. Code, § 1709; and Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412,
422 [159 P.2d 958].) Specifically, as we explained, Hunter could not allege detrimental
reliance. (Hunter, supra, 6 Cal.4th at p. 1184.)
We noted, initially, that Hunter could not be said to have relied to his detriment on his
employer's misrepresentation, because his employer "simply employed a falsehood to do
what it otherwise could have accomplished directly." (Hunter, supra, 6 Cal.4th at p.
1184.) That is, Hunter's employer had the power to terminate him, rightly or wrongly. We
further noted that some misrepresentations used in the course of a dismissal are "merely
the means to the end desired by the employer, i.e., termination of employment." (Hunter,
supra, 6 Cal.4th at p. 1185.) Had Hunter not resigned, he would, presumably, have been
discharged in any event, a fact we implicitly recognized in noting that "the result of Up-
Right's misrepresentation is indistinguishable from an ordinary constructive wrongful
termination" (id. at p. 1184); in describing termination as Up-Right's "aim" and "desire"
(id. at p. 1185); and in recognizing that the element of misrepresentation was introduced
by Up-Right only "in the course of" Hunter's dismissal. (Id. at p. 1178.) Hunter himself
testified he was told he would be terminated if he did not resign. (Id. at p. 1179.)
In short, because Up-Right had both the power and intention of discharging him in any
event, Hunter was no worse off for being induced by Up-Right's misrepresentation to
resign. While Hunter may have relied on Up-Right's misrepresentation, and while in
reliance thereon he allegedly changed his position (from employed to unemployed), his
reliance did not cause him any detriment, as the tort requires. (See Hull v. Sheehan (1952)
108 Cal.App.2d 804, 805 [239 P.2d 704]; Bramaric v. Churich (1951) 101 Cal.App.2d
846, 850 [226 P.2d 657].) Accordingly, Hunter could not plead detrimental reliance.
Lacking this element, we said, his fraud claim was "without substance." (Hunter, supra, 6
Cal.4th at p. 1184).
[4b] By contrast, as alleged, Lazar's reliance on Rykoff's misrepresentations was truly
detrimental, such that he may plead all the elements of fraud. Lazar's employer, Rykoff,
did not have the power to compel Lazar to leave his former employment. Rykoff's
misrepresentations were made before the employment relationship was formed, when
Rykoff had no coercive power over Lazar and Lazar was free to decline the offered
position. Rykoff used misrepresentations to induce Lazar to change employment, a result
Rykoff presumably could not have achieved truthfully (because Lazar had required
assurances the Rykoff position would be secure and would involve significant increases
in pay). Moreover, Lazar's decision to join Rykoff left [12 Cal.4th 643] Lazar in worse
circumstances than those in which he would have found himself had Rykoff not lied to
him. (Allegedly, Lazar's secure living and working circumstances were disrupted, and
Lazar became the employee of a financially troubled company, which intended to treat
him as an at-will employee.)
[5b] In sum, Hunter's core rationale (that a substantial fraud claim could not be pled
because the element of detrimental reliance was absent) does not apply to this case. As
alleged, Lazar's reliance was truly detrimental.
Contrary to Rykoff's arguments, our rationale for deciding Hunter does not preclude tort
recovery in every case involving a termination. While in previewing our rationale in
Hunter, we indicated it would support tort recovery "only" with respect to a
misrepresentation that is "separate from the termination of the employment contract" (see
Hunter, supra, 6 Cal.4th at p. 1178), we did not mean thereby to suggest that simply
effecting a termination in conjunction with fraudulent conduct will insulate an employer
from an otherwise properly pled fraud claim. We meant, rather, to preclude fraud
recovery only where "the result of [the employer]'s misrepresentation is indistinguishable
from an ordinary constructive wrongful termination." (Hunter, supra, 6 Cal.4th at p.
1184.)
[4c] Here, Rykoff's alleged misrepresentation was not made in the course of Lazar's
termination, but, rather, is separate from his termination. The damage Lazar alleges does
not, moreover, "result from [the] termination itself" (Hunter, supra, 6 Cal.4th at p. 1178,
italics added), but from Rykoff's misrepresentations (which allegedly came to light only
at the time of termination). Absent its misrepresentations, Rykoff would not have been in
the position to terminate Lazar, because Lazar allegedly would not have consented to the
employment contract in the first place.
Thus, Hunter does not bar Lazar's fraud claim.
C. Foley
Rykoff suggests our recognition, in Foley, supra, 47 Cal.3d 654, that the employment
relationship is "fundamentally contractual" (Foley, supra, at p. 696), coupled with
references in Hunter to economic policy considerations we invoked in Foley (see Hunter,
supra, 6 Cal.4th at pp. 1180-1182), implies employees should generally be limited to
contract damages for employment terminations. Rykoff argues that permitting tort
remedies in the employment context is unnecessary and extraordinarily costly, and the
policy reasons for which we declined to extend tort relief in Foley apply with equal force
[12 Cal.4th 644] against Lazar's claim for fraudulent inducement of employment
contract. (See 47 Cal.3d at p. 693.)
Foley addressed whether tort remedies should be available for employment terminations
that allegedly breach the implied covenant of good faith and fair dealing. At issue was
whether the employment relationship was "sufficiently similar to that of insurer and
insured to warrant judicial extension of the proposed additional tort remedies" for breach
of the implied covenant of good faith and fair dealing in an employment contract. (Foley,
supra, 47 Cal.3d at p. 693.) We declined to make that extension, "in view of the
countervailing concerns about economic policy and stability, the traditional separation of
tort and contract law, and finally, the numerous protections against improper terminations
already afforded employees." (Ibid.)
Thus, the issue in Foley was whether to acknowledge the existence of a previously
unrecognized cause of action (i.e., tortious breach of the implied covenant of good faith
and fair dealing in the employment context). [5c] The issue in this case is whether we
should restrict the availability of traditional tort remedies when they are sought in the
employment context. In Foley, we recognized "the extension of ... [available] tort
remedies" proposed by plaintiffs had "the potential to alter profoundly the nature of
employment, the cost of products and services, and the availability of jobs." (Foley,
supra, 47 Cal.3d at p. 694.) We concluded any such extension is "better suited for
legislative decisionmaking." (Ibid.) Here, by contrast, defendant's suggestion this court,
in order to optimize California's business climate for employers generally, should restrict
the application of tort remedies traditionally available in the employment context, would
seem to urge upon us a quasi-legislative enterprise such as we refused in Foley.
In declining judicially to expand tort remedies for breaches of the implied covenant in
Foley, we alluded to the need for courts to practice restraint when asked to fashion new
remedies in areas of the law already governed by "numerous legislative provisions" and
subject to a "diversity of possible solutions." (Foley, supra, 47 Cal.3d at p. 700.)
Similarly, in this case, we should be mindful that our Legislature more than a century ago
codified the common law cause of action for promissory fraud in inducing a contract,
along with actions for promissory fraud and fraud, generally. (See Civ. Code, §§ 1572,
subd. 4, 1709, 1710.) These statutes provide no express exception for employers or
employees. Accordingly, judicial restraint such as we exercised in Foley counsels against
disallowing the traditional fraud claim pled in this case.
Our concern in Foley not to create "potential tort recovery in every [discharge] case" (47
Cal.3d at p. 696) does not weigh as heavily here, [12 Cal.4th 645] where plaintiff alleges
a traditional fraud cause of action. [2b] In California, fraud must be pled specifically;
general and conclusory allegations do not suffice. (Stansfield v. Starkey (1990) 220
Cal.App.3d 59, 74 [269 Cal.Rptr. 337]; Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1268
[258 Cal.Rptr. 787]; 5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 662, pp. 111-
112.) "Thus ' "the policy of liberal construction of the pleadings ... will not ordinarily be
invoked to sustain a pleading defective in any material respect." ' [Citation.] [¶] This
particularity requirement necessitates pleading facts which 'show how, when, where, to
whom, and by what means the representations were tendered.' " (Stansfield, supra, 220
Cal.App.3d at p. 73, italics in original.) A plaintiff's burden in asserting a fraud claim
against a corporate employer is even greater. In such a case, the plaintiff must "allege the
names of the persons who made the allegedly fraudulent representations, their authority
to speak, to whom they spoke, what they said or wrote, and when it was said or written."
(Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157 [2 Cal.Rptr.2d
861].)
Our decision in Foley does not provide authority for exempting employers from ordinary
fraud rules that apply to Californians generally. In fact, Foley's entire thrust is to the
contrary insofar as we held employers to ordinary, rather than special, standards. (Foley,
supra, 47 Cal.3d at p. 693 [holding employers are not governed by the "special
relationship" standard applicable to insurers].) Moreover, while any lawsuit that names an
employer as defendant theoretically implicates the same general range of economic
policy considerations we discussed in Foley, those policy considerations do not
necessarily apply with the same force in a fraud case.
[6a] Contrary to defendant's arguments, fraudulent inducement of contract-as the very
phrase suggests-is not a context where the "traditional separation of tort and contract law"
(Foley, supra, 47 Cal.3d at p. 693; Hunter, supra, 6 Cal.4th at p. 1181) obtains. To the
contrary, this area of the law traditionally has involved both contract and tort principles
and procedures. For example, it has long been the rule that where a contract is secured by
fraudulent representations, the injured party may elect to affirm the contract and sue for
the fraud. (Campbell v. Birch (1942) 19 Cal.2d 778, 791 [122 P.2d 902]; see generally, 5
Witkin, Summary of Cal. Law, supra, Torts, § 726, pp. 825-826.)
[5d] Defendant opines that barring claims for fraudulent inducement of employment
contract, in light of "existing protections against improper terminations" (see Hunter,
supra, 6 Cal.4th at p. 1182, citing Foley, supra, 47 Cal.3d at pp. 692-693), would leave
employees well protected. But the resolution proposed here involves affirming, not
inventing, the cause of [12 Cal.4th 646] action for promissory fraud. Thus the "existing
protections" we invoked in Hunter necessarily included the availability of promissory
fraud actions like this one.
[6b] More fundamentally, it is a truism that contract remedies alone do not address the
full range of policy objectives underlying the action for fraudulent inducement of
contract. In pursuing a valid fraud action, a plaintiff advances the public interest in
punishing intentional misrepresentations and in deterring such misrepresentations in the
future. (Cf. Foley, supra, 47 Cal.3d at p. 683 [recognizing tort law is designed to
vindicate social policy].) Because of the extra measure of blameworthiness inhering in
fraud, and because in fraud cases we are not concerned about the need for "predictability
about the cost of contractual relationships" (ibid.), fraud plaintiffs may recover "out-of-
pocket" damages in addition to benefit-of-the-bargain damages. (Tavaglione v. Billings,
supra, 4 Cal.4th at p. 1159, citing with approval Pat Rose Associates v. Coombe (1990)
225 Cal.App.3d 9, 20 [275 Cal.Rptr. 1]; see also Freeman & Mills, Inc. v. Belcher Oil Co.
(1995) 11 Cal.4th 85, 97 [44 Cal.Rptr.2d 420, 900 P.2d 669] [discussing "[t]he distinction
between tort and contract actions, and their purposefully different measure of damages"].)
For example, a fraudulently hired employee, as Lazar has alleged himself to be, may
incur a variety of damages "separate from the termination" itself, such as the expense and
disruption of moving or loss of security and income associated with former employment.
It is true that in Hunter we buttressed our fraud analysis with references to some of the
economic policy considerations reviewed in Foley. (See Hunter, supra, 6 Cal.4th at pp.
1180-1182 [reviewing the grounds for Foley's conclusion the employment relationship is
fundamentally contractual]; id. at p. 1183 [reviewing restrictions on tort recovery for
injuries covered by workers compensation].) Our Hunter opinion does contain some
broad language suggestive of Rykoff's position. (See, e.g., Hunter, supra, 6 Cal.4th at p.
1185 ["Recognition of a fraud cause of action in the context of wrongful termination of
employment not only would contravene the logic of Foley, but also potentially would
cause adverse consequences for industry in general."])
Nevertheless, we reject Rykoff's contention that, by citing Foley in Hunter, we restricted
or abandoned traditional tort remedies in the employment context. Instead, our reference
in Hunter to "the logic of Foley" (Hunter, supra, 6 Cal.4th at p. 1185) merely invoked
Foley's holding that tort damages should not be judicially extended in order to "fashion
remedies for breach of a contract provision." (Foley, supra, 47 Cal.3d at p. 700.) In
Hunter, we had concluded that a misrepresentation to effect termination of [12 Cal.4th
647] employment did not "rise to the level of a separately actionable fraud." (Hunter,
supra, 6 Cal.4th at p. 1185.) Since "the result of Up-Right's misrepresentation [was]
indistinguishable from an ordinary wrongful termination" (id. at p. 1184), Foley's "logic"
(that, in light of "potentially enormous [economic] consequences," tort remedies ought
not be judicially extended beyond their traditional limits) became pertinent. (47 Cal.3d at
p. 699.)
[5e] This case is different. Here we are not dealing with allegations of breach of a
contract provision, but with allegations of fraud. Foley was a contract case in which we
declined to expand the availability of tort remedies for breach of contract; this is a tort
case in which we are being asked by defendant to constrict traditional tort remedies.
Defendants fix upon our reference in Hunter to "Foley's conception of the employment
relation as fundamentally contractual, giving rise only to contractual damages in the
event of [a] breach in the absence of some violation of a fundamental public policy."
(Hunter, supra, 6 Cal.4th at p. 1182.) While in Hunter we noted we have "continuously
adhered to that view" (id. at p. 1178), we were referring there to our consistent refusal to
validate tort remedies for breach of contract, not to any erosion of traditional fraud
remedies.
Nevertheless, defendant argues that in Hunter we impliedly extended Foley to preclude
recovery of tort damages in any case where the plaintiff fails to allege the discharge
violated a fundamental public policy. Defendant points to Hine v. Dittrich (1991) 228
Cal.App.3d 59 [278 Cal.Rptr. 330], Soules v. Cadam, Inc. (1991) 2 Cal.App.4th 390 [3
Cal.Rptr.2d 6] and American Guar. & Liability v. Vista Medical Supply (N.D.Cal. 1988)
699 F.Supp. 787 as instances where courts have recognized and applied such a principle
to defeat the plaintiff's tort claims. In Hunter, we cited Hine and Soules as examples of
Court of Appeal cases following Foley, and suggested the conclusion in American Guar.
& Liability, (that an employee's negligent misrepresentation claim, which arose out the
employer's intentional act of discharging her, was "part and parcel" of her wrongful
discharge claim), was "correct and pertinent" to the issue before us. (Hunter, supra, 6
Cal.4th at p. 1182.)
Defendant argues that, in referring to Hine and Soules in Hunter, we impliedly endorsed
the proposition that an employee can never state a tort claim arising from employment
termination, other than wrongful termination in violation of public policy. Defendant
makes too much of our mention of these cases. Our references in Hunter simply
buttressed, in general terms, [12 Cal.4th 648] our recognition that California courts "have
adhered to Foley's conception of the employment relation." (Hunter, supra, 6 Cal.4th at p.
1182, citing Hine, Soules and American Guar. & Liability.) Nothing in Hunter's language
or reasoning committed us to wholesale adoption of the sometimes sweeping analyses or
conclusions contained in Hine, Soules and American Guar. & Liability.
Hine v. Dittrich, supra, 228 Cal.App.3d 59, was a negligent supervision case in which the
plaintiff specifically alleged he suffered no injury until he was discharged. (Hine v.
Dittrich, supra, 228 Cal.App.3d at p. 64.) In a portion of the opinion we did not quote in
Hunter, the Court of Appeal expansively opined: "As long as the alleged injury would not
have occurred but for the employment termination, Foley indicates that the employee is
generally limited to a contractual remedy." (228 Cal.App.3d at p. 65.) By contrast, Lazar
alleges injuries from intentionally tortious behavior which occurred before, during and
after the actual termination. In Soules, the Court of Appeal disapproved the use of
pleading artifice to relabel a deficient breach of contract claim. (Soules v. Cadam, Inc.,
supra, 2 Cal.App.4th at pp. 403-404.) By contrast, even defendant does not contend this
case is one of artful pleading; as discussed, Lazar has alleged the traditional elements of
promissory fraud. More importantly, the plaintiff in Soules founded his tort claims
entirely upon conduct alleged to have breached the employment contract. (Id. at p. 404.)
Lazar alleges fraudulent inducement.
While in Hunter we also approved in dictum the court's conclusion in American Guar. &
Liability v. Vista Medical Supply, supra, 699 F.Supp. 787, that the employee's negligent
supervision claim was subsumed in her wrongful termination claim (Hunter, supra, 6
Cal.4th at p. 1182), we did not intend thereby to usurp the legislative function and create
any new across-the-board tort immunity for employers who wrongfully terminate
employees. We agree with plaintiff there is no "Foley doctrine" stating or implying that
employers who terminate employees do or should enjoy broad special immunities from
tort liability.
In short, nothing in the logic of Foley, or our subsequent discussion in Hunter of the
policy considerations underlying Foley, suggests California fraud doctrine should be
revised judicially in the manner defendant advocates. Thus, Foley does not bar Lazar's
fraud claim.
III. Conclusion
Consistent with the foregoing, as to his fraud claim Lazar may properly seek damages for
the costs of uprooting his family, expenses incurred in [12 Cal.4th 649] relocation, and
the loss of security and income associated with his former employment in New York. On
the facts as pled, however, Lazar must rely on his contract claim for recovery of any loss
of income allegedly caused by wrongful termination of his employment with Rykoff.
Moreover, any overlap between damages recoverable in tort and damages recoverable in
contract would be limited by the rule against double recovery. (Tavaglione v. Billings,
supra, 4 Cal.4th at p. 1159.)
Lazar, therefore, may proceed with his claim for fraud in the inducement of employment
contract, properly seeking damages for "all the detriment proximately caused thereby"
(Civ. Code, § 3333), as well as appropriate exemplary damages (Civ. Code, § 3294).
For the foregoing reasons, the judgment of the Court of Appeal is affirmed.
Lucas, C. J., Arabian, J., Baxter, J., and George, J., concurred.
MOSK, J.
I concur in the judgment. I also agree with much of the reasoning of the majority opinion.
I continue to believe, however, that Hunter v. Up-Right, Inc. (1993) 6 Cal.4th 1174 [26
Cal.Rptr.2d 8, 864 P.2d 88] (Hunter) was wrongly decided. The majority today do not
overrule Hunter-indeed, because the present case is factually distinguishable, they have
no occasion to do so. Instead, they reject the more extreme view of that case urged by real
party in interest Rykoff-Sexton, Inc. (Rykoff), and attempt to put Hunter on a firmer
logical basis. Although I remain unpersuaded that Hunter is soundly reasoned, I welcome
the majority's limitation of Hunter's potentially broad holding.
The majority wisely repudiate Rykoff's view that Hunter and Foley v. Interactive Data
Corp. (1988) 47 Cal.3d 654 [254 Cal.Rptr. 211, 765 P.2d 373] stand for the radical
proposition that courts should not, for public policy reasons, enforce any tort liability
arising in connection with the wrongful termination of an employment contract. They
correctly identify the question in Hunter and the present case as whether all the traditional
elements of fraud, and specifically the element of detrimental reliance, are present. They
maintain that no detrimental reliance could be found in Hunter, stating: "Hunter's
employer had the power to terminate him, rightly or wrongly.... Had Hunter not resigned,
he would, presumably, have been discharged in any event .... [¶] In short, because Up-
Right had both the power and intention of discharging him in any event, Hunter was no
worse off for being induced by Up-Right's misrepresentation to resign." (Maj. opn., ante,
at p. 642.) Thus, they reason that Hunter did not detrimentally [12 Cal.4th 650] rely on
Up-Right's misrepresentation inducing him to resign because he would have been
discharged in any case.
Although I disagree with the majority's interpretation of the facts of the Hunter case (see
Hunter, supra, 6 Cal.4th at p. 1191 (dis. opn. of Mosk, J.)), there is no need to reargue the
merits of a case already decided. But the majority appear to recognize that the question
central to Hunter-whether an employee who is deceived into resigning may sue the
employer for fraud-turns on the answer to a question of fact: whether it is probable that
the employee would have been terminated anyway, and therefore did not rely
detrimentally on the employer's misrepresentation in any actual sense. The majority
appear to presume that if an employer had both the intention and the power to discharge
an employee, then the employee will be inevitably discharged by either truthful or
deceptive means, and is therefore no worse off for having been deceived into resigning.
But that presumption must be rebuttable on a contrary factual showing.
Under what circumstances would an employer who has the ability and intention to
discharge an employee nonetheless refrain from discharging him except by means of
misrepresentation? The answer, surely, is that under some circumstances, the employer
will refrain from discharging the employee outright because it is too costly to do so.
Employers may, for example, resort to such fraudulent deception when they know that to
terminate the employee straightforwardly will lead to a lawsuit in which the employee
would likely prevail. This species of fraud may be especially common in those situations
in which a manager superior to the employee seeks to be rid of the employee, but finds
such a decision to be at variance with official company policy. In such a case, the
manager may seek not only to avoid potential lawsuits, but also the employer's internal
disciplinary processes (see, e.g., Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th
454, 460-461 [46 Cal.Rptr.2d 427, 904 P.2d 834]) by obtaining the employee's
resignation through trickery. Under these circumstances, the employee would likely not
have been fired unless the manager could resort to deception. Therefore the employee
who resigns in reliance on such deception can be said to have "detrimentally relied," by
any reasonable understanding of that term. The employee would therefore have a
cognizable action for fraud against the manager and against his employer.
In the present case, the majority rightly recognize that all the elements of fraud, including
detrimental reliance in the traditional sense, have been properly alleged in this ordinary
fraudulent inducement case. By framing the Hunter opinion in narrow terms, the majority
move in the direction of acknowledging that the question whether an employee has
detrimentally [12 Cal.4th 651] relied on an employer's misrepresentations in connection
with a discharge is one of fact, to be determined from the totality of the circumstances.
KENNARD, J.,
Concurring.-I agree with the analysis and conclusions of the majority, with the following
exception. The majority describes at some length the "rationale" underlying this court's
opinion in Hunter v. Up-Right, Inc. (1993) 6 Cal.4th 1174 [26 Cal.Rptr.2d 8, 864 P.2d
88]. (Maj. opn., ante, at pp. 641-642.) Hunter is now the law, but the rationale on which it
is based is not well founded, as I explained in my dissenting opinion in that case. (Hunter,
supra, 6 Cal.4th at pp. 1196-1198 (dis. opn. of Kennard, J.).) To the extent that the
majority opinion may be read as endorsing Hunter's reasoning, I do not join it. I agree
with the majority, however, that Hunter is distinguishable from this case, and that the
judgment of the Court of Appeal should be affirmed.
Stansfield v. Starkey(1990) 220 Cal.App.3d 59 , 269

Cal.Rptr. 337
[No. B037375. Court of Appeals of California, Second Appellate District, Division
Seven. May 9, 1990.]
MANFRED STANSFIELD et al., Plaintiffs and Appellants, v. NORMAN STARKEY et
al., Defendants and Respondents
(Superior Court of Los Angeles County, No. CA01012, Norman R. Dowds and Barnet M.
Cooperman, Judges.)
(Opinion by Woods (Fred), J., with Lillie, P. J., and Johnson, J., concurring.)
COUNSEL
Lawrence Levy, Lyle Francis Middleton and Robert A. Brown for Plaintiffs and
Appellants.
Rabinowitz, Boudin, Standard, Krinsky & Lieberman, Eric M. Lieberman, Terry Gross,
Bowles & Moxon, Kendrick L. Moxon, Turner, Gerstenfeld, Wilk & Tigerman, Lawrence
E. Heller and William Drescher for Defendants and Respondents.
OPINION
WOODS (Fred), J.
The trial court sustained without leave to amend demurrers to appellants' fifth amended
complaint and dismissed actions against respondents Author Services, Inc., and Church of
Spiritual Technology. We find no abuse of trial court discretion and therefore affirm the
judgment.
Procedural Background
On December 31, 1986, appellants (six individuals, one nonprofit organization, and a
present class of approximately four hundred persons who [220 Cal.App.3d 64] could
number several thousand) filed their original complaint. Named as defendants were
fourteen individuals, one estate, six nonprofit organizations, one for profit corporation,
one nonprofit religious corporation, five undesignated entities, and one hundred Does.
Three causes of action were alleged: (1) fraud, (2) breach of a fiduciary relationship or
duty, and (3) injunctive relief and constructive trust.
The complaint alleged that appellants were or had been members of the Church of
Scientology, that they had been induced to join the church by defendants'
misrepresentations, that defendants had breached a fiduciary duty by disclosing
confidential confessional information, and that defendants had diverted church property
to themselves.
A demurrer to the complaint was filed by defendant Sherman D. Lenske, the only
defendant then served.
On March 18, 1987, the scheduled date for the demurrer hearing, appellants stated, "We'll
accept the tentative ruling." In pertinent part, the ruling of the court (Judge Dowds)
provided: "Demurrer sustained to each cause of action per CCP § 430.10(e) and (f)fn. [1]
on the grounds set forth in the moving papers. In particular, plaintiff must comply with
[¶] 103(d) of the Law Department Manual,fn. [2] fraud must be specifically pleaded (who
said what to whom and when and where) and the circumstances of discovery of the fraud
must be pleaded (when, by whom, where and how). If discovery was more than 3 years
before the filing of the complaint, facts must be pleaded showing why it wasn't
discovered earlier. 30 days to amend. 30 days to respond."
Respondents, Author Services, Inc. (ASI), and Church of Spiritual Technology (CST), the
only other served defendants, were given 20 days, after the filing of the amended
complaint, to respond.
On April 17, 1987, appellants filed their second pleading, the first amended complaint. It
alleged five causes of action: (1) fraud, (2) breach of fiduciary duty and/or
relationship(s), (3) invasion of privacy, (4) intentional [220 Cal.App.3d 65] infliction of
emotional distress, and (5) injunctive relief and constructive trust.
The fraud cause of action was again based upon alleged misrepresentations which
induced appellants to join the Church of Scientology. The other four causes of action
arose from alleged disclosures of confidential confessional communications.
Respondents (ASI and CST) and defendant Sherman D. Lenske demurred.
The court (Judge Dowds) sustained the demurrers to all five causes of action and detailed
the deficiencies of the first amended complaint in a lengthy order.fn. 3 Defendant
Lenske's motion for sanctions (Code Civ. Proc., [220 Cal.App.3d 66] § 128.5)fn. 4
against appellants was granted. Appellants were given 30 days to file an amended
complaint.
In their third pleading, the second amended complaint,fn. 5 appellants realleged the
previous five causes of action and added a sixth, conspiracy. Respondents and defendant
Sherman D. Lenske demurred.
The court (Judge Dowds) sustained without leave to amend respondents'fn. 6 demurrers
to the fraud and conspiracy causes of action and sustained with leave to amend the
demurrers to the other causes of action.fn. 7 Again the court detailed the pleading
deficiencies in elaborate detail.fn. 8 [220 Cal.App.3d 67]
In their fourth pleading, the third amended complaint, appellants added two new causes
of action, establishment of resulting trust and unfair advantage in confidential
relationship, split injunctive relief and constructive trust into separate causes of action,
realleged causes of action for breach of confidential relationship, invasion of privacy, and
intentional infliction of emotional distress, and increased the number of Does from 100 to
5,000. As with their successive complaints appellants served only two defendants,
respondents, ASI and CST.
Respondents demurred and ASI also made a motion to strike.
On December 7, 1987, the court (Judge Dowds) sustained without leave to amend the
demurrers to three causes of action: establishment of resulting trust, imposition of
constructive trust, and unfair advantage in confidential relationship.fn. 9 The court
sustained with leave to amendfn. 10 the demurrers to the other four causes of action. In
its lengthy order the court specified pleading deficiencies, made distinctions between
appellants, and imposed sanctions on appellants.fn. 11 [220 Cal.App.3d 68]
In their fifth pleading, the fourth amended complaint, appellants alleged four causes of
action: (1) breach of confidential relationship, (2) invasion of privacy, (3) intentional
infliction of emotional distress and, (4) injunctive relief. Respondents both demurred and
made motions to strike.
The court (Judge Cooperman), in a four-page order,fn. 12 partly granted the motions to
strike, sustained the demurrers to the first three causes of action [220 Cal.App.3d 69]
(the fourth, injunctive relief, being a remedy not a cause of action), denied sanctions, and
admonished appellants "that this is the last opportunity that will be extended to amend the
complaint in the manner required herein and in the prior orders rendered by Judge
Dowds." Appellants were given 30 days to amend.
On April 8, 1988, appellants filed their sixth and final pleading, the fifth amended
complaint. Although given leave to do so, appellants did not reallege a cause of action for
either invasion of privacy or intentional infliction of emotional distress. Appellants did,
however, reallege a breach of confidential relationship cause of action and also sought
injunctive and [220 Cal.App.3d 70] constructive trust relief. And appellants alleged a
new cause of action for racketeering prohibited by the Racketeer Influenced and Corrupt
Organizations Act (RICO)(18 U.S.C. § 1961 et seq.).
By its order of July 20, 1988,fn. 13 the court (Judge Cooperman) sustained without leave
to amend the demurrers of respondents. Thereafter the court signed orders of dismissal
and appellants appealed. [220 Cal.App.3d 71]
Discussion
A. Standard of review
[1] "In reviewing the sufficiency of a complaint against a general [220 Cal.App.3d 72]
demurrer, we are guided by long-settled rules. 'We treat the demurrer as admitting all
material facts properly pleaded, but not contentions, deductions or conclusions of fact or
law. We also consider matters which may be judicially noticed.' [Citation.] Further, we
give the complaint a reasonable interpretation, reading it as a whole and its parts in their
context. [Citation.] When a demurrer is sustained, we determine whether the complaint
states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained
without leave to amend, we decide whether there is a reasonable possibility that the
defect can be cured by amendment: if it can be, the trial court has abused its discretion
and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.]
The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank v.
Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].)
It is the correctness of the trial court's action in sustaining a demurrer, not its reasons,
which is reviewable. (Maheu v. CBS, Inc. (1988) 201 Cal.App.3d 662, 670 [247 Cal.Rptr.
304].) The burden is upon appellant to demonstrate that the action of the trial court was
an abuse of discretion. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [134 Cal.Rptr.
375, 556 P.2d 737].)
B. Scope of review
[2] Our review encompasses not merely appellants' last pleading and the court's order
sustaining without leave to amend the demurrers to that pleading but also certain other
pleadings and orders. "Although ordinarily an appellate court will not consider the
allegations of a superseded complaint (see Foreman & Clark v. Fallon (1971) 3 Cal.3d
875, 884 [92 Cal.Rptr. 162, 479 P.2d 362]), that rule does not apply when the trial court
denied plaintiffs leave to include those allegations in an amended complaint."
(Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197,
209 [197 Cal.Rptr. 783, 673 P.2d 660].)
C. Fraud
[3a] Appellants alleged a fraud cause of action in each of their first three pleadings.
Demurrers to the first and second fraud pleadings were sustained with leave to amend.
But the demurrers to the third fraud pleading were sustained without leave to amend. We
therefore consider whether or not this sustainment order was within the court's discretion.
[4] The elements of fraud or deceit (see Civ. Code, §§ 1709, 1710) are: a representation,
usually of fact, which is false, knowledge of its falsity, intent to defraud, justifiable
reliance upon the misrepresentation, and damage [220 Cal.App.3d 73] resulting from
that justifiable reliance. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57
Cal.App.3d 104, 109 [128 Cal.Rptr. 901]; 5 Witkin, Summary of Cal. Law (9th ed. 1988)
Torts, § 676, p. 778.)
[5] "Every element of the cause of action for fraud must be alleged in the proper manner
and the facts constituting the fraud must be alleged with sufficient specificity to allow
defendant to understand fully the nature of the charge made." (Roberts v. Ball, Hunt,
Hart, Brown & Baerwitz, supra, 57 Cal.App.3d at p. 109.)
But the rationale for this "'strict requirement[] of pleading'" ( Committee on Children's
Television, Inc. v. General Foods Corp., supra, 35 Cal.3d 197, 216) is not merely notice
to the defendant. "'The idea seems to be that allegations of fraud involve a serious attack
on character, and fairness to the defendant demands that he should receive the fullest
possible details of the charge in order to prepare his defense.'" (Ibid.) Thus "'the policy of
liberal construction of the pleadings ... will not ordinarily be invoked to sustain a
pleading defective in any material respect.'" (Ibid.)
This particularity requirement necessitates pleading facts which "show how, when,
where, to whom, and by what means the representations were tendered." (Hills Trans. Co.
v. Southwest (1968) 266 Cal.App.2d 702, 707 [72 Cal.Rptr. 441].)
[6] Before turning to appellants' fraud allegations we observe that some
misrepresentations, just as some threats, are "protected religious speech and cannot
provide the basis for tort liability." (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092,
1123-1124 [252 Cal.Rptr. 122, 762 P.2d 46].) E.g., the threat that if one left the church
one's relatives "'would be damned in Hell forever'" ( id. at p. 1123) implicates religious
beliefs and is not justiciable. But as we recently explained in Wollersheim v. Church of
Scientology (1989) 212 Cal.App.3d 872 [260 Cal.Rptr. 331], actions, although based
upon religious beliefs, may be tortious. ( Id. at p. 884.)
[3b] Appellants alleged (in paragraph 31 of the second amended complaint) the following
misrepresentations: the Church of Scientology was tax exempt; it had a charitable nature;
its founder, L. Ron Hubbard, received no funds paid by members; L. Ron Hubbard
received low level compensation for his work; L. Ron Hubbard was a nuclear physicist,
highly decorated war veteran who had been wounded during four years of combat; L.
Ron Hubbard was twice pronounced medically dead but cured himself with dianetics; and
L. Ron Hubbard, by applying the principles of dianetics and scientology, was in perfect
health. Appellants also alleged justifiable reliance. As to the "how, when, where, to
whom, and by what means the [220 Cal.App.3d 74] representations were tendered"
(Hills Trans. Co. v. Southwest, supra, 266 Cal.App.3d at p. 707) the following allegation
is representative.
"Valerie Stansfield, a member from 1961 to 1983, paid in excess of $10,000 to the church
and labored for said church in excess of ten (10) years. The representations made in
paragraph 31 above were made to Valerie Stansfield by a staff member of the church -
Harold Deford. The representations were also made in tapes of L. Ron Hubbard and
certain publications of Scientology. These representations were made in 1961 in
Washington, DC."
It was alleged that each named appellant upon hearing or reading the representations
joined the church. Some joined as early as 1957, some as late as 1974. They also left at
different times. Some in 1982, some in 1983, some in 1984.
The trial court found these allegations inadequate. We conclude it was within its
discretion to so find.
As the trial court noted (see fn. 8) appellants did not allege "who acted as the agent of
what principal." In appellant Valerie Stansfield's circumstance it was alleged that in 1961
a Harold Deford made the misrepresentations. But it was not alleged that Harold Deford,
in 1961, was an agent of either respondent ASI or CST, nor even that ASI or CST had a
corporate existence in 1961.
Appellants' alter ego and cross-agency allegations ("defendants and each of them, are the
agents and employees of each other") are inconsistent with other allegations (such as "L.
Ron Hubbard and defendants Norman Starkey ... are or have been principal officers
and/or controllers of all of the defendant corporations" and "David Miscavige, defendant,
currently controls and totally dominates all Church of Scientology monies, assets and
property throughout the world") and fail to include facts showing a unity of interest and a
resultant injustice, prerequisites to an alter ego theory. (See First Western Bank & Trust
Co. v. Bookasta (1968) 267 Cal.App.2d 910, 914-915 [73 Cal.Rptr. 657]; Clejan v.
Reisman (1970) 5 Cal.App.3d 224, 238-239 [84 Cal.Rptr. 897]; Rader v. Apple Valley
Bldg. & Dev. Co. (1968) 261 Cal.App.2d 308, 314 [68 Cal.Rptr. 108].)
It also was not clearly alleged that each representation was false when made. E.g., the
complaint alleges that all representations were made to each of the six named appellants.
But the complaint does not allege that the tax exempt representation was false in each of
the six years (1957, 1961, 1962, 1965, 1968, and 1974) individual appellants relied upon
it to join the church.
Similarly vague was the alleged causal connection between the misrepresentations and
the harm to appellants. Appellants did not allege, e.g., that [220 Cal.App.3d 75] in
reliance upon the tax exempt representation they claimed and had been denied charitable
tax deductions. Nor did appellants allege a representation they would be compensated for
their labor.
Less than explicit and material were the allegations of inducement, viz., that appellants
joined a church because it was tax exempt, its founder underpaid and a wounded war
hero. Conversely, the representation that L. Ron Hubbard twice rose from the dead
appears to implicate religious beliefs and thus is not justiciable. ( Molko v. Holy Spirit
Assn., supra, 46 Cal.3d 1092.)
Additionally, allegations purporting to explain delayed discovery of the falsity of the
representations were cloudy and inconsistent. Although it was alleged that the
representations were made as early as 1957 it was not until 1987 that appellants allegedly
discovered their falsity. Yet it was simultaneously alleged, without explanation, that
appellants left the church in 1982, 1983, and 1984 and that much of the true information
was in the public domain by July 1984.
Equally general and imprecise was the allegation of intent to defraud. Appellants alleged
that respondents (and all defendants) acted "with the intent to deceive the plaintiffs and
cause them to form an alliance with the defendant 'church.' The extent and degree of the
fraudulent misrepresentations varied depending upon the immediate goal of these
defendants."
The trial court, in sustaining the demurrers without leave to amend, acted within its
discretion. (Cf. Peter W. v. San Francisco Unified Sch. Dist. (1976) 60 Cal.App.3d 814,
827 [131 Cal.Rptr. 854]; Norkin v. United States Fire Ins. Co. (1965) 237 Cal.App.2d
435, 437-438 [47 Cal.Rptr. 15]; Vaughn v. Certified Life Ins. Co. (1965) 238 Cal.App.2d
177, 181-182 [47 Cal.Rptr. 619]; Lesperance v. North American Aviation, Inc. (1963) 217
Cal.App.2d 336, 344-345 [31 Cal.Rptr. 873].)
D. Conspiracy
[7] Appellants alleged a conspiracy cause of action in their second amended complaint. It
consisted of an incorporation of all the fraud allegations, a further allegation of a 1979
conspiracy to divert church funds, and an averment of proximate harm in an
"unascertained sum."
The trial court was correct in sustaining the demurrers without leave to amend, for at least
three reasons.
First, this cause of action by incorporating all the fraud allegations also incorporated all
their defects. [220 Cal.App.3d 76]
Second, "[a] conspiracy cannot be alleged as a tort separate from the underlying wrong it
is organized to achieve." (McMartin v. Children's Institute International (1989) 212
Cal.App.3d 1393, 1406 [261 Cal.Rptr. 437].) I.e., an agreement, however wrongful, is not
itself a tort. It requires acts in furtherance to become one. And no such acts were alleged.
Third, the allegations of this cause of action expressly omitted respondents. Appellants
alleged that "During 1979, defendants, John Peterson, David Miscavige, L. Ron Hubbard,
Sherman Lenske and Does I through 100, knowingly and wilfully conspired and agreed
among themselves ...."
E. Resulting trust and constructive trust
[8] In their third amended complaint appellants alleged, as causes of action, a resulting
trust and a constructive trust. But neither is a cause of action (5 Witkin, Cal. Procedure
(3d ed. 1985) Pleading, §§ 788-791, pp. 232-235), only a remedy. Moreover, "[a]
resulting trust arises to enforce the inferred intent of the parties" (Dabny v. Philleo (1951)
38 Cal.2d 60, 68 [237 P.2d 648]) and no such common intent was alleged. Additionally,
specific identifiable property is a prerequisite for either type of trust and none was
alleged.
The trial court acted within its discretion in sustaining the demurrers without leave to
amend.
F. Invasion of privacy and intentional infliction of emotional distress
[9] In their fourth amended complaint appellants alleged causes of action for invasion of
privacy and intentional infliction of emotional distress. The trial court (Judge
Cooperman) sustained demurrers to these causes of action but afforded appellants leave
to amend. (See fn. 12.) Appellants did amend their complaint and filed a superseding fifth
amended complaint which omitted these two causes of action. Under such circumstances
"an appellate court will not consider the allegations of a superseded complaint."
( Committee on Children's Television, Inc. v. General Foods Corp., supra, 35 Cal.3d 197,
209; Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 884 [92 Cal.Rptr. 162, 479
P.2d 362] ["'Such amended pleading supplants all prior complaints. It alone will be
considered by the reviewing court.'"]; Alhambra Transfer etc. Co. v. Muse (1940) 41
Cal.App.2d 92, 93 [106 P.2d 63] ["... by amending his complaint after demurrer was
sustained plaintiff waived error, if any, in the ruling of the court."].)
Error, if any, was waived by appellants when they filed their superseding fifth amended
complaint which omitted both of these causes of action. [220 Cal.App.3d 77] G. Breach
of confidential relationship, breach of fiduciary duty, taking unfair advantage of a
confidential relationship
[10] Appellants variously labelled a cause of action whose elements are: a confidential
relationship, a communication made in confidence, disclosure, and injury. (See Younan v.
Equifax (1980) 111 Cal.App.3d 498 [169 Cal.Rptr. 478].) As observed by the trial court
(Judge Cooperman), appellants, despite repeated and explicit admonishments, "failed to
identify the alleged communicators of confidential information and to identify the third
parties who received such communication." (See fn. 13.)
But more fundamental and fatal was appellants' failure to allege disclosure of a
confidential communication. Alleged instead, as noted by the trial court, was disclosure
of "apparently false information," information not communicated by appellants, in
confidence or otherwise.
Thus, the trial court correctly sustained the demurrers without leave to amend.
H. RICO
[11a] In their sixth pleading, the fifth amended complaint, appellants alleged a cause of
action based upon the Racketeer Influenced and Corrupt Organizations Act (RICO)(18
U.S.C. §§ 1961-1968).
[12] Although "RICO is primarily a criminal statute" (Johnsen v. Rogers (C.D.Cal. 1982)
551 F.Supp. 281, 284) whose purpose is "to seek the eradication of organized crime" (18
U.S.C. § 1961, note "statement of findings and purpose"), it also prescribes civil remedies
(18 U.S.C. § 1964) which are available in California state courts. (Cianci v. Superior
Court (1985) 40 Cal.3d 903 [221 Cal.Rptr. 575, 710 P.2d 375].)
To plead a civil RICO cause of action a plaintiff must allege: (1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity (5) which injured his business
or property. (Sedima, S.P.R.L. v. Imrex Co. (1985) 473 U.S. 479, 496-497 [87 L.Ed.2d
346, 358-359, 105 S.Ct. 3275]; McMartin v. Children's Institute International, supra, 212
Cal.App.3d 1393, 1406; 18 U.S.C. § 1964 (c).)
[11b] As the trial court noted (See fn. 13), general damages ("emotional and mental
distress, anguish, shock, nervousness, pain and suffering") are not recoverable under
RICO. (Zimmerman v. HBO Affiliate Group (3d Cir. 1987) 834 F.2d 1163, 1169.) Actual
damages, trebled, to "business or property" are recoverable. (18 U.S.C. § 1964 (c).)
The predicate principally relied upon by appellants in alleging their RICO cause of action
is extortion. Extortion is included within the [220 Cal.App.3d 78] definition of
"racketeering activity" (18 U.S.C. § 1961 (1)), and "racketeering activity" is prohibited
by 18 U.S.C. § 1962. As defined by 18 United States Code section 1951 (b)(2) extortion
means "the obtaining of property from another, with his consent, induced by wrongful use
of actual or threatened force, violence, or fear, or under color of official right." Penal
Code section 518 provides essentially the same definition.fn. 14
Appellants have failed to allege facts satisfying the definition of extortion. No facts have
been alleged that respondents "obtained" property by actual or threatened force. Instead
what appellants alleged were, at most, instances of defamation communicated after
appellants had left the church. (See fn. 13.) There is no allegation that the defamers made
an extortionate demand for money or property, or that appellants parted with any money
or property as a result of these defamations.
Other RICO pleading defects, less fundamental, were detailed by the trial court. (See fn.
13.)
We conclude that the order sustaining the demurrer without leave to amend was within
the trial court's discretion.
The judgment is affirmed. Costs on appeal are awarded to respondents.
Lillie, P. J., and Johnson, J., concurred.
FN [1]. "The party against whom a complaint ... has been filed may object, by
demurrer ... as provided in Section 430.30, to the pleading on any one or more of the
following grounds: ... (e) The pleading does not state facts sufficient to constitute a cause
of action. (f) The pleading is uncertain. As used in this subdivision, 'uncertain' includes
ambiguous and unintelligible."
FN [2]. "(d) (Identifying Parties and Causes of Action) Each cause of action should be
identified as to (1) its nature (fraud, breach of contract, etc.), (2) the particular plaintiffs
asserting it, and (3) the particular defendants against whom it is asserted. For example:
Cause of Action for Infliction of Emotional Distress Brought by Plaintiff Jane Black
Against Defendants Jones, Smith, Brown and Does 2 and XI."
FN 3. The order reads: "In this matter heretofore argued and submitted, the Court now
rules as follows: Each demurrer is sustained to all causes of action of the first amended
complaint pursuant to Code of Civil Procedure Section 430.10(f). Each cause of action is
uncertain in that it does not state who performed the actions for which the various
defendants are apparently proposed to be held liable under the doctrine of Respondiat
[sic] Superior and what acts were performed by each such person and at what time. In
oral argument it was asserted by counsel for the plaintiffs that the name of the Church
corporation with which the individual plaintiffs were associated changed from time to
time, from which it may be inferred that the principal of the agents who performed the
acts in question assertedly changed from time to time. At the very least, each defendant is
entitled to know the names of the person [sic] for whom [sic] acts the particular
defendant is proposed to be held liable and what acts were performed by which asserted
agent and when. Also the complaint is uncertain as to which plaintiff had a fiduciary
relationship with which defendant and during what period of time and what facts gave
rise to the fiduciary relationship.
"The demurrer of each demurring party is also sustained pursuant to Section 430.10(e) as
to the first and second causes of action. As to both causes of action, the demurrer is
sustained on the ground of the statute of limitations. It appears from the face of the
complaint that the acts complained of occurred beyond the normal period of the statute of
limitations. If it is asserted that the fraud and violation of fiduciary relationship was [sic]
not discovered until some later time, it is necessary to plead when the facts were
discovered and sufficient facts from which it would appear that the plaintiffs should not
with reasonable diligence have ascertained the alleged misconduct at an earlier date. Also
as to the first cause of action, fraud is not pleaded with sufficient particularity. As pointed
out in respect of Mr. Lenske's demurrer in respect of the original complaint, it must be
alleged what act was performed by what person and when and where, i.e., who said what
to whom and when and where. It is recognized that in a class action it is not necessary to
plead specifically the acts giving rise to the cause of action with respect to each unnamed
member of the plaintiff class, but such particular allegations must certainly be made as to
the named plaintiffs. The court does not reach any other pending demurrers and they are
ordered off calendar. 30 days to amend. 30 days to respond.
"The motion of defendant Sherman D. Lenske for sanctions under Code of Civil
Procedure Section 128.5 is granted. The court finds that the action of the plaintiffs in
filing the first amended complaint without coming close to complying with the directions
of the court given upon the sustaining of Mr. Lenske's demurrer to the original complaint
was action taken in bad faith and was frivolous. Plaintiffs are ordered to pay to Mr.
Lenske $350.00 within 10 days as the reasonable expenses incurred by moving party as
the result of such action."
FN 4. Unless otherwise noted all statutory references are to the Code of Civil Procedure.
FN 5. Mislabeled "first amended complaint."
FN 6. The demurrer of defendant Sherman D. Lenske was not ruled upon because the
court had earlier dismissed the action as to him. The dismissal resulted from appellants'
violation of discovery orders. Appellants did not, apparently, seek review of this
dismissal and Mr. Lenske is not a party to this appeal.
FN 7. The court's order omitted reference to the injunction and constructive trust cause of
action.
FN 8. The order reads: "Demurrer having been argued and submitted, the court now rules
as follows: The demurrers of defendants Church of Spiritual Technology and Author
Services Inc. to the Second Amended Complaint (erroneously captioned as 'First
Amended Complaint' since a First Amended Complaint had been previously filed) is
sustained pursuant to C.C.P. Section 430.10(e) without leave to amend as to the First and
Second Causes of Action.
"The injury complained of in these causes of action is that, as a result of false
representations, the plaintiffs were induced to join a church and to contribute their money
and time and efforts to the church over long periods of time. Resolution of this
controversy would require the court to determine whether it was an advantage or a
detriment to a plaintiff to be a member of a particular church over a considerable period
of time. This is not a judiciable [sic] controversy. Further, after three attempts and
specific directions by the court, the fraud asserted to have been practiced by these
particular defendants is still not specifically alleged and the court must conclude that
there are no facts constituting fraud by them that can be truthfully alleged. There is an
absence of pleadings as to what agents of these defendants made the alleged
representations to each of the named plaintiffs, and when and where they were made. In
particular, it [is] not alleged who acted as the agent of what principal.
"Further, to the extent the complaint alleges a conspiracy to divert funds from the church
to an individual, the cause of action would lie in the church corporation, although under
appropriate circumstances a derivative action could be brought on behalf of the
corporation, if it did not itself act.
"The demurrer is sustained as to the Third, Fourth and Fifth Causes of Action pursuant to
C.C.P. section 430.10(e) with thirty (30) days to amend and thirty (30) days to respond.
These causes of action possibly relate to an actual or threatened disclosure of information
given by a plaintiff to the church during a confessional session. It is not clearly alleged
that any such material was actually disclosed in respect of any named plaintiffs. If this is
the allegation, it must be clearly alleged and at least the nature of the material disclosed
and the person or persons to whom it was disclosed must be alleged, together with facts
showing that there is a threat of repetition insofar as injunctive relief is requested. If it is
asserted that the threat of disclosure constituted outrageous conduct giving rise to
emotional distress, additional facts must be pled the nature of the material material [sic]
threatened to be disclosed from which it could be ascertained that the conduct as alleged
was outrageous. As to these causes of action, there must be an allegation as to what
person or persons acted as the agent of each of these demurring defendants in performing
the acts complained of."
FN 9. ASI's motion to strike these causes of action was also granted.
FN 10. An amended minute order gave appellants 20 days to amend the complaint.
FN 11. The order reads: "In these matters heretofore argued and submitted, the court now
rules as follows: [¶] Motion of Author Services, Inc. to strike the first, second and third
causes of action of the Third Amended Complaint is granted. These causes of action
(though captioned in terms of the relief requested instead of the wrongful conduct
complained of) are in substance the same as the fraud causes of action previously filed, as
to which the court sustained demurrers without leave to amend. Balance of motion to
strike (except as to sanctions) denied.
"Demmurrers of defendants Author Services, Inc. and Church of Spiritual Technology to
first, second and third causes of actions sustained per CCP§ 430.10(e) without leave to
amend. The gravamen of these causes of action is that the members of the Church of
Scientology were induced to join that church and contribute money and services to it over
long periods of time by reasons of misrepresentations about the Church and its founder.
To adjudicate this controversy the court would have to determine whether it was an
advantage or detriment to plaintiffs to be a member of this particular church. This is not a
justicable [sic] controversy. In addition, taken in context and as a whole, the alleged
representations relate to religious assertions and beliefs into which courts may not
inquire. Further, in four attempts, the plaintiffs have not alleged the fraud with the
specificity which the law requires.
"The demurrers of the moving parties to causes of actions 4, 5, 6 and 7 of all plaintiffs
other than Valerie Stansfield and Jerry Whitfield are sustained per CCP§ 430.10(e). There
is no factual allegation of breach of confidential relationship, invasion of privacy,
outrageous conduct or the threat of the same as to these plaintiffs. Paragraphs 7, 8, and 9
do not allege that the same things happened to other plaintiffs that happened to Valerie
Stansfield and Jerry Whitfield.
"The demurrers of the demurring defendants are sustained per CCP§ 430.10(e) as to
causes of action 5 and 6 in respect of Valerie Stansfield and Jerry Whitfield. There are no
factual allegations of invasion of privacy or outrageous conduct (paragraph 77 is not
incorporated).
"The demurrers of the moving parties are sustained per CCP§ 430.10(f) as to causes of
action 4, 5, 6, and 7. These causes of action are uncertain as to when the acts complained
of occurred. This uncertainty is particularly acute because of the allegations that certain
conduct complained of became public knowledge in July of 1984.
"Any other demurrers are ordered off calendar.
"Plaintiffs are order[ed] to pay $750.00 to each of the moving defendants pursuant to
CCP§ 128.5 as the reasonable expenses they incurred by reason of plaintiffs' bad faith
actions and conduct in re-pleading causes of action as to which demurrers had previously
been sustained without leave to amend. This is frivolous conduct as defined in that
statute."
FN 12. The order reads: "In these matters, heretofore argued and submitted, on March 2,
1988, the Court now rules as follows. [¶] The motions of defendants Author Services,
Inc., and of defendant Church of Spiritual Technology to strike the Fourth Amended
Complaint are granted as to the following allegations, by reason of the fact that said
allegations pertain to causes of action previously removed by the Court, on order of
Judge Dowds.
"Page 6, line 14, beginning with the new sentence, to line 22, inclusive;
"Page 7, line 25, beginning the new sentence, to line 26, inclusive;
"Page 8, paragraph 16;
"Page 8, line 23, beginning with the new sentence, to line 27, ending wit[h] the word
'assets';
"Page 9, paragraphs 21 and 22;
"Page 10, paragraph 27 (continues onto page 11);
"Page 11, paragraph 30 (continues onto page 12);
"Page 13, paragraphs 33, 34, 35 and 36 (continues onto page 14);
"Page 14, paragraphs 37, 38, 39 and 40 (continues onto page 15);
"Page 15, paragraphs 41, 42 and 43 (continues onto page 16);
"Page 16, paragraphs 44 and 45 (continues onto page 17);
"Page 21, paragraphs 54 and 55 (so far as paragraph 55 re-alleges material hereinabove
ordered stricken);
"Page 23, paragraph 64 (incomplete in present form);
"Page 25, paragraph 69, beginning with the last word on line 24, to line 27, inclusive);
"Page 27, paragraph 74 (so far as it re-alleges material hereinabove ordered stricken), and
paragraphs 75 and 76;
"Page 28, paragraph 77 (so far as it re-alleges matter hereinabove ordered stricken);
"Page 31, paragraph 84 (so far as it re-alleges matter hereinabove ordered stricken);
"Page 32, paragraph 89 from line 8 to line 17, up to and including the end of the sentence
on line 17;
"Page 33, paragraph 1.b and paragraph 2.b (continues onto page 34.)
"The Court has ordered stricken paragraph 73 of the Fourth Amended Complaint in that
the allegations pertaining to punitive or exemplary damages are not in compliance with
Civil Code section 3294, [*] as effective January 1, 1988. In addition, said paragraph in
setting forth the amount of punitive damages, does not comply with Code of Civil
Procedure section 426.10(b). [sic] [See **]
"Similarly, paragraph 83 of the Fourth Amended Complaint is ordered stricken for
noncompliance with Civil Code section 3294 and with Code of Civil Procedure section
425.10. [**]
"Paragraph 1.b of the prayer for relief, pertaining to punitive damages is stricken for
noncompliance with Code of Civil Procedure section 425.10(b). [See ** ]
"The demurrers of the moving parties to the First, Second and Third causes of action as to
plaintiffs other than Valerie Stansfield and Jerry Whitfield are sustained per C.C.P.
section 430.10(e). There is no factual allegation of breach of confidential relationship,
invasion of privacy, outrageous conduct or the threat of same, as to the remaining named
plaintiffs, as was indicated by Judge Dowds in the minute order of December 7, 1987. In
this connection, this Court notes that paragraph 64, (save and except for lines 1 through 5,
on page 24) is incomplete.
"The demurrers of the moving parties to the First, Second and Third causes of action are
sustained per Code of Civil Procedure section 430.10(f). These causes of action are
uncertain as to the identity of the alleged agent or agents of defendants who allegedly
wrongfully communicated plaintiffs' confidential information to third parties and as to the
identity of the third parties to whom such alleged communications were made. The prior
rulings of Judge Dowds have required such information to be pleaded with respect to the
named plaintiffs.
"Counsel for plaintiffs has stated to the Court that such specific pleading is not required
by law, and has cited Newberg on Class Actions, section 6.13, and Donson Stores, Inc. v.
American Bakeries Company, (1973) 58 F.R.D. 485, and Abramovitz v. Ahern (1982) 96
F.R.D. 208, 211, in support of his position. This Court has read the foregoing authorities
and has determined that they do not support plaintiffs' position, as expressed to the Court.
"Other demurrers and motions to strike are ordered off calendar. Counsel for plaintiff
shall have 30 (thirty) days to amend, and the moving defendants shall have 30 (thirty)
days to respond. Counsel for plaintiffs is admonished that this is the last opportunity that
will be extended to amend the complaint in the manner required herein and in the prior
orders rendered by Judge Dowds.
"The moving parties' request for monetary sanctions is at this time denied, in light of the
admonition hereinabove set forth."
*Civil Code section 3294, subdivision (a) provides: "In an action for the breach of an
obligation not arising from contract, where it is proven by clear and convincing evidence
that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition
to the actual damages, may recover damages for the sake of example and by way of
punishing the defendant."
**Section 425.10 reads: "A complaint or cross-complaint shall contain both of the
following: [¶] (a) A statement of the facts constituting the cause of action, in ordinary and
concise language. [¶] (b) A demand for judgment for the relief to which the pleader
claims he is entitled. If the recovery of money or damages be demanded, the amount
thereof shall be stated, unless the action is brought in the superior court to recover actual
or punitive damages for personal injury or wrongful death, in which case the amount
thereof shall not be stated."
FN 13. The order reads: "Demurrers to Fifth Amended Complaint are sustained, as to
demurring defendants, without leave to amend.
"The demurrers as to the First cause of action, seeking relief under RICO, (18 U.S.C. §
1961, et seq.) are sustained under CCP 430.10(e). To the extent that plaintiffs seek relief
pertaining to personal injury, loss of reputation, pain and suffering, or emotional distress,
(see Complaint, paragraph 42) RICO provides no remedy. (See 18 U.S.C. § 1964(c));
Johnsen v. Rogers (1982) 551 F.Supp. 281).
"No facts have been alleged by plaintiffs with respect to alleged laundering of monetary
instruments by defendants, as a pattern of racketeering activity under 18 U.S.C. § 1956.
(See paragraph 37 of Complaint).
"Plaintiffs have also failed to plead facts pertaining to any alleged violation on the part of
the demurring defendants with respect to the Currency and Foreign Transactions
Reporting Act (31 U.S.C. § 5316(a). (Complaint, paragraph 39.)
"Under 18 U.S.C. § 1951(b)(2), '[t]he term "extortion" means the obtaining of property
from another, with his consent, induced by wrongful use of actual or threatened force,
violence or fear, or under color of official right.'
"Although 'extortion' is referred to in paragraph 35. of the Fifth Amended Complaint, and
in subparagraph 35. (ii), (iii), (iv), (xii), (xiv), and (xvi), no facts are alleged therein
which conform with the legal definition of the term 'extortion', above quoted. For
example, in paragraph 35. subparagraphs (ii) and (iii) it is alleged that plaintiffs Manfred
and Valerie Stansfield, and Jerry and Hana Whitfield, respectively, had extortion
practiced against them by defendants because said named plaintiffs refused, in 1986, to
pay, in cash or in kind, for defendants' products and services. Plaintiffs allege that certain
confessional information concerning Valerie Stansfield was communicated by one Dr.
Lee to Valerie's mother, and concerning Jerry, was communicated by one Al Bei to Jerry's
father. Lee and Bei are alleged to be agents of defendants.
"However, there is no allegation that the communications by the alleged agents of
defendants were the result of any threat or threats by anyone, or that property was
obtained from the named plaintiffs in connection therewith. Further, the allegations in
paragraph 35. (iv) that defendants declared in March, 1982 that plaintiff Hana Whitfield
was a 'Suppressive' person and that defendants declared in February, 1983 that plaintiff
Franklin Freedman was a 'Suppressive' person do not, in anywise, constitute extortion as
hereinabove defined.
"Paragraph 35. (xvi), in which plaintiffs allege '[d]uring the period 1983 through 1984,
defendant's agent, Don Larson extorted in excess of $3,000,000.00 (Three Million
Dollars) from plaintiff class members as a direct result of the extortionate racketeering
activity perpetrated against said plaintiffs as hereinabove alleged' is devoid of facts
sufficient to place defendants on reasonable notice of the charge being made by plaintiffs.
"The allegations of paragraph 41. of the Fifth Amended Complaint, pertaining to alleged
monetary losses suffered by the named plaintiffs and referring to labor performed by said
plaintiffs for defendants, are incomprehensible as pleaded, and fail to place defendants
upon reasonable notice as to the basis of the alleged claims.
"The demurrers as to plaintiffs' Second cause of action seeking relief for alleged breach
of confidential relationship are sustained under CCP § 430.10(e).
"The gravamen of this cause of action is the alleged unauthorized disclosure by agents of
defendants, to third persons, of confidential information regarding plaintiffs, secured by
defendants in a confessional context, to accomplish wrongful purposes of defendants,
including coercing plaintiffs into silence, forcing them to pay and support Churchs [sic]
of Scientology, and to comply '... with whatever defendants and their agents and
employees demanded in a conscious disregard of plaintiffs' rights and safety. ...' (See
Complaint, paragraph 54.)
"Plaintiffs were advised in the ruling of the court sustaining demurrers to the Fourth
Amended Complaint, rendered on March 8, 1988, that the Complaint was uncertain '... as
to the identity of the alleged agent or agents of defendants who allegedly wrongfully
communicated plaintiffs' confidential information to third parties and as to the identity of
the third parties to whom such alleged communications were made. The prior rulings of
Judge Dowds have required such information to be pleaded with respect to the named
plaintiffs. ...'
"This Court also stated in its minute order of March 8, 1988, that '[c]ounsel for plaintiffs
is admonished that this is the last opportunity that will be extended to amend the
complaint in the manner required herein and in the prior orders rendered by Judge
Dowds.'
"Notwithstanding the foregoing admonition, in paragraph 46. of the Fifth Amended
Complaint, plaintiffs, although alleging disclosure by defendants of alleged intimate
details of the personal lives of plaintiffs, Manfred and Valerie Stansfield and Jerry and
Hana Whitfield, to members of the Church of Scientology, and to plaintiffs' relatives,
families, friends and third parties, have failed to identify the alleged communicators of
confidential information, and to identify the third parties who received such
communication. This information, and particularly the identity of the recipients of the
alleged wrongful communications, should be clearly known to plaintiffs.
"In paragraph 45. of the Fifth Amended Complaint plaintiffs allege, only in the most
general terms, breach of confidences of plaintiffs by defendants' disclosure of
confidential, confessional material, without any effort to plead facts, as required by the
Court.
"While it is true that in paragraph 35. (ii) and (iii), part of plaintiffs' First cause of action),
which is incorporated by reference in the Second cause of action, plaintiffs plead the
names of Dr. Lee and Al Bei as alleged agents of defendants, who communicated
information about Valerie Stansfield's to Valerie's mother, and about Jerry Whitfield to
Jerry's father, respectively, it does not appear that the alleged communications were of
confidential information, in conformity with other allegations of the Second cause of
action, but instead consisted of apparently false information concerning said plaintiffs.
"In the Court's judgment, plaintiffs have not complied with the Court's admonition.
"Although the Court has examined the Complaint in Aznaran, et al., v. Church of
Scientology of Calif., Inc., et al., Case No. CV 88-1786-WDK; the opinion of the United
States Tax Court (83 TC No. 25) Church of Scientology of Calif. v. Commissioner of
Internal Revenue (1987) USCA (9th Cir.) 823 F.2d 1310, judicial notice is not taken with
respect to such records, which were lodged by plaintiffs, in that they contain no facts
relevant to the case at bench."
We have taken judicial notice of this order, part of the superior court file (Evid. Code, §
452, subd. (d)) ordered to be but not included as part of the record on appeal, after duly
notifying all counsel. (Evid. Code, §§ 455, 459.)
FN 14. "Extortion is the obtaining of property from another, with his consent, or the
obtaining of an official act of a public officer, induced by a wrongful use of force or fear,
or under color of official right."
Schauer v. Mandarin Gems of Cal. (2005)125

Cal.App.4th 949 , 23 Cal.Rptr.3d 233
[No. G033254. Fourth Dist., Div. Three. Jan. 12, 2005.]
SARAH JANE SCHAUER, Plaintiff and Appellant, v. MANDARIN GEMS OF
CALIFORNIA, INC., Defendant and Respondent.
(Superior Court of Orange County, No. 02CC14882, Kim Garlin Dunning, Judge.)
(Opinion by Ikola, J., with Rylaarsdam, Acting P. J., and Bedsworth, J., concurring.)
COUNSEL
Mark B. Plummer for Plaintiff and Appellant.
Latham & Watkins, James W. Daniels, and Christopher E. Campbell for Defendant and
Respondent. [125 Cal.App.4th 952]
OPINION
IKOLA, J.-
Sarah Jane Schauer (plaintiff) appeals from a judgment of dismissal in favor of Mandarin
Gems of California, Inc., dba Black, Starr & Frost (defendant) after the court sustained
defendant's demurrer to plaintiff's second amended complaint without leave to amend.
Plaintiff sought to recover on various theories based on her discovery that a diamond ring
given to her as an engagement gift prior to her marriage to her now former husband,
Darin Erstad, allegedly was not worth the $43,000 he paid defendant for it in 1999.
Erstad is not a party to this action.
We reverse the judgment and remand. We conclude plaintiff has standing as a third party
beneficiary of the sales contract between Erstad and defendant, and she has adequately
pleaded a contract cause of action based on [125 Cal.App.4th 953] allegations of
defendant's breach of express warranty. Defendant must answer to that claim. In all other
respects, the pleading is defective and cannot be cured by amendment.
FACTS
[1] Our factual summary "accepts as true the facts alleged in the complaint, together with
facts that may be implied or inferred from those expressly alleged." (Barnett v. Fireman's
Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.)
Plaintiff and Erstad went shopping for an engagement ring on August 15, 1999. After
looking at diamonds in premier jewelry establishments such as Tiffany and Company and
Cartier, they went to defendant's store, where they found a ring that salesperson Joy said
featured a 3.01 carat diamond with a clarity grading of "'SI1.'" Erstad bought the ring the
same day for $43,121.55. The following month, for insurance purposes, defendant
provided Erstad a written appraisal verifying the ring had certain characteristics,
including an SI1 clarity rating and an average replacement value of $45,500. Paul Lam, a
graduate gemologist with the European Gemological Laboratory (EGL), signed the
appraisal.
The couple's subsequent short term marriage was dissolved in a North Dakota judgment
awarding each party, "except as otherwise set forth in this Agreement," "the exclusive
right, title and possession of all personal property . . . which such party now owns,
possesses, holds or hereafter acquires." Plaintiff's personal property included the
engagement ring given to her by Erstad.
On June 3, 2002, after the divorce, plaintiff had the ring evaluated by the "'Gem Trade
Laboratory,'" which gave the diamond a rating of "'SI2' quality," an appraisal with which
"multiple other [unidentified] jewelers, including one at [defendant's store]" agreed. That
was how plaintiff discovered defendant's alleged misrepresentation, concealment, and
breach of express warranty regarding the true clarity of the diamond and its actual worth,
which is -- on plaintiff's information and belief -- some $23,000 less than what Erstad
paid for it.
Plaintiff sued defendant on several theories. Three times she attempted to plead her case.
In the first cause of action of the second amended complaint, she sought to recover under
the Consumers Legal Remedies Act (the Act, Civ. Code, § 1760 et seq.), stating, inter
alia, that had the true clarity of the diamond been known, plaintiff would not have
"acquired said diamond by causing it to be purchased for her." Thereafter, if the written
verification of [125 Cal.App.4th 954] the clarity value sent to Erstad one month after the
purchase had revealed the truth, plaintiff would have "immediately rescinded the sale
based on a failure of consideration." The second cause of action, for breach of contract,
alleged Erstad and defendant had a written contract under which Erstad agreed to
purchase the ring "for the sole and stated purpose of giving it [to] Plaintiff," making
plaintiff a third party beneficiary of the sales contract. Defendant breached the contract
by delivering an engagement ring that did not conform to the promised SI1 clarity rating.
In her third cause of action, for constructive fraud, plaintiff claimed the existence of a
special confidential relationship in which defendant was aware plaintiff and her
"predecessor in interest," presumably Erstad, "were not knowledgeable and . . . were
relying exclusively on the Defendants' integrity," but defendant falsely represented the
clarity of the diamond with the intent to defraud "[p]laintiff and her predecessor in
interest" to make the purchase at the inflated price. The fourth cause of action for fraud
alleged defendant's malicious and deceitful conduct warranted punitive damages. In the
fifth cause of action, plaintiff sought rescission under Civil Code section 1689 for
defendant's alleged fraud in the inducement, mistake, and failure of consideration.
Appended to the pleading was a redacted copy of a North Dakota court's judgment filed
July 19, 2001, granting Erstad and plaintiff a divorce pursuant to their "Stipulation and
Agreement," entitling each party, as noted ante, "to the exclusive right, title and
possession of all personal property of the parties, joint or several, which such party now
owns, possesses, holds or hereafter acquires [except as otherwise provided in the
agreement]," and awarding the parties their respective "personal effects, clothing and
jewelry."
In its general demurrer to the second amended complaint and each cause of action,
defendant asserted plaintiff had no viable claim under any theory because: (1) plaintiff
was neither the purchaser of the ring nor a third party beneficiary of the contract between
defendant and Erstad, who was not alleged to have assigned his rights to plaintiff; (2) the
statute of limitations had expired for defendant's alleged violations of the Act; (3)
plaintiff was not a buyer, and the ring tendered to Erstad conformed entirely to the
contract; (4) defendant owed no special confidential or fiduciary duty to plaintiff upon
which to predicate a fraud cause of action; (5) any alleged fraud was the act of EGL, not
attributable to defendant; and (6) fraud was not pleaded with the required specificity. fn. 1
[125 Cal.App.4th 955]
The court again sustained the demurrer, this time without further leave to amend. The
judgment of dismissal followed, and plaintiff appeals. As we will explain, the court erred.
Although the complaint is fatally defective in some respects, plaintiff is entitled as a
matter of law to pursue her contract claim as a third party beneficiary.
DISCUSSION
Standard of Review
[2] The trial court's decision to sustain a demurrer is a legal ruling, subject to de novo
review." (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1501.) "[W]e give the
complaint a reasonable interpretation, and treat the demurrer as admitting all material
facts properly pleaded, but not the truth of contentions, deductions or conclusions of law.
We reverse if the plaintiff has stated a cause of action under any legal theory. [Citation.]"
(Barnett v. Fireman's Fund Ins. Co., supra, 90 Cal.App.4th at p. 507.)
The issue before us is whether, on well pleaded facts, plaintiff may maintain an action to
recover the $23,000 difference between what Erstad paid for the diamond ring and what
that gift was really worth, given its alleged inferior quality.
[3] We begin with the rule that "[e]very action must be prosecuted in the name of the real
party in interest, except as otherwise provided by statute." (Code Civ. Proc., § 367.)
Where the complaint shows the plaintiff does not possess the substantive right or standing
to prosecute the action, "it is vulnerable to a general demurrer on the ground that it fails
to state a cause of action." (Carsten v. Psychology Examining Com. (1980) 27 Cal.3d 793,
796; Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1004.)
The second amended complaint alleges "[d]efendant entered into a written contract with
[Erstad] to purchase the subject engagement ring." The attached [125 Cal.App.4th 956]
exhibit shows defendant issued a written appraisal to Erstad. Erstad is clearly a real party
in interest, but he has not sued.
Plaintiff contends she, too, is a real party in interest because the North Dakota divorce
judgment endowed her with all of Erstad's rights and remedies. As we will explain, this
theory is wrong. However, as we will also discuss, plaintiff is correct in asserting she is a
third party beneficiary of the sales contract. That status enables her to proceed solely on
her contract claim for breach of express warranty. For the remainder, plaintiff is without
standing to recover under any legal theory alleged, and the equitable remedy of rescission
is also unavailable to her.
Transfer of Erstad's Rights and Remedies to Plaintiff
Plaintiff alleges and argues the North Dakota divorce judgment granted her "the exclusive
right, title and possession of all [of her] personal property," including the engagement
ring, and the judgment automatically divested Erstad of his substantive rights and
transferred or assigned them to her by operation of law. Such is not the case.
[4] Plaintiff undoubtedly owns the ring. (See Civ. Code, § 679 ["The ownership of
property is absolute when a single person has the absolute dominion over it, and may use
it or dispose of it according to his [or her] pleasure, subject only to general laws"]; see
also North Dakota Century Code, section 47-01-01 (2003) ["The ownership of a thing
shall mean the right of one or more persons to possess and use it to the exclusion of
others. In this code the thing of which there may be ownership is called property"].) But
ownership of gifted property, even if awarded in a divorce, does not automatically carry
with it ownership of the rights of the person who bought the gift. As will be seen,
contrary to plaintiff's hypothesis, the divorce judgment did not give plaintiff the ring
embellished with Erstad's rights under the contract or his choses in action.
[5] A cause of action for damages is itself personal property. (See Civ. Code, § 953 ["A
thing in action is a right to recover money or other personal property by a judicial
proceeding"]; Parker v. Walker (1992) 5 Cal.App.4th 1173, 1182-1183 ["A cause of
action to recover money in damages . . . is a chose in action and therefore a form of
personal property"]; see also Iszler v. Jordan (N.D. 1957) 80 N.W.2d 665, 668-669 [a
chose in action is property].) At the time of the divorce judgment, all causes of action that
could have been asserted against the jeweler by a buyer of the ring were Erstad's personal
property. He was, after all, the purchaser of the ring. The divorce agreement awarded to
each party his or her respective personal property, except as otherwise expressly provided.
The disposition of the ring [125 Cal.App.4th 957] was expressly provided for in the
agreement, i.e., plaintiff was given her jewelry. Any extant choses in action against
defendant, however, were not expressly provided for in the agreement, therefore, they
were retained by Erstad as part of his personal property.
To be sure, Erstad could have transferred or assigned his rights to legal recourse to
plaintiff (see, e.g., Dixon-Reo Co. v. Horton Motor Co. (1922) 49 N.D. 304 [191 N.W.
780, 782] [a right arising out of an obligation, i.e., a thing in action, is the property of the
person to whom the right is due and may be transferred]), but there are no allegations
Erstad either did so or manifested an intention to do so. (See, e.g., Krusi v. S.J. Amoroso
Construction Co. (2000) 81 Cal.App.4th 995, 1005; Vaughn v. Dame Construction Co.
(1990) 223 Cal.App.3d 144, 148; see also Nisewanger v. W.J. Lane Co. (1947) 75 N.D.
448, 455 [28 N.W.2d 409, 412] [under North Dakota law, when a chose in action is
assignable, the clear intent to assign must be established].) fn. 2
Third Party Beneficiary
The fact that Erstad did not assign or transfer his rights to plaintiff does not mean she is
without recourse. For although plaintiff does not have Erstad's rights by virtue of the
divorce judgment, she nonetheless has standing in her own right to sue for breach of
contract as a third party beneficiary under the allegation, inter alia, that "[d]efendant
entered into a written contract with Plaintiff's fiancée [sic] to purchase the subject
engagement ring for the sole and stated purpose of giving it [to] Plaintiff."
[6] Civil Code section 1559 provides: "A contract, made expressly for the benefit of a
third person, may be enforced by him [or her] at any time before the parties thereto
rescind it." Because third party beneficiary status is a matter of contract interpretation, a
person seeking to enforce a contract as a third party beneficiary "'must plead a contract
which was made expressly for his [or her] benefit and one in which it clearly appears that
he [or she] was a beneficiary.'" (California Emergency Physicians Medical Group v.
PacifiCare of California (2003) 111 Cal.App.4th 1127, 1138.)
[7] "'"Expressly," [as used in the statute and case law,] means "in an express manner; in
direct or unmistakable terms; explicitly; definitely; directly."' [Citations.] '[A]n intent to
make the obligation inure to the benefit [125 Cal.App.4th 958] of the third party must
have been clearly manifested by the contracting parties.'" (Sofias v. Bank of America
(1985) 172 Cal.App.3d 583, 587.) Although this means persons only incidentally or
remotely benefited by the contract are not entitled to enforce it, it does not mean both of
the contracting parties must intend to benefit the third party: Rather, it means the
promisor -- in this case, defendant jeweler -- "must have understood that the promisee
[Erstad] had such intent. [Citations.] No specific manifestation by the promisor of an
intent to benefit the third person is required." (Lucas v. Hamm (1961) 56 Cal.2d 583, 591;
see also, Johnson v. Superior Court (2000) 80 Cal.App.4th 1050, 1064-1065; Don Rose
Oil Co., Inc. v. Lindsley (1984) 160 Cal.App.3d 752, 757, and Zigas v. Superior Court
(1981) 120 Cal.App.3d 827, 837.)
[8] We conclude the pleading here meets the test of demonstrating plaintiff's standing as a
third party beneficiary to enforce the contract between Erstad and defendant. The couple
went shopping for an engagement ring. They were together when plaintiff chose the ring
she wanted or, as alleged in the complaint, she "caused [the ring] to be purchased for
her." Erstad allegedly bought the ring "for the sole and stated purpose of giving [the
ring]" to plaintiff. (Italics added.) Under the alleged facts, the jeweler must have
understood Erstad's intent to enter the sales contract for plaintiff's benefit. Thus, plaintiff
has adequately pleaded her status as a third party beneficiary, and she is entitled to
proceed with her contract claim against defendant to the extent it is not time-barred.
[9] With regard to the limitations period, defendant incorrectly argued the complaint was
time-barred by Code of Civil Procedure section 339's two-year statute of limitations
applicable to oral contracts, i.e., the salesperson's alleged statement about the quality of
the diamond. However, the applicable limitations period for breach of warranty in a
contract for sale of goods is not set forth in the Code of Civil Procedure, but in California
Uniform Commercial Code section 2725, which provides a four-year limitations period
for "any contract for sale," regardless of whether the contract is written or oral. (See
Filmservice Laboratories, Inc. v. Harvey Bernhard Enterprises, Inc., (1989) 208
Cal.App.3d 1297, 1304 ["The term 'any contract for sale'" as used in California Uniform
Commercial Code section 2725 "includes an oral agreement"]; see also Hachten v.
Stewart (1974) 42 Cal.App.3d Supp. 1, 3 [to the same effect].) There can be no legitimate
question the complaint is timely under the apt statute.
Breach of Contract/Breach of Express Warranty
Plaintiff's breach of contract claim is based on allegations of defendant's breach of
express warranty in representing the engagement diamond was of [125 Cal.App.4th 959]
an SI1 clarity rating, when in actuality it was of an inferior quality. Other than noting the
breach of express warranty claim is adequately pleaded, and that plaintiff is entitled to
pursue it as a third party beneficiary, we express no opinion on its ultimate viability. It
will be for the factfinder to determine from all the circumstances whether defendant's
statements regarding the clarity rating of the diamond constituted an express warranty
under California Uniform Commercial Code section 2313 or were merely nonactionable
expressions of opinion. fn. 3 In any event, this is the only cause of action on which
plaintiff may proceed, as we discuss more fully, post.
Rescission
Plaintiff has attempted to plead a separate cause of action for rescission. She is not
entitled to that remedy. Civil Code section 1559 provides, "A contract, made expressly for
the benefit of a third person, may be enforced by him [or her] at any time before the
parties thereto rescind it." (Italics added.) But only the parties to the contract may rescind
it. Civil Code section 1689 provides, in pertinent part, "(a) A contract may be rescinded if
all the parties thereto consent. [¶] (b) A party to a contract may rescind the contract in the
following cases: [¶] (1) If the consent of the party rescinding, or of any party jointly
contracting with him [or her], was given by mistake, or obtained through duress, menace,
fraud, or undue influence, exercised by or with the connivance of the party as to whom he
[or she] rescinds, or of any other party to the contract jointly interested with such party.
[¶] (2) If the consideration for the obligation of the rescinding party fails, in whole or in
part, through the fault of the party as to whom he [or she] rescinds." (Italics added.)
[10] We have found no cases specifically holding the rescission remedy unavailable to a
third party beneficiary, but the proposition is self-evident to a degree that might well
explain the absence of precedent. Civil Code section 1559 grants a third party beneficiary
the right to enforce the contract, not rescind it, and Civil Code section 1689 limits its
grant of rescission rights to the contracting parties. Not only do the relevant statutes
demand making rescission unavailable to a third party beneficiary, but common sense
compels the conclusion. The interest of the third party beneficiary is as the intended
recipient of the benefits of the contract, and a direct right to those benefits, [125
Cal.App.4th 960] i.e., specific performance, or damages in lieu thereof, will protect the
beneficiary's interests. Rescission, on the other hand, extinguishes a contract between the
parties. (Civ. Code, § 1688.) Plaintiff, not having participated in the agreement, not
having undertaken any duty or given any consideration, is a stranger to the agreement,
with no legitimate interest in voiding it. As a matter of law, without an assignment of
Erstad's contract rights, plaintiff cannot rescind the sales contract to which she was not a
party.
Statutory Remedies for Consumers or Buyers
Plaintiff argues she has remedies under the Act because she is a "consumer."
Unfortunately for plaintiff, by statutory definition Erstad was the consumer because it
was he who purchased the ring. (See Civ. Code, § 1761, subd. (d) ["'Consumer' means an
individual who seeks or acquires, by purchase or lease, any goods or services for
personal, family, or household purposes"].) fn. 4 Plaintiff's ownership of the ring was not
acquired as a result of her own consumer transaction with defendant, and without an
assignment of Erstad's rights, she does not fall within the parameters of consumer
remedies under the Act.
Actual and Constructive Fraud
[11] Further, the absence of an assignment of rights from Erstad precludes plaintiff from
maintaining a cause of action for actual fraud. It is axiomatic that plaintiff must allege she
"actually relied upon the misrepresentation; i.e., that the representation was 'an immediate
cause of [her] conduct which alter[ed] [her] legal relations,' and that without such
representation, '[she] would not, in all reasonable probability, have entered into the
contract or other transaction.'" (5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, §
711, p. 810; Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324,
1331-1332.) Here, Erstad allegedly relied on the representation and entered into the
contract of sale. As we have explained, he retained the right, if any, to sue for actual
fraud.
[12] As for constructive fraud, the complaint fails to plead facts establishing the requisite
fiduciary or special confidential relationship between plaintiff and defendant. (See, e.g.,
Tyler v. Children's Home Society (1994) 29 Cal.App.4th 511, 548; Peterson Development
Co. v. Torrey Pines Bank (1991) 233 Cal.App.3d 103, 116 ["It is [125 Cal.App.4th 961]
essential to the operation of the doctrine of constructive fraud that there exist a fiduciary
or special relationship"].) And even assuming plaintiff could overcome the standing
hurdle, fraud causes of action must be pleaded with specificity, meaning "(1) general
pleading of the legal conclusion of fraud is insufficient; and (2) every element of the
cause of action for fraud must be alleged in full, factually and specifically, and the policy
of liberal construction of pleading will not usually be invoked to sustain a pleading that is
defective in any material respect." (Wilhelm v. Pray, Price, Williams & Russell, supra,
186 Cal.App.3d at p. 1331.) Plaintiff's complaint utterly fails the specificity test, not
because she is an inartful pleader, but because those facts that are well pleaded
necessarily negate the existence of the facts supporting the requisite elements of fraud.
DISPOSITION
The judgment is reversed. The case is remanded with directions to the trial court to
overrule defendant's demurrer to plaintiff's cause of action for breach of contract and
order defendant to answer. In all other respects, the demurrer has been properly sustained
without leave to amend. Plaintiff shall recover her costs on appeal.
Rylaarsdam, Acting P. J., and Bedsworth, J., concurred.
FN 1. Defendant noted that one of the exhibits to plaintiff's complaint showed defendant's
disclaimer stating the EGL appraisal "SHOULD NOT BE USED AS THE BASIS FOR
THE PURCHASE OR SALE OF THE ITEM/S LISTED WITHIN AND IS PROVIDED
SOLELY AS AN ESTIMATE OF THE APPROXIMATE REPLACEMENT VALUES OF
THE LISTED ITEM/S AT THIS TIME FOR INSURANCE COVERAGE PURPOSES."
Another section of that exhibit advised, "JEWELRY APPRAISAL AND EVALUATION
IS PARTIALLY SUBJECTIVE, THEREFORE ESTIMATES OF REPLACEMENT
VALUE MAY VARY FROM ONE APPRAISER TO ANOTHER." Another section
stated: "THE APPRAISER AND BLACK, STARR & FROST AT SOUTH COAST
PLAZA . . . DISCLAIM ALL RESPONSIBILITY AND LIABILITY RESULTING
FROM ANY SUIT AT LAW WHICH MIGHT ARISE IN CONNECTION WITH THE
APPRAISAL. IN NO SUCH EVENT WILL THE APPRAISER AND [defendant's]
OFFICERS AND EMPLOYEES . . . BE LIABLE FOR ANY DAMAGES ARISING
FROM THE USE OF OR RELIANCE ON THIS APPRAISAL, OR ANY OTHER
CONSEQUENTIAL DAMAGES."
FN 2. The North Dakota and federal cases cited by plaintiff for general propositions of
law do not materially advance her argument. We have no obligation "to discuss or
distinguish [those] decisions . . . simply because [plaintiff] deems them to be controlling
or contrary to the result reached by the court." (Lewis v. Superior Court (1999) 19 Cal.4th
1232, 1264.)
FN 3. California Uniform Commercial Code section 2313 provides, in pertinent part, "(1)
Express warranties by the seller are created as follows: [¶] (a) Any affirmation of fact or
promise made by the seller to the buyer which relates to the goods and becomes part of
the basis of the bargain creates an express warranty that the goods shall conform to the
affirmation or promise. [¶] (b) Any description of the goods which is made part of the
basis of the bargain creates an express warranty that the goods shall conform to the
description. [¶] . . . [¶] (2) . . . [A]n affirmation merely of the value of the goods or a
statement purporting to be merely the seller's opinion or commendation of the goods does
not create a warranty."
FN 4. Moreover, plaintiff's argument that she is entitled to consumer rights and remedies
under North Dakota statutes is unembellished by reasoned analysis and was raised for the
first time in her reply brief. For these reasons, we decline to consider it. (See, e.g.,
Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764-765; Troensegaard v. Silvercrest
Industries, Inc. (1985) 175 Cal.App.3d 218, 228.)
Tyler v. Children's Home Society (1994) 29 Cal.App.4th
511 , 35 Cal.Rptr.2d 291
[No. C016382. Third Dist. Oct 21, 1994.]
LEA TYLER et al., Plaintiffs and Appellants, v. CHILDREN'S HOME SOCIETY OF
CALIFORNIA et al., Defendants and Respondents.
(Superior Court of Yolo County, No. 69606, William S. Lebov, Judge. fn. * )
(Opinion by Sims, Acting P. J., with Scotland and Raye, JJ., concurring.)
COUNSEL
Stahnke & Russo and Brenda J. Russo for Plaintiffs and Appellants.
Murphy & Jacobs, Timothy P. Murphy, Victoria M. Jacobs and William P. Brodbeck for
Defendants and Respondents.
OPINION
SIMS, Acting P. J.
In this action seeking rescission of agreements relinquishing a child for adoption through
a licensed private adoption agency, plaintiffs Lea Tyler and Matthew Darrah fn. 1 appeal
from the trial court's judgment in favor of defendants Children's Home Society of
California (CHS), Davis Crisis Pregnancy Center, Inc. (DCPC), Kathy Huntziker, and
Dee Heszler. On appeal plaintiffs contend the relinquishments are void due to the failure
of adoption agency CHS and its employee Heszler to comply with Department of Social
Services (DSS) regulations. [29 Cal.App.4th 522]
We shall conclude plaintiffs have failed to show prejudice from any regulatory violations.
We shall therefore affirm the judgment. fn. 2
Factual and Procedural Background fn. 3
On April 14, 1991, 18-year-old college freshman Tyler gave birth unattended to a
premature baby girl in the bathroom of her dormitory at the University of California,
Davis, while her roommates slept in adjoining rooms. Tyler's family, friends, and
roommates were unaware of the pregnancy or birth.
The alleged birth father, fn. 4 Darrah, was aware of the pregnancy. He and Tyler had
become involved when they were both honor students at the same high school. At the
time of the baby's birth Darrah was a freshman at the University of California, San Diego.
On April 15, 1991, the day after the baby's birth, Tyler telephoned DCPC, which
advertised itself as a Christian organization offering free services to pregnant women.
Tyler expressed to DCPC volunteer Huntziker an interest in placing a baby for adoption.
Also on April 15th, Tyler traveled with the baby to San Diego, where they spent five days
at Darrah's apartment while Tyler and Darrah discussed their situation. [29 Cal.App.4th
523]
On April 21st, Tyler and the baby returned to Davis and met with Huntziker and Heszler,
a field representative for CHS. Heszler had been contacted by Huntziker, who related that
Tyler was interested in immediate foster care and placement of the baby for adoption.
At the meeting on April 21st, Tyler stated she and Darrah decided after much discussion
to place the baby for adoption. Tyler said she could not tell her parents about the birth.
Her parents did not even know about the pregnancy or that she was sexually active. They
were a traditional family. Tyler was a role model for her two younger sisters. She could
not disappoint her parents. Tyler was consistent throughout the interview that she and
Darrah had decided on adoption as their choice. Tyler wished to proceed quickly in order
to allow the baby to bond with adoptive parents.
Heszler encouraged Tyler to reconsider the option of telling her parents about the baby
and offered to help Tyler do so. Tyler declined. When asked what would happen if her
parents found out later, Tyler said she expected Heszler and Huntziker to maintain
confidentiality, and she did not see any way her parents would find out.
Heszler brought up the possibility of Tyler raising the child by herself, but Tyler insisted
she would not do anything that would mean her parents would find out about the baby.
Heszler and Tyler discussed the possibility of Tyler and Darrah getting married and
raising the child together. Tyler said she and Darrah had talked about that at great length
but decided it was not possible. They were both college freshmen who intended to
complete their education, and they were not in a position to give the baby what they
wished her to have.
At Tyler's request, the baby was placed in foster care.
Heszler gave Tyler blank copies of a "Statement of Understanding" and relinquishment
forms to take home, advising that they were not to be signed but Tyler should review
them because she would be signing similar forms if she decided to proceed with
adoption.
The Statement of Understanding begins as follows: "Relinquishing a child means
permanently giving the child to the adoption agency so the agency can choose other
parents to adopt the child. You permanently give up the child to the adoption agency by
signing this Statement of Understanding and the Relinquishment document. You will no
longer have any rights as a parent to your child once these documents have been filed
with the State [29 Cal.App.4th 524] Department of Social Services, Adoptions Branch."
The Statement of Understanding contains specific information material to the decision to
relinquish, as we discuss below.
On April 25th, Heszler mailed to Darrah copies of relevant forms, including a Statement
of Understanding for "alleged fathers," fn. 5 the relinquishment form, and a
memorandum telling him the documents were for his review and inviting him to call with
any questions.
On April 27th, Tyler told Heszler that Tyler and Darrah had chosen a prospective
adoptive family from an album of photographs and resumes previously provided by
Hesler.
On Wednesday, May 1, 1991, plaintiffs met at Central Park in Davis with Heszler and the
prospective adoptive parents. This first meeting, which was somewhat strained, lasted
about 50 minutes. This was Heszler's first meeting with Darrah. Darrah said he loved the
baby but there was no way he and Tyler could provide for her because they were both
college freshmen who needed to complete their education.
After a second meeting with the prospective adoptive parents on May 3d, Tyler reported
to Heszler that she and Darrah were certain they wanted to place the baby with the
couple. Tyler said she and Darrah wanted to proceed with the relinquishment the
following day, Saturday, because Darrah would be returning to San Diego on Sunday.
Tyler rejected Heszler's suggestion that plaintiffs give themselves one more day to think
about it.
On Saturday, May 4th, plaintiffs met at the DCPC office with Heszler, Huntziker, the
prospective adoptive family, the foster parents, and the baby. Tyler presented flowers to
Huntziker, the foster mother, and the prospective adoptive mother. [29 Cal.App.4th 525]
Heszler took plaintiffs into a private room and told them they would be asked to answer
the following questions in front of the witnesses to the execution of the relinquishment
documents: (1) "[H]ave you read this relinquishment and are you aware of what you are
signing"; (2) "are you aware that when this signed relinquishment is filed with the State
Department of Social Services by [CHS] all your rights to the custody, service, and
earnings of this child and any responsibility for the care and support of this child will be
terminated and that the child cannot be reclaimed by you"; and (3) "are you signing this
relinquishment of your own free will." Plaintiffs listened and had no questions.
Heszler then called in the foster parents to witness execution of the documents. Heszler
asked the questions she had previewed with plaintiffs, and plaintiffs responded
affirmatively. Heszler asked if plaintiffs had read the Statement of Understanding. They
said they had. Heszler had plaintiffs reread the Statement of Understanding to themselves
and initial the boxes next to each paragraph to reflect their understanding of the
information contained in each paragraph. The Statement of Understanding called for the
parent to choose between immediate filing of the relinquishment or a hold of up to 30
days. Heszler told plaintiffs they had this option. Plaintiffs chose immediate filing.
Heszler told plaintiffs they had one full working day-until 5 p.m. Monday-to change their
mind and revoke the relinquishments. Plaintiffs signed the forms. The process took 15 or
20 minutes. Plaintiffs were tearful, as they had been at times throughout the process, but
Heszler considered that to be normal emotion at relinquishing a baby. Neither Heszler nor
the foster parents observed any indication that plaintiffs felt coerced or pressured into
signing.
The child was turned over to the prospective adoptive parents.
The relinquishment forms were filed with DSS on Tuesday, May 7, 1991.
On May 30, 1991, Tyler gave the prospective adoptive mother a Mother's Day card,
signed by Tyler and Darrah, on which Tyler had handwritten: "Thank you so much for
giving Michelle exactly what we want for her, loving parents. Happy Mother's Day!"
Several months later, in mid-September 1991, Tyler told her parents about the baby.
Darrah also told his parents in the fall of 1991. Tyler's parents told her there must be
something she could do to get the baby back. On September 14, 1991, Tyler telephoned
Heszler and said she (Tyler) had made a mistake and wanted to get the baby back.
Heszler said it was too late to revoke but sent forms to request rescission. Tyler submitted
a formal request for rescission, which was denied by CHS. [29 Cal.App.4th 526]
On October 29, 1991, plaintiffs filed this contract action for (1) rescission of the
relinquishment agreements, on the grounds of fraud, coercion and undue influence, (2)
intentional infliction of emotional distress, and (3) punitive damages.
The trial court ordered a stay of the pending adoption proceedings. fn. 6
At trial, in addition to their accusations of coercion and intimidation, plaintiffs asserted
Heszler and CHS violated DSS regulations governing relinquishment of children for
adoption by failing to (1) give plaintiffs full counseling, (2) give plaintiffs copies of the
signed and filed forms, and (3) obtain a full medical history from Darrah. Heszler
admitted noncompliance in that she did not discuss the option of placing the baby with
extended family members, did not discuss educational or employment resources, did not
give plaintiffs copies of the executed documents, and did not obtain Darrah's medical
history before the relinquishments were signed. We discuss the specific regulations, post.
Following a three-week bench trial, the trial court found in favor of defendants. The court
issued a written 11-page "Opinion and Ruling," fn. 7 finding that Heszler is an "ethical,
principled, and experienced professional," fn. 8 that plaintiffs' relinquishments for
adoption were not procured by "fraud, coercion or undue influence," and that the
relinquishments for adoption were "voluntarily, intelligently and knowingly" given by
both plaintiffs, who "are intelligent and strong minded." The trial court believed plaintiffs
loved the baby but made the difficult decision to relinquish her due to their difficult
personal circumstances. "The Court believes that the Plaintiffs came to believe that they
made a mistake, that they decided finally to tell their parents and when they received
(perhaps unexpectedly) support from their parents they decided to seek to regain their
child." [29 Cal.App.4th 527]
The trial court concluded the regulatory violations were of "limited relevance" because
"minor deviations ... are insignificant, absent fraud or wrongful conduct ...."
The court entered judgment in favor of defendants. Plaintiffs appeal.
Discussion
Plaintiffs contend Heszler and CHS failed to comply with mandatory DSS regulations
applicable to private agency adoptions, and the failure of an adoption agency to comply
with mandatory state regulations in obtaining relinquishments of parental rights renders
the relinquishments void. Plaintiffs' position is not entirely clear. They appear to advocate
automatic rescission for any regulatory violation, yet they also appear to agree with the
notion that insignificant violations need not result in rescission.
We stress that, given the procedural posture of this case, this appeal does not present
issues of deliberate misconduct by defendants. Rather, the issue here is at most negligent
omissions of regulatory requirements.
We will conclude noncompliance with the regulations does not automatically vitiate a
relinquishment. However, noncompliance will constitute a ground for rescission of a
relinquishment, regardless of the lack of fraudulent intent, if the noncompliance rises to
the level of constructive fraud, i.e., if the violation causes prejudice to the relinquishing
parents by affecting their decision to relinquish. Here, however, plaintiffs fail to show
constructive fraud.
I. The Relinquishment Process
At the time plaintiffs signed their relinquishments, the process was governed by former
Civil Code section 221 et seq. fn. 9 Former Civil Code section 224m (Stats. 1980, ch.
1229, § 1, p. 4152, repealed by Stats. 1990, ch. 1363, § 2, operative July 1, 1991)
provided in part: "The father or mother may relinquish a child to a licensed adoption
agency for adoption by a written statement signed before two subscribing witnesses and
acknowledged before an authorized official of an organization licensed by the State
Department of [29 Cal.App.4th 528] Social Services to find homes for children and
place children in homes for adoption.... [¶] The filing of the relinquishment with the
department shall terminate all parental rights and responsibilities with regard to the
child."
The relinquishment process was and is subject to regulations (Cal. Code Regs., tit. 22, §
35128 et seq.) adopted by DSS pursuant to legislative authority. (Welf. & Inst. Code, §
10553; fn. 10 see now Fam. Code, § 8621, fn. 11 operative Jan. 1, 1995 [department shall
adopt regulations].)
The effect of a relinquishment of a child by a birth parent is to allow adoption of the child
without further consent of the birth parent. (Fam. Code, § 8606.)
Once a relinquishment is filed with DSS, it is final and cannot be rescinded except under
narrow circumstances. By statute: "... Upon filing with the department, the
relinquishment is final and may be rescinded only by the mutual consent of the adoption
agency and the parent or parents relinquishing the child...." (Former Civ. Code § 224m,
repealed by Stats. 1990, ch. 1363, § 2, operative July 1, 1991.) fn. 12 Similarly, the
regulations provide: "A relinquishment which has been filed with the department shall be
rescinded only as specified at Civil Code Section 222.10." (Cal. Code Regs., tit. 22, §
35167.) Civil Code section 222.10, which was repealed and replaced by Family Code
section 8700 (Stats. 1992, ch. 162, § 10), provided at the time in question: "... Upon filing
with the department, the relinquishment is final and may be rescinded only by the mutual
consent of the adoption agency and the birth parent or parents relinquishing the child...."
(Stats. 1990, ch. 1363, § 3.)
[1] Nevertheless, California courts have long held that a birth parent may bring an action
in equity to set aside a relinquishment for cause, such as fraud or undue influence. (In re
Cheryl E., supra, 161 Cal.App.3d at pp. 598-602 [substantial evidence supported trial
court's finding of undue influence where adoption worker misrepresented duration of
revocation rights [29 Cal.App.4th 529] and told plaintiff if she did not sign
relinquishment the child might be given to plaintiff's estranged husband]; Brooks v. Los
Angeles County Bureau of Adoptions (1963) 218 Cal.App.2d 732 [32 Cal.Rptr. 466]
[statute did not negate independent rule of equity allowing rescission for cause].)
However, the contract of relinquishment cannot be rescinded when it appears that consent
would have been given and the contract entered into notwithstanding the fraud or undue
influence (In re Cheryl E., supra, 161 Cal.App.3d at p. 600 [trial court implicitly found
parent would not have relinquished child but for misrepresentations of adoption worker].)
The granting or withholding of equitable relief is a matter within the discretion of the trial
court. (Fairchild v. Raines (1944) 24 Cal.2d 818, 826 [151 P.2d 260].)
[2] "Relinquishments, once executed, must be relied upon in order to insure that children
will not be forced out of one home and into another at the whims and caprice of
emotionally upset and perhaps ill-advised persons. The state has expressed a strong
policy in the necessity for giving effect to relinquishments, for to do otherwise would
'open the door to practices which could conceivably discourage adopting parents from
opening their hearts and homes to unwanted children ....' [Citation.]" (Hall v. Department
of Adoptions (1975) 47 Cal.App.3d 898, 903 [121 Cal.Rptr. 223] [coercion by child's
father would not constitute ground for child's mother to rescind relinquishment unless
adoption worker knew or should have known mother's consent was not freely and
voluntarily given]; see also, Adoption of Graham (1962) 58 Cal.2d 899 [27 Cal.Rptr. 163,
377 P.2d 275] [policy of state to maintain integrity of relinquishments]; Adoption of
Barnett (1960) 54 Cal.2d 370, 377 [6 Cal.Rptr. 562, 354 P.2d 18].) Adoption requirements
"are to be liberally construed in order to effect the object of the adoption statutes in
promoting the welfare of children, bereft of the benefits of the home and care of their real
parents ...." (San Diego County Dept. of Pub. Welfare v. Superior Court (1972) 7 Cal.3d
1, 16 [101 Cal.Rptr. 541, 496 P.2d 453], internal quotation marks omitted.)
II. Asserted Regulatory Violations
[3] Plaintiffs assert defendants violated various regulations. As to some of the regulations,
the record shows the evidence was conflicting as to whether there was compliance.
Where there is a conflict, we will infer findings in favor of the judgment, because no
statement of decision was requested. (In re Marriage of Arceneaux (1990) 51 Cal.3d
1130, 1133 [275 Cal.Rptr. 797, 800 P.2d 1227].) [29 Cal.App.4th 530]
A. Section 35129-Face-to-face Interview fn. 13
[4] Darrah complains that as to him defendants failed to comply with section 35129,
which provides in part: "The agency shall provide a minimum of two face-to-face
interviews with parents who are considering relinquishment and who reside in California.
[¶] (1) The required interviews shall be provided over a period of two or more days .... [¶]
(3) During the interview the agency shall explain to the parent the purpose of the agency
and the services it provides."
Heszler testified she complied with this regulation by meeting with Darrah twice-on May
1st at the park and on May 4th when the relinquishments were signed.
Darrah suggests the May 4th meeting does not count because both interviews must occur
before the meeting to sign the documents. However, nothing in the regulation so requires.
Darrah also contends the May 1st meeting does not count, because it lasted only 50
minutes, was held in a public park, and the prospective adoptive parents were present the
whole time. Darrah thus challenges the quality of a meeting as an "interview." However,
the regulation does not specify requirements as to location or duration of the meeting, nor
does the regulation restrict who else may be present.
Plaintiffs fail to show any violation of section 35129.
B. Sections 35133 and 35134 -Counseling
Plaintiffs complain they did not receive counseling required by sections 35133 and
35134.
Section 35133 provides: "Prior to accepting the parent's relinquishment of the child for
adoption, the agency shall provide counseling as appropriate to the category of parents as
described at Section 35134 who reside in California."
Section 35134 lists specific information that must be conveyed to parents, with certain
requirements for mothers and "presumed fathers" (§ 35134, subd. (a)), and different
requirements for "alleged fathers" (§ 35134, subd. (e)). [29 Cal.App.4th 531]
Thus, the requirements differ for Tyler (as the mother) and Darrah (as the alleged father).
On appeal, plaintiffs improperly ignore the distinction between the two subdivisions,
inasmuch as they do not challenge defendants' characterization of Darrah as an alleged
father. (Fn. 5, ante.)
We turn now to plaintiffs' specific complaints regarding the counseling requirements.
1. Legal Counsel
[5] First, plaintiffs claim defendants failed to comply with section 35134, which provides
that "the agency shall ... [¶] ... [i]nform the parent that he/she has the right to seek legal
counsel to assist him/her in the relinquishment process ... [¶] ... When appropriate the
agency shall make referral to [legal resources]." (§ 35134, subd. (a)(2) [mother], subd. (e)
(2) [alleged father].) Heszler admitted she did not verbally convey this information to
plaintiffs, but it was contained in the Statements of Understanding.
Thus, the Statements of Understanding both contained the following statement: "I
understand I have the right to look for a lawyer to help me in the relinquishment process
and the adoption agency can refer me to public legal help in my community." Plaintiffs
each initialed the box next to that statement.
The regulations require that parents be provided with specific information in written
form. (§ 35147.) Plaintiffs argue section 35134 must therefore require verbal counseling,
because otherwise section 35137 would be superfluous. Merely handing someone a
printed form, argue plaintiffs, cannot satisfy the purpose the regulations were designed to
serve. However, this is not a case where a printed form was substituted for all human
interaction. Assuming for the sake of argument that section 35134 requires verbal
counseling, the omission of the verbal message regarding legal counsel was rendered
harmless by the written Statement of Understanding. The right to legal counsel was stated
in plain language. Plaintiffs are intelligent and strong-minded, as found by the trial court.
Plaintiffs do not show they were unaware of the right to legal counsel or were prejudiced
by the lack of verbal communication of this matter.
To the extent plaintiffs suggest defendants were required to make an actual referral to
legal services, the regulation requires only a referral "[w]hen appropriate." (§ 35134,
subd. (a)(2)(A) [mother]; subd. (e)(2)(A) [29 Cal.App.4th 532] [alleged father].)
Plaintiffs fail to show the absence of a referral in this case constitutes a violation of the
regulation.
2. Alternative Plans
[6] Second, plaintiffs contend defendants violated section 35134, subdivision (a)(3),
which requires the agency to "[p]rovide all available information regarding alternative
plans for the child, with a complete description of each alternative, including keeping the
child, placement with extended family members, and/or foster care and reunification
services."
Plaintiffs incorrectly assert "None of this was done in this case." (Original italics.)
However, Heszler testified she did orally provide this information to Tyler, with the
exception of (1) the extended family alternative, and (2) reunification services, which
Heszler testified applies only in dependency cases. Thus, Heszler talked to Tyler about
the possibility of marrying Darrah and raising the child, but Tyler said she and Darrah
had discussed and rejected that option. Heszler talked to Tyler about getting help from
Tyler's parents, but Tyler was adamant that she did not want them to know about the baby
and did not want Heszler to intercede in her behalf with her parents. Heszler talked to
Tyler about raising the child on her own with the help of Aid to Families with Dependent
Children (AFDC), but Tyler was not interested in AFDC and would not consider any
option that might result in her parents finding out about the baby. Heszler talked to Tyler
about foster care as a temporary resource, which in fact Tyler used.
Heszler admitted she did not talk to Tyler about placing the baby with extended family
members. However, under the circumstances of this case, this deficiency was not
prejudicial, because Tyler was adamant that she would not choose any option that would
lead to her parents finding out about the baby. The trial court found Tyler did not want her
parents to find out and intentionally kept the baby a secret. Tyler cites nothing in the
record to demonstrate she would have placed the baby with extended family members
had defendants counseled her on this option.
As to Darrah, the regulation addressing alleged fathers merely requires the agency to
"[d]iscuss the adoption plan for the child and determine if he wants to relinquish the
child, assume parental responsibility for the child, place the child with extended family
members, place the child in foster care and/or receive reunification services." (§ 35134,
subd. (e)(3).) Heszler discussed the adoption plan with Darrah and determined he wanted
to relinquish the child. Assuming the regulation contemplates that the adoption [29
Cal.App.4th 533] worker will discuss the other options with the alleged father, no
prejudice appears in this case, because the trial court found Darrah did not want his
parents to find out about the baby. The other options would result in his parents finding
out.
No prejudice appears.
3. Resources
[7] Third, plaintiffs contend defendants failed to comply with section 35134, subdivision
(a)(4), which provides that the agency shall "[i]nform the parent of at least the following
resources and make a referral when appropriate: [] Financial resources, [] Employment
resources, [] Education resources, [] Child care resources, [] Housing resources, [and]
Health service resources."
Heszler testified she talked to Tyler about the availability of AFDC, but Tyler was not
interested. Heszler did not discuss employment resources because they did not seem
applicable since Tyler stated her wish to continue as a student. Heszler did not talk about
student loans or university housing. As to housing resources, Heszler talked to Tyler
about getting an AFDC grant and moving off campus, which Tyler rejected. As to health
services, Heszler provided no services but was aware Tyler was sent to a doctor, per
arrangements made by Huntziker.
Thus, defendants failed fully to comply with this regulation. However, plaintiffs fail to
show prejudice. They do not cite anything in the record showing they would have decided
against relinquishment had the omitted resources been explored.
As to Darrah, the regulations regarding alleged fathers require that the agency "[d]iscuss
the financial, health, and social service resources available if he wishes to consider
assuming parental responsibility for the child." (§ 35134, subd. (e)(4).) Here, the trial
court disbelieved that Darrah ever wished to consider assuming parental responsibility for
the child.
4. Counseling Regarding Feelings
[8] Fourth, plaintiffs contend defendants failed to comply with section 35134, subdivision
(a)(5), which requires the agency to "[p]rovide counseling services as needed to assist the
parent with his/her feelings regarding the [29 Cal.App.4th 534] child and the long-range
implications of relinquishing the child for adoption." The same requirement applies to
alleged fathers. (§ 35134, subd. (e)(6).)
However, this regulation on its face confers discretion on the adoption worker to
determine what counseling is needed. Heszler testified she did comply with this
regulation by talking to Tyler about her feelings, her grief reaction, the finality of the
decision, and the fact that it was the hardest decision to make in life. Heszler did not
believe further counseling was required or would benefit Tyler. Tyler fails to demonstrate
that Heszler's exercise of discretion constitutes a violation of the regulation. Darrah fails
to show he needed counseling or was prejudiced by any lack of counseling regarding his
feelings. That plaintiffs cried while signing the relinquishments does not establish
prejudice; as Heszler testified, sadness is a normal emotion during a relinquishment.
Moreover, the long-range implications of relinquishment were also fully set forth in the
written Statements of Understanding signed by plaintiffs. Thus, the documents stated
plaintiffs' understanding that by relinquishing the child, they would "no longer be
responsible for the care of my child," would "no longer have any right to the custody,
services or earnings of my child," and after adoption "all inheritance rights from any
blood relatives will end unless they have made arrangements ...." The documents also
told plaintiffs they had five years to seek rescission "if I think I was forced to sign or
deliberately not told the truth about giving up my child."
No violation of the regulation is shown.
5. Independent Adoption
[9] Fifth, plaintiffs contend defendants failed to comply with section 35134, subdivision
(a)(6), which requires the agency to "[a]dvise the parent of the option of an independent
adoption." No similar provision appears under the subdivision addressing alleged fathers.
(§ 35134, subd. (e).)
Heszler testified she did not verbally advise Tyler about independent adoption because it
was apparent Tyler already knew about it. fn. 14 Additionally, the Statement of
Understanding signed by Tyler contains the following provision, with her initials next to
it: "6. I understand if I decide not to give up my child to the adoption agency, I can place
my child for adoption with [29 Cal.App.4th 535] parents I find myself and agree only to
an adoption of my child by these parents; this is called an Independent Adoption." We
note Darrah's Statement of Understanding contained a similar statement, with the
qualification that he would first have to prove paternity in court and obtain physical
custody of the child.
Plaintiffs suggest the significance of the distinction between independent adoption and
agency adoption was not explained, i.e., that a parent typically has more time to change
his or her mind with independent adoption. However, there was no prejudice, because
plaintiffs were offered the option of delaying the effectiveness of the relinquishment for
up to 30 days but chose not to do so. Thus, the Statements of Understanding said: "I
understand I have the following filing choices when I sign this Statement of
Understanding and relinquishment document: [¶] A. I may choose to have the adoption
agency file my relinquishment form immediately. If so, I may take it back any time
before the close of the next working day after I sign the form; or [¶] B. I may choose to
have the adoption agency hold the relinquishment form for up to 30 days so I can think
about my decision. I understand my child will not be placed for adoption during any
holding period ...." At the meeting to sign the documents, Heszler told plaintiffs the
option was available. Plaintiffs selected the option: "I want the relinquishment form filed
immediately." As reflected by the evidence, it was Tyler's idea to proceed quickly so as to
allow the baby to bond with adoptive parents.
Since plaintiffs chose not to avail themselves of a 30-day hold, they cannot show any
causal connection between the asserted noncompliance and their decision to relinquish.
No prejudice appears from violation of section 35133 or 35134. fn. 15
C. Section 35135-Assurance of Counseling
[10] Plaintiffs contend defendants failed to comply with section 35135, which provides in
part: "(a) Prior to accepting the parent's relinquishment of [29 Cal.App.4th 536] a child
for adoption, the agency shall determine: [¶] (1) That the parent has chosen the plan of
adoption for the child and freely chooses to relinquish the child.... [¶] (4) That the parent,
if residing in California, has received required counseling as appropriate to the category
of parents commencing with Section 35134...."
As we have seen, Heszler testified she determined the required counseling had been
received by plaintiffs. Heszler also testified she determined plaintiffs had chosen the
adoption plan and had freely chosen to relinquish the child. Additionally, the foster
parents who witnessed execution of the relinquishment documents testified that plaintiffs
verbally affirmed they understood the documents and were acting voluntarily, and that
plaintiffs appeared to know what they were doing and to be doing it freely. Plaintiffs fail
to show a violation of section 35135.
D. Section 35141-Effective Date
[11] Plaintiffs contend defendants failed to comply with section 35141, which provides
the "agency representative shall inform all parents: [¶] (1) Of the time frame options for
the filing of the signed relinquishment form with the department. [¶] (A) The parent shall
be permitted to request that the signed relinquishment form be filed without a holding
period. [¶] (B) The parent shall be permitted to have the signed relinquishment form held
for a specified period of up to 30 days before the agency submits it to the department for
filing...."
Plaintiffs erroneously assert this regulation allows an "indefinite" hold. The indefinite
hold applies only where there are unresolved questions about custody rights of other
parents not involved in the relinquishment. (§ 35141, subd. (a)(2).)
Plaintiffs assert they were never advised of the option to put a hold on the
relinquishments. However, although plaintiffs testified to that effect (indeed testified
Heszler told them the hold option was no longer available), Heszler testified she did
advise plaintiffs of this option when they met to sign the forms. We presume the trial
court believed Heszler's testimony.
Plaintiffs fail to demonstrate a violation.
E. Section 35151-Copies of Signed Documents
[12] Plaintiffs contend defendants failed to comply with section 35151's provision that
upon signing of the forms the agency must "[g]ive the parent [29 Cal.App.4th 537] a
copy of the completed relinquishment document." (§ 35151, subd. (a)(3)(D).) Heszler
admitted she inadvertently omitted to give plaintiffs copies of the signed documents.
Plaintiffs did not receive their copies until four months later. Plaintiffs claim this
omission was crucial because only by taking the documents home could plaintiffs have a
fair opportunity to review the documents privately and carefully so as to invoke their
option to revoke within the 24-hour period.
However, events subsequent to the signing cannot be used to demonstrate that the signing
itself was tainted. Moreover, plaintiffs had previously received copies of the documents,
which presumably were still in their possession. Finally, the trial court found plaintiffs
knew they had more than 24 hours to change their mind, but they chose not to do so.
F. Section 35153-Copies of Filed Documents
Plaintiffs complain defendants failed to comply with section 35153, subdivision (a)(6),
which requires that the agency "[s]end the parent a copy of the filed relinquishment
form," after it is filed with DSS. Heszler admitted this was not done. For the reasons we
have already stated with regard to the failure to provide copies of signed documents, no
prejudice appears.
G. Section 35169-Rescission Procedures
Plaintiffs contend defendants failed to comply with section 35169, which sets forth
procedures the agency must follow when it receives a request for rescission of a
relinquishment. However, events which occurred after the signing of the relinquishment
cannot be used to demonstrate the signing was not knowing and voluntary.
H. Civil Code Section 222.26-Medical History
[13] Plaintiffs contend defendants failed to comply with former Civil Code section
222.26, fn. 16 requiring the agency to obtain medical histories from relinquishing parents.
The portion of the transcript cited by plaintiffs indicates the agency did not obtain
Darrah's medical history. However, the [29 Cal.App.4th 538] purpose of this requirement
is not to protect relinquishing parents but "to provide the prospective adopting parents
with the kinds of information which may reasonably influence their decision whether to
adopt the child." (Adoption of Kay C. (1991) 228 Cal.App.3d 741, 752 [278 Cal.Rptr.
907].) Thus, noncompliance does not prejudice the relinquishing parents. fn. 17
To recap, defendants violated the DSS regulations in that they (1) failed to discuss the
option of placing the baby with extended family members, (2) failed to discuss
educational or employment resources, (3) failed to give plaintiffs copies of the executed
documents, and (4) failed to obtain Darrah's medical history.
The crucial question in this case is whether these regulatory violations warrant rescission
of the relinquishments despite the absence of prejudice to plaintiffs. Plaintiffs argue
regulatory violations automatically vitiate the relinquishments without regard to
prejudice. As will appear, we will reject plaintiffs' position as overbroad but will conclude
regulatory violations provide a basis for rescission of relinquishments under the doctrine
of constructive fraud if a relinquishing parent is misled to his or her prejudice by the
adoption agency's violation of regulations.
III. Noncompliance With Regulations Does Not Automatically Vitiate Relinquishment
Plaintiffs contend noncompliance with the DSS regulations automatically vitiates the
relinquishments under principles of administrative and constitutional law. We will
conclude the contentions are without merit.
A. Administrative Law
[14a] Neither the statutes nor the regulations provide that noncompliance with the
regulations renders a relinquishment void. Nevertheless, plaintiffs argue noncompliance
with the regulations automatically invalidates the relinquishments because administrative
regulations have the force and effect of law, and an agency's failure to follow the law, i.e.,
the administrative regulations, invalidates agency action. We disagree. [29 Cal.App.4th
539]
"[A] regulation adopted by a state administrative agency pursuant to a delegation of
rulemaking authority by the Legislature has the force and effect of a statute. [Citations.]"
(Agricultural Labor Relations Bd. v. Superior Court (1976) 16 Cal.3d 392, 401 [128
Cal.Rptr. 183, 546 P.2d 687].)
However, the general proposition that regulations have the force of statute does not mean
that any departure from the regulations automatically invalidates the action taken.
[15] Thus, "[t]raditionally, the question of whether a public official's fn. 18 failure to
comply with a statutory procedure should have the effect of invalidating a subsequent
governmental action has been characterized as a question of whether the statute should be
accorded 'mandatory' or 'directory' effect. If the failure is determined to have an
invalidating effect, the statute is said to be mandatory; if the failure is determined not to
invalidate subsequent action, the statute is said to be directory.... [I]n evaluating whether
a provision is to be accorded mandatory or directory effect, courts look to the purpose of
the procedural requirement to determine whether invalidation is necessary to promote the
statutory design." (People v. McGee (1977) 19 Cal.3d 948, 958-959 [140 Cal.Rptr. 657,
568 P.2d 382]; see also Morris v. County of Marin (1977) 18 Cal.3d 901, 908 [136
Cal.Rptr. 251, 559 P.2d 606]; People v. Harner (1989) 213 Cal.App.3d 1400, 1405-1406
[262 Cal.Rptr. 422].) "Many statutory provisions which are 'mandatory' in the obligatory
sense are accorded only 'directory' effect." (People v. McGee, supra, 19 Cal.3d at p. 959
[reversing conviction for welfare fraud due to government's failure first to seek
restitution, as required by statute].)
[16] "[T]here is no simple, mechanical test for determining whether a provision should be
given 'directory' or 'mandatory' effect. 'In order to determine whether a particular
statutory provision ... is mandatory or directory, the court, as in all cases of statutory
construction and interpretation, must ascertain the legislative intent. In the absence of
express language, the intent must be gathered from the terms of the statute construed as a
whole, from the nature and character of the act to be done, and from the consequences
which would follow the doing or failure to do the particular act at the required time.
[Citation.] When the object is to subserve some public purpose, the provision may be
held directory or mandatory as will best accomplish that purpose [citation] ....' " (Morris
v. County of Marin, supra, 18 Cal.3d at pp. 909-910, fn. omitted.) [29 Cal.App.4th 540]
[14b] Here, the manifest overall purpose of the regulations is to assure that
relinquishments are given voluntarily and knowingly. However, we do not deal in this
case with a wholesale disregard of the regulations but rather with partial noncompliance
involving details such as failure to (1) discuss the option of placing the child with
extended family members, (2) discuss educational and employment resources, (3) give
copies of executed documents to plaintiffs, and (4) obtain the father's medical history.
Under these circumstances, automatic invalidation of the relinquishments is not necessary
to further the purpose of assuring voluntary and knowing decisionmaking by the parents.
That purpose is served by a rule of substantial compliance, which means "actual
compliance in respect to the substance essential to every reasonable objective" of the
provisions. (Stasher v. Harger-Haldeman (1962) 58 Cal.2d 23, 29 [22 Cal.Rptr. 657, 372
P.2d 649], italics omitted; Bayside Auto & Truck Sales, Inc. v. Department of
Transportation (1993) 21 Cal.App.4th 561, 568 [26 Cal.Rptr. 109].) As we discuss post,
the relinquishing parents have an adequate remedy through rescission for constructive
fraud if regulatory violations cause an involuntary or unknowing relinquishment.
We cannot agree with plaintiffs that the integrity of the adoption process compels strict
adherence to the regulations to the extent that nonprejudicial violations would vitiate
relinquishments. In Adoption of Barnett, supra, 54 Cal.2d 370, a county bureau of
adoptions sought to vacate an adoption by a single parent, who had been married at the
time of the natural mother's formal consent to adoption but who was subsequently
divorced before the adoption was granted by the court. The natural mother had given
informal consent upon learning of the divorce. (Barnett, supra, 54 Cal.2d at p. 374.) The
bureau argued (1) the formal consent in favor of the married couple did not constitute
consent in favor of the single parent, and (2) the informal consent, which was expressed
in letters written by the natural mother to the divorced woman, was invalid because it did
not comply with a statutory requirement that a consent be signed on a form prescribed by
the department and witnessed by a department representative or notary public. (Barnett,
supra, 54 Cal.2d at p. 376.)
The Supreme Court affirmed the order of adoption, stating "[t]he manifest overall
purpose of the requirements ... is to prove that the natural mother's written declaration of
consent to the adoption actually was knowingly and freely signed by her. Here that
purpose is fully accomplished; there is no question that the natural mother ... freely and
formally consented to adoption by [the married couple] and there is no question but that
thereafter, with knowledge of [the divorce], the natural mother, by letters from Nebraska,
willingly and knowingly consented to adoption by [the divorced [29 Cal.App.4th 541]
woman] alone." (Adoption of Barnett, supra, 54 Cal.2d at p. 379.) The court also stated
adoption laws should be liberally construed to sustain, rather than defeat, their main
objective of promoting the welfare of children. (Barnett, supra, 54 Cal.2d at p. 377.)
We recognize Barnett is not directly on point because it was an adoption proceeding
rather than a rescission action. It has been said that the best interests of the child are not
at issue in an action to rescind relinquishment of a child for adoption. (In re Cheryl E.,
supra, 161 Cal.App.3d at p. 603.) Nevertheless, although the child's best interests are not
directly at issue, we believe the principle of liberal construction applies to
relinquishments as part of the body of adoption laws.
[17, 14c] Thus, the Supreme Court has said: "[T]he filing of a certified copy of the
relinquishments with the [department] establishes rights which thereafter cannot be
involuntarily withdrawn. The legislative scheme for the placement of relinquished
children contemplates that the statutory proceedings will progress unhampered by
extrinsic matters and with assurance that proper proceedings may consummate a valid
adoption." (Adoption of Graham, supra, 58 Cal.2d at p. 906.) Neither the statutes nor the
regulations provide invalidation of relinquishments as a penalty for the agency's violation
of the regulations. To the contrary, the statutes and regulations express the policy in favor
of upholding the validity of relinquishments by providing relinquishments are final upon
filing. (Fam. Code, § 8700, subd. (d); § 35167.)
We therefore conclude an adoption agency's violation of DSS regulations does not
automatically invalidate relinquishments.
Plaintiffs cite Morton v. Ruiz (1974) 415 U.S. 199, 235 [39 L.Ed.2d 270, 294, 94 S.Ct.
1055] for the proposition that an administrative agency's failure to follow its own
regulations will invalidate agency action. Plaintiffs quote from that case: "Where the
rights of individuals are affected, it is incumbent upon agencies to follow their own
procedures." (Id. at p. 235 [39 L.Ed.2d at p. 294].) As an agent of the state, say plaintiffs,
CHS was obliged to follow DSS regulations upon penalty of invalidation of the
relinquishments. However, Morton v. Ruiz is distinguishable.
In Morton v. Ruiz, Native Americans living off the reservation but in a Native American
community near the reservation applied for general assistance benefits from the Bureau
of Indian Affairs (BIA). BIA denied benefits under a rule in its internal operations manual
limiting eligibility to Native Americans living "on reservations." (415 U.S. at pp. 204,
235 [39 L.Ed.2d at pp. 277, 294].) The United States Supreme Court held BIA could not
deny benefits to Native Americans who lived in a Native American community [29
Cal.App.4th 542] near their native reservation, and who maintained close economic and
social ties with the reservation and had not been assimilated into general society. (415
U.S. at pp. 211 [39 L.Ed.2d at pp. 280-281].) In budget requests, BIA had led Congress to
believe the appropriations were for Native Americans on or near the reservations. (415
U.S. at pp. 229-230 [39 L.Ed.2d at pp. 290-291.) In dictum, the high court determined
BIA could not rely on its internal operations manual's limitation of eligibility to Native
Americans "on reservations," because BIA had failed to publish these eligibility
restrictions in the Federal Register or in the Code of Federal Regulations, as required by
the federal Administrative Procedure Act (APA). (415 U.S. at pp. 232-235 [39 L.Ed.2d at
pp. 292-294].) The APA itself contained a sanction that persons could not be adversely
affected by matter required to be published and not so published. (Id. at p. 233 [39
L.Ed.2d at p. 293].) Additionally, denial of benefits under the circumstances would be
inconsistent with " 'the distinctive obligation of trust incumbent upon the Government in
its dealings with these dependent and sometimes exploited people.' " (Id. at p. 236 [39
L.Ed.2d at pp. 294-295.)
Thus, Morton v. Ruiz applied a statutory sanction under federal administrative law. Here,
plaintiffs cite no state administrative law imposing a similar sanction. Moreover, Morton
v. Ruiz "is best understood in its unique factual context. The unfairness of BIA's sequence
of actions at issue in Ruiz presented an unusually compelling case in the context of native
Americans with whom the United States has a special trust relationship." fn. 19 (1 Davis
& Pierce, Administrative Law Treatise (3d ed. 1994) § 6.5, p. 254; see also, Ali v. Reno
(S.D.N.Y. 1993) 829 F.Supp. 1415, 1427.)
Plaintiffs cite Hock Investment Co. v. City and County of San Francisco (1989) 215
Cal.App.3d 438 [263 Cal.Rptr. 665]. There, an apartment house owner alleged it
submitted an application for condominium conversion before adoption of a new
restrictive ordinance and in reliance on a department of public works order promising that
applications would be evaluated under the ordinance in effect on the date of the submittal.
The appellate court held the trial court abused its discretion in sustaining a demurrer
where it appeared the plaintiff could state a cause of action based on estoppel if the
plaintiff reasonably relied on that promise to its significant detriment. (Id. at pp. 444,
449.) Thus, Hock does not support plaintiffs' claim that regulatory violations
automatically invalidate relinquishments.
Plaintiffs also cite two cases for the following proposition: "If an agency in its
proceedings violates its rules and prejudice results, any action taken as [29 Cal.App.4th
543] a result of the proceedings cannot stand." (Scott v. Heckler (7th Cir. 1985) 768 F.2d
172, 178-179; Howard v. Heckler (N.D.Ill. 1986) 661 F.Supp. 654, 656.) However, this
proposition, which on its face requires prejudice, does not support plaintiffs' argument
that defendants' violation of DSS regulations automatically vitiates the relinquishments.
Prejudice is required.
Plaintiffs cite Adoption of Kay C., supra, 228 Cal.App.3d 741, for its statement: "He who
claims that an act of adoption has been accomplished must show that every essential
requirement has been complied with." (Id. at p. 750 [affirming order to set aside adoption
at request of adoptive parents who had not been informed of minor's borderline
personality disorder].) However, no adoption is at issue in this case, since the trial court
ordered a stay of the adoption proceedings. Moreover, the statement's reference to
"essential requirements" is consistent with our conclusion that nonprejudicial deviations
from the regulations will not interfere with the adoption process.
Plaintiffs also cite Matter of the Adoption of P.E.P. (1991) 329 N.C. 692 [407 S.E.2d 505]
for its statement: " 'Considering the nature and great importance of the adoption of
children into the home and family in comparison with most other transactions of life, it
seems to us amazing that so little regard is often paid to the vital necessity of legality. The
necessary steps are easy to understand and easy to observe, and only a fair degree of
attention at the right time will serve to prevent frustration, disappointment and
heartbreak.' [Citation.] [¶] The procedural safeguards provided in the adoption statutes
are not mere window dressing-they serve to protect the interests of the parties, the child,
and the public." (Id. at p. 511.)
However, Matter of the Adoption of P.E.P., supra, did not hold regulatory violations
automatically vitiated agency action. There, the Supreme Court of North Carolina
invalidated an adoption proceeding because of "statutory violations [by the adoptive
parents and their attorney], together with numerous other irregularities, under the
circumstances of this case ...." (407 S.E.2d at pp. 511-512.) The court agreed with the
proposition that " 'any single procedural aberration, looked at in isolation, may not appear
to be sufficient to void the adoption. When viewed together, however, the defects in this
case are substantial and serious enough' " to invalidate the adoption. (407 S.E.2d at p.
511, original italics.) The court also agreed the procedural irregularities in the case before
it were apparently deliberate. (Ibid.) Among the defects were: (1) the adoptive parents'
attorney falsely advised the out-of-state expectant mother that she had to come stay in the
same state as the adoptive parents; (2) the adoptive parents in effect "bought" the baby in
violation of state law by paying money to and on behalf of the natural mother; and (3) the
adoptive parents' attorney failed to serve proper notice [29 Cal.App.4th 544] of
proceedings on the natural father, even though the attorney was aware of the father's
identity and opposition to adoption. (Ibid.)
Thus, the P.E.P. case does not support plaintiffs' claim that noncompliance with DSS
regulations automatically vitiates the relinquishments. It merely allows violations to be
considered as a ground for invalidating action. We accord plaintiffs the same opportunity
in this case.
Plaintiffs claim prejudice is presumed from violation of the regulations. However,
plaintiffs cite no authority to support their position.
As we discuss post, prejudicial noncompliance does constitute grounds for rescission of
relinquishments under the doctrine of constructive fraud. This provides a sufficient
remedy for parents who allege regulatory violations, without doing violence to the policy
in favor of upholding relinquishments.
In their reply brief, plaintiffs for the first time argue that if this were a case about
purchase of an automobile, "no one" would dispute that failure to comply with state
regulations would invalidate the transaction. Plaintiffs argue parents deserve no less
protection. We need not address this new argument, which is unsupported by authority.
However, we point out that invalidation for noncompliance in the car sales context is a
remedy expressly created by statute. (E.g., Civ. Code, § 2983.) Here, no statute or
regulation calls for invalidation of a relinquishment due to noncompliance with DSS
regulations.
We conclude plaintiffs have failed to show that noncompliance with DSS regulations
automatically voids relinquishments under principles of administrative law.
B. Due Process
[18a] Plaintiffs contend that because parenting is a constitutionally protected right and
because relinquishment terminates parental rights, an adoption agency's noncompliance
with regulations constitutes a deprivation of procedural due process by an agent of the
state. fn. 20 According to plaintiffs, an agreement to relinquish a child for adoption must
fail if the agency fails strictly to comply with the regulations. We disagree. [29
Cal.App.4th 545]
The Fourteenth Amendment to the federal Constitution provides in relevant part: "... nor
shall any state deprive any person of life, liberty, or property, without due process of
law ....
[19] "Only those actions that may fairly be attributed to the state ... are subject to due
process protections. [Citations.]" (Coleman v. Department of Personnel Administration
(1991) 52 Cal.3d 1102, 1112 [278 Cal.Rptr. 346, 805 P.2d 300].) However, private
conduct may become so entwined with governmental action as to become subject to the
due process guarantees of the Fourteenth Amendment. (Adams v. Department of Motor
Vehicles (1974) 11 Cal.3d 146, 152 [113 Cal.Rptr. 145, 520 P.2d 961].)
[18b] Here, defendant CHS, as a licensed adoption agency, is fairly characterized as an
agent of the state. Thus, Scott v. Family Ministries (1976) 65 Cal.App.3d 492 [135
Cal.Rptr. 430] held the state is entangled with licensed private adoption agencies such
that the adoption agency is bound by regulations limiting what religious restrictions may
be imposed on adoptive parents. (Id. at pp. 506-507.) The Scott court said: "The agencies
are delegated the governmental case work function in the adoption process. The state
delegates to them the process of investigation and reporting to the court that in nonagency
adoptions must be performed by the [state]. The state delegates to the private licensed
agencies the state's power and obligation to select adoptive parents and to bar all others
from the right to adopt the particular child.... In essence if a private-licensed adoption
agency imposes a [] restriction in exercising its delegated power and responsibility it is
acting for and on behalf of the state when it does so. [¶] We thus conclude that Family
Ministries is bound by our construction of [the California Code of Regulations] to the
same extent as the state itself is bound." (Ibid.) Similarly, we conclude defendant CHS, a
licensed private adoption agency, is a governmental actor for purposes of due process
analysis.
[20] Parenting is a fundamental right and "[n]o human bond is cemented with greater
strength than that of parent and child." (Michelle W. v. Ronald W. (1985) 39 Cal.3d 354,
357 [216 Cal.Rptr. 748, 703 P.2d 88] [paternity case]; In re David C. (1984) 152
Cal.App.3d 1189, 1208 [200 Cal.Rptr. 115] [Civ. Code, § 232, proceeding to terminate
parental rights due to neglect]; In re Robert D. (1984) 151 Cal.App.3d 391 [198 Cal.Rptr.
801] [grandparent visitation rights].) Because parents enjoy a fundamental liberty interest
in the care, custody and control of their children, parental rights cannot be terminated
except according to procedures that satisfy due process. (Santosky v. Kramer (1982) 455
U.S. 745, 753-754 [71 L.Ed.2d 599, 606, 102 S.Ct. 1388].) At the same time,
constitutional rights may generally be waived, provided the waiver is knowing, voluntary,
and intelligent. (D. H. Overmyer Co. v. Frick Co. (1972) 405 U.S. 174, 185-186 [31
L.Ed.2d 124, 134, 92 [29 Cal.App.4th 546] S.Ct. 775].) In particular, constitutional
rights to a parent-child relationship may be waived as long as the waivers are "voluntary
[citations] and knowing, intelligent acts done with sufficient awareness of the relevant
circumstances and likely consequences." (San Diego County Dept. of Pub. Welfare v.
Superior Court, supra, 7 Cal.3d 1, 10 , internal quotation marks omitted, citing In re
Hannie (1970) 3 Cal.3d 520, 526 [90 Cal.Rptr. 742, 476 P.2d 110] [waiver of
constitutional rights in criminal context]; see also Brady v. United States (1970) 397 U.S.
742, 748 [25 L.Ed.2d 747, 756, 90 S.Ct. 1463] [same].)
Due process may require that certain procedures be followed to insure that a waiver of
constitutional rights is accomplished knowingly, voluntarily, and intelligently. (See, e.g.,
Isbell v. County of Sonoma (1978) 21 Cal.3d 61, 68-70 [145 Cal.Rptr. 368, 577 P.2d 188]
[confession of judgment].) [18c] Here, plaintiffs argue the regulations (and each of them)
specify the due process to which plaintiffs were entitled. At this point, we disagree.
Constitutionally mandated requirements of procedural due process are found in the
constitution, as interpreted by the courts, and not in state statutes. (Cleveland Bd. of
Educ. v. Loudermill (1985) 470 U.S. 532, 541 [84 L.Ed.2d 494, 503, 105 S.Ct. 1487];
Burrell v. City of Los Angeles (1989) 209 Cal.App.3d 568, 576-577 [257 Cal.Rptr. 427].)
"[T]he mere fact that a state agency violates its own procedures does not, ipso facto,
mean that it has contravened federal due process requirements." (Morris v. City of
Danville, Va. (4th Cir. 1984) 744 F.2d 1041, 1048, fn. 9.) "A failure to comply with state
or local procedural requirements does not necessarily constitute a denial of due process;
the alleged violation must result in a procedure which itself falls short of standards
derived from the Due Process Clause. [Citations.]" (Mangels v. Pena (10th Cir. 1986) 789
F.2d 836, 838.) "An agency's violation of its regulations is not unconstitutional unless the
regulations are necessary to afford due process. [Citation.] When a property interest has
been created, the due process clause, not state regulations, defines what process is
constitutionally mandated. [Citations.]" (Bowens v. N.C. Dept. of Human Resources (4th
Cir. 1983) 710 F.2d 1015, 1019; see also McDarby v. Dinkins (2d Cir. 1990) 907 F.2d
1334, 1337; Goodrich v. Newport News School Bd. (4th Cir. 1984) 743 F.2d 225 ; Bates
v. Sponberg (6th Cir. 1976) 547 F.2d 325, 329-330.)
Atencio v. Bd. of Ed. of Penasco Ind. Sch. Dist. (10th Cir. 1981) 658 F.2d 774 is
instructive. There, plaintiff Atencio brought a civil rights action under 42 United States
Code section 1983, claiming he had been denied procedural due process when he was
discharged from his position as superintendent of schools. He contended the school
district violated a statewide regulation that [29 Cal.App.4th 547] required two
conferences with an employee's supervisor prior to notice of discharge. The circuit court
rejected the challenge, concluding the conference procedure was not required by due
process and plaintiff was afforded due process when he was given notice and a hearing
prior to discharge. (Atencio, supra, 658 F.2d at p. 779.)
Here, we conclude the procedures actually afforded plaintiffs were more than adequate to
insure that their relinquishments of parental rights were given knowingly, voluntarily and
intelligently. The regulations violated by defendants fn. 21 were not necessary to insure a
knowing, voluntary and intelligent waiver of parental rights and were therefore not
required by constitutional guarantees of procedural due process. Rather, as a matter of
legislative grace, these regulations required procedures not required by due process. (See
Franchise Tax Board v. Superior Court (1950) 36 Cal.2d 538, 549 [225 P.2d 905]
[Legislature provided hearing not required by due process].) In short, we conclude
plaintiffs were afforded adequate procedural due process. fn. 22
IV. Constructive Fraud
Plaintiffs contend constructive fraud constitutes a ground for rescission without regard to
fraudulent intent by defendants, and the trial court erred in failing to consider that theory.
We agree constructive fraud constitutes a ground for rescission without regard to the
intent of the defendants. We will conclude, however, that plaintiffs have waived the
contention of the trial court's failure to consider that theory because plaintiffs did not
request a statement of decision. Since, as we have seen, the regulatory violations in this
case were nonprejudicial, we will also conclude plaintiffs fail to show any abuse of
discretion in the trial court's denial of rescission on a constructive fraud theory. [29
Cal.App.4th 548]
A. Constructive Fraud Is a Basis for Rescission
[21] Actual fraud fn. 23 and undue influence fn. 24 generally involve active misconduct,
such as an intent to deceive, or misrepresentation, by the defendant. This appeal does not
involve any misrepresentation or intent to deceive. As we have seen, the trial court found
defendants to be ethical, principled professionals. Instead, this appeal involves at most
negligent omissions by defendants in failing to comply with DSS regulations. Unlike
fraud and undue influence, a constructive fraud claim allows relief for negligent
omissions constituting breach of duty in a confidential relationship.
Thus, by statute, "[c]onstructive fraud consists: [¶] 1. In any breach of duty which,
without an actually fraudulent intent, gains an advantage to the person in fault, or anyone
claiming under him, by misleading another to his prejudice, or to the prejudice of anyone
claiming under him; or, [¶] 2. In any such act or omission as the law specially declares to
be fraudulent, without respect to actual fraud." (Civ. Code, § 1573, italics added.)
Constructive fraud "arises on a breach of duty by one in a confidential or fiduciary
relationship to another which induces justifiable reliance by the latter to his prejudice."
(Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 129 [54 Cal.Rptr. 533],
italics added.) Actual reliance and causation of injury must be shown. (5 Witkin, Cal.
Procedure (3d ed. 1985) Pleading, § 666, pp. 116-117, citing County of San Diego v. Utt
(1916) 173 Cal. 554, 560 [160 P. 657].)
[22a] Plaintiffs assert constructive fraud constitutes a ground for rescission in this case
because adoption agencies are in a fiduciary relationship with relinquishing parents.
However, plaintiffs cite no authority for the proposition that the relationship is a fiduciary
one. [23, 22b] A fiduciary is "a person having a duty, created by his undertaking, to act
primarily for the benefit of another in matters connected with his undertaking." [29
Cal.App.4th 549] (Rest.2d Agency, § 13, com. a; Destefano v. Grabrian (Colo. 1988)
763 P.2d 275, 284.) We thus agree with defendants that an adoption agency's concurrent
responsibilities to the other parties, the child and prospective adoptive parents, whose
interests may potentially conflict with the birth parents, negate a fiduciary relationship
with the birth parents.
[24] However, a relationship need not be a fiduciary one in order to give rise to
constructive fraud. Constructive fraud also applies to nonfiduciary "confidential
relationships." (Odorizzi v. Bloomfield School Dist., supra, 246 Cal.App.2d at p. 129.)
"Such a confidential relationship may exist whenever a person with justification places
trust and confidence in the integrity and fidelity of another." (Ibid., [bare allegation of
employer-employee relationship insufficient to support confidential relationship].) " 'A
confidential relation exists between two persons when one has gained the confidence of
the other and purports to act or advise with the other's interest in mind. A confidential
relation may exist although there is no fiduciary relation ....' " (Davies v. Krasna (1975)
14 Cal.3d 502, 510 [121 Cal.Rptr. 705, 535 P.2d 1161, 79 A.L.R.3d 807] [dictum].)
The existence of a confidential relationship is generally a question of fact. (Barbara A. v.
John G. (1983) 145 Cal.App.3d 369, 383-384 [193 Cal.Rptr. 422].) [22c] Here, plaintiffs
contend a confidential relationship existed in this case because Tyler was in a weakened
condition and placed trust in CHS because she believed she was dealing with the state,
and both plaintiffs were young and inexperienced. We will assume for the sake of
argument that a confidential relationship existed. (See In re Cheryl E., supra, 161
Cal.App.3d at p. 601 [characterizing adoption agency's relationship as a confidential one
for undue influence purposes where relinquishing mother was in weakened state].)
This does not, however, mean that any deviation from the regulations will invalidate the
agreements to relinquish the child for adoption. Constructive fraud requires a showing
that the plaintiff was misled to his or her preju dice. (Civ. Code, § 1573; Odorizzi v.
Bloomfield School Dist., supra, 246 Cal.App.2d at p. 129.)
As indicated, plaintiffs argue the law presumes prejudice from violation of the
regulations, but they cite no authority to support their position. Instead, their sole reliance
on a presumption of prejudice highlights the absence of actual prejudice in this case.
Plaintiffs also argue it was not their burden to prove prejudice. We disagree. [29
Cal.App.4th 550]
Under Evidence Code section 500: "Except as otherwise provided by law, a party has the
burden of proof as to each fact the existence or nonexistence of which is essential to the
claim for relief or defense that he is asserting." Proof of cause for rescission was essential
to plaintiffs' claim for relief. Proof of prejudice was essential to plaintiffs' constructive
fraud theory. (Civ. Code, § 1573.)
Plaintiffs argue they had no burden because the adoption agency as the dominant party is
assumed to have exerted influence, with the result that any noncompliance constitutes
undue influence per se. No authority is cited for this proposition.
Though not cited by plaintiffs, it has been said in other contexts that where a confidential
relationship exists and the dominant party obtained an advantage from a transaction, it is
presumed undue influence was exerted, and the burden shifts to the dominant party
defendant to prove the transaction was voluntary. (See Rader v. Thrasher (1962) 57
Cal.2d 244, 249 [18 Cal.Rptr. 736, 368 P.2d 360], citing former Civ. Code, § 2235, see
now Prob. Code, § 16004; Barbara A. v. John G., supra, 145 Cal.App.3d at pp. 383-384; 1
Witkin, Summary of Cal. Law, supra, Contracts, § 425, pp. 381-382.)
However, even assuming that defendants in this case obtained an advantage from the
relinquishments, we do not believe a shifting of the burden of proof is appropriate in
actions to rescind relinquishments.
First, the presumption that undue influence was exerted is not strictly applied in
nonfiduciary confidential relationships. (1 Witkin, op. cit. supra, at p. 383.) More
importantly, the Legislature has expressed a policy of according finality to
relinquishments by providing that "[u]pon filing with the department, the relinquishment
is final [unless there is mutual consent to rescission]." (Fam. Code, § 8700, subd. (d); see
also, Adoption of Graham, supra, 58 Cal.2d at p. 906 [strong state policy to give effect to
relinquishments]; Hall v. Department of Adoptions, supra, 47 Cal.App.3d at pp. 902-903
[same].) Though courts have held the statute does not preclude an action in equity to
rescind the relinquishment for cause (Brooks v. Los Angeles County Bureau of
Adoptions, supra, 218 Cal.App.2d 732), we are unaware of any decision placing the
burden of proof on the adoption agency in a rescission action by a relinquishing parent.
We believe the policy favoring relinquishments supports placing the burden on the party
challenging the relinquishment to show prejudice from noncompliance with applicable
regulations. Plaintiffs assert the statutory [29 Cal.App.4th 551] provision according
finality to relinquishments assumes that the adoption agency has properly complied with
all regulations. However, this merely reinforces our conclusion that the burden of proof in
a rescission action should remain on the plaintiff seeking to rescind the relinquishment.
Thus, if agency compliance is assumed, then the burden is properly placed on the party
who claims noncompliance.
Although this is not an adoption proceeding, requiring plaintiffs to show prejudice in
order to rescind their relinquishments is also consistent with the rule that adoption
requirements "are to be liberally construed in order to effect the object of the adoption
statutes in promoting the welfare of children, bereft of the benefits of the home and care
of their real parents...." (San Diego County Dept. of Pub. Welfare v. Superior Court,
supra, 7 Cal.3d at p. 16, internal quotation marks omitted.)
Finally, we think that plaintiffs are in the best position to adduce evidence showing they
were prejudiced by noncompliance with regulations.
We conclude constructive fraud constitutes a basis for rescission of a relinquishment of a
child for adoption. However, we also conclude the plaintiff bears the burden of proving
all aspects of constructive fraud, including prejudice.
B. Waiver of Contention That Court Disregarded Theory
[25] Plaintiffs contend the trial court prejudicially erred in failing to consider constructive
fraud as a ground for rescission. They base this contention on the trial court's remark in
its tentative decision (the "Opinion and Ruling") that defendants' violation of the
regulations was of "limited relevance." According to plaintiffs, the trial court thus
improperly disregarded the regulatory noncompliance because it found no fraudulent
intent on the part of defendants.
However, a "judgment or order of a lower court is presumed to be correct on appeal, and
all intendments and presumptions are indulged in favor of its correctness." (In re
Marriage of Arceneaux, supra, 51 Cal.3d at p. 1133.) Parties wishing to avoid inferences
in favor of the judgment must obtain a statement of decision under Code of Civil
Procedure sections 632 and 634. (51 Cal.3d at pp. 1133-1134.)
Here, no party requested a statement of decision. The trial court's written opinion and
ruling was not a statement of decision but merely a tentative [29 Cal.App.4th 552]
decision, which cannot be used to impeach the judgment. fn. 25 (9 Witkin, supra, Appeal,
§§ 263-265, pp. 270-273.)
Thus, plaintiffs are left only with their contention that undisputed regulatory violations
establish constructive fraud. We construe this contention as a claim that the trial court
abused its discretion in denying rescission on a constructive fraud theory. We reject the
contention.
C. Admitted Violations Do Not Constitute Constructive Fraud
As we have seen in part II, ante, defendants violated the DSS regulations by failing to (1)
discuss the alternative of placing the baby with extended family members, (2) discuss
educational or employment resources, (3) give copies of the executed documents to
plaintiffs, and (4) obtain Darrah's medical history.
Plaintiffs fail to show these violations, separately or cumulatively, caused them to make a
decision they would not otherwise have made. Thus, the violations did not prejudice
plaintiffs.
We conclude plaintiffs fail to show any error or abuse of discretion in the trial court's
judgment denying rescission of the relinquishments. We therefore need not address
defendants' argument that plaintiffs are estopped to challenge the validity of the
relinquishments because they led all other parties to believe the child was being
permanently relinquished.
Disposition
Scotland, J., and Raye, J., concurred.
FN *. Judge of the Yolo Municipal Court sitting under assignment by the Chairperson of
the Judicial Council.
FN 1. Since filing the complaint, Tyler has married Darrah and assumed his surname. For
the sake of clarity, we will refer to her as Tyler.
FN 2. Although plaintiffs appealed from the judgment without restriction, defendants
DCPC and Huntziker have not filed a respondent's brief in this court. Nevertheless,
plaintiffs' contentions on appeal are directed only against CHS and Heszler, as the parties
responsible for complying with the DSS regulations. Since no contentions are directed
against DCPC or Huntziker, we shall affirm the judgment in their favor without
discussion. Hereafter, we use the term "defendants" to refer to CHS and Heszler only,
unless otherwise indicated.
FN 3. In their appellate briefs, plaintiffs present a distorted picture of the factual
background of this case. This case was a credibility contest, with sharply conflicting
evidence. At trial plaintiffs' version of events was that they contacted defendants for help
in telling Tyler's parents they had a baby, but instead defendants advised them not to tell
their families and coerced, manipulated, and intimidated them into giving up the baby for
adoption. Defendants denied plaintiff's accusations and presented evidence contradicting
plaintiffs' testimony, as set forth below. The trial court disbelieved plaintiffs and believed
defendants, as is reflected in the court's 11-page "Opinion and Ruling." Yet plaintiffs in
their appellate briefs persist in presenting their discredited version of the facts. Plaintiffs
also misrepresent the extent of defendants' noncompliance with DSS regulations.
Plaintiffs have an obligation to present an accurate statement of facts on appeal. (Cal.
Rules of Court, rule 13.) As a reviewing court, it is not our province to analyze
evidentiary conflicts. (In re Cheryl E. (1984) 161 Cal.App.3d 587, 600 [207 Cal.Rptr.
728].) We therefore disregard plaintiffs' presentation of "facts" and set forth the facts
consistent with the judgment.
FN 4. We refer to Darrah as the "alleged father," though he does not dispute paternity,
because "alleged father" is a term of art in this context. (See fn. 5, post.)
FN 5. An "alleged father" is one who does not meet the statutory definition of a
"presumed father," i.e., one who is married to the mother or receives the child into his
home and openly holds the child out as his own. (Fam. Code, § 7611.) An alleged father
does not have automatic physical custody rights. His consent is not required for an
adoption unless he demonstrates a full commitment to parental responsibility-emotional,
financial, and otherwise. (Fam. Code, § 8605; Adoption of Kelsey S. (1992) 1 Cal.4th
816, 849 [4 Cal.Rptr.2d 615, 823 P.2d 1216].) The type of counseling required of the
adoption agency differs depending on whether a man is a "presumed father" or an
"alleged father." (Cal. Code Regs., tit. 22, § 35134, subds. (a), (e).)
Defendants considered Darrah to be an "alleged father" rather than a presumed father
because plaintiffs were not married and, although the baby visited at Darrah's house,
Darrah did not take the child into his home to reside or openly acknowledge paternity. He
did not tell his family about the baby (until the fall of 1991). Other than telling the truth
to one friend, Darrah indicated to his roommates that Tyler was babysitting and Darrah
did not know whose child it was.
On appeal Darrah makes no argument that he is a "presumed father."
FN 6. Defendants assert the child, now three years old, continues to live with the
prospective adoptive family, with whom she has lived since the relinquishments.
Defendants argue against removal of the child from the only family she has ever known.
However, as noted by the trial court, the best interests of the child are not at issue in a
rescission action. (In re Cheryl E., supra, 161 Cal.App.3d 587, 603.)
FN 7. No statement of decision was requested. The "Opinion and Ruling" does not
constitute a statement of decision (Cal. Rules of Court, rule 232 [announcement of
tentative decision]) but may be used on appeal to discover the grounds for the judgment
and show the absence of prejudice in any error. (Kuffel v. Seaside Oil Co. (1977) 69
Cal.App.3d 555, 568 [138 Cal.Rptr. 575]; 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal,
§§ 263-265, pp. 270-273.)
FN 8. In their reply brief, while insisting their appeal raises no challenge to the
sufficiency of evidence, plaintiffs nevertheless contend no substantial evidence supports a
finding that Heszler is ethical and professional. However, it is unfair to raise new
arguments for the first time in a reply brief; we therefore need not consider the
contention. (Neighbours v. Buzz Oates Enterprises (1990) 217 Cal.App.3d 325, 335, fn. 8
[265 Cal.Rptr. 788].) Moreover, having reviewed the record, we conclude ample evidence
supports the judgment.
FN 9. Since plaintiffs signed their relinquishments, the Civil Code provisions material to
this case were renumbered, then later replaced by the new Family Code, which was
enacted by Statutes 1992, chapter 162, section 10, and became operative January 1, 1994.
The new code applies to pending proceedings, with certain exceptions, e.g., contents and
execution of documents filed before the operative date are governed by the old law. (Fam.
Code, § 4.) The provisions at issue in this case have been continued in the new Family
Code without substantial change.
FN 10. Welfare and Institutions Code section 10553, which is cited in the California
Code of Regulations as authority for creation of the regulations here at issue, provides:
"The director [of DSS] shall ... [¶] ... [¶] (e) Formulate, adopt, amend or repeal
regulations and general policies affecting the purposes, responsibilities, and jurisdiction
of the department and which are consistent with law and necessary for the administration
of public social services ...."
FN 11. We note under Family Code section 8621 (added by Stats. 1993, ch. 758, § 6,
operative Jan. 1, 1995), DSS is expressly charged with monitoring licensed adoption
agencies and reporting violations of regulations to the appropriate licensing authority.
FN 12. The substance of former Civil Code section 224m has been continued in new
Family Code section 8700, subdivision (d). Rescission by the relinquishing parents is also
allowed if the relinquishment designates specific adoptive parents and the child is not
placed with those persons. (Fam. Code, § 8700, subds. (e)-(g).)
FN 13. Undesignated section references are to title 22 of California Code of Regulations.
FN 14. Tyler asked Heszler if the prospective adoptive family could pay Darrah's air fare
from San Diego. Heszler said she was not sure but would check. Tyler commented that
such an expense is regularly paid in independent adoptions.
FN 15. Elsewhere in their brief, plaintiffs contend defendants violated section 35134,
subdivision (a)(8), which requires that parents be advised of the right to revoke or
rescind. However, plaintiffs fail to cite anything in the record showing this point was
raised at trial. The portions of the transcript cited by plaintiffs refer only to a
postrelinquishment conversation several months after the relinquishment forms were
signed, in which Tyler asked for the child back and Heszler assertedly told Tyler she had
no rights. This evidence was contradicted by Heszler, who testified what she told Tyler
was that she (Heszler) would not intercede in Tyler's behalf with the prospective adoptive
parents. Heszler sent Tyler forms to request rescission. In any event, these events
occurred after plaintiffs signed the relinquishments and therefore have no bearing on
whether the relinquishments were knowing and voluntary. Moreover, the advisements
concerning revocation and rescission were contained in the Statement of Understanding.
FN 16. Former Civil Code section 222.26 provided in part: "(a) No agency shall place a
child for adoption unless a written medical report on the child's medical background, and
if available, so far as ascertainable, the medical background of the child's biological
parents, has been submitted to the prospective adoptive parents ...." (Stats. 1990, ch.
1363, § 3.) This provision was repealed (Stats. 1992, ch. 162, § 2), but its substance has
been continued in Family Code sections 8608, 8706. (Stats. 1992, ch. 162, § 10.)
FN 17. Though not argued by plaintiffs, we recognize a secondary purpose of the
regulation may be to protect birth parents from abandonment of a child by prospective
adoptive parents who later learn of medical problems. Plaintiffs assert that Darrah's
family has a history of cancer, heart disease, asthma, and scoliosis (curved spine).
However, the cited portion of the record does not show evidence to that effect but only
questions posed by plaintiffs' attorney asking whether Heszler was aware of such history
in Darrah's family at the time of taking the relinquishments. Heszler said she was not
aware. This is not evidence of Darrah's medical history. Even assuming plaintiffs'
representation of the medical history is accurate, plaintiffs do not contend it has led or
might lead to the prospective adoptive parents abandoning the adoption plan.
FN 18. Licensed private adoption agencies are considered agents of the state. (Scott v.
Family Ministries (1976) 65 Cal.App.3d 492, 506-507 [135 Cal.Rptr. 430].) In any event,
a private party's noncompliance with a law is similarly subject to an analysis of
legislative intent in order to determine the effect of noncompliance where the statute does
not specify an effect. (See General Motors Accept. Corp. v. Kyle (1960) 54 Cal.2d 101,
108-112 [4 Cal.Rptr. 496, 351 P.2d 768].)
FN 19. We recognize plaintiffs claim they had a fiduciary relationship with defendants for
purposes of constructive fraud analysis. As we discuss post, the relationship, though a
confidential one, was not a fiduciary relationship.
FN 20. We note plaintiffs limit their due process arguments to matters of procedural due
process. We also note plaintiffs do not develop any argument based on the state
Constitution.
Plaintiffs contend parents have a constitutionally protected right to be free from
unwarranted state intrusion into their relationship with their children, under the right to
privacy discussed in Roe v. Wade (1973) 410 U.S. 113 [35 L.Ed.2d 147, 93 S.Ct. 705].)
According to plaintiffs, any noncompliance with the regulations constitutes "unlawful"
conduct, which is necessarily "unwarranted" conduct, which necessarily constitutes
"unwarranted state intrusion" into parental rights in violation of the right to privacy. We
do not find plaintiffs' logic persuasive.
FN 21. Failure to (1) discuss the option of placing the child with extended family
members (2) discuss educational and employment resources (3) give copies of executed
documents to plaintiffs and (4) obtain the father's medical history.
FN 22. Though not raised by defendants, we note Darrah, as an alleged father rather than
a presumed father, is not necessarily entitled to the same due process as the mother. (See
Lehr v. Robertson (1983) 463 U.S. 248, 256-262 [77 L.Ed.2d 614, 623-627, 103 S.Ct.
2985] [unmarried father lacking custodial, personal, or financial relationship with child
was not entitled to notice of adoption proceeding]; Adoption of Kelsey S., supra, 1
Cal.4th at p. 849 [parental relationship of putative father is worthy of constitutional
protection only if father demonstrates full commitment to parental responsibility-
emotional, financial, and otherwise].) Since we conclude reversal of the judgment is not
warranted by the full due process rights to which Tyler is clearly entitled, we need not
consider whether a lesser standard applies to Darrah.
FN 23. Actual fraud generally requires that the defendant act "with intent to deceive ... or
to induce [the plaintiff] to enter into the contract ...." (Civ. Code, § 1572.) However, a
fraud claim may also be based on negligent misrepresentations. (In re Cheryl E., supra,
161 Cal.App.3d at p. 599.)
FN 24. Undue influence consists "1. In the use, by one in whom a confidence is reposed
by another, or who holds a real or apparent authority over him, of such confidence or
authority for the purpose of obtaining an unfair advantage over him; [¶] 2. In taking an
unfair advantage of another's weakness of mind; or, [¶] 3. In taking a grossly oppressive
and unfair advantage of another's necessities or distress." (Civ. Code, § 1575.) Undue
influence "consists in the use of excessive pressure by a dominant person over a servient
person resulting in the apparent will of the servient person being in fact the will of the
dominant person." (In re Cheryl E., supra, 161 Cal.App.3d at p. 601.) "Undue influence
differs from fraud in that the importunities or beseechings may or may not include
fraudulent representations. [Citations.]" (1 Witkin, Summary of Cal. Law (9th ed. 1987)
Contracts, § 423, p. 380.)
FN 25. Moreover, contrary to plaintiffs' position, the written opinion and ruling does not
unambiguously display an error of law. Since the trial court referred to "minor
deviations" from the regulations, it is possible the court rejected a constructive fraud
theory due to its conclusion there were no prejudicial violations rather than due to an
erroneous belief that constructive fraud required fraudulent intent.
Agair Inc. v. Shaeffer, 232 Cal.App.2d 513

[Civ. No. 10907. Third Dist. Feb. 25, 1965.]
AGAIR INCORPORATED et al., Plaintiffs and Respondents, v. RUSSELL O.
SHAEFFER et al., Defendants and Appellants.
COUNSEL
Grayson Price, R. E. Burness, Jr., and Price, Burness & Price for Defendants and
Appellants.
Blade & Farmer, Eugene H. Bramhall and Robert V. Blade for Plaintiffs and
Respondents.
OPINION
SPARKS, J. pro tem. fn. †
Appellants, Russell O. Shaeffer and Frank Ponke, were the employees of respondent
companies. They appeal from a judgment entered in an action brought by their employers
for the recovery of funds and from the order of the court denying their motion to vacate
the judgment and enter a judgment in their favor. The sole point urged for reversal is that
the action was barred by the statute of limitations.
Respondents, Agair Incorporated and Aerial Chemical Corporation, were engaged in a
joint venture of operating aircraft for agricultural purposes. Their business, commonly
known as "crop dusting," consisted of the application of insecticides, fertilizer and seeds
from aircraft. Appellant Shaeffer was the manager of the Chico office of the joint venture,
and appellant Ponke was an airplane pilot. Both were employed under oral contracts.
Shaeffer was paid a monthly advance of $350 and was to receive a percentage of the
profits from the Chico office, after certain deductions had been calculated. For his
services [232 Cal.App.2d 515] Ponke was to receive 20 per cent of the income received
for fertilizing and seeding operations and 25 per cent for spraying and dusting, based
upon the gross billings therefor.
Respondents maintained a bank account in Chico where proceeds from the Chico
operation were deposited. This account was used mainly as a conduit for the transfer of
funds to the headquarters of respondents, although small bills were paid from it.
Appellant Shaeffer was permitted in a limited way to draw checks on this account. For
checks other than in payment of small items of expense, he was required to obtain
authorization from an officer of respondent companies.
On June 15, 1957, both appellants left respondents' employ. Shortly thereafter, it was
ascertained that between April 15 and June 7, 1957, appellant Shaeffer, without
authorization or even knowledge on the part of respondents, had written four checks in
substantial amounts which were paid out of said business account. Two of the checks in
the gross amount of $4,500 had been made payable to Shaeffer, or his wife, and the two
other checks in the total sum of $3,850 to appellant Ponke.
This action was commenced on February 29, 1960, more than two years after either the
drawing of said checks or the termination of the employment, and more than two years
after respondents had discovered the fact of the payments. A trial was had on the issues
before the court sitting with a jury in an advisory capacity, and thereafter findings were
made in favor of respondents and adverse to appellants' contentions. Judgment was
entered accordingly.
Appellants assert that the causes of action against them were barred by the provisions of
subdivision 1 of section 339 of the Code of Civil Procedure, the two-year statute
governing actions on unwritten obligations. fn. 1 They base their contentions upon
allegations in the amended complaint that appellants had been employed under an oral
contract and that the drawing of the checks was in violation of their agreement. Since the
trial court specifically found the allegations of the amended complaint to be true and
predicated judgment thereon, it is argued that said subdivision 1 of section 339 must
apply.
Respondents' position, and the one obviously accepted by the trial court, was that the
action fell within the provisions of subdivision 4 of section 338 of the Code of Civil
Procedure, the three-year statute, where relief is sought on the ground of [232
Cal.App.2d 516] fraud or mistake. fn. 2 The action was instituted within the three-year
period. Appellants argue that it cannot be governed by subdivision 4 of said section 338
for the reason that neither fraud nor mistake was alleged in the amended complaint, and
therefore not found by the court, since it adopted the allegations of said complaint by
specific reference in its findings.
[1] In ruling upon the applicability of the statute of limitations, a court will look to the
nature of the rights sued upon rather than to the form of action or to the relief demanded.
(Day v. Greene, 59 Cal.2d 404, 411 [29 Cal.Rptr. 785, 380 P.2d 385, 94 A.L.R.2d 802];
People v. Union Oil Co., 48 Cal.2d 476 [310 P.2d 409].) [2] Neither the caption, form,
nor prayer of the complaint will be deemed conclusive in determining the nature of the
liability from which the cause of action flows. On the contrary, the true nature of the
action will be ascertained from the basic facts a posteriori. In Day v. Greene, supra, a case
where constructive fraud was the gravamen of the action, the Supreme Court said on page
411: "The statute of limitations to be applied is determined by the nature of the right sued
upon, not by the form of the action or the relief demanded. [Citations.] The remedy
sought here, i.e., the imposition of a constructive trust, is used to prevent unjust
enrichment or to compel restoration of property by one who is not justly entitled to it.
The usual situation in which the relief is granted is found in cases where the substantive
basis of the action is that the property has been obtained through actual fraud, violation of
a confidential relationship, or breach of trust. [Citations.]"
The sufficiency of the evidence to support the facts found by the court is not questioned,
and, in any event, according to the well known rule on appeal, would have to be
considered in a light most favorable to the judgment. The trial court found that all
proceeds from the operation at Chico were the property of respondents; that appellant
Shaeffer had no authority to draw the checks in question from respondents' bank account;
that appellant Shaeffer's authority to draw on the account was limited to the payment of
miscellaneous small items of expense, commonly known as petty cash; that the checks
payable to Shaeffer, his wife, and Ponke were signed [232 Cal.App.2d 517] and
delivered in violation thereof; and that appellants were indebted to respondents in the
amounts for which judgment was given. It was also found that the allegations of
Schaeffer's counterclaim and cross-complaint that respondents were indebted to him in
amounts in excess of the two checks drawn to himself and wife were untrue.
[3] The basic situation of fact disclosed by these findings show an employee having
dominion over his employers' funds, exercising it in an unauthorized manner, and thereby
obtaining for himself and another employee substantial sums of money to which they
were not entitled. The substantive right infringed was the violation of a confidential
relationship by misappropriation of property and not the breach of an oral contract of
employment.
Causes of action arising under such circumstances properly fall within the three-year
statute provided by subdivision 4 of section 338 of the Code of Civil Procedure. [4] This
is true, even though there may be involved in some cases the breach of an oral agreement,
provided that the gravamen of such actions is either actual or constructive fraud fn. 3 or
mistake. It exists when conduct, though not actually fraudulent, has all actual
consequences and all legal effects of actual fraud. (Devers v. Greenwood, 139 Cal.App.2d
345 [293 P.2d 834]; County of Santa Cruz v. McLeod, 189 Cal.App.2d 222 [11 Cal.Rptr.
249]; Efron v. Kalmanovitz, 226 Cal.App.2d 546 [38 Cal.Rptr. 148].) We quote again
from the Day case, supra, 59 Cal.2d at page 411: "... The fact that a breach of contract is
involved is not decisive as to the applicable statute of limitations. In Souza & McCue
Constr. Co. v. Superior Court, 57 Cal.2d 508, 511 [20 Cal.Rptr. 634, 370 P.2d 338], we
held that section 338, subdivision 4 ..., was applicable where the action was based on a
fraudulent breach of a contractual duty." In Acme Paper Co. v. Goffstein, 125 Cal.App.2d
175 [270 P.2d 505], the court impliedly held that section 338, subdivision 4, was the
proper statute in limiting an action against an employee for the fraudulent taking of
property from his employer. To the same effect is Security First Nat. Bank v. Ross, 214
Cal.App.2d 424 [29 Cal.Rptr. 538], the court holding there that when the gist of the
action is fraud, [232 Cal.App.2d 518] the three-year limitation period prescribed by
subdivision 4 of said section 338 applies regardless of whether a contract out of which it
arose was oral or written. (See also County of Santa Cruz v. McLeod, supra; Nevarez v.
Nevarez, 202 Cal.App.2d 596 [21 Cal.Rptr. 70]; Schaefer v. Berinstein, 180 Cal.App.2d
107 [4 Cal.Rptr. 236]; Gregory v. Spieker, 110 Cal. 150 [42 P. 576, 52 Am.St.Rep. 70].)
[5] The provisions of subdivision 4 of said section 338 embrace mistake as well as fraud
if either is the basis of a legal injury. (Shain v. Sresovich, 104 Cal. 402 [38 P. 51]; Edgar
Rice Burroughs, Inc. v. Commodore Productions & Artists Inc., 167 Cal.App.2d 463 [334
P.2d 922].)
Appellants rely upon Jefferson v. J. E. French Co., 54 Cal.2d 717 [7 Cal.Rptr. 899, 355
P.2d 643], and Bendien v. Solov, 89 Cal.App.2d 904 [202 P.2d 372], in support of their
contentions that the two-year statute governs the instant case. An analysis of these
decisions, however, shows that the cause of action on each arose out of the breach of an
oral contract and was properly held barred by section 339, subdivision 1, of the Code of
Civil Procedure. The action in Bendien was to recover money due from the proceeds of
the sale of property. In Jefferson there was concerned the right of an employee to recover
a percentage of the profits to which he was entitled under an oral contract. Neither of
these cases involved the return of money obtained by fraud or mistake. Both turned
clearly upon grounds of contractual liability. There is a significant distinction between a
situation of suing for monies due under an oral contract, as contrasted with an attempt to
recover funds paid by mistake or obtained through fraud: one is based purely upon an
obligation arising out of agreement; the other, out of mistake or by reason of one or more
of the multifarious forms that fraud may assume. They are not sui generis.
A person receiving the property of another by reason of fraud or mistake is unjustly
enriched thereby, and the right of the owner to recover will not be defeated merely
because there was an oral contract between them in some way involving the property. The
proper statute limiting such actions is subdivision 4 of section 338. This is in harmony
with the holding that section 339, subdivision 1, is not applicable to an action specifically
covered by some other code section. (Automobile Ins. Co. v. Union Oil Co., 85
Cal.App.2d 302 [193 P.2d 48].)
One further matter requires consideration, although not [232 Cal.App.2d 519] presented
in the briefs. The record in this case shows that appellants first raised the issue of the two-
year statute of limitations by way of demurrer. The amended complaint in a sense invited
such an attack for the reason that it did allege an oral contract and certainly was not a
model to be followed in pleading either fraud or mistake. However, for the purpose of
ruling on the statute of limitations, the trial court quite properly looked at the facts
alleged and in overruling the demurrer to the amended complaint concluded in these
words: "[T]he gravamen of the complaint involves the unauthorized issuance of checks
and a receipt of proceeds by defendants, either individually or as community property; a
fraud, a quasi-trust relationship is sufficiently clear to require answer." Thereafter,
appellant Shaeffer filed his answer, counterclaim and cross-complaint, and appellant
Ponke his answer. In none of these pleadings was the issue of statute of limitations raised.
Ordinarily, after a demurrer has been properly overruled because the defect did not
appear on the face of the complaint, a failure to replead the statute of limitations in the
answer would constitute withdrawal of the issue. (Meyer v. Territo, 118 Cal.App.2d 22
[257 P.2d 667]; Pleasant v. Samuels, 114 Cal. 34, 38 [45 P. 998]; 2 Witkin, Cal. Procedure
(1954) Pleading, § 547, p. 1545.)
[6] At the pretrial conference the issue of the statute of limitations was revived in the
contentions presented, and the pretrial order specifically set forth and listed the statute as
an issue in the case. The pretrial conference order is a part of the record and where
inconsistent with the pleadings supersedes them. Unless modified it controls the
subsequent course of the case. (Cal. Rules of Court, rule 216; Aero Bolt & Screw Co. v.
Iaia, 180 Cal.App.2d 728, 743 [5 Cal.Rptr. 53]; Perry v. Thrifty Drug Co., 186
Cal.App.2d 410 [9 Cal.Rptr. 50]; City of Los Angeles v. County of Mono, 51 Cal.2d 843,
847 [337 P.2d 465].) However, it appears that no explicit finding was made on the issue
of the statute of limitations by the court in its findings of fact and conclusions of law. The
scrivener who prepared these findings adopted the method quite often used, incorporating
by reference different paragraphs of the pleadings and finding them either "true" or
"false." When a pretrial conference order supersedes the pleadings, the pitfall of
confining the findings to such method of reference must be readily apparent.
We have concluded, notwithstanding these difficulties in the record, that the judgment
should be upheld. [7] It is, [232 Cal.App.2d 520] of course, required that a trial court
must find upon every material issue presented by the pleadings. Under certain
circumstances an omission so to find will not be considered fatal. Such circumstances
arise when the omitted finding reasonably may be found to inhere and be implicit in other
findings. (Cullinan v. Mercantile Trust Co., 80 Cal.App. 377 [252 P. 647]; Sears,
Roebuck & Co. v. Blade, 139 Cal.App.2d 580 [294 P.2d 140].) It also has been said that
failure to find on a particular issue is harmless where under the facts of the case the
statute of limitations is not applicable and the findings necessarily would have been
adverse to appellant. (Onderdonk v. City & County of San Francisco, 75 Cal. 534 [17 P.
678]; Space Properties, Inc. v. Tool Research Co., 203 Cal.App.2d 819, 829- 830 [22
Cal.Rptr. 166]; Bergman v. Bierman, 138 Cal.App.2d 692, 697 [292 P.2d 623]; 3 Witkin,
Cal. Procedure (1954) Appeal, § 103, subd. (g), p. 2277.)
The judgment and order are affirmed.
Pierce, P. J., and Friedman, J., concurred.
FN †. Retired judge of the superior court sitting under assignment by the Chairman of the
Judicial Council.
FN 1. Section 339 of the Code of Civil Procedure reads in part: "Within two years. 1. An
action upon a contract, obligation or liability not founded upon an instrument of
writing, ...."
FN 2. Section 338 of the Code of Civil Procedure reads, in part: "Within three years:
"4. An action for relief on the ground of fraud or mistake. The cause of action in such
case not to be deemed to have accrued until the discovery, by the aggrieved party, of the
facts constituting the fraud or mistake.
FN 3. Section 1573 of the Civil Code reads: "Constructive fraud consists:
"1. In any breach of duty which, without an actually fraudulent intent, gains an advantage
to the person in fault, or any one claiming under him, by misleading another to his
prejudice, or to the prejudice of any one claiming under him; ...."
Efron v. Kalmanovitz, 226 Cal.App.2d 546

[Civ. No. 26869. Second Dist., Div. Three. April 21, 1964.]
JACOB G. EFRON et al., Plaintiffs and Appellants, v. PAUL KALMANOVITZ et al.,
Defendants and Respondents.
COUNSEL
Sydney J. Dunitz, Horowitz & Howard and Fred Horowitz for Plaintiffs and Appellants.
Murray M. Chotiner, J. Albert Hutchinson, James J. Arditto and Mel Pierovich for
Defendants and Respondents. [226 Cal.App.2d 548]
OPINION
FORD, J.
The plaintiffs have appealed from a judgment in favor of the defendants in a stockholders'
derivative suit wherein minority stockholders challenged the propriety of the sale of
assets of the Maier Brewing Company, a corporation, to S & P Company, a corporation.
The plaintiffs have also appealed from orders of the trial court with respect to costs
claimed by the defendants. fn. 1
At the time of the pretrial conference the parties were in agreement as to most of the
pertinent facts. Such agreement was embodied in the ensuing order and portions thereof
will be noted herein. Maier Brewing Company, hereinafter called Maier, was a California
Corporation and had its principal place of business in the County of Los Angeles. For
more than 50 years it had been engaged in the brewing of beer and other malt products. In
that time it had spent "many millions of dollars" in advertising its name and products. It
had a good reputation "for brewing and selling of fine quality beer." About May 1, 1950,
the defendant Paul Kalmanovitz was the registered owner of 42,428 shares of stock of
Maier. Thereafter he acquired additional shares so that, as of June 29, 1958, he held
67,720 shares of the 100,000 issued and outstanding shares of that corporation. Some of
the shares were registered in his name and some were registered in the names of various
corporations the shares of stock of which were wholly owned by Mr. Kalmanovitz.
S & P Company was a California corporation. Mr. Kalmanovitz and his wife each held 50
per cent of the outstanding shares of the stock of that corporation.
A meeting of shareholders of Maier was held on Sunday, June 29, 1958. Before that day
the board of directors was composed of Mr. Kalmanovitz, Henry Greenstone, who is one
of the plaintiffs in the present action, and George Alef. At the meeting a new board of
directors was elected which consisted of the defendants Chris A. Wasem, George Alef,
and R. J. Wallerstein. At that time Mr. Wasem was the sales manager of Maier and his
annual salary was $30,000, Mr. Wallerstein was plant manager of Maier and his annual
salary was $12,000, and Mr. Alef was employed by S & P Company and by another
corporation the shares of stock of which were wholly owned by Mr. Kalmanovitz.
At the stockholders' meeting of June 29, 1958, Mr. Kalmanovitz, acting on behalf of S &
P Company, presented an [226 Cal.App.2d 549] offer to purchase certain assets of Maier.
That offer is set forth in the footnote. fn. 2 [226 Cal.App.2d 550]
The offer submitted by Mr. Kalmanovitz was approved by the vote of shareholders
having a majority of the shares and [226 Cal.App.2d 551] the offer was accepted by the
new board of directors of Maier.
In response to a request for the admission of facts the plaintiffs stated that, for the
purpose of the action, they admitted that as of June 29, 1958, the Maier assets sold to S &
P Company had a fair market value of $7,708,605.25 cash. That was the total sales price
as tentatively computed in accordance with the offer, but the amount to be paid was
ultimately determined to be $7,761,193.49. [1a] The plaintiffs contended, however, that
the terms of the sale were unfair and fraudulent.
The findings of fact of the trial court were in part as follows: 1. The terms of payment of
the purchase price were fair to Maier and to each and all of its shareholders. 2. No fraud
or fraudulent act was carried out by any defendant as against Maier or any of its
shareholders with respect to the subject matter of the action. 3. The net profits of Maier
before payment of income taxes for the period of 1958 were $219,505.28. 4. Payments
have been made by S & P Company to Maier on or before the dates designated in the
offer of purchase and the conditional sales contract and promissory note executed
pursuant thereto. 5. S & P Company has changed its name to Maier Brewing Company
and Maier has changed its name to Keller Street Development Company. 6. The
defendants, and each of them, have incurred expenses, [226 Cal.App.2d 552] including
attorneys' fees, which were reasonable and necessary in the defense of the action. The
conclusions of law were that the agreement for the sale of the assets of Maier and the
conditional sales contract and promissory note supplementing that agreement were "in all
respects fair, proper and lawful as to all parties," including Maier and all of its
shareholders, and that the defendants were entitled to have a judgment for their costs,
including such expenses and attorneys' fees as were reasonable and necessary in the
conduct of the defense to the action. Judgment was entered accordingly.
A summary will be given of evidence relating to the propriety of the challenged
transaction.
Defendant Paul Kalmanovitz testified that he became a director of Maier in 1950 and
remained a director until the election of a new board of directors on June 29, 1958. For
some years he was executive vice president and was elected to the office of president
about 1955. Starting about 1953 or 1954, he had frequent discussions with persons
connected with Maier upon the subject of the sale of the brewery. He testified in part as
follows: "On each and every occasion when Mr. Greenstone [one of the plaintiffs] called
at the Maier Brewing Company offices invariably the discussion would be trying to
dispose of the brewery."
About the 11th of June of 1958 Mr. Kalmanovitz was thinking of buying the brewery on
his own account or for the S & P Company. Mr. Greenstone, who was then a director of
Maier, and Mr. Kalmanovitz met about that time. In the course of their discussion Mr.
Kalmanovitz said: "I'll tell you what I want to see you about. We're going to sell the
brewery." Mr. Greenstone's response was that it was "the smartest thing" he could do. Mr.
Kalmanovitz further said: "Well, I can start negotiating. I have a few people in mind." In
the course of the conversation, Mr. Kalmanovitz also stated: "We made in five months
$334,000. And the best months are coming, July, August, September and October."
After his meeting with Mr. Greenstone, Mr. Kalmanovitz asked an attorney, who had
done legal work for Maier for some years, to prepare an offer on behalf of the S & P
Company. About June 22, 1958, Mr. Kalmanovitz had a telegram sent to Mr. Greenstone
for the purpose of calling a meeting of the board of directors of Maier. Mr. Greenstone
came to the office of the corporation and Mr. Kalmanovitz told him that he wanted to
resign as a director of Maier. Mr. Kalmanovitz also testified that he believed that he
stated to [226 Cal.App.2d 553] Mr. Greenstone that he wanted to represent the purchaser.
Mr. Greenstone refused to sign a waiver with respect to the meeting and departed.
At the meeting of the shareholders on June 29, 1958, Mr. Kalmanovitz presided. Mr.
Efron, one of the plaintiffs in the present case, voiced objections to the proposed sale.
The plaintiffs Rubino, Taber, Seymour and Greenstone voted against acceptance of the
offer. Mr. Kalmanovitz did not attend the meeting of the new board of directors which
was thereafter held.
Mr. Kalmanovitz expressed the opinion that as of June 29, 1958, the reasonable and fair
market value of the assets sold by Maier, excluding the accounts receivable and the
inventory was $4,000,000. Of this amount he allotted about $550,000 to land, $1,500,000
to buildings, $1,500,000 to equipment other than automotive equipment, and $450,000 to
$500,000 to automotive equipment. He further testified that the inventory was worth what
it had cost and that the accounts receivable had a value of 95 per cent of face amount.
Mr. Kalmanovitz testified that he assigned a very nominal value to good will because of
the uncertainty involved in the operation of a business of the nature of that of Maier. As
of June 29, 1958, most of the labels under which Maier's beer was sold were private
labels owned by Maier's customers. If the good will had any value, it was in an amount
between $200,000 and $300,000. But Mr. Kalmanovitz further said that no value is
attached to good will in the sale of a brewery.
Mr. Kalmanovitz also testified as to the operations of Maier over a period of years. Prior
to the initiation of an advertising campaign in 1950, sales were very low. In 1953 beer
under the Maier trade name had the largest sales of any brand in Southern California.
Thereafter the sales volume dropped substantially for several years but subsequently rose
again. Beginning in 1954, Maier increased its sales by marketing beer under additional
trade names and by producing beer for other concerns for sale under their private labels.
In 1958, about 95 per cent of the production was in the private label category. The
product, under whatever name it was sold to the consumer, was of a uniform quality. In
1951, Maier produced 355,626 barrels; in 1952, 468,498 barrels; in 1953, 418,292
barrels; in 1954, 233,795 barrels; in 1955, 149,384 barrels; in 1956, 158,376 barrels; in
1957, 220,015 barrels; and in 1958, 329,029 barrels.
Mr. Kalmanovitz testified that one of the reasons for his [226 Cal.App.2d 554] belief that
the assets should be sold was the hazardous nature of the brewery business, but that there
were "other very good reasons." In response to the next question addressed to him, which
was whether that was one of the reasons for his desire to make the purchase, Mr.
Kalmanovitz replied: "Well, I would say that was one of the reasons. I like to operate
without interference from my minority stockholders which were constantly--well, I
would say that would be one of the reasons, yes." Mr. Kalmanovitz also testified that
prior to 1958, Maier attempted to borrow money, aside from obtaining credit for such
matters as the purchase of ordinary supplies, but had been able to do so only when Mr.
and Mrs. Kalmanovitz became guarantors with respect to such an obligation. In the five
years prior to 1958 Maier declared no dividends because capital expenditures exceeded
the net earnings and the company was without sufficient funds with which to continue in
business if dividends were paid.
When the sale was made the S & P Company had assets of a value of $2,000,000 to
$2,500,000 and obligations of about $280,000. At the time of the trial in November of
1961, the S & P Company had paid to Maier more money than it was required to pay
under the terms of the agreement in the period of time which had elapsed since the
acceptance of the offer of purchase. The total amount so paid was $1,761,193.49. Mr.
Kalmanovitz stated that thereby the payments for the period of the first five years had
already been made. The S & P Company had also spent $1,258,975.71 for the
improvement of the brew house facilities, the erection of a new bottle house or
warehouse, and other capital purposes.
The defendant George Alef, who held the office of secretary of Maier on June 29, 1958,
estimated that the number of shareholders of Maier was then between 100 and 125. He
was the person who read the offer to purchase at the shareholders' meeting. Immediately
after the shareholders' meeting, the new board of directors met for approximately 20 or
30 minutes and accepted the offer. He considered it to be a fair transaction.
The defendant Robert J. Wallerstein testified that before the sale in 1958 he was vice
president and general superintendent of Maier. He owned 250 shares of stock. He first
saw the offer of purchase on the morning of June 29, 1958, in the Maier office. He
obtained it from the attorney who had prepared it and he read it. In his judgment the
proposal was sound, fair and reasonable.
The defendant Chris A. Wasem testified that he started [226 Cal.App.2d 555] working
for Maier in October 1954. Before the sale in 1958 he was vice president in charge of
sales. He was never a shareholder. On the Friday prior to June 23, Mr. Kalmanovitz asked
him if he would be willing to be a director and president of Maier. He and Mr.
Kalmanovitz had discussed the matter of selling the brewery a few days before that time.
On June 24 or 25, he learned from Mr. Kalmanovitz that the S & P Company was
considering the presentation of an offer of purchase. When the offer came before the
board of directors, it was discussed for about 20 minutes. The terms of payment were not
discussed at any great length. Mr. Alef stated that the accounts receivable and the
inventory were in the total amount of approximately $1,600,000 or $1,700,000. He
considered the terms of the offer to be reasonable and just to Maier and its stockholders.
Mort Ballagh, a licensed real estate broker, testified that about 1955 Mr. Kalmanovitz
asked him to obtain a purchaser for Maier and that he subsequently undertook to do so.
About the middle of June in 1958 Mr. Kalmanovitz again discussed the subject with him.
The witness told him that he did not believe that that was an opportune time for the sale
of the brewery and that he had no knowledge of anyone who would then be interested in
acquiring the brewery. In his opinion the land had a value of about $500,000, the
buildings were worth $1,000,000, and the value of the equipment, other than the mobile
equipment, was approximately $1,500,000. When Mr. Kalmanovitz mentioned to him the
terms of the proposed purchase, Mr. Ballagh told Mr. Kalmanovitz that he thought that
$6,000,000 was a very equitable price for the property and that, as long as the purchasers
were substantial persons, it was a fair deal "regardless of the terms." He also told him that
the payment of interest had no bearing on the matter "because lots of people sell property
without interest involved in it for various reasons, either for tax purposes or to assist the
purchaser in acquiring the property, so that he may have relief from interest burden," and
that there are "many, many reasons why people buy property without the payment of
interest." Mr. Ballagh also said that adequate guaranties would have to be furnished by
the purchaser. The price mentioned did not include the transfer of the accounts receivable
and the merchandise inventory. In the course of that conversation Mr. Kalmanovitz did
not mention any particular purchaser and he did not show any writing to Mr. Ballagh.
[226 Cal.App.2d 556]
The plaintiff Henry Greenstone owned 9,872 shares of Maier stock and the plaintiff
Harvey Seymour owned 4,300 shares on June 29, 1958. Such holdings had remained
substantially the same for the period of a year prior thereto. In 1960 Mr. Greenstone's
wife bought 100 shares of stock of Maier for $11 a share. After the sale, in 1958 or 1959
the wife of the plaintiff Jacob G. Efron purchased shares of stock of Maier, as her
separate property, for about $8.50 a share.
Attention will be directed to other portions of the evidence in the course of the discussion
of the applicable law.
[2] The basic principle governing the resolution of the problem presented in this case was
expressed in Pepper v. Litton, 308 U.S. 295, at page 306 [60 S.Ct. 238, 84 L.Ed. 281,
289], as follows: "A director is a fiduciary. [Citation.] [3] So is a dominant or controlling
stockholder or group of stockholders. [Citation.] ... [4] Their dealings with the
corporation are subjected to rigorous scrutiny and where any of their contracts or
engagements with the corporation is challenged the burden is on the director or
stockholder not only to prove the good faith of the transaction but also to show its
inherent fairness from the viewpoint of the corporation and those interested therein.
[Citation.] The essence of the test is whether or not under all the circumstances the
transaction carries the earmarks of an arm's length bargain. If it does not, equity will set it
aside." That reasoning was quoted and adopted by the court in Remillard Brick Co. v.
Remillard- Dandini, 109 Cal.App.2d 405, at pages 420-421 [241 P.2d 66]. fn. 3 (See also
Mayflower Hotel Stockholders Protective Committee v. Mayflower Hotel Corp., 173 F.2d
416, 423; Lebold v. Inland Steel Co., 125 F.2d 369, 372-373; Allied Chemical & Dye
Corp. v. Steel & Tube Co., 14 Del.Ch. 1 [120 A. 486, 491]; Weisbecker v. Hosiery
Patents, 356 Pa. [226 Cal.App.2d 557] 244 [51 A.2d 811, 813-814]; Stevens on
Corporations (2d ed. 1949) § 126; 3 Witkin, Summary of Cal.Law (7th ed. 1960)
Corporations § 99, pp. 2390-2391; Finch and Long, The Fiduciary Relation of the
Dominant Shareholder to the Minority Shareholders, 9 Hastings L.J. 306, 308.)
[5] The burden of proof was upon the dominant shareholder, Mr. Kalmanovitz, to prove
that the transaction was undertaken in good faith and that it was inherently fair from the
viewpoint of the corporation and its shareholders. (See Tevis v. Beigel, 156 Cal.App.2d 8,
15 [319 P.2d 98].) That burden could not be sustained by a showing of a desire on the part
of Mr. Kalmanovitz to eliminate one or more of the minority shareholders whom he
deemed to be obnoxious. fn. 4 (See O'Neal and Derwin, Expulsion or Oppression of
Business Associates (1961) § 4.08, p. 80.) [1b] But, while the plaintiffs have conceded
that the total purchase price was adequate, a difficult problem is presented by the
contention that the evidence did not support the determination of the trial court that the
terms of payment were fair to the selling corporation. As stated by the chancellor in
Allied Chemical & Dye Corp. v. Steel & Tube Co., supra, 14 Del.Ch. 1 [120 A. 486, at p.
491]: "The price to be paid, the manner of payment, the terms of credit, if any, and such
like questions, must all meet the test of the corporation's best interest."
It has been noted that the purchase price was "the sum of $6,000,000, plus the amount of
the said inventory reflected on the books of the corporation as of June 29, 1958, and an
amount equal to the accounts receivable as shown on the books of the corporation as of
June 29, 1958, (less a reserve for bad debts of 5% of such amount)." It was determined
that the inventory had a value of $416,381.32 and the accounts receivable a value of
$1,344,812.17. Hence the total price was $7,761,193.49. It is true that as of the time of
the trial in November 1961, $1,761,193.49 had been paid on account of the purchase
price, leaving a balance of principal of $6,000,000, but the transaction is to be judged in
the light of [226 Cal.App.2d 558] the terms of the offer which was accepted. Thereunder
the purchaser was required to make initial payments of a total amount of $300,000 and to
pay the balance at the rate of $300,000 annually, the first of such annual payments to be
made one year from the date of the acceptance of the offer of purchase. No interest was
payable on the unpaid balance for the first five years, but thereafter the unpaid balance of
the purchase price was to bear interest "at the interest rate in effect at the commencement
of each year for prime bank loans in the City of Los Angeles," such interest to be
included in each annual payment of $300,000 made during the period of "the second five
years." The entire unpaid balance of principal and interest was to be due and payable 10
years after the date of the acceptance of the offer. Title to both real and personal property
was to be retained by Maier until payment in full should be made of the purchase price by
S & P Company.
The inventory and accounts receivable were assets of a liquid nature, but under the terms
of the agreement the value thereof would not be fully received by Maier until five years
after the acceptance of the offer of purchase. In the meantime, no interest was payable
with respect to any part of the unpaid balance of the purchase price. During the second
five-year period the payments to be credited to the principal of the purchase price
pursuant to the terms of the agreement would be of such amounts that when the unpaid
balance became due at the end of that period, such balance would be in an amount of
approximately five million dollars or more, depending on the governing interest rate. In
view of Mr. Kalmanovitz's analysis of the uncertainties of the brewery business, there
was a substantial hazard that at that time the purchaser would be unable to make a final
payment of such magnitude and that, in that event, Maier would not be in a favorable
position to reenter the business and to make profitable use of the assets the possession of
which would then revert to it. It cannot be said that an overvaluation of $2,000,000
placed on the physical assets of Maier in the agreement of purchase constituted a material
advantage to Maier and its shareholders in view of the substantial uncertainty that such
sum of $2,000,000, or any part of it, would ultimately be received by Maier. In the
meantime, prior to the date when the final payment would become due, S & P Company
was placed in a position to reap full advantage of the use of the assets of the brewery for
its own gain and [226 Cal.App.2d 559] profit at moderate cost to it in the form of
substantial payments to Maier on account of the purchase price. fn. 5
[6] "The question of fairness is ordinarily one of fact for the trial court and its decision
will not be disturbed unless it appears from the record that such decision cannot be
supported upon any reasonable view of the evidence and the inferences to be drawn
therefrom." (Armstrong Manors v. Burris, 193 Cal.App.2d 447, 460 [14 Cal.Rptr. 338].)
[1c] But in the present case the record does not sustain the determination of the trial court
that the agreement for the sale of Maier's assets "was and is in all respects fair, proper and
lawful as to all parties," including Maier and all of its shareholders. fn. 6 In the absence
of more substantial justification for his action than appears in the present record, Mr.
Kalmanovitz's conduct as the dominant shareholder constituted constructive fraud. [7] As
stated by Mr. Justice Vallee, speaking for this court in Estate of Arbuckle, 98 Cal.App.2d
562, at page 568 [220 P.2d 950, 23 A.L.R.2d 372]: "Fraud assumes so many shapes that
courts and authors have ever been cautious in attempting to define it. Each case must be
considered on its own facts. [Citation.] In its generic sense, [226 Cal.App.2d 560]
constructive fraud comprises all acts, omissions and concealments involving a breach of
legal or equitable duty, trust or confidence, and resulting in damage to another.
[Citations.] Constructive fraud exists in cases in which conduct, although not actually
fraudulent, ought to be so treated--that is, in which such conduct is a constructive or quasi
fraud, having all the actual consequences and all the legal effects of actual fraud.
[Citations.]" [1d] To uphold the judgment of the trial court would be to justify conduct
not consonant with the law hereinabove set forth as to the fiduciary duty of a dominant
shareholder.
Since the judgment cannot stand, it is unnecessary to consider the contentions with
respect to costs allowed to the defendants.
The judgment is reversed. The portion of the appeal relating to the orders taxing costs,
being moot, is dismissed.
Shinn, P. J., and Files, J., concurred.
FN 1. An earlier phase of the litigation was before the court in 1960. (Efron v.
Kalmanovitz, 185 Cal.App.2d 149 [8 Cal.Rptr. 107].)
FN 2
"June 28, 1958
"To Maier Brewing Company,
Its Board of Directors and
Its Shareholders
500 East Commercial Street
Los Angeles, California
"Dear Sirs:
"The S & P Company, a California corporation, hereby make the following offer to Maier
Brewing Company (hereinafter referred to as 'Maier' or 'Seller'):
"(1) The S & P Company offers to purchase from Maier all of its business and assets
except those hereinafter listed in paragraph 7. The assets being purchased include but are
not limited to the land and improvements constituting the brew house, the bottle house,
the Center Street warehouse, the 'stable yard' property at the southeast corner of
Commercial and Gary Streets, the office building at 500 East Commercial Street (all
being in the City of Los Angeles, California), all leasehold improvements on the above-
described premises, all furniture, fixtures, machinery and equipment including
automotive equipment, Maier's brewer's licenses, permits, trade-marks, trade names,
good will (if any), merchandise inventory (including raw materials, materials in process
and finished products) as of June 29, 1958, and accounts receivable as of June 29, 1958.
"(2) In exchange for the said assets the S & P Company will pay Maier the sum of
$6,000,000, plus the amount of the said inventory reflected on the books of the
corporation as of June 29, 1958, and an amount equal to the accounts receivable as shown
on the books of the corporation as of June 29, 1958, (less a reserve for bad debts of 5% of
such amount).
"(3) Purchase price shall be payable as follows:
(a) The sum of $100,000 shall be paid by S & P Company to Maier upon acceptance of
this offer.
(b) The sum of $200,000 shall be paid by S & P Company to Maier at such time as the
brewer's licenses issued by the State and Federal Governments are transferred to S & P
Company.
(c) The balance shall be payable at the rate of $300,000.00 annually, the first of such
payments to be made one year from the date of acceptance of this offer and other
payments on successive anniversaries of that date, the entire unpaid balance of principal
and interest to be due and payable 10 years from the date of acceptance of this offer. The
unpaid balance shall not bear interest for the first five years after date of acceptance of
this offer but thereafter the unpaid principal balance shall bear interest for each year until
paid, at the interest rate in effect at the commencement of each year for prime bank loans
in the City of Los Angeles, California. The annual payment of $300,000.00 during the
second five years shall be inclusive of interest and principal and shall be applied first to
interest then due and the balance to principal.
"(4) The real property and improvements to be sold by Maier shall be sold under contract
of sale, with legal title being retained by Maier until full payment of the purchase price
by S & P Company and then to be deeded to said S & P Company.
"(5) The personal property to be sold hereunder to S & P Company shall be transferred on
conditional sales contract with title being retained in Maier until full payment of the
purchase price by S & P Company.
"(6) Upon the performance by S & P Company of its obligations hereunder the seller
warrants that it will convey clear title to the properties herein agreed to be transferred.
"(7) The assets to be transferred shall not include:
(a) Any cash of Maier.
(b) That certain parcel of real property of approximately 5 acres in content lying between
Aliso, Keller, Center and Macy Streets, Los Angeles, California.
(c) the claim of Maier against the State of California represented by that certain action
entitled Maier Brewing Company vs. State of California, Los Angeles Superior Court No.
645033.
(d) any claims for refund of federal and state income taxes filed by seller.
"(8) S & P Company will assume no liabilities of Maier, except as S & P may be required
to assume liabilities under contracts between Maier and any labor unions or
organizations.
"(9) S & P Company shall be responsible for real and personal property taxes on the
property sold for the fiscal year 1958-1959 and subsequent years.
"(10) The seller Maier will pay any sales or use taxes which may be assessed against
either party to this transaction.
"(11) It shall be the obligation of the seller to obtain consent of governmental authorities
to the transfer of all licenses and permits, but buyer agrees to cooperate in obtaining such
consents.
"(12) Seller shall take prompt steps to change its corporate name to a new name having
no material resemblance to the name 'Maier Brewing Company.'
"(13) If the purchase shall not be consummated because of the inability of either of the
parties by reason or causes beyond its control to carry out its performance as
contemplated by this agreement, neither party shall be liable to the other for loss, damage
or expense, and the only remedy of either party shall be to terminate or cancel the
agreement, provided that Maier shall repay to S & P Company all sums paid to Maier
hereunder.
"(14) This agreement is assignable and may be assigned by the buyer to any person or
corporation, but assignment shall not release the buyer from its obligations hereunder.
"(15) This offer may be withdrawn unless accepted on or before June 29, 1958.
"(16) This agreement shall be superseded only by formal written documents embodying
the terms herein contained.
"Your attention is expressly called to the fact that Mr. Paul Kalmanovitz, president and
shareholder in Maier Brewing Company, owns a substantial interest in S & P Company
and is an officer and director of said corporation.
"Very truly yours,
S & P Company
By _____________
Paul Kalmanovitz
"ACCEPTED JUNE 29, 1958
MAIER BREWING COMPANY
By ____________________
By ____________________"
FN 3. It was also aptly stated in the Remillard case (109 Cal.App.2d, at pp. 418-419):
"But neither section 820 of the Corporations Code nor any other provision of the law
automatically validates such transactions simply because there has been a disclosure and
approval by the majority of the stockholders. ... Even though the requirements of section
820 are technically met, transactions that are unfair and unreasonable to the corporation
may be avoided. (California Corporation Laws by Ballantine and Sterling (1949 ed.), p.
102, § 84.) It would be a shocking concept of corporate morality to hold that because the
majority directors or stockholders disclose their purpose and interest, they may strip a
corporation of its assets to their own financial advantage, and that the minority is without
legal redress."
FN 4. In addition to his testimony as to the hostility between him and Mr. Greenstone,
Mr. Kalmanovitz testified: "I was sick and tired by the minority stockholders trying to
destroy the brewery. ... I was sick and tired [of] Mr. Seymour trying to negotiate and sell
the brewery when he was not authorized, and by doing that he was destroying my hard
work and efforts for four years to build it up, a business of private label and did not enjoy
it in having 68%, having minority stockholder going out and destroy my entire effort
which I put into the brewery."
FN 5. Mr. Kalmanovitz testified that the number of barrels of beer sold in 1959 was
approximately 420,000 barrels. He further testified that 1960 "was a very good year and
the sales increased and we did in excess of 500,000 barrels."
With respect to the officers and directors of Maier and of the S & P Company in the
period of June 29, 1958, through March 2, 1959, Mr. Kalmanovitz's counsel made the
following statement: "Maier, now Keller, the directors were Mr. Alef, Mr. Wasem and Mr.
Wallerstein. The officers were Mr. Wasem president, Mr. Wallerstein vice president, John
A. Weis vice president, George Alef secretary-treasurer. S & P, now Maier, the directors
were Mr. and Mrs. Kalmanovitz-- ... The officers were Mr. Kalmanovitz president, Mr.
Weis vice president, Mr. Wasem vice president, Mr. Wallerstein vice president and
treasurer, Mr. Alef secretary. ..."
FN 6. In the course of a discussion of "squeeze-out techniques," it is said in O'Neal and
Derwin, Expulsion or Oppression of Business Associates (1961) § 4.08, page 79:
"Majority shareholders may organize a new corporation, taking all the shares themselves,
and then cause the old company to sell its business and assets to the new company,
perhaps at an inadequate price. The newly organized corporation may be given a name
similar to that of the old company, the directors and officers of the old company may
become directors and officers of the new one, and the business may continue very much
the same as before. Even if the old company receives a fair price for the assets, the
minority shareholders are eliminated from a prosperous going concern and are deprived
of the prospect of enjoying future earnings from a promising business enterprise."
Crocker-Anglo Nat. Bank v. Kuchman, 224 Cal.App.2d

490
[Civ. No. 10702. Third Dist. Feb. 5, 1964.]
CROCKER-ANGLO NATIONAL BANK, as Executor, etc., et al., Plaintiffs and
Appellants, v. CARL KUCHMAN et al., Defendants and Respondents.
COUNSEL
Lambert & Lemmon and James W. Winchell for Plaintiffs and Appellants.
McDonough & Wahrhaftig and Milton L. Schwartz for Defendants and Respondents.
[224 Cal.App.2d 492]
OPINION
SCHOTTKY, J.
Appellants brought this action against respondents to rescind the sale of all the capital
stock in a certain corporation. The case came to trial before a jury. When after a dismissal
of one of the counts of the complaint appellants refused to introduce evidence to support
the remaining allegations of the complaint, judgment of nonsuit was entered for
respondents. The judgment was appealed to this court, but the appeal was dismissed
because a cross-complaint then pending prevented the judgment from being final.
(Crocker-Anglo National Bank v. Kuchman, 194 Cal.App.2d 589 [15 Cal.Rptr. 230].)
Since that opinion appellants have paid respondents $5,000 in full satisfaction of the
cross-complaint and respondents have filed a written dismissal with prejudice with the
clerk of the superior court. The cross-complaint has now been removed from the case
(Code Civ. Proc., § 581, subd. 2, and § 581d), and the judgment is now final and
appealable. The material facts of the case were set forth in the first appeal. But for
purposes of clarity we will restate and expand the facts.
This action grew out of the sale by respondents of all their stock in Comet Target
Company to appellants (the Fords are now deceased and Crocker- Anglo National Bank,
as executor, has been substituted in their place). Appellants believed that the stock was
worth less than the amount they had paid for it and brought an action for rescission. The
complaint contained three counts. In the first count, based on actual fraud, the complaint
alleged that plaintiffs purchased all the capital stock of Comet Target Company from
defendants; that plaintiffs were induced to make such purchase by fraudulent
misrepresentations concerning the value of the stock as reflected by the assets of the
corporation, its business, its prospects, and its goodwill; that plaintiffs paid $30,000 for
the stock; that on discovering the fraud they rescinded the contract, tendered the return of
the stock, and demanded that the defendants restore to them the money paid; that the
plaintiffs received nothing except the stock; that the stock was without value; and that in
perpetrating the alleged fraud the defendants acted with knowledge of the falsity of the
representation and acted maliciously. Count two was based on constructive fraud and
merely incorporated the allegations of count one, except the paragraphs alleging
knowledge, intent to deceive and maliciousness. Count three was a common count
alleging that defendants received from plaintiffs the sum of $30,000 for the use and
benefit of plaintiffs; that demand was made for the return of said sum, which was refused;
and that the [224 Cal.App.2d 493] entire sum remained unpaid. The prayer of the
complaint asked: "1. That the agreement of purchase and sale of stock ... be declared
rescinded; 2. That defendants restore to plaintiffs the sum of $30,000.00 ..., together with
interest...; 3. That plaintiffs be awarded punitive damages; 4. For costs of suit; and 5. For
such other and further relief as to the Court may seem just and equitable."
Defendants answered by denying the particular allegations of fraudulent acts and denying
any money was owing under the common count. Their answer contained a cross-
complaint for part of the purchase price.
Pretrial conference statements were made by both parties. The statements asserted that
the first count was based on actual fraud, the second on constructive fraud, and the third
was a common count. The statements were adopted by the court as the pretrial order.
The action came to trial before the court sitting with a jury. Plaintiffs' counsel made an
opening statement to the jury concerning the nature of the first cause of action and what
plaintiffs expected to prove. At this point the court recessed for the day. The following
day counsel for plaintiffs moved the court that he be given the opportunity of reopening
his introductory statement to the jury for the purpose of explaining the theory of the
second cause of action and also that of the third cause of action. Under count two
plaintiffs wanted to explain that innocent misrepresentation or mutual mistake were
grounds for constructive fraud. The court stated that count two had always been
interpreted as constructive fraud and it was too late to amend to allege innocent
misrepresentation or mutual mistake as grounds for rescission. Plaintiffs argued that
innocent misrepresentation and mutual mistake were constructive fraud and they should
be allowed to reopen. The court read section 1573 of the Civil Code and ruled that
innocent misrepresentation or mutual mistake did not amount to constructive fraud.
Plaintiffs' motion was thereupon denied. Defendants Kuchman and Shenker then moved
the court for an order dismissing the second cause of action of plaintiffs' complaint on the
ground that it did not state a cause of action. The motion was granted and the court
entered its order striking and dismissing the second cause of action, whereupon plaintiffs
moved the court for an order granting them leave to amend the second cause of action to
allege mutual mistake and innocent misrepresentation. This motion was denied. The
record shows that at this point [224 Cal.App.2d 494] the following occurred: "The Court:
... Is there anything else that you gentlemen want to present to the Court before we bring
in the jury? ... Mr. Lemmon: I will not proceed with the case, your Honor. The Court:
Well, you want to make some formal motion now or some request or what? Mr. Lemmon:
Well, so far as I am concerned, the plaintiffs will rest their case at this point. ... The
Court: ... Well, then, Mr. Lemmon, do I understand definitely now that the plaintiffs have
rested? Mr. Lemmon: Yes, your Honor." Defendants then moved for a nonsuit which was
granted.
[1a] Appellants contend that innocent misrepresentation is a form of constructive fraud as
alleged in count two of the complaint; and, therefore, under count two they were entitled
to prove innocent misrepresentation as a ground for rescission and the court should have
allowed them to reopen their opening statement to the jury to explain this theory.
Section 1573 of the Civil Code states that constructive fraud consists:
"1. In any breach of duty which, without an actually fraudulent intent, gains an advantage
to the person in fault, or any one claiming under him, by misleading another to his
prejudice, or to the prejudice of any one claiming under him; or,
"2. In any such act or omission as the law specially declares to be fraudulent, without
respect to actual fraud."
Appellants argue that innocent misrepresentation is constructive fraud under subdivision
l. This contention cannot be sustained.
[2] By the clear language of section 1573 there must be a "breach of duty" to give rise to
constructive fraud. This duty must be one created by a confidential relationship, for
section 1573 of the Civil Code states "the rule applicable in confidential relations. It has
never been applied to fix liability for the breach of a statutory duty except that of a
fiduciary. ..." (Mary Pickford Co. v. Bayly Bros., Inc., 12 Cal.2d 501, 525 [86 P.2d 102].)
"[I]t is essential to the operation of this principle that there be a fiduciary relation. It is
one of the facts constituting the fraud." (Feeney v. Howard, 79 Cal. 525, 529 [21 P. 984,
12 Am.St.Rep. 162, 4 L.R.A. 826].) Several early cases involving the sale of real property
have allowed rescission for innocent misrepresentation, apparently on a constructive
fraud theory. (Lombardi v. Sinanides, 71 Cal.App. 272, 279 [235 P. 455]; Del Grande
[224 Cal.App.2d 495] v. Castelhun, 56 Cal.App. 366 [205 P.18]; de Bairos v. Barlin, 46
Cal.App. 665, 670 [190 P.188].) However, those cases were predicated on the rule of law
that a vendor of real property has a duty to inform himself as to the boundaries of his
property, that he is presumed to know the boundaries, and that a purchaser can rely on the
vendor's representations. (Watt v. Patterson, 125 Cal.App.2d 788, 792-793 [271 P.2d
200]; Lombardi v. Sinanides, supra.) Those cases at most state an exception which is not
applicable here. [1b] Since innocent misrepresentation is not constructive fraud, it
necessarily follows that the court properly refused appellants' motion to reopen their
statement to the jury.
[3a] Appellants' second contention is that even though innocent misrepresentation is not
constructive fraud the facts pleaded in count two are sufficient to state a cause of action
for rescission for innocent misrepresentation, and the court should have allowed
appellants to amend their complaint to allege an innocent misrepresentation theory. We
need not decide this question because appellants' final contention (that under the common
count they were entitled to prove innocent misrepresentation) must be sustained.
Although the common count was not dismissed as was count two, the court effectively
prevented appellants from introducing any evidence on innocent misrepresentation. When
appellants proposed to amend count two to allege innocent misrepresentation, the court
stated: "... I would say very likely that if we were going to permit you to go into mutual
mistake and innocent misrepresentation, that we would probably allow an amendment." It
is clear that any attempt by appellants to introduce evidence on innocent
misrepresentation under the common count would have been futile.
The court committed reversible error in not allowing appellants to introduce their
evidence because innocent misrepresentation is a ground permitting rescission of
contracts. The exclusive grounds for rescission of contracts are set forth in section 1689
of the Civil Code, which read at the time with which we are concerned as follows:
"(b) A party to a contract may rescind the same in the following cases only:
"(1) If the consent of the party rescinding ... was given by mistake, or obtained through
duress, menace, fraud, or undue influence. ..."
Innocent misrepresentation is not specifically enumerated as a ground for rescission; but
it is a type of "mistake" [224 Cal.App.2d 496] which is enumerated in subdivision (b)(1)
of section 1689 of the Civil Code, and hence supports rescission.
[4] A "mistake" within the maning of subdivision (b)(1) of section 1689 of the Civil Code
can be either one of fact (Civ. Code, § 1576; M. F. Kemper Const. Co. v. City of Los
Angeles, 37 Cal.2d 696, 701 [235 P.2d 7]) or of law (Civ. Code, § 1576; 12 Hastings L.J.
463). [5] "Generally a mistake of fact occurs when a person understands the facts to be
other than they are. ..." (Reid v. Landon, 166 Cal.App.2d 476, 483 [333 P.2d 432]; Berry
v. Berry, 140 Cal.App.2d 50, 59 [294 P.2d 757].) When both parties understand the facts
other than they are, the mistake necessarily is mutual and thus becomes a basis for
rescission. (1 Witkin, Summary of Cal. Law, Contracts, § 127, p. 135; Rest., Contracts, §
502.)
[3b] It was alleged that such a mistake was made here. The value of the corporate stock
as reflected by the assets of the corporation, its business, its prospects, and its goodwill
was certainly a material fact. According to their pleading respondents believed the stock
to be worth $30,000, when according to the complaint, it was without substantial value.
Because of respondents' representations appellants were mistaken as to the stock's value.
Therefore, appellants' consent to the contract of purchase "was given by mistake," and
they have a cause of action for rescission under subdivision (b)(1) of section 1689 of the
Civil Code.
While no case has explicitly stated that innocent misrepresentation is a ground for
rescission in California, the result reached here is supported by and consistent with the
result reached in several other cases involving innocent misrepresentation. In Brown v.
Klein, 89 Cal.App. 153 [264 P. 496], the seller of an interest in a copartnership innocently
misrepresented the amount of the copartnership's liabilities to the buyer. The court found
that "the misrepresentation complained of was the result of error instead of fraud" (p.
155), and held "that defendants' plea of innocent mistake rather than being available as a
defense in a suit for rescission is itself a generally recognized ground for rescission." (P.
156.) And in Scott v. Delta Land etc. Co., 57 Cal.App. 320, the court said at page 328
[207 P. 389]: "... In a civil action the good faith of the party who procures the assent of
another to the making of a contract by material misrepresentations is of no moment."
The holding here is further supported by legal writers who have uniformly stated that
innocent misrepresentation is [224 Cal.App.2d 497] generally considered a ground for
rescission in California. (2 Witkin, Cal. Procedure, Pleading, § 404, p. 1382; 1 Witkin,
Summary of Cal. Law, Contracts, § 136, p. 146; Rest., Contracts, § 476 (2 Cal.Annot.);
12 Hastings L. Rev. 460-461.) The rule enunciated here follows the majority rule
allowing rescission for innocent misrepresentation. (Rest., Contracts, § 476; 5 Williston
on Contracts (rev. ed.) § 1500, p. 4189.) [6] This is a rule founded in justice; for "... it
would be unjust to allow one who has made false representations, even innocently, to
retain the fruits of a bargain induced by such representations." (Williston on Contracts,
supra.)
[7] Respondents vigorously assert that even though innocent misrepresentation is a
ground for rescission the appellants were not entitled to rely on an innocent
misrepresentation theory under the common count because they pleaded specific facts in
count one and count two. Respondents rely on the rule "that, if plaintiff is not entitled to
recover under one count in a complaint wherein all the facts upon which his demand is
based are specifically pleaded, it is proper to sustain a demurrer to a common count set
forth in the complaint, the recovery under which is obviously based on the same set of
facts specifically pleaded in the other count." (Hays v. Temple, 23 Cal.App.2d 690, 695
[73 P.2d 1248]; Orloff v. Metropolitan Trust Co., 17 Cal.2d 484, 489 [110 P.2d 396];
Steffen v. Refrigeration Discount Corp., 91 Cal.App.2d 494, 500 [205 P.2d 727].) This
rule only applies to prevent a plaintiff from relying on different facts in the common
count. A plaintiff may rely on a different theory of recovery in the common count as long
as that theory is fully supported in the specific facts pleaded in the other counts. (2
Witkin, Cal. Procedure, Pleading, § 275, p. 1250; Leoni v. Delany, 83 Cal.App.2d 303,
306 [188 P.2d 765, 189 P.2d 517].) Under the common count appellants were relying on
the facts pleaded in counts one and two. They were only attempting to change their
theory of recovery in the common count from fraud to innocent misrepresentation. This
they are entitled to do.
The judgment is reversed.
Pierce, P. J., and Friedman, J., comcurred.
Zinn v. Ex-Cell-O Corp., 148 Cal.App.2d 56

[Civ. No. 16372. First Dist., Div. One. Jan. 29, 1957.]
J. A. ZINN et al., Respondents, v. EX-CELL-O CORPORATION (a Corporation) et al.,
Appellants.
COUNSEL
Walter K. Olds, Pillsbury, Madison & Sutro, Eugene M. Prince, Francis N. Marshall and
Lloyd A. Carlson for Appellants.
Livingston & Livingston, David Livingston and Lawrence Livingston for Respondents.
OPINION
BRAY, J.
Defendants appeal from several judgments awarding plaintiffs damages in the sum of
$628,284.85 principal plus $643,049.51 interest from April 13, 1939, to date of
judgment--total, $1,271,334.36 fn. 1
Questions Presented
1. Defendants were charged with fraudulently inducing plaintiffs to sell capital stock held
by them in a distributing corporation which plaintiffs had organized. Defendants concede
that there was a conflict of evidence as to whether defendants were guilty of
misrepresentation in connection with [148 Cal.App.2d 61] their purchase of plaintiffs'
stock, but contend that as a matter of law the evidence establishes that plaintiffs knew the
allegedly concealed facts and did not act in reliance upon said representations, and that
said representations were not material. Hence, say they, there was no actionable fraud.
2. Did plaintiffs state a cause of action?
3. Was Sealed-Pure's default waived, so that Ex-Cell-O had no right to terminate the
agency contract?
4. Was the agency contract terminable at will?
5. Was there any basis for damages?
6. Were plaintiffs entitled to interest?
7. Were defendants denied a fair and impartial trial?
(1) Rulings of the court. (a) Reopening of case for deposition of plaintiffs. (b) Disregard
of defendants' evidence.
(2) Remarks of trial judge.
(3) Changes in transcript.
(4) Trial judge employs one of plaintiffs' counsel in another matter.
General Facts
This is the story of a revolution in the type of container used for retail marketing of milk
on the Pacific Coast. In 1934 Zinn and others organized the Gold Star Creameries. He
was president. The corporation distributed cheese. In 1935-1936 it constructed a building
in Everett, Washington, for milk distribution in paper containers. During this time Zinn
corresponded with Ex-Cell-O Corporation inquiring about leasing or purchasing its Pure-
Pak milk packaging machine. Ex-Cell-O was a Michigan corporation manufacturing
machine tools, which had developed said machine for use in packaging and distributing
milk in paper containers. Zinn also conceived the idea of establishing a distributorship for
the Pure-Pak machine. Zinn spent considerable time and effort in interesting others with
him and in contacting Ex-Cell-O to obtain such an agency. Eventually, on October 31,
1937, a final distributorship agreement was executed. This provided that a Washington
corporation with a capital stock of 10,000 no par value shares was to be formed by Zinn,
Kemp and Malkson. fn. 2 Six thousand shares were to be issued to be paid for by $5,000
to be advanced by Malkson. The remaining 4,000 shares were not to be issued at this time
but were to [148 Cal.App.2d 62] be used later to raise additional capital. From the 6,000
shares, 500 were to be transferred to Ex-Cell-O. The agreement granted Zinn, Kemp and
Malkson the exclusive rights to distribute Ex-Cell-O's machines in the 11 western states
and Hawaii, and provided that upon the formation of the corporation these rights were to
be assigned by them to it. The machines could not be sold, only leased, and orders would
be binding on Ex-Cell-O only if accepted by it. The agents agreed to place three
machines in said territory within 90 days and within six months to have installations in
three dairies in specified areas, and within two years in 15 dairies in the territory. The
agents were to receive 12 1/2 per cent of all rental payments as commissions. For a
period of two years, Ex-Cell-O was to set aside 2 1/2 per cent of the royalties collected to
be expended under the joint direction of the parties for advertising and promotional
services. The agreement recited that a licensing agreement had been entered into between
Fibreboard Products, Inc., and Ex-Cell-O under which Fibreboard was given the
exclusive right to manufacture blanks for the Ex-Cell-O machines, paying Ex- Cell-O
therefor a 5 per cent royalty on all its net mill sales. This sum when received by Ex-Cell-
O was to be paid to the agents. Fibreboard was required to pay an additional royalty of .
00675 per cent for a period of two years, which Ex-Cell-O was to set aside for
establishing and supporting a distributing agency.
Preparing for the agency contract, the Sealed-Pure corporation was organized October 21,
1937. Malkson put up $5,000 for the issuance of 6,000 shares. Of these, 1,667 went to
Zinn, who was president, 1,667 went to Kemp, who was secretary, 1,667 to Malkson,
who was treasurer, 499 to Ellis and 500 to Ex-Cell-O as agreed. Later Zinn bought 1,875
shares of the treasury stock at $1.00 per share. Seven hundred ninety-one shares of the
treasury stock were issued to Kemp, who transferred 625 of them to L. P. Nelson. Fifty
shares were issued to Schroeder and the remaining 1,284 shares were issued to Malkson.
Gold Star was issued 1,875 shares of that stock. Of the Gold Star stock, 875 shares were
transferred to W. M. Nelson, 40 shares to McLaughlin and 60 shares to Ethel Zinn.
Within five months of the incorporation all of the Sealed-Pure stock had been issued.
Most of its capital, plus $1,875 which Ex-Cell-O had paid it as advance commission on a
machine placed with Gold Star, had been loaned to Gold Star, the parties feeling that in
order [148 Cal.App.2d 63] for the agency to succeed, the Gold Star paper container
operation, the first in the west, must be successful. By early 1938 Sealed-Pure had only
about $800 as working capital. This bred dissension between Malkson, Zinn and Kemp,
which was increased by the fact that the operation of the machine leased to Gold Star was
delayed by a Seattle ordinance prohibiting the sale of milk in cartons. Huffman, an Ex-
Cell-O employee, went to Seattle to assist in setting up the Ex-Cell-O machine. By this
time Sealed-Pure was near default of the requirement that within 90 days it place three
machines. Huffman, at Malkson's request, wired Ex-Cell-O requesting extension of "four
months from time of dairy opening for shipment of second machine." Scott replied that
Ex-Cell-O appreciated the delay and "Will gladly cooperate in extending installation
date ... provided aggressive sales effort is made." Huffman then reported to Ex-Cell- O in
more detail concerning Sealed-Pure's situation. Zinn wired and then wrote Scott, giving
his story of the situation and accusing Huffman and Malkson of collusion. Late in
February, 1938, Scott met plaintiffs in Seattle and told them that Bixby, the president of
Ex-Cell-O, was "terribly dissatisfied" with the conduct of the business and threatened to
cancel the agency contract unless the matter was straightened out. Scott made
suggestions. He then wrote Bixby his impression of the situation.
March 9, 1938, Zinn, Kemp and Malkson met with Scott and told him their differences
had been resolved, and that they were ready to make the changes suggested by him.
Accordingly, Malkson was made president of Sealed-Pure, in place of Zinn, and also
treasurer and general manager. Zinn was elected vice president, and Scott and Malkson's
brother, directors. A headquarters for Sealed-Pure was established in San Francisco. Scott
and Malkson then called upon all the major dairies in several California areas. They
called upon Sneed, president of Lucerne Cream and Butter Company, a subsidiary of
Safeway, who had previously visited the Gold Star plant and was unfavorably impressed
with the operation of the Pure-Pak machine, although, having tested consumer acceptance
of the milk sold in paper cartons by Gold Star, he found that favorable. Sneed told
Malkson and Scott that he was not ready for a trial installation. They both reported this to
Zinn.
April 30th, the six months given by the contract to install [148 Cal.App.2d 64] machines
in dairies in three specified areas, elapsed, without such installations. May 2, 1938,
Malkson wrote Zinn that he had seen Sneed and that the latter's final decision as to
whether he would take a machine depended on "what the Everett stores do the next few
months" and that Scott had agreed to make trial installations at "Los Angeles and here,"
and if they could get the right dairy, "So, we are still in the ring." May 9, 1938, Malkson
wrote Kemp that Petersen, a Sealed-Pure salesman, was making some progress in the Los
Angeles area and new contacts in the San Francisco area, and that Ex-Cell-O "has given
us authority to place a machine either in Bellbrook, Safeway or Marin Dell on a trial
basis." As will later appear, Ex-Cell-O on July 25, 1938, accepted an order from Safeway
for one machine on a 90-day trial with fixed amounts to be paid if it kept that machine
and desired more.
At the time Bixby was negotiating with Safeway, he told Malkson that he was dissatisfied
with the way Sealed-Pure had functioned and that he could see nothing to do but to
cancel the contract. Malkson said he did not blame him but that he did not want the
contract cancelled. He then asked Bixby for a job if the contract were cancelled. Bixby
then said he planned to go to Seattle to look into the Gold Star affairs and perhaps work
something out with Zinn and Kemp. At Seattle on July 28, 1938, Bixby met with Zinn,
W. M. Nelson, Kemp and Ellis and told them of his dissatisfaction with the way Gold
Star was meeting its obligations on the machine leased to it. Bixby told them that Ex-
Cell-O was going to cancel the contract. The stock in Sealed- Pure which Gold Star had
bought had been paid for with Gold Star notes. Bixby stated that if they would take these
notes as part payment he would try to get Ex-Cell-O to buy their shares at $1.00 per
share. fn. 3 On returning to Detroit, Bixby, on August 1st, wrote to plaintiffs cancelling
the agency contract. On August 17th Bixby wrote Zinn stating terms for the purchase of
the stock. August 24th, Zinn wrote Bixby, expressing his understanding of the terms
offered, accepting them, and enclosing the stock certificates. They were unendorsed.
Bixby on August 26th sent Zinn a check for the amount required, and a receipt to be
signed evidencing the entire transaction. He also returned the stock for endorsement.
August 31st, Zinn forwarded the endorsed stock and the receipt to [148 Cal.App.2d 65]
Bixby. Plaintiffs testified that they would not have sold had they known the true Safeway
transaction.
1. Plaintiffs' Knowledge of the Safeway Transaction.
As before stated, defendants concede that the evidence upon the question of Bixby's
misrepresentation or failure to disclose was conflicting and that therefore this court is
bound by the trial court's determination of that subject. So, we will consider only
plaintiffs' version of the representations, and then, only sufficiently to lay the background
for the evidence concerning plaintiffs' knowledge of the Safeway transaction, which
evidence defendants contend is conclusively against plaintiffs. Here, again, if there is any
conflict on the subject, we are bound by the court's finding that plaintiffs had no such
knowledge.
Safeway came into the picture in February, 1938, when Sneed, president of Lucerne
Cream and Butter Company, a subsidiary of Safeway, visited the Gold Star plant. While
unfavorably impressed with the operation of the Pure-Pak machine leased from Ex-Cell-
O by Gold Star, he had tested customer acceptance of milk sold in Gold Star cartons and
found it favorable. In March, Scott and Malkson called upon Sneed who stated that he
was not ready for a trial installation. They reported this to Zinn. On May 2d, Malkson
wrote Zinn that he had seen Sneed and that his final decision on whether he would buy a
machine depended upon what the Everett stores did during the next few months. July 15,
1938, Sneed wired Bixby for a copy of Ex-Cell-O's form of Pure-Pak machine contract
and inquired if he was willing to install a machine in Safeway's San Francisco plant. He
stated that he was taking the liberty of wiring direct as Malkson was out of town. The
next day Bixby airmailed forms of the lease agreement and expressed Ex-Cell-O's
willingness to make a trial installation. July 18th, Kirkland, a Safeway executive, in
Malkson's presence, phoned Bixby, at Detroit, that Safeway was ready to accept Ex-Cell-
O's trial offer and would need 15 to 18 machines, but he did not like the terms of the
agreement and asked that a representative of Ex-Cell-O come to Oakland, authorized to
agree to changes in the agreement. July 22d, Bixby, Malkson, Kirkland and Sneed
discussed a revised agreement. It was not satisfactory to Bixby, who then suggested that
Safeway might buy the machines outright, $32,500 for the first machine, $37,500 for
additional machines. A purchase order, accepted by Bixby on [148 Cal.App.2d 66] July
25th, was given by Safeway. This provided that Safeway was to have 90 days free use of
one machine. If not satisfactory it would be returned without cost, except that Safeway
would pay shipping costs both ways. If Safeway kept the machine over 90 days it was to
pay Ex-Cell-O $32,500 therefor. Further machines ordered before December 31, 1939,
were to cost $37,500 each. Kirkland and Sneed told Bixby that they wanted Safeway to
introduce the first paper milk container in the area without Safeway's competitors
knowing of it, and asked that the installation be kept secret.
Malkson, of course, was in on these negotiations with Safeway, but plaintiffs were not.
Bixby at this time told Malkson that he was going to have to cancel the agency contract,
and Malkson asked Bixby for a job if the contract was cancelled. Bixby then went to
Seattle and conferred with Zinn and the other plaintiffs. Bixby denies the representations
claimed to have been made by him at these conversations but admits that he did not tell
any of the plaintiffs concerning the Safeway purchase of a machine. He claims that he did
tell Wm. Campbell, the Ex-Cell-O mechanic who was working on the machine leased by
Gold Star, that a machine was to be placed with Safeway on a trial order. Of course, this
was not telling plaintiffs. Campbell claims that when on August 13th he left Gold Star he
told Zinn that he was going to California to install a machine. He did not state for whom.
Zinn denies this. The plaintiffs testified that Bixby told them that he had talked with
Malkson and had interviewed all possible prospects, but none of them was ready to buy
or try the machines, and stated positively that no deals, orders or sales had been made. It
was in reliance on these statements that plaintiffs sold Ex-Cell-O their stock. August 10th,
Petersen had written Zinn that the prospects of putting over some deals looked good, and
stated that he had been forbidden to write Zinn. On August 17th Bixby wrote in a letter
that Safeway was trying to get the Oakland ordinance against paper containers changed,
"but as yet they have not placed an order with us for equipment to be installed in
Oakland." In that letter Bixby requested that all Gold Star stock be forwarded to him and
stated what he had agreed at Seattle to pay for it. He then offered, however, to make an
allowance of $2,000 instead of $1,000 for the outstanding Gold Star notes. On August
13th, Jerseymaid in Los Angeles signed a lease agreement for a machine and sent it to
Ex-Cell-O for approval. [148 Cal.App.2d 67] August 17th, Malkson was hired by Ex-
Cell-O as its agent to solicit orders for machines.
Up to this point there is no evidence to contradict the testimony of plaintiffs that they had
no knowledge of the true Safeway situation.
August 27th, the Oakland Wholesale Grocery Company wired Gold Star asking
confidential information as to the operation of the Ex-Cell-O machine and the
competitive success of the milk containers. Zinn then wrote Bixby asking what answer he
should make and stating: "Knowing of your deal in Calif. thru the local Safeway I do not
wish to answer this until you let me know what your pleasure is." August 30th Zinn wrote
Bixby stating, among other things, that Campbell had written Gordon (Gold Star's
machine operator) "also that Safeway would open on the 4th in Frisco," that Gordon had
not told Zinn about "Campbell's writing about Frisco deal" but had told another who told
Zinn. "If that is o. k. with you it is with me--just question effect on Safeway if they hear
it, and I don't want to be blamed for letting out any 'advance news.' "
On August 30th, Campbell was in Seattle. Campbell testified he then told Zinn of the
Safeway installation in San Francisco. When asked why he did not investigate the use of
the machine by Safeway, Zinn testified that he believed in Bixby's integrity and his
statement that Safeway had not purchased any machines, that he knew offers had been
made to install them (this is what he meant by his statement in the August 27th letter,
"Knowing of your deal in Calif. thru the local Safeway"), that it would involve the
expenditure of some $30,000 to open up the territory and that possibly Ex-Cell-O might
have placed some machines on trial. In an undated letter but contained in an envelope
postmarked August 31, 1938, Zinn wrote Petersen that Ex-Cell-O had cancelled the
agency contract and bought the Sealed-Pure stock "at a time when Safeway bought a
machine for S. F. which opens Sept 4th 1938." This letter was not produced at the prior
trials, and for some reason no questions were asked Zinn concerning it.
September 1st, Bixby wrote Zinn in response to Zinn's August 30th letter in which Zinn
had stated that he had learned that Campbell had informed "that Safeway would open on
the 4th in Frisco." Bixby stated that the Safeway people had pledged him to absolute
secrecy "in connection [148 Cal.App.2d 68] with their San Francisco installation" and
"we have been very careful not to expose this news to anyone" but that, as the news was
now out in San Francisco, the fact that the news was out in Seattle would make no
difference.
When asked if he knew at the time he received this letter that the Safeway people had a
Pure-Pak machine, Zinn testified that he had heard that Safeway had placed an order for
blanks, but not that they had an installation. He took it to be a confirmation from Bixby
of what he had already been told, that Safeway had bought blanks, "and I would naturally
think that they were going to have a machine, but as to whether it was installed or not at
that time I did not know." The letter indicated to him, not that they had installed a
machine, but that they were going to install one.
September 6th, Safeway advertised the sale in San Francisco of milk in Pure-Pak
containers. W. M. Nelson and Zinn saw the ad in the early part of that month. Plaintiffs
testified that although they now knew that Safeway had a machine, they assumed it was
purchased after they had sold Ex-Cell-O their stock, and that the first time they suspected
that Safeway had a machine from Ex-Cell-O prior to August 1, 1938, was when Zinn, on
January 1, 1939, visited the Fibreboard plant at Port Angeles, Washington, and was told
that Safeway had purchased on August 1, 1938, 100 tons of paper carton blanks. fn. 4
Zinn then had an attorney investigate, and for the first time actually learned of the
Safeway order of late July, 1938.
[1] "Actual fraud" and "deceit" are defined in similar terms by the code. (Civ. Code, §§
1572, 1709, 1710.) [2] The general elements of a cause of action for fraudulent
misrepresentation are (1) misrepresentation (false representation, concealment, or
nondisclosure); (2) knowledge of falsity (scienter); (3) intent to induce reliance; (4)
justifiable reliance; and (5) resulting damage. (See Seeger v. Odell (1941), 18 Cal.2d 409,
414 [115 P.2d 977, 136 A.L.R. 1291]; Rest., Torts, § 525 et seq.)
[3] Mere nondisclosure of facts is ordinarily not enough to constitute fraud, but it may be
actionable under certain circumstances. One situation is where the defendant, who has no
duty to speak, nevertheless does so. In such a case he is bound to speak truthfully and to
speak the whole truth. [148 Cal.App.2d 69] (Dyke v. Zaiser (1947), 80 Cal.App.2d 639,
652 [182 P.2d 344]; Sullivan v. Helbing (1924), 66 Cal.App. 478, 483 [226 P. 803]; Civ.
Code, § 1710, subd. 3; Rest., Torts, § 529.)
The evidence supports the court's finding that Bixby not only intentionally concealed
from plaintiffs the sale to Safeway but actually represented to them that no such sale had
taken place for the purpose of getting them to acquiesce in the termination of their agency
and to sell their stock in Sealed-Pure. [4] While it is true that most of the evidence
supporting this finding is what defendants call "self-serving," the testimony of an
interested party is competent and admissible (Divani v. Donovan, 214 Cal. 447 [6 P.2d
247]), and if believed by the trial court, is sufficient to determine the issue. Here the trial
court believed plaintiffs.
Defendants rely strongly on Zinn's letter of August 31st in which he stated that Ex-Cell-O
had purchased the stock at a time when Safeway had bought a machine "which opens
Sept 4th." It must be remembered that on August 17th, after Zinn on August 7th had
written him "I learned about the possible placing of a machine in Oakland this month of
which I knew nothing," Bixby wrote that Safeway had been working to have the Oakland
ordinance changed "but as yet they have not placed an order with us for equipment to be
installed in Oakland." This letter also gave Bixby's terms for the purchase of the stock.
Believing Bixby, Zinn on August 24th mailed the stock to Bixby, although unendorsed.
August 26th, Bixby sent payment for the stock. Zinn's explanation as to his statement in
his August 27th letter, "Knowing of your deal in Calif.," his statement in his letter of
August 30th about the "Frisco deal," and his statement in his letter of August 31st (at this
time the sale of stock had been consummated) that Safeway had bought a machine, while
consistent with a finding that Zinn knew that a sale to Safeway had been made prior to
the cancellation of the agency agreement and to the sale of the stock, is not compellingly
so and is not inconsistent with a finding to the contrary.
No evidence was introduced by either side concerning Exhibit XX (the letter of August
31st). It stands alone. Ex-Cell-O, in essence, relies on it principally for reversal of the
case on the liability issue. Ex-Cell-O, relying heavily upon Bassett v. Johnson (1949), 94
Cal.App.2d 807 [211 P.2d 939], argues that this letter is so positively at variance with the
oral testimony of plaintiffs as to their knowledge [148 Cal.App.2d 70] of the fraud, that
there ceases to be a substantial conflict in the evidence on that issue.
The findings do not specifically refer to Exhibit XX. However, by implication the trial
judge found that it did not conclusively establish the fact of plaintiffs' knowledge of the
fraud before the purchase of the stock. [5] The rule seems to be that where the trial judge
interprets a document solely from the writing within its four corners, the interpretation is
a matter of law, and the appellate court may give the writing a different interpretation if
the trial judge's appears to be unreasonable. (Estate of Platt (1942), 21 Cal.2d 343, 352
[131 P.2d 825].)
Certainly the letter is ambiguous. If taken as true that Zinn meant "bought" when he
wrote "bought," it still is not conclusive that he knew of the Safeway transaction before
the plaintiffs' stock was purchased. In the first place, Safeway had not bought a machine;
it had only an option to buy. The sale of the stock is said by defendants to have been
consummated on August 31, 1938. But this does not mean that the actual sale did not
occur earlier. The sale of the stock appears to have actually occurred no later than the date
of August 26, 1938, when Bixby sent the payment for the stock, which had been
previously sent to him by Zinn. Patently, Bixby and Zinn felt this to be so. fn. 5 Thus, it is
by no means unreasonable to interpret the sentence, "Cancellation and purchase of Sealed
Pure Stock came at a time when Safeway bought a machine for S. F. ...," to mean that
Zinn was not aware that the Safeway contract was executed before the purchase of the
stock.
Ex-Cell-O contends that the testimony of disinterested witnesses, to the effect that Zinn
had knowledge of the Safeway deal before the sale of the stock, establishes that "the great
current of the evidence is against the finding." [6a] Without stating this testimony, it
suffices to say that there is testimony by the plaintiffs to the contrary; and by Zinn,
denying that the conversations testified to above ever took place. All this testimony is
merely a compilation of conflicting evidence. There is substantial evidence here from
which the trial judge could find in accordance with Zinn's testimony. [7] The testimony of
one witness may be sufficient, as against any number of witnesses testifying to the [148
Cal.App.2d 71] contrary, for the proof of a fact in a civil case. (Menning v. Sourisseau
(1933), 128 Cal.App. 635, 639 [18 P.2d 77].) [8] The appellate court ordinarily looks only
at the evidence supporting the successful party, and disregards the contrary showing. "Of
course, all of the evidence must be examined, but it is not weighed. All of the evidence
most favorable to the respondent must be accepted as true, and that unfavorable discarded
as not having sufficient verity to be accepted by the trier of fact. If the evidence so
viewed is sufficient as a matter of law, the judgment must be affirmed." (Estate of Teel
(1944), 25 Cal.2d 520, 527 [154 P.2d 384].)
Ex-Cell-O asserts that Zinn's testimony on the discovery he made at Fibreboard's Port
Angeles plant, along with plaintiffs' bare testimony that none of them had knowledge
until January 1, 1939, of the Safeway transaction, do not serve to meet the definition of
"substantial evidence," when balanced against the positive, direct evidence in Exhibit
XX, the "new and disinterested witnesses," and the Port Angeles record. The answer to
that is, again, given in the Teel case, supra.
Certainly Zinn had scattered scraps of information that something was astir in San
Francisco or Oakland. But Zinn knew that Ex-Cell-O had authorized Sealed-Pure to place
machines on a trial basis. Knowing this and that Bixby, upon whom he relied, had told
him that no deal had been made, we cannot say that he was not justified in believing that
no deal had been made and in not making an investigation. Nor in view of this situation
can we say that his letter of August 31st shows that he had knowledge of the fraud before
plaintiffs sold their stock. Correspondence between Malkson and Zinn who had charge of
Sealed-Pure's San Francisco office had ceased during the critical months of July and
August, because plaintiffs were unable to send Malkson any finances. At this time, too,
Malkson was negotiating with Bixby for a job and was not desirous of giving plaintiffs
any information as to the progress with Safeway.
Defendants' contention that Bixby's representation that no order had been given by
Safeway is not a material one is well answered by the foregoing recital of facts. [6b]
While it is true that both Gold Star and Sealed-Pure were in financial difficulties, and that
plaintiffs had not performed the agency contract according to its terms (such
performance, however, had been waived by Ex-Cell-O), it is obvious that plaintiffs [148
Cal.App.2d 72] would have valued their Sealed-Pure stock more highly had they known
the true situation.
2. Plaintiffs' Cause of Action.
[9] Defendants seem to think that this action is for wrongful termination of the agency
contract and contend that such a cause of action would lie only in the Sealed-Pure
Corporation and not in the individuals who assigned their contract to it. This action,
however, is not for that cause, but is for fraud in inducing plaintiffs to sell their stock.
That obviously is a cause of action inhering in each person so wronged. The law of the
case as set forth in Zinn v. Ex-Cell-O, supra, 24 Cal.2d 290, is that in fixing the amount
of damages sustained by plaintiffs the claim that the agency was wrongfully terminated
may be considered. "Whether by reason of the termination of the agency contract Sealed-
Pure was entitled to recovery against Ex-Cell-O for wrongful repudiation of the agency
contract is a matter bearing upon any possible additional damages." (24 Cal.2d at p. 298.)
3. Termination of Contract.
[10] The court found that there was no failure to comply with the terms of the contract
other than the failure to comply with the stipulations as to time of placement of machines,
and that such noncompliance was waived by Ex-Cell-O, in addition to which Ex-Cell-O
up to the very moment of cancellation was inducing Sealed-Pure to continue with the
agreement. The evidence supports this finding.
Admittedly the corporation had little capital for the project it had undertaken, but it was
organized and capitalized according to the terms of the agency contract. Its diversion of
capital to Gold Star was obviously the wisest expenditure of its money because there was
reluctance by all potential lessees of the Pure-Pak machines to employ this revolutionary
method of packaging milk until it had been proved. It is true that some success had been
shown by the users of the machines in the eastern United States, but the degree of
perfection of the machines and customer acceptance of the cartons was still unsettled in
the minds of potential western users.
The evidence clearly shows that all parties were agreed that the success of distributing
Ex-Cell-O's machines on the west coast depended primarily upon Gold Star making a
success of the operation of its machine (the first on the coast) and the use of its paper
cartons, and that if the Gold Star operation failed, Ex-Cell-O's opportunity to dispose of
its [148 Cal.App.2d 73] machines would likewise fall. Scott, in a letter to Bixby, March
7, 1938, so stated and also stated that that also was the opinion of Fibreboard, from whom
the carton blanks were to be obtained. About May 2d Sneed had told Malkson that his
interest depended almost entirely upon the success of Gold Star's paper containers in the
Everett stores during the next few months. On January 20, 1938, Ex-Cell-O in a telegram
replying to one of Malkson's asking for extension of four months from time of dairy
opening for shipment of second machine, stated that it would cooperate in extension of
the installation date, providing aggressive sales effort was made. A reasonable
interpretation of these telegrams is that the time for all installations was extended
provided aggressive sales efforts were made. While there were expressions by Ex-Cell-O
of dissatisfaction with the way matters were going, Ex-Cell-O consistently aided and
encouraged Sealed-Pure in its efforts. Scott suggested, and obtained a reorganization of
the management. In May, 1938, Ex-Cell-O helped reduce Sealed-Pure's financial
difficulties by its purchase of Gold Star notes from Malkson. July 1st, Scott wrote
Malkson that the Ex-Cell-O management and he believed that "you are doing a very, very
good job there on the Coast." Sneed's telegram to Bixby was made in Malkson's presence,
and Bixby's interviews with Sneed were likewise. All of Ex-Cell-O's acts up to about the
time of the actual signing of the Safeway order showed a desire on the part of Ex-Cell-O
to continue relations with Sealed-Pure and to waive any default in its contract.
4. Terminability at Will.
[11a] The court found that from the contents of the agreement and the circumstances it
was the intention of the parties that the contract was terminable only for good cause, and
was to give Sealed-Pure the right to continue as the exclusive distributor of machines in
the territory as long as it performed the terms of the contract and the objects and purposes
of the agreement could be served.
There is no express provision in the agency contract as to its term. Ex- Cell-O contends
that it is well settled in this state that a contract of agency which specifies no term or
period of duration is terminable at the will of either party without liability. This may be
true in some circumstances. (See Speegle v. Board of Fire Underwriters (1946), 29 Cal.2d
34, 39 [172 P.2d 867] and citations therein.) But that is not true where the intentions of
the parties may be ascertained [148 Cal.App.2d 74] "by reference to the circumstances
under which it was made, and the matter to which it relates." (Civ. Code, § 1647.) Also,
the contract itself may have indications as to the intentions of the parties, even though not
express. [12] And "where parol proof is admitted for the purpose of assisting the court to
ascertain the intention of the parties and where conflicting inferences may be drawn, it is
the constitutional function and duty of the trial court to determine the meaning of the
parties and such finding is binding on the reviewing court." (Estate of Guasti (1953), 117
Cal.App.2d 612, 617 [256 P.2d 629].)
[11b] The agency contract here itself indicates that the parties did not contemplate
termination at will. Paragraph 8 provides that Ex-Cell-O can terminate upon Sealed-
Pure's default and after 15 days' notice. The definite times for the accomplishment of
certain machine placements, in paragraph 6, tends to negative an intention that it be
terminable at will. The provisions of paragraph 11 indicate that the contract was to
continue well beyond the time limit established for the placement of machines, when it
provided for the payment of royalties to Sealed-Pure for a two-year period for
"advertising or promotional services." Again, in paragraph 12, royalties were to go to
Sealed-Pure "during the life of this agreement ..." The requirements of paragraphs 1 and 3
that a corporation be formed to carry out the contract implies permanency.
Additionally, as evidence of Ex-Cell-O's interpretation of the contract, Scott wrote
Malkson July 8, 1938, to the effect that he hoped that Sealed- Pure's association with Ex-
Cell-O remained successful and pleasant for a great many years to come. The notice of
termination of the agreement did not purport to terminate because of any right to
terminate at will, but because of alleged default. The very nature and size of the
undertaking which burdened plaintiffs once they executed the agency contract indicates
that there was no intention that it should be terminable at will. Otherwise, plaintiffs could
be denied the fruits of their labors even on the threshold of success. Equitable principles
would prohibit such an oppressive result. The above also supports the finding that the
contract continued "beyond September 30, 1949."
5. Basis for Damages.
[13] Defendants contend that as a matter of law plaintiffs have proved no damages from
the wrongful termination [148 Cal.App.2d 75] of the agency agreement, in that Sealed-
Pure's business was unestablished, it had realized no profits and its commissions were
dependent upon performance. While all of these statements are true, nevertheless
plaintiffs were damaged. If defendants' contention were true, then there never could be
any damages suffered by the breach of a contract near its inception. It is clear that Sealed-
Pure laid the foundation for the placement of the machine with Safeway before the
cancellation of the contract. The placement of the machine and the tentative order, if
known to plaintiffs, would have had a tremendous impact upon the value of their stock.
Lacking knowledge of this, they sold their stock for $1.00 per share. Certainly the fact of
damage is thus established. "Section 3343 of the Civil Code provides that one defrauded
in the sale of property is entitled to recover the difference between the actual value of that
with which he parted and the actual value of that which he received. The value of the
stock is to be determined by the worth of the corporate assets, not the 'market value' of
the stock. [Citations.] Future profits may be shown for the light that they throw on the
value of the stock at the time of its fraudulent purchase. [Citations.] ... One whose
wrongful conduct has rendered difficult the ascertainment of the damages cannot escape
liability because the damages could not be measured with exactness. [Citations.]" (Zinn v.
Ex-Cell-O Corp., supra, 24 Cal.2d at p. 297.)
[14a] Clearly the amount of income Sealed-Pure would have had but for the cancellation
of the contract can be calculated with sufficient certainty by application of the terms of
the agency contract to the income Ex-Cell-O had from the placement of machines in the
period subsequent to the cancellation of the contract. The fact that Sealed-Pure had an
exclusive contract within a certain area aids in the certainty of the calculation. (Yaguda v.
Motion Picture Publications, Inc. (1934), 140 Cal.App. 195, 199 [35 P.2d 162].)
Ex-Cell-O argues that the amount of revenue earned by it does not establish that Sealed-
Pure could have accomplished the same amount of business. [15] The answer to this is in
Hacker etc. Co. v. Chapman Valve Mfg. Co. (1936), 17 Cal.App.2d 265, 267-268 [61
P.2d 944], where the court, in a somewhat similar situation, said: "It is held generally that
the breach of an exclusive sales agency contract through the invasion of the territory of
the agent ... will entitle the latter to the profits he would have made upon sales in the [148
Cal.App.2d 76] amount of those made by his principal in the invaded territory. ... The
fact that the goods were sold by defendants furnished sufficient proof that they could
have been sold by plaintiff." Every case cited by Ex- Cell-O for the proposition that
damages for the breach of agency contracts is too speculative, involve fact situations
where the plaintiffs attempt to prove what business could have been done but for the
breach of the contract. They are not in point in this case where there is proof of what was
actually done by the principal, and could have been done by the plaintiffs but for the
breach of the contract.
[14b] Defendants contend that the Fibreboard royalties cannot be considered as Ex-Cello-
O might have terminated the Fibreboard agreement. [16] The answer to this is that had
the agency contract not been wrongfully cancelled, Ex-Cell-O could not legally destroy
Sealed-Pure's right to part of the Fibreboard royalties by releasing Fibreboard from its
duty to pay. In Universal Sales Corp. v. California Press Mfg. Co. (1942), 20 Cal.2d 751,
771 [128 P.2d 665] the court said: "In every contract there is an implied covenant that
neither party shall do anything which will have the effect of destroying or injuring the
right of the other party to receive the fruits of the contract ..."
The agency agreement set forth that Ex-Cello-O had entered into an agreement with
Fibreboard for the exclusive right in the territory to manufacture blanks for its machines
and provided that Sealed-Pure would receive certain proportions of the royalties to be
received from Fibreboard. As pointed out before, an additional percentage for a period of
two years was to be used by Ex-Cell-O for the purpose of establishing and supporting
Sealed-Pure as a distributing agency. Moreover, in the agreement between Ex- Cell-O and
Fibreboard, Ex-Cell-O agreed to pay such royalty to a distributing agency in order to
bring about the installation of as many machines as possible to increase Fibreboard's sale
of blanks. The same rule applies to the Kieckhefer Container Co. royalties which the
court considered in fixing damages. Because Fibreboard could not meet the demand, Ex-
Cell-O on May 1, 1947, also licensed Kieckhefer to manufacture blanks for Pure-Pak
machines in the Pacific Coast territory for which Kieckhefer was to pay royalties. The
court found that Sealed-Pure's share of those royalties would have been $283,610.10.
While, of course, there is no mention of Kieckhefer in the agency contract, the contract
provides that the agents were to receive a [148 Cal.App.2d 77] percentage of the
royalties from the Fibreboard contract. [17] In that contract Fibreboard was to have the
exclusive right in the territory to produce the blanks to be used in the Ex-Cell-O
machines. The fact that Ex-Cell-O saw fit to divide the blank business with another
concern than Fibreboard could not deny Sealed-Pure the royalties it was promised from
all sales of blanks within its territory.
[14c] The trial court properly found that there must be deducted from the royalties that
Sealed-Pure would have received, the expenses Sealed- Pure would have incurred in
transacting the business required by the contract. This amount the court found to be
$138,900. The court added the expenses of Sealed-Pure during its operation, the cost of a
trained supervisor which Sealed-Pure was required to employ, and the amounts paid by
Ex-Cell-O over a period of 11 years as salary and expenses of its service men. While Ex-
Cell-O claims the true expenses would have been $700,000, the trial court resolved the
conflict in favor of plaintiffs. [18] It must be remembered that considerable latitude is
allowed a plaintiff in proving damages in a fraud case. [19] " '... the wrong-doer shall
bear the risk of the uncertainty which his own wrong has created ...' " (Speegle v. Board
of Fire Underwriters, supra, 29 Cal.2d at p. 46.) The evidence supports the finding.
6. Interest.
The trial court allowed interest from the date of filing suit, applying section 3288, Civil
Code, which permits, in the discretion of the trier of fact, the allowance of interest in a
fraud action. Defendants contend this was improper for the reason that they claim that the
wrong occurred in Washington, and that therefore the law of that state, which they claim
does not allow interest in a tort action, applies. We agree with their contentions.
[20a] The question of whether interest as part of the damages for a tort is to be allowed is
to be determined by the law of the place of wrong or the place of the forum, has never
been determined in California. The Restatement, Conflict of Laws, section 419, states
that the law of the place of the wrong governs. Volume 11, California Jurisprudence 2d
206, states that the Restatement on this subject is not supported by California authority,
"although authority to the contrary is meager and has little persuasive value." Actually,
there appears to be no authority on it here. The three cases relied [148 Cal.App.2d 78]
upon by the California Jurisprudence article dealt not with torts but with breaches of
contract. The holding in each instance was that the law of the forum applies as to granting
interest for breach of contract, contrary to the statement in Restatement, Conflicts of Law,
section 418, that the place of performance of the contract governs. Thus, Perkins v.
Benguet Consol. Min. Co., 55 Cal.App.2d 720 [132 P.2d 70], involved the question of the
failure of a corporation to pay stock dividends to the owner of the stock. In holding that
the law of the forum governed, the court treated the case as one of contract. All of the
authorities mentioned upon which its decision was based dealt with contracts. Nesbit v.
MacDonald, 203 Cal. 219 [263 P. 1007], and Bank of United States v. Foreman, 102
Cal.App. 756 [283 P. 874], each dealt with the question of whether interest was allowable
on a foreign note which did not provide for interest. Thus the California Jurisprudence
statement is erroneous. It is interesting to note that the California courts have followed
the Restatement, section 420, which provides that in an action on a foreign judgment the
rate of interest allowed for delay in satisfying the judgment is determined by the law of
the place where the judgment was rendered. (Thompson v. Monrow, 2 Cal. 99 [56
Am.Dec. 318]; Cavender v. Guild, 4 Cal. 250; Stewart v. Spaulding, 72 Cal. 264 [13 P.
661].) Likewise, on the question of damages generally in a tort action California has
followed the Restatement, Conflict of Laws, section 412: "The measure of damages for a
tort is determined by the law of the place of wrong." See Klaffki v. Kaufman, 52
Cal.App. 48 [198 P. 36], action for statutory penalties for nonpayment of wages. The
court there distinguishes between the law of contract which applies to the employment
contract and the law of tort which applies to the statutory penalty. See also Ponsonby v.
Sacramento Suburban Fruit Lands Co., 210 Cal. 229 [291 P. 167]. That was an action for
damages for fraudulent representations by which the plaintiffs were induced to exchange
real property in Minnesota for property of much less value in California. An attachment
had been issued on the theory that the action was for "damages, arising from an injury to
property in this State ..." (Code Civ. Proc. § 537, subd. 3.) In holding that the attachment
was properly based the court in order to find that an injury to property had occurred in
this state rather ingeniously worked out the theory that by misrepresenting the value of
California property the defendant had caused a diminution in the plaintiff's [148
Cal.App.2d 79] funds previously banked here, and expended in making improvements
on the California land. [21] As said in Loranger v. Nadeau, 215 Cal. 363, 366 [10 P.2d 63,
84 A.L.R. 1264]; "It is the settled law in the United States that an action in tort is
governed by the law of the jurisdiction where the tort was committed, and as it is a
transitory action, it may be maintained in any jurisdiction where the defendant may be
found. [22] It is the general rule in tort actions that the court will, if it has jurisdiction of
the necessary parties, and can do substantial justice between them in accordance with its
own forms of procedure, enforce the foreign law, if it is not contrary to the public policy
of the forum, to abstract justice or pure morals, or injurious to the welfare of the people
of the state of the forum." To the same effect, Grant v. McAuliffe (1953), 41 Cal.2d 859,
862 [264 P.2d 944, 42 A.L.R.2d 1162]. The comment on section 412 of the Restatement
states: "The right to damages in compensation or punishment for a tort is to be
distinguished from the right of access to the courts and from the procedure provided to
obtain the damages. The creation of a right to have damages necessarily involves the
measurement of that right in so far as the law can measure it. While the actual finding of
the amount of damages is a function of the jury or other fact-finding body at the forum,
the law that creates the right determines what items of loss are to be included in the
damages. Since the right is created by the law of the place of wrong, it is measured by
that law."
[23] While ordinarily it would be rather anomalous to hold that the law of the forum
applies to the allowance of damages but does not apply to the allowance of one of the
elements of damages--interest, it must be remembered that when the Supreme Court on
the prior appeal applied section 3343, Civil Code, it did so without any issue having been
raised as to its application and without any discussion of a reason for its application.
While that application became the law of the case as to the general measure of damages,
such application should not necessarily be extended to a matter which was not then
before the court. Particularly is this so when we realize that the doctrine applied is
contrary to prior holdings in this state which were not considered or even mentioned on
the prior appeal. Thus, when our courts have considered the matter after issue raised upon
the point they have held that damages in a fraud action are to be awarded in accordance
with the law of the place [148 Cal.App.2d 80] of wrong, thereby following section 412,
Restatement. Logically, if California, in effect, adopts the Restatement as to the general
measure of damages in a fraud case, it should adopt it as to one of the elements of
damages--interest.
[20b] Section 419, Restatement, reads: "The rate of interest allowed as a part of the
damages for injury to property by a tort is determined by the law of the place of wrong."
Plaintiffs contend it could not apply here (1) because, say they, it deals only with the rate
of interest, and (2) because, they say, it applies only to injury to property. It seems
obvious that if the law of the place of the wrong determines the measure of damages it
necessarily must determine whether or not interest may be a part of that measure. The one
necessarily includes the other. That a fraud of the kind committed here constitutes an
injury to property in the sense of section 419 clearly appears from the definition of
"property" given in Ponsonby v. Sacramento Suburban Fruit Lands Co., supra, 210 Cal.
229. The same meaning is included in the definition of "property" as given in
"Introductory Note" to "Property" in Restatement, Conflict of Laws, page 296: "The word
'interest' is used throughout the Restatement of this Subject as indicating the normally
beneficial side of a legal relation as a right, power, privilege or immunity. The word
'property' is used throughout the Restatement as a synonym for interest as thus
explained." Moreover, section 419 is merely an application of a general principle. The
comment on that section says: "The rule stated in this Section is a specific application of
the general rule as to measure of damages in tort stated in § 412." That section, as we
have heretofore shown, states that the measure of damages for a tort is determined by the
law of the place of the wrong.
This brings us to the question of whether the law of Washington, the place where the
wrong occurred, permits the allowance of interest. fn. 6 [148 Cal.App.2d 81]
[24] There is no statute on the subject in Washington. No evidence was introduced in the
trial court as to the case law in that state upon the subject. Therefore, contend plaintiffs,
the California courts may not take judicial notice of the Washington decisions as they are
not interpreting statutes but are applying the common law and must assume that the
Washington law is the same as California law as expressed in section 3288, Civil Code.
Section 1875, subdivision 3, Code of Civil Procedure, as amended in 1927, provides that
our courts may take judicial notice of "... the laws of the several states of the United
States and the interpretation thereof by the highest courts of appellate jurisdiction of such
states; ..." Prior to the amendment, it was held that California courts could not take
judicial notice of the decisions in other states. Since the amendment, although there are
cases elsewhere that interpret the word "laws" as used in a statute not to include case law
in the form of judicial decisions, fn. 7 we have been cited to no case in California, nor
have we found one, placing such a narrow interpretation on the word "laws" in section
1875, subdivision 3. On the other hand, in Worthley v. Worthley (1955), 44 Cal.2d 465
[283 P.2d 19], the court after determining that the effect of a Nevada divorce decree upon
the defendant's preexisting obligations under a New Jersey maintenance decree must be
decided by the law of New Jersey, took judicial notice, without discussion of its right to
do so, of a recent New Jersey Supreme Court decision upon the subject. In In re Wolfson,
30 Cal.2d 20 [180 P.2d 326], again without discussion, the court took judicial notice of a
Pennsylvania decision holding that the elements of the offense of larceny, under a
Pennsylvania statute which made larceny punishable, but did not define it, were those of
the common-law offense of larceny. Bracker v. American Nat. Food, Inc. (1955), 133
Cal.App.2d 338 [284 P.2d 163], after stating "The courts of California take judicial notice
of the laws of Missouri," (p. 344) cited a Missouri decision as controlling. First-Trust
Joint S. L. Bank v. Meredith (1936), 5 Cal.2d 214 [53 P.2d 958], was a suit upon a
promissory note made in Iowa. After stating that the parties conceded that the question as
to whether the defendant was to be [148 Cal.App.2d 82] held personally liable on the
note was governed by the law of the state of Iowa, the court said (p. 219): "The law of
that state is therefore assumed to be the applicable law [citation] of which the court will
take judicial notice." (Emphasis added.) As pointed out in McCormick on Evidence
(1954), page 697, the modern conception is that counsel as officers of the court are
available to find and present decisions of other states to the judge "in just the same
informal and convenient fashion as if they were arguing a question of local law."
That Washington does not allow interest on unliquidated damages in tort cases is clearly
apparent from the decisions of that state. See Ikeda v. Curtis (1953), 43 Wn.2d 449 [261
P.2d 684, 691] (fraud in sale of hotel property); Kiessling v. Northwest Greyhound Lines
(1951), 38 Wn.2d 289 [229 P.2d 335] (negligence in operating a bus); Buob v.
Feenaughty Machinery Co. (1940), 4 Wn.2d 276 [103 P.2d 325, 337] (misrepresentations
and breach of warranty concerning a tractor); Edwards v. Powell (1923), 121 Wash. 598
[212 P. 163] (fraud).
While plaintiffs contend that the decisions on this subject in Washington are "in a state of
hopeless confusion" on this subject, we fail to find them so. Volume 30, Washington Law
Review 128, cited by plaintiffs, deals only with interest in contract cases. Mall Tool Co.
v. Far West Equipment Co. (1954), 45 Wn.2d 158 [273 P.2d 652], involved an action
upon contracts. Likewise Sweeney v. Lewis Const. Co. (1913), 74 Wash. 303 [133 P.
441], and Parks v. Elmore (1910), 59 Wash. 584 [110 P. 381]. Grays Harbor County v.
Bay City Lbr. Co. (1955), 47 Wn.2d 879 [289 P.2d 975], is not contrary to the rule above
mentioned. It holds that in conversion cases the Washington courts follow the general rule
expressed in 36 American Law Reports 2d 337, 348, 349, "the general rule in trover and
conversion is that interest is allowed from the date of the conversion." (P. 982 of 289
P.2d.) In Petersen v. Graham (1941), 7 Wn.2d 464 [110 P.2d 149], interest was allowed
for fraud in a real estate transaction because "the demand was a liquidated one." (P. 154.)
Barnett v. Cobb (1926), 140 Wash. 538 [250 P. 57], was an action for rescission for
misrepresentation of the rental value of real property. Without discussion or consideration
of any Washington cases, the court apparently applied the rule in conversion cases and
allowed interest.
[25] Plaintiffs point out that defendants did not raise the [148 Cal.App.2d 83] conflict of
laws question in the trial court, raising it for the first time on appeal, and hence they
claim it may not be raised now. Defendants, however, at all times did maintain that the
trial court had no right to grant prejudgment interest. Inasmuch as the question is one
strictly of law and not of evidence, we believe that the ruling in Panopulos v. Maderis, 47
Cal.2d 337 [303 P.2d 738], should apply and the question should be determined by us. In
that case the court said: "... the defendant asserts that where a cause has been tried on a
theory acquiesced in by the parties, an appellant cannot seek a reversal on an entirely new
theory. [Citations.] It is the general rule that a party to an action may not, for the first time
on appeal, change the theory of the cause of action. [Citations.] There are exceptions but
the general rule is especially true when the theory newly presented involves controverted
questions of fact or mixed questions of law and fact. If a question of law only is presented
on the facts appearing in the record the change in theory may be permitted. [Citation.] ...
[W]hen as here the facts with reference to the contention newly made on appeal appear to
be undisputed and that probably no different showing could be made on a new trial it is
deemed appropriate to entertain the contention as a question of law on the undisputed
facts and pass on it accordingly." (Pp. 340-341.)
7. Fairness of Trial.
(1) Rulings.
(a) Reopening Case for Depositions of Plaintiffs.
Several of the assignments under the contention that defendants were denied a fair and
impartial trial are based upon certain rulings of the court. [26] None of the plaintiffs
appeared at the trial. Over defendants' objection their testimony, formerly given, was used
on the ground of their absence from the state. Defendants moved to strike this testimony,
which motion was denied. The case was submitted for decision after briefs filed and oral
arguments had, in which defendants again urged the inadmissibility of plaintiffs' former
testimony. The judge rendered his decision, giving plaintiffs the same judgment as later
entered. Before findings were made, plaintiffs moved to vacate submission, reopen the
case, continue it for trial and grant permission to plaintiffs to take their depositions at
Seattle. Plaintiffs [148 Cal.App.2d 84] stated that there was a remote possibility that
defendants' contention as to the admissibility of the former testimony might be good and
in an excess of caution desired to eliminate any question. They gave as a reason for not
moving to take depositions before submission that they desired to avoid the unnecessary
expense which would have been incurred if the court should decide the case in
defendants' favor on the merits. The court granted the motion in toto, stating that so doing
would cure a possible error and would obviate a retrial of the issues in the event the
appellate court might agree that the former testimony was inadmissible. Depositions of
plaintiffs were thereafter taken, the trial resumed and the depositions read into evidence.
Plaintiffs then moved to strike the former testimony of plaintiffs from the record. After
the court granted the motion, defendants then offered the stricken testimony for purposes
of impeachment and admission, and it was readmitted. Over three years prior to the
granting of plaintiffs' motion to take their own depositions defendants had moved to take
such depositions and the court had denied the motion on the ground of lack of diligence
and insufficiency of the affidavit upon which the motion was based. The conduct of a trial
is primarily in the trial court's discretion. We can see no abuse of discretion here.
Although the trial court stated that it was fully convinced of the soundness of its ruling on
the admissibility of the former testimony, we see no reason why out of an excess of
caution, particularly in a case which was now being tried for the third time, and each trial
of which consumed a considerable length of time, the court could not permit steps to be
taken which would assure that a new trial might not have to be had, not because of a
question on the merits, but because of a question of procedure. (See Bazet v. Nugget Bar
Placers, Inc. (1931), 211 Cal. 607, 611 [296 P. 616]; Farmer v. Orme (1933), 131
Cal.App. 628, 630 [21 P.2d 977].) fn. 8
(b) Disregard of Defendants' Evidence.
Defendants contend that Zinn's testimony upon which the court's decision principally
depends, was shown to be false [148 Cal.App.2d 85] and is conclusively refuted by
defendants' evidence. We cannot say as a matter of law either that Zinn's testimony was
false or was refuted by defendants' evidence. [27] The testimony of one witness, believed
by the court, is sufficient to support a judgment. In the deposition of Zinn defendants for
the purpose of attacking his credibility attempted to show that he had been in California
during some portion of the time the first trial was taking place. That trial extended from
1945 to 1949 during portions only of which time actual trial was taking place. [28]
Defendants failed to show that Zinn was in California during any of the actual trial. We
fail to see that the fact that he was here between sessions of the trial affected his
credibility to the extent that his testimony as a matter of law must be disregarded.
(2) Remarks of Trial Judge.
In response to an argument by defendants' counsel opposing the taking of the deposition
of plaintiffs in which counsel complained of the amount of work thereby falling on their
shoulders, the trial judge stated in effect that counsel on neither side should complain
about additional work as undoubtedly they would be properly compensated therefor.
Then followed a statement by the trial judge that is a little difficult to understand. He
started out by saying that third parties reprehensibly had importuned him to disclose his
frame of mind toward his ultimate disposition of the case. "The dollar sign has been
written--insofar as the suggestion that third parties who might--importune me to commit
myself__________" Counsel for defendants assumed that the judge was impugning their
integrity and so stated. The judge then said that he never had questioned their integrity
and so stated. The judge then said that he never had questioned their integrity or good
faith nor that of any of the counsel in the case nor of any of the parties, and that no one
representing themselves as having been procured by any of the counsel or parties had
approached him. The judge then went on to say that he would permit nothing to interfere
with a just disposition of the case, and would "pursue a straight, undeviating course in
effecting a final disposition of this litigation. ..." While the remarks should not have been
made, we fail to see that they indicated any prejudice towards defendants. The judge in
effect so stated. It appears that the judge wanted everyone to know how virtuous he was
in spite of third parties' attempted interference. He stated that "in due time" he would
state for the record what this importuning was. He did not do so, even when later again
requested by defendants [148 Cal.App.2d 86] to explain those remarks. He should have
done so, but his failure so to do cannot be taken as prejudice towards defendants. [29]
Injudicious statements by a trial judge do not necessarily indicate a denial of a fair trial.
(3) Changes in Transcript.
[30] It appears that the reporter went to the judge's home and asked for assistance in
transcribing the above mentioned statements. Defendants' counsel did not agree with the
transcription when made, and invited the reporter to their office to question him.
Unbeknown to him his statements were recorded by a machine connected with a
dictaphone. Apparently the only substantial difference between what the defendants claim
the court said and what the transcript shows is as follows: Defendants contend that the
judge said "The dollar sign has been written all over this case," the transcript, "The dollar
sign has been written--insofar as the suggestion that third parties who might--importuned
me to commit myself__________" We do not consider this difference as significant.
[31] Nor do we see anything wrong in the fact that a green reporter who felt he did not
get all of the judge's remarks requests and receives assistance from the judge in preparing
the transcript.
(4) Judge's Employment of Counsel.
After the trial judge had set aside the submission of the case and while plaintiffs'
depositions were being read, the judge stated that an effort was being made to disqualify
him from trying a narcotics prosecution then pending, and that he might ask one or more
of the counsel in this case to help him resist the charge of disqualification. Thereafter and
before this case was finally submitted, he asked Lawrence Livingston, one of plaintiffs'
counsel, to assist the attorney who was then acting for him in the criminal case. After
considering the alleged disqualification statement, Livingston advised the judge to ask the
San Francisco Bar Association to take the burden of the defense and to ask the then
president of the Bar Association, Mr. Gerald Levin, who was a member of the firm of
attorneys representing defendants herein, to talk to Livingston about the matter. The
judge reported to Livingston that Levin would discuss the matter with him. Livingston
then contacted Levin, and at the former's request the latter agreed to present the matter to
the board of directors of the association. The board declined to enter the proceeding.
Thereafter Livingston, at the judge's request, assisted [148 Cal.App.2d 87] the judge's
attorney in the preparation of the answer to the disqualification charges.
[32] It certainly was highly irregular for a judge before whom a case was being tried, to
employ as his attorney in another matter one of the attorneys in that matter. Although here
that employment was open and not surreptitious, that fact does not detract from the
impropriety of the action. While we have no reason to doubt the judge's statement that the
relationship with Mr. Livingston in no wise influenced him in any way in this case, a
judge in the trial of a case should so conduct himself as to leave all of his actions
completely above suspicion. The fact that the relationship of attorney and client exists
between the judge and a lawyer for the successful side, hardly engenders a comfortable
feeling in the losing side. While the judge's action in this respect is highly to be
condemned, we do not feel that it requires us to hold that it influenced him in his
determination of this case.
Those portions of the judgment allowing interest prior to judgment are reversed. In all
other respects the judgment is affirmed. Each party shall bear its own costs.
Peters, P. J., and Wood (Fred B.), J., concurred.
FN 1. This is the third trial and the second appeal. The first trial resulted in judgment for
defendants. That judgment on appeal was affirmed as to one Malkson who was president
and member of the board of directors of Sealed-Pure, a corporation, and reversed as to all
other defendants. (Zinn v. Ex-Cell-O Corp. (1944), 24 Cal.2d 290 [149 P.2d 177].) At the
end of the second trial the late Hon. James G. Conlan, who presided, made a minute order
awarding plaintiffs $87,543.28 damages and disallowing interest. Due to his death before
findings were signed, no judgment could be entered, and hence the case had to be retried.
Additional evidence was adduced at the third trial.
FN 2. The defendant in whose favor the judgment at the first trial was affirmed on appeal.
Obviously, he was not a party (although a witness) in the subsequent trials, nor is he here.
FN 3. The discussion concerning Safeway will be considered later.
FN 4. The evidence that the Fibreboard books did not contain the data Zinn claimed to
have seen there merely caused a conflict in the evidence which the court resolved.
FN 5. In Bixby's letter of August 26th he stated, "Now that we are the sole shareholder in
Sealed Pure ..."
FN 6. Plaintiffs contend that some of the acts constituting the wrong took place in
Michigan where they claim the law allows interest as a matter of right, and also in
California. However, the wrong was the misrepresentations. These as well as the sale of
the stock occurred only in Washington. No matter where the intention to misrepresent
was formed, nor the acts which were misrepresented took place, no wrong was
committed until the misrepresentations were communicated to plaintiffs and this took
place in Washington. See Restatement, Conflict of Laws, section 377, to the effect that
the place of the wrong is in the state where the last event necessary to make an actor
liable for an alleged tort takes place.
FN 7. Swanson v. City of Ottumwa, 131 Iowa 540 [106 N.W. 9, 13, 5 L.R.A. N.S. 360];
Mooney v. Brotherhood of Railroad Trainmen, 162 Minn. 127 [202 N.W. 341, 342];
United States Sav. & Loan Co. v. Harris, 113 F. 27, 35.
FN 8. Defendants contend at great length that the showing for the admission of the
former testimony was not sufficient and therefore it was improperly admitted. We deem it
unnecessary to determine this question for two reasons: (1) the court finally struck the
testimony from the record, and (2) defendants thereafter for their own purposes had it
readmitted.
People v. Wisecarver, 67 Cal.App.2d 203

[Crim. No. 3845. Second Dist., Div. Two. Dec. 7, 1944.]
THE PEOPLE, Appellant, v. ELAINE WISECARVER, Respondent.
COUNSEL
Robert W. Kenny, Attorney General, Fred N. Howser, District Attorney, and Jere J.
Sullivan, Deputy District Attorney, for Appellant.
David C. Marcus for Respondent.
OPINION
MOORE, P. J.
The question posed by this appeal is whether the defendant was held without probable
cause for the offense of child stealing. Having been committed by the Justice's Court of
Compton Township June 1, 1944, she was duly accused by the district attorney under
information filed in the superior court. Pursuant to motion under section 995, Penal Code,
the accusation was dismissed on the ground that the transcript of the evidence taken
before the justice of the peace did not contain evidence or inferences that defendant had
violated the code section under which she was accused.
The statute which denounces child stealing reads as follows: "Every person who
maliciously, forcibly, or fraudulently takes or entices away any minor child with intent to
detain and conceal such child from its parent, guardian, or other person having lawful
charge of such child, is punishable by imprisonment in the state prison not exceeding
twenty years." (Pen. Code, § 278.)
[1] While concededly no force was employed by defendant to take away the boy of 14
years, yet a careful scrutiny of the unfolded record exposes substantial evidence that she
was activated by malice or moved by fraudulent design in enticing him away with intent
to detain and conceal him. Such proof required determination by a trial on the facts. This
decision is not intended as a holding that the young woman is guilty as alleged but rather
to uphold the thesis tht an information alleging a felony should be tried before the
tribunal created for the purpose of determining the guilt or innocence of a person so
accused, if the examining trial developed evidence which might be reasonably interpreted
as proof of guilt. That an analysis of the evidence fairly shows that there was reasonable
cause for holding that defendant [67 Cal.App.2d 206] maliciously or fraudulently enticed
the boy away with intent to detain and conceal him from his parents, should readily
appear.
Defendant is twenty-one years of age. Prior to April 28, 1944, she resided in Compton,
some ten miles south of Los Angeles, where she was known as Elaine Ludlam. She had
two children, ages two years and eight months, respectively, by different fathers. She had
never been married but was living with a man in her home. Some three months prior to
April 28 she formed the acquaintance of Ellsworth Wisecarver, fourteen years of age,
who lived at Compton with his parents. During that period he frequented her abode.
About April 21 Ellsworth confided to his mother that he desired to marry defendant; that
he did not love Elaine but that if he married her he would not have to attend school. His
mother expressed astonishment at his suggestion that he wished to marry an illegitimate
mother. She urged the folly of a boy of fourteen entering into a matrimonial alliance and
promised that he might visit his relatives at Oroville at the expiration of the school term.
Immediately following her conversation with Ellsworth, in company with her daughter,
age nineteen, Mrs. Wisecarver called upon defendant and demanded to know of her why
she was running around with "Sonny," as her child was familiarly known. She virtually
accused the woman of having the boy in hiding and admonished her to send him home
immediately. His arrival at the homestead was not then delayed.
Subsequent happenings were without the knowledge of Mrs. Mildred Wisecarver who
appears to have exercised the parental authority. On the evening of April 28 defendant
left her two children at the home of her mother, Mrs. McEntee, in Los Angeles, and in her
own automobile accompanied by Ellsworth and one Fred Adams called at the home of
one Loella, a sixteen-year-old girl of Compton, and the four departed for Yuma, Arizona.
Ellsworth was penniless. Although Elaine was practically without funds on arrival at their
destination she financed the journey. On the way to and at Yuma she wired her mother of
her need of funds and of her intention to marry Ellsworth. Also, she advised her friends
Loella and Fred Adams that she and the boy were going to be married. She thereupon
wrote a letter to the clerk consenting to the marriage of Ellsworth Wisecarver to Elaine
Ludlam and signed the name of Mildred Wisecarver. Upon arrival at Yuma on the
evening of the 29th both couples procured [67 Cal.App.2d 207] licenses from the clerk
of the court and both were married before the same justice of the peace. The Adams
couple returned by bus to Los Angeles after defendant had notified them that she and
Ellsworth were going to "Delaware."
For two weeks following April 28 the Wisecarver parents had no knowledge of the
whereabouts of their child. At no time had they consented to his marriage or to his
departure from the state. Although Elaine communicated her plans and movements to her
own mother and by letter advised her friend, Martha Lambert of Compton, admonishing
the latter not to say anything to "you know who," yet she did not communicate with
Mildred Wisecarver who had forbidden the marriage. She furnished transportation, paid
all expenses on the way to Yuma, purchased the license and paid all bills at hotel and
cafe. Following the marriage she procured a loan on her automobile and, financed with
the funds thus acquired, with the child she proceeded on her way to Denver. At no time
did Ellsworth communicate with his parents, and a jury might readily infer that his failure
to keep them aware of his whereabouts was due to the directions of Elaine. Their trip to
Denver was Elaine's choice. Her father resided there.
It was defendant's contention before the court below, and evidently the theory of the trial
judge, that because Ellsworth proposed marriage to defendant and willingly accompanied
her to Arizona defendant could not guilty of the offense charged. But the statute does not
confine the act of child stealing to a forcible taking away. From the reproving words of
Mildred Wisecarver, spoken to Elaine on April 21, it would not violate the rules of logic
for a jury to infer that malice had envenomed the heart of the rebuked woman and
inspired her to seek retribution.
[2] However, the fraud feature of the statute affords a richer reservoir of fact from which
reasonable inferences might warrant a verdict of guilty. The word "fraudulently" as used
in the statute is all-encompassing. It includes all surprise, trick, cunning, dissembling and
unfair ways by which another is deceived. (People v. Simmons, 12 Cal.App.2d 329 [55
P.2d 297].) [3] Fraud may be committed by declaring to be true that which the declarant
does not believe to be true; by suppressing a fact which he is bound to disclose; or by
making a promise without any intention of performing it. (Civ. Code, § 1710; Wells v.
Zenz, 83 Cal.App. 137, 140 [256 P. 484].) Moreover, any act fitted to deceive is actual
fraud. (Civ. Code, § 1572.) [4] As proof of the [67 Cal.App.2d 208] fraud on the part of
the accused the court should consider the conduct of the parties together with all the
circumstances before and after the act complained of. (People v. Annunzio, 120 Cal.App.
89, 94 [7 P.2d 739].)
When Mrs. Wisecarver remonstrated with Elaine against the latter's encouraging
Ellsworth in the thought of marriage, defendant disclaimed such intention and, probably,
in order to mislead and deceive the mother, stated to Mrs. Wisecarver that she was
provoked at the things the boy had said about her. Neither did she offer to bid his mother
farewell nor suggest that the boy do so. On the contrary she chose the darkness of night to
envelop her movements as she hastily sought security from detection in another
jurisdiction. [5] Also, her preparation and forgery of the note of consent; her placing it in
the hands of Ellsworth to be used; her suggesting that he present it to the clerk as a
genuine document: these acts are the insignia of fraud. Indeed, they are a fraud. They
were conceived for the purpose of enabling defendant to conceal and detain the child
away from his home and from the nurture and protection of his natural guardians. Her
failure to do any of them would have frustrated the accomplishment of her reprehensible
act to which she was committed. She knew that the lad could not be married in California
because of legal barriers. She knew that he could not wed in Arizona unless she
committed a felony to procure a license. She did not hesitate at an act involving moral
turpitude to achieve her unworthy aim.
Defendant's argument proceeds upon the theory that the accusation is groundless because
of the testimony of Ellsworth Wisecarver that he had proposed the marriage and that he
had suggested the flight to Arizona. But his word does not spell finality. There is no halo
about the head of an infant who rebels at normal discipline, hates his school, defies
parental authority, prefers the society of a wayward woman, scorns public opinion and
moral law, and finally utters a forged instrument to gain his ends. No reason appears why
a jury should believe his story as against reasonable inferences that might be drawn from
other evidence.
[6] That he may have accompanied defendant of his own volition is immaterial. (People
v. Munos, 84 Cal.App. 6, 9 [257 P. 549]; People v. Torres, 48 Cal.App. 606, 608 [192 P.
175].) The purpose in the mind of defendant is the factor that determines her moral
turpitude, if any. [7] The crime of child stealing might be found to have been complete
[67 Cal.App.2d 209] the moment defendant transported Ellsworth from the environs of
his home with intent to detain and conceal him from his parents. (People v. Casagranda,
43 Cal.App.2d 818 [111 P.2d 672]; People v. Mohr, 24 Cal.App.2d 580 [75 P.2d 617];
People v. Smith, 17 Cal.App.2d 468 [62 P.2d 436]; People v. Palmer, 50 Cal.App.2d 697
[123 P.2d 882].) The situation of defendant is not unlike that of one Gillispie who was
accused under similar circumstances. (104 Cal.App. 765 [286 P. 502].) The fifteen-year-
old daughter of the complainant there willingly left her mother's home about seven
o'clock in the evening. Having pretended that he was accompanying the girl to a party at
a neighboring home, the man drove her to Nevada where they were married, thence to the
State of Utah. They subsequently made their home in Oregon until the girl was returned
to her mother and defendant was convicted of having fraudulently enticed her away with
intent to detain and conceal her from her parent. That case demonstrates that there was
good cause for denying the motion under section 995 to dismiss the information by
reason of the fact that there was probable cause for her commitment. If there was
reasonable cause for her commitment the motion should have been denied. [8] "Probable
cause" is a state of facts which inclines a man of ordinary prudence conscientiously to
entertain a strong suspicion that a prisoner is guilty. (People v. Novell, 54 Cal.App.2d 621
[129 P.2d 453]; In re McCarty, 140 Cal.App. 473 [35 P.2d 568].)
It follows that upon the hearing of the motion to dismiss, the court was not required to
determine whether the evidence is sufficient to convict, but only whether the prisoner
should stand trial. [9] In a criminal action the sovereign has the same right to have the
truth of its accusation against the defendant determined by a trial court to the same extent
and in the same degree as has the accused. (People v. Stoll, 143 Cal. 689, 696 [77 P. 818];
People v. Pruitt, 55 Cal.App.2d 272, 275 [130 P.2d 767]; People v. Borrego, 211 Cal. 759,
765 [297 P. 17].) It is as much a technical breach of the rules of procedure to deny the
People a trial upon an information based upon such facts as might reasonably convince a
jury of defendant's guilt as it would be to convict a defendant upon the mere filing of an
indictment. [10] It is the duty of the magistrate to commit the accused "if it appears from
the examination that a public offense has been committed." The question of guilt is
utterly one for the determination of the superior court. (Pen. Code, § 872.) [67
Cal.App.2d 210]
[11] The contention that there is no appeal by the People from an order dismissing an
information under section 995 is without support. Penal Code, section 1238, was
amended in 1935 in order to allow such appeal. Its language is clear and concise in
declaring: "An appeal may be taken by the people: (1) From an order setting aside the
indictment, information, or complaint; ..." This statute is not inconsistent with a number
of decisions by the Supreme Court of the United States in holding valid a similar statute
by the Congress. (United States v. Bitty, 208 U.S. 393 [28 S.Ct. 396, 52 L.Ed. 543];
United States v. Heinze, 218 U.S. 532 [31 S.Ct. 98, 54 L.Ed. 1139]; Taylor v. United
States, 207 U.S. 120 [28 S.Ct. 53, 52 L.Ed. 130].)
Judgment reversed with instructions to deny the motion.
Wood (W. J.), J., and McComb, J., concurred.
R. D. Reeder Lathing Co. v. Cypress Ins. Co. (1970) 3

Cal.App.3d 995 , 84 Cal.Rptr. 98
[Civ. No. 33828. Court of Appeals of California, Second Appellate District, Division
Five. January 28, 1970.]
R. D. REEDER LATHING CO., INC., Plaintiff and Appellant, v. CYPRESS
INSURANCE COMPANY et al., Defendants and Respondents
(Opinion by Stephens, J., with Kaus, P. J., and Reppy, J., concurring.)
COUNSEL
Mantalica, Barclay & Teegarden and Lewis C. Teegarden for Plaintiff and Appellant.
McConnell & Cramoline and Carl G. Cramoline for Defendants and Respondents. [3
Cal.App.3d 997]
OPINION
STEPHENS, J.
Plaintiff appeals from an order of dismissal entered after defendants' demurrer was
sustained without leave to amend.
Plaintiff's complaint alleged the following facts:
Defendant John Sutherland, the agent and employee of defendant Cypress Insurance
Company, intending to deceive plaintiff and induce it to take out a policy of workmen's
compensation insurance with defendant insurance company, falsely and fraudulently
represented to plaintiff that at the end of the insurance year the defendant insurance
company would rebate to plaintiff all of the premiums paid by plaintiff during the year
October 1, 1965, through September 30, 1966, less 32 percent thereof for administration
costs and less incurred losses. At the time defendant Sutherland made these
representations, he was an experienced insurance agent and knew the provisions of the
laws of the State of California relating to insurance. He knew that an agreement to refund
premiums based on any formula other than a participating dividend payable out of
surplus and based on defendant insurance company's overall experience on workmen's
compensation policies during the policy year after adequate provision had been made for
all losses, loss expenses, reserves, taxes and other charges was in violation of law and not
permitted by the provisions of the Insurance Code of the State of California. fn. 1 [3
Cal.App.3d 998]
Defendant Sutherland also knew, and plaintiff did not, and had no way of knowing, that
circular #307 issued by the California Inspection Rating Bureau provided that no policy
would be approved which by either its original terms, or any endorsement or amendment,
letter or otherwise, agreed upon a specified overhead expense for the purpose of dividend
computation. During the year October 1, 1964, through September 30, 1965, and for three
years prior thereto plaintiff was insured under workmen's compensation insurance
policies issued by Pacific Employers Insurance Company. Plaintiff believed and relied
upon the representations of defendant Sutherland and was thus induced to take out a
policy of workmen's compensation insurance with defendant insurance company and paid
insurance premiums in the amount of $14,760.62.
The president of the corporate plaintiff, to whom the representations were made, is a
lathing contractor, ignorant of the provisions of law relating to insurance, and, because of
defendant Sutherland's superior knowledge, relied on the latter's representations. Except
for these representations, plaintiff would have continued to obtain insurance from Pacific
Employers Insurance Company. After October 1, 1966, defendant insurance company
paid plaintiff a participating dividend of $2,509.31. If defendant Sutherland's
representations had been true, plaintiff's participating dividend would have been
$8,590.22. Had plaintiff remained with Pacific Employers Insurance Company for the
year October 1, 1965, through September 30, 1966, it would have received a participating
dividend of $6,333.78. Plaintiff therefore sought the sum of $3,824.47, the difference
between what it did receive from defendant insurance company and what it would have
received from Pacific Employers Insurance Company plus $20,000 in exemplary
damages.
In sustaining defendants' demurrer without leave to amend, the court below indicated that
it relied heavily upon the case of Key System Transit Lines v. Pacific Employers Ins. Co.,
52 Cal.2d 800 [345 P.2d 257], cited by defendants. In that case the plaintiff sought to
reform a policy of workmen's compensation insurance in accordance with representations
of the company and then enforce that contract as reformed. In the case of Contractor's
Safety Assn. v. California Comp. Insurance Co., 48 Cal.2d 71 [307 P.2d 626], also cited
by defendants, the plaintiff sued on a policy of [3 Cal.App.3d 999] workmen's
compensation insurance and sought the difference between what it would have received
had the defendant performed in accordance with representations and the amount it did
receive. In each case the court determined that plaintiffs were seeking to recover illegal
rebates, and recovery was denied.
Neither of these decisions is applicable to the instant case. Plaintiff is not seeking to
enforce an illegal contract, but rather to recover damages suffered when defendants
fraudulently induced it to enter into the illegal transaction. If plaintiff were suing upon the
illegal contract, it would be asking for the sum of $6,080.91, the difference between what
it received and what defendant insurance company was obligated to pay under the
contract. Instead, it seeks to recover, in damages, the difference between what it did
receive and what it would have received had it not been fraudulently induced to cancel its
coverage with Pacific Employers Insurance Company and insure with defendant
insurance company. In the cases cited by defendants, the plaintiffs had suffered no
damage apart from their failure to receive the promised illegal rebates. The court's
statement in the Contractor's Safety Assn. case is instructive: "The third count though
phrased in the language of fraud is clearly based upon breach of contract. The injury thus
complained of is the refusal of the defendant to perform the contract. No compensatory
damages are sought because of the alleged fraud." (48 Cal.2d 71 at p. 77.)
[1] Since plaintiff's complaint sounds in tort rather than contract, its sufficiency must be
tested by the general rules of tort law. So tested, it adequately states a cause of action for
fraud and deceit. [2] A plaintiff may recover for fraud when he shows that by reason of a
defendant's misrepresentations he has sustained some pecuniary damage or injury by
reason of having been put in a position worse than he would have occupied had there
been no fraud. (Fowler v. Fowler, 227 Cal.App.2d 741 [39 Cal.Rptr. 101].) [3] A right of
action accrues when a person is induced to enter into contract by means of fraudulent
misrepresentations. (37 C.J.S., Fraud, § 41; see also, Pickens v. American Mortgage
Exchange, 269 Cal.App.2d 299 [74 Cal.Rptr. 788].)
[4] Contrary to defendants' argument, the purposes of Insurance Code sections 750, 751
and 752, prohibiting illegal rebates, would not be just as clearly frustrated if recovery
were permitted on a theory of fraud as they would if recovery were allowed on the basis
of breach of contract. As indicated, plaintiff is not seeking to recover what was promised
it under the contract. To permit it to recover under its fraud action would not in substance
or effect enforce the terms of the original illegal agreement. (Cf. Del Rey Realty Co. v.
Fourl, 44 Cal.App.2d 399 [112 P.2d 649].) [3 Cal.App.3d 1000] Rather, by imposing
damages upon defendants, the sales argument by insurance companies of what to them
are known to be illegal rebate plans to attract new customers would be discouraged. The
purposes of the law would be served rather than frustrated.
Kaus, P. J., and Reppy, J., concurred.
FN 1. The applicable Insurance Code sections read as follows:
Section 750: "An insurer, insurance agent, broker, or solicitor, personally or by any other
party, shall not offer or pay, directly or indirectly, as an inducement to insurance on any
subject-matter in this State, any rebate of the whole or part of the premium payable on an
insurance contract, or of the agent's or broker's commission thereon, and such rebate is an
unlawful rebate."
Section 751: "An insurer, or any insurance agent, broker, or solicitor, personally or
otherwise, shall not offer or pay, directly or indirectly, as an inducement to enter into an
insurance contract, any valuable consideration which is not clearly specified, promised or
provided for in the policy, or application for the insurance, and any such consideration
not appearing in the policy is an unlawful rebate."
Section 752: "Any person named as the insured in any policy or named as the principal,
or obligee, in any surety policy or the agent or representative of any such person who,
directly or indirectly, knowingly accepts or receives any unlawful rebate is guilty of a
misdemeanor."
Section 763: "The following acts are not unlawful rebates:
"(a) The return by an insurer issuing policies on a participating plan, or [of] any portion
of the premium as a dividend after the expiration of the term covered by such policy."
Section 11736: "An insurer shall not issue, renew or continue in force any workmen's
compensation insurance under a law of this State at premium rates which are less than the
rates approved or issued by the commissioner. The effective date of such rates shall be
the date fixed by the commissioner."
Section 11738: "Nothing in this article shall affect the right of any insurer to issue
compensation participating policies. A refund by reason of a participating provision in a
compensation policy shall not be made to policyholders by any insurer except from
surplus accumulated from premiums on workmen's compensation policies issued
pursuant to laws of this State governing workmen's compensation insurance."
"Participating" refers to the right to share in earnings and does not refer to the price paid
for insurance. Where a dividend agreement is not one to share profits, the dividend
cannot be said to be "participating." (Contractor's Safety Assn. v. California Comp.
Insurance Co., 48 Cal.2d 71 [307 P.2d 626].)
Zee Medical Distributor Assn. Inc. v. Zee Medical, Inc.

(2000) 80 Cal.App.4th 1 , 94 Cal.Rptr.2d 829
[No. A086721. First Dist., Div. One. Apr. 21, 2000.]
ZEE MEDICAL DISTRIBUTOR ASSOCIATION, INC., Plaintiff and Appellant, v. ZEE
MEDICAL, INC., Defendant and Respondent.
(Superior Court of the City and County of San Francisco, No. 300399, David A. Garcia,
Judge.)
(Opinion by Marchiano, J., with Stein, Acting P. J., and Swager, J., concurring.)
COUNSEL
Neuberger, Quinn, Gielen, Rubin & Gibber, Allan P. Hillman, Nathan D. Adler; Bartko,
Zankel, Tarrant & Miller, Ralph J. Sutton and Howard L. Pearlman for Plaintiff and
Appellant.
Latham & Watkins, Charles S. Treat, Peter J. Wilson and James L. Day for Defendant and
Respondent. [80 Cal.App.4th 3]
OPINION
MARCHIANO, J.-
Zee Medical Distributor Association, Inc. (Association) appeals from a judgment of
dismissal of its declaratory relief action against respondent Zee Medical, Inc. (Zee). The
superior court entered the judgment after granting Zee's motion for summary adjudication
on the key cause of action of the Association's complaint, ruling that the distribution
agreements between Zee and its distributors had express terms of duration and were
terminable only on the grounds for termination set forth in the agreements. The
Association contends that the agreements did not have express terms of duration and
were therefore terminable at will. We disagree and affirm because the parties themselves
in their written contract agreed to the duration of their relationship, making it terminable
for cause when specified conditions or events occur.
I. Facts
The parties have stipulated to the pertinent facts. Zee is a leading provider of
occupational first aid and safety products and services, and has a national network of
approximately 57 distributors. These distributors, all of whom belong to the Association,
are the exclusive distributors of hundreds of Zee products and services in their respective
assigned territories. Many of the distributors have invested substantial time, effort and
money in developing their distributorships and their customer bases. The distributors own
their customer lists, which are not available to Zee except for very limited, and apparently
noncommercial, uses.
The relationship between Zee and each of its distributors is governed by a distribution
agreement, which currently exists in three versions. Two versions of the agreement,
apparently first used in the 1980's, are substantially the same. In seven pages of
considerable detail, the agreements set forth the exclusivity of the distributorship, the
duties of the distributor and Zee, and the goals of the distributorship expressed in terms of
the amount of Zee products and services distributed in a given year. Paragraph IX of the
two distribution agreements is entitled "Termination" and provides as follows: fn. 1
"A. Term. This Agreement shall continue until terminated as follows:
"1. Either Party. Either party by giving notice to the other may terminate this Agreement
effective upon the effective date of notice (a 'Termination [80 Cal.App.4th 4] Notice') in
the event (1) the other makes an assignment for the benefit of its creditors or is the
subject of a bankruptcy proceeding involving a reorganization which is not terminated
within thirty (30) days following its commencement; or (2) of the default by the other of
any obligation under this Agreement. A default shall (a) be deemed not to have taken
place until thirty (30) days following notice of default from the other and if the default
cannot reasonably be cured within such thirty (30) days but the cure has been commenced
and completed within ninety (90) days it shall not be deemed a default and (b) not be
asserted for failure to pay an invoice until that invoice is due.
"2. Zee. Zee, by giving a Termination Notice to Distributor, may terminate this
Agreement effective upon the effective date of the notice in the event (1) the successor of
a deceased or adjudicated incompetent individual who owns twenty percent (20%) or
more of the Distributor, is unacceptable to Zee; a successor shall be deemed unacceptable
if he has not had two years' business experience within the last ten (10) years, is not
eighteen (18) years of age, has been convicted of a non-traffic crime, is incompetent or
has a poor credit rating; a successor who already owns twenty percent (20%) of the
Distributor and is active in the business shall automatically be deemed acceptable;
"(2) Distributor attempts to assign this Agreement or any right hereunder or an owner of
an interest in Distributor attempts to assign that interest without the written consent of
Zee, which consent Zee agrees not unreasonably to withhold; Zee shall consent to an
assignment to a person that then owns twenty percent (20%) of Distributor and is active
in the business;
"(3) Distributor does not achieve a New Goal."
The two distribution agreements define a "New Goal" as the goal set by the distributor
and Zee for the upcoming year when the distributor has failed to meet its goal for the
previous year. The agreements further provide that if Zee gives the distributor a
termination notice, the distributor may sell its business—but Zee reserves the right of first
refusal.
The third version of the distribution agreement is the most current, is even more detailed,
and is 15 pages long. The agreement devotes over seven pages to recitations of the
respective duties of Zee and the distributor, the description of the distributor's territory,
and the distributor's goals. Paragraph 10 is entitled "Term" and provides that "The term of
this Agreement shall commence on the date first written above (the 'Effective Date'), and
shall continue until it is terminated in accordance with the provisions of this [80
Cal.App.4th 5] Agreement." Paragraph 12, entitled "Termination of Agreement," lists
numerous detailed grounds for termination. Subdivision (a) of paragraph 12 provides for
the termination of the agreement by either party:
"Either party has the right to terminate this Agreement on written notice to the other,
effective on the date of delivery of such notice, if
"(i) the other shall take any action in respect of liquidation or winding up, or make an
assignment for the benefit of creditors or be unable to pay its debts as they become due,
or make any proposal or assignment under a bankruptcy legislation of any applicable
jurisdiction, or if a bankruptcy petition is filed or presented by it in respect of its
properties or assets, or a judgment or order shall be entered by any court of competent
jurisdiction approving such petition or any petition by it seeking an arrangement or
composition in respect of it or its debts or obligations, or if a custodian or receiver and
manager or any other official of similar powers be appointed for it or a substantial portion
of its undertaking, property or assets;
"(ii) a bankruptcy or other similar petition with respect to the bankruptcy, insolvency or
other enforced liquidation of the other is presented or filed against it, provided, however,
that in the case of any involuntary proceeding, the party against whom it is filed shall
have sixty (60) days to obtain dismissal of the proceeding, or the equivalent of dismissal,
before the other party may terminate this Agreement because of the filing of such
proceeding;
"(iii) the other shall cease or threatens in writing to cease to carry on in the ordinary
course of business or a substantial part thereof; or
"(iv) the other defaults in the performance of any material obligation hereunder, which
default is not cured within thirty (30) days following notice of such default from the other
or within such additional time, in no event to exceed ninety (90) days, as may reasonably
be required, provided steps to rectify such default have been commenced within the first
thirty (30) days following notice of default."
Subdivision (b) of paragraph 12 lists numerous grounds for termination of the agreement
by Zee: the severe financial impairment of the distributor; its default in payment or
performance; unauthorized consolidation, merger or other disposition of all or
substantially all of the distributor's assets; a material change of the distributor's ownership
without Zee's consent; unauthorized direct competition with Zee products; unauthorized
assignment or attempted assignment of the agreement; conviction of a crime; diversion of
a [80 Cal.App.4th 6] customer or prospective customer to a Zee competitor; materially
misrepresenting the distributor's performance to Zee; sale or transfer of all or
substantially all of the distributor's assets without Zee's consent; and death or
incapacitation of the distributor. fn. 2
The parties agree that these provisions of the three distribution agreements are not
ambiguous.
For reasons not clear in the record, various Zee distributors began to contemplate the
termination of their distribution agreements with Zee. A dispute arose over the
terminability of the agreements, with the distributors contending the agreements are
terminable at will and Zee contending they can only be terminated for cause.
The Association filed an action for declaratory relief against Zee, seeking a declaration
that the agreements are terminable at any time with reasonable notice. The first cause of
action of the complaint alleges the agreements are contracts with no stated duration and
thus are terminable at will; the second cause of action alleges that 30 days constitutes
reasonable notice. On the stipulated facts and the texts of the agreements, the parties filed
cross-motions for summary adjudication on the first cause of action. While the
Association contended the agreements are terminable at will, Zee contended the
agreements have a stated term of duration because they recite that they "shall continue"
until termination on the grounds set forth therein. The parties agreed not to submit for
summary adjudication the issue of what constitutes reasonable notice, raised by the
second cause of action.
The superior court granted Zee's motion and denied the Association's, ruling there was no
triable issue of material fact on the first cause of action: "[U]nder California law and the
clear language of the contracts, the Court determines and declares that the parties to these
contracts may terminate them only in accordance with the contracts' express and
exclusive specification of grounds for termination, and that the parties have agreed that
the contracts 'shall continue' until such grounds arise." The parties stipulated that the
ruling on the first cause of action made the second one moot, and that a final judgment
could accordingly be entered. The court entered a final judgment dismissing the
complaint, and declaring the distribution agreements were of a stated duration because
they "shall continue" until termination in accordance with the express contractual grounds
therefor. [80 Cal.App.4th 7]
II. Discussion
[1a] The Association contends the distribution agreements lack an ascertainable event
triggering the end of their terms of duration, and are thus contracts without express terms
of duration and therefore are terminable at will. However, the admittedly unambiguous
distribution agreements, construed in the light of established California law, are contracts
with an express term of duration and terminable only for cause.
California cases have long recognized that a contract may, by its express terms, provide
for a term of duration of indefinite length and without specific limitation, tied not to the
calendar but to the conduct of the contracting parties. For instance, in Great Western etc.
v. J.A. Wathen D. Co. (1937) 10 Cal.2d 442 [74 P.2d 745], our Supreme Court held that
"[t]he failure to specifically limit the duration of the contract did not fatally affect it and
did not give rise to a right to terminate the contract at will without a liability for
damages." (Id. at pp. 446-447.) The court upheld as valid an express term of duration that
the contract, apparently a post-Prohibition agreement for the distribution of distilled
spirits, remain in effect " 'as long as the plaintiff purchases and continues to purchase
from the defendant all of its John A. Wathen Distillery Company warehouse receipts for
whiskey ... .' " (Id. at pp. 444, 447, italics added.) The court cited with approval Noble v.
Reid-Avery Co. (1928) 89 Cal.App. 75, 77-78 [264 P. 341], upholding an express term of
duration that a distribution contract continue "as long as" plaintiff-distributor was able to
faithfully perform its contract obligations. (Great Western, supra, "10 Cal.2d at p. 447.)
Similarly, in Long Beach Drug Co. v. United Drug Co. (1939) 13 Cal.2d 158 [88 P.2d
698], the Supreme Court upheld an express but indefinite term of duration, tied to the
performance of the parties, in a contract for the exclusive distribution of Rexall drug
products: "While the agreement here does not state a definite term, it is not wholly silent
with respect to its duration. It provides that the exclusive selling right of plaintiff is to
endure so long as plaintiff 'shall perform the terms of this agreement'; that is, so long as
plaintiff shall ... 'uphold all of the products' of defendant to the full list retail prices,
confining the sale thereof to its 'own retail store and to consumers only'. Provisions such
as this for the duration of an agreement are sufficiently certain and have frequently been
declared valid." (Id. at p. 165.)
Almost 20 years later, a Court of Appeal, citing these two Supreme Court cases,
concluded, "The general California rule appears to be that a contract is not fatally
defective merely because it does not specify a time presently [80 Cal.App.4th 8] definite
for its termination [citation]. The rule is that if the contract is to remain in effect so long
as one continues to perform or act in a certain manner ... the agreement is sufficiently
certain to be vital. [Citations.]" (Zimco Restaurants v. Bartenders Union (1958) 165
Cal.App.2d 235, 237-238 [331 P.2d 789].)
Shortly thereafter, two more Courts of Appeal reached the same conclusion. In Mangini
v. Wolfschmidt, Ltd. (1961) 192 Cal.App.2d 64 [13 Cal.Rptr. 503], the court observed that
an express provision that the contract shall continue as long as the plaintiff performed
was valid, and that the contract was not terminable at will but only for cause. (Id. at pp.
73-75.) In Burgermeister Brewing Corp. v. Bowman (1964) 227 Cal.App.2d 274 [38
Cal.Rptr. 597], the court observed that the contract between the parties "creat[ed] a beer
distributorship for an expressly agreed-upon term, to wit: as long as Bowman [the
distributor] should continue to use his best efforts to promote and solicit the sale of the
brewery's products and 'took care of the territory'... ." (Id. at p. 277.) The Burgermeister
court held this contract was not terminable at will. (Ibid.)
Against this backdrop Consolidated Theatres, Inc. v. Theatrical Stage Employees Union
(1968) 69 Cal.2d 713 [73 Cal.Rptr. 213, 447 P.2d 325], which the parties agree is the
preeminent authority here, entered the stage. In Consolidated Theatres the Supreme Court
implicitly acknowledged the rule that a contract could expressly provide for continued
performance, fn. 3 then discussed the consequences of its failure to do so. "In construing
contracts which call for continuing performance or forbearance but which contain no
express term of duration, it is first necessary to determine whether the intention of the
parties as to duration can be implied from the nature of the contract and the circumstances
surrounding it. [Citations.] Thus, in some cases the court by referring to the nature of the
contract and the totality of [80 Cal.App.4th 9] circumstances is able to determine that the
obligations of the contract were impliedly conditioned as to duration upon the occurrence
or nonoccurrence of some event or situation." (Consolidated Theatres, supra, "69 Cal.2d
at p. 725.) "California courts have not hesitated" to imply an ascertainable term of
duration when reasonably possible. (Id. at p. 727.)
Results, of course, vary due to the circumstances and context of the contract. The 1968
Consolidated Theatres decision involved construction of a 1931 labor agreement, with no
express term of duration, for the employment of stagehands for live stage performances
in certain San Francisco movie theaters. From the nature of the contract and its
surrounding circumstances, the court implied a term of duration defined by the lifespan of
the practice of holding live performances. The court then observed that "the factual and
social context obtaining at the time of the 1931 agreement was vastly different from that
obtaining 30 years later." (Consolidated Theatres, Inc. v. Theatrical Stage Employees
Union, supra, "69 Cal.2d at pp. 717, 729.) When executed, the contract assumed the
showing of motion pictures would be interspersed with live performances requiring the
services of stagehands. By 1968 there was "no such possibility" because the "theatres
have for many years engaged exclusively in the showing of motion pictures and all
facilities for the giving of live performances have been removed therefrom." (Id. at p.
730.) Like Othello, the stagehand found his "occupation's gone" fn. 4 —thus, there could
no longer be a contract for his services. The 1931 contract "was impliedly conditioned as
to duration upon the continued possibility of live stage presentations at Consolidated's
theatres, and ... the disappearance of that possibility with the passage of time terminated
all obligations under the contract." (Consolidated Theatres, supra, at p. 730, fn. omitted.)
Similarly, Zimco Restaurants involved a labor contract, apparently of no express
duration, with employees of drive-in restaurants. The court declined to imply an intention
of an indefinite duration; writing in 1958 with an astute prescience, the court noted "It is
difficult to conceive that parties dealing with the business of drive-in restaurants intended
a contract to last forever. The history of technological developments ... in the organization
of American industry has produced a modern miracle where change, not perpetual status,
is the order of the day." (Zimco Restaurants v. Bartenders Union, supra, "165 Cal.App.2d
at p. 239.) fn. 5
However, time and technological change are not always determinative. Zinn v. Ex-Cell-O
Corp. (1957) 148 Cal.App.2d 56 [306 P.2d 1017], involved a detailed agreement for the
distribution of milk machines. The court [80 Cal.App.4th 10] implied from the nature of
the agreement and its circumstances that the parties intended a permanent contract
terminable only for cause—the distributor could continue acting as such "as long as it
performed the terms of the contract and the objects and purposes of the agreement could
be served." (Id. at p. 73.) Among other factors, "[t]he very nature and size of the
undertaking which burdened [the distributor] once [it] executed the agency contract
indicates that there was no intention that it should be terminable at will." (Id. at p. 74.)
"Otherwise, plaintiffs could be denied the fruits of their labors even on the threshold of
success. Equitable principles would prohibit such an oppressive result." (Ibid.)
[2] Consolidated Theatres also discussed the consequences of a contract having neither
an express nor an implied term of duration. When there is no express term, and the
surrounding circumstances and the nature of the contract do not permit the construction
of the contract to have an ascertainable term of duration, the contract is usually construed
as terminable at will after a reasonable time of duration has elapsed. (Consolidated
Theatres, Inc. v. Theatrical Stage Employees Union, supra, "69 Cal.2d at pp. 727-728.)
Thus, Consolidated Theatres establishes a three-step analysis of contractual terms of
duration. The court first seeks an express term. If one is absent, the court determines
whether one can be implied from the nature and circumstances of the contract. If neither
an express nor an implied term can be found, the court will generally construe the
contract as terminable at will. (Id. at p. 727.)
[1b] The parties here differ only in which step they believe applies to the distribution
agreements. Zee contends we may stop at the first step because the agreements have
express terms of duration. The Association, with some suggestion that the agreements
smack of purportedly disfavored perpetual contracts, argues that we must reach the third
step and find the agreements terminable at the will of either party. Zee's position is
correct.
The plain, unambiguous language that the contract "shall continue" until grounds arise for
termination is a valid, express contractual term of duration similar to that upheld in Great
Western, Noble, and Long Beach Drug Co. The contracting parties agreed in those cases
that the contracts would continue as long as the parties performed. Since nonperformance
constitutes breach, a contract that lasts so long as the parties perform their obligations
necessarily continues until breach and the corresponding right to terminate the contract.
We conclude that under controlling decisions of the California [80 Cal.App.4th 11]
Supreme Court, such express contractual terms for indefinite periods of time are valid in
this state. fn. 6
Furthermore, the detailed intricacies of the termination provisions in the Zee distribution
agreements clearly indicate the parties did not contemplate termination at will. For
instance, time and again the distribution agreements preclude termination if a default
under the agreement is cured in the detailed manner set forth by the agreement. Also, a
distributor cannot suffer termination for one year of poor sales, but must be given another
year and a chance to meet a "New Goal." These provisions are inconsistent with at-will
termination. We must presume that the provisions of these negotiated, nonadhesion
contracts were agreed upon by parties who clearly contemplated a long-term, mutually
beneficial symbiotic relationship. These are not contracts of casual employment or the
mundane commerce of fungible goods. Zee and its distributors rely on the constancy of
their interrelationships; clearly those relationships would be easily eliminated if the
distribution agreements were terminable at will, and clearly the parties did not so
contemplate. Moreover, the terms of the agreements protect the Association from
arbitrary termination by Zee where even reasonable notice may be an inadequate
substitute for the sweat and capital investment of a distributor.
The Association insists, however, that the contracts are terminable at will, on the premise
that an express term of duration cannot be grounded in provisions for breach or
termination—i.e., that "a provision for breach does not transform a contract without a
term into one with a term." The Association relies heavily on Trient Part. I Ltd. v.
Blockbuster Entertainment (5th Cir. 1996) 83 F.3d 704, and Jespersen v. Minnesota Min.
& Mfg. Co. (1998) 183 Ill.2d 290 [233 Ill.Dec. 306, 700 N.E.2d 1014], which held that
contracts purporting to last "indefinitely" until terminated by breach, or the occurrence of
contractual grounds for termination, were terminable at will. The short answer to the
Association's contention is found in Auto Equity Sales, Inc. v. Superior Court (1962) 57
Cal.2d 450 [20 Cal.Rptr. 321, 369 [80 Cal.App.4th 12] P.2d 937]: Express indefinite
contractual terms of duration for so long as the parties perform, i.e., until conditions for
breach or termination arise, have been approved by our Supreme Court. We are not
permitted to rule to the contrary. The long answer is that neither Trient nor Jespersen
would lead us to a different result in this case.
Trient was decided under Texas law, which the Trient court claimed does not recognize
express but indefinite contractual terms of duration. (Trient Part. I Ltd. v. Blockbuster
Entertainment, supra, 83 F.3d at pp. 708-709, & fns. 10-15; see Clear Lake City Water
Auth. v. Clear Lake Util. (Tex. 1977) 549 S.W.2d 385, 390-392.) This led the Fifth Circuit
to conclude that a distribution contract that was to "continue indefinitely," until
terminated by breach, was terminable at will. (Trient, supra, 83 F.3d at p. 709.) As we
have noted, California law is to the contrary. The Fifth Circuit also "... 'does not favor
perpetual contracts' and 'presumes that [any such] contract is terminable at will.' " (Id. at
p. 708, quoting Delta Services and Equipment v. Ryko Mfg. Co. (5th Cir. 1990) 908 F.2d
7, 9 (fns. omitted).) Again, California law does not disfavor express contract terms of
indefinite duration negotiated by the parties—especially given the California Supreme
Court's favorable citation of Lambert. (See fn. 3, ante.)
Finally, it is not entirely clear that Texas law is as settled against indefinite terms of
duration as the Fifth Circuit apparently believed. While Clear Lake held that contracts of
indefinite terms are terminable at will, the Texas Supreme Court has nevertheless upheld
an express indefinite term as "definite"—an agreement to provide water to a hospital "as
long as" it was operated by the State of Texas. (City of Big Spring v. Board of Control
(Tex. 1966) 404 S.W.2d 810, 811, 815-816.) Faced with an apparent conflict between Big
Spring and Clear Lake, the Fifth Circuit took what it admitted was an " 'Erie guess' " of
Texas law and opined that Big Spring was limited to contracts for municipal services to
governmental bodies. (Trient Part. I Ltd. v. Blockbuster Entertainment, supra, 83 F.3d at
p. 710.) However, at least one Texas court has subsequently followed Big Spring with
regard to private contracts. (See Brittian v. General Tel. Co. of Southwest (Tex.Civ.App.
1976) 533 S.W.2d 886, 891.)
Similarly, Jespersen was decided by the Illinois Supreme Court under Illinois law.
(Jespersen v. Minnesota Min. & Mfg. Co., supra, 700 N.E.2d at p. 1015, fn. 2.) It also
involved a distribution contract that " 'shall continue in force indefinitely' " unless
terminated in the manner provided in the contract. Contrary to California law, Illinois law
provides that such indefinite contracts are terminable at will. (Id. at p. 1016; Joliet
Bottling Co. v. [80 Cal.App.4th 13] Joliet Citizens' Brewing Co. (1912) 254 Ill. 215 [98
N.E. 263, 264-265] [contract to bottle beer to continue "so long as" the beverage was
furnished by the brewing company was found to be indefinite and terminable at will].)
Moreover, Jespersen is distinguishable on the text of the distribution agreements
themselves; in Jespersen the provisions for breach were far less detailed than those in the
present case, and also—unlike here—gave the distributor the right to terminate the
agreement on 30 days' written notice. (Jespersen, supra, 700 N.E.2d at p. 1016.)
Jespersen also reasoned that the termination provision was "permissive and equivocal"
because it provided the parties "may"—not "shall"—terminate on the stated grounds.
(Ibid.) We neither agree with this conclusion nor find it pertinent to the analysis.
Finally, the Illinois court felt the termination provision was insufficient to remove the
contract from the rule that it was terminable at will because it merely stated the obvious
fact that, like any contract, the distribution agreement was terminable by breach.
Inexplicably, the court cited Lichnovsky v. Ziebart Intern. Corp. (1982) 414 Mich. 228
[324 N.W.2d 732, 737], which acknowledged the opposite: "The inclusion in this
agreement of a specific right to terminate for cause ... militates against a construction of
the agreement that the licensor can terminate at will." Indeed, as we have noted above,
the detailed provisions for termination for cause in the distribution agreements now
before us clearly indicate that terminability at will was not contemplated by the
contracting parties.
We decline to follow Trient and Jespersen, and reject the Association's claim that
California law is "consistent" with their holdings. We also note that the Association,
understandably enough, relies heavily on many decisions discussing California law
dealing with contracts which, unlike the distribution agreements here, do not specify a
term of duration for the contract. (See, e.g., Alpha Distrib. Co. of Cal., Inc. v. Jack Daniel
Distillery (9th Cir. 1972) 454 F.2d 442 [decided under California law, and noting that
such contracts are generally terminable at will].) fn. 7
We conclude the distribution agreements between Zee and the Association have valid,
express terms of duration and are terminable only for cause, and not at will. Unlike the
case of a contract in perpetuity with no specified termination provision, in this case the
parties themselves agreed to a list of terminating events. As specified in the contracts,
their relationship continues until it is terminated by one of the specific occurrences set
forth in the [80 Cal.App.4th 14] agreement. We reiterate that these contracts are detailed
and sophisticated and involve not only a contemplated long-term business relationship,
but bristle with contractual safeguards against termination for default or poor
performance. There are mutual inherent protections for both sides. There is no legal
justification to look beyond what the parties agreed to. In addition to the express term of
duration, the other express provisions of the contracts clearly indicate the parties did not
intend the contracts to be terminable at will. To find an at-will termination in this case
would rewrite the contracts between the parties and ignore the detailed enumeration of
events which can terminate the contractual relationship and which also cover reasonably
anticipated contingencies that may occur during the course of the relationship. We cannot
interfere in a carefully contracted-for business relationship that the parties themselves
explicitly established by finding implicit terms that are not present.
III. Disposition
Stein, Acting P. J., and Swager, J., concurred.
Appellant's petition for review by the Supreme Court was denied July 12, 2000.
FN 1. Insignificant variations in precise wording between the two forms are not at issue,
do not affect our analysis, and have not been noted.
FN 2. We only summarize these grounds for termination. They are subject to various
detailed qualifications and exceptions which need not be set forth in this opinion.
FN 3. The Consolidated Theatres court, at "69 Cal.2d at page 727, cited with approval
Warner-Lambert Pharm. Co. v. John J. Reynolds, Inc. (S.D.N.Y. 1959) 178 F.Supp. 655,
affirmed (2d Cir. 1960) 280 F.2d 197, which involved a contract of indefinite term for the
plaintiff's payment of royalties, based on the amount of Listerine it manufactured and
sold, to the successor in interest of the mouthwash's inventor. The Warner-Lambert court
upheld as plain and unambiguous the express contractual obligation to pay the royalties
so long as the plaintiff continued to manufacture and sell the product: "The mere fact that
an obligation under a contract may continue for a very long time is no reason in itself
for ... giving it a construction which would do violence to the expressed intent of the
parties." (Warner-Lambert, supra, 178 F.Supp. at p. 661.) The court also noted there was
"nothing unreasonable or irrational" in "[c]ontracts which provide no fixed date for the
termination of the promisor's obligation but condition the obligation upon an event which
would necessarily terminate the contract"—here, the plaintiff's ceasing the sale of the
well-known breath freshener. (Id. at pp. 661, 663.)
FN 4. Shakespeare, Othello, act III, scene 3.
FN 5. Like stage shows at movie theaters, drive-in restaurants are all but gone from our
cultural landscape.
FN 6. Obvious exceptions to this rule are contracts for employment and for personal
services. (See Consolidated Theatres, Inc. v. Theatrical Stage Employees Union, supra,
"69 Cal.2d at p. 727, fn. 12; Lab. Code, § 2855.)
We note that the courts of New York have repeatedly approved contracts with express
indefinite terms of duration, and have "had no difficulty in approving contracts made to
last through the life of one of the parties." (Ehrenworth v. George F. Stuhmer & Co.
(1920) 229 N.Y. 210 [128 N.E. 108, 110]; accord, Ketcham v. Hall Syndicate, Inc. (1962)
37 Misc.2d 693 [236 N.Y.S.2d 206, 212], affd. (1963) 19 A.D.2d 611 [242 N.Y.S.2d 182];
see Payroll Exp. Corp. v. Aetna Cas. and Sur. Co. (2d Cir. 1981) 659 F.2d 285, 291-292
[noting New York law approves distribution agreements providing for termination on the
occurrence of listed events]; see also Faruki, The Defense of Terminated Dealer
Litigation: A Survey of Legal and Strategic Considerations (1985) 46 Ohio St. L.J. 925,
928, fn. 8.)
FN 7. We also reject the Association's argument that California Uniform Commercial
Code section 2309 compels a conclusion the contracts are terminable at will. That statute
involves contracts with no express term of duration.
McManus v. Bendlage, 82 Cal.App.2d 916

[Civ. No. 16113. Second Dist., Div. Three. Dec. 17, 1947.]
BERT F. McMANUS, Respondent, v. THEODORE J. BENDLAGE, Appellant.
COUNSEL
J. Merrill Levey for Appellant.
Alvin P. Jackson and Robert W. Cooper for Respondent.
OPINION
VALLEE, J. pro tem.
Suit upon a judgment. In April, 1937, Bendlage, appellant-defendant, made a written
contract with Kohlsaat and Krieger. Bendlage, in the contract, represented that he was the
sole owner of secret formulae and processes of manufacture of medicinal products known
as "Vesodyne." He agreed to sell and deliver to Kohlsaat and Krieger the secret formulae
and processes, patent rights, trademarks, copyrights and trade names, all assets, books
and records of his business which had been carried on under the name "Anthony Lily
Co.," and its goodwill, together with all interest in and the right to use the name
"Anthony Lily Co." and the sole right to manufacture the products. Kohlsaat [82
Cal.App.2d 919] and Krieger agreed to pay Bendlage therefor $1,500 when the contract
became effective and three per cent of net gross sales and after six months from the date
of the contract, not less than $30 per month for a period of six months, $50 a month for
the next six months, $75 a month for the next six months, and $100 a month thereafter
"on account of such royalties." The contract provided that payment of royalties should
expire at the end of 35 years after the date of the agreement.
On September 7, 1938, Bendlage filed suit in the superior court of the county of Los
Angeles against Kohlsaat, Krieger and Anthony Lily Company, referred to as the "first
action." He alleged the making of the contract, the terms thereof, the delivery on April 20,
1937, to Kohlsaat and Krieger of "the secret formulae to all of the above mentioned
products"; that Anthony Lily Company had been organized as a corporation and was
selling and disposing of the products; and failure of the defendants to make the payments
prescribed by the contract. In a second count Bendlage alleged that he was entitled to the
immediate possession of the alleged secret formulae and processes for the preparation of
the compound "Vesodyne" and other items alleged to have been delivered to the
defendants; that the defendants, without his consent, took possession of the property and
retained the same to his damage; that he had demanded possession, which defendants had
refused. He sought recovery of the payments and return of the alleged secret formulae
and processes and other items, and in the event possession could not be had, the sum of
$5,000, the alleged value thereof. Kohlsaat and the corporation answered, admitting the
contract, admitting demand upon Anthony Lily Company for payments under the
contract, and alleging that refusal of that company to comply with the demands was made
conditional upon performance by Bendlage of his obligations to that company, denying
that they were indebted to Bendlage, denying that they ever took possession of any of the
secret formulae or processes, alleging that refusal to redeliver any property to Bendlage
was made conditional upon the return to Kohlsaat of the consideration paid to Bendlage
under the contract.
Kohlsaat and Anthony Lily Company filed a cross-complaint in which they alleged that
prior to the making of the contract Bendlage had represented: that the formulae and
processes for the manufacture of "Vesodyne" were "secret formulae" [82 Cal.App.2d
920] known only to Bendlage and manufactured exclusively by him; that no other person
knew the formulae or processes or were manufacturing or selling the same, and other
representations; that the representations were false, known by Bendlage to be false, or
made as positive assertions of fact without any information with respect thereto; that the
representations were a material consideration and inducement to Kohlsaat in entering into
the contract; that he relied upon them and would not have made the contract had he
known of their falsity; that Kohlsaat had made demand upon Bendlage for delivery of the
secret formulae and processes; that Bendlage had failed to do so; that Kohlsaat had paid
Bendlage the $1,500 provided by the contract, had expended moneys in organizing
Anthony Lily Company and in the promotion and sale of the products; that Anthony Lily
Company had expended moneys in the promotion and sale of the products. The cross-
complaint prayed for damages to Kohlsaat in the sum of $2,500 and to Anthony Lily
Company in the sum of $5,000.
In this "first action," the court found the making of the contract; that Bendlage had not
delivered any secret formulae as required by the contract; that none of the formulae was
secret; that the defendants had refused to comply with the contract but that the refusal
was justified and was made conditional upon performance by Bendlage; that the
defendants did not at any time become indebted to Bendlage in any sum, and that they
were not indebted to him; that Bendlage was not entitled to any of the property he alleged
he had delivered to the defendants; that the retention of what property had been delivered
was "within the rights" of the defendants; that Bendlage had made the representations
alleged in the cross-complaint; that they were false, known to Bendlage to be false at the
time they were made; that they were made with the intent to induce Kohlsaat and Krieger
to enter into the contract; that Kohlsaat and Krieger relied upon the representations and
were induced thereby to enter into the contract and would not have done so had the
representations not been made; that Kohlsaat and Krieger, shortly after the making of the
contract, discovered the falsity of the representations and demanded of Bendlage that he
deliver to them the secret formulae and processes; that thereupon, Bendlage promised to
deliver the secret formulae and processes but that at the time of the making of the
promises "he knew that he could not do so"; that Kohlsaat had suffered damage in the
amount of [82 Cal.App.2d 921] $2,500 and Anthony Lily Company in the sum of
$3,000. Judgment was against Bendlage on the complaint and for the cross-complainants
upon their cross-complaint. The judgment was entered April 19, 1939, and became final.
On January 7, 1941, Bendlage filed an action against Kohlsaat, Krieger and Anthony Lily
Company, referred to as the "second action," praying for judgment that the contract of
April 20, 1937, was in force, for an accounting and for other relief. [1] A demurrer was
sustained to an amended complaint without leave to amend. An appeal was taken from
the judgment entered upon the sustaining of the demurrer. The judgment was reversed.
(Bendlage v. Kohlsaat, 54 Cal.App.2d 136 [128 P.2d 691].) Thereafter, the action was
dismissed for want of prosecution. Contrary to the contention of respondent, this "second
action" is not germane upon this appeal. A judgment of dismissal for want of prosecution
is not res judicata. (Lord v. Garland, 27 Cal.2d 840, 850 [168 P.2d 5].)
On May 23, 1944, respondent, assignee of Kohlsaat and one Goldman, filed the
complaint in the present action on the judgment rendered in the "first action." By
amended answer, appellant Bendlage denied any indebtedness and set up a counterclaim
for moneys alleged to be payable under the terms of the contract, amounting, so it is
alleged, to $5,000. The cause was submitted to the trial court upon an agreed statement of
facts. The statement of facts says that the court may take judicial notice of all pleadings
and proceedings in the first and second actions; that Bendlage has not received any of the
moneys to be paid under the contract except small amounts not material here; that on
October 20, 1940, Bendlage made demand upon respondent's assignors for payment of
these moneys; that on October 28, 1940, the sheriff sold on execution all of the rights of
Bendlage under the contract, crediting five cents on the judgment; that the corporate
powers of Anthony Lily Company were suspended on March 6, 1939, and were revived
on September 13, 1946. It was further agreed that certain testimony could be considered
as given, subject to objection, to the effect that in January, 1939, all assets of Anthony
Lily Company were assigned to Kohlsaat and Goldman, and that on December 6, 1946,
Anthony Lily Company ratified the assignment to Kohlsaat and Goldman. Plaintiff
asserts title to the judgment under this assignment and ratification. [82 Cal.App.2d 922]
The objections to the evidence set forth in the agreed statement of facts were overruled.
The court found that since July, 1937, Bendlage had not received any money pursuant to
the contract; that no sums were or are due to Bendlage pursuant to the contract; that
Bendlage owned no further rights under the contract; that the same issues involved in the
counterclaim of Bendlage were decided on the merits in favor of respondent's assignors
in the "first action"; that all of its rights in the judgment had been assigned by Anthony
Lily Company to Kohlsaat and Goldman, and by them to respondent; that the sums
prayed for by respondent, less small amounts of no moment here, were due; that
respondent is the owner of all rights of the company and Kohlsaat under the judgment.
Judgment was for plaintiff-respondent.
Appellant contends that the court erred in its findings that the issues involved in the
counterclaim were decided on the merits in the "first action"; that he is entitled to offset
the amount which had accrued under the contract against respondent's judgment. He says
that respondent's assignors, by not rescinding the contract originally and by suing for
damages, elected to stand upon the contract; that consequently, the contract at all times
has been in force and the amounts specified have been payable. Respondent says that the
invalidity of the counterclaim in the present action was adjudicated in the "first action"
adverse to appellant; that such adjudication is a bar to any right of appellant to offset the
amount of the counterclaim against the judgment.
[2a] It is fundamental that a material question which was in issue in a former action and
was there judicially determined is conclusively settled by a judgment rendered therein
and that such question is res judicata and may not again be litigated in a subsequent
action between the same parties or their privies regardless of the form the issue may take
in the subsequent action. (Code Civ. Proc., § 1908, subd. 2; Price v. Sixth District
Agricultural Assn., 201 Cal. 502, 509 [258 P. 387]; Andrews v. Reidy, 7 Cal.2d 366, 370
[60 P.2d 832].) [3] In determining the validity of the plea res judicata three questions are
pertinent: Was the issue decided in prior litigation identical with the one presented in the
action in question? Was there a final judgment on the merits? Was the party against whom
the judgment is asserted a party or in privity with the party to the prior litigation?
(Bernhard v. Bank of America, 19 Cal.2d 807, 813 [82 Cal.App.2d 923] [122 P.2d 892].)
[4, 5] A prior judgment operates as a bar against a second action upon the same cause and
it also operates as an estoppel or conclusive adjudication in a subsequent action upon a
different claim as to such issues in the second action as were actually litigated and
determined in the first action. (Code Civ. Proc., § 1911; Todhunter v. Smith, 219 Cal. 690,
695 [28 P.2d 916]; Sutphin v. Speik, 15 Cal.2d 195, 201 [99 P.2d 652, 101 P.2d 497];
Panos v. Great Western Packing Co., 21 Cal.2d 636, 637 [134 P.2d 242]; Pomona College
v. Dunn, 7 Cal.App.2d 227, 232 [46 P.2d 270].) [6] A determination of issues presented
by a cross-complaint is res judicata as fully as a determination in a separate action by a
defendant against a plaintiff. (Lamb v. Wahlenmaier, 144 Cal. 91, 94 [77 P. 765, 103
Am.St.Rep. 66].) [7] One bringing a suit on a cause of action is estopped by the judgment
therein from pleading the same matter as a set-off or counterclaim in a separate action
brought against him by the former defendant. If the former judgment was rendered
against him it is conclusive. (Case v. Hardenbrook, 238 App.Div. 169 [263 N.Y.S. 825]
[aff'd 263 N.Y. 630, 189 N.E. 731]; Brussell Sewing Machine Co. v. Gould-Moody Co.,
Inc., 265 App.Div. 312 [38 N.Y.S.2d 687].) [8] A determination in a prior action as to
relative rights and duties of a party to a contract in controversy is conclusively fixed by
the judgment insofar as such rights and duties were within the issues raised and were
actually or by necessary inference adjudicated. (Price v. Sixth District Agricultural Assn.,
supra, 201 Cal. 502, 510; Wright v. Security-First Nat. Bank, 35 Cal.App.2d 264, 277 [95
P.2d 194].) [9] A successful defense in an action on one or more of a series of
installments payable under a contract ordinarily does not bar actions on future
installments where the defense related merely to the particular installment or installments
in suit. (Brix v. Peoples Mut. Life Ins. Co., 2 Cal.2d 446, 455 [41 P.2d 537]; Jacoby v.
Peck, 23 Cal.App. 363, 365 [138 P. 104].) [10] But, where the defense successfully set up
in the former action involves the whole merits of the underlying transaction, the judgment
is a complete bar to subsequent actions to recover any further installments. (Launtz v.
Russek Furniture Co., 247 Ill.App. 289; Stamler v. Weinberger, 109 N.J.L. 438 [162 A.
569].) [11] A judgment in a vendee's action for damages for fraud in the inducement of a
contract is res judicata, precluding a subsequent [82 Cal.App.2d 924] action by the
vendor for the money which the vendee is obligated to pay under the contract. (Brunswig
Drug Co. v. Springer, 55 Cal.App.2d 444, 449 [130 P.2d 758].)
[12] The defenses and the allegations of the cross-complaint in the "first action" were
failure of consideration and that the contract was induced by fraud. The effect of the
judgment in that action was that appellant Bendlage had not delivered and could not
deliver the secret formulae and processes. The judgment in that action determined that the
formulae were not secret and could not be delivered. It was an adjudication that there had
been a total failure of consideration. The judgment determined that Bendlage was not
entitled to recover any of the moneys payable to him under the contract. It precluded a
subsequent action by Bendlage for any money under the contract. It estopped him from
using the same matter as a set-off. It is manifest that patent rights, trademarks, copyrights,
trade names, books and records, if any, were of no value without the formulae and
processes.
[13] The provision of the contract requiring delivery of the secret formulae and processes
was a condition precedent to the performance by respondent's assignors. Its repudiation
by appellant effectively wiped out the contract. (Alderson v. Houston, 154 Cal. 1, 13 [96
P. 884].) [14] The breach of the contract by appellant was a breach of the entire contract
and discharged respondent's assignors from any of the conditions to be performed on
their part. The contractual relation ceased to exist. (Lassen Irrigation Co. v. Long, 157
Cal. 94, 95 [106 P. 409]; Gold Min. & Water Co. v. Swinerton, 23 Cal.2d 19, 29 [142 P.2d
22].) [15] As it was adjudicated that respondent's assignors had not secured and could not
secure the thing they had contracted for and which constituted the consideration for the
contract, the judgment released them from all obligations of the contract. (Nevada Land
& Inv. Corp. v. Sistrunk, 220 Cal. 174, 178 [30 P.2d 389]; California Credit & C. Corp. v.
Goodin, 76 Cal.App. 785 [246 P. 121].)
[2b] Whether the formulae were secret and whether they could be delivered could be
litigated but once. Those questions were litigated in the "first action." They cannot
become the subject of another lawsuit, defense or setoff. (Lux v. Columbian Fruit
Canning Co., 120 Kan. 115 [242 P. 656].) It would be inconsistent in this case to admit
evidence and to [82 Cal.App.2d 925] permit a decision which would have the effect of
determining that the formulae were secret and could be delivered, when it was adjudged
in the "first action" that they were not secret and could not be delivered. If appellant can
offset today he can recover later-accruing installments tomorrow. The result would be
that he would receive the fruits of the contract while respondent's assignors and
respondent receive nothing. The finding that "the same issues involved in defendant's
counterclaim were decided on the merits in plaintiff's favor" in the "first action" is not
vulnerable.
[16] Appellant also says that the assignment by Anthony Lily Company to Kohlsaat and
Goldman was invalid because the company's franchise was suspended before it obtained
the judgment. It was shown that the claim asserted by the cross-complaint was assigned
before the franchise was suspended. [17] Appellant contends, however, that the claim was
not assignable. The assignment was not of a naked right to bring an action for fraud
unconnected with any property or thing which itself had a legal existence and value,
independent of the right to sue for fraud, as asserted by appellant. It was an assignment of
moneys owing by Bendlage to the company arising out of the inability of Bendlage to
deliver the secret formulae and processes. (McCord v. Martin, 34 Cal.App. 129 [166 P.
1014].) The determination that the assignment was valid is supported by the evidence.
Our conclusion that the judgment in the "first action" is res judicata and that the contract
as a whole had been destroyed makes unnecessary consideration of other points made by
appellant which go to questions of the validity of the execution sale and to the amount to
be set off against the judgment.
Judgment affirmed.
Shinn, Acting P. J., and Wood, J., concurred.
Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465 ,

261 Cal.Rptr. 735
[No. A040678. Court of Appeals of California, First Appellate District, Division One.
August 24, 1989.]
ERNEST L. PRICE et al., Plaintiffs and Appellants, v. WELLS FARGO BANK et al.,
Defendants and Respondents
(Opinion by Newsom, Acting P. J., with Holmdahl and Stein, JJ., concurring.)
COUNSEL
Silveira, Mattos & Lewis and Weldon J. Mattos, Jr., for Plaintiffs and Appellants.
Brobeck, Phleger & Harrison, David J. Brown and Kent M. Roger for Defendants and
Respondents.
OPINION
NEWSOM, Acting P. J.
Ernest L. Price and Maxine Price (hereafter appellants) appeal from a summary judgment
in favor of Wells Fargo Bank and Pamela G. Bogle (hereafter respondents). The action
was filed on July 12, 1985 in the Superior Court of Merced County and later transferred
to the Superior Court of the City and County of San Francisco. the amended complaint
chiefly concerned three related loan transactions and stated five causes of action: fraud,
tortious breach of covenant of good faith, contractual breach of covenant of good faith,
negligent infliction of emotional distress, and intentional infliction of emotional distress.
An additional cause of action alleged fraud in connection with a separate mobilehome
loan.
On July 1, 1987, respondents filed a motion for summary judgment or, alternatively,
summary adjudication of issues. The trial court granted summary judgment for both
defendants on all causes of action and, somewhat [213 Cal.App.3d 471] inconsistently,
summarily adjudicated various issues. Appellants attacked the summary judgment
through motions for reconsideration, new trial, and relief under Code of Civil Procedure
section 473 and, upon denial of these motions, filed a timely notice of appeal.
For 20 years, appellants owned and operated the Creekview Angus Ranch near Merced,
California. In 1982, the ranch comprised 1,872 acres of grazing land and 698 head of
cattle. In addition, appellants leased another 1,228 acres of adjoining land from in-laws at
a modest price. They concentrated their operations on raising purebred angus cattle and
hoped to establish a registered herd over a period of years. As sidelines, they maintained
a small almond orchard and a substantial apiary business with 3,000 hives. The ranch was
subject to deeds of trust securing loans of Crocker Bank and Travelers Insurance
Company which had balances, respectively, of $225,000 and $137,378.
In 1982, Crocker Bank informed appellants that it would not extend them any further
credit. Seeking a means of paying off the Crocker loan, they approached Wayne Hadsel,
the Merced branch manager for Wells Fargo, with a request for a five-year loan. Their
loan application was processed by Clifford Wictorin, a loan officer at the Merced branch.
On February 14, 1983, Wictorin recommended in a report to Edward Farnam, the
agribusiness district manager of Wells Fargo, that the bank extend credit to appellants.
The report contained projections of the appellants' gross income but was lacking in any
precise estimates of their expenses. For example, it projected an income of $385,000
from their apiary operation but neglected to mention estimated expenses of $343,000.
Farnam approved the loans but later attributed his approval to a mistaken understanding
of appellants' expenses.
On February 28, 1983, Wells Fargo extended to appellants three loans, secured by
substantially all the ranch property, in the amounts of $63,000, $97,000, and $210,000.
The promissory notes for the $63,000 and $97,000 loans provided that "[p]rincipal shall
be payable in full on October 31, 1983." The $210,000 promissory note was less clear.
The relevant portion stated: "Principal shall be payable as follows: One principal
payment of Forty Two Thousand and no/100 Dollars ($42,000.00) due on September 30,
1983. Anything herein to the contrary notwithstanding, all principal and interest
remaining unpaid on October 31, 1983 shall be immediately due and payable." The
testimony of Wictorin and Farnam on deposition and certain documents secured from the
bank in discovery indicated that the parties actually contemplated that the loan would be
repaid over five years, with annual principal payments of $42,000. [213 Cal.App.3d 472]
Both Ernest and Maxine Price testified that they were surprised to read the October 31,
1983, maturity date on the promissory notes and protested to Wictorin that they couldn't
possibly pay the loans off by that date. According to Maxine Price, he reassured them that
the loans "would be redid on the five-year program that we were going to be on." On
August 19, 1983, Wells Fargo extended another $15,000 loan to appellants for purchase
of a mobilehome.
Nearly the full amount of the loans was to be applied to repayment of the Crocker Bank
and Travelers Insurance Company loans; a balance of only about $12,000 was available
to cover operating expenses of the ranch. Later in the year, appellants invested the
proceeds of cattle sales in a major capital improvement -- the construction of a sales
pavilion, including a barn and corrals, to conduct public cattle auctions. There is some
evidence that bank officials were aware of appellants' plans to construct this facility;
Wictorin's credit report refers to Ernest Price's marketing plan "to increase exposure
through cattle shows and publications and conduct annual sales at his home ranch"; and
Ernest Price asserted that he showed Wictorin the planned locations of the facility.
Nevertheless, Wells Fargo officials expressed surprise when they learned that appellants
had made this large capital investment and charged that it represented an unauthorized
diversion of ranch income.
From May through November 1983, appellants made a number of interest payments on
the three loans. As the maturity dates approached, Ernest Price sought some kind of
accommodation in several conversations with Wictorin in late September and October.
According to Price's deposition testimony, Wictorin assured him that he would "redo" the
notes. Appellants let the October 31, 1983, maturity date pass without making any
payments of principal.
On November 21, 1983, appellants received a letter from Wictorin announcing that their
loans were past due, followed by a similar letter on December 13, 1983. They concede
that they made no further payments on the loans that year and never disputed that the
amounts were due. Instead, they attempted to initiate discussions to restructure the loans.
The matter was referred to the Wells Fargo loan adjustment department which handled
delinquent accounts. On February 3, 1984, appellants received a letter from Pamela
Bogle, an assistant vice-president of Wells Fargo, announcing that all sums were due and
payable on the loans and threatening foreclosure.
Without contesting that the loan payments were due, appellants arranged a meeting with
Bogle at their ranch on March 8, 1984, to discuss a revised payment schedule. The parties
reached an apparent agreement. A letter of [213 Cal.App.3d 473] Bogle dated March 19,
1984, stated their agreement as follows: "(1) Delinquent interest will be paid current on
or before April 15, 1984 and will be kept current according to the terms of the original
promissory notes. (2) You will commence to make principal reductions on April 15, 1984
in the amount of $15,000 and future payments will continue in the following manner:
[Tabular Material Omitted]
May 1984
Appellants fell badly behind this repayment schedule, paying only $15,000 in principal
on April 18, 1984, $24,323.71 in delinquent interest on June 5, 1984 and $10,000 in
principal on June 20, 1984. In December 1984, Wells Fargo attached an Agriculture
Commodity Credit Corporation check in the amount of $22,738 payable to their apiary
business. Bogle wrote to appellants on May 17, September 4, November 21, and
December 6, 1984, informing them of their continued default and advising them to
liquidate assets to pay for the loans. In their correspondence with the bank, appellants
never questioned their obligations but rather promised to make additional payments.
In September 1984, Wells Fargo initiated foreclosure proceedings by filing a notice of
default. Appellants subsequently retained an attorney, Weldon J. Mattos, Jr., who
arranged a meeting on December 12, 1984, with Bogle, Wictorin, and Farnam at the
branch office of the bank. Following the meeting, Mattos proposed a revised repayment
schedule which Bogle quickly rejected. The next month, however, Bogle agreed to
postpone a trustee's sale in consideration of a small payment of $6,000. After further
negotiations, Bogle issued a modified ultimatum in a letter dated February 19, 1985. The
bank agreed to forebear publishing notice of trustee's sale on condition that appellants (1)
make a payment of $50,000 on February 20, 1985, (2) assign to the bank the proceeds of
a pending escrow for the sale of the almond orchard, (3) assign to the baok the proceeds
of any loan from the Farmers Home Loan Administration, if they should succeed in
securing such a loan, and (4) pay all amounts outstanding by June 10, 1985. [213
Cal.App.3d 474]
On behalf of appellants, Mattos accepted the terms of Bogle's ultimatum but stated that
appellants could not make the first payment until March 1, 1985. On that date, appellants
in fact paid Wells Fargo $50,000. They borrowed from a friend to make a further payment
of $90,000 on June 10, 1985. Not satisfied with this partial payment, the bank published a
notice of trustee's sale to be held by July 9, 1985. Securing a loan from another
individual, appellants presented Wells Fargo on June 24, 1985, with a check in the
amount of $146,211.09 in full payment of the outstanding loan balances. As the private
loan was drawn on an out-of-state bank, the appellants' check unfortunately did not clear.
On June 28, 1985, however, appellants finally paid off the loans with a second check for
$146,211.09, plus a small additional interest payment of $676.54.
A few days after paying off the loan, appellants sued Wells Fargo, alleging as damages
that they were forced to sell bee hives, trucks, cattle, and a 60-acre parcel of land for
distressed prices in order to make the final payments.
[1] On appeal, an order granting summary judgment must be reviewed de novo. (AARTS
Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064 [225
Cal.Rptr. 203].) The governing statute provides: "The motion for summary judgment
shall be granted if all the papers submitted show that there is no triable issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law. ..."
(Code Civ. Proc., § 437c, subd. (c).) [2] As a gloss on this statutory standard, the courts
have cautioned that "'[t]he moving party bears the burden of furnishing supporting
documents that establish that the claims of the adverse party are entirely without merit on
any legal theory.'" (Mann v. Cracchiolo (1985) 38 Cal.3d 18, 35 [210 Cal.Rptr. 762, 694
P.2d 1134].) "All reasonable inferences are drawn in favor of the party opposing the
summary judgment ...." (Neinstein v. Los Angeles Dodgers, Inc. (1986) 185 Cal.App.3d
176, 179 [229 Cal.Rptr. 612].) In ruling on a motion for summary judgment, the trial
court seeks to identify triable issues without engaging in any determinations of fact. (D.E.
Sanford Co. v. Cory Glass Etc. Co. (1948) 85 Cal.App.2d 724, 726 [194 P.2d 127].) "The
trial court is, however, to some extent required to weigh evidence in determining whether
the factual issues asserted relate to a 'material fact,' and must determine what 'inferences
[are] reasonably deducible from [the] evidence.'" (Sawyer v. First City Financial Corp.
(1981) 124 Cal.App.3d 390, 406 [177 Cal.Rptr. 398].)
The tort theory in appellants' cause of action for breach of the implied covenant of good
faith and fair dealing is based on a recent, and already discredited, precedent:
Commercial Cotton Co. v. United California Baok [213 Cal.App.3d 475] (1985) 163
Cal.App.3d 511, 516 [209 Cal.Rptr. 551]. The case concerned a simple fact situation
covered by division 4, chapter 4, of the California Uniform Commercial Code. The bank
paid out $4,000 from the plaintiff's checking account on a check containing unauthorized
signatures. Almost two years later, the plaintiff discovered the loss and made a claim to
the bank for reimbursement. On the advice of its general counsel, the bank refused the
claim on the ground that it was barred by a one-year statute of limitations. In fact, the
decision of Sun 'n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671 [148
Cal.Rptr. 329, 582 P.2d 920], decided 11 days before the bank refused the claim, clearly
indicated that a 3-year statute of limitation applied.
Alleging breach of the covenant of good faith and fair dealing, plaintiff sued the bank and
recovered $4,000 in compensatory damages and $100,000 in punitive damages. Since
punitive damages may be awarded only in "an action for the breach of an obligation not
arising from contract" (Civ. Code, § 3294, subd. (a)), the validity of the award of punitive
damages turned on whether the cause of action for breach of the covenant of good faith
stated a cause of action in tort or contract. Holding that the cause of action was in tort, the
court advanced two novel legal concepts in a single, somewhat confusing, paragraph.
The court in Commercial Cotton relied on language in Egan v. Mutual of Omaha Ins. Co.
(1979) 24 Cal.3d 809 [169 Cal.Rptr. 691, 620 P.2d 141] emphasizing that the relationship
between insurer and insured is "characterized by elements of public interest, adhesion,
and fiduciary responsibility ...." (Commercial Cotton Co. v. United California Bank,
supra, 163 Cal.App.3d at p. 516.) With reference to these elements, the court stated:
"Analogizing to the factors set out in Egan we agree with Calvin's contention that
banking and insurance have much in common, both being highly regulated industries
performing vital public services substantially affecting the public welfare. A depositor in
a noninterest-bearing checking account, except for state or federal regulatory oversight, is
totally dependent on the banking institution to which it entrusts deposited funds and
depends on the bank's honesty and expertise to protect them. While banks do provide
services for the depositor by way of monitoring deposits and withdrawals, they do so for
the very commercial purpose of making money by using the deposited funds. The
depositor allows the bank to use those funds in exchange for the convenience of not
having to conduct transactions in cash and the concomitant security in having the bank
safeguard them. The relationship of bank to depositor is at least quasi-fiduciary, and
depositors reasonably expect a bank not to claim nonexistent legal defenses to avoid
reimbursement when the bank negligently disburses the entrusted funds. Here, UCB's
claimed defenses are spurious, and the jury found experienced legal counsel interposing
them in an unjustifiable, stonewalling effort to [213 Cal.App.3d 476] prevent an
innocent depositor from recovering money entrusted to and lost through the bank's own
negligence, is a breach of the bank's covenant of good faith and fair dealing with its
depositor." (Ibid.)
The court premised tort liability for breach of the covenant of good faith alternatively on
(1) the existence of a special relationship between depositor and bank within the meaning
of Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809 and (2) on an apparently new
tort of bad faith defense, perhaps derived in some manner from Seaman's Direct Buying
Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752 [206 Cal.Rptr. 354, 686 P.2d
1158]. We are concerned here only with the first of these theories. The analysis of a
special relationship rested not only on the familiar concepts of public interest and
adhesion but on the innovative assertion that the relationship between a bank and
depositor is "quasi-fiduciary" in nature. In a later case, Barrett v. Bank of America (1986)
183 Cal.App.3d 1362 [229 Cal.Rptr. 16], the same court similarly characterized the
relationship between a bank and its loan customers. The issue in Barrett was the duty of
the court to give an instruction on constructive fraud. The court noted that constructive
fraud "usually arises from a breach of duty where a relation of trust and confidence
exists." (Id. at p. 1369.) Citing Commercial Cotton' as authority for a "quasi-fiduciary"
relationship between a bank and depositor, the court found that "a similar relationship of
trust and confidence exists between a bank and its loan customers ...." (Ibid.)
The holdings of Commercial Cotton and Barrett are inconsistent with both past authority
and current trends in the law. fn. 1 [3] It has long been regarded as "axiomatic that the
relationship between a bank and its depositor arising out of a general deposit is that of a
debtor and creditor." (Morse v. Crocker National Bank (1983) 142 Cal.App.3d 228, 232
[190 Cal.Rptr. 839].) "A debt is not a trust and there is not a fiduciary relation between
debtor and creditor as such." (Downey v. Humphreys (1951) 102 Cal.App.2d 323, 332
[227 Cal.Rptr. 484].) The same principle should apply with even greater clarity to the
relationship between a bank and its loan customers.
A case decided only three days before Commercial Cotton made short shrift of a claim
that a fiduciary relationship existed between a bank and its depositor. In Lawrence v.
Bank of America (1985) 163 Cal.App.3d 431 [209 cal.Rptr. 541], the plaintiff sued the
bank for dishonoring a check. The second cause of action alleged breach of fiduciary
duty. Dismissing this [213 Cal.App.3d 477] claim, the court stated, "[U]nder ordinary
circumstances the relationship between a bank and its depositor is that of debtor-creditor,
and is not a fiduciary one; and appellant has failed to allege any facts which would
support a finding that a fiduciary relationship existed between appellant and any of the
respondents in this case." (Id. at p. 437.)
Since Commercial Cotton and Barrett were decided, the law has moved decisively away
from expansion of the tort of breach of the implied covenant of good faith. The tort, of
course, has its origins in insurance law; in Crisci v. Security Ins. Co. (1967) 66 Cal.2d
425 [58 Cal.Rptr. 13, 426 P.2d 173], the Supreme Court first allowed an insured to
recover from an insurer in tort for emotional suffering resulting from breach of the
implied covenant. Tort recovery on this theory was later extended to employment
contracts by Cleary v. American Airlines, Inc. (1980) 111 Cal.App.3d 443 [168 Cal.Rptr.
722] and its progeny. (E.g., Gray v. Superior Court (1986) 181 Cal.App.3d 813, 820-821
[226 Cal.Rptr. 570]; Khanna v. Microdata Corp. (1985) 170 Cal.App.3d 250, 260-262
[215 Cal.Rptr. 860].) Through dicta in Seaman's Direct Buying Service, Inc. v. Standard
Oil Co., supra, 36 Cal.3d 752, 769, the Supreme Court suggested that this form of tort
recovery might be appropriate wherever there are "relationships with similar
characteristics" to those of insurer and insured. Pursuing this suggestion, Wallis v.
Superior Court (1984) 160 Cal.App.3d 1109 [207 Cal.Rptr. 123] proposed a five-part test
for determining the existence of a special relationship justifying tort recovery for breach
of the implied covenant. The Wallis court found that a severance contract between
employer and employee fell within such a special relationship. Three subsequent cases
applying the same test to other commercial transactions, however, found the special
relationship to be absent. (Martin v. U-Haul Co. of Fresno (1988) 204 Cal.App.3d 396,
413 [251 Cal.Rptr. 17]; Multiplex Ins. Agency, Inc. v. California Life Ins. Co. (1987) 189
Cal.App.3d 925, 931 [235 Cal.Rptr. 12]; Quigley v. Pet, Inc. (1984) 162 Cal.App.3d 877,
889 [208 Cal.Rptr. 394].)
This evolution of the law was dramatically upset last year by Foley v. Interactive Data
Corp. (1988) 47 Cal.3d 654, 693 [254 Cal.Rptr. 211, 765 P.2d 373]. The decision did not
address Wallis v. Superior court, supra, 160 Cal.App.3d 1109 and its progeny but rather
reversed the earlier line of cases stemming from Cleary v. American Airlines, Inc., supra,
111 Cal.App.3d 443. The court held that Cleary lacked justification in policy or precedent
for extending to employment contracts the tort recovery allowed for breach of the implied
covenant in insurance contracts: "We therefore conclude that the employment relationship
is not sufficiently similar to that of insurer and insured to warrant judicial extension of the
proposed additional tort remedies ...." The court's analysis affirmed the wisdom of "the
traditional separation of tort and contract law" (id. at p. 693) and described the dicta in
Seaman's Direct Buying Service, Inc. v. Standard Oil Co., supra, 36 [213 Cal.App.3d
478] Cal.3d 752, 768-769, suggesting possible extension of tort remedies for breach of
the implied covenant as being "tentative at best." (Id. at p. 688.)
The impact of the Foley decision cannot be assessed with certainty. The strict terms of its
holding leave intact Wallis v. Superior Court, supra, 160 Cal.App.3d 1109; until the
Supreme Court says otherwise, it may still be argued that a noninsurance contract was
"tortiously breached if it contained characteristics similar to those which allow a finding
of tortious breach in an insurance contract." (Id. at p. 1118, fn. deleted.) But the
implications of the court's analysis presage a close scrutiny of tort recovery for breach of
the implied covenant of good faith and fair dealing outside of the insurance context. (See
Mitsui Manufacturers Bank v. Superior Court (1989) 212 Cal.App.3d 726 [260 Cal.Rptr.
793].) The decision surely precludes the sort of loose extension of tort recovery, based on
"quasi-fiduciary" relationship, sanctioned in Commercial Cotton v. United California
Bank, supra, 163 Cal.App.3d 511.
[4] In the present case, appellants do not contend that their agreement with Wells Fargo
satisfies the rigorous five-part test of the Wallis decision. Nor do they seek to prove
special circumstances that might conceivably give a fiduciary character to a
lender/borrower relationship. Relying on Commercial Cotton and Barrett, the complaint
alleges only that plaintiffs "were customers of Wells Fargo Bank, National Association
and had bank accounts, including checking, with defendant, Wells Fargo, maintained at
the Merced Branch of Wells Fargo, and have been the beneficiaries of a fiduciary
relationship with defendant, Wells Fargo." These allegations, together with a description
of the loan transactions, plainly are insufficient to state a tortious breach of the covenant
of good faith and fair dealing.
For the first time in this appeal, appellants argue that Wells Fargo is liable in tort under
Seaman's Direct Buying Services, Inc. v. Standard Oil Co., supra, 36 Cal.3d 752. The tort
defined in Seaman's, however, is distinct from breach of the implied covenant of good
faith and fair dealing; it occurs when a party "seeks to shield itself from liability by
denying, in bad faith and without probable cause" that the contract exists. In their
opening brief, appellants urge that Wells Fargo in fact denied the existence of a "renewal
agreement." This theory, however, finds no expression in the pleadings and cannot be
considered for purposes of summary judgment. (Kruse v. Bank of America (1988) 202
Cal.App.3d 38, 57-60 [248 Cal.Rptr. 217].)
[5a] Turning to more firmly established legal principles, appellants urge that the record
shows a triable issue of fact concerning contractual breach of the implied covenant of
good faith and fair dealing in both the original loans and the March 19, 1984, repayment
agreement. [6] "Every [213 Cal.App.3d 479] contract imposes upon each party a duty of
good faith and fair dealing in its performance and its enforcement." (Rest.2d Contracts, §
205.) The term "good faith" has been described as an "'excluder' phrase which is 'without
general meaning (or meanings) of its own and serves to exclude a wide range of
heterogenous forms of bad faith. In a particular context the phrase takes on specific
meaning, but usually this is only by way of contrast with the specific form of bad faith
actually or hypothetically ruled out.'" (Foley v. Interactive Data Corp., supra, 47 Cal.3d
654, 697, quoting Summers, "Good Faith" in General Contract Law and the Sales
Provisions of the Uniform Commercial Code (1968) 54 Va.L.Rev. 195, 201.) For
example, the covenant precludes an owner from interfering with work of a contractor in
performance of a construction agreement. (1 Witkin, Summary of Cal. Law (9th ed.
1987) § 745, p. 676.)
[5b] Appellants here argue that Wells Fargo breached the implied covenant by taking a
"hard line" in repayment negotiations. In particular, they rely on the testimony of John
Richards, an expert witness of Wells Fargo, who conceded that, in his opinion, Pamela
Bogle was not justified in publishing a notice of foreclosure sale after having received a
$90,000 payment on June 10, 1985. The necessary implication of appellants' argument is
that the bank owed them a duty of reasonable forebearance in enforcing its creditor's
remedies. They do not, however, cite any authority supporting this proposition, and we
are aware of none. Contracts are enforceable at law according to their terms. The
covenant of good faith and fair dealing operates as "'a kind of "safety valve" to which
judges may turn to fill gaps and qualify or limit rights and duties otherwise arising under
rules of law and specific contract language.'" (Foley v. Interactive Data Corp., supra, 47
Cal.3d 654, 684, quoting Summers, The General Duty of Good Faith -- Its Recognition
and Conceptualization (1982) 67 Cornell L.Rev. 810, 812.) It does not impose any
affirmative duty of moderation in the enforcement of legal rights. The equitable doctrines
of estoppel or waiver may, of course, bar unfair tactics in the enforcement of agreements,
but appellants have not raised any such equitable defenses.
[7a] Apart from the implied covenant of good faith, appellants do not claim that Wells
fargo breached any contractual obligation. Rather they contrive to state their grievance
alternatively in the form of a cause of action for fraud. The complaint alleges both
intentional fraud and fraudulent concealment. fn. 2 The intentional misrepresentations
consisted of statements by the bank employees, Wictorin and Hadsel, that "Wells Fargo,
would 'work with' the plaintiffs in the matter of repayment of the promissory [213
Cal.App.3d 480] notes, [and] would renew the promissory notes for up to five (5)
years ...." Though the elements of fraudulent concealment are not clearly alleged,
appellants urge that the record reveals that the bank agents and employees concealed (1)
that Wictorin did not have authority to approve the renewal of the loans, (2) that renewal
of the $210,000 loan was conditioned on the payment of the $97,000 and $63,000 loans,
(3) that Wells Fargo would consider the loans in default if not paid by October 31, 1983,
and (4) that the bank officials handling their loans would not be knowledgeable about
agriculture.
With two exceptions, the alleged fraud concerns oral promises relating to the principal
terms of the loan agreement. The gravamen of appellant's theory of fraud is that the
written loan agreements varied from the terms of the agreement they had expected; that
bank employees orally promised them that the written agreement would be administered
in a manner consistent with their original expectations; that the bank "never intended" to
perform the agreements pursuant to these oral promises; and that they relied to their
detriment on the promises. These allegations appear to raise the difficult and disputed
question of the relationship between promissory fraud and the parol evidence rule. Wells
Fargo has raised the defense of the parol evidence rule, however, only with respect to the
third cause of action relating to the mobilehome loan. As the issue has been briefed only
in this connection, we will not discuss it here. The summary judgment on the fraud cause
of action must be affirmed on other grounds.
Wells Fargo argued successfully in the trial court that, since appellants' own admissions
revealed that they understood the nature of their obligations to Wells Fargo, they cannot
assert that they relied to their detriment on the promises of bank employees that they
were subject to other, less stringent, obligations. We will first examine the admissions and
then consider their significance for purpose of summary judgment.
The admissions were in part circumstantial. As recounted earlier in this opinion,
appellants conceded that they never disputed Wells Fargo's demands for payment. [8] "A
failure to question ... a bill or statement is uniformly received as evidence of an admission
of its correctness." (Cleary, McCormick on Evidence (3d ed. 1984) § 270, p. 802.)
Similarly, throughout the duration of the agreement appellants made a number of
payments of interest and principal without contesting their obligations. [9] If a party
makes a partial payment "'without protest and without otherwise indicating non-
recognition of the validity of the claim, evidence of the payment is universally received
[as proof of the validity of the claim].'" (6 Cal. Law Revision Com. Rep. (1964) subds.
(a) and (b) of rule 52, p. 676, quoting The American Law Institute's Comment on Model
Code rule 309(3).) [213 Cal.App.3d 481]
[7b] Portions of the deposition testimony of Ernest and Maxine Price tended to confirm
these tacit admissions; both conceded that they understood that the maturity date of the
three loans was October 31, 1983. Even more damaging were the admissions in the letters
of appellants' counsel. A letter of Weldon Mattos to Pamela Bogle, dated December 12,
1984, states, "[a]s I indicated at our meeting, there is no question that the Prices did not
make the payments to Wells Fargo when due." In a letter to W.E. Farnam of the same
date, Mattos concedes, "[t]he Prices are not denying that they have not been able to make
the payments on the schedule that they foolishly agreed to ...." [10] A second letter to
Pamela Bogle, dated December 17, 1984, states, "[w]e are not asking that the Bank
terminate the foreclosure, but simply that they hold off for a brief period of time to allow
for a less catastrophic solution to the Prices' obligation to Wells Fargo." fn. 3
Arguing that these admissions are decisive, Wells Fargo cites D'Amico v. Board of
Medical Examiners (1974) 11 Cal.3d 1, 22 [112 Cal.Rptr. 786, 520 P.2d 10], for the
proposition that admissions are entitled to high credibility [213 Cal.App.3d 482] in
motions for summary judgment: "As the law recognizes in other contexts (see Evid.
Code, §§ 1220-1230) admissions against interest have a very high credibility value. ...
Accordingly, when such an admission becomes relevant to the determination, on motion
for summary judgment, of whether or not there exist triable issues of fact (as opposed to
legal issues) between the parties, it is entitled to and should receive a kind of deference
not normally accorded evidentiary allegations in affidavits." The holding of D'Amico
appears entirely sound on its facts; and this court has recently applied the decision where
credible admissions on deposition were contradicted only by self-serving declarations of
a party. (Advanced Micro Devices, Inc. v. Great American Surplus Lines Ins. Co. (1988)
199 Cal.App.3d 791 [245 Cal.Rptr. 44]. But Leasman v. Beech Aircraft Corp. (1975) 48
Cal.App.3d 376, 382 [121 Cal.Rptr. 768], phrased the holding in broad language that
should be accepted with caution: "Accordingly, when a defendant can establish his
defense with the plaintiff's admissions ... the credibility of the admissions are valued so
highly that the controverting affidavits may be disregarded as irrelevant, inadmissible or
evasive." (See also Niederer v. Ferreira (1987) 189 Cal.App.3d 1485, 1503 [234 Cal.Rptr.
779]; Shapero v. Fliegel (1987) 191 Cal.App.3d 842, 849 [236 Cal.Rptr. 696].)
Apparently accepting the language of Leasman at face value, Weil and Brown comment:
"Note that if the case went to trial, the judge or jury might choose to believe the
contradictory testimony. But for summary judgment purposes, a party is bound by his or
her admissions made in the course of discovery!" (Weil & Brown, Cal. Practice Guide:
Civil Procedure Before Trial (1988) ¶ 10:84.) As the commentators' exclamation point
suggests, an uncritical application of the D'Amico decision can lead to anomalous results,
inconsistent with the general principles of summary judgment law. [11] We do not
interpret the decision, however, as saying that admissions should be shielded from careful
examination in light of the entire record. A summary judgment should not be based on
tacit admissions or fragmentary and equivocal concessions, which are contradicted by
other credible evidence. We are persuaded that the trial court properly relied on the
admissions in the case at bar only because we find nothing in the record that is materially
inconsistent with the admissions.
On deposition, both Ernest and Maxine Price reiterated again and again that they thought
they had a "five-year deal." They acknowledged, however, that the three promissory notes
had a maturity of one year. When pressed for clarification, they expressed two distinct
understandings. First, they construed the $210,000 loan as being payable over a five-year
period with annual principal payments of $42,000. As we have seen, the note was indeed
ambiguous on this point, and the Prices' interpretation was entirely plausible. But the
issue does not enter into the present lawsuit because the Prices never made the annual
principal payments of $42,000 that the note [213 Cal.App.3d 483] arguably called for. In
the trial court, they never contended that Wells Fargo failed to comply with this
interpretation of the note.
[7c] Secondly, the Prices insisted that the notes would be "redone." This understanding
clearly applied to the $63,000 and $97,000 loans but appeared also to extend to the
$210,000. The difficulty is that the Prices nowhere specify any understanding as to the
terms of renewal. The terms of a restructuring agreement obviously may vary as widely
as the terms of the original agreement. Unless an agreement to restructure a loan
embodies definite terms, capable of enforcement, it is not a legally valid contract.
"Preliminary negotiations or an agreement for future negotiations are not the functional
equivalent of a valid, subsisting agreement." (Kruse v. Bank of America, supra, 202
Cal.App.3d 38, 59.) The Prices' understanding that the notes would be "redone" thus
raises no triable issue as to a legally enforceable understanding inconsistent with the
written terms of the notes.
The third cause of action alleging fraud in procurement of the $15,000 mobilehome loan
raises clearly the issue of the relationship between promissory fraud and the parol
evidence rule. Appellants allege that Bank of America offered to make the loan at a 13
percent interest rate, and a Wells Fargo loan officer countered by promising that Wells
Fargo would loan the money "at a better interest rate than Bank of America." In reliance
on this promise, they applied for a loan at Wells Fargo; but "[w]hen the promissory note
was ready for signing," they discovered that the interest rate was 3 percent above prime, a
rate higher than the 13 percent offered by the Bank of America. At that time, however,
"Bank of America was no longer offering the same rate on mobilehome loans."
Consequently, appellants had no alternative but to accept the Wells Fargo loan at the
higher rate of interest.
Without considering other difficulties with this cause of action, we will discuss only the
parol evidence rule. Under California law, fraud may consist of "[a] promise made
without any intention of performing it." (Civ. Code, § 1572.) To incur such liability for
fraud, BAJI 12.40, subdivision (1) states that "[t]he defendant must have made a promise
as to a material matter and, at the time he made it, he must have intended not to perform
it ...." Kett v. Graeser (1966) 241 Cal.App.2d 571 [50 Cal.Rptr. 727] provides an apt
example. The plaintiffs there bought a home in reliance on the defendant's promise that
certain repairs would be performed by a licensed contractor. Reversing a summary
judgment in favor of defendant, the court held that there was a triable issue of fact as to
whether the defendant did not intend to perform the promise at the time it was made.
[12] The parol evidence rule in general does not preclude proof of fraudulent oral
misrepresentations (2 Witkin, Cal. Evidence (3d ed. 1986) [213 Cal.App.3d 484] §§ 997,
999, pp. 944-945), but the early case of Bank of America etc. Assn. v. Pendergrass (1935)
4 Cal.2d 258 [48 P.2d 659] perceived a conflict between the rule and promissory fraud
relating to the principal terms of an agreement. The case concerned a promissory note
that by its terms was payable on demand. The plaintiffs sought to prove that the bank
orally promised, without any intention of honoring the promise, that "they would not be
required 'to make any payments on their indebtedness, either interest or principal, until
this money came in from the 1932 crop of lettuce seed ....'" (Id. at p. 263.) The court held
that the parol evidence rule precluded proof of the alleged promissory fraud: "Our
conception of the rule which permits parol evidence of fraud to establish the invalidity of
the instrument is that it must tend to establish some independent fact or representation,
some fraud in the procurement of the instrument or some breach of confidence
concerning its use, and not a promise directly at variance with the promise of the
writing." (Ibid.)
The holding of the Pendergrass decision received a slightly different verbal formulation
in Bank of America v. Lamb Finance Co. (1960) 179 Cal.App.2d 498 [3 Cal.Rptr. 877].
The plaintiff offered to prove that the bank fraudulently promised her that, contrary to the
written terms of the instrument, she would not be personally liable on a guaranty she
signed in the capacity of sole shareholder and officer of a corporation. Relying on
Pendergrass, the court barred proof of the alleged promissory fraud: "A distinction has
been made by our courts in cases in which the fraud sought to be proved consists of a
false promise. They have held that if, to induce one to enter into an agreement, a party
makes an independent promise without intention of performing it, this separate false
promise constitutes fraud which may be proven to nullify the main agreement; but if the
false promise relates to the matter covered by the main agreement and contradicts or
varies the terms thereof, any evidence of the false promise directly violates the parol
evidence rule and is inadmissible." (Id. at p. 502; see also Shyvers v. Mitchell (1955) 133
Cal.App.2d 569, 573 [284 P.2d 826]; Cobbs v. Cobbs (1942) 53 Cal.App.2d 780 [128
P.2d 373].)
The Pendergrass decision has been severely criticized by scholarly commentators. (Parol
Evidence: Admissibility to Show that a Promise was Made Without Intention to Perform
It (1950) 38 Cal.L.Rev. 535-539; Sweet, Promissory Fraud and the Parol Evidence Rule
(1961) 49 Cal.L.Rev. 877-907.) While applying the decision, the court in Coast Bank v.
Holmes (1971) 19 Cal.App.3d 581, 591 [97 Cal.Rptr. 30], termed the Pendergrass
distinction between different forms of promissory fraud as being "tenuous" and
"inconsistent" with tort principles. The court opined, "[t]he recent decisions liberalizing
the parol evidence rule cast some doubt on the continued vitality of the distinction." (Id.
at p. 592; see also Glendale Fed. Sav. & loan Assn. v. [213 Cal.App.3d 485] Marina
View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 161 [135 Cal.Rptr. 802].)
[13] We must accept Pendergrass, however, as the governing law. The first (and
sufficient) reason is that, since the decision has never been overruled, it may not be
challenged by an appellate court. (9 Witkin, Cal. Procedure (3d ed. 1985) § 768, p. 735.)
The landmark decisions of the 1960's liberalizing the parol evidence rule have only
oblique relevance to Pendergrass and cannot be read as overruling the decision.
(Masterson v. Sine (1968) 68 Cal.2d 222 [65 Cal.Rptr. 545, 436 P.2d 561]; Pacific Gas &
E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33 [69 Cal.Rptr. 561, 442 P.2d
641, 40 A.L.R.3d 1373]; and Delta Dynamics, Inc. v. Arioto (1968) 69 Cal.2d 525 [72
Cal.Rptr. 785, 446 P.2d 785].) Moreover, despite scholarly criticisms, the decision is
based on an entirely defensible decision favoring the policy considerations underlying the
parol evidence rule over those supporting a fraud cause of action.
The scholarly commentators correctly point out that there is no conceptual inconsistency
between promissory fraud and the parol evidence rule. Promissory fraud requires a
showing of tortious intent and reliance in addition to proof of an oral promise; the parol
evidence rule is concerned only with proof of an oral promise. The two legal concepts
can logically coexist. The policy considerations underlying promissory fraud apply fully
when the promise relates to the main terms of the agreement. By limiting promissory
fraud to promises relating to collateral matters, not at variance with the principal
obligations, Pendergrass compromises the objectives of tort law in a manner that is not
strictly necessary to give effect to the parol evidence rule.
On the other hand, if loosely construed, the concept of promissory fraud may encourage
attempts to convert contractual disputes into litigation over alleged fraud. To be sure,
fraud requires proof of the additional elements of intent and reliance. But these can so
easily be inferred from any broken promise that promissory fraud may in fact open the
door to attempts to enforce oral promises through tort causes of action under the guise of
a promise made without intention to perform. A broad doctrine of promissory fraud may
allow parties to litigate disputes over the meaning of contract terms armed with an arsenal
of tort remedies inappropriate to the resolution of commercial disputes. Thus, the
practical impact of alleged promissory fraud may in fact undermine the policies of the
parol evidence rule.
In short, Pendergrass compromises the policies of tort law, but a contrary rule would
compromise those of the parol evidence rule. How one weighs the conflicting
considerations will depend largely on the importance one attaches to the respective
policies. In Pendergrass, the Supreme Court gave [213 Cal.App.3d 486] priority to the
policies of the parol evidence rule. While the decision was by no means logically
inevitable, it represents a rational policy choice that should be reconsidered only by the
Supreme Court itself.
[14] Pendergrass may be easily applied to the present case. The promissory note for the
mobilehome loan bears the apparent marks of an integrated agreement, and appellants
have advanced no contrary argument. The alleged oral promise that Wells Fargo would
beat the terms of Bank of America constitutes a "contemporaneous oral agreement,"
contradicting the terms of the written agreement which comes within the terms of the
parol evidence rule. (Code Civ. Proc., § 1856; 2 Witkin, Cal. Evidence, supra, § 960 et
seq., p. 908.)
[15] As further tort theories, appellants charge Wells Fargo with intentional and negligent
infliction of emotional distress. The foregoing analysis is, however, fatal to these claims.
Our conclusion that Wells Fargo did not defraud appellants or breach the implied
covenant of good faith and fair dealing necessarily implies that it did not engage in the
sort of "outrageous" conduct necessary to incur liability for intentional infliction of
emotional distress. (5 Witkin, Summary of Cal. Law (9th ed. 1988) § 404, p. 484.) Again,
our conclusion that there was no breach of the implied covenant of good faith and fair
dealing appears to preclude liability for negligent infliction of emotional distress;
appellants have not proposed any duty owed to appellants that does not fall within the
implied covenant theory. (6 Witkin, Summary of Cal. Law (9th ed. 1988) § 838, p. 194.)
[16] To support their thzee posttrial motions -- the motion for reconsideration, the motion
for new trial, and motion for relief under Code of Civil Procedure section 473 --
appellants submitted certain materials that were not included in their opposition to the
motion for summary judgment, including excerpts from the depositions of Stephen
Schendel and John Richards and declarations of appellants. The trial court overruled the
objections of Wells Fargo to this new material but still denied the motions. On appeal,
appellants urge that the new material should have compelled a different ruling on the
motion for summary judgment.
For purpose of analysis, our discussion of the implied covenant of good faith and fair
dealing has in fact included relevant material from the Richards's deposition and the
appellants' declarations. This material did not affect our conclusion that the summary
judgment was proper. The deposition of Stephen Schendel contains certain observations
regarding the parties' expectation that the loan agreements would be renewed. But the
testimony has no relevance to the actual allegations of the complaint relating to fraud
since it does not serve to prove any actionable misrepresentation. The [213 Cal.App.3d
487] testimony also has little bearing on the theories of liability based on the implied
covenant of good faith; appellants do not argue that the implied covenant required Wells
Fargo to renew the loan agreement. The other portions of Schendel's testimony cited in
the motions -- relating to "mutual trust" residing in the bank/customer relationship and
the impropriety of a bank official informing a customer that he will deny making a
statement -- have little materiality.
As a final assignment of error, appellants point out that the trial court granted the motion
for summary adjudication of the issues as well as the motion for summary judgment.
Code of Civil Procedure section 437c, subdivision (f), provides: "[a] party may move for
summary adjudication of issues, either by itself or as an alternative to summary
judgment." (Italics added.) This anomalous result apparently occurred because the trial
court first announced on August 28, 1987, a tentative ruling to summarily adjudicate
various issues but to deny summary judgment as to Wells Fargo. Later, on September 18,
1987, the court decided to grant summary judgment as to the bank. However, the orders
ultimately signed included the list of summarily adjudicated issues. We agree that the
summary adjudication of issues was unnecessary, but appellants were not prejudiced by
it. In this appeal, they cannot base any grievance on this superfluous order. fn. 4
Holmdahl, J., and Stein, J., concurred.
FN 1. See the devastating criticism of the Commercial Cotton decision in The Fiduciary
Controversy: Injection of Fiduciary Principles Into the Bank-Depositor and Bank-
Borrower Relationships (1987) 20 Loyola L.A. L.Rev. 795, 810-821, and Commercial
Cotton Co. v. United California Bank: California's Newest Extension of Bad Faith
Litigation Into Commercial Law (1986) 16 Sw.U.L.Rev. 645, 678-687.
FN 2. We do not consider the theories of negligent misrepresentation and constructive
fraud, urged in appellants' opening brief, since these theories were not pled in the
complaint and were raised for the first time on appeal.
FN 3. Appellants now argue that the trial court was barred under Evidence Code section
1152 from considering this correspondence in the motion for summary judgment. Section
1152 codifies the rule that "[a]n offer to settle or compromise a claim by paying a sum of
money or giving other consideration is not admissible to prove liability on the part of the
offeror." (1 Witkin, Cal. Evidence (3d ed. 1986) § 424, p. 398.) "[T]he obvious policy of
the statute is to avoid deterring parties from making offers of settlement and to facilitate
candid discussion which may lead to settlement of disputes." (Fieldson Associates, Inc. v.
Whitecliff Laboratories, Inc. (1969) 276 Cal.App.2d 770, 773 [81 Cal.Rptr. 332].) But we
find nothing in the record suggesting that there was any dispute over appellants'
obligations under the loan agreements at the time the letters were written. Indeed, the
letters affirmatively disclose that no dispute existed. Under these circumstances,
Evidence Code section 1152 did not apply.
Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285 [85 Cal.Rptr. 444, 466
P.2d 996] is instructive on this point. During the month of February 1965, plaintiff
notified the city that it was unwilling to continue work on a construction project without a
change order. On March 8, 1965, the city sent plaintiff a letter rejecting the need for such
a change order. In later correspondence in March, the parties nevertheless made certain
mutual accommodations. The city sought to introduce evidence of the March
correspondence "to show the contemporaneous and practical construction of the
contract." (Id. at p. 296.) Plaintiff countered that the correspondence was barred by
Evidence Code section 1152. The Supreme Court observed that evidence is admissible
that tends to prove "[t]he 'construction given the contract by the acts and conduct of the
parties with knowledge of its terms, before any controversy has arisen as to its
meaning ...." (Id. at pp. 296-297.) But it noted, "[b]y March 8, 1965, the parties had
reached a stage of clear disagreement on the crucial question whether plaintiff was
entitled to a change order." (Id. at p. 297.) Accordingly, the court held that Evidence Code
section 1152 precluded the admission of the correspondence. Applying these principles to
the present case, we find that the letters in question were written before any controversy
had arisen as to the meaning of the loan agreements. Hence, they are not barred by
section 1152 but are admissible to show the "practical construction" of the loan
agreements by the parties.
This analysis also applies to references to the deposition of Weldon J. Mattos in "Event
11" of the exhibit appendix to the motion for summary judgment. We see no materiality
in the remaining document mentioned in this assignment of error, Mattos's letter to Bogle
dated March 5, 1985.
FN 4. Because of our affirmance of the summary judgment, we do not reach appellant's
assignments of error relating to the summary adjudication of issues.
Downey v. Humphreys, 102 Cal.App.2d 323
[Civ. No. 17605. Second Dist., Div. Three. Feb. 16, 1951.]
WALLACE K. DOWNEY, as Insurance Commissioner, etc., Appellant, v. THOMAS V.
HUMPHREYS, Respondent.
COUNSEL
Fred N. Howser, Attorney General, and Walter L. Bowers, Assistant Attorney General, for
Appellant.
Betts, Ely & Loomis for Respondent.
OPINION
VALLEE, J.
Appeal by plaintiff as liquidator of insurance companies from a judgment of nonsuit in an
action against an agent to recover unremitted insurance premiums.
Independence Indemnity Company, a Pennsylvania corporation (referred to as
Independence), for some time prior to November 1, 1931, Public Indemnity Company, a
New Jersey corporation (referred to as Public), for some time prior [102 Cal.App.2d
326] to December 31, 1932, and International Reinsurance Corporation, a Delaware
corporation (referred to as International), for some time prior to April 19, 1933, had been
engaged in the insurance business in California. Defendant became general agent in
California of Independence prior to 1929, of Public July 1, 1929, and of International
about November 1, 1931.
The complaint alleged, and the answer admitted, that prior to April 19, 1933, all the
assets and liabilities of Independence and Public were transferred to and assumed by
International.
About November 1, 1931 (the exact date is not definitely fixed, but it is not material),
Independence was "taken over" by International; that is, International acquired all of its
assets and assumed all of its liabilities. Independence then ceased to function as a
corporation. Thereafter International designated its Independence policies as
"Independence Indemnity Underwriters, Division of International Reinsurance
Corporation," and all business that had been and was thereafter written was the business
of International. Defendant did not continue as agent of Independence after it was "taken
over" by International; he dealt solely with International and was its general agent with
respect to its Independence business.
On December 31, 1932, International "took over" Public; it acquired all of its assets and
assumed all of its liabilities. Public then ceased to function as a corporation. Thereafter
International designated its Public policies as "Public Indemnity Underwriters, Division
of International Reinsurance Corporation," and all business that had been and was
thereafter written was the business of International. After International "took over"
Public, the latter's business was handled by International's method of doing business
without regard to Public's contracts. Defendant did not continue as general agent of
Public after it was "taken over" by International; he dealt solely with International with
respect to the business of Public; he was general agent of International with respect to its
Public division; and he was under the jurisdiction of the Pacific Coast manager of
International.
There was evidence that on July 1, 1929, defendant entered into a written general agency
contract with Public which provided in part: "The General Agent shall collect and will be
responsible for the payment of the premium on any policy, contract of insurance or
suretyship, or renewal thereof issued by, through or on account of his agency, whether
through [102 Cal.App.2d 327] agents, subagents, brokers, or otherwise, and all
premiums, monies, securities, chattels or other property of whatever kind, received or
collected by said General Agent shall be securely and honestly held by him subject to the
instructions of the Company and while so held shall constitute a Fiduciary Trust to be
used by the General Agent for no personal or other purpose inconsistent with such trust."
The original contract was not produced. A copy which did not bear defendant's signature
was introduced in evidence. One witness testified that defendant had signed the original.
There was much evidence that defendant did not have a written contract with Public; that
the arrangement was oral and that defendant would not and did not sign the original of
the copy produced. As this is an appeal from a judgment of nonsuit, we must give
plaintiff the benefit of the evidence which tends to sustain his averments, and assume that
during the time he was general agent for Public--that is, until December 31, 1932,--
defendant was working under the written contract. Mr. Dempsey, who was Pacific Coast
manager of Independence until it was "taken over" by International, and vice-president
and Pacific Coast manager of International thereafter, testified that after Public was
"taken over" by International on December 31, 1932, regardless of how Public had
handled its business, he merged it with International and handled it his own way; that he
did not know how Public handled it; that he handled it "without regard to Public's
contracts or even looking to see if there were any."
There was no evidence that defendant ever entered into a written contract with
Independence or with International. The uncontradicted evidence was that he did not. Mr.
Dempsey testified that at all times his (International's) arrangements with defendant were
oral.
Defendant reported monthly--to Independence until it was "taken over" by International,
thereafter to International with respect to Independence business, to Public until it was
"taken over" by International, thereafter to International with respect to Public business--
on what is called a "bordereau" or "account current," showing business written, premiums
due, premiums collected, commissions allowable, unearned premiums, debits and credits,
and net. He remitted to the companies between the 15th and 25th of the third month
following the month in which the business was written. The amount due the companies
from defendant was the premiums collected, less unearned premiums, less his
commission. [102 Cal.App.2d 328] The companies "did not care" where defendant "got
the money as long as he paid the premium on policies written"; nor did they look to the
policyholders for payment; they looked only to defendant. They required defendant to
pay the premiums on insurance written if it was in effect 60 days; "didn't care whether he
collected it [them] or not"; "depended on Mr. Thomas Humphreys for payment of the
amount owing to the company, regardless of who the policy holders were, or when they
paid"; the companies "depended upon the credit of Mr. Humphreys, and not upon
anything else." If he extended credit to policyholders "that was his business." Mr.
Dempsey testified that he did not consider money collected by defendant on policies "as a
trust account."
An unearned premium is that portion of a premium which has not been earned by reason
of the fact that the policy has been cancelled; it is the premium for the unexpired term of
the policy. When a policyholder cancelled a policy he looked to defendant for the
unearned premium. The understanding and the course of business between the companies
and defendant was that if there was a cancellation of a policy after a premium had been
paid the policyholder would get back all of the unearned premium from defendant and the
companies would credit him with the amount.
Defendant did not, and he was not required to, segregate the premiums collected on
behalf of any of the companies (he was general agent for more than 20 insurance
companies) in a separate account or as trust funds. With the knowledge and consent of the
companies, he deposited premiums collected from all companies he represented and his
personal funds in his general commercial account, and paid money owing to the
companies from that account. Bills sent to policyholders were sent on defendant's
billheads, without the name of any insurance company.
In March, 1933, because of rumors as to the financial instability of International,
defendant told Mr. Dempsey, "I think the company is going to blow." Dempsey replied,
"I'll tell you what you do: We will know this in a little while. You can hold back the
December premiums. ... It will give you just that much more money to replace if they do
blow, but I don't think they are going to."
On April 19, 1933, International was adjudged insolvent and receivers were appointed by
the Court of Chancery, County of New Castle, Delaware. The record is not at all clear,
but apparently on the same day a receiver of International [102 Cal.App.2d 329] was
appointed by the Superior Court of the County of Los Angeles and a temporary
restraining order issued restraining International and its attorneys, agents and employees
from transacting any further business. The order was served on a vice-president of
International on April 20, 1933. It was not served on defendant. He did not learn of the
appointment of the receiver until some time in May, 1933. The uncontradicted evidence
was that he did not hear of the restraining order. On June 28, 1933, plaintiff was
appointed liquidator of International by the Superior Court of the County of Los Angeles,
and on July 24, 1933, of Independence and Public by the Superior Court of the City and
County of San Francisco.
Prior to April 19, 1933, defendant had issued a number of policies of insurance in
International, Independence and Public and had collected $13,539.94 in premiums from
such policyholders which he did not remit. Prior to April 19, 1933, he issued a number of
policies in these companies and after April 19, 1933, collected $5,177.51, premiums on
the policies which he did not remit.
On April 19, 1933, defendant learned of the appointment of the receivers in Delaware. He
testified that he did not do any further business for International. On the same day, he
replaced all of the existing policies which he had written in International, Independence,
and Public by getting other companies "to accept the coverage blanket" and within 15
days wrote new policies. He used the $13,539.94 which he had on hand on April 19,
1933, and the $5,177.51 which he collected thereafter, in replacing the insurance. In
addition to these moneys, he used $6,000 of his own funds in purchasing the new
policies. The money which he used to replace the insurance, other than that contributed
from his personal funds, was unearned premiums which he had received on policies that
had been written about three or four months before that time.
On May 15, 1933, defendant received a notice from the Delaware receivers suggesting
"that all insurance be replaced in other companies at the earliest possible date." fn. 1 [102
Cal.App.2d 330]
The action is by the liquidator to recover the $18,717.45 ($13,539.94 plus $5,177.51),
which defendant did not remit. A jury was empaneled to try the cause.
Plaintiff, in proving his case, established that on April 19, 1933, defendant had in his
possession unearned premiums in the amount of $24,944.35. In his answer defendant
alleged that he was authorized and entitled to and did offset these moneys against moneys
due by him. Plaintiff's proof showed that on April 19, 1933, $18,717.45 was due from
defendant to International, and that after setting off the unearned premiums of
$24,944.35, there was a balance due defendant of $6,226,90. Defendant did not press his
claim for the balance in this action.
The trial court concluded that there was no evidence that defendant "occupied the status
of trustee" on April 19, 1933; that the evidence showed without conflict that the
relationship was that of debtor and creditor; that defendant was the creditor on that date;
and that he had a right to offset unearned premiums in the amount of $24,944.35 against
plaintiff's claim of $18,717.45.
Plaintiff's position at the trial was: "It is our position that the thirteen thousand-odd
dollars collected prior to April 19th, a good part of it was unearned and it is returnable to
the policy holders, yes. But the policy holder, he has a claim against the company and not
against Mr. Humphreys. He is entitled to file a claim and to share on the same basis as
every other claimant. That is our position. So it makes no difference whether or not the
thirteen thousand-odd dollars is earned or unearned so far as Mr. Humphreys is
concerned, because it is the liquidator who is supposed to pay the claimant and not Mr.
Humphreys. That is our position in this throughout. As far as the $5,100 is concerned, we
are entitled only [102 Cal.App.2d 331] to that amount which is earned. If any part of it
was unearned, we are not entitled to that." In answer to the court's inquiry, he also stated:
"The Court: ... Here is Independence Indemnity and Public Indemnity. Are they
distinguishable from International, or does International just absorb both of those? Mr.
Doherty: [Counsel for plaintiff] International, as we understand it--and I think Mr. Betts
agrees--absorbed both. Independence was carried as the Independence Indemnity
Division of International, but Public was absorbed entirely, if I understand the situation."
The statement was correct. (See In re International Reinsurance Corp., 271 N.Y. 381 [3
N.E.2d 518, 519].)
Plaintiff here contends that the relationship between defendant and the companies was
that of trustee and beneficiary; that the moneys sued for belonged to the liquidator; that
the defendant did not have a right of offset; and that the evidence of defendant's liability
was sufficient to require denial of the motion for judgment of nonsuit. Defendant
contends that the evidence, giving plaintiff the benefit of every reasonable inference
therefrom, shows without conflict that on April 19, 1933, he was agent of International
only; that the relationship was that of debtor and creditor; and that he had a right of
offset.
[1] The adjudication of the insolvency of International on April 19, 1933, operated as a
breach of its policies (including those of Independence and Public) with its insured.
(Garrison v. Edward Brown & Sons, 25 Cal.2d 473, 482, 483 [154 P.2d 377].) [2] The
proceeding in which receivers of International were appointed in Delaware did not work
a dissolution of, nor was it for the purpose of liquidating, the corporation. (In re
International Reinsurance Corp., __________ Del.Ch. __________ [48 A.2d 529, 539].)
It was not until June 28, 1933, that an order was made in California for its liquidation.
Only upon the entry of the order directing its liquidation did International's liabilities to
its creditors and claims against its debtors becomes fixed. (Garrison v. Edward Brown &
Sons, supra, 25 Cal.2d 473, 482.)
[3] If the relationship of defendant to International on April 19, 1933, was that of trustee
and beneficiary, defendant would not be permitted to set off unearned premiums, for a
fiduciary cannot set off claims owed by him in his personal capacity against obligations
that he assumes as a trustee. If defendant was trustee of the premiums collected, he would
be obligated to remit them, deducting only commissions [102 Cal.App.2d 332] earned
thereon. (Garrison v. Edward Brown & Sons, supra, 25 Cal.2d 473, 477; Garrison v.
Edward Brown & Sons, 28 Cal.2d 28, 32 [168 P.2d 153].) If, however, the relationship of
defendant to International on April 19, 1933, was that of debtor and creditor, his only
obligation with respect to premiums received by him on policies of International
(including those of Independence and Public) was to pay the liquidator after his
appointment on June 28, 1933, the balance due International after crediting himself with
commissions on earned premiums and with unearned premiums after cancellation of
policies. In Garrison v. Edward Brown & Sons, supra, 28 Cal.2d 28, the court said, page
32: "That result [whether deductions could be made from premiums due the company]
depended on the character of the fund representing the collected premiums, that is,
whether that fund was held by the defendant as fiduciary under the agreement, or in a
debtor-creditor relationship pursuant to the claimed modification of the original
agreement."
A debtor is one who, by reason of an existing obligation, is or may become liable to pay
money to another, whether such liability is certain or contingent. (Civ. Code, § 3429.) A
creditor is one in whose favor an obligation exists, by reason of which he is, or may
become, entitled to the payment of money. (Civ. Code, § 3430.) [4] A debt is not a trust
and there is not a fiduciary relation between debtor and creditor as such. [5] If a person
receives money and it is the intention that he shall have the unrestricted use thereof, being
liable to pay a similar amount to a third person, a debt is created. (Rest. Trusts, § 12,
comments b, g; Preston & McKinnon v. Brennan, 135 Cal. 55 [66 P. 981].) [6] If funds
held by an agent are commingled with the knowledge and consent of his principal, in the
absence of an agreement to the contrary, the inference is that the agent becomes a debtor
to the amount received for the principal. (Rest. Agency, § 398, comment c. See, also, id §
72, comment e.) There was no evidence from which an inference could be drawn that
after Independence and Public were "absorbed" by International the relationship between
International and defendant was that of trustee and beneficiary. As will appear, the
relationship was that of debtor and creditor.
[7] The evidence is without conflict that Independence was "absorbed" by International
about November 1, 1931, and that thereafter defendant was the agent of International as
to all business of Independence. The evidence is also without [102 Cal.App.2d 333]
conflict that Public was "absorbed" by International on December 31, 1932. There is no
evidence that after International "took over" Public defendant continued with
International under the written contract he had had with Public. The evidence is without
conflict that after December 31, 1932, defendant was the agent of International as to all
business of Public, not under the former contract, but under an oral understanding
between International and himself. On April 19, 1933, defendant was the agent of
International only. The evidence is uncontradicted that from December 31, 1932, there
was but one company--International--doing business with defendant; that there was no
written contract between International and defendant; that Mr. Dempsey, in complete
charge of Independence's former business, of Public's former business, and of
International's business, did not know how Public handled its business, and that he did
business with defendant without regard to or knowledge of Public's written contract, and
solely on the oral understanding between himself and defendant. Again the evidence is
uncontradicted that defendant was obligated to return unearned premiums to
policyholders in case of cancellation of policies, and that with the approval of the
companies he at all times made such payments. Under the oral understanding between
International and defendant, the latter was bound to remit between the 15th and 25th of
the third month the amount due from policyholders on business written by him which had
been in effect 60 days whether received by him or not. At the time the policies were
issued the amount due was the full premium. The defendant, however, was given time
within which to make payments to International. Under the understanding, the amounts to
be paid to International by defendant, on cancellation of policies, were the earned
premiums and not the unearned premiums. It is clear that if policies were cancelled in the
ordinary course of business, defendant was credited with unearned premiums and was not
liable therefor, and that the understanding, and the only understanding, between
International and defendant was that their cross-claims should mutually compensate each
other. International looked to the credit of defendant alone. The earned premiums,
whether collected by defendant or not, were debts due from defendant to International.
International's relationship with defendant under their agreement was, therefore, that of
debtor and creditor. (Wallace v. American Life Ins. Co., 116 Ore. 195 [237 P. 974, 976];
Rhode Island Mut. Liability Ins. Co. v. [102 Cal.App.2d 334] Pierce (R.I.) 171 A. 243;
Horton v. Eagle Indemnity Ins. Co., 86 N.H. 472 [171 A. 322], in which it was said, page
325 [171 A.]: "When the insurer has taken the agent's credit as payment for the premium,
the effect of the statute is to entitle the agent to credit with the insurer for the amount of
the return [unearned] premium"; Kelly v. American Mine Owners' Casualty Corp., 161
Va. 206 [170 S.E. 580].)
[8] Plaintiff argues that there is evidence of a written contract between Independence and
defendant because defendant, on May 22, 1933, filed an action to collect the premium on
a policy which he alleged had been written by him as general agent for Independence, for
which he became liable to Independence in accordance with the general agency contract
between himself and Independence. The inference sought to be drawn from the existence
of a written contract is that a fiduciary relationship existed between Independence and
defendant. The suit was on a policy which had been cancelled on March 29, 1933. The
allegation does not say that there was a written contract. The fact alleged does not
establish either that there was a written contract with Independence or with International,
nor is it evidence of the relationship between International and defendant on April 19,
1933.
[9] Plaintiff relies on asserted admissions in defendant's answer in the present case and
allegations of the complaints in two actions brought by defendant to recover earned
premiums as evidence that Independence and Public continued to do business after they
were taken over by International. We find nothing in these pleadings inconsistent with the
uncontradicted evidence that after Independence and Public were "taken over" their
business was that of International. Plaintiff overlooks the fact that he alleged that prior to
April 19, 1933, "all of the assets and liabilities of" Independence and Public "were
transferred to and assumed by International," and that he repeatedly represented to the
trial court that prior to that date Independence and Public had been "absorbed" by
International. He cannot here contend otherwise.
[10] It is suggested that because in 1933 Penal Code, section 506(b) provided: "An
insurance agent ... who ... with the intention to fraudulently convert to his own use ...
appropriates, or otherwise uses or applies any money ... received by him as such agent ...
contrary to the instructions or without the consent of the company ... shall be guilty of
embezzlement," it must be held that respondent was [102 Cal.App.2d 335] acting in a
fiduciary capacity. The section is not relevant. There is no evidence that respondent acted
"contrary to the instructions or without the consent of the company." The evidence is to
the contrary.
[11] As a general rule, the powers of an agent of an insurance company are governed by
the general law of agency. [12] A general agent possesses such powers as have been
conferred by the company. (Frasch v. London & Lankershire F. Ins. Co., 213 Cal. 219,
223 [2 P.2d 147].) [13] Any lawful claims of an agent arising out of the agency by way of
reimbursement, compensation, or interest may generally be deducted by the agent from
the principal's claim in rendering an account. (Arnold v. San Ramon Valley Bank, 184
Cal. 632, 635 [194 P. 1012, 13 A.L.R. 320]; Denny v. Scoonover, 93 Ind.App. 118 [153
N.E. 779] (where the facts are similar to those in the present case); Wallace v. American
Life Ins. Co., 116 Ore. 195 [237 P. 974, 976]; J. L. Riley & Co. v. London Guaranty &
Acc. Co., 27 Ga.App. 686 [109 S.E. 676, 677]; 3 C.J.S. 59, § 168.) [14] A general agent
is not required to account to the insurer for unearned premiums collected by the agent
after cancellation of the policies by an adjudication of the insurer's insolvency where the
agent replaced such insurance in other companies. (Union Mut. Casualty Ins. Corp. v.
Insurance Budget Plan, 291 Mass. 62 [195 N.E. 903, 98 A.L.R. 1422]; German-American
Ins. Co. v. Tribble & Pratt, 86 Mo.App. 546, 554.) "There can be no dissent from the
doctrine that one who owes money to another on a written or other contract may meet its
demands by setting off counter- obligations arising on contract and existing in his own
favor." (Automobile etc. Co. v. Salladay, 55 Cal.App. 219, 226 [203 P. 163]. See Code
Civ. Proc., § 440.) [15] The debits and credits of a mutual account constitute cross-
demands which are deemed to compensate each other. (Hart v. Cooper, 47 Cal. 77; Jones
v. Mortimer, 28 Cal.2d 627 [170 P.2d 893].)
At the time International was adjudicated insolvent, April 19, 1933, and at the time the
liquidator was appointed, June 28, 1933, the statute providing for proceedings against
delinquent insurance companies was silent as to the right of setoff. (Stats. 1919, p. 265, as
amended Stats. 1933, p. 1420.) In 1935 the statute was amended to provide for setoff of
mutual debts and mutual credits. (Stats. 1935, p. 544.) [16] The statute was based on the
New York law and was but the enactment of the prevailing rule. (New York Title & M.
Co. v. Irving Trust Co., 241 App.Div. 246 [271 N.Y.S. 775, 778]; [102 Cal.App.2d 336]
Commonwealth v. Shoe & Leather Dealers' F. & M. Ins. Co., 112 Mass. 131, 135;
Newman v. Hatfield Wire & Cable Co., 113 N.J.L. 484 [174 A. 491, 494].) The
Bankruptcy Act provides for a setoff of mutual debts and mutual credits. (11 U.S.C.A. §
108.)
[17] A receiver occupies no better position than that which was occupied by the party for
whom he acts. "He takes the property and rights of the one for whom he was appointed
precisely in the same condition and subject to the same equities as existed before his
appointment and any defense good against the original party is good against the receiver."
(People v. California etc. Trust Co., 168 Cal. 241, 246 [141 P. 1181, L.R.A. 1918A 299].)
[18] Choses in action pass to a receiver of an insolvent subject to any right of setoff. [19]
It is well settled that the insolvency of a party against whom a setoff is claimed
constitutes a sufficient ground for the allowance of a setoff not otherwise available. [20]
The right is to be determined by the condition of things as they existed at the moment the
party was adjudged insolvent. If the right of setoff was available to defendant at that time
the insolvency of International did not defeat it. (People v. California etc. Trust Co., 168
Cal. 241, 246, 250 [141 P. 1181, L.R.A. 1918A 299]; Machado v. Borges, 170 Cal. 501
[150 P. 351]; In re Bank of San Pedro, 11 Cal.2d 313, 315, 316 [79 P.2d 1057]; Pendleton
v. Hellman Com. etc. Bank, 58 Cal.App. 448 [208 P. 702]; City Investment Co. v.
Pringle, 73 Cal.App. 782, 789-792 [239 P. 302]; Henderson v. Electric Loop Land Co., 96
Cal.App. 576, 581, 583-587 [274 P. 445]; 22 Cal.Jur. 437, § 14, et seq.) [21] The fact that
the policyholders received their unearned premiums did not create an unlawful
preference. (Scott v. Armstrong, 146 U.S. 499, 511 [13 S.Ct. 148, 36 L.Ed. 1059, 1063];
New York Title & M. Co. v. Irving Trust Co., 241 App.Div. 246 [271 N.Y.S. 775, 778].)
In the following cases a setoff of unearned premiums was allowed against an insolvent
company or its receiver or liquidator. (Carr v. Hamilton, 129 U.S. 252 [9 S.Ct. 295, 32
L.Ed. 669]; Scott v. Armstrong, 146 U.S. 499 [13 S.Ct. 148, 36 L.Ed. 1059]; Smith v.
Binder, 75 Ill. 492 (held insured had action against agent for unearned premiums);
Franzen v. Hutchinson, 94 Iowa 95 [62 N.W. 698, 699]; Smith v. National Credit Ins. Co.,
65 Minn. 283 [68 N.W. 28, 33 L.R.A. 511]; Newman v. Hatfield Wire & Cable Co., 113
N.J.L. 484 [174 A. 491, 494]; Johnson v. Button, 120 Va. 339 [91 S.E. 151], in which,
quoting from 22 Cyc. 1404, it was said, p. 153 [91 [102 Cal.App.2d 337] S.E.]: "A
company cannot recover premiums for the portion of the term of insurance after
insolvency has taken place. Nor can it maintain an action against an agent for the
recovery of premiums received by him, the consideration for which has thus failed." See
New York Title & Mortgage Co. v. Irving Trust Co., 268 N.Y. 547 [198 N.E. 397], and
same case below, 241 App.Div. 246 [271 N.Y.S. 775]. See, also, 44 C.J.S. 758, § 134(g).
[22] On April 19, 1933, defendant had a legal right to set off unearned premiums against
the amount he owed International. The fact that a receiver of International had been
appointed did not affect that right. The unearned premiums belonged to the policyholders.
[23] Neither the receiver nor the liquidator had any better right than International, upon
its adjudication as insolvent, to the unearned premiums, and International had none. The
domiciliary receivers approved the action of defendant in replacing the insurance.
Replacing the insurance and the setoff had been effected before plaintiff's appointment as
liquidator. Plaintiff had no rights until the date of his appointment, June 28, 1933. It was
on that date that his rights and powers became fixed. (Garrison v. Edward Brown & Sons,
supra, 25 Cal.2d 473, 482.) Plaintiff had no rights retroactively In the Garrison case (25
Cal.2d 483) the court said: "After the appointment of a liquidator, who may take
possession of all assets of the insolvent insurance company, it was the duty of the agent to
remit funds in his hands to the liquidator for the purposes of liquidation." (Italics added.)
[24] Disregarding conflicting evidence, giving plaintiff's evidence all the value to which
it was legally entitled, and indulging in every legitimate inference which may be drawn
from that evidence, the trial court was justified in finding, as a matter of law, that there
was no evidence of sufficient substantiality to support a verdict in favor of plaintiff.
Affirmed.
Shinn, P. J., and Wood (Parker), J., concurred.
FN 1. "To agents of International Re-Insurance Corporation, including Independence
Division and American Mine Owners Division.
"The International Re-Insurance Corporation was placed in the hands of the undersigned
as Receivers under an Order of the Court of Chancery of the State of Delaware in and for
New Castle County, dated April 19, 1933.
"This affects policies issued by: International Re-Insurance Corporation; Independence
Indemnity Company; Public Indemnity Company; and Underwriters Casualty Company.
"That the appointment was made due to the fact that the Corporation was insolvent in that
it was unable to meet its current and maturing obligations; that by the appointment of said
Receivers the liability of International Re- Insurance Corporation upon all of its policy
contracts and reinsurance or assumption agreements was terminated as of the 19th day of
April, 1933. It is, therefore, suggested that all insurance be replaced in other companies at
the earliest possible date.
"We are giving this information to you in order that you may be advised and act for the
best interests of yourself and customers. It must be understood that no expense can be
incurred for the account of the Receivers in replacing any insurance as the Receivers
cannot take any steps to replace the insurance or provide any funds for such
replacement."
Kim v. Sumitomo Bank (1993) 17 Cal.App.4th 974 , 21

Cal.Rptr.2d 834
[No. B060571. Second Dist., Div. Seven. Jul 21, 1993.]
SUK YONG KIM et al., Plaintiffs and Appellants, v. SUMITOMO BANK OF
CALIFORNIA, Defendant and Appellant.
[Opinion certified for partial publication. fn. * ]
(Superior Court of Los Angeles County, No. C671454, John Zebrowski and Valerie Lynn
Baker, Judges, and Robert W. Zakon, Temporary Judge. fn. † )
(Opinion by Woods (Fred), J., with Lillie, P. J., concurring. Johnson, J., concurred in the
judgment only.)
COUNSEL
Carl James Sohn for Plaintiffs and Appellants.
Leland, Parachini, Steinberg, Flinn, Matzger & Melnick, Richard Fannan and David. J.
Cowan for Defendant and Appellant.
OPINION
WOODS (Fred), J.
Plaintiffs appeal from a summary judgment granted in favor of defendant, contending that
defendant violated various duties it owed plaintiffs, who had taken out a construction
loan from defendant. Defendant appeals from the order denying its motion for attorney
fees. We affirm the judgment and reverse the order. [17 Cal.App.4th 977]
Factual and Procedural Synopsis
I. Factual background
In February 1985, plaintiffs Suk Yong Kim and Ok Sun Kim (Kims) entered into a
construction contract with Jonathan Pae to build an apartment building on property they
owned in Los Angeles.
On August 6, 1985, the Kims obtained a construction loan from defendant Sumitomo
Bank of California (Bank). In connection with the loan, the Kims signed a promissory
note, executed a deed of trust in favor of the Bank, and entered into a construction loan
agreement (Loan Agreement) with the Bank.
About the same time, the Kims also entered into a joint control agreement (Control
Agreement) with Pae and defendant Builders Disbursements, Inc. (BDI), whereby BDI
agreed to periodically disburse funds to the contractor upon the contractor's instruction.
The funds to be disbursed were to come from the Bank loan.
The Bank was not a party to the Control Agreement. The Control Agreement provided
that the Kims would leave the money with the lender to be provided to the disbursing
agent upon the agent's instruction.
Under the Loan Agreement, the Bank would advance the loan proceeds in accordance
with the disbursement plan attached to the Loan Agreement. The disbursement plan
provided for "all funds to be disbursed through [BDI], according to the schedule specified
in the [Control] agreement."
After the agreements were entered into and construction had commenced, problems
developed with the construction. Disputes arose over whether BDI properly disbursed the
funds, the Bank should have required a performance bond, the Bank should have
exercised its option to take over the construction, the Bank over-disbursed money to BDI,
and the Bank should indemnify the Kims for damages to a neighbor's property during
construction.
When the disputes were not resolved, the Kims filed a complaint against several
defendants. The Bank was named in causes of action for breach of fiduciary duty,
negligence and for indemnity. The Kims sought attorney fees on all causes of action.
II. Procedural background
The Kims appeal from the judgment entered in favor of Bank following the court's
granting the Bank's third summary judgment motion. The court [17 Cal.App.4th 978]
had summarily adjudicated certain issues on three previous motions (two by the Bank and
one by BDI).
On the Bank's first motion, Judge John Zebrowski summarily adjudicated that the Bank
did not have a duty to require a performance bond, to advise the Kims of the merits of
their action in entering into a business deal, to supervise the project, to step in and correct
damages to a neighbor's property, or to take over construction. The court also granted the
issue that the Bank did not act with malice toward the Kims. The court denied the issue
that the Bank did not have a fiduciary duty "because it is unclear what duty, if any, BDI
had and what duty Sumitomo may therefore have had regarding BDI's disbursements."
Judge Zebrowski denied the Bank's second summary judgment motion, as a triable issue
of fact existed with regard to an agency relationship between Sumitomo and BDI.
Temporary Judge Robert W. Zakon granted BDI's issue that BDI was not the Bank's
agent.
On January 22, 1991, Judge Valerie Baker granted the Bank's third summary judgment
motion, as there were no triable issues of material fact remaining.
Judge Baker denied the Bank's motion for attorney fees.
The parties filed timely notices of appeal from the judgment and from the motion denying
the request for attorney fees.
Discussion
I. Standard of review
[1] "Since a summary judgment motion raises only questions of law regarding the
construction and effect of the supporting and opposing papers, we independently review
them on appeal, applying the same three-step analysis required of the trial court."
(AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064
[225 Cal.Rptr. 203].) We must identify the issues framed by the pleadings, determine
whether the moving party has negated the opponent's claims, and determine whether the
opposition has demonstrated the existence of a triable, material factual issue. (Id., at pp.
1064-1065.)
"On appeal our review is limited to the facts shown in the documents presented to the
trial judge in making our independent determination of their [17 Cal.App.4th 979]
construction and effect as a matter of law." (Bonus-Built, Inc. v. United Grocers, Ltd.
(1982) 136 Cal.App.3d 429, 442 [186 Cal.Rptr. 357].) Facts not contained in the separate
statement do not exist. (United Community Church v. Garcin (1991) 231 Cal.App.3d 327,
337 [282 Cal.Rptr. 368].)
The bulk of the legal authority relied on by the Kims is the opinion of their counsel, an
opinion often unsupported by citation to any recognized legal authority. At times, the
relevance of the cited authority is not discussed or points are argued in conclusionary
form. "This court is not required to discuss or consider points which are not argued or
which are not supported by citation to authorities or the record." (MST Farms v. C. G.
1464 (1988) 204 Cal.App.3d 304, 306 [251 Cal.Rptr. 72].)
II. The Bank had no fiduciary duty to the Kims
[2] In Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, 476 [261 Cal.Rptr. 735], the
court observed: "It has long been regarded as 'axiomatic that the relationship between a
bank and its depositor arising out of a general deposit is that of a debtor and creditor.'
[Citation.] 'A debt is not a trust and there is not a fiduciary relation between debtor and
creditor as such.' [Citation.] The same principle should apply with even greater clarity to
the relationship between a bank and its loan customers."
In Price, the court noted that the plaintiffs did not contend that their agreement with the
bank satisfied the five-part test for a special relationship nor did they seek to prove
special circumstances that might conceivably give a fiduciary character to a
lender/borrower relation. (213 Cal.App.3d at p. 478.) Although not precisely stated, the
Kims argue that they had a special relationship with the Bank and that special
circumstances created a fiduciary relationship with the Bank.
California courts have determined that the relationship of a bank-commerical borrower
does not constitute a special relationship for the purposes of the covenant of good faith
and fair dealing. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222
Cal.App.3d 1371, 1399, fn. 25 [272 Cal.Rptr. 387].)
[3] First, the Kims argue that a special relationship existed because under the Loan
Agreement, the Bank was a control lender in that they were at the mercy of the Bank,
which had stripped them of their right to control their project. Counsel does not discuss
what a control lender is (other than claiming that the Bank is one). As authority, the Kims
rely on a law review article and Taylor v. Standard Gas Co. (1939) 306 U.S. 307 [83
L.Ed. 669, [17 Cal.App.4th 980] 59 S.Ct. 543], a case in which they claim the United
States Supreme Court stated that a lender that assumes a control position vis-a-vis a
borrower may occupy a fiduciary position to the borrower. The lender in Taylor was a
parent corporation which mismanaged the operations of the debtor/subsidiary
corporation.
The law review article relied on by the Kims states that: "As a lender, the bank may
become a control creditor by becoming so involved in the borrower's daily operations that
the bank has, in effect, dominated the borrower to the extent that the borrower has lost its
separate identity." (Note, The Fiduciary Controversy: Injection of Fiduciary Principles
into The Bank-Depositor and Bank-Borrower Relationships (1987) 20 Loy. L.A. L.Rev.
795, 800.) The article also refers to a merger of identities where the bank can command
the debtor to obey the bank's policy directives or the bank's being the alter ego of the
debtor before fiduciary duties are imposed. (Id., at pp. 800-801.)
No such relationship exists here. There is no indication that the Bank had any say in the
operation of the construction project. If anything, the Kims are complaining that the Bank
did not become involved in the daily operation of the construction project. The Kims do
not discuss how paragraphs 5, 7, and 8 of the Loan Agreement made the Bank a control
lender. Those sections do not give the Bank any authority over the Kims' project.
Moreover, although the Bank held the loan proceeds, the disbursement of the proceeds
was ultimately authorized by the contractor, not the Bank.
Second, the Kims claim that the Bank had a fiduciary duty to them because it took from
them their right to use and control the funds they borrowed from the Bank, the Bank used
and disbursed the Kims' money as it saw fit, and they had no choice but to rely on and
trust the Bank. The Kims' position is supported by the dicta in Price that a fiduciary
relationship might arise in a bank/borrower relation and a statement in Barrett v. Bank of
America (1986) 183 Cal.App.3d 1362, 1369 [229 Cal.Rptr. 16], that the relationship of a
bank to depositor is at least quasi-fiduciary, giving rise to a duty to disclose facts which
might place the bank or a third party at an advantage with respect to the customer. In
Barrett, involving an issue of constructive fraud, the bank's loan officer advised the loan
customers that they would be released from personal guarantees if they consummated a
merger of their business, but withheld information that the bank stood to benefit from the
merger. Furthermore, the loan customers had shared unfavorable confidential information
with the officer and relied on the officer's advice. There was no such advice or sharing of
confidential information here. The loan was a straightforward commercial transaction.
[17 Cal.App.4th 981]
The Kims also cite four out-of-state cases for the proposition that in special
circumstances, a fiduciary relationship may be created between a bank and a borrower.
(E.g. Klein v. First Edina National Bank (1972) 243 Minn. 418 [196 N.W.2d 619, 622-
623, 70 A.L.R.3d 1337]; First National Bank in Lenox v. Brown (Iowa 1970) 181 N.W.2d
178, 182-183; Stewart v. Phoenix Nat. Bank (1937) 49 Ariz. 34 [64 P.2d 101, 106]; Deist
v. Wachholz (1984) 208 Mont. 207 [678 P.2d 188, 193-195].) Counsel does not discuss
what the special circumstances were in those cases or how they are similar to the facts
here. The cases involved situations in which a bank allegedly withheld information from
the borrower about relevant transactions or the borrower relied on advice of the bank.
In the instant case, the crux of the Kims' complaint is that they relied on the Bank because
they did not have control over their money. The Kims also claim that the Bank failed to
disclose all material facts in that they were not told about the disbursement agent.
However, the loan documents, including the agreement with the disbursement agent,
signed by the Kims clearly stated how the money was to be disbursed. There was no need
for the Bank to explain what was stated in black and white.
Therefore, the Kims do not and cannot claim either that they relied on any advice of the
Bank or that the Bank withheld information from them. The Kims do not argue that they
were fraudulently induced into signing the agreements. Rather, it is apparent that the
Kims' objections to the disbursement procedure are before this court because they did not
pay attention to what they signed. It is more accurate to say that the Kims gave up the
right to use and control the money they borrowed than to say the Bank took that right
from them.
The Kims speculate that even if the Bank had explained the agreements, they would have
been coerced into signing them because if they rejected the agreements, their loan would
have been denied. fn. 1 The Kims point to no evidence indicating that the Bank would
have rejected a provision giving them the authority to approve the release of funds. The
Kims chose to sign the agreements. Contrary to the Kims' position, their relationship with
the Bank was that of a normal lender-borrower. Accordingly, we conclude that as matter
of law, the Bank had no fiduciary duty to the Kims.
III. The Bank did not have a duty to require a performance bond
Since the Kims' suggestion that the Bank had a duty to require a performance bond is
unsupported by any legal authority mandating such a duty, we [17 Cal.App.4th 982]
need not address this contention. The matter of who requested the waiver, i.e., whether it
was the Kims and the contractor or the contractor alone, is simply irrelevant. As far as
their argument that the Bank did not execute a written waiver of its own requirement for a
performance bond, the loan agreement signed by the Kims states that the provision for
the bond in "N/A." If the Kims were unaware that the performance bond had been
waived, it was because of their failure to read what they signed. IV. Since the Bank had
no duty to inspect, it did not negligently disburse the loan funds
The Kims contend that as the Bank agreed in the Loan Agreement to disburse money in
accordance with the Control Agreement, the Loan Agreement created a duty on the part
of the Bank to inspect the property to ensure that it was in fact disbursing the loan
proceeds according to the Control Agreement. The agreements provide otherwise.
Section 14 of the Loan Agreement provides that: "Borrower acknowledges and agrees
that the relationship between Borrower and Bank shall at all times remain solely that of
borrower and lender. Bank has no liability or obligation whatsoever in connection with
the Project or the construction or completion thereof or work performed on the Property.
Bank is not obligated to inspect the Project nor shall it be liable for the performance or
default of any architect, appraiser, contractor, subcontractor, materialman, laborer, or for
any failure to construct, complete, protect, or insure the Project, or for the payment of any
costs or expense incurred in connection therewith, or for the performance or non-
performance of any obligation of Borrower to Bank; and nothing, including without
limitation, any disbursement hereunder or the deposit or acceptance of any document or
instrument, shall be construed as a representation or warranty, express or implied, on its
part."
The Kims further agreed that the Bank would advance the loan proceeds in accordance
with the disbursement plan attached to the Loan Agreement. The plan provided for "all
funds to be disbursed through [BDI], according to the schedule specified in the [Control]
Agreement." The Control Agreement provided that "[n]othing herein shall be construed
to affect or prejudice any of the rights or privileges or agreements of the Lender in
connection with its aforesaid loan" and that the funds were not to be disbursed "Except
Upon Written Request of BDI."
The Kims suggest that the basic issue on appeal is whether after parties have entered a
contract, the intent of the parties and the purpose of the contract are more important than
the words of the contract. The Kims want [17 Cal.App.4th 983] this court to find an
implied obligation on the Bank's part to inspect even though the Loan Agreement
specifically states the Bank had no duty to inspect. Under their reasoning, a party to an
agreement could abrogate the agreement simply by not reading what it signed and then
complaining that it was not aware of the terms of the agreement. As against the Bank, the
Kims are the appropriate party to bear the costs of their failure to read what they signed.
According to the agreements, the Bank was to disburse the funds upon request from BDI.
The Kims do not point to any evidence that the Bank disbursed any funds without a
request from BDI. Their statement that BDI deliberately falsified draw requests to the
Bank is a concession on their part that the bank did not disburse funds without a request.
V. BDI is not the Bank's agent
[4] The Kims contend that BDI is the Bank's agent because the Bank inserted BDI into
the Loan Agreement and required the Kims to enter the Control Agreement. The Kims
argue that there is evidence of an implied agency in the retention of BDI, the Bank's
extensive prior relationship with BDI, and the Bank's exclusive use of and trust in BDI.
fn. 2
The fact that parties had a preexisting relationship is not sufficient to make one party the
agent for the other. In order to create an agency, the principal must confirm authority
upon the agent. (See Civ. Code, fn. 3 § 2315.) An agency is proved by evidence that the
person for whom the work was performed had the right to control the activities of the
alleged agent. (Malloy v. Fong (1951) 37 Cal.2d 356, 370 [232 P.2d 241].) When the
principal only controls the results of the work and not the means by which it is
accomplished, an independent contractor relationship is established. (White v. Uniroyal,
Inc. (1984) 155 Cal.App.3d 1, 25 [202 Cal.Rptr. 141].)
The evidence cited by the Kims does not suggest, much less prove, that the Bank
controlled BDI's activities or how it did business. Under the agreements, rather, it was the
Bank which acted, i.e., by disbursing the funds, at the direction of BDI. The Kims claim
that the Bank made them sign the Control Agreement and pay BDI.
The Kims once again seek shelter in the fact that they executed all the documents
presented to them to get the loan and that they did not know [17 Cal.App.4th 984] about
the Control Agreement until nine months fn. 4 after they executed the Loan Agreement.
There is no argument that the manner of the Kims signing of the agreements was
anything but voluntarily. Thus, the Bank did not "make" the Kims sign the Control
Agreement. Any lack of knowledge on their part was their fault.
Since the Kims have not shown the existence of a triable, material issue of fact, summary
judgment was properly granted, and we affirm the judgment entered in favor of the Bank.
VI. The Bank is entitled to reasonable attorney fees fn. ***
Disposition
The judgment is affirmed....* The Bank is awarded costs on appeal.
Lillie, P. J., concurred. Johnson, J., concurred in the judgment only.
FN *. Pursuant to California Rules of Court, rule 976(b), this opinion is certified for
publication with the exception of part VI and the second full sentence of the Disposition.
FN †. Pursuant to California Constitution, article VI, section 21.
FN 1. Interestingly, in their reply brief, the Kims state that if the Bank had informed them
it required a disbursing agent, they most likely would have accepted BDI as the agent for
the project.
FN 2. The Kims cited the deposition of Elizabeth Poulos, a bank officer, in support of
their claim that the Bank had an exclusive relationship with BDI. In the same portion of
the deposition in the record, Poulos also stated that the Bank did not specifically require
that only BDI be used as the disbursing agent and that she was aware of a recent case in
which another agent was used.
FN 3. Unless otherwise noted, all statutory references are to the Civil Code.
FN 4. The Kims' claim that they did know about the Control Agreement until nine months
later is not supported by any citation to the record.
FN *. See footnote, ante, page 974.
People v. Scott(1991) 229 Cal.App.3d 707 , 280 Cal.Rptr.

274
[No. B020765. Second Dist., Div. Seven. Apr. 24, 1991.]
THE PEOPLE, Plaintiff and Respondent, v. CEDRIC WAYNE SCOTT, Defendant and
Appellant.
(Superior Court of Los Angeles County, No. A752444, Henry P. Nelson, Judge.)
(Opinion by Woods (Fred), J., with Lillie, P. J., concurring. Separate dissenting opinion
by Johnson, J.)
COUNSEL
Fern M. Laethem, State Public Defender, under appointment by the Court of Appeal,
Nancy Gaynor and Kent Barkhurst, Deputy State Public Defenders, for Defendant and
Appellant.
John K. Van de Kamp, Attorney General, Richard B. Iglehart, Chief Assistant Attorney
General, Edward T. Fogel, Jr., Assistant Attorney General, Robert Carl Schneider and
Donald J. Oeser, Deputy Attorneys General, for Plaintiff and Respondent.
OPINION
WOODS (Fred), J.
We hold that People v. Dillon (1983) 34 Cal.3d 441 [194 Cal.Rptr. 390, 668 P.2d 697]
does not prohibit a defendant from being charged with malice-aforethought-murder in
violation of Penal Code [229 Cal.App.3d 710] section 187 and convicted of first degree
felony murder in violation of Penal Code section 189.fn. 1
Procedural and Factual Background
By information appellantfn. 2 was charged with four counts of murder, firearm
enhancements (§ 12022, subd. (a)), and special circumstance enhancements (§ 190.2,
subd. (a)(3) [multiple murders]). A jury convicted appellant of four counts of first degree
murder, found true all firearm and special circumstance enhancements, and after a brief
penalty trial, returned a verdict of life without possibility of parole. Appellant was
sentenced to state prison for life without possibility of parole.
Since appellant makes no general insufficiency of evidence claimfn. 3 and because the
issues are essentially legal, we synopsize the evidence. Our perspective favors the
judgment. (People v. Barnes (1986) 42 Cal.3d 284, 303-304 [228 Cal.Rptr. 228, 721 P.2d
110].)
In April 1984 Travis Clark, his common law wife Rebecca Hood, her son Derrick Hood,
and a friend, Larry Simmons were living in Mr. Clark's house on 4th Avenue in Los
Angeles. Mr. Clark, in charge of a cocaine operation, sold drugs from his fortified
residence, a "rock cocaine house." During the last few days of April, Mr. Clark's niece,
Marcia Cook, also stayed at his house.
On April 28, in the afternoon, "Petey,"fn. 4 one of Mr. Clark's cocaine sellers, arrived at
the house. He identified himself, Mr. Clark authorized his admittance, and someone
unlocked the iron-barred front door. Petey was allowed to enter Mr. Clark's bedroom
where he repaid money to Mr. Clark, redeemed his Magnum handgun, and left.
Late the next evening, April 29, Petey returned to the house with appellant. Marcia Cook
answered the door, informed her uncle, obtained his permission to admit them, unlocked
the iron front door, seated appellant in the living room and allowed Petey into Mr. Clark's
bedroom. Petey said a friend had a .38-caliber pistol for sale and Mr. Clark said he was
interested but would have to see it. Petey said he would return with it. Petey and appellant
left. [229 Cal.App.3d 711]
About 15 minutes later Marcia Cook again heard a knock on the front door. She answered
it and saw Petey and appellant. She told Mr. Clark, and after his approval, unlocked the
iron door and began pushing it open when a third person suddenly appeared from the side
of the house, put a gun to her head and told her to be quiet. The gun was the one Petey
had redeemed the day before.
Petey and the man with the gun entered the house while appellant, who had his hand
under his jacket, told Marcia Cook that he had a gun and if she moved she was dead. She
didn't believe he had a gun and pushed him over the porch railing and fled.
Some minutes later, both Marcia Cook and a next door neighbor of Mr. Clark heard
multiple gunshots in the Clark house.
Larry Simmons was shot twice in the chest. He lay bleeding in the dining room and soon
died.
Derrick Hood lay facedown in the hallway, hands above his head, fingers interlaced,
fatally shot once in the top of the head.
Travis Clark lay facedown in the master bedroom, hands above his head, fingers partly
interlaced, fatally shot once near the top of his head.
Rebecca Hood lay near her husband; she had been shot twice, with each bullet causing
two wounds, at least one-entering her brain-fatal.
Contentions
Appellant contends:
1. "The first degree murder convictions must be reversed because appellant was tried for
first degree felony-murder, an offense codified in Penal Code section 189, while he was
charged with a separate offense, murder-with-malice codified in Penal Code section 187."
2. The trial court erred in failing to instruct the jury that to convict appellant of first
degree murder they must unanimously agree on the "theory" of first degree murder.
3. The trial court's instructions erroneously allowed the jury to "presume" malice
aforethought.
4. "There was insufficient evidence of the intent to kill requisite to the special
circumstances allegation." [229 Cal.App.3d 712]
Discussion
1. Appellant contends "the first degree murder convictions must be reversed
because appellant was tried for first degree felony murder, an offense codified in
Penal Code section 189, while he was charged with a separate offense, murder with
malice codified in Penal Code section 187."
Each of the four counts of murder charged appellant in the same language: "The said ...
Cedric Scott [is] accused ... of the crime of Murder, in violation of Section 187 Penal
Code, a felony, committed as follows: ... on or about the 30th day of April, 1984, ... in the
County of Los Angeles, ... California, did willfully, unlawfully, and with malice
aforethought murder [name of victim] ...." The charging language made no reference to
section 189, to felony murder, nor to any underlying felony such as robbery.
The court instructed on, and the prosecutor argued, both theories of first degree murder:
premeditated murder and felony (robbery) murder.
Appellant does not claim that the accusatory pleading violated statutory requirements or
prosecutorial custom. Clearly it complied with section 950fn. 5 in providing the title of
the action, name of the court, name of the parties, and a statement of the public offense. It
also not only complied with section 951fn. 6 but exceeded its requirements by amplifying
"murder" with the words "willfully, unlawfully, and with malice aforethought." Further, it
satisfied the rudimentary requisites of section 952: "In charging an offense, each count
shall contain, and shall be sufficient if it contains in substance, a statement that the
accused has committed some public offense therein specified. Such statement may be
made in ordinary and concise language without any technical averments or any
allegations of matter not essential to be proved. It may be in the words of the enactment
describing the offense or declaring the matter to be a public offense, or in any words
sufficient to give [229 Cal.App.3d 713] the accused notice of the offense of which he is
accused. In charging theft it shall be sufficient to allege that the defendant unlawfully
took the labor or property of another."
Nor does appellant challenge pre-September 1, 1983, California decisional law that "[a]n
accusatory pleading charging murder in the short form prescribed by Penal Code sections
951 and 952, without specifying the degree of murder, adequately apprises an accused of
a first degree murder charge [citations] and it has long been settled that under such a
charge the accused may be convicted of first degree murder on the theory that the murder
was committed in the perpetration of one of the felonies specified in Penal Code section
189 [citations]." (In re Walker (1974) 10 Cal.3d 764, 781 [112 Cal.Rptr. 177, 518 P.2d
1129].) In fact appellant concedes that before September 1, 1983, " 'murder' was regarded
in California law as a single crime with the elements of: (a) unlawful killing; (b) of a
human being; (c) with malice aforethought. In 'murder' prosecutions, every defendant was
confronted with a variety of degrees of the crime, lesser included offenses and methods
by which the State might prove malice and degree ...."
[1a] What appellant does contend is that on September 1, 1983, People v. Dillon, supra,
34 Cal.3d 441 changed the single crime of murder into two separate crimes of murder.
One crime was malice-aforethought-murder, a violation of section 187. The second was
felony murder, without malice aforethought, a violation of section 189.
Based upon this premise appellant argues that he either was or may have been charged
only with malice murder (§ 187) but convicted of the separate, uncharged crime of felony
murder (§ 189), an act in excess of the court's jurisdiction. (People v. Lohbauer (1981) 29
Cal.3d 364, 368-369 [173 Cal.Rptr. 453, 627 P.2d 183].)
Appellant's argument has been made before. In People v. Watkins (1987) 195 Cal.App.3d
258, 265 [240 Cal.Rptr. 626] defendant "contend[ed] that since the case of People v.
Dillon ... a defendant may no longer be convicted of felony murder, a violation of section
189, when the information charges only murder with malice, a violation of section 187."
Watkins rejected the argument. It observed that "[t]he proposition that a defendant may
be convicted of felony murder even though the information charges murder with malice
can be traced back to People v. Witt (1915) 170 Cal. 104 [148 P. 928]." (People v.
Watkins, supra, at p. 265.)
Watkins held that the following Dillon language did not overrule Witt: "With respect to
any homicide resulting from the commission of or attempt [229 Cal.App.3d 714] to
commit one of the felonies listed in the statute, our decisions generally hold section 189
to be not only a degree-fixing device but also a codification of the felony-murder rule: no
independent proof of malice is required in such cases, and by operation of the statute the
killing is deemed to be first degree murder as a matter of law." (People v. Dillon, supra,
34 Cal.3d 441, 465.) We agree.
As correctly noted by Watkins, Dillon did not purport to "reinterpret" section 189.
(People v. Watkins, supra, 195 Cal.App.3d at p. 267, italics added.) Impelled by the
constitutional challenge of Mullaney v. Wilbur (1975) 421 U.S. 684 [44 L.Ed.2d 508, 95
S.Ct. 1881] and Sandstrom v. Montana (1979) 442 U.S. 510 [61 L.Ed.2d 39, 99 S.Ct.
2450] (due process requires the state to prove beyond a reasonable doubt each element of
the crime charged), Dillon merely clarified earlier characterizationsfn. 7 of the effect of
the felony-murder rule. Rather than "presuming" malice aforethought-a conclusive
presumption-as some earlier decisions had loosely phrased the effect of the felony-
murder rule, Dillon made clear the effect of the rule was to eliminate malice
aforethought. Thus, and in that sense, Dillon stated "the two kinds of murder are not the
'same' crimes and malice is not an element of felony murder." (People v. Dillon, supra, 34
Cal.3d at p. 476, fn. 23.)
But Dillon neither stated nor, as appellant incorrectly urges, implied that felony murder,
henceforth, was a different crime than it had been nor that it was a new crime. If, as
Dillon stated, felony murder was a different "kind" of murder than malice murder (and
therefore they were "not the 'same' crimes") it was still murder. We have found no
suggestion in Dillon, and appellant fails to cite any, that this kind of murder, felony
murder, codified since 1872, now requires charging language different than that
prescribed for 56 years.fn. 8 As Watkins holds, "[w]hether murder is committed with
malice, or in the context of felony murder, the crime committed is still murder. And while
identification of the statute violated is advisable, it is not required. [Citation.] Therefore,
an information charging murder is sufficient to charge either a violation of section 187 or
section 189." (People v. Watkins, supra, 195 Cal.App.3d 258, 267.) [229 Cal.App.3d
715]
Although appellant's "Dillon argument" has not been directly considered by the
California Supreme Court, its pronouncements on related issues are inconsistent with
appellant's contention.
[2] Carlos v. Superior Court (1983) 35 Cal.3d 131, 138 [197 Cal.Rptr. 79, 672 P.2d 862]
overruled on other grounds in People v. Anderson (1987) 43 Cal.3d 1104, 1115 [240
Cal.Rptr. 585, 742 P.2d 1306] stated, "the felony-murder rule in California serves two
purposes. First, whenever a killing occurs as a direct causal result of the commission or
attempt to commit a felony inherently dangerous to human life, the rule classifies the
killing as murder instead of manslaughter. [Citations.] It thus dispenses with the need to
prove malice aforethought. (People v. Dillon (1983) 34 Cal.3d 441, 472-476.) Second,
whenever the felony is one listed in section 189, the rule classifies the murder as one of
the first degree. In this context, felony murder substitutes for proof of premeditation."
Justice Mosk, the author of Dillon, concurred.
Even more telling is People v. Guerra (1985) 40 Cal.3d 377 [220 Cal.Rptr. 374, 708 P.2d
1252] where the prosecutor also relied on two separate first degree murder theories:
malice aforethought with premeditation and felony (robbery) murder. Guerra contended
the trial court erred in not requiring the jury to unanimously agree on their theory of first
degree murder. This contention is fundamental to appellant's position that, post-Dillon,
malice murder and felony murder are separate and distinct crimes. [3a] In rejecting this
contention, Justice Mosk (Dillon's author) stated, "It is settled, however, that 'in a
prosecution for first degree murder it is not necessary that all jurors agree on one or more
of several theories proposed by the prosecution; it is sufficient that each juror is
convinced beyond a reasonable doubt that the defendant is guilty of first degree murder
as that offense is defined by the statute.' [Citation.] Defendant provides no compelling
reason or authority that would require us to depart from this rule, and we decline to do
so." (Id. at p. 386.)
An argument analogous to appellant's "Dillon argument" was made in People v. Thomas
(1987) 43 Cal.3d 818 [239 Cal.Rptr. 307, 740 P.2d 419]. Thomas was charged with " 'the
crime of ... violation of Section 192.1 ..." and it was alleged he " 'did wilfully, unlawfully,
and with/o[ut] malice aforethought kill [the victim]' ..." (Id. at p. 824.) Thomas contended
that he was charged with voluntary manslaughter and by being convicted of involuntary
manslaughter was denied his due process right to fair notice of the charges against him.
The California Supreme Court unanimously rejected Thomas's contention. People v.
Thomas made "clear that a valid accusatory pleading need [229 Cal.App.3d 716] not
specify by number the statute under which the accused is being charged" (43 Cal.3d at p.
826), that specifying the wrong code section may be "immaterial" (id. at p. 827), that
surplus words are without consequence (id. at p. 828), and that even if the accusatory
pleading is unclear a defendant must demonstrate prejudice (id. at pp. 828-832). Where "
'[n]otice of the particular circumstances of the offense is given by ... the transcript of the
evidence before the committing magistrate ....' " that notice is "conclusive." (Id. at p.
829.)
[4] Thomas also instructively addressed, although in dictum, the pleading requirements of
murder: "However, it has long been the law in this state that an accusatory pleading
charging murder need not specify degree or the manner in which the murder was
committed. (In re Walker (1974) 10 Cal.3d 764, 781 [112 Cal.Rptr. 177, 518 P.2d 1129];
People v. Risenhoover (1968) 70 Cal.2d 39, 50 [73 Cal.Rptr. 533, 447 P.2d 925], cert.
den. Risenhoover v. California (1969) 396 U.S. 857 [24 L.Ed.2d 108, 90 S.Ct. 123].)
Thus, even where the People intend to rely on a felony-murder theory, the underlying
felony need not be pleaded in the information. (Walker, supra.) Neither is it necessary to
specifically plead the charged murder was wilful, deliberate, and premeditated. (People v.
Mendez (1945) 27 Cal.2d 20, 23 [161 P.2d 129].) So long as the information adequately
alleges murder, the evidence adduced at the preliminary hearing will adequately inform
the defendant of the prosecution's theory regarding the manner and degree of killing.
[People v. Roberts, (1953)] 40 Cal.2d at p. 486.)" (People v. Thomas, supra, 43 Cal.3d at
p. 829, fn. 5.)
[1b] Appellant's secondary argument is that even if an accusatory pleading, such as the
instant one, generally provides notice of felony murder, it fails to do so when "there was
no evidence of robbery or attempted robbery at the preliminary hearing," "the felony-
murder concept was not raised at voir dire," there was "little of such evidence at the trial,"
and the prosecutor's "belated request" for such jury instructions was objected to by
appellant. Appellant relies upon Sheppard v. Rees (9th Cir. 1990) 909 F.2d 1234.
As People v. Crawford (1990) 224 Cal.App.3d 1, 7 [273 Cal.Rptr. 472] observed, "the
Attorney General [in Sheppard] argued its murder pleading practice afforded the
defendant adequate notice, but conceded the prosecutor's conduct 'affirmatively misled
the defendant, denying him an effective opportunity to prepare a defense.' "
Crawford not only found Sheppard not binding ("[lower federal court decisions are not
binding, but are 'persuasive']") (224 Cal.App.3d at p. 8) but inconsistent with People v.
Murtishaw (1981) 29 Cal.3d 733, 751, footnote [229 Cal.App.3d 717] 11 [175 Cal.Rptr.
738, 631 P.2d 446], which is binding. Crawford also distinguished Sheppard on its facts.
We agree with Crawford that Sheppard cannot be squared with binding California
Supreme Court authority (e.g., People v. Murtishaw, supra, 29 Cal.3d 733, 751, fn. 11;
People v. Thomas, supra, 43 Cal.3d 818, 829, fn. 5; People v. Witt (1915) 170 Cal. 104
[148 P. 928]). We also conclude that Sheppard is factually distinguishable.
At the preliminary hearing, where appellant was represented by the same two attorneys
who represented him at trial, there was substantial evidence of robbery-murder. Marcia
Cook testified that shortly before the murders she had seen in the victims' house both a
$3,000 or $5,000 check and a .357 Magnum handgun. Detective Lemos testified that after
the murders neither item was found in the house. He also testified that although there was
narcotics paraphernalia to prepare and package cocaine for sale, there was no cocaine
found in the victims' house.
Additionally, prior to trial, the court informed prospective jurors that felony murder might
be involved. The court stated, "Go back to the idea of first degree murder. I said that one
type is a planned, premeditated, deliberated upon murder.
"Another type of first degree murder is the murder that occurs in the course of certain
criminal acts and they are defined in the law. Among those would be a murder that occurs
in the course of rape, a murder that occurs in the course of a robbery, and a murder that
occurs in the course of a burglary."
No counsel objected to the court's remarks or suggested the remarks were inapplicable to
the instant case.
Almost immediately after the trial began, and while the prosecutor was still examining
his first witness, the prosecutor expressly stated his intention to rely upon a felony-
murder theory. He stated, "It's the People's version of this that, first of all, there was a
conspiracy to commit a robbery and there was an attempted robbery, and the fact that
there is a-what appears to be a checbook [sic] near his head is of some relevance to show
that attempted robbery."
Defense counsel expressed neither objection nor surprise.
During trial there was substantial evidence of robbery (circumstantial evidence that both
handguns and narcotics had been stolen). Rather than [229 Cal.App.3d 718] detail that
evidence we merely quote from page 51 of appellant's opening brief: "The prosecution
produced substantial evidence that appellant intended to aid in a robbery."
We conclude that appellant's contention is not well taken.
2. Appellant contends the trial court erred in failing to instruct the jury that to convict
appellant of first degree murder they must unanimously agree on the "theory" of first
degree murder.
[3b] This contention, based upon the same premise as appellant's first contention, was
expressly rejected by the California Supreme Court two years after Dillon: " 'in a
prosecution for first degree murder it is not necessary that all jurors agree on one or more
of several theories proposed by the prosecution; it is sufficient that each juror is
convinced beyond a reasonable doubt that the defendant is guilty of first degree
murder ....' " (People v. Guerra, supra, 40 Cal.3d 377, 386.)
3. Appellant contends the trial court's instructions erroneously allowed the jury to
"presume" malice aforethought.
Appellant does not literally contend that the trial court instructed the jury they might
"presume" malice aforethought. The trial court gave the standard CALJIC instructions on
murder (CALJIC No. 8.10 (1983 revision)), malice aforethought (CALJIC No. 8.11
(1983 revision)), deliberate and premeditated murder (CALJIC No. 8.20 (1979 revision)),
first degree felony murder (CALJIC No. 8.21), and first degree felony murder aider and
abettor (CALJIC No. 8.27 (1984 revision)). Appellant makes no complaint about any of
these instructions.
Rather, appellant's contention, a reconfiguration of his "Dillon argument," is that by
rejecting his earlier arguments we "must read Guerra to 'reaffirm' that felony-murder is
not an offense separate from [malice] murder and that first degree felony murder is
codified by section 187." Having to so read Guerra, appellant concludes, we have
reinserted malice aforethought as an element of felony murder-but allowed the jury to
"presume" its presence.
[1c] As we have earlier explained, we reject appellant's "Dillon argument" and find this
reconfiguration of it no more persuasive. Dillon made clear that malice aforethought is
not an element of felony murder. Guerra did not retreat from that conclusion. We find no
error in the trial court's murder instructions. [229 Cal.App.3d 719] 4. Appellant contends
"there was insufficient evidence of the intent to kill requisite to the special circumstances
allegation."
[5a] As appellant concedes, the trial court anticipated People v. Anderson (1987) 43
Cal.3d 1104 [240 Cal.Rptr. 585, 742 P.2d 1306] and appropriately instructed the jury that
with respect to the special circumstance allegations they must find appellant "intended to
aid in a killing."
Appellant contends the record lacks substantial evidence of such intent. [6] In
considering this contention we "review the whole record in the light most favorable to the
judgment below to determine whether it discloses substantial evidence such that a
reasonable trier of fact could find the defendant guilty beyond a reasonable doubt."
(People v. Johnson (1980) 26 Cal.3d 557, 562 [162 Cal.Rptr. 431, 606 P.2d 738, 16
A.L.R.4th 1255].)
[5b] A reasonable trier of fact could have found the following. Appellant, Petey, and two
other persons planned to rob Travis Clark and to kill him and whomever else was present
in his house at the time of the robbery. To effect the plan, Petey redeemed his Magnum
handgun from Clark the day before the robbery. On the scheduled robbery day, Petey
brought appellant with him to Clark's house 15-30 minutes before the robbery. Appellant
was thus able to familiarize himself with the interior of the house, while Petey was inside
Clark's bedroom, and to note who besides Clark was present. Meanwhile Petey created a
ruse, that he would return with a .38-caliber gun for sale, to ensure that he and his
accomplices would be readily admitted.
Around midnight, when Petey and appellant returned, they made no effort to hide their
identity from Marcia Cook, who had seen them both only a short time ago, from Travis
Clark, who of course knew Petey well, or from anyone else inside the residence. As part
of the plan, as soon as Marcia Cook had unlocked the iron front door and was pushing it
open, the third accomplice suddenly appeared and pointed a gun to Marcia Cook's head, a
gun Petey had redeemed the day before.
The perpetrators had determined to kill Clark because they knew he could identify them,
he would want revenge, and he would have to take revenge to remain a viable cocaine
dealer, and he had the means to take revenge.
When Larry Simmons appeared in the front room he was fatally shot twice. When
Derrick Hood entered the hallway he was ordered to lie facedown with his hands behind
his head. He was shot in the head. Travis Clark [229 Cal.App.3d 720] was similarly
ordered to lie down and similarly shot. When Travis's wife Rebecca entered the house she
was shot twice.
The perpetrators removed two of Clark's guns from their holsters, took Mr. Clark's pouch
in which he kept another gun, his wallet, and other possessions, and may also have taken
cocaine. They then departed through the ajar front door. Two of them entered a waiting
blue and white, two-door Monte Carlo and left. The third ran down the street.
We find substantial evidence appellant intended to aid in the killing of the four victims.
Disposition
Lillie, P. J., concurred.
JOHNSON, J.
I respectfully dissent in order to register my concern the formal charge against appellant
appears constitutionally insufficient to support a felony- murder conviction. As an
additional and independent ground for dissenting, I am concerned there was an absence
of any timely, reasonable notice appellant was being prosecuted for this crime. Either of
these failures constitutes a denial of appellant's due process rights and requires reversal.
I. The Failure to Charge Defendant With a Felony or With Felony Murder
It is clear a state has the right to establish forms of pleading to be observed in its own
courts, provided the guaranties of the federal Constitution involving the protection of life,
liberty, and property are obeyed. (Ex Parte Reggel (1885) 114 U.S. 642, 651 [29 L.Ed.
250, 253, 5 S.Ct. 1148]; People v. Covington (1934) 1 Cal.2d 316 [34 P.2d 1019]; People
v. Robinson (1930) 107 Cal.App. 211 [290 P. 470].) Thus, the California Legislature is
free to charge a defendant of a crime in the "short form," without technical averments, in
"substantially" the language of the Penal Code, and meet the sufficiency of pleading
standard necessary to pass constitutional, and particularly due process, concerns (People
v. Quinn (1949) 94 Cal.App.2d 112 [210 P.2d 280]; People v. O'Neal (1934) 2
Cal.App.2d 551 [38 P.2d 430], cert. den. 295 U.S. 731 [79 L.Ed. 1680, 55 S.Ct. 646]).
Counterbalanced against the state's freedom to interpose its own pleading standards,
however, is the constitutional requisite that the pleading [229 Cal.App.3d 721]
adequately advise the defendant of the nature and cause of the charges against him. (U.S.
Const., Amends. VI, XIV; Rogers v. Peck (1905) 199 U.S. 425 [50 L.Ed. 256, 26 S.Ct.
87]; Garland v. Washington (1914) 232 U.S. 642 [58 L.Ed. 772, 34 S.Ct. 456].) Notions
of substantial justice underlie this express mandate of notice. Ultimately, the advisement
of charges ensures defendants will have a reasonable opportunity to prepare and present
their defenses and not be taken by surprise by evidence offered at trial (In re Hess (1955)
45 Cal.2d 171 [288 P.2d 5]; In re Oliver (1948) 333 U.S. 257, 273 [92 L.Ed. 682, 694, 68
S.Ct. 499]).
The constitutional necessity of notice was aptly set forth in People v. Jones (1990) 51
Cal.3d 294 [270 Cal.Rptr. 611, 792 P.2d 643]. There, the California Supreme Court
elucidated these concepts by stating: "The 'preeminent' due process principle is that one
accused of a crime must be 'informed of the nature and cause of the accusation.' (U.S.
Const., Amend. VI.) Due process of law requires that an accused be advised of the
charges against him so that he has a reasonable opportunity to prepare and present his
defense and not be taken by surprise by evidence offered at his trial. (People v. Thomas
(1987) 43 Cal.3d 818, 823 [239 Cal.Rptr. 307, 740 P.2d 419], and cases cited.) [¶] Thus,
the right to defend has two related components, namely, the right to notice of the charges,
and the right to present a defense to those charges." (Id. at p. 317.)
The People's argument that appellant received the constitutionally mandated notice of the
felony-murder charge in this action, despite the absence of either a charge of felony
murder or an underlying felony, is twofold. First, relying on People v. Watkins (1987) 195
Cal.App.3d 258 [240 Cal.Rptr. 627], the People assert that the Watkins reasoning, which
is based upon its own interpretation of People v. Witt (1915) 170 Cal. 104 [148 P. 928],
supports the proposition a defendant may be convicted of felony murder when the
information only charges murder with malice.
But Watkins erroneously interprets, and unconstitutionally expands the Witt holding. The
Witt decision is limited. It determined only that the trial court did not err in instructing
the jury that where the killing is done in the perpetration or attempt to perpetrate one of
the felonies specified in section 189 of the Penal Code, the jury has no option but to find
the killing to be murder in the first degree. Witt is necessarily premised upon an
assumption the defendant was placed on notice of the charge against him. Therefore, it
did not (and, in fact, could not) decide whether the failure to charge or notify defendant
would preclude a trial judge from instructing, and, therefore, convicting, as to that count.
Yet, Watkins so holds.
The instant case would be a different one if the People had initially charged appellant
with the underlying felony and with malice aforethought [229 Cal.App.3d 722] murder
without charging felony murder, as the prosecution did in Witt. Given that factual setting,
appellant would be on notice as to a possible charge of felony murder.fn. 1 But here,
neither robbery, nor another underlying felony, nor felony murder was ever charged,
despite ultimate prosecution and conviction for the crime of felony murder. Appellant
therefore was deprived of his constitutional right to be formally notified of the felony-
murder charge, and of the ability to adequately defend against it.
The prosecution attempts to remedy this flaw by coupling Witt/Watkins with the decision
in People v. Dillon, supra, 34 Cal.3d 441. They argue, and the majority holds, that Dillon
does not attempt to characterize felony murder and malice aforethought murder as two
separate crimes. Therefore, because of the purported identity of these two crimes,
appellant was sufficiently on notice of the felony-murder charge despite its absence in the
information.
But the language of the Dillon decision suggests otherwise. The court noted: "... (T)he
two kinds of first degree murder in this state differ in a fundamental respect: in the case
of deliberate and premeditated murder with malice aforethought, the defendant's state of
mind with respect to the homicide is all-important and must be proved beyond a
reasonable doubt; in the case of first degree felony murder it is entirely irrelevant and
need not be proven at all." (34 Cal.3d at pp. 476-477, italics added.) Thus, malice is no
longer presumed; it is simply not an element of the crime of felony murder. Meanwhile,
in felony murder the prosecution must prove an element not required for malice
aforethought murder, i.e., that the murder arose out of the commission of a felony of a
certain sort.
The constitutional challenge the Supreme Court faced in Dillon was based upon the
holding set forth in In re Winship (1970) 397 U.S. 358, 364 [25 L.Ed.2d 368, 375, 90
S.Ct. 1068]. Winship ruled that an accused is protected against conviction "except upon
proof of every fact necessary to constitute the crime with which he is charged." It held no
element of a [229 Cal.App.3d 723] crime can be "presumed." In order to comply with
this constitutional mandate, the Dillon court determined malice was not an element of
felony murder, and, in doing so, necessarily destroyed the presumption of malice created
by and relied on in Witt and its progeny. Winship, and Dillon's rationale for avoiding it,
further support the principle that felony murder and malice aforethought murder are
separate and distinct crimes. To find otherwise would be constitutionally impermissible.
While Dillon correctly suggests felony murder and malice aforethought murder can both
be murder in the first degree, their similarity ceases there. As stated in Dillon, the two
crimes are fundamentally different: malice aforethought murder requires an examination
of defendant's state of mind for the presence of malice, felony murder does not.
Neither Dillon nor Witt nor Watkins, then, stands for the proposition that notice is given
of potential liability for another crime where, as here, the crimes instructed on contain an
element different from that included in the crime charged. Because of the elemental
differences between malice aforethought murder and felony murder, a defendant must
necessarily modify the position he takes with regard to defenses interposed, witnesses
called, questions asked, objections made and overall posturing of his case. Thus, he will
assuredly be prejudiced by the absence of a charge in the information notifying him as to
which of these two distinct crimes the prosecution intends to pursue. Just as the
prosecution would not present a malice aforethought murder charge to the jury in the
same fashion as a felony murder, neither would defendant present his defense in the same
way. Deprived of adequate notice, a defendant will be forced to "shoot from the hip," and,
as such, will be denied the opportunity to present his best defense. This result is not only
intrinsically unfair, but as discussed above, clearly unconstitutional.
II. The Failure to Provide Timely, Actual Notice of the Felony-murder Charge
As a second and independent reason for dissenting in this case, I am concerned the
prosecution gave untimely actual notice it was intending to attempt to convict appellant
of felony murder. Even if the failure to charge felony murder in the information did not
deny appellant due process, the failure to apprise him in any way of the intent to base
liability on that crime-rather than malice aforethought murder-until the trial itself
deprived him of the opportunity to prepare a defense to this entirely different basis of
liability. As pointed out in Sheppard v. Rees (9th Cir. 1989) 909 F.2d 1234, error of this
nature is so fundamental as to be reversible per se. [229 Cal.App.3d 724]
While Sheppard v. Rees is not controlling law in this jurisdiction, it is entitled to great
weight (Central Bank v. Superior Court of Sacramento County (1973) 30 Cal.App.3d 962
[106 Cal.Rptr. 912]). I find it persuasive as well, particularly given the similarity in the
timing of notice.
In Sheppard, as here, defendant was charged only with one count of murder under Penal
Code section 187. At no time during pretrial proceedings was the felony-murder
allegation raised, and it was not until a request for jury instructions was made that
defendant became aware of the state's reliance on that crime. Despite defendant's
vehement objection, the jury was instructed on felony murder. The defendant was
ultimately convicted of murder in the first degree by way of a general verdict.
The defendant's argument in Sheppard was similar to the one raised at bar, that is,
because neither felony murder nor an underlying felony was charged, he did not receive
adequate notice to prepare a proper defense to felony murder.
The main question before the Sheppard court was not whether there was adequate notice,
since it was clear, and the state ultimately conceded, that there was not. Sheppard
premised its finding on that threshold issue on the decision in Gray v. Raines (9th Cir.
1981) 662 F.2d 569, 571. In that case the Ninth Circuit had held "A person's right to
reasonable notice of a charge against him, and an opportunity to be heard in his defense-a
right to his day in court-are basic in our system of jurisprudence ...." (Quoting In re
Oliver (1948) 333 U.S. 257, 273 [92 L.Ed. 682, 694, 68 S.Ct. 499].) The failure to give
actual notice of the intent to seek to convict defendant of felony murder until late in the
trial deprived Sheppard of that basic right.
The Sheppard court focused most of its attention on the question of whether the harmless
error rule applied to this denial of due process. It held that despite Chapman v. California
(1967) 386 U.S. 18 [17 L.Ed.2d 705, 87 S.Ct. 824, 24 A.L.R.3d 1065], the harmless error
rule did not apply, since the constitutional error in Sheppard was of a fundamental nature.
The court stated:
"A trial cannot be fair unless the nature of the charges are adequately made known to him
or her in a timely fashion. ... Here, the prosecutor 'ambushed' the defense with a theory of
culpability after the evidence was already in (and) after both sides had rested .... This new
theory then appeared in the form of unexpected jury instructions permitting the jury to
convict on a theory that was neither subject to adversarial testing, nor [229 Cal.App.3d
725] defined in advance of the proceeding. [¶] Moreover, the right to counsel is directly
implicated. That right is next to meaningless unless counsel knows and has a satisfactory
opportunity to respond to the charges against which he or she must defend. Sheppard's
counsel had no occasion to defend against a felony-murder theory during the evidentiary
hearing phase of the trial. This error affected the composition of the record. ... Defense
counsel would have added an evidentiary dimension to his defense designed to meet the
felony-murder theory had he known at the outset what he was up against." (Sheppard v.
Rees, supra, 909 F.2d at p. 1237.)
Sheppard is precisely on point, and its rationale even more persuasive here since, as
appellant suggests, the case at bar gave even less notice of a felony-murder charge than
did the facts in Sheppard. Here, there was virtually no evidence of robbery at appellant's
preliminary hearing, and very weak evidence of robbery brought out at trial that the
victim's guns were missing. Further, the prosecution first expressly mentioned its reliance
upon a felony-murder charge after its initial jury instruction discussion with appellant's
counsel and the court. This mention came after both sides had rested and far too late for
appellant to counter the charge before the jury. It is precisely this sort of "back door"
notice against which the due process clause protects.
The People attempt to claim appellant had notice of the intent to charge felony murder
early in the trial proceedings because the prosecutor mentioned the definition of felony
murder during voir dire of the jury. However, read in context it is clear the prosecutor was
only mentioning felony murder in the course of explaining the concept of malice
aforethought. A reasonable defendant or reasonable defense lawyer listening to this
explanation during voir dire would not anticipate the prosecution was planning on
seeking a conviction for felony murder instead of or in addition to malice aforethought
murder. (This even assumes that notice of such a fundamental shift in charges which
comes as late as jury voir dire provides a defendant with his due process right to prepare
and present a defense to the new offense.)
Contrary to the majority's representations, when the prosecution does not notify the
defendant of a charge until immediately before trial, evidence supplied at trial of that
charge will not, post facto, serve as notification. (In re Hess (1955) 45 Cal.2d 171 [288
P.2d 5]; In re Carlos S. (1979) 94 Cal.App.3d 377, 380 [156 Cal.Rptr. 442], and cases
cited therein.) In any event, because of the prosecution's failure to notify defendant of the
felony-murder charge until late in the trial, defendant was misled to his prejudice and
prevented from preparing an effective defense (People v. Lohbauer (1981) 29 Cal.3d 364,
370 [173 Cal.Rptr. 453, 627 P.2d 183]). He was, therefore, unconstitutionally deprived of
a fair trial. [229 Cal.App.3d 726]
For the reasons discussed above, and because error of this fundamental nature cannot be
harmless (Sheppard v. Rees, supra, 909 F.2d 1234), I would reverse the conviction.
FN 1. Unless otherwise noted, all statutory references are to the Penal Code.
FN 2. His trial was severed from two codefendants.
FN 3. Appellant does contend the evidence is insufficient to establish intent to kill, a
special circumstance requisite. We separately consider this claim.
FN 4. Albert Egger Scott, appellant's brother and initial codefendant.
FN 5. The section provides: "The accusatory pleading must contain:
"1. The title of the action, specifying the name of the court to which the same is
presented, and the names of the parties;
"2. A statement of the public offense or offenses charged therein."
FN 6. The section provides:
"An indictment or information may be in substantially the following form: The people of
the State of California against A.B. In the superior court of the State of California, in and
for the county of ______________________ The grand jury (or the district attorney) of
the county of ______________________ hereby accuses A.B. of a felony (or
misdemeanor), to wit: (giving the name of the crime, as murder, burglary, etc.), in that on
or about the ___ day of ______________________ 19___, in the county of
______________________, state of California, he (here insert statement of act or
omission, as for example, 'murdered C.D.')."
FN 7. "In various contexts this court has said, for example, that the felony-murder rule
'presumes' malice (People v. Ketchel (1969) 71 Cal.2d 635, 642 [79 Cal.Rptr. 92, 456
P.2d 660]), 'ascribes' malice (People v. Washington (1965) supra, 62 Cal.2d 777, 780 [44
Cal.Rptr. 442, 402 P.2d 130]), 'posit[s]' malice (People v. Ireland (1969) supra, 70 Cal.2d
522, 538 [75 Cal.Rptr. 189, 450 P.2d 580, 40 A.L.R.3d 1323]), 'imposes' malice (People
v. Phillips (1966) supra, 64 Cal.2d 574, 583, fn. 6 [51 Cal.Rptr. 225, 414 P.2d 353]), or
that it results in an 'imputation' of malice (People v. Burton (1971) 6 Cal.3d 375, 385 [99
Cal.Rptr. 1, 491 P.2d 793], or an 'implication' of malice (People v. Poddar (1974) supra,
10 Cal.3d 750, 755 [111 Cal.Rptr. 910, 518 P.2d 342])." (People v. Dillon, supra, 34
Cal.3d 441, 473, fn. 20.)
FN 8. Section 952 and related pleading statutes were substantially amended in 1927.
FN 1. Assuming Watkins were deemed to have properly construed the Witt decision, I
question the continued viability of that rationale after People v. Dillon (1983) 34 Cal.3d
441 [194 Cal.Rptr. 390, 668 P.2d 697]. That rationale is based on a line of cases dating
back to People v. Milton (1904) 145 Cal. 169 [78 P. 549], which held there was only one
type of murder because the malice aforethought element of the crime was "assumed" in
felony-murder prosecutions. Accordingly, since there was only one type of murder with
identical elements a "malice aforethought murder" charge sufficed for a "felony murder"
conviction. However, as explained below, Dillon changed all that. In order to save the
felony-murder doctrine from a constitutional attack that it conclusively presumed an
element of the crime, i.e., malice aforethought, the Supreme Court held there were two
distinct crimes-one requiring malice and the other not requiring malice but only the
involvement in a certain range of felonies. In so doing, it removed the underpinning for
Watkins and for the Watkins court's interpretation of Witt.
Copesky v. Superior Court (San Diego National Bank)

(1991) 229 Cal.App.3d 678 , 280 Cal.Rptr. 338
[No. D013448. Fourth Dist., Div. One. Apr. 23, 1991.]
PAUL COPESKY, Petitioner, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY,
Respondent; SAN DIEGO NATIONAL BANK, Real Party in Interest.
(Superior Court of San Diego County, No. N45424, William C. Pate, Judge.)
(Opinion by Froehlich, J., with Benke, Acting P.J., and Huffman, J., concurring.)
COUNSEL
Duke, Gerstel, Shearer & Bregante, Bryan R. Gerstel, John S. Huiskamp and Paul A.
Zumberge for Petitioner.
Miller, Boyko & Bell, Roy Morrow Bell and Gary D. Garcia for Real Party in Interest.
[229 Cal.App.3d 680]
OPINION
FROEHLICH, J.
This petition seeks review of the sustaining without leave to amend of a demurrer to one
cause of action of petitioner's complaint. The cause so terminated was entitled, and is
properly characterized as, "Breach of the Implied Covenant of Good Faith and Fair
Dealing." By means of this cause of action the petitioner sought to recover tort damages
because of the real party in interest bank's wrongful cashing of checks drawn without
proper signature. The allegations of the complaint were obviously drawn so as to bring
the action within the rationale of this court's decision in Commercial Cotton Co. v. United
California Bank (1985) 163 Cal.App.3d 511 [209 Cal.Rptr. 551] (hereinafter Commercial
Cotton). In argument before the superior court, counsel for petitioner contended the case
was controlled by Commercial Cotton, and indeed that his case was "a mirror image of
Commercial Cotton."
The trial court responded "Commercial Cotton is flat out wrong. ... I don't think our
appellate court is going to uphold the decision they took in Commercial Cotton back in
1985. I don't think they would do that in this case." The principal category of argument in
the petitioner's brief is entitled "The sole issue is whether Commercial Cotton remains
viable." While this pithy characterization of the issue is perhaps more abbreviated than
would become an appellate court, it accurately goes right to the point. [229 Cal.App.3d
681]
We believe this is one of those unusual cases in which writ review at the pleading stages
is appropriate (see Coulter v. Superior Court (1978) 21 Cal.3d 144, 148 [145 Cal.Rptr.
534, 577 P.2d 669]), and therefore undertake the in-depth review of the Commercial
Cotton principle referenced by petitioner. As will be seen below, we will agree with the
trial court in concluding that certain propositions of law enunciated in Commercial
Cotton are no longer viable (although we would not accept the argument that it was "flat
out wrong," at least at the time of its determination).
1. Factual and Procedural Backgroundfn. 1
Petitioner is an individual doing business as Torrey Pines Chiropractic Clinic. Petitioner
maintained an ordinary commercial checking account with real party in interest bank.
Checks from the account were authorized upon the signature only of petitioner or his
wife. Over a period of some 18 months, from March 1987 through September 1988, a
number of checks with forged signatures were presented to the bank; all checks were in
denominations under $1,000. The forgeries were accomplished by petitioner's
bookkeeper, using his signature stamp. Petitioner's failure to discover the forgeries over
the period of 18 months was the result of the absence of his wife from the business for
that period of time, the wife being the person who customarily supervised the
bookkeeper's activities. The total of improperly withdrawn funds was $32,913.
The bank was negligent in cashing the checks by failing to require identification from the
bookkeeper when the checks were presented, and also by accepting checks executed with
a signature stamp rather than manual signature. Petitioner alleged that the checks
constituted obvious forgeries which the bank reasonably should have noted. When
petitioner reported the forgeries to the bank it refused to redeposit the lost funds, asserting
a one-year statute of limitations on petitioner's claim as well as the contention that the
bank had not been negligent in failing to discover the forgeries. Each of these defenses,
petitioner contends, was without merit and constituted "stonewalling."
In addition to stating causes of action for breach of the contractual terms of the deposit
agreement and for negligence, petitioner stated a "textbook" cause of action for "breach
of the implied covenant of good faith and fair dealing."fn. 2 The principal allegations of
this cause of action are as follows: [229 Cal.App.3d 682]
Petitioner and the bank, in entering upon the contract were in inherently unequal
bargaining positions and the bank dictated the terms of the contract;
Petitioner's motivation for entering into the agreement was strictly nonprofit and was to
secure "peace of mind, security and protection of ... funds;"
Ordinary contract damages would be inadequate;
Petitioner was particularly vulnerable because his funds were placed at the disposal of the
bank, and a "special quasi-fiduciary relationship existed between [petitioner] and [bank]"
which resulted in a duty of good faith and fair dealing;
This duty was breached when the bank refused to recredit the account but instead
interposed "stonewalling" defenses without any reasonable belief in their validity;
This intentionally tortious action on the bank's part warrants the imposition of punitive
damages.
A general demurrer was interposed only as to the "breach of the implied covenant" cause
of action. As noted above, the demurrer was sustained without leave to amend, the court
concluding that as a matter of law the bank-depositor contractual status revealed by the
pleadings could not give rise to a relationship between the parties sufficient to support the
tort cause of action for breach of the implied covenant.
2. Revisitation of Commercial Cotton
Since everyone involved in this case (the court below and all counsel) agree that its
disposition depends upon the continued viability of the rule in Commercial Cotton, we
are perhaps well advised at the outset to summarize that case. Commercial Cotton was
decided by a unanimous panel of this court in 1985. As asserted by counsel for petitioner,
the facts of Commercial Cotton bear considerable similarity to the facts of this case. The
plaintiff, a commercial enterprise, maintained an ordinary checking account with
defendant [229 Cal.App.3d 683] bank. Some of the plaintiff's blank checks were lost,
and the loss was reported to the bank. Later one of the checks was presented to the bank
with forged signatures, and paid. When the loss was discovered some time later by the
depositor, demand for repayment was made. The bank refused to cover the loss, relying
upon the defense of the one-year statute of limitations as well as a claim of comparative
negligence. (163 Cal.App.3d at p. 514.)
Unlike our case, Commercial Cotton went to trial, and the presentation to the appellate
court was by way of ordinary appeal from a jury verdict in favor of the plaintiff. The
portion of the appeal of interest to us is that which dealt with the breach of the covenant
of good faith and fair dealing. The trial court permitted this claim to be presented to the
jury, and the jury awarded $100,000 in punitive damages based thereon.
In its review of the factual background of the case, our court was particularly impressed
with the shallow nature of the defenses asserted by the bank. Some eleven days before the
final letter of denial from the bank's general counsel, the Supreme Court in Sun 'N Sand,
Inc. v. United California Bank (1978) 21 Cal.3d 671, 699 [148 Cal.Rptr. 329, 582 P.2d
920] had specifically ruled that the three-year statute of limitations, rather than the one-
year statute, was applicable for a claim such as that of Commercial Cotton.
Our court found it "inexplicable that [the bank's] general counsel could have been
unaware of the Supreme Court's holding affecting the bank for which he was general
counsel at the time he wrote the ... letter." (Commercial Cotton 163 Cal.App.3d at p.
515.) Our court also found the contention of contributory negligence on the part of the
depositor to be spurious, since whatever negligence was involved in failing promptly to
note the forged check when it was returned to the depositor had no causal relationship to
its original negligent cashing. It is fair to say, therefore, that our court regarded the bank's
refusal to reimburse its depositor and its continued assertions of spurious defenses, right
through a jury trial and to appeal, as an example of the most egregious of "stonewalling"
tactics. Although not mentioned in the opinion, the fact that the dispute involved a mere
$4,000 adds practical argument to the conclusion that the bank's position was completely
unreasonable.
In its discussion of the tort of breach of the covenant of good faith and fair dealing, the
Commercial Cotton court acknowledged the contention that the tort existed, outside the
insurance context, only as to parties in a "special relationship." It cited Egan v. Mutual of
Omaha Ins. Co. (1979) 24 Cal.3d 809, 820 [169 Cal.Rptr. 691, 620 P.2d 141] (hereinafter
Egan) for [229 Cal.App.3d 684] the proposition that this relationship (at least in the
insurance context) is characterized by "elements of public interest, adhesion, and
fiduciary responsibility." (Commercial Cotton, supra, 163 Cal.App.3d at p. 516.) It was
noted that in the then very recent Seaman's Direct Buying Service, Inc. v. Standard Oil
Co. (1984) 36 Cal.3d 752 [206 Cal.Rptr. 354, 686 P.2d 1158] (hereinafter Seaman's), the
Supreme Court had found it unnecessary to determine how far, if at all, the doctrine
should extend to ordinary commercial contracts.
The court then ventured into what the Supreme Court had identified as uncharted seas,
and found that the assertion by the bank of spurious defenses to the claim was an
"unjustifiable, stonewalling effort to prevent an innocent depositor from recovering
money," and constituted evidence adequate to support a jury finding of tortious breach of
the covenant. (Commercial Cotton, supra, 163 Cal.App.3d at p. 516.)
The court reached the conclusion that the tort in question, originating in insurance
relationships, could be applied in a banking context because "banking and insurance have
much in common, both being highly regulated industries performing vital public services
substantially affecting the public welfare." (Commercial Cotton, supra, 163 Cal.App.3d at
p. 516.) The court then went on to publish the famous quote, much discussed and
disputed thereafter, that "The relationship of bank to depositor is at least quasi-
fiduciary."fn. 3 This statement rounded out the three findings posited in the Egan formula
for imposition of the special duty: (1) elements of public interest, (2) adhesion contractual
relationship, and (3) fiduciary responsibility. [229 Cal.App.3d 685]
Our digest of the rule of Commercial Cotton might be stated as follows: The ordinary
relationship between commercial bank and its depositor is such as to impose upon the
bank a duty, derived from the obligation of good faith and fair dealing implied in all
contracts, to refrain from intentional breaches of contract and from interjection of
spurious and bad faith defenses to contract claims, which duty if breached will give rise
to an action in tort with attendant entitlement to punitive damages.
3. Evolution of the Tort of Breach of the Obligation of Good Faith and Fair Dealing
(a) Early Development in Insurance and Wrongful Termination Cases
In order to weigh the current value of the rule of Commercial Cotton we are required to
review the history and evolution of the tort therein described. We do so briefly,
recognizing that this is a field several times previously plowed by other jurists and by
academics (some of which are cited hereunder) and hence neither merits nor requires
extended comment here.
[1] The existence of implied covenants of good faith and fair dealing in all contracts has
long been the law. As stated in Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20
Cal.2d 751, 771 [128 P.2d 665]: "In every contract there is an implied covenant that
neither party shall do anything which will have the effect of destroying or injuring the
right of the other party to receive the fruits of the contract, which means that in every
contract there exists an implied covenant of good faith and fair dealing."
Reliance upon the covenant to support damages in excess of ordinary contract damages
first arose in the insurance context. Initially supporting damages in excess of policy limits
for wrongful refusal to settle a claim (Comunale v. Traders & General Ins. Co (1958) 50
Cal.2d 654 [328 P.2d 198, 68 A.L.R.2d 883]; Crisci v. Security Ins. Co. (1967) 66 Cal.2d
425 [58 Cal.Rptr. 13, 426 P.2d 173]), the concept was later expanded to embrace general
tort damages for bad faith refusal to pay a claim (Gruenberg v. Aetna Ins. Co. (1973) 9
Cal.3d 566, 575 [108 Cal.Rptr. 480, 510 P.2d 1032]). The rationale for imposing tort
liability in the insurance context was explained and justified in Egan. Emphasized were
the nonprofit objectives of the insured in seeking protection and peace of mind (24 Cal.3d
at p. 819), that insurance companies provided vital services quasi-public in nature (id. at
p. 820) and that the insurance relationship had a fiduciary quality (ibid.).fn. 4 [229
Cal.App.3d 686]
The other arena in which recovery in tort for breach of the covenant of good faith and fair
dealing was sanctioned, pre-Seaman's, was that of employment termination. Cleary v.
American Airlines, Inc. (1980) 111 Cal.App.3d 443 [168 Cal.Rptr. 722] is a clear
statement of the proposition that an implied covenant of continued employment can be
found in certain otherwise undefined employment circumstances, and that a breach of this
covenant by a discharge without cause can give rise to tort damages. (Id. at pp. 454-
456.)fn. 5
(b) The Impact of Seaman's
The feasibility of using tortious breach of the covenant theories in cases other than
insurance and wrongful termination of employment was given a boost by Seaman's.
Seaman's had entered into a long term lease with the City of Eureka for the operation of a
marine fueling station. This action was taken in reliance upon a contract for the purchase
of fuel from Standard Oil Co. Subsequently, because of a changed economic climate,
Standard Oil ceased supplying Seaman's. The resulting lawsuit included an action in tort
for breach of the implied covenant which culminated in very large jury awards of both
compensatory and punitive damages.
The Supreme Court characterized the principal issue of the appeal as "whether, and under
what circumstances, a breach of the implied covenant of good faith and fair dealing in a
commercial contract may give rise to an action in tort." (Seaman's, supra, 36 Cal.3d at p.
767.) The court noted that in prior decisions upholding the tort in insurance cases "we
have emphasized the 'special relationship' between insurer and insured, characterized by
elements of public interest, adhesion, and fiduciary responsibility." (Id. at pp. 768, 769,
citing Egan.) The opinion then continued with the statement that "No doubt there are
other relationships with similar characteristics and deserving of similar legal treatment,"
referring in a footnote to the employment termination cases illustrated by Tameny v.
Atlantic Richfield Co. (1980) 27 Cal.3d 167, 179 [164 Cal.Rptr. 839, 610 P.2d 1330].
(Seaman's, supra, 36 Cal.3d at p. 769, fn. 6.) The court cautioned, however, that
consideration of the tort remedy in the ordinary commercial context was a move "into
largely uncharted and potentially dangerous waters," but concluded by advising "This is
not to say that tort remedies have no place in such a commercial context, ..." (Id. at p.
769.)
All this discussion was, however, dictum. The court found it not necessary to predicate
liability on breach of the implied covenant because it [229 Cal.App.3d 687] identified a
new tort in the intentional and bad faith denial of the existence of a contract. There is no
question, however, that the Seaman's dictum stimulated academic and professional
interest in extensions of the tort.fn. 6 Justice Kaus, referring to Seaman's, stated "there is
tremendous pressure on the courts, particularly this court, to extend bad faith liability to
contractual relationships [other than the insurance relationship]." (White v. Western Title
Ins. Co. (1985) 40 Cal.3d 870, 900 [221 Cal.Rptr. 509, 710 P.2d 309].)
Interpretation of the evident direction of the law on "bad faith" can best be seen by the
reaction of the several Courts of Appeal. Our court in Commercial Cotton was one of the
first to suggest expansion-into the field of commercial banking. Definitive direction in
analyzing the concept of the "special relationship" was provided in Wallis v. Superior
Court (1984) 160 Cal.App.3d 1109 [207 Cal.Rptr. 123] (hereinafter Wallis). Since the
case arose from the peremptory termination by an employer of previously agreed- upon
termination benefits, the case could be considered as part of the wrongful termination line
of cases. The court's identification of factors leading to a determination of "special
relationship" was not at all limited by employment concepts, however. The "similar
characteristics" which would signal the existence of a "special relationship" could be
found in almost any "special" kind of commercial contractual relationship.fn. 7
Rather than rushing to expand the tort, however, most courts followed the Seaman's
admonition to "proceed with caution." (Seaman's, supra, 163 Cal.App.3d at p. 769.)
Quigley v. Pet, Inc. (1984) 162 Cal.App.3d 877, 892 [208 Cal.Rptr. 394] denied
application of the tort remedy in a breach of contract for the hauling of walnuts, finding a
lack of the elements of "public interest, adhesion and fiduciary responsibility." Gomez v.
Volkswagen of [229 Cal.App.3d 688] America, Inc. (1985) 169 Cal.App.3d 921 [215
Cal.Rptr. 507] refused to consider application of the tort to an action by a consumer
against an auto manufacturer. Martin v. U-Haul Co. of Fresno (1988) 204 Cal.App.3d 396
[251 Cal.Rptr. 17] refused to find a "special relationship" in the franchise agreement
between the U-Haul company and one of its franchisees. Rogoff v. Grabowski (1988) 200
Cal.App.3d 624 [246 Cal.Rptr. 185], weighing and applying the Wallis criteria, held no
"special relationship" existed between a limousine company and its patrons. The federal
courts also declined to extend factual situations in which a "special relationship" could be
found. (See Premier Wine & Spirits v. E. & J. Gallo Winery (E.D.Cal. 1986) 644 F.Supp.
1431; Elxsi v. Kukje America Corp. (N.D.Cal. 1987) 672 F.Supp. 1294; Standard Wire &
Cable Co. v. Ameritrust Corp. (C.D.Cal. 1988) 697 F.Supp. 368.)
Reaction to this court's decision in Commercial Cotton, at this time, was mixed. While it
was criticized in student comments in two law reviews,fn. 8 it received uncritical review
by more prestigious authors.fn. 9 It was cited without criticism in Gomez v. Volkswagen
of America, Inc., supra, 169 Cal.App.3d 921; Rogoff v. Grabowski, supra, 200
Cal.App.3d 624; Martin v. U-Haul Co. of Fresno, supra, 204 Cal.App.3d 396; Multiplex
Ins. Agency, Inc. v. California Life Ins. Co. (1987) 189 Cal.App.3d 925 [235 Cal.Rptr.
12]; and expressly followed by the same appellate court in Barrett v. Bank of America
(1986) 183 Cal.App.3d 1362 [229 Cal.Rptr. 16]. Absent a drastic change in the Supreme
Court's direction, which we note hereunder, the philosophy and trend of Commercial
Cotton might still be healthy.
(c) A Change of Direction: Foley
The winds of change blew in 1988 with the publication of Foley v. Interactive Data Corp.
(1988) 47 Cal.3d 654 [254 Cal.Rptr. 211, 765 P.2d 373] (hereinafter Foley). A
reconstituted Supreme Court (only two of the seven justices participating in Foley took
part in the Seaman's decision) took a completely new look at the "implied covenant of
good faith and fair dealing." The court emphasized the difference between contract and
tort remedies, affirming that in the usual case only contract remedies are available for
breach of the contractual implied covenant. The court recognized the exception to this
general rule developed in the context of insurance contracts, [229 Cal.App.3d 689] citing
and referring to the principles contained in Comunale v. Traders & General Ins. Co,
supra, 50 Cal.2d 654; Egan, and Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566. (Foley,
supra, 47 Cal.3d at p. 684.) [2] The court referred to the "special relationship" test
"gleaned from the insurance context" (id. at p. 690) and discussed scholarly treatises
which had argued either for or against the extension of tort damages into fields other than
insurance upon measurement of the extent to which the "special relationship" could be
established in such other commercial contexts.fn. 10 The court then concluded that there
was insufficient basis for extending the special tort relief available in insurance cases to
the employment field, stating "the need to extend the special relationship model in the
form of judicially created relief of the kind sought here is less compelling." (Foley, supra,
47 Cal.3d at p. 693.) Also, "we are not convinced that a 'special relationship' analogous to
that between insurer and insured should be deemed to exist in the usual employment
relationship." (Id. at p. 692.) Referring to the statement in Seaman's that " 'No doubt there
are other relationships with similar characteristics and deserving of similar legal
treatment' " (Foley, supra, at p. 687), the majority denied that it was a signal of approval
of extended tort remedies, stating "If anything, the reference highlighted the fact that this
question remained to be decided by this court." (Id. at p. 688, fn. 27.) 4. Present Status of
the Tort of Bad Faith Breach of the Covenant in the Banking Context: Application to This
Case
There is no question but that the decision in Foley redirects the course of law in the area
of tort recovery for breach of commercial contracts. While some may argue that the
Seaman's tort of bad faith denial of the existence of a contract remains viable, few would
contend that new broad categories of business relationships remain to be identified by the
Wallis test as presumptively amenable to tort remedies for contract breach. Before Foley,
one could confidently suggest that at least in two spheres of contract relationships [229
Cal.App.3d 690] -insurance contracts and long-term employment agreements-a bad faith
breach could give rise to tort damages. [3] That assumption is now gone; there is only one
category of business transactions which definitionally is amenable to tort actions for
contract breaches, and that is insurance.
The Foley decision did not reference commercial banking activities nor did it cite
Commercial Cotton. [4a] We are most satisfied, however, that if the Foley court were to
apply the same reasoning to the commercial banking business which it applied to
employment contracts it would conclude that, in the usual case, the "special relationship"
found in insurance cases and evaluated by the Wallis standards would be lacking.
Post-Foley Court of Appeal decisions would appear to agree with this conclusion. Our
own court, in an opinion written by the same justice who authored Commercial Cotton, in
Mitsui Manufacturers Bank v. Superior Court (1989) 212 Cal.App.3d 726, 729 [260
Cal.Rptr. 793], stated: "We reject real parties' argument that the tort doctrine which has
been extended only to situations where there are unique fiduciary-like relationships
between the parties, should encompass normal commercial banking transactions." In an
extended and scholarly opinion the court in Careau & Co. v. Security Pacific Business
Credit, Inc., supra, 222 Cal.App.3d 1371 found no "special relationship" to exist in the
bank-borrower situation. (See also Lee v. Bank of America (1990) 218 Cal.App.3d 914
[267 Cal.Rptr. 287].)
The most directly applicable current authority is Price v. Wells Fargo Bank (1989) 213
Cal.App.3d 465 [261 Cal.Rptr. 735] (hereinafter Price). In that case an action was
brought against the bank by a commercial borrower, who complained that the bank's
refusal to extend the terms of loans caused forced liquidation of assets and financial loss.
One of the principal causes of action (dismissed on summary judgment by the trial court)
was an action in tort for breach of the implied covenant, brought specifically in reliance
upon the authority of Commercial Cotton. The court rejected the decision and reasoning
of Commercial Cotton, declined seriously to attempt application of the Wallis factors to
the case, and held rather simply that no contractual implication can be made in a bank's
lending contract which precludes it from foreclosing in accordance with the terms of the
contract. Referring to Foley, the Price court stated that "The impact of the Foley decision
cannot be assessed with certainty [but] [t]he decision surely precludes the sort of loose
extension of tort recovery, based on 'quasi-fiduciary' relationship, sanctioned in
[Commercial Cotton] ...." (Price, supra, 213 Cal.App.3d at p. 478.)fn. 11 [229
Cal.App.3d 691]
Coming finally to the facts of our case: We must conclude that the application of the
Wallis five points does not indicate a "special relationship," and hence an action in tort by
the depositor cannot be stated for simple breach of the deposit contract.fn. 12 Looking to
the Wallis criteria, we believe that a commercial entity and a bank are not ordinarily in
inherently unequal bargaining positions. There is nothing in these pleadings, nor is there
any aspect of common banking transactions, which suggests to us that banks in general
are, or this bank in particular was, in a superior bargaining position. Banks in our society
are commonly most competitive. That the bank offers a standard product certainly cannot
make its bargaining position "unequal."
Referring to the second Wallis criterion, the motivation for entering into the contract, we
can conceive of very few contracts which are more profit-oriented than the commercial
bank account of a chiropractor. Obviously one chooses a bank in which to deposit his
money in part because of the apparent security of the institution; this does not mean,
however, that the motivation for the transaction is "peace of mind" in the sense that such
motivation inheres in an insurance contract.fn. 13
The third Wallis factor relates to damages. It is true that damages to be recovered for
suing a bank for cashing a forged check may be inadequate. This is not because of
anything special about banks or commercial deposits, however. The problem with suing
banks is the same problem that besets the typical judicial remedy for all commercial
breaches. Unless one has included an attorney fee clause in the contract, recovery of the
fees and practical costs of litigation is not possible. No one, therefore, involved in
commercial litigation these days can be made completely whole. Wallis was not talking
about this defect in our jurisprudential system-it had to do instead with [229 Cal.App.3d
692] the peculiar loss associated with denial of payment of insurance proceeds or, as in
Wallis, the peremptory interruption of monthly termination payments to an aged retired
employee.
The fourth and fifth Wallis criteria identify special vulnerability of one party of which the
other party is aware. One can posit unusual banking arrangements whereby minors or
other dependent people specifically inform the bank of their complete dependence upon
the liquidity of their bank account, in which case these criteria might be satisfied. The
ordinary bank checking account is not, however, of this nature. We note in this case that
the account was so fluid its owners did not notice the theft of some $32,000 for over a
period of 18 months. Anyone who has lost money because of breach of a commercial
obligation is going to consider himself damaged, and the continuing state of loss causes
such person to experience a certain feeling of vulnerability. As with the damage issue,
however, this is a problem common to all commercial transactions, not different in the
typical bank-depositor transaction, and certainly not the sort of vulnerability envisaged by
the Wallis criteria.
We should refer also to the specific factors cited in Commercial Cotton as promotive of
treating the banking industry the same as the insurance industry in terms of the implied
covenant tort applicability. The Commercial Cotton court did not utilize the Wallis
factors, but instead relied upon those factors stated in Egan and Seaman's: public interest,
adhesion, and fiduciary responsibility. We have discounted, above, the concept that the
deposit contract is an adhesion contract. We have serious doubts that the status of banking
as an industry important to the public welfare should have an effect upon the issue before
us. As noted in Comment, Fiduciary Controversy: Injection of Fiduciary Principles Into
the Bank-Depositor and Bank-Borrower Relationship, supra, 20 Loyola L.A. L.Rev. at
pages 816-817, "The concept of 'affected with the public interest' can be applied to
common carriers, theaters, restaurants, inns/motels, food retailers, garbage collectors,
doctors and landlords. The list is virtually endless. Therefore, it would be absurd to single
out banks as having a "special relationship" with its customers merely because banking is
'affected with the public interest.' " (Fns. omitted.)
Of most concern, however, is the statement made in Commercial Cotton, supra, 163
Cal.App.3d at page 516 that "[t]he relationship of bank to [its] depositor is at least quasi-
fiduciary." This statement is severely criticized in Price at page 476, and its assertion
countered by the citation of well-established authority for the proposition that the
relationship between a bank and its depositor is not a fiduciary relationship, but that of
debtor-creditor. (Morse v. Crocker National Bank (1983) 142 Cal.App.3d 228, 232 [190
Cal.Rptr. 839]; Downey v. Humphreys (1951) 102 Cal.App.2d 323, 332 [227 P.2d 484],
and a case contemporaneous with Commercial Cotton: Lawrence [229 Cal.App.3d 693]
v. Bank of America (1985) 163 Cal.App.3d 431 [209 Cal.Rptr. 541].) We note that the
statement in Commercial Cotton was made without benefit of citation of authority.
Presuming that the court was aware of Morse v. Crocker National Bank, supra, Downey
v. Humphreys, supra, and other authorities which had established the bank-depositor
relationship as merely debtor- creditor, and that the Commercial Cotton court did not
purport to classify the relationship actually as "fiduciary," we are led to a search for what
might have been meant by the phrase "quasi-fiduciary." In Garner, A Dictionary of
Modern Legal Usage (1987) page 457, "quasi" is defined as "seeming or seemingly; in
the nature of; nearly," and its use demeaned by a quote from 1 Corbin on Contracts (1963
ed.) section 19, pages 45-46 that "the term quasi is introduced as a weasel word that
sucks all the meaning of the word that follows it." (Italics in original.)
We conclude both from the manner of use and the omission of any citation that when the
court in Commercial Cotton used "quasi-fiduciary" it intended not to question prior
authority establishing that banks in ordinary deposit relationships are not fiduciaries, but
sought only a shorthand phrase to describe attributes in the relationship which are similar
to some of the attributes of a true fiduciary relationship. [5] The court was, simply,
grappling with the criteria described in Egan and Seaman's (elements of public interest,
adhesion and fiduciary responsibility) for establishing "special relationship," and noting
that some contractual features of a banking relationship establish elements of reliance and
trust which "seem like" or are "in the nature of" (to refer to our dictionary definition)
obligations resulting from a true fiduciary relationship.fn. 14
In light of the reasoning of Foley, we are convinced Commercial Cotton's
characterization of a bank-depositor relationship as quasi-fiduciary is now inappropriate.
While some aspects of that relationship may resemble aspects of the insurer-insured
relationship, there are equally marked differences [229 Cal.App.3d 694] between those
relationships. Since appending the quasi-fiduciary label to the ordinary bank-depositor
relationship runs counter to both pre- and post-Commercial Cotton authority, and such a
label provides no analytical framework against which to evaluate (after Foley) the
propriety of extending tort remedies for contractual breaches, we no longer approve the
denomination of the ordinary bank-depositor relationship as quasi-fiduciary in character.
5. Conclusion and Disposition
[4b] It is thus our conclusion that banks, in general and in this case, are not fiduciaries for
their depositors; and that the bank- depositor relationship is not a "special relationship"
under the Wallis test, or any other test, such as to give rise to tort damages when an
implied contractual covenant of good faith is broken. We are therefore forced to
acknowledge that our decision in Commercial Cotton, while in its time seemingly in
harmony with the direction of the Supreme Court, turned out, after Foley, to be
misdirected. We acknowledge the accuracy of Price, and Careau & Co. v. Security Pacific
Business Credit, Inc., supra, 222 Cal.App.3d 1371 in their characterization of the
ordinary bank- customer relationship as not a special relationship giving rise to tort
remedies when the bank unreasonably, and even in bad faith, denies liability on a contract
or interposes spurious defenses. The third cause of action in this case, therefore, was
defective and the trial court was correct in sustaining the general demurrer to it. The
petition is denied. Real party in interest is entitled to costs. (Union Trust Co. v. Superior
Court (1939) 13 Cal.2d 541, 543 [90 P.2d 582].)
Benke, Acting P. J., and Huffman, J., concurred.
FN 1. In that we review the sustaining of a demurrer, we accept the facts as set forth in
the first amended complaint.
FN 2. As can be seen from our review of Wallis v. Superior Court (1984) 160 Cal.App.3d
1109, footnote 7 [207 Cal.Rptr. 123], the pleading tracks the several "factors" identified
in Wallis which give rise to the "special relationship" affording relief in tort for breach of
the implied covenant of good faith and fair dealing. As such, the pleading is an excellent
example of a statement of conclusions of law rather than allegations of fact, and no doubt
would have been subject to a special demurrer. (See 4 Witkin, Cal. Procedure (3d ed.
1985) Pleading, § 332, pp. 381-383.) However, the attack on the complaint was by way
of general demurrer, and both we and the trial judge therefore have passed over the rather
obvious attempt to fit the individual facts of this case into a convenient mold of existing
case precedent.
FN 3. The complete statement of the court is set forth as follows: "Analogizing to the
factors set out in Egan we agree with [plaintiff's] contention that banking and insurance
have much in common, both being highly regulated industries performing vital public
services substantially affecting the public welfare. A depositor in a noninterest-bearing
checking account, except for state or federal regulatory oversight, is totally dependent on
the banking institution to which it entrusts deposited funds and depends on the bank's
honesty and expertise to protect them. While banks do provide services for the depositor
by way of monitoring deposits and withdrawals, they do so for the very commercial
purpose of making money by using the deposited funds. The depositor allows the bank to
use those funds in exchange for the convenience of not having to conduct transactions in
cash and the concomitant security in having the bank safeguard them. The relationship of
bank to depositor is at least quasi- fiduciary, and depositors reasonably expect a bank not
to claim nonexistent legal defenses to avoid reimbursement when the bank negligently
disburses the entrusted funds. Here, [defendant bank's counsel] claimed defenses are
spurious, and the jury found experienced legal counsel interposing them in an
unjustifiable, stonewalling effort to prevent an innocent depositor from recovering money
entrusted to and lost through the bank's own negligence, is a breach of the bank's
covenant of good faith and fair dealing with its depositor. Viewing the evidence in a light
most favorable to the verdict, we hold it is overwhelmingly supported by the evidence."
(163 Cal.App.3d at p. 516.)
FN 4. For a discussion of the background of commercial bad faith cases see Putz &
Klippen, Commercial Bad Faith: Attorney Fees-Not Tort Liability-Is the Remedy for
"Stonewalling" (1987) 21 U.S.F. L.Rev. 419, 429 et seq.; see also the extended historical
review of the tort by Justice Croskey in Careau & Co. v. Security Pacific Business Credit,
Inc. (1990) 222 Cal.App.3d 1371, 1392 et seq. [272 Cal.Rptr. 387].
FN 5. See other employment termination cases cited in Putz and Klippen, op. cit. supra,
at page 448, footnote 120.
FN 6. See, e.g., Putz and Klippen, op. cit. supra; and Traynor, Bad Faith Breach of a
Commercial Contract: A Comment on the Seaman's Case (1984) 8 Bus. L.News 1.
Professor Eric Wright stated: "Once the concept of good faith and fair dealing was found
to be a part of the insurance contract, it did not take long until attorneys were asserting
that such a covenant must also logically be a part of other types of contracts. Following
what appeared to be the obvious lead of the California Supreme Court [(citing
Seaman's)], lower courts began extending the concept of good faith to other types of
contracts. ..." (Symposium, Bad Faith and Punitive Damages (1989) 29 Santa Clara
L.Rev. 546, fn. omitted.) All scholarly comment on Seaman's has not, however, been
complimentary. Federal Circuit Court Justice Kozinski wrote "In inventing the tort of bad
faith denial of a contract [in Seaman's] the California Supreme Court has created a cause
of action so nebulous in outline and so unpredictable in application that it more resembles
a brick thrown from a third story window than a rule of law." (Oki America, Inc. v.
Microtech Intern., Inc. (9th Cir. 1989) 872 F.2d 312, 315.)
FN 7. The Wallis court stated that the "similar characteristics" which must be present to
permit tort liability were (1) inherently unequal bargaining positions; (2) nonprofit
motivation, i.e., objective of securing peace of mind, security; (3) inadequacy of ordinary
contract damages; (4) special vulnerability of one party to harm as a result of breach of
trust of the other; and (5) awareness by the other of this special vulnerability. (Wallis, 160
Cal.App.3d at p. 1118.)
FN 8. Comment, The Fiduciary Controversy: Injection of Fiduciary Principles Into the
Bank-Depositor and Bank-Borrower Relationships (1987) 20 Loyola L.A. L.Rev. 795;
Comment, Commercial Cotton Co. v. United California Bank: California's Newest
Extension of Bad Faith Litigation Into Commercial Law (1986) 16 Sw.U.L.Rev. 645.
FN 9. Putz and Klippen, op.cit. supra, 21 U.S.F. L.Rev. at pages 462-465, footnote 178.
This footnote reviews the subsequent history of the case, and, interestingly, points out
that the California Supreme Court declined either to depublish or accept the case for
review even though it received extensive amicus briefs in support of United California
Bank's petition from six leading California banks and the California Bankers'
Association.
FN 10. The court took notice of the Wallis case and discussed it in terms of its having
recognized the existence of a tort remedy "in employment relationships within the stated
limitations." (Foley, supra, 47 Cal.3d at p. 691.) In an extended footnote the court then
recited the several factors established in Wallis as determinative of the existence of the
special relationship. (Id., fn. 29.) The court went on to conclude, on the next page of the
text, that the insurance-created concept of "special relationship" should not be deemed to
exist in the usual employment relationship. (Foley, supra, at p. 692.) From the order of
arrangement of the opinion, it might be interpreted as rejecting the Wallis test for special
relationship. We find this conclusion difficult to accept, however. In specifically citing
and making detailed reference to the Wallis factors the Supreme Court appears to
recognize the same as established precedent. Had Wallis been deemed erroneous it would
have been most expedient to have so stated. Lacking any suggestion of disapproval, we
conclude that the Wallis factors for determining "special relationship" remain viable, even
if having perhaps little utility in the ordinary employment relationship.
FN 11. We do note, however, that the reasoning of Commercial Cotton has not been
unanimously rejected. Justice Johnson, dissenting in Lee v. Bank of America, supra, 218
Cal.App.3d at page 921, would affirm the continued vitality of Commercial Cotton. His
analysis of the Wallis five points results in the conclusion that they fit the bank- depositor
relationship, thus constituting it a "special relationship" appropriate for utilization of tort
claims when the deposit contract is breached. We respectfully disagree with Justice
Johnson's approach, as seen infra.
FN 12. We, of course, are not saying that a bank may not under special circumstances
undertake obligations which bring it into a "special relationship" with a customer. Many
banks affirmatively offer trust and other specifically fiduciary services, and as such are in
a position to do great harm if the trust agreement is broken in bad faith. We refer in our
text, ante, simply to the ordinary bank- depositor relationship (and presumably, although
it would be dictum, also to the ordinary bank-borrower relationship).
FN 13. We follow, here, the line of reasoning developed in Foley, supra, 47 Cal.3d at
pages 692- 693. The employment relation was distinguished from the insurance relation
by noting the unique economic dilemma faced by the insured whose insurer refuses in
bad faith to pay policy benefits. The insured has lost the very benefit for which he
contracted, and is not in a position to seek alternative relief from competitors. The
employee, however, has not bargained for any similar type of "protection," and the breach
of the employment contract causes damages essentially similar to those resulting from
breaches of other kinds of contractual agreements-such as the refusal to honor a contract
for the supply of goods vital to a small dealer's business. We conclude that the breach of a
banker's agreement with its depositor similarly results in damage typical to all
commercial contracts.
FN 14. We have had occasion in other circumstances to examine the loose
characterization of relationships as fiduciary, quasi- fiduciary or fiduciary like, and have
concluded such are both unhelpful and fraught with analytic pitfalls. Thus, we noted in
Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1148-1149 [271 Cal.Rptr. 246],
that particular contractual obligations, specifically undertaken in contracts such as those
executed by insurance companies, can impose certain duties resembling the duties which
burden true fiduciaries. This resemblance does not, however, make the insurance
company a true fiduciary with all of its attendant obligations. While a bank's role as
deposit keeper may resemble an insurer in some aspects, the bank is in no sense a true
fiduciary. It deals at arm's length and in commercial independence with its depositor. It is
not obligated to put the interests of the depositor above its own, and is not required to
disregard the interest of its shareholders when evaluating claims made upon it by
depositors. Just as it was imprudent in Love, supra, to simply label an insurer a "quasi-
fiduciary" (since such a characterization carries the analytic danger that such labeling
could lead to "import[ing] uncritically the entire cargo of fiduciary obligations into the
port of insurance law" (ibid.), so too we perceive equivalent dangers attend an automatic
extension of "quasi-fiduciary" status to ordinary bank-depositor relationships.
Mitsui Manufacturers Bank v. Superior Court (Squidco
Corp. of America, Inc.) (1989) 212 Cal.App.3d 726 , 260
Cal.Rptr. 793
[No. D009538. Court of Appeals of California, Fourth Appellate District, Division One.
July 27, 1989.]
MITSUI MANUFACTURERS BANK, Petitioner, v. THE SUPERIOR COURT OF SAN
DIEGO COUNTY, Respondent; SQUIDCO CORPORATION OF AMERICA, INC., et
al., Real Parties in Interest
(Opinion by Work, Acting P. J., with Benke and Froehlich, JJ., concurring.)
COUNSEL
Lillick & McHose, David E. Kleinfeld, John E. Timmons and Alix James Kocher for
Petitioner.
John W. Dickerson, Jr., for Real Parties in Interest.
OPINION
WORK, Acting P. J.
In this matter we grant petitioner Mitsui Manufacturers Bank's (Mitsui) request for a writ
of mandate directing the Superior Court to vacate its order denying Mitsui's motion for
summary judgment and grant it summary judgment on the cross-complaint of real parties
in interest, The Squidco Corporation of America, Inc. (Squidco), Fisherman's Supply
Center, Inc., Joseph M. Elson, Anne Marie Elson, John N. Elson, Venus Elson and Eric S.
Dye. In doing so, we reject real parties' contention they have raised a triable issue of
material fact regarding whether Mitsui tortiously breached the covenant of good faith and
fair dealing in a commercial transaction arising out of an arms-length routine
lender/borrower contract.
I
The underlying dispute arose when real parties defaulted on commercial short-term loans
after Squidco borrowed approximately $1,650,000 in various notes guaranteed by the
Elsons, Dye and Fisherman's Supply Center and subject to a security agreement. It was
understood by Mitsui and the borrower that Squidco needed long-term development
funds and would replace Mitsui's short-term loans with financing from other institutions,
most within a year. These short-term loans were renewed from time to time while
Squidco unsuccessfully attempted to obtain a long-term lender other than Mitsui.
Eventually, Squidco defaulted on all Mitsui notes. When Squidco rejected alternative
long-term financing arrangements proposed by Mitsui and remained in default, Mitsui
demanded full payment. Receiving none, it not surprisingly sued for money, enforcement
of the continuing guaranties and foreclosure of security interest.
The real parties cross-complained for tort damages alleging Mitsui breached the covenant
of good faith and fair dealing by reneging on its alleged oral promise to renew Squidco's
short-term credit indefinitely until [212 Cal.App.3d 729] it was able to secure substitute
long-term financing from another lender and that, should negotiations for long-term
financing by other lenders prove fruitless, it would provide the long-term financing.
Squidco also alleges Mitsui orally promised to provide long-term financing itself if
needed, implying Mitsui would provide that long-term financing without requiring
Squidco to subject various parcels of real property to a blanket trust deed which would
permit Mitsui to purchase them all for a single credit bid at a single trustee sale in case of
default. Squidco claims Mitsui's refusal to extend long-term financing without a blanket
trust deed was tortious. fn. 1
In the face of these allegations, Mitsui asked summary judgment arguing the ordinary
arms-length commercial lender/borrower relationship was insufficient as a matter of law
to generate tort damages for the breach of the covenant of good faith and fair dealing. The
trial court refused, but on the facts of this case we conclude it erred. We reject real parties'
argument that the tort doctrine which has been extended only to situations where there are
unique fiduciary-like relationships between the parties, should encompass normal
commercial banking transactions. We also reject real parties' request for permission to
amend to substitute a cross-complaint for contractual breach of the covenant of good faith
and fair dealing because they can get any relief to which they are entitled under that
theory, from their affirmative defense to Mitsui's complaint in which that theory is
interposed.
II
[1] Because of its drastic nature, summary judgment should not be granted unless the
admissible evidence shows there is no triable issue as to any material fact and the moving
party is entitled to judgment as a matter of law. (Palma v. U.S. Industrial Fasteners, Inc.
(1984) 36 Cal.3d 171, 183 [203 Cal.Rptr. 626, 681 P.2d 893].)
[2] In denying Mitsui's motion for summary judgment on the cross-complaint, the court
declared it found a triable issue of fact established by John Elson's declaration at page 6,
paragraph 18. The triable issue of fact is not otherwise identified, but John Elson's
declaration, as referenced, contains no relevant facts. fn. 2 The statements there, at best,
suggest Mitsui may [212 Cal.App.3d 730] have failed to fully conform to the terms of its
original loan agreement with Squidco. While they may be relevant to show there is a
dispute as to whether there was a breach of contract, they do not infer there is a triable
issue of material fact as to the existence of a cause of action for tortious breach of the
covenant of good faith and fair dealing in the alleged oral promises.
[3] The Supreme Court recently analyzed the scope of a cause of action for tort damages
for breach of the covenant of good faith and fair dealing in the context of an action for
wrongful discharge. (See Foley v. Interactive Data Corp., supra, 47 Cal.3d 654.) In Foley,
the court traced the judicial history of this tort action through a line of decisions
upholding the right of insureds to recover tort damages from insurers who unreasonably
and in bad faith withheld payment of claims. (Id. at p. 684.) Although recognizing the
employer/employee relationship is one characterized by special qualities not found in the
ordinary commercial context, the court found those characteristics not sufficiently similar
to that of insurer and insured to overcome other important social concerns in the light of
other remedies available to employees and the necessity of preserving stability in
commercial dealings. The court implied, but did not specifically hold, that a special
relationship analogous to that between an insurer and insured is an essential ingredient of
any fact pattern which could give rise to a tort action for breaching the implied covenant.
(Id. at p. 692.) While Foley may leave this question open, albeit narrowly, it is clear from
the court's failure to find sufficiently insurance-like characteristics to justify permitting
tort actions against employers who discharge employees in bad faith, that it would not
permit such an action in an ordinary commercial context where a lender refuses to honor
an oral commitment to extend or "roll over" short-term loans. Foley, impliedly if not
expressly, limits the ability to recover tort damages in breach of contract situations to
those where the respective positions of the contracting parties have the fiduciary
characteristics of that relationship between the insurer and insured. (Id. at p. 693.)
However, real parties argue that Foley's analysis is not inconsistent with permitting tort
damages for a breach of the implied covenant arising from the contractual relationship
between them and Mitsui. Without analysis of [212 Cal.App.3d 731] the facts in this
case, they generally argue that neither Foley nor any other reported decision has
specifically denied tort damages for breaches of commercial banking contracts and,
second, that this court in Commercial Cotton Co. v. United California Bank (1985) 163
Cal.App.3d 511 [209 Cal.Rptr. 551, 55 A.L.R.4th 1017], had declared there was an
insurance contract type of adhesion in commercial lending relationships. The first
argument is a non sequitur because the transaction involved here is the quintessentially
ordinary arms-length commercial transaction between two parties of equal bargaining
strength, breaches of which are adequately remedied by ordinary contract damages. As to
the second argument, real parties incorrectly allude to Commercial Cotton Co. as dealing
with a borrower/lender relationship when in fact the action was based upon a bank's bad
faith imposition of nonexistent legal defenses to avoid reimbursing a depositor for monies
it had negligently disbursed.
To the extent that real parties' argument may be characterized as urging a rule that all
contractual relationships to which a bank is a party must be of the type justifying tort
damages in the event of breach of the implied covenant, we reject it. It is the nature of the
contract that is critical, whether it reflects unequal bargaining strength between the
parties, an inadequacy of ordinary contract damages or other remedies, adhesiveness of
contract provisions adversely impacting the damaged party which are either neutral
toward or benefit the other, public concerns that parties to certain types of contracts
conduct themselves in a particular manner, the reasonable expectations of the parties or a
fiduciary relationship in which the financial dependence or personal security by the
damaged party has been entrusted to the other. There are undoubtedly other significant
factors and it may be that not all must be present in every case which might give rise to
tort damages. Real parties have cited us to no fact of this transaction which takes it out of
the ordinary commercial context. However, they argue the terms of its promissory note
with Mitsui are "unique." Why the note (actually notes) were so characterized is a
mystery for which real parties do not provide a solution. One note for $1,350,000 and
another for an additional $350,000 are straightforward. Under the larger, Mitsui agreed to
make advances from time to time in the aggregate principal amount of $1,350,000 up to
and including October 31, 1984. This short-term note was conditioned to an earlier note
in the amount of $300,000 payable in certain installments, the final payment of which
was due October 31, 1986. Both notes were secured by continuing guaranties and various
security agreements all of which became subject to Mitsui's call upon default of the notes.
Both promissory notes were in default when Mitsui filed its complaint.
Nor do we find any commercial "uniqueness" in the alleged oral promises, nor the
allegation that Mitsui represented if Squidco placed its banking [212 Cal.App.3d 732]
accounts with Mitsui and borrowed funds from Mitsui to acquire real property, it would
lend short-term funds and renew those loans periodically, (apparently forever) until
Squidco was able to secure long-term financing on reasonable terms to substitute for and
repay Mitsui. Real parties argue there is some significance to the fact that the transaction
occurred because Mitsui was motivated to acquire a new banking customer. However,
this motive is not shown to be one uncommon in commercial relationships and certainly
not a factor suggesting unfairness or inequality in the loan negotiations which resulted in
this contract.
Further, the uncontradicted evidence shows a history of fair dealing. Mitsui made its first
short-term loan in April 1983 and it was renewed on several occasions and increased
from time-to-time while Squidco continued its attempt to find long-term financing.
Various security agreements and guaranties were executed from time-to-time, apparently
because the "short-term" financing became more and more extended. In the fall of 1984,
Squidco's efforts to obtain long-term financing from a different lender fell through.
Squidco's notes came into default and eventually Mitsui refused to continue rolling over
the short-term financing, but indicated it would consider extending long-term financing
itself if real parties would secure it by a single blanket trust deed covering various real
properties. Only when the parties were unable to come to terms did Mitsui sue to recover
amounts owed.
The cross-complaint's allegations, even accepted as factually proved, state only an action
for simple breach of contract depriving this commercial borrower of the benefits of its
bargain. On its primary level, the alleged breach merely requires repayment of monies
sooner than contemplated. Should real parties be unable to "cash out" Mitsui, the
guarantors and holders of property subject to the security interest will have to honor those
agreements, subject to the rights of indemnification from the borrower. Further, it is
undisputed that Mitsui did offer long-term financing to Squidco in an amount sufficient
for its business purposes but that Squidco elected to not accept it, citing its reluctance to
secure the financing by a blanket real property trust deed. That Squidco was able to make
this commercial decision shows it and Mitsui were equal bargainers in an ordinary
commercial lending posture.
III
Although real parties argue the holding in Foley did not eliminate tort liability for the
breach of the covenant of good faith and fair dealing in the commercial contract context
of this case, the plain fact is such an action never existed. Even the pre-Foley appellate
decisions which have applied the [212 Cal.App.3d 733] doctrine in the employment
context did so by finding the characteristics of an employee/employer relationship were
roughly equivalent to those found in the fiduciary relationship between an insured and its
insurer. Thus, the court in Wallis v. Superior Court (1984) 160 Cal.App.3d 1109, 1118
[207 Cal.Rptr. 123], considered whether the parties were in unequal bargaining positions,
whether the damaged party entered the contract for a nonprofit motive, whether ordinary
contract damages were inadequate, whether one party is especially vulnerable because of
the type of harm it may suffer and the adhesive nature of a contract requires the damaged
party to place trust in the other to perform, and the other party knew of the vulnerability.
None of these or similar factors are present in this case.
As a matter of law, Mitsui has established there is no triable issue of material fact which
would permit real parties to prevail on their cross-complaint. [4] An alternative writ or
order to show cause would add nothing to the presentation. A peremptory writ is proper.
(Code Civ. Proc., § 1088; United Nuclear Corp. v. Superior Court (1980) 113 Cal.App.3d
359 [169 Cal.Rptr. 827]; Goodenough v. Superior Court (1971) 18 Cal.App.3d 692, 697
[96 Cal.Rptr. 165].) Let a peremptory writ of mandate issue directing the superior court to
vacate its order denying Mitsui's motion for summary judgment on the cross-complaint
and to enter a new order granting the motion.
Benke, J., and Froehlich, J., concurred.
FN 1. Real parties do not state any cross-action for fraud or for bad faith denial of the
existence of a contract. The failure to provide long-term financing was the basis for a
multimillion dollar judgment which was reversed on appeal in Kruse v. Bank of America
(1988) 202 Cal.App.3d 38 [248 Cal.Rptr. 217], based upon those tort theories. The
existence of theories of liability allowing tort damages in contractual situations was
discussed at length in Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 693-700 [254
Cal.Rptr. 211, 765 P.2d 373], with the result being that the court refused to extend them to
wrongful discharge actions. Real parties do not request leave to amend their cross-
complaint to allege such causes of action.
FN 2. The paragraph relied on by the court, in its entirety is: "Despite my request to do
so, Mitsui never provided Squidco of an accounting of Squidco's loans. In fact, the loan
history which was provided to the Court by Mitsui is wrong. First, page 3 of the internal
document of Mitsui which is attached as Exhibit 'A' shows that the $1,350,000.00 was
never fully borrowed against. Second, until the time that Mitsui wrongfully called the
amortized $300,000.00 note and failed to extend Squidco the balance of the
$1,350,000.00 as promised, Squidco could have drawn on both the smaller and larger
notes. At that time Squidco was current in paying the smaller note. Third, Mitsui has
neglected to credit Squidco with over $165,000.00 in payments made by Squidco on
these notes. Fourth, no substantiation or accounting has ever been presented by Mitsui
showing that the interest rates charged by Mitsui were correctly charged on the correct
amount of principal."
Haigler v. Donnelly , 18 Cal.2d 674

[L. A. No. 17916. In Bank. Oct. 1, 1941.]
C. F. HAIGLER et al., Respondents, v. DOTTIE DELPHY DONNELLY et al.,
Appellants.
COUNSEL
Henry S. Cohen and Bernard B. Cohen for Appellants.
W. W. Comstock and H. A. Finkenstein for Respondents.
OPINION
TRAYNOR, J.
Plaintiffs owned a furnished apartment house in Los Angeles. In March, 1939, they listed
the house and furniture with defendant, a licensed real estate broker, the house to be
leased at $250 per month, the furniture to be sold for $3,000 cash, such amounts to be net
to plaintiffs. A listing card setting forth these terms was signed by plaintiffs and left in the
possession of defendant. In April, 1939, plaintiffs gave to defendant another listing which
authorized the sale of the apartment house and furniture for the lump sum of $27,000
with a five per cent commission to defendant. Thereafter, through defendant's offices
Anna M. Silva agreed to lease the apartment house for a term of ten years at $250 per
month and to buy the furniture for $2500. Defendant communicated the terms to
plaintiffs who accepted them and executed a written contract with Mrs. Silva on May 11,
1939. Mrs. Silva paid $3500 to defendant, $2500 representing the price of the furniture
and $1,000 representing payment on account of the lease. From the total sum defendant
retained $1,150, which she claimed as commission, and tendered to plaintiffs a check for
$2,258.35, the balance of the amount paid less prorated rents in the sum of $91.65.
Plaintiffs demanded the full amount of $3408.35 and on being refused undertook the
present action. Prior to the filing of [18 Cal.2d 677] the complaint, plaintiffs accepted the
check for $2,258.35 under a stipulation that it could be cashed without prejudice to the
rights of either party.
The complaint sets forth two causes of action. The first is for money had and received.
The second, after incorporating the allegation of a demand contained in the first cause of
action, alleges that defendant, as agent for plaintiffs, maliciously and fraudulently refused
to account to plaintiffs for money belonging to plaintiffs which defendant had collected
on their account. Then follows a prayer for actual damages in the sum of $3408.35 and
for exemplary damages in the sum of $3,000. The trial court found that defendant was not
entitled to retain as commission the sum withheld by her and gave judgment for $3408.35
plus $500 as exemplary damages to plaintiffs. From this judgment, defendant has
appealed.
Plaintiffs contend that under the original net listing defendant was entitled to receive for
her services only such amounts as she secured in excess of the net prices specified.
Defendant contends that the original net listing was cancelled and the listing card
destroyed by her at the instance of plaintiffs at the time of the second listing. Since the
lease and sale to Mrs. Silva were not within the terms of the second listing, which
contemplated a lump sum sale of both building and furniture, defendant bases her alleged
right to a commission upon the theory of an implied contract to pay the reasonable value
of her services. She also claims a commission on the basis of an oral contract assertedly
entered into between her and plaintiffs shortly before the deal with Mrs. Silva was closed.
[1] Defendant challenges the sufficiency of the findings, citing in particular the failure of
the trial court to find whether or not she was entitled to the reasonable value of her
services. Following the language of the pleadings, the trial court found that defendant,
while acting as agent for plaintiffs, received the sum of $3408.35 belonging to them for
which she did not account. This finding of ultimate fact includes by necessary implication
a finding that the transaction was consummated under the original net listing and that
defendant therefore was not entitled to the reasonable value of her services. [2] There is
no error in the failure of the [18 Cal.2d 678] trial court to make an express finding upon
an issue if it is implicit in the findings made, and there is no necessity expressly to negate
contradictory allegations. (See cases cited in 24 Cal.Jur. 974, 976.)
[3] If a broker's contract for the sale or lease of property fixes a net amount to be paid the
owner, the broker's compensation is limited to the excess of the payment by the purchaser
over the net amount specified. If he fails to sell or lease for more than the amount named,
the broker is entitled to no compensation. (Ford v. Brown, 120 Cal. 551 [52 P. 817]; Sill
v. Ceschi, 167 Cal. 698 [140 P. 949]; Church v. Dunham, 14 Ida. 776 [96 P. 203]; Burnett
v. Potts, 236 Ill. 499 [86 N.E. 258]; Culbertson v. Sheridan, 93 Kan. 268 [144 P. 268];
Futrell v. Reeves, 165 Ky. 282 [176 S.W. 1151]; Gilmore v. Bolio, 165 Mich. 633 [131
N.W. 105, 34 L.R.A. (N. S.) 1050]; Beatty v. Russell, 41 Neb. 321 [59 N.W. 919];
Wolverton v. Tuttle, 51 Ore. 501 [94 P. 961]; 9 C.J. 581, 582.) [4] Therefore, if there is
substantial evidence to support the implied finding of the trial court that the sale and lease
to Mrs. Silva were negotiated under the original net listing, defendant is not entitled to a
commission.
An examination of the record reveals ample evidence to support the finding. At the trial,
plaintiff Haigler testified that during the negotiations with Mrs. Silva nothing was said
concerning a commission and that it was his understanding with defendant that the lease
and sale would be governed by the original net listing. He denied authorizing the
cancellation of the original agreement and the destruction of the card or making an oral
contract to pay defendant a commission. He testified that Mrs. Brown, a saleswoman in
the employ of defendant, produced the listing card when the deal was closed but that
defendant refused to show it to him. This testimony was corroborated by Mrs. Silva and
her husband, who were present at the time. Mrs. Brown also testified that the listing card
was present at the time of the closing of the deal with Mrs. Silva and had in fact been
used by defendant in negotiating the transaction.
In support of her claim, defendant introduced in evidence a typewritten receipt admittedly
signed by Mr. Haigler which read: "RECEIVED FROM DONNELLY & COMPANY the
sum of Twenty-five hundred Dollars, above mentioned, Less [18 Cal.2d 679] 10%
commission earned." Both Mr. and Mrs. Haigler testified that the words "Less 10%
commission earned" were not on the receipt at the time Mr. Haigler signed the writing.
Mr. Sellers, a handwriting expert, testified that in his opinion these words were typed at a
different time and under different conditions from the typewriting preceding them. Mr.
and Mrs. Silva testified that defendant had said to them at different times that "she could
do anything with them [plaintiffs] because they were dumb," and several witnesses
testified that the reputation of defendant for truth and honesty was bad.
[5] In further support of an alleged agreement to pay her a commission, defendant refers
to a provision in the contract signed by plaintiffs with Mrs. Silva which reads: "It is
hereby agreed that so much of said down payment, or any other money collected by
Donnelly & Co., as is necessary shall be retained by Donnelly & Co., to pay the seller's
commission and the balance if any, after said payment, shall be paid by said Donnelly &
Co., to said party of the first part or held by agent subject to first parties order." This
provision is not an agreement to pay a commission but simply an authorization to retain
commissions that may be due.
[6] Defendant finally urges that plaintiffs, in consenting to a lease and sale under terms
different from those set forth in the net listing, waived the conditions therein for the
payment of the commission and thereby became liable under an implied contract to pay
the reasonable value of the services rendered by defendant in finding a purchaser. This
contention is unsound. The parties were not prevented by the terms of the agreement from
negotiating a sale at a reduced net price. Plaintiff's consent to a $500 reduction of the
price of the furniture did not extinguish the agreement. Defendant has erroneously sought
to invoke a rule applicable to a broker who undertakes to sell property under an
agreement whereby he is to receive as commission a certain percentage of the sale price
obtained. In such a case a seller cannot defeat the right of a broker to his commission by
consummating a sale with the purchaser at a smaller price than that originally proposed.
(Boland v. Ashurst Oil etc. Co., 145 Cal. 405 [78 P. 871]; Wetzell v. Wagoner, 41 Mo.
App. 509; cases cited in 9 C.J. 600, 601.) These cases also recognize, however, that the
broker is not entitled to any recovery [18 Cal.2d 680] if his right to a commission is
conditional on a sale at the price mentioned in his authorization (see cases cited in 9 C.J.
602). A broker under a net contract is entitled to no compensation unless he successfully
negotiates a sale for more than the net amount. It would be absurd to hold that defendant
may recover a commission on concluding a sale for $2500 when none would be due her
had she found a purchaser for $3,000.
[7] The question remains whether the award of exemplary damages is proper. The right to
recover punitive or exemplary damages is created by section 3294 of the Civil Code
which provides that "In an action for the breach of an obligation not arising from
contract, where the defendant has been guilty of oppression, fraud, or malice, express or
implied, the plaintiff, in addition to the actual damages, may recover damages for the
sake of example and by way of punishing the defendant." (See Fitzpatrick v. Clark, 26
Cal.App.2d 710 [80 PaCal.2d 183].) Under this section exemplary damages may not be
recovered in an action based upon a contractual obligation even though the breach of
contract is wilful or malicious. (Berning v. Colodny & Colodny, 103 Cal.App. 188 [284 P.
496]; Baumgarten v. Alliance Assurance Co., 159 Fed. 275; see 8 Cal.Jur. 872.) If on the
other hand the action is one in tort, exemplary damages may be recovered upon a proper
showing of malice, fraud or oppression even though the tort incidentally involves a
breach of contract. (Gorman v. Southern Pac. Co., 97 Cal. 1 [31 P. 1112, 33 Am.St.Rep.
157]; Lyles v. Perrin, 119 Cal. 264 [51 P. 332]; Jones v. Kelly, 208 Cal. 251 [280 P. 942];
Berning v. Colodny, supra.)
The first cause of action set forth by plaintiff is one for money had and received. Since it
is established in California that an action for money had and received is ex contractu in
nature, being founded upon a promise implied in law (Philpott v. Superior Court, 1 Cal.2d
512 [36 PaCal.2d 635, 95 A.L.R. 990]; McCall v. Superior Court, 1 Cal.2d 527 [36
PaCal.2d 642, 95 A.L.R. 1019]; Los Angeles Drug Co. v. Superior Court, 8 Cal.2d 71 [63
PaCal.2d 1124]; see Fordson Coal Co. v. Kentucky River Coal Corporation, 69 Fed.2d
131) there is a question whether exemplary damages can be recovered in such an action.
[18 Cal.2d 681]
[8] The second cause of action set forth by plaintiffs, however, contains the essential
elements of an action for conversion and is therefore ex delicto in nature. Exemplary
damages are properly awardable in an action for conversion, given the required showing
of malice, fraud or oppression. (Arzaga v. Villalba, 85 Cal. 191 [24 P. 656]; Gilbert v.
Peck, 162 Cal. 54 [121 P. 315, Ann. Cas. 1913C, 1349].) [9, 10] This count in brief
alleges that defendant, while acting as agent for plaintiffs, received a stipulated sum of
money belonging to plaintiffs and refused to account for it after a proper demand.
Defendant contends that a conversion of the money is not sufficiently alleged. The more
recent cases, however, indicate that a complaint charging defendant with exercising
dominion over property inconsistent with the ownership of plaintiff sets forth a good
cause of action for conversion where no special demurrer for uncertainty is interposed.
(Faulkner v. First National Bank, 130 Cal. 258 [62 P. 463]; Dieterle v. Bekin, 143 Cal.
683 [77 P. 664]; Gustafson v. Byers, 105 Cal.App. 584 [288 P. 111]; First National Bank
of Long Beach v. Crown T. & S. Co., 89 Cal.App. 243 [264 P. 534].)
[11] A broker or agent is ordinarily liable for converting the funds of his principal when
he refuses to account for them upon proper demand. (Wood v. Blaney, 107 Cal. 291 [40 P.
428]; Bellus v. Peters, 165 Cal. 112 [130 P. 1186]; Stacy v. Browne, 99 Okla. 104 [219 P.
336]; Jones v. Smith, 65 Misc. 528 [120 N.Y. Supp. 865]; see 3 C.J. S. 19.) [12] While it
is true that money cannot be the subject of an action for conversion unless a specific sum
capable of identification is involved (Baxter v. King, 81 Cal.App. 192 [253 P. 172]), it is
not necessary that each coin or bill be earmarked. When an agent is required to turn over
to his principal a definite sum received by him on his principal's account, the remedy of
conversion is proper. (Salem Light & Traction Co. v. Anson, 41 Ore. 562 [67 P. 1015, 69
P. 675].)
[13] The trial court found in accordance with the allegations set forth in the second cause
of action. The evidence is sufficient to show a conversion and to justify the court in
concluding that defendant's refusal to account for the sum withheld by her was not made
in good faith under an honest belief that she was entitled thereto, but was the result [18
Cal.2d 682] of a fraudulent scheme to secure plaintiffs' money by means of trickery and
deliberate falsehood. Such action constitutes "oppression, fraud, or malice" within the
meaning of section 3294 of the Civil Code.
Defendant complains that the judgment is erroneous in awarding plaintiffs the full
amount of $3408.35, whereas in fact $2258.35 of such sum was paid to plaintiffs before
the trial. Any supposed error in the judgment in this respect is in no way prejudicial to
defendant. She makes no contention that she will be subjected to double payment, and
such a possibility is precluded by the recital on the margin of the judgment
acknowledging a partial satisfaction of the judgment in the sum of $2258.35.
Gibson, C.J., Curtis, J., Edmonds, J., Carter, J., and Pullen, J., pro tem., concurred.
Franklin v. Municipal Court , 26 Cal.App.3d 884
[Civ. Nos. 29013, 29803.
Court of Appeals of California, First Appellate District, Division One.
July 26, 1972.]
DONALD TYRON FRANKLIN, Plaintiff and Appellant, v. THE MUNICIPAL COURT
FOR THE SAN FRANCISCO JUDICIAL DISTRICT OF THE CITY AND COUNTY
OF SAN FRANCISCO et al., Defendants and Respondents.
(Consolidated Appeals.)
(Opinion by Molinari, P. J., with Sims and Elkington, JJ., concurring.)
COUNSEL
Wong, Siedman & Lee, Wong, Siedman & Lowe, Edward H. Steinman and Dennis A.
Lee for Plaintiff and Appellant.
Thomas M. O'Connor, City Attorney, Burk E. Delventhal, Deputy City Attorney, and
Joseph W. Starritt III for Defendants and Respondents.
OPINION
MOLINARI, P. J.
In these consolidated appeals plaintiff Donald Tyron Franklin appeals from the order
denying his petition for a writ of mandate (1 Civil 29013) and from a judgment of
dismissal in an action for claim and delivery, conversion and declaratory relief (1 Civil
29803).
Statement of the Case
This case involves a revolver which was introduced into evidence at a preliminary
hearing in a criminal action in the municipal court.
On June 17, 1970, Franklin filed an action in the superior court naming as defendants the
Municipal Court of the City and County of San Francisco (hereinafter referred to as the
"Municipal Court") and John A. O'Kane, "an individual" (hereinafter referred to as
"Judge O'Kane"). This action purported to state three causes of action. The "first cause of
action" sought a writ of mandate compelling the return of a certain revolver allegedly
belonging to Franklin. The "second cause of action" sought relief upon a theory of
conversion or alternately in claim and delivery. In the "third cause of action" Franklin
sought a declaration as to his rights and duties under Penal Code section 1418, fn. 1
dealing with the disposition of evidence in criminal cases, and as to the validity and
constitutionality of this statute.
The cause proceeded before Judge Byron Arnold on the "first cause of action," and on
August 5, 1970, Judge Arnold issued an order denying the petition for writ of mandate
which was entered as a judgment on August 6, 1970. An appeal from said order was filed
on August 11, 1970. Upon the filing of the record this appeal was given the number 1
Civil 29013.
The action thereafter proceeded on the "second and third causes of action" before Judge
Robert W. Merrill who, on February 11, 1971, granted a motion for summary judgment in
favor of defendants dismissing those causes of action. On February 17, 1971, Franklin
filed a notice of appeal from this judgment and upon the filing of the record this appeal
was given the number 1 Civil 29803. [26 Cal.App.3d 889]
On June 2, 1971, Franklin made an application to consolidate the two appeals for
appellate purposes. This court thereupon issued an order to show cause why the appeal in
1 Civil 29013 should not be dismissed as premature under the "One Final Judgment
Rule." Upon the hearing of said order to show cause on June 29, 1971, and following a
stipulation entered into between the parties that consolidation was acceptable to them,
consolidation of the two appeals was ordered. Said order was made on the basis that,
although joined in the same complaint, two separate actions had in essence been filed and
tried separately in the court below, i.e., a petition for a writ of mandate, on the one
hand,and a complaint for conversion, claim and delivery and declaratory relief, on the
other.
Petition for Writ of Mandate
In his petition for writ of mandate Franklin alleges as follows: That on March 16, 1969,
he was arrested at his residence and the police seized his .38 caliber "snub nosed" Smith
and Wesson revolver. The revolver was in a room in which Franklin was not present at
the time of the arrest. Franklin had purchased the revolver four months earlier at Val's
Gun Shop, a licensed gunshop dealer in San Francisco, and had registered it with the San
Francisco Police Department.
That on April 10, 1969, a preliminary hearing was held in the Municipal Court before
Judge O'Kane, sitting as a judge of said court. The criminal charges against Franklin were
dismissed and Judge O'Kane issued an order confiscating the revolver pursuant to section
1418.
That the Municipal Court has not and will not give Franklin notice of any hearing at
which he might inquire into and contest the taking and detention of the revolver, and in
addition, the Municipal Court has not compensated Franklin for the taking of the
revolver.
That on July 9, 1969, Franklin, through his attorney, delivered to Judge O'Kane an
application for an order returning the revolver; that the Municipal Court, through Judge
O'Kane, refused to issue an order for the return of the revolver; that on October 27, 1969,
Franklin, through his attorney, contacted Judge O'Kane by telephone seeking the return of
the revolver; and that the Municipal Court, through Judge O'Kane, refused to issue an
order for the return of the revolver.
Franklin further alleges that the Municipal Court has the ability and the duty to return the
revolver lawfully owned by him and refused all requests and demands for the return of
said property. He also alleges that the Municipal Court has deprived him of his property
without due process of law [26 Cal.App.3d 890] by taking the revolver pursuant to
section 1418 which does not afford reasonable notice of the time and place of a hearing,
an opportunity to be heard, nor just compensation for the property taken and held. He
therefore alleges that section 1418 is unconstitutional and that the orders confiscating the
revolver and subsequently refusing to return it are void. Finally, Franklin alleges that he
has no plain, speedy and adequate remedy at law. fn. 2
On June 17, 1970, an alternative writ of mandate was issued by the superior court. The
Municipal Court and Judge O'Kane filed their answer and return to the petition on July
13, 1970. All of the allegations of the petition are denied except those expressly admitted,
as follows: That Franklin had been arrested at his residence on March 16, 1969; that at a
preliminary hearing arising out of the March 16, 1969 arrest all criminal charges against
Franklin were dismissed; that a Smith and Wesson snub-nosed .38-caliber weapon was
introduced into evidence at the preliminary hearing and that an order was issued
confiscating said weapon; that the Municipal Court, through Judge O'Kane, refused to
issue an order for the return of said weapon; and "that telephone conversations have been
held between the Court and various attorneys allegedly representing petitioner; ..."
The answer and return affirmatively allege that Franklin had been booked on suspicion of
violating section 217; that the testimony of Janice Burns was given at said preliminary
hearing;and that the pistol in question is no longer under the jurisdiction of the Municipal
Court.
By way of an affirmative defense, the Municipal Court and Judge O'Kane allege that
Franklin has failed to state a cause of action; that he has failed to make a showing in
either his petition or his affidavits that the ownership of the revolver had been proved at
the time of the original request for its return or at any time subsequent; that Franklin is
guilty of laches; that Franklin comes before the court with unclean hands; and that he has
an adequate remedy at law.
As a further, separate and distinct defense, the Municipal Court and Judge O'Kane allege
that at all times mentioned in the petition sections 1417 through 1419 were in full force
and effect; that on March 16, 1969, Janice Burns was found shot in the chest at 77
Langton Street; that upon entering the residence two members of the San Francisco
Police Department [26 Cal.App.3d 891] observed Franklin leaning over Janice Burns;
that the policemen inquired as to the circumstances of the shooting and Franklin told
them Miss Burns had shot herself; that during this conversation Franklin handed to the
policemen the revolver which is the subject of the instant petition; that Franklin was
arrested and booked for violation of section 217; that a check by the San Francisco Police
Department failed to show that the revolver was registered with said department; that on
April 10, 1969, a preliminary hearing was held in the Municipal Court before Judge
O'Kane; that at this hearing Janice Burns testified that she was shot while she and
Franklin were playing "Russian Roulette"; that the revolver was discharged while it was
pointed at her; that Franklin told her to tell the police she had shot herself; that when the
police arrived she told them she had shot herself; that at said preliminary hearing the
subject revolver was offered as an exhibit; that at the conclusion of the testimony the
court ordered the charge dismissed but issued an order confiscating the revolver; and that
no objection was made by counsel for Franklin at that time.
The minutes of the court attached as an exhibit to defendants' answer contain the
following notation: "People's Exh. No. 1 Gun ordered confiscated. People's Exhibit No. 1
withdrawn in open court."
Franklin did not file any responsive pleading to the return of the Municipal Court and
Judge O'Kane. The matter having been submitted on the pleadings, the superior court
made its order denying the petition for writ of mandate.
[1] "Under section 1091 [of the Code of Civil Procedure] a petitioner may file a
replication denying the affirmative averments of the answer, or he may controvert them
by proof presented by him at the hearing. [Citations.] Such affirmative allegations are
accepted as true unless they are controverted by such pleading or proof. [Citations.]
Accordingly, if such affirmative averments of the answer are not so controverted and the
case is submitted on the petition and answer alone, the uncontroverted allegations of the
answer must be taken as true. [Citations.]" (Lotus Car Ltd. v. Municipal Court, 263
Cal.App.2d 264, 268 [69 Cal.Rptr. 384]; California Portland Cement Co. v. State Bd. of
Equalization, 67 Cal.2d 578, 582, fn. 5 [63 Cal.Rptr. 5, 432 P.2d 700].)
Applying these principles to the case before us we find that the essential affirmative
allegations of the answer that are uncontroverted and therefore must be taken as true, are
as follows: That Franklin was arrested at his residence for violation of section 217 and a
revolver was taken from him at that time; the revolver was used as an exhibit at the
preliminary examination; that at the conclusion of the hearing the complaint was ordered
dismissed [26 Cal.App.3d 892] and Franklin was ordered discharged; that the revolver
was ordered confiscated; that Judge O'Kane refused to return the revolver when a demand
for its return was made by Franklin; and that the revolver was no longer in the
jurisdiction of the Municipal Court.
The determination of the issues tendered by the petition and the answer revolve around
the interpretation of sections 1418 and 1419. At the times pertinent to this proceeding
section 1418, in relevant part, provided as follows: "The court may, on application of the
party entitled thereto, or an agent designated in writing by the owner, order all such
exhibits, other than documentary exhibits, as may be released from the custody of the
court without prejudice to the state, delivered to such party at any time after the final
determination of the action or proceedings; ... If the party entitled to such exhibits is
unknown, or fails to apply for the return of such exhibits, the procedure for their
disposition shall be as follows: [¶] After the expiration of one year from the time the
conviction becomes final, or if the action or proceeding has not resulted in a conviction,
at any time after the judgment has become final, the court in which the case was tried
shall make an order specifying what exhibits may be released from the custody of the
court without prejudice to the state. upon receipt of such an order, the clerk of the court
shall transfer the property to the county purchasing and stores agency or other proper
county agency for sale to the public. [¶] At any time prior to the time fixed for the
transfer, the owner or any person entitled to the possession of any of such exhibits may
obtain from the court an order returning them to him. ..."
Section 1419 provides as follows: "The provisions of Section 1418 shall not apply to any
dangerous or deadly weapons, narcotic or poison drugs, explosives, or any property of
any kind or character whatsoever the possession of which is prohibited by law, used by a
defendant in the commission of the crime of which he was convicted, or with which he
was armed or which he had upon his person at the time of his arrest. [¶] Any such
property filed as an exhibit shall be, by order of the trial court, destroyed or sold or
otherwise disposed of under the conditions provided in such order."
Section 1418 has been commented upon in two cases, Wenzler v. Municipal Court, 235
Cal.App.2d 128 [45 Cal.Rptr. 54], and People v. Tuttle, 242 Cal.App.2d 883 [52 Cal.Rptr.
204]. In each the comment was unnecessary to the disposition of the case before the
court. fn. 3
In Wenzler the appellate court commented that "The municipal court has no duty to make
an order releasing exhibits to petitioner unless (1) the [26 Cal.App.3d 893] exhibits are
still in the custody of the court and (2) petitioner is the owner or otherwise entitled to
possession of the exhibits." (Wenzler v. Municipal Court, supra, 235 Cal.App.2d 128,
131.) Implicit in this statement is the conclusion that if the court has jurisdiction over the
exhibits and the person seeking their return is entitled to possession the court has no
discretion to refuse to turn over the exhibits. fn. 4
In Tuttle the appellate court stated that the first paragraph of section 1418 "is permissive
in nature rather than mandatory; authorizes the court, in its discretion, to release exhibits;
and does not confer upon the party entitled thereto a right to obtain their release. ...
Considered as a whole, the statute is merely a housekeeping measure authorizing the
court to dispose of exhibits in its custody." (People v. Tuttle, supra, 242 Cal.App.2d 883,
884.) fn. 5 The court commented that if the first paragraph of section 1418 "is interpreted
as conferring a right upon the party claiming to be entitled to exhibits, rather than as
furnishing a procedure to clear the court's files, it would be subject to the meritorious
claim of unconstitutionality" that had invalidated sections 1408 and 1409 providing for
the return of stolen or embezzled property. (At p. 885.) Those sections had been declared
unconstitutional as violative of due process because they contained no provision for
giving notice of proceedings thereunder to interested parties or permitting them to be
heard. (See Modern Loan Co. v. Police Court, 12 Cal.App. 582, 585-586 [108 P. 56];
People v. Lawrence, 140 Cal.App.2d 133, 136 [295 P.2d 4].) fn. 6 [26 Cal.App.3d 894]
Tuttle's conclusion that the first part of section 1418 is unconstitutional if it is read as
imposing a mandatory duty to release the exhibits to the party entitled thereto is based
upon the rationale of Modern Loan and Lawrence. In our opinion, neither of these cases
require the conclusion that section 1418 is unconstitutional.
In Modern Loan one Bessie Seaman submitted to a judge of the police court an affidavit
alleging that E. R. Burke had unlawfully taken her diamond breast pin and that there was
reasonable and probable cause to believe that it was concealed at the place of business of
Modern Loan. Upon the basis of this affidavit the judge issued a search warrant pursuant
to which the breast pin was taken from the possession of Modern Loan. fn. 7 The police
judge was about to proceed and determine the ownership of said pin, pursuant to section
1536, fn. 8 when Modern Loan, claiming possession as a lien holder, sought a writ of
prohibition in the superior court. That court held that the police judge was without
jurisdiction because the provisions of the Penal Code which authorized the police judge
to hear and determine "the ownership of" and "title to" personal property were
unconstitutional. The appellate court, in affirming the judgment, held that "these two
sections [1408 and 1409], so far as they are applicable to search-warrant proceedings, are
void. One who is in possession of property under a claim of right cannot be deprived of
its possession without due process of law; and in order to constitute due process of law,
there must be notice of the time and place of hearing and an opportunity to be heard." (12
Cal.App. at p. 585.)
In Lawrence, the defendant had been charged with two counts of second degree burglary:
(1) taking watches from a certain jewelry store and (2) taking approximately $200 from
the Mission Inn. Lawrence was convicted of the first charge and acquitted of the second.
At his trial, $114.21, which he had had on his person at the time of his arrest, had been
introduced into evidence. After the trial he made a written request to the county clerk for
the return of the money. Subsequently, Fireman's Fund Indemnity Company, the subrogee
of Mission Inn, filed a claim in the criminal proceeding for the return of the stolen
property. Fireman's Fund alleged that $198.40 had been stolen from the Mission Inn and
that this sum had been seized by [26 Cal.App.3d 895] the police at the time of
Lawrence's arrest and had been delivered into the custody of the court. Fireman's Fund
contended that sections 1409 and 1410 gave it the right to file the claim. fn. 9 The trial
court set a date for the hearing of the claim causing notice to be sent to the defendant who
was then incarcerated in the state prison. The defendant did not appear although he did
send a letter to the court clerk contesting the hearing as illegal. A judgment was rendered
in favor of Fireman's Fund for delivery to it of the sum of $198.40. (140 Cal.App.2d at
pp. 134-135.)
In reviewing the judgment the reviewing court followed the rationale of Modern Loan
and held that sections 1408 and 1410 were void "as applicable to the facts of this case, ..."
(140 Cal.App.2d at p. 138.) The court observed that "Presumptively the money taken
from defendant belonged to him" (at p. 138), and that since the defendant was in actual
possession of the property when it was taken from him, he was entitled under due process
concepts to reasonable notice and opportunity to be heard before the property could be
taken from him pursuant to a statute specifically providing such notice and hearing. (At p.
137.)
[2a] In the instant case we observe, initially,that we are not concerned with stolen or
embezzled property, the ownership of which may be subject to conflicting claims, but to
an exhibit introduced in a criminal action. The nature of the exhibit, the circumstances
under which it became relevant evidence, and the manner of its introduction are matters
known to the trial court. Accordingly, in most instances the trial court is aware of the
person or party who was in actual possession or ownership of the exhibit, or at least the
person or party to whom the exhibit presumptively belongs. Certainly, insofar as the facts
of the present case are concerned, Franklin had previously been in possession of the
revolver and it presumptively belonged to him. He alone claimed the revolver. The court
was not called upon to determine adverse claims to the revolver but to return it to its
presumptive owner. There was no other party to whom the court could have given notice.
In this situation there is no violation of due process to construe section 1418 as imposing
a mandatory duty to return an exhibit to the party entitled thereto.
We apprehend that the Legislature intended to enact a statute whereby exhibits introduced
into evidence in a criminal trial could be returned to the party entitled thereto in an
expedient and efficacious manner. Tuttle recognizes that "Where reasonable, an
interpretation of a statute supporting [26 Cal.App.3d 896] its constitutionality will be
accepted over that invalidating it as unconstitutional." (242 Cal.App.2d at p. 885; see Civ.
Code, § 3541; County of Los Angeles v. Legg, 5 Cal.2d 349, 353 [55 P.2d 206].) [3] "We
must ... presume that the Legislature intended to enact a valid statute; we must, in
applying the provision, adopt an interpretation that, consistent with the statutory language
and purpose, eliminates doubts as to the provision's constitutionality. [Citations.]" (In re
Kay, 1 Cal.3d 930, 942 [83 Cal.Rptr. 686, 464 P.2d 142]; Erlich v. Municipal Court, 55
Cal.2d 553, 558 [11 Cal.Rptr. 758, 360 P.2d 334].)
[4] "'It is an established principle of statutory construction that when two alternative
interpretations are presented, one of which would be unconstitutional and the other
constitutional, the court will choose that construction which will uphold the validity of
the statute and will be constitutional.' [Citations.]" (Baldwin v. City of San Diego, 195
Cal.App.2d 236, 240 [15 Cal.Rptr. 576]; Patterson v. Municipal Court, 232 Cal.App.2d
289, 294 [42 Cal.Rptr. 769]; Civ. Code, § 3541.) [5a] In the light of this rule the question
whether the challenged portion of section 1418 is intended to impose a mandatory duty or
only to grant direction is not to be determined solely by the fact that it provides that the
court "may" issue the order. (See Carter v. Seaboard Finance Co., 33 Cal.2d 564, 573
[203 P.2d 758].) [6] "It is a fundamental rule of statutory construction that a provision
under consideration by the courts should, wherever possible, be given such construction
as will reasonably achieve its object and purpose within the context of the legislative
scheme." (Hochfelder v. County of Los Angeles, 126 Cal.App.2d 370, 373-374 [272 P.2d
844].) [7] "If to construe it as directory would render it ineffective and meaningless it
should not receive that construction." (Carter v. Seaboard Finance Co., supra, at p. 573.)
[8] Moreover, "'[w]here the purpose of the law is to clothe public officers with power to
be exercised for the benefit of third persons, or for the public at large -- that is, where the
public interest or private right requires that a thing be done -- then the language, though
permissive in form, is peremptory.' [Citation.]" (Harless v. Carter, 42 Cal.2d 352, 357
[267 P.2d 4]; River Farms Co. v. Gibson, 4 Cal.App.2d 731, 750 [42 P.2d 95].)
[5b] If we were to construe the challenged portion of section 1418 as being permissive so
as to empower a court in its discretion to withhold property under its jurisdiction from the
party entitled thereto, the section would be open to serious constitutional doubt. The right
to regain possession of one's property is a substantial right which may not be dependent
upon the whim and caprice of a court. (Cf. Mendoza v. Small Claims Court, 49 Cal.2d
668 [321 P.2d 9]; Mihans v. Municipal Court, 7 Cal.App.3d 479 [87 Cal.Rptr. 17].) We
apprehend that an interpretation of [26 Cal.App.3d 897] section 1418 as being
permissive does far more violence to the concepts of due process than does the
interpretation that it is mandatory.
We perceive that section 1418 contemplates that the party who is entitled to an exhibit
will come forward and claim it. As pointed out above, the court in most instances will
have been apprised of the identity of the person who is entitled to the exhibit in its
custody and, accordingly, the person to whom it presumptively belongs. To require that a
collateral hearing be held on notice for the purpose of returning an exhibit in the case to
the person entitled thereto would be cumbersome, costly and time-consuming. Where the
trial court is in doubt as to whether the person claiming the exhibit is entitled to it, or if
there are conflicting claims to the exhibit, the court may refuse to return the exhibit.
Upon such refusal the party claiming the exhibit has available to him review by writ of
mandate to determine whether the court was justified in refusing to return the exhibit to
him. (See People v. Gershenhorn, 225 Cal.App.2d 122, 126 [37 Cal.Rptr. 176];
Gershenhorn v. Superior Court, 227 Cal.App.2d 361, 364, 367, fn. 1 [38 Cal.Rptr.
576].)In the alternative he may institute a civil action for recovery of his property by a
civil action in conversion. (People v. Gershenhorn, supra, at p. 126.) We perceive,
moreover, that in a proper case parties having conflicting claims to an exhibit may be
required to interplead their claims (Code Civ. Proc., § 386) and that leave may be granted
to intervene in a proceeding litigating the right to an exhibit. (Code Civ. Proc., § 387.)
In the present case section 1418 provided a simple and expedient procedure whereby
Franklin could obtain the return of the revolver which had been taken from him. He had a
right to regain possession of this revolver since, although it was a weapon, it was not used
by him in the commission of any crime for which he was convicted or with which he was
armed or which he had upon his person at the time of his arrest. (§ 1419.) It follows from
the rules of construction set forth above that the Municipal Court was obligated to grant
the order releasing the revolver if it was within its jurisdiction.
[2b] The denial of the petition for a writ of mandate was not improper in the instant case,
however, because it was not established that either the Municipal Court or Judge O'Kane,
acting in his official capacity as a municipal judge, had possession of the revolver either
at the time the request for its return was made or at the time the petition was determined.
(See Wenzler v. Municipal Court, supra, 235 Cal.App.2d 128, 131.)
A writ of mandate "may be issued by any court, ... to any inferior tribunal, ... to compel
the performance of an act which the law specially [26 Cal.App.3d 898] enjoins, as a duty
resulting from an office, trust, or station; ..." (Code Civ. Proc., § 1085.) [9] "Two basic
requirements are essential to the issuance of the writ: (1) A clear, present and usually
ministerial duty upon the part of the respondent [citations]; and (2) a clear, present and
beneficial right in the petitioner for the performance of that duty [citations]." (People ex
rel. Younger v. County of El Dorado, 5 Cal.3d 480, 491 [96 Cal.Rptr. 553, 487 P.2d
1193].)
[2c] In the instant case neither the Municipal Court nor Judge O'Kane had any authority
to confiscate the revolver under sections 1418 and 1419; rather, they were obligated to
return the revolver to Franklin upon his demand. However, whether it was proper or not
to permit the revolver to leave its jurisdiction, the fact remains that the revolver was not
in the custody of the Municipal Court or within its jurisdiction when demand for its
return was made or at the time the answer or return was filed. The answer and return
affirmatively alleged this circumstance. Franklin did not controvert the allegation and we
are, therefore, obliged to accept it as true. [10] "Mandate may not issue to compel action
which is not within the court's jurisdiction." (Daniels v. Superior Court, 132 Cal.App.2d
700, 701 [282 P.2d 1000].) [2d] It follows, therefore, that it was proper to have denied the
petition since neither the Municipal Court nor Judge O'Kane, as a judge of said court, had
the power to issue an order releasing the revolver.
Claim and Delivery and Conversion
In his "second cause of action" Franklin seeks relief upon the theory of conversion, and,
alternately, for claim and delivery. He incorporates the allegations of the "first cause of
action" and alleges that the conduct complained of on the part of Judge O'Kane was in his
individual capacity and not in his official capacity as a judge of the Municipal Court.
The essential allegations of this "cause of action" are as follows: That Franklin is and has
been the owner of the subject revolver since March 16, 1969, on which day the police
entered his residence and without his consent removed the revolver; that since the taking
of the revolver and up until March 5, 1970, Franklin believed that the revolver was in the
possession of the Municipal Court pursuant to its orders confiscating the property and
refusing subsequently to return it; that on March 9, 1970, Franklin was informed by the
police department that the revolver had been released from the "Property Room" of said
department on April 11, 1969, pursuant to the order of the Municipal Court, to Judge
O'Kane in his individual capacity, signed by Judge O'Kane in his official capacity; that
Franklin [26 Cal.App.3d 899] therefore believes that the revolver is in the possession of
Judge O'Kane, in his individual capacity; that Franklin made a demand of Judge O'Kane
for the revolver but Judge O'Kane refused and continues to refuse to deliver the revolver;
that the revolver has a value of $100; and that because of Judge O'Kane's unlawful
possession of the revolver Franklin has been damaged in the sum of $1,500 because he
was unable to obtain a job as a special policeman for a private security agency until
November 24,1969, when he was able to borrow a revolver, but he will not be able to
retain this job unless he has his own revolver. Franklin prays for the recovery of the
possession of the revolver or for its value, and for damages.
The Municipal Court and Judge O'Kane filed an answer to the "second cause of action"
admitting that the police entered Franklin's residence and that Judge O'Kane signed the
order of April 11, 1969, releasing the revolver from the custody of the police department
and denying all of the other allegations. In particular the answer denied that Judge
O'Kane could be sued in his individual capacity, that he had the revolver in his
possession, and that he did or continued to have it in his possession. fn. 10
On November 13, 1970, the Municipal Court and Judge O'Kane filed a motion for
summary judgment "dismissing the cause of action for claim and delivery and conversion
...." The notice of motion recites that the motion "will be based upon this notice, the
pleadings, records and files of this case both here and on appeal." The motion was
supported by a memorandum. In said memorandum it was argued that Franklin had not
stated a cause of action for conversion or for claim and delivery because Judge O'Kane
was protected by judicial immunity. It was also argued that no cause of action for
damages was stated because Franklin had not filed a claim with the City and County of
San Francisco as required by Government Code sections 911.2 and 915. The only
affidavit filed in support of the motion is that of the Controller of the City and County of
San Francisco to the effect that Franklin had not filed a claim against said city and county
during 1969 or 1970. Franklin did not file any counter affidavits or declarations but only
a memorandum of points and authorities.
Under the state of the record it is apparent that no factual issues were tendered by the
affidavits. The affidavit by the controller is merely supportive of the city's contention that
Franklin has failed to state a cause of action. Accordingly, we do not restate. the basic
principles controlling judicial action in granting or denying a summary judgment because
we are not [26 Cal.App.3d 900] concerned with the sufficiency of affidavits but with the
sufficiency of the "second cause of action" to state a cause of action. That question may
appropriately be determined on a motion for summary judgment. (Goldstein v. Hoffman,
213 Cal.App.2d 803, 811 [29 Cal.Rptr. 334]; Wilson v. Wilson, 54 Cal.2d 264, 269 [5
Cal.Rptr. 317, 352 P.2d 725].) We are persuaded, moreover, that the motion herein
presented and submitted to the court, notwithstanding its nomenclature, was nothing
more than a motion for judgment on the pleadings. (See Maxon v. Security Ins. Co., 214
Cal.App.2d 603, 610 [29 Cal.Rptr. 586].) Accordingly, the motion has the purpose and
effect of a general demurrer. (Colberg, Inc. v. State of California ex rel.Dept. Pub. Wks.,
67 Cal.2d 408, 411-414 [62 Cal.Rptr. 401, 432 P.2d 3].) [11] When a motion is made for a
judgment on the pleadings, "the only question, as on general demurrer, is one of law, and
that question is simply whether the complaint states a cause of action. [Citations.]"
(Maxon v. Security Ins. Co., supra, at p. 610.)
[12a] Franklin concedes that consideration of his complaint on the theory of claim and
delivery has now been foreclosed by the recent Supreme Court decision in Blair v.
Pitchess, 5 Cal.3d 258 [96 Cal.Rptr. 42, 486 P.2d 1242], which declared the code
provisions pertaining to claim and delivery to be constitutionally deficient. (At pp. 285-
286.) We will therefore limit our discussion to Franklin's claim for relief on the theory of
conversion.
It thus follows that, in considering the propriety of the judgment dismissing the "second
cause of action," we must accept as true all of the allegations in Franklin's complaint.
(Maxon v. Security Ins. Co., supra, 214 Cal.App.2d 603, 610; Colberg, Inc. v. State of
California ex rel. Dept. Pub. Wks., supra, 67 Cal.2d 408, 412.) An initial difficulty is
posed by the fact that Franklin incorporated all of the allegations of his "first cause of
action" in his "second cause of action" for conversion.
In his "first cause of action" Franklin alleges that the Municipal Court "has the ability and
duty to return property lawfully owned by plaintiff, ..." In his "second cause of action"
Franklin alleges on information and belief that "his property is in the possession of
defendant John A. O'Kane, in his individual capacity, ..."
In resolving this possible inconsistency we are aided by the unique procedural gymnastics
which have been performed by the parties in this action. The judgment denying Franklin's
petition for a writ of mandate was entered on August 6, 1970. The purported motion for
"summary judgment" directed to the "second cause of action" was not filed until
November [26 Cal.App.3d 901] 13, 1970, and judgment thereon was not entered until
February 16, 1971. It might thus be found that the provision in the "second cause of
action" incorporating the allegations of the "first cause of action" was rendered a nullity
by the prior judgment as to the "first cause of action."
We apprehend, in any event, that even if the allegation made by Franklin in the "first
cause of action" must be considered as true in a review of the "second cause of action,"
the "second cause of action" is not necessarily uncertain. In the "first cause of action"
Franklin does not allege that the Municipal Court has possession of the gun, but only that
it has the "ability and duty" to return it. Moreover, in the "second cause of action"
Franklin states that up until March 5, 1970, he was informed and believed "that the gun
was in the possession of the Municipal Court." However, Franklin further alleges that he
was informed on March 9,1970, that the gun was released to Judge O'Kane in his
individual capacity. Franklin then alleges on information and belief that the gun is in the
possession of Judge O'Kane in his individual capacity. Thus, if the allegations of the "first
[and] second causes of action" are read as a whole in their entirety the possible
inconsistency noted above is resolved. Even if it might be found that there was ground for
sustaining a special demurrer for uncertainty, it could not be concluded that there was
reason to sustain a general demurrer.
We therefore conclude that the relevant facts are as follows: Franklin has at all times been
the owner of the revolver and is entitled to its possession. On April 11, 1969, the
Municipal Court, through Judge O'Kane, issued an order releasing the gun to Judge
O'Kane in his individual capacity. Franklin has asked Judge O'Kane to return the revolver
and Judge O'Kane has refused to do so. Our inquiry, therefore, is whether the complaint
states a cause of action for conversion against Judge O'Kane as an individual.
At the outset, we deem it expedient to dispose of the argument raised below and on
appeal that the complaint is fatally defective in that it is barred by the doctrine of judicial
immunity and by Franklin's failure to file a claim with the City and County of San
Francisco as provided in the Government Code. This argument is simply not in point. The
"second cause of action" is not directed against Judge O'Kane in his judicial capacity nor
is it directed against the City and County of San Francisco. The claim is directed against
Judge O'Kane as a private citizen.
[13] In order to state a cause of action for conversion, the plaintiff must allege first, his
ownership or right to possession of tangible property at the time of the conversion;
second, the defendant's conversion of the property; and third, damages. (3 Witkin, Cal.
Procedure (2d ed. 1971) § 565, pp. 2203-2204; Lowe v. Ozmun, 137 Cal. 257, 260 [70 P.
87].) [26 Cal.App.3d 902]
[12b] In the instant case Franklin alleged that he was, on March 16, 1969, and still is, the
lawful owner and entitled to the possession of the subject revolver. This is a sufficient
allegation of ownership and right to possession. (Lowe v. Ozmun, supra, 137 Cal. 257,
260-261.) He also alleges facts sufficing to allege a conversion on the part of Judge
O'Kane. [14] A general allegation that the defendant "converted the property. to his own
use" suffices to allege conversion. (See Lowe v. Ozmun, supra, at p. 260.) An allegation
that the plaintiff demanded return of the property and that the defendant refused to return
said property has been deemed sufficient notwithstanding the additional conclusionary
statement that the defendant acted unlawfully. (Faulkner v. First National Bank, 130 Cal.
258, 267 [62 P. 463].) Under recent authority "a complaint charging defendant with
exercising dominion over property inconsistent with the ownership of plaintiff sets forth a
good cause of action for conversion where no special demurrer for uncertainty is
interposed. [Citations.]" (Haigler v. Donnelly, 18 Cal.2d 674, 681 [117 P.2d 331].)
[12c] In the present case Franklin alleges on information and belief that Judge O'Kane
was in possession of the revolver in his individual capacity, and alleges directly that he
demanded the revolver from Judge O'Kane, that Judge O'Kane refused to deliver said
revolver to Franklin, and that Judge O'Kane detains said revolver without Franklin's
consent. Under the decisions this is a sufficient allegation of conversion.
We here observe that pursuant to sections 1418 and 1419 a judge is not entitled to keep or
retain an exhibit or to exercise any dominion over it other than in his official capacity as a
judge and representative of the court over which he presides. In his official capacity he is
obligated to return the exhibit to the person entitled thereto unless it is unlawful property
as described in section 1419, in which case he may order it "destroyed, or sold or
otherwise disposed of under the conditions provided in such order." (See § 1419; and see
§ 12028 providing for disposition of unlawfully concealed or possessed weapons.) Under
no circumstances is he entitled to appropriate the exhibit for his own use.
Franklin also makes a sufficient allegation of damages. He alleges that the revolver is
valued at $100. This is the customary way of pleading damages in conversion actions.
(See Herrlich v. McDonald, 80 Cal. 460 [22 P. 298]; 3 Witkin, Cal. Procedure (2d ed.
1971) § 568, p. 2206.) He also alleges special damages resulting from his loss of
possession of the revolver.
Since Franklin sufficiently alleges a cause of action for conversion, it was error for the
court below to have dismissed the "second cause of action" as to Judge O'Kane, who is
alleged to have acted in his individual capacity. [26 Cal.App.3d 903]
Declaratory Relief
[15] In his "third cause of action" Franklin seeks a determination of the rights and duties
of the parties under section 1418. He again incorporates the allegations set forth in his
two prior "causes of action." The analysis which is set forth above respecting the
incorporation of the allegations of the "first cause of action" into the "second cause of
action" is applicable here.
In conjunction with their motion for a summary judgment as to the "second cause of
action" the Municipal Court and Judge O'Kane also filed a motion for summary judgment
as to the "third cause of action" seeking declaratory relief. A review of the record
discloses that this motion was likewise in effect a motion for a judgment on the
pleadings. Accordingly, we must treat its allegations as true. It follows that in reviewing
the propriety of the judgment denying declaratory relief we will accept as valid the
averment that on April 11, 1969 an order was issued releasing the revolver to Judge
O'Kane in his individual capacity.
As we have already noted, a motion for judgment on the pleadings performs the same
function as a general demurrer. (Colberg, Inc. v. State of California ex rel. Dept. Pub.
Wks., supra, 67 Cal.2d 408, 411-412.) Accordingly, our review is limited to determining
whether or not a cause of action is stated. (Maxon v. Security Ins. Co., supra, 214
Cal.App.2d 603, 610.)
Franklin seeks a declaration that section 1418 denies him his rights to due process of law.
the issue thereby raised is identical to the issue raised by Franklin in his petition for a writ
of mandate. We reviewed this issue above and determined that section 1418 is not
unconstitutional as applied to Franklin. As the allegations made by Franklin in his "third
cause of action" do not introduce any elements requiring a contrary conclusion, the court
below properly denied this aspect of Franklin's "cause of action" for declaratory relief.
In our previous discussion of the import of section 1418 we concluded that it imposed a
mandatory duty on a court to issue an order releasing an exhibit within its jurisdiction
when a request is made by the party entitled to the exhibit. In the present case the
Municipal Court concededly no longer has the revolver within its jurisdiction since it is
affirmatively alleged by Franklin and undenied by the Municipal Court and Judge O'Kane
that the revolver has been released to Judge O'Kane in his individual capacity.
Accordingly, the Municipal Court no longer has jurisdiction to order its release. The court
below thus properly determined that it could not [26 Cal.App.3d 904] make a declaration
as to the rights and duties of the Municipal Court and Franklin under section 1418.
Section 1418 does not impose any duty on Judge O'Kane acting in his individual
capacity. Accordingly, Franklin is not entitled to a declaration of his rights under that
section against Judge O'Kane acting as a private citizen.
Conclusion
After meandering through a procedural maze produced by pleadings which are not
models, we reach the following conclusion: The order denying the petition for writ of
mandate was proper and the only cause of action stated by Franklin is one for conversion
against Judge O'Kane in his individual capacity.
The judgment in 1 Civil 29013 denying Franklin's petition for a writ of mandate is
affirmed. That portion of the judgment in 1 Civil 29803 in favor of the Municipal Court
and Judge O'Kane in his official capacity as a municipal judge is affirmed. That portion
of the judgment in 1 Civil 29803 based on the order dismissing the "third cause of action"
against Judge O'Kane as individual is affirmed. That portion of the judgment in 1 Civil
29803 based on the order dismissing the "second cause of action" against Judge O'Kane
as an individual is reversed. Each of the parties shall bear his own costs on appeal.
Sims, J., and Elkington, J., concurred.
FN 1. Unless otherwise indicated, all statutory references are to the Penal Code.
FN 2. Franklin also alleged that, subsequent to his arrest, the police removed a holster
and a bedspread from his apartment. However, it was stipulated by the parties that
Franklin later received these two items from the police department and that all references
to them in the petition should be deleted.
FN 3. A petition for a hearing was denied by the Supreme Court in Wenzler. No petition
for a hearing by the Supreme Court was filed in Tuttle.
FN 4. In Wenzler the petitioner sought the return of exhibits used as evidence in his trial.
The appellate court upheld the denial of the writ of mandate to compel the return of the
exhibits on the ground that the petitioner had failed to allege that the exhibits remained in
the custody of the court at the time he had made his original request for the order
releasing them. The reviewing court also noted that although the petitioner alleged that he
owned the exhibits, he did not allege that his ownership had been proven at the time he
made his original request. (235 Cal.App.2d at p. 131.)
FN 5. In Tuttle the defendant sought to attack the order of the superior court refusing the
return of exhibits upon an appeal from his conviction. The reviewing court held that the
order was not appealable. (242 Cal.App.2d at p. 885.)
FN 6. At the timeModern Loan, Lawrence and Tuttle were decided, sections 1408 and
1409 provided as follows: "On satisfactory proof of the ownership of the property the
magistrate before whom the complaint is laid, or who examines the charge against the
person accused of stealing or embezzling it, must order it to be delivered to the owner, on
his paying the necessary expenses incurred in its preservation, to be certified by the
magistrate. The order entitles the owner to demand and receive the property." (§ 1408.)
"If property stolen or embezzled comes into custody of the magistrate, it must be
delivered to the owner on satisfactory proof of his title, and on his paying the necessary
expenses incurred in its preservation, to be certified by the magistrate." (§ 1409.)
Sections 1408 and 1409 were amended in 1971 to provide that reasonable notice and
opportunity to be heard be given to the person from whom custody of the property was
taken and any other person as required by the magistrate.
FN 7. The search warrant was issued pursuant to section 1524, subdivision (1), which
then provided that a search warrant could issue when property was stolen or embezzled,
in which case it could be taken from the possession of the person by whom it was stolen
or embezzled "or from any person in whose possession it may be."
FN 8. At that time section 1536 provided that "When the property is delivered to the
magistrate, he must, if it was stolen or embezzled, dispose of it as provided in Sections
1408 and 1413, inclusive."
FN 9. Section 1409, as it then read, is set out in footnote 6, supra. Section 1410 then
provided as follows: "If the property stolen or embezzled has not been delivered to the
owner, the court before which a trial is had for stealing or embezzling it may, on proof of
his title, order it to be restored to the owner."
FN 10. It is unclear whether this answer was filed by Judge O'Kane solely in his official
capacity or in his individual capacity as well. In view of the uncertainty we shall treat it
as having been filed in both capacities.
Wade v. Markwell & Co., 118 Cal.App.2d 410

[Civ. No. 19341. Second Dist., Div. Two. June 10, 1953.]
KATHERINE WADE, Respondent, v. MARKWELL AND COMPANY (a Corporation),
Appellant.
COUNSEL
Grainger, Carver & Grainger and Harry M. Irwin for Appellant.
Levy, Bernard & Jaffe, Saul J. Bernard and Reuben Freeman as Amici Curiae on behalf
of Appellant.
A. Brian Weinberg for Respondent.
OPINION
FOX, J.
This is an appeal by defendant company from a judgment for defendant's conversion of
plaintiff's coat.
At the outset of the trial, defendant objected to the introduction of any evidence on the
ground that plaintiff's first amended complaint failed to state facts sufficient to constitute
[118 Cal.App.2d 416] a cause of action for the recovery of her coat or its value. After
briefly taking testimony, plaintiff served on defendant her second amended complaint,
and it was on the allegations of this pleading that the case was subsequently tried. There
can be no quarrel with this procedure. [1] A court may exercise great liberality to permit
the amendment of a pleading at any and all stages of the proceedings in order to present
adequately the necessary issues. (Redondo Imp. Co. v. Redondo Beach, 3 Cal.App.2d
299, 302 [39 P.2d 438]; 21 Cal.Jur., p. 183.)
In her second amended complaint, plaintiff made the following material allegations: That
on March 23, 1949, she was the owner of a full length mink fur coat which, at that time,
had a value of $4,800; that on said date, defendant orally represented to her that "if the
plaintiff would permit the defendant to retain possession" of her coat, defendant would
give her $300 as a loan thereon and send her written notification of the expiration date of
the loan and that she need not be concerned about reclaiming the coat until such time;
that plaintiff, relying upon these representations by defendant, through its agents, which
representations defendant knew to be false, placed her coat in defendant's custody,
whereupon defendant delivered to plaintiff the sum of $270, withholding the sum of $30
as prepaid interest on the loan in violation of section 17, page 2675 of the 1939 Statutes
of California; that at the time of this transaction defendant gave plaintiff a written receipt,
reproduced in part as follows:
"Los Angeles, Calif.,
3-23, 1949 ... F 16926
"I hereby pledge to Markwell & Co., the following described property, to wit:
1--Natural Eastern Mink Coat Anglefetzer Cleveland Label
to secure the payment of a loan in the sum of
"Three Hundred ... Dollars $300.00 (The receipt of which is hereby acknowledged)
together with interest and charges as herein provided. It is agreed that said loan shall bear
interest and/or other charges from date until paid at the maximum rate permitted by the
statutes of California. ...
"It is further agreed that the last day of redemption of this pledge shall be thirty (30) days
after the date hereof. ... In the event of default I expressly waive demand of performance
and the giving of notice of time and place of sale and [118 Cal.App.2d 417] agree that
said property may be sold at public or private sale and that pledgee may a purchaser if the
property is sold at such sale ... I agree that the fair market value of the above described
pledged property is not more than 125 percent of the principal amount of the said
loan. ..." that notwithstanding any valuation appearing in the written receipt, plaintiff and
defendant agreed that the fair market value of the coat, as estimated by defendant's agent,
was between $4,500 and $5,000.
The complaint further recites that about November 23, 1949, defendant sent a written
notification to plaintiff notifying the plaintiff of the expiration date of the loan and
requesting plaintiff to repay the loan and reclaim the coat; that on the same day this
notification was received, plaintiff telephoned defendant and orally represented to
defendant's agents that she had received the aforesaid notification and would recover the
coat before the weekend, in response to which defendant's agents represented that the
coat would be available for plaintiff to reclaim within a week; that on or about November
25, 1949, plaintiff orally demanded of defendant the return of the mink coat, offering to
defendant's agents "the sum of $270 as repayment of the loan, plus any accrued interest
or charges; that defendant's agents refused to accept such tender and refused to return the
coat; that defendant orally represented to plaintiff that it had sold the coat to a third
person, whose name defendant's agent refused to divulge, in violation of section 342 of
the Penal Code; that defendant's act of disposing of the coat was unlawful and was to
plaintiff's damage in the sum of $4,800.
The complaint prayed judgment "for the recovery of possession" of the coat or, in the
event delivery could not be had, its value of $4,800.
[2] Defendant's contention that the complaint does not state facts sufficient to constitute a
cause of action is without merit. In support of this contention, defendant argues that there
is no allegation that plaintiff has ever paid or tendered to defendant the sum for which her
coat was pledged. It relies on the fact that the first amended complaint alleges an offer to
pay the sum of $270 in repayment of the loan, which is the exact amount which the
complaint alleges plaintiff received from defendant, and is insufficient because it does not
include any of the accrued interest or charges from March 23, 1949. This insufficiency
was cured in the second [118 Cal.App.2d 418] amended complaint, on which the issues
were tried, by plaintiff's allegation that to redeem her coat, she offered defendant's agents
the sum of $270 in repayment of the loan, plus any accrued interest or charges.
It is further argued that since, in the pledge agreement, which is recited in the complaint,
plaintiff acknowledged the receipt of $300, plaintiff could not comply with her obligation
to defendant without alleging a tender of $300 together with interest and charges. [3]
However, where the consideration recited in a contract is different from the consideration
actually received, a party is not bound by the written recital, but may allege and prove the
true consideration passing between the parties. (Code Civ. Proc., § 1962(2); Johnston v.
Courtial, 216 Cal. 506, 510 [14 P.2d 771]; 6 Cal.Jur., p. 197 et seq.) This is precisely what
plaintiff alleged in her complaint, along with her offer of payment of the amount due
under the allegations. [4] Having thus alleged a demand accompanied by sufficient
tender, defendant's refusal to restore her coat, and certain other facts tending to show
defendant's fraudulent dominion over the coat inconsistent with her right to immediate
possession, the complaint contains all the requisites of a cause of action for conversion.
(Baird v. Olsheski, 102 Cal.App. 452 [283 P. 321]; Gustafson v. Byers, 105 Cal.App. 584
[288 P. 111].) [5] While it may be conceded that the complaint was somewhat ambiguous
and uncertain in its allegations of an unlawful sale of the coat by defendant and greater
particularity with respect to the transaction would have been desirable, the rule is that
uncertainties in a complaint are waived by failure to demur on that ground. (Redondo
Imp. Co. v. Redondo Beach, supra, p. 303.) [6] An objection to the introduction of any
evidence "does not serve the function of a special demurrer for uncertainty, and as no
such demurrer was filed, any uncertainties that we find to exist are to be resolved in favor
of the complaint's sufficiency. (Citation.) None but a defect at an essential point will
justify an order sustaining an objection to the receipt of any evidence." (Bauer v. Neuzil,
66 Cal.App.2d Supp. 1020, 1023 [152 P.2d 47]. See Gallagher v. California Pac. T. & T.
Co., 13 Cal.App.2d 482, 486 [57 P.2d 195].)
Defendant makes the further point that the pledge agreement, as alleged in the complaint,
fixes April 22, 1949, as "the last day of redemption of this pledge" and the pledgee had
the statutory right (Stats. 1939, ch. 951, p. 2667) to sell the pledge upon the expiration of
six months after the [118 Cal.App.2d 419] last day of redemption, viz: after October 22,
1949. Therefore, it is argued that the alleged oral representations made by appellant's
agents on November 23, 1949, that the coat "would be available for plaintiff to reclaim
within a week" is not valid or binding on defendant because (a) neither the written pledge
agreement nor the alleged written notification to plaintiff of the expiration date of her
loan can be orally altered nor can the expiration date specified therein be extended orally,
and (b) there was no consideration for the alleged extension of the time for plaintiff to
reclaim her coat. These arguments are without foundation, since they misconceive the
effect of plaintiff's allegations with respect to her conversation with defendant regarding
her redemption of the coat. [7] Her pleading may well be construed as raising a
promissory estoppel against defendant, which is well recognized either as a "species of
consideration" (Porter v. Commissioner of Internal Revenue, 60 F.2d 673, 675) or as a
substitute for consideration. (1 Williston on Contracts (rev. ed.) 139; 3 Pomeroy's Equity
Jurisprudence, 5th ed., § 808(b).)
According to the complaint, plaintiff received a notification from defendant requesting
her to repay her loan and reclaim her property. Thereupon plaintiff orally informed
defendant that she was ready to do so, and was advised by defendant's agents that she had
a week within which to reclaim the coat. Relying on this representation, plaintiff alleges
that she appeared two days later with proper tender, only to be told that the coat had been
sold. [8, 9] Assuming the truth of these facts, as we must when considering the
sufficiency of her pleading after an objection to the introduction of evidence (Miller v.
McLaglen, 82 Cal.App.2d 219 [186 P.2d 48]; Scott v. Cline Electric Mfg. Co., 104
Cal.App. 122 [285 P. 349]), a situation has been pleaded under which it would be proper
to invoke the doctrine of promissory estoppel as embodied in section 90. Restatement of
Contracts: "A promise which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promisee and which
does induce such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise."
[10] The allegations indicate that at the time plaintiff telephoned, the coat was available
for redemption and plaintiff was induced by defendant's representations to forbear from
immediately redeeming under the assurance that it [118 Cal.App.2d 420] would be held
for her for at least another week. In the interim, while plaintiff refrained from exercising
her right to redeem in reliance on a promise calculated to induce such forbearance,
defendant sold the coat so that it was not available when plaintiff made her alleged
tender. Under such circumstances, it lies not in the mouth of the party making a promise
which induces forbearance of a substantial character (here the loss of a right to redeem a
pledge) to maintain that his promise cannot be enforced by the party aggrieved since it
was unsupported by consideration, for the principle of promissory estoppel does not rest
upon a consideration moving to the party estopped. (Carpy v. Dowdell, 115 Cal. 677, 687
[47 P. 695].) [11] In the case last cited the court states: "The vital principle is that he who
by his language or conduct leads another to do what he would not otherwise have done
shall not subject such person to loss or injury by disappointing the expectations upon
which he acted. Such a change of position is sternly forbidden." The court goes on to cite
the case of Van Syckel v. O'Hearn, 50 N.J.Eq. 173 [24 A. 1024], in which defendant
purchased property encumbered with a mortgage lien upon the strength of a promise
made by plaintiff mortgagee that he would withhold enforcement for a year. Plaintiff
commenced foreclosure within the year. In holding plaintiff to his promise, the court,
after conceding that normally a consideration must be shown to support a promise, said:
"But a court of equity will sometimes prevent parties from disregarding their promises,
even when no consideration has accrued to them upon the making of such a promise. If a
party ... waive strict performance of his contract and makes promises to the defendant
upon which the latter acted and altered his position, and it should appear to the court to
work a hardship on the defendant to allow the complainant to withdraw his waiver, a
court of equity always applies the doctrine of estoppel. In such a case, although no
consideration or benefit accrues to the person making the promise, he is the author or
promoter of the very condition of affairs which stands in his way; and when this plainly
appears, it is most equitable that the court should say that they shall so stand. (Citations.)"
See, also, Hunter v. Sparling, 87 Cal.App.2d 711, 725-726 [197 P.2d 807], for a
discussion of the doctrine of promissory estoppel and a partial citation of the cases
applying the principle. [118 Cal.App.2d 421]
[12] Defendant's contention that plaintiff is precluded by section 1698 of the Civil Code
from attempting to vary the terms of the pledge agreement is without force in light of the
facts already discussed, which establish an estoppel to rely upon section 1698. This is
illustrated by the language of the court in Wilson v. Bailey, 8 Cal.2d 416, 421-422 [65
P.2d 770]: "And likewise, while it is settled in view of section 1698 of the Civil Code
which provides that a written contract may be altered by a contract in writing, or by an
executed oral agreement and not otherwise, ... nevertheless, it is also true that the facts of
a particular case may give rise to an equitable estoppel against the party who denies the
verbal modification." In Panno v. Russo, 82 Cal.App.2d 408 [186 P.2d 452], a case
involving an oral extension of the time fixed in a written sales-contract for payment of
the price by the buyer, the court reiterates the rule that section 1698 is subject to the
exception that a party to the contract may be estopped by his conduct or representations
from denying an oral modification. In D. L. Godbey & Sons Const. Co. v. Deane, 39
Cal.2d 429, 432 [246 P.2d 946], where the entire problem is reviewed, the court cites both
the Wilson and Panno cases, supra, in recognizing that an oral modification of a written
agreement may be shown when the facts establish an estoppel to rely on section 1698.
[13] So here, the allegations, which we must accept as true, are that plaintiff was misled
into believing, at a time when she was ready to redeem her coat, that she was being given
an extra week in which to repay the loan, during which time the coat was sold by
defendant. In effect, plaintiff alleges she was induced by oral representations of
defendant's agents not to exercise her rights under the contract while performance was
still possible; this is sufficient to bring plaintiff within the rules heretofore discussed. [14]
Nor is the complaint fatally defective in that there is no allegation that defendant
authorized its agents to alter the terms of the written pledge agreement or to make the
alleged extension Whether the defendant corporation did or did not authorize its agents to
make the representations alleged involves evidentiary facts constituting a matter of
defense, "which it would be contrary to the very first rules of good pleading to aver in the
complaint." (Union Trust Co. v. Dickinson, 30 Cal.App. 91, 97 [157 P. 615]; Malone v.
Crescent City Mill & Trans. Co., 77 Cal. 38, 42 [18 P. 858].) [118 Cal.App.2d 422]
Defendant's answer denied generally all of the allegations in the complaint not expressly
admitted. It alleged the making of the pledge agreement and plaintiff's receipt of the $300
loan pursuant thereto (except for the retention of $3.50 to pay for fumigation and
demothing of the coat) and plaintiff's default in repayment. The answer further alleged
that defendant sold the coat at public auction after proper notice of sale more than six
months after the last date to redeem; that it became owner of the coat by making the
highest bid, applying the proceeds in satisfaction of plaintiff's debt with no surplus
remaining and that it thereafter resold the coat. It alleged that plaintiff made no demand
for return of the coat until after the resale.
After trial of the issues, the court made findings of fact which furnish a concise summary
of certain salient aspects of the transactions between the parties. The findings are that on
March 23, 1949, plaintiff delivered her coat to defendant as security for a loan to her of
$300 "together with interest and other charges." The coat was a full length, natural dark
mink and was acquired by plaintiff in November, 1948, at a cost of $3,750, to which was
added a luxury and sales tax, making the total price paid by plaintiff $4,612.50. At the
time the coat was delivered to defendant it was in first class condition and defendant
requested that it be demothed prior to being placed in storage, for which a charge of
$3.50 was made by defendant and deducted from the amount of the loan. It was also
agreed that the coat would be cleaned and glazed by defendant at a cost of $15, which
plaintiff was to pay at the time of the redemption of her coat.
At the time the coat was delivered in pawn, a written pledge agreement was entered into,
which truthfully set forth the amount of the loan as $300, a description of the pledged
property, interest rate, and redemption date. The court found, however, that a statement in
fine print in the instrument reading: "I agree that the fair market value of the above
pledged property is not more than 125 per cent of the principal amount of the said loan"
was untrue, was not negotiated between the parties, and was not in keeping with the
valuations communicated between the parties at the time of the pledge. The court found,
instead, that counsel stipulated facts fixing the valuation as above described, namely, that
the purchase price was $3,750, plus taxes. Simultaneously with the making of the pledge
contract and loan, defendant delivered to plaintiff an envelope in which to [118
Cal.App.2d 423] enclose the agreement upon which was printed: "We suggest that you
phone us 24 hours in advance of redemption." Thereafter, plaintiff's account was charged
$4.00 per month interest, as well as $15 for defendant's cleaning of the coat. It was found
that when the loan expired in 30 days, plaintiff had not repaid the principal, interest, or
cleaning charges and that defendant continued to charge $4.00 interest for nine months,
up to and including December 22, 1949.
On or about November 22, 1949, plaintiff informed defendant by telephone that she
intended to redeem her coat and asked if the 24-hour notice was necessary, at which time
she was told that such notice was required and was further informed that she could make
her payments and redeem her coat at any time within the succeeding week. The court
found that plaintiff presented herself at defendant's office "within the period of time
fixed, to wit, a week, and in fact within the month of November, and was informed that
her account had been closed." On demanding to know what disposition had been made of
her account, she was informed that the coat had been sold and the amount received at the
sale credited to, paying off, and closing her account. The findings state "it was not true
that the account was closed and that the coat had been sold, and the court finds that at the
time of the declarations of Markwell & Co. that such had taken place, Markwell & Co.
had charged interest on the loan up to and including December 22, which was many days
thereafter, and that the coat was in the possession of Markwell & Co., and that Markwell
& Co. had conducted a fictitious proceeding in which a purported sale had purportedly
been made, which sale consisted of nothing more than one member of Markwell & Co.
declaring the coat for sale and another member of Markwell & Co. then declaring that the
coat was sold to itself for the amount due on the loan ... that no effort was made to find a
buyer at a fair value, that the interest was charged at the time, and that the purported sale
was fictitious, and that the seizing of the coat and the declaration of the closing of the
account for the amount of the loan was wrongful."
The court further found that subsequent to the fictitious sale, while the coat was still in
defendant's possession and interest was being charged on the loan for a period of time
which has not yet expired, defendant rejected plaintiff's offer to pay up to $1,000 to
recover her coat, but instead sold the coat two weeks after the sale to a third party for
$1,500 and [118 Cal.App.2d 424] refused to disclose to plaintiff the identity of the
purchaser upon plaintiff's request for this information. It was found that a coat such as
plaintiff's "has a reasonable life for use of 8 years when ... given reasonable care, and that
the reasonable value of the coat at the time of its delivery by Markwell & Co. to the
person who purportedly purchased it was the sum of $3,278.00." The court concluded
that defendant had converted plaintiff's coat and awarded plaintiff the sum of $2,927.00,
and interest from December 22, 1949 ($351.00 having been deducted as the amount of
the loan, plus $36.00 interest and $15.00 for cleaning).
The record is replete with sharply conflicting testimony, presented on the one side by
plaintiff as the principal witness in her own behalf, and by defendant's chief witnesses--E.
R. Woodruff and L. M. Irving, president and secretary, respectively, of defendant
corporation, and Levan Tootikian (referred to as Mr. Levon), an employee of defendant
who qualified as an expert on fur values and with whom plaintiff negotiated the pledge
contract. Viewed in the light most favorable to plaintiff as the party prevailing below, it is
clear that on November 23, 1949, plaintiff received from defendant the following notice:
"If you desire to renew your loan contract No. F16926, we ask that you kindly call at our
office previous to November 25, 1949, as otherwise we will close and terminate the
account." Plaintiff at once telephoned defendant's office and spoke to a female employee
of defendant to whom she stated that she was then ready to call for her coat and inquired
if 24 hours' advance notice was required. Upon being informed that it was, and the next
day being Thursday, November 24, 1949 (Thanksgiving Day), plaintiff stated the coat
would be called for on Friday or Saturday, November 25 or November 26. Thereupon
defendant's employee stated she could come at any time within the following week.
Plaintiff telephoned again, either on Friday or Saturday, and informed the girl taking her
call that she was sending her son to pick up the coat and asked that it be made available
to him. Plaintiff was informed that the coat was not there and the call was transferred to a
person plaintiff identified as Mr. Levon, with whom plaintiff had originally negotiated the
loan, who also informed her that the coat was unavailable. Plaintiff was referred to Mr.
Woodruff, whom she telephoned several times to discuss redeeming her coat. Mr.
Woodruff stated the coat had already been sold. Plaintiff testified she pleaded with Mr.
Woodruff [118 Cal.App.2d 425] to allow her to redeem the coat, offering him first three
or four hundred dollars and then as much as $1,000 to no avail. Defendant's witnesses
denied these incidents or conversations had occurred.
The record shows that on November 22, 1949, defendant had already listed plaintiff's
coat on a "Notice of Pledgee's Sale," a three-page document containing some 280 items,
which was posted in three public places, giving notice that a pledgee's sale would be
conducted on November 29, 1949, at defendant's place of business. If plaintiff's
testimony last described is believed, then the statements made to her that the coat had
already been sold at the time she called were false. With reference to the pledgee's sale,
the sole testimony relating thereto came from defendant's agents, since plaintiff was
never given actual notice of the sale (and had, in fact, waived notice under the pledge
agreement). The actual sale was conducted in the private office of defendant's president,
which is a room at the extreme rear of defendant's place of business. This room is reached
by a corridor 18 or 20 feet long from the main waiting room, which is adjacent to the
entrance to defendant's premises. Along the corridor are several small booths in which
loan transactions are made. There are two doors at the opposite ends of the corridor
which open respectively into the outer waiting room and the president's office. It was
testified that these doors were never closed throughout the sale, and that there was no
visual obstruction to anyone who might desire to walk from the outer room of its place of
business into the office where the sale was held. Mrs. Irving testified that Mr. Woodruff
conducted the sale and displayed plaintiff's coat on a desk in his office before asking if
there were any bidders. Mrs. Irving bid $351 in behalf of defendant, and no higher bid
being made, Mr. Woodruff declared the bidding closed and the coat sold to defendant for
the amount of the bid. Mrs. Irving and Mr. Woodruff were uncertain as to whether any
other persons were present at the time of the sale. Neither could remember whether
anyone else was present. Mr. Woodruff stated he believed others had attended the sale.
Mrs. Irving disclaimed any specific recollection of attendance by members of the public
at that particular sale and conceded "it could be" that no one but her and Mr. Woodruff
was present. Mrs. Irving stated that her bid was $351 because she had erroneously
calculated the interest as being due for nine months, [118 Cal.App.2d 426] or $36, at the
time of the sale, whereas only eight and one-fourth months had actually elapsed from the
date of the loan.
Defendant contends that the court's finding that the pledgee's sale was a fictitious
proceeding is contrary to the undisputed evidence. [15] It is argued that defendant
complied fully with all the technical requirements of the law in selling plaintiff's coat "at
public auction, in the manner and upon notice of sale of personal property under
execution" as prescribed in the applicable statutes. (Civ. Code, § 3005; Code Civ. Proc.,
§§ 692, 694.) Yet however much there may be external, literal compliance with the
formalities of the law, and however comprehensive may be the power of sale vested in a
pledgee, the circumstances attending such a sale are subject to strictest scrutiny by the
courts. (Henning v. Akin, 91 Cal.App. 246, 255 [266 P. 981]; Toplitz v. Bauer, 161 N.Y.
325 [55 N.E. 1059, 1061].) [16] For the relation between pledgor and pledgee, wherein
the latter is empowered to sell a pledge placed in his hands as security for a debt in the
event of default, is in the nature of a trust. (English v. Culley, 85 Cal.App. 291, 297 [259
P. 355]; Hudgens v. Chamberlain, 161 Cal. 710, 716 [120 P. 422].) [17] Occupying a
status akin to that of a fiduciary, and being accorded by the code powers in derogation of
the common law such as the right himself to become a purchaser at a sale wherein the
pledge may be disposed of without notice to the debtor, if so agreed upon, there is all the
more reason why the pledgee is held to the utmost good faith in his transactions both with
the pledged property and the pledgor. (Hudgens v. Chamberlain, supra; English v. Culley,
supra. [18] Though the pledgor has waived virtually all the protection afforded him at
common law, he has not waived the right to have his collateral sold at an honest sale to
the highest bidder. For it has been held that even where a contract waives notice and
permits a sale to himself, the pledgee is still a " 'trustee to sell,' not to buy, though with
the privilege of buying, if fairly sold." (Dibert v. Wernicke, 214 F. 673, 681 [131 C.C.A.
109].)
It is manifest that the court was not satisfied that the circumstances attending the sale
were such as would adequately discharge the pledgee's responsibility of trust, as well as
his regard for the interest of the pledgor. [19] For broad as may be the powers lodged in
him, the pledgee cannot "wantonly sacrifice the property" or purchase "at a valuation so
inadequate as to suggest a fraudulent purpose" or engage in [118 Cal.App.2d 427]
conduct incompatible with his status as a fiduciary. (Buder v. New York Trust Co., 82
F.2d 168, 170 [104 A.L.R. 1035]; 76 A.L.R. 722, and cases there cited.) [20a] The
evidence in the case at bar clearly lends itself to the interpretation placed on it by the trial
judge--that the sale was basically a clandestine one conducted in the office of the
president of the company, in a part of the premises least accessible to outside bidders,
with possibly no one present but two officers of defendant corporation, the sale being
consummated for a price in conspicuous disparity with the worth of the collateral, and
under circumstances smacking of oppression and indifference to plaintiff's interest. It was
little more than a secluded drama wherein defendant arrogated to itself dominion over the
coat for the amount debited to plaintiff. But defendant contends that the uncontradicted
testimony of its witnesses establishes the regularity and genuineness of the sale. [21]
However, in view of the relation of Woodruff and Mrs. Irving to the defendant pledgee
and their obvious interest in the transaction the trial court was not required to accept as
true their testimony of what transpired at the sale in the former's office or of the
accessibility of the place of sale to prospective purchasers (Bloyd v. Senn, 100
Cal.App.2d 597, 600 [224 P.2d 117]; Lohman v. Lohman, 29 Cal.2d 144, 149 [173 P.2d
657]; Scheff v. Roberts, 35 Cal.2d 10, 15 [215 P.2d 925]; Burdick v. Wittich, 46
Cal.App.2d 456, 464 [116 P.2d 90].)
[22] It may be observed that the very notice of sale given to the public by pledgee shows
a callous insensitivity to its duty to attempt to procure the highest price possible. In a
notice consisting of about 280 items listed in three pages of closely spaced typewriting,
plaintiff's coat is identified as "Loan Contract F16926 1 fur coat." At the bottom of the
third page appears the following: "Reference is made to said contracts for full particulars
and for full descriptions of the property and the amounts paid on said respective
contracts." This character of perfunctory advertising can scarcely be said to do justice to
plaintiff. Her coat was not just a fur coat--it was a full length, natural eastern mink coat
and was entitled to that description. Such a notice should also disclose the amount of the
debt; for this publicizes to the potential purchaser the expected range of bidding within
which he may procure a desirable item. Mere reference to a loan agreement is an
unrealistic way of achieving the purpose for which notice of sale is intended--that of [118
Cal.App.2d 428] stimulating interest in the sale and procuring bidders to the end that a
pledgor gets the full measure of protection. (Laclede Nat. Bank v. Richardson, 156 Mo.
270 [56 S.W. 1117, 1118, 79 Am.St.Rep. 528]; Hagan v. Continental Nat. Bank, 182 Mo.
319 [81 S.W. 171]; Seasongood, Drastic Pledge Agreements, 29 Harv.L.Rev. 277, 282-
283.) This is all the more significant where the pledgee itself is conducting the sale
pursuant to an agreement prepared by it which gives it power of sale with no notice to the
pledgor. To sanction any conduct but that of highest probity and adherence to the trust
relationship would be to ignore completely the spirit of the code in authorizing the
pledgee's right to make a contract to sell without notice and to become a purchaser at his
own sale; and if, as defendant implies, this is the usual practice resorted to among loan
brokers, then it would appear to this court that the time has come to rectify a custom that
lends itself too facilely to abuse and frustration of both the legislative intent and the trust
relationship of the parties to the contract.
[23] While it is unquestionably true that mere inadequacy of price alone will not render a
pledgee's sale invalid, the rule is well established that where the price obtained is greatly
disproportionate to the actual value, very slight evidence of unfairness or irregularity will
suffice to give relief to an aggrieved party. (Winbigler v. Sherman, 175 Cal. 270 [165 P.
943]; Odell v. Cox, 151 Cal. 70 [90 P. 194].) [20b] From all the findings made and their
consequent inferences, as well as from the evidence already discussed, there is clear
support for the finding that the sale was a fictitious proceeding. In Winbigler v. Sherman,
supra, p. 275, the court quotes the following language from Schroeder v. Young, 161 U.S.
334 [16 S.Ct. 512, 40 L.Ed. 721], in support of the court's right to impeach the fairness of
a sale, resulting in a foreclosure for a palpably inadequate price: "If the sale has been
attended by any irregularity ..., if any undue advantage has been taken to the prejudice of
the owner of the property, or he has been lulled into a false security; or if the sale has
been collusively or in any other manner conducted for the benefit of the purchaser, and
the property has been sold at a greatly inadequate price, the sale may be set aside, and the
owner may be permitted to redeem."
Certainly the evidence before the court strongly suggests that plaintiff was misled to her
detriment by being told, at a time before the sale and when she was ready to redeem, that
[118 Cal.App.2d 429] she could come any time within the succeeding week. The court
could reasonably infer from all the evidence that defendant was following a well-
prepared program whereby it hoped "to acquire a valuable property for a paltry sum by
following the forms of law but in defiance of the elemental rules of equity ..." and where
"the sale was conducted in such manner that the full value of the property could not be
realized," and where the principal interested bidder had been kept away. (Turner v.
Milstein, 103 Cal.App.2d 651, 655-657 [230 P.2d 25].)
But independent of the actual conduct of the sale, there are other grounds for sustaining
the judgment of conversion. At the time plaintiff received her notification from
defendant, notice of sale had already been posted. [24] Though she had waived notice,
she was nevertheless entitled to full disclosure of the pending sale when she called in
reference to defendant's notification regarding redemption of her coat or renewal of her
loan. After having itself extended the time for redemption to November 25th by a
communication upon which plaintiff relied, and having, through an agent clothed with
ostensible authority, granted her a particular period in which to redeem, it was manifestly
inequitable for defendant to proceed with a strict foreclosure without notice to the
pledgor. In 72 Corpus Juris Secundum, Pledges, page 121, the rule is stated: "The right of
the pledgee to sell without notice may be waived by the pledgee even where it is
stipulated that the sale may be made without notice, and such waiver requires no new or
independent consideration to support it. The waiver may be made either expressly or it
may be implied from the pledgee's conduct. ..."
[25] In the often-cited case of Toplitz v. Bauer, 161 N.Y. 325 [55 N.E. 1059, 1061], the
court says: "The pledgee doubtless has the right to exact strict performance of the
contract according to its terms, and, upon default in the payment of the debt at the time
stipulated, he may, under a contract like this, dispose of the pledge. But if he waives the
right to exact strict performance and gives time and indulgence to the debtor, he cannot
recall this waiver at his own option, without notice to the pledgor, to the end that the
latter may have an opportunity of protecting the pledge. The good faith which the law
exacts from a person dealing with trust property will not permit the pledgee, after having
once waived the forfeiture or right to dispose of the pledge upon default of payment at the
prescribed time, to suddenly [118 Cal.App.2d 430] stop short and insist upon the
forfeiture for the nonpayment of the debt when the other party is unprepared to redeem.
Strict performance in such cases may be waived by any agreement, declaration or course
of conduct on the part of the pledgee which leads the owner to believe that a forfeiture
will not be insisted upon without an opportunity given him to redeem. (New York Life
Ins. Co. v. Eggleston, 96 U.S. 572, 577 [24 L.Ed. 841]); ..." This language applies with
especial appositeness to the case at bar.
[26] Defendant asserts that the finding that plaintiff "presented herself" at its office within
the week allowed her only to be informed that her coat had been sold and the account
closed is lacking in evidentiary support. There may be some doubt about plaintiff's
physical presence at defendant's office but that is immaterial. The important thing is that
she was advised by defendant's agents that her coat was not available and had been sold
and the account closed. Plaintiff testified that she was so advised by Levon and Woodruff,
when she telephoned on Friday or Saturday following Thanksgiving Day stating she was
sending her son to pick up the coat and requesting that it be delivered to him. Thus the
information relative to the sale of her coat and the closing of her account was
communicated to her by telephone rather than across the counter. Such inexactness
cannot possibly justify a reversal of the judgment.
[27] These statements which, however, were not true, explain plaintiff's failure to send
her son to pick up her coat and excused her of the necessity of making a tender of an
amount sufficient to cover the loan, interest and charges because the law does not require
the doing of an idle act. (Civ. Code, §§ 3532 and 1511(3); Hulen v. Stuart, 191 Cal. 562,
568 [217 P. 750]; Barnes v. Osgood, 103 Cal.App. 730, 734 [284 P. 975]; Woods-Drury,
Inc. v. Superior Court, 18 Cal.App.2d 340, 348 [63 P.2d 1184].)
It is argued that plaintiff is estopped to question the validity of the sale because by her
subsequent negotiations to obtain the coat from defendant she must be held to have
ratified the sale. [28] It is true that a pledgor is deemed to have ratified a sale "where,
without objection, and with knowledge of his rights, he commences to treat with the
pledgee purchaser with a view to acquiring the property. ..." (21 Cal.Jur., p. 372.) [29]
But that is not the situation here, where plaintiff at all times questioned the propriety of
the sale. Of her conduct it may be said that there has "been no ratification if the [118
Cal.App.2d 431] pledgor, while offering to buy the property, should protest against the
sale, although offering to buy it for the sake of peace." (Hill v. Finigan, 77 Cal. 267, 275
[19 P. 494, 11 Am.St.Rep. 279].)
Defendant contends that the damages of $3,278 awarded to plaintiff are exorbitant and
excessive and not supported by any evidence. He argues that Mr. Levon, qualifying as an
expert furrier, testified that in his opinion the coat was three years old and worth $500 at
the time it was pledged since it was matted, worn, and soiled in many places. He also
testified that a fur coat depreciates as much as one half, for purposes of resale, as soon as
it is worn. He testified that the life of an evening mink coat given ordinary care by a
prudent person is between five and ten years. He also testified that before the coat was
resold, it was repaired, relined and restyled. Plaintiff's testimony was in sharp
contradiction. She stated that her coat was brand new when she purchased it, that it was
in perfect condition at the time she deposited it with defendant four months after the
purchase and that she had only worn it two months. She testified that Mr. Levon stated
"You must have paid $4,500 or $5,000 for the coat" when she first showed it to him. In
placing a valuation on the coat, plaintiff testified at one point that it was worth $5,000
and at another point that its value to her was what she had paid for it. It is undisputed that
the coat was in storage with defendant until the time of its resale. [30] Thus, the court had
before it contradictory and conflicting evidence as to value and condition. The court was
not necessarily bound to accept the opinion of Mr. Levon but could look to other
evidence of value in the light of all the surrounding circumstances. (Linforth v. San
Francisco Gas & Electric Co., 156 Cal. 58, 63 [103 P. 320, 19 Ann.Cas. 1230]; Birkhofer
v. Krumm, 27 Cal.App.2d 513, 541 [81 P.2d 609].)
[31] "It is a recognized rule that the owner of property, whether generally familiar with
such values or not, is competent to estimate its worth ..." (10 Cal.Jur. 1023.) [32] Also,
"testimony as to cost of goods is a circumstance tending to show value." (Ibid) [33] Such
evidence may be taken into consideration, along with other circumstances such as the
extent of the use of the property and its condition and depreciation, in order to determine
the subsequent value of the property and establish the loss sustained as the result of an
unlawful conversion. (Kirstein v. Bekins Van & Storage [118 Cal.App.2d 432] Co., 27
Cal.App. 586 [150 P. 999]; 24 Cal.Jur., p. 1060.) [34] On the basis of the evidence as to
the life of a mink coat, the range of figures before it as to the value of the coat and its
obvious belief that the coat was at all times while in defendant's possession in first class
condition, the court arrived at the figure of $3,278 as a fair value at the time of
conversion. The record therefore contains substantial evidence to support the finding of
the trial court as to value of the property converted. (Griffin v. Porter, 54 Cal.App.2d 254,
255 [128 P.2d 820].) [35] The "amount of compensation ... must be left to the sound
discretion of the trial court, to be ascertained and adjudged after consideration of all the
facts and circumstances established by the evidence in the case." (LeBrun v. Richards,
210 Cal. 308, 320 [291 P. 825, 72 A.L.R. 336].) [36] The weight of the evidence on value
being a question for the determination of the trial judge, "it is not the province of this
court, upon a review thereof, to determine otherwise." (Hood v. Bekins Van & Storage
Co., 178 Cal. 150, 152 [172 P. 594].) [37a] The fact that the court used the mathematical
formula of computing depreciation of the coat by taking a pro rata average based on an
estimated life of eight years does not justify a reversal of the case. [38] It is the duty of an
appellate court on the subject of damages "to uphold the findings if it is possible to do so
upon any sound theory." (Crystal Pier Amusement Co. v. Cannan, 219 Cal. 184, 192 [25
P.2d 839, 91 A.L.R. 1357].) [37b] The method used by the trial court is accepted practice
in many fields and was justifiably employed in the case at bar in order to award plaintiff
"an amount sufficient to indemnify the party injured for the loss which is the natural,
reasonable and proximate result of the act complained of. ..." (Civ. Code, § 3336; Bedell
v. Mashburn, 87 Cal.App.2d 417, 423-424 [197 P.2d 98].) The court merely resolved
conflicts on the issue of value against the defendant. (Gruber v. Pacific States Sav. & L.
Co., 13 Cal.2d 144, 150 [88 P.2d 137].)
[39] Defendant's contention that the fact that after the coat was reconditioned it was sold
for only $1,500 proves conclusively that the sum of $3,278 damages is excessive cannot
be sustained. Such price on resale is not conclusive of its value. (Breznikar v. T. J. Topper
Co., 46 Cal.App.2d 435, 438 [116 P.2d 176].) This is especially true where the pledgee
seller has acquired the chattel at a very low figure and even at the resale price has netted
for himself a very [118 Cal.App.2d 433] substantial profit. There was no inducement for
defendant to find a purchaser at its true value when it could reap a handsome--and quick--
profit at the amount for which it sold the coat.
[40] Defendant argues that the judgment must be reversed because the court made no
finding as to the value of the coat at the time of the conversion. (Civ. Code, § 3336.) The
finding of the court was that "the reasonable value of the coat at the time of its delivery
by Markwell & Co. to the person who purportedly purchased it was the sum of $3,278."
Defendant urges that if any conversion occurred, it took place at the time of the pledgee's
sale on November 29, 1949. Even under this theory, defendant's argument cannot prevail.
In Woodbine v. Van Horn, 29 Cal.2d 95 [173 P.2d 17], the trial court erroneously failed to
compute damages on the basis of the market value of certain wood at the time of
conversion, using instead its value either at the time of the filing of the complaint or at
the time of trial in computing the amount of the judgment. The court states (p. 109): "But
the error of finding the value as of the date of the commencement of the action does not
require the reversal of the judgment. The complaint was filed about a month after the
conversion and the testimony covers the wholesale market value of the wood during the
period from the time of conversion until the commencement of the action. ... The finding
of damage in the amount of $1 per cord is, therefore, supported by evidence of market
value at the date of the conversion." Similarly in the case at bar, the testimony covered
the value of the coat during the entire period from the time of its purchase by plaintiff to
the time of the resale to Mrs. Enquist, which occurred only 17 days after the purported
pledgee's sale. Therefore, as has already appeared, the finding of the damage is supported
by evidence of value at the time of conversion, the court having considered all the factors
involved.
[41] But it may also be added that defendant was guilty of successive conversions--the
last being the sale to Mrs. Enquist--and the court was justified in treating this later
conversion in its findings as the time for computation of damages. Up to the time of such
resale, defendant still had it in its power to return the coat to plaintiff and receive the
amount due upon the pledge. [42] Its exercise of total dominion over plaintiff's property
by its act of resale, even though believing it had the right to do so, constituted a
conversion. [118 Cal.App.2d 434] (Bancroft-Whitney Co. v. McHugh, 166 Cal. 140, 143
[134 P. 1157].)
Certain minor points raised by defendant do not require discussion since they are
unnecessary to the determination of the case and could not possibly affect the result.
Moore, P. J., and McComb, J., concurred.
Davis v. Wood, 61 Cal.App.2d 788
[Civ. No. 6997. Third Dist. Dec. 16, 1943.]
STANLEY DAVIS, Appellant, v. MARGARET WOOD, et al., Respondents.
COUNSEL
Ralph Bancroft for Appellant.
Charles E. Johnson, Mark M. Brawman and Chester E. Ross in pro. per., for
Respondents.
OPINION
SCHOTTKY, J. pro tem.
Appellant commenced an action against respondents for slander of title to real property.
The court below made an order sustaining respondents' demurrers to appellant's third
amended complaint without leave to amend, and this appeal is from the judgment entered
in favor of respondents on such order.
In view of the fact that the entire question involved upon this appeal is whether or not the
trial court erred in sustaining respondents' demurrers without leave to amend, we deem it
proper to set forth the allegations of the complaint, which are:
"II
"That on or about the 29th day of May, 1935, plaintiff herein and one J. Henry Wood,
made and executed a certain agreement in writing by the terms and provisions of which
the said J. Henry Wood leased and let unto plaintiff herein and plaintiff hired and took
possession from said J. Henry Wood, all that certain real estate with the equipment
thereon [61 Cal.App.2d 790] situate in Siskiyou County, State of California, which
property is mining property and known as the Portuguese Mine, which said lease was
recorded in the office of the County Recorder of Siskiyou County in Vol. 49 of official
records, page 203 and said lease is still in full force and effect and plaintiff is the
leasehold owner in possession of said real property and equipment.
"III
"That during the months of January and February, 1941, all and each of said defendants
unjustly, maliciously and unlawfully conspired together to obtain plaintiff's real property
hereinbefore described, and that in pursuance of said conspiracy on the part of said
defendants and in order to carry out said conspiracy to the injury of plaintiff the said
defendants falsely represented and pretended that they had some valid claim upon the
land hereinbefore described; and thereupon said defendants prepared or caused to be
prepared what purported to be notices of Location of Mining Claims covering and
describing the same real property hereinbefore described and so leased to plaintiff, and
thereafter and on or about the 19th day of February, 1941, said defendants maliciously
caused said purported notices of locations of mining claims to be recorded in the office of
the County Recorder of Siskiyou County, State of California, and the same have ever
since remained of record in said county and apparently in full force and effect and a cloud
upon plaintiff's title.
"IV
"That the pretense of said defendants in making said purported notices of location of
mining claims and placing the same on record in said county was to create a cloud upon
and claim against the property of plaintiff hereinbefore described when in truth and in
fact said defendants and each of them well knew and had notice that said land was leased
to said plaintiff and well knew and had notice that plaintiff was in actual possession of
said land at said time and was actually and honestly working said mining ground in
compliance with the terms of said lease and the defendants well knew and had notice that
the annual work was done thereon as provided by law and the mining regulations; that
defendants or any of them had no interest in the lands above described and the statements
made in said notices of locations of mining claims were wholly false and known to be so
by each [61 Cal.App.2d 791] and all of said defendants at the time said notices of
locations of mining claims were made and filed with the County Recorder of Siskiyou
County; that by reason of said conspiracy, representations, pretenses and false claims of
said defendants, the plaintiff has been greatly embarrassed in the free enjoyment, use and
disposition of his aforesaid property and the interest of the plaintiff has been and now is
greatly depreciated and plaintiff greatly damaged by reason of the said pretended claims
of said defendants resulting from and growing out of said conspiracy and said false and
fraudulent claims.
"V
"That the defendants never had and have not now any interest, right, title or claim directly
or indirectly to said land herein before described or any part thereof and that these
defendants in recording said instruments acted maliciously and in order to vex and harass
plaintiff herein.
"VI
"That said defendants, in recording said instruments, cast a cloud upon and a slander
upon plaintiff's title to the lands described herein; that the recording of said notices of
locations of mining claims by defendants decreased the value of said leasehold interests
and rendered it unmarketable, all to the damage of said real estate and to plaintiff in the
sum of Ten Thousand dollars.
"VII
"That the acts of said defendants, and each of them, as herein alleged, have been actuated
by malice, and that said defendants and each of them have been guilty of oppression and
malice in their actions, as aforesaid; that this is a proper case for punitive damages and
this plaintiff has sustained exemplary or punitive damages in the sum of Five Thousand
dollars."
Respondents Brawman and Johnson filed general demurrers and the remaining
respondents filed both general and special demurrers. The grounds of demurrer, in
addition to the general demurrer, so far as necessary to note here, may be briefly
summarized as follows: 1. That the complaint does not state a cause of action in that it
does not describe the real property involved with such certainty that the same may be
determined from the face of the complaint; 2. That the [61 Cal.App.2d 792] complaint is
uncertain in that it cannot be ascertained therefrom what real property plaintiff claims to
hold as a leasehold, what the term of the lease is, and whether it is still in force; 3. That
the complaint is uncertain in that it does not appear what interest Wood, from whom
appellant leased the property, had in the property; 4. That the complaint is uncertain in
that it does not appear therefrom how the recording of said notice of location embarrassed
appellant in the use and enjoyment of said property, or decreased the value of his interest,
or rendered it unmarketable.
In its ruling upon the demurrer the trial court stated:
"I have also delayed the matter to permit reading the decision of the California Supreme
Court in Gudger v. Manton.
"In the instant case no pleading of malice or of facts indicating actual or implied malice
exists, and above all, no pleading of proper damages is made. There is absolutely no
showing in the complaints, as variously amended, that any deal of plaintiff was interfered
with nor any other matter than would justify damages in a slander of title action.
"As the complaint has been amended many times herein, and the issue can now be taken
up for appeal if the parties desire, I hereby sustain the demurrers to the third amended
complaint without leave to amend."
Appellant in his opening brief states: "It is obvious from the ruling on demurrer that the
lower Court based its decision upon the case of Gudger v. Manton, 21 Cal.2d 537 [134
P.2d 217]. Appellant will therefore confine his argument to that particular decision."
Appellant then proceeds to discuss the question whether it was necessary to allege in his
complaint that some pending sale was interfered with, and ignores the other grounds of
demurrer. No closing brief was filed by appellant. Respondents in support of the
judgment make the following points: (1) The complaint is insufficient because of its
failure to describe any real property; (2) defendants are rival claimants to the real
property and are privileged to disparage plaintiff's title to the extent necessary to establish
their own claims thereto, and (3) the complaint contains no proper allegations of
damages. We believe the questions involved upon this appeal can be discussed in a more
orderly manner by first taking up the contentions made by respondents.
In support of their first contention, respondents point out that the complaint merely
alleges that appellant leased from [61 Cal.App.2d 793] one Wood certain real property
situated in Siskiyou County, and known as the Portuguese Mine, and that the lease was
recorded in the office of the county recorder. Respondents cite the following language
from the case of Burkett v. Griffith, 90 Cal. 532 [27 P. 527, 25 Am.St.Rep. 151, 13 L.R.A.
707] at page 541:
"It was necessary for the plaintiff to set forth and describe in his complaint the property
respecting which the defamatory statements had been made, as well as to aver his title
thereto, so that it might be shown wherein the defendant had done him any injury."
Respondents also upon this point cite the case of Aalwyn's Law Institute v. Martin, 173
Cal. 21 [159 P. 158], which was an action to quiet title in which the complaint described
the property as "Rights of way, terminal lands, and all the property known as the 'Ocean
Shore Railway Property,' more particularly described," giving the volume and number of
a page of the public records. Upon appeal the court held that the description was
insufficient even upon a general demurrer.
[1] We do not believe that either reason or authority require that in an action involving
slander of title, the property involved need be described in the complaint with the same
degree of particularity as is necessary in an action to quiet title. As stated in the above
quotation from Burkett v. Griffith, supra, all that is required is that plaintiff describe the
property and his title thereto "so that it might be shown wherein the defendant has done
him any injury." The complaint in the instant case described the property as "all that
certain real estate with the equipment thereon, situate in Siskiyou county, which property
is mining property and known as the Portuguese Mine," and set forth that appellant had
leased said property from one Wood, which lease was recorded and was in full force and
effect, and that appellant was the leasehold owner of said property. The said complaint
further alleged that respondents had caused to be prepared and recorded notices of
location covering and describing the same real property. It is therefore apparent from the
complaint that the property which appellant alleged he was the leasehold owner of,
namely the mining property known as the "Portuguese Mine," was the same property
covered by the Notices of Location recorded by [61 Cal.App.2d 794] respondents. While
appellant might well have set forth the description of said property and his interest therein
with greater particularity, we do not believe that under the advanced and more liberal and
less technical rules of pleading that have been established in recent years, it can
reasonably be held that in an action for slander of title, the description of the property and
appellant's interest was either insufficient or uncertain. While a trial court might be
justified in requiring an amendment enlarging upon said description, it would not, in our
opinion, be justified in sustaining a general demurrer upon that ground; and in fairness to
the trial court there is nothing in the record here to indicate that the court's ruling was
based upon the alleged insufficiency of the description.
[2] Respondents' second contention in support of the judgment is that defendants are rival
claimants to the real property and are privileged to disparage appellant's title to the extent
necessary to establish their own claims thereto. In support of this contention respondents
quote the following language from Gudger v. Manton, 21 Cal.2d 537 [134 P.2d 217] at
page 545:
"A rival claimant of property is conditionally privileged to disparage or justified in
disparaging another's property in land by an honest and good faith assertion of an
inconsistent legally protected interest in himself. (See Thompson v. White, 70 Cal. 135
[11 P. 564]; Rest. Torts, § 647.) The levy of an execution is an assertion of a claim to an
interest in that it is a lien on the property levied upon. Therefore, if in the instant case
defendants acted in good faith, that privilege defeats plaintiff's action. Actual malice has a
bearing upon the question of good faith."
Respondents assert that the property in question was mining property which was owned
by the federal government and would be open to location if the prior locator failed to do
the annual assessment work as required by the mining laws, and that if they were in good
faith asserting a claim adverse to the appellant they were privileged to disparage the title
of the appellant to the extent that was necessary to effect said location. Respondents have
apparently overlooked the fact that the complaint alleges that said notices of location
were recorded by respondents maliciously and with knowledge that their claims were
wholly false. Taking such [61 Cal.App.2d 795] allegations at their face value, as we must
upon this appeal, where only the sufficiency of the complaint is involved, they clearly
negative any privilege on the part of the respondents to record said notices of location.
[3a] Respondents' final and principal contention in support of the judgment is that the
complaint contains no proper allegation of damages, and this appears also to have been
the principal ground upon which the trial court sustained the demurrers.
The allegations of the complaint as to damages are in paragraphs IV and VI thereof and
have been hereinbefore set forth. Respondents assert that said allegations of damages are
insufficient, and the trial court stated that there "was no showing that any deal of plaintiff
was interfered with nor any other matter that would justify damages in a slander of title
action." The trial court also stated that he had delayed ruling upon the demurrer to permit
his reading the decision in Gudger v. Manton, supra, and it is evident that the trial court
regarded that decision as determinative of the insufficiency of the allegations as to
damages.
In view of the frequent reference to Gudger v. Manton, supra, we think it may be helpful
to briefly analyze that case. In 1932, defendant Manton obtained a judgment in New York
against plaintiff's wife arising out of a pre-marital tort. In 1935, an action upon said
judgment was commenced in California, and a default judgment entered against plaintiff's
wife. In 1938 defendant levied and recorded a writ of execution upon all interest of
plaintiff's wife in certain described real property standing in plaintiff's name. Plaintiff's
wife had no interest in the property, it being plaintiff's separate property. Plaintiff
commenced an action to quiet title and for damages and was awarded compensatory
damages in the sum of $16,000. The execution was released after the commencement of
the action. There was evidence that plaintiff had had two bona fide offers for the property
but that the prospective purchasers had withdrawn the offers upon learning of the
recording of the execution. The Supreme Court in an exhaustive and well considered
opinion held that a finding of damages was sustained by such evidence. The court said at
page 554:
"Where as here, there have been losses of sales and a decline in the market value of
property thereafter during [61 Cal.App.2d 796] the continuance of the disparagement of
title (the execution lien here), defendant has not been injured when the court in fixing the
damages selects the difference between the amount offered at the sales and the value of
the property at the time the execution was released. That rule takes into consideration the
effect of the defect in the plaintiff's title with relation to the fluctuation in the value
during that time. Those principles have been applied in wrongful attachment cases. (See
Keystone Pipe & Supply Co. v. Crabtree, 174 Okla. 562 [50 P.2d 1086]; Nixon v. First
State Bank, 60 Tex.Civ.App. 7 [127 S.W. 882]; Hoover v. First Nat. Bank, (Tex.Civ.App.)
192 S.W. 1149; 7 C.J.S., Attachment, § 559.) In Heath v. Lent, 1 Cal. 410, there was no
loss of sales by reason of the wrongful attachment and the court seems to reason that the
wrong did not cause the depreciation in the value of the property, and there being nothing
to show that plaintiff's loss of his opportunity to sell during the continuance of the levy
had affected him. In the tort in question the proper measure of damages is the amount
which will compensate for all detriment proximately caused thereby. (Civ. Code, §
3333.)"
However, there is nothing in the case of Gudger v. Manton which requires a complaint to
show that any pending deal or sale was interfered with, but it was held in that case that
evidence that a pending sale was interfered with sustained a finding of damages.
Respondents evidently did not take the pains to examine the complaint in Gudger v.
Manton or they would not have made the statement contained on page 14 of their brief
that appellant "tries to distinguish the case of Gudger v. Manton where the definite
allegations of damages concerned a loss of sales." (Italics ours.) We have examined that
complaint and find that the allegations therein as to damages are much less specific than
those in the complaint in the instant case, and are as follows:
"That said defendants, and each of them, in causing levy of execution to be made under
said writ, cast a cloud and a slander upon plaintiff's title in and to said real property and
that the levying of said writ and the maintenance thereof by the refusal of defendants, and
each of them, to cause said levy to be discharged and released, decreased the value of
said real estate and renders it unmarketable, all to the damage of said real estate and said
plaintiff, ..." [61 Cal.App.2d 797]
It is, of course, true that the question of the sufficiency of the complaint was not involved
or discussed in the Gudger v. Manton case, but it is worthy of note that a judgment for
$16,000 based upon a complaint with substantially the same allegations as to damages as
are contained in the complaint in the instant case was not attacked either in the District
Court of Appeal or in the Supreme Court upon the ground that the complaint was
insufficient.
The court, in Gudger v. Manton, quoted with approval section 624 of Restatement of
Torts, as follows:
"One who, without a privilege to do so, publishes matter which is untrue and disparaging
to another's property in land, chattels or intangible things under such circumstances as
would lead a reasonable man to foresee that the conduct of a third person as purchaser or
lessee thereof might be determined thereby is liable for pecuniary loss resulting to the
other from the impairment of vendibility thus caused."
Section 633 of the same work reads as follows:
"The pecuniary loss for which a publisher of disparaging matter is liable under the rules
stated in §§ 624 and 626-627 is restricted to
"(a) that pecuniary loss which directly and immediately results from the impairment of
the vendibility of the thing in question caused by publication of the disparaging matter,
and
"(b) the expense of litigation reasonably necessary to remove the doubt cast by the
disparagement upon the other's property in the thing or upon the quality thereof."
In the comment on said section 633 it is stated:
"b. Loss caused by prevention of a particular sale. The most usual manner in which a
third person's reliance upon disparaging matter causes pecuniary loss is by preventing a
sale to a particular purchaser. The disparaging matter may prevent a sale by causing a
purchaser to break an agreement already entered into for the purchase of the thing."
"f. Loss caused by prevention of a sale to unknown purchasers. The disparaging matter
may, if widely disseminated, cause pecuniary loss by depriving its possessor of a market
in which, but for the disparagement, his land or other thing might with reasonable
certainty have found a purchaser. In such case the impossibility or the great difficulty of
showing the identity of the particular person or persons who were [61 Cal.App.2d 798]
dissuaded from purchasing the thing by the publication of the disparaging matter makes
evidence of the owner's inability to avail himself of a ready market for the thing in
question sufficient proof of the loss and often of its extent; indeed, this inability to
dispose of readily marketable things is also sufficient evidence that the defamatory matter
has come to the knowledge of unknown possible purchasers and has led them to refrain
from buying."
And, as already quoted, the court in Gudger v. Manton, said at page 555: "In the tort in
question the proper measure of damages is the amount which will compensate for all
detriment proximately caused thereby. (Civ. Code, § 3333.)"
[4] From the foregoing statements of the law relating to damages for slander of title, or,
to state it more accurately, for wrongful disparagement of title, it is apparent that the
elements of damages are the loss caused by the impairment of vendibility and the cost of
clearing the title. [3b] Therefore, in our opinion, a complaint which alleges that by reason
of the recording of a notice of location by respondents the leasehold interest of appellant
was greatly depreciated in value and was rendered unmarketable, to appellant's damage in
the sum of $10,000, states the ultimate fact of damages and is sufficient as against a
general demurrer. And while a trial court might be justified in sustaining a special
demurrer and in requiring plaintiff to set forth his damages with greater particularity, we
believe that the court below erred in sustaining respondents' demurrer without leave to
amend.
For, as was stated by Chief Justice Gibson in the recent case of Wennerholm v. Stanford
University School of Medicine, 20 Cal.2d 713, 718, 720 [128 P.2d 522, 141 A.L.R.
1358], a case in which the Supreme Court reversed a judgment based on an order
sustaining a demurrer to the fifth amended complaint without leave to amend:
"Where a complaint is sufficient against a general demurrer, however, and any
uncertainties or ambiguities in the pleading can be corrected by amendment, it is apparent
that denial of leave to amend results in a disposition of the cause upon technical grounds
alone. The plaintiff who has stated a cause of action in such a case is denied a trial on the
merits of his action if any of the grounds of special demurrer is well taken, despite the
fact that the deficiencies can be corrected. It has been held, under such circumstances, [61
Cal.App.2d 799] that denial of leave to amend constitutes an abuse of discretion even
though it be conceded that the trial court had authority to sustain the special demurrer
because of defects in the form of the pleading. (Guilliams v. Hollywood Hospital, 18
Cal.2d 97, 104 [114 P.2d 1]; Olivera v. Grace, 19 Cal.2d 570, 579 [122 P.2d 564]; and
cases cited therein.) ..."
"We therefore hold that it was an abuse of discretion for the trial court to sustain the
demurrer without leave to amend. We do not decide, however, that the complaint was not
subject to special demurrer, and the trial court may in its discretion require the
clarification of uncertainties or ambiguities in the complaint. (Guilliams v. Hollywood
Hospital, supra, p. 104.)"
[5] We believe that as a matter of sound public policy litigation should be disposed of
upon substantial rather than upon technical grounds, and that the trial judge should not
sustain a demurrer without leave to amend where it is merely defective for uncertainty. It
is true that there must be an end to litigation and a court might be justified in sustaining a
demurrer without leave to amend in a case where a plaintiff had failed to make
amendments suggested by the court. But it must not be lost sight of, as pointed out in the
recent case of Estate of Dupont, 60 Cal.App.2d 276 [140 P.2d 866], that "a judge is not a
mere umpire presiding over a contest of wits between professional opponents, but a
judicial officer entrusted with the grave task of determining where justice lies under the
law and the facts between the parties who have sought the protection of our courts." A
plaintiff should not be denied a trial upon the merits of his action because some of the
grounds of special demurrer may be well taken if the uncertainties or ambiguities can be
corrected by amendment.
In view of the foregoing we conclude that the trial court abused its discretion in
sustaining respondents' demurrer without leave to amend. We do not decide, however,
that the complaint was not subject to special demurrer, and the trial court may, in its
discretion, require the clarification of any uncertainties or ambiguities therein.
Adams, P. J., and Thompson, J., concurred.
Hill v. Allan , 259 Cal.App.2d 470

[Civ. No. 23946. First Dist, Div. Two. Feb. 27, 1968.]
CHRISTOPHER H. HILL, JR., as Administrator, etc., et al., Plaintiffs, Cross-defendants
and Appellants, v. FLORENCE McCRAE ALLAN, Defendant and Respondent;
MARGARET A. HUDSON et al., Defendants, Cross-complainants and Appellants; C.
EASTON ROTHWELL et al., Cross-defendants and Respondents.
COUNSEL
Richard J. Archer, William R. Berkman, John M. Kelly and Morrison, Foerster,
Holloway, Clinton & Clark for Plaintiffs, Cross-defendants and Appellants and for Cross-
defendants and Respondents.
Ralph W. Thompson, Thompson & Hubbard, Thomson J. Hudson, Boekel, Moran &
Power, John M. Thompson and Richard P. Powell for Defendants, Cross-complainants
and Appellants.
No appearance for Defendant and Respondent. [259 Cal.App.2d 473]
OPINION
TAYLOR, J.
Defendants fn. 1 (hereafter collectively Allans) appeal from a judgment quieting the title
of plaintiffs fn. 2 and cross-defendants fn. 3 (hereafter collectively referred to as
Nielsons) to a prescriptive easement, enjoining them from interferring with the use
thereof, and denying relief on their cross-complaint. The Allans contend error because the
Nielsons' contemplated use would unduly burden the servient tenement. On the Nielsons'
cross-appeal, the only contention is that the trial court erred in denying them damages for
disparagement of title. While we will separately set forth the particular contentions on
appeal and the cross-appeal, a summary of the facts, more or less in chronological order,
is necessary for an understanding of all the issues presented.
The Allans own an 800-acre tract of land consisting of individual ownerships with
coterminous boundaries in Monterey County, south of Carmel- By-The-Sea, directly east
of and adjacent to State Highway No. 1 and Point Lobos Reserve State Park. The
Nielsons own the 120 acres located uphill to the south and east of the Allan property. The
easement in controversy curves irregularly for about a mile and a half along an existing
road that runs uphill east of the highway across the Allan properties, as well as other
properties in the area. The road has been in existence for over 70 years and has always
been the only practical means of access to the individually owned properties of all of the
parties.
In the 1890's, the road served a commercial coal mine then located to the east of the
Nielson property. The mine and almost all of the property now owned by defendants was
acquired by their father, Alexander Allan, Sr., who resided on the property and used the
road for his residence and dairy cattle operations. At the end of the century, the coal
mining operation had stopped.
In 1912, the 120 acres now owned by the Nielsons was acquired by the MacDonalds by
homestead. The MacDonalds' [259 Cal.App.2d 474] use of the road was open,
continuous and compatible with the employment of their land as a farm and residence.
The other contiguous owners (Norton, on whose property to the east the road ends; and
the predecessors of Wright and St. John's College) also used the road in a manner
compatible with the dairy and cattle operations in the area. Allan, Sr. and his successors
were aware of these open and continuous uses by MacDonalds and the other contiguous
owners and never indicated disapproval or took any action. Accordingly, the MacDonalds
believed they had a right to use the road, independent of any permission from Allan.
From sometime before 1930, two gates existed on the road. The first, hereafter No. 1, was
made of wire and located at the dairy on the property now owned by defendant Riley; the
second, hereafter No. 2, at the steep grade near the present property line of defendants
Hudson and Allan, Jr., was constructed of wood. The gates were frequently closed due to
the heavy dairy and cattle operations of some of the Allans.
In 1930, Allan, Sr., died. In July 1932, his estate contracted with the State of California
for the relocation of the highway to the west, and the conveyance of the old highway
route to the Allan estate. A condition precedent imposed by the state was the acquisition
by the Allan estate of quitclaim deeds to the old highway from the MacDonalds and the
other contiguous owners who, by virtue of their prior use, might have had some interest
therein. In consideration for obtaining these quitclaim deeds, the Allan estate promised
the grantors that they would always have access to the new highway as relocated to the
west.
The relocation of the state highway also resulted in the westward extension of the road
here in question and further provided this road with two additional approaches to the
highway, the northern and southern branches being the former route of the old highway
and the middle branch being the former access road to what is now the Point Lobos
Reserve State Park, hereafter old Point Lobos road. The three branches join each other on
property now owned by defendant Riley; the southern and middle branches enter the
highway on property owned by defendant Riley; the northern branch traverses the Allan,
Jr., property and enters the highway at a point farther north. After the relocation of the
highway, the MacDonalds continued to indiscriminately use, under a claim of right, both
the northern and southern branches of the old highway and the old Point Lobos road to
reach the highway from their properties. [259 Cal.App.2d 475]
During the time of MacDonalds' ownership, the road was one-way with at least three
turnouts existing along its course. It was an unpaved dirt road, subject to being
impassable during foul weather above gate No. 2 except by vehicles with four-wheel
drives. The use of the respective property by all parties during the early 1930's along the
beautiful Pacific coastline near Carmel, was farming, cattle ranching and residential, with
the latter use slowly evolving as a major one.
In 1932, the real property of the Alexander Allan, Sr., estate was distributed in equal
undivided portions to his three daughters and one son, Allan, Jr. In 1949, one daughter
(Helen A. Burnette) divested herself of any interest in the property in favor of her sisters
(defendants Hudson and Riley) and brother, who thereafter severed their common
ownership and partitioned the property into the separate parcels now owned by them.
On December 27, 1948, the MacDonalds conveyed their 120 acres to the Smiths,
including all of the rights appurtenant to the property. The Smiths purchased their
property with the intent to use it solely as a residence which was then rapidly evolving as
the best use of land in the scenic area along the Carmel coastline. The Smiths found the
old MacDonald cabin unsuitable as a permanent residence for themselves and did not
occupy it except occasionally over weekends. However, they visited their property on the
average of once a week until their new home was completed.
In November 1950, the Smiths, without obtaining permission from any source and at an
expense of about $3,600, made several permanent changes in the course of the road and
installed four culverts, two on their land, and two on the contiguous property of
defendant, Allan, Jr. In addition, the Smiths graded and leveled the road from their
property on top of the hill down to the quarry on the Riley property, about three-fourths
of the total length of the road. They also surfaced this improved portion of the road with
an oil and gravel topping. At that time, gate No. 2 was pushed over the hill and a cattle
guard installed. After the grading had been accomplished by the Smiths, the Allans
objected to the widening of the road and removal of the gate without their permission.
The road work for the Smiths had been done by Frank DeAmaral, a contractor who then
owned the property to the east of Riley and Hudson and to the west of the Smiths on
which he conducted a commercial quarry. Defendant Riley, [259 Cal.App.2d 476] whose
property adjoined DeAmaral's, continued, as she had done for many years before, to sell
commercially the granite from the portion of the quarry on her land. The northern and
middle branch connections to the state highway by 1932 and the road between the quarry
and the dairy by 1951 were surfaced with an oil and gravel topping. This gravel surface is
maintained by the customers of the quarry operated by the Riley family, who make such
continued maintenance of the road part of the consideration for obtaining gravel.
After the completion of their new home, at a cost of $30,000 in November 1952, the
Smiths commenced their daily use of the access road. The Smiths were quite active
people and entertained a good many guests on their property. Accordingly, the general
traffic on the road was greatly increased after this time. In addition, all of the Allans and
the other owners of contiguous properties continued to use the access road in connection
with the ownership of their various properties. By at least 1952, the traffic on the lower
portion of the road from the quarry to the highway came under the additional use of the
one and one-half ton trucks that then traveled back and forth to the quarry in connection
with the commercial quarry operations conducted by DeAmaral and defendant Riley.
Before 1955, DeAmaral, after selling all of his cattle, sold his property to Marks, who
subsequently transferred it to St. John's College in May 1962.
Until 1956, while defendant Riley's dairy business existed and cows were moved daily
from one pasture to another, gate No. 1 was frequently closed. However, after defendant
Riley terminated the dairy operation in 1956, gate No. 1 was closed intermittently and
only in connection with the movement of the residual declining cattle operations in the
area conducted by defendants Hudson and Riley. In addition, after the termination of the
dairy business, defendant Riley leased three homes on her property to private parties who
regularly used the road for access. Since that time, the traffic on the road serving the
properties of all of the parties here, including the contiguous owners, Norton, St. John's
College, etc., has continually increased pursuant to the shift in the primary use of land in
that area to residential. The usual amount of picnickers and others continued to travel
over the road to admire the landscape as had been the custom in the years past.
In April 1955, defendants Riley, Hudson and Allan, Jr. filed a complaint against the
Smiths for the 1950 alteration of the road, destruction of gate No. 2 and claimed that the
Smiths had no interest or right to the road. The complaint [259 Cal.App.2d 477] also
alleged that the destruction of gate No 2 resulted in the destruction and loss of livestock
belonging to Hudson and Riley.
In July 1955, the widow MacDonald quitclaimed to the Smiths any interest she might
have in the road and conveyed "all that certain prescriptive right of way for all road
purposes, of a width sufficient for, and for use by all four-wheeled vehicles, acquired by
me on or about the year 1912." Thereafter, the Allans amended their complaint. In their
answer and cross- complaint, filed in October 1956, the Smiths sought to quiet their title
in the road. They alleged that the road had been used openly, continuously and adversely
for 40 years by their predecessors and asserted their title to an easement over the road by
prescription.
In November 1956, the Smiths, in an effort to obtain unquestioned use of the road, filed a
petition with the Monterey County Board of Supervisors to open and lay out a private or
by-road pursuant to the then section 1128 of the Streets and Highways Code, fn. 4 and the
procedures relating thereto (former §§ 1100-1132, Sts. & Hy. Code). The supervisors
referred the Smiths' petition to the road commission which appointed viewers to make a
report. In May 1957, the viewers completed their report and stated, insofar as pertinent,
that "We inspected the present route as it now exists, this route being 8892 feet long by
30 feet wide," and they valued the lands over which the road passes at a total of
$11,413.75. The Smiths were then willing to pay this amount.
At this time, the Smiths communicated to the Allans their claim that they had the right to
sell their estate in whole or in smaller parcels and that the prescriptive right-of-way
appurtenant thereto would attach to each and every such apportioned parcel without
overburdening the servient tenements. The Allans, on the other hand, asserted that the
Smiths could not have the road serve more than one residence on the entire 120-acre
parcel of property. In April 1957, the Smiths amended their cross-complaint to claim a
right-of-way for all road purposes 18 feet wide.
In May 1957, the Smiths' attorney, James A. Walker, wrote to the Allans' attorney,
Thomas J. Hudson, indicating that [259 Cal.App.2d 478] the Smiths were willing to pay
the price for a public road. The letter indicated that the Smiths offered the Allans the right
to keep the road from being made public if that is what the Allans preferred, so long as
the Smiths did not lose what legal rights they then had. Thereafter, in May 1957, the
viewers' report was filed with the county board of supervisors.
On June 18, 1957, a local newspaper reported the hearing on the Smiths' petition, as set
forth below. fn. 5 Thereafter, in September 1957, the Allans' complaint and Smiths' cross-
complaint were dismissed without prejudice. At the same time, the Smiths' attorney sent a
letter to the county clerk indicating that since the road controversy had been settled "to
the satisfaction of the parties," the Smiths' petition for a private or by-road was
withdrawn. Shortly thereafter, a newspaper article indicated the contents of this letter.
Thereafter, the supervisors acknowledged the withdrawal of the Smith petition. On
October 23, 1957, Mrs. MacDonald executed another quitclaim deed to the Smiths
conveying "all that certain prescriptive right-of-way for all road purposes, eighteen feet in
width, required by me and my predecessors in interest on or about the year 1912."
Thereafter, the Smiths decided to sell some of their property and received a letter from
their attorney, Mr. Walker, who had settled the prior litigation with the Allans. This letter,
dated July 21, 1958, confirmed the Smiths' ability to divide the property and to sell any
portions thereof to purchasers with the right to use the access road. The letter pointed out
that if any purchaser ever had his right-of-way questioned by any of the owners over
whose land the road crossed, he could petition the county board of supervisors for a deed
pursuant to section 1128 of the Streets and Highways Code.
Thereupon, the Smiths listed 40 acres of their 120-acre parcel with plaintiff, Virginia
Nielson, a family friend and real [259 Cal.App.2d 479] estate saleswoman (hereafter
Mrs. Nielson), and showed her the letter from Mr. Walker. Between December 2, 1958
and October 5, 1959, by three different conveyances, the Smiths conveyed record title of
their acreage to Mrs. Nielson and her associates fn. 6 for a purchase price of $500 per
acre, plus $20,000 for the Smith home. Each of the three conveyances included an
interest in the right-of-way. The title insurance policies issued set forth a description of
the prescriptive right-of-way but did not insure it as such.
Mrs. Nielson did not request such title insurance as she believed that the purchasers had
the unquestioned rights to the roadway and to sell the land in parcels with an attached
easement. She based this conclusion on her own observation and use of the right-of-way
since 1952, which had never been challenged; her conversations with the Smiths and their
assurances concerning their right to use the road; the above mentioned letter of July 21,
1958, from Mr. Walker, confirming the Smiths' ownership of a right-of-way and their
ability to convey and apportion the same; her conversation with one of the contiguous
owners, Mr. Norton, who had handled the sale of the MacDonald property to the Smiths,
in which she was assured that she would have the same right to use the road as he had;
and her contemporaneous reading of the numerous newspaper articles, referred to above,
concerning the Smith-Allan road litigation, which indicated that the road dispute had
been settled.
Prior to their purchase, none of the plaintiffs had ever communicated with the Allan heirs
regarding the right to the use of the road. After the purchase, the Smith home was leased
to tenants who continued to use the road, along with all of the plaintiffs, individually or
collectively as a group, and with their families. None of these uses of the road have ever
been denied.
As early as 1960, the Allans initiated a formal study of the potential future use of their
properties. The study was performed by Francis L. Whisler, a licensed architect and son-
in-law of defendant Riley. Richard Raymond Associates confirmed to Whisler that the
highest and best use of the Allan properties was residential. Accordingly, in November
1962, Whisler prepared a master plan for the Allan properties to the east of the highway,
proposing the construction of 30-35 homesites and necessitating the destruction of the
present [259 Cal.App.2d 480] road and the absence of any road in the general area where
it presently exists. Later, an alternate plan was drafted which envisioned construction of
20-28 homesites and retention of a small portion of the existing road. However,
defendant, Estate of Allan, Jr., has not agreed to either of these plans nor have any users
of the road, other than perhaps some of the defendants.
In June 1960, a zoning ordinance applicable to the Nielson property was enacted and
limits the use of all of the property to one-family residences on a minimum of one acre.
In August 1960, Judith K. Howell, subsequently Mrs. Peter H. Mutke, entered into an
agreement for the purchase of 10 acres from the Nielsons at a purchase price of $3,000
per acre, for the purpose of building a residence. This agreement contained a 5-acre
minimum building site restriction to run with the land until January 1, 1985.
Thereafter, in 1961, the Nielsons spent about $7,500 on surveying and bulldozing their
property. In June 1961, they contracted to spend an additional $10,000 to resurface with
an oil and gravel topping the upper three-fourths of the road from their property to the
quarry in the same manner and fashion as the Smiths had done in 1950. Thereafter the
Allans, while admitting the right of the Nielsons to use the road, orally asserted that the
original widening of the road by the Smiths in 1950, as well as their removal of gate No.
2 and installation of the cattle guard, and the resurfacing by the Nielsons in 1961, were
only permissive in nature. The Allans repeatedly solicited the Nielsons to reduce to a
formal writing their use of the road in accordance with the Allans' assertions that the
Nielsons' interest was a mere license. The Nielsons, not wishing to risk abandonment or
loss of any of their rights for a mere license, consistently ignored the requests of the
Allans.
On June 20, 1961, the Allans' attorney wrote a letter to Mrs. Nielson as agent for the
Nielsons, confirming an earlier verbal conversation that the Allans had only given to the
Nielsons a license such as they had given to the Smiths in 1950 to widen and surface the
road from the top of the hill to the quarry. He also sought an agreement that the additional
width of the surfaced road beyond the traveled portion as it existed prior to the road work
done by the Smiths in 1950 would not become a part of the Nielsons' prescriptive
easement in the route and that the cattle guard installed instead of gate No. 2 by the
Smiths in 1950 with the permission of the Allans would be removed and new gates
installed to replace [259 Cal.App.2d 481] No. 1 and No. 2. For the reasons stated above,
the Nielsons did not reply to this letter.
Thereafter, Mrs. Nielson and the Allans' attorney had another disagreement concerning
the Allans' assertion that the Nielsons could not use the road to serve more than one
residence on the entire 120-acre parcel conveyed by the Smiths to the Nielsons. As in the
instant litigation, the Allans took the position that the resulting traffic would overburden
their servient tenement; the Nielsons, that they could develop and apportion their
property and convey therewith to each apportioned parcel an appurtenant right-of-way to
use the road, as such use would not overburden the Allan properties.
In November 1961, the Nielsons signed protective restrictive agreements providing for
covenants to run with the land, limiting ownership to not less than 5 acres per single
residence, as in the 1960 agreement with Mrs. Mutke. Thus, not more than 24 residences
were contemplated on their property until 1985. Thereafter, in November 1961, the
Nielsons deeded a 5-acre parcel to cross-defendants Rothwell and in March 1962, a 5-
acre parcel to cross- defendants Dutton for a purchase price of $3,000 per acre. Each deed
contained the covenant running with the land mentioned above and purported to convey a
nonexclusive right to use the road. The Rothwells and the Duttons both intended to build
a residence on their respective parcels.
Thereafter, on July 13, 1962, the Allans' attorney again wrote to plaintiffs, Mrs. Nielson,
Wright and Klevesahl, threatening legal action unless they agreed to a written agreement
formalizing their right to use the road as a mere license in accord with his previous letter.
The Nielsons did not answer this letter but contacted the Smiths who reaffirmed their
position concerning the rights in the road. In 1962, Mrs. Nielson and her associates
formalized their partnership by executing a written agreement providing for the partners'
equal undivided interests in the 120 acres to be managed by Mrs. Nielson.
Sometime before 1963, in a conversation with Dr. Mutke, the Allans' attorney (Mr.
Hudson) learned of the Mutkes' plans to construct a home on the 10-acre parcel acquired
from the Nielsons. At this time, Mr. Hudson asserted that the right-of-way could not be
used to serve more than one home for the entire 120-acre parcel that the Nielsons had
acquired from the Smiths. At the same time, Mr. Hudson purported to grant to Dr. Mutke
a temporary license to use the road, and indicated [259 Cal.App.2d 482] that the Allans
were planning to replace the cattle guard at gate No. 2 and demand that both of the gates
be kept closed. The contents of the above conversations were confirmed by a letter dated
February 8, 1963, from Mr. Hudson to Dr. Mutke and his attorney, Mr. Stewart.
Thereafter, orally, Mr. Hudson in a conversation with Mr. Stewart reiterated the denial of
all rights to use the road to serve more than one home on the entire parcel.
On March 20, 1963, Dr. Mutke sent a copy of the above letter to Mrs. Nielson and
indicated that Mr. Stewart would be communicating with her. On August 2, 1963, Mr.
Hudson sent another letter to Mr. Stewart confirming this conversation and asserting that
Dr. Mutke had no right-of-way at all, that steps would be taken to prevent Dr. Mutke
from trespassing on the property of the Allans, and reiterating the matter relating to the
closed gates. Mr. Stewart forwarded this letter to the Nielsons on August 13, 1963.
On August 23, 1963, the Mutkes commenced an action (No. 55676) against Mrs. Nielson
and her associates for specific performance, or in the alternative, for damages for breach
of contract and sought a deed to the right-of-way free from any cloud on title. Thereafter,
Mrs. Nielson and her associates, on advice of counsel, entered into the following
settlement with the Mutkes: the rescission of the purchase agreement; refund to the
Mutkes of installments they had paid ($13,100) plus $750 by way of settlement; and the
dismissal with prejudice of the Mutke action. The Nielsons' attorney fees and costs in
connection with defending and settling the Mutke matter were $4,410.50.
Thereafter, on November 8, 1963, Mrs. Nielson and her associates filed this action. Since
that time, there has been no change in the course or characteristics of the road except for
the installation of a new gate instead of the cattle guard at No. 2. This new gate was
installed by defendant Hudson without the consent of the Nielsons. The complaint
sought: (1) to quiet title to a nonexclusive right-of-way appurtenant to all of Nielsons'
property which would attach to each part thereof in the event of the subsequent
apportionment of the dominant tenement; (2) declaratory relief with respect to the
agreement between the Smiths and the Allans concerning the right to use the road and the
conveyance thereof that resulted in a settlement of the Allan and Nielson action in 1957;
(3) damages for disparagement of title with respect to the Mutke matter; and (4) in the
alternative, for a public road. The Allans answered and filed both a counterclaim and
cross-complaint [259 Cal.App.2d 483] to quiet their title to all of the right-of-way, to
enjoin the Nielsons from using the access road for more than one residence and for
damages for disparagement of title because of the instant action, including in their cross-
complaint the Rothwells and Duttons.
The matter was heard by the trial court without a jury. The court viewed the premises and
found the facts as stated above. It also found that the Nielsons' present and contemplated
use of the road will not significantly interfere with the present uses made by the Allans of
the lands over which the road passes. The judgment decreed that: (1) the Nielsons and
their grantees were entitled to quiet title to a nonexclusive prescriptive easement in an 18-
foot-wide one-way road with room for passing and at least three turnouts existing along
the course of the road from their property to the highway, including its three branches; the
surface of the right-of-way could be maintained by the Nielsons and their grantees in its
existing condition which could not be altered; defendant Riley could maintain gate No. 1
provided the Nielsons and their grantees could pass through it freely; the other defendants
could maintain a cattle guard but not a gate at No. 2; the right-of-way was appurtenant to
all of the 120 acres and could be apportioned as such to every part of their property
conveyed; (2) the use of the property for residential purposes made and contemplated by
the Nielsons and their grantees and being limited to one residence for each 5 acres does
not overburden the servient tenements. If, at a later time other uses beyond those now
contemplated were made, the Allans could bring an action to prevent any such
overburdening; (3) the Allans and their grantees were permanently enjoined from
interfering in any way with the use or contemplated use or maintenance of the right-of-
way by the Nielsons and their grantees; (4) the road was not a public road; and (5) none
of the parties was entitled to damages for disparagement of title.
This appeal by the Allans from the entire judgment and the cross-appeal by the Nielsons
from the portion of the judgment denying them damages for disparagement of title in the
Mutke matter, ensued.
I. The Allans' Appeal from the Judgment
The Allans concede the prescriptive right to an easement for the purpose of gaining
access to a single residence on the 120 acres owned by the Nielsons, but maintain that
any use of the right-of-way for access to any additional residences and particularly the 24
contemplated by plaintiffs unduly burdens [259 Cal.App.2d 484] their servient
tenements. They apparently do not dispute the fact that the use of the easement for the
major portion of time here involved was access for residential purposes.
[1] The applicable principles as set forth in sections 478 and 479 of the Restatement of
Property are as follows: Section 478: "In ascertaining whether a particular use is
permissible under an easement created by prescription a comparison must be made
between such use and the use by which the easement was created with respect to (a) their
physical character, (b) their purpose, (c) the relative burden caused by them upon the
servient tenement." [2] Section 479: "In ascertaining whether a particular use is
permissible under an easement appurtenant created by prescription there must be
considered, in addition to the factors enumerated in § 478, the needs which result from a
normal evolution in the use of the dominant tenement and the extent to which the
satisfaction of those needs increases the burden on the servient tenement."
The comments that accompany section 479 are particularly applicable to the facts of the
instant case. They point out that the use of all land is subject to constant change because
of natural forces and human activities and that the extent of an easement created by
prescription can never be exactly measured by the condition of the dominant tenement
during the period of prescription, although any future use is, to some degree, limited
thereby. Uses satisfying new needs are privileged if the condition requiring them is a
normal development of the condition, the needs of which were served by the adverse use
that created the easement. As to normal development, the comment states: "A normal
development is one which accords with common experience. It is, therefore, one which
might reasonably have been foretold. Such use, however, must be consistent with the
pattern formed by the adverse use by which the prescriptive easement was created."
(Italics added.)
The Allans, citing Bartholomew v. Staheli, 86 Cal.App.2d 844 [195 P.2d 824], argue that
the result here reached by the court below is contrary to the rule that the extent of a
prescriptive easement is determined by the user under which it was acquired. In
Bartholomew, the defendants, their families and personal guests had for more than 10
years used a private roadway across plaintiffs' land to reach the defendants' farmhouse.
Sometime before the commencement of the action, defendants had organized and
maintained a nudist colony on their ranch, a resort for renting cottages, and a public
dining [259 Cal.App.2d 485] room. The expansion of these enterprises during the 2-year
period preceding the action caused increased travel over the roadway with as many as
500 automobiles per week during the summer. The appellate court, citing the familiar rule
that the extent of a prescriptive easement is determined by the user under which it was
acquired, affirmed the lower court's holding that the defendants, their families and
employees had acquired an easement in the roadway for traveling to and from defendants'
property as a single family farm but not for resort, commercial or subdivision purposes.
However, the Allans, in arguing that the extent of the prescriptive easement is determined
by the user under which it was acquired cannot rely solely on the user in the first
prescriptive period beginning in 1912 under the MacDonalds. The Smiths extended the
user in the period from 1948 to 1957 when it became apparent to all concerned that the
character of the dominant tenement had clearly changed to residential and that the
subdivision thereof was reasonably to be anticipated. The fact that such a change had
occurred was further indicated between 1958 and the filing of this suit in 1963, during
which time sales of parcels of the Smiths' land for subdivision purposes actually took
place. fn. 7 [3] The law is clear that the character of an easement may be changed or
enlarged by an additional or different user for a subsequent prescriptive period (Beyl v.
Yasukochi, 135 Cal.App.2d 638, 640 [287 P.2d 863]). The crux of the dispute here is
whether the use of the easement by 24 additional residences exceeds the general outlines
of the prescriptive right acquired by adverse user over the years, as the Allans contend, or
whether it is merely a change in the degree of the established use, as the Nielsons
contend.
The Nielsons rely chiefly on Gaither v. Gaither, 165 Cal.App.2d 782 [332 P.2d 436], the
first California case to adopt the theory set forth in section 479, without, however,
specifically citing the Restatement. In Gaither, the court held that the increased use of a
right-of-way acquired by prescription as a driveway to a residence and access to a farm,
by occupants of rental units placed on the dominant tenement, was a permissible change
in degree. The court, however, held that this permissible change in degree did not extend
to the burdening [259 Cal.App.2d 486] of the driveway by the use of house trailers and
the increased use as an access to a trailer park. The court in Gaither relied on the leading
case of Baldwin v. Boston & M.R.R., 181 Mass. 166 [63 N.E. 428], wherein the findings
showed there had been two buildings, a dwelling house occupied by one family and a
stable, on the dominant estate during the applicable prescriptive period controlling the
acquisition of a right-of-way. Subsequently, two or more houses were built on the lot, so
that five families lived on the lot instead of one. Holding that the use of the way extended
to the tenements of the new houses, the court reasoned that the lot was the same, was
small in size, and there could never be many dwelling houses upon it, and the only
change proposed in the use of the way was that more pedestrians might use it than before;
that there had been no increase of burden on the servient estate; and that the change in the
use of the land had been only in degree and not in kind.
[4] In view of the evolution of the dominant and servient tenements here from a primarily
agricultural one in 1912 to a primarily residential one by 1958, we must apply the test of
reasonable foreseeability discussed above. As indicated by the Restatement, no use can be
exactly duplicated. The inevitability of change dictated by natural forces and human
activities requires that subsequent users under prescriptive easements must vary in some
degree from the users by which the easements were created. The real question is whether
the Nielsons' present and contemplated use of the easement as an access road for 24
additional homes on their 120-acre parcel was a reasonably foreseeable development of
the dominant tenement as it evolved during the various prescriptive periods and whether
a substantial increase in the servient tenement would result.
The uncontroverted evidence indicates that although during the early 1930's the
properties of all of the parties were used for dairy, cattle and residential uses, the latter
was already evolving as the dominant use of the beautiful stretch of coastline here
involved. By the late 1950's, most of the major agricultural operations ceased and from
then on, the primary use of most of the land (with the exception of the small quarry
operation carried on by the Rileys) was residential. Some of the defendants then rented
out some of the homes on their property. At the time of the 1957 action between the
Allans and the Smiths, the Allans were well aware of the fact that the Smiths were
planning to develop the property. This evolution of a residential use is further attested to
by the [259 Cal.App.2d 487] studies and plans made in 1960 and 1962 by the Allans for
the subdivision of their own properties. These likewise indicated that this was the highest
and best use of the land involved and that the maximum number of residential lots on the
Allan properties would require the elimination of the existing road and the easement
appurtenant thereto.
Thus, it cannot be questioned that at the beginning of the last prescriptive period here
involved, namely, from 1958 to 1963, the subdivision of the dominant tenement was a
normal foreseeable use. The Allans argue that there was nothing they could do to protect
themselves prior to the actual subdivision. But the record indicates that their action filed
against the Smiths in 1955 encompassed claims by both sides with respect to the use of
the road, identical to those made here. That action was dismissed in 1957 after the Smiths
agreed to withdraw their petition for a public road while openly declaring that they were
not giving up any of their legal rights thereby. The effect of this dismissal was to remove
the tolling of the statute of limitations that had occurred on the filing of the action (Yorba
v. Anaheim Union Water Co., 41 Cal.2d 265, 270 [259 P.2d 2]) and the last prescriptive
period here involved (1957-1963) began with the Allans' inaction in face of the Smiths'
claim (by then a matter of public record) that they could apportion their easement with
the sale of any part of their property and the continued declaration by the Smiths that they
intended to subdivide and sell off their property.
[5a] We turn next to the Allans' contention that even if the trial court applied the proper
legal theory, the evidence does not support the finding that the use of the easement by an
additional 24 homes on the Nielson property would not substantially burden the servient
tenement and interfere with the Allans' use of their properties. [6] Where, as here, the
evidence is conflicting, each one of the elements giving rise to a prescriptive easement is
a question of fact to be determined by the trial court (Kerr Land & Timber Co. v.
Emmerson, 233 Cal.App.2d 200, 233 [43 Cal.Rptr. 333]). [5b] The Allans' contention is
based on the testimony of their witnesses that since the Nielsons' acquisition of the
property, traffic over the road had increased and substantially interfered with their present
use of the property for agricultural purposes, namely, the breeding of beef cattle and
quarter horses.
However, there was also evidence indicating that the present agricultural operations of
the Allans were very small scale in nature. It is uncontroverted that the dairy operations
[259 Cal.App.2d 488] ceased in 1956 and there were no dairy cattle on the Allan
properties after 1959. Mrs. Elizabeth Riley Wilson, the daughter of one of the defendants,
testified that after the dairy closed, there were about 60 head of cattle on the property and
that the horse breeding operation was even smaller, as most of the horses were boarders.
It is also uncontroverted that the beef cattle presently raised by the Allans did not require
the same amount of frequent movement from pasture to pasture as the dairy cattle had
and that the gravel trucks, as well as occasional sightseers, continued to use the road. In
addition, the trial court had an opportunity to view the area. We conclude that there is
ample evidence to sustain its finding that there was no substantial increase in the
burdening on the Allans' properties or interference with their present agricultural uses.
Although the Allans' appeal is from the entire judgment, including the denial of the relief
requested in their cross-complaint, namely, damages for disparagement of title by the
instant action with respect to the Hudson and Riley properties transversed by the right-of-
way, no contentions pertinent thereto were raised in their extensive briefs. Consequently,
we are not called upon to comment on the issue here.
II. The Nielsons' Cross-Appeal from a Portion of the Judgment.
The only question on the cross-appeal relates to the trial court's denial of relief on the
Nielsons' cause of action for the Allans' alleged disparagement of title in the Mutke
matter.
As indicated in the statement of facts above, in 1960, Dr. Mutke's fiancee had signed an
agreement with the Nielsons for the purchase of a 10-acre parcel of property. In 1963, the
Allans' attorney, Mr. Hudson, learned of Dr. Mutke's plan to build a home on the property.
Thereafter, on February 8, 1963, Mr. Hudson wrote a letter to Dr. Mutke and sent copies
to the latter's attorney, Mr. Stewart, and Mrs. Nielson. The letter stated that Dr. Mutke had
no right to use the road for access to his property and indicated that the county planning
commission would be informed that Mrs. Nielson's proposed subdivision of the property
violated the subdivision map act. On February 15, 1963, Mr. Hudson wrote a letter to the
county council with a copy to the county planning director accusing Mrs. Nielson of
violating the subdivision map act in the sale to Dr. Mutke and in several other unrelated
transactions. Hudson also had a telephone conversation with Mr. [259 Cal.App.2d 489]
Stewart, and sent him another letter dated August 2, 1963. This letter was forwarded to
Mrs. Nielson by Mr. Stewart.
Thereafter, on August 23, 1963, the Mutkes filed action No. 55676 against the Nielsons
for specific performance or damages and a deed to the right-of- way, free from any cloud
on title. The final outcome of the matter was a settlement in 1964 whereby the Mutkes'
purchase agreement was rescinded, their installments of $13,100 refunded, $750 paid in
settlement, and their action against the Nielsons dismissed with prejudice. The Nielsons'
costs and attorneys' fees in defending and settling the Mutke matter were $4,410.50. The
10 acres the Nielsons had sold to the Mutkes for $3,000 per acre in 1960 had increased in
value to $4,000- $4,400 per acre by the time of the trial in the instant case, 5 years later.
On their cross-appeal, the Nielsons contend that they proved their cause of action for
disparagement of title and that the trial court erred in denying them compensatory and
punitive damages merely because the property reacquired from the Mutkes had increased
in value. We cannot agree.
[7] Disparagement or slander of title is a publication made without a privilege or
justification of matter that is untrue and is disparaging to another's property in land,
chattels or intangible things under such circumstances as would lead a reasonable man to
foresee that the conduct of a third person as a purchaser or lessee thereof might be
determined thereby and that results in pecuniary loss from the impairment of vendability
thus caused (Rest. Torts, § 624, quoted in Gudger v. Manton, 21 Cal.2d 537, 541 [134
P.2d 217]). [8] If the matter is reasonably understood to cast doubt upon the existence or
extent of another's interest in land, it is disparaging to the latter's title where it is so
understood by the recipient (Rest. Torts, § 629, quoted in Kalajian v. Nash, 148
Cal.App.2d 495 [306 P.2d 921]). [9] The damage usually consists of a loss of prospective
purchaser or lessee and the expense of litigation to remove the doubt cast on the title
(Rest. Torts, § 633). However, it is not necessary to show that a particular pending deal
was hampered or prevented, since recovery may be had for the depreciation in the market
value of the property (Davis v. Wood, 61 Cal.App.2d 788 [143 P.2d 740]).
Thus, the first question is whether the publication of the disparagement was without
privilege or justification. [10] The burden of proof of the lack of privilege is on the
plaintiff (Spencer v. Harmon Enterprises, Inc., 234 Cal.App.2d 614, [259 Cal.App.2d
490] 622 [44 Cal.Rptr. 683]). [11] Although the gravamen of an action for disparagement
of title is different from that of an action for personal defamation, substantially the same
privileges are recognized in relation to both of these torts in the absence of statute.
Questions of privilege relating to both torts are now resolved in the light of section 47 of
the Civil Code (Albertson v. Raboff, 46 Cal.2d 375, 378 [295 P.2d 405]). Subdivision 3 of
section 47 states, so far as pertinent, that publications by a defendant who is seeking to
protect his own interests are conditionally privileged. [12] In the application of this
privilege (either pursuant to the statute or independent of it), the courts have long
recognized that a rival claimant of property is privileged to disparage or is justified in
disparaging another's interest in the property by an honest and good faith assertion of an
inconsistent legally protected interest in himself (Spencer v. Harmon Enterprises, Inc.,
supra; Gudger v. Manton, supra, p. 545).
[13] The Nielsons' claim for damages for disparagement of title is based on the 5
communications described above briefly identified in the footnote below. fn. 8 Although
there is some question concerning the requisite publication as to Dr. Mutke and his
counsel (Farr v. Bramblett, 132 Cal.App.2d 36, 46 [281 P.2d 372]), we will not discuss
the matter in detail as there is ample evidence to indicate that Mr. Hudson, as an owner of
a portion of the servient tenement, as well as the manager of the Allans' properties and
their attorney, was merely exercising the privilege of a rival claimant. As indicated above,
lack of privilege is an essential element of the cause of action. The conditional privilege
of a rival claimant or interested party is always available whenever the statements are
made without malice. Here, there was no finding or evidence of malice. Although the
Nielsons correctly point out malice in fact is no longer required (Gudger v. Manton,
supra), there was no basis for implying the requisite malice in law. Malice will not be
inferred from the mere fact of communication (Civ. Code, § 48). The Nielsons' right to
apportion the easement was not [259 Cal.App.2d 491] definitely and legally determined
until the conclusion of the instant action. The Nielsons have not met the burden of
showing that Hudson abused his privilege or that the statement was made with the
necessary malice in law. Thus, it is not necessary to discuss their contention relating to
the increase of value in the property or punitive damages which are recoverable only
where actual damages are awarded (Brewer v. Second Baptist Church, 32 Cal.2d 791
[197 P.2d 713]).
The Nielsons, however, contend that the above reasoning cannot be applied to Mr.
Hudson's communications to the county officials concerning Mrs. Nielson's alleged
violation of the subdivision map. We hold that these were likewise made by Mr. Hudson
in exercise of conditional privilege, that a finding of no malice would be justified, and
that the trial court properly held that the Nielsons were not entitled to damages for
disparagement of title in the Mutke matter.
The judgment is affirmed in its entirety.
Shoemaker, P. J., and Agee, J., concurred.
FN 1. Defendants and appellants are Alexander M. Allan, Jr., his widow, Florence M.
Allan, and the Crocker-Citizens National Bank, as trustee and executor of his will, and
his sisters, Margaret A. Hudson and Eunice A. Riley.
FN 2. Plaintiffs and respondents are Virginia Nielson, R. Wesley Wright, Roberta M.
Wright, Gurdon S. Pulford, Florence A. Pulford, Vincent E. Klevesahl, Ferrol J.
Klevesahl, Cary P. Gray, Edith J. Gray, H. Christen Zweng and Mary Nelson Zweng.
While the appeal was pending, Virginia Nielson died and the administrator of her estate,
Christopher H. Hill, Jr., was substituted.
FN 3. C. Easton Rothwell, Virginia Rothwell, Fletcher Dutton and Sallie K. Dutton, are
transferees of some of the property of plaintiffs.
FN 4. The statute then provided, so far as pertinent: "Private or byroads may be opened,
laid out or altered for the convenience of one or more residents or freeholders of any road
district in the same manner as public roads are opened, laid out or altered, except that
only one petitioner is necessary." In 1961, this entire procedure for the creation of public
roads was repealed (Stats. 1961, ch. 1354, § 1).
FN 5. "The Smiths are seeking an access road over the Hudson family's property to
maintain top property they own to the east of it.
"In a court-room-like hearing, Smith said he had a prescriptive right-of- way, established
by use, over the land.
"Right of Way
"Hudson, who disqualified himself from board action, and his mother, testified they
offered the Smiths a deeded right-of-way, reserving the right to maintain cattle gates and
fences and asking that the Smiths not subdivide their property.
"Smith replied he felt such an agreement restricting use of his property was not fair to
him or his heirs.
" 'I don't like to tie myself down,' he said. 'I don't know what the future will bring as far
as selling a few lots off goes.' "
FN 6. Plaintiffs, R. W. Wright, G. S. Pulford, V. E. Klevesahl, C. P. Gray and H. C.
Zweng.
FN 7. We are not concluding that the sales themselves, made after the beginning of the
last prescriptive period, in any way extended the user. The subsequent conduct merely
emphasized and corroborated the user which had previously been established in the
normal development of the dominant tenement.
FN 8. (1) Mr. Hudson's oral conversation with Dr. Mutke shortly before February 8,
1963.
(2) Mr. Hudson's letter of February 8, 1963, to Dr. Mutke and his attorney, Mr. Stewart.
(3) Mr. Hudson's telephone conversation with Mr. Stewart after the February 8 letter.
(4) Mr. Hudson's letter of February 15, 1963, to the Monterey County Council with a
conformed copy to the Monterey County Planning Director.
(5) Mr. Hudson's letter of August 2, 1963, to Mr. Stewart.
Cook v. Cook , 17 Cal.2d 639

[S. F. No. 15960. Department One.-- March 20, 1941.]
PAULINE COOK, Appellant, v. AGNES KEEGAN COOK, Respondent.
COUNSEL
Marion Vecki for Appellant.
Williamson & Wallace and Thomas J. Keegan for Respondent.
OPINION
CARTER, J.
This case arose out of a controversy between the defendant, widow of a decedent, Milton
H. Cook, and the plaintiff, Pauline Cook, the daughter of decedent and stepdaughter of
defendant, concerning the proceeds of a life insurance policy in the sum of $2,020.39 on
the life of decedent; plaintiff's claim to the proceeds arises from a provision in decedent's
will, whereas defendant's claim arises from the fact that she was named beneficiary in the
insurance policy.
The decedent having been married to Valerie Cook was divorced from her in 1908. The
issue of that marriage were a son, Horatio Nelson Cook, and a daughter, plaintiff herein.
Plaintiff and her mother moved to Paris, France, after the divorce and remained there
until after the death of decedent; she was 18 years of age at the time of decedent's death
and 21 years of age on November 27, 1927. On December 22, 1919, while decedent was
unmarried, there was issued to him by the Equitable Life Assurance Society, a policy of
insurance on his life; the named beneficiary was his son, Horatio Nelson Cook. By the
terms of the policy the insured reserved the right to change the beneficiary, and such
change was to be made by written request therefor followed by endorsement thereof on
the policy by the insurer. The policy authorized a change in beneficiary and then
provided: "Beneficiary--If the right to change the beneficiary has been reserved and there
is no written assignment of this policy on file with the Society, the Insured may from time
to time during its continuance, change the beneficiary or beneficiaries by a written
request upon the Society's blank filed at its Home Office, but such change shall take
effect only upon the endorsement of the same hereon by the Society. If there be no
beneficiary surviving at the death of the Insured, the proceeds of this policy shall be
payable to the executors, administrators or assigns of the Insured." With reference to
assignment the policy provided: "No assignment of this policy shall be binding upon the
Society unless in writing and filed at its Home Office." In 1921, decedent married
defendant, and a daughter was [17 Cal.2d 643] the issue of that marriage. On September
21, 1921, decedent, in the manner provided by the policy, changed the beneficiary therein
to defendant, and the policy so existed when decedent died. Decedent died on November
16, 1926, while a resident of California, leaving surviving him defendant and the above-
mentioned children. His entire estate was his separate property. He left a will dated
March 17, 1925, in which he bequeathed sixty per cent of his estate to defendant and
forty per cent to his son; his son was directed to pay $40 per month to plaintiff but to
have sole control of his share of the estate; the will also referred to a life insurance policy,
concededly not here involved, the proceeds of which were to be used to pay a certain
indebtedness, and the balance to his son and defendant; it then provided:
"Because my beloved daughter Pauline is well provided for by my former wife who
recently inherited from her mother I am leaving forty percent of what I possess to my son
Nelson knowing that he will pay his sister the forty dollars a month referred to or more if
he is able. A policy of insurance Equitable Life Assurance Co. #2,536,262 payable on its
face to Horatio Nelson Cook is to be collected by him and paid to her. ...
"I have left certain insurance policies other than those specified which are to be paid
direct to the beneficiaries and are not to be considered part of my estate." The policy here
involved is #2,536,262. The will was admitted to probate on defendant's petition, and she
being so designated in the will, was appointed executrix. Defendant administered the
estate; and an order settling the final account and a decree of distribution were entered on
January 16, 1928; those orders were not appealed from and are final. The estate was
accordingly distributed. Due notice was given in the estate proceeding and the decree was
not obtained by fraud. The insurer paid the proceeds of the insurance policy here involved
to defendant shortly after decedent's death and the same was not included in or probated
as a part of the assets of the estate. Plaintiff's demand on defendant for the proceeds of
said policy made on September 7, 1935, being refused, she commenced this action on
October 24, 1935, to recover same on the theory that they were held by defendant as
trustee for the use and benefit of plaintiff by reason of the above-quoted portion of
decedent's will. Plaintiff claimed in her [17 Cal.2d 644] complaint that defendant, with
full knowledge of the terms of the will and the insurance policy, elected to and did take
under the will; and that she represented to plaintiff that all of decedent's insurance
policies had been disposed of during his lifetime, and in reliance thereon, and in
ignorance of the payment of said proceeds to defendant, and that the policy of insurance
was transferred to plaintiff or that she was made beneficiary therein by the will, plaintiff
did not take any action in the premises until she discovered the true situation shortly
before she commenced this action. Defendant controverted those allegations and pleaded
as special defenses, the decree of distribution in the estate proceeding, laches and the
statute of limitations. The trial court found in favor of defendant on the general issue of
fraud, and also found that the action was barred by sections 337, 338 and 343 of the Code
of Civil Procedure and laches, and that the decree of distribution was a bar to the action.
The main premise upon which plaintiff relies for a reversal of the judgment, is that the
above-quoted provision of the will effectively transferred the insurance policy upon
decedent's death to decedent's son, Horatio Nelson Cook, in trust to collect the proceeds
thereof and pay them to plaintiff, and that said provision accomplished an effective
change in beneficiary from defendant to Horatio Nelson Cook as trustee. Several other
contentions of plaintiff are but ramifications or varying approaches to that main ground.
[1] It is a fundamental rule of law, as conceded by both parties, that in an ordinary life
insurance policy where the insured reserves the right to change the beneficiary named
therein, such change may be made by him at any time prior to his death, and that the
beneficiary has no such vested right therein prior to the death of the insured as will enable
him to prevent the change. (Blethen v. Pacific Mut. Life Ins. Co., 198 Cal. 91 [243 P.
431].) [2] The same is true of the rule that in an ordinary life insurance policy the
insured's property right therein is such that it may be passed by the insured by transfer,
will or succession. (Ins. Code, sec. 10,130; Blethen v. Pacific Mut. Ins. Co., supra.)
Further, it must be conceded that decedent here could have changed the beneficiary from
defendant to whomever he desired, at any time prior to his death. [3] It is asserted,
however, that by virtue of sections 2764 and 2765 of the [17 Cal.2d 645] Civil Code (in
force at the time here involved), upon which sections 10,130 and 10,131 of the Insurance
Code are based, the clause in the will above quoted constituted a transfer on death of the
insurance policy or a change in the beneficiary, and thus deprived defendant of any rights
thereunder, although no request for such change was made to the insurer, nor was it
endorsed on the policy. Section 2764 provided:
"A policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover upon it
whatever the insured might have recovered." Section 2765 provided:
"Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the
validity of a policy of insurance upon the life or health, unless thereby expressly
required." There are several reasons why these sections are not applicable to the case at
bar. Their manifest object was to make insurance policies freely alienable although the
transferee or legatee had no insurable interest. That result has been reached by court
decision without the aid of legislation. (Grigsby v. Russell, 222 U.S. 149 [32 S.Ct. 58, 56
L.Ed. 133]; Lewis v. Reed, 48 Cal.App. 742 [192 P. 335].) Section 2764 merely clarified
and made certain the law on the subject. We are not disposed to hold however, that that
rule made it possible, under all circumstances, for the insured to assign his policy or
change the beneficiary by his will where there had been no attempt to change the
beneficiary or assign the policy during life or to comply with the requirements of the
policy to consummate such change. Of course, there are instances in which an insured
may transfer his policy by will. Where the policy has no named beneficiary but is payable
to the estate of the insured, the policy may be disposed of by will or pass by intestate
succession if the insured dies intestate (14 Cal.Jur. 585). Where the named beneficiary
predeceased the insured and the power is reserved to change the beneficiary, the latter
thus having no vested right in the policy or proceeds, the insured may dispose of the
policy by will. This is true for the reason that, under such circumstances, the mere
expectancy held by the beneficiary during the life of the insured vanishes with the death
of the beneficiary prior to the death of the insured; and naturally the proceeds fall into the
estate of the [17 Cal.2d 646] insured and are subject to testamentary disposition.
(Supreme Council, etc., v. Gehrenbeck, 124 Cal. 43 [56 P. 640]; Estate of Castagnola, 68
Cal.App. 732 [230 P. 188].) And there may be instances in which by the terms of the
particular policy involved, it is transferable by will. There may be other instances, but the
rule cannot have any application to the facts in the instant case. A will does not become
operative until death; prior to death it is revocable at the whim of the testator, and the
objects of the testator's bounty have no vested rights. In that respect it is very similar to
the rights of a beneficiary under a life insurance policy in which the insured reserves the
right to change the beneficiary such as we have in the instant case. However, upon death
the beneficiary's right becomes vested, and that being the case, no expression in the
insured's will purporting to assign his life insurance policy or change the beneficiary can
be effective. At death he no longer has a policy to assign. It has passed to his heirs, if no
beneficiary was designated; if a beneficiary is named it passes to such beneficiary. He
cannot then change the beneficiary because the right of the named beneficiary has vested.
It should be noted that section 2764 not only authorizes the transfer by will of a policy of
insurance but also authorizes such transfer by "succession" as well as assignment. If
plaintiff's argument were to be adopted, it must necessarily extend to all modes of transfer
mentioned in the section, and if it were applied to a transfer by succession, then a
beneficiary would never under any circumstances receive the proceeds of a life insurance
policy except possibly in case of a person dying without heirs. In connection with the
interpretation of section 2764 it may well be pertinent to consider the provisions of
section 2769 of the Civil Code, which provide:
"The proceeds of every policy of insurance due on the death of the insured shall by the
insurer be paid to the beneficiary designated therein, or, if no beneficiary is designated
therein, to the estate of the insured; or, if the policy has been assigned, to the assignee
thereof; and such payment shall satisfy all obligations of the insurer with respect to the
policy." This section is clearly in accord with section 2764 as we have interpreted it, but it
is contrary to plaintiff's position. The express direction is that the proceeds are to be paid
to the [17 Cal.2d 647] beneficiary if one, but not to the estate unless there is no
beneficiary.
What was said by the District Court of Appeal in the case of Supreme Lodge v. Price, 27
Cal.App. 607, 623 [150 P. 803], is pertinent in this connection. We quote the following
from the opinion in that case.
"It is very clear that the instrument signed by the deceased, even if it had been executed
and attested according to the formalities prescribed by our law for the execution and
attestation of wills (Civ. Code, sec. 1276), cannot operate as a testamentary disposition of
the fund, nor, as a will, to change the beneficiaries. Besides the consideration that the
laws of the plaintiff expressly prohibit such testamentary disposition, there is another
insuperable objection to such mode of disposing of the benefit money in this: That a will
cannot take effect until after the death of the testator and, of course upon property only
belonging to him, and therefore, since, in a case where, as here, no change of
beneficiaries has been made according to the laws of the society, or permitted by an
informal method under a waiver of said laws, the interest of the beneficiary designated in
the certificate in the benefit fund becomes vested, eo instanti, upon the death of the
assured. In other words, the title to the benefit money vests in the beneficiary
immediately upon the death of the assured, and, of course, any provision in the last will
of the latter purporting or attempting to make a different disposal of the fund would be as
ineffectual for the purpose for which it was intended as would be a provision attempting
thus to dispose of property which the testator never owned or had any interest in.
"Nor can the document be upheld as a direction to the association to make the change,
for, as before explained, the fact of the desired change was never in any manner
communicated to the association during the lifetime of the assured, and, therefore, the
consent of the association was not and could not be obtained for a change of beneficiaries
in that informal manner." (See, also, De Silva v. Supreme Council of Portuguese Union,
109 Cal. 373 [42 P. 32].) Although it may be that the above statement was dictum and that
sections 2764 and 2765 of the Civil Code were not mentioned by the court, it is
persuasive and sound argument in support of defendant's position in the case at bar; as
above [17 Cal.2d 648] shown those sections of the Civil Code are not applicable to this
case in any event. The reasoning of the court in the case of Supreme Lodge v. Price,
supra, is not dependent to any extent for its force or logic upon the issue of whether or
not an insurance policy may pass by will to a person with no insurable interest. Therefore
it is immaterial to the conclusion reached that the court there did not consider the effect
of section 2764 of the Civil Code authorizing a disposal of a policy by will to one without
an insurable interest. The sole object of sections 2764 and 2765 was to legalize a transfer
by will, etc., under appropriate circumstances, regardless of whether the transferee had an
insurable interest.
[4] Furthermore, there was no attempt, other than the will which was not effective, on
decedent's part to comply with the provisions of the policy to consummate a change in
the beneficiary nor was he prevented from so complying. The rigor of the rule requiring
that the method provided by the policy for a change of beneficiary must be followed, is
relaxed when the controversy is between conflicting claimants and the insurer is not
raising the issue. (Pimentel v. Conselho Supremo, etc., 6 Cal.2d 182 [57 PaCal.2d 131].)
However, as a general principle, the method prescribed by the policy must be followed,
and if it is not, no change is accomplished, unless whatever occurred in that respect
comes within one or more of the three exceptions to the rule. Those exceptions are based
on equitable principles and are designed to assist an insured in carrying out his intent to
change a beneficiary in instances such as when he has done all he could have done to
make the change, there is a waiver, or he was prevented from making the change, and
where there was not a literal compliance with the terms of the policy. In the case of
Pimentel v. Conselho Supremo, etc., supra, this court said:
"There are three often-repeated and well-recognized exceptions to the rule that where the
contract of insurance provides a method for making a change of beneficiary the insured
must follow substantially the method prescribed: (1) If the society has waived a strict
compliance with its own rules, and in pursuance of a request of the insured to change his
beneficiary, has issued a new certificate, the original beneficiary will not be heard to
complain that the course indicated by the regulations was not pursued; (2) If it is beyond
the [17 Cal.2d 649] power of the insured to comply literally with the regulations a court
of equity will treat the change as having been made; and (3) If the insured has pursued
the course pointed out by the laws of the association, and has done all in his power to
change the beneficiary, but before the new certificate is actually issued he dies, a court of
equity will treat such certificate as having been made. (McLaughlin v. McLaughlin,
supra; Supreme Lodge v. Price, supra; Barboza v. Conselho Supremo, etc., supra.)
"With the first exception we are obviously not concerned. The second and third are not so
clear of application nor always easily distinguished from each other. However, we think
the second does not apply here for the reason that it was not impossible that the course
prescribed by the constitution and by-laws of the society be carried out. The third
exception has been variously interpreted as meaning all that is required of the insured,
leaving only ministerial duties to be performed by the insurer (McLaughlin v.
McLaughlin, Barboza v. Conselho Supremo, etc., both supra, and Garrett v. Garrett, 31
Cal.App. 173 [159 P. 1050]), or as all that it was possible for the insured to do under the
circumstances under which he attempted to make the change. (Supreme Lodge v. Price,
supra; Johnston v. Kearns, 107 Cal.App. 557 [290 P. 640], and see Bell v. Criviansky, 98
Mont. 109 [37 PaCal.2d 673].)" Obviously, the making of his will, the only thing done by
decedent, does not come within any of those exceptions. Even if the will when made in
1925 should be considered as an attempt to change the beneficiary or assign the policy at
that time rather than on the date of decedent's death when the will became operative, still
the case would not fall within any of the exceptions because no endeavor was made to
communicate such change to the insurer, and the insured would be presumed to know the
law that a will is ineffective until death. A whole year elapsed after decedent made his
will and before he died, and he did nothing to change the beneficiary in the policy. The
will at the time of its execution could not be said to be a present assignment of the policy
because a will is revocable and the beneficiaries thereunder have no vested rights prior to
the testator's death. Nothing could have passed by the will at that time, and on death
when the will became operative, the defendant's right as named beneficiary had vested. In
any [17 Cal.2d 650] event the provision in the will was quite apparently an attempt to
bequeath the proceeds of a policy of insurance rather than assign the policy itself.
In reaching the foregoing conclusions we have not overlooked the principle that
provisions such as sections 2764 and 2765 of the Civil Code (now embodied with minor
changes in sections 10,130 and 10,131 of the Insurance Code) providing for a transfer of
a policy of life insurance by will or otherwise, and that notice to the insurer of the transfer
is not necessary to preserve the validity of the policy unless expressly required, cannot be
altered or frustrated by contract, because of reasons founded on public policy. (Lewis v.
Reed, 48 Cal.App. 742 [192 P. 335].) As above stated, however, those sections are not
applicable to the instant case, and a change of beneficiary or a transfer of a policy cannot
be accomplished by will where the named beneficiary in the policy has not been changed
or died prior to the death of the insured.
Estate of Mattley, 110 Cal.App. 439 [294 P. 37], relied upon by plaintiff does not pass
upon the issue here involved. The court there assumed with respondent that the proceeds
of the insurance policy belonged to the estate, therefore no issue was determined as to
whether it did belong to the estate or the beneficiary named in the policy. Pimentel v.
Conselho Supremo, etc., supra, does not support plaintiff's position because in that case,
all that could have been done by the insured to change the beneficiary was done by him
prior to his death.
[5] We are not impressed with the argument advanced by plaintiff that defendant is
estopped to assert that the provision in the will was ineffective to change the beneficiary,
or that her right as beneficiary became vested on decedent's death because the insurer was
not notified of the alleged transfer by will, or that the insurer had not waived the
necessity for compliance with the terms of the policy in respect to a change of
beneficiary. From all that appears the will was in the possession of the insured, decedent,
until after his death, and defendant, beneficiary, did nothing to prevent him from
assigning it or changing the beneficiary. Assuming that after the insured's death,
defendant did know of the provision in the will mentioning the policy but nevertheless
collected the same from the insurer, there was no obligation [17 Cal.2d 651] or duty on
her part to disclose such information to the insurer or plaintiff. Defendant did not profit
by her own wrong; she did no wrong. The elements of estoppel are lacking. In the case of
Jory v. Supreme Council, 105 Cal. 20 [38 P. 524, 45 Am.St.Rep. 17, 26 L.R.A. 733],
relied upon by plaintiff, the estoppel and equitable relief were based on the fact that the
beneficiary having possession of the policy, refused to deliver it to the insured and
concealed it when the insured attempted to obtain it from her to change the beneficiary.
The insured then proceeded to comply with all other requirements for a change of
beneficiary, except the delivery of the policy to the insurer which she was prevented from
doing by the then beneficiary. We have no such facts in the case at bar.
[6] Plaintiff advances the theory that by reason of the aforementioned clause in the will
dealing with an insurance policy coupled with the fact that defendant was a devisee of
property under the will, defendant was put to her election and she having taken under the
will, there was an election requiring her to recognize the will in toto and by so doing must
recognize plaintiff's right to the proceeds of the policy of insurance. We agree with
defendant that the provision in the will did not purport to dispose of the policy here
involved because it referred to a policy "payable on its face to Horatio Nelson Cook."
When the will was made and at decedent's death there was no policy payable to Horatio
Nelson Cook; it was payable to defendant as beneficiary. Thus there was no attempted
disposal of property belonging to defendant, i. e., a policy payable to her. Also the
proceeds of the policy did not belong to defendant until the insured's death. Prior to that
time she had no vested property right therein. There was thus no disposal of property
owned by defendant which is an essential factor in the doctrine of election.
[7] Furthermore, it cannot be said that defendant was ever in fact placed in a position
where she was forced to make an election. The offering of a will for admission to probate
and seeking appointment as executrix does not constitute an election. (Estate of Gwin, 77
Cal. 313 [19 P. 527].) Neither the insurance policy nor its proceeds was listed as an asset
of the estate or included in the probate proceeding thereof. Therefore it might be said that
they were not disposed [17 Cal.2d 652] of or affected by the will or the decree of
distribution. If anything, it might well be argued that defendant elected to take against the
will because she collected under the policy long before there was any property distributed
to her under the will. Under such circumstances plaintiff's action would be to recover
whatever was left to her by the will, but under that theory plaintiff would be met with the
fact that the decree of distribution contained an omnibus clause which distributed all
property not described in the decree to defendant and Horatio Nelson Cook; none was
distributed to plaintiff. That decree is final.
[8] Whatever may be the merit of plaintiff's contentions, the decree of distribution in the
probate proceeding in decedent's estate was conclusive as to the interpretation of the will,
and the rights of legatees thereunder, and the property included or covered by the will, the
existence, validity of and rights under any testamentary trust, and the incidental matters
which necessarily are involved in a determination on those subjects whether right or
wrong. It cannot be collaterally attacked except for extrinsic fraud or certain
jurisdictional defects. The general rule in this respect is thus stated:
"The decree is conclusive 'as to the rights of heirs, devisees and legatees,' and a decision
as to them includes determination of the persons entitled as such and the parts or
proportions to which each is entitled. Thus the court has jurisdiction to determine who are
the legal heirs, devisees, or legatees, and all questions concerning the distribution,
including questions of community property involved. The decree, therefore, determines
the heirship of claimants, and it is conclusive that a prior decree determining heirship is
valid, where such prior decree was questioned on distribution but was followed." (11B
Cal.Jur. 794.) And again:
"If there is a will the court must pass upon the validity of the disposition attempted by the
testator, and the decree of distribution is conclusive thereof.
"The decree is necessarily a judicial construction of the will and fixes the several interests
of the distributees by designating the persons and the proportions or parts to which each
is entitled, and is conclusive thereof. Legacies not mentioned in the decree are cut off. A
claim of interest upon a legacy should be asserted in the proceeding for distribution, and a
[17 Cal.2d 653] distribution without interest is a determination that the legatee is entitled
to none.
"The will is merely a part of the evidence upon which the decree is based, and becomes
merged in and superseded by the decree, the decree becoming the measure of the rights of
the beneficiaries and the law of the estate. The decree therefore is conclusive as against
collateral attack, even though in contravention of the terms of the will. In other words, the
will cannot be used to impeach the decree. Although a provision in the will may have
been invalid, a decree distributing the estate in accordance therewith is conclusive, when
final, as to the validity of the will. The question whether a claimant has forfeited his
rights under a noncontest clause properly arises on distribution." (11B Cal.Jur. 796.) In
the instant case the decree of distribution did not distribute any property to plaintiff or to
Horatio Nelson Cook as her trustee. All of the property was distributed to Horatio Nelson
Cook, free and clear of any trust or obligation, and to defendant. The decree was pleaded
as a defense by defendant and the lower court found in its conclusions of law that the
decree was a bar to plaintiff's action. It cannot be denied that it was at least a conclusive
determination of essential factors in plaintiff's case. It decided that plaintiff was entitled
to nothing under the will; thus plaintiff acquired no interest in the insurance policy or its
proceeds thereby, or it might be said, that the insurance policy here involved was not
contemplated by the provision in the will in respect to plaintiff. It decreed, in effect, that
no election was required of defendant; and that the insurance policy was not disposed of
by will upon death. As a necessary incident of the determination in respect to the
interpretation of the will it may be said that the alleged power in trust to Horatio Nelson
Cook to collect the policy and pay it to plaintiff was invalid and ineffective and therefore
plaintiff never became the beneficiary of any trust and has no standing in this action. A
decree of distribution in a probate court is conclusive on the validity and rights under a
testamentary trust. (11B Cal.Jur. 798.) We believe that the decree of distribution in the
estate proceeding is an insuperable obstacle to plaintiff's recovery. The only possible
circumstances under which it might be claimed that it was not, would be under the theory
that the will, taken as a document, independent of its character as a [17 Cal.2d 654] will,
transferred the policy of insurance or changed the beneficiary; but that we have seen it
did not accomplish.
[9] Plaintiff claims that both an involuntary and voluntary trust were created subject to
which defendant held the proceeds of the insurance policy. Inasmuch as we have
concluded that no rights in the insurance policy were acquired by plaintiff by the
provision in the will, i. e., that the will did not dispose of the insurance policy or the
proceeds, it necessarily follows that no trust was impressed thereon. An involuntary trust
must be predicated on the proposition that a person has acquired property which is
impressed with a trust knowing that it is so impressed, or that he wrongfully comes into
possession of the trust res under such circumstances that equitable principles create a
trust. Here defendant rightfully acquired property which was not impressed with a trust.
Even if it be conceded that defendant by assuming the duty to act and acting as executrix
and carrying out the provisions of the will, accepted the provisions of the trust
purportedly imposed by the will on the insurance policy and thereby became a voluntary
trustee, the result cannot be different for the reason that the decree of distribution
conclusively determined that there was no valid trust created and that no interest in the
insurance policy was acquired by any trustee or beneficiary. For those reasons further
discussion of plaintiff's trust theories would be superfluous.
[10] Plaintiff asserts that the action was not barred by the statute of limitations. (Code
Civ. Proc., secs. 337, 338 and 343.) In this connection plaintiff, to escape the statute,
alleged:
"That at the time of the death of said Milton H. Cook, as aforesaid, plaintiff was a minor,
and was continuously residing in Paris, France, until the summer of 1935, when she
returned to San Francisco, California; that shortly after the death of said Milton H. Cook,
defendant by and through her attorney advised and informed plaintiff that said Milton H.
Cook, deceased, had disposed of all of his life insurance during his lifetime, and plaintiff
believed said statements and information so stated and given to her regarding her father's
life insurance, and relied thereon, and plaintiff did not learn, or receive knowledge of the
true facts and circumstances connected with the collection and payment, as aforesaid, or
the proceeds of said life insurance policy hereinbefore described [17 Cal.2d 655] in
Paragraph IV, until she returned to San Francisco, California, in the summer of 1935."
Defendant pleaded the statute of limitations and in this connection the court found:
"At the date of the death of said Milton H. Cook his said son Horatio Nelson Cook was
over twenty-one years of age and the said plaintiff, Pauline Cook, was over the age of
eighteen years, and she attained the age of twenty- one years on or about the 29th day of
November, 1927. That within three months after the death of said Milton H. Cook the
said plaintiff received a copy of his last will and testament and was fully advised of the
nature and character of his estate and thereafter and after the said plaintiff had attained
her legal majority and while the probate proceedings of the estate of Milton H. Cook
were still pending and as much as a year prior to the final distribution of said estate, the
said plaintiff was fully and definitely advised of the fact that the said policy of insurance
on the life of Milton H. Cook was at the death of said Milton H. Cook payable to the
defendant in this action, and the defendant claimed the same for her sole separate use and
benefit and had collected the amount due under said policy and had kept and retained the
same. That plaintiff made no claim to the said insurance policy or to the moneys payable
or paid thereunder during the said probate proceedings, or at any time prior to the 7th day
of September, 1935, and did not institute this action or any action until the 24th day of
October, 1935. ...
"That plaintiff's cause of action is barred by the provisions of Sections 337, 338 and 343
of the Code of Civil Procedure of the State of California." The findings wholly negative
plaintiff's claim that the running of the statute was tolled by fraudulent concealment and
clearly establish that her purported cause of action was barred by the statute. The decree
of distribution was entered on February 6, 1928. Plaintiff reached 21 years of age on
November 29, 1927; and she was 18 years of age on November 29, 1924. Defendant
obtained the proceeds from the policy shortly after the death of insured on November 16,
1926. Even applying the four-year period of limitation, we find that several years prior to
the date four years before the action was commenced, plaintiff was fully advised of the
terms of the will and that defendant had collected the insurance policy and claimed it as
her own. This shows that any trust created by the will [17 Cal.2d 656] was repudiated by
defendant and plaintiff knew it. It was not until September 7, 1935, that plaintiff made a
demand for the insurance policy or the proceeds thereof. She did not commence her
action until October 24, 1935. Conceding that the evidence on the subject embraced in
the findings on the statute of limitations is conflicting, this court does not resolve
conflicts; that is the province of the trial court and it found against plaintiff. There is
ample evidence that by correspondence between plaintiff and her mother and the attorney
for the insured's estate and by oral communication, plaintiff was informed of the will and
of the insurance policy and that she had no interest therein and that the proceeds were all
claimed by defendant. Plaintiff admits by her own letter to said attorney that she knew
those things. There is no evidence that defendant ever recognized any claim of plaintiff to
the policy or its proceeds. She always asserted full ownership of both after decedent's
death.
Plaintiff objects to the findings of the court claiming that they do not cover all of the
issues, that they are contradictory and do not support the conclusions of law. Without
discussing in detail the pleadings and findings, suffice it to say we are satisfied that the
findings are responsive to the pleadings and find on all of the material issues raised, and
that they are not contradictory or fail to support the conclusions of law. In any event as
we have determined that the fundamental theory of plaintiff's case is unsupportable, that
her action is barred by the statute of limitations, and that it is defeated by the decree of
distribution, it would not be profitable or useful to make an extensive review of the
pleadings and findings. All of the essential matters are sufficiently and properly covered
by the findings and the findings support the conclusions of law.
Shenk, J., concurred.
Edmonds, J., concurred in the judgment.
In re Margarita D. (1999) 72 Cal.App.4th 1288 , 85
Cal.Rptr.2d 713
[No. D032003. Fourth Dist., Div. One. May 26, 1999.]
In re MARGARITA D., a Person Coming Under the Juvenile Court Law. SAN DIEGO
COUNTY HEALTH AND HUMAN SERVICES AGENCY, Plaintiff and Respondent, v.
FILIBERTO G., Defendant and Appellant.
[Opinion certified for partial publication. fn. * ]
(Superior Court of San Diego County, No. SJ10045B, William E. Lehnhardt, Judge. fn.
†)
(Opinion by Haller, J., with Benke, Acting P. J., and Huffman, J., concurring.)
COUNSEL
Patti L. Dikes, under appointment by the Court of Appeal, for Defendant and Appellant.
John J. Sansone, County Counsel, Susan Strom, Chief Deputy County Counsel, and
Kathryn E. Krug, Deputy County Counsel, for Plaintiff and Respondent.
Mitchell L. Beckloff, under appointment by the Court of Appeal, for Minor.
OPINION
HALLER, J.-
Filiberto G., who alleges he is the biological father of Margarita D., appeals the juvenile
court's denial of his motion to set aside a previous paternity judgment that another man
was Margarita's presumed father and order paternity testing to establish he is Margarita's
father. Filiberto also appeals the court's denial of his Welfare and Institutions Code fn. 1
section 388 petition seeking (1) an order declaring him to be Margarita's presumed father,
(2) reunification services and physical custody of Margarita, and (3) the setting aside of a
previous order placing Margarita with her maternal grandparents. [72 Cal.App.4th 1291]
Procedural and Factual Background
Margarita's Dependency Proceedings
Margarita was born on April 30, 1996. Her mother, Adelaida C., was at Las Colinas
Detention Facility at the time of the birth, incarcerated for the death of Margarita's older
brother, Giovanni G. Giovanni died on March 15, 1996, from a cardiac concussion
caused by a blunt impact to his chest; he was 11 months old.
On May 2, 1996, the San Diego County Health and Human Services Agency (Agency)
filed a petition under section 300, subdivision (j), alleging Margarita was at substantial
risk of harm because of the nonaccidental death of her sibling.
After Margarita's release from the hospital, she was detained with Paula C., her maternal
grandmother, and has lived there continuously since then.
On May 9, 1996, the juvenile court conducted a paternity inquiry. Adelaida testified she
was the mother of Margarita and had not been living with any man at the time Margarita
was conceived; she was living with her parents. Adelaida named Guillermo D. as the
father of Margarita and had listed him as the father on Margarita's birth certificate.
Adelaida testified she did not have sexual intercourse with any man other than Guillermo
between July 1995 and October 1995.
Guillermo testified he believed he was Margarita's father and had told his family that she
was his child. Guillermo signed a paternity admission form.
On May 9, 1996, the court made a finding Guillermo was the presumed father of
Margarita and entered a paternity judgment declaring him to be Margarita's father.
Guillermo submitted to the petition, and Adelaida subsequently pled nolo contendere to
the petition. Reunification services were ordered. At the 12-month review hearing, the
court found there was a continued risk to Margarita if returned to parental care,
reasonable services had been provided and there was no substantial probability of return
to parental custody within the next 6 months. The court terminated reunification services
and scheduled a selection and implementation hearing pursuant to section 366.26.
On December 18, 1997, the juvenile court identified adoption as the permanent plan for
Margarita and terminated the parental rights of Adelaida and Guillermo. [72 Cal.App.4th
1292]
Filiberto's Paternity Claim
In 1998, Filiberto became convinced he was Margarita's father and hired counsel to
pursue the matter. According to a sworn affidavit by Filiberto:
-He and Adelaida met in early 1994, and he began living with her in February 1995.
Filiberto was the father of the slain Giovanni. Filiberto and Adelaida stopped living
together in August 1995.
-In October 1995, Filiberto thought Adelaida might be pregnant, but she denied it. In
November 1995, Filiberto saw Adelaida with Guillermo and learned they had resumed a
relationship.
-From August 1995 until December 1995, Filiberto had visited Giovanni every other
week and given Adelaida money for their son. But in December 1995, Adelaida told
Filiberto not to visit anymore. Filiberto last saw Giovanni in January 1996 when he
brought the little boy Christmas presents.
-When Filiberto learned of Giovanni's death, he was extremely distraught and suffered
from deep depression for many months.
-Filiberto first learned of Margarita's birth in May 1996 when he received a notice to
participate in paternity testing. However, a social worker later telephoned him and said
there was no need for the test because it had been determined that Guillermo was the
father.
-In March 1998, Filiberto was shown several photographs of Margarita, which showed a
resemblance between him and the girl. Filiberto saw Margarita seven or eight times in the
next two months and held a birthday party for her at the maternal grandmother's
residence. Filiberto gave the maternal grandmother $300 to support Margarita.
-Filiberto and Adelaida had sexual relations during Margarita's probable conception
period.
-Filiberto had previously believed Guillermo was Margarita's father because (1)
Guillermo had a prior relationship with Adelaida, (2) he believed Adelaida had had sexual
relations with Guillermo shortly before Filiberto had moved out in August 1995 and (3)
the social worker had told him in 1996 that Guillermo was the father.
On July 15, 1998, Filiberto filed a section 388 petition. Also, on that date, the maternal
grandparents filed a de facto parent application, which was immediately granted by the
court. [72 Cal.App.4th 1293]
On August 13, 1998, Filiberto filed a motion for paternity testing and to set aside the
paternity judgment pending paternity testing.
Filiberto's trial testimony largely matched his affidavit. Guillermo, who was provided
counsel, declined to answer any questions concerning the paternity issue on Fifth
Amendment grounds; however, Guillermo indicated through counsel he would be willing
to undergo paternity testing.
The major factual dispute involved Filiberto's 1996 telephone conversation with Social
Worker Patricia Ovando concerning paternity testing. According to Ovando's notes, the
maternal grandmother expressed doubt to Ovando on June 7, 1996, about Guillermo's
being the father of Margarita and said Adelaida had lived with Filiberto from March 1995
through September 1995. Ovando then consulted with her supervisor concerning
paternity testing and contacted counsel about paternity testing.
Ovando's notes also showed she had a telephone conversation with Filiberto on June 14,
1996. Ovando testified she did not recall the conversation; however, she believed she did
not proceed with paternity testing because her notes indicated Filiberto said he was not
the father and did not see a need for paternity testing.
Filiberto testified he did not remember telling Ovando he was not Margarita's father and
there was no need for the paternity test.
The Court's Ruling
The court found there was no evidence of extrinsic fraud and therefore no ground to set
aside the paternity judgment. The court observed that even if it were inclined to set aside
the paternity judgment and order paternity testing and the test showed Filiberto was the
father, he would merely be a biological father who had not done anything to preserve his
parental rights, even though he had numerous reasons to suspect he was the father. The
court said Filiberto knew Adelaida was pregnant and he could be the father, but did
nothing. Filiberto was aware of the juvenile court proceedings after the baby was born,
but did nothing. The court added Filiberto was not interested in a paternity test and did
nothing until April 1998. The court said Filiberto had been indifferent.
The court denied the motion to set aside the paternity judgment and for paternity testing.
The court also denied the section 388 motion on the ground that Filiberto had no standing
to pursue it. [72 Cal.App.4th 1294]
Discussion
I. Denial of Motion to Set Aside Paternity Judgment
[1a] Filiberto contends the juvenile court abused its discretion by failing to set aside the
paternity judgment that Guillermo is Margarita's father because it was a product of fraud
by Adelaida and Guillermo, both of whom lied to the court in 1996. The contention is
without merit.
[2a] A party may seek relief from a final judgment by appealing to the equitable power of
the court; the court, sitting in equity, can, under certain limited circumstances, set aside or
modify a valid final judgment obtained by fraud, mistake or accident. As our Supreme
Court explained in Olivera v. Grace (1942) 19 Cal.2d 570, 575 [122 P.2d 564, 140 A.L.R.
1328]: " '[W]here the legal judgment was obtained ... through fraud, mistake, or accident,
or where the defendant in the action, having a valid legal defense on the merits, was
prevented in any manner from maintaining it by fraud, mistake, or accident, and there had
been no negligence, laches, or other fault on his part, ... then a court of equity will
interfere at his suit, and restrain proceedings on the judgment which cannot be
conscientiously enforced.... The ground for the exercise of this jurisdiction is that there
has been no fair adversary trial at law.' [Citation.]" However, the only type of fraud that
can be the basis of vacating a final judgment is extrinsic fraud. (In re Marriage of
Stevenot (1984) 154 Cal.App.3d 1051, 1068 [202 Cal.Rptr. 116].) As explained by our
Supreme Court: "Extrinsic fraud usually arises when a party is denied a fair adversary
hearing because he has been 'deliberately kept in ignorance of the action or proceeding,
or in some other way fraudulently prevented from presenting his claim or defense.'
[Citation.] 'Where the unsuccessful party has been prevented from exhibiting fully his
case, by fraud or deception practiced on him by his opponent, as by keeping him away
from court, a false promise of a compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an
attorney fraudulently or without authority assumes to represent a party and connives at
his defeat; or where the attorney regularly employed corruptly sells out his client's
interest to the other side, these, and similar cases which show that there has never been a
real contest in the trial or hearing of the case, are reasons for which a new suit may be
sustained to set aside and annul the former judgment or decree, and open the case for a
new and a fair hearing.' (United States v. Throckmorton (1878) 98 U.S. 61, 65-66 [25
L.Ed. 93, 95].)" (Kulchar v. Kulchar (1969) 1 Cal.3d 467, 471 [82 Cal.Rptr. 489, 462 P.2d
17, 39 A.L.R.3d 1368].) Put another way, "extrinsic fraud is one party's preventing the
other from having his day in court." (City and County of San Francisco v. Cartagena
(1995) 35 Cal.App.4th 1061, 1067 [41 Cal.Rptr.2d 797].) [72 Cal.App.4th 1295]
[1b] The fraud of which Filiberto complains was not extrinsic fraud; rather, it was
intrinsic fraud, which was fraud that was part of the case itself. [2b] Intrinsic fraud goes
to the merits of the prior proceeding and is "not a valid ground for setting aside a
judgment when the party has been given notice of the action and has had an opportunity
to present his case and to protect himself from any mistake or fraud of his adversary but
has unreasonably neglected to do so. [Citation.] Such a claim of fraud goes to the merits
of the prior proceeding which the moving party should have guarded against at the time."
(City and County of San Francisco v. Cartagena, supra, 35 Cal.App.4th at pp. 1067-
1068.)
It follows that "in demonstrating extrinsic fraud, it is insufficient for a party to come into
court and simply assert that the judgment was premised upon false facts. The party must
show that such facts could not reasonably have been discovered prior to the entry of
judgment." (City and County of San Francisco v. Cartagena, supra, 35 Cal.App.4th at p.
1068.)
[1c] In essence, Filiberto's ground for setting aside the paternity judgment is simply that it
was based upon false facts supplied by Adelaida and Guillermo. That is not extrinsic
fraud and it is not sufficient to set aside the judgment.
Filiberto's attempt to argue there was extrinsic fraud because he was not given notice of
the dependency proceedings is unavailing. Adelaida's and Guillermo's lies at the paternity
hearing did not prevent Filiberto from coming to court. Similarly, Adelaida's false denial
to Filiberto that she was pregnant in October 1995 does not constitute extrinsic fraud
because it did not prevent him from claiming paternity. Thus, despite Adelaida's
fraudulent attempts to hide her pregnancy from Filiberto and to name Guillermo as the
father, she did not prevent Filiberto from claiming paternity in 1996. Rather, Filiberto
chose at that time not to pursue it.
As to Filiberto's attempt to blame the Agency for his lack of notice, it is uncontested on
this record that when Social Worker Ovando learned of Filiberto's possible paternity, she
contemplated having him take a paternity test. What the parties dispute is the content of
the telephone conversation between Ovando and Filiberto concerning the testing.
Filiberto claims Ovando told him there was no need for the test because it had been
determined Guillermo was the father, while Ovando testified her notes indicated Filiberto
denied being the father and said there was no need for paternity testing. In making its
ruling, the juvenile court found Filiberto did not want to take the paternity test in 1996.
The court, which had the opportunity to observe the witnesses testify, is better suited than
a reviewing [72 Cal.App.4th 1296] court to make such determinations of fact. Thus,
substantial evidence supported the court's implicit finding that the Agency was not at
fault for the lateness of Filiberto's paternity claim. (See In re Zacharia D. (1993) 6
Cal.4th 435, 452-453 [24 Cal.Rptr.2d 751, 862 P.2d 751].)
Filiberto also argues unpersuasively that the paternity judgment should be set aside on the
ground of mistake because the court erroneously found Guillermo to be a presumed
father. Filiberto points out Guillermo did not qualify as a presumed father because
Guillermo did not receive Margarita into his home and openly hold her out as his natural
child. (See Fam. Code, § 7611, subd. (d).) However, the presumed father finding is not
the same as the paternity judgment. Moreover, Filiberto did not challenge the presumed
father finding below and he may not raise the issue on appeal for the first time. (In re
Aaron B. (1996) 46 Cal.App.4th 843, 846 [54 Cal.Rptr.2d 27].)
The juvenile court did not abuse its discretion in refusing to set aside the paternity
judgment.
II. Denial of Paternity Testing
Filiberto contends the juvenile court erred in not ordering a paternity test. The contention
is without merit.
Family Code section 7636 provides a paternity judgment "is determinative for all
purposes except for actions brought pursuant to Section 270 of the Penal Code."
The existence of a valid paternity judgment bars the use of blood test evidence in a
subsequent proceeding to overturn a paternity determination. (City and County of San
Francisco v. Cartagena, supra, 35 Cal.App.4th at pp. 1065-1069.)
In other words, for Filiberto's paternity testing request to go forward, he had to succeed in
setting aside the existing paternity judgment. Having failed to do so, there was no legal
ground to proceed with paternity testing.
Filiberto's reliance on statutory provisions of the Family Code regarding paternity testing
is misplaced because they are only applicable in proceedings where the issue of paternity
is not resolved and no final judgment of paternity has been entered. (See De Weese v.
Unick (1980) 102 Cal.App.3d 100, 104 [162 Cal.Rptr. 259].)
Filiberto also claims the juvenile court erred in finding he had failed to preserve his
parental rights. We disagree. [72 Cal.App.4th 1297]
There was substantial evidence to support the court's finding. Filiberto had a longtime
intimate relationship with Adelaida, and he knew he had sexual intercourse with her at or
near the time of conception. In October 1995, Filiberto suspected Adelaida was pregnant
based on her appearance. After Margarita was born, Filiberto was aware that the child
was in the dependency system. The Agency contacted Filiberto in mid-1996 about a
paternity test. Thus, by mid-1996, Filiberto had ample notice that he very well could be
the biological father. Yet he did not pursue his parental rights until May 1998-almost two
years later. Simply put, there is substantial evidence Filiberto failed to promptly assert
and preserve his parental status; he was dilatory. We have no quarrel with the juvenile
court's observation that Filiberto was indifferent to his possible paternity of Margarita.
(See In re Zacharia D., supra, 6 Cal.4th at p. 452 [father's ignorance of child's existence
was result "of his own indifference"].)
As the Supreme Court noted in In re Zacharia D., supra, 6 Cal.4th at page 452, the
obligation to claim parenthood in a timely fashion is more important in a dependency
proceeding: "While under normal circumstances a father may wait months or years
before inquiring into the existence of any children that may have resulted from his sexual
encounters with a woman, a child in the dependency system requires a more time-critical
response. Once a child is placed in that system, the father's failure to ascertain the child's
existence and develop a parental relationship with that child must necessarily occur at the
risk of ultimately losing any 'opportunity to develop that biological connection into a full
and enduring relationship.' [Citation.]"
Filiberto relies on In re Julia U. (1998) 64 Cal.App.4th 532 [74 Cal.Rptr.2d 920], in
which the Court of Appeal reversed the termination of an unwed father's parental rights.
The reliance is misplaced because that case is distinguishable for the following reasons:
(1) As contrasted with this case where there was strong evidence that Filiberto should
have realized he may have fathered Margarita, the Court of Appeal in In re Julia U.,
supra, 64 Cal.App.4th at page 541, characterized the evidence that the girl's father should
have expected his sexual activity with the mother would result in her pregnancy as weak.
(2) The father in In re Julia U. did not deny or reject his paternity (ibid.) while Filiberto
denied his paternity when social worker Ovando contacted him about a paternity test. (3)
The father in In re Julia U., supra, 64 Cal.App.4th at page 542, did not delay in asserting
his parental interest while Filiberto did. (4) The social services agency in In re Julia U.,
supra, 64 Cal.App.4th at pages 542-543, acted unreasonably and was dilatory in locating
the biological father; here, the Agency was not dilatory and did not act unreasonably,
notwithstanding Filiberto's arguments to the contrary. [72 Cal.App.4th 1298]
Simply put, Filiberto, by his actions, was not in the same shoes as the father in In re Julia
U., supra, 64 Cal.App.4th at pages 541-542, who "[f]rom his initial contact with
respondent ... publicly expressed his desire to establish a relationship with Julia if the
paternity test showed he was her biological father."
III. Denial of Section 388 Motion
Filiberto contends the juvenile court abused its discretion in denying his section 388
petition. The contention is without merit.
As indicated above, the court properly denied the motion to set aside the paternity
judgment. Accordingly, the court's refusal to consider the merits of the section 388
petition was correct. "The judgment or order of the court determining the existence or
nonexistence of the parent and child relationship is determinative for all purposes except
for actions brought pursuant to Section 270 of the Penal Code." (Fam. Code, § 7636.)
Because there was a valid and final paternity judgment in effect, Filiberto did not have
standing to pursue a section 388 motion.
In any event, a denial of any of the rulings sought by Filiberto in his section 388 motion
would not have constituted error. The section 388 motion sought an order declaring
Filiberto to be Margarita's presumed father. However, even if Filiberto had proved
himself to be Margarita's biological father, there was no showing he qualified as a
presumed father under Family Code section 7611. Secondly, Filiberto was not entitled to
the reunification services he sought in the section 388 motion. (In re Zacharia D., supra,
6 Cal.4th at p. 454.) As to Filiberto's request to set aside the order placing Margarita with
her maternal grandparents, we note that under section 388, the proponent of the
modification must show that the modification is in the best interest of the child (§ 388;
Cal. Rules of Court, rule 1432(c)), and whether to grant the motion rests within the
court's discretion (In re Michael B. (1992) 8 Cal.App.4th 1698, 1704 [11 Cal.Rptr.2d
290]). Here, Margarita has lived with her maternal grandparents since her release from
the hospital after birth. The maternal grandparents wished to adopt her. A finding that it
would not be in Margarita's interest to remove her from this home and place her with a
man whom she barely knew would not have constituted an abuse of discretion.
IV. , V. name="AFootnote3" href="http://login.findlaw.com/scripts/callaw?
dest=ca/caapp4th/72/1288.html#BFootnote3"fn. *
***
Disposition
Affirmed.
Benke, Acting P. J., and Huffman, J., concurred.
FN *. This opinion is ordered certified for publication except for parts IV. and V.
FN †. Retired judge of the Imperial Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
FN 1. All statutory references are to the Welfare and Institutions Code unless otherwise
specified.
FN *. See footnote, ante, page 1288.
Bush v. Superior Court (Rains) (1992) 10 Cal.App.4th

1374 , 13 Cal.Rptr.2d 382
[No. C011374. Third Dist. Nov 10, 1992.]
WILLIAM BUSH et al., Petitioners, v. THE SUPERIOR COURT OF SACRAMENTO
COUNTY, Respondent; D. W. RAINS et al., Real Parties in Interest.
(Superior Court of Sacramento County, No. 516498, Joe S. Gray, Judge.)
(Opinion by Blease, Acting P. J., with Sims and Scotland, JJ., concurring.) [10
Cal.App.4th 1375]
COUNSEL
Wilke, Fleury, Hoffelt, Gould & Birney, Philip R. Birney, Peter J. Pullen, Hardy, Erich,
Brown & Wilson and John Quincy Brown III for Petitioners.
Shernoff, Bidart & Darras, Randy D. Curry and William M. Shernoff for Real Parties in
Interest.
OPINION
BLEASE, Acting P. J
In this mandamus proceeding we decide that plaintiffs (the Rains) may settle their claims
against one concurrent tortfeasor by taking as part of the settlement an assignment of that
tortfeasor's American Motorcycle fn. 1 claim for equitable indemnity against other
concurrent tortfeasors. The petitioners are defendants in an action brought by the Rains as
assignees of the American Motorcycle claim. Petitioners seek relief from the overruling
of their demurrers. They say the assignment violates public policy and the action should
be abated because there is another action pending on the same cause of action, the Rains'
personal injury tort action against them. We issued an alternative writ of mandate to
consider the novel questions of law posed.
We will deny the petition. The California rule is that a chose in action is presumptively
assignable ( Civ. Code, §§ 953, 954) and petitioners have shown no good reason why
they should be excepted from its application.
Petitioners' most troublesome claim is that if the Rains prevail in both the indemnity and
tort actions they will recover more than full compensation for their injuries because the
assignment has value only if the settling tortfeasor paid more for the Rains' injuries than
is warranted by its comparative share of fault. The rhetorical force of this argument lies in
the failure to recognize that in the indemnity action the Rains stand in the shoes of the
settling party; it is the settling party's money that is in issue. If the assignment has value it
is the petitioners who seek a windfall, an offset of the excess paid by the settling party
which is attributable to petitioners' share of fault.
Thus, we will reject petitioners' claim for two reasons. First, if such a recovery occurs it
will not be at the expense of petitioners-the most they [10 Cal.App.4th 1379] will be
asked to bear is "liability for damage ... in direct proportion to their respective fault," the
same exposure to liability that existed before the assignment. (Li v. Yellow Cab Co.
(1975) 13 Cal.3d 804, 813 [119 Cal.Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393], italics
added.) The Rains would receive by means of the assignment only that to which the
settling tortfeasor was entitled. Second, the policy against overcompensation does not
outweigh the policy of fostering settlement which is advanced by permitting such an
assignment.
Facts and Procedural Background
In light of the generic nature of petitioners' claims the necessary background may be
stated briefly. After their home burned, D. W. and O. L. Rains, real parties in interest,
sued their fire insurance carrier, State Farm Fire and Casualty Insurance Company (State
Farm), alleging that in bad faith it failed to pay benefits due them under the insurance
policy and that O. L. Rains suffered consequential and severe emotional distress. In a
separate action O. L. Rains sued petitioners Robert Wright and William Bush for medical
malpractice and American Therapeutics, Inc., for products liability alleging that
permanent physical injuries arose from the side effects of a drug prescribed in the
treatment of the emotional distress.
The Rains settled the bad faith action with State Farm for $1,750,000 and an assignment
of its claims against the petitioners and American Therapeutics, Inc., for equitable
indemnity. The Rains then filed the complaint in this action for the amount paid by State
Farm to them which is attributable to petitioners' comparative fault. Petitioners demurred
on grounds that the complaint failed to state a cause of action and that there is another
action pending between the same parties on the same cause of action. The superior court
overruled the demurrers.
Discussion
Introduction
In Li v. Yellow Cab Co., supra, 13 Cal.3d 804, the California Supreme Court discarded
the common law rule under which a plaintiff's contributory negligence barred recovery in
tort. It adopted a rule of comparative negligence, "a system under which liability for
damage will be borne by those whose negligence caused it in direct proportion to their
respective fault." (Id. at p. 813, fn. omitted.) In American Motorcycle, supra, 20 Cal.3d
578, it discarded the analogous all-or-nothing cause of action for equitable indemnity
between tortfeasors and replaced it with a rule of partial indemnity. "In [10 Cal.App.4th
1380] order to attain [the system envisioned in Li], in which liability for an indivisible
injury caused by concurrent tortfeasors will be borne by each individual tortfeasor 'in
direct proportion to [his] respective fault,' we conclude that the current equitable
indemnity rule should be modified to permit a concurrent tortfeasor to obtain partial
indemnity from other concurrent tortfeasors on a comparative fault basis." (Id. at p. 598.)
The issues are whether such a cause of action lawfully may be assigned to the plaintiff,
and if so, whether an action upon the assignment can be maintained when the plaintiff is
also suing other concurrent tortfeasors on the underlying tort. Petitioners contend that in
these circumstances an action on the assignment would offend traditional principles of
equity and indemnity and violate public policy.
I
A. An American Motorcycle Claim Is Assignable to a Third Party.
[1] The right to equitable indemnity stems from the principle that one who has been
compelled to pay damages which ought to have been paid by another wrongdoer may
recover from that wrongdoer. [2a] Petitioners argue that the Rains' complaint is deficient
because it fails to plead that they were compelled to pay damages. The argument neglects
the elementary consideration that an assignee of a chose in action does not sue in his own
right but stands in the shoes of the assignor. (See, e.g., Brown v. Guarantee Ins. Co.
(1957) 155 Cal.App.2d 679, 695-696 [319 P.2d 69, 66 A.L.R.2d 1202].) A thing or chose
in action would never be assignable if the assignee independently had to meet the
requirements already satisfied by the assignor. If he could meet the requirements he
would need no assignment; if not he could not use the assignment.
Under the early English common law the doctrines of champerty and maintenance
prohibited an assignment of a chose in action. (See, e.g., 14 Am.Jur.2d, Champerty and
Maintenance, § 1, p. 842.) In California this common law doctrine has been superceded
by statute. [3] " [S]ections 953 and 954 of the Civil Code [of 1872] have lifted many of
the restrictions imposed by the rule of the common law upon this subject." (Wikstrom v.
Yolo Fliers Club (1929) 206 Cal. 461, 464 [274 P. 959]; Jackson v. Deauville Holding Co.
(1933) 219 Cal. 498, 501 [27 P.2d 643].) These presently provide: "A thing in action is a
right to recover money or other personal property by a judicial proceeding." ( Civ. Code,
§ 953.) "A thing in action, arising out of the violation of a right of property, or out of an
obligation, may be transferred by the owner." ( Civ. Code, §§ 954, 1458.) [10
Cal.App.4th 1381]
These statutes establish the policy of the state, the " 'assignability of things [in action] is
now the rule; nonassignability, the exception; and this exception is confined to wrongs
done to the person, the reputation, or the feelings of the injured party. ...' " (Webb v.
Pillsbury (1943) 23 Cal.2d 324, 327 [144 P.2d 1, 150 A.L.R. 504], brackets in Webb; see
also Wikstrom, supra, 206 Cal. at p. 463; Jackson, supra, 219 Cal. at p. 500.) [2b] For this
reason it is petitioners' burden to show that some exception to the rule applies in this case.
They fail to do so.
They argue that no precedent has "authorized" a plaintiff in a tort action to acquire an
American Motorcycle claim by assignment. They offer nothing to suggest that such a
claim is per se unassignable, e.g., unassignable to a bona fide third party purchaser. The
thing assigned is not a wrong which is personal to the holder of the right of indemnity, as
is shown by analogous rights which have been held assignable. [4] For example, a
subrogation right is assignable. (See, e.g., Quinn v. Warnes (1983) 144 Cal.App.3d 309
[192 Cal.Rptr. 660], upholding an assignment of subrogation rights by a worker's
compensation insurance carrier to the third party tort defendant.)
A subrogation right bears a strong resemblance to the right to equitable indemnity
sanctioned by American Motorcycle.
"Subrogation is an equitable remedy which arises under the following basic
circumstances: (1) The obligor (defendant) owes a debt or duty of some kind to the
creditor (subrogor). (2) The subrogee (plaintiff), pursuant to his own obligation to the
creditor, pays that debt or discharges that duty. (3) These circumstances make it
inequitable that the subrogee should bear the loss while the obligor is unjustly enriched."
(4 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 112, p. 147, original italics.) Under
American Motorcycle the tortfeasor from whom the plaintiff first recovers is in effect a
subrogee, entitled to recover insofar as it has borne liability for damages attributable to
the fault of other concurrent tortfeasors.
Another analogous remedy is contribution. (See 4 Pomeroy, Equity Jurisprudence (5th ed.
1941) § 1416, p. 1070.) While we have found no California authority on point, out-of-
state cases hold that such a chose in action is assignable. (See, e.g., McKay v. Citizens
Rapid Transit Co. (1950) 190 Va. 851 [59 S.E.2d 121, 20 A.L.R.2d 918].)
[2c] Thus, if the assignment of an American Motorcycle claim offends traditional
doctrines of indemnity it must arise from the status of the assignee as the plaintiff in the
tort action rather than the fact of assignment per se. [10 Cal.App.4th 1382] B.
Assignment of an American Motorcycle Claim to a Tort Plaintiff Offends No Traditional
Principle of Indemnity.
The Rains rely on Fortman v. Safeco Ins. Co. (1990) 221 Cal.App.3d 1394 [271 Cal.Rptr.
117] as a precedent upholding an "assignment of a cause of action for equitable
indemnity" to the tort plaintiff. In that case the plaintiff in a tort action settled with the
defendant and his excess insurance coverage carrier; the latter settlement was for
$1,125,000 of its $2 million policy limits and an assignment of its equitable subrogation
claim against the defendant's primary insurer. The primary insurer had repeatedly rejected
settlement offers within the primary insurance policy limits. (Id. at pp. 1396-1397.) While
Fortman is an example of an assignment of a subrogation claim to the original obligor, it
furnishes little precedential support because the issue whether such an assignment could
be made was not discussed.
[5] (See fn. 2.) However, Fortman does point to a closely related claim as to which
assignment to the tort plaintiff has been sanctioned by case law, a first party insurance
bad faith claim. fn. 2
"We have thus determined that the insured's cause of action for wrongful refusal to settle
could validly pass to the trustee in bankruptcy and be assigned by him to others.
Therefore, the complaint states facts sufficient to constitute a cause of action by plaintiff
(as successor in interest of the insured) against defendant. This result may seem
anomalous in that the plaintiff, who previously offered to settle his claim for $5,000, has
now acquired the right to maintain against defendant insurer an action which arose by
reason of that offer to settle. But it must be borne in mind that plaintiff merely stands in
the shoes of the insured; it is the insured who has allegedly suffered the wrong at the
hands of the insurer. It might be said that the result reached herein will cause more
injured claimants to propose settlement for the policy limit when the insurance company
is defending the action against an insured who is apparently judgment-proof. Yet the
insurer has nothing to fear so long as its refusal to settle is made in good faith. And it is
fundamental that the law favors settlements." (Brown, supra, 155 Cal.App.2d at pp. 695-
696, cited with approval in Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d
654, 661 [328 P.2d 198, 68 A.L.R.2d 883]; also see Critz v. Farmers Ins. Group (1964)
230 Cal.App.2d 788 [41 Cal.Rptr. 401, 12 A.L.R.3d 1142], upholding against an
argument it violates public policy such an assignment made prior to judgment in return
for a covenant not to execute on the judgment.) [10 Cal.App.4th 1383]
A first party bad faith claim for an insurance company's refusal to settle also resembles a
subrogation claim. The insured, in suffering an excess judgment or exposure to an excess
judgment, is called upon to bear a portion of the tort plaintiff's loss that should have been
"borne" by the insurer by accepting the earlier settlement offer within policy limits.
Accordingly the insured's incremental loss is shifted to the insurance company obligor.
Petitioners argue that Fortman is inapposite. Presumably they would make the same
argument as to first-party insurance bad-faith-claim assignments. Both kinds of claim are
related to the plaintiff's underlying tort cause of action. In both the recovery is calculated
based on plaintiff's tort damages ascertained at trial. It is true that the conduct of the
defendant upon which the bad faith claim is founded differs from that here. In bad faith
cases the pertinent conduct is the failure to settle in good faith. In the American
Motorcycle context it is the nonsettling defendant's tortious conduct which causes harm
to plaintiff, considered in comparison to the culpable conduct of the settling defendant.
That is a closer relationship to the issues in the underlying tort action. However,
petitioners do not explain why the greater degree of convergence is meaningful.
Petitioners suggest as to a bad faith claim that assignment is permitted in part because it
vindicates the policy that insurance companies should fulfill their legal obligations to
settle in good faith. However, one might as easily say that the assignment of an American
Motorcycle claim vindicates the policies expressed in Li and in the defendant's duty in
tort, i.e., that the defendant bear liability for plaintiff's harm in full proportion to the share
of fault. Petitioners do not suggest in what manner their arguments bear on "traditional
equity and indemnity principles." We find them unpersuasive.
[6a] Petitioners argue that the assignment cannot be upheld because the settlement was
collusive as a matter of law, i.e., it "aimed to injure" their interests. However, as we shall
show, petitioners are not exposed to any greater liability or burden than would be the case
without the assignment.
Lastly, petitioners argue that equitable indemnity will not lie on behalf of a tortfeasor who
has intentionally injured the plaintiff and that the Rains pled intentional infliction of
emotional distress in their complaint against State Farm. We have no occasion to reach
the merits of this claim. The Rains' complaint against State Farm states causes of action
for negligent and intentional torts. There is no way at this stage in the proceedings to
ascertain the validity of or the weight of these claims. Assuming that recovery is legally
barred on this ground the nature of State Farm's conduct is a matter of fact that must be
placed in issue in the indemnity action by petitioners' answers. [10 Cal.App.4th 1384] C.
The Demurrers Should Not Have Been Sustained on the Ground of Abatement.
[7a] Petitioners argue that the trial court should have sustained their demurrers because
"[t]here is another action pending between the same parties on the same cause of action."
( Code Civ. Proc., § 430.10, subd. (c).) However, the American Motorcycle indemnity
action and the plaintiff's tort action are not on the same cause of action.
[8] The identity of two causes of action is determined by a comparison of the facts
alleged which show the nature of the invasion of plaintiff's primary right.
"California follows the 'primary right theory' of Pomeroy: 'Every judicial action must
therefore involve the following elements: a primary right possessed by the plaintiff, and a
corresponding primary duty devolving upon the defendant; a delict or wrong done by the
defendant which consisted in a breach of such primary right and duty; a remedial right in
favor of the plaintiff, and a remedial duty resting on the defendant springing from this
delict, and finally the remedy or relief itself. ... Of these elements, the primary right and
duty and the delict or wrong combined constitute the cause of action. ...' " (4 Witkin, Cal.
Procedure, supra, Pleading, § 23, pp. 66-67, original italics.)
[7b] The primary right in O. L. Rains's tort action is his right to freedom from bodily
harm caused by negligence. The primary right in the American Motorcycle indemnity
action is State Farm's right to freedom from disproportionate liability for damages
attributable to the negligence of the concurrent tortfeasors. These are different primary
rights. Even as pled the tort actions against State Farm and petitioners are based upon
different causes of action. (See Ash v. Mortensen (1944) 24 Cal.2d 654, 657 [150 P.2d
876].)
Petitioners argue that the causes of action are identical because a finding in either action
on a petitioner's negligence would be res judicata in the other action. That is not correct.
It rests on a confusion between issue and claim preclusion. (See Rest.2d Judgments, §§
17-19, 27.) A finding in either action would give rise to collateral estoppel, or issue
preclusion. But, because the causes of action are not the same, it would not give rise to
res judicata or claim preclusion.
II
[9] That brings us to petitioners' facially appealing argument-that the Rains should not be
permitted to maintain the action on the assignment [10 Cal.App.4th 1385] because if
they prevail O. L. Rains will obtain more than full compensation for his damages.
Petitioners correctly note that neither equitable indemnity nor assignments of choses in
action are permitted in derogation of public policy. (See, e.g., Platt v. Coldwell Banker
Residential Real Estate Services (1990) 217 Cal.App.3d 1439, 1444-1445 [266 Cal.Rptr.
601].) They submit that the prospect of excess recovery must be nipped in the bud on this
ground. We disagree. As in Brown, supra, 155 Cal.App.2d 697, we accept the anomaly
because the petitioners ought not profit from their wrong and because it advances another
public policy-the fundamental policy that the law favors settlements.
There is a possibility of recovery greater than the full measure of damages in tort. If O. L.
Rains prevails in the American Motorcycle action he will also recover in his tort action,
barring some procedural misadventure. O. L. Rains's recovery in the tort actions against
petitioners and American Therapeutics, Inc., cannot exceed the amount of his damages
less the portion of the State Farm settlement attributable to those damages. ( Code Civ.
Proc., § 877, subd. (a).) The aggregate recovery in the tort actions will equal his damages.
Hence, a recovery in the American Motorcycle action would provide him with something
more than the amount of his total tort damages as measured by the litigation.
Petitioners rely on the general principle which opposes the granting of relief where the
result is a recovery greater than one full measure of compensation. (See, e.g., Ash, supra,
24 Cal.2d 654; 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 1322, p. 779.)
They cite to Hartley v. St. Francis Hospital (1964) 24 Wis.2d 396 [129 N.W.2d 235],
opinion on denial of rehearing (1964) 130 N.W.2d 1, as a precedent for applying this
principle to bar the assignment here.
In Hartley the tort plaintiff was crushed by a truck and in the course of treatment he was
reinjured by an employee of St. Francis Hospital. Plaintiff settled his action with the truck
owner for the liability insurance policy limits and a promissory note, aggregating far less
than his claimed damages. He did so by means of a general release in which he failed to
reserve explicitly his right to sue the hospital. The "major issue" was whether this
settlement barred his tort claim on the theory it was conclusively presumed that the
settlement included compensation for the medical malpractice injuries. (24 Wis.2d at p.
400.) The Hartley court held that the claim was barred under the now discredited
common law rule that a release discharges the liability of concurrent tortfeasors. (See
e.g., Milicevich v. Sacramento Medical Center (1984) 155 Cal.App.3d 997, 1006, fn. 12
[202 Cal.Rptr. 484]; Prosser & Keeton, Torts (5th ed. 1984) pp. 332-334.) The Wisconsin
Supreme Court overruled Hartley on this point in Krenz v. Medical Protective Co. of Fort
Wayne, Ind. (1973) 57 Wis.2d 387 [204 N.W.2d 663].) [10 Cal.App.4th 1386]
The minor issue in Hartley arose out of the plaintiff's efforts to cure the misstep which
had doomed his tort claim under the application of the common law rule. Seven months
after his ill-advised settlement the plaintiff obtained from the truck owner's insurance
company an assignment of any claim for damages it might have had against the hospital
and he sought to recover under the assignment. (24 Wis.2d at p. 398.) The Hartley court
was not receptive to this stratagem for avoiding the strictures of the common law rule.
While perplexed as to the nature of the chose in action assigned (originally viewed as a
question of indemnity but changed to subrogation on rehearing), the court refused to
sanction the assignment because the settlement and release had fixed the value of his
damages at $25,000 and it would be contrary to public policy to allow him a further
recovery.
In Krenz, supra, the court suggested that Hartley's original characterization of the chose
in action as sounding in indemnity was analytically embarrassing. "If, however, the right
of the first tortfeasor were simply based upon his payment of a claim, part of which the
doctor should have paid, the first tortfeasor's right against the doctor logically would not
have been derived from the injured party but would be one of indemnity. This theory,
while adopted in the opinion of the court, was repudiated on rehearing and the
subrogation theory that the first tortfeasor in the settlement acquired the right of the
injured party to sue the doctor was adhered to." (204 N.W.2d at p. 669.)
The force of Hartley, as a precedent on the point for which petitioners cite it, is
diminished by its argumentative shortcomings and reliance on a common law rule which
has now been repudiated in Wisconsin. Under California law the Rains' chose in action is
not predicated upon the subrogation of their cause of action, but upon equitable
indemnity, the assignment of State Farm's payment of a claim which petitioners ought to
have paid. Aside from these analytic concerns, the facts of this case critically differ from
those in Hartley.
The assignment of State Farm's American Motorcycleequitable indemnity claim occurred
as a part of the consideration for a settlement. California has a strong public policy in
favor of encouraging settlement. (See, e.g., American Motorcycle, supra, 20 Cal.3d at p.
603; Milicevich, supra, 155 Cal.App.3d at p. 1006; Brown, supra, 155 Cal.App.2d at p.
696.) Sanctioning the assignment of an American Motorcycle chose in action to the tort
plaintiff fosters settlement with the tortfeasor most willing to settle. In this case the [10
Cal.App.4th 1387] assignment appears to have been a valuable consideration to the
Rains, since they bargained for it in the settlement agreement. fn. 2
We do not disagree with the public policy that, all things being equal, the plaintiff should
recover no more than full compensation for an injury. A cause of action is not a lottery
ticket. But, as with every such policy, the policy against excess recovery must be
balanced against other germane public policies. (See Roe v. Workmen's Comp. Appeals
Bd. (1974) 12 Cal.3d 884, 888 [117 Cal.Rptr. 683, 528 P.2d 771].) In Roe, for example,
the Supreme Court held that, despite the policy against excess recovery, a workers'
compensation insurance carrier could not obtain a credit before the Workers'
Compensation Appeals Board, notwithstanding a full third party recovery, if the employer
had been negligent.
[10] California law, in the main, adheres to the collateral source rule. (See, e.g., Helfend
v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 10-14 [84 Cal.Rptr. 173, 465 P.2d
61, 77 A.L.R.3d 398]; 6 Witkin, Summary of Cal. Law, op. cit. supra, Torts, §§ 1388-
1396.) In part this is justified on the ground that, because the injured plaintiff must bear
its own attorney fees, the plaintiff rarely receives full compensation for the injuries as
computed by the jury in the tort action. (Helfend, 2 Cal.3d at pp. 12-13.) This
consideration is applicable here. [6b] A further consideration is that, "[i]n any event, it is
clear the possibility of a double recovery in favor of [plaintiff] will not impose a double
burden on [the tortfeasor who] bears responsibility only for the single burden of his
wrong." (Phillip Chang & Sons Associates v. La Casa Novato (1986) 177 Cal.App.3d
159, 170 [222 Cal.Rptr. 800].)
In this case petitioners, if liable, are subject to damages in the tort action by O. L. Rains
measured by his total damages minus the value of the portion of the State Farm
settlement attributable to those damages. In the American [10 Cal.App.4th 1388]
Motorcycle assignment action the measure of exposure is the value of the portion of the
State Farm settlement attributable to O. L. Rains's tort damages minus State Farm's
proportional share of those damages. The result is that the maximum aggregate exposure
for each petitioner is O. L. Rains's total tort damages times each petitioner's share of
fault-or as American Motorcycle has it, the "liability ... borne by each individual
tortfeasor 'in direct proportion to [his] respective fault ....' " (20 Cal.3d at p. 598.) As to
petitioners this presents no unfairness.
As Roe, supra, explains, the policy against excess recovery is primarily designed to
prevent the imposition of a disproportionate burden on the protected tortfeasor. (12
Cal.3d at p. 889.) When one who is asked to bear no more than his or her proportionate
share raises this shield he or she implicitly complains on behalf of another tortfeasor who
has borne a disproportionate share. This prompts the rhetorical question: " 'What's
Hecuba to him or he to Hecuba, that he should weep for her?' " (Ibid.) Petitioners offer no
persuasive argument why they should be allowed to impugn State Farm's settlement and
assignment on the ground that State Farm may have borne more than its proportionate
share of liability. (Compare 12 West's U.Laws Ann. (1992 pocket pt.) Comparative Fault
Act, § 6: settlement does not release other tortfeasors, "However, the claim of the [tort
plaintiff] against other persons is reduced by the amount of the released person's
equitable share of the obligation ....")
For all of the foregoing reasons, we conclude that the trial court did not err in overruling
petitioners' demurrers. The alternative writ is discharged. The petitions are denied.
Sims, J., and Scotland, J., concurred.
FN 1. American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578 [146 Cal.Rptr.
182, 578 P.2d 899].
FN 2. Such a claim is not fully assignable. The part of the claim, if any, for the insured's
emotional distress or punitive damages cannot be assigned. (Murphy v. Allstate Insurance
Co. (1976) 17 Cal.3d 937, 942 [132 Cal.Rptr. 424, 553 P.2d 584].)
FN 2. Of course, if the Rains prevail on the American Motorcycle cause of action then
State Farm gave up something of additional value by agreeing to its assignment.
However, the tort plaintiff might place a greater value on the American Motorcycle chose
in action than the settling tortfeasor. This could result from a different evaluation of
various matters, e.g., the strength of the case against other alleged tortfeasors.
In the kind of case presented here the tort plaintiff may more strongly desire the
assignment to eliminate the settling tortfeasor as a future adversary. If there is no
assignment State Farm and the Rains have adverse interests after the settlement. To
maximize its American Motorcycle recovery State Farm would have an interest in
maximizing the amount of the settlement that will be attributed to damages for which it
shares responsibility with petitioners. The Rains would have the opposite interest since O.
L. Rains's recovery in tort is inversely proportioned to that amount. Petitioners could
reasonably insist that these matters be adjudicated in one proceeding to prevent, different
answers to this question. But that would effectively place State Farm and the Rains as
litigation adversaries despite their settlement.
Far West Financial Corp. v. D & S Co. (1988) 46 Cal.3d

796 , 760 P.2d 399; 251 Cal.Rptr. 202
[No. S000606. Supreme Court of California. September 15, 1988.]
FAR WEST FINANCIAL CORPORATION et al., Cross-complainants and Appellants, v.
D & S COMPANY, INC., et al., Cross-defendants and Respondents
(Opinion by Arguelles, J., with Lucas, C. J., Mosk, Broussard and Panelli, JJ., concurring.
Separate concurring and dissenting opinion by Kaufman, J. Separate concurring and
dissenting opinion by Eagleson, J.)
COUNSEL
Roy G. Weatherup, Peter Q. Ezzell, Kenneth C. Byrne, Joseph R. Zamora and Haight,
Dickson, Brown & Bonesteel for Cross-complainants and Appellants. [46 Cal.3d 799]
Melvin F. Seifert, Carol A. Stroup, Ives, Kirwan & Dibble, Kelley K. Beck, Michael M.
Youngdahl, Hawkins, Schnabel & Lindahl, Galen F. Griepp, Kegel, Tobin, Hamrick &
Truce, Mario A. Iorillo, Steven M. Karp, Iorillo & Karp, David B. Pillemer, Mandel,
Meininger, Pillemer & Schwab, Mandel, Pillemer & Schwab, Paul F. Sowa, Stockdale,
Peckham & Werner, Mark D. Rutter, Buck, Molony & Ammirato, Jonathan G. Maile,
Christopher S. Maile, Tharpe & Howell, William C. Howison, Williams, Berges &
Sanford, Steven R. Jensen and Barmasse & Cohen for Cross-defendants and
Respondents.
OPINION
ARGUELLES, J.
California has adopted a variety of statutes to promote the voluntary settlement of
litigation. One of these provisions, section 877.6, subdivision (c) of the Code of Civil
Procedure, fn. 1 provides that when a defendant in a tort action enters into a settlement
agreement with the plaintiff and the trial court determines that the settlement was made in
"good faith," the trial court's good faith determination "shall bar any other joint tortfeasor
from any further claims against the settling tortfeasor for equitable comparative
contribution, or partial or comparative indemnity, based on comparative negligence or
comparative fault." The issue presented here is whether, under this statutory scheme, a
defendant who has entered into a good faith settlement remains vulnerable to a claim by a
nonsettling defendant for "total equitable indemnity," or whether such a claim is covered
by the statute and is barred by the good faith settlement.
The great majority of Court of Appeal decisions which have addressed this question have
concluded that a claim for total equitable indemnity, like other equitable indemnity
claims, is barred by a good faith settlement. fn. 2 A few Court of Appeal decisions,
however, have ruled that a claim for total equitable indemnity survives such a settlement.
fn. 3 We granted review to resolve this conflict. [46 Cal.3d 800]
As we shall explain, in light of both the legislative history and the fundamental purposes
of section 877.6, subdivision (c), we agree with the majority of Court of Appeal decisions
that the statute must properly be interpreted as barring nonsettling tortfeasors from
pursuing a claim for total equitable indemnity against a defendant who has entered into a
good faith settlement. A contrary conclusion would leave a defendant who has entered
into a good faith settlement vulnerable to further litigation and additional liability in
many cases and would thereby substantially impair the statutory objective of promoting
voluntary settlements. Furthermore, as we shall see, this interpretation of the provision
does not place a unique or undue burden on the rights of defendants seeking total
equitable indemnity, for the interests of such defendants -- like the interests of all other
defendants who may potentially be harmed by a proposed settlement agreement -- may be
properly protected through the trial court's determination of whether the proposed
settlement agreement satisfies the statutory "good faith" requirement.
Because the Court of Appeal in the case at bar correctly interpreted the statute, we affirm
the judgment.
I
In 1972, Far West Financial Corporation, a real estate developer involved in the financing
and developing of condominiums in Los Angeles County, fn. 4 entered into a contract
with D & S Company, Inc. (D & S), a general contractor, for the building of a
condominium project, the Studio Village Townhouse Development, in Los Angeles
County. The project was apparently completed in the mid-1970's.
Shortly after the completion of the project and the sale of the condominiums to private
owners, a number of defects in the common areas of the project appeared. In response to
complaints by the homeowners, Far West, the developer and seller of the units, made
some repairs. In October 1976, the Studio Village Homeowners Association (hereafter the
Association or plaintiff) and Far West entered into a settlement and release agreement in
which Far West agreed to make a number of additional specified repairs and to pay the
Association $22,750 in return for the Association's agreement to release Far West from
any further liability for defects in the project. [46 Cal.3d 801]
Several years later, after a heavy rainstorm season in 1977-1978, many additional, serious
defective conditions -- which had previously been latent -- became evident, affecting the
roof, ground drainage, underground plumbing, area lighting, building settlement, painting
and exterior of the project. In response to the appearance of these serious defects, the
Association filed the present action in December 1979 against Far West, D & S, and
numerous subcontractors, engineering firms and architects who had worked on the
project.
The Association's third amended complaint, filed in October 1980, sought to set aside the
earlier release agreement between the Association and Far West and sought recovery
against various defendants on theories of (1) fraudulent concealment of the defects at the
time of the initial settlement agreement, (2) negligent and intentional misrepresentation,
(3) strict liability, (4) breach of express and implied warranties, (5) negligence, and (6)
fraud and deceit.
In July 1981, after answering the complaint, Far West filed a cross-complaint against D &
S and various Doe defendants, seeking either "complete indemnification from or partial
contribution from" those defendants. Far West claimed that D & S had exercised
complete control over the construction of the project and that if there were any
deficiencies in the construction, such defects were directly attributable to D & S or to the
subcontractors D & S had hired and supervised. Thereafter, D & S and a number of the
other defendants filed their own indemnity cross-complaints against each other and
against Far West.
During the summer of 1983, one of the defendants, structural engineers who had worked
on a portion of the underground construction, settled with plaintiff for $100,000. On
motion the trial court found the settlement in good faith and dismissed the cross-
complaints against that defendant.
In early 1984, Far West and plaintiff entered into a settlement agreement under which Far
West paid plaintiff $315,000 outright and provided a sliding scale guaranty of an
additional $35,000 recovery, in return for plaintiff's agreement to release Far West from
any further liability. On Far West's motion, the trial court found the settlement to be in
good faith and dismissed the numerous indemnity cross-complaints which were then
pending against Far West. Although the actions against Far West had been dismissed, Far
West continued to pursue its own cross-complaint against the remaining defendants
seeking indemnification of the $315,000 it had paid to plaintiff. It is clear under existing
precedent that Far West had the right to continue to seek indemnification in this manner
(see, e.g., Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal.App.3d
492, [46 Cal.3d 802] 496 [147 Cal.Rptr. 262]; Bolamperti v. Larco Manufacturing (1985)
164 Cal.App.3d 249, 255 [210 Cal.Rptr. 155]), and no party challenges Far West's
indemnity claim in this respect.
In August 1984, in accordance with the suggestions of a settlement judge at a voluntary
settlement conference, D & S and a number of subcontractors (hereafter sometimes
referred to as the D & S defendants) entered into a settlement agreement (hereafter
sometimes referred to as the D & S settlement) with plaintiff under which the D & S
defendants agreed to pay plaintiff $450,000 in return for a release of plaintiff's claims
against them. The settlement agreement was conditioned on (1) the trial court's
determination that the settlement was in good faith and (2) the dismissal of all
outstanding cross-complaints against the D & S defendants.
On September 4, 1984, the D & S defendants moved for an order under section 877.6
declaring the settlement agreement in good faith and dismissing all of the cross-
complaints pending against them. On September 14, Far West filed a partial opposition to
the D & S defendants' motion; in that opposition, Far West did not challenge the good
faith nature of the D & S settlement, but simply opposed the D & S defendants' request
for an order dismissing Far West's cross-complaint for indemnification against such
defendants. Far West contended that under section 877.6 a good faith settlement does not
operate to bar a claim for complete or total indemnity, as contrasted with a claim for
partial indemnity or contribution, and it maintained that its cross-complaint sought total
indemnity from D & S and the other defendants who were parties to the $450,000
settlement. On that same date, September 14, 1984, Far West also filed a separate motion,
seeking leave to file a second amended cross-complaint in which it proposed to add
claims for express contractual indemnity and implied contractual indemnity to its
previous claim for "complete indemnification ... or partial contribution."
The D & S defendants' motion for a good faith determination came on for hearing on
September 21, 1984. After considering the parties' contentions, the trial court -- without
specifically passing on Far West's motion for leave to file an amended cross-complaint --
found the D & S settlement to be in good faith and dismissed all of the cross-complaints,
including Far West's cross-complaint, against the settling defendants. Two weeks later, on
October 4, the trial court heard and denied Far West's request for leave to file an amended
cross-complaint, noting the belated nature of the request. On October 15, the court
entered a formal order finding the D & S settlement in good faith and dismissing all
cross-complaints against the parties to that agreement. [46 Cal.3d 803]
[1a] Far West appealed the dismissal of its cross-complaint, contending, inter alia, that
insofar as the cross-complaint embodied a claim for total equitable indemnity it could not
be extinguished by a good faith settlement and should not have been dismissed. The
Court of Appeal, while noting the conflict in prior Court of Appeal decisions on the issue,
found the position reached in the majority of decisions persuasive and followed those
decisions in concluding that even if Far West could properly maintain an action for total
equitable indemnity on the facts of this case, such a claim was properly barred by the trial
court's determination that the D & S settlement agreement was a good faith settlement
within the meaning of section 877.6.
As noted, we granted review to resolve the conflict in the Court of Appeal decisions on
this question. fn. 5
II
A.
[2a] Section 877.6, subdivision (c) provides in relevant part that when an alleged
tortfeasor enters into a settlement agreement with the plaintiff "[a] determination by the
court that the settlement was made in good faith shall bar any other joint tortfeasor ...
from any further claims against the settling tortfeasor ... for equitable comparative
comparative fault." (Italics added.) fn. 6 [46 Cal.3d 804]
Far West contends that because the statute does not expressly refer to claims for "total
indemnity," the provision should not be interpreted to prohibit a nonsettling party, who
may be only vicariously or derivatively liable for a plaintiff's injury, from pursuing a
claim for total equitable indemnity against a directly or primarily responsible tortfeasor,
even if a trial court has found that such a tortfeasor's settlement with the plaintiff satisfies
the "good faith" requirement of section 877.6. The D & S defendants, in turn, contend
that the terms "equitable comparative contribution, or partial or comparative indemnity"
in section 877.6, subdivision (c), were intended to refer to the entire spectrum of claims
pursued under California's current common law equitable indemnity doctrine, and that, in
light of both the history and purposes of the provision, no distinction may properly be
drawn between claims for total equitable indemnity and all other claims for equitable
indemnity so as to leave defendants who have entered into good faith settlements subject
to claims for total equitable indemnity.
As the division in the past Court of Appeal decisions on this subject suggests (see fns. 2,
3, ante), the language of section 877.6 is, on its face, reasonably susceptible to either of
the suggested interpretations. Although the statute does not expressly refer to "total
indemnity" claims, the section does expressly apply to "partial or comparative indemnity
claims; if the Legislature clearly intended the section to apply only to claims seeking
partial indemnity, the reference to "comparative" indemnity could be viewed as
superfluous. In context, the issue before us cannot properly be decided by reference to the
"plain language" of the statute itself. fn. 7 Rather, to resolve the question, it is necessary
to consider the background and legislative history of the provision and to assess which
interpretation is most compatible with the legislative purposes of the measure. [46 Cal.3d
805]
B.
In Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488 [213 Cal.Rptr.
256, 698 P.2d 159] (hereafter Tech-Bilt), we reviewed the common law and statutory
background of section 877.6, subdivision (c) at some length and explained that, in large
part, the provision represents a codification of the principles established by this court's
decision in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578 [146
Cal.Rptr. 182, 578 P.2d 899] (hereafter American Motorcycle). (See Tech-Bilt, supra, 38
Cal.3d at pp. 493-496.) Accordingly, we turn initially to the American Motorcycle
decision.
In American Motorcycle, the court addressed, inter alia, the broad question of what effect,
if any, the adoption of comparative negligence principles in Li v. Yellow Cab Co. (1975)
13 Cal.3d 804 [119 Cal.Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393] should have on
California's preexisting common law equitable indemnity doctrine which permitted one
tortfeasor to completely shift its liability for an injury to a more culpable tortfeasor under
some circumstances. (American Motorcycle, supra, 20 Cal.3d at pp. 591-598.) After
examining the origins of the equitable indemnity doctrine and the courts' largely
unsuccessful struggle to frame an appropriate test "for determining when the relative
culpability of the [tortfeasors was] sufficiently disparate to warrant placing the entire loss
on one party and completely absolving the other" (id. at p. 594), the American
Motorcycle court ultimately concluded that "the existing California common law
equitable indemnity doctrine -- while ameliorating inequity and injustice in some extreme
cases -- suffers from the same basic 'all or nothing' deficiency as the discarded
contributory negligence doctrine and falls considerably short of fulfilling Li's goal of 'a
system under which liability for damage will be borne by those whose negligence caused
it in direct proportion to their respective fault." (Id. at p. 591.) As a consequence, the
court held in American Motorcycle that "the current equitable indemnity rule should be
modified to permit a concurrent tortfeasor to obtain partial indemnity from other
concurrent tortfeasors on a comparative fault basis." (Id. at p. 598.)
At the same time as it modified the common law equitable indemnity doctrine to permit
partial indemnity on a comparative fault basis, the American Motorcycle court recognized
the necessity of dealing with the question of how a tortfeasor's right to pursue a claim for
partial or comparative indemnity against another tortfeasor would be affected when the
tortfeasor from whom indemnity was sought entered into a settlement agreement with the
plaintiff. Relying on the provisions of section 877, subdivision (b) -- which dealt with the
effect of a settlement in the related area of contribution between tortfeasors -- as
reflecting a strong state policy in favor of promoting [46 Cal.3d 806] settlement of
claims, the American Motorcycle court concluded that while "section 877, by its terms,
releases a settling tortfeasor only from liability for contribution and not partial indemnity,
... from a realistic perspective the legislative policy underlying the provision dictates that
a tortfeasor who has entered into a 'good faith' settlement [citation] with the plaintiff must
also be discharged from any claim for partial or comparative indemnity that may be
pressed by a concurrent tortfeasor." (Italics added.) (20 Cal.3d at p. 604.) Quoting the
observations of the then-recent Court of Appeal decision in Stambaugh v. Superior Court
(1976) 62 Cal.App.3d 231, 236 [132 Cal.Rptr. 843], that "[f]ew things would be better
calculated to frustrate [section 877's] policy, and to discourage settlement of disputed tort
claims, than knowledge that such a settlement lacked finality and would lead to further
litigation with one's joint tortfeasors, and perhaps further liability," the American
Motorcycle court emphasized that that observation was "as applicable in a partial
indemnity framework as in the contribution context." (Italics added.) (American
Motorcycle, supra, 20 Cal.3d at p. 604.) Accordingly, the American Motorcycle court
held that, under its decision, a tortfeasor who entered into a good faith settlement with a
plaintiff would be free from any claim for partial or comparative indemnity. (Ibid.)
Although nothing in American Motorcycle suggests that the decision, in modifying the
preexisting all-or-nothing equitable indemnity doctrine, intended to create a wholly new
legal doctrine, separate and distinct from the old total equitable indemnity doctrine, Far
West relies on a footnote in Safeway Stores, Inc. v. Nest-Kart (1978) 21 Cal.3d 322 [146
Cal.Rptr. 550, 579 P.2d 441], a decision handed down a few months after American
Motorcycle, supra, 20 Cal.3d 578, to support its claim that "total equitable indemnity"
and "comparative equitable indemnity" are separate legal concepts and should not be
treated similarly for purposes of section 877.6, subdivision (c).
In Safeway Stores, a patron who had been injured by a defective shopping cart sued
Safeway and the manufacturer of the cart on negligence and strict product liability
theories; the jury found both defendants liable, and apportioned 80 percent of the liability
to Safeway and 20 percent to the manufacturer. On appeal, the principal issue before the
court was whether "the comparative fault principle ... should be utilized as the basis for
apportioning liability between two tortfeasors, one whose liability rests upon California's
strict product liability doctrine and the other whose liability derives, at least in part, from
negligence theory." (21 Cal.3d at p. 325.) The Safeway Stores court recognized that some
commentators had suggested that there was "a fundamental doctrinal obstacle" to the
application of the comparative fault principle in this context "in that no logical basis can
be found for comparing the relative 'fault' of a negligent defendant with that of [46
Cal.3d 807] a defendant whose liability rests on the 'no fault' concept of strict product
liability." (Id. at p. 331.) Nonetheless, the Safeway Stores court -- relying on the then-
recent decision in Daly v. General Motors Corp., supra, 20 Cal.3d 725, 742, which had
concluded that comparative fault principles should apply in assessing the liability of a
strictly liable defendant to a negligent plaintiff -- rejected the objections to the application
of the comparative indemnity doctrine in this context, explaining that "the suggested
difficulties are more theoretical than practical" (Safeway Stores, supra, 21 Cal.3d at p.
331), and pointing out that "experience in other jurisdictions demonstrates that juries are
fully competent to apply comparative fault principles between negligent and strictly
liable defendants." (Ibid.)
In the course of the Safeway Stores opinion, the court observed in a footnote that "[i]n the
instant case the jury found that Safeway was itself negligent in failing to safely maintain
its carts, and thus Safeway's liability is in no sense solely derivative or vicarious.
Accordingly, we have no occasion to determine in this case whether the comparative
indemnity doctrine should be applied in a situation in which a party's liability is entirely
derivative or vicarious in nature. [Citations.]" (Italics added.) (21 Cal.3d 322, 332, fn. 5.)
Far West relies heavily on the emphasized language as suggesting that the comparative
indemnity doctrine may be distinct from the total indemnity doctrine, and as leaving open
the question whether the pre-American Motorcycle total equitable indemnity doctrine,
rather than the comparative indemnity doctrine, should apply to a case in which one
tortfeasor's liability is entirely derivative or vicarious in nature. Although this footnote
may provide some oblique support for Far West's position, the footnote clearly did not
purport actually to decide whether the total indemnity doctrine had survived the
American Motorcycle decision (supra, 20 Cal.3d 578) as a distinct doctrine, and certainly
did not address the further question -- the question at issue in the present case -- whether
an action for total equitable indemnity would be impervious to the effect of a good faith
settlement.
Less than two years after the Safeway Stores decision, our court, in the course of an
opinion which considered when an action for comparative indemnity accrues, did speak
directly to the question of whether the American Motorcycle decision (supra, 21 Cal.3d
322), intended the comparative indemnity doctrine to constitute the basis for a new legal
claim, distinct from the pre-American Motorcycle total equitable indemnity action. In
People ex rel. Dept. of Transportation v. Superior Court (1980) 26 Cal.3d 744 [163
Cal.Rptr. 585, 608 P.2d 673], we explained: "[T]he American Motorcycle decision clearly
reveals that this court did not purport to create a wholly new equitable indemnity action
resting on a different theoretical basis than the pre-American Motorcycle equitable
indemnity doctrine. ... [¶] [In American Motorcycle] we concluded that in order to bring
the California [46 Cal.3d 808] equitable indemnity doctrine into line with its historical
and theoretical foundations 'the current equitable indemnity rule should be modified to
permit a concurrent tortfeasor to obtain partial indemnity from other concurrent
tortfeasors on a comparative fault basis.' Thus, American Motorcycle did not establish a
new cause of action separate and distinct from the traditional equitable indemnity action,
but simply modified the all-or-nothing aspect of the pre-American Motorcycle doctrine to
permit partial indemnification in appropriate cases." (26 Cal.3d at pp. 756-757 [citations
omitted].)
[3] Thus, People ex rel. Dept. of Transportation, supra, 26 Cal.3d 744, makes it clear that
after American Motorcycle, supra, 20 Cal.3d 578, there are not two separate equitable
indemnity doctrines in California, but a single "comparative indemnity" doctrine which
permits partial indemnification on a comparative fault basis in appropriate cases. To be
sure, there is nothing in either American Motorcycle or People ex rel. Dept. of
Transportation which suggests that it would necessarily be improper, in a comparative
indemnity action, for a trier of fact to determine that the facts and equities in a particular
case support a complete shifting of a loss from one tortfeasor to another, rather than, for
example, a 60 percent/40 percent or 95 percent/5 percent division of the loss. (Cf. E. L.
White, Inc. v. City of Huntington Beach (1982) 138 Cal.App.3d 366, 373-377 [187
Cal.Rptr. 879].) fn. 8 Even when such a total shift of loss may be appropriate, however,
the indemnitee's equitable indemnity claim does not differ in its fundamental nature from
other comparative equitable indemnity claims. Accordingly, we think the Court of Appeal
in Standard Pacific of San Diego v. A. A. Baxter Corp., supra, 176 Cal.App.3d 577, 587-
588, properly analyzed the teaching of People ex rel. Dept. of Transportation, supra, 26
Cal.3d 744, when it observed that "[c]omparative equitable indemnity includes the entire
range of possible apportionments, from no right to any indemnity to a right of complete
indemnity. Total indemnification is just one end of the spectrum of comparative equitable
indemnification."
In July 1980, just a few months after the decision in People ex rel. Dept. of
Transportation was rendered, the Legislature enacted section 877.6. The provision
established an orderly procedure to permit a trial court to determine, prior to trial,
whether a settlement entered into by one of a number of tortfeasors was made in good
faith, and, in subdivision (c), codified American Motorcycle's holding that when such a
settlement is determined to be in [46 Cal.3d 809] good faith, the settlement absolves the
settling defendant of any further liability for "equitable comparative contribution, or
partial or comparative indemnity, based on comparative negligence or comparative fault."
Although we have found nothing in the legislative history of section 877.6 which
indicates whether or not the Legislature had our then-recent decision in People ex rel.
Dept. of Transportation, supra, 26 Cal.3d 744, specifically in mind when it enacted the
measure, there is no indication that the Legislature intended to distinguish some equitable
indemnity claims from others or intended to leave a defendant who had entered into a
good faith settlement vulnerable to a claim for total equitable indemnity. fn. 9 [2b] In
light of the clear explanation in People ex rel. Dept. of Transportation that the American
Motorcycle decision did not create a new, separate and distinct subclass of equitable
indemnity claims but simply modified the traditional doctrine to permit a sharing of loss
on a comparative fault basis, it appears reasonable to interpret the reference to claims for
"equitable comparative contribution, or partial or comparative indemnity" in section
877.6, subdivision (c), as embodying the entire spectrum of potential equitable indemnity
claims. Thus, the background and legislative history of the provision support the
interpretation of the statute adopted in the majority of past Court of Appeal decisions. fn.
10 [46 Cal.3d 810]
C.
[4] Furthermore, the purposes which underlie section 877.6, subdivision (c) strongly
support an interpretation which would include a claim for total equitable indemnity
within the claims that are barred by a good faith settlement. In Tech-Bilt, supra, 38 Cal.3d
488, and more recently in Abbott Ford v. Superior Court (1987) 43 Cal.3d 858 [239
Cal.Rptr. 626, 741 P.2d 124], we explained that the good faith settlement provision of this
statute was intended to further two separate objectives: "[1] the encouragement of
settlements and [2] the equitable allocation of costs among multiple tortfeasors." (Tech-
Bilt, supra, 38 Cal.3d at pp. 498-499; Abbott Ford, supra, 43 Cal.3d at pp. 871-872.) As
Abbott Ford indicates, we have not attempted to rank these objectives in a fixed hierarchy
but instead have stressed the importance of attempting to harmonize these goals (43
Cal.3d at p. 872, fn. 15), emphasizing that the dual purposes of the provision "would be
disserved by an approach which emphasizes one to the virtual exclusion of the other."
(Tech-Bilt, supra, 38 Cal.3d at p. 499.) As we shall see, in this context the two statutory
objectives can be harmonized only by including claims for total equitable indemnity
within the aegis of section 877.6, subdivision (c).
1.
To begin with, it is evident that the statutory objective of promoting settlement
agreements would be impaired by an interpretation of section 877.6, subdivision (c)
which leaves a tortfeasor who has entered into a good faith settlement vulnerable to
further liability for total equitable indemnity. As noted above, in American Motorcycle
this court specifically recognized that "'[f]ew things would be better calculated ... to
discourage settlement of disputed tort claims, than knowledge that such a settlement
lacked finality and would lead to further litigation with one's joint tortfeasors, and
perhaps further liability.'" (American Motorcycle, supra, 20 Cal.3d 578, 604 [quoting
Stambaugh v. Superior Court, supra, 62 Cal.App.3d 231, 236].) [46 Cal.3d 811] That
observation is obviously no less true when the "further litigation" which a settling
defendant may face is a claim for total equitable indemnity than when the claim is one for
contribution or for partial equitable indemnity. Thus, there seems little doubt that the
exclusion of claims of total equitable indemnity from the reach of section 877.6,
subdivision (c) would create a substantial obstacle to settlement in cases in which a
defendant who is contemplating settlement is faced with a claim for total indemnity.
Although Far West does not seriously take issue with the above proposition, fn. 11 it
seeks to minimize the effect that its proposed interpretation would have on the settlement
of claims generally, arguing that the exclusion of claims for total equitable indemnity
from the reach of section 877.6, subdivision (c) would affect only a small proportion of
cases and that in such cases it is essential to permit an "innocent" tortfeasor to obtain total
indemnity, notwithstanding any good faith settlement, if the second statutory objective --
the fair apportionment of loss among multiple tortfeasors -- is to be achieved. For a
number of reasons, this argument is not persuasive.
First, we cannot agree that an exception for claims for total equitable indemnity will, as a
realistic matter, affect as few cases as Far West suggests. As a review of the numerous
recent decisions on this issue attests, [46 Cal.3d 812] claims for total indemnity have
been made, and undoubtedly will continue to be made, by nonsettling tortfeasors in a
wide variety of contexts, with nonsettling tortfeasors frequently characterizing their
potential liability as merely "derivative" or "vicarious" in relation to the allegedly more
direct malfeasance of the settling tortfeasor. fn. 12 Although if such total indemnity
claims were permitted to proceed to trial the settling defendant might well ultimately
succeed in defeating the claim for total indemnity in most instances by demonstrating that
the nonsettling tortfeasor's liability was not merely vicarious or derivative, such success
would be but a Pyrrhic victory as far as the settlement process is concerned. As explained
above, the very fact that the total indemnity claim remained to be litigated despite a good
faith settlement would have already taken its toll in discouraging the potential indemnitor
from entering into a settlement agreement with the plaintiff in the first place.
[1b] Furthermore, even when it is clear from the relationship of the settling and
nonsettling defendants that the nonsettling defendant is vicariously or derivatively liable
for the acts of the settling defendant, that factor alone still provides no assurance that a
total shifting of loss is warranted under equitable indemnity principles. To begin with,
there are many instances in which a defendant who is vicariously liable for another's acts
may also bear some direct responsibility for an accident, either on the basis of its own
action -- for example, the negligent hiring of an agent -- or of its own inaction -- for
example, the failure to provide adequate supervision of the agent's work. In addition,
even when a nonsettling tortfeasor's liability may be wholly vicarious or derivative in
nature, it does not invariably follow that equitable considerations will, as a matter of law,
always call for the total shifting of loss to the more directly culpable tortfeasor. As the
court explained in Safeway Stores, supra, 21 Cal.3d 322, in discussing the application of
equitable indemnity principles in the product liability context, "even in cases in which
one or more tortfeasors' liability rests on the principle of strict liability, fairness and other
tort policies, such as deterrence of dangerous [46 Cal.3d 813] conduct or encouragement
of accident-reducing behavior, frequently call for an apportionment of liability among
multiple tortfeasors." (21 Cal.3d at p. 330. See, e.g., Ford Motor Co. v. Robert J. Poeschl,
Inc. (1971) 21 Cal.App.3d 694, 699 [98 Cal.Rptr. 702] [suggesting that circumstances of
that case warranted apportionment of loss between manufacturer and retailer of a
defective product], discussed with approval in American Motorcycle, supra, 20 Cal.3d
578, 595-597.) fn. 13
As discussed above, in the American Motorcycle decision our court reviewed past
judicial attempts to formulate a satisfactory standard for determining under what
circumstances liability should be totally shifted from one tortfeasor to another, and found
that the task had been largely a futile one. (American Motorcycle, supra, 20 Cal.3d at pp.
594-595.) Far West's proposed interpretation of section 877.6, subdivision (c) would
reintroduce the intractable problem of attempting to define, through a general formula,
the appropriate occasions for total equitable indemnity, one of the key [46 Cal.3d 814]
problems which the adoption of comparative indemnity was intended to overcome.
Because of the uncertainty and lack of clarity inherent in any such formula, if we were to
adopt Far West's interpretation of section 877.6, subdivision (c), the practical result would
be that in many, if not most, cases a tortfeasor who was contemplating settlement with the
plaintiff would have to realistically anticipate that even if its settlement agreement were
found in good faith, it would still face continued litigation on a cotortfeasor's total
indemnity claim.
Thus, contrary to Far West's suggestion, we believe that, as a practical matter, its
proposed interpretation of the statute is likely to discourage settlements in a wide range of
cases.
2.
Furthermore, even if it were possible to confine the antisettlement effect of its proposed
interpretation of the statute to cases in which the nonsettling defendant was in fact
entitled to 100 percent indemnity, the second prong of Far West's argument -- i.e., that a
claim for total indemnity must survive a good faith settlement if the statutory goal of a
fair apportionment of loss is to be achieved -- is also flawed. This contention fails to take
adequate account of the nature of the trial court's "good faith" determination under
section 877.6 as explained in this court's decision in Tech-Bilt, supra, 38 Cal.3d 488, and
the role which the good faith determination plays in furthering the fair-apportionment
objective.
In Tech-Bilt, we disapproved a number of earlier Court of Appeal decisions which had
indicated that a settlement agreement should be found in good faith for purposes of
section 877.6 so long as the settling parties had not engaged in any "tortious conduct"
toward the nonsettling parties (see, e.g., Dompeling v. Superior Court (1981) 117
Cal.App.3d 798, 809-810 [173 Cal.Rptr. 38]), concluding instead that "[a] more
appropriate definition of 'good faith,' in keeping with the policies of American
Motorcycle and the statute, would enable the trial court to inquire, among other things,
whether the amount of the settlement is within the reasonable range of the settling
tortfeasor's proportional share of comparative liability for the plaintiff's injuries." (Tech-
Bilt, supra, 38 Cal.3d at p. 499.) Accordingly, Tech-Bilt held that in determining whether
a settlement was made in good faith for purposes of section 877.6, a trial court should
consider, among other factors, whether the amount paid in settlement bears a reasonable
relationship [46 Cal.3d 815] to -- or, in more colloquial terms, is "in the ballpark" of --
the settlor's proportionate share of liability. (Tech-Bilt, supra, 38 Cal.3d at pp. 499-500.)
fn. 14
As we explained in our recent decision in Abbott Ford, supra, 43 Cal.3d 858, 874: "By
requiring a settling defendant to settle 'in the ballpark' in order to gain immunity from
contribution or comparative indemnity, the good faith requirement of sections 877 and
877.6 assures that -- by virtue of the 'set-off' embodied in section 877, subdivision (a) --
the nonsettling defendants' liability to the plaintiff will be reduced by a sum that is not
'grossly disproportionate' to the settling defendant's share of liability, thus providing at
least some rough measure of fair apportionment of loss between the settling and
nonsettling defendants."
[5a] Thus, under Tech-Bilt, supra, 38 Cal.3d 488, a vicariously or derivatively liable
tortfeasor, like any other minimally culpable tortfeasor, is afforded substantial protection
against harm from an unfair settlement between a more culpable tortfeasor and the
plaintiff. [6] [5b] If the more culpable tortfeasor settles with the plaintiff before the
vicariously liable tortfeasor, and if the settlement does not require the more culpable
tortfeasor to bear its fair share of the loss, the trial court can find that the settlement is not
in good faith and, as a consequence, the settlement will not bar the less culpable
tortfeasor from pursuing its equitable indemnity claim against the more culpable
tortfeasor. fn. 15
In similar fashion, if, as in this case, an allegedly vicariously liable tortfeasor has already
settled with the plaintiff in order to limit its potential [46 Cal.3d 816] liability and has
continued to pursue its indemnity claim, the allegedly less culpable tortfeasor retains the
right to challenge the good faith of any subsequent settlement by the allegedly more
culpable tortfeasor. In assessing the good faith of any such subsequent settlement
pursuant to the Tech-Bilt factors, the trial court must properly consider, inter alia, whether
the proposed settlement is within the reasonable range of the settling tortfeasor's total
proportional liability, taking into account the settling tortfeasor's potential liability for
indemnity to the allegedly vicariously liable tortfeasor as well as its remaining liability to
the plaintiff. (See Standard Pacific of San Diego v. A. A. Baxter Corp., supra, 176
Cal.App.3d 577, 589.) fn. 16 If the trial court determines that the proposed settlement is
not within the reasonable range of the settling tortfeasor's proportional liability and would
leave the less culpable tortfeasor to bear an unfair share of the loss, the trial court may
withhold its good faith imprimatur, and the less culpable tortfeasor will be able to
proceed with its equitable indemnity claim. fn. 17
It is true, of course, that under the Tech-Bilt approach a nonsettling tortfeasor may be left
to bear some portion of the plaintiff's loss, even in situations in which, if the indemnity
claim had gone to trial, the trier of fact might have concluded that the equities supported
a total shifting of loss to the more culpable tortfeasor. This follows from Tech-Bilt's
recognition (1) that a settlement may be found in good faith even if the settling tortfeasor
does not pay a sum precisely commensurate with its proportionate share of liability
(Tech-Bilt, supra, 38 Cal.3d at p. 499) and (2) that it is appropriate that a settling
defendant "pay less in settlement than he would if he were found liable after a trial."
(Ibid.) [46 Cal.3d 817]
In this regard, however, a nonsettling vicariously or derivatively liable tortfeasor is, of
course, in exactly the same position as any other minimally culpable tortfeasor, and the
minor departure from a theoretically precise allocation of loss which the statute sanctions
is simply the price that nonsettling defendants uniformly bear to promote the settlement
of litigation. By contrast, if we were to adopt the interpretation of section 877.6,
subdivision (c) sought by Far West, exempting tortfeasors claiming total indemnity from
the effect of a good faith settlement, we would not further the objective of achieving a
fair apportionment of costs among all tortfeasors as Far West suggests, but rather would
simply create an unfair and arbitrary distinction between those tortfeasors who should
equitably bear only a minuscule portion of the loss and those who should equitably be
permitted to shift all of the loss. The purposes of section 877.6, subdivision (c) do not
support such a distinction.
III
[1c] In sum, in light of the judicial background, the legislative history and the statutory
purposes of section 877.6, subdivision (c), we conclude that a tort defendant who has
entered into a good faith settlement within the meaning of section 877.6, subdivision (c)
is absolved of any further liability for all equitable indemnity claims, including claims
seeking total equitable indemnity.
The judgment of the Court of Appeal is affirmed.
Lucas, C. J., Mosk, J., Broussard, J., and Panelli, J., concurred.
KAUFMAN, J.,
Concurring and Dissenting.
I agree with the majority that a "good faith settlement" in conformity with Code of Civil
Procedure fn. 1 section 877.6 as interpreted in Tech-Bilt, Inc. v. Woodward-Clyde &
Associates (1985) 38 Cal.3d 488 [213 Cal.Rptr. 256, 698 P.2d 159] (hereafter Tech-Bilt)
and its progeny bars a claim for total indemnity against the settling defendant when that
claim is based on theories of "equitable comparative contribution, or partial or
comparative indemnity, based on comparative negligence or comparative fault" as is
expressly provided by subdivision (c) of section 877.6 (hereafter section 877.6(c)).
However, the only indemnity claims barred by the statute are those enumerated, and a
claim for total indemnity based on a theory of vicarious liability, such as that involved in
this case, is not and never was a claim based on a theory of either "equitable comparative
comparative fault." Thus, the [46 Cal.3d 818] edict handed down today -- that a total
indemnity claim based on vicarious liability is barred pursuant to section 877.6(c) -- is
wholly unauthorized by the statute.
As I shall explain, the purported justification for the rule announced today, the
encouragement of settlements, is unsound because the rule will actually deter overall
settlement of cases involving vicariously liable defendants. But the truth is that the
majority's belief that good policy supports the rule it promulgates is immaterial. A claim
for total indemnity based on vicarious liability is simply not barred under the statute upon
which the majority relies.
In addition, application of the newly promulgated rule to the facts of this case is not only
unfair but little short of confiscatory. The essential facts are that the alleged vicariously
liable defendant (Far West fn. 2) settled with the plaintiff first and paid the settlement
amount. Without doubt that was done with the full expectation it could pursue its right to
indemnification from the alleged wrongdoers (the D & S defendants), a right which
ripened upon payment of the settlement amount. The alleged wrongdoers thereafter
unilaterally entered into a separate settlement with the plaintiff and this court now holds
the vicariously liable defendant's clear right to pursue the wrongdoer for indemnification
is barred. It theorizes that in determining a wrongdoer's settlement is in good faith the
trial court can take into consideration the fact that another defendant's liability is
vicarious only. But there is no indication that the trial court actually did so in this case.
Thus, the result reached by the majority is not only unauthorized, it is also unjust.
I also dissent from the majority's wholly gratuitous ruling, on a question not at all in issue
in this case, that a settling tortfeasor has an unqualified "right to continue to seek
indemnification" (ante, p. 801) from any nonsettling joint tortfeasor. Here, both
defendants have settled and no such question arises. It is astounding that without
discussion, briefing or argument the court would reach out to resolve a question not
remotely presented and in the process fail to consider the limitations that ought to be
imposed on a settling defendant's right to pursue equitable indemnity claims.
I. A Claim for Total Indemnity Based on Vicarious Liability Is Different in Kind From
Other Indemnity Claims
Section 876, subdivision (b) (hereafter section 876(b)) provides: "Where one or more
persons are held liable solely for the tort of one of them or of another, as in the case of the
liability of a master for the tort of his servant, [46 Cal.3d 819] they shall contribute a
single pro rata share, as to which there may be indemnity between them." By this
provision the Legislature has recognized that a vicariously liable defendant is not a
"tortfeasor" but an involuntary surety or guarantor -- i.e., one who is liable for the tort of
another. Vicarious liability means that the act or omission of one person (hereafter the
fault-source tortfeasor) is imputed by operation of law to another and becomes the basis
for holding both liable for the plaintiff's injuries. An indemnity claim based on vicarious
liability is not premised on the relative fault or responsibility of the parties for the
plaintiff's injury but rather on the simple fact that the claimant has been compelled by
force of law to pay for the tort of the one against whom the claim is asserted.
The majority declares that vicarious liability is similar to strict products liability because
similar justifications have been offered to explain why the law imposes them and from
this premise leaps blithely but blindly to the conclusion that vicariously liable defendants
should not be granted "special dispensation" from the rules applicable to "other ...
tortfeasors" (ante, p. 813, fn. 13.).
As the Legislature has recognized in section 876(b), one who is vicariously liable is not a
tortfeasor. When the issue is equitable apportionment of responsibility for the plaintiff's
loss, the vicariously liable party and the fault-source defendant are to be jointly assessed
a single share based on the fault of the latter but as between themselves apportionment of
loss is governed by the traditional rule of full equitable indemnity, a rule of loss shifting
rather than loss sharing, as the law has recognized from very early days. (See Bradley v.
Rosenthal (1908) 154 Cal. 420 [97 P. 875]; Comment, Total Equitable Indemnity: Can It
Pierce a Pretrial Settlement? (1986) 20 Loyola L.A. L.Rev. 99, 104, fn. 29.)
Thus the majority's attempt to equate the venerable indemnity rights attending vicarious
liability with those recently established for joint and concurrent tortfeasors, including
defective product manufacturers, is not only logically and historically inaccurate, it is
inconsistent with the statutory scheme. To recognize the unique character of vicarious
liability is not to grant "special dispensation" to vicariously liable defendants. Unfairness
may be practiced not only by applying different treatment to parties similarly situated but
also by applying uniform treatment to parties situated differently. The majority practices
the latter form of unfairness, which is every bit as destructive as the former. fn. 3 [46
Cal.3d 820]
II. The Statute Does Not Authorize or Support the Rule Adopted by the Majority
The majority claims to derive support for its conclusions from the legislative history and
the purpose of section 877.6. As I will show, the majority's interpretation of that provision
finds no support in the plain language of the statute, the statutory scheme of which it is a
part, or the history of its enactment.
In construing a statute to effectuate the Legislature's intent, we turn first to the words
themselves, giving them their usual, ordinary meaning. (Moyer v. Workmen's Comp.
Appeals Bd. (1973) 10 Cal.3d 222, 230 [110 Cal.Rptr. 144, 514 P.2d 1224].) Section
877.6(c) provides that a good faith settlement releases the settlor from "any further claims
against the settling tortfeasor or co-obligor for equitable comparative contribution, or
partial or comparative indemnity, based on comparative negligence or comparative fault."
The legislative intent deducible from the plain, ordinary meaning of these words is that
the statutory bar resulting from settlement is limited to claims based on comparative
negligence or comparative fault. That principles of comparative negligence or
comparative fault can have no application in a situation where the liability of one
individual is imputed to another seems too obvious to require elaboration, yet the
majority opinion fails to acknowledge this patently indisputable proposition.
The majority argues that the term "comparative fault" has never been read literally and
therefore its meaning may be expanded to reach whatever result the majority deems
desirable. As authority the majority relies on Daly v. General Motors Corp. (1978) 20
Cal.3d 725 [144 Cal.Rptr. 380, 575 P.2d 1162], which held that principles of comparative
negligence apply to actions founded on strict products liability, and on Safeway Stores,
Inc. v. Nest-Kart (1978) 21 Cal.3d 322 [146 Cal.Rptr. 550, 579 P.2d 441], which held that
comparative fault principles apply to apportion responsibility between negligent and
strictly liable defendants. By permitting the conduct of a defendant who manufactures
and markets a defective product to be characterized as "fault" these cases departed from
the ordinary meaning of that term but at least they permitted the word "comparative" to
retain some significance. A jury may compare the conduct of the defective product
manufacturer with the conduct of the plaintiff or codefendant and assess the
responsibility of each for producing the plaintiff's injury but no comparison is possible in
a situation where one party's liability is premised on the act or omission of [46 Cal.3d
821] the other. To speak of "comparative fault" in this context is to speak in a cipher or
code having no relation to the ordinary meaning of either word.
Apparently relying on the rule that statutory constructions which render some words
surplusage should be avoided (White v. County of Sacramento (1982) 31 Cal.3d 676, 681
[183 Cal.Rptr. 520, 646 P.2d 191]), the majority argues that the reference in section 877.6
to claims for "partial or comparative indemnity" should be read as including claims for
both partial and total equitable indemnity. But this argument erroneously assumes that the
issue in this case is whether all claims for total equitable indemnity survive a good faith
settlement by the party against whom the indemnity claim is asserted. As noted, I fully
agree that section 877.6(c) bars claims against a settling party for total equitable
indemnity if those claims are based on comparative negligence or comparative fault,
including active-passive fault distinctions. The indemnity claim at issue here, however, is
of a qualitatively different variety -- it is based on vicarious liability. Nothing in the
language of section 877.6(c) suggests it has any application to indemnity claims based on
vicarious liability.
The conclusion that the settlement bar was not intended to apply to equitable indemnity
claims based on vicarious liability is reinforced when section 877.6(c) is read in its
statutory context, in accordance with the familiar rule of construction that "a statute
should be construed with reference to the entire statutory system of which it forms a part
in such a way that harmony may be achieved among the parts" (Merrill v. Department of
Motor Vehicles (1969) 71 Cal.2d 907, 918 [80 Cal.Rptr. 89, 458 P.2d 33]).
Section 877.6(c) is part of title 11. In section 875, subdivision (f), the Legislature has
declared: "This title [i.e., title 11] shall not impair any right of indemnity under existing
law. ..." As noted, section 876(b) expressly provides that where one party is vicariously
liable for the tort of another "they shall contribute a single pro rata share, as to which
there may be indemnity between them." Thus the right of indemnity based on vicarious
liability enjoys explicit legislative recognition and approval.
More importantly, if section 877.6(c) does not "impair any right of indemnity under
existing law," it cannot be read as barring any indemnity claims not barred under existing
law at the time of its enactment. At that time, as will be demonstrated, indemnity claims
based on vicarious liability had never been held subject to a good faith settlement bar.
This court's decision in American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d
578 (hereafter American Motorcycle) established a right of equitable indemnity based on
comparative negligence or comparative fault [46 Cal.3d 822] but adopted also a
limitation that such claims would be barred against a party who entered into a good faith
settlement with the plaintiff. In that decision we noted that under section 877 a good faith
settlement discharges the settling party from all liability for contribution and we stated:
"[W]hile we recognize that section 877, by its terms, releases a settling tortfeasor only
from liability for contribution and not partial indemnity, we conclude that from a realistic
perspective the legislative policy underlying the provision dictates that a tortfeasor who
has entered into a 'good faith' settlement [citation] with the plaintiff must also be
discharged from any claim for partial or comparative indemnity that may be pressed by a
concurrent tortfeasor." (At p. 604, italics added.)
The majority would read the italicized language as including an equitable indemnity
claim by a vicariously liable defendant against a fault-source tortfeasor. Again I insist that
it is logically and semantically impossible to view an indemnity claim based on vicarious
liability as one "for partial or comparative indemnity." This is just as true when applied to
American Motorcycle as when applied to section 877.6. The majority reasons, however,
that American Motorcycle did not establish a new doctrine of partial comparative
indemnity as separate and distinct from the existing doctrine of total equitable indemnity,
but instead modified the existing total equitable indemnity rule by replacing it with, or
transmuting it into, a new system of partial indemnity based on comparative fault.
The majority's analysis rests on a false premise. The majority reasons that because
American Motorcycle did not create a wholly new equitable indemnity action, the action
for comparative partial indemnity must have replaced or superseded the earlier action for
total equitable indemnity. The majority fails to acknowledge a third possibility, which is
most faithful to the language used in American Motorcycle, that the action for partial
indemnity based on comparative fault was intended to be a new subcategory within the
broader class of equitable indemnity actions. fn. 4 Had American Motorcycle intended
that a good faith settlement by a fault-source tortfeasor bar an indemnity claim by a
vicariously liable defendant, it would have been [46 Cal.3d 823] a simple matter to state
that such a settlement would bar any claim for equitable or noncontractual indemnity. The
use of the term "partial or comparative indemnity" in this context indicates unmistakably
that something more limited was intended.
But any doubt on the question of what American Motorcycle actually decided was
conclusively laid to rest by Safeway Stores, Inc. v. Nest-Kart, supra, 21 Cal.3d 322, in
which this court stated it had "no occasion to determine ... whether the comparative
indemnity doctrine should be applied in a situation in which a party's liability is entirely
derivative or vicarious in nature." (At p. 332, fn. 5.) The point was made even more
clearly in Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 305 [216 Cal.Rptr.
443, 702 P.2d 601]: "This court has not yet addressed the question whether an employer-
judgment debtor has a right to obtain indemnification from an employee who has settled
with the plaintiff." Thus it is beyond question that American Motorcycle did not
determine that a good faith settlement would bar an indemnity claim based on vicarious
liability.
When section 877.6(c) was enacted, therefore, neither American Motorcycle nor any
other authority had established that a fault-source tortfeasor could achieve immunity from
indemnity claims based on vicarious liability by unilaterally settling with the plaintiff.
The majority's decision at this late date to extend the reach of section 877.6(c) to include
vicarious liability indemnity claims conflicts not only with the plain meaning of that
section's words, but also with subdivision (f) of section 875, which prohibits any
construction of section 877.6(c) impairing indemnity rights existing at the time of its
enactment.
III. The Rule Adopted Will Not Promote Settlement
A vicariously liable defendant may seek an early full-value settlement with the plaintiff
(anticipating reimbursement from the solvent fault-source tortfeasor) in order to limit the
potential exposure, reduce litigation costs, and obtain the plaintiff's cooperation in
litigation of the indemnity claim. fn. 5 If [46 Cal.3d 824] a liability insurance carrier is
controlling the defense, it may seek an early full-value settlement to avoid potential
liability to its insured for breach of the covenant of good faith and fair dealing. (See, e.g.,
Bodenhamer v. Superior Court (1987) 192 Cal.App.3d 1472, 1476-1479 [238 Cal.Rptr.
177].) Under the rule espoused by the majority, a vicariously liable defendant will have a
great disincentive to enter into a full-value settlement agreement absent a provision
reserving to itself the power to veto any later settlement with the fault-source tortfeasor or
a provision requiring the plaintiff to dismiss the causes of action against the fault-source
tortfeasor. fn. 6 (Cf. Owen v. United States (9th Cir. 1983) 713 F.2d 1461, 1467.)
Settlement provisions giving a settling defendant a veto over later settlements or
requiring the plaintiff to dismiss causes of action against a fault-source tortfeasor will not
be attractive to plaintiffs, who are certain to increase the amount required for settlement
whenever such provisions are included. If the vicariously liable defendant is unwilling to
pay the additional price there will be no settlement. Veto provisions have an added
disadvantage in that, as this court has recognized, they make subsequent settlements with
other defendants more difficult and thus "frequently result in unnecessary trials." (Abbott
Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 883 [239 Cal.Rptr. 626, 741 P.2d
124].)
The majority's rule will encourage early settlement by tortfeasors seeking immunity from
indemnity claims by vicariously liable defendants to whom their fault will be imputed,
but this incentive to settle is fostered at the expense of equitable apportionment of loss
since it leaves the vicariously liable defendant to pay all or part of the plaintiff's
remaining damages when in justice and equity that defendant should have full indemnity
from the settlor. A defendant in this situation, deprived of recourse against a solvent party
whose conduct is the sole basis of its liability, may well prefer to take its chances at trial
rather than pay in settlement a claim it in good conscience believes should have been paid
by another. (See Roberts, The "Good Faith" Settlement: An Accommodation of
Competing Goals (1984) 17 Loyola L.A. L.Rev. 841, 929-930.)
Contrary to the majority's assurances, the trial court's inquiry into the good faith of the
settlement will not adequately shield a vicariously liable [46 Cal.3d 825] defendant
against the consequences of a settlement by the fault-source tortfeasor. If good faith is
determined by the settlor's having paid its fair share of the loss according to the
"reasonable range" test of Tech-Bilt, supra, 38 Cal.3d 488, the vicariously liable
defendant will not infrequently be exposed to substantial liability. Because there may be
other nonsettling defendants in addition to the vicariously liable defendant, because
liability may present a close question, and because a settlor is expected to pay less than if
the case went to trial, a settlement by the fault-source tortfeasor for less than half of the
plaintiff's estimated damages will often be found in good faith. (Cf. Isaacson v. California
Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 794 [244 Cal.Rptr. 655, 750 P.2d 297]
[settlement offer for two-thirds of estimated damages unreasonably high where liability
was a close question].) If the estimates of comparative fault and total damages used to
determine the reasonable range prove at trial to have been too low (as not infrequently
occurs), the damages ultimately assessed for the fault-source defendant's tort will far
exceed the amount paid in settlement and the difference will be extracted from the pocket
of the vicariously liable defendant.
While the majority opinion does not preclude a trial court from withholding approval
from a settlement if it finds the vicariously liable defendant has been "improperly"
excluded from settlement negotiations this hardly remedies the problem; the majority's
suggestion that it does rests on the erroneous assumption that a party whose liability is
strictly vicarious should contribute something in settlement even when the fault-source
tortfeasor is solvent. The issue is not whether any defendant has been given a fair
opportunity to participate in a settlement agreement but whether a solvent tortfeasor may
shift any part of his own liability onto a vicariously liable defendant. In the context of the
good faith determination this problem could be directly addressed by holding, as a matter
of law, that a settlement which fails to provide for dismissal of vicarious liability causes
of action based on the settlor's conduct is not in good faith, but the majority expressly
rejects this solution.
Because of its adverse effect on settlements by vicariously liable defendants, the
majority's rule will make full settlement of actions less likely, even though the rule may
promote partial settlements between the plaintiff and the fault-source tortfeasor. If a claim
for equitable indemnity based on vicarious liability survives settlement, on the other
hand, the prospects of full settlement are favorable. The reasons why vicariously liable
defendants are likely to enter into early full-value settlements have already been
mentioned. As for the fault-source tortfeasors, their options are not confined, as the
majority suggests, to declining settlement or settling without protection against equitable
indemnity claims. To obtain both the benefits of settlement and complete immunity from
equitable indemnity claims, the fault-source [46 Cal.3d 826] defendant need only include
in the settlement a provision obligating the plaintiff to dismiss vicarious liability causes
of action. The plaintiff will, of course, demand consideration for such a provision but the
cost is clearly one which the fault-source tortfeasor ought to bear.
A provision for dismissal of vicarious liability causes of action does not deter later
settlements and it provides a clean and equitable solution in cases where a defendant is
sued on both vicarious liability and fault theories, since only the vicarious liability causes
of action need be included in the dismissal provision. A defendant against whom no
vicarious liability causes of action remain will be more amenable to settlement of any
remaining fault-based causes of action.
The majority notes that a vicariously liable defendant can bargain for dismissal of the
plaintiff's action against the fault-source defendant but it refuses to acknowledge that a
fault-source defendant can likewise bargain for dismissal of vicarious liability causes of
action. If it is reasonable to impose on the settlor the burden of obtaining a dismissal in
favor of the remaining defendant in the one situation (i.e., where the settlor is vicariously
liable), why is it not at least equally reasonable in the other (i.e., where the settlor is a
fault-source tortfeasor)? Clearly the burden and expense of obtaining a dismissal in favor
of the remaining party should be imposed on the party who committed the tort rather than
on the one vicariously liable for it.
IV. A Settling Defendant's Right to Pursue Equitable Indemnity Claims Is Not
Unqualified
Although admitting the issue is not presented, the majority states it is "clear under
existing precedent" that Far West had the right to pursue its indemnity claims against
nonsettling parties after it had settled with the plaintiff in this action.
Were the issue presented, I would be inclined to hold that a settling defendant's right to
pursue a claim for comparative indemnity is not absolute but depends on whether the
settlement amount substantially exceeds the settlor's fair share of the plaintiff's damages.
The settlor's right of indemnity against nonsettling defendants is inextricably bound up
with the determination of the good faith of the settlement and should be resolved by the
trial court as part of that determination. Where a settling defendant insists on the right to
proceed against nonsettling defendants for indemnity to recoup the consideration given in
settlement, a court might very well, depending on the circumstances, find the settlement
not in good faith in respect to the nonsettling defendant from whom recoupment is
sought. A [46 Cal.3d 827] court so concluding could condition its good faith
determination on the voluntary dismissal of the settlor's indemnity cross-complaints.
A tortfeasor who has settled for an amount within the reasonable range of his liability has
no claim in equity to partial reimbursement from other defendants in the event plaintiff's
damages or the settlor's percentage of fault is determined at trial to be less than
anticipated. The settlor has bought his peace and limited his exposure and in return "can
fairly be said to have contracted away the right to any benefits resulting from a
determination that the settlement was 'high.'" (Comment, Comparative Negligence,
Multiple Parties, and Settlements (1977) 65 Cal.L.Rev. 1264, 1279.) Because a settlor is
expected to pay less than if his liability were determined at trial (Tech-Bilt, supra, 38
Cal.3d at p.499), "low" settlements will greatly outnumber "high" settlements. Under
basic notions of fairness and reciprocity, nonsettling defendants, who must make up the
deficit caused by "low" settlements, should be freed from the threat of the settlor's
indemnity claims and allowed to retain the benefit of the occasional "high" settlement.
My views on this issue are similar to, although less extreme than, those finding
expression in section 1, subdivision (d), of the Uniform Contribution Among Tortfeasors
Act, which provides: "A tortfeasor who enters into a settlement with a claimant is not
entitled to recover contribution from another tortfeasor whose liability for the injury or
wrongful death is not extinguished by the settlement nor in respect to any amount paid in
a settlement which is in excess of what was reasonable." The commissioners' comment to
this subdivision states: "The tortfeasor who settles removes himself entirely from the case
so far as contribution is concerned if he is able and chooses to buy his peace for less than
the entire liability. If he discharges the entire obligation it is only fair to give him
contribution from those whose liability he has discharged." (12 West's U. Laws Ann.
(1975) p. 65, italics added.)
Permitting a settling party to pursue equitable indemnity against nonsettlors is logically
justified in those instances where the settlor has paid more than his proportionate share of
the loss. The clearest case is settlement by a party whose liability is entirely vicarious and
who claims indemnity from the fault-source tortfeasor. As I have emphasized repeatedly,
any payment by a party whose liability is wholly vicarious is an overpayment so long as
the fault-source tortfeasor is solvent. Where the court making the good faith
determination finds that the settlement constitutes an overpayment, the policies of
equitable apportionment and encouragement of settlements will both be served by
permitting the settlor to pursue equitable indemnity against nonpaying or underpaying
tortfeasors. [46 Cal.3d 828]
V. Conclusion
Vicarious liability is fundamentally different from other forms of tort liability. A claim for
indemnity based on vicarious liability is not a claim "based on comparative negligence or
comparative fault" within the meaning of section 877.6(c) and is not barred by that
section when asserted against a defendant who has settled. The rule adopted by the
majority today, permitting a tortfeasor's unilateral settlement to destroy a vicariously
liable defendant's right of indemnity, is not only unauthorized by law, it violates
fundamental notions of fairness: "One whom the law holds to an absolute liability for the
wrongful act of another has been injured just as really, even though indirectly, by that
wrongful act as though his property had been struck by the other's automobile in the first
place. ... [T]he right to indemnity in such circumstances ... [is] supported by simple,
fundamental tort law principles just as clearly as is the right to recover for injuries caused
directly by the tortious act. Such indemnity is an imposition of liability for fault, and as
such is designed to minimize the harshness of previously imposed liability without fault."
(Leflar, Contribution and Indemnity Between Tortfeasors (1932) 81 U.Pa.L.Rev. 130,
148.)
In this case, it is not seriously disputed that Far West was sued on a vicarious liability
theory as well as various fault-based theories and that Far West's indemnity cross-
complaint against the D & S defendants, although hardly a model of clarity, adequately
pleads a cause of action for total equitable indemnity sufficient to encompass a vicarious
liability theory. Accordingly, as to that cause of action, the trial court erred in dismissing
Far West's cross-complaint following the settlement between the plaintiff and the D & S
defendants. I would reverse the judgment of the Court of Appeal as to that cause of
action.
EAGLESON, J.,
Concurring and Dissenting.
As does Justice Kaufman, I concur in the majority's opinion that a good faith settlement
in conformity with Code of Civil Procedure section 877.6, as interpreted in Tech-Bilt,
Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488 [213 Cal.Rptr. 256, 698 P.2d
159], bars a claim for total equitable indemnity against a settling defendant when the
indemnity claim is based on theories of "equitable comparative contribution, or partial or
comparative indemnity, based on comparative negligence or comparative fault" as is
provided by section 877.6, subdivision (c). fn. 1
I respectfully dissent, however, from the majority's additional holding that a total
indemnity claim based on vicarious liability is also barred by [46 Cal.3d 829] section
877.6, subdivision (c). I agree with Justice Kaufman's analysis that the majority's
interpretation of section 877.6 is incorrect on this point (see Kaufman, dis. opn., pts. I and
II), but I write separately to emphasize an even more fundamental flaw in the majority
view -- its basic unfairness.
1. Unfairness
The majority asserts that, "even when a nonsettling tortfeasor's liability may be wholly
vicarious or derivative in nature, it does not invariably follow that equitable
considerations will, as a matter of law, always call for the total shifting of loss to the
more directly culpable tortfeasor." (Italics added.) Stated more clearly, the majority's
conclusion is that a defendant who shares no blame whatsoever must share in the loss,
even when doing so is not necessary to ensure compensation for an injured plaintiff. The
majority fails to explain why this result is necessary. Indeed, the only apparent premise
for this conclusion is contained in a footnote. (See maj. opn., ante, at p. 813, fn. 13.) The
unfortunate effect of the majority's holding as to vicariously liable defendants is to
elevate pragmatism over principle and expediency over equity.
The majority reasons that vicarious liability expresses a social policy favoring the shifting
of loss from an injured plaintiff to a derivatively liable defendant. I agree there are sound
reasons for such shifting, but the policy concerns that support vicarious liability are not
present when the issue is how the loss will be apportioned among defendants. In this
case, plaintiffs have been fully compensated, at least to the extent they were damaged by
the defendants relevant to this appeal. There is no longer a need to protect plaintiffs.
Fairness has been achieved as to them. The remaining question is whether it has been
achieved among the settling defendants. It has not.
The majority also erroneously relies on Safeway Stores, Inc. v. Nest-Kart (1978) 21
Cal.3d 322, 330 [146 Cal.Rptr. 550, 579 P.2d 441], in which the court discussed the
application of equitable indemnity principles in the product liability context and found
that liability could be apportioned among multiple tortfeasors even if one or more of the
tortfeasors were responsible under the doctrine of strict liability. There are at least three
reasons why that case does not support the majority's reasoning as to vicariously liable
defendants. First, a strictly liable defendant is directly liable to the injured plaintiff
whereas a vicariously liable defendant is only derivatively liable. Second, a strictly liable
defendant is an active tortfeasor, i.e., he is responsible for his own conduct. A vicariously
liable defendant, however, is a passive tortfeasor whose liability is based only on another
party's wrongdoing. Third, a strictly liable defendant may be at "fault" to some degree.
Despite the characterization of strict liability as being liability [46 Cal.3d 830] without
fault, it is often stated that strict liability, at least in some forms, does have a fault
component. (DeLeon v. Commercial Manufacturing & Supply Co. (1983) 148
Cal.App.3d 336, 350 [195 Cal.Rptr. 867]; Balido v. Improved Machinery, Inc. (1972) 29
Cal.App.3d 633, 640 [105 Cal.Rptr. 890]; see generally6 Witkin, Summary of Cal. Law
(9th ed. 1988) Torts, § 1244, pp. 679-680.) fn. 2 A vicariously liable defendant, however,
is without true fault.
The majority also states that, "a nonsettling vicariously or derivatively liable tortfeasor is,
of course, in exactly the same position as any other minimally culpable tortfeasor. ..."
Because there is no support for this conclusion, the majority offers none. There are many
differences between a vicariously liable tortfeasor and other "minimally culpable"
tortfeasors. As explained above, the most obvious difference is that the vicariously liable
tortfeasor is responsible only for what another party has done. Other "minimally
culpable" defendants are responsible for their own wrongdoing. Another difference is that
a vicariously liable defendant, by definition, has done nothing intentional, whereas other
minimally culpable defendants are often charged with intentional torts. Indeed, one of the
most egregious results of the majority's decision will be in those cases in which a
vicariously liable defendant is precluded from seeking indemnity from an intentional
tortfeasor whose acts have been the basis for suit against the vicariously liable defendant.
fn. 3
In short, the majority offers no sound reason why a vicariously liable defendant should be
required to pay part of a plaintiff's damages, yet be denied the opportunity to seek
indemnity from the very tortfeasor who created, by his own active wrongdoing, the
liability of the vicariously liable defendant. Such result has no basis in common sense or
fairness.
2. "Good Faith" Settlement Practices
The majority optimistically presumes the potential unfairness to vicariously liable
defendants will be eliminated by the requirement of section [46 Cal.3d 831] 877.6 that
the trial court must find a settlement to be in good faith for it to operate as a bar to
indemnity actions against the settling defendant. As a matter of law and logic, however,
when there are two defendants -- one directly liable and the other only vicariously liable
-- a settlement by the directly liable defendant can be in good faith under section 877.6
only if the settlement leaves nothing to be paid by the vicariously liable defendant. The
majority refuses to state this proposition as a matter of law, claiming that there may be
cases when a loss shifting is appropriate. As explained above, the loss shifting favored by
the majority is not appropriate unless necessary to ensure compensation to an injured
plaintiff, and the majority fails to offer a single reason why loss shifting is appropriate
when the plaintiff is fully compensated and the issue is only fair apportionment among
defendants. Because the majority does not propose a rule that will ensure fairness when
the "good faith" determination is made, it is incorrect for the majority to state that such
determination will itself ensure fairness to the vicariously liable defendant.
Even if the majority were correct that a settlement by a directly liable defendant can be in
good faith when it leaves something to be paid by the vicariously liable defendant, the
factual premise of the majority's presumption of fairness in the good faith determination
is sound only if trial courts are especially solicitous of the rights of defendants whose
liability is truly only vicarious. It is quite easy in many cases to plead and argue that a
vicariously liable defendant also has some degree of direct liability, for example,
negligent supervision of an employee who has caused an accident. There are also extreme
pressures on our trial courts to dispose of as many cases as possible by settlement. In
light of the potential for unfairness under the majority opinion, a trial court should
carefully scrutinize such claims, and where a nonsettling defendant appears to be only
vicariously liable, the trial court should require a compelling showing that the nonsetting
defendant is liable on some other basis before approving a settlement that leaves any
amount to be paid by that defendant.
The vicariously liable defendant's counsel must also share in the responsibility for
ensuring fairness. Counsel should conduct adequate discovery and be prepared at the
hearing under section 877.6 to demonstrate that his client's liability is only vicarious. [46
Cal.3d 832]
If the trial courts and defendants' counsel are diligent, perhaps they can mitigate or even
avoid the potential unfairness sanctioned by the majority.
FN 1. Unless otherwise stated, all section references are to the Code of Civil Procedure.
FN 2. City of Sacramento v. Gemsch Investment Co. (1981) 115 Cal.App.3d 869 [171
Cal.Rptr. 764]; Turcon Construction, Inc. v. Norton-Villiers, Ltd. (1983) 139 Cal.App.3d
280 [188 Cal.Rptr. 580]; Kohn v. Superior Court (1983) 142 Cal.App.3d 323 [191
Cal.Rptr. 78]; Lopez v. Blecher (1983) 143 Cal.App.3d 736 [192 Cal.Rptr. 190]; Standard
Pacific of San Diego v. A. A. Baxter Corp. (1986) 176 Cal.App.3d 577 [222 Cal.Rptr.
106]; IRM Corp. v. Carlson (1986) 179 Cal.App.3d 94 [224 Cal.Rptr. 438]; Horton v.
Superior Court (1987) 194 Cal.App.3d 727, 739 [238 Cal.Rptr. 467].
FN 3. Huizar v. Abex Corp. (1984) 156 Cal.App.3d 534 [203 Cal.Rptr. 47]; Angelus
Associates Corp. v. Neonex Leisure Products, Inc. (1985) 167 Cal.App.3d 532 [213
Cal.Rptr. 403].
FN 4. Far West Financial Corporation is a holding company incorporated in Delaware
and licensed to do business in California. Far West Savings and Loan Association, the
successor in interest to State Mutual Savings and Loan Association, is a California
subsidiary of Far West Financial Corporation and is engaged in the business of financing
and developing condominiums. Both entities have been joined as defendants in this
action and, for convenience, both will be referred to collectively as Far West.
FN 5. In addition to rejecting Far West's contention with regard to the effect of a good
faith settlement on a claim for total equitable indemnity, the Court of Appeal rejected Far
West's claim that the trial court had abused its discretion in denying Far West's motion for
leave to file a second amended cross-complaint to add claims for implied and express
contractual indemnity. The Court of Appeal determined that the trial court properly found
that Far West had provided no adequate explanation for its eleventh-hour request for
leave to amend and that Far West's delay had prejudiced the other parties who had spent
considerable time and effort in negotiating a settlement agreement with knowledge only
of Far West's prior cross-complaint.
Far West's statement of issues in its petition for review did not seek review of this aspect
of the Court of Appeal's ruling and, under the circumstances, we see no reason to disturb
the Court of Appeal's conclusion. As a consequence, we have no occasion in this case to
determine whether an indemnity claim resting on an implied contract theory or arising
from an express indemnification agreement is barred by a good faith settlement. We note
that there is a split in Court of Appeal decisions with respect to the implied contractual
indemnification question (compare IRM Corp. v. Carlson, supra, 179 Cal.App.3d 94,
109-110 [claim barred] and Stratton v. Peat, Marwick, Mitchell & Co. (1987) 190
Cal.App.3d 286, 292 [235 Cal.Rptr. 374] [same] with County of Los Angeles v. Superior
Court (1984) 155 Cal.App.3d 798, 803 [202 Cal.Rptr. 444] [claim not barred] and Bear
Creek Planning Com. v. Title Ins. & Trust Co. (1985) 164 Cal.App.3d 1227, 1239 [211
Cal.Rptr. 172] [same]), and the issue is presented in another matter currently pending in
our court. (Bay Development Ltd. v. Superior Court, S000888.)
FN 6. In an amendment effective January 1, 1988, the Legislature has extended the reach
of section 877.6, subdivision (c) to co-obligors on a contract debt, providing that a good
faith settlement by one co-obligor bars any further claim by any co-obligor against the
settling party. (Stats. 1987, ch. 677, § 3, p. ___.) The amendment has no application to
this case.
FN 7. Contrary to the suggestion of the Court of Appeal in Angelus Associates Corp. v.
Neonex Leisure Products, Inc., supra, 167 Cal.App.3d 532, 541, there is no legitimate
basis for concluding that an indemnity action between a vicariously or derivatively liable
tortfeasor and a directly liable tortfeasor is not encompassed within section 877.6,
subdivision (c) on the theory that such an action is not "based on comparative negligence
or comparative fault." As our court made clear in Daly v. General Motors Corp. (1978) 20
Cal.3d 725, 736 [144 Cal.Rptr. 380, 575 P.2d 1162] -- in holding that comparative fault
principles could appropriately be applied to reduce the liability of a strictly liable
defendant when a plaintiff's negligence had contributed to the injury -- the terms
"comparative negligence" or "comparative fault" "do not, standing alone, lend themselves
to the exact measurements of a micrometer-caliper, or to such precise definition as to
divert us from otherwise strong and consistent countervailing policy considerations." (20
Cal.3d at p. 736.) Indeed, in Daly itself, we suggested that "the term 'equitable
apportionment or allocation of loss' may be more descriptive than 'comparative fault.'"
(Ibid.) Thus, we have never viewed the "comparative fault" terminology as so restrictive
as to exclude the equitable allocation of loss between vicariously and directly liable
tortfeasors. Accordingly, we reject the Angelus court's conclusion that the wording of
section 877.6, subdivision (c) unambiguously excludes claims for total equitable
indemnity from the reach of the provision.
FN 8. In E. L. White, supra, 138 Cal.App.3d 366, the Court of Appeal concluded that
after American Motorcycle a vicariously liable tortfeasor could still obtain total
indemnity from a concurrent tortfeasor; the E. L. White court was not faced with the
question, and did not decide, whether a vicariously liable tortfeasor could seek such
indemnity from a tortfeasor who had entered into a good faith settlement.
FN 9. As initially introduced on March 20, 1980, Assembly Bill No. 3425, 1979-1980
Regular Session, which ultimately became section 877.6, did not contain any provision
which addressed the substantive effect of a good faith determination, but simply
established a procedure by which any party to an action could obtain a hearing on the
good faith issue prior to or at the commencement of the trial of the action.
The first version of section 877.6, subdivision (c), was added to the bill in the Assembly
on May 7, 1980, and provided simply that the good faith determination would relieve the
settling tortfeasor from further claims for "equitable comparative contribution based on
comparative negligence or comparative fault." From the Legislative Counsel's Digest of
the bill, it appears that the drafters intended by this language simply to codify the effect
of a good faith settlement agreement under "[e]xisting law," i.e., the American
Motorcycle decision (supra, 20 Cal.3d 578).
Section 877.6, subdivision (c), was further amended in the Senate on July 1, 1980, but
there is nothing in the legislative history to suggest that the expansion of the language to
encompass "any further claim ... for equitable comparative contribution, or partial or
comparative indemnity, based on comparative negligence or comparative fault," was
intended to have any effect other than to more closely track the language used in the
American Motorcycle decision. The Legislative Counsel's Digest continued to describe
the bill as simply "specify[ing] that any party has a right to contest the issue of the 'good
faith' of a settlement at a noticed hearing" and did not suggest that the language of
subdivision (c) was intended to alter existing law on the effect of a good faith settlement.
FN 10. The decision in Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290 [216
Cal.Rptr. 443, 702 P.2d 601], is not contrary to this conclusion. The issue in Mesler was
whether a plaintiff who had settled with a subsidiary corporation retained the right to
proceed against a nonsettling parent corporation which allegedly was the alter ego of the
subsidiary. Unlike this case, no party in Mesler was attempting to seek an additional
recovery from a defendant who had entered into a good faith settlement with the plaintiff,
and the Mesler court consequently had no occasion to consider the effect of the
provisions of section 877.6, subdivision (c), or to address the two lines of Court of
Appeal decisions that are at issue in this case.
In the course of its decision, the Mesler court referred in passing to section 875,
subdivision (f), one of the provisions of the contribution statute enacted in 1957, which
states that "[t]his title shall not impair any right of indemnity under existing law." In
context, it appears that section 875, subdivision (f), was simply intended to ensure that
the 1957 legislation, affording joint tortfeasors a right to contribution, was not interpreted
to deprive a tortfeasor of any right to indemnity it enjoyed under the then-existing law.
With the advent of the comparative indemnity doctrine in American Motorcycle, supra,
20 Cal.3d 578, and the subsequent adoption of section 877.6, subdivision (c), it appears
clear that the Legislature contemplated that section 877.6, subdivision (c), the more
recent provision which is specifically addressed to the comparative indemnity context,
would govern the effect of a good faith settlement agreement on post-American
Motorcycle equitable indemnity claims.
FN 11. Justice Kaufman's concurring and dissenting opinion does suggest that an
interpretation of section 877.6 which exempts total equitable indemnity claims from the
reach of a good faith settlement will actually promote the settlement of cases. The
opinion reaches this surprising conclusion by postulating that such a rule would induce
vicariously liable tortfeasors to enter into early "full-value" settlements with plaintiffs by
providing assurance to such tortfeasors that their right to seek total equitable indemnity
would remain intact. The argument on this point is flawed on two levels.
In the first place, it is unrealistic to expect that an allegedly vicariously liable defendant,
who believes that a solvent directly liable tortfeasor is likely to be found 100 percent
responsible for an injury, will often be willing to enter into a "full-value" settlement with
a plaintiff. In contemporary multi-party litigation, it is much more likely that settlements
will take the form of piecemeal contributions by individual defendants in some rough
approximation to each defendant's likely proportionate responsibility for the plaintiff's
damages. In such a setting, the rule proposed by the opinion would clearly have a
significant anti-settlement effect, for any defendant facing a claim for total equitable
indemnity is unlikely to be willing to go forward with the settlement if he will remain
potentially responsible for additional liability even if the trial court finds that his
contribution to the settlement is "in the ballpark" of his fair share of liability.
Second, in the event an allegedly vicariously liable tortfeasor does wish to proceed along
the lines suggested by Justice Kaufman -- i.e., if he does wish to enter into an early "full-
value" settlement with the plaintiff -- there is nothing in the present opinion which would
preclude such a tortfeasor from including in the settlement agreement a provision in
which the plaintiff -- who, by hypothesis, has received a "full-value" settlement -- agrees
to dismiss his action against the directly liable tortfeasor. Such a dismissal would permit
the settling vicariously liable tortfeasor to pursue his total equitable indemnity claim
without any risk of encountering a subsequent good faith settlement between the directly
liable tortfeasor and the plaintiff. Thus, any alleged pro-settlement benefits which Justice
Kaufman suggests his rule would produce are equally available under the interpretation
of the statute which we adopt.
FN 12. In City of Sacramento v. Gemsch Investment Co., supra, 115 Cal.App.3d 869, for
example, the city -- which owned fruit trees adjacent to, and possessed an easement over,
a public sidewalk -- sought total equitable indemnity from the owners, lessees and
sublessees of the property when it was joined as a defendant with those parties in a suit
by a plaintiff who had slipped and fallen on fruit seeds on the sidewalk. In Kohn v.
Superior Court, supra, 142 Cal.App.3d 323, a real estate broker and salesman, who had
been sued by one of his customers for failing to disclose fire damage in a house, sought
total equitable indemnity against a termite inspector and a contractor who had repaired
the fire damage. In Lopez v. Blecher, supra, 143 Cal.App.3d 736, plaintiff, a Good
Samaritan, was injured as the result of the negligent operation of two different vehicles,
and the owner of one of the vehicles sought total equitable indemnity from the driver of
the other vehicle. In IRM Corp. v. Carlson, supra, 179 Cal.App.3d 94, a tenant sued for
injuries which he suffered when his hand went through a glass shower door, and the
landlord sought total equitable indemnity from both the manufacturer of the door and the
contractor who had installed the door.
FN 13. Justice Kaufman, relying on section 876, subdivision (b), maintains that a
vicariously liable party is in an entirely different category than any other defendant
seeking total equitable indemnity. Section 876, subdivision (b), however, contains no
suggestion that a vicariously liable party's indemnity claim is different in kind from any
other equitable indemnity claim or that such a claim, unlike all other claims for total
equitable indemnity, is immune from the effect of a good faith settlement under section
877.6, subdivision (c). Enacted in 1957 as part of California's initial contribution
legislation, at a time when all equitable indemnity claims involved loss shifting rather
than loss sharing, section 876, subdivision (b) provides no support for Justice Kaufman's
argument that section 877.6, subdivision (c) should be interpreted to draw a distinction
between different types of total equitable indemnity claims.
Nor does the nature of vicarious liability indicate that the Legislature must have intended
-- despite the absence of any language in section 877.6, subdivision (c) indicative of such
intent -- to draw a distinction among total equitable indemnity claims. In many instances
-- for example, strict product liability -- tort law places "direct" liability on an individual
or entity which may have exercised due care in order to serve the public policies of a fair
allocation of the costs of accidents or to encourage even greater safety efforts than are
imposed by the due care standard. (See, e.g., Greenman v. Yuba Power Products, Inc.
(1963) 59 Cal.2d 57, 63 [27 Cal.Rptr. 697, 377 P.2d 897, 13 A.L.R.3d 1049].) As a
leading text on torts explains, the modern justification for vicarious liability closely
parallels the justification for imposing liability on the nonnegligent manufacturer of a
product: "What has emerged as the modern justification for vicarious liability is a rule of
policy, a deliberate allocation of risk. The losses caused by the torts of employees, which
as a practical matter are sure to occur in the conduct of the employer's enterprise, are
placed upon that enterprise itself, as a required cost of doing business. They are placed
upon the employer because, having engaged in an enterprise, which will on the basis of
all past experience involve harm to others through the torts of employees, and sought to
profit by it, it is just that he, rather than the innocent plaintiff, should bear them; and
because he is better able to absorb them, and to distribute them, through prices, rates or
liability insurance, to the public, and so to shift them to society, to the community at
large." (Prosser & Keeton on Torts (1984) § 69, p. 500 [fns. omitted]. See also 5 Harper
et al., The Law of Torts (2d ed. 1986) § 26.1, pp. 5-8 & fns. 12 and 14, § 26.5, pp. 17-22.)
Thus, the fact that a tortfeasor's liability is vicarious does not necessarily distinguish him
from other tortfeasors nor does it indicate that the public policies on which tort liability
rests justify special dispensation from the good faith settlement rules applicable to other
tortfeasors.
FN 14. The Court of Appeal decisions which hold that a claim for total equitable
indemnity survives a good faith settlement were decided before Tech-Bilt, and assumed
that a vicariously or derivatively liable tortfeasor had no means of challenging, at the
good faith hearing, a settlement in which a clearly culpable defendant attempts "to buy
peace too cheaply at the expense of codefendants who are merely vicariously liable."
(Angelus Associates Corp. v. Neonex Leisure Products, Inc., supra, 167 Cal.App.3d 532,
542; Huizar v. Abex Corp., supra, 156 Cal.App.3d 534, 539, 542. See also City of
Sacramento v. Gemsch Investment Co., supra, 115 Cal.App.3d 869, 879 (Paras, J., dis.)
[referring to derivatively liable tortfeasor as "remedyless"].) The assumption on which
these cases were premised is clearly no longer viable in light of the Tech-Bilt decision.
FN 15. Contrary to the implications in the concurring and dissenting opinions, nothing in
this opinion is intended to foreclose a trial court from concluding, on the facts of a
particular case, that a proposed settlement agreement is not in good faith either because
an allegedly vicariously liable tortfeasor has been improperly excluded from settlement
negotiations or because such a tortfeasor has not been included within the settlement
agreement. At the same time, we do reject the suggestion that a proposed settlement
agreement may never be found to constitute a good faith settlement unless it provides for
the total dismissal of any cause of action as to which a nonsettling defendant claims to be
only vicariously liable. We believe the trial court which presides over the good faith
settlement hearing is in the best position to determine, based on the circumstances of the
particular case, whether the terms of a proposed settlement are unfair to a nonsettling
defendant who claims that its liability is only vicarious in nature.
FN 16. The facts of Tech-Bilt, supra, 38 Cal.3d 488, make it clear that the trial court's
good faith determination must take into account the settling tortfeasor's potential liability
for indemnity to a cotortfeasor, as well as the settling tortfeasor's potential liability to the
plaintiff. In Tech-Bilt, the settling tortfeasor faced no direct liability to the plaintiff
because the statute of limitations on the plaintiff's action against that tortfeasor had
expired; the settling tortfeasor, however, was still subject to an indemnity action by a
nonsettling tortfeasor who had been timely sued by the plaintiff. In Tech-Bilt, we
concluded that an agreement between the plaintiff and settling tortfeasor which purported
to absolve the settling tortfeasor from all liability without any payment on its part was not
a "good faith" settlement within the meaning of section 877.6 and would not operate to
bar the nonsettling tortfeasor's indemnity action. (38 Cal.3d at pp. 501-502.) Since the no-
payment settlement would not have been unfair if we had confined our view to the
settling tortfeasor's potential liability to the plaintiff -- because of the statute of
limitations the settling tortfeasor's likely liability to the plaintiff was zero -- the result in
Tech-Bilt necessarily turned on the fact that the settlement was unfair when the effect of
the settlement on the nonsettling tortfeasor's indemnity claim was taken into
consideration.
FN 17. As noted above, in this case Far West did not challenge the terms of the D & S
settlement agreement at the good faith hearing and never urged the court to withhold its
good faith determination until the D & S defendants agreed to assume all or a substantial
portion of the sum which Far West had already paid to the plaintiff.
FN 1. All statutory references are to the Code of Civil Procedure unless otherwise
specified.
FN 2. I adopt the majority opinion's party name conventions.
FN 3. Arriving at a workable definition of vicarious liability to guide parties and trial
courts presents no great difficulty and is in any event required to effectuate section
876(b). The "intractable problem" to which the majority refers was the problem of
defining the proper limits of total equitable indemnity after it was extended beyond
vicarious liability to encompass the elusive active-passive fault distinctions. (See
American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 594-595 [146
Cal.Rptr. 182, 578 P.2d 899].) That problem no longer exists and provides no justification
for the rule announced today.
FN 4. The American Motorcycle opinion refers to its holding as having "modified" (20
Cal.3d at pp. 583, 591, 598, 607) or as "expanding" (id. at p. 603) the existing equitable
indemnity doctrine. It also refers to "the partial indemnity doctrine that we adopt today"
(id. at pp. 603-604, italics added; see also, id. at p. 603) and to "recognition of a common
law right of comparative indemnity" (id. at p. 602, italics added; see also, id. at p. 603
["recognition of a common law partial indemnity doctrine"]). Thus the effect of the
holding was to recognize and adopt a rule (partial or comparative indemnity) as a new
variation within an existing doctrine (equitable indemnity), which was thereby expanded
and modified. This usage is consistent with the opinion's express holding: "Accordingly,
we hold that under the common law equitable indemnity doctrine a concurrent tortfeasor
may obtain partial indemnity from cotortfeasors on a comparative fault basis." (Id. at p.
608, italics added.)
FN 5. The majority finds it implausible that a vicariously liable defendant would enter
into a full-value settlement if the fault-source tortfeasor "is likely to be found 100 percent
responsible" and asserts it is "much more likely that settlements will take the form of
piecemeal contributions by individual defendants in some rough approximation to each
defendant's likely proportionate responsibility for the plaintiff's damages." (Ante, p. 811,
fn. 11.) These statements reveal a fundamental misunderstanding about vicarious liability.
Under section 876(b) the vicariously liable defendant and the fault-source tortfeasor are
responsible to the plaintiff for the same pro rata share. Should the case proceed to trial the
vicariously liable defendant would be assessed whatever comparative fault share is
attributable to the tort for which vicarious liability is imposed. Consequently, the "rough
approximation" of the vicariously liable defendant's proportionate responsibility for the
plaintiff's damages in the majority's hypothetical (which excludes the possibility of other
parties being at fault) will be 100 percent.
FN 6. Unlike the majority, I think it improbable the vicariously liable tortfeasor will settle
in reliance on the trial court's power to withhold its "good faith" approval of a later
settlement by the fault-source tortfeasor which fails to provide reimbursement for the
vicariously liable defendant. Realizing the great pressure on trial courts to approve
settlements, and the unlikelihood of appellate reversal of a good faith determination,
vicariously liable defendants will prefer and probably insist on the certainty of a veto or
dismissal provision before making a substantial settlement with the plaintiff.
FN 1. All statutory references are to the Code of Civil Procedure unless indicated
otherwise.
FN 2. In DeLeon v. Commercial Manufacturing & Supply Co., supra, 148 Cal.App.3d
336, 348, the court explained, "Dean Prosser has not overlooked this melding of legal
theory [of strict liability and fault]. In reference to product design, he notes that it is one
of 'two particular areas in which the liability of the manufacturer, even though it may
occasionally be called strict, appears to rest primarily upon a departure from proper
standards of care, so that the tort is essentially a matter of negligence.' (Prosser, Law of
Torts (4th ed. 1971) p. 644, fn. omitted.) [¶] Similarly, in Balido v. Improved Machinery,
Inc., supra, 29 Cal.App.3d at p. 640, the court observed that in deficient design cases
'strict liability and negligence claims merge.'"
FN 3. Such a case is not a remote possibility. "Liability under the doctrine of respondent
superior extends to malicious acts and other intentional torts of an employee committed
within the scope of his employment." (2 Witkin, Summary of Cal. Law (9th ed. 1987)
Agency and Employment, § 135, pp. 131-132.)
Major Clients Agency v. Diemer (1998) 67 Cal.App.4th

1116 , 79 Cal.Rptr.2d 613
[No. B106486. Second Dist., Div. One. Nov 16, 1998.]
MAJOR CLIENTS AGENCY, Plaintiff and Appellant, v. JOHN DIEMER, Defendant
and Respondent.
(Superior Court of Los Angeles County, No. SC040800, Lorna Parnell, Judge.)
(Opinion by Dunn, J., fn. * with Spencer, P. J., and Ortega, J., concurring.)
COUNSEL
Bronson, Bronson & McKinnon, Barry B. Langberg and Deborah Drooz for Plaintiff and
Appellant.
Crosby, Heafey, Roach & May, Kurt C. Peterson, James C. Martin, M. Reed Hunter and
Matthew A. Smith for Defendant and Respondent.
OPINION
DUNN, J.- fn. *
This appeal is from the judgment of dismissal in favor of the respondent entered on July
25, 1996, following the trial court's order sustaining a demurrer without leave to amend.
We affirm.
A. Factual and Procedural Background
Writer-producer Jeff Franklin (hereinafter Franklin) hired appellant Major Clients Agency
(hereinafter Major Clients) as his agent, to negotiate a contract between himself as writer-
producer and Lorimar Productions, Inc. (hereinafter Lorimar). Franklin also hired an
attorney, respondent John Diemer (hereinafter Diemer). Diemer was not hired as Major
Clients' attorney. Major Clients and Diemer were both involved in the contract
negotiations. The contract that was negotiated contained a commission agreement
between Major Clients and Franklin, which was based upon revenue to be received by
Franklin pursuant to the contract. Major Clients' two shareholder principals included
Richard Weston, an attorney and former president of Paramount Television.
The contract between Franklin and Lorimar was negotiated in 1988 and again in 1990
and contained the provisions that (1) Franklin was entitled to certain financial benefits
from the television series which he had created, Full House, for the life of the series,
provided that he serve as executive [67 Cal.App.4th 1121] producer for at least one year;
and (2) Franklin was to participate in the profits derived from such a series after
rendering executive producer services for one year. Another provision in the contract was
that the studio had the right to assign Franklin to, or remove him from, any series during
the contract term.
Prior to the expiration of the one-year period specified in the contract, Lorimar removed
Franklin from the position of executive producer in the Full House series and another
series he was developing, Hanging With Mr. Cooper. Lorimar then took the position that
Franklin was not entitled to the above stated benefits of the contracts for the reason that
he had not served the required year. Franklin sued Lorimar. The case was settled. fn. 1 In
the settlement agreement, Franklin surrendered his claim to a substantial fee entitlement.
As a result of this surrender, a dispute arose between Franklin and Major Clients
regarding the amount of commission to which Major Clients was entitled. Major Clients
filed a petition in arbitration for fees and Franklin cross-claimed. This controversy was
decided in arbitration by settlement. fn. 2
On February 5, 1996, Major Clients brought suit against Diemer. In its second amended
complaint, Major Clients alleged a single cause of action for indemnity for damages it
claimed it had sustained as a result of the lawsuit and settlement between Franklin and
Lorimar. Appellant's theory was that Diemer had not, on Franklin's behalf, adequately
monitored the 1988 and 1990 contract negotiations between Major Clients and Lorimar.
Diemer's demurrer to the complaint was sustained without leave to amend on July 25,
1996, and the suit was dismissed. This appeal was timely taken on September 30, 1996.
B. Contentions of the Parties
Major Clients contends that Diemer failed to recognize and alert his client, Franklin, to
the potentially adverse consequences of the language in certain provisions of the contract
between Lorimar and Franklin. Appellant contends that the language of a "lock in"
provision, a "vesting" provision, and "another contract provision" was worded in such
manner that the studio was able "to assign Franklin to, or remove him from, any
[television] series [67 Cal.App.4th 1122] during the contract term" so that he was
prevented from ever receiving any profits from or being "locked-in" to a series which he
had created. "As Franklin's transactional attorney, it was [Diemer's] duty to review the
legal language proposed by Lorimar and to ensure that [the] language ... protected
[Franklin's] interest...."
Diemer, in response, asserts that he did not owe to Major Clients any legally cognizable
duty of care and Major Clients therefore cannot plead facts sufficient to support a cause
of action.
C. Standard of Review
[1] We review the sufficiency of Major Client's pleading against the general demurrer
sustained by the trial court, treating the demurrer " 'as admitting all material facts
properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.]
We also consider matters which may be judicially noticed.' [Citation.] Further, we give
the complaint a reasonable interpretation, reading it as a whole and its parts in their
context. [Citation.] When a demurrer is sustained, ... [citation] ... without leave to amend,
we decide whether there is a reasonable possibility that the defect can be cured by
amendment: if it can be, the trial court has abused its discretion and we reverse; if not,
there has been no abuse of discretion and we affirm. [Citations.] The burden of proving
such reasonable possibility is squarely on the plaintiff. [Citation.]" (Blank v. Kirwan
(1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58]; Pollack v. Lytle (1981) 120
Cal.App.3d 931, 939 [175 Cal.Rptr. 81].) It is error to sustain a demurrer where a plaintiff
has stated facts sufficient to state a cause of action under any possible legal theory.
(McDonald v. Superior Court (1986) 180 Cal.App.3d 297, 303 [225 Cal.Rptr. 394].) "On
appeal from a judgment of dismissal entered after a demurrer has been sustained without
leave to amend, unless failure to grant leave to amend was an abuse of discretion, the
appellate court must affirm the judgment if it is correct on any theory." (Hendy v. Losse
(1991) 54 Cal.3d 723, 742 [1 Cal.Rptr.2d 543, 819 P.2d 1].)
D. The Cause of Action for Equitable Indemnity
1. The Issue
First, Franklin sued Lorimar. The case was settled. Franklin and Major Clients resolved
their controversy over commissions by settlement in arbitration. Major Clients then sued
Diemer seeking indemnity for damages allegedly suffered due to Diemer's alleged
professional negligence in representing Franklin. [67 Cal.App.4th 1123]
The issue presented by this scenario is: has an attorney, who has allegedly negligently
negotiated a contract for his client, an obligation to indemnify his client's representative,
who concurrently negotiated the contract, for damages paid by the representative to the
client as settlement for the loss resulting from the alleged negligent negotiations? To state
the case another way: where a party sues his representative for damages for alleged
negligence in negotiating a contract and that claim is resolved by settlement, is the party's
representative entitled to indemnity from the party's attorney who concurrently
participated in the contract negotiations?
The trial court, by its decision, answered the question in the negative.
2. The Theory of the Second Amended Complaint and of the Response
In its second amended complaint for equitable indemnity, Major Clients alleged that
Diemer, who held himself out to be an expert in entertainment transactions, rendered
legal advice to Franklin and Major Clients in negotiating the 1988 and 1990 contract
agreements, with the understanding they would rely on it. Major Clients alleged that
Diemer was negligent in the negotiations as a result of which Major Clients suffered
damages. Major Clients alleged that it is entitled to indemnification from Diemer for its
attorney's fees and costs incurred in defending Franklin's cross-claim in the Franklin-
Lorimar legal controversy, and for "the sums to which Major Clients may be required to
pay to Franklin in connection with the Cross-Claim ...." Major Clients posits that because
its interests, and those of Franklin in the Lorimar contract, were the same or similar,
Diemer's alleged legal errors vis-`a-vis their mutual client Franklin was somehow
misfeasance as to it.
Diemer countervails by pointing us to a series of cases which deal with the issue of suits
between original and successor attorneys and urges that they are controlling authority for
the position that the trial court correctly sustained the demurrer.
3. The Trial Court Decision
The trial court sustained the demurrer to the amended complaint on the basis that the
complaint failed to state a claim upon which relief could be granted. Leave to amend was
denied.
4. Legal Theories Presented on Appeal
Major Clients relies principally upon the rationale of Parker v. Morton (1981) 117
Cal.App.3d 751 [173 Cal.Rptr. 197], as authority for its position [67 Cal.App.4th 1124]
that it is entitled to indemnity. Attorney Parker, who represented Mrs. Peterson in her
dissolution proceeding, failed to assert a community property interest in her husband's
military pension. Mrs. Peterson sued Parker for negligence and engaged Attorney Morton
to rectify the failure of Parker to assert her rights in the pension. Morton, likewise, failed
to pursue her community property claim. Parker cross-complained against subsequent
Attorney Morton for indemnity asserting that Morton's negligence had caused or
exacerbated the damages which Mrs. Peterson claimed in her suit against Parker. The
appellate court reversed the trial judge's grant of summary judgment, applied ordinary
tort principles of indemnity, and held that proportionate indemnity was available to a
subsequent tortfeasor attorney from the original tortfeasor attorney. Parker is an
exception to the general rule established in successor attorney malpractice cases and is
illustrative that the attorney malpractice cases are an exception to the general principles
upon which indemnity is based.
Major Clients presents an elaborate argument that the authorities presented to the court by
Diemer which prohibit actions against an adversary's counsel "are so factually
distinguishable from this case that the rationale which they advance for imposing the
prohibition simply does not exist here." He argues that prior cases have involved claims
between successive attorneys, and that is absent here. Accordingly, there is no threat to
the concept of undivided loyalty by the attorney to his client. We find this argument to be
invalid because the issue is not whether the parties are in precisely the same positions as
those considered in previous cases, but rather, whether the threat of an indemnity lawsuit
will affect the attorney's dedication to the cause of his client.
Major Clients also argues that, unlike the situation in the case of Held v. Arant (1977) 67
Cal.App.3d 748 [134 Cal.Rptr. 422], Diemer was not faced with alternative courses of
action from which to choose and was not presented with a conflict between his client's
best interests and those of the client's representative, Major Clients. He had no tactical
choice to make inasmuch as he had a clear duty to interpret the contract in his client's best
interest. Since there was no discretionary decision to be made, no professional judgment
was involved. Diemer merely failed to recognize a flaw in the contract, and thereby failed
in his duty to his client. Thus, the undivided loyalty rationale of Held is inapplicable. We
reject this argument for the reason that even where there is but one course of action for an
attorney to follow, the attorney must be free from the threat of potential liability in order
to devote undivided loyalty to the client. Major Clients was a potential adversary on the
issue of commission fees which became an actual adversary when it sued Franklin for
fees. If an attorney is saddled with a duty to a [67 Cal.App.4th 1125] potentially adverse
party, then his loyalty to the client cannot be undivided. (See Holland v. Thacher (1988)
199 Cal.App.3d 924, 934-935 [245 Cal.Rptr. 247]; California State Auto. Assn. Inter-Ins.
Bureau v. Bales (1990) 221 Cal.App.3d 227, 232-233 [270 Cal.Rptr. 421].)
Major Clients argues the inapplicability of Gibson, Dunn & Crutcher v. Superior Court
(1979) 94 Cal.App.3d 347 [156 Cal.Rptr. 326] for the same reason. In that case, the court
said that "[l]awyer II should not be required to face a potential conflict between the
course which is in his client's best interest and the course which would minimize his
exposure to the cross-complaint of lawyer I." (Id. at p. 356.) Diemer, it argues, had no
such dilemma. Major Clients argues further the inapplicability of Lewis v. Purvin (1989)
208 Cal.App.3d 1208 [256 Cal.Rptr. 827], on the basis that Diemer and Major Clients
were not adversaries, but worked together, in the negotiation of Franklin's contract. In
Lewis, by contrast, the relationship between the first attorney and the second attorney was
at all times adversarial. Major Clients, in sum, urges that Parker is authority for the
proposition that "when the attorney's negligence does not arise from his choice between
two uncertain alternative remedies but rather arises from his failure to perform a duty that
he owes to his client as a matter of law, the public policy argument has no bearing and an
action for indemnity is appropriate." It urges reversal on the basis that disallowing its suit
thwarts the policy of ensuring that each tortfeasor who contributes to a loss should bear
the loss in proportion to each tortfeasor's own fault.
Diemer counters with the rationale of the Held case and argues that, in accord with its
principles, "the compelling public policies of confidentiality and undivided loyalty which
lie at the heart of the attorney-client relationship, preclude third parties suing attorneys
retained by 'actual or potential adversaries' for professional negligence." Moreover,
actions by a nonclient against an attorney are limited to those situations where the
nonclient was the intended beneficiary. Finally, he argues that the elements of an
indemnity claim have not been pled and, in any event, the claims are barred by the
applicable statute of limitations.
E. Discussion
1. Stating a Cause of Action for Equitable Indemnity
The case before the bench, unlike Parker v. Morton, supra, 117 Cal.App.3d 751, and
some of the other cases relied upon by the parties, is not a successor attorney claim. This
case involves a third party, Major Clients, that has made a claim against the attorney who
represented their [67 Cal.App.4th 1126] mutual client, Franklin, asserting that the
attorney's incompetence as to his client was the cause of damage to the third party. Thus,
the case authority involving successor attorneys relied upon by counsel in their argument
to the court are not directly on point. We examine the argument and the rationale,
nonetheless, highlighting that even assuming that this case is analogous to successor
attorney malpractice cases, the weight of authority is that indemnity is not available.
[2a] We hold that the trial court properly sustained the demurrer to the first amended
complaint without leave to amend, thus denying Major Clients any claim for equitable
indemnity.
Indemnity was not available at common law. The doctrine is a development of California
case law and was first utilized in the case of City & County of S. F. v. Ho Sing (1958) 51
Cal.2d 127 [330 P.2d 802]. In that case, Justice Carter wrote for the court that the city had
a right to recover from a property owner the $5,000 sum it had paid of a $15,000
settlement to a third party who was injured as a result of the property owner negligently
modifying a public sidewalk. (At pp. 128-129, 138.) Even though the city had the
primary responsibility to maintain the sidewalk, its "passive" negligence allowed it to
shift the entire burden of loss incurred by settlement or judgment to the "active"
tortfeasor. This case is illustrative that, as originally conceived, any party who had
actively participated in the wrongful conduct was denied indemnity. (See also Atchison,
T. & S. F. Ry. Co. v. Lan Franco (1968) 267 Cal.App.2d 881, 885-889 [73 Cal.Rptr. 660];
Herrero v. Atkinson (1964) 227 Cal.App.2d 69, 74 [38 Cal.Rptr. 490, 8 A.L.R.3d 629].)
Indemnity is predicated upon concepts such as: "[T]he key ingredient in equitable
indemnity: [is] equity. Where that element is missing, the complaint fails to state a cause
of action ...." (Munoz v. Davis (1983) 141 Cal.App.3d 420, 428 [190 Cal.Rptr. 400].) [3]
"The right [of indemnity] depends upon the principle that everyone is responsible for the
consequences of his own wrong, and if others have been compelled to pay damages
which ought to have been paid by the wrongdoer, they may recover from him. Thus the
determination of whether or not indemnity should be allowed must of necessity depend
upon the facts of each case. [Citations.]" (Herrero v. Atkinson, supra, 227 Cal.App.2d at
p. 74.) "[I]n the case law of equitable indemnity ... one point stands clear: there can be no
indemnity without liability. In other words, unless the prospective indemnitor and
indemnitee are jointly and severally liable to the plaintiff there is no basis for indemnity.
[Citation.]" (Munoz, supra, at p. 425.) "[A] fundamental prerequisite to an action for
partial or total equitable indemnity is an actual monetary loss through payment of a
judgment or settlement." (Christian v. County of Los [67 Cal.App.4th 1127] Angeles
(1986) 176 Cal.App.3d 466, 471 [222 Cal.Rptr. 76].) "It is well settled that a cause of
action for implied indemnity does not accrue or come into existence until the indemnitee
has suffered actual loss through payment. [Citations.]" (E. L. White, Inc. v. City of
Huntington Beach (1978) 21 Cal.3d 497, 506 [146 Cal.Rptr. 614, 579 P.2d 505].)
After comparative negligence was adopted in California (Li v. Yellow Cab Co. (1975) 13
Cal.3d 804 [119 Cal.Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393]), the rule of equitable
indemnity was modified to permit a concurrent tortfeasor to obtain partial indemnity from
other concurrent tortfeasors on a comparative fault basis. (American Motorcycle Assn. v.
Superior Court (1978) 20 Cal.3d 578, 598 [146 Cal.Rptr. 182, 578 P.2d 899].)
[4] The court in the case of Parker v. Morton, supra, 117 Cal.App.3d at page 756 states:
"It is the general rule that a subsequent tortfeasor who by his negligence exacerbates the
damages suffered by an already injured party may be named as a cross-defendant by the
party whose negligence caused the original injury and who, therefore, may be held liable
to the injured party for all of his damages including those resulting from the subsequent
negligence. [Citations.] This rule derives from several well-recognized legal principles all
of which foster the public policy of encouraging persons to conduct themselves with
reasonable care: that every person should be responsible for the consequences of his
negligent conduct [citations]; that as between tortfeasors who contribute to a loss each
shall bear the loss in proportion to his fault [citations]; and that an injured person must
himself take reasonable action to mitigate his damages [citations]." The basis of Major
Clients' claim rests on these general principles.
Given these rules as established by American Motorcycle Assn. v. Superior Court, supra,
20 Cal.3d 578, and subsequent cases it would seem, at first blush, that general rules of
indemnity and contribution would allow a claim where a lawyer who is sued for
malpractice by his client, in turn, sues the successor lawyer for indemnity on the theory
that the conduct of the successor lawyer contributed to the loss suffered by the client. Not
so. The cases dealing with this issue take the position that as to attorneys, policy
considerations militate against such a rule. A brief review of several typical cases is
illustrative.
2. The Attorney Exception
In the case of Goodman v. Kennedy (1976) 18 Cal.3d 335 [134 Cal.Rptr. 375, 556 P.2d
737], which preceded American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d
578, plaintiffs were buyers of stock from defendant's [67 Cal.App.4th 1128] clients.
Plaintiffs sued defendant attorney for fraud, alleging that defendant negligently advised
his clients that certain shares could be issued to them as stock dividends and sold to
others without SEC registration. Plaintiffs bought the shares of stock, the SEC suspended
their exemption and the stock became valueless. The defendant's demurrer was sustained.
(Goodman, supra, at p. 339.) The defendant's duty of care in advising his client did not
extend to plaintiffs with whom his clients dealt at arm's length in the absence of a
showing that the advice was foreseeably transmitted to or relied upon by plaintiffs, or that
they were intended beneficiaries of a transaction to which the advice pertained. (Ibid.)
Similarly, in the case of Held v. Arant, supra, 67 Cal.App.3d 748, a cross-complaint for
equitable indemnity was not allowed against the successor lawyer. The case dealt with the
issue of the right of an attorney, sued by his client for professional negligence, to seek
indemnity from the successor attorney, hired by his client on the same legal matter
subsequent to his discharge. The theory was that the negligence of the second attorney in
settling legally defensible claims foreseeably damaged the first attorney, Arant, by
exposing him to liability for malpractice and by damaging his professional reputation.
The court sustained the demurrer and dismissed the cross-complaint. (Id. at pp. 750-751.)
The court held that a lawyer's duty of care extends only to the intended beneficiaries of
his actions. Arant, the original lawyer, was not an intended beneficiary of the successor
lawyer in his representation of Held, therefore, he was not entitled to indemnity. (Id. at p.
751.) In addition, policy considerations precluded the application of implied indemnity.
(Id. at pp. 752-753.)
Gibson, Dunn & Crutcher v. Superior Court, supra, 94 Cal.App.3d 347, is a case with a
similar fact situation. Attorney II was hired to extricate the client from a situation created
by the alleged negligence of attorney I. (At p. 349.) The cross-complaint was held to be
impermissible notwithstanding the decision of our Supreme Court in American
Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d 578, holding that the system of
comparative negligence established in Li v. Yellow Cab Co., supra, 13 Cal.3d 804, in
appropriate cases, permits a negligent tortfeasor to cross-complain for total or partial
indemnity against an alleged joint tortfeasor. The court held that the prohibition of a
cross-complaint by attorney I was based upon the rationale that where the successor
lawyer is called upon to exercise a choice between alternative remedies, he must be
unfettered from fear of suit by potential adversaries so that he may exercise his best
professional judgment and allow his client the benefit of his undivided loyalty. (Gibson,
Dunn & Crutcher, supra, at pp. 351-356.)
In the case of Munoz v. Davis, supra, 141 Cal.App.3d 420, the court held that a driver
whose negligence resulted in personal injuries to the plaintiff [67 Cal.App.4th 1129] was
liable to the plaintiff for those injuries, but was not liable to indemnify the plaintiff for a
subsequent injury to plaintiff caused by the malpractice of plaintiff's attorney in failing to
file a personal injury action within the period of the statute of limitations. The driver and
the attorney were not jointly and severally liable for the same injury to plaintiff. (At pp.
425-430.)
In California State Auto. Assn. Inter-Ins. Bureau v. Bales, supra, 221 Cal.App.3d 227, a
case not involving successor attorneys, the court held that an insurer who is sued by a
third party claimant for a bad faith delay in processing a claim may not obtain equitable
indemnity on a theory of negligence from the claimant's former attorney because of the
public policy exception to the general rule of equitable indemnity which favors
preserving the undivided loyalty of an attorney to his client. (At pp. 228-229.)
[5] Each of these cases, except the last, addresses the issue of whether an attorney who is
sued for malpractice by a former client may cross-complain for equitable indemnity
against a successor attorney who has been hired to extricate the client from the condition
created by the predecessor attorney. The cases hold that for sound public policy reasons,
such cross-complaints are prohibited. Those policy reasons were clearly expounded in the
dissenting opinion of Justice Morris in Parker v. Morton, supra, 117 Cal.App.3d 751.
Justice Morris pointed out that recent cases had uniformly held, for those sound policy
reasons, that such a suit is impermissible. The first attorney should have no right of
indemnity from the second because: "(1) the threat of such a lawsuit by a client's
adversary impinges upon the individual loyalty of the second attorney in advising his
client [citation]; (2) one consequence of such a cross-complaint is to preclude the second
attorney from trying the lawsuit, thus depriving the party of the attorney of his choice
[citation]; (3) the threat of such a cross-complaint results in the injection of undesirable
self-protective reservations into the attorney's counselling role, thereby diminishing the
quality of legal services received by the client [citation]; and (4) such lawsuits jeopardize
the policy of encouraging confidence and preserving inviolate the attorney-client
relationship [citation]." (Id. at pp. 767-768.) Justice Morris's statement that "[t]he threat
to the attorney-client relationship posed by the filing of cross-complaints against
plaintiffs' counsel can be avoided only if the rule is applied to preclude the filing of such
cross-complaints" seems to us an insight that should be applied in this case. (Id. at p.
768.)
3. The Case Before the Bench
[2b] This case, as we have observed, does not raise the issue of whether a lawyer sued for
malpractice may seek indemnity from a successor lawyer [67 Cal.App.4th 1130] who
represented the same client on the same claim, and where it is contended that the conduct
of the successor lawyer contributed to the client's damages. In this case, Diemer is not a
subsequent tortfeasor attorney. If Diemer was negligent at all, his negligence was
concurrent with that of Major Clients since they were both hired to, and did, in varying
degree not disclosed by the record, negotiate the contract with Lorimar. Major Clients'
reliance upon the case of Parker v. Morton, supra, 117 Cal.App.3d 751 where the court
took a position which deviates from the general rule, holding that a lawyer could assert a
cause of action for indemnity against a successor lawyer is, accordingly, misplaced.
[6] "[T]he ordinary rules of implied equitable indemnity in tort do not apply when the
claim for indemnity is made against an attorney, is based on a breach of the attorney's
duty to his or her client, and is brought by an adverse party in litigation which is the same
as or related to that in which the alleged negligence took place. [Citations.] Perceiving
that attorneys would be reluctant to accept cases that might result in indemnity claims,
and, more significantly, that if faced with a potential indemnity claim, the attorney's sense
of self-preservation might impinge on his or her duty of undivided loyalty to the client,
these cases have established an exception to the ordinary rule of equitable indemnity.
[Citation.]" (California State Auto. Assn. Inter-Ins. Bureau v. Bales, supra, 221
Cal.App.3d at p. 230.) [2c] The considerations which applied in those cases dictate the
application of the exception here.
Concurrent Negligence
Diemer and Major Clients having negotiated the contract concurrently are, to the extent
that there was a breach of their duty of diligent representation on behalf of their client,
concurrent tortfeasors. Although Weston, who acted on behalf of Major Clients, is an
attorney, the record does not reflect that he acted in the capacity of an attorney. As a
matter of fact the record does not disclose that he acted at all. The entity that engaged in
the negotiations was Major Clients, which entity is not a lawyer. Accordingly, the
successor attorney malpractice cases relied upon by Major Clients and Diemer are not
directly relevant. The rules which are applicable to concurrent tortfeasors are applicable.
"The imposition of a duty of professional care toward third persons generally has been
limited to those situations wherein the nonclient was an intended beneficiary of the
attorney's services to the client, or where the foreseeability of harm to the nonclient as a
consequence of professional negligence was not outweighed by other policy
considerations.... [¶] It has been held, however, that an attorney has no duty to protect the
interests of an adverse party [citations] .... Reasoning that the adverse party is not [67
Cal.App.4th 1131] the intended beneficiary of an attorney's services, and that the
attorney's undivided loyalty belongs to the client, these decisions also refuse to impose a
duty where to do so would impermissibly intrude upon the attorney-client relationship.
[Citations.]" (Schick v. Lerner (1987) 193 Cal.App.3d 1321, 1330 [238 Cal.Rptr. 902].)
In our review, we must accept the allegations of the pleadings as true. Properly pleaded
factual allegations are deemed admitted for the purposes of a demurrer. (Loehr v. Ventura
County Community College Dist. (1983) 147 Cal.App.3d 1071, 1076-1077 [195 Cal.Rptr.
576].) The first amended complaint alleges that Major Clients was hired by Franklin to
represent Franklin in the type of contract being negotiated with Lorimar. The pleading
does not allege that Major Clients engaged Diemer as its attorney or that it had in any
manner established an attorney-client relationship with Diemer. The pleading states only
that Diemer's legal advice was proffered "with the understanding and intention that
Franklin and Major would rely upon and act on such advice." Moreover, the pleading
alleges as damages "sums to which Major Clients may be required to pay to Franklin in
connection with [Franklin's] Cross-Claim ..." and attorney's fees and costs. This language
is insufficient to assert that Major Clients has suffered a pecuniary loss by way of
payment of a judgment or settlement for alleged negligent conduct. (Christian v. County
of Los Angeles, supra, 176 Cal.App.3d at p. 471.) Inasmuch as the basis for the remedy of
equitable indemnity is restitution, a pleading is fatally defective if there is an absence of
an allegation that Major Clients has discharged a liability that should be the responsibility
of Diemer to pay. (See Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital
(1994) 8 Cal.4th 100, 108-109 [32 Cal.Rptr.2d 263, 876 P.2d 1062].)
The basis of an action for equitable indemnity is a joint legal obligation to another for
damages. (Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital, supra, 8
Cal.4th at p. 114.) As we previously stated, "there can be no indemnity without liability"
(Munoz v. Davis, supra, 141 Cal.App.3d at p. 425), meaning that if the record does not
establish that a defendant is a concurrent tortfeasor responsible in some measure for the
injuries suffered by the plaintiff, that defendant is not subject to a claim for indemnity by
another defendant. (Frank v. State of California (1988) 205 Cal.App.3d 488, 494 [252
Cal.Rptr. 410].) In this case, Major Clients' claim for equitable indemnity is lacking the
essential element of concurrent liability to plaintiff Franklin.
Moreover, indemnification is not automatically available to a tortfeasor who, with
another, injures the same plaintiff. Courts are obligated to make [67 Cal.App.4th 1132]
an evaluation of the case to determine if the application of the remedy is appropriate.
(Woodward-Gizienski & Associates v. Geotechnical Exploration, Inc. (1989) 208
Cal.App.3d 64, 67 [255 Cal.Rptr. 800]). In this case, we hold that indemnity would be
inappropriate. Major Clients was an entity ostensibly expert in the type of negotiations in
which it engaged and the negotiations were carried out by a Major Clients representative
who was an attorney. We hold that the rationale expressed in the successor attorney
malpractice cases have application here and, under any circumstance would render the
application of indemnity inappropriate.
[7] "An attorney generally will not be held liable to a third person not in privity of
contract with him since he owes no duty to anyone other than his client. The question of
whether an attorney may, under certain circumstances, owe a duty to some third party is
essentially one of law and, as such, involves 'a judicial weighing of the policy
considerations for and against the imposition of liability under the circumstances.
[Citation.]' (Goodman v. Kennedy[, supra,] 18 Cal.3d [at p.] 342 ....)" (Schick v. Lerner,
supra, 193 Cal.App.3d at p. 1329.)
[2d] To state a cause of action for equitable indemnity, Major Clients' complaint must
allege that: (1) Major Clients and Diemer's concurrent fault contributed as a cause of
economic damages to the injured party, Franklin; (2) Major Clients has become liable to
pay economic damages to the injured party, Franklin; (3) Major Clients is entitled to an
award against Diemer for an amount of such damages in excess of Major Clients'
proportionate fault. (BAJI No. 12.69.) The second and third requirements are lacking in
that there is no allegation by Major Clients that it has suffered any loss by virtue of any
legal obligation to pay Franklin. The record reflects that Franklin and Lorimar entered
into a settlement agreement. The terms of the settlement agreement are, however, not to
be found in this record. Major Clients does not direct us to any settlement agreement,
judgment, or order obligating Major Clients to pay any sum to Franklin. Absent this
prerequisite, Major Clients cannot state a viable cause of action against Diemer for
equitable indemnity.
Where there is no legal duty, the issue of professional negligence cannot be pled because
with the absence of a breach of duty, an essential element of the cause of action for
professional negligence is missing. (Goldberg v. Frye (1990) 217 Cal.App.3d 1258, 1267
[266 Cal.Rptr. 483].)
In summation, applying to this case the principles we have outlined, we hold that the
judgment of the trial court was correct because Major Clients [67 Cal.App.4th 1133] had
no attorney-client relationship with Diemer, was not an intended beneficiary of the legal
services that were rendered by Diemer to his client, and was a potential adverse party on
the issue of commission obligations by Diemer's client to Major Clients. Even if it was
foreseeable to Diemer that his advice to his client might have possible adverse effects on
the interests of Major Clients, such is not sufficient reason to override public policy
considerations and impose tort liability (See, e.g., Skarbrevik v. Cohen, England &
Whitfield (1991) 231 Cal.App.3d 692 [282 Cal.Rptr. 627].)
We hold that the ordinary rules of equitable indemnity apply here. Moreover,
considerations of public policy buttress the principle that an attorney's duty of loyalty to
his client should not be diminished by imputing to him legal obligations to the client's
other advisors, be they attorneys or acting in some other capacity, unless such parties are
clearly intended beneficiaries of the legal services being rendered. (See, e.g., Holland v.
Thacher, supra, 199 Cal.App.3d at pp. 929-935, which discusses public policy
considerations.)
4. The Issue of Leave to Amend
We consider finally whether Major Clients should be provided an opportunity to amend
their pleadings, if they are able so to do, to allege facts sufficient to cure the defects in
their previous attempts to state a cause of action. "On appeal from a judgment of
dismissal entered after a demurrer has been sustained without leave to amend, unless
failure to grant leave to amend was an abuse of discretion, the appellate court must affirm
the judgment if it is correct on any theory. (Code Civ. Proc., § 472c; E. L. White, Inc. v.
City of Huntington Beach[, supra,] 21 Cal.3d 497 ....) ... The burden is on the plaintiff,
however, to demonstrate the manner in which the complaint might be amended.
[Citation.]" (Hendy v. Losse (1991) 54 Cal.3d 723, 742 [1 Cal.Rptr.2d 543, 819 P.2d 1].)
[8] We conclude that the trial court did not abuse its discretion in dismissing the
complaint without leave to amend. The record in this case shows that Major Clients has
not met its burden in this case. It merely stated in its opposition to Diemer's demurrer that
"if the Court finds the operative complaint deficient, Plaintiff respectfully requests leave
to amend to bring that pleading within the purview of Parker v. Morton and Home
Budget Loans." The brief presented to this court suffers from the same debility in that it
fails to make an offer to allege facts which would establish a cause of action. The trial
court ruled correctly.
In view of our disposition, it is unnecessary that we address the issue of the statute of
limitations. [67 Cal.App.4th 1134]
Disposition
Since appellant cannot state a viable cause of action against respondent for equitable
indemnity, the trial court's ruling was correct. We affirm.
Spencer, P. J., and Ortega, J., concurred.
FN *. Judge of the Municipal Court for the Long Beach Judicial District, assigned by the
Chief Justice pursuant to article VI, section 6 of the California Constitution.
FN *. Judge of the Municipal Court for the Long Beach Judicial District, assigned by the
Chief Justice pursuant to article VI, section 6 of the California Constitution.
FN 1. The terms of the settlement have not been provided in the record. There is no
mention of whether Major Clients did or did not have an obligation to pay Franklin any
sum. The record reflects only that Major Clients has entered into a confidential settlement
agreement with Franklin. There is no allegation in the record that there is, in the
settlement agreement, a disclosure clause.
FN 2. The petition of Major Clients and the cross-claim of Franklin both focus upon the
controversy regarding agency commissions on profit participation revenue. The
settlement specifics of this controversy are not in the record.
Regional Steel Corp. v. Superior Court (McCarthy

Western Constructors, Inc.) (1994) 25 Cal.App.4th 525 ,
32 Cal.Rptr.2d 417
REGIONAL STEEL CORPORATION, Petitioner, v. THE SUPERIOR COURT OF SAN
DIEGO COUNTY, Respondent; McCARTHY WESTERN CONSTRUCTORS, INC., et
al., Real Parties in Interest.
(Superior Court of San Diego County, No. 654843, James Alden McIntyre, Judge.)
(Opinion by Work, Acting P. J., with Todd and Nares, JJ., concurring.)
COUNSEL
Chenen, Cohen & Linden, Scott Richard Lord and Paul Simon Leevan for Petitioner.
Robie & Matthai, Edith R. Matthai and Pamela E. Dunn for Real Parties in Interest.
OPINION
WORK, Acting P. J.
Regional Steel Corporation (Regional) petitions for a writ of mandate after the court
denied its motion for summary judgment in [25 Cal.App.4th 527] this action arising
from injuries to an ironworker. Regional, a subcontractor, was named in a cross-
complaint for equitable indemnity, comparative contribution and declaratory relief by the
general contractor after the ironworker sued the general contractor. Regional contends it
was entitled to summary judgment because principles of equitable or comparative
indemnity are inapplicable when parties have an express indemnity agreement. We agree
and grant the petition.
Factual and Procedural Background
McCarthy Western Constructors, Inc. (McCarthy) was the general contractor in a project
to build a science building on the University of California, San Diego campus. Under a
subcontract with McCarthy dated April 24, 1991, Regional agreed to supply and install
reinforcing bar in the project. The "Insurance and Indemnity" section of the subcontract
originally provided in part: "5.6 To the fullest extent permitted by law, Subcontractor
agrees to indemnify and hold harmless McCarthy, the Owner, the Architect and all of
their agents, officers and employees from and against all claims, damages, losses and
expenses, including but not limited to attorney's fees and court costs, arising out of or
resulting from the performance, or failure in performance, of Subcontractor's Work and
obligations as provided in the Contract Documents, including any extra Work, and from
any claim, damage, loss or expense which (1) is attributable to bodily injury, sickness,
disease, death, injury to or destruction of tangible property (other than the Work itself)
including the loss of use resulting therefrom, and (2) is caused in whole or in part by any
acts, omissions or negligence of Subcontractor or anyone directly or indirectly employed
by Subcontractor or anyone for whose acts Subcontractor may be liable regardless of
whether it is caused in part by the acts, omissions or negligence of a party indemnified
hereunder. Such obligations shall not be constituted to negate, abridge, or otherwise
reduce any other right or obligation of indemnity which would otherwise exist as to any
party or person described in this Paragraph 5.6." The parties later amended their
agreement to provide: "Article 5.6: Regional Steel Corporation will indemnify others
only to the extent that damage is caused in whole by any negligent act or omission by
anyone directly employed by or under the control of Regional Steel Corporation."
On August 5, 1992, Michael DeLaura (DeLaura) filed a complaint for negligence against
McCarthy and others, fn. 1 alleging he was injured after being knocked from a truck by
McCarthy's crane while unloading rebar. McCarthy [25 Cal.App.4th 528] cross-
complained against Regional for equitable indemnity, comparative contribution and
declaratory relief on December 18, 1992. fn. 2
Regional moved for summary judgment (Code Civ. Proc., § 437c) on the grounds it was
not a joint tortfeasor and thus could not be subject to a claim for comparative equitable
indemnity. Regional lodged a copy of the subcontract and amendment with its motion.
McCarthy opposed the motion, arguing triable issues exist whether Regional properly
supervised the work, whether Regional properly bundled, loaded and transported the
rebar and whether Regional failed to conduct a required safety program.
In reply, Regional argued it was also entitled to summary judgment because McCarthy
did not dispute the existence of the subcontract or the existence of the express indemnity
clause, which precluded McCarthy from seeking liability on principles of equitable
indemnity. McCarthy in turn responded it could pursue Regional under either or both
theories of equitable and contractual indemnity and it had not yet been determined if the
express indemnity clause applied to DeLaura's claim.
The court denied the motion for summary judgment on January 18, 1994, stating it had
"determined that there are triable issues of fact as to the degree of negligence, if any, by
Regional and McCarthy. Therefore, it has not been established that the accident was not
the result of Regional's sole negligence. As a result, it has not been established as a matter
of law that Regional has no liability for indemnity under its contract or otherwise."
Regional petitioned to this court. Following McCarthy's response, we stayed the trial set
for May 13.
Discussion
"Indemnity may be defined as the obligation resting on one party to make good a loss or
damage another party has incurred.... This obligation may be expressly provided for by
contract ..., it may be implied from a contract not specifically mentioning indemnity, or it
may arise from the equities of particular circumstances." (Rossmoor Sanitation, Inc. v.
Pylon, Inc. (1975) 13 Cal.3d 622, 628 [119 Cal.Rptr. 449, 532 P.2d 97], citations
omitted.) [1] Express indemnity and implied indemnity are subject to their own
distinctive legal rules and limitations. "Those [rules] governing so-called 'express'
indemnity reflect its contractual nature, permitting great freedom of action to the parties
in the establishment of the indemnity [25 Cal.App.4th 529] arrangements while at the
same time subjecting the resulting contractual language to established rules of
construction." (Fn. omitted.) (E. L. White, Inc. v. City of Huntington Beach (1978) 21
Cal.3d 497, 507 [146 Cal.Rptr. 614, 579 P.2d 505].) "Where ... parties have expressly
contracted with respect to the duty to indemnify, the extent of that duty must be
determined from the contract and not by reliance on the independent doctrine of equitable
indemnity." (Rossmoor Sanitation, Inc. v. Pylon, Inc., supra, 13 Cal.3d, 622, 628.)
Here, the April 24, 1991, subcontract between McCarthy and Regional contained an
express indemnity clause requiring Regional to indemnify McCarthy and others where
the loss or damage was "caused in whole or in part" by Regional, its employees, or
certain others under Regional's control. McCarthy and Regional later made several
"Clarifications to Subcontract" including changing the indemnity clause to provide
Regional would indemnify others "only to the extent that damage is caused in whole by
any negligent act or omission by anyone directly employed by or under the control" of
Regional. (Italics added.) [2] The "caused in whole" indemnity clause precludes joint
tortfeasor liability. By contract, McCarthy bargained away its right to pursue Regional on
equitable indemnity grounds. Because Regional's duty is limited by contract and
McCarthy did not sue on the contract, Regional was entitled to summary judgment. fn. 3
As Regional's entitlement to relief is extraordinarily clear, a peremptory writ in the first
instance is proper. (Code Civ. Proc., § 1088; Alexander v. Superior Court (1993) 5
Cal.4th 1218, 1222 [23 Cal.Rptr.2d 397, 859 P.2d 96]; Ng v. Superior Court (1992) 4
Cal.4th 29, 35 [13 Cal.Rptr.2d 856, 840 P.2d 961].)
Disposition
The petition is granted. The stay issued on April 7, 1994, is vacated upon issuance of the
remittitur.
Todd, J., and Nares, J., concurred.
FN 1. DeLaura also named McCarthy Crane Company and Allan L. Rondo, the alleged
crane operator. We omit the other named defendants as unnecessary to our discussion.
FN 2. McCarthy also cross-complained against another entity, Reinforcing Post
Tensioning Services, Inc., for express indemnity and breach of contract. Because
Reinforcing Post Tensioning Services, Inc. is not a party to this petition, we omit its
procedural history.
FN 3. We do not comment on a possible claim by McCarthy for express contractual
indem
American Motorcycle Assn. v. Superior Court , 20

Cal.3d 578
[L.A. No. 30737. Supreme Court of California. February 9, 1978.]
AMERICAN MOTORCYCLE ASSOCIATION, Petitioner, v. THE SUPERIOR COURT
OF LOS ANGELES COUNTY, Respondent; VIKING MOTORCYCLE CLUB et al.,
Real Parties in Interest
(Opinion by Tobriner, J., with Bird, C. J., Mosk, Richardson and Manuel, JJ., and
Sullivan, J., concurring. Separate dissenting opinion by Clark, J.)
COUNSEL
Lawler, Felix & Hall, Thomas E. Workman, Jr., Erwin E. Adler and Jane H. Barrett for
Petitioner.
John W. Baker, Caywood J. Borror, Francis Breidenbach, Richard B. Goethals, Stephen J.
Grogan, Henry E. Kappler, Kenneth E. Moes, W. F. Rylaarsdam and Lucien A. Van Hulle
as Amici Curiae on behalf of Petitioner.
No appearance for Respondent. [20 Cal.3d 582]
Jack A. Rose for Real Parties in Interest.
William P. Camusi, Robert E. Cartwright, Edward I. Pollock, Wylie A. Aitken, Leonard
Sacks, Leroy Hersh, David B. Baum, Stephen I. Zetterberg, Robert G. Beloud, Ned
Good, Arne Werchick, Sanford M. Gage, Joseph Posner, Herbert Hafif and William B.
Boone as Amici Curiae on behalf of Real Parties in Interest.
OPINION
TOBRINER, J.
Three years ago, in Li v. Yellow Cab Co. (1975) 13 Cal.3d 804 [119 Cal.Rptr. 858, 532
P.2d 1226, 78 A.L.R.3d 393], we concluded that the harsh and much criticized
contributory negligence doctrine, which totally barred an injured person from recovering
damages whenever his own negligence had contributed in any degree to the injury, should
be replaced in this state by a rule of comparative negligence, under which an injured
individual's recovery is simply proportionately diminished, rather than completely
eliminated, when he is partially responsible for the injury. In reaching the conclusion to
adopt comparative negligence in Li, we explicitly recognized that our innovation
inevitably raised numerous collateral issues, "[t]he most serious [of which] are those
attendant upon the administration of a rule of comparative negligence in cases involving
multiple parties." (13 Cal.3d at p. 823.) Because the Li litigation itself involved only a
single plaintiff and a single defendant, however, we concluded that it was "neither
necessary nor wise" (13 Cal.3d at p. 826) to address such multiple party questions at that
juncture, and we accordingly postponed consideration of such questions until a case
directly presenting such issues came before our court. The present mandamus proceeding
presents such a case, and requires us to resolve a number of the thorny multiple party
problems to which Li adverted.
For the reasons explained below, we have reached the following conclusions with respect
to the multiple party issues presented by this case. First, we conclude that our adoption of
comparative negligence to ameliorate the inequitable consequences of the contributory
negligence rule does not warrant the abolition or contraction of the established "joint and
several liability" doctrine; each tortfeasor whose negligence is a proximate cause of an
indivisible injury remains individually liable for all compensable damages attributable to
that injury. Contrary to petitioner's contention, we conclude that joint and several liability
does not logically conflict with a comparative negligence regime. Indeed, as [20 Cal.3d
583] we point out, the great majority of jurisdictions which have adopted comparative
negligence have retained the joint and several liability rule; we are aware of no judicial
decision which intimates that the adoption of comparative negligence compels the
abandonment of this long-standing common law rule. The joint and several liability
doctrine continues, after Li, to play an important and legitimate role in protecting the
ability of a negligently injured person to obtain adequate compensation for his injuries
from those tortfeasors who have negligently inflicted the harm.
Second, although we have determined that Li does not mandate a diminution of the rights
of injured persons through the elimination of the joint and several liability rule, we
conclude that the general principles embodied in Li do warrant a reevaluation of the
common law equitable indemnity doctrine, which relates to the allocation of loss among
multiple tortfeasors. As we explain, California decisions have long invoked the equitable
indemnity doctrine in numerous situations to permit a "passively" or "secondarily"
negligent tortfeasor to shift his liability completely to a more directly culpable party.
While the doctrine has frequently prevented a more culpable tortfeasor from completely
escaping liability, the rule has fallen short of its equitable heritage because, like the
discarded contributory negligence doctrine, it has worked in an "all-or-nothing" fashion,
imposing liability on the more culpable tortfeasor only at the price of removing liability
altogether from another responsible, albeit less culpable, party.
Prior to Li, of course, the notion of apportioning liability on the basis of comparative
fault was completely alien to California common law. In light of Li, however, we think
that the long-recognized common law equitable indemnity doctrine should be modified to
permit, in appropriate cases, a right of partial indemnity, under which liability among
multiple tortfeasors may be apportioned on a comparative negligence basis. As we
explain, many jurisdictions which have adopted comparative negligence have embraced
similar comparative contribution or comparative indemnity systems by judicial decision.
Such a doctrine conforms to Li's objective of establishing "a system under which liability
for damage will be borne by those whose negligence caused it in direct proportion to their
respective fault." (13 Cal.3d at p. 813.)
Third, we conclude that California's current contribution statutes do not preclude our
court from evolving this common law right of comparative indemnity. In Dole v. Dow
Chemical Company (1972) 30 N.Y.2d 143 [331 N.Y.S.2d 382, 282 N.E.2d 288, 53
A.L.R.3d 175] the [20 Cal.3d 584] New York Court of Appeals recognized a similar,
common law partial indemnity doctrine at a time when New York had a contribution
statute which paralleled California's present legislation. Moreover, the California
contribution statute, by its own terms, expressly subordinates its provisions to common
law indemnity rules; since the comparative indemnity rule we recognize today is simply
an evolutionary development of the common law equitable indemnity doctrine, the
primacy of such right of indemnity is expressly recognized by the statutory provisions. In
addition, the equitable nature of the comparative indemnity doctrine does not thwart, but
enhances, the basic objective of the contribution statute, furthering an equitable
distribution of loss among multiple tortfeasors.
Fourth, and finally, we explain that under the governing provisions of the Code of Civil
Procedure, a named defendant is authorized to file a cross-complaint against any person,
whether already a party to the action or not, from whom the named defendant seeks to
obtain total or partial indemnity. Although the trial court retains the authority to postpone
the trial of the indemnity question if it believes such action is appropriate to avoid unduly
complicating the plaintiff's suit, the court may not preclude the filing of such a cross-
complaint altogether.
In light of these determinations, we conclude that a writ of mandate should issue,
directing the trial court to permit petitioner-defendant to file a cross-complaint for partial
indemnity against previously unjoined alleged concurrent tortfeasors.
1. The facts
In the underlying action in this case, plaintiff Glen Gregos, a teenage boy, seeks to
recover damages for serious injuries which he incurred while participating in a cross-
country motorcycle race for novices. Glen's second amended complaint alleges, in
relevant part, that defendants American Motorcycle Association (AMA) and the Viking
Motorcycle Club (Viking) -- the organizations that sponsored and collected the entry fee
for the race -- negligently designed, managed, supervised and administered the race, and
negligently solicited the entrants for the race. The second amended complaint further
alleges that as a direct and proximate cause of such negligence, Glen suffered a crushing
of his spine, resulting in the permanent loss of the use of his legs and his permanent
inability to perform sexual functions. Although the negligence count of the complaint
does not identify the specific acts or omissions of which plaintiff complains, additional
allegations in the complaint assert, inter alia, that [20 Cal.3d 585] defendants failed to
give the novice participants reasonable instructions that were necessary for their safety,
failed to segregate the entrants into reasonable classes of equivalently skilled participants,
and failed to limit the entry of participants to prevent the racecourse from becoming
overcrowded and hazardous. fn. 1
AMA filed an answer to the complaint, denying the charging allegations and asserting a
number of affirmative defenses, including a claim that Glen's own negligence was a
proximate cause of his injuries. Thereafter, AMA sought leave of court to file a cross-
complaint, which purported to state two causes of action against Glen's parents. The first
cause of action alleges that at all relevant times Glen's parents (1) knew that motorcycle
racing is a dangerous sport, (2) were "knowledgeable and fully cognizant" of the training
and instruction which Glen had received on the handling and operation of his motorcycle,
and (3) directly participated in Glen's decision to enter the race by signing a parental
consent form. This initial cause of action asserts that in permitting Glen's entry into the
race, his parents negligently failed to exercise their power of supervision over their minor
child; moreover, the cross-complaint asserts that while AMA's negligence, if any, was
"passive," that of Glen's parents was "active." On the basis of these allegations, the first
cause of action seeks indemnity from Glen's parents if AMA is found liable to Glen.
In the second cause of action of its proposed cross-complaint, AMA seeks declaratory
relief. It reasserts Glen's parents' negligence, declares that Glen has failed to join his
parents in the action, and asks for a declaration of the "allocable negligence" of Glen's
parents so that "the damages awarded [against AMA], if any, [may] be reduced by the
percentage of damages allocable to cross-defendants' negligence." As more fully
explained in the accompanying points and authorities, this second cause of action is based
on an implicit assumption that the Li decision abrogates the rule of joint and several
liability of concurrent tortfeasors and establishes in its stead a new rule of "proportionate
liability," under which each concurrent tortfeasor who has proximately [20 Cal.3d 586]
caused an indivisible harm may be held liable only for a portion of plaintiff's recovery,
determined on a comparative fault basis.
The trial court, though candidly critical of the current state of the law, concluded that
existing legal doctrines did not support AMA's proposed cross-complaint, and
accordingly denied AMA's motion for leave to file the cross-complaint. AMA petitioned
the Court of Appeal for a writ of mandate to compel the trial court to grant its motion,
and the Court of Appeal, recognizing the recurrent nature of the issues presented and the
need for a speedy resolution of these multiple party questions, issued an alternative writ;
ultimately, the court granted a peremptory writ of mandate. In view of the obvious
statewide importance of the questions at issue, we ordered a hearing in this case on our
own motion. All parties concede that the case is properly before us.
2. [1a] The adoption of comparative negligence in Li does not warrant the abolition of
joint and several liability of concurrent tortfeasors.
In evaluating the propriety of the trial court's ruling, we begin with a brief review of the
established rights of injured persons vis-a-vis negligent tortfeasors under current law. [2]
Under well-established common law principles, a negligent tortfeasor is generally liable
for all damage of which his negligence is a proximate cause; stated another way, in order
to recover damages sustained as a result of an indivisible injury, a plaintiff is not required
to prove that a tortfeasor's conduct was the sole proximate cause of the injury, but only
that such negligence was a proximate cause. (See generally 4 Witkin, Summary of Cal.
Law (8th ed. 1974) Torts, § 624, pp. 2906-2907 and cases cited; Rest.2d Torts, §§ 432,
subd. (2), 439.) This result follows from Civil Code section 1714's declaration that
"[e]very one is responsible ... for an injury occasioned to another by his want of ordinary
care or skill. ..." A tortfeasor may not escape this responsibility simply because another
act -- either an "innocent" occurrence such as an "act of God" or other negligent conduct
-- may also have been a cause of the injury.
In cases involving multiple tortfeasors, the principle that each tortfeasor is personally
liable for any indivisible injury of which his negligence is a proximate cause has
commonly been expressed in terms of "joint and several liability." As many
commentators have noted, the "joint and several liability" concept has sometimes caused
confusion because the terminology has been used with reference to a number of distinct
situations. (See, e.g., Prosser, Law of Torts (4th ed. 1971) §§ 46, 47, [20 Cal.3d 587] pp.
291-299; 1 Harper & James, Law of Torts (1956) § 10.1, pp. 692-709.) The terminology
originated with respect to tortfeasors who acted in concert to commit a tort, and in that
context it reflected the principle, applied in both the criminal and civil realm, that all
members of a "conspiracy" or partnership are equally responsible for the acts of each
member in furtherance of such conspiracy.
Subsequently, the courts applied the "joint and several liability" terminology to other
contexts in which a preexisting relationship between two individuals made it appropriate
to hold one individual liable for the act of the other; common examples are instances of
vicarious liability between employer and employee or principal and agent, or situations in
which joint owners of property owe a common duty to some third party. In these
situations, the joint and several liability concept reflects the legal conclusion that one
individual may be held liable for the consequences of the negligent act of another.
In the concurrent tortfeasor context, however, the "joint and several liability" label does
not express the imposition of any form of vicarious liability, but instead simply embodies
the general common law principle, noted above, that a tortfeasor is liable for any injury
of which his negligence is a proximate cause. Liability attaches to a concurrent tortfeasor
in this situation not because he is responsible for the acts of other independent tortfeasors
who may also have caused the injury, but because he is responsible for all damage of
which his own negligence was a proximate cause. When independent negligent actions of
a number of tortfeasors are each a proximate cause of a single injury, each tortfeasor is
thus personally liable for the damage sustained, and the injured person may sue one or all
of the tortfeasors to obtain a recovery for his injuries; the fact that one of the tortfeasors is
impecunious or otherwise immune from suit does not relieve another tortfeasor of his
liability for damage which he himself has proximately caused.
Prior to Li, of course, a negligent tortfeasor's liability was limited by the draconian
contributory negligence doctrine; under that doctrine, a negligent tortfeasor escaped
liability for injuries which he had proximately caused to another whenever the injured
person's lack of due care for his own safety was also a proximate cause of the injury. In
Li, however, we repudiated the contributory negligence rule, recognizing with Dean
Prosser that "'[p]robably the true explanation [of the doctrine's development in this
country was] that the courts [of the 19th century] found in this defense, along with the
concepts of duty and proximate cause, a convenient instrument of control over the jury,
by which the liabilities of [20 Cal.3d 588] rapidly growing industry were curbed and kept
within bounds.'" (13 Cal.3d at p. 811, fn. 4 (quoting Prosser, Comparative Negligence
(1953) 41 Cal.L.Rev. 1, 4); cf. Dillon v. Legg (1968) 68 Cal.2d 728, 734-735 [69
Cal.Rptr. 72, 441 P.2d 912, 29 A.L.R.3d 1316].) Concluding that any such rationale could
no longer justify the complete elimination of an injured person's right to recover for
negligently inflicted injury, we held in Li that "in all actions for negligence resulting in
injury to person or property, the contributory negligence of the person injured in person
or property shall not bar recovery, but the damages awarded shall be diminished in
proportion to the amount of negligence attributable to the person recovering." (13 Cal.3d
at p. 829.)
In the instant case AMA argues that the Li decision, by repudiating the all-or-nothing
contributory negligence rule and replacing it by a rule which simply diminishes an
injured party's recovery on the basis of his comparative fault, in effect undermined the
fundamental rationale of the entire joint and several liability doctrine as applied to
concurrent tortfeasors. In this regard AMA cites the following passage from Finnegan v.
Royal Realty Co. (1950) 35 Cal.2d 409, 433-434 [218 P.2d 17]: "Even though persons are
not acting in concert, if the result[s] produced by their acts are indivisible, each person is
held liable for the whole. ... The reason for imposing liability on each for the entire
consequences is that there exists no basis for dividing damages and the law is loath to
permit an innocent plaintiff to suffer as against a wrongdoing defendant. This liability is
imposed where each cause is sufficient in itself as well as where each cause is required to
produce the result." (Italics added.) Focusing on the emphasized sentence, AMA argues
that after Li (1) there is a basis for dividing damages, namely on a comparative
negligence basis, and (2) a plaintiff is no longer necessarily "innocent," for Li permits a
negligent plaintiff to recover damages. AMA maintains that in light of these two factors it
is logically inconsistent to retain joint and several liability of concurrent tortfeasors after
Li. As we explain, for a number of reasons we cannot accept AMA's argument.
First, the simple feasibility of apportioning fault on a comparative negligence basis does
not render an indivisible injury "divisible" for purposes of the joint and several liability
rule. As we have already explained, a concurrent tortfeasor is liable for the whole of an
indivisible injury whenever his negligence is a proximate cause of that injury. In many
instances, the negligence of each of several concurrent tortfeasors may be sufficient, in
itself, to cause the entire injury; in other instances, it is simply impossible to determine
whether or not a particular concurrent [20 Cal.3d 589] tortfeasor's negligence, acting
alone, would have caused the same injury. Under such circumstances, a defendant has no
equitable claim vis-...-vis an injured plaintiff to be relieved of liability for damage which
he has proximately caused simply because some other tortfeasor's negligence may also
have caused the same harm. In other words, the mere fact that it may be possible to
assign some percentage figure to the relative culpability of one negligent defendant as
compared to another does not in any way suggest that each defendant's negligence is not
a proximate cause of the entire indivisible injury.
Second, abandonment of the joint and several liability rule is not warranted by AMA's
claim that, after Li, a plaintiff is no longer "innocent." Initially, of course, it is by no
means invariably true that after Li injured plaintiffs will be guilty of negligence. In many
instances a plaintiff will be completely free of all responsibility for the accident, and yet,
under the proposed abolition of joint and several liability, such a completely faultless
plaintiff, rather than a wrongdoing defendant, would be forced to bear a portion of the
loss if any one of the concurrent tortfeasors should prove financially unable to satisfy his
proportioned share of the damages.
Moreover, even when a plaintiff is partially at fault for his own injury, a plaintiff's
culpability is not equivalent to that of a defendant. In this setting, a plaintiff's negligence
relates only to a failure to use due care for his own protection, while a defendant's
negligence relates to a lack of due care for the safety of others. [3] Although we
recognized in Li that a plaintiff's self-directed negligence would justify reducing his
recovery in proportion to his degree of fault for the accident, fn. 2 the fact remains that
insofar as the plaintiff's conduct creates [20 Cal.3d 590] only a risk of self-injury, such
conduct, unlike that of a negligent defendant, is not tortious. (See Prosser, Law of Torts,
supra, § 65, p. 418.)
Finally, from a realistic standpoint, we think that AMA's suggested abandonment of the
joint and several liability rule would work a serious and unwarranted deleterious effect on
the practical ability of negligently injured persons to receive adequate compensation for
their injuries. One of the principal by-products of the joint and several liability rule is that
it frequently permits an injured person to obtain full recovery for his injuries even when
one or more of the responsible parties do not have the financial resources to cover their
liability. In such a case the rule recognizes that fairness dictates that the "wronged party
should not be deprived of his right to redress," but that "[t]he wrongdoers should be left
to work out between themselves any apportionment." (Summers v. Tice (1948) 33 Cal.2d
80, 88 [199 P.2d 1, 5 A.L.R.2d 91].) The Li decision does not detract in the slightest from
this pragmatic policy determination.
[1b] For all of the foregoing reasons, we reject AMA's suggestion that our adoption of
comparative negligence logically compels the abolition of joint and several liability of
concurrent tortfeasors. Indeed, although AMA fervently asserts that the joint and several
liability concept is totally incompatible with a comparative negligence regime, the simple
truth is that the overwhelming majority of jurisdictions which have adopted comparative
negligence have retained the joint and several liability doctrine. As Professor Schwartz
notes in his treatise on comparative negligence: "The concept of joint and several liability
of tortfeasors has been retained under comparative negligence, unless the statute
specifically abolishes it, in all states that have been called upon to decide the question."
(Schwartz, Comparative Negligence (1974) § 16.4, p. 253; see, e.g., Gazaway v.
Nicholson (1940) 190 Ga. 345 [9 S.E.2d 154, 156]; Saucier v. Walker (Miss. 1967) 203
So.2d 299, 302-303; Kelly v. Long Island Lighting Co. (1972) 31 N.Y.2d 25, 30 [334
N.Y.S.2d 851, 855, 286 N.E.2d 241, 243]; Walker v. Kroger Grocery & Baking Co.,
supra, 214 Wis. 519 [252 N.W. 721, 727]; Chille v. Howell (1967) 34 Wis.2d 491 [149
N.W.2d 600, 605]. See also U. Comp. Fault Act, § 2, subd. (c).) AMA has not cited a
single judicial authority to support its contention that the advent of comparative
negligence rationally compels the demise of the joint and several liability rule. Under the
circumstances, we hold that after Li, a concurrent tortfeasor whose negligence is a
proximate cause of an indivisible injury remains liable for the total amount of damages,
diminished only "in proportion to the amount of negligence attributable to the person
recovering." (13 Cal.3d at p. 829.) [20 Cal.3d 591]
3. [4] Upon reexamination of the common law equitable indemnity doctrine in light of
the principles underlying Li, we conclude that the doctrine should be modified to permit
partial indemnity among concurrent tortfeasors on a comparative fault basis.
Although, as discussed above, we are not persuaded that our decision in Li calls for a
fundamental alteration of the rights of injured plaintiffs vis-a-vis concurrent tortfeasors
through the abolition of joint and several liability, the question remains whether the broad
principles underlying Li warrant any modification of this state's common law rules
governing the allocation of loss among multiple tortfeasors. As we shall explain, the
existing California common law equitable indemnity doctrine -- while ameliorating
inequity and injustice in some extreme cases -- suffers from the same basic "all-or-
nothing" deficiency as the discarded contributory negligence doctrine and falls
considerably short of fulfilling Li's goal of "a system under which liability for damage
will be borne by those whose negligence caused it in direct proportion to their respective
fault." (13 Cal.3d at p. 813.) Taking our cue from a recent decision of the highest court of
one of our sister states, we conclude -- in line with Li's objectives -- that the California
common law equitable indemnity doctrine should be modified to permit a concurrent
tortfeasor to obtain partial indemnity from other concurrent tortfeasors on a comparative
fault basis.
In California, as in most other American jurisdictions, the allocation of damages among
multiple tortfeasors has historically been analyzed in terms of two, ostensibly mutually
exclusive, doctrines: contribution and indemnification. In traditional terms, the
apportionment of loss between multiple tortfeasors has been thought to present a question
of contribution; indemnity, by contrast, has traditionally been viewed as concerned solely
with whether a loss should be entirely shifted from one tortfeasor to another, rather than
whether the loss should be shared between the two. (See, e.g., Alisal Sanitary Dist. v.
Kennedy (1960) 180 Cal.App.2d 69, 74-75 [4 Cal.Rptr. 379]; Atchison, T. & S. F. Ry. Co.
v. Lan Franco (1968) 267 Cal.App.2d 881, 886 [73 Cal.Rptr. 660].) As we shall explain,
however, the dichotomy between the two concepts is more formalistic than substantive,
fn. 3 and the common goal of both doctrines, the equitable distribution of loss among
multiple tortfeasors, suggests a need for a reexamination of the relationship of these twin
concepts. (See generally [20 Cal.3d 592] Werner, Contribution and Indemnity in
California (1969) 57 Cal.L.Rev. 490.)
Early California decisions, relying on the ancient saw that "the law will not aid a
wrongdoer," embraced the then ascendant common law rule denying a tortfeasor any
right to contribution whatsoever. (See, e.g., Dow v. Sunset Tel. & Tel. Co. (1912) 162
Cal. 136 [121 P. 379].) In 1957, the California Legislature enacted a bill to ameliorate the
harsh effects of that "no contribution" rule; this legislation did not, however, sweep aside
the old rule altogether, but instead made rather modest inroads into the contemporary
doctrine, restricting a tortfeasor's statutory right of contribution to a narrow set of
circumstances. We discuss the effect of the 1957 contribution legislation in more detail
below; at this point it is sufficient to note that the passage of the 1957 legislation had the
effect of foreclosing any evolution of the California common law contribution doctrine
beyond its pre-1957 "no contribution" state. Over the past two decades, common law
developments with respect to the allocation of loss between joint tortfeasors in this state
have all been channeled instead through the equitable indemnity doctrine. (Cf. Bielski v.
Schulze (1962) 16 Wis.2d 1 [114 N.W.2d 105, 107-111]; Packard v. Whitten (Me. 1971)
274 A.2d 169, 179-180.)
Although early common law decisions established the broad rule that a tortfeasor was
never entitled to contribution, it was not long before situations arose in which the obvious
injustice of requiring one tortfeasor to bear an entire loss while another more culpable
tortfeasor escaped with impunity led common law courts to develop an equitable
exception to the no contribution rule. (See generally Leflar, Contribution and Indemnity
Between Tortfeasors (1932) 81 U.Pa.L.Rev. 130, 146-158.) As Chief Justice Gibson
observed in Peters v. City & County of San Francisco (1953) 41 Cal.2d 419, 431 [260
P.2d 55]: "[T]he rule against contribution between joint tortfeasors admits of some
exceptions, and a right of indemnification may arise as a result of contract or equitable
considerations and is not restricted to situations involving a wholly vicarious liability,
such as where a master has paid a judgment for damages resulting from the voluntary act
of his servant." (Italics added.)
Our court first applied the equitable indemnity doctrine in City & County of S. F. v. Ho
Sing (1958) 51 Cal.2d 127 [330 P.2d 802]. In Ho Sing, a property owner, with the city's
permission, had replaced part of the sidewalk in front of his building with a sidewalk-
level skylight to provide more light for his basement. After a number of years, a crack
developed in the skylight and a pedestrian tripped over the crack and [20 Cal.3d 593]
sustained serious injuries. Prior cases of our court had recognized that in such a situation
both the city, which had a general duty to inspect and maintain the sidewalk, and the
property owner who had altered the sidewalk for his own benefit, were jointly and
severally liable for resulting damages; the injured pedestrian accordingly sued both the
city and the property owner and recovered a joint judgment against both. After the city
had paid a substantial part of the judgment, it brought its own action against Ho Sing, the
property owner, seeking indemnification.
Although carefully emphasizing that the city's liability to the injured pedestrian was not
"merely dependent or derivative" but was "joint and direct," the Ho Sing court
nonetheless permitted the city to obtain indemnification from the negligent property
owner. Pointing out that a majority of common law jurisdictions permitted equitable
indemnity in such a situation, the Ho Sing court relied heavily on, and quoted at some
length from, the United States Supreme Court decision of Washington Gas Co. v. Dist. of
Columbia (1896) 161 U.S. 316 [40 L.Ed. 712, 16 S.Ct. 564]. In Washington Gas, the
Supreme Court explained: "The principle [of equitable indemnity] qualifies and restrains
within just limits the rigor of the rule which forbids recourse between wrongdoers ....
'Our law ... does not in every case disallow an action, by one wrongdoer against another,
to recover damages incurred in consequence of their joint offense. The rule is, in pari
delicto potior est conditio defendentis. If the parties are not equally criminal, the principal
delinquent may be held responsible to his co-delinquent for damages incurred by their
joint offense. In respect to offenses, in which is involved any moral delinquency or
turpitude, all parties are deemed equally guilty, and courts will not inquire into their
relative guilt. But where the offense is merely malum prohibitum, and is in no respect
immoral, it is not against the policy of the law to inquire into the relative delinquency of
the parties, and to administer justice between them, although both parties are
wrongdoers.'" (161 U.S. at pp. 327-328 [40 L.Ed. at pp. 718-719].)
As this passage clearly reveals, the equitable indemnity doctrine originated in the
common sense proposition that when two individuals are responsible for a loss, but one
of the two is more culpable than the other, it is only fair that the more culpable party
should bear a greater share of the loss. Of course, at the time the doctrine developed,
common law precepts precluded any attempt to ascertain comparative fault; as a
consequence, equitable indemnity, like the contributory negligence doctrine, developed as
an all-or-nothing proposition. [20 Cal.3d 594]
Because of the all-or-nothing nature of the equitable indemnity rule, courts were, from
the beginning, understandably reluctant to shift the entire loss to a party who was simply
slightly more culpable than another. As a consequence, throughout the long history of the
equitable indemnity doctrine courts have struggled to find some linguistic formulation
that would provide an appropriate test for determining when the relative culpability of the
parties is sufficiently disparate to warrant placing the entire loss on one party and
completely absolving the other.
A review of the numerous California cases in this area reveals that the struggle has
largely been a futile one. (Compare and contrast, e.g., Gardner v. Murphy (1975) 54
Cal.App.3d 164, 168-171 [126 Cal.Rptr. 302]; Niles v. City of San Rafael (1974) 42
Cal.App.3d 230, 237-240 [116 Cal.Rptr. 733]; Kerr Chemicals, Inc. v. Crown Cork &
Seal Co. (1971) 21 Cal.App.3d 1010, 1014-1017 [99 Cal.Rptr. 162]; Pearson Ford Co. v.
Ford Motor Co. (1969) 273 Cal.App.2d 269, 271-278 [78 Cal.Rptr. 279]; Aerojet General
Corp. v. D. Zelinsky & Sons (1967) 249 Cal.App.2d 604, 607-612 [57 Cal.Rptr. 701];
Herrero v. Atkinson (1964) 227 Cal.App.2d 69, 73-78 [38 Cal.Rptr. 490, 8 A.L.R.3d
629]; Cahill Bros., Inc. v. Clementina Co. (1962) 208 Cal.App.2d 367, 375-384 [25
Cal.Rptr. 301]; Alisal Sanitary Dist. v. Kennedy, supra, 180 Cal.App.2d 69, 74-82. See
generally Note, Products Liability, Comparative Negligence, and the Allocation of
Damages Among Multiple Defendants (1976) 50 So.Cal.L.Rev. 73, 82-83; Comment,
The Allocation of Loss Among Joint Tortfeasors (1968) 41 So.Cal.L.Rev. 728, 737-743.)
As one Court of Appeal has charitably stated: "The cases are not always helpful in
determining whether equitable indemnity lies. The test[s] utilized in applying the doctrine
are vague. Some authorities characterize the negligence of the indemnitor as 'active,'
'primary,' or 'positive,' and the negligence of the indemnitee as 'passive,' 'secondary,' or
'negative.' [Citations.] Other authorities indicate that the application of the doctrine
depends on whether the claimant's liability is 'primary,' 'secondary,' 'constructive,' or
'derivative.' [Citations.] These formulations have been criticized as being artificial and as
lacking the objective criteria desirable for predictability in the law. [Citations.]"
(Atchison, T. & S. F. Ry. Co. v. Lan Franco, supra, 267 Cal.App.2d 881, 886.)
Indeed, some courts, as well as some prominent commentators, fn. 4 after reviewing the
welter of inconsistent standards utilized in the equitable [20 Cal.3d 595] indemnity
realm, have candidly eschewed any pretense of an objectively definable equitable
indemnity test. In Herrero v. Atkinson, supra, 227 Cal.App.2d 69, 74, for example, the
court ultimately concluded that "[t]he duty to indemnify may arise, and indemnity may be
allowed in those fact situations where in equity and good conscience the burden of the
judgment should be shifted from the shoulders of the person seeking indemnity to the one
from whom indemnity is sought. The right depends upon the principle that everyone is
responsible for the consequences of his own wrong, and if others have been compelled to
pay damages which ought to have been paid by the wrongdoer, they may recover from
him. Thus the determination of whether or not indemnity should be allowed must of
necessity depend upon the facts of each case." (Italics added.)
If the fundamental problem with the equitable indemnity doctrine as it has developed in
this state were simply a matter of an unduly vague or imprecise linguistic standard, the
remedy would be simply to attempt to devise a more definite verbal formulation. In our
view, however, the principal difficulty with the current equitable indemnity doctrine rests
not simply on a question of terminology, but lies instead in the all-or-nothing nature of
the doctrine itself. Although California cases have steadfastly maintained that the doctrine
is founded upon "equitable considerations" (Peters v. City & County of San Francisco,
supra, 41 Cal.2d 419, 431) and "is based on inherent injustice" (Atchison, T. & S. F. Ry.
Co. v. Lan Franco, supra, 267 Cal.App.2d 881, 886), the all-or-nothing aspect of the
doctrine has precluded courts from reaching a just solution in the great majority of cases
in which equity and fairness call for an apportionment of loss between the wrongdoers in
proportion to their relative culpability, rather than the imposition of the entire loss upon
one or the other tortfeasor.
The case of Ford Motor Co. v. Robert J. Poeschl, Inc. (1971) 21 Cal.App.3d 694 [98
Cal.Rptr. 702] (hereafter Poeschl) illuminates the problem. In Poeschl, the Ford Motor
Company had sent a recall notice [20 Cal.3d 596] to its dealers requesting the recall of
designated 1964 Thunderbird automobiles for servicing of the cars' rear brake lights. A
dealer and leasing agency had failed to recall one such car which had been leased to a
customer and shortly thereafter the defect in the rear brake light caused an accident. The
injured customer sued Ford, the dealer and the leasing agency, and Ford settled the
customer's claim for $72,000; when the other defendants refused to reimburse it for any
part of the settlement, Ford brought an action for indemnification.
Analyzing Ford's claim in terms of the elusive "active-passive," "primary-secondary,"
"direct-indirect" standards utilized by prior decisions, the Poeschl court determined that
Ford was not entitled to obtain total indemnification. The court reasoned: "Ford's
production of the defective car, coupled with its failure to attempt direct notice to the
customer, breached a direct obligation it owed to the latter. Ford had a 'last clear chance'
to avert injury and failed to use it. Its fault is primary, not secondary, and not imputed to it
as a consequence of the dealer's or leasing agency's fault. Under the pleaded
circumstances, the latter are not liable for indemnification of the manufacturer." (21
Cal.App.3d at p. 699.)
After finding that total indemnification of the manufacturer was inappropriate, the
Poeschl court revealed its misgivings with the existing equitable indemnity doctrine
which sanctioned the inequitable result of permitting the dealer and leasing agency to
escape all liability whatsoever. The court observed: "The dealer and the leasing agency
shared Ford's ability to reach the customer before an accident occurred. The complaint
does not disclose whether these firms were stirred by the recall notice. On the assumption
that they did nothing, their escape from financial responsibility is troublesome. Judicially
favored objectives of deterrence and accident prevention would be promoted by imposing
some liability on a dealer who knew of danger and did nothing. To shift the entire loss to
him would not serve these objectives, for then the manufacturer would escape scot-free.
A wise rule of law -- one designed to stimulate responsibility throughout the
merchandising chain -- would require both parties to share the loss. A rule of contribution
or partial indemnification would permit that result. In California the common law rule
against contribution among tortfeasors has been modified to the extent of permitting
contribution only after a joint judgment against them. (Code Civ. Proc., §§ 875-879.)
Under California law to date, indemnification is an all-or-nothing proposition. Thus, the
law leaves these parties where it finds them, denying any indemnity to the originator of
[20 Cal.3d 597] the accident-producing factors." (Italics added.) (21 Cal.App.3d at p.
699.)
In noting that "under California law to date, indemnification is an all-or-nothing
proposition," the Poeschl court recognized that by virtue of its developmental character,
the common law was capable of evolving the equitable indemnity doctrine into a rule
which would permit the equitable sharing of loss between multiple tortfeasors. The proof
of the Poeschl court's prescience was not long in coming.
Just one year after the Poeschl decision, the New York Court of Appeals, in the celebrated
decision of Dole v. Dow Chemical Company, supra, 30 N.Y.2d 143 [331 N.Y.S.2d 382],
modified that state's traditional all-or-nothing indemnity doctrine to permit a tortfeasor to
obtain "partial indemnification" from another tortfeasor on the basis of comparative fault.
The Dole court, after noting that the previously existing "active-passive" indemnification
test "has in practice proven elusive and difficult of fair application," went on to observe:
"But the policy problem involves more than terminology. If indemnification is allowed at
all among joint tort-feasors, the important resulting question is how ultimate
responsibility should be distributed. There are situations when the facts would in fairness
warrant what [the named defendant] here seeks -- passing on to [a concurrent tortfeasor]
all responsibility that may be imposed on [the named defendant] for negligence, a
traditional full indemnification. There are circumstances where the facts would not, by
the same test of fairness, warrant passing on to a third party any of the liability imposed.
There are circumstances which would justify apportionment of responsibility between
third-party plaintiff and third-party defendant, in effect a partial indemnification." (331
N.Y.S.2d at p. 386.)
Concluding that the all-or-nothing common law indemnity doctrine did not, in many
situations, produce the equitable allocation of loss to which it aimed, the Dole court
proceeded to modify the doctrine, holding that the "[r]ight to apportionment of liability or
to full indemnity, ... as among parties involved together in causing damage by negligence,
should rest on relative responsibility. ..." (331 N.Y.S.2d at pp. 391-392.) The Dole court
was undeterred from undertaking this modification of the prior common law indemnity
doctrine either by the existence of a contribution statute which, like that currently in force
in California, provided joint tortfeasors with a right of pro rata contribution in limited
circumstances, or by the fact that at that time New York still adhered to the all-or-nothing
contributory negligence doctrine. [20 Cal.3d 598]
Two and one-half months after the rendition of Dole, the New York Court of Appeals, in
Kelly v. Long Island Lighting Co., supra, 31 N.Y.2d 25 [334 N.Y.S.2d 851], emphatically
reaffirmed the Dole decision and explained the effect of its holding. The Kelly court
stated: "Prior to our recent decision in Dole v. Dow Chem. Co., ... it had been held to be
the rule that a defendant found guilty of 'active' negligence could not recover over against
another guilty of 'active' tort negligence. The rule as stated in Dole now permits
apportionment of damages among joint or concurrent tort-feasors regardless of the degree
or nature of the concurring fault. We believe the new rule of apportionment to be
pragmatically sound, as well as realistically fair. To require a joint tort-feasor who is, for
instance, 10% causally negligent to pay the same amount as a co-tort-feasor who is 90%
causally negligent seems inequitable and unjust. The fairer rule, we believe, is to
distribute the loss in proportion to the allocable concurring fault." (334 N.Y.S.2d at p.
854.)
The considerations embodied in the Dole and Kelly opinions mirror precisely the
principles enunciated by our own court three years ago in Li. In Li, after concluding "that
logic, practical experience, and fundamental justice counsel against the retention of the
doctrine rendering contributory negligence a complete bar to recovery" (13 Cal.3d at pp.
812-813), we made clear our conviction that the discarded doctrine "should be replaced
in this state by a system under which liability for damage will be borne by those whose
negligence caused it in direct proportion to their respective fault." (Italics added.) (Id., at
p. 813.)
In order to attain such a system, in which liability for an indivisible injury caused by
concurrent tortfeasors will be borne by each individual tortfeasor "in direct proportion to
[his] respective fault," we conclude that the current equitable indemnity rule should be
modified to permit a concurrent tortfeasor to obtain partial indemnity from other
concurrent tortfeasors on a comparative fault basis. In reaching this conclusion, we point
out that in recent years a great number of courts, particularly in jurisdictions which
follow the comparative negligence rule, have for similar reasons adopted, as a matter of
common law, comparable rules providing for comparative contribution or comparative
indemnity. (See, e.g., United States v. Reliable Transfer Co. (1975) 421 U.S. 397, 405-
411 [44 L.Ed.2d 251, 258-262, 95 S.Ct. 1708]; Kohr v. Allegheny Airlines, Inc. (7th Cir.
1974) 504 F.2d 400, 405; Gomes v. Brodhurst (3d Cir. 1967) 394 F.2d 465, 467-470;
Packard v. Whitten, supra, 274 A.2d 169, 179-180; Bielski v. Schulze, supra, 114 N.W.2d
105, 107-114; cf. Lincenberg v. Issen (Fla. 1975) 318 So.2d 386, 389-391. See also U.
Comp. Fault Act, § 4, subd. (a).) [20 Cal.3d 599]
4. [5a] California's contribution statutes do not preclude this court from adopting
comparative partial indemnity as a modification of the common law equitable indemnity
doctrine.
None of the parties to the instant proceeding, and none of the numerous amici who have
filed briefs, seriously takes issue with our conclusion that a rule of comparative partial
indemnity is more consistent with the principles underlying Li than the prior "all-or-
nothing" indemnity doctrine. The principal argument raised in opposition to the
recognition of a common law comparative indemnity rule is the claim that California's
existing contribution statutes, section 875 et seq. of the Code of Civil Procedure, fn. 5
preclude such a judicial development. As we explain, we reject the contention on a
number of grounds. [20 Cal.3d 600]
First, as we have already noted, the New York Court of Appeals adopted a similar partial
indemnity rule in Dole v. Dow Chemical Company, supra, 331 N.Y.S.2d 382 despite the
existence of a closely comparable statutory contribution scheme. fn. 6 Like the current
California legislation, the New York contribution statute in force at the time of Dole
afforded a right of contribution only between joint judgment debtors, and provided that
contribution should be determined on a "pro [20 Cal.3d 601] rata" rather than a
comparative fault basis; thus, as is the case in California, under the New York statute a
concurrent tortfeasor could obtain contribution only from those tortfeasors whom the
plaintiff chose to sue in the same action, and could require such cotortfeasors to pay only
a pro rata share of the judgment no matter what the relative culpability of the tortfeasors.
The Dole court, viewing the statute as simply a partial legislative modification of the
harsh common law "no contribution" rule, found nothing in the New York statutory
scheme to indicate that the Legislature had intended to preclude judicial extension of the
statutory apportionment concept through the adoption of a common law partial
indemnification doctrine. (See 331 N.Y.S.2d at pp. 386, 391.)
We believe that a similar conclusion must be reached with respect to the pertinent
California legislation. The legislative history of the 1957 contribution statute quite clearly
demonstrates that the purpose of the legislation was simply "to lessen the harshness" of
the then prevailing common law no contribution rule. fn. 7 Nothing in the legislative
history suggests that the Legislature intended by the enactment to preempt the field or to
foreclose future judicial developments which further the act's principal purpose of
ameliorating the harshness and inequity of the old no contribution rule. Under these
circumstances, we see no reason to interpret the legislation as establishing a bar to
judicial innovation.
The case of Green v. Superior Court (1974) 10 Cal.3d 616, 629-631 [111 Cal.Rptr. 704,
517 P.2d 1168], provides an apt analogy. At early common law a landlord owed a tenant
no duty to maintain leased residential [20 Cal.3d 602] premises in habitable condition
throughout the duration of the lease, and in Green the landlord argued that because the
Legislature had enacted a series of statutes affording tenants a limited "repair and deduct"
remedy (Civ. Code, § 1941 et seq.), California courts were not free to evolve a broader,
more comprehensive common law warranty of habitability. In Green we emphatically
rejected the landlord's contention, declaring that "the statutory framework ... has never
been viewed as a curtailment of the growth of the common law in this field." (10 Cal.3d
at p. 630.) In like manner we conclude, as did the New York court in Dole, that the
contribution statutes were not intended to preclude all common law development in this
field.
Indeed, there are several specific provisions of the California legislation -- not present in
the pertinent New York statute -- which confirm our conclusion that the legislation should
not be interpreted to preclude the recognition of a common law right of comparative
indemnity. First, and most significantly, unlike the New York statute, the California
contribution provisions specifically preserve the right of indemnity, and indeed, provide
that the right of contribution shall be subordinate to such right of indemnity. (Code Civ.
Proc., § 875, subd. (f) (quoted in fn. 5, ante).) As we have seen, at the time the legislation
was enacted, California case law had clearly established that "a right of indemnification
may arise as a result of contract or equitable considerations" (Peters v. City & County of
San Francisco, supra, 41 Cal.2d 419, 431 (italics added)); consequently, we can only
conclude that the Legislature was aware of the equitable indemnity doctrine and desired,
by enacting section 875, subdivision (f), to negate any possible inference that the
contribution statutes were intended to eliminate such common law indemnity rights.
Although the Legislature could obviously not foresee in 1957 that 20 years hence, after
the advent of comparative negligence, our court would conclude that equitable
considerations justify the adoption of a comparative indemnity rule, this section of the act
clearly indicates that the Legislature had no intention of completely withdrawing the
allocation of loss issue from judicial purview.
Second, California's contribution statute -- again unlike New York's -- contains a specific
provision which explicitly mandates that the "right of contribution shall be administered
in accordance with the principles of equity." (Code Civ. Proc., § 875, subd. (b) (quoted in
fn. 5, ante).) We need not decide whether this provision would permit our court to
interpret the contribution statute itself as providing for comparative rather than per capita
contribution (cf. Lincenberg v. Issen, supra, 318 So.2d 386, 394 (Boyd, J., concurring)),
for we think that, at the least, this [20 Cal.3d 603] provision demonstrates that the
Legislature did not conceive of its contribution legislation as a complete and inflexible
system for the allocation of loss between multiple tortfeasors. (See, e.g., Ramirez v.
Redevelopment Agency (1970) 4 Cal.App.3d 397, 400-401 [84 Cal.Rptr. 356]; River
Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 993 [103 Cal.Rptr. 498];
Rollins v. State of California (1971) 14 Cal.App.3d 160, 165, fn. 8 [92 Cal.Rptr. 251].)
By emphasizing that the statutory contribution right is to be administered in accordance
with the "principles of equity," principles which the Legislature obviously intended the
judiciary to elaborate, the act itself refutes the argument that the Legislature intended to
curtail judicial discretion in apportioning damages among multiple tortfeasors.
In sum, in enacting the 1957 contribution legislation the Legislature did not intend to
prevent the judiciary from expanding the common law equitable indemnity doctrine in
the manner described above. As already noted, since 1957 the equitable indemnity
doctrine has undergone considerable judicial development in this state, and yet it has
never been thought that such growth in the common law was barred by the contribution
statute. (Cf. Green v. Superior Court, supra, 10 Cal.3d 616, 629-631.)
Several amici argue alternatively that even if the contribution statute was not intended to
preclude the development of a common law comparative indemnity doctrine, our court
should decline to adopt such a doctrine because it would assertedly undermine the strong
public policy in favor of encouraging settlement of litigation embodied in section 877 of
the Code of Civil Procedure, one of the provisions of the current statutory contribution
scheme. (Quoted in fn. 5, ante.) As amici point out, section 877 creates significant
incentives for both tortfeasors and injured plaintiffs to settle lawsuits: the tortfeasor who
enters into a good faith settlement is discharged from any liability for contribution to any
other tortfeasor, and the plaintiff's ultimate award against any other tortfeasor is
diminished only by the actual amount of the settlement rather than by the settling
tortfeasor's pro rata share of the judgment. Amici suggest that these incentives will be lost
by the recognition of a partial indemnity doctrine.
[6] Although section 877 reflects a strong public policy in favor of settlement, this
statutory policy does not in any way conflict with the recognition of a common law
partial indemnity doctrine but rather can, and should, be preserved as an integral part of
the partial indemnity [20 Cal.3d 604] doctrine that we adopt today. Thus, while we
recognize that section 877, by its terms, releases a settling tortfeasor only from liability
for contribution and not partial indemnity, we conclude that from a realistic perspective
the legislative policy underlying the provision dictates that a tortfeasor who has entered
into a "good faith" settlement (see River Garden Farms, Inc. v. Superior Court, supra, 26
Cal.App.3d 986) with the plaintiff must also be discharged from any claim for partial or
comparative indemnity that may be pressed by a concurrent tortfeasor. As the Court of
Appeal noted recently in Stambaugh v. Superior Court (1976) 62 Cal.App.3d 231, 236
[132 Cal.Rptr. 843]: "Few things would be better calculated to frustrate [section 877's]
policy, and to discourage settlement of disputed tort claims, than knowledge that such a
settlement lacked finality and would lead to further litigation with one's joint tortfeasors,
and perhaps further liability." This observation is as applicable in a partial indemnity
framework as in the contribution context. Moreover, to 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. (See Fleming,
Foreword: Comparative Negligence At Last -- By Judicial Choice (1976) 64 Cal.L.Rev.
239, 258-259.)
[5b] Accordingly, we conclude that Code of Civil Procedure section 875 et seq. do not
preclude the development of new common law principles in this area, and we hold that
under the common law of this state a concurrent tortfeasor may seek partial indemnity
from another concurrent tortfeasor on a comparative fault basis.
5. [7] Under the allegations of the cross-complaint, AMA may be entitled to obtain partial
indemnification from Glen's parents, and thus the trial court, pursuant to Code of Civil
Procedure section 428.10 et seq., should have granted AMA leave to file the cross-
complaint.
Having concluded that a concurrent tortfeasor enjoys a common law right to obtain
partial indemnification from other concurrent tortfeasors on a comparative fault basis, we
must finally determine whether, in the instant case, AMA may properly assert that right
by cross-complaint against Glen's parents, who were not named as codefendants in Glen's
amended complaint. As we explain, the governing provisions of the Code of Civil
Procedure clearly authorize AMA to seek indemnification from a previously unnamed
party through such a cross-complaint. Accordingly, we conclude that the trial court erred
in denying AMA leave to file its pleading. [20 Cal.3d 605]
As early as 1962, our court concluded that under the then governing provisions of the
Code of Civil Procedure, a defendant could file a cross-complaint against a previously
unnamed party when the defendant properly alleged that he would be entitled to
indemnity from such party should the plaintiff prevail on the original complaint.
(Roylance v. Doelger (1962) 57 Cal.2d 255 [19 Cal.Rptr. 7, 368 P.2d 535].) Although one
commentator has suggested that our Roylance decision extended the then existing cross-
complaint provision beyond its legislatively intended scope (see Friedenthal, Joinder of
Claims, Counterclaims and Cross-Complaints: Suggested Revision of the California
Provisions (1970) 23 Stan.L.Rev. 1, 31-32), when the cross-complaint statutes were
completely revised in 1972, the Legislature specifically codified the Roylance rule in
section 428.10 et seq. of the Code of Civil Procedure.
Section 428.10 provides in relevant part: "A party against whom a cause of action has
been asserted ... may file a cross-complaint setting forth ... (b) Any cause of action he has
against a person alleged to be liable thereon, whether or not such person is already a party
to the action, if the cause of action asserted in his cross-complaint (1) arises out of the
same transaction [or] occurrence ... as the cause brought against him or (2) asserts a
claim, right or interest in the ... controversy which is the subject of the cause brought
against him." (Italics added.)
Section 428.20 reiterates the propriety of filing such a cross-complaint against a
previously unnamed party, and section 428.70 explicitly confirms the fact that a cross-
complaint may be founded on a claim of total or partial indemnity by defining a "third-
party plaintiff" as one who files a cross-complaint claiming "the right to recover all or
part of any amount for which he may be held liable" on the original complaint. (Italics
added.) fn. 8 The history of the legislation leaves no doubt but that [20 Cal.3d 606] these
provisions authorize a defendant to file a cross-complaint against a person, not named in
the original complaint, from whom he claims he is entitled to indemnity. (See
Recommendation and Study Relating to Counterclaims and Cross Complaints, Joinder of
Causes of Action and Related Provisions (1970) 10 Cal. Law Revision Com. Rep. pp.
551-555.)
Although real parties in interest claim that the effect of permitting a defendant to bring in
parties whom the plaintiff has declined to join will have the undesirable effect of greatly
complicating personal injury litigation and will deprive the plaintiff of the asserted
"right" to control the size and scope of the proceeding (see, e.g., Thornton v. Luce (1962)
209 Cal.App.2d 542, 551-552 [26 Cal.Rptr. 393]), as our court observed in Roylance (57
Cal.2d at pp. 261-262), to the extent that such claims are legitimate the problem may be
partially obviated by the trial court's judicious use of the authority afforded by Code of
Civil Procedure section 1048. Section 1048, subdivision (b) currently provides: "The
court, in furtherance of convenience or to avoid prejudice, or when separate trials will be
conducive to expedition and economy, may order a separate trial of any cause of action,
including a cause of action asserted in a cross-complaint, or of any separate issue or any
number of causes of action or issues, preserving the right of trial by jury required by the
Constitution or a statute of this state or of the United States."
In this context, of course, a trial court, in determining whether to sever a comparative
indemnity claim, will have to take into consideration the fact that when the plaintiff is
alleged to have been partially at fault for the injury, each of the third party defendants
will have the right to litigate the question of the plaintiff's proportionate fault for the
accident; as a consequence, we recognize that in this context severance may at times not
be an attractive alternative. Nonetheless, having already noted that under the comparative
negligence doctrine a plaintiff's recovery should be diminished only by that proportion
which the plaintiff's negligence bears to that of all tortfeasors (see fn. 2, ante), we think it
only fair that a defendant who may be jointly and severally liable for all of the plaintiff's
damages be permitted to bring other concurrent tortfeasors into the suit. Thus, we
conclude that the interaction of the partial indemnity doctrine with California's existing
cross-complaint procedures works no undue prejudice to the rights of plaintiffs. [20
Cal.3d 607]
Accordingly, we conclude that under the governing statutory provisions a defendant is
generally authorized to file a cross-complaint against a concurrent tortfeasor for partial
indemnity on a comparative fault basis, even when such concurrent tortfeasor has not
been named a defendant in the original complaint. fn. 9 In the instant case, the allegations
of AMA's cross-complaint are sufficient to suggest that Glen's parents' negligence may
possibly have been a concurrent cause of Glen's injuries. While we, of course, intimate
absolutely no opinion as to the merits of the claim, if it is established that the parents
were indeed negligent in supervising their son and that such negligence was a proximate
cause of injury, under the governing California common law rule Glen's parents could be
held liable for the resulting damages. (See, e.g., Gibson v. Gibson (1971) 3 Cal.3d 914
[92 Cal.Rptr. 288, 479 P.2d 648].) Thus, we believe that AMA's cross-complaint states a
cause of action for comparative indemnity and that the trial court should have permitted
its filing.
6. Conclusion
In Li v. Yellow Cab Co., supra, this court examined and abandoned the time-worn
contributory negligence rule which completely exonerated a negligent defendant
whenever an injured plaintiff was partially at fault for the accident, recognizing with
Dean Prosser the indefensibility of a doctrine which "'places upon one party the entire
burden of a loss for which two are, by hypothesis, responsible.'" (13 Cal.3d at p. 810, fn.
3 (quoting Prosser, Law of Torts, supra, § 67, p. 433).)
In the instant case we have concluded that the force of Li's rationale applies equally to the
allocation of responsibility between two or more negligent defendants and requires a
modification of this state's traditional all-or-nothing common law equitable indemnity
doctrine. Again, we concur with Dean Prosser's observation in a related context that
"[there] is obvious lack of sense and justice in a rule which permits the entire burden of a
loss, for which two defendants were ... unintentionally [20 Cal.3d 608] responsible, to be
shouldered onto one alone, ... while the latter goes scot free." (Prosser, Law of Torts,
supra, § 50, p. 307.) From the crude all-or-nothing rule of traditional indemnity doctrine,
and the similarly inflexible per capita division of the narrowly circumscribed contribution
statute, we have progressed to the more refined stage of permitting the jury to apportion
liability in accordance with the tortfeasors' comparative fault.
Accordingly, we hold that under the common law equitable indemnity doctrine a
concurrent tortfeasor may obtain partial indemnity from cotortfeasors on a comparative
fault basis.
Let a peremptory writ of mandate issue directing the trial court (1) to vacate its order
denying AMA leave to file its proposed cross-complaint, and (2) to proceed in accordance
with the views expressed in this opinion. Each party shall bear its own costs.
Bird, C. J., Mosk, J., Richardson, J., Manuel, J., and Sullivan, J.,
CLARK, J.
Dissenting.
I
Repudiating the existing contributory negligence system and adopting a system of
comparative negligence, this court in Li v. Yellow Cab Co. (1975) 13 Cal.3d 804 [119
Cal.Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393] repeatedly -- like the tolling bell --
enunciated the principle that the extent of liability must be governed by the extent of
fault. Thus, the court stated, "the extent of fault should govern the extent of liability" (id.,
at p. 811), "liability for damage will be borne by those whose negligence caused it in
direct proportion to their respective fault" (id., at p. 813), and "the fundamental purpose
of [the rule of pure comparative negligence] shall be to assign responsibility and liability
for damage in direct proportion to the amount of negligence of each of the parties" (id., at
p. 829). And in a cacophony of emphasis this court explained that the "basic objection to
the doctrine [of contributory negligence] -- grounded in the primal concept that in a
system in which liability is based on fault, the extent of fault should govern the extent of
liability -- remains irresistible to reason and all intelligent notions of fairness." (Id., at p.
811.) [20 Cal.3d 609]
Now, only three years later, the majority of my colleagues conclude that the Li principle
is not irresistible after all. Today, in the first decision of this court since Li explaining the
operation of the Li principle, they reject it for almost all cases involving multiple parties.
The majority reject the Li principle in two ways. First, they reject it by adopting joint and
several liability holding that each defendant -- including the marginally negligent one --
will be responsible for the loss attributable to his codefendant's negligence. To illustrate,
if we assume that the plaintiff is found 30 percent at fault, the first defendant 60 percent,
and a second defendant 10 percent, the plaintiff under the majority's decision is entitled to
a judgment for 70 percent of the loss against each defendant, and the defendant found
only 10 percent at fault may have to pay 70 percent of the loss if his codefendant is
unable to respond in damages.
The second way in which the majority reject Li's irresistible principle is by its settlement
rules. Under the majority opinion, a good faith settlement releases the settling tortfeasor
from further liability, and the "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." (Ante, p. 604.) fn. 1 The settlement rules announced today
may turn Li's principle upside down -- the extent of dollar liability may end up in inverse
relation to fault.
Whereas the joint and several liability rules violate the Li principle when one or more
defendants are absent or unable to respond in damages, the settlement rules will
ordinarily preclude effecting the majority's principle in cases when all defendants are
involved in the [20 Cal.3d 610] litigation and are solvent. To return to my 30-60-10
illustration and further assuming both defendants are solvent, the plaintiff is ordinarily
eager to settle quickly to avoid the long delay incident to trial. Further, he will be willing
to settle with either defendant because under the majority's suggested rules, he may then
pursue the remaining defendant for the balance of the recoverable loss (70 percent)
irrespective whether the remaining defendant was 10 percent at fault or 60 percent at
fault. The defendants' settlement postures will differ substantially. Realizing the plaintiff
is eager for quick recovery and is capable of pursuing the codefendant, the defendant 60
percent liable for the loss will be prompted to offer a sum substantially below his share of
fault, probably paying 20 to 40 percent of the loss. The defendant only 10 percent at fault
will be opposed to such settlement, wishing to limit his liability. To compete with his
codefendant in settlement offers he will be required to offer substantially in excess of his
10 percent share of the loss, again frustrating the Li principle that the extent of liability
should be governed by the extent of fault. Should he fail to settle, the 10 percent at fault
defendant runs the risk that his codefendant will settle early for perhaps half of his own
liability, while the lesser negligent person must eventually pay the remainder, not only
frustrating the Li principle but turning it upside down. In any event, it is extremely
unlikely he can settle for his 10 percent share. fn. 2 [20 Cal.3d 611]
The foregoing demonstrates that under the majority's joint and several liability and
settlement rules, only rarely will the Li principle be carried out in multi-party litigation.
The principle will be frustrated if one or more defendants are unavailable, insolvent, or
have settled. Prior to Li, the overwhelming majority of accident cases were settled in
whole or in part, and assuming this practice continues, the Li principle will not be
realized in those cases. In a substantial number of the remaining cases it can be expected
that one of the tortfeasors will not be able to respond in damages, again frustrating the Li
principle. In sum, although the majority devote approximately half of their opinion to
asserted maintenance of the Li principle (pts. 3, 4, and 5), in only a very small number of
multiple party cases will the loss be shared in accordance with that principle.
Attempting to justify their repudiation of the Li principle in favor of joint and several
liability, the majority suggest three rationales. First, we are told that the feasibility of
apportioning fault on a comparative basis does not "render an indivisible injury
'divisible,'" each defendant's negligence remaining a proximate cause of the entire
indivisible injury. (Ante, p. 588.) The argument proves too much. Plaintiff negligence is
also a proximate cause of the entire indivisible injury, and the argument, if meritorious,
would warrant repudiation of Li not only in the multiple party case but in all cases.
The second rationale of the majority lies in two parts. First, we are told that after Li there
is no reason to assume that plaintiffs will "invariably" be guilty of negligence. (Ante, p.
589.) Obviously this is true. The basis of joint and several liability prior to Li was that
between an innocent plaintiff and two or more negligent defendants, it was proper to hold
the defendants jointly and severally liable. The innocent plaintiff should not suffer as
against a wrongdoing defendant. (Ante, p. 588.) (Finnegan v. Royal Realty Co. (1950) 35
Cal.2d 409, 433-434 [218 P.2d 17].) Accordingly, it is not unreasonable to reject the Li
principle when we are comparing the plaintiff's innocence and defendants' negligence.
But the issue presented by this case is whether joint and several liability shall be extended
to Li cases, cases where the plaintiff by definition is negligent. While we cannot know
whether a plaintiff will be found negligent until trial, we also cannot know whether any
given defendant will be found at fault until trial. Since liability is not to be determined
until after trial, there is no reason not to deal with the real issue before us whether joint
and several liability should be applied in cases where the plaintiff is [20 Cal.3d 612]
found negligent -- i.e., cases where by definition the plaintiff is "invariably" found
negligent.
As a second part of the second rationale for joint and several liability we are told that a
plaintiff's culpability is not equivalent to that of a defendant. This is obviously true -- this
is what Li is all about. The plaintiff may have been driving 50 miles in excess of the
speed limit while the defendants may have been driving 10 miles in excess. The converse
may also be true. But the differences warrant departure from the Li principle in toto or
not at all.
The majority's third rationale for rejecting the Li principle is an asserted public policy for
fully compensating accident victims. The majority state that joint and several liability
"recognizes that fairness dictates that the 'wronged party should not be deprived of his
right to redress,' but that '[the] wrongdoers should be left to work out between themselves
any apportionment.' (Summers v. Tice (1948) 33 Cal.2d 80, 88 [199 P.2d 1, 5 A.L.R.2d
91].)" (Ante, p. 590.) The quoted language is not helpful to the majority when the
plaintiff is also negligent because he is himself a wrongdoer.
Until today neither policy nor law called for fully compensating the negligent plaintiff.
Prior to Li, the negligent plaintiff was denied all recovery under the contributory
negligence doctrine -- the policy reflected being directly contrary to that asserted today.
Li, of course, repudiated that doctrine replacing it with a policy permitting compensation
of the negligent accident victim but only on the basis of comparative fault. Moreover, Li
cannot be twisted to establish a public policy requiring rejection of its own irresistible
principle. In sum, the majority are establishing a new policy both contrary to that existing
prior to Li and going further than that reflected by the comparative principle enunciated
in Li.
Conceivably, such a new public policy departing from intelligent notions of fairness may
be warranted but, if so, its establishment should be left for the Legislature. Before going
beyond Li's principle "irresistible to teason and all intelligent notions of fairness" (13
Cal.3d at p. 811), a full evaluation should be made of society's compensation to accident
victims through our tort system in comparison to all other means used by society to
compensate victims. A study should include such matters as the relative workings of the
liability insurance system in providing benefits, disability insurance and employer
benefits, medical insurance, [20 Cal.3d 613] workers' compensation, insurance against
uninsured defendants, Medicare, Medi-Cal and the welfare system. Reconsideration of
the collateral source rule would also be required before adoption of a public policy going
beyond intelligent notions of fairness. The evidence gathering and hearings necessary for
the requisite study are within the capabilities of the Legislature; this court is
institutionally incapable of undertaking it.
The majority rely on decisions from Mississippi, New York, Wisconsin, and Georgia for
the proposition that courts have retained joint and several liability under comparative
negligence. (Ante, p. 591.) In the cases cited from the first two jurisdictions, it does not
appear that the plaintiff was negligent under the facts or that the court in adhering to joint
and several liability was considering cases where the plaintiff was negligent. Thus, those
cases stand for nothing more than application of joint and several liability when a
plaintiff is innocent and the defendants are guilty, the traditional common law
application. The third jurisdiction, Wisconsin, is not a pure comparative negligence
jurisdiction. Rather, the negligent plaintiff can recover only if his "'negligence was not as
great as the negligence of the person against whom recovery is sought.'" (Chille v.
Howell (1967) 34 Wis.2d 491 [149 N.W.2d 600, 604].) Because of the limitation on
recovery by negligent plaintiffs in Wisconsin, it may be justifiable to apply joint and
several liability by analogy to the common law principle that as between an innocent
plaintiff and any negligent defendant, the entire loss shall fall on the negligent actor.
Obviously, such justification is not available in a pure comparative jurisdiction like
California. Only the Georgia case is in point.
In any event as pointed out by Justice Thompson in the opinion and chart prepared in the
Court of Appeal in this case, several jurisdictions adopting comparative fault have
abolished joint and several liability. fn. 3
In my view the majority's effort to resist the irresistible fails. They have furnished no
substantial reason for refusing to apply the Li principle to multi-party litigation.
II
Adherence to the Li principle that the extent of liability is governed by the extent of fault
requires that only a limited form of joint and several [20 Cal.3d 614] liability be retained
in cases where the plaintiff is negligent. fn. 4 The issue of joint and several liability
presents the problem whether the plaintiff or the solvent defendants should bear the
portion of the loss attributable to unknown defendants or defendants who will not
respond in damages due to lack of funds.
Consistent with the Li principle -- the extent of liability is governed by the extent of fault
-- the loss attributable to the inability of one defendant to respond in damages should be
apportioned between the negligent plaintiff and the solvent negligent defendant in
relation to their fault. (Fleming, Foreword: Comparative Negligence At Last -- By
Judicial Choice (1976) 64 Cal.L.Rev. 239, 251-252, 257-258.) Returning to my 30-60-10
illustration, if the 60 percent at fault defendant is unable to respond, the 30 percent at
fault plaintiff should be permitted to recover 25 percent of the entire loss from the 10
percent at fault solvent defendant based on the 3 to 1 ratio of fault between them. (The
solvent defendant would have added to his 10 percent liability one-fourth of the 60
percent or 15 percent to reach the 25 percent figure.) To the extent that anything is
recovered from the 60 percent at fault defendant, the money should be apportioned on the
basis of the 3 to 1 ratio. The system is based on simple mechanical calculations from the
jury findings.
Placing the entire loss attributable to the insolvent defendant solely on the negligent
plaintiff or solely on the solvent negligent defendant is not only contrary to the Li
principle, but also undermines the entire system of comparative fault. If the portion
attributable to the insolvent defendant is placed upon the negligent plaintiff, the solvent
defendant will attempt to reduce his liability by magnifying the fault of the insolvent
defendant. Should the insolvent's portion be placed solely upon the solvent defendant --
as done by the majority's application of joint and several liability -- the plaintiff will have
an incentive to magnify the fault of the insolvent defendant. fn. 5 Because the insolvent --
and [20 Cal.3d 615] therefore disinterested -- defendant will usually not be present at
trial to defend himself, any semblance to comparative fault will be destroyed.
Similarly, settlement rules should also reflect the Li principle. When a defendant settles,
he should be deemed to have settled his share of the total liability and the pleadings and
releases should so reflect. The nonsettling defendant should be liable only for the portion
of the loss attributable to him -- deducting from the total loss the amount attributable to
the plaintiff's negligence fn. 6 and the amount attributable to the settling defendant's
negligence. This rule adopted by Wisconsin (Pierringer v. Hoger (1963) 21 Wis.2d 182
[124 N.W.2d 106, 111-112]), would force a plaintiff to demand settlements reasonably
commensurate to the fault of the settling defendant because he will no longer be able to
settle quickly and cheaply, then holding the remaining defendants for part of his
codefendant's share of the loss. Granted, the nonsettling defendant will have an incentive
to magnify the fault of the settling defendant, but it is not unfair to place the burden of
defending the settling defendant upon the plaintiff for three reasons: He is the one who
chose to settle, the settlement has eliminated any right of contribution or partial
indemnity of the nonsettling defendant, and the plaintiff in obtaining his settlement may
secure the cooperation of the settling defendant for the later trial.
III
"[I]rresistible to reason and all intelligent notions of fairness" (13 Cal.3d 804, 811), this
court created a policy three years ago the majority today cavalierly reject without real
explanation. Their attempted rationale for rejection of the Li principle insofar as it is
based on a newly discovered public policy is entitled to little weight. The public has no
such policy and any attack on the principle based on logic or abstract notions of fairness
fail. The principle is transparently irresistible in the abstract.
If not applied across the board the Li principle should be abandoned. The reason for
abandonment applies not only to multi-party cases but also to two-party cases, warranting
total repudiation of the principle, not merely the majority's partial rejection. [20 Cal.3d
616]
While logically reasonable and fair in the abstract, the Li principle is generally
unworkable, producing unpredictable and inconsistent results. Implementation of the
principle requires judgment beyond the ability of human judges and juries. The point is
easily illustrated. If the first party to an accident drove 10 miles in excess of the speed
limit, the second 50 miles in excess, it is clear that the second should suffer the lion's
share of the loss. But should he pay 55 percent of the loss, 95 percent or something in
between? That question cannot be answered with any precision, and human beings will
not answer it consistently. Yet that is the easiest question presented in comparing fault
because we are dealing only with apples. When we add oranges to the comparison, there
are no guidelines. If the first driver also was driving under the influence of Jack Daniels,
reasonable judges and juries will disagree as to who shall bear the lion's share of the loss,
much less the percentages. Finally, when the case is pure apples and oranges -- one party
speeds, the other runs a stop signal -- there is no guide post, much less guidelines, and
acting in furtherance of the Li principle, reasonable judges and juries can be expected to
come up with radically different evaluations. fn. 7
In short, the pure comparative fault system adopted by Li not only invites but demands
arbitrary determinations by judges and juries, turning them free to allocate the loss as
their sympathies direct. We may expect that allocation of the loss will be based upon the
parties' appearance and personality and the abilities of their respective counsel. The
system is a nonlaw system. Furthermore, prior to Li our tort system of liability was
condemned because it was so inefficient in transferring the liability insurance premium to
the accident victim (e.g., Conard et al., Automobile Accident Costs and Payments (1964)
pp. 58-61). The complexities and unpredictability of the Li system can only make the
system even more inefficient.
I do not suggest return to the old contributory negligence system. The true criticism of
that system remains valid: one party should not be required to bear a loss which by
definition two have caused. However, in departing from the old system of contributory
negligence numerous approaches are open, but the Legislature rather than this court is the
[20 Cal.3d 617] proper institution in a democratic society to choose the course. To
accommodate the true criticism, for example, it might be proper to take the position that a
negligent plaintiff forfeits part -- but not all -- of his recovery in a percentage fixed by the
Legislature. A fixed percentage approach would eliminate the impossible task of
comparing apples and oranges placed upon the trier of fact by Li and would provide the
consistency, certainty and predictability which foster compromise and settlement.
Although the percentage would be arbitrary, the allocation of loss as demonstrated above
is necessarily arbitrary under the present system.
In my dissenting opinion in Li I pointed out: "[The] Legislature is the branch best able to
effect transition from contributory to comparative or some other doctrine of negligence.
Numerous and differing negligence systems have been urged over the years, yet there
remains widespread disagreement among both the commentators and the states as to
which one is best. (See Schwartz, Comparative Negligence (1974) Appen. A, pp. 367-369
and § 21.3, fn. 40, pp. 341-342, and authorities cited therein.) This court is not an
investigatory body, and we lack the means of fairly appraising the merits of these
competing systems. Constrained by settled rules of judicial review, we must consider
only matters within the record or susceptible to judicial notice. That this court is
inadequate to the task of carefully selecting the best replacement system is reflected in
the majority's summary manner of eliminating from consideration all but two of the many
competing proposals -- including models adopted by some of our sister states." (Fn.
omitted; 13 Cal.3d at pp. 833-834.)
Again, it must be urged that this is a subject to which the Legislature should address
itself. Not only are there a number of different approaches to plaintiff negligence in our
sister states but recent years have spawned numerous studies of the problem from the
societal point of view. (E.g., Cal. Citizens Com. on Tort Reform, Righting the Liability
Balance (Sept. 1977).) The two most modern trends of compensating accident victims run
in directly contrary approaches -- the nonfault approach where negligence may be
ignored and the comparative fault approach where the quantum of negligence is to be
meticulously divided among the parties. No area of the law calls out more for a clear
policy established by democratically elected representatives.
FN 1. Glen's second amended complaint is framed in six counts and names, in addition to
AMA and Viking, numerous individual Viking officials and the Continental Casualty
Company of Chicago (AMA's insurer) as defendants. In addition to seeking recovery on
the basis of negligence, plaintiff claims that various defendants (1) were guilty of fraud
and misrepresentation in relation to the race, (2) acted in bad faith in refusing to settle a
medical reimbursement claim allegedly covered by insurance and (3) intentionally
inflicted emotional distress upon him. Only the negligence claim, however, is relevant to
the present proceeding.
FN 2. A question has arisen as to whether our Li opinion, in mandating that a plaintiff's
recovery be diminished in proportion to the plaintiff's negligence, intended that the
plaintiff's conduct be compared with each individual tortfeasor's negligence, with the
cumulative negligence of all named defendants or with all other negligent conduct that
contributed to the injury. The California BAJI Committee, which specifically addressed
this issue after Li, concluded that "the contributory negligence of the plaintiff must be
proportioned to the combined negligence of plaintiff and of all the tort-feasors, whether
or not joined as parties ... whose negligence proximately caused or contributed to
plaintiff's injury." (Use note, BAJI No. 14.90 (5th ed. 1975 pocket pt.) p. 152.)
We agree with this conclusion, which finds support in decisions from other comparative
negligence jurisdictions. (See, e.g., Pierringer v. Hoger (1963) 21 Wis.2d 182 [124
N.W.2d 106]; Walker v. Kroger Grocery & Baking Co. (1934) 214 Wis. 519 [252 N.W.
721, 727-728].) In determining to what degree the injury was due to the fault of the
plaintiff, it is logically essential that the plaintiff's negligence be weighed against the
combined total of all other causative negligence; moreover, inasmuch as a plaintiff's
actual damages do not vary by virtue of the particular defendants who happen to be
before the court, we do not think that the damages which a plaintiff may recover against
defendants who are joint and severally liable should fluctuate in such a manner.
FN 3. As Judge Learned Hand observed more than a quarter of a century ago:
"[I]ndemnity is only an extreme form of contribution." (Slattery v. Marra Bros. (2d Cir.
1951) 186 F.2d 134, 138.)
FN 4. Dean Prosser was at a loss in attempting to state the applicable standard: "Out of
all this, it is extremely difficult to state any general rule or principle as to when indemnity
will be allowed and when it will not. It has been said that it is permitted only where the
indemnitor has owed a duty of his own to the indemnitee; that it is based on a 'great
difference' in the gravity of the fault of the two tortfeasors; or that it rests upon a
disproportion or difference in character of the duties owed by the two to the injured
plaintiff. Probably none of these is the complete answer, and, as is so often the case in the
law of torts, no one explanation can be found which will cover all the cases. Indemnity is
a shifting of responsibility from the shoulders of one person to another; and the duty to
indemnify will be recognized in cases where community opinion would consider that in
justice the responsibility should rest upon one rather than the other. This may be because
of the relation of the parties to one another, and the consequent duty owed; or it may be
because of a significant difference in the kind or quality of their conduct." (Fns. omitted.)
(Prosser, Law of Torts, supra, § 52, p. 313.)
FN 5. Sections 875 to 879 provide in full:
Section 875:
"(a) Where a money judgment has been rendered jointly against two or more defendants
in a tort action there shall be a right of contribution among them as hereinafter provided.
"(b) Such right of contribution shall be administered in accordance with the principles of
equity.
"(c) Such right of contribution may be enforced only after one tortfeasor has, by payment,
discharged the joint judgment or has paid more than his pro rata share thereof. It shall be
limited to the excess so paid over the pro rata share of the person so paying and in no
event shall any tortfeasor be compelled to make contribution beyond his own pro rata
share of the entire judgment.
"(d) There shall be no right of contribution in favor of any tortfeasor who has
intentionally injured the injured person.
"(e) A liability insurer who by payment has discharged the liability of a tortfeasor
judgment debtor shall be subrogated to his right of contribution.
"(f) This title shall not impair any right of indemnity under existing law, and where one
tortfeasor judgment debtor is entitled to indemnity from another there shall be no right of
contribution between them.
"(g) This title shall not impair the right of a plaintiff to satisfy a judgment in full as
against any tortfeasor judgment debtor."
Section 876:
"(a) The pro rata share of each tortfeasor judgment debtor shall be determined by dividing
the entire judgment equally among all of them.
"(b) Where one or more persons are held liable solely for the tort of one of them or of
another, as in the case of the liability of a master for the tort of his servant, they shall
contribute a single pro rata share, as to which there may be indemnity between them."
Section 877:
"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."
Section 877.5:
"(a) Where an agreement or covenant is made which provides for a sliding scale recovery
agreement between one or more, but not all, alleged defendant tortfeasors and the
plaintiff or plaintiffs:
"(1) The parties entering into any such agreement or covenant shall promptly inform the
court in which the action is pending of the existence of the agreement or covenant and its
terms and provisions; and
"(2) If the action is tried before a jury, and a defendant party to the agreement is a
witness, the court shall, upon motion of a party, disclose to the jury the existence and
content of the agreement or covenant, unless the court finds that such disclosure will
create substantial danger of undue prejudice, of confusing the issues, or of misleading the
jury.
"The jury disclosure herein required shall be no more than necessary to be sure that the
jury understands (1) the essential nature of the agreement, but not including the amount
paid, or any contingency, and (2) the possibility that the agreement may bias the
testimony of the alleged tortfeasor or tortfeasors who entered into the agreement.
"(b) As used in this section a 'sliding scale recovery agreement' means an agreement or
covenant between a plaintiff or plaintiffs and one or more, but not all, alleged tortfeasor
defendants, where the agreement limits the liability of the agreeing tortfeasor defendants
to an amount which is dependent upon the amount of recovery which the plaintiff is able
to recover from the nonagreeing defendant or defendants. This includes, but is not limited
to, agreements within the scope of Section 877, and agreements in the form of a loan
from the agreeing tortfeaser defendant to the plaintiff or plaintiffs which is repayable in
whole or in part from the recovery against the nonagreeing tortfeasor defendant."
Section 878:
"Judgment for contribution may be entered by one tortfeasor judgment debtor against
other tortfeasor judgment debtors by motion upon notice. Notice of such motion shall be
given to all parties in the action, including the plaintiff or plaintiffs, at least 10 days
before the hearing thereon. Such notice shall be accompanied by an affidavit setting forth
any information which the moving party may have as to the assets of defendants available
for satisfaction of the judgment or claim for contribution."
Section 879:
"If any provision of this title or the application thereof to any person is held invalid, such
invalidity shall not affect other provisions or applications of the title which can be given
effect without the invalid provision or application and to this end the provisions of this
title are declared to be severable."
FN 6. At the time of the Dole decision, the New York contribution statute provided:
"Where a money judgment has been recovered jointly against defendants in an action for
a personal injury or for property damage, each defendant who has paid more than his pro
rata share shall be entitled to contribution from the other defendants with respect to the
excess paid over and above his pro rata share; provided, however that no defendant shall
be compelled to pay to any other such defendant an amount greater than his own pro rata
share of the entire judgment. Recovery may be had in a separate action or a judgment in
the original action against a defendant who has appeared may be entered on motion made
on notice in the original action." (N.Y.C.P.L.R., former § 1401, repealed N.Y.L. 1974, ch.
742, § 1.)
FN 7. The 1957 legislation was drafted by the State Bar and was initially introduced in
1955 as Senate Bill No. 412. The State Bar explanation accompanying the bill, which was
adopted by the Senate Judiciary Committee, read in pertinent part:
"Under the common law there is no contribution between joint tortfeasors. One of several
joint tortfeasors may be forced to pay the whole claim for the damages caused by them
yet he may not recover from the others their pro rata share of the claim. California
follows this rule. [Citations.] The purpose of this bill is to lessen the harshness of that
doctrine.
"The ancient basis of the rigid rule against contribution in this type of case is the policy
that the law should deny assistance to tortfeasors in adjusting losses among themselves
because they are wrongdoers and the law should not aid wrongdoers. But this
overemphasizes the supposed penal character of liability in tort; it ignores the general aim
of the law for equal distribution of common burdens and of the right of recovery of
contribution in various situations, e.g., among co-sureties. It ignores also the fact that
most tort liability results from inadvertently caused damage and leads to the punishment
of one wrongdoer by permitting another wrongdoer to profit at his expense." (Italics
added.) (Third Progress Rep. to the Legis. by the Sen. Interim Jud. Com., 2 Appendix to
Sen.J. (1955 Reg. Sess.) p. 52.)
FN 8. Section 428.20 provides in full: "When a person files a cross-complaint as
authorized by Section 428.10, he may join any person as a cross-complainant or cross-
defendant, whether or not such person is already a party to the action, if, had the cross-
complaint been filed as an independent action, the joinder of that party would have been
permitted by the statutes governing joinder of parties."
Section 428.70 provides in full:
"(a) As used in this section:
"(1) 'Third-party plaintiff' means a person against whom a cause of action has been
asserted in a complaint or cross-complaint, who claims the right to recover all or part of
any amounts for which he may be held liable on such cause of action from a third person,
and who files a cross-complaint stating such claim as a cause of action against the third
person.
"(2) 'Third-party defendant' means the person who is alleged in a cross-complaint filed by
a third-party plaintiff to be liable to the third-party plaintiff if the third-party plaintiff is
held liable on the claim against him.
"(b) In addition to the other rights and duties a third-party defendant has under this
article, he may, at the time he files his answer to the cross-complaint, file as a separate
document a special answer alleging against the third-party plaintiff any defenses which
the third-party plaintiff has to such cause of action. The special answer shall be served on
the third-party plaintiff and on the person who asserted the cause of action against the
third-party plaintiff."
FN 9. There are, of course, a number of significant exceptions to this general rule. For
example, when an employee is injured in the scope of his employment, Labor Code
section 3864 would normally preclude a third party tortfeasor from obtaining
indemnification from the employer, even if the employer's negligence was a concurrent
cause of the injury. (See E. B. Wills Co. v. Superior Court (1976) 56 Cal.App.3d 650,
653-655 [128 Cal.Rptr. 541]; cf. Mize v. Atchison, T. & S. F. Ry. Co. (1975) 46
Cal.App.3d 436, 458-460 [120 Cal.Rptr. 787].)
Similarly, as we have noted above such a partial indemnification claim cannot properly
be brought against a concurrent tortfeasor who has entered a good faith settlement with
the plaintiff, because permitting such a cross-complaint would obviously undermine the
explicit statutory policy to encourage settlements reflected by the provisions of section
877 of the Code of Civil Procedure. (See pp. 603-604, ante.)
FN 1. Although one of the most important matters determined by today's decision, the
issue of pro rata reduction or dollar amount reduction was barely mentioned and the
relative merits of the two systems were not briefed or argued by the parties or by any of
the numerous amici. The overwhelming weight of authority -- contrary to the majority --
is for pro rata reduction rather than settlement amount reduction. (Ark. Stats. Ann., § 34-
1005; Hawaii Rev.Laws § 663-15; Nebben v. Kosmalski (1976) 307 Minn. 211 [239
N.W.2d 234, 236]; Theobald v. Angeles (1965) 44 N.J. 228 [208 A.2d 129, 131]; Rogers
v. Spady (1977) 147 N.J.Super. 274 [371 A.2d 285, 287]; N.Y.Gen.Obl.Law, § 15-108;
R.I.Gen.Laws (1956) § 10-6-8; S.D.Codified Laws 15-8-18; Tex.Rev.Civ.Stat., art.
2212a, § 2(e); Utah Code 78-27-43; Gomes v. Brodhurst (3d Cir. 1967) 394 F.2d 465;
Pierringer v. Hoger (1963) 21 Wis.2d 182 [124 N.W.2d 106]; Wyo.Stat.Ann. § 1-7.6; but
cf.Fla.Stat.Ann. § 768.31; Mass.Laws Ann., ch. 231B, § 4.) Although I believe it is
improper for the court to reach such an important issue without the aid of counsel, I am
compelled to discuss the problem because the majority has determined it.
FN 2. In addition, the policy in favor of settlement will be frustrated by the majority's
rule that the plaintiff's recovery against nonsettling tortfeasors should be diminished only
by the amount recovered in a good faith settlement rather than by settling tortfeasor's
proportionate responsibility. (Ante, p. 604.) As the majority recognize: "'Few things
would be better calculated to frustrate [section 877's] policy, and to discourage settlement
of disputed tort claims, than knowledge that such a settlement lacked finality and would
lead to further litigation with one's joint tortfeasors, and perhaps further liability.'" (Id.)
Settlement by one tortfeasor is not going to compel the other tortfeasor to withdraw his
cross-complaint for total or partial indemnity. Rather there will be a claim of bad faith
because if the jury awards the plaintiff all of the damages sought and concludes that the
settling tortfeasor should bear the lion's share of the responsibility for the laws, the
settling tortfeasor would have escaped for a small fraction of his actual liability. This
alone, although not determinative, would indicate bad faith. (River Garden Farms, Inc. v.
Superior Court (1973) 26 Cal.App.3d 986, 997 [103 Cal.Rptr. 498] ("price is the
immediate signal for the inquiry into good faith").)
Obviously, in most cases the jury will not award plaintiff all of the damages sought and
will not conclude the settling tortfeasor should have borne the lion's share. But because
prior to trial these matters are necessarily uncertain and the possibility of establishing bad
faith exists, the nonsettling tortfeasor's counsel must continue to maintain his cross-
complaint for total and partial indemnity. (Cf. Smith v. Lewis (1975) 13 Cal.3d 349, 360
[118 Cal.Rptr. 621, 530 P.2d 589, 78 A.L.R.3d 231] (failure to pursue arguable claims
may constitute malpractice).) Aware that his settlement will not ordinarily prevent his
participating in the litigation of the issues of damages and relative fault and that he might
be held liable for further damages, a defendant contemplating settlement will rarely do so
alone.
FN 3. It has been suggested that statutes repudiating joint and several liability in
comparative negligence cases are entitled to little, if any, weight in comparison to judicial
opinions on the issue. However, in a democracy the laws enacted by the people's elected
representatives are entitled to great weight.
FN 4. When the plaintiff is free of fault he is entitled to a joint and several judgment
against each defendant in accordance with common law rule. The Li principle is
inapplicable because there is simply no plaintiff fault for comparing with defendants'
fault.
In addition, when one defendant is held liable for the acts of another on the basis of
principles of vicarious liability, there should be no apportionment of liability because by
definition one is liable for the acts of the other. (Ante, p. 587.) Apportionment between
defendants should be denied even if the plaintiff is negligent, and in determining relative
fault of plaintiff and defendants, the single negligent act for which both defendants are
responsible should not be counted twice.
FN 5. To illustrate, if plaintiff and the solvent defendant are equally at fault, the amount
to be recovered will depend on the extent of fault of the insolvent defendant. If the
insolvent defendant is 80 percent at fault, plaintiff will recover 90 percent of his loss but
if the insolvent is only 10 percent at fault, recovery will be limited to 55 percent of the
loss.
FN 6. Existing rules should be continued as to nonnegligent plaintiffs.
FN 7. In the instant case, plaintiff alleges defendants negligently conducted a motorcycle
race. Defendant American Motorcycle Association alleges that plaintiff was negligent in
causing the accident and that plaintiff's parents negligently failed to supervise their minor
child. Assuming that both plaintiff and defendant are successful in proving their
allegations, the division of the loss between plaintiff, defendant, and the parents will
require arbitrary allocation.
Stonegate Homeowners Assn. v. Staben (2006)144

[No. B178286. Second Dist., Div. Two. Nov. 7, 2006.]
THE STONEGATE HOMEOWNERS ASSOCIATION, Plaintiff and Appellant, v. T. A.
STABEN, Defendant and Respondent; R&R PALACIOS CONSTRUCTION, INC.,
Movant and Appellant.
[No. B182069. Second Dist., Div. Two. Nov. 7, 2006.]
R&R PALACIOS CONSTRUCTION, INC., Cross-complainant and Appellant, v. T. A.
STABEN, Cross-defendant and Respondent.
(Superior Court of Los Angeles County, No. LC048341, Joseph R. Kalin, Judge. fn. * )
(Opinion by Doi Todd, J., with Boren, P. J., and Ashmann-Gerst, J., concurring.)
COUNSEL
Robertson & Vick, Jonathan S. Vick and Robert Nation for Plaintiff and Appellant.
Horvitz & Levy, Curt Cutting and Daniel J. Gonzalez; Bremer Whyte Brown & O'Meara,
Matthew J. Eschenburg, Keith G. Bremer and Raymond Meyer, Jr., for Movant and
Appellant and for Cross-complainant and Appellant.
Sabaitis O'Callaghan, Frank T. Sabaitis and Louis R. Chao for Defendant and Respondent
and for Cross-defendant and Respondent. [144 Cal.App.4th 742]
OPINION
DOI TODD, J.-
In this construction defect case, the general contractor hired a subcontractor to waterproof
retaining walls and install back drains in a large residential development. After
discovering seepage and drainage problems, the homeowners association sued the general
contractor and the subcontractor for negligence. During a jury trial, the subcontractor's
motion for nonsuit was granted and judgment was entered in its favor. On appeal, the
homeowners association and the general contractor contend that the trial court
erroneously precluded expert testimony on the subcontractor's standard of care and erred
in granting nonsuit. We agree and reverse the judgment in favor of the subcontractor. We
also reverse the summary judgment granted in favor of the subcontractor on the general
contractor's cross-complaint for indemnity because we find there are triable issues of
material fact as to whether the subcontractor was negligent. In light of our rulings, the
costs awarded to the subcontractor must also be set aside. [144 Cal.App.4th 743]
FACTUAL AND PROCEDURAL BACKGROUND
This action arises out of the construction of a 238-home residential development in the
West Hills section of Los Angeles (the Stonegate project). The developer entered into a
written contract with appellant R&R Palacios Construction, Inc. (Palacios) for
construction of retaining walls. Palacios, by oral agreement, subcontracted the
waterproofing and drainage work on the retaining walls to respondent T.A. Staben
(Staben), a company with which Palacios had previously worked.
At trial, Ron Palacios testified that he told Tom Staben to "waterproof [the walls] with
Thoroseal," install four-inch subsurface drain lines, backfill the walls with sand and lay
"v-ditches." Mr. Palacios testified that he did not know how to apply Thoroseal and that
he told Mr. Staben to apply it according to the manufacturer's specifications. He later
testified that he never had a conversation with Mr. Staben about how the Thoroseal
should be applied. He also testified that he did not tell Mr. Staben how to install the
drains. Mr. Palacios further testified: "I don't tell him [Mr. Staben] how to do his job,"
explaining that Mr. Staben was a "professional."
Mr. Staben testified that he was not given any specifications as to how to apply the
Thoroseal to the walls at the Stonegate project and that he was only told to apply it "the
same way" he had at the "Moorpark project," which involved the same developer. But
Mr. Palacios testified he had not worked on the Moorpark project and that he was
unaware of how Staben did the work on the Moorpark project.
In late 1989, Staben completed the waterproofing and drainage installation on the walls
Palacios built at the Stonegate project. Palacios paid Staben for its work and did not have
any problems with the work. After the work was completed, homeowners in the
development began to notice wet soil or boggy conditions in their yards together with
dampness on the downhill side of the retaining walls and a white powdery substance on
the walls called "efflorescence." In 1999, appellant The Stonegate Homeowners
Association (Stonegate) filed suit against the developer and others for negligence, strict
liability and implied warranty, alleging that the retaining walls had been defectively
waterproofed and drained. Stonegate later substituted Palacios and Staben in place of
fictitiously-named defendants. The trial court dismissed the strict liability and warranty
claims, leaving only the negligence cause of action to be tried. Palacios cross-complained
against Staben for indemnity, contribution and declaratory relief. [144 Cal.App.4th 744]
Stonegate eventually settled or disposed of its claims against all defendants except
Staben. Palacios entered into a sliding scale or "Mary Carter" settlement agreement with
Stonegate, whereby Palacios guaranteed a global payment of $3.3 million that would be
reduced by the amount recovered by Stonegate from nonsettling parties through
settlement or judgment. Prior to trial, Stonegate dismissed Palacios as a defendant, and
the court severed Palacios's indemnity cross-complaint. Trial proceeded only against
Staben on Stonegate's claim for negligence.
During trial, Stonegate attempted to present expert witness testimony on the standard of
care in applying Thoroseal and in installing a subsurface back drain and that Staben's
work fell below those standards. The trial court precluded the testimony, ruling that the
relevant issue was not the standard of care, but the oral contract between Palacios and
Staben and what Staben was told to do under that agreement. The court deemed Palacios
to be the "gatekeeper" and stated that Palacios should be responsible for any defects.
At the close of Stonegate's evidence, Staben orally moved for nonsuit on the grounds that
"there is no conflict in the evidence that Mr. Staben's duty was to do what Mr. Palacios
asked him to do pursuant to what he had done for the same . . . developer in the project
called Moorpark" and that Staben did not owe a duty to Stonegate. The trial court granted
the motion for nonsuit, stating: "The court's basis for the nonsuit is that there was a lack
of any testimony by the plaintiff as to the specific duties the defendant had regarding his
oral contract with Palacios." The court further stated: "The bottom line of the situation is
that the plaintiff just did not present any evidence of facts with regard to the contract
between Palacios and Staben to raise any duty or obligation for Staben to perform other
than he did." The court then entered judgment in favor of Staben. Both Stonegate and
Palacios filed motions for a new trial, which the court denied. Stonegate and Palacios
have separately appealed from the judgment in favor of Staben. Stonegate also appeals
from the trial court's award of costs to Staben.
Following entry of judgment in its favor, Staben moved for summary judgment on
Palacios's severed cross-complaint for indemnity, arguing that because Staben fulfilled its
obligations under the oral agreement with Palacios, the requisite predicate tort to
maintain an action for equitable indemnity was absent. The trial court agreed, granting
the motion and entering summary judgment in favor of Staben. The court then awarded
costs to Staben in the amount of $78,937.52--the same amount the court had awarded
against Stonegate. Palacios appeals from both the summary judgment on its cross
-complaint and the award of costs. Stonegate's and Palacios's appeals have been
consolidated. [144 Cal.App.4th 745]
DISCUSSION
I. THE NONSUIT MOTION
Stonegate and Palacios contend the trial court erred in granting the nonsuit because
expert testimony on Staben's standard of care should have been admitted. fn. 1
A. Standard of Review
"A motion for nonsuit allows a defendant to test the sufficiency of the plaintiff's evidence
before presenting his or her case. Because a successful nonsuit motion precludes
submission of plaintiff's case to the jury, courts grant motions for nonsuit only under very
limited circumstances." (Carson v. Facilities Development Co. (1984) 36 Cal.3d 830,
838.) "A defendant is entitled to a nonsuit if the trial court determines that, as a matter of
law, the evidence presented by plaintiff is insufficient to permit a jury to find in his favor.
[Citation.] 'In determining whether plaintiff's evidence is sufficient, the court may not
weigh the evidence or consider the credibility of witnesses. Instead, the evidence most
favorable to plaintiff must be accepted as true and conflicting evidence must be
disregarded. The court must give "to the plaintiff['s] evidence all the value to which it is
legally entitled, . . . indulging every legitimate inference which may be drawn from the
evidence in plaintiff['s] favor."' [Citation.] A mere [144 Cal.App.4th 746] 'scintilla of
evidence' does not create a conflict for the jury's resolution; 'there must be substantial
evidence to create the necessary conflict.' [Citation.]" (Nally v. Grace Community Church
(1988) 47 Cal.3d 278, 291.)
In reviewing a grant of nonsuit, we are "guided by the same rule requiring evaluation of
the evidence in the light most favorable to the plaintiff." (Carson v. Facilities
Development Co., supra, 36 Cal.3d at p. 839; Pinero v. Specialty Restaurants Corp.
(2005) 130 Cal.App.4th 635, 639.) "We will not sustain the judgment '"unless interpreting
the evidence most favorably to plaintiff's case and most strongly against the defendant
and resolving all presumptions, inferences and doubts in favor of the plaintiff a judgment
for the defendant is required as a matter of law."' [Citations.]" (Nally v. Grace Community
Church, supra, 47 Cal.3d at p. 291.) "Although a judgment of nonsuit must not be
reversed if plaintiff's proof raises nothing more than speculation, suspicion, or conjecture,
reversal is warranted if there is 'some substance to plaintiff's evidence upon which
reasonable minds could differ . . . .'" (Carson v. Facilities Development Co., supra, at p.
839.) As below, we do not weigh the evidence or consider the credibility of witnesses.
(Alpert v. Villa Romano Homeowners Assn. (2000) 81 Cal.App.4th 1320, 1327.) "Where
there is no evidence to review because the trial court excluded it, we review the trial
court's evidentiary rulings to determine if the evidence was properly excluded. If relevant
and material evidence was excluded which would have allowed the plaintiff to overcome
a nonsuit, the judgment must be reversed. [Citation.]" (Castaneda v. Bornstein (1995) 36
Cal.App.4th 1818, 1825, disapproved on another point in Bonds v. Roy (1999) 20 Cal.4th
140, 149, fn. 4.)
B. The Trial Court Erred in Precluding Expert Testimony on Staben's Duty of Care
1. Trial Court Proceedings
It was Stonegate's position at trial that Staben was responsible for two major defects in
construction of the retaining walls: Inadequate waterproofing and improper placement of
back drains.
a. Inadequate Waterproofing
Stonegate argued that inadequate waterproofing with Thoroseal permitted hillside
drainage to seep into and through the concrete blocks of the walls and caused the
formation of sulfate efflorescence that threatened the structural integrity of the walls.
Tom Staben acknowledged that the goal in applying [144 Cal.App.4th 747] Thoroseal
was "total coverage," and that "the more thorough the coverage, the better water deterring
effect it would have." Stonegate's waterproofing expert, Warren Kelly Roberts, testified
that when properly applied, Thoroseal "develops a hard shell that's impervious to water."
Roberts testified that during his excavation and physical inspection of the retaining walls
at several places, he observed areas where the Thoroseal application was too thin and
other areas where no Thoroseal had been applied. Of the 11 sites he observed, Roberts
found the coverage faulty or inadequate in "all but one," and the coverage was not
effective in preventing water from passing through the Thoroseal barrier.
Roberts tried to explain the standard of care in applying Thoroseal to the walls, and that
Staben's work fell below that standard. But the trial court ruled that standard of care in
the industry was not relevant based on its conclusion that the terms of the oral contract
between Palacios and Staben established Staben's responsibilities. The court sustained
objections to Roberts's testimony that would have explained how a contractor would
ordinarily go about preparing and applying Thoroseal.
The day following Roberts's testimony, Stonegate filed a motion for reconsideration,
which included an offer of proof that Roberts would testify that Staben failed to meet the
manufacturer's specifications for applying Thoroseal that appeared on every bag of
Thoroseal when Staben did his work. Among these specifications was the requirement for
application of two coats to assure complete coverage. The court denied the motion,
stating that it had no recollection that Ron Palacios had told Tom Staben to apply the
Thoroseal according to the manufacturer's instructions.
b. Improper Placement of Drains
Stonegate sought to establish that Staben installed the subsurface back drains too high
above the foundation, which rendered the drains largely useless because water would
accumulate behind the walls and flow through "weep" holes or "open head" joints before
rising to the level of the back drains. This created wet or boggy soil conditions in the
owners' yards. Mr. Staben admitted that it was his "personal feeling" that the drains
should have been placed right on top of the footing. He testified that he believed a city
building inspector told him to install the drains at an angle, which he did, though he
thought such placement was "incorrect." Stonegate's drainage expert, Mohammad
Joolezadah, testified that during his inspection of the site he observed drains placed at
various heights above the footing, with one drain as high as 22 inches above the footing.
Joolezadah was prepared to testify that the standard of care was to place the drains
horizontally along the footing with a two-inch bed of gravel below [144 Cal.App.4th
748] and that Staben's placement of the subsurface back drains was too high and fell
below the standard of care. But the trial court precluded this testimony, refusing to allow
Stonegate's experts to "go beyond" the oral contract to establish any standard of care on
Staben's part.
2. Subcontractor's Standard of Care
[1] Appellants contend that the court erred in narrowing its focus on the words of the oral
agreement to the exclusion of evidence on the standard of care. We agree. "The
subcontractor has a duty to perform work in a good and workmanlike manner. A
subcontractor who is careless and negligent in the performance of the work is liable to the
general contractor, to the owner, and to third persons for any damages proximately
caused. [¶] When the work is performed in a defective manner, the measure of liability is
the same as the damages that the owner can recover from the contractor. . . . [¶] The
owner ordinarily has a cause of action against the subcontractor arising from the
subcontractor's defective work, even though there is no privity of contract between the
owner and the subcontractor. The owner usually has a cause of action in negligence as a
party within the area of foreseeable risk." (11 Miller & Starr, Cal. Real Estate (3d ed.
2001) § 29:18, pp. 29--115 to 29--116, fns. omitted; see also La Jolla Village
Homeowners' Assn. v. Superior Court (1989) 212 Cal.App.3d 1131, 1145, disapproved on
another point in Jimenez v. Superior Court (2002) 29 Cal.4th 473, 484 ["imposition of
liability is still available against the subcontractor based upon the conventional theories
of breach of contract, warranty or negligence"]; 1 C.E.B., Cal. Construction Contracts
and Disputes (Cont.Ed.Bar 2d ed. 2005) § 6.8, p. 591 ["subcontractors . . . are held to a
standard of due care . . . for their performance"].)
In Stewart v. Cox (1961) 55 Cal.2d 857, homeowners pursued a negligence action against
a subcontractor hired to install concrete in their swimming pool. The court stated that the
"question is whether a subcontractor such as Cox may be liable to the owner, with whom
he was not in privity of contract, for damage occurring after his work had been accepted
by the contractor and the owner." (Id. at pp. 861--862.) The court concluded that the
subcontractor "should not be exempted from liability if negligence on his part was the
proximate cause of the damage to plaintiffs." (Id. at p. 863.) "'Accompanying every
contract is a common-law duty to perform with care, skill, reasonable expedience, and
faithfulness the thing agreed to be done, and a negligent failure to observe any of these
conditions is a tort as well as a breach of the contract.'" (Kuitems v. Covell (1951) 104
Cal.App.2d 482, 485 [finding that contract to install roofing [144 Cal.App.4th 749]
material contained an implied warranty that such material would be fit for its intended
use].)
[2] Standard of care and its breach in the construction defect context must usually be
established through expert testimony, though lay testimony may suffice where
construction defects "are of such common knowledge that men of ordinary education
could easily recognize them." (Raven's Cove Townhomes, Inc. v. Knuppe Development
Co. (1981) 114 Cal.App.3d 783, 797; Miller v. Los Angeles County Flood Control Dist.
(1973) 8 Cal.3d 689, 702--703.)
We conclude that the trial court erred in precluding Stonegate from presenting expert
testimony on Staben's standard of care. Staben agreed to perform the waterproofing and
drainage work on the retaining walls built by Palacios and had the duty to perform those
tasks in a good and workmanlike manner. As such, the testimony of Stonegate's experts
was relevant to the issue of whether Staben met the standard of care expected within the
industry. The trial court's focus on the terms of the oral agreement to the exclusion of the
standard of care evidence puts contractors like Palacios in an untenable position. The
evidence showed that Palacios did not know how to do portions of the work
subcontracted to Staben and therefore did not tell Staben how to perform its work. But
under the trial court's theory, Staben would only be liable for defects in its work if
Palacios had given it detailed instructions on how to do the work. In other words,
according to the court, the more the contractor must rely on the subcontractor, the less the
subcontractor will be held accountable. This is not sound public policy and is not the law
in California. Indeed, that Palacios did not tell Staben how to waterproof the walls or how
to install the back drains underscores why Staben was under a duty to adhere to the
standard of care in the industry. Without adherence to the standard of care, Staben could
not have achieved the desired objective of its work.
Because evidence that Staben's work fell below the standard of care in the construction
industry could have enabled Stonegate to overcome the nonsuit on its negligence claim,
the judgment in favor of Staben must be reversed. (Castaneda v. Bornstein, supra, 36
Cal.App.4th at p. 1825.)
II. SUMMARY JUDGMENT MOTION
Palacios also challenges the trial court's grant of summary judgment in favor of Staben on
Palacios's cross-complaint for indemnity.
A. Standard of Review
"The motion for summary judgment shall be granted if all the papers submitted show that
there is no triable issue as to any material fact and that [144 Cal.App.4th 750] the
moving party is entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd.
(c).) "To secure summary judgment, a moving defendant may prove an affirmative
defense, disprove at least one essential element of the plaintiff's cause of action [citations]
or show that an element of the cause of action cannot be established [citation]." (Sanchez
v. Swinerton & Walberg Co. (1996) 47 Cal.App.4th 1461, 1465; Code Civ. Proc., § 437c,
subd. (p)(2).) Once the defendant or cross-defendant has made this showing, "the burden
shifts to the plaintiff or cross-complainant to show that a triable issue of one or more
material facts exists as to that cause of action . . . ." (Code Civ. Proc., § 437c, subd. (p)
(2).)
We independently review the trial court's decision to grant summary judgment, using the
same three-step analysis as the trial court: (1) Identifying the issues framed by the
pleadings; (2) determining whether the defendant negated the plaintiff's claims; and (3)
deciding whether the plaintiff demonstrated the existence of a triable, material factual
issue. (Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 261.)
B. The Cross-Complaint and Motion for Summary Judgment
Palacios filed a cross-complaint against Staben asserting causes of action for indemnity,
contribution and declaratory relief. Palacios alleged that if it were found liable to
Stonegate or settled with Stonegate, it was entitled to indemnity or contribution from
Staben by reason of Staben's "negligence or other fault" in its work on the Stonegate
project.
Following entry of judgment in favor of Staben on its nonsuit, Staben moved for
summary judgment on Palacios's cross-complaint. Staben asserted that its motion was
"based on the fact that the evidence in the case has established that in performing its work
at the Stonegate project, Staben fulfilled all of its obligations under its oral agreement
with R&R Palacios, and therefore the predicate tort necessary for Palacios to maintain
these causes of action is absent." Specifically, Staben relied on the deposition testimony
of Tom Staben that Ron Palacios told him the developer "wanted to use Thoroseal like
they had used in Moorpark," "to [his] knowledge" Thoroseal was used on each of the
retaining walls built by Palacios and that Palacios had paid Staben for the work, as well
as Ron Palacios's testimony that he had no problems with Staben's work at the Southgate
project.
Palacios opposed the motion by presenting evidence that Staben did not apply the
Thoroseal in compliance with the standard of care in the industry. Specifically, Palacios
relied on the deposition testimony of its waterproofing [144 Cal.App.4th 751] expert,
Warren Kelly Roberts, that Thoroseal was to be applied in a two-coat uniform manner;
Staben did not apply the Thoroseal in a two-coat uniform manner; there were areas where
the Thoroseal application was too thin or was missing all together; and Staben either
oversaturated the Thoroseal when preparing it or oversaturated the walls before
application. Palacios also relied on the deposition testimony of its drainage expert,
Mohammad Joolezadah, that improper waterproofing and the absence of waterproofing
led to wall deterioration.
The trial court granted the motion for summary judgment, stating: "For equitable
indemnity against the indemnitor there must be a basis for tort liability against the
proposed indemnitor. [Staben] having performed under the oral contract to the
satisfaction of [Palacios], there is no tort liability."
C. There Were Triable Issues of Material Fact as to Whether Staben Was Negligent
[3] "[T]he doctrine of comparative equitable indemnity is designed to do equity among
defendants. Under the equitable indemnity doctrine, defendants are entitled to seek
apportionment of loss between the wrongdoers in proportion to their relative culpability
so there will be 'equitable sharing of loss between multiple tortfeasors.'" (Gem
Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, 426.) A
condition of equitable indemnity is that "there must be some basis for tort liability against
the proposed indemnitor," usually involving breach of a duty owed to the underlying
plaintiff. (BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004)
119 Cal.App.4th 848, 852.) The doctrine applies only among defendants who are jointly
and severally liable to the plaintiff. (Ibid.)
The trial court granted the motion for summary judgment based on its determination that
there could be no basis for tort liability on Staben's part because Palacios was satisfied
with the work Staben had performed under the parties' oral agreement. But Palacios's
satisfaction with Staben's work does not absolve Staben of liability for the damage
Stonegate may have suffered as a result of Staben's work if it was negligently performed.
As Palacios notes, the issue on Palacios's cross-complaint for indemnity was an equitable
sharing of responsibility for the loss that Stonegate suffered, for which Palacios is
obligated to pay compensation as part of its settlement with Stonegate. (Gem Developers
v. Hallcraft Homes of San Diego, Inc., supra, 213 Cal.App.3d at p. 429 [a "claim for
equitable indemnification derives from the [plaintiff's] loss and award of damages"].)
[144 Cal.App.4th 752]
In moving for summary judgment, Staben produced no evidence regarding its duty of
care or the quality of its work on the Stonegate project. In its separate statement of
undisputed material facts, Staben merely asserted that it had performed its work on the
Stonegate project "in the same manner" as it did at the prior Moorpark project. But the
only "evidence" Staben cited to support this asserted fact was Tom Staben's testimony
that Ron Palacios told him the developer "wanted to use Thoroseal like they had used in
Moorpark" and that "to [his] knowledge" "Thoroseal [was] used on each and every one of
the retaining walls constructed by Mr. Palacios." But, as Palacios notes, this evidence
says nothing about the manner in which Staben performed its work at either location.
Because Staben presented no evidence on the quality or manner of its work at the
Stonegate project, it failed to meet its initial burden of showing that an element of the
negligence claim could not be established (i.e., breach of duty). Staben therefore failed to
establish the absence of a predicate tort. The burden of producing evidence never shifted
to Palacios to overcome the motion for summary judgment.
But even if it had, Palacios's evidence in opposition to the motion for summary judgment
as to the correct way to apply Thoroseal and Staben's failure to apply it in a manner
necessary to prevent the passage of water through the retaining walls was sufficient to
create a triable issue of material fact as to whether Staben's work on the Stonegate project
fell below the standard of care in the industry. We have already concluded that a
subcontractor like Staben owes a duty of care to homeowners like Stonegate, and that
evidence of Staben's standard of care is relevant to the question of its liability for
negligence. The trial court therefore erred in granting the motion for summary judgment
on Palacios's cross-complaint for indemnity.
III. APPEAL OF THE COST AWARDS
Both Stonegate and Palacios filed notices of appeal from the postjudgment orders
awarding costs to Staben as the prevailing party. In light of our decision reversing the
judgment in favor of Staben following the nonsuit and reversing the summary judgment
in favor of Staben on the cross-complaint for indemnity, Staben is no longer the
prevailing party. We reverse the postjudgment cost orders. (Peerless Lighting Corp. v.
American Motorists Ins. Co. (2000) 82 Cal.App.4th 995, 1017; Kalivas v. Barry Controls
Corp. (1996) 49 Cal.App.4th 1152, 1163, fn. 6.) [144 Cal.App.4th 753]
DISPOSITION
The judgment in favor of Staben following the nonsuit and the summary judgment in
favor of Staben, as well as the postjudgment orders regarding costs, are reversed and the
matter is remanded for retrial. Appellants Stonegate and Palacios are awarded costs on
appeal.
Boren, P. J., and Ashmann-Gerst, J., concurred.
FN *. Retired judge of the Los Angeles Superior Court, assigned by the Chief Justice
FN 1. Staben argues that Palacios lacks standing to challenge the nonsuit. We disagree.
"'Any party aggrieved' may appeal from an adverse judgment. (Code Civ. Proc., § 902.)
The test is twofold-one must be both a party of record to the action and aggrieved to have
standing to appeal. The first requirement, that one be a party of record, is subject to an
exception under which a nonparty who moves to vacate the judgment is permitted to
appeal as if he were a party. We think the exception should equally encompass a nonparty
who moves for judgment notwithstanding the verdict and a new trial, . . . ." (Shaw v.
Hughes Aircraft Co. (2000) 83 Cal.App.4th 1336, 1342 [Nonparent corporation had
standing to appeal where it filed motions for judgment notwithstanding verdict and for
new trial and was aggrieved by adverse judgment against its subsidiary because it had
assumed obligation to pay judgment]; Lippman v. City of Los Angeles (1991) 234
Cal.App.3d 1630, 1634 ["[W]e see no reason why, if an aggrieved person can become a
party to the record by moving to vacate the judgment, he or she cannot accomplish the
same result by moving for a new trial"].)
Here, Palacios filed a motion for new trial, which was denied. Palacios therefore became
a party of record. Palacios was also aggrieved by the judgment in favor of Staben because
pursuant to Palacios's sliding scale "Mary Carter" settlement agreement with Stonegate,
any recovery by Stonegate against Staben would reduce the amount of Palacios's liability
to Stonegate "dollar for dollar." The judgment in favor of Staben precluded Palacios from
reducing its liability to Stonegate. But even if we were mistaken in finding that Palacios
had standing to challenge the nonsuit on appeal, Stonegate has joined in Palacios's brief
on this issue, adopting it by reference. (Cal. Rules of Court, rule 13(a)(5).) Thus, we
would be able to address Palacios's challenge to the nonsuit in any event.
Regional Steel Corp. v. Superior Court (McCarthy

Western Constructors, Inc.) (1994) 25 Cal.App.4th 525 ,
32 Cal.Rptr.2d 417
REGIONAL STEEL CORPORATION, Petitioner, v. THE SUPERIOR COURT OF SAN
DIEGO COUNTY, Respondent; McCARTHY WESTERN CONSTRUCTORS, INC., et
al., Real Parties in Interest.
(Superior Court of San Diego County, No. 654843, James Alden McIntyre, Judge.)
(Opinion by Work, Acting P. J., with Todd and Nares, JJ., concurring.)
COUNSEL
Chenen, Cohen & Linden, Scott Richard Lord and Paul Simon Leevan for Petitioner.
Robie & Matthai, Edith R. Matthai and Pamela E. Dunn for Real Parties in Interest.
OPINION
WORK, Acting P. J.
Regional Steel Corporation (Regional) petitions for a writ of mandate after the court
denied its motion for summary judgment in [25 Cal.App.4th 527] this action arising
from injuries to an ironworker. Regional, a subcontractor, was named in a cross-
complaint for equitable indemnity, comparative contribution and declaratory relief by the
general contractor after the ironworker sued the general contractor. Regional contends it
was entitled to summary judgment because principles of equitable or comparative
indemnity are inapplicable when parties have an express indemnity agreement. We agree
and grant the petition.
McCarthy Western Constructors, Inc. (McCarthy) was the general contractor in a project
to build a science building on the University of California, San Diego campus. Under a
subcontract with McCarthy dated April 24, 1991, Regional agreed to supply and install
reinforcing bar in the project. The "Insurance and Indemnity" section of the subcontract
originally provided in part: "5.6 To the fullest extent permitted by law, Subcontractor
agrees to indemnify and hold harmless McCarthy, the Owner, the Architect and all of
their agents, officers and employees from and against all claims, damages, losses and
expenses, including but not limited to attorney's fees and court costs, arising out of or
resulting from the performance, or failure in performance, of Subcontractor's Work and
obligations as provided in the Contract Documents, including any extra Work, and from
any claim, damage, loss or expense which (1) is attributable to bodily injury, sickness,
disease, death, injury to or destruction of tangible property (other than the Work itself)
including the loss of use resulting therefrom, and (2) is caused in whole or in part by any
acts, omissions or negligence of Subcontractor or anyone directly or indirectly employed
by Subcontractor or anyone for whose acts Subcontractor may be liable regardless of
whether it is caused in part by the acts, omissions or negligence of a party indemnified
hereunder. Such obligations shall not be constituted to negate, abridge, or otherwise
reduce any other right or obligation of indemnity which would otherwise exist as to any
party or person described in this Paragraph 5.6." The parties later amended their
agreement to provide: "Article 5.6: Regional Steel Corporation will indemnify others
only to the extent that damage is caused in whole by any negligent act or omission by
anyone directly employed by or under the control of Regional Steel Corporation."
On August 5, 1992, Michael DeLaura (DeLaura) filed a complaint for negligence against
McCarthy and others, fn. 1 alleging he was injured after being knocked from a truck by
McCarthy's crane while unloading rebar. McCarthy [25 Cal.App.4th 528] cross-
complained against Regional for equitable indemnity, comparative contribution and
declaratory relief on December 18, 1992. fn. 2
Regional moved for summary judgment (Code Civ. Proc., § 437c) on the grounds it was
not a joint tortfeasor and thus could not be subject to a claim for comparative equitable
indemnity. Regional lodged a copy of the subcontract and amendment with its motion.
McCarthy opposed the motion, arguing triable issues exist whether Regional properly
supervised the work, whether Regional properly bundled, loaded and transported the
rebar and whether Regional failed to conduct a required safety program.
In reply, Regional argued it was also entitled to summary judgment because McCarthy
did not dispute the existence of the subcontract or the existence of the express indemnity
clause, which precluded McCarthy from seeking liability on principles of equitable
indemnity. McCarthy in turn responded it could pursue Regional under either or both
theories of equitable and contractual indemnity and it had not yet been determined if the
express indemnity clause applied to DeLaura's claim.
The court denied the motion for summary judgment on January 18, 1994, stating it had
"determined that there are triable issues of fact as to the degree of negligence, if any, by
Regional and McCarthy. Therefore, it has not been established that the accident was not
the result of Regional's sole negligence. As a result, it has not been established as a matter
of law that Regional has no liability for indemnity under its contract or otherwise."
Regional petitioned to this court. Following McCarthy's response, we stayed the trial set
for May 13.
Discussion
"Indemnity may be defined as the obligation resting on one party to make good a loss or
damage another party has incurred.... This obligation may be expressly provided for by
contract ..., it may be implied from a contract not specifically mentioning indemnity, or it
may arise from the equities of particular circumstances." (Rossmoor Sanitation, Inc. v.
Pylon, Inc. (1975) 13 Cal.3d 622, 628 [119 Cal.Rptr. 449, 532 P.2d 97], citations
omitted.) [1] Express indemnity and implied indemnity are subject to their own
distinctive legal rules and limitations. "Those [rules] governing so-called 'express'
indemnity reflect its contractual nature, permitting great freedom of action to the parties
in the establishment of the indemnity [25 Cal.App.4th 529] arrangements while at the
same time subjecting the resulting contractual language to established rules of
construction." (Fn. omitted.) (E. L. White, Inc. v. City of Huntington Beach (1978) 21
Cal.3d 497, 507 [146 Cal.Rptr. 614, 579 P.2d 505].) "Where ... parties have expressly
contracted with respect to the duty to indemnify, the extent of that duty must be
determined from the contract and not by reliance on the independent doctrine of equitable
indemnity." (Rossmoor Sanitation, Inc. v. Pylon, Inc., supra, 13 Cal.3d, 622, 628.)
Here, the April 24, 1991, subcontract between McCarthy and Regional contained an
express indemnity clause requiring Regional to indemnify McCarthy and others where
the loss or damage was "caused in whole or in part" by Regional, its employees, or
certain others under Regional's control. McCarthy and Regional later made several
"Clarifications to Subcontract" including changing the indemnity clause to provide
Regional would indemnify others "only to the extent that damage is caused in whole by
any negligent act or omission by anyone directly employed by or under the control" of
Regional. (Italics added.) [2] The "caused in whole" indemnity clause precludes joint
tortfeasor liability. By contract, McCarthy bargained away its right to pursue Regional on
equitable indemnity grounds. Because Regional's duty is limited by contract and
McCarthy did not sue on the contract, Regional was entitled to summary judgment. fn. 3
As Regional's entitlement to relief is extraordinarily clear, a peremptory writ in the first
instance is proper. (Code Civ. Proc., § 1088; Alexander v. Superior Court (1993) 5
Cal.4th 1218, 1222 [23 Cal.Rptr.2d 397, 859 P.2d 96]; Ng v. Superior Court (1992) 4
Cal.4th 29, 35 [13 Cal.Rptr.2d 856, 840 P.2d 961].)
Disposition
The petition is granted. The stay issued on April 7, 1994, is vacated upon issuance of the
remittitur.
Todd, J., and Nares, J., concurred.
FN 1. DeLaura also named McCarthy Crane Company and Allan L. Rondo, the alleged
crane operator. We omit the other named defendants as unnecessary to our discussion.
FN 2. McCarthy also cross-complained against another entity, Reinforcing Post
Tensioning Services, Inc., for express indemnity and breach of contract. Because
Reinforcing Post Tensioning Services, Inc. is not a party to this petition, we omit its
procedural history.
FN 3. We do not comment on a possible claim by McCarthy for express contractual
indemnity.
Western Steamship Lines, Inc. v. San Pedro Peninsula

Hospital (1994) 8 Cal.4th 100 , 32 Cal.Rptr.2d 263; 876
P.2d 1062
[No. S033710. Jul 28, 1994.]
WESTERN STEAMSHIP LINES, INC., Plaintiff and Appellant, v. SAN PEDRO
PENINSULA HOSPITAL, Defendant and Appellant.
(Superior Court of Los Angeles County, No. SOC 79732, Charles E. Frisco, Judge.)
(Opinion by Arabian, J., with Lucas, C. J., Kennard, Baxter and George, JJ., and Cottle,
J., fn. * concurring. Separate dissenting opinion by Mosk, J.)
COUNSEL
Kussman & Whitehill, Michael H. Whitehill and Russell S. Kussman for Plaintiff and
Appellant.
Rushfeldt, Shelley & Drake, Allan L. Rushfeldt, Linda C. Miller, Horvitz & Levy, Daniel
J. Gonzalez, S. Thomas Todd and Sandra J. Smith for Defendant and Appellant.
Thelen, Marin, Johnson & Bridges and Curtis A. Cole as Amici Curiae on behalf of
Defendant and Appellant.
OPINION
ARABIAN, J.
The question presented is whether Civil Code section 3333.2, limiting recovery of
noneconomic damages by an injured party against a health care provider, applies in an
action for partial equitable indemnification by a concurrent tortfeasor. After careful
consideration of the public policy underlying the Medical Injury Compensation Reform
Act (MICRA), of which section 3333.2 is an integral part, we conclude that such
limitation is necessary to effectuate the statutory scheme and that it is consistent with
common law principles of implied indemnity requiring joint liability as a predicate to
recovery. Accordingly, we reverse the decision of the Court of Appeal, which declined to
extend the coverage of section 3333.2 to the facts of this case.
I. Facts and Procedure
On October 28, 1983, Ann Lennon, an assistant purser for plaintiff, Western Steamship
Lines, Inc. (Western), became seriously ill while working aboard one of its cruise ships.
Lennon, who suffered from diabetes, was attended to for several days at sea by the ship's
medical staff. When the vessel docked, she was rushed unconscious to defendant San
Pedro [8 Cal.4th 105] Peninsula Hospital (the hospital) where she was treated by Dr.
Samuel Wirtschafter and other members of the hospital staff. The following day, Lennon
suffered cardiac arrest and oxygen deprivation when she was improperly intubated,
resulting in irreversible brain damage. She never regained consciousness.
Lennon's legal guardian brought suit against Western in Florida for maintenance and cure
and unearned wages based on negligence and unseaworthiness. Western admitted
liability, fn. 1 and the matter went to trial on the issue of damages. The jury returned a
general verdict awarding Lennon $7.75 million, including $775,000 for maintenance and
cure. fn. 2 Pending Western's appeal, Lennon died; however, under pertinent law the
appellate court could not take this fact into consideration in determining the validity or
reasonableness of the judgment. Western subsequently settled with Lennon's guardian for
a total of $6 million, including maintenance and cure. fn. 3
After paying the settlement, Western instituted the present action seeking indemnification
from the hospital and Dr. Wirtschafter based upon an allocation of their proportionate
liability for Lennon's injuries. Shortly before trial, Dr. Wirtschafter settled with Western
for $1 million. In a subsequent bifurcated proceeding, the jury found all parties had been
negligent in treating Lennon and fixed the relative fault of the doctor at 50 percent, the
hospital at 30 percent, and Western at 20 percent.
The court then addressed the question of damages. Ultimately, the court ruled that
Western could seek an equitable apportionment of the $6 million based upon the
reasonableness of its settlement with Lennon and did not have any additional burden of
proof as to her damages. It further determined that MICRA did not apply to Western's
indemnification claim because "[t]his is an action for contribution [sic] from [the hospital
and Dr. [8 Cal.4th 106] Wirtschafter], found to be tort-feasors, for damages in an amount
already established and for monies already paid by [Western] by reason of a judgment
rendered against it .... [¶] This is not an action in subrogation. [¶] [Western] is not an
'injured' party within the meaning of MICRA. [¶] It is not an action for future damages or
non-economic damages to recover a non-economic loss." The court also determined that
"the Florida verdict [was] a fair and equitable assessment of damages awarded for
Lennon's injuries" and that the settlement "was reasonable, fair and done in good faith."
fn. 4 Accordingly, the court entered judgment against the hospital for $1.8 million, 30
percent of the $6 million paid by Western to settle the underlying action.
The Court of Appeal affirmed. In analyzing the applicability of Civil Code section
3333.2, the court emphasized that Western's loss as a result of the settlement was entirely
"economic" in nature and that the statute purports to place a $250,000 limit only on
"noneconomic" damages. (See Fein v. Permanente Medical Group (1985) 38 Cal.3d 137,
159 [211 Cal.Rptr. 368, 695 P.2d 665].) It also found no other basis in the MICRA
statutory scheme for invoking its limitations against an indemnitee seeking an allocation
of liability involving the negligence of a health care provider. Citing instances in which a
claim for indemnity has been considered distinct and independent from the underlying
litigation, the court rejected the hospital's argument that an indemnitee "stands in the
shoes" of and therefore is restricted to the same rights as the injured party. With respect to
proof of damages, the court found substantial evidence to support the trial court's finding
of a reasonable settlement, impliedly concluding that Western did not have an
independent burden to establish the extent of Lennon's damages or the hospital's liability
to her.
We granted the hospital's petition for review principally to determine a matter of
statewide importance concerning the applicability of a key provision of MICRA to
actions for partial equitable indemnification. fn. 5 [8 Cal.4th 107]
II. Discussion
A. Partial Equitable Indemnification and MICRA
Civil Code section 3333.2 (section 3333.2) provides in part as follows:
"(a) In any action for injury against a health care provider based on professional
negligence, the injured plaintiff shall be entitled to recover noneconomic losses to
compensate for pain, suffering, inconvenience, physical impairment, disfigurement and
other nonpecuniary damage.
"(b) In no action shall the amount of damages for noneconomic losses exceed two
hundred fifty thousand dollars ($250,000)."
The Court of Appeal held that this limitation does not apply because Western's claim for
indemnity is distinct from Lennon's medical malpractice suit and seeks only economic
damages resulting from its settlement payment. Thus, it does not come within the express
terms of section 3333.2. The court also concluded that a "dispassionate reading" of the
MICRA statutory scheme does not reveal any intention to include indemnification actions
within its restrictions on recovery of damages.
This analysis misperceives the proper scope of the court's inquiry in cases of equitable
indemnification. The issue here is not a narrow question of statutory construction, but a
broader examination of whether Western's recovery, in whole or in part, is appropriate
under all relevant circumstances. In determining the availability of equitable indemnity,
each case must be evaluated in its own unique context to determine whether and to what
extent one concurrent tortfeasor is permitted to recover from another.
1. The doctrine of equitable indemnification
We begin our examination of the issue at hand with a brief overview of the governing
principles: California's doctrine of equitable or implied indemnification is a development
of the common law, first applied by this court in City & County of San Francisco v. Ho
Sing (1958) 51 Cal.2d 127 [330 P.2d 802]. There, we held that the city had a right to
recover from a property owner the amount paid a third party injured due to the property
owner's negligent alteration to the city's sidewalk. (Id., at p. 138.) Although [8 Cal.4th
108] the city had primary responsibility under the Public Liability Act of 1923 for
maintaining the sidewalk in a safe condition, the adjoining property owner created the
particular hazard for his own benefit. This disparity in the relative culpability justified
allowing the city to recoup from the more actively negligent wrongdoer. (Id., at pp. 131-
135.)
[1] At the time it entered our common law, indemnity permitted one tortfeasor to shift the
entire burden of loss incurred by judgment or settlement to another tortfeasor. fn. 6 " 'It is
a right which enures to a person who, without active fault on his part, has been compelled
by reason of some legal obligation, to pay damages occasioned by the initial negligence
of another, and for which he himself is only secondarily liable.' " (Alisal Sanitary Dist. v.
Kennedy, supra, 180 Cal.App.2d at p. 75.) Distinctions between "active" and "passive"
fault, "primary" and "secondary" liability, and similar characterizations of the relationship
between or among concurrent tortfeasors served as the theoretical underpinnings of
equitable indemnification and guided its application. (See Ford Motor Co. v. Robert J.
Poeschl, Inc. (1971) 21 Cal.App.3d 694, 696-697 [98 Cal.Rptr. 702].) At the same time,
courts often frankly admitted that the standard was vague and imprecise: "No one
explanation appears to cover all cases." (Herrero v. Atkinson (1964) 227 Cal.App.2d 69,
74 [38 Cal.Rptr. 490, 8 A.L.R.3d 629]; Atchison, T. & S. F. Ry. Co. v. Lan Franco (1968)
267 Cal.App.2d 881, 886 [73 Cal.Rptr. 660]; see also American Motorcycle Assn. v.
Superior Court (1975) 20 Cal.3d 578, 594, fn. 4 [146 Cal.Rptr. 182, 578 P.2d 899]
[AMA]; Prosser & Keeton, Torts (5th ed. 1984) § 51, pp. 343-344.)
Nevertheless, the restitutionary nature of indemnification clearly emerged as a common
thread. "The basis for indemnity is restitution, and the concept that one person is unjustly
enriched at the expense of another when the other discharges liability that it should be his
responsibility to pay.... As [stated] in the Restatement of Restitution: 'A person is enriched
if he has received a benefit.... A person is unjustly enriched if the retention of the benefit
would be unjust.... A person confers a benefit ... not only when he adds to the property of
another, but also when he saves the other from [8 Cal.4th 109] expense or loss. The word
"benefit," therefore, denotes any form of advantage.' [Citation.]" (Rest.2d Torts, § 886B,
com. c, pp. 345-346; see Atchison, T. & S. F. Ry. Co. v. Lan Franco, supra, 267
Cal.App.2d at pp. 885-886; Herrero v. Atkinson, supra, 227 Cal.App.2d at p. 74.)
Notwithstanding its equitable character, implied indemnity necessarily operated as an all-
or-nothing shifting of loss, and thus did not always rectify the injustice at which it aimed.
(See Ford Motor Co. v. Robert J. Poeschl, Inc., supra, 21 Cal.App.3d at p. 699.) In the
wake of Li v. Yellow Cab Co. (1975) 13 Cal.3d 804 [119 Cal.Rptr. 858, 532 P.2d 1226,
78 A.L.R.3d 393], this court recognized the need to reevaluate the concept and to
conform its application to principles of comparative fault. Accordingly, 20 years after its
incorporation into state law, we concluded "that the long-recognized common law
equitable indemnity doctrine should be modified to permit, in appropriate cases, a right of
partial indemnity, under which liability among multiple tortfeasors may be apportioned
on a comparative negligence basis." (AMA, supra, 20 Cal.3d at p. 583.)
Although a significant development, the change from a shifting of loss to an
apportionment of damages did not affect the essential restitutionary character of equitable
indemnity. (Tatum v. Armor Elevator Co. (1988) 203 Cal.App.3d 1315, 1320 [250
Cal.Rptr. 775]; see AMA, supra, 20 Cal.3d at p. 595.) Nor did it alter the principle that
indemnification "is not automatically available ... for all tortfeasors who injure the same
plaintiff; the courts evaluate the circumstances of the case to determine if its application
is appropriate. [Citations.]" (Woodward-Gizienski & Associates v. Geotechnical
Exploration, Inc. (1989) 208 Cal.App.3d 64, 67 [255 Cal.Rptr. 800]; see AMA, supra, 20
Cal.3d at p. 583; Herrero v. Atkinson, supra, 227 Cal.App.2d at p. 74.) Our decision in
AMA expressly acknowledged "a number of significant exceptions to th[e] general rule"
of indemnity, including immunity for good faith settlements and exclusivity of workers'
compensation. (AMA, supra, 20 Cal.3d at p. 607, fn. 9.) Indeed, at least one subsequent
appellate court has concluded that "AMA makes not a rule of general application but a
rule riddled with exceptions. Partial indemnity is permitted only in appropriate cases."
(Commercial Standard Title Co. v. Superior Court (1979) 92 Cal.App.3d 934, 941 [155
Cal.Rptr. 393]; see Munoz v. Davis (1983) 141 Cal.App.3d 420, 428 [190 Cal.Rptr. 400].)
Thus, irrespective of the equities between or among multiple tortfeasors, the right is
subject to qualification; and countervailing considerations may limit recovery. "As
suggested by Dean Prosser, the granting of indemnity in any situation represents a
judicial choice of policy" (Jacobs v. General Accident Fire & Life Assur. Corp. (1961) 14
Wis.2d 1 [109 N.W.2d 462, 467]); and courts [8 Cal.4th 110] have long recognized that
"the doctrine is not available where it would operate against public policy. [Citation.]"
(Platt v. Coldwell Banker Residential Real Estate Services (1990) 217 Cal.App.3d 1439,
1444-1445 [266 Cal.Rptr. 601].) fn. 7
For example, even as this court reformulated the doctrine of equitable indemnity " 'to
distribute the loss [among multiple tortfeasors] in proportion to the allocable concurring
fault' " (AMA, supra, 20 Cal.3d at p. 598, citation omitted), we also recognized an
express exception immunizing from further liability defendants who enter into good faith
settlements. (Id., at p. 604; see Code Civ. Proc., § 877.6, subd. (c) [codifying this
limitation two years later].) In light of the "strong public policy in favor of encouraging
settlement of litigation" reflected in Code of Civil Procedure section 877, which affords
similar immunity from contribution (AMA, supra, 20 Cal.3d at p. 603), we concluded
that "from a realistic perspective the legislative policy underlying the provision dictates
that a tortfeasor who has entered into a 'good faith' settlement [citation] with the plaintiff
must also be discharged from any claim for partial or comparative indemnity that may be
pressed by a concurrent tortfeasor." (Id., at p. 604.) We also acknowledged the express
legislative restriction imposed by Labor Code section 3864, which shields employers who
have paid workers' compensation from third party liability to concurrent tortfeasors.
(AMA, supra, 20 Cal.3d at p. 607, fn. 9; see post, p. 113.)
In view of the foregoing principles, resolution of this case must of necessity contemplate
matters beyond the four corners of section 3333.2. In assessing whether indemnity is
"appropriate," the court's task does not begin or end with a determination that Western is
entitled to full recovery because it does not seek any "noneconomic" damages. [2] This
analysis begs the question since "a fundamental prerequisite to an action for partial or
total equitable indemnity is an actual monetary loss through payment of a judgment or
settlement." (Christian v. County of Los Angeles (1986) 176 Cal.App.3d 466, 471 [222
Cal.Rptr. 76]; cf. Miller v. American Honda Motor Co. (1986) 184 Cal.App.3d 1014,
1019 [229 Cal.Rptr. 523].) Such a [8 Cal.4th 111] cramped application of the statutory
language fails to account for any countervailing policy considerations that may override
the general goal of equitable allocation of loss and require imposing some limitation on
the right to indemnity in these particular circumstances. In accordance with the judiciary's
traditional function of developing the common law in this area (see AMA, supra, 20
Cal.3d at pp. 597, 602), courts must avoid a myopic perspective in favor of a more
comprehensive evaluation of the larger context within which they set the measure of an
indemnitee's recovery. [3a] After careful review of the legislative intent underlying
MICRA in general and section 3333.2 in particular, we conclude that as a necessary
adjunct to effectuating the statutory purpose and goals, a health care provider may invoke
the $250,000 limit on noneconomic damages in an action for partial equitable indemnity
based upon professional negligence. (Cf. Central Pathology Service Medical Clinic, Inc.
v. Superior Court (1992) 3 Cal.4th 181, 191-192 [10 Cal.Rptr.2d 208, 832 P.2d 924].)
2. The public policy of MICRA
As we have frequently recounted, the Legislature enacted MICRA in response to a
medical malpractice insurance "crisis," which it perceived threatened the quality of the
state's health care. (American Bank & Trust Co. v. Community Hospital (1984) 36 Cal.3d
359, 371 [204 Cal.Rptr. 671, 683 P.2d 670, 41 A.L.R.4th 233].) In the view of the
Legislature, "the rising cost of medical malpractice insurance was imposing serious
problems for the health care system in California, threatening to curtail the availability of
medical care in some parts of the state and creating the very real possibility that many
doctors would practice without insurance, leaving patients who might be injured by such
doctors with the prospect of uncollectible judgments." (Fein v. Permanente Medical
Group, supra, 38 Cal.3d at p. 158; Barme v. Wood (1984) 37 Cal.3d 174, 180 [207
Cal.Rptr. 816, 689 P.2d 446]; see Stats. 1975, Second Ex. Sess. 1975-1976, ch. 2, § 12.5,
p. 4007 [preamble to MICRA].) The continuing availability of adequate medical care
depends directly on the availability of adequate insurance coverage, which in turn
operates as a function of costs associated with medical malpractice litigation. (See
American Bank & Trust Co. v. Community Hospital, supra, 36 Cal.3d at p. 372.)
Accordingly, MICRA includes a variety of provisions all of which are calculated to
reduce the cost of insurance by limiting the amount and timing of recovery in cases of
professional negligence. (See Bus. & Prof. Code, § 6146 [limiting contingency fees in
medical malpractice actions]; Civ. Code, § 3333.1 [admitting evidence of collateral
source payments and precluding subrogation on behalf of collateral sources]; Code Civ.
Proc., § 667.7 [authorizing periodic payments for future damages in excess [8 Cal.4th
112] of $50,000, with termination of benefits in the event of death]; see also Fein v.
Permanente Medical Group, supra, 38 Cal.3d at p. 159 [upholding § 3333.2 as "rationally
related to the objective of reducing the costs of malpractice defendants and their
insurers"]; Roa v. Lodi Medical Group, Inc. (1985) 37 Cal.3d 920, 931, 932 [211
Cal.Rptr. 77, 695 P.2d 164] [same; Bus. & Prof. Code, § 6146]; Barme v. Wood, supra, 37
Cal.3d at p. 181 [same; Civ. Code, § 3333.1]; American Bank & Trust Co. v. Community
Hospital, supra, 36 Cal.3d at p. 372 [same; Code Civ. Proc., § 667.7].)
[4] MICRA thus reflects a strong public policy to contain the costs of malpractice
insurance by controlling or redistributing liability for damages, thereby maximizing the
availability of medical services to meet the state's health care needs. (See Barme v. Wood,
supra, 37 Cal.3d at p. 181.) With specific reference to section 3333.2, this court has also
observed that "[o]ne of the problems identified in the legislative hearings was the
unpredictability of the size of large noneconomic damage awards, resulting from the
inherent difficulties in valuing such damages and the great disparity in the price tag
which different juries placed on such losses. The Legislature could reasonably have
determined that an across-the-board limit would provide a more stable base on which to
calculate insurance rates." (Fein v. Permanente Medical Group, supra, 38 Cal.3d at p.
163.) [3b] Exempting indemnity actions from the $250,000 limit would threaten not only
this goal but also the broader purpose of MICRA by resurrecting the pre-MICRA
instability associated with unlimited noneconomic damages and increasing the overall
cost of malpractice insurance to account for these larger recoveries. (Hedlund v. Superior
Court (1983) 34 Cal.3d 695, 704 [194 Cal.Rptr. 805, 669 P.2d 41, 41 A.L.R.4th 1063];
see also Hayes v. Mercy Hosp. and Medical Center (1990) 136 Ill.2d 450 [145 Ill.Dec.
894, 557 N.E.2d 873, 876-877, 88 A.L.R.4th 321] [construing medical malpractice statute
of limitations to cover contribution actions against health care providers to effectuate
legislative purpose of reducing insurance premiums]; Wilschinsky v. Medina (1989) 108
N.M. 511 [775 P.2d 713, 718-720] [extending scope of New Mexico Medical Malpractice
Act to third party causes of action-even though not expressly covered by the statutory
scheme-to preserve goal of reducing insurance costs].) We conclude that applying section
3333.2 to such claims is both necessary to effectuate the intent and policies prompting the
MICRA legislation (Central Pathology Service Medical Clinic, Inc. v. Superior Court,
supra, 3 Cal.4th at p. 192) and consonant with the role of the courts "to aid in the familiar
common law task of filling in the gaps in the [8 Cal.4th 113] [MICRA] statutory
scheme." fn. 8 (American Bank & Trust Co. v. Community Hospital, supra, 36 Cal.3d at
p. 378.)
This determination finds an instructive analogy in Labor Code section 3864, which
enforces the exclusivity of workers' compensation by precluding concurrent tortfeasors
from seeking indemnification from negligent employers. fn. 9 (See also, ante, pp. 109,
110.) Prior to the statute's enactment in 1959, the Court of Appeal, in S.F. Unified Sch.
Dist. v. Cal. Bldg. etc. Co. (1958) 162 Cal.App.2d 434 [328 P.2d 785], allowed for the
possibility that a third party sued for negligence by an injured employee could bring an
action for equitable indemnity against the employer alleging that the employer's active
negligence caused the harm. (Id., at p. 449.) " '... The effect of this rather circular legal
procedure was to make the employee's own employer liable not only for the injured
employee's workmen's compensation but for additional damages awarded to him at
common law as well.' " (City of Sacramento v. Superior Court (1962) 205 Cal.App.2d
398, 404-405 [23 Cal.Rptr. 43].) " 'The California legislature felt that this double burden
placed upon the employer was in contravention of the exclusive remedy theory of the
workmen's compensation statutes' ", and therefore enact ed Labor Code section 3864 to
abolish any right to indemnity other than by express contract. (City of Sacramento v.
Superior Court, supra, 205 Cal.App.2d at p. 405.) More specifically, the statute "had ...
the economic objective of reducing enterprise's insurance costs to the level contemplated
by the workmen's compensation law, eliminating the cost of public liability insurance
against implied indemnification for injury to the policyholder's own employees. Although
the Legislature spoke in terms of the employer's freedom from liability, its real concern
was enterprise's cost of insuring against the liability." (Pacific Gas & Elec. Co. v. Morse
(1970) 6 Cal.App.3d 707, 713 [86 Cal.Rptr. 7]; Val's Painting & Drywall, Inc. v. Allstate
Ins. Co. (1975) 53 Cal.App.3d 576, 584 [126 Cal.Rptr. 267]; see also Henning v. General
Motors Assembly Div. (1988) 143 Wis.2d 1 [419 N.W.2d 551, 553].) [8 Cal.4th 114]
The parallels to MICRA are obvious: The Legislature has enacted a comprehensive,
multifaceted scheme designed to address a perceived threat to our state's health care
system by reducing the cost of medical malpractice insurance. Section 3333.2 constitutes
a key component of this program. Subjecting health care providers to unlimited liability
for noneconomic damages in third party suits can only thwart the goal of containing
insurance costs by eliminating the statutory constraint on litigation expenses. (See Colich
& Sons v. Pacific Bell (1988) 198 Cal.App.3d 1225, 1238, fn. 17 [244 Cal.Rptr. 714];
Pacific Gas & Elec. Co. v. Morse, supra, 6 Cal.App.3d at pp. 713-714; cf. People ex rel.
Dept. of Transportation v. Superior Court (1980) 26 Cal.3d 744, 761 [163 Cal.Rptr. 585,
608 P.2d 673] [refusing to preclude indemnity on statute of limitations grounds because
to do so would undermine legislative mandate of Tort Claims Act].) Moreover, we need
not await express legislative action to broaden the application of section 3333.2 to
indemnification actions. [5] As a common law doctrine, equitable indemnity not only
accommodates but anticipates judicial contouring whenever necessary to effectuate some
overarching public policy. (See AMA, supra, 20 Cal.3d at pp. 603-604 & fn. 9; cf.
California Home Brands, Inc. v. Ferreira (9th Cir. 1989) 871 F.2d 830, 834 [in applying
limitation contained in congressional enactment, "the absence of an immunizing
provision alone should not be decisive as to the availability of indemnity"].) Our holding
is fully consistent with this continuing role. fn. 10
[6] We find further support for our conclusions in the fundamental principle that "there
can be no indemnity without liability." (Munoz v. Davis, supra, 141 Cal.App.3d at p. 425;
GEM Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, 430
[261 Cal.Rptr. 626]; Colich & Sons v. Pacific Bell, supra, 198 Cal.App.3d at p. 1236;
Allis-Chalmers Corp. v. Superior Court (1985) 168 Cal.App.3d 1155, 1159 [214 Cal.Rptr.
615].) Indemnity does not invariably follow fault; it is premised on a joint legal
obligation to another for damages. Accordingly, as against the indemnitee, the indemnitor
can invoke any substantive defense to liability that would be available against the injured
party. The Court of Appeal correctly noted that for certain procedural purposes, such as
statutes of limitations, an indemnity claim is an independent action. (See, e.g., E. L.
White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506 [146 Cal.Rptr. 614,
579 P.2d [8 Cal.4th 115] 505].) As to matters of substantive law, however, it is wholly
derivative and subject to whatever immunities or other limitations on liability would
otherwise be available. fn. 11 (GEM Developers v. Hallcraft Homes of San Diego, Inc.,
supra, 213 Cal.App.3d at p. 429; Woodward-Gizienski & Associates v. Geotechnical
Exploration, Inc., supra, 208 Cal.App.3d at p. 68; Colich & Sons v. Pacific Bell, supra,
198 Cal.App.3d at p. 1231; Mullin Lumber Co. v. Chandler (1986) 185 Cal.App.3d 1127,
1134 [230 Cal.Rptr. 122]; see also California Home Brands, Inc. v. Ferreira, supra, 871
F.2d at p. 834; Kennedy v. Pennsylvania R.R. Co. (3d Cir. 1960) 282 F.2d 705, 709; Ft.
Worth & Denver Railway Company v. Threadgill (5th Cir. 1956) 228 F.2d 307, 312;
Hendrickson v. Minnesota Power & Light Co. (1960) 258 Minn. 368 [104 N.W.2d 843,
847], overruled on other grounds in Tolbert v. Gerber Industries, Inc. (Minn. 1977) 255
N.W.2d 362, 364; see Rest., Restitution, § 77, com. c, at pp. 343-344; id., § 78, com. a, at
p. 345; Annot. (1966) 6 A.L.R.3d 1307, 1315.)
For example, in Colich & Sons v. Pacific Bell, supra, 198 Cal.App.3d 1225, an
excavation subcontractor (Colich) allegedly struck and damaged an underground
telephone cable resulting in an interruption of service to United Air Line (United), a
Pacific Bell (Pac Bell) customer that brought a negligence action against Colich for lost
business revenues as well as other damages. (Id., at p. 1230.) Colich cross-complained
against Pac Bell for comparative indemnity, claiming the telephone company's own
negligence had been a concurrent cause of United's loss. Pac Bell demurred on the
ground that "as a matter of law [United] could not sue Pac Bell directly for its telephone
service interruption under the terms of a limitation of liability tariff filed with the Public
Utilities Commission ... and, therefore, Colich's derivative claim for indemnity and
contribution was likewise barred." (Id., at p. 1231.)
To the extent the tariff limited liability to $10,000, the Court of Appeal found this
argument persuasive: "Although a defendant would ordinarily [8 Cal.4th 116] have a
right to file a cross-complaint for indemnity against a concurrent tortfeasor, 'there can be
no indemnity without liability.' [Citation.] 'In other words, unless the prospective
indemnitor and indemnitee are jointly and severally liable to the plaintiff there is no basis
for indemnity.' [Citation.] But here, Pac Bell cannot be held jointly and severally liable
because its liability is strictly limited by the tariff which has the force of law. To allow
Colich to cross-complain for damages for ordinary negligence herein would thwart the
undisputed general [Public Utility Commission] policy to limit the telephone utility's
liability for ordinary negligence for service interruptions and hinder its rate-making
functions." (Colich & Sons v. Pacific Bell, supra, 198 Cal.App.3d at p. 1236.)
[3c] We apply the same analysis to section 3333.2: The statute operates as a limitation on
liability. (Taylor v. United States (9th Cir. 1987) 821 F.2d 1428, 1433.) To the extent it
precludes recovery for noneconomic damages against health care providers in excess of
$250,000, it concomitantly limits their joint liability irrespective of proportionate fault.
Thus, concurrent tortfeasors have no right to indemnification beyond this amount. fn. 12
(Al-Hazmi v. City of Waukegan (N.D.Ill. 1984) 579 F.Supp. 1441, 1446; cf. Civ. Code, §
1431.2 [eliminating joint liability for noneconomic damages].) To hold otherwise would
undermine the Legislature's express limit on health care liability for noneconomic
damages as well as jeopardize the purpose of MICRA to ensure the availability of
medical care. (See Ft. Worth & Denver Railway Company v. Threadgill, supra, 228 F.2d
at p. 312.)
This conclusion brings us full circle to the underlying restitutionary nature of indemnity
and the principle that "if others have been compelled to pay damages which ought to have
been paid by the wrongdoer, they may recover from him." (Herrero v. Atkinson, supra,
227 Cal.App.2d at p. 74; see, ante, pp. 108-109.) If, under section 3333.2, a health care
provider has no liability for noneconomic damages in excess of $250,000, then a
concurrent tortfeasor that satisfies a judgment or settles with the injured party for a
greater [8 Cal.4th 117] amount has not been "compelled to pay" on behalf of another
who would have otherwise incurred the loss. [7] (See fn. 13.), [3d] In other words,
regardless of the relative apportionment of fault, the health care provider is not unjustly
enriched by the payment of damages for which it is not legally obligated. fn. 13 (See
Rest., Restitution, § 1, coms. a & b, at p. 12; id., § 78, com. a, at p. 345; cf. Civ. Code, §
1714.1 [$10,000 parental liability for misconduct of child].)
Furthermore, in light of the statutory limit on liability, permitting health care providers to
invoke section 3333.2 does not contravene the equitable premise of partial indemnity, i.e.,
that " 'liability for damage will be borne by those whose negligence caused it in direct
proportion to their respective fault.' [Citation.]" (AMA, supra, 20 Cal.3d at p. 583.) Our
decision in AMA, supra, expressly recognized at least two exceptions to this principle
and impliedly anticipated others. (Id., at p. 607, fn. 9.) "Inevitably, whenever one
concurrent tortfeasor is insolvent or immunized, either partially or completely, from
liability, the remaining tortfeasors must pay more than an amount measured by their
proportional responsibility for the injury. [Citations.]" (Colich & Sons v. Pacific Bell,
supra, 198 Cal.App.3d at p. 1237; see Sagadin v. Ripper (1985) 175 Cal.App.3d 1141,
1174 [221 Cal.Rptr. 675]; cf. Rest.2d Torts, § 880.) Such are the realities, if not the
vagaries, of multi-party litigation. In this case, the situation is no different than if the
hospital had settled with Lennon's guardian for less than $1.8 million or if Western had
been required to absorb the hospital's insolvency in excess of $250,000. (Bracket v. State
of California (1986) 180 Cal.App.3d 1171, 1176 [226 Cal.Rptr. 1]; see Flores v.
Natividad Medical Center (1987) 192 Cal.App.3d 1106, 1118 [238 Cal.Rptr. 24].)
Moreover, the Legislature has already determined that as between a negligent health care
defendant and an innocent plaintiff, the plaintiff will bear the loss of noneconomic
damages over the statutory limit. Given the public policy considerations previously
discussed, we see no unfairness in shifting this burden instead to a negligent non-MICRA
defendant in the case of concurrent tortfeasors. fn. 14 (Cf. American Bank & Trust Co. v.
Community Hospital, supra, 36 Cal.3d at p. 368.) [8 Cal.4th 118]
B. Western's Proof of Damages
[8] The hospital further claims the trial court erroneously permitted Western to rely solely
on the settlement amount rather than require independent evidence of Lennon's damages
to establish its liability for indemnification. We agree with the basic premise underlying
this argument, i.e., that a judgment cannot bind one who was not a party thereto. (Cf.
Bernhard v. Bank of America (1942) 19 Cal.2d 807, 812 [122 P.2d 892].) Although the
particulars may vary, a cognate principle governs in the case of an indemnity action
following settlement: "The indemnitee's unilateral acts, albeit reasonable and undertaken
in good faith, cannot bind the indemnitor; notice and an opportunity to defend are the
indispensable due process satisfying elements." fn. 15 (Jennings v. United States (4th Cir.
1967) 374 F.2d 983, 986; cf. Breese v. Price, supra, 29 Cal.3d 923, 929.) Any other rule
"would allow [the indemnitee] to spend [the indemnitor's] money without the final
judgment of a court or [the indemnitor's] agreement." (Tankrederiet Gefion A/S v.
Hyman-Michaels Company (6th Cir. 1969) 406 F.2d 1039, 1043-1044; see also Breese v.
Price, supra, 29 Cal.3d at p. 931.)
In this case, we need not decide under what, if any, circumstances an indemnitee may in
fairness and equity, and consistent with the obvious due process implications, invoke a
reasonable good faith settlement as determinative of its rights against an indemnitor. (Cf.
Whisenant v. Brewster-Bartle Offshore Company (5th Cir. 1971) 446 F.2d 394, 403;
Tankrederiet Gefion A/S v. Hyman-Michaels Company, supra, 406 F.2d at pp. 1043-
1044.) There is no dispute that the hospital was not a party to the Florida action, nor does
the record show that the hospital received notice of the proposed settlement. Thus, there
is no basis upon which to conclude that hospital could have protected its interests in the
earlier proceeding. Nonetheless, the trial court essentially accepted the settlement amount
as a reasonable basis for fixing its liability. Although the jury found the hospital 30
percent at fault, the critical question remained, "30 percent of what?" As the indemnity
plaintiff, Western had the burden of proving not only the hospital's negligence but the
amount of Lennon's resultant damages, including an allocation of economic and
noneconomic loss. (Sagadin v. Ripper, supra, 175 Cal.App.3d at p. 1176; [8 Cal.4th 119]
see Breese v. Price, supra, 29 Cal.3d at p. 931.) Accordingly, the Court of Appeal erred in
concluding that substantial evidence of a reasonable settlement adequately established the
proper amount of Western's recovery. To the extent the point remains relevant from the
hospital's perspective in light of our resolution of the MICRA issue, the parties may
reassert their respective arguments on the merits of this question for reconsideration on
remand. fn. 16
III. Disposition
The judgment of the Court of Appeal is reversed. The matter is remanded for further
proceedings consistent with this opinion.
Lucas, C. J., Kennard, J., Baxter, J., George, J., and Cottle, J., fn. * concurred.
MOSK, J.
I dissent.
The Medical Injury Compensation Reform Act of 1975 (MICRA) limits the size of any
award of noneconomic damages in an action for injury against a health care provider
based on professional negligence. (Civ. Code, § 3333.2.) The Court of Appeal here held
that the claim for indemnification sought only economic damages; therefore, the claim
did not come within MICRA's express terms. The Court of Appeal also concluded that a
"dispassionate reading" of MICRA showed that if the Legislature intended to apply the
statute's limitations to actions for equitable indemnity it failed to do so either by word or
context. Nonetheless, the majority gratuitously apply this limitation to the claim on the
basis of a vague "broader examination" of whether the recovery was "appropriate under
all relevant circumstances." (Maj. opn., ante, p. 107.)
A decade ago we reviewed a challenge to another section of this statute. I pointed out
then that the section "benefit[ed] the wrongdoer at the expense of his victim ...."
(American Bank & Trust Co. v. Community Hospital (1984) 36 Cal.3d 359, 387 [146
Cal.Rptr. 182, 578 P.2d 899] (dis. opn. of Mosk, J.).) In addition, I observed that the
Legislature assumed in passing MICRA that an inevitable reduction of malpractice
premiums paid by hospitals would result in a meaningful containment of hospital costs.
Experience [8 Cal.4th 120] subsequent to the passage of MICRA sadly, but undeniably,
demonstrated the error of this optimistic economic assumption. As a result I would have
struck the statute down as unconstitutional.
I remain doubtful of MICRA's constitutional validity. Nothing before us in the ensuing
decade has changed my view; therefore, I see no reason to extend the scope of the
principles underlying this statute beyond the express reach of its terms. I would affirm the
judgment of the Court of Appeal.
FN *. Presiding Justice, Court of Appeal, Sixth Appellate District, assigned by the Acting
Chairperson of the Judicial Council.
FN 1. Under federal maritime law, a shipowner is strictly liable for an employee's
medical care. (See Fitzgerald v. A.L. Burbank & Co. (2d Cir. 1971) 451 F.2d 670, 679, 14
A.L.R.Fed. 525; Central Gulf Steamship Corporation v. Sambula (5th Cir. 1968) 405 F.2d
291, 297, 16 A.L.R.Fed. 70; see also 46 U.S.C. § 688 [Jones Act].)
FN 2. Apparently, Western affirmatively declined to request a special verdict directing the
jury to allocate the award between general and special damages.
FN 3. The record indicates that, except for a $1,000 deductible, Western's maritime
insurance carrier, Assuranceforeninger Skuld Protection and Indemnity Club, paid all of
Western's expenses including the settlement, maintenance and cure payments, attorney
fees, and costs. It is not clear, however, whether a settlement or judgment has a financial
impact on future premiums. On review, the hospital does not renew its contention that
Western can seek indemnity only for the $1,000 deductible because that is the extent of
its actual loss. (See Kirtland & Packard v. Superior Court (1976) 59 Cal.App.3d 140,
145-147 [131 Cal.Rptr. 418].)
FN 4. The trial court took issues relating to damages under submission and prior to ruling
allowed the hospital to present its own evidence segregating Lennon's past and future
economic and noneconomic damages. On that basis, and taking into consideration
Lennon's death, the court concluded that MICRA would have applied to an action
brought against the health care providers by Lennon herself and would have limited her
recovery to $1,158,573: $908,573 for maintenance and cure, medical expenses, and lost
wages, plus $250,000 for pain and suffering.
FN 5. Both at trial and on appeal, the hospital contended that in addition to Civil Code
section 3333.2, other provisions of MICRA, including Civil Code section 3333.1,
partially abrogating the collateral source rule, and Code of Civil Procedure section 667.7,
providing for periodic payments of future damages in excess of $50,000, applied under
the facts of this case. The hospital does not renew these contentions on review. Thus, we
have no occasion to express any opinion concerning the applicability of any other part of
the statutory scheme to equitable indemnification actions.
FN 6. Indemnity is distinguished from the related doctrine of contribution in that the
latter "presupposes a common liability which is shared by the joint tortfeasors on a pro
rata basis." (Alisal Sanitary Dist. v. Kennedy (1960) 180 Cal.App.2d 69, 75 [4 Cal.Rptr.
379].) At common law neither contribution nor indemnity was available (Merryweather v.
Nixan (K.B. 1799) 101 Eng. Rep. 1337); however, in 1957 the Legislature statutorily
authorized contribution "[w]here a money judgment has been rendered jointly against two
or more defendants in a tort action" "after one tortfeasor has, by payment, discharged the
joint judgment or has paid more than his pro rata share thereof." (Code Civ. Proc., § 875,
subds. (a) & (c); see generally, id., §§ 875-880.)
FN 7. See AMA, supra, 20 Cal.3d at page 604; Yamaha Motor Corp. v. Paseman (1990)
219 Cal.App.3d 958, 971 [268 Cal.Rptr. 514]; Jaffe v. Huxley Architecture (1988) 200
Cal.App.3d 1188, 1193 [246 Cal.Rptr. 432]; Holland v. Thacher (1988) 199 Cal.App.3d
924, 935 [245 Cal.Rptr. 247]; Munoz v. Davis, supra, 141 Cal.App.3d at page 429 and
footnote 5; Goldfisher v. Superior Court (1982) 133 Cal.App.3d 12, 19-23 [183 Cal.Rptr.
609]; Gibson, Dunn & Crutcher v. Superior Court (1979) 94 Cal.App.3d 347, 354-355
[156 Cal.Rptr. 326]; Commercial Standard Title Co. v. Superior Court, supra, 92
Cal.App.3d at page 941; Held v. Arant (1977) 67 Cal.App.3d 748, 750 [134 Cal.Rptr.
422]; Herrero v. Atkinson, supra, 227 Cal.App.2d at page 74; see also Prosser and
Keeton, supra, section 51, pages 344-345.
FN 8. This conclusion is also consistent with the provisions of Civil Code section 3333.1,
subdivision (b), expressly precluding the collateral sources enumerated in subdivision (a)
from "be[ing] subrogated to the rights of the plaintiff against a [health care] defendant."
(See Barme v. Wood, supra, 37 Cal.3d at p. 181.) Section 3333.1 clearly evidences
legislative concern to foreclose possible circumvention of MICRA's intended restrictions
on liability for malpractice damages. The fact that the Legislature has expressly precluded
only subrogation of collateral sources does not prevent the courts from imposing similar
limitations to effectuate other provisions of MICRA. (Cf. AMA, supra, 20 Cal.3d at pp.
599-604 [contribution statute did not preclude adoption of comparative partial
indemnity].)
FN 9. Labor Code section 3864 provides as follows: "If an action as provided in this
chapter prosecuted by the employee, the employer, or both jointly against the third person
results in judgment against such third person, or settlement by such third person, the
employer shall have no liability to reimburse or hold such third person harmless on such
judgment or settlement in absence of a written agreement so to do executed prior to the
injury."
FN 10. Moreover, in some instances express legislative ratification has followed similar
judicial action. For example, in enacting Code of Civil Procedure section 877.6, which
provides that good faith settlements bar claims for comparative indemnity, the Legislature
codified the rule originally promulgated by this court in AMA, supra, 20 Cal.3d at page
604. (See Far West Financial Corp. v. D & S Co. (1988) 46 Cal.3d 796, 809, fn. 9 [251
Cal.Rptr. 202, 760 P.2d 399]; Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38
Cal.3d 488, 496 [213 Cal.Rptr. 256, 698 P.2d 159].)
FN 11. Both the Court of Appeal and Western cite numerous cases for the proposition that
an indemnification action is separate and distinct from subrogation and an indemnitee
does not "stand in the plaintiff's shoes" vis-a-vis the indemnitor. (See, e.g., People ex rel.
Dept. of Transportation v. Superior Court, supra, 26 Cal.3d at p. 752; Bush v. Superior
Court (1992) 10 Cal.App.4th 1374, 1384 [13 Cal.Rptr.2d 382]; American Bankers Ins.
Co. v. Avco-Lycoming Div. (1979) 97 Cal.App.3d 732, 737 [159 Cal.Rptr. 70].) Although
these cases may correctly state the law governing certain procedural bars, the analyses do
not purport to limit an indemnitor's ability to assert a substantive defense to or a
limitation on liability against the indemnitee to the same extent the defense or limitation
would be available against the injured party. As we discuss, post, the established rule is to
the contrary in that a procedural bar bears no relation to the fundamental question of
liability. (See Frank v. State of California (1988) 205 Cal.App.3d 488, 494 [252 Cal.Rptr.
410].)
FN 12. Since the indemnitee has a variety of procedural options by which to pursue
recovery (see American Bankers Ins. Co. v. Avco-Lycoming Div., supra, 97 Cal.App.3d at
p. 734), any other rule would place a premium on that choice by precluding a defense to
liability in a separate proceeding for indemnification that the health care provider would
otherwise have available if joined in the original litigation by complaint or cross-
complaint. (Cf. GEM Developers v. Hallcraft Homes of San Diego, Inc., supra, 213
Cal.App.3d at p. 428.) A non-MICRA tortfeasor should not be entitled to greater
indemnity simply because the health care defendant was not a party to the underlying
negligence action in which it could have asserted the limitation of section 3333.2
simultaneously against the injured plaintiff and the indemnitee. (See American Bankers
Ins. Co. v. Avco-Lycoming Div., supra, 97 Cal.App.3d at pp. 736-737; cf. Central
Pathology Service Medical Clinic, Inc. v. Superior Court, supra, 3 Cal.4th at p. 192;
Hedlund v. Superior Court, supra, 34 Cal.3d at p. 704.) We decline Western's implicit
invitation to exalt form over substance in this manner.
FN 13. We disagree with the Court of Appeal that a contrary holding, at least under these
facts, somehow contravenes or even implicates the supremacy clause. Allowing the
hospital to invoke section 3333.2 does not impair Western's rights or interests under
federal maritime law; it simply leaves one concurrent tortfeasor to pay more of the loss
than its proportionate fault. (See Colich & Sons v. Pacific Bell, supra, 198 Cal.App.3d at
p. 1237.) We express no opinion as to the appropriateness of limiting indemnification
were the impact with respect to federal law otherwise. (Cf. Barme v. Wood, supra, 37
Cal.3d at p. 180, fn. 6.)
FN 14. We note that under Civil Code section 1431.2, liability for noneconomic damages
"shall be several only and shall not be joint." (Id., subd. (a).) That provision does not
apply to the facts of this case; therefore, we have no occasion to consider any impact it
might have on the rule we announce today.
FN 15. This situation is thus distinguishable from one in which a party seeks to utilize its
good faith settlement as a shield to further liability. (Cf. Tech-Bilt, Inc. v. Woodward-
Clyde & Associates, supra, 38 Cal.3d at pp. 496-500.) When a party instead wields the
settlement as a sword to enforce its rights as an indemnitee, due process mandates at a
minimum appropriate notice and an opportunity for the indemnitor to contest both
liability and the amount of damages. (See Breese v. Price (1981) 29 Cal.3d 923, 930-931
[176 Cal.Rptr. 791, 633 P.2d 987]; Mullin Lumber Co. v. Chandler, supra, 185
Cal.App.3d at p. 1134; Sagadin v. Ripper, supra, 175 Cal.App.3d at pp. 1175-1176.)
FN 16. The hospital also contends on review that in allocating its portion of the damages
the trial court did not give sufficient credit for Dr. Wirtschafter's $1 million settlement
with Western. In light of its resolution of other issues, the Court of Appeal did not reach
this contention. We therefore leave its determination in the first instance to the Court of
Appeal on remand and express no opinion on its merits.
FN *. Presiding Justice, Court of Appeal, Sixth Apellate District, assigned by the Acting
Chairperson of the Judicial Council.
Forensis Group, Inc. v. Frantz, Townsend & Foldenauer

(2005)130 Cal.App.4th 14 , 29 Cal.Rptr.3d 622
[No. D044211. Fourth Dist., Div. One. June 9, 2005.]
FORENSIS GROUP, INC., et al., Cross-complainants and Appellants, v. FRANTZ,
TOWNSEND & FOLDENAUER, et al., Cross-defendants and Respondents.
(Superior Court of San Diego County, No. GIC781608, Sheridan E. Reed and Jay M.
Bloom, Judges.)
(Opinion by Huffman, J., with McConnell, P. J., and Benke, J., concurring.)
COUNSEL
Robinson, DiLando & Whitaker, Michael C. Robinson, Jr., and Mark Kane for Cross-
complainant and Appellant Forensis Group, Inc.
Neil, Dymott, Perkins, Brown & Frank, Clark R. Hudson and David P. Burke for Cross-
complainant and Appellant Malcolm Robbins.
Butz, Dunn, DeSantis & Bingham, Douglas M. Butz, Roger P. Bingham and Steven C.
Uribe for Cross-defendants and Respondents. [130 Cal.App.4th 18]
OPINION
HUFFMAN, J.-
This appeal presents the issue of whether expert witnesses may seek equitable
indemnification by filing cross-complaints against the attorneys who retained them in an
underlying case, when the client in the underlying case has sued the expert witnesses for
professional negligence, but the client has not sued those attorneys. The subject
indemnity cross-complaints arose out of an action for professional malpractice against
these defendants and cross-complainants Malcolm Robbins (Robbins) and Forensis
Group, Inc. (Forensis; sometimes collectively referred to here as "Experts"), who acted,
respectively, as an expert engineering witness and as an expert [130 Cal.App.4th 19]
referral firm in the underlying action. This underlying action was an unsuccessful
wrongful death/products liability complaint filed on behalf of the decedent's surviving
plaintiffs, the Hernandez family (the underlying action), by their then-attorneys, the
indemnity cross-defendants, the law firm of Frantz, Townsend & Foldenauer and its
attorney Giles Townsend (referred to here as "Law Firm"). fn. 1 After the Hernandez
plaintiffs suffered an unfavorable summary judgment ruling in the underlying action on
their products liability claim, they settled the remaining portion of their action. They did
not appeal the summary judgment ruling that was in favor of the manufacturer of the
subject product, a forklift.
Represented by new counsel, the Hernandez plaintiffs then brought their malpractice
complaint against their retained Experts in the underlying action, Robbins and the referral
firm, Forensis, which sent him to Law Firm to be retained on behalf of the Hernandez
plaintiffs. However, they did not sue Law Firm for legal malpractice. They claim that
Robbins, a member of the forensic engineering profession, was responsible for the loss of
their products liability claim, due to his inadequate degree of expertise on the products
liability issues, and due to misrepresentations by both experts about his skills.
Once Experts were sued for professional negligence, they brought these cross-complaints
against Law Firm for equitable indemnity to apportion the loss incurred when Experts
were held liable on, or settled, the professional negligence claims by the Hernandez
plaintiffs.
Law Firm brought a motion for summary judgment on public policy grounds, which was
granted by the trial court. (Code Civ. Proc., § 437c.) The court ruled that the cross-
complaints were barred based upon the public policies protecting attorney-client loyalty
and confidential client communications under the particular circumstances presented in
this action, due to the nature of the involvement of the Hernandez plaintiffs' previous law
firm, the cross-defendants. It was not disputed that Experts had incurred monetary
liability through their settlements of the Hernandez plaintiffs' complaint.
Following the grant of summary judgment, Experts brought motions to set aside the
judgment on the basis that new facts were obtained suggesting that Law Firm's referral of
the Hernandez plaintiffs to new counsel, the Macaluso firm, to bring this action against
Experts, was collusive in nature. Experts represented that neither they nor the trial court
was made aware that Law Firm and Macaluso had a previous professional relationship
which allegedly created a conflict of interest, such that the Hernandez plaintiffs could not
have [130 Cal.App.4th 20] received adequate advice when they decided to sue only
Experts and not Law Firm for professional negligence. This motion to set aside the
judgment was denied.
Experts now appeal both the summary judgment and the denial of the motions to set aside
the judgment, contending that public policy supports their claims for equitable indemnity
against Law Firm, under all the relevant circumstances, when considered on a case-by-
case basis. (Musser v. Provencher (2002) 28 Cal.4th 274, 280 (Musser).) We agree and
reverse.
FACTUAL AND PROCEDURAL BACKGROUNDAUnderlying Action
As summarized in the pleadings, the facts giving rise to this dispute are as follows. The
husband and father of the Hernandez family was tragically killed in a workplace accident
when a forklift struck him. The Hernandez family received worker's compensation death
benefits and retained Law Firm to bring a products liability action against the
manufacturer of the forklift and the rental company.
Through a referral from Forensis, an expert witness clearing house, Robbins, a
mechanical engineer, was retained by Law Firm as an expert witness on the products
liability claim, which focused on the backup alarm and side mirrors on the forklift.
Robbins inspected the vehicle and reviewed documents provided to him by Law Firm,
including publications by the Society of Automotive Engineering (SAE) regarding safety
alarms on such vehicles. At his deposition, he did not identify any applicable safety
standards with respect to the manufacturer's installation of a backup alarm.
The manufacturer of the forklift, Trak International, brought a summary judgment motion
contending the forklift was not defective and met all applicable safety standards.
Pursuant to his retention by Law Firm, Robbins prepared a declaration in opposition to
the summary judgment motion, stating that the vehicle failed the criteria of a particular
SAE safety standard. The trial court ruling made note that this declaration contradicted
Robbins's earlier deposition testimony. Accordingly, the trial court in the underlying
action granted summary judgment in favor of the manufacturer, ruling in relevant part
that Robbins as the Hernandez plaintiffs' expert failed to adequately explain why he was
now [130 Cal.App.4th 21] claiming a violation of SAE safety standards, when he did not
use that standard in performing his tests on the vehicle and when giving deposition
testimony.
The Hernandez plaintiffs settled their remaining claim against the rental company. They
did not appeal the summary judgment ruling.
BExpert Malpractice Complaint and Cross-Complaint for Indemnity; Settlements
After the main portion of the Hernandez underlying action was lost on summary
judgment, Law Firm referred the Hernandez family to new counsel (the Todd Macaluso
firm). Macaluso had represented a principal of Law Firm, James Frantz, in a lawsuit
involving his prior law firm. Macaluso was also cocounsel with Law Firm and several
other firms on other products liability litigation. He obtained a waiver of conflicts from
the Hernandez family as to Law Firm.
On behalf of the Hernandez family, Macaluso then sued Experts (Robbins/ Forensis
Group) on professional negligence theories, including causes of action for negligence,
negligent misrepresentation, intentional misrepresentation, and breach of fiduciary duty.
Hernandez alleged that Robbins failed to exercise the care and skill that a member of the
forensic engineering profession should have, thereby losing the underlying action for the
Hernandez family and forfeiting their $1.5 million claim. They also claimed both Experts
misrepresented the expertise of Robbins. Macaluso wrote a letter to Robbins discouraging
him from bringing a cross-complaint against Law Firm.
In response, Experts filed their separate cross-complaints for equitable indemnity. They
claim that because they were retained by Law Firm, its professional activities should
subject it to sharing in the loss attributable to the unsuccessful opposition to the
manufacturer's summary judgment motion in the underlying action. Specifically, they
argued Law Firm had waited too late in the action to consult Forensis to obtain a suitable
expert, and/or had failed to provide Robbins with sufficient information to allow him to
provide adequate services, and had failed to provide Experts with relevant information
before and after the hiring. They also argued Law Firm attorneys failed to rehabilitate
Robbins at his deposition about the problems regarding the use of the SAE industry
standards and had failed to provide the trial court with accurate products liability law in
opposing the Trak International summary judgment motion, regarding admissibility or
inadmissibility of industry standards evidence. [130 Cal.App.4th 22]
Demurrers to the cross-complaint on grounds of the bar of public policy were overruled.
Discovery began, including the deposition of Experts' legal expert David E. Monahan,
whose opinion was that Law Firm may have breached its duty of care to its client and
was therefore responsible for losing the motion for summary judgment in the underlying
case. Law Firm named a number of expert witnesses to testify on professional standards
in the legal malpractice field, the forensic engineering field, and an economic expert
regarding the Hernandez family's potential recovery if their action had been successful.
However, the trial court granted Law Firm's motion to stay discovery, including
depositions of these expert witnesses.
The trial court also issued an order that the complaint and the cross-complaints should be
tried separately, to avoid any conflicts of interest through Law Firm's defense of the
cross-complaint, by reference to its conduct and communications with the Hernandez
clients in the underlying action. The trial court invited Law Firm to file a summary
judgment motion to resolve the cross-complaints.
Expert Robbins settled the Hernandez action and obtained dismissal of the complaint
with prejudice. (Later, Forensis also settled with the Hernandez plaintiffs, and seeks
judicial notice of the dismissal order; this request is granted as noted in fn. 3, post.)
CSummary Judgment Motion and Order
Law Firm brought a motion for summary judgment, seeking a ruling that the cross-
complaints were barred as a matter of law because they violate public policy concerns
regarding the attorney-client relationship. As noted by the trial court, in support of its
summary judgment, Law Firm relied on the deposition of Experts' own legal expert
Monahan, stating as Experts' position "that the law firm may have breached its duty of
care to its client and was therefore responsible for losing the motion for summary
judgment in the underlying case which summary judgment loss is the basis of the lawsuit
against Robbins/Forensis." The trial court acknowledged that this evidence presented the
question of "whether under the circumstances presented the equitable allocation of
damages outweighs the public policy interest in ensuring the undiluted loyalty of a
lawyer to his client's interests and/or whether there is a real risk of that conflict."
Experts filed opposition to the summary judgment motion, contending there was no
public policy bar because Law Firm could not show how the confidentiality of any
attorney-client communications between it and the [130 Cal.App.4th 23] Hernandez
family would be violated through the defense by Law Firm against such a cross-
complaint. Experts also argued there was no ongoing duty of loyalty between Law Firm
and its former client, Hernandez, which would prevent Law Firm from defending the
cross-complaint. They supported their opposition with deposition testimony from their
expert witness, attorney Monahan, on the alleged breaches of Law Firm's professional
duties of care.
The trial court granted Law Firm's motion for summary judgment, explaining its
reasoning as follows. The court noted the separate statements of the parties showed there
were essentially no disputed material facts (although there were a few minor factual
disputes). Accordingly, the issues presented were issues of law. The court framed the
issue before it as whether "Robbins and/or Forensis, each a third party, [may] assert a
cross-complaint for indemnity against the law firm, which cross-complaint is premised on
the law firm's negligence toward its former client if Robbins and/or Forensis can
demonstrate that the reason for which they are liable to the law firm's former client was
caused solely by the law firm or jointly with the law firm when the former client has sued
only Robbins and Forensis and not the law firm."
In issuing its ruling that the cross-complaints should be barred by public policy, the trial
court found it significant that Experts were not in privity of contract with nor owed a duty
by Law Firm; the indemnity claim at issue is between nonattorney Experts and the
attorneys by whom they were hired, each working for the same client. It was undisputed
that there was no duty of care flowing from the attorneys to Experts, and that the
attorneys and Experts each owed the client a duty of care.
Further, the trial court noted indemnity claims against attorneys by third parties are
normally prohibited where such claims violate public policy considerations. (Musser,
supra, 28 Cal.4th at p. 280.) The trial court stated that the relevant public policy issues
required it to consider whether Law Firm would be able to defend against the cross-
complaint while: 1) avoiding conflicts of interest between the attorney and the former
clients; and 2) protecting the confidentiality of attorney-client communications. The issue
was whether the duty of loyalty would prevent Law Firm from presenting a vigorous
defense whether or not the client had waived the attorney-client privilege.
Specifically, the court noted: "[L]aw firm has a duty to do nothing in the trial by
Hernandez against the Forensis Group that would harm Hernandez' case. Yet defeating or
diminishing Hernandez' case is exactly the self-interest the law firm would have,
knowing that if Plaintiff recovers, the law firm will have to defend a claim that it should
indemnify Robbins and/or Forensis Group from its loss. [¶] Therefore, there is a conflict
between the . . . law [130 Cal.App.4th 24] firm and their former Hernandez clients no
matter what opinion the attorneys at the law firm held concerning the merits of the
underlying product defect action."
Further, with respect to liability for indemnity or contribution, the court stated, "Even if
they are not permitted to testify as to their opinion of the merits of the Plaintiff's
underlying case, a conflict exists inasmuch as every dollar awarded to the Hernandez
family in the present action is potentially a liability to [Law Firm] in any subsequent
indemnity action. It would be a violation of public policy for this court's rulings to put the
firm in such a position that it could not assist its former client in the present action."
In its ruling, the trial court discussed a number of potential problems in bringing the
cross-complaint for indemnity to trial, with respect to privilege and confidentiality
problems between Law Firm and its former client, the Hernandez family. Specifically,
these included whether there would be any be waivers of attorney-client and work
product privileges at trial, by the Hernandez plaintiffs or Law Firm, and whether Law
Firm's witnesses would have to give professional opinions relating to the merits of the
underlying Hernandez case.
The trial court further found that its prior order that the trial of the Hernandez complaint
against Experts should go first, bifurcated from the indemnity cross-action, did not
prevent the identified violations of public policy. Thus, summary judgment was granted,
barring the cross-complaints for indemnity, based upon public policy under the particular
circumstances presented in this action. fn. 2
DMotions to Vacate Summary Judgment; Denial
Following the summary judgment ruling, Experts each filed a motion to set aside the
judgment, based on extrinsic fraud that prevented them from having [130 Cal.App.4th
25] a fair hearing on the summary judgment issues. They claim that newly discovered
evidence demonstrated the extent of the relationship between Law Firm and the
Hernandez plaintiffs' current counsel, Macaluso. He had received the referral from Law
Firm at a time when he was also representing Law Firm's principal, Frantz, regarding the
dissolution of his prior firm; also, Macaluso was sharing office space with them and was
acting as cocounsel with them in other litigation. Therefore Experts contended that a
conflict of interest prevented Macaluso from adequately representing the interests of the
family, and this had not been disclosed to the court. Specifically, Experts contended that
Macaluso had a continuing duty of loyalty and therefore an incentive not to sue Law
Firm, even though the Hernandez plaintiffs could have done so. This evidence affected
the respective potential liabilities of Law Firm and Experts for any professional
negligence damages suffered by the Hernandez family, and was important to the overall
question of entitlement to indemnity and whether Law Firm was a joint tortfeasor with
Experts.
In opposition, Law Firm argued the public policy concerns they had raised still remained
valid and were not affected or overridden by the limited nature of the relationship
between Law Firm and Macaluso. They provided a declaration from plaintiff Mrs.
Hernandez that she did not want to sue Law Firm because she did not think they had done
anything wrong, and she had waived any potential conflict of interest between it and her
new counsel, Macaluso.
In denying the motion, the new trial judge (Judge Bloom) adhered to the summary
judgment ruling reasoning of the previous trial judge, stating: "[T]he public policy
reasons behind Judge Reed's decision to grant summary judgment . . . remain valid
[because] California law generally prohibits indemnity claims against attorneys by third
parties where such claims violate public policy considerations."
At this point, the Hernandez family settled their malpractice claim against Forensis,
having previously also settled with Robbins. fn. 3
Both Experts appeal the summary judgment and orders denying their motions to set aside
the judgment. [130 Cal.App.4th 26]
DISCUSSIONISTANDARDS: SUMMARY JUDGMENT AND MOTION TO
VACATE
[1] Law Firm's motion for summary judgment asserted the bar of public policy, presented
as a question of law. "A defendant moving for summary judgment must show either one
or more essential elements of the plaintiff's cause of action cannot be separately
established or there is an affirmative defense which bars recovery. If the plaintiff fails to
set forth specific facts showing a triable issue of material fact as to that cause of action or
defense, summary judgment must be granted. [Citations.]" (Kline v. Turner (2001) 87
Cal.App.4th 1369, 1373 (Kline); Crouse v. Brobeck, Phleger & Harrison (1998) 67
Cal.App.4th 1509, 1547-1548 (Crouse).)
[2] Our inquiry on appeal requires us to apply the same analysis as did the trial court:
Identifying the issues framed by the pleadings, and then determining whether the moving
defendant "has produced evidence showing one or more of the elements of the cause of
action cannot be established or there is a complete defense to that cause of action. If the
defendant does so, the burden shifts to the plaintiff to show the existence of a triable issue
of material fact as to that cause of action or defense. [Citation.]" (Kline, supra, 87
Cal.App.4th at p. 1373.)
[3] In the closest parallel situation to these facts, the question of whether allowing an
equitable indemnity claim to be pursued between attorneys, such as concurrent counsel or
cocounsel, is treated as a question of law to be addressed by the appellate court de novo,
on a case-by-case basis. (Musser, supra, 28 Cal.4th at pp. 281, 284.) The overall issue is
whether the policy considerations that underlie the rule barring indemnification claims in
attorney representation situations will obtain in a particular fact situation and whether it
would be unjust to deny cocounsel an opportunity to seek indemnity or contribution from
a joint tortfeasor. (Id. at p. 285.)
[4] In the case before us, we have an unusual fact situation, involving the policy
considerations that apply to such an indemnity claim by an expert witness who was
retained by an attorney to assist in the claims or the defense of a client, and where the
issues presented arose from that legal representation and expert investigation. (See
Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 834-835 (Mattco
Forge II) [recognizing that litigation support professionals such as expert witnesses [130
Cal.App.4th 27] may be held responsible for loss they directly cause].) We may
extrapolate from the attorney concurrent representation authorities such as Musser, supra,
28 Cal.4th 274, that the rules governing the equitable indemnity issues presented here are
similar and must also be addressed as questions of law on a case-by-case basis. The same
approach as outlined in the attorney concurrent representation cases is appropriate,
because these matters arose in the context of litigation and litigation support teams, such
that during critical time periods when the alleged negligence took place, the attorneys and
the expert witnesses were then allied in interest to pursue their common clients' cause.
[5] With respect to the denials of Experts' motions to set aside the summary judgment,
Experts had asserted extrinsic fraud in that they and the trial court were prevented from
knowing the extent of the relationship between Law Firm and the Hernandez plaintiffs'
current counsel, Macaluso. We review the trial court's ruling on that issue pursuant to an
abuse of discretion standard. (In re Marriage of Park (1980) 27 Cal.3d 337, 347.)
IICONTENTIONS ON APPEAL
Both Experts, Robbins and Forensis, contend the trial court erroneously applied the
relevant case law to rule that Experts' indemnity claims were barred for public policy
reasons. They argue on appeal that public policy actually supports allowing them to
proceed with these indemnity claims, as follows: "The trial court's decision illogically
protects negligent lawyers while saddling retained experts and the lawyers' own client
with the damage exposure caused by that negligence. Public policy is more appropriately
served by allowing claims for indemnity and forcing attorneys to accept responsibility for
their mistakes."
Experts additionally contend that the arguments set forth by Law Firm are excuses, not
viable defenses to a legitimate claim for indemnity arising from its own negligence.
According to Experts, Law Firm's arguments are also completely speculative and,
accordingly, any public policy concerns should have been addressed with a less drastic
remedy than summary judgment. Moreover, the recent dismissals of the Hernandez
complaint with prejudice have now arguably eliminated any potential public policy
concerns on indemnity. [130 Cal.App.4th 28]
With respect to the denial of the motions to set aside the summary judgment, Experts
contend that Law Firm inappropriately manipulated the attorney-client relationship, by
referring the Hernandez plaintiffs to a closely affiliated attorney who had represented one
of their attorneys in another case, and who was cocounsel in another matter, and who
predictably sued only Experts, not Law Firm itself. Experts argue this course of action
should not entitle Law Firm to protection from the cross-complaint.
In response, Law Firm argues the trial court's order granting its motion for summary
judgment should be affirmed because the cross-complaints for indemnity and
contribution violate recognized public policy considerations regarding the attorney-client
relationship. They contend the cross-complaints were correctly barred as a matter of law,
based on the public policy considerations disfavoring any "(1) creation of a conflict of
interest between an attorney and the attorney's present or former clients; and (2) [any]
requirement that attorneys breach fiduciary duties by divulging confidential client
communications and information acquired during the representation of former clients."
IIIRULES REGARDING EQUITABLE INDEMNITY; "ATTORNEY
EXCEPTION"
To examine the parties' respective contentions, we first outline the rules regarding the
availability of an indemnity cross-action in the attorney representation context. Such an
action usually arises in predecessor/successor cases, and has also been addressed in the
concurrent counsel situation. (Musser, supra, 28 Cal.4th at pp. 281-285.) We then apply
those analogous rules to this situation involving allegations of expert witness professional
negligence, in light of the public policy concerns identified by the trial court. We have
been made aware in the record that the main action for professional malpractice has been
settled, causing Experts to incur liability to the Hernandez plaintiffs, for which
indemnification is now being sought.
[6] " '[I]n the case law of equitable indemnity . . . one point stands clear: there can be no
indemnity without liability. In other words, unless the prospective indemnitor and
indemnitee are jointly and severally liable to the plaintiff there is no basis for indemnity.
[Citation.]' [Citation.] '[A] fundamental prerequisite to an action for partial or total
equitable indemnity is an actual monetary loss through payment of a judgment or
settlement.' [Citations.] 'It is well settled that a cause of action for implied indemnity does
not accrue or come into existence until the indemnitee has suffered actual loss [130
Cal.App.4th 29] through payment. [Citations.]' " (Major Clients Agency v. Diemer
(1998) 67 Cal.App.4th 1116, 1130 (Major Clients).)
[7] Throughout this analysis, we view the record in its entirety, which in this case
includes the benefit of hindsight, in terms of the undisputed facts that the Hernandez
plaintiffs have settled their professional negligence claims against both of these Experts.
(See fn. 3, ante.) Because we are addressing questions of law and public policy, it is
appropriate to discuss these important concerns of attorney-client confidentiality, loyalty,
and privilege, with the benefit of all the factual and procedural development of the case
and the record. It is necessary to decide these public policy issues on a case-by-case
basis, and on the entire record as presented. (Musser, supra, 28 Cal.4th at pp. 281-285.) In
doing so, however, we need not address the collateral estoppel arguments Forensis has
advanced, concerning any future supplemental indemnity action it might file, should this
cross-complaint be finally disposed of through the summary judgment that is currently on
appeal. As we will show, these issues can be litigated in the current cross-complaints, in
appropriate future proceedings after the reversal and remand we order today.
ABackground
[8] Extensive case law has addressed the issue of "whether an attorney who is sued for
malpractice by a former client may cross-complain for equitable indemnity against a
successor attorney who has been hired to extricate the client from the condition created
by the predecessor attorney. The cases hold that for sound public policy reasons, such
cross-complaints are prohibited." (Major Clients, supra, 67 Cal.App.4th at p. 1129.) This
rule represents the "attorney exception" to the general rule allowing indemnity to be
sought among joint tortfeasors, as outlined in the landmark case of American Motorcycle
Assn. v. Superior Court (1978) 20 Cal.3d 578, 598-607, footnote 9 (AMA). Some courts
have said, " 'AMA makes not a rule of general application but a rule riddled with
exceptions. Partial indemnity is permitted only in appropriate cases.' [Citations.] . . . 'As
suggested by Dean Prosser, the granting of indemnity in any situation represents a
judicial choice of policy' [citation]; and courts have long recognized that 'the doctrine is
not available where it would operate against public policy. [Citation.]' [Citation.]"
(Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 100,
109-110, fn. omitted.) [130 Cal.App.4th 30]
" '[T]he ordinary rules of implied equitable indemnity in tort do not apply when the claim
for indemnity is made against an attorney, is based on a breach of the attorney's duty to
his or her client, and is brought by an adverse party in litigation which is the same as or
related to that in which the alleged negligence took place. [Citations.] Perceiving that
attorneys would be reluctant to accept cases that might result in indemnity claims, and,
more significantly, that if faced with a potential indemnity claim, the attorney's sense of
self-preservation might impinge on his or her duty of undivided loyalty to the client,
these cases have established an exception to the ordinary rule of equitable indemnity.
[Citation.]' [Citation.]" (Major Clients, supra, 67 Cal.App.4th at p. 1130.)
The Supreme Court in Musser, supra, 28 Cal.4th 274, has explained the basic reasons for
the general rule that bars equitable indemnification among predecessor/successor
counsel: "The first policy consideration is avoiding conflicts of interest between attorney
and client: The threat of an indemnification action would arguably create a conflict of
interest between the successor attorney and the client because the greater the award the
successor attorney managed to obtain for the client in the malpractice action, the greater
the exposure to the predecessor attorney in the indemnification action. [Citation.] The
second policy consideration is protecting confidentiality of attorney-client
communications: In order to defend against an indemnification action, the successor
attorney might be tempted to compromise the confidentiality of communications with the
client. [Citation.]" (Id. at p. 281.)
In Musser, supra, 28 Cal.4th 274, the Supreme Court was presented with indemnity
claims between concurrent counsel for the same client, one a divorce attorney and one a
bankruptcy attorney. Problems arose in the client's divorce case based on the inaccurate
bankruptcy advice given by the bankruptcy attorney to the divorce attorney. The client
sued the divorce attorney, and the divorce attorney sued bankruptcy counsel for
indemnification of legal malpractice damages paid out to the client. The Supreme Court
used a case-by-case approach to conclude that "the public policy considerations
[underlying] the majority rule barring indemnification in predecessor/successor cases"
were not implicated by the facts of that particular case, because a significant conflict
between the bankruptcy attorney's duty to the client and the bankruptcy attorney's self
-interest did not arise under those facts. (Id. at pp. 284-285.) Specifically, the Court found
no reason "to believe that an attorney's self-interest will interfere with loyalty to the client
just because the attorney, as a joint tortfeasor, may face an indemnification claim if the
client sues the attorney's concurrent counsel or cocounsel for malpractice." (Id. at [130
Cal.App.4th 31] p. 284.) This seems to indicate that the Supreme Court did not find any
continuing duty of loyalty to a former client would unduly interfere with the attorney's
ability to conduct a defense on an equitable indemnification cross-action. fn. 4
[9] In addition to discussing the duty of loyalty among the counsel and client, the
Supreme Court in Musser, supra, 28 Cal.4th 274 recognized that the other relevant policy
to be considered was protecting the confidentiality of attorney-client communications:
"The concern is that the law firm from which indemnification is sought may be unable to
defend itself without revealing privileged client communications." (Id. at p. 284.)
However, that was not a significant problem in that case because the client had settled
with the divorce attorney and waived her attorney-client privilege with respect to the
bankruptcy counsel's representation of her. (Ibid.) Accordingly, the Supreme Court
concluded:
"[B]ecause the policy considerations that underlie the rule barring indemnification claims
in predecessor/successor cases do not obtain in this concurrent counsel case, it would be
unjust to deny [divorce cocounsel] an opportunity to seek indemnity or contribution from
[bankruptcy cocounsel] when [divorce counsel] has been sued by [client] for damages
allegedly attributable to [bankruptcy cocounsel's] tortious conduct." (Musser, supra, at p.
285.)
This court in Crouse, supra, 67 Cal.App.4th at pages 1547-1548, dealt with somewhat
similar issues, i.e., a fact pattern involving one attorney who had switched law firms and
who was sued for malpractice by a client who had employed him at each of the firms on
the same matter. He and his current firm sought equitable indemnification from the prior
firm, on the basis that the prior firm was a joint tortfeasor in the act which had damaged
the client (losing a promissory note and failing to follow up on it). This court held that the
attorney and his current firm could seek equitable indemnity from the prior firm because
there was only one injury to the client, for which the respective attorneys could each
properly bear some responsibility. (Id. at pp. 1544-1548.) This court explained, "the
policy reasons prohibiting an indemnity claim by the original tortfeasor attorney against
the subsequent attorney are not applicable to an indemnity claim by the subsequent
attorney against the former attorney. We therefore conclude there is no reason not to
apply the general principles of AMA, and [the attorney and successor firm] may seek
equitable partial indemnity for damages recovered by [the client] for [their] alleged []
acts of malpractice." (Id. at p. 1548.) The Supreme [130 Cal.App.4th 32] Court in
Musser, supra, 28 Cal.4th 274 cited Crouse as part of its analysis, without criticism,
although one of the cases discussed in Musser said the holding in Crouse might have
been stated too broadly, although the result was right. (Musser, supra, at p. 283, citing
Kroll & Tract v. Paris & Paris (1999) 72 Cal.App.4th 1537, 1544, fn. 4 (Kroll).)
Moreover, in Crouse, supra, 67 Cal.App.4th 1509, the attorney individually was found to
have an additional basis for equitable indemnity from his prior firm: If he were held
liable to the client for the original negligence in the loss of the note, and if the prior firm's
negligence contributed to the loss of the note, he and the prior firm could be considered
to be concurrent tortfeasors for the injury caused by loss of the note. This court found no
impediment to the attorney's right to seek equitable indemnity from the prior firm "under
traditional AMA principles of equitable indemnity among concurrent tortfeasors whose
acts of negligence unite to cause a single injury," to the extent the attorney and his prior
firm were concurrent tortfeasors for the legal services rendered. (Crouse, supra, 67
Cal.App.4th at p.1548; see 1 Witkin, Cal. Procedure (4th ed. 2005 supp.) Attorneys, §
352, p. 109.)
In an appellate opinion primarily discussing good faith settlement issues, Mattco Forge,
Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, 1344-1345 (Mattco Forge I), the
court upheld the right of expert witnesses (an accounting firm) to bring a cross-complaint
against a law firm for fraud, complete indemnity and partial indemnity. The accounting
firm had been sued for malpractice by the client for whom the expert services were
performed in an underlying action, pursuant to the law firm's representation of the client.
In the expert malpractice action, the accounting firm brought a cross-complaint against
the law firm, alleging inadequate professional care had been exercised in the underlying
lawsuit. (Ibid.) The appellate court allowed the accounting firm to pursue its indemnity
cross-action and fraud claims against the law firm, but not the negligence-based claims,
because the law firm had not owed any professional duty to the accounting firm. (Id. at p.
1355.)
Under the above authorities, we next consider whether Experts may potentially be
considered to be concurrent tortfeasors with Law Firm which hired them, and entitled to
seek indemnification, in the same sense that cocounsel can be considered to be concurrent
tortfeasors who may be subject to liability for equitable indemnity. [130 Cal.App.4th 33]
BExpert Witness Malpractice Claims; Respective Roles of Counsel and Experts
In the case before us, we are not dealing with concurrent counsel, but with an expert
witness and an expert referral firm who were hired by the client's attorney, Law Firm, to
assist in preparing the client's case. The client (the Hernandez family) did not select
Experts, nor did the client have any known expertise in Experts' particular fields of
endeavor (engineering and litigation support). However, the client sued Experts for
professional negligence and misrepresentation of the degree of expertise possessed.
Experts are cross-complaining for equitable indemnity based on the losses they incurred
in settling the client's claims. These facts require us to examine the nature of the
relationship between the engineering expert, the referral firm, and the law firm which
hired them, in order to consider the equitable indemnity issues presented.
In Mattco Forge II, supra, 52 Cal.App.4th at pages 834-835, the court outlined the
different types of situations in which a claim can be made that professional negligence
caused the loss of a lawsuit, in the context of analyzing the appropriate evidentiary
burden. The court said:
"In today's technologically driven litigation, engineers, pathologists, serologists,
physicians, appraisers, real estate brokers, and many other professionals, including
accountants, frequently are hired to assist a party in preparing and presenting a legal case.
'Often they play as great a role in the organization and shaping and evaluation of their
client's case, as do the lawyers. Those who provide these services are selected for their
skill and ability and are compensated accordingly just as any other professional.'
[Citation.] As experts, they are subject to liability if they perform the services negligently.
[] [¶] Like other defendants in negligence lawsuits, litigation support professionals are
only responsible for the losses they cause. [Citations.] Thus, in situations where alleged
negligent conduct is analogous to an attorney's mishandling litigation, a plaintiff should
be held to the same [evidentiary] burden [i.e., proving a "trial within-a-trial" in a
malpractice action]." (Ibid., italics added.)
By bringing their professional malpractice action against Experts, the Hernandez family
alleged that Experts' allegedly negligent conduct was analogous to legal malpractice,
within Experts' specialized sphere of knowledge. The Hernandez plaintiffs would have to
prove that their underlying wrongful death case would have been more successful had the
expert performed better, within the trial-within-a-trial format. (Mattco Forge II, supra, 52
Cal.App.4th at pp. 834-835.) [130 Cal.App.4th 34]
[10] By seeking equitable indemnity against Law Firm, Experts are contending Law Firm
personnel are joint tortfeasors with them in the representation of the Hernandez plaintiffs.
We seek to analyze the relationship between Law Firm and the retained Experts, for
purposes of assessing comparative fault potentials. In the California Expert Witness
Guide (Cont.Ed.Bar 2d ed. 2005) ("CEB treatise"), section 8.28, page 290, the authors
outline the duty of an attorney who hires an expert witness, that is, to "make sure that the
expert, particularly the inexperienced expert, understands the governing legal principles
and elements that each party to the litigation must prove in order to prevail." The authors
continue:
"An expert is not a mechanical toy that can simply be wound up and turned loose.
Regardless of the expert's skill, it is the lawyer's responsibility to make sure that his or
her expertise is presented to the trier of fact in an admissible and persuasive way. To
accomplish this task, the lawyer needs to understand the substantive details of the expert's
testimony and field of expertise." (CEB treatise, supra, § 8.29, p. 291.)
The authors of the CEB treatise recommend that counsel who hires an expert ask many
questions in order to ensure that the expert's testimony is presented in a form that can be
understood by the trial judge and jury. (CEB treatise, supra, § 8.30, p. 292.) The attorney
is also required to ensure that an expert's declaration offered in support of or in
opposition to a summary judgment makes an adequate showing concerning the expert's
qualifications and expertise, as would be required if the expert were testifying at trial. (Id.
at § 16.2, pp. 596-597; see Salasguevara v. Wyeth Laboratories., Inc. (1990) 222
Cal.App.3d 379, 384-387.)
To compare the roles of expert witnesses in litigation, and attorneys who are concurrent
counsel, we turn to Musser, supra, 28 Cal.4th 274. There, the problem was that the
bankruptcy specialist (an expert of sorts), who had been retained by the client to obtain
relief from the automatic stay imposed by the bankruptcy court during the dissolution
proceeding, gave advice to cocounsel that was contrary to well-established legal
authority. (Id. at p. 277, fn. 2.) When cocounsel acted upon it, she became liable for
malpractice to the client. These facts are analogous to those before us, because these
Experts as retained litigation support professionals are similar in function to concurrent
counsel within the fields of their respective expertise. Experts could not independently
communicate their knowledge and opinions to the trial court, and had to act through the
intermediary of the counsel who retained them on behalf of the client, the Hernandez
family. Experts were not involved in legal strategy, but rather supplied expertise based on
the physical facts of the [130 Cal.App.4th 35] underlying case, within the applicable
legal standards as supplied to them by counsel. Consequently, as in Musser, the
concurrently acting litigation participants, Experts, should ordinarily be permitted to sue
Law Firm for equitable indemnification of professional malpractice damages for which
they have become liable. (Id. at p. 279.)
In other words, this case initially falls within the general rule of permissible equitable
indemnity claims as outlined in AMA, supra, 20 Cal.3d 578. However, that is not the end
of the inquiry, as we must next turn to the acknowledged public policy concerns to see if
the "attorney exception" to the general rule should also be interpreted as an analogous
exception applicable to expert witnesses/litigation support professionals. (See Major
Clients, supra, 67 Cal.App.4th at pp. 1127-1133.)
CEffect of Rules on Public Policy Considerations
[11] As identified by the trial court, an otherwise permissible equitable indemnification
claim may become improper if certain important public policy principles are violated by
it. Specifically, it must be asked in this case whether Law Firm will be able to defend
itself against the cross-complaint while: 1) avoiding significant conflicts of interest
between itself and the former client, the Hernandez family; and 2) protecting the
confidentiality of prior attorney-client communications.
An additional inquiry that must be made on appeal is whether the trial court erroneously
denied Experts' motions to set aside the summary judgment ruling, on the basis that the
trial court did not have before it the full picture of the Law Firm/Macaluso successor
counsel/cocounsel relationship, when the summary judgment proceedings were held.
To address these issues, in light of the respective roles of the cross-complainants Experts
and the cross-defendant Law Firm (its professional personnel), we seek to determine if
public policy considerations support the trial court ruling as a matter of law, including the
undisputed facts that the Hernandez plaintiffs have now settled with these experts on the
professional malpractice claims, for a monetary amount. (See fn. 3, ante.) fn. 5 [130
Cal.App.4th 36]
[12] Not only the considerations identified by the trial court are important, but also a
further public policy exists: that of protecting the professional interests of all expert
witnesses generally to participate in litigation, and the interests of the judicial system in
obtaining the assistance of such expertise. These interests are significant enough to
warrant an expert's being accorded a right to recourse against those responsible, if any
professional negligence should occur on the part of counsel who retained those expert
witnesses, with respect to presenting their evidence and defining the proper scope of the
experts' duties and obligations within the litigation setting, if any harm to the client
should occur. Such a right to recourse for expert witnesses could include equitable
indemnity claims. fn. 6
1. Conflicts of Interest Prevention
In Musser, supra, 28 Cal.4th at page 281, the trial court examined two cases which arose
in the context of insurance litigation, and which dealt with whether indemnity claims
were permissible, when made by concurrent counsel or cocounsel against one another for
damages arising from their joint representation of a mutual client. (Kroll, supra, 72
Cal.App.4th 1537; Shaffery v. Wilson, Elser, Moskowitz, Edelman & Dicker (2000) 82
Cal.App.4th 768 (Shaffery).) In Kroll, the Court of Appeal held the policy considerations
for barring such an indemnity claim did apply. (Kroll, supra, at p. 1542.) "Although the
two counsel 'shared the common goal of defending [the client] in the underlying lawsuit,'
the Court of Appeal observed, 'they filled separate roles.' [Citation.] Kroll & Tract was
hired by the insurer, who provided a defense under a reservation of rights, while Paris &
Paris was the client's personal counsel and remained as Cumis counsel." (Musser, supra,
28 Cal.4th at p. 282, citing San Diego Federal Credit Union v. Cumis Ins. Society, Inc.
(1984) 162 Cal.App.3d 358.) The Supreme Court continued its discussion by outlining
another such inappropriate indemnity situation: "In Shaffery, supra, [130 Cal.App.4th
37] 82 Cal.App.4th 768, an insurer filed a malpractice action against an attorney whom
the insurer had hired to represent the insured in an employee's action brought against the
insured for sexual harassment, and the attorney filed a cross-complaint for equitable
indemnity against the law firm hired by the insurer to act as monitoring counsel in the
underlying action. After reviewing the cases, the Court of Appeal barred indemnity. 'In
substance if not in form, we find the case before us analytically indistinguishable from
[Kroll], and conclude the result must be the same.' (Shaffery, at p. 778.)" (Musser, supra,
28 Cal.4th at p. 284.)
However, in Musser, the court found it would be unjust to prevent the family law
cocounsel from cross-complaining for indemnity against the negligent bankruptcy
cocounsel, "because the policy considerations that underlie the rule barring
indemnification claims in predecessor/successor cases do not obtain in this concurrent
counsel case," where the family law counsel was sued by the client for damages allegedly
attributable to the bankruptcy attorney's tortious conduct. (Musser, supra, 28 Cal.4th at p.
285.)
We think this case is more like Musser, supra, 28 Cal.4th 274 than like the two
authorities, Kroll, supra, 72 Cal.App.4th 1537 and Shaffery, supra, 82 Cal.App.4th 768
discussed in Musser. Kroll and Shaffery represent fact patterns in which the concurrent
counsel were not as interdependent upon each other as the Experts and Law Firm were in
the case before us. These Experts were clearly dependent upon Law Firm to present the
products liability law and the expert testimony to the trial court in the underlying action
in a non-negligent manner. (See CEB treatise, supra, §§ 8.28-8.29, pp. 290-291.) These
Experts did not have expertise in products liability law and litigation, but rather in
engineering and in expert referral matters. We do not find the Kroll or Shaffery authority
to be controlling here, because in those cases, the roles of the Cumis counsel and the
monitoring counsel were different in nature (more independent and therefore more
subject to a conflict of interest) from the roles of these Experts, who were actually
litigation support professionals, rather than concurrent counsel for whom conflicts of
interest would be a serious problem.
The policy problem here is whether, in order to defend against the cross-complaint for
indemnity by Experts, Law Firm must demonstrate that the former client Hernandez
family's case had no substantive merit, and whether this course of action would create a
significant conflict of interest with its own former client. (Plaintiff Mrs. Hernandez has
waived any potential conflict of interest between Law Firm and her new counsel,
Macaluso.) Law Firm suggests that its newly retained experts in this cross- [130
Cal.App.4th 38] action could and would testify that the Hernandez family would not
have gotten any damages from the forklift manufacturer, due to worker's compensation
coverage for the decedent, and its technical experts could testify that there was no
causation of the forklift alarm system for the death of the decedent (there were other
causes). (See Flatt v. Superior Court (1994) 9 Cal.4th 275, 282 [where a lawyer's duty on
behalf of one client obligates the lawyer to take action prejudicial to the interests of the
other client, a conflict of interest exists].)
[13] The trial court ruling could not resolve whether Law Firm would be impliedly
waiving its work product privilege with respect to the preparation of the underlying
wrongful death case. In any case, the Hernandez family has settled its claims versus
Experts. Also, an expert ordinarily cannot testify on the ultimate issues in the case, such
as whether the Hernandez family should have won its underlying product liability claim
after all. (See Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, 971-974.) The
opinions of Law Firm attorneys or its own newly retained Experts on the ultimate issues
would not be valuable to resolve the trial-within-a-trial of the underlying action, as
relevant to the indemnity issues.
[14] In any case, it appears that the Supreme Court has found there is a diminished duty
of loyalty toward the former client, at least on the part of an attorney who is defending
him or herself against an equitable indemnity claim by a fellow litigation professional, in
a case arising out of the same client representation, similar to what we have here.
(Musser, supra, 28 Cal.4th at p. 283; Cal. Rules of Professional Conduct, rule 3-310(E).)
fn. 7
In Mattco Forge I, supra, 38 Cal.App.4th at page 1355, the appellate court overturned the
trial court's dismissal of the expert accounting firm's cross-complaint for indemnity and
fraud against the law firm which had consulted it. In that case, there had been no good
faith settlement by the law firm which could operate to bar that cross-complaint, and
therefore the court allowed the expert's cross-complaint to proceed. [130 Cal.App.4th
39]
Here, too, none of the public policy reasons for barring such a cross-complaint should
apply. It is true, as stated in Major Clients, supra, 67 Cal.App.4th at page 1130, "[T]he
ordinary rules of implied equitable indemnity in tort do not apply when the claim for
indemnity is made against an attorney, is based on a breach of the attorney's duty to his or
her client, and is brought by an adverse party in litigation which is the same as or related
to that in which the alleged negligence took place." (Italics added.) Here, however, these
Experts were originally not an adverse party to the original client, the Hernandez family.
Also, these Experts are not suing Law Firm on the basis of advice it directly gave to the
client. There is no real danger that Law Firm must breach its duty of loyalty or
confidentiality to the original client, the Hernandez family, in order to defend against
Experts' cross-complaint for indemnity. Experts are not seeking to enforce professional
duties owed to them by Law Firm, but rather are seeking to prove joint tortfeasor status
with Law Firm.
We think Law Firm's argument that there is a fatal conflict of interest here misses the
main point, because to defend itself against the equitable indemnity claim, Law Firm
must primarily provide information about its own legal strategy and judgment, with
respect to utilizing the technical expertise which Experts were providing, and with
respect to showing how that material was presented to the trial court in the underlying
case. This has very little to do with any client communications or client protection as to
the Hernandez family, who were not at the accident scene and who do not know anything
technical about forklift manufacturing, at least on this record. It also has nothing to do
with any worker's compensation damages issues that might have restricted their recovery,
if any, against the manufacturer.
Here, as in Musser, the policy considerations regarding the former attorney-client
relationship do not outweigh the policy considerations that favor allowing equitable
indemnification between joint tortfeasors. (Musser, supra, 28 Cal.4th at p. 285.)
2. Confidential Communications Protections
The record is incomplete on the extent to which the Hernandez family had waived any
attorney-client privilege with respect to its communications with Law Firm. At one
hearing, new counsel represented that the Hernandez family had waived any attorney-
client privilege with respect to its communications with Law Firm, at least so that Law
Firm representatives would be able to testify that they blamed Experts for "screw[ing]
up" the underlying [130 Cal.App.4th 40] meritorious action. However, Law Firm also
argued to the trial court that it should not have to disclose privileged communications
from the client Hernandez family in order to defend against the indemnity claims.
Experts' indemnity claim necessarily asks whether there was a breach of the duty of care
by Law Firm toward its client (the plaintiffs in the instant case), to establish the necessary
joint tortfeasor status. However, we do not believe that attorneys who are defending
against such an indemnity claim will be required to betray the client's confidential
communications, because the issues in the indemnity matter deal primarily with legal
strategy and litigation decision-making, with regard to the matters within the scope of
Experts' technical knowledge and the applicable law. Client communications were not
necessarily involved in that portion of the litigation, to any sufficient degree as to invoke
public policy protections against such cross-complaints for indemnity brought by
Experts, such as we have here.
[15] Evidence Code section 958 provides that the attorney-client privilege does not apply
to communications that are relevant to an issue of breach of duty arising out of the
attorney-client relationship, as to communications by the lawyer or by the client. We
think the trial court erred in finding that Law Firm could rely on attorney-client privilege
to protect itself from these claims of equitable indemnification brought by Experts which
Law Firm itself had retained. These expert witnesses have provided enough of a record to
controvert Law Firm's contention that it could not conduct a defense of the bifurcated
cross-complaint indemnity matters, without betraying confidential client communications
obtained from the former client (the Hernandez family). This is especially true because
these cross-complaints are brought by Experts, including an expert referral firm, who
were not percipient witnesses of the accident or of the family relationships, such as would
have been relevant in the underlying wrongful death claims. Rather, the allegations of the
cross-complaints for equitable indemnification focused on matters of litigation strategy
and preparation, which have not been shown to jeopardize confidential client
communications.
For all these reasons, the trial court erred in granting summary judgment. Moreover, the
trial court erred in denying the motions to set aside the summary judgment ruling. The
issues concerning whether Law Firm's attorneys were joint tortfeasors liable to Experts
under equitable indemnification theories could not be fully addressed without further
proceedings directed toward determining the respective roles and duties of the expert
witnesses and the attorneys involved. [130 Cal.App.4th 41]
DISPOSITION
Summary judgment is reversed and the order denying the motions to set aside the
judgment is reversed for further proceedings consistent with the principles set forth in
this opinion. Costs on appeal to Experts.
McConnell, P. J., and Benke, J., concurred.
FN 1. The underlying action was entitled Hernandez v. Bosa Development Corp., et al.
(Super. Ct. San Diego, 2000, No. GIC 751162.)
FN 2. The trial judge further commented in the ruling, "Certainly my rulings which
permitted an indemnity action to stand until this point in time prohibited [Law] firm from
participating fully in discovery for reasons of potential client conflict as well as for
reasons associated with malpractice insurance coverage for [Law] firm. It does not help
the parties that I have essentially changed positions by the granting of this motion for
Summary Judgment." We evaluate the actual ruling of the trial court, not its reasoning.
(D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19.) Similarly, we may also
disregard the trial court's reference at the hearing to the fact that Law Firm had not been
sued by the Hernandez plaintiffs, as bearing upon whether the indemnity cross-action
against Law Firm was properly brought. It is settled that a plaintiff may not restrict the
identity of potential cross-defendants when equitable indemnity questions are raised.
(Allen v. Southland Plumbing (1988) 201 Cal.App.3d 60, 64-65; GEM Developers v.
Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, 428.)
FN 3. We received a request from Forensis to take judicial notice of its dismissal, and
ordered that this request be considered concurrently with the appeal; it is now granted.
(Evid. Code, §§ 452(d), 459.) Both dismissals are in the superior court file, which by
stipulation is serving as the clerk's transcript in this matter.
FN 4. California State Bar Rules of Professional Conduct, rule 3-310(E) provides: "A
member shall not, without the informed written consent of the client or former client,
accept employment adverse to the client or former client where, by reason of the
representation of the client or former client, the member has obtained confidential
information material to the employment.".
FN 5. The undisputed facts of the settlement of the main complaint essentially obviate the
concerns that the trial court showed in its ruling about a potential trial of the professional
malpractice action, with regard to a potential conflict of interest on the part of Law Firm
and its attorneys: "Should they be permitted to testify at the trial of the present Hernandez
action filed against [Experts], one of two scenarios will play out (1) should they testify
that they proceeded in the underlying case because it was a good case and they felt that
could win, they will nonetheless later be required to hire experts to attempt to reduce or
avoid any claim of their responsibility and/or Plaintiff's loss in any indemnity action
against their firm. Alternatively, (2) should they testify that there were problems with the
case and the clients were so advised that in and of itself constitutes a conflict and
constitutes conduct detrimental to their client's claim."
FN 6. We disagree with the suggestion of Law Firm that it would be sufficient for an
expert witness who is sued by a former client for professional malpractice to bring an
answer to the complaint that includes an affirmative defense of comparative negligence
on the part of the retaining attorney. Such an affirmative defense would not suffice to
protect Experts' interests, in the same manner as an opportunity to cross-complain for
indemnity against an attorney who retained that expert, should there be any basis for a
finding of joint tortfeasor status between the expert and the attorney. Especially here,
where the original professional negligence complaint by the clients against Experts has
been settled, there is no basis for any remaining affirmative defense to the now-dismissed
complaint to take the place of a cross-complaint for indemnity.
FN 7. The duty of loyalty was not a significant problem in Musser, supra, 28 Cal.4th 274,
284, as to the cross-complaint, because the client had settled with the divorce attorney
and waived her attorney-client privilege with respect to the bankruptcy counsel's previous
representation of her. (Ibid.) A concurring opinion in the Supreme Court case disagreed
that the extent of any waiver of attorney-client privilege was a necessarily presented issue
in the case. (Id. at p. 287, conc. opn. of Kennard, J.) Here, because Law Firm was directly
responsible for hiring Experts, as part of the case preparation, the same privilege
concerns as to the client did not apply, and any waiver of attorney-client privilege by the
client is not dispositive.
Miller v. Ellis (2002) 103 Cal.App.4th 373 , 126

Cal.Rptr.2d 667
[No. A095705. First Dist., Div. Three. Oct. 31, 2002.]
LAWRENCE D. MILLER, Plaintiff and Respondent, v. MITCHELL D. ELLIS,
(Superior Court of the City and County of San Francisco, No. 310403, Gerald E. Ragan,
Judge. fn. *)
(Opinion by McGuiness, P. J., with Corrigan and Parrilli, JJ., concurring.)
COUNSEL
Law Offices of Sullivan & Rizzo and Ralph A. Rizzo for Plaintiff and Respondent.
Mitchell D. Ellis, in pro. per., for Defendant and Appellant. [103 Cal.App.4th 375]
OPINION
McGUINESS, P. J.—
Mitchell D. Ellis appeals from a judgment in favor of respondent Lawrence D. Miller on
Miller's action for equitable indemnity. The action arises from a previous personal injury
lawsuit and ensuing [103 Cal.App.4th 376] malpractice action by the personal injury
plaintiff against Attorneys Ellis, Miller, and Joseph Pisano for failing to bring the
underlying case to trial within five years. Ellis contends the trial court erred as a matter of
law in applying the collateral source rule to this action, in which one of two cotortfeasors
(Miller) is seeking equitable indemnification from the other (Ellis) for sums paid in
settlement of the underlying personal injury action by an insurance company. Because the
trial court misapplied the collateral source rule and the remedy of equitable
indemnification in a way that would result in unjust enrichment, we reverse and remand
for modification of the judgment.
After suffering injury in a slip-and-fall accident in July 1990, Michael Fay retained
appellant Ellis to represent him in a personal injury action. On April 9, 1991, Ellis filed
suit on behalf of Fay. In 1992, Ellis associated respondent Miller to assist in the litigation
of Fay's case.
Miller was the attorney assigned to attend a trial-setting conference on Fay's personal
injury lawsuit. Miller set the Fay matter for trial on a date that was past the five-year
deadline. As a result the Fay case was dismissed for failure to comply with the five-year
statute. (Code Civ. Proc., § 583.310.)
Fay filed an action for legal malpractice against Ellis, Miller, and the fictitious firm of
"Pisano and Ellis." Miller carried errors and omissions insurance coverage; neither Ellis
nor Pisano had such coverage. Miller's malpractice insurance carrier nevertheless in
effect provided Ellis and Pisano with a "courtesy defense." Ultimately, the insurer paid
Fay $75,000 in settlement of Fay's lawsuit. In exchange, Fay and his attorney executed a
global settlement and release prepared by Miller's malpractice insurer's outside counsel.
fn. 1 This settlement agreement released not only Miller, but also Ellis, the fictitious firm
of "Pisano & Ellis," and "any and all other agents, employees, persons, firms,
associations, or corporations ... who are or may ever become liable to the undersigned, of
and from any and all claims, demands, damages, actions and causes of action of every
kind, known or unknown, arising out of or in any way connected with the occurrence out
of which it is claimed that the undersigned suffered damage to person and property and
which resulted in the undersigned's legal malpractice claim against the parties released
herein ... with respect to their [103 Cal.App.4th 377] handling of the undersigned's
personal injury and worker's compensation actions."
In connection with the settlement of the malpractice action, Miller incurred $13,742.78 in
attorney fees and costs. Of this amount Miller paid only his deductible in the amount of
$5,000, while the insurance carrier paid the $8,742.78 remainder. Prior to the settlement
of the malpractice action, Miller never advised Ellis or Pisano that he intended to pursue
an action for equitable indemnity against them.
On March 2, 2000, Miller filed the instant action against Ellis, Pisano, and the alleged
firm of "Pisano & Ellis" for "implied equitable indemnity." In their pretrial briefing, Ellis
and Pisano both argued that the global settlement and release was in good faith and
constituted a complete defense to Miller's claim for equitable indemnity pursuant to Code
of Civil Procedure section 877.
At the conclusion of a two-day court trial, the trial court ruled in favor of Miller in his
action for equitable indemnification against Ellis. The trial court found that Miller and
Ellis were each 50 percent responsible for their legal malpractice in representing Fay, and
should share the resulting damages equally. Based on its understanding and application of
the collateral source rule, the trial court entered judgment for Miller ordering that he
recover $40,000 from Ellis, or 50 percent of Miller's alleged damages of $75,000 plus the
$5,000 deductible. The latter sum constituted the only amount Miller actually paid out of
pocket. Although raised as a defense by both Ellis and Pisano, the trial court did not
directly address the effect of the global settlement and release in its statement of decision.
Instead, the trial court simply found that Miller's insurance carrier "did not tender nor
provide a courtesy defense" for Ellis or for "Pisano and Ellis," but "did include their
names on the final release documents as a matter of policy to finalize that lawsuit."
Implicitly, therefore, the trial court found the global release did not preclude Miller's
claim for equitable indemnity against Ellis. On the other hand, the trial court did find that
it would be neither equitable nor legally correct to impose liability on Pisano for Ellis's
malpractice, because Pisano was not involved in representing Fay in any way and was in
neither a partnership nor an unincorporated association with Ellis. The trial court
therefore entered judgment in Pisano's favor.
Ellis and Miller filed separate appeals from the judgment. We have separately affirmed
the trial court's judgment for Pisano in Miller's appeal thereof. In this appeal, we address
Ellis's appeal of the trial court's judgment in favor of Miller. [103 Cal.App.4th 378]
Discussion
[1a] The issue on this appeal is whether the trial court erred in its interpretation and
application of the collateral source rule to permit respondent Miller to pursue appellant
Ellis for equitable indemnification and hold him responsible for 50 percent of the full
amount paid by Miller's insurance carrier to Fay on Miller's behalf. For the reasons which
follow, and under the particular facts of this case, we conclude that the trial court
misinterpreted and misapplied the collateral source rule as well as the doctrine of
equitable indemnification. We must therefore reverse the judgment in Miller's favor
insofar as it orders Ellis to pay Miller half of the amount the insurance carrier paid in
settlement of the malpractice lawsuit.
Normally, an appellate court will review a trial court's apportionment of fault under the
substantial evidence standard, giving as great deference to the fact finder's determination
of negligence as to its resolution of any other conflict in the evidence. (Rosh v. Cave
Imaging Systems, Inc. (1994) 26 Cal.App.4th 1225, 1233-1234 [32 Cal.Rptr.2d 136].) In
this case, however, appellant Ellis does not dispute the trial court's factual findings.
Neither does he contest the trial court's legal conclusion that Miller and Ellis were
"equally responsible" for their professional negligence toward Fay. Instead, Ellis
challenges only the trial court's express legal conclusion that because Miller paid
premiums to his insurance carrier in order to obtain the benefit of the insurer's payment to
settle Fay's personal injury lawsuit, Miller "suffered damages" including that amount and
was entitled to be indemnified for 50 percent thereof by his cotortfeasor, Ellis. [2] When
there is no conflicting evidence on an issue, as here, the ultimate conclusion to be drawn
from the evidence is a question of law. In the absence of any controverted factual
evidence on this appeal, therefore, we are presented with a pure question of law for which
the appropriate review is de novo. (Saathoff v. City of San Diego (1995) 35 Cal.App.4th
697, 700 [41 Cal.Rptr.2d 352]; Board of Education v. Jack M. (1977) 19 Cal.3d 691, 698-
699, fn. 3 [139 Cal.Rptr. 700, 566 P.2d 602].)
[3] The collateral source rule "provides that if an injured party received some
compensation for his injuries from a source wholly independent of the tortfeasor, such
payment should not be deducted from the damages which the plaintiff would otherwise
collect from the tortfeasor." (Hrnjak v. Graymar, Inc. (1971) 4 Cal.3d 725, 729 [94
Cal.Rptr. 623, 484 P.2d 599, 47 A.L.R.3d 224]; see also Helfend v. Southern Cal. Rapid
Transit Dist. (1970) 2 Cal.3d 1, 6 [84 Cal.Rptr. 173, 465 P.2d 61, 77 A.L.R.3d 398]
[where "an injured party receives some compensation for his injuries from a source
wholly independent of the tortfeasor, such payment should not be deducted [103
Cal.App.4th 379] from the damages which the plaintiff would otherwise collect from the
tortfeasor"]; Anheuser-Busch, Inc. v. Starley (1946) 28 Cal.2d 347, 349 [170 P.2d 448,
166 A.L.R. 198] ["[w]here a person suffers personal injury or property damage by reason
of the wrongful act of another, an action against the wrongdoer for damages suffered is
not precluded nor is the amount of the damages reduced by the receipt by him of payment
for his loss from a source wholly independent of the wrongdoer"]; Jones v. California
Casualty Indem. Exch. (1970) 13 Cal.App.3d Supp. 1, 4 [91 Cal.Rptr. 726] ["[s]tated
simply, the collateral source rule provides that if a plaintiff receives some compensation
for his injuries from a source wholly independent of the tortfeasor, such payment should
not be deducted from the damages which the plaintiff would otherwise collect from the
tortfeasor"]; Cornblum, Cal. Ins. Law Dict. and Desk Reference (West Group 2001) §
115.1, p. 207; Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group
2001) ¶¶ 9:37 to 9:38.1, pp. 9-9 to 9-10.)
As repeatedly reaffirmed by the California appellate courts, the collateral source rule
represents "a policy judgment in favor of encouraging citizens to purchase and maintain
insurance for personal injuries and other eventualities." (Helfend v. Southern Cal. Rapid
Transit Dist., supra, 2 Cal.3d at p. 10; see also Hrnjak v. Graymar, Inc., supra, 4 Cal.3d at
pp. 729-730; Shaffer v. Debbas (1993) 17 Cal.App.4th 33, 40 [21 Cal.Rptr.2d 110].) The
rule is intended to ensure that the right of an injured party to be fully compensated for all
his or her damages is protected, even if in some instances it entails that party obtaining
double recovery from both the insurer and the wrongdoer. (Hrnjak v. Graymar, Inc.,
supra, 4 Cal.3d at p. 729; Helfend v. Southern Cal. Rapid Transit Dist., supra, 2 Cal.3d at
pp. 9-12; Shaffer v. Debbas, supra, 17 Cal.App.4th at pp. 40-41.) [1b] Here, respondent
Miller was one of the two tortfeasors whose malpractice and professional negligence
resulted in damages to Fay, the only injured party in this case. Obviously, the only right to
damages for the joint malpractice of Miller and Ellis was Fay's, not that of either one of
the two tortfeasors. Miller was in no sense an "injured party" entitled to damages. Aside
from his $5,000 insurance deductible, Miller did not advance any of the damages paid to
Fay by his insurance carrier to settle the underlying personal injury action. Nevertheless,
the trial court found that Miller "suffered damages of $75,000 plus $5,000 toward
attorney fees for a total of $80,000," and was entitled to recover 50 percent of that sum
from Ellis "by way of indemnity." fn. 2
[4] The doctrine of equitable indemnification allows liability to be apportioned between
wrongdoers based on their relative culpability. It is [103 Cal.App.4th 380] premised
upon the principle that as a matter of fairness, joint tortfeasors should share the burden of
discharging the legal obligation to the injured party for the damages caused by their
mutual negligence. (Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital
(1994) 8 Cal.4th 100, 114-115 [32 Cal.Rptr.2d 263, 876 P.2d 1062]; Children's Hospital
v. Sedgwick (1996) 45 Cal.App.4th 1780, 1787 [53 Cal.Rptr.2d 725]; Woodward-
Gizienski & Associates v. Geotechnical Exploration, Inc. (1989) 208 Cal.App.3d 64, 67
[255 Cal.Rptr. 800].) The concern is to avoid the inequity of one co-tortfeasor bearing the
entire burden of discharging the liability while the other cotortfeasor is allowed to pay
nothing. Thus, the purpose of equitable indemnity is to prevent the unjust enrichment of
some cotortfeasors at the expense of others, by requiring all cotortfeasors to bear their
fair share on a comparative fault basis. (American Motorcycle Assn. v. Superior Court
(1978) 20 Cal.3d 578, 591-598, 608 [146 Cal.Rptr. 182, 578 P.2d 899]; Woodward-
Gizienski & Associates v. Geotechnical Exploration, Inc., supra, 208 Cal.App.3d at p.
67.)
Nevertheless, the remedy is not automatically available for all tortfeasors who have
injured the same plaintiff. The courts must evaluate the circumstances of each case to
determine if its application is appropriate in a given instance. Because indemnification is
an equitable remedy designed to correct potential injustice, the courts will not apply it in
a way which results in such injustice or unjust enrichment. (Western Steamship Lines,
Inc. v. San Pedro Peninsula Hospital, supra, 8 Cal.4th at pp. 108-109; Children's
Hospital v. Sedgwick, supra, 45 Cal.App.4th at pp. 1786-1789; Woodward-Gizienski &
Associates v. Geotechnical Exploration, Inc., supra, 208 Cal.App.3d at pp. 67-70; Munoz
v. Davis (1983) 141 Cal.App.3d 420, 426-427 [190 Cal.Rptr. 400].) Thus, equitable
indemnity is not appropriate where it would have the perverse effect of allowing one
tortfeasor to profit at the expense of other cotortfeasors. This would clearly defeat the
very purpose of the doctrine, which is to prevent unjust enrichment. (Woodward-
Gizienski & Associates v. Geotechnical Exploration, Inc., supra, 208 Cal.App.3d at pp.
67-68.)
[1c] It is undisputed that Ellis and Miller shared equal liability to Fay for their
professional malpractice. In principle, then, Miller would be entitled to equitable
indemnification from his cotortfeasor Ellis for any sums paid by Miller in excess of
Miller's share of the fault in order to discharge their joint [103 Cal.App.4th 381] liability
to Fay. fn. 3 However, in this case Miller himself paid nothing to Fay. Instead, Miller's
insurance carrier paid Fay's claim for damages on Miller's behalf, in return for which Fay
executed a release discharging Miller's liability completely. As the insured, Miller himself
benefited from his insurance carrier's settlement payment to Fay. Miller's only payment
out of his own pocket was the $5,000 deductible by which the insurance carrier's
reimbursement of Miller's attorney fees was reduced. To permit Miller now to obtain
"indemnification" from Ellis for the $75,000 paid to the injured party not by Miller
himself, but by his insurance carrier, would effectively reward Miller for his own
wrongdoing.
Although Miller's insurance carrier waived its subrogation rights, this did not result in
Miller obtaining more rights that he otherwise would have had. Subrogation does no
more than assign to the insurer the claims of its insured against the legally responsible
party. [5] (See fn. 4.) The waiver by Miller's insurance carrier of its subrogation rights
simply left Miller with the same rights he had in the first place, no more and no less.
(Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1291-
1293 [77 Cal.Rptr.2d 296]; Croskey et al., Cal. Practice Guide: Insurance Litigation,
supra, ¶¶ 9:33 to 9:36, pp. 9-8 to 9-9.) fn. 4 [1d] Under the doctrine of equitable
indemnity, Miller's only rights against Ellis were for sums which Miller himself paid in
excess of his fair share under principles of comparative fault. Thus, the issue of
subrogation and its waiver by Miller's insurer is essentially immaterial to this case.
Miller's rights against Ellis are completely independent of any rights the insurance
company itself may have had to recover against Ellis. They are instead dependent on
whether it would be equitable to allow Miller to recover amounts which he never was
required to pay, and in fact never did pay. To permit Miller now to recover from Ellis half
of what the insurer paid to Fay on Miller's behalf would effectively [103 Cal.App.4th
382] permit Miller to profit from his own malpractice, contrary to the equitable principles
underlying both the remedy of indemnity and the collateral source rule.
In sum, we conclude the trial court erred as a matter of law in applying the doctrine of
equitable indemnification and the collateral source rule to enter judgment in Miller's
favor against Ellis for 50 percent of the $75,000 total paid by Miller's insurance company
to Fay. Miller was not an injured party in this case; he was a cotortfeasor, equally
responsible for the malpractice which caused Fay injury and resulted in the insurance
carrier's settlement payment to Fay on Miller's behalf. Permitting Miller to obtain
"reimbursement" from Ellis for sums he never paid himself would result in unjust
enrichment, contrary to the principles of fairness and equity underlying the doctrine of
indemnification. Moreover, because Miller was not in any way an "injured party," the
collateral source rule was unavailable to permit him to recover from Ellis despite the
payment by his insurance company of his own liability to Fay. fn. 5 Nevertheless,
because Ellis was effectively a beneficiary of Miller's malpractice insurance, the insurer's
defense of Fay's legal action against them both, and the settlement agreement and global
release, Miller is entitled to equitable indemnification from Ellis of 50 percent of the
$5,000 deductible Miller paid out-of-pocket for this defense, or $2,500.
Disposition
The judgment in favor of Miller against Ellis is reversed and remanded for entry of a
revised judgment, pursuant to which Ellis shall be ordered to pay Miller the total sum of
$2,500. Each party shall bear his own costs on this appeal.
Corrigan, J., and Parrilli, J., concurred.
FN *. Retired judge of the San Mateo Superior Court, assigned by the Chief Justice
FN 1. Miller's malpractice insurer would not pay any money to settle the case unless
there was a complete settlement including a global release executed by the claimant,
releasing all participants. The global release was a form release utilized by Miller's
malpractice insurance carrier's outside counsel.
FN 2. Under the collateral source doctrine, Fay's acceptance of the settlement amount
paid by Miller's liability insurance carrier would not bar Fay, as the injured party, from
seeking damages from Ellis as well, since Miller's insurance company was wholly
independent of tortfeasor Ellis. In this instance, however, Fay gave up that right by
executing the settlement and global release agreement, releasing Ellis as well as Miller
from further liability. By virtue of the global release, therefore, Fay would not be able to
take advantage of the collateral source doctrine to pursue payment from Ellis individually
for the latter's cotortfeasor liability.
FN 3. We note that Miller's action for indemnification against his cocounsel Ellis is not
barred by any general rule of law or public policy prohibiting concurrent counsel or
cocounsel from suing one another for indemnification of legal malpractice damages. As
the Supreme Court has recently made clear, such an action for equitable indemnification
may be brought so long as such a claim does not either (a) create a conflict between an
attorney's duty to his or her client and the attorney's own self-interest; or (b) threaten the
confidentiality of attorney-client communications. (Musser v. Provencher (2002) 28
Cal.4th 274, 284-285 [121 Cal.Rptr.2d 373, 48 P.3d 408].) The fact that an action for
indemnity is not barred in all such cases by a blanket rule of policy does not, of course,
mean that it was properly brought here, or that there are equitable grounds for granting
the remedy of indemnity in this case.
FN 4. "The right of subrogation is purely derivative. An insurer entitled to subrogation is
in the same position as an assignee of the insured's claim, and succeeds only to the rights
of the insured. The subrogated insurer is said to ' "stand in the shoes" ' of its insured,
because it has no greater rights than the insured and is subject to the same defenses
assertable against the insured. Thus, an insurer cannot acquire by subrogation anything to
which the insured has no rights, and may claim no rights which the insured does not have.
[Citations.]" (Fireman's Fund Ins. Co. v. Maryland Casualty Co., supra, 65 Cal.App.4th
at pp. 1292-1293.)
FN 5. We note that Miller's action for equitable indemnification appears to fail for
another substantive reason: namely, the existence of the global settlement and release
discharging both Miller and Ellis by name from any liability to Fay "arising out of or in
any way connected with" the underlying personal injury and subsequent "legal
malpractice claim against the parties released herein ... with respect to their handling of"
Fay's personal injury litigation. As seen, although this issue was not addressed directly in
the trial court's statement of decision, the trial court implicitly concluded that the global
release did not preclude Miller from recovering on his claim for equitable indemnity
against Ellis. Because appellant Ellis did not raise this issue in his briefing, and
respondent Miller has not had an opportunity to address it, we do not base our decision
on the existence of the release. (Gov. Code, § 68081.)
Western Title Guar. Co. v. Sacramento & San Joaquin

Drainage Dist., 235 Cal.App.2d 815
[Civ. No. 10954. Third Dist. July 19, 1965.]
WESTERN TITLE GUARANTY COMPANY, Plaintiff and Respondent, v.
SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT et al., Defendants and
Appellants.
COUNSEL
Thomas C. Lynch, Attorney General, and N. Eugene Hill, Deputy Attorney General, for
Defendants and Appellants.
Downey, Brand, Seymour & Rohwer, John F. Downey and James A. Willett for Plaintiff
and Respondent.
OPINION
REGAN, J.
Respondent Western Title Guaranty Company brought this action to reform a deed given
by its predecessor in interest to appellants Sacramento and San Joaquin Drainage District
and the Reclamation Board of the State of [235 Cal.App.2d 818] California, to remove a
cloud on and quiet title to land contained in said deed and for declaratory relief.
Appellants appeal from a judgment in favor of respondent decreeing reformation of the
deed and quieting its title.
The levee along the Sacramento River needed strengthening. The appellant district, which
is managed and controlled by appellant Reclamation Board of the State of California,
entered into a contract on August 12, 1940, with respondent's predecessor in interest,
Madel J. Catching, for an easement and right of way for levee construction on her land,
for which she was to be compensated at a price of $500 per acre together with the sum of
$2,804.50 to compensate for improvements on said property. The land to be taken
consisted of 3.591 acres. She executed and delivered a deed containing a metes and
bounds description and was paid the sum of $4,600, the full sum of money agreed upon,
to wit, $2,804.50 for improvements and $1,795.50, being $500 per acre for 3.591 acres.
While the work was in progress, by a letter dated August 18, 1940, to the California
Debris Commission, Madel Catching stated as follows:
"Confirming my conversation to your Mr. Hart on August 16th, this will be a request and
authorization to you that you make the changes as described below on my property:
"At the intersection of the proposed land side toe of the retaining levee as shown on your
map dated July, 1940, covering the construction of the East levee of the Sacramento
River from the Southerly limits of the City of Sacramento South 3200 feet, with the fence
line on the Westerly side of the paved highway near the 'Japanese School' as shown on
your map dated July, 1940, change the allignment [sic] of said proposed land side toe so
as to run along the fence line adjacent to the paved highway Southerly from said
intersection to my South line, thence Westerly to the existing levee on the river bank. You
are then to fill by hydraulic pumping all of the area within said proposed land side toe to
existing levee on the river bank with sand so that the approximate level of said sand at the
land side toe along paved highway will be at the approximate elevation of the top of the
pavement on the highway. It is understood by me that the sand fill thus made will slope
from the discharge point near the present levee to the paved highway and will not be
level.
"The proposed fill above described will be without expense to me and the right herein
given to the Government for making [235 Cal.App.2d 819] said fill shall not be charged
for or bear any claim for compensation for rights of way. It is also understood that my
presence [sic] fence line along the paved highway Southerly from the original proposed
land side toe will not be removed."
The sand fill was done as authorized and requested and was on a portion of the excess
land in the Catching deed which constitutes the land alleged to have been included by
error.
The actual metes and bounds description used in the deed of the land conveyed by Madel
Catching encompassed an area of 11.81 acres, although after the description there appears
the following legend: "Parcels Nos. 1 and 2 containing 3.591 acres, more or less, of new
land as it existed before enlargement in 1940." (Note--the only land described in the deed
is that in Parcels 1 and 2.)
The alleged misdescription in the Catching deed was discovered in September 1959, by
respondent, and the trial court found the failure to discover this mistake was not due to
any lack of reasonable diligence on the part of respondent or of its predecessors, and the
trial court further found that neither appellant had asserted any claim to or dominion over
any of the questioned property and that respondent and its predecessors in interest had for
more than 20 years been in exclusive and uninterrupted possession of the property in
question except for the appellants' easement, which is not a matter for consideration in
the cause before us.
Respondent commenced its action on July 16, 1962, and appellants by cross- complaint
also sought to quiet title to the property.
Appellants contend that the state is immune from suit in quiet title, declaratory relief and
reformation; that respondent's causes of action in reformation and declaratory relief are
barred by the statute of limitations and that such causes of action being barred by the
statute of limitations, respondent's cause of action for quiet title, being merely incidental
thereto, fails also.
Appellants state their first issue as follows: "Whether the doctrine of sovereign immunity
applies to suits in quiet title, declaratory relief and reformation when those causes of
action are brought against a state agency holding record title to land acquired for a public
purpose under that agency's statutory duty." [235 Cal.App.2d 820]
[1] The Sacramento and San Joaquin Drainage District is a state agency and as such has
whatever immunity from suit the state itself has. (Western Assurance Co. v. Sacramento
& San Joaquin Drainage Dist., 72 Cal.App. 68 [237 P. 59]; Irvine v. Sacramento & San
Joaquin Drainage Dist., 49 Cal.App.2d 707 [122 P.2d 320].) [2] Section 8503 of the
Water Code allows the district to be sued. "The district is a body corporate and politic and
may sue and be sued." The district and Madel Catching entered into a contract. [3] The
deed from Madel Catching to the district was a contract between the district and the
grantor which inured to the benefit of successors in interest of the property. (Firth v. Los
Angeles Pacific Land Co., 28 Cal.App. 399, 403 [152 P. 935]; Rhine v. Ellen, 36 Cal.
362, 371; MacFarland v. Walker, 40 Cal.App. 508, 512 [181 P. 248]; Deterding v. United
States, 69 F.Supp. 214.)
[4] "When the state makes a contract with an individual it is liable for a breach of its
agreement in like manner as an individual, and the doctrine of governmental immunity
does not apply." (Souza & McCue Constr. Co. v. Superior Court, 57 Cal.2d 508, 510 [20
Cal.Rptr. 634, 370 P.2d 338].) And in Lipman v. Brisbane Elementary School Dist., 55
Cal.2d 224, the court stated (at pages 230-231 [11 Cal.Rptr. 97, 359 P.2d 465]): "A school
district, however, may be liable for breach of contract where its governing body, acting as
such and complying with required formalities, either expressly repudiates a contract or
does some act which under generally accepted principles of law prevents the performance
of the other contracting party."
As early as 1894, we find in Chapman v. State of California, 104 Cal. 690, the court
stating (at page 696 [38 P. 457, 43 Am.St.Rep. 158]): "We are entirely satisfied that
plaintiff's cause of action, as alleged in the complaint, arises upon contract, and that the
liability of the state accrued at the time of its breach ... but the right to sue the state has
since been given by the act of February 28, 1893, and in so far as that act gives the right
to sue the state upon its contracts, the legislature did not create any liability or cause of
action against the state where none existed before. The state was always liable upon its
contracts, and the act just referred to merely gave an additional remedy for the
enforcement of such liability, and it is not, even as applied to prior [235 Cal.App.2d 821]
contracts, in conflict with any provision of the constitution." (Italics added.)
Appellants contend the state may not be sued in declaratory relief, citing as authority
Bayshore Sanitary Dist. v. County of San Mateo, 48 Cal.App.2d 337 [119 P.2d 752], and
allege no authority specifically authorizes such suit. They contend the language of section
1060 of the Code of Civil Procedure, which reads as follows: "Any person interested
under a deed ... or who desires a declaration of his rights or duties with respect to another,
or in respect to, in, over or upon property ... may, in cases of actual controversy relating
to the legal rights and duties of the respective parties, bring an action in the superior court
for a declaration of his rights and duties in the premises, including a determination of any
question of construction or validity arising under such instrument or contract" is
conclusive that the state is not a "person" within the meaning of the statutes dealing with
the private rights of private persons, citing for that proposition Hoyt v. Board of Civil
Service Comrs., 21 Cal.2d 399 [132 P.2d 804], and Bayshore Sanitary Dist. v. County of
San Mateo, supra, 48 Cal.App.2d 337, and thus there is no authorization for suits seeking
declaratory relief, as well as those seeking reformation or quiet title. In the "Hoyt" case
the court states (at pp. 402-403):
"In the Bayshore case, supra, after noting that the statute authorizes the bringing of such
an action by one 'person' against 'another' person, the court relied upon a general doctrine
of statutory construction in concluding that the word 'person' should not be held to
include any political subdivision of the state in the absence of an express indication that
such was the legislative intent. This general rule of statutory construction, which is
supported by numerous cases, is founded upon the principle that statutory language
should not be interpreted to apply to agencies of government, in the absence of a specific
expression of legislative intent, where the result of such a construction would be to
infringe sovereign governmental powers. (See Butterworth v. Boyd, 12 Cal.2d 140, 150
[82 P.2d 434, 126 A.L.R. 838]; Balthasar v. Pacific Elec. Ry. Co., 187 Cal. 302, 305-308
[202 P. 37, 19 A.L.R. 452]; Bayshore Sanitary Dist. v. San Mateo, supra, p. 339, and
cases cited therein; 23 Cal.Jur. 625 et seq.) Where, however, no impairment of sovereign
powers would result, the reason underlying this rule of construction ceases to exist [235
Cal.App.2d 822] and the Legislature may properly be held to have intended that the
statute apply to governmental bodies even though it used general statutory language only.
(See State of California v. Marin Municipal Water Dist., 17 Cal.2d 699, 704 [111 P.2d
651].) For reasons set forth hereafter we think that the latter rule is the one which applies
under the facts of the present case.
"The practical construction which this statute has received since its enactment in 1921, as
is indicated by cases heretofore cited, has sanctioned the use of declaratory judgment
procedure where political subdivisions of the state were involved. The practice thus
established is entitled to consideration and should not be overturned unless clearly
unsupportable. (Cf. Golden Gate Bridge etc. Dist. v. Felt, 214 Cal. 308 [5 P.2d 585]; see
(1942) 30 Cal.L.Rev. 682, 685.)
"It has been held repeatedly that actions for declaratory relief involve matters of practice
and procedure only and are not intended in any way to enlarge the jurisdiction of courts
over parties and subject-matter. (Cf. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240
[57 S.Ct. 461, 81 L.Ed. 617, 108 A.L.R. 1000]; Nashville etc. Ry. v. Wallace, 288 U.S.
249, 264 [53 S.Ct. 345, 77 L.Ed. 730]; Guaranty Trust Co. of New York v. Hannay (1915)
2 K.B. 536, 563; see Anderson, Declaratory Judgments (1940), p. 206; Borchard,
Declaratory Judgments (2d ed. 1941), p. 231. Such statutes are intended to provide an
additional procedure for utilizing the existing jurisdiction of the courts. Similarly, it has
been pointed out that this procedure is not intended to alter or modify the principles of
sovereign immunity in any way. Declaratory judgment statutes do not authorize a
determination of liability against the sovereign outside the terms of statutory provisions
accepting liability and subjection to suit. (See Borchard, op. cit. supra, pp. 373-374.)
Where governmental bodies are already subject to suit, however, it is clear that
procedural statutes may be made applicable to such bodies without causing any
interference with rights of sovereignty. (Cf. Superior Oil Co. v. Superior Court, 6 Cal.2d
113, 118 [56 P.2d 950].) If an acceptance of liability and subjection to suit on the part of a
sovereign body is found elsewhere in the statutes of the state and the declaratory
judgment procedure is not barred by the provisions of the waiver of immunity, we think it
clear that a determination of the legal issue in an action for declaratory relief in no way
constitutes an impairment of governmental sovereignty." [235 Cal.App.2d 823]
[5a] Declaratory relief and quiet title are procedural devices. [6] If a person has entered
into a contract with the state which results in the imposition of rights and duties on each
side there is no reason why those rights and duties may not be enforced no matter what
procedural device is selected. [7] The contract between Mrs. Catching and the appellants
which resulted in the mistaken deed determined the rights of the parties. The enforcement
of the agreement to which the state became a party does not invade the sovereignty of the
state--the state sought and then entered the contract. That is when it made itself
potentially liable to suit arising therefrom. [8] "Where governmental bodies are already
subject to suit, however, it is clear that procedural statutes may be made applicable to
such bodies without causing any interference with rights of sovereignty." (Hoyt v. Board
of Civil Service Comrs., supra, 21 Cal.2d 399, 403.)
[5b] Declaratory relief is merely a procedural device and quiet title is basically a device
for determining claims to real property. (See Code Civ. Proc., § 738.) [9] Reformation is
nothing but a remedy to correct a mistake in a written instrument, and a deed may be
reformed. (Holson v. Butler, 63 Cal.App. 69 [218 P. 55]; Sutter Youth Organization, Inc.
v. Borsen, 214 Cal.App.2d 676 [29 Cal.Rptr. 628].)
Appellants rely on State of California v. Royal Consolidated Mining Co., 187 Cal. 343
[202 P. 133], for the proposition that specific statutory authority must be found which
gives a private person a right to sue the state in quiet title. In that case the State Controller
filed an action to recover possession of real property for failure to pay delinquent taxes.
The defendant raised the somewhat technical defense of challenging the validity of the
tax deed because of certain alleged errors in the assessment of the property. The court
treated the answer as, in effect, a cross-complaint and stated (at p. 347): "The general
provisions of the law authorizing cross-complaints do not give the consent of the state to
such cross-complaint in an action brought by the state." The court there does not speak in
terms of sovereign immunity but only in terms of no "consent" by the state. Procedural
consent to suit does exist here. (Wat. Code, § 8503.)
The Legislature in 1963 enacted section 814 of the Government Code. It thereby
expressly reaffirmed the law of this state that public entities are not protected from
liability arising out of contract by the doctrine of sovereign immunity. It reaffirmed
clearly and unmistakably that a public entity or a [235 Cal.App.2d 824] public employee
may be liable in contract when it said: "Nothing in this part affects liability based on a
contract or the right to obtain relief other than money or damages against a public entity
or public employee."
Appellants further contend that if respondent's causes of action are not barred under the
doctrine of sovereign immunity that they are barred by the statute of limitations.
[10] Appellants' brief is lengthy and definitive of their position with regard to the bar of
the statute, but to no avail. The trial court found on substantial evidence that there was a
mistake made by appellants and respondent in the description in the deed, which caused
an ambiguity and inaccuracy therein, which mistake was not discovered by respondent or
its predecessor in interest until May 17, 1962, and that the failure to discover the mistake
was not due to any lack of reasonable diligence on their part, that, as hereinbefore noted,
appellants asserted no claim to or dominion over the property in question, and that
respondent and its predecessor in interest were at all times in exclusive and uninterrupted
possession. Further, in finding that respondent was not barred by any statute of
limitations, or laches, it was entitled to declaratory relief to reform the deed and to have
its title quieted.
[11] No statute of limitations bars respondent, which brought the action against appellants
based on mistake within three years of its discovery. (Code of Civ. Proc., § 338, subd. 4.)
[12] "An outstanding adverse claim that amounts only to a cloud on the title is a
continuing cause of action and is not barred by lapse of time until the hostile claim is
asserted in some manner so as to jeopardize the superior title. So long as the adverse
claim lies dormant and inactive, the owner of the superior title may not be incommoded
by it, and has the privilege of allowing it to stand indefinitely." (31 Cal.Jur.2d 552.)
Under similar circumstances, where a plaintiff and his grantor had always remained in
possession of real property and a defendant was never in possession, the court said: "The
right of the plaintiffs to have their title to the land quieted, as against a claim asserted by
the defendant under this deed, was not barred, and could not be, while the plaintiffs and
their grantors remained in the actual possession of the land, claiming to be the owners
thereof, and the actual owners, as against the defendant, of all interest therein except [235
Cal.App.2d 825] the mere naked title." (Smith v. Matthews, 81 Cal. 120, 121 [22 P. 409];
McNulty v. Copp, 91 Cal.App.2d 484, 493 [205 P.2d 438].)
Appellants contend respondent and its predecessor in interest failed to exercise diligence
in failing to discover the mistake in the deed and thus are barred under section 338,
subdivision 4, of the Code of Civil Procedure. It is true the courts have read into this
statute a duty to exercise diligence. It is said a plaintiff must prove facts showing lack of
knowledge, lack of means of obtaining knowledge, and when the mistake was
discovered. (1 Witkin, Cal. Procedure (1954) Actions, § 143, pp. 652-653.)
[13] However, the mere fact that respondent and his predecessor in interest knew of or
read the written description would not bar reformation if the negligence was excusable.
[14] "The fact that the party seeking relief has read the instrument and knows its contents
does not prevent a court from finding that it was executed under a mistake." (Martinelli v.
Gabriel, 103 Cal.App.2d 818, 824 [230 P.2d 444]; Mills v. Schulba, 95 Cal.App.2d 559,
564-565 [213 P.2d 408].) Thus the trial court's finding of diligence is supported by
substantial evidence and is binding here.
[15] Although not raised in appellants' brief it was suggested during the oral argument
that since the sand on the excess acreage involved had been placed there with the consent
of the owner as evidenced by the letter dated August 18, 1940, and since the placing of
the sand was for a public benefit, a public use attached preventing its removal (Sutro
Heights Land Co. v. Merced Irr. Dist., 211 Cal. 670 [296 P. 1088]); and that the right
perpetually to use the land for that purpose ripened into an easement after the prescriptive
period of five years had elapsed.
The answer to this argument is that the only right ever acquired by the California Debris
Commission was the right to deposit sand on the property on one occasion, i.e., to use the
land on that occasion as a spoil deposit area as a part of a river channel deepening project.
No permanent right to maintain the fill in place was ever intended or given. The findings
of the court were: "Said fill materials were so deposited on her property during 1940 and
thereupon all rights and authorization under said letter terminated. ... Defendants have not
maintained, nor otherwise exercised any dominion over, nor are they required to maintain
the fill materials [235 Cal.App.2d 826] so deposited. ..." It is not contended that
substantial evidence does not support that finding. The contention, therefore, cannot be
sustained.
Pierce, P. J., and Friedman, J., concurred.
Adams v. Cook , 15 Cal.2d 352

[L. A. No. 16844. In Bank. April 12, 1940.]
EVART W. ADAMS, et al., Respondents, v. EDNA T. COOK, et al., Defendants; F. P.
NEWPORT, et al., Appellants.
COUNSEL
Lawrence M. Cahill for Appellants.
James E. Mahon, Fleming & Robbins and C. S. Tinsman for Respondents.
OPINION
CURTIS, J.
The real property which is the subject of this action was on September 4, 1913, conveyed
in trust to Title Insurance and Trust Company, as trustee, and on the 17th day of
September, 1913, a declaration of trust was executed whereby the Title Insurance and
Trust Company agreed to hold said real property for the purpose of selling the same at
any time prior to June 1, 1916, at a gross price of not less than one dollar and fifty cents
($1.50) per square foot, and provided further that if it was unable to sell said real property
prior to that date for this price, it could sell the same for such lesser sum as it might deem
to be for the best interest of the beneficiaries. The trustee was given power to lease or rent
said real property for such price and on such terms and conditions as it might deem best
"subject to the sale of said property under the conditions of this trust". The proceeds of
sale or lease of the property were to be applied to pay trustee's costs, fees, expenses, real
estate commissions and taxes, and the balance to be divided into 250 shares and paid to
"the owners of certificates of beneficial interest issued and to be issued by said trustee
representing the ownership of the balance of such proceeds of sale". The trust further
provided that the trustee in all other matters connected with the trust should act upon the
written order of the owners of at least two-thirds of the beneficial interest, said order to
be binding on all beneficiaries. The trust was not to terminate until all the costs, fees and
expenses of the trustee are paid. At the time the trust was created, it was the intention of
those creating the trust to sell the property, but no purchaser could be found who [15
Cal.2d 355] would pay the price fixed in the trust instrument. It was not known at that
time that the property was oil property and in fact oil was not found in that vicinity until a
comparatively short time before the commencement of this action. Upon the discovery of
oil in territory included in the land covered by the trust, the trustee was approached by
several reliable oil companies for an oil lease of the premises, but the trustee refused to
give a lease, as its officers questioned its power under the terms of the declaration of trust
to execute a lease under the terms demanded by said prospective lessees. It seems that
those desiring an oil and gas lease of said trust property refused to enter into any such
lease, if the lease were made subject to the sale of the property under the conditions of the
trust. In the meantime many wells were drilled upon adjacent and contiguous properties
and oil was being produced from said wells, which it was contended were draining oil
from beneath the land covered by the trust property. Upon the refusal of the trustee to
enter into any oil or gas lease of the property under the conditions demanded by the oil
companies, this action was brought by plaintiffs, who represent more than 90 per cent of
the beneficial interests under said trust, against the trustee and the remaining beneficial
interest for declaratory relief, and also for equitable relief.
The complaint is in two counts. Count one is for declaratory relief and count two is for
equitable relief, based upon allegations that oil and gas wells are being drilled on
property adjacent and contiguous to the trust property and unless the trustee is permitted
to enter into an oil and gas lease of said trust property, the oil companies leasing
contiguous property will drain and remove oil and gas from beneath the trust property to
the irreparable damage of unit holders, both plaintiffs and defendants. A number of the
unit holders or beneficiaries who were made defendants failed to appear after being
served with process, and their defaults were entered. Others appeared and filed answers
to the complaint. Their answers consisted practically of denials of certain allegations of
the complaint. The trustee filed an answer in which it joined with the plaintiffs in asking
that the court declare its rights and duties under the declaration of trust, and furthermore,
asked that the court direct it as trustee to accept the written order and direction [15
Cal.2d 356] of two-thirds in interest of the beneficiaries as to all matters pertaining to the
operation of the trust and for attorneys' fees in the pending action. The trial court found
all the allegations of the complaint true, excepting certain allegations of minor
importance not involving any issue before us on this appeal. It further found that all the
denials and allegations in the respective answers of the defendants were untrue "in so far
as the same are inconsistent with the foregoing facts". It further found that unless the
trustee is given power to enter into a mineral, oil and gas lease, free from the restrictions
as to sale, said trust property will greatly depreciate in value. The conclusions of law
were followed in the judgment, which provided that as a matter of necessity for the
preservation of the corpus of said trust the trustee is authorized to enter into a mineral, oil
and gas lease, community or otherwise, the same to extend within or beyond the terms of
the trust, and that said lease or leases, or any extension thereof, shall not be made subject
to the sale of the property under the condition of said trust, and furthermore and for the
same reason, the trustee was specifically authorized to accept directions in all matters
pertaining to the operation of said trust, whether expressly provided therein or not, upon
the written order and direction of two-thirds in interest of the beneficiaries under said
trust. Of the numerous parties made defendants in the action, only two have appealed
from the judgment of the trial court, F. P. Newport and Letitia A. Newport. F. P. Newport
is not only a beneficiary under the trust, but he was one of the two trustors who owned
the property which is the subject of said trust. He is also the owner of a sizable amount of
the capital stock of a corporation that is drilling an oil well in the vicinity of the trust
company. He owns four beneficial interests out of 250 such interests in the trust property.
[1] It is first contended by appellants that the court was without jurisdiction, in the
absence of pleading, issue, evidence or proof, in finding that unless said trustee is given
power to enter into a mineral, oil or gas lease, "free from the restrictions as to sale, that
said trust property will greatly depreciate in value". This contention is in our opinion
without merit. While paragraph VII of the complaint is not in the precise language of said
finding, it was sufficient [15 Cal.2d 357] to authorize the court to make said finding,
provided there was evidence to support the same. It was therein alleged that unless the
trustee was authorized to make an oil and gas lease to extend beyond the term of the
declaration of trust, the trust property would be depleted and rendered worthless. The
declaration of trust provided that the trustee might lease the trust property, but any such
lease "shall be made subject to sale of the property". No oil and gas lease of the trust
property would be considered by the prospective lessees if it contained a condition that it
was made subject to a sale of the trust property.
It was for the purpose of having the court, in the exercise of its equitable powers, relieve
the trustee from this provision of the declaration of trust that plaintiffs instituted this
action. They therefore alleged that unless the trustee was permitted to execute a lease
"beyond the terms of the trust", the trust property would be rendered worthless, which
was just another way of stating that unless the trustee was permitted to execute a lease
free from the restrictions as to the sale of the trust property, it would become worthless. If
the trust property should become worthless, it surely would "greatly depreciate" in value.
There was then a proper pleading to support the finding in question. There was ample
evidence in support of this finding. Wells were being drilled on adjacent and contiguous
property and their admitted tendency would be to drain the oil and gas from the trust
property, and Mr. Harris, of the Title Insurance and Trust Co., the trustee, stated that it
would be impossible to lease the land for oil purposes subject to sale, for the reason that
no oil company would pay a bonus for a lease with the possibility of having the property
later sold. For the above reasons we are of the opinion that this first contention of
appellants is without merit.
[2] It is next contended that the trial court was powerless to change the terms of the
declaration of trust so as to permit the trustee to enter into an oil and gas lease to extend
beyond the terms of the trust indenture, or, in other words, a lease freed from the
restrictions as to the sale of the trust property.
It is true as a general rule that courts are without authority to change the contracts of the
parties, whether oral or written. This rule is well stated as follows: [15 Cal.2d 358]
"It is not the province of the court to alter a contract by construction or to make a new
contract for the parties; its duty is confined to the interpretation of the one which has been
made for themselves without regard to its wisdom or folly, as the court cannot supply
material stipulations or read into the contract words it does not contain." (13 Cor. Jur.
525.)
The authorities declaring this rule are legion, but the rule is so universally recognized that
it seems unnecessary to mention them here. A number of them are to be found in the
footnote in support of the above text from Corpus Juris.
However, there is another factor present in the instant action, not present in the cases
supporting the above rule, and that is that the property herein involved is held in trust,
and the question before us is whether the powers of the trustee, as fixed by the
declaration of trust, may, under the facts before us, be modified or in any way changed by
a court of equity. That a court of equity has the power to change the method of
administering a trust estate, when it is shown that such a change is necessary to prevent
loss or destruction of the trust property, is well settled by the authorities. (Pennington v.
Metropolitan Museum of Art, 65 N. J. Eq. 11 [55 Atl. 468]; 65 Cor. Jur. 792; In re
Pulitzer's Estate, 139 Misc. 575 [249 N.Y. Supp. 87]; Mertz v. Guaranty Trust Co., 247
N.Y. 137 [159 N.E. 888, 57 A.L.R. 1114].)
In the Pulitzer Estate, the deceased had by his will created a trust whereby there had been
delivered to trustees large issues of stock in two publishing corporations, with directions
to his trustees to hold the stock and pay the dividends to his children, the trust to continue
during the lives of his two youngest sons, and, upon their death, the testator directed that
said stock should be divided under varying conditions. No provision was made in the
testator's will for a sale of the stock in any manner or under any conditions. After the
death of the testator and during the lives of his two younger sons, an application was
made to the court for an order authorizing the trustees to sell the stock in one of said
publishing corporations on the ground that the said publication had during a number of
years prior to said application been conducted at a loss and that the same condition
prevailed at the time said application was before the court. After an extended review of
the authorities, the [15 Cal.2d 359] court held that it had the power to authorize the sale
of said stock, although there was no express power given in the testator's will,
empowering his trustees to make said sale. Among the authorities relied upon by the
court in holding that it had such authority was the case of Mertz v. Guaranty Trust Co.,
supra, in which the opinion was written by Chief Justice Cardozo. In the Mertz case,
which presented a similar factual situation to that in the Pulitzer case, the court said,
"Enough for the present purposes that there is power." (Page 144.)
The above citation from Corpus Juris states the rule as follows:
"On a showing of reasonable necessity to effectuate the purpose of the trust, a court may
authorize a trustee to make a lease beyond the termination of a trust." (Citing Packard v.
Illinois Trust & Savings Bank, 261 Ill. 450 [104 N.E. 275]; Denegre v. Walker, 214 Ill.
113 [73 N.E. 409, 105 Am.St.Rep. 98, 2 Ann. Cas. 787].)
The following additional authorities support this rule: Low v. First Nat. Bank & Trust
Co., etc., 162 Miss. 53 [138 So. 586 [80 A.L.R. 112]; Stout v. Stout et al., 192 Ky. 504
[233 S.W. 1057]; Cary v. Cary, 309 Ill. 330 [141 N.E. 156]; Marsh v. Reed, 184 Ill. 263
[56 N.E. 306].
In the case of Pennington v. Metropolitan Museum of Art, supra, 65 N. J. Eq., at p. 22,
the court said:
"If trustees disclose a situation of their trust in which a slavish adherence to the terms of
the trust will operate to wholly prevent the benefits intended by its creator, and they seek
instructions and directions as to their duty, I think that instruction and directions for a
course of conduct which, though differing from that prescribed by the terms of the trust,
will actually carry out the intent of the creator, may well be grounded upon and sustained
by the necessity of the case. The benefits intended for the beneficiaries are the main
subjects of consideration. The modes in which those benefits may be attained are
incidental, and necessity may require a change of mode to produce the intended effect.
The power of the court may well be exercised in a case of evident necessity. How far it
may extend on other grounds need not be considered."
The facts in the present case bring it within the rule established by the authorities just
cited. The trust property was [15 Cal.2d 360] conveyed to the trustee for the benefit of
the unit holders. It was the intent of the trustors that the unit holders or beneficiaries
under the trust should secure the largest return possible on their investment. At the time
of the creation of the trust it was not known, nor from what we gather from the evidence
was it suspected that the trust property contained oil, gas or any mineral. It was thought,
however, that the land had a prospective value for commercial purposes and the trustee
was directed to sell the property at a fixed price, if it could be so sold before a given date.
The trustee was unable to make a sale of the property under these conditions and no sale
has been made. The trustee still holds the property and the unit holders are the owners of
the entire beneficial interest therein. Recently oil has been discovered in the vicinity in
which the trust property is located. The court found that the highest purpose for which
said property is adapted is the production of oil and gas, and that it is unfit for any other
purpose comparable to an oil and gas lease. The court found further, due to the fact that
oil wells were being drilled upon land contiguous and adjacent to the trust property, that
the corpus of the trust would be depleted and rendered worthless. It appears from these
findings that, in the opinion of the trial court, the highest returns to the unit holders on
their investments will be realized from a lease of the trust property for the production of
oil and gas rather than a sale of the property or the use of the property for any other
purpose.
It seems only reasonable to assume that had the trustors, at the time the trust was created,
any knowledge that oil and gas could be produced from the trust property, they would
have had the declaration of trust provide for a lease thereof for that purpose. In giving to
the trustee this right to lease the trust property for the production of oil and gas, the court
is only doing what the trustors would have done had they had the same facts before them
then that were before this court at the trial of this action.
"Exigencies often arise not contemplated by the party creating the trust, and which, had
they been anticipated, would undoubtedly have been provided for, where the aid of the
court of chancery must be invoked to grant relief imperatively required; and in such cases
the court must, as far as may be, occupy the place of the party creating the [15 Cal.2d
361] trust, and do with the fund what he would have dictated had he anticipated the
emergency." (Curtiss v. Brown, 29 Ill. 201.)
Another Illinois case involved an old-fashioned hotel, which was not fireproof. It was
conveyed to trustees with a prohibition against a lease of the premises for a period longer
than ten years. The trustees proved to the court that the income under a ten-year lease
would be less than half the amount which could be realized from a ninety-nine-year lease,
with a provision for the lessee constructing a new building. Since the income under the
ten-year lease would be not sufficient to produce any income for the cestuis, the court
authorized a ninety-nine-year lease. (Marsh v. Reed, 184 Ill. 263 [56 N.E. 306].)
[3] It is perfectly clear from the above authorities that the rule against courts modifying
the terms of a contract, and that they should construe it precisely as the parties had made
it, does not apply to declarations of trust, where the primary purpose of the trust would
not be accomplished by a strict adherence to the terms of the declaration of trust and that
when it is made to appear in a court of equity, as was shown in the present case, that the
benefits and advantages which the trustors desired to confer upon the beneficiaries would
not accrue to them by "a slavish adherence to the terms of the trust", the court may
modify the terms of the trust to accomplish the real intent and purpose of the trustors.
This rule does not run contrary to any of the canons of construction of contracts
contained in the Civil Code of this state, as these sections of the code are applicable to the
legal interpretation of contracts as expressed by the parties, and have no reference to the
equitable powers of a court of equity to modify the terms of a trust indenture in order to
meet exigencies that have later arisen and which, unless the trust were modified, would
defeat the prime purpose for which it was created.
We find no merit in the contention of appellants that the findings and judgment of the
court are contrary to certain express rulings made during the trial of the case. Especially
so is this true as the appellants have cited us to no ruling of the court made during the
progress of the trial which is contrary to the findings and judgment as later made and
rendered by the court. [15 Cal.2d 362]
[4] Finally, appellants contend that the court erred in denying the offer of proof of
appellants made during the course of trial as to the testimony of the witness, F. P.
Newport. These appellants offered to prove by this witness that the trust property was
salable at a certain price; that it was to the best interest of the beneficiaries that said
property should be sold at or about said price, and that many of the beneficiaries were
aged persons and a sale of the property would be far more to their advantage than a lease.
We are unable to perceive how the appellants were prejudiced by the denial of this offer
of proof. This action was tried by the court without a jury. The offer, stating the price at
which it was claimed the property was salable, was before the court at the time it made its
finding to the effect that the highest purpose for which the property of said trust is
adaptable is for the production of oil and gas, and is unfit for any other purposes
comparable to an oil and gas lease. We fail to see how this finding would have been any
different had the court permitted the appellants to produce the evidence of the witness
Newport. As to the contention that a number of the beneficiaries were aged persons and
that a sale would be more to their advantage than a lease, we think the appellants are in
no position to raise this issue. They were not aggrieved by the denial of the court to admit
the offered proof, as the offered testimony did not purport to show that either of the
appellants was in this class of beneficiaries. If there are any beneficiaries who, on account
of their age, would be deprived of their rights by a lease rather than a sale of said
property, they are not before this court making complaint against such a lease.
[5] We have heretofore considered the judgment in this action as one rendered strictly in a
court of equity and not under section 1060 of the Code of Civil Procedure for declaratory
relief. An action brought under this section of the code for declaratory relief is an
equitable proceeding. (Rolapp v. Federal Building & Loan Assn., 11 Cal.App.2d 337, 342
[53 PaCal.2d 974].) The remedies therein provided for are cumulative. (Code Civ. Proc.,
sec. 1062.) The powers of a court acting under this section in granting declaratory relief
are as broad and extensive as those exercised by such court in any ordinary suit in equity.
Under section 1060 of the Code of Civil Procedure the court was [15 Cal.2d 363]
empowered to render judgment authorizing the execution of the oil and gas lease without
restrictions as to sale, as well as under its general equitable powers. (Jones v. Interstate
Oil Corp., 115 Cal.App. 302 [1 PaCal.2d 1051].) That case in principle is in many
respects like the instant case. It involved an oil and gas lease, which required the lessee to
sink a well on the leased property to a stated depth. This was done. Thereafter it was
discovered that there was a far more valuable deposit of oil sands at a greater depth and
other wells in the vicinity began to drain oil from the leased premises. Thereupon the
lessor brought an action under section 1060 of the Code of Civil Procedure and the court
decreed therein that the lessee be required to drill a deeper well or permit the lessor to do
so. This decree was sustained on appeal and it was held that it was proper under section
1060 of the Code of Civil Procedure and not in excess of the power granted therein. It
would appear, therefore, that the judgment in this action may be sustained on either or
both counts of the complaint.
We find no error in the record before us and are of the opinion that the judgment should
be affirmed and it is so ordered.
Carter, J., Shenk, J., Gibson, J., Houser, J., Edmonds, J., and Waste, C.J., concurred.
Caira v. Offner (2005)126 Cal.App.4th 12 , 24
Cal.Rptr.3d 233
[No. D042481. Fourth Dist., Div. One. Jan. 28, 2005.]
SYLVIA OFFNER CAIRA, Plaintiff and Respondent, v. LAURENS OFFNER,
LAURENS OFFNER, Cross-complainant, Cross-defendant and Appellant, v.
ALEXANDRA PONCE DE LEON, Individually and as Independent Administrator, etc.,
et al., Cross-defendants, Cross-complainants and Respondents; ROBIN OFFNER, Cross-
defendant and Respondent.
ALEXANDRA PONCE DE LEON, Individually and as Executor, etc., et al., Plaintiffs
and Respondents, v. LAURENS OFFNER, Defendant and Appellant.
(Superior Court of San Diego County, Nos. GIC785142, GIC790273, and GIC797739, J.
Richard Haden, Judge.)
(Opinion by Aaron, J., with Benke, Acting P. J., and Nares, J., concurring.)
COUNSEL
English & Gloven, Donald A. English, Mark M. Gloven and William J. Garrison; Law
Offices of Mary A. Lehman and Mary A. Lehman for Defendant and Appellant and for
Cross-complainant, Cross-defendant and Appellant.
Vantage Law Group and Michael H. Riney; and Richard H. Benes for Plaintiff and
Respondent.
Vantage Law Group and Michael H. Riney; and Richard H. Benes for Cross-defendants,
Cross-complainants and Respondents and for Plaintiffs and Respondents.
Vantage Law Group and Michael H. Riney; and Richard H. Benes for Cross-defendant
and Respondent. [126 Cal.App.4th 17]
OPINION
AARON, J.-
I.INTRODUCTION
Laurens Offner (Laurens) appeals a judgment entered against him in three consolidated
actions involving disputes between him and his three siblings, Robin Offner (Robin),
Alexandra Offner Ponce De Leon (Alexandra), and Sylvia Offner Caira (Sylvia)
(collectively Siblings), and the estate of his father, Dr. Franklin F. Offner (the Estate). fn.
1 The actions involved disputes over the ownership of a family company, Platypus Wear,
Inc. and its subsidiary, P.W. Industries, (Platypus), fn. 2 and Laurens's alleged conversion
of Platypus's corporate assets for his personal use.
The trial court impaneled a jury in the consolidated actions. The jury rendered a special
verdict finding that: (1) Laurens owned certain shares of Platypus's common stock in
dispute; (2) Sylvia owned 5,500 shares of Platypus's preferred stock, and (3) Laurens had
converted $588,535 worth of Platypus's corporate assets for his personal use. The jury
also found that Laurens had acted with malice, fraud, or oppression, and awarded
punitive damages in the amount of $150,000.
The trial court determined that all of the actions were equitable claims and that the jury's
verdict was therefore merely advisory. The trial court entered a judgment consistent with
the jury's special verdict, with one exception. Contrary to the jury's verdict, the trial court
found that the shares of Platypus's common stock in dispute were owned by the Estate,
not by Laurens.
On appeal, Laurens contends the trial court erred in: (1) denying him the right to a jury
trial on the issue of the ownership of Platypus's common stock; (2) excluding from
evidence, pursuant to Evidence Code section 1152, an e-mail sent by Robin to Sylvia,
Alexandra and Laurens during settlement negotiations, in which Robin mentioned the
possibility of repurchasing the 5,500 shares of Platypus's preferred stock from a third
party; and (3) entering an award of $150,000 in punitive damages when the jury did not
have sufficient evidence of Laurens's financial condition. We affirm the judgment. [126
Cal.App.4th 18]
II.FACTUAL AND PROCEDURAL BACKGROUND
A. Factual background
1. The founding of Platypus
In the early 1980s, Laurens and a friend, Scott Cermansky, founded Platypus as a
beachwear clothing company. In 1984, Laurens and Cermansky incorporated Platypus.
Initially, Laurens owned 62.5 percent of Platypus and Cermansky owned 37.5 percent.
About a year later, the Siblings purchased Cermansky's share of Platypus, with Robin,
Alexandra, and Sylvia each owning 12.5 percent of the company.
2. The 1986 Agreement
In 1986, Laurens entered into an agreement (1986 Agreement) with his father, Dr.
Franklin Offner (Dr. Offner), which provided in relevant part:
"I, the undersigned Laurens Offner, as security for:
"(1) Loans made and/or to be made to him personally for the benefit of Platypus . . . by
Franklin Offner;
"(2) Loans made to Platypus . . . directly by Franklin Offner; and
"(3) Loans made by others to Platypus . . . , and guaranteed by Franklin Offner,
"do hereby transfer to Franklin Offner 49% of the stock I presently hold in Platypus . . . .
"Unless said 49% of the stock is disposed of earlier by Franklin Offner as a part of the
restructuring or sale of the company, he agrees to return to Laurens Offner said stock
when said loans, with accrued interest, have been repaid to Franklin Offner, and he has
been released by lender or lenders from all guarantees under (3) above."
3. The 1989 Agreement
In 1989, Laurens determined that it was necessary to reorganize Platypus. As part of the
reorganization plan, Platypus entered into an agreement (the [126 Cal.App.4th 19] 1989
Agreement) in which Dr. Offner agreed to receive 29,000 shares of preferred stock in
Platypus in exchange for $2,900,000 Platypus owed Dr. Offner.
4. The post-1989 period
In mid-1994, Dr. Offner was diagnosed with Alzheimer's disease. In December 1994, Dr.
Offner executed various family planning documents. He created a trust (the Trust) and
executed a power of attorney in favor of his wife, Janine Offner (Janine). In July 1996,
Dr. Offner's doctor determined that Dr. Offner was no longer competent to manage his
own affairs.
By 1997, the Siblings began to actively participate as shareholders of Platypus. In
October 1997, a dispute arose with regard to 5,500 shares of preferred stock. Laurens
claimed he owned the shares because Dr. Offner had transferred the shares to him in
September 1995. The Siblings claimed that Dr. Offner was not competent to make such a
transfer at that time. The Platypus board of directors resolved the issue by reissuing the
5,500 shares to the Trust. In December 1997, the Trust sold 5,500 of the 29,000 shares of
Dr. Offner's preferred stock to Paula Sandberg, a friend of Alexandra.
Dr. Offner died in May 1999, and Janine died in November 2000. Alexandra was named
executor of the Estate. The Siblings learned the extent of Dr. Offner's investment in
Platypus only after their parents' deaths. The Siblings also became concerned that
Laurens may have been converting Platypus's corporate assets for his personal use. From
June through October 2001, the Siblings and Laurens exchanged numerous e-mails in an
attempt to resolve various disputes regarding Platypus. In April 2002, Sandberg
transferred the 5,500 shares of preferred shares to Sylvia.
B. Procedural summary
1. The three actions
This appeal stems from three consolidated actions: Buckley v. Platypus Wear, Inc. (Super.
Ct. San Diego County, 2003, No. GIC 785142) (the Buckley Action), Platypus Wear, Inc.
v. Offner (Super. Ct. San Diego County, 2003, No. GIC 790273) (the Platypus Action),
and Ponce De Leon v. Platypus Wear, Inc. (San Diego County Super. Ct., 2003, No. GIC
797739 (the Corporations Code Action).
a. The Buckley action
In the Buckley Action, Robert Buckley, acting as trustee of the Trust, brought a breach of
contract claim and an action to recover collateral against [126 Cal.App.4th 20] Laurens
and Platypus, in an attempt to collect on a 1994 note. The trial court granted summary
judgment on those claims and they are not at issue in this appeal. In addition, Sylvia
brought shareholder derivative claims and claims for an accounting, and a constructive
trust against Laurens on behalf of Platypus, based on allegations that Laurens had
converted Platypus's corporate funds for his personal use.
b. The Platypus action
The Platypus Action involved three complaints. Platypus filed a declaratory relief action
in which it claimed that there was a dispute between the Siblings and Laurens regarding
the ownership of 30,625 shares of its common stock and 5,500 shares of its preferred
stock. Platypus sought a judicial determination of the ownership of the stock in dispute.
Alexandra and Sylvia filed a cross-complaint. The cross-complaint was styled as a
request for declaratory relief, seeking a judicial determination of the ownership of the
common and preferred stock referred to in Platypus's complaint. With regard to the
common stock, Alexandra and Sylvia alleged that the 1986 Agreement transferred the
common stock to Dr. Offner, that the transfer had not been reversed, and that the shares
thus remained the property of the Estate. Alexandra and Sylvia alleged that Laurens
claimed the 1986 Agreement had never been formalized, and that any obligation to
transfer stock had been discharged by the restructuring of Platypus in 1989, when Dr.
Offner was given preferred shares.
With regard to the 5,500 shares of preferred stock, Alexandra and Sylvia alleged that in
1997, the Trust sold 5,500 preferred shares to Sandberg and that in 2002, Sandberg sold
the shares to Sylvia. Alexandra and Sylvia alleged that Laurens claimed the 5,500 shares
had been previously transferred by Dr. Offner to Platypus and that therefore the shares
had not been available for transfer to Sandberg.
Laurens brought a cross-complaint in which he alleged that the Estate had breached the
1986 Agreement by "claiming ownership to certain of Laurens' Platypus common stock."
He requested monetary damages for this breach. Laurens also brought similar claims and
requests for damages with respect to the 1989 Agreement and the 5,500 shares of
preferred stock.
Laurens further alleged in his cross-complaint that there was a dispute between the Estate
and Laurens regarding whether the 1986 Agreement entitled Dr. Offner to ownership of
any of Platypus's common stock and, if so, whether any such entitlement had been
extinguished by the 1989 Agreement. In addition, Laurens claimed that either he or
Platypus, and not Sylvia, [126 Cal.App.4th 21] owned the disputed shares of the
preferred stock. Laurens requested declaratory relief as to the ownership of the disputed
shares of common and preferred stock.
c. The Corporations Code action
The Siblings, including Alexandra both in her individual capacity and as the executor of
the Estate, brought an action pursuant to Corporations Code section 709 seeking an order
directing Platypus to register 30,625 shares of common stock in the name of the Estate
and 5,500 shares of preferred stock in Sylvia's name. The complaint also sought to
resolve various other corporate governance issues involving Platypus that are not relevant
to this appeal.
2. Evidentiary rulings
Prior to trial, the trial court granted motions in limine brought by both Laurens and the
Siblings to exclude from evidence, under Evidence Code section 1152, various e-mails
sent among Laurens and the Siblings during settlement negotiations. Laurens
subsequently filed a motion to vacate the trial court's ruling on the Siblings' motion,
claiming that Evidence Code section 1152 did not preclude admission of an e-mail Robin
sent to Sylvia, Alexandra and Laurens on October 1, 2001. The record does not indicate
whether or not the trial court ruled on this motion.
3. The jury's special verdict
The jury rendered a special verdict, finding that Laurens owned the disputed shares of
Platypus's common stock, and that Sylvia owned the disputed 5,500 shares of Platypus's
preferred stock. The jury also found that Laurens had converted $588,535 worth of
Platypus's corporate assets for his personal use. In addition, the jury found that Laurens
had acted with malice, fraud, or oppression, and awarded punitive damages in the amount
of $150,000.
4. The court's consideration of the jury's special verdict
After dismissing the jury, the court stated:
"We are in session now to work on those matters that were reserved to the court. And I
know . . . [Laurens's counsel] has previously expressed the view that the only issues for
the jury were the common stock, that would be the issues concerning Exhibit 28.[ fn. 3 ]
And the jury has provided a verdict on that and the preferred stock . . . and the jury has
provided us with its decision on those issues, and that all the [126 Cal.App.4th 22]
remaining issues are for the Court, And the Court sought some advisory verdicts from the
jury in that regard, and we have a number of those.
"So I'd like to hear from each counsel regarding those decisions in each counsel's view
which remain for the court to decide."
The Siblings' counsel argued that the court was to decide the issue of the ownership of the
common stock. Laurens's counsel maintained that this issue was properly one for the jury.
The next day the court heard further argument regarding the ownership of the common
stock and whether the issue of ownership was for the court, or the jury, to decide. The
court stated, "I asked for advisory verdicts on a number of items. And this was one of the
questions I asked by way of an advisory verdict." fn. 4
5. The trial court's judgment
The court found that Sylvia owned the 5,500 shares of preferred stock. However, contrary
to the jury's advisory verdict, the court found that the Estate owned the 30,625 shares of
common stock. The court agreed with the jury's advisory verdict regarding Sylvia's
shareholder derivative claims and the imposition of compensatory and punitive damages
as to those claims. Specifically, the court found Laurens had abused his position of trust
and confidence with Platypus in converting a total of $588,535 worth of corporate funds
for his personal benefit. The court awarded compensatory damages in this amount and
also awarded prejudgment interest in the amount of $47,540. The court further found that
Laurens had acted with fraud, oppression, and malice in converting Platypus's funds for
his personal benefit, and awarded an additional $150,000 in punitive damages against
him on Sylvia's derivative complaint. fn. 5
6. Laurens's motion for a new trial and appeal
Laurens filed a motion for a new trial. The trial court denied the motion in its entirety.
Laurens timely appeals. [126 Cal.App.4th 23]
III.DISCUSSION
A. Laurens did not have the right to a jury trial under the California Constitution on the
issue of the ownership of Platypus's common stock
Laurens claims he had the right, under the California Constitution, to a jury trial on the
issue of the ownership of Platypus's common stock.
1. Standard of review
The issue whether Laurens was constitutionally entitled to a jury trial on the issue of the
ownership of the common stock is a pure question of law that we review de novo. (See
Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799 [noting that questions of law, not
involving disputed facts, are reviewed de novo].) fn. 6
2. The right to a jury trial under the California Constitution
Article 1, section 16 of the California Constitution provides in relevant part:
"Trial by jury is an inviolate right and shall be secured to all . . . ."
[1] In C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 8 (C & K
Engineering Contractors), the California Supreme Court outlined the basic parameters
governing the right to a jury trial under the state constitution:
"The right to a jury trial is guaranteed by our Constitution. (Cal. Const., art. I, § 16.) We
have long acknowledged that the right so guaranteed, however, is the right as it existed at
common law in 1850, when the Constitution was first adopted, 'and what that right is, is a
purely historical question, a fact which is to be ascertained like any other social, political
or legal fact.' [Citations.] As a general proposition, 'The jury trial is a matter of right in a
civil action at law, but not in equity.'"
The C & K Engineering Contractors court also outlined the manner by which a court
should determine whether an action is one at law or in equity:
[2] "'If the action has to deal with ordinary common-law rights cognizable in courts of
law, it is to that extent an action at law. In determining whether the action was one triable
by a jury at common law, the [126 Cal.App.4th 24] court is not bound by the form of the
action but rather by the nature of the rights involved and the facts of the particular case--
the gist of the action. A jury trial must be granted where the gist of the action is legal,
where the action is in reality cognizable at law.'" [Citation.] On the other hand, if the
action is essentially one in equity and the relief sought 'depends upon the application of
equitable doctrines,' the parties are not entitled to a jury trial." (C & K Engineering
Contractors, supra, 23 Cal.3d at p. 9.)
[3] The C & K Engineering Contractors court also explained that while the relief sought
is among the most important factors in determining whether an action is legal or
equitable, it is not necessarily determinative:
"Although we have said that 'the legal or equitable nature of a cause of action ordinarily
is determined by the mode of relief to be afforded' [citation], the prayer for relief in a
particular case is not conclusive [citations]. Thus, 'The fact that damages is one of a full
range of possible remedies does not guarantee . . . the right to a jury . . . .'" (C & K
Engineering Contractors, supra, 23 Cal.3d at p. 9.)
3. Declaratory relief and quiet title claims are generally equitable
[4] It is well established that a true action for declaratory relief is equitable:
"An action for declaratory relief is an equitable proceeding and the powers of a court are
as broad and extensive as those exercised by such court in any ordinary proceeding in
equity [citation]. It is elementary that questions relating to the formation of a contract, its
validity, its construction and effect, excuses for nonperformance, and termination are
proper subjects for declaratory relief [citation]." (Fowler v. Ross (1983) 142 Cal.App.3d
472, 478 (Fowler).)
[5] Declaratory relief is "classified as equitable by reason of the type of relief offered." (5
Witkin, Cal. Procedure (4th Ed. 1996) Pleading, § 806, p. 262.) More specifically, a
declaratory action to identify rights is distinct from a coercive action to enforce rights.
(State Farm Mut. Auto. Ins. Co. v. Superior Court (1956) 47 Cal.2d 428, 430 (State
Farm).) At common law, only the latter existed. (Tolle v. Struve (1932) 124 Cal.App. 263,
271.) Thus, declaratory relief developed as an equitable form of relief to fill this gap.
(Ibid.)
[6] An action to quiet title is akin to an action for declaratory relief in that the plaintiff
seeks a judgment declaring his rights in relation to a piece of property. (Code Civ. Proc.,
§ 764.010 ["The court shall examine into and determine the plaintiff's title against the
claims of all the defendants"]; 5 Witkin, supra, Pleading, § 811, p. 266 [noting that an
action [126 Cal.App.4th 25] to quiet title has a "declaratory effect"].) fn. 7 As with
declaratory relief in general, the action to quiet title evolved as an equitable remedy:
"The action to quiet title, under our practice, is a development of the bill of peace of the
court of chancery. The main purpose of this proceeding was to prevent repeated attempts
to litigate a title, and to protect the real owner of the right against the annoyance and
expense incidental to a multiplicity of suits. It was upon these considerations that the
court of chancery 'has granted perpetual injunctions to restrain further litigation, and thus
has in some degree put that restraint upon litigation which was the policy of the ancient
law in real actions.' (1 Pomeroy's Equity Jurisprudence, 3d ed., § 248.)" (Brewer v. King
(1956) 139 Cal.App.2d 33, 41.)
[7] Thus, it is also well established that actions to quiet title, like true declaratory relief
actions, are generally equitable in nature. (Strauss v. Summerhays (1984) 157 Cal.App.3d
806, 812 (Strauss).)
[8] Notwithstanding the foregoing, a party cannot, merely by labeling his action
"declaratory," circumvent the other party's right to a jury trial where a "coercive" claim
sounding in law is involved. In State Farm, supra, "47 Cal.2d at page 430, an insurance
company commenced an action styled as a request for declaratory relief against its
insured to determine whether its policy provided benefits in connection with an
automobile accident involving the insured. While the declaratory relief action was
pending, several personal injury suits were brought against the insured. (Ibid.) The
Supreme Court held that the trial court had properly granted a jury trial in the declaratory
relief action:
"'[I]f the issues of fact arising would have been triable by a jury as of right in an action
which might have been substituted for the declaratory judgment action by either party,
then there is a right to jury trial on such issues.' While Kaliterna v. Wright [1949] 94
Cal.App.2d 926, appears to hold that, regardless of the circumstances, the court in a
declaratory relief action may dispose of all factual issues without a jury, such view fails
to preserve the distinction between legal and equitable issues, and it must be disapproved.
[Citation.] In short, the 'courts will not permit the declaratory action to be used as a
device to circumvent the right to a jury trial in cases where such right would be
guaranteed if the proceeding were coercive rather than declaratory in nature.'" (State
Farm, supra, "47 Cal.2d at pp. 431-432.)
[9] In particular, "Where an action for declaratory relief is in effect used as a substitute
for an action at law for breach of contract, a party is entitled to [126 Cal.App.4th 26] a
jury trial as a matter of right." (Patterson v. Insurance Co. of North America (1970) 6
Cal.App.3d 310, 315, italics added.) That is because "a suit to recover damages for . . .
breach of contract is an action at law in which a right to jury trial ordinarily exists."
(Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 671.)
4. The gist of the action pertaining to the common stock is an equitable claim for
declaratory relief or to quiet title
Although, as noted ante, this is an appeal from a judgment in three consolidated cases--
the Buckley Action, the Platypus Action, and the Corporations Code Action--Laurens's
claim to a jury trial is premised primarily on the Platypus Action. fn. 8 Laurens
acknowledges that Platypus's "declaratory relief action to determine who properly owns
the 30,625 shares of common stock" sounds "exclusivity in equity." However, he asserts a
right to the jury trial based on his cross-complaint and on Alexandra and Sylvia's cross-
complaint in the Platypus Action, and also on the fact that Sylvia sought money damages
on her shareholder derivative claims in the Buckley Action.
Laurens advances three primary theories in support of his claim that the gist of the action
to determine ownership of the common stock is legal, rather than equitable. First, he
argues that Alexandra and Sylvia's declaratory relief claim cannot be used as a substitute
for an action at law. To the extent Laurens contends that Alexandra and Sylvia were using
a declaratory action in the place of a breach of contract action for damages, we reject that
argument. The gist of their action was one to declare their rights to the common stock,
based on the 1986 agreement, and to quiet title in that stock. True declaratory relief
actions and actions to quiet title are equitable in nature. (Fowler, supra, 142 Cal.App.3d
at p. 478; Strauss, supra, 157 Cal.App.3d at p. 812.)
Further, even if Alexandra and Sylvia's cross-complaint were construed as "coercive
rather than declaratory in nature," the gist of their cross-complaint would not be one in
which a "right [to a jury trial] would be guaranteed. . . ." [126 Cal.App.4th 27] (State
Farm, supra, "47 Cal.2d at p. 432.) fn. 9 Rather, the gist of their action would be for
specific performance of the 1986 Agreement. "A claim for specific performance is an
equitable one." (Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1241.) Therefore, we reject
Laurens's argument that Alexandra and Sylvia were attempting to bring a breach of
contract action for damages in the guise of a declaratory relief action.
Laurens also maintains that Alexandra and Sylvia's declaratory action cannot be used to
defeat his right to a jury trial of the breach of contract claims he alleges in his cross-
complaint, citing State Farm, 47 Cal.2d 428 at pp. 431-432. We agree with the Siblings
that Alexandra and Sylvia did not bring their declaratory relief action in order to
circumvent Laurens's right to a jury trial on his breach of contract claims, which are
based on the premise that the Estate breached those Agreements by claiming rights under
them. For the same reason, we reject Laurens's implicit argument, raised in reply, that
while State Farm precludes a party from using the declaratory judgment procedure to
circumvent his opponent's right to a jury trial, Laurens may "tack on" a legal claim to the
declaratory action and thereby manufacture a right to a jury trial on equitable issues. Such
a contention is contrary to the fundamental principle that, in determining the right to a
jury, it is "not . . . the form of the action but rather . . . the nature of the rights involved
and the facts of the particular case," that determine whether an action is legal or
equitable. (C & K Engineering Contractors, supra, 23 Cal.3d at p. 9.)
We next consider Laurens's argument that he had a right to a jury trial because the gist of
the action involving the common stock is one in which all of the parties "seek possession
of stock." (Italics added.) Laurens acknowledges that there is no right to a jury trial in an
ordinary quiet title action, citing Strauss, supra, 157 Cal.App.3d at page 812. However,
he relies on cases involving real property that state that a quiet title action in which
possession of the property is sought may be legal in nature, citing Dills v. Delira Corp.
(1956) 145 Cal.App.2d 124, 130 (Dills).
[10] The possession exception to the equitable nature of a quiet title action does not apply
in this case for three reasons. First, the possession exception is premised on the fact that
such an action is, in part, in a case [126 Cal.App.4th 28] involving real property, an
action for ejectment, which is legal in nature. (Comment, Quieting Title Under Cal. Code
Civ. Proc., § 738: Effect of Cross-Complaint On Right to Jury Trial (1936-1937) 25 Cal.
L. Rev. 565, 569 ["[i]f the action to quiet title is brought by a party out of possession
against one claiming title who is in possession, the action . . . is in substance one of
ejectment; and the defendant is entitled to a jury as of right"]; 3 Witkin, Cal. Procedure,
supra, Actions, § 127, p. 194 [noting that quiet title action "is normally equitable, but
becomes a legal action when it takes on the character of an ejectment proceeding, i.e.,
when the issue is the right to recover possession lost by recent ouster"].) This case,
however, is an action involving intangible personal property. Laurens has cited no
authority suggesting that the possession exception applies in this context. Further,
assuming it is possible to maintain an action seeking to recover the "possession" of an
intangible object, the gist of this action was a dispute over ownership of the stock, not
possession of it. Third, Alexandra and Sylvia did not seek possession of the stock in their
complaint. "[I]t is well settled that an action to establish title which does not include a
prayer to obtain possession of the property is equitable in nature." (Dills, supra, "145
Cal.App.2d at p. 130.) Thus, we reject Lauren's argument that he was entitled to a jury
trial because the gist of the action involved a quiet title dispute over possession of the
common stock.
Finally, we also reject Laurens contention that he was entitled to a jury trial because the
Siblings were seeking "damages." fn. 10 Laurens argues the Siblings sought damages in
the Buckley Action in connection with "breach of the 1986 Security Agreement, a
demand for resulting damages, and possession of collateral (i.e. the common stock) based
on breach of that Agreement." Laurens conceded in his reply brief that this citation was in
error as the complaint "references another dispute over a 1988 Security Agreement and
not the 1986 . . . Agreement at issue here."
However, Laurens continues to assert in his reply brief that "the Siblings' complaint does
request damages." This argument is unpersuasive. Laurens's only support for this
argument is another citation to the prayer for relief in the Buckley Action--an action that
sought damages based on wholly distinct equitable derivative claims and a breach of
contract cause of action that Laurens acknowledges is not at issue in this appeal. Clearly,
these claims in the Buckley Action did not create a right to a jury trial in the Platypus
Action on the issue of who owns the common stock. This is particularly true in view of
the fact that the request for damages on the breach of contract claim in the Buckley
Action had been dismissed by the time the trial in this case took [126 Cal.App.4th 29]
place, and the damages sought in the derivative action were based on equitable, not legal,
claims (see part III(D), post).
We conclude Laurens was not entitled to a jury trial on the issue of ownership of the
common stock of Platypus. fn. 11
B. The common stock did not belong to Laurens as a matter of law
Laurens claims that even assuming he had no right to a jury trial on the issue of the
ownership of the common stock, the shares belonged to him as a matter of law. We
disagree.
Laurens maintains he was entitled to the common stock as a matter of law based on
recitals in a October 1997 interim agreement for appointment of directors (1997
Agreement) and the December 2001 interim shareholders' agreement (2001 Agreement).
Laurens's claim is premised on the fact that the 1997 Agreement states that he owns the
common stock in dispute, and that the 2001 Agreement does not list the Estate as owning
any common stock. He argues that the 1997 Agreement was signed by Robin and that the
Siblings were all parties to the 2001 Agreement. In denying Laurens's motion for a new
trial on this ground, the trial court found that neither of these agreements was binding on
the Estate because the Estate was not a party to either agreement.
Laurens concedes in his reply brief that he "does not seek to have the recitals binding on
the Estate but rather binding on the plaintiffs in this case--the Siblings who brought this
action in the name of the Estate." (Italics added.) fn. 12 Whether or not the recitals are
binding on the Siblings is irrelevant to the issue of whether Laurens owns the shares as a
matter of law, because the trial court concluded that the common shares were owned by
the Estate. Because Laurens raises no claim that the Siblings' actions bound the Estate,
we conclude that Laurens has not established that he owned the common stock as a
matter of law. fn. 13 [126 Cal.App.4th 30]
C. The trial court did not abuse its discretion in excluding an e-mail sent by Robin during
settlement negotiations in which he mentioned the possibility of repurchasing 5,500
shares of preferred stock
Laurens claims the trial court erred in excluding from evidence an e-mail sent by Robin
to Sylvia, Alexandra and Laurens on October 1, 2001, in which Robin suggested that the
Siblings repurchase 5,500 shares of Platypus preferred stock that had previously been
sold to Paula Sandberg. The court excluded the e-mail pursuant to Evidence Code section
1152, which provides generally that offers to settle a claim, and negotiations pertaining to
such offers, are inadmissible to prove liability on the claim.
1. Relevant procedural history fn. 14
Laurens filed a motion in limine to "preclude any evidence of or reference to e-mails
between Laurens and his siblings in October 2001 regarding settlement negotiations on
the grounds that such evidence constitutes an attempt by [his] siblings to resolve their
disputes and is thus inadmissible under California Evidence Code section 1152." In his
motion, Laurens contended that the e-mails constituted attempts "to negotiate a
settlement of their disputes, including the dispute underlying this lawsuit . . . ." fn. 15
The Siblings filed an opposition to Laurens's motion in which they stated that although
they agreed with Laurens that all October 2001 settlement e-mails should be excluded,
they opposed Laurens's attempt to selectively offer just one of the series of e-mails in
evidence. The Siblings also concurrently filed a separate motion in limine in which they
noted that Laurens was seeking to introduce "a single isolated e-mail in which Robin
suggests re-purchasing 5500 shares of preferred stock and then retiring that stock." The
Siblings argued that Robin's October 1, 2001 e-mail was inadmissible because it was
"part of a larger series of negotiations encompassing all aspects of the siblings' settlement
negotiations." The trial court granted both Laurens's motion and the Siblings' motion. As
a result of the rulings, all of the e-mails in question were excluded. [126 Cal.App.4th 31]
Laurens subsequently filed a motion to vacate the trial court's ruling on the Siblings'
motion. In his motion, Laurens claimed that Evidence Code section 1152 did not preclude
admission of Robin's October 1, 2001 e-mail. Laurens further argued that this e-mail was
critical to prove that at the time the shares of preferred stock were issued to Sandberg,
there was a tacit understanding among Laurens and his Siblings that Platypus would later
reacquire the shares and retire them. The record does not indicate whether or not the trial
court ruled on this motion.
Laurens later claimed in his motion for a new trial that the trial court's exclusion of the
October 1, 2001 e-mail was erroneous and prejudicial. In its order denying the motion for
a new trial, the trial court ruled that the e-mail was properly excluded under Evidence
Code section 1152.
2. Waiver
The Siblings contend that Laurens has waived this claim because the record does not
contain a ruling on Laurens' motion to vacate the ruling excluding the October 1, 2001 e-
mail.
[11] Evidence Code section 354 provides generally that a ruling excluding evidence shall
not serve as the basis for the reversal of a judgment unless the "substance, purpose, and
relevance" of the excluded evidence was made known to the trial court. (Evid. Code, §
354, subd. (a).) However, this provision does not apply if the rulings of the trial court
rendered compliance with this requirement futile. (Evid. Code, § 354, subd. (b).)
In the Siblings' motion in limine, they argued that the October 1, 2001 e-mail should be
excluded along with the other e-mails at issue, pursuant to Evidence Code section 1152.
The trial court granted the Siblings' motion in limine. Thus, the "substance, purpose, and
relevance" of the e-mail was made known to the trial court before it excluded the
evidence. (Evid. Code, § 354, subd. (a).) Laurens further made the trial court aware of the
relevance of the e-mail through his subsequent motion to vacate. In addition, Laurens
renewed his objection to the exclusion of the e-mail in his motion for a new trial, which
the trial court denied.
Under these circumstances, we conclude Laurens adequately preserved his evidentiary
objection to the exclusion of the October 1, 2001 e-mail. Accordingly, we reject the
Siblings' contention that Laurens has waived this claim because the record does not
contain a ruling on Laurens's motion to vacate.
3. Standard of review
[12] We have not found any California case law that specifically addresses the
appropriate standard of review to apply in reviewing a trial [126 Cal.App.4th 32] court's
exclusion of evidence under Evidence Code section 1152. However, it is well established
in California that, "a trial court's ruling on the admissibility of evidence generally is
reviewed for abuse of discretion." (People v. Griffin (2004) 33 Cal.4th 536, 587.) In
addition, numerous courts have applied the abuse of discretion standard to the review of
rulings pertaining to the admissibility of settlement offers, under analogous evidentiary
provisions in other jurisdictions. (E.g., Athey v. Farmers Ins. Exchange (8th Cir. 2000)
234 F.3d 357, 362; Alexander v. City of Evansville, Indiana (7th Cir. 1997) 120 F.3d 723,
728; Union River Associates v. Budman (Me. 2004) 850 A.2d 334, 340.) [13]
Accordingly, we conclude that the trial court's exclusion of Robin's e-mail, pursuant to
Evidence Code section 1152, is reviewed for an abuse of discretion.
4. Evidence Codes section 1152 broadly precludes the introduction of statements made in
the context of settlement negotiations
Evidence Code section 1152, subdivision (a) provides:
"Evidence that a person has, in compromise or from humanitarian motives, furnished or
offered or promised to furnish money or any other thing, act, or service to another who
has sustained or will sustain or claims that he or she has sustained or will sustain loss or
damage, as well as any conduct or statements made in negotiation thereof, is
inadmissible to prove his or her liability for the loss or damage or any part of it." (Italics
added.)
The Law Revision Commission comment accompanying the enactment of Evidence Code
section 1152 specifically emphasized that the statute was drafted to include statements
made in the context of settlement negotiations:
"The words 'as well as any conduct or statements made in negotiation thereof' make it
clear that statements made by parties during negotiations for the settlement of a claim
may not be used as admissions in later litigation. This language will change the existing
law under which certain statements made during settlement negotiations may be used as
admissions. People [ex. rel. Dept. Public Works] v. Forster [1962] 58 Cal.2d 257
[(Forster)]. The rule excluding offers is based upon the public policy in favor of the
settlement of disputes without litigation. The same public policy requires that admissions
made during settlement negotiations also be excluded. . . . The rule of the Forster case is
changed by [Evidence Code] Section 1152 because that rule prevents the complete
candor between the parties that is most conducive to settlement." (Cal. Law Revision
Com. com., 29B West's Ann. Evid. Code (1995 ed.) foll. § 1152, p. 519.)
[14] In light of this legislative history, courts have recognized that "the purpose of section
1152 [is] to promote candor in settlement negotiation . . . ." [126 Cal.App.4th 33] (In re
Marriage of Schoettgen (1986) 183 Cal.App.3d 1, 8, quoting Warner Constr. Corp. v.
City of Los Angeles (1970) 2 Cal.3d 285, 297 (Warner).) Evidence should be excluded
under Evidence Code section 1152 where, "The strong public policy favoring settlement
negotiations and the necessity of candor in conducting them combine to require exclusion
. . . ." (C & K Engineering Contractors, supra, 23 Cal.3d at p. 13.)
In C & K Engineering Contractors, the plaintiff contractor sued the defendant
subcontractor on a promissory estoppel theory, based on the subcontractor's failure to
perform in accordance with its bid on a subcontract. (C & K Engineering Contractors,
supra, 23 Cal.3d at p. 5. ) The subcontractor claimed that the promise was not
enforceable because the contractor had known prior to submitting the bid that the
defendant's bid contained an error. (Ibid.) The record contained conflicting testimony as
to whether or not the contractor's chief estimator (Potts) had informed the subcontractor's
chief estimator (Bass) during a telephone conversation that the subcontractor's bid was far
lower than the other bids the contractor had received. (Id. at p. 12.)
The defendant sought to introduce additional testimony that, "during settlement
discussions, [plaintiff's agent] admitted that Potts recounted to him a version of the Potts-
Bass telephone conversation which was 'practically word for word' the same as Bass' own
version." (C & K Engineering Contractors, supra, 23 Cal.3d at p. 13.) The Supreme court
noted that "such testimony might have impeached Potts' direct testimony to the effect that
he advised Bass that defendant's bid was 'a hell of a lot' lower than the other bids." (Ibid.)
The C & K Engineering Contractors court held that the trial court had properly excluded
the evidence:
"[U]nder Evidence Code section 1152, subdivision (a), 'conduct or statements made in
negotiation [of compromise] . . . [are] inadmissible to prove . . . liability. . . .' Defendant
relies on [ ] Forster [supra,] 58 Cal.2d [at pages] 263-265, wherein we held that an
independent and absolute admission of fact which is intended to admit liability is
admissible even though it was made during the course of compromise negotiations. The
Forster case, however, was decided prior to the enactment of section 1152, and the
comment of the California Law Revision Commission make[s] it clear that the current
language of this section changed the prior law under the Forster decision. According to
the commission, '[t]he rule of the Forster case is changed by Section 1152 because that
rule prevents the complete candor between the parties that is most conducive to
settlement.' [Citations.] In the present case, the excluded admission occurred during
compromise negotiations in which both parties were discussing, and attempting to
discover, the facts underlying their dispute." (Ibid.) [126 Cal.App.4th 34]
In this case, Robin sent an e-mail dated October 1, 2001 to Sylvia, Alexandra, Laurens,
and Melody Harris, fn. 16 in which he stated:
"As a reminder, in 1997 we sold 5500 shares of stock to Paula Sandberg. More than three
years have gone by. We should repurchase those shares and retire them."
This e-mail was one of numerous e-mails sent among the Siblings during September and
October 2001, while they were attempting to resolve several interrelated disputes
regarding Platypus. The disputes included the repayment of loans Dr. Offner had made to
Laurens and Platypus, Laurens's misappropriation of money from the company for his
personal use, the composition of the Platypus board of directors, and the Siblings'
ownership stakes in the company. In some of the e-mails, the parties refer to various
settlement positions, and in others, they refer to the possibility of litigation. For example,
Laurens sent an e-mail to the Siblings on September 27, 2001 in which he attempted to
resolve these disputes by requesting "a number from you guys for all debt and stock that
will permanently conclude our business together."
In considering whether Robin's October 1, 2001 e-mail was excludable under these
circumstances, we note that the issue of the ownership of all of the shares of Platypus, a
closely held family company, would be critical information in evaluating Laurens's buy-
out offer and resolving the parties' many interrelated disputes. Further, Robin testified in
a deposition that he sent the October 1, 2001 e-mail to rekindle faltering settlement
negotiations. Thus, Robin's e-mail was sent at a time "during compromise negotiations in
which both parties were discussing, and attempting to discover, the facts underlying their
dispute." (C & K Engineering Contractors, supra, 23 Cal.3d at p. 13.) Therefore, the trial
court did not abuse its discretion in excluding this e-mail.
We reject all of Laurens's arguments to the contrary. Laurens acknowledges that at the
time Robin sent the e-mail in question, "the parties were in negotiations . . . ." However,
he argues that Evidence Code section 1152 does not apply to this particular e-mail
because the ownership of the shares referenced in the e-mail was not in dispute at the
time Robin sent the e-mail, citing Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465,
481, footnote 3 (Price) and Warner, supra, 2 Cal.3d 285.
In Price, the Court of Appeal concluded that certain letters discussing the plaintiffs'
obligations under a contract were admissible, notwithstanding Evidence Code section
1152, because there was nothing in the record to [126 Cal.App.4th 35] suggest that there
was any dispute regarding such obligations at the time the letters were written. (Price,
supra, 213 Cal.App.3d at p. 481, fn. 3.) However, unlike in this case, the parties in Price
were not negotiating any disputes at the time the letters were sent.
In Warner, the Supreme Court held that certain letters discussing the parties'
interpretation of their duties under a contract were excludable pursuant to Evidence Code
section 1152 because they were written after a controversy had arisen. (Warner, supra, 2
Cal.3d at p. 297.) While the Warner court suggested that evidence of the parties'
interpretation of their obligations under a contract that existed prior to a dispute arising
would be admissible, the court did not consider the admissibility of statements made in
negotiation of an existing dispute. (Id. at pp. 296-297.) In short, unlike in Price and
Warner, the parties in this case were attempting to resolve multiple related disputes at the
time Robin sent the October 1, 2001 e-mail.
Further, even assuming that Price and Warner held that Evidence Code section 1152
applies only when there is a pre-existing dispute regarding the particular issue referenced
in the evidence in question, there is evidence that there was in fact such a dispute in this
case. Just two weeks after Robin wrote the October 1, 2001 e-mail, Laurens sent an e-
mail to the Siblings and Harris in which he broadly stated:
"I have a long record of disputing how the preferred stock was handled. However, in the
interest of repairing relationships and moving ahead, as previously stated, I am willing to
negotiate all of this so everyone feels that they receive what was is [sic] fairly due them."
Although Laurens asserts in his reply brief that this statement referred to a separate block
of preferred stock, the wording of his e-mail is not so limited. We also reject Laurens's
contention that Robin's trial and deposition testimony and Sylvia's trial testimony
establish that as of October 2001 there was no dispute regarding the block of preferred
shares at issue. At most, Robin's testimony suggests that he was willing to support the
idea of reacquiring the stock and retiring the shares at that time. Neither Robin's nor
Sylvia's testimony establishes that the parties had no dispute over the stock referenced in
the October 1, 2001 e-mail.
Laurens also argues that "that the rule which excludes offers of compromise does not
apply to statements which are in nowise connected with any attempt of compromise or
are statements of fact independent of an offer of compromise." (Moving Picture Machine
Operators Union Local No. 162 v. Glasgow Theaters, Inc. (1970) 6 Cal.App.3d 395, 402
(Moving Picture).) The Moving Picture court relied on cases decided prior to the
enactment of section 1152 for this proposition. (Moving Picture, supra, 6 Cal.App.3d at
p. 402, citing Smith v. Whittier (1892) 95 Cal. 279, 297-298; Kelly v. Steinberg (1957)
148 Cal.App.2d 211, 219; [126 Cal.App.4th 36] People ex rel. Dept. of Public Works v.
Glen Arms Estate, Inc. (1964) 230 Cal.App.2d 841, 863-864; Forster, supra, 58 Cal.2d
257.)
Although statements that are truly independent of an offer of compromise are still
admissible in the wake of the enactment of section 1152, the question which statements
are "connected" and which statements are "independent" (Moving Picture, supra, 6
Cal.App.3d at p. 402), must be answered in light of the strong policy in favor of
promoting candor during settlement negotiations embodied in the statute. For the reasons
stated above, Robin's e-mail was "connected" to an attempt to compromise and was not
"independent" (ibid.) of an offer to compromise.
Finally, Laurens's reliance on Fieldson Associates, Inc. v. Whitecliff Laboratories, Inc.
(1969) 276 Cal.App.2d 770 (Fieldson), is also misplaced. Fieldson involved a plaintiff's
claim for breach of contract for the supply of display cartons and a defendant's cross-
claim for lost profits based on a separate alleged purchase order agreement for coffee
makers. (Id. at p. 771.) The plaintiff was allowed to introduce letters in which settlement
of the contract claim was discussed, for the purpose of showing that the lack of
discussion regarding the lost profits claim demonstrated the nonbonding nature of the
purchase agreement for coffee makers. (Id. at p. 772.) The Fieldson court held that the
letters were admissible for this limited purpose:
"The letters were received for the sole purpose of showing the nonbinding nature of the
'purchase order' in order to defeat appellant's cross-complaint. When considered for that
limited purpose, the letters had no bearing upon the primary validity of the claim asserted
by respondent against appellant for the unused cartons. Evidence Code section 1152
provides that evidence that a party has offered to compromise a claim is inadmissible to
prove liability for that claim." (Ibid.)
Thus, in Fieldson, the letters were admitted to prove a claim that was wholly distinct
from the claim discussed in the letters themselves. In this case, in contrast, Laurens
contends that the e-mail in question "was the key corroborating evidence that there was a
tacit agreement to retire the 5,500 shares of preferred stock." In other words, Laurens
sought admission of the e-mail to prove a claim that was specifically discussed in the e-
mail. Fieldson is clearly distinguishable.
[15] We conclude the trial court did not abuse its discretion in excluding Robin's October
2001 e-mail. [126 Cal.App.4th 37]
D. The trial court properly determined Laurens's financial condition before it awarded
punitive damages
[16] Laurens claims the punitive damages awarded on Sylvia's shareholder derivative
claims must be reversed because she failed to present sufficient evidence of his financial
condition to the jury. We conclude that there is no right to a jury trial on equitable
shareholder derivative claims under California law, even where punitive damages are
sought. fn. 17 We further conclude that the trial court awarded the punitive damages in
this case and that the trial court's order directing Laurens to produce a current financial
statement before it awarded the punitive damages precludes Laurens from claiming on
appeal that the record contains insufficient evidence of his financial condition to support
the award. fn. 18
1. The record must contain meaningful evidence of a defendant's financial condition in
order to sustain an award of punitive damages
In Adams v. Murakami (1991) 54 Cal.3d 105, 109-110, (Adams) the California Supreme
Court outlined the standards an appellate court must employ when considering whether a
punitive damages "award is excessive as a matter of law or raises a presumption that it is
the product of passion or prejudice." The Adams court began by noting that the purpose
of punitive damages is "to punish wrongdoing" and to deter future misconduct, "either by
the same defendant or other potential wrongdoers." (Id. at p. 110.) In determining
whether the amount of damages serves those interests, a reviewing court must consider
the importance of the nature of the defendant's wrongdoing, the amount of compensatory
damages, and the defendant's financial condition. (Ibid.) Accordingly, the Adams court
held, "an award of punitive damages cannot be sustained on appeal unless the trial record
contains meaningful evidence of the defendant's financial condition." (Id. at p. 109.)
[17] A trial court may order a defendant to produce his financial records in order to
ensure that the record contains sufficient evidence of his financial condition to support an
award of punitive damages. (Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 608-
609 (Mike Davidov Co.).) In Mike Davidov Co., the trial court held a bench trial on the
plaintiff's fraud claim. After finding the defendant liable for fraud, the court [126
Cal.App.4th 38] "ordered defendant to produce all records regarding his net worth by 9
a.m. the next day and to turn over all such records to plaintiff's counsel." (Id. at p. 603.)
The defendant failed to comply with the order, and the trial court entered an award of
punitive damages. (Ibid.) On appeal, the defendant claimed that the lack of sufficient
evidence of his financial condition required reversal of the punitive damage award. The
Mike Davidov Co. court rejected this contention:
"[D]efendant was ordered to produce his financial records so that the trial court could
make an evaluation of whether any particular punitive damage award would have the
required deterrent effect without being overly burdensome. This order was never
rescinded, nor has defendant argued on appeal that it was improper. Therefore, by failing
to bring in any records which would reflect his financial condition, despite being ordered
to do so, and by failing to challenge that ruling on appeal, defendant has waived any right
to complain of the lack of such evidence." (Id. at pp. 608-609.)
2. Under California law, there is no right to a jury trial on equitable shareholder
derivative claims even where punitive damages are sought on such claims
"California entertains no right to jury trial in stockholders' derivative actions." (Rankin v.
Frebank Co. (1975) 47 Cal.App.3d 75, 92 [reviewing California case law and declining
to follow federal cases holding that the federal Constitution guarantees a right to jury trial
in shareholder derivative claims]; Nelson v. Anderson (1999) 72 Cal.App.4th 111, 127
["A shareholder derivative suit is an action in equity"].) Further, under California law, a
trial court may impose punitive damages in an equitable action. (Rivero v. Thomas (1948)
86 Cal.App.2d 225, 239 [noting that "'[a]s a general rule, courts of equity will not award
exemplary damages, although this rule is not without exception,' [citation]" and
affirming, as modified, punitive damages awarded by trial court in an equitable action].)
fn. 19
Laurens acknowledges that shareholder derivative actions are equitable in nature, but
contends that he "had a right to jury trial on punitive damages even though that claim was
incidental to equitable claims." Thus, Laurens appears to be arguing that he was entitled
to a jury trial on Sylvia's [126 Cal.App.4th 39] shareholder derivative claims because she
sought punitive damages on those claims. fn. 20
[18] This argument is contrary to the rationale underlying the California Supreme Court's
decision in C & K Engineering Contractors, supra, 23 Cal.3d at page 11, in which the
court held, "[T]he addition . . . of a prayer for damages does not convert what is
essentially an equitable action into a legal one for which a jury trial would be available."
In C & K Engineering Contractors, one of the issues was whether there was a right to a
jury trial on a complaint that sought damages premised on the equitable theory of
promissory estoppel. The Supreme Court held that the plaintiff had no right to a jury trial:
"In the present case, the complaint purports to seek recovery of damages for breach of
contract, in form an action at law in which a right to jury trial ordinarily would exist.
[Citations.] As we have seen, however, the complaint seeks relief which was available
only in equity, namely, the enforcement of defendant's gratuitous promise to perform its
bid through application of the equitable doctrine of promissory estoppel. . . . [¶] The
foregoing general principles do not alter our conclusion that the present action is,
essentially, one recognized only in courts of equity and, despite plaintiff's request for
damages, is not an 'action at law' . . . ." (C & K Engineering Contractors, supra, 23
Cal.3d at pp. 9-10.)
Similarly, in this case, Sylvia's request for punitive damages did not convert her equitable
shareholder derivative claim into a legal claim on which Laurens would be entitled to a
jury trial.
Laurens cites Malone v. Norwest Financial California Inc. (E.D. Cal. 2000) 245 B.R. 389
(Malone), in support of his argument that he had a right to a jury trial in this case, under
the California Constitution. In Malone, the bankruptcy court considered whether the
plaintiff was entitled to a jury trial on his statutory claim under the federal Constitution.
(Malone, supra, at p. 399.) The court noted that the "most important part of the analysis,"
in determining whether the plaintiff had such a right is "whether the relief sought is legal
or equitable in nature." (Ibid.) The Malone court concluded, "Because plaintiffs' suit
seeks punitive damages for the alleged violation of their rights under [the statute], they
seek a remedy legal in character and thus are entitled to a jury trial as to that claim."
(Ibid.) [126 Cal.App.4th 40]
The analysis employed in Malone to determine the right to a jury trial under the federal
Constitution is contrary to that of the C & K Engineering Contractors to determine the
right to a jury trial under the California Constitution. This case does not involve the
question of the right to a jury trial under the federal Constitution. Therefore, we will not
apply the reasoning of the Malone court to this case.
Laurens also cites Looney v. Superior Court (1993) 16 Cal.App.4th 521 (Looney) in
support of his claim that he had a right to a jury trial in this case. However, Looney is
clearly distinguishable from this case. In Looney, the court stated that there was a right to
a jury trial on a request for punitive damages (id. at p. 538, fn. 18) where the plaintiffs
"allege[d] claims for both medical negligence and fraud in the treatment of their
conditions." (Id. at p. 526.) Medical negligence and fraud are legal claims to which the
right to a jury trial attaches. (State Farm Fire & Casualty Co. v. Cooperative of American
Physicians, Inc. (1984) 163 Cal.App.3d 199, 206 [medical malpractice]; Raedeke v.
Gibraltar Sav. & Loan Assn., supra, 10 Cal.3d at p. 671 [fraud].) The court in Looney did
not suggest that there is a right to a jury trial of equitable claims when punitive damages
are requested.
We conclude that there is no right to a jury trial of equitable shareholder derivative claims
in California, even where punitive damages are sought on such claims.
3. Sylvia's shareholder derivative claims, and her request for punitive damages ancillary
to those claims, were tried to the court
Sylvia brought shareholder derivative claims on behalf of Platypus seeking compensatory
and punitive damages against Laurens for his conversion of corporate property and his
commission of fraud as a corporate fiduciary. At the close of the trial, the jury, acting in
an advisory capacity, found Laurens liable on the derivative fraud and conversion claims.
The jury also found by clear and convincing evidence that Laurens had committed
oppression, fraud or malice, and awarded $150,000 in punitive damages against him.
After dismissing the jury, the trial court stated that it agreed with the jury that Laurens
had converted $261,000 of corporate funds to his personal use, that he had failed to repay
a $240,000 loan made to the corporation, and that he took $87,104 in unauthorized salary.
The trial judge then stated, "[O]ne thing I want to do by tomorrow morning is get a, a
complete financial statement of Mr. Laurens Offner presented to the Court for the Court's
review as I review the jury verdict and make my final decision on punitive damages."
(Italics added.) The court ordered Laurens to [126 Cal.App.4th 41] produce a current
financial statement under penalty of perjury. The next day, Laurens submitted a financial
statement to the court. Laurens's counsel objected to the admission of the financial
statement on the ground that the jury had been dismissed without Sylvia having presented
evidence of Laurens's current financial condition. The court overruled the objection,
reviewed Laurens's financial statement, and allowed argument on the issue of whether
punitive damages should be awarded. The trial court stated that it agreed with the
advisory jury's findings that Laurens had acted with malice, oppression and fraud, and
with its award of punitive damages in the amount of $150,000. Accordingly, the court
imposed punitive damages in the amount of $150,000.
We reject Laurens's argument that the record of his financial condition is insufficient
because the trial court directed him to produce his financial statement only after
dismissing the jury. For the reasons discussed above, the trial court was the proper trier
of fact of Sylvia's equitable shareholder derivative claims and her request for punitive
damages on those claims. Laurens's financial statement was properly before the court at
the time it made its final decision to award punitive damages in the amount $150,000.
Apart from his claim that it was the jury that was required to have sufficient evidence of
his financial condition, Laurens raises no other challenge to the court's order directing
him to produce a current financial statement. The order in this case is similar to the order
issued in Mike Davidov Co., supra, 78 Cal.App.4th 597. Laurens produced the financial
statement to the court and the court reviewed the statement before it imposed punitive
damages. Therefore, assuming there is any insufficiency in the record as to Laurens's
financial condition, such insufficiency would be attributable solely to Laurens's failure to
comply with a court order. (Id. at pp. 608-609.) We conclude that the trial court's order
directing Laurens to produce a current financial statement precludes Laurens from
claiming on appeal that the record contains insufficient evidence of his financial
condition. (Ibid.)
IV.CONCLUSION
Laurens was not entitled to a jury trial on the question of who owned Platypus's common
stock. The trial court did not abuse its discretion in excluding from evidence, pursuant to
Evidence Code section 1152, an e-mail sent by Robin regarding the repurchase of 5,500
shares of Platypus's preferred stock. The trial court properly determined Laurens's
financial condition before it awarded punitive damages. [126 Cal.App.4th 42]
IV.DISPOSITION
Benke, Acting P. J., and Nares, J., concurred.
FN 1. We use first names for purposes of clarity and intend no disrespect.
FN 2. The distinction between these two entities is not relevant for purposes of this
appeal. Therefore, for ease of reference, we refer to them interchangeably as "Platypus."
FN 3. Exhibit 28 was the 1986 Agreement referring to the shares of common stock in
dispute.
FN 4. "There can be no question that there may be an advisory jury in an equitable action,
and that a trial court has the discretion to submit issues to a jury and adopt the jury's
findings on factual matters." (Saks v. Charity Mission Baptist Church (2001) 90
Cal.App.4th 1116, 1147.)
FN 5. The court also found that the Estate owned an additional 23,500 shares of Platypus
preferred stock. Further, the court imposed a constructive trust in favor of Platypus over
various assets of Laurens, and resolved a number of issues pertaining to corporate
governance of Platypus. The court enjoined Laurens from serving on the board of
Platypus until he paid the judgment in this action, or June 26, 1997, whichever occurred
later. In addition, the court ordered that Laurens take nothing on his cross-claims. Laurens
raises no claims with respect to these portions of the judgment.
FN 6. The parties have not cited, and our research has not uncovered, any authority that
directly considers the issue of the proper standard of review to employ in considering a
claim to the right to a jury trial under the California Constitution. However, the question
is clearly one of law. The Siblings do not dispute that the de novo standard of review
applies.
FN 7. An action to quiet title may be used to establish ownership of personal property as
well as real property. (Code Civ. Proc., § 760.020, subd. (a); see, e.g., Hardison v.
Corbett (1942) 55 Cal.App.2d 310 [quiet title action to settle dispute over ownership of
corporate stock].)
FN 8. Laurens properly does not claim that he had a right to a jury trial on the Siblings'
Corporations Code section 790 claim brought in the Corporations Code Action. (See
Shahin v. Wawro (1982) 136 Cal.App.3d 749, 754 [stating that claims under Corporations
Code section 790 "are equitable in nature"].)
With regard to the Buckley Action, Laurens concedes that Sylvia's shareholder derivative
claim and her claims for an accounting and for a constructive trust are equitable and that
the remaining claims asserted by Buckley are not at issue in this case. Laurens does claim
that the fact that Sylvia sought damages on her shareholder derivative claims supports his
right to a jury trial on the issue of the ownership of the common stock. We reject that
argument for the reasons discussed below.
FN 9. We acknowledge that Alexandra and Sylvia's cross-complaint was "coercive,"
rather than "declaratory" in that it contained a prayer for relief that the court enter an
"order requiring [Platypus] to register 49% of Laurens' common stock in the name of
Estate of Franklin P. Offner." However, a request for such incidental relief does not alter
the gist of the action. (Olson v. Foster (1941) 42 Cal.App.2d 493, 498.) In any event, a
request for an order directing Platypus to register the shares was akin to a request for
injunctive relief. "Actions seeking injunctive relief are, of course, equitable in nature." (3
Witkin, supra, Actions, § 120, p. 187; e.g., Arciero Ranches v. Meza (1993) 17
Cal.App.4th 114, 125.)
FN 10. We note that Laurens claims "the Siblings" were seeking damages in the Buckley
Action. However, Robin and Alexandra were not parties to the Buckley Action.
FN 11. In light of our conclusion, we need not consider the Siblings' alternative
arguments for affirming the judgment.
FN 12. Notwithstanding this concession, Laurens also contends that two segments of
Robin's trial testimony demonstrate that Robin was "ostensibly the agent of his father's
estate" in drafting the 1997 and 2001 Agreements. However, Robin's trial testimony does
not support this contention. Therefore, we reject Laurens's suggestion that Robin's actions
in drafting the 1997 and 2001 Agreements bound the Estate to the recitals made therein.
FN 13. In light of our conclusion, we need not consider the Siblings' alternative grounds
for rejecting Lauren's position.
FN 14. We reject the Siblings' contention that Laurens's claim should be rejected on the
ground that he has failed to provide an adequate record for review. Contrary to the
Siblings' assertion in their brief, the appellant's appendix does contain: (1) the Siblings'
motion in limine on which the trial court granted exclusion of the e-mail in question, (2)
Laurens's motion to exclude various other e-mails sent during the same time period, and
(3) the Siblings' opposition to Laurens's motion to exclude the e-mails. These documents
were included as part of the Siblings' opposition to Laurens's motion for a new trial. We
have also reviewed the additional declarations and documents the Siblings lodged in the
trial court on this issue, which are contained in the respondent's appendix.
FN 15. The record does not contain the e-mails Laurens sought to exclude, and it is not
clear from Laurens's motion whether he specified particular e-mails.
FN 16. Melody Harris was Platypus's general counsel.
FN 17. We note that the issue whether Laurens is entitled to a jury trial is one of law,
which we review de novo. (See Part III(A)(1), ante.)
FN 18. In light of our conclusion that Laurens had no right to a jury trial, we need not
consider Sylvia's contention that Laurens waived any right to a jury trial that he had by
requesting that the derivative action be tried to the court.
FN 19. Laurens does not claim that punitive damages are not recoverable in a shareholder
derivative action. Therefore, we assume, without deciding, that punitive damages may be
recoverable in a shareholder derivative action. Although, we have found no California
case law on point, we note that there are cases from other states holding that punitive
awards may be recoverable in shareholder derivative actions where the underlying action
merits such an award. (E.g., Longwell v. Custom Benefit Programs Midwest, Inc. (S.D.
2001) 627 N.W.2d 396, 400; Holden v. Construction Machinery Co. (Iowa 1972) 202
N.W.2d 348 [citing cases].)
FN 20. To the extent Laurens claims he was entitled to a jury trial solely on the issue of
punitive damages, we reject this claim as well. Such a bifurcated procedure would be
inconsistent both with the fact that there is no separate cause of action for punitive
damages--they "are only ancillary to a valid cause of action" (Jackson v. Johnson (1992)
5 Cal.App.4th 1350, 1355)--and with the statutory command that evidence of a
defendant's financial condition necessary to support a punitive damages award be
presented to the "same trier of fact" that found the defendant liable. (Civ. Code, § 3295,
italics added.)
Vaillette v. Fireman's Fund Ins. Co. (1993) 18

[No. G012152. Fourth Dist., Div. Three. Aug 31, 1993.]
DAVID A. VAILLETTE, Plaintiff and Appellant, v. FIREMAN'S FUND INSURANCE
COMPANY, Defendant and Respondent.
(Superior Court of Orange County, No. 650765, Ronald L. Bauer, Judge.)
(Opinion by Sonenshine, J., with Sills, P. J., and Wallin, J., concurring.)
COUNSEL
Larry L. Curran for Plaintiff and Appellant.
Haight, Brown & Bonesteel, Roy G. Weatherup, Denis J. Moriarty and Ronald B.
Axelrod for Defendant and Respondent. [18 Cal.App.4th 682]
OPINION
SONENSHINE, J.
David A. Vaillette appeals from a judgment of dismissal of his breach of contract/bad
faith/fraud action against Fireman's Fund Insurance Company (Fireman's Fund). The case
was dismissed after the court sustained the insurer's demurrer to Vaillette's second
amended complaint without leave to amend.
The appeal presents the following issue: When an insurer pays a plaintiff policy limits
and the plaintiff covenants not to execute on any judgment against the insured or to assert
any further claim arising out of the subject incident, may the plaintiff subsequently
recover from the insurer costs of suit, including statutory attorney fees? The answer is no.
The subject agreement is not amenable to any reasonable interpretation that would allow
the plaintiff to seek further compensation of any nature from the insurer.
In March 1984, Vaillette was rendered a quadriplegic and his passenger, James Downing,
was killed when a drunk driver, Hugh Robinson, fn. 1 crashed his limousine into the rear
end of Vaillette's vehicle. Vaillette sued Robinson and numerous other defendants. On
March 31, 1986, one of Robinson's insurers, Fireman's Fund, agreed to pay Vaillette $1
million in exchange for Vaillette's covenant not to execute on any potential judgment or
prosecute against the insured or insurer any further claim arising from the accident.
Because we must construe the effect of the 14-page document, we set out its relevant
terms at considerable length. The agreement provides:
(1) "This Agreement for Policy Payment and Covenant Not to Execute ... is entered into
between David A. Vaillette ... and all of the Insureds of [certain] Fireman's Fund
Insurance policies ... and Fireman's Fund Insurance Companies."
(2) "The Policy was in full force and effect at all relevant times ... covering the liability of
the Insureds ... for a total of One Million, One Hundred Thousand Dollars ... which
coverage is the subject of this Agreement. Upon completion of this Agreement the Policy
funds available for distribution will be exhausted...."
(3) "[P]ursuant to agreement by counsel for all parties, the sum of Fifty Thousand Dollars
... was 'advanced' by and through Fireman's Fund Insurance Companies under the Policy
to Vaillette." [18 Cal.App.4th 683]
(4) "On or about March 13, 1986, a hearing concerning the available funds under the
Policy was held ... for the specific purpose of allocating the funds available under the
policy between Vaillette and the Downing heirs, ... and as a result of the recommendation
of the [judge] Vaillette has and does accept the sums herein specified and the Downing
heirs jointly have agreed to accept the sum of One Hundred Thousand Dollars ... from the
Policy proceeds as their ... allocated shares."
(5) "This Agreement between Vaillette and the Insured is entered into for the purpose of
the payment of the funds herein stated to Vaillette and to protect the Insureds' ... personal
assets and other things of money's worth from the possibility of Vaillette obtaining a
Judgment in excess of all presently known insurance coverage and thereby subjecting
said Insureds, and each of them, to payment of any such Judgment with their ... personal
assets."
(6) "[I]n consideration of the mutual covenants, promises, conditions and terms herein set
forth the parties hereto, Vaillette, the Insureds, and Fireman's Fund Insurance Companies,
agree as follows: [¶] A. Vaillette shall receive the following consideration: [¶] (1) An
advance of Four Hundred Fifty Thousand Dollars ...; [¶] (2) Payments of Four Thousand
Five Hundred Thirty-Eight Dollars ... per month, for life, with a ten ... year guarantee ....
[¶] (3) The reservation of any and all rights Vaillette has or may have to the proceeds of
any and all other Insurance policies of the Insureds, or any of them, excepting only the
Policy here. [¶] (4) The reservation of any and all rights Vaillette has or may have against
any and all other persons, entitles, [sic] or otherwise, who are not Insured."
(7) Vaillette "covenants and agrees that at no time will Vaillette ... seek to execute on any
Judgment in the aforesaid [action], and on any potential claim, including Wrongful
Death, arising out of the acts and conduct set forth in paragraph 1 above, if Judgment is
rendered against the Insureds ... except as is specifically reserved to Vaillette herein."
(8) "... [T]he acceptance of the benefits of the Policy herein is accepted as a Policy
payment and partial satisfaction as against any total damages sustained by Vaillette for his
injuries and damages as a result of the occurrences and events as are set forth [in] the
Lawsuit as may be amended from time to time."
(9) "Vaillette intends to and will continue to pursue Vaillette's interests by way of
continuing to prosecute the Lawsuit."
(10) "Nothing herein is intended to waive the rights of Fireman's Fund Insurance
Companies to seek reimbursement for defense fees and costs from other applicable
insurance policies." [18 Cal.App.4th 684]
(11) "... Vaillette agrees to execute this Agreement with the Insureds, and each of them,
and with Fireman's Fund Insurance Companies."
(12) "[I]n making this Agreement it is understood and agreed that Vaillette relies wholly
upon Vaillette's own judgment, belief, and knowledge of the nature, extent and duration
of Vaillette's injuries, and that Vaillette has not been influenced to any extent whatsoever
in making this Agreement by any representations or statements regarding said injuries, or
regarding any other matters, made by the Insureds, or any of them, or by Fireman's
[F]und Insurance Companies ...."
(13) "[S]uch payment is made by compromise and as a Policy payment and partial
satisfaction toward any Judgment Vaillette may obtain."
(14) "This Agreement shall be construed without regard to the draftor [sic] of the same
and shall be construed as though all parties hereto participated equally in the drafting of
this Agreement, and shall be construed pursuant to the laws of the State of California."
(15) "Each party hereto states that they ... have carefully read the foregoing Agreement
and know the contents thereof, that they ... have been advised by legal counsel of their ...
choice, and that they ... sign this Agreement [freely], and that it is their ... intention to be
legally bound by this Agreement. Except as otherwise agreed to herein, nothing contained
in this Agreement and/or by the execution hereof shall be deemed a waiver, release,
discharge, dismissal, and/or admission by Vaillette as to the Insureds, Fireman's Fund
Insurance Companies, or any of them, and Vaillette retains and reserves any and all other
rights and interests he has or may have in the Lawsuit and/or to other actions he may and
does have as to any person and/or entity."
Vaillette's action against Robinson proceeded to trial. In January 1989, the court awarded
him nearly $3.5 million in damages. On Vaillette's motion, it further allowed him as part
of his costs more than $1.2 million in attorney fees pursuant to Code of Civil Procedure
section 1021.4. fn. 2
Vaillette then filed the suit out of which this appeal arises, naming, inter alia, Fireman's
Fund, Robinson and Robinson's other insurers, State Farm [18 Cal.App.4th 685] Mutual
Automobile Insurance Company (State Farm), Industrial Indemnity Company (Industrial
Indemnity) and Aetna Casualty & Surety Company (Aetna). He alleged the compromise
agreement allowed him not only to proceed with his lawsuit through judgment, but to
recover his costs, including attorney fees, and interest from Fireman's Fund. He stated
four theories of recovery against the insurer based on its refusal to pay these items.
The court sustained the demurrer of Fireman's Fund to Vaillette's second amended
complaint without leave to amend. In dismissing the action, the trial court found the
March 31, 1985, agreement barred Vaillette from recovering anything further from the
insurer.
Discussion
[1] There is a strong policy in favor of a hearing on the merits (Shamblin v. Brattain
(1988) 44 Cal.3d 474, 478 [243 Cal.Rptr. 902, 749 P.2d 339]), and in reviewing an order
sustaining a demurrer without leave to amend, we accept as true all properly pleaded
facts. (Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170 [164 Cal.Rptr. 839,
610 P.2d 1330, 9 A.L.R.4th 314].) Where there is a reasonable possibility an amendment
will cure a defective pleading, it is ordinarily an abuse of discretion to deny a party the
chance to cure the defect (Greenberg v. Equitable Life Assur. Society (1973) 34
Cal.App.3d 994, 998 [110 Cal.Rptr. 470]); however, leave to amend should not be
granted where, in all probability, amendment would be futile. (La Jolla Homeowners'
Assn. v. Superior Court (1989) 212 Cal.App.3d 1131, 1141 [261 Cal.Rptr. 146].)
The gravamen of Vaillette's second amended complaint is his allegation that in the
agreement with Robinson and Fireman's Fund, he reserved the right to obtain from them
his costs of the lawsuit and interest accruing on any judgment. On this basis, he claims
Fireman's Fund wrongfully refused to pay him $1,284,540.54 in attorney fees in the
underlying action, $344,600 additional attorney fees awarded to him in the appeal
therefrom, interest on both of those amounts, and $900,000 interest on the underlying
judgment for damages against Robinson. Alleging a conspiracy between the insurer and
its insured, he attempts to recover against Fireman's Fund on theories of fraud, breach of
contract and breach of the implied covenant of good faith and fair dealing with respect to
the agreement and the policy. [18 Cal.App.4th 686]
The dispositive issue is whether the agreement is amenable to the interpretation urged by
Vaillette. [2a] A settlement agreement is to be construed under the same rules that apply
to any other contract. (Adams v. Johns-Manville Corp. (9th Cir. 1989) 876 F.2d 702,
704.) When, as here, material facts are not in dispute, contract interpretation is a question
which the appellate court determines independently. (Parsons v. Bristol Development Co.
(1965) 62 Cal.2d 861, 865 [44 Cal.Rptr. 767, 402 P.2d 839].) Ordinarily, the words of the
document are to be given their plain meaning and understood in their common sense; the
parties' expressed objective intent, not their unexpressed subjective intent, governs. (Beck
v. American Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1562 [260
Cal.Rptr. 237]; Civ. Code, §§ 1636, 1638.)
[3] Under the express provisions of the agreement, in exchange for an advance of
$450,000, an annuity paying him $4,538 a month for life, and a reservation of his right to
the proceeds of any other insurance policies and his rights against any persons not insured
by Fireman's Fund, Vaillette agreed to the following: (1) Fireman's Fund's payment of the
sum would exhaust the policy funds available for distribution, and (2) at no time would
he "seek to execute on any Judgment in the aforesaid [action], and on any potential
claim ... arising out of the acts and conduct" of Robinson, "except as is specifically
reserved to Vaillette here." (Italics added.) The agreement does not specifically reserve to
Vaillette the right to recover costs or interest on the judgment; fn. 3 it contains only a
general reservation of "any and all other rights and interests [Vaillette] has or may have in
the Lawsuit and/or to other actions he may and does have as to any person and/or entity."
The trial court found no language in the agreement supporting Vaillette's allegation that
"[t]he Agreement specifically reserves to Vaillette any and all rights against said
Defendants which are not expressly bargained for [and] specifically set forth in the
Agreement including, without limitation, Vaillette['s] expressed intention and right to
proceed with the lawsuit through judgment and obtain costs therefor and recover the
same from said Defendants, as well as interest on the judgment." The court said: "My
reading of that contract leaves me with just a very clear understanding and reading that
all claims of any nature are resolved and settled and that no [18 Cal.App.4th 687] further
claim of any nature on that policy against Fireman's will be permitted." fn. 4
Vaillette concedes, as he must, that the agreement is silent on the subject of costs and
fees. However, relying on Folsom v. Butte County Assn. of Governments (1982) 32
Cal.3d 668 [186 Cal.Rptr. 589, 652 P.2d 437], he argues the silence must be construed in
his favor, i.e., because there is no specific mention of these items, they were not
encompassed within the agreement and are thus recoverable.
In Folsom, the issue was whether a settlement agreement silent as to costs and attorney
fees "operate[d] as a merger and bar of all preexisting claims, depriving the trial court of
jurisdiction to award costs and [ ] attorney fees under Code of Civil Procedure section
1021.5." (Folsom v. Butte County Assn. of Governments, supra, 32 Cal.3d 668, 671.)
Section 1021.5 conditionally provides for an award of attorney fees to a successful party
in any action which has resulted in the enforcement of an important right affecting the
public interest. The plaintiffs in Folsom were elderly, disabled, of limited income and
dependent on public transportation. They sought declaratory and injunctive relief to
prevent the county from allocating certain public funds to street and road projects "until
'such time as an adequate public transportation system is operating which reasonably
meets the public transit needs in ... Butte County.' " (32 Cal.3d at p. 673.) They also
sought costs and statutory attorney fees.
Under a settlement agreement, some of the Folsom defendants promised to establish four
new transit systems and the plaintiffs promised, inter alia, to [18 Cal.App.4th 688] file a
dismissal with prejudice as to those defendants within one week of the date the last of the
new transit systems had initiated service. Ten days after the settlement agreement,
plaintiffs filed a cost bill and a motion for attorney fees under section 1021.5. The trial
court made the award, declaring " 'this action has resulted in the enforcement of an
important right affecting the public interest in that, inter alia, public transit funds have
been allocated to meet public transit needs in Butte County; that a significant benefit has
been conferred on both a large class of persons and on the general public; [and] that the
necessity and financial burden of private enforcement are such as to make this award of
attorney's fees appropriate.' " (Folsom v. Butte County Assn. of Governments, supra, 32
Cal.3d 668, 676, fn. omitted.)
The Supreme Court affirmed the orders granting costs and attorney fees. It stated:
"Compromise agreements '... settle only such matters and differences as appear clearly to
be comprehended in them by the intention of the parties and the necessary consequences
thereof, and do not extend to matters which the parties never intended to include therein,
although existing at the time.' [Citations.] Thus they ordinarily conclude all matters put in
issue by the pleadings-that is, questions that otherwise would have been resolved at trial.
[Citation.] They do not, however (absent affirmative agreement of the parties), conclude
matters incident to the judgment that were no part of the cause of the action." (Folsom v.
Butte County Assn. of Governments, supra, 32 Cal.3d 668, 677.)
The Folsom court noted costs and statutory attorney fees are an incident of the judgment,
not a part of it. (Folsom v. Butte County Assn. of Governments, supra, 32 Cal.3d 668,
677.) Thus, such fees may "properly [be] awarded after entry of a stipulated judgment,
unless expressly or by necessary implication excluded by the stipulation." (Id. at p. 678.)
Since the Folsom plaintiffs had prevailed and enforced important rights, the award of
section 1021.5 attorney fees was proper.
Folsom is distinguishable. There, the plaintiffs promised to dismiss their lawsuit in
exchange for the defendants' promise to establish certain new transit systems. (Folsom v.
Butte County Assn. of Governments, supra, 32 Cal.3d 668, 680-681.) Here, Vaillette
promised not to execute on the judgment or on any potential claim arising out of
Robinson's conduct. fn. 5 Vaillette's subsequent claim to attorney fees arose solely out of
Robinson's felony drunk driving conviction. Moreover, Vaillette covenanted not to [18
Cal.App.4th 689] execute on the judgment or any potential claim "except as is
specifically reserved," and there is no specific reservation in the agreement. fn. 6 Thus,
while in Folsom the issue of costs and fees did not "appear clearly to be comprehended in
[the compromise agreement] by the intention of the parties and the necessary
consequences thereof" (id. at p. 677), and was not "expressly or by necessary implication
excluded by the stipulation" (id. at p. 678), here, the issue of costs and fees appears
clearly to be comprehended in the agreement; by necessary implication, Vaillette's
covenant not to execute includes seeking to pursue any claim to costs and fees. fn. 7
When asked at oral argument to identify those provisions of the agreement which
Vaillette construed as retaining to him his right to recover costs and attorney fees, counsel
referred to two provisions. The first, paragraph 8, subparagraph (A)(4), reserves to
Vaillette "any and all rights [he] has or may have against any and all other persons,
entitles [sic], or otherwise, who are not Insureds." Counsel contends that because the final
phrase-"who are not Insureds"-does not add "or the insurer," we should construe the
language to exclude Fireman's Fund from the benefits of the covenant and include it
within the world at large as to which Vaillette reserved his rights. But to read the
paragraph as suggested by Vaillette would be an absurdity: Carried to its logical
conclusion, the proposition would support a claim by Vaillette that his covenant not to
execute had nothing at all to do with Fireman's Fund and left him free to recover the
judgment itself from the insurer. fn. 8 Vaillette's piecemeal approach impermissibly
ignores the context. Fireman's Fund is a party to the agreement. While paragraph 8,
subparagraph (A)(4) does not [18 Cal.App.4th 690] specifically include the insurer,
neither does it specifically exclude the insurer, and in light of the agreement taken as a
whole, we may not and will not interpret it to do so.
The second provision, paragraph 18, is a general reservation of rights: "Except as
otherwise agreed to herein, nothing contained in this Agreement and/or by the execution
hereof shall be deemed a waiver, release, discharge, dismissal, and/or admission by
Vaillette as to the Insureds, Fireman's Fund Insurance Companies, or any of them, and
Vaillette retains and reserves any and all other rights and interests he has or may have in
the Lawsuit and/or to other actions he may and does have as to any person and/or entity."
Vaillette asks us to construe this paragraph as expressing his intention to exclude the issue
of costs and attorney fees from the agreement, again with regards to his rights against the
insurer. But, as with paragraph 8, subparagraph (A)(4), there is no express exclusion and
we would do violence to the agreement were we to read one into it, particularly because
Vaillette agreed not to execute on any potential claim "except as is specifically reserved
to Vaillette here." As we have already noted, there is no specific reservation referring to
costs and attorney fees.
In his brief, Vaillette makes other contentions regarding the language of the agreement
and why it must be construed in his favor. For instance, he argues: (1) the paragraph
referring to exhaustion of policy funds is only a recital, therefore Vaillette has never
agreed to or admitted such exhaustion; (2) the word "funds" is a term of art meaning only
the proceeds of liability coverage, and not including any incidental sums such as costs;
(3) the words "any potential claim" immediately precede the words "including Wrongful
Death," thus the word "claim" must be read to bar only separate actions for additional
injuries that might accrue, not to bar Vaillette's assertion of the right to recover costs; and
(4) the agreement expressly provides that Vaillette neither makes legal assertions nor
waives his rights to legal interpretation of certain provisions. These are by way of
example; there are other propositions of the same ilk. They bear little discussion.
Borrowing from Gallo v. Superior Court (1988) 200 Cal.App.3d 1375, 1380 [246
Cal.Rptr. 587], we note: "[These are arguments] that only a lawyer could love; [they rest]
on semantics rather than on reason."
If Vaillette intended to reserve the right to recover attorney fees, he should have said so,
as did Fireman's Fund. [2b] The true, subjective, but unexpressed intent of a party is
immaterial and irrelevant. (See City of Mill Valley v. Transamerica Ins. Co. (1979) 98
Cal.App.3d 595, 602-603 [159 Cal.Rptr. 635].) [18 Cal.App.4th 691]
In the light of reason and a common understanding of plain English, we conclude nothing
in the agreement either gives or reserves to Vaillette the right to recover from Fireman's
Fund the moneys sought in this action. Having given up his right to recovery over and
above the lump sum and lifetime annuity he received from Fireman's Fund, Vaillette has
no cognizable claim on which to proceed against this insurer. fn. 9 The trial court did not
err in sustaining the demurrer without leave to amend.
Judgment affirmed. Fireman's Fund shall recover its costs on appeal.
Sills, P. J., and Wallin, J., concurred.
Appellant's petition for review by the Supreme Court was denied December 30, 1993.
FN 1. Robinson was convicted of vehicular manslaughter and two counts of felony drunk
driving.
FN 2. In 1983, the Legislature enacted Code of Civil Procedure section 1021.4 to
implement the Crime Victim Restitution Program. The statute provides: "In an action for
damages against a defendant based upon that defendant's commission of a felony offense
for which that defendant has been convicted, the court may, upon motion, award
reasonable attorney's fees to a prevailing plaintiff against the defendant who has been
convicted of the felony."
All further statutory references are to the Code of Civil Procedure unless otherwise
stated.
The Vaillette v. Robinson G008290 (nonpub. opn.) action was the subject of an appeal in
which our unpublished opinion was filed February 28, 1991. In that appeal, we held the
court did not abuse its discretion in imposing attorney fees approximating a 40 percent
contingency fee. We declined to issue an advisory opinion on whether attorney fees were
covered under supplemental pay provisions of the various insurance policies, but we
decided the attorney fees should be classified as costs, not as part of Vaillette's personal
injury damages. We granted Vaillette his costs on appeal, including attorney fees pursuant
to section 1021.4. On Vaillette's subsequent presentation of his cost bill to the trial court,
he was awarded an additional $344,600 in appellate attorney fees.
FN 3. The sole reference to fees and costs in the agreement is with regard to the rights of
the insurer: "Nothing herein is intended to waive the rights of Fireman's Fund Insurance
Companies to seek reimbursement for defense fees and costs from other applicable
insurance policies."
FN 4. Other apt observations of the trial court appear throughout the record, most notably
in the minutes of March 26, 1992, at the hearing of Robinson's demurrer to Vaillette's
third amended complaint. The court stated: "The plaintiff's first cause of action seems to
be based upon the contention that Robinson has breached the terms ... of the [agreement].
This breach is alleged to have occurred in Robinson's 'failing to pay the costs, including
attorneys' fees, and interest' on the judgment ... ; in his further 'wrongfully and tortuously'
[sic] denying Vaillette's claims; and in his failure to assist Vaillette in pursuing these
claims.... There are at least two basic flaws in this argument. First, the parties' settlement
agreement contains no language referencing any such right for Vaillette or any such
obligation of Robinson. If Vaillette or his counsel believe that the agreement provides for
future recovery of these costs and fees, they can point to no express language to that
effect anywhere in ... the contract. If they held this belief at the time the agreement was
being negotiated, then their failure to memorialize it would be very puzzling. [Indeed, we
find that failure doubly puzzling in light of the fact that Fireman's Fund expressly
reserved its rights in this regard.] Second, this settlement agreement does contain
Vaillette's express covenant not to execute 'on any Judgment' in the subject case or 'on
any potential claim' arising from the underlying accident. That promise is directly
contrary to the claim plaintiff now asserts. This lawsuit is the functional equivalent of an
execution on the prior judgment." In sustaining the demurrer, the court added, "There is a
simple disagreement here about the parties' rights under their prior settlement agreement,
and more pleading will not change the terms of that contract."
FN 5. In his brief, Vaillette presents an extended argument that the costs are incident to
the judgment, not a part of it, and therefore the covenant not to execute on the judgment
is not a bar to his seeking costs. The point is irrelevant in light of Vaillette's additional
promise regarding "any potential claim."
FN 6. Neither in his opening brief nor in his reply brief did Vaillette allude to or attempt
to interpret the language of the agreement requiring him to "specifically reserve[ ]" to
himself any right to pursue further claims against the insureds.
FN 7. Even if Folsom could not be distinguished on the basis of the language of the
agreement, it would still not avail Vaillette. In Folsom, public policy was served by
allowing plaintiffs to recover attorney fees under section 1021.5: The action enforced an
important right to public transportation. Here, even assuming Vaillette's claim to attorney
fees had survived the agreement, payment of the fees by an insurer would contravene
public policy.
California Constitution, article I, section 28, subdivision (b) (the Victims' Bill of Rights)
states the "unequivocal intention" of the People of the State of California that persons
injured by criminal activity will obtain restitution for losses from the persons convicted
of the causative crimes. Section 1021.4 authorizes the court to award reasonable attorney
fees to a prevailing plaintiff against the defendant convicted of the felony that has caused
the plaintiff's loss. "Restitution ... may serve the salutary purpose of making a criminal
understand that he [or she] has harmed not merely society in the abstract but also
individual human beings, and that he [or she] has a responsibility to make them whole."
(People v. Richards (1976) 17 Cal.3d 614, 620 [131 Cal.Rptr. 537, 552 P.2d 97],
superseded by statute on other grounds as stated in People v. Dailey (1991) 235
Cal.App.3d Supp. 13 [286 Cal.Rptr. 772].) The purpose to be achieved by section 1021.4
would be defeated if the felony drunk driver could pass the attorney fees penalty along to
his or her insurer.
FN 8. Indeed, Vaillette clearly believes he has some rights against Fireman's Fund with
respect to the judgment, because he claims entitlement to nearly $1 million in interest on
the judgment! But he has not argued the legal basis for such a claim, and we can conceive
of none.
FN 9. Since Vaillette's claims regarding the insurance policy are dependent on the validity
of his claims regarding the agreement, it is unnecessary to examine the provisions of the
Fireman's Fund policy.
At oral argument, counsel advised us two other appeals are pending in this action. In one,
the issue is whether Vaillette may recover costs and attorney fees from State Farm.
Riley v. Riley, 118 Cal.App.2d 11

RAY LOREN RILEY et al., Appellants, v. PORTIA A. RILEY, Respondent.
COUNSEL
Alford P. Olmstead and John N. Hurtt for Appellants.
Bertram H. Ross and Forgy, Reinhaus & Forgy for Respondent.
OPINION
MUSSELL, J.
Plaintiffs appeal from a judgment in favor of defendant in an action to impress a trust on
a fractional interest in and to certain real and personal property, for the purpose of
enforcing the provisions of an agreement to execute a will. The record contains an agreed
statement on appeal from which it appears that "the principal question on this appeal
relates to the construction given by the lower court to the terms and provisions of a
Property Settlement Agreement dated December 6, 1941, of a Declaration of Trust
executed the same date in connection therewith, and of a subsequent agreement dated
May 26, 1947; specifically the question is whether plaintiffs lost their rights created
under said Property Settlement Agreement and said Declaration of [118 Cal.App.2d 12]
Trust by their parents having executed said Agreement dated May 26, 1947."
The material facts stated are these: Plaintiffs are the minor children of Chester J. Riley
and Aileen S. Riley, who, on December 6, 1941, entered into a property settlement
agreement providing in part as follows:
"1. The parties hereto agree to transfer, assign, convey and set over unto Charles P. Young
all of the property, real, personal or mixed, as set forth and described in 'Exhibit A' hereto
attached, the same to be held in trust, however, by said Charles P. Young in accordance
with the terms and provisions of a certain Agreement and Declaration of Trust dated the 6
day of December, 1941, and executed concurrently with this agreement, a copy of which
Agreement and Declaration of Trust is attached hereto marked 'Exhibit B' and by such
reference thereto made a part hereof.
"10. Each party further agrees to execute a good and valid will and to at all times keep in
force a good and valid will by the terms of which each will devise and bequeath unto the
three children of the parties hereto, as herein named and set forth, an undivided one-third
interest of his or her rights and interests under said Trust Agreement and Indenture, and
each agrees further that in the event he or she should fail and neglect to make such a will,
or if for any reason it should be determined or adjudicated that any will of theirs be
invalid for any reason whatsoever, that then and in that event it is understood and agreed
that this instrument shall by the terms hereof constitute a valid transfer, assignment and
conveyance of an undivided one- third interest to said three children of the parties hereto
in and to his or her interests and rights under said trust agreement, the same to take effect
immediately upon the death of said party."
In connection therewith and as part of the same transaction as the execution of said
property settlement agreement, Charles P Young, as trustee, executed a "Declaration of
Trust" which contained the following provisions:
"It is understood that this trust shall continue for a period of twenty (20) years from date
hereof, or unless sooner terminated by reason of the full payment and satisfaction of all
present indebtedness owing by the trustors and until the satisfaction and payment of any
encumbrances now upon said property, or any extensions or renewals thereof, in the
event of said payment said trust shall at said time terminate. Upon the termination of this
trust as to all or any part of said [118 Cal.App.2d 13] trust property, said trust estate shall
vest in and belong to the following persons:
"One-half (1/2) thereof to the Trustor Aileen S. Riley, or her heirs, successors or assigns,
or any legatees or devisees that she may name in her last will and testament;
"The remaining one-half (1/2) to the trustor Chester J. Riley, or his heirs, successors or
assigns, or any legatees or devisees that he may name in his last will and testament;
"It being understood that each of the Trustors hereby agree that upon the death of either
of said trustors the children of the parties hereto shall succeed to an undivided one-third
of the undivided one-half of each of the trustors.
"It is further understood irrespective of any of the other provisions of this trust, that the
same may at any time be terminated upon the mutual consent and approval and
agreement of each of the trustors herein."
Pursuant to said property settlement agreement and declaration of trust, the real and
personal property described in said declaration of trust was, on December 6, 1941,
deeded and conveyed by Chester J. Riley and Aileen S. Riley to Charles P. Young, the
trustee mentioned in said declaration of trust. Thereafter, on May 26, 1947, Chester J.
Riley, Aileen S. Riley and Charles P. Young, as said trustee, executed an agreement
relating to said trust. This agreement recited that the parties had composed their
differences and desired to effect a final accounting concerning said trust, the termination
and closing thereof and the distribution of the corpus and assets thereof, including any
and all accumulated income therefrom; that the third party (trustee) had rendered full and
complete accountings of the administration of said trust; that it was the desire of the
parties to terminate said trust and to effect the distribution of the corpus thereof. As a
result of this agreement, the parties caused all of the trust property that was held by
Young as trustee to be conveyed to them in their individual names and Young made,
executed and delivered his deeds, bills of sale and assignments of stock to Mr. and Mrs.
Riley, conveying and transferring to them, as tenants in common, all of the property
constituting the corpus of said trust, including "The Riley Building."
On September 26, 1950, Chester J. Riley executed his last will and testament, wherein he
bequeathed no more than the sum of $1,000 to each of said sons and wherein he devised
and bequeathed the entire residue of his estate, including his [118 Cal.App.2d 14] one-
half interest in the Riley Building to his sister, Portia A. Riley, defendant herein.
Thereafter, on March 16, 1951, Chester J. Riley died and his last will was admitted to
probate in Orange County. Proceedings on the estate were still pending during the trial of
this action and no order of distribution had been made at the time of the entry of the
judgment herein from which this appeal is taken. It was stipulated at the trial that the
property of said trust, insofar as it involved Chester J. Riley's interest therein in its
converted form comprised that which was as set forth in the inventory and appraisement
returned in said probate proceedings.
[1a] The trial court found that the trust created by the property settlement and trust
agreements of December 6, 1941, was terminated and revoked by the subsequent
agreement of May 26, 1947, and concluded that plaintiffs had no right, title and interest
or claim in and to the estate of Chester Riley, deceased, except as to the legacies of
$1,000 each as provided in Riley's will.
Appellants argue that the "rights and interests" referred to in the property settlement
agreement and declaration of trust are not limited to the beneficial interests of Mr. and
Mrs. Riley under the trust but include as well their reversionary interests; that the 1947
agreement did no more than terminate the trust and left unimpaired the provisions of the
property settlement agreement and declaration of trust in favor of the children and that
the children have enforceable rights irrespective of whether they come within the
provisions of Civil Code section 1559. We conclude that these arguments are without
merit.
Section 10 of the property settlement agreement of December 6, 1941, provides that each
of the parties agrees to execute a will in favor of the plaintiffs to an undivided one-third
interest of his or her rights and interests under said trust agreement and if such will was
not executed, the agreement was to constitute a transfer of said one-third interest under
the trust agreement to the said children. The parties did not agree to make testamentary
disposition of any specific real or personal property but only to interests and rights under
the trust agreement. All of the then known property of the parties was placed in the trust,
which, by its terms, was made terminable upon the mutual consent, approval and
agreement of the parties irrespective of any of the other provisions of the trust agreement.
Thereafter the agreement of May 26, [118 Cal.App.2d 15] 1947, was executed by the
parties terminating the trust in its entirety and all property remaining in trust was
conveyed to the parties by the trustee. Therefore, nothing remained in the trust which
could be disposed of by will and the trust ceased to exist.
[2] The parties to a contract entered into for the benefit of third persons may rescind or
abrogate it without the assent of such third persons at any time before the contract is
accepted, adopted or acted upon by such third persons. Civil Code, section 1559,
provides that a contract made expressly for the benefit of a third person, may be enforced
by him at any time before the parties thereto rescind it. In 12 American Jurisprudence, at
page 843, it is stated:
"According to the weight of authority, the parties to a contract entered into for the benefit
of a third person may rescind, vary or abrogate the contract as they see fit, without the
assent of the third person, at any time before the contract is accepted, adopted, or acted
upon by him, and such rescission deprives the third person of any rights under or because
of such contract."
[1b] Plaintiffs did not acquire any rights under the 1941 agreements which prevented a
rescission of said agreements by the contract of 1947. (Orloff v. Metropolitan Trust Co.,
17 Cal.2d 484, 487 [110 P.2d 396]; O'Neil v. Ross, 98 Cal.App. 306, 326 [277 P. 123].)
Section 2280 of the Civil Code provides:
"Unless expressly made irrevocable by the instrument creating the trust, every voluntary
trust shall be revocable by the trustor by writing filed with the trustee. When a voluntary
trust is revoked by the trustor, the trustee shall transfer to the trustor its full title to the
trust estate. Trusts created prior to the date when this act shall become a law shall not be
affected hereby."
The creators of a trust may revoke it as provided in this section. (Title Ins. & Trust Co. v.
McGraw, 72 Cal.App.2d 390, 399 [164 P.2d 846].)
The trust agreement herein provides that upon termination of the trust, one-half of the
trust property is to go to the trustor Aileen S. Riley and the remaining one-half to the
trustor Chester J. Riley, and that upon termination of the trust, the trustee execute deeds
to the parties accordingly. Under such circumstances, the language in the property
settlement agreement with respect to the succession of plaintiffs [118 Cal.App.2d 16] in
the event of the death of either party to the agreement has no application because there
was no trust or interest therein which was transferable by conveyance or otherwise after
the termination of the trust.
Judgment affirmed.
Barnard, P. J., and Griffin, J., concurred.
Dick v. Woolson, 106 Cal.App.2d 415

[Civ. No. 18191. Second Dist., Div. Three. Aug. 31, 1951.]
JOHN DICK, Respondent, v. LEIGH WOOLSON et al., Appellants.
COUNSEL
Nathan Newby, Jr., and Nathan Newby for Appellants.
W. C. Schaper and Glenn Simpson for Respondent.
OPINION
SHINN, P. J.
From a money judgment for plaintiff rendered after trial to the court, defendants Builders
Supply Corporation and Corporation Management, Inc., appeal. The judgment was for
the balance due on a contract for sale of a business by plaintiff to defendant Woolson. The
corporate defendants are successive assignees of Woolson of the sales contract and
plaintiff sues as third party beneficiary of the assignments by which the corporations
assumed Woolson's obligation.
The business transactions to be reviewed were involved, and the evidence wandered far
from the issues to be tried. The principal facts are that plaintiff Dick and defendant
Woolson entered into an agreement whereby, for a consideration of $25,000, Dick sold to
Woolson a going business, The Home Improvement Company. The payment terms were
$5,000 on the signing of the agreement, an additional $5,000 within 90 days, and the
remaining $15,000 in equal monthly installments of $1,000 or more beginning September
1, 1947. Woolson agreed to form a corporation which would give a note to Dick for the
balance due on the contract and would be jointly liable with Woolson on the contract. On
May 31, 1947, Woolson assigned the sales contract to defendant Corporation
Management, Inc., which assumed all the liabilities and obligations under the contract.
On June 4, 1947, Corporation Management assigned the sales contract to defendant
Builders Supply Corporation, which assumed the contractual liabilities and obligations.
(The corporate defendants will be referred to as Management and Builders.) Both
corporations were formed just prior to taking the assignments [106 Cal.App.2d 418] and
after the two assignments Builders' major asset was the Home Improvement Company
and Management's major asset was the common stock of Builders. At this point in the
transaction, if the sales contract was still operative and there had been no rescission of the
assignment contracts, plaintiff was a creditor under the contract with Woolson, was
creditor-beneficiary under a contract between Woolson and Management, and a creditor-
beneficiary under the contract between Management and Builders. In August, 1947,
plaintiff received from Builders the second $5,000 payment together with a promissory
note for $15,297.22, the balance due on the contract, plus interest from May 1st. As
provided in the contract, Builders made additional payments on September 1 and October
1, 1947. These payments were made even though the note was not due until November,
1948. Plaintiff received no other payments and brought this action against Woolson and
Builders on March 18, 1948, claiming the accrued payments due under the contract plus
interest. On November 23, 1948, the complaint was amended to include Management as a
defendant and to add a cause of action on the note against Builders, and further to change
the amount claimed to the full contract price which was by that time past due.
Judgment was granted against all three defendants for the balance due plus interest at 5
per cent and defendants' motion for a new trial was denied. Defendant Woolson did not
appear at the trial and is not here appealing. Defendant Builders no longer owns the assets
forming the subject matter of the sales contract, having reassigned them to Management
in December, 1947. Builders was shown to be insolvent.
Defendants' contentions on appeal are: (1) Builders' note given to plaintiff discharged its
liability under the sales contract; (2) Builders can be sued on the note only after maturity
and as this action was brought before maturity it should be dismissed; (3) even if the note
did not discharge the sales contract, Management rescinded its assignment from Woolson
and plaintiff cannot sue as beneficiary of a nonexistent contract; (4) Management was
induced to accept the assignment by Woolson's fraud. These contentions will be
considered in order.
[1] In order for the note to operate as payment of the sales contract it was necessary to
show that it was so accepted by plaintiff. [2] There was no evidence that plaintiff so
treated the note. This conclusion is fortified by the terms of the sales contract under
which the note was to be given as [106 Cal.App.2d 419] "collateral to and coincident
with liability on the contract." The further fact that Builders proceeded to make payments
under the contract even after the note was given is inconsistent with the contention that
the note discharged the sales contract. [3] The sales contract was outstanding and if
Builders had not rescinded the assignment to it before plaintiff accepted the benefit of the
assignment, Builders was clearly liable to plaintiff on a creditor-beneficiary theory.
[4] The judgment against Builders was, as appellants state, "based exclusively upon its
assumption on June 4, 1947, of the obligations of the contract dated May 1, 1947." If,
therefore, liability under the contract was established, it is immaterial whether the action
on the note was premature.
[5] As regards Management, the contention is that the note discharged its liability on its
acceptance of the assignment. The contract provided that a corporation was to be formed,
that it would issue a note to plaintiff for the balance due, and that the "note [would] be
collateral to and coincident with the obligations of [Woolson]." Management's argument
is that the sales contract clearly shows the only obligation of the corporation would be on
the note since it would be "collateral" to Woolson's obligation on the sales contract. This
might have been true had there been no independent assumption by the corporation of the
contract obligations. The basis of the action against Management is that it assumed
Woolson's obligation and is thus liable to plaintiff, the creditor- beneficiary of the
assumption contract. As indicated above, Woolson was not discharged on the contract by
plaintiff's acceptance of the note; neither was his assignee of the contract discharged.
The principal question on the appeal is that raised by contentions three and four--as to the
nature of the liability to a third party beneficiary. [6] A person not a party to a contract
may still sue for its enforcement where it is made expressly for his benefit and has not
been rescinded. (Civ. Code, § 1559.) [7] Where the obligations of a contract are assumed,
the creditor under the original contract may sue the assuming party on the theory that he
is an express beneficiary of the assumption contract. [8] The creditor may join both the
assuming party and the original debtor. (Anderson v. Calaveras Cent. Min. Corp., 13
Cal.App.2d 338, 343-344 [57 P.2d 560].) [9] However, until the creditor-beneficiary has
accepted the benefit or has detrimentally acted in reliance thereon, the assuming party
may rescind. [106 Cal.App.2d 420] [10] But as long as the assuming promisor continues
to retain the consideration from the original promisee, the contract for the benefit of the
third party cannot be rescinded or revoked. (Pitzer v. Wedel, 73 Cal.App.2d 86 [165 P.2d
971]; Pearsall v. Townsend, 7 Cal.App.2d 162 [45 P.2d 824].)
[11] Management concedes that when it assumed the obligations of the sales contract
from Woolson on May 31, 1947, plaintiff became a third party beneficiary, but contends
that this assumption contract was rescinded by it. If true, this would relieve Management
of liability to plaintiff. At the trial, Management advanced the claim that the assignment
of June 4, 1947, from Management to Builders, operated as a rescission by Management
and a new assignment from Woolson to Builders. This contention was substantially
disproved by the terms of the contract of assignment dated June 4, 1947, which was an
express assignment by Management to Builders in clear and unambiguous terms. The
contract may not be construed as a rescission of the Woolson-Management agreement. It
is completely inconsistent with any theory of rescission. There is no basis for the
contention that it did not embody the agreement of the parties. There was no other
evidence in the record as to rescission. Nothing was ever restored to Woolson.
[12] Management's remaining theory is that it was induced to accept the assignment by
the fraud of Woolson. The transcript references given do not bear out the claim that
evidence of fraud was offered and excluded. But if such evidence was offered it should
have been excluded. Neither Management nor Builders ever restored the subject property,
or any part of it to Woolson. There was no rescission. Such of the property as Builders
acquired and had not disposed of was transferred to and retained by Management, leaving
Builders insolvent. It was not claimed that plaintiff was a party to Woolson's alleged
fraud. Manifestly, Management or Builders, as assignees of Woolson, would have no
right to retain the property purchased without paying plaintiff the agreed price. Validity of
the Dick-Woolson contract was never questioned.
Wood (Parker), J., and Vallee, J., concurred.
Griffin v. Williamson, 137 Cal.App.2d 308

[Civ. No. 15960. First Dist., Div. One. Nov. 29, 1955.]
NORMAN B. GRIFFIN, Appellant, v. VICTOR L. WILLIAMSON et al., Respondents.
COUNSEL
A. Don Duncan for Appellant.
George W. Hippeli for Respondents. [137 Cal.App.2d 310]
OPINION
WOOD (Fred B.), J.
Plaintiff Norman B. Griffin brought this action against Edwina W. and William Compere
and Victor L. and Gratia Williamson for the remainder due upon a promissory note of the
Comperes after foreclosure of the chattel mortgage which the Comperes had given to
secure the note.
The note, made in the principal sum of $27,500, evidenced the balance due to plaintiff for
the purchase of his cleaning business. There is no question as to the liability of the
Comperes. They raised no issue of fact at the trial. Plaintiff sought to hold the
Williamsons liable as partners of the Comperes; i.e., as persons who were partners at the
time of the transaction in suit or who, subsequently becoming partners, became obligated
to pay.
The jury's verdict was in favor of the Williamsons and against the plaintiff. In response to
special interrogatories, the jury also found: (1) the first written articles of partnership
between the Williamsons and the Comperes were signed and executed "July 31st,
retroactive to May 3, 1947"; (2) before these first written articles of partnership were
signed and executed no partnership by oral agreement existed between the Williamsons
and the Comperes; (3) after the partnership was entered into the Williamsons assumed the
obligation evidence by the note sued upon, "qualified to the extent the obligation was
rescinded"; (4) the Williamsons are not now liable to the plaintiff for the indebtedness so
assumed.
Plaintiff has appealed from that portion of the judgment which was in favor of the
Williamsons; also, from an order which denied his motion for an order vacating the
judgment as to the Williamsons and directing judgment in his favor against the
Williamsons. In support of his appeal, plaintiff presents some 40 specific points under not
less than 20 independent headings. We have considered each of these points and find they
do not present a basis for reversal of the judgment. To discuss them one by one in detail
would draw this opinion out beyond all bounds and fail to serve the most useful purpose.
Instead, we will narrate what of significance happened at the trial, indicate our approval
or disapproval, and state our reasons why. An outline of the sequence of events will aid
the discussion.
Plaintiff was the owner of the "Norman Cleaners," a business having as its assets two
leases, fixtures, equipment and good will. [137 Cal.App.2d 311]
Not later than April 24, 1947, Mrs. Compere became obligated by contract to purchase
this business upon certain terms including the making of a down payment of $10,000 and
the execution by herself and husband of a $27,500 note in plaintiff's favor. On that day
the Comperes executed the note and put it in escrow. In ordinary course the escrow
probably would have been consummated by May 5th (Mrs. Compere took possession
May 5th) but was not in fact consummated until May 21, 1947. fn. 1
On July 31, 1947, the Comperes and the Williamsons signed an agreement in writing to
become and be partners in the conduct of this cleaning business, for a term "commencing
with the date hereof and continuing until dissolved by mutual consent ... or by operation
of law," each of the Williamsons to have a 12 1/2 per cent interest and each of the
Comperes 37 1/2 per cent, and designating Mrs. Compere as manager of the business. At
the same time, Mrs. Compere executed and delivered to the partnership all of her right,
title and interest in and to the business. Each of these two instruments was dated "this 3rd
day of May, 1947." [137 Cal.App.2d 312]
Later, by an agreement in writing dated October 13, 1947, the Comperes and the
Williamsons effected certain changes in their partnership contract. Among other things,
this agreement increased from 25 per cent to 50 per cent the interest of the Williamsons in
the partnership and decreased that of the Comperes from 75 per cent to 50 per cent,
provided for additional cash contributions by the Comperes and the Williamsons,
respectively, recited that the Comperes had borrowed $27,500 from Norman B. Griffin
evidenced by a promissory note of April 24, 1947, in the principal sum of $27,500
bearing interest at 5 1/2 per cent per annum and declared that "for the purpose of
equalizing the contributions to the capital of said partnership by all the partners hereto,
the said Victor L. Williamson and Gratia Williamson hereby agree with the said William
Compere and Edwina W. Compere that the said promissory note and the indebtedness
thereby evidenced shall be considered as a partnership indebtedness and that the payment
of all amounts due thereunder shall be a business expense, and the said Victor L.
Williamson and Gratia Williamson hereby agree to pay to the said William Compere and
Edwina W. Compere 50% of the amount of any judgment which may be recovered
against them in any suit brought upon said promissory note."
By a writing dated March 3, 1948, executed by the Comperes and the Williamsons, they
in terms expressly rescinded their agreement of October 13, 1947. After declaring the
mutual desire of the parties that the October agreement be rescinded and the parties be
restored to the position in the partnership which they held prior to the October agreement,
the agreement of March 3, 1948, expressly declared the October agreement "is hereby
cancelled and nullified"; that the Williamsons "hereby assign and transfer" to the
Comperes "one-half of their 50% interest in said business, and that in consideration
thereof" the Comperes "release" the Williamsons "from the obligation to pay one-half or
any part of any judgment which may be obtained against them in connection with that
certain note and chattel mortgage executed by said Comperes to Norman B. Griffin."
In connection with instructions to the effect that a partner is liable for all the obligations
of the partnership arising after he becomes a member, the court told the jury that the
Williamsons did not become liable on that basis if a partnership between them and the
Comperes did not exist at the time of the execution of the note, which the court [137
Cal.App.2d 313] declared was April 24, 1947, the day the note was signed. (Instructions
11, 13, 14 and 19). fn. 2 Plaintiff complains of the date the court gave the jury, claiming
that the consummation of the escrow (not earlier than May 5th) instead of its
commencement (April 24th) was the critical date because delivery of the note, not its
mere signing, marked the commencement of the obligation on the note and, assertedly,
this is not a case for relation back to the commencement of the escrow. The trial court
apparently viewed this as a case for relation back. Whether this is such a case, we need
not decide. The true test here is the date when the obligation to buy the business and to
pay the agreed purchase price was incurred, which, as we have seen, was April 24, 1947,
the very date which the court gave the jury. The fact that the court described it as the time
of the signing of the note instead of the effective date of the contract of purchase, is
immaterial. Furthermore, the plaintiff requested and the court gave, with modifications,
an instruction quite in harmony with the instructions which he now criticizes; "If you find
that Victor L. Williamson and Gratia Williamson were copartners with William Compere
and Edwina Compere when the promissory note [TEXT STRICKEN]-[obligation]- to
plaintiff Norman B. Griffin [TEXT STRICKEN]-[for]- [TEXT STRICKEN]-[the]-
[TEXT STRICKEN]-[purchase]- [TEXT STRICKEN]-[of]- [TEXT STRICKEN]-[the]-
[TEXT STRICKEN]-[business]- [TEXT STRICKEN]-[and]- [TEXT STRICKEN]-[its]-
[TEXT STRICKEN]-[assets]- [TEXT STRICKEN]-[was]- [TEXT STRICKEN]-
[incurred]- was executed, you will render a verdict in favor of plaintiff against them for
the balance due plaintiff." (Number 19 as given by the court, a modification of plaintiff's
Number 29. Words deleted by the court are in strikeout; words added, in italics. Plaintiff
says that by other instructions the court gave the jury clearly to understand that by
"execution" of the note he meant its "signing," not its signing and delivery; hence, April
24th, not May 5th or May 21st.) This instruction as prepared and submitted by plaintiff,
pointed to the very date which the court gave, April 24th, the date when the "obligation ...
for the purchase price of the business ... was incurred."
The finding that no partnership by oral agreement existed between the Williamsons and
the Comperes prior to the signing (July 31, 1947) of their first written articles of
partnership, is amply supported by the evidence. That fact and the fact that the partners
made their first articles effective [137 Cal.App.2d 314] retroactively only to May 3,
1947, fn. 3 means there was no partnership in existence when (April 24th) Mrs. Compere
incurred the obligation to pay the purchase price, the remaining $27,500 portion of which
was evidence by the note in suit.
Plaintiff contends that by participating in the formation of this partnership and in the
acceptance of Mrs. Compere's transfer to the partnership of her "right, title and interest in
and to the business ... and ... assets of said business," the Williamsons assumed the
obligation evidence by the $27,500 note. He argues that this is like the case of a principal
who, if he accepts the benefits of a contract his agent has made, must accept it with its
burdens. There is no analogy. All that the Williamsons did was to form a partnership with
the Comperes. In so doing and receiving and accepting certain properties the partners did
not assume the personal obligations of the assignor.
Plaintiff invokes also the provisions of sections 1589 and [137 Cal.App.2d 315] 3521 of
the Civil Code. Here, too, the asserted analogy is lacking. There was no assignment or
assumption of [1] "The general rule is that the mere assignment of rights under an
executory contract does not cast upon the assignee any of the personal liabilities imposed
by the contract upon the assignor. (3 Cal.Jur. 281, § 33; Lisenby v. Newton, 120 Cal. 571
[52 P. 813, 65 Am.St.Rep. 203]; Wilson v. Beazley, 186 Cal. 437 [199 P. 772].) But the
rule is, of course, otherwise in a case where the assignee obligates himself to perform the
covenants binding upon his assignor." (Barberich v. Pooshichian, 59 Cal.App. 507, 510
[211 P. 236]. [2] See also Armstrong Co. v. Shell Co. of Calif., 98 Cal.App. 769, 775-776
[277 P. 887].) " 'A person becoming a member of an existing firm, or forming a
partnership with another in the latter's existing business, does not thereby become liable
for the debts already incurred, nor does the new firm become liable for them. An
agreement, express or implied, is necessary to create such liability, not only between the
creditors and the new firm but also as between the partners; that is to say, the
presumption is against the assumption of such liability, and the burden to prove it is upon
the one who asserts it. ...' " (Wine Packing Corp. of Calif. v. Voss, 37 Cal.App.2d 528,
533-534 [100 P.2d 325].) [3] In our case, at most, the partnership acquired the property
subject to the lien of the chattel mortgage, there being nothing in the partnership
agreement or in the assignment from Mrs. Compere indicative of an intent to assume an
obligation of any kind.
[4] Plaintiff advances still another theory for assumption of liability by the Williamsons,
this time limited to partnership property. He directs attention to section 2411 of the Civil
Code (Uniform Partnership Act, § 17; now Corp. Code, § 15017) which in 1947 provided
that a person admitted as a partner "into an existing partnership" is liable for all the
"obligations of the partnership arising before his admission" as though he had been a
partner when such obligations were incurred "except that this liability shall be satisfied
only out of partnership property." There are authorities which indicate that these
provisions are actually as well as literally limited to the case of a person who becomes a
member of an existing partnership. (See Wine Packing Corp. of Calif. v. Voss, supra, 37
Cal.App.2d 528, and Hargis v. Hargis, 221 Ark. 654 [255 S.W.2d 663].) If that be the law,
then section 2411 does not here apply for lack of evidence [137 Cal.App.2d 316] that the
Comperes operated as partners prior to the time they and the Williamsons became
partners. In any case, the urge to apply section 2411 comes too late because the possible
application of section 2411 to the Williamsons was no part of plaintiff's theory during the
trial. The lack of such a theory is clearly indicated by the fact that plaintiff presented and
requested one instruction based upon section 2411 in relation solely to other parties, not
to the Williamsons. These other parties were defendants Carl Semonian and Harry
Tarpinian, who entered this partnership in March, 1948, taking over the Compere's 75 per
cent with the consent of the Williamsons. fn. 4 This instruction concerning Semonian and
Tarpinian concluded with the statement that "a person admitted as a partner into an
existing partnership is liable for all the obligations of the partnership arising before his
admission as though he had been a partner when such obligations were incurred," section
2411 being cited in its support. We note that even as a section 2411 instruction it was
defective in omitting the very important limitation "except that this liability shall be
satisfied only out of partnership property." In view of these circumstances, plaintiff is not
now in a position to urge section 2411 as a basis for imposing liability upon the
Williamsons.
Plaintiff correctly states that it was the October 13, 1947, agreement which the jurors had
in mind when they found that after the partnership was entered into the Williamsons
assumed the obligation evidenced by the note sued upon. fn. 5 He advances certain
theories as to the legal effect of that agreement, theories that are of significance chiefly in
connection with the question whether the parties could and did rescind the October
agreement.
One of these theories is that this agreement functioned as a ratification by the principal
(the partnership and its members) of the act of its agent (Mrs. Compere) in acquiring the
property and incurring the purchase price obligation. There inheres in this the same
fallacy that we have mentioned [137 Cal.App.2d 317] in relation to the same theory in
connection with the original articles of copartnership, the absence of the essential
elements of principal and agent.
Another theory advanced by plaintiff is that the October, 1947, agreement had the effect
of making the Williamsons the principal obligors and the Comperes mere sureties, to the
extent at least of 50 per cent of the obligation, upon the asserted analogy of the situation
which obtains when a new partnership succeeds an old one and assumes the obligations
of the old, citing Eastin v. Roberts, Carpenter & Co., 19 Cal.App.2d 567, 571 [66 P.2d
224]. Whether that doctrine applies here or not, we need not decide. Plaintiff's connection
with the October agreement is that of third party beneficiary. In that capacity, he may
enforce the contract of assumption "at any time before the parties thereto rescind it" (Civ.
Code, § 1559). [5] Until the "creditor-beneficiary has accepted the benefit or has
detrimentally acted in reliance thereon, the assuming party may rescind. But as long as
the assuming promisor continues to retain the consideration from the original promisee,
the contract for the benefit of the third party cannot be rescinded or revoked. (Pitzer v.
Wedel, 73 Cal.App.2d 86 [165 P.2d 971]; Pearsall v. Townsend, 7 Cal.App.2d 162 [45
P.2d 824].)" (Dick v. Woolson, 106 Cal.App.2d 415, 419-420 [235 P.2d 119].) [6]
"Rescission," of course, denotes the return by the promissors (here, the Williamsons) to
the promisees (the Comperes) of the consideration which the latter had given the former
for the promise to assume the obligation. Here, that requirement was met. The
Williamsons relinquished the additional 25 per cent interest in the partnership which they
acquired by their assumption contract and transferred it back to the Comperes from
whom they had received it.
[7] Concerning the rescission contract fn. 6 of March 3, 1948, plaintiff contends that its
failure expressly to mention that [137 Cal.App.2d 318] clause of the October agreement
which declared that payment of the note would be a partnership expense, operated as a
failure to rescind that clause. We do not so view it. The express rescission of the October
agreement as a whole was adequate and effective without specifically listing and
separately rescinding each and every clause it contained.
Plaintiff claims that the rescission came too late, that it came after plaintiff had accepted
as a third party beneficiary. He predicates this claim upon the fact that on March 1, 1948,
he filed an action against the Comperes and the Williamsons individually to collect the
deficiency on the note. In so doing he was not accepting or enforcing the agreement of
October 13th because he had not yet learned of its existence.
[8] Plaintiff's principal remaining complaint is that the instructions which the court gave
the jury concerning assumption by the Williamsons of obligations that had been created
prior to the effective date of the partnership did not place before the jury plaintiff's
various theories of liability. Irrespective of the question whether the evidence entitled him
to instructions upon any of those theories, he is not in a position now to complain, for he
failed to present them in appropriate form to the court. For example, plaintiff criticizes
instructions 11 and 13 (which were to the effect that a partner is liable for all obligations
incurred by a partnership after he becomes a partner and for such previously incurred
obligations of the business as he assumes and agrees to pay) not on the ground that they
were erroneous (they were correct as far as they went) but because they did not expound
plaintiff's theories of assumption of the debt by way of estoppel, ratification of an agent's
act by his principal, acceptance of the benefits of Mrs. Compere's assignment to the
partnership, and Williamsons' out of court claims to ownership of the assets of the
business. Those theories obviously had to do with the means, manner and method of
assuming or incurring indebtedness. If plaintiff desired that the jury be particularly
instructed in respect thereto he should have requested that the instructions which the
court gave be made more specific or he should have asked for qualifying instructions.
(See Ornales v. Wigger, 35 Cal.2d 474, 478-479 [218 P.2d 531]; Kuehn v. Lowthian, 124
Cal. [137 Cal.App.2d 319] App.2d 867, 871-873 [269 P.2d 666].) Plaintiff says his
instruction Number 10, fn. 7 which the court denied, was on these subjects but he is
mistaken. His Number 10 would have informed the jury concerning the power of a
partner to act for his partnership but said nothing about estoppel, ratification, or any of
the other theories mentioned. Plaintiff's requested instructions Numbers 8, 28, and 31 did
touch upon those theories but each went too far and in effect would have, if given,
directed a verdict in favor of the plaintiff. Number 8 declared that the Williamsons
received as partners all the assets of the business and cannot be heard to deny that they
must assume the bGriffin v. Williamson, 137 Cal.App.2d 308
[Civ. No. 15960. First Dist., Div. One. Nov. 29, 1955.]
NORMAN B. GRIFFIN, Appellant, v. VICTOR L. WILLIAMSON et al., Respondents.
COUNSEL
A. Don Duncan for Appellant.
George W. Hippeli for Respondents. [137 Cal.App.2d 310]
OPINION
WOOD (Fred B.), J.
Plaintiff Norman B. Griffin brought this action against Edwina W. and William Compere
and Victor L. and Gratia Williamson for the remainder due upon a promissory note of the
Comperes after foreclosure of the chattel mortgage which the Comperes had given to
secure the note.
The note, made in the principal sum of $27,500, evidenced the balance due to plaintiff for
the purchase of his cleaning business. There is no question as to the liability of the
Comperes. They raised no issue of fact at the trial. Plaintiff sought to hold the
Williamsons liable as partners of the Comperes; i.e., as persons who were partners at the
time of the transaction in suit or who, subsequently becoming partners, became obligated
to pay.
The jury's verdict was in favor of the Williamsons and against the plaintiff. In response to
special interrogatories, the jury also found: (1) the first written articles of partnership
between the Williamsons and the Comperes were signed and executed "July 31st,
retroactive to May 3, 1947"; (2) before these first written articles of partnership were
signed and executed no partnership by oral agreement existed between the Williamsons
and the Comperes; (3) after the partnership was entered into the Williamsons assumed the
obligation evidence by the note sued upon, "qualified to the extent the obligation was
rescinded"; (4) the Williamsons are not now liable to the plaintiff for the indebtedness so
assumed.
Plaintiff has appealed from that portion of the judgment which was in favor of the
Williamsons; also, from an order which denied his motion for an order vacating the
judgment as to the Williamsons and directing judgment in his favor against the
Williamsons. In support of his appeal, plaintiff presents some 40 specific points under not
less than 20 independent headings. We have considered each of these points and find they
do not present a basis for reversal of the judgment. To discuss them one by one in detail
would draw this opinion out beyond all bounds and fail to serve the most useful purpose.
Instead, we will narrate what of significance happened at the trial, indicate our approval
or disapproval, and state our reasons why. An outline of the sequence of events will aid
the discussion.
Plaintiff was the owner of the "Norman Cleaners," a business having as its assets two
leases, fixtures, equipment and good will. [137 Cal.App.2d 311]
Not later than April 24, 1947, Mrs. Compere became obligated by contract to purchase
this business upon certain terms including the making of a down payment of $10,000 and
the execution by herself and husband of a $27,500 note in plaintiff's favor. On that day
the Comperes executed the note and put it in escrow. In ordinary course the escrow
probably would have been consummated by May 5th (Mrs. Compere took possession
May 5th) but was not in fact consummated until May 21, 1947. fn. 1
On July 31, 1947, the Comperes and the Williamsons signed an agreement in writing to
become and be partners in the conduct of this cleaning business, for a term "commencing
with the date hereof and continuing until dissolved by mutual consent ... or by operation
of law," each of the Williamsons to have a 12 1/2 per cent interest and each of the
Comperes 37 1/2 per cent, and designating Mrs. Compere as manager of the business. At
the same time, Mrs. Compere executed and delivered to the partnership all of her right,
title and interest in and to the business. Each of these two instruments was dated "this 3rd
day of May, 1947." [137 Cal.App.2d 312]
Later, by an agreement in writing dated October 13, 1947, the Comperes and the
Williamsons effected certain changes in their partnership contract. Among other things,
this agreement increased from 25 per cent to 50 per cent the interest of the Williamsons in
the partnership and decreased that of the Comperes from 75 per cent to 50 per cent,
provided for additional cash contributions by the Comperes and the Williamsons,
respectively, recited that the Comperes had borrowed $27,500 from Norman B. Griffin
evidenced by a promissory note of April 24, 1947, in the principal sum of $27,500
bearing interest at 5 1/2 per cent per annum and declared that "for the purpose of
equalizing the contributions to the capital of said partnership by all the partners hereto,
the said Victor L. Williamson and Gratia Williamson hereby agree with the said William
Compere and Edwina W. Compere that the said promissory note and the indebtedness
thereby evidenced shall be considered as a partnership indebtedness and that the payment
of all amounts due thereunder shall be a business expense, and the said Victor L.
Williamson and Gratia Williamson hereby agree to pay to the said William Compere and
Edwina W. Compere 50% of the amount of any judgment which may be recovered
against them in any suit brought upon said promissory note."
By a writing dated March 3, 1948, executed by the Comperes and the Williamsons, they
in terms expressly rescinded their agreement of October 13, 1947. After declaring the
mutual desire of the parties that the October agreement be rescinded and the parties be
restored to the position in the partnership which they held prior to the October agreement,
the agreement of March 3, 1948, expressly declared the October agreement "is hereby
cancelled and nullified"; that the Williamsons "hereby assign and transfer" to the
Comperes "one-half of their 50% interest in said business, and that in consideration
thereof" the Comperes "release" the Williamsons "from the obligation to pay one-half or
any part of any judgment which may be obtained against them in connection with that
certain note and chattel mortgage executed by said Comperes to Norman B. Griffin."
In connection with instructions to the effect that a partner is liable for all the obligations
of the partnership arising after he becomes a member, the court told the jury that the
Williamsons did not become liable on that basis if a partnership between them and the
Comperes did not exist at the time of the execution of the note, which the court [137
Cal.App.2d 313] declared was April 24, 1947, the day the note was signed. (Instructions
11, 13, 14 and 19). fn. 2 Plaintiff complains of the date the court gave the jury, claiming
that the consummation of the escrow (not earlier than May 5th) instead of its
commencement (April 24th) was the critical date because delivery of the note, not its
mere signing, marked the commencement of the obligation on the note and, assertedly,
this is not a case for relation back to the commencement of the escrow. The trial court
apparently viewed this as a case for relation back. Whether this is such a case, we need
not decide. The true test here is the date when the obligation to buy the business and to
pay the agreed purchase price was incurred, which, as we have seen, was April 24, 1947,
the very date which the court gave the jury. The fact that the court described it as the time
of the signing of the note instead of the effective date of the contract of purchase, is
immaterial. Furthermore, the plaintiff requested and the court gave, with modifications,
an instruction quite in harmony with the instructions which he now criticizes; "If you find
that Victor L. Williamson and Gratia Williamson were copartners with William Compere
and Edwina Compere when the promissory note [TEXT STRICKEN]-[obligation]- to
plaintiff Norman B. Griffin [TEXT STRICKEN]-[for]- [TEXT STRICKEN]-[the]-
[TEXT STRICKEN]-[purchase]- [TEXT STRICKEN]-[of]- [TEXT STRICKEN]-[the]-
[TEXT STRICKEN]-[business]- [TEXT STRICKEN]-[and]- [TEXT STRICKEN]-[its]-
[TEXT STRICKEN]-[assets]- [TEXT STRICKEN]-[was]- [TEXT STRICKEN]-
[incurred]- was executed, you will render a verdict in favor of plaintiff against them for
the balance due plaintiff." (Number 19 as given by the court, a modification of plaintiff's
Number 29. Words deleted by the court are in strikeout; words added, in italics. Plaintiff
says that by other instructions the court gave the jury clearly to understand that by
"execution" of the note he meant its "signing," not its signing and delivery; hence, April
24th, not May 5th or May 21st.) This instruction as prepared and submitted by plaintiff,
pointed to the very date which the court gave, April 24th, the date when the "obligation ...
for the purchase price of the business ... was incurred."
The finding that no partnership by oral agreement existed between the Williamsons and
the Comperes prior to the signing (July 31, 1947) of their first written articles of
partnership, is amply supported by the evidence. That fact and the fact that the partners
made their first articles effective [137 Cal.App.2d 314] retroactively only to May 3,
1947, fn. 3 means there was no partnership in existence when (April 24th) Mrs. Compere
incurred the obligation to pay the purchase price, the remaining $27,500 portion of which
was evidence by the note in suit.
Plaintiff contends that by participating in the formation of this partnership and in the
acceptance of Mrs. Compere's transfer to the partnership of her "right, title and interest in
and to the business ... and ... assets of said business," the Williamsons assumed the
obligation evidence by the $27,500 note. He argues that this is like the case of a principal
who, if he accepts the benefits of a contract his agent has made, must accept it with its
burdens. There is no analogy. All that the Williamsons did was to form a partnership with
the Comperes. In so doing and receiving and accepting certain properties the partners did
not assume the personal obligations of the assignor.
Plaintiff invokes also the provisions of sections 1589 and [137 Cal.App.2d 315] 3521 of
the Civil Code. Here, too, the asserted analogy is lacking. There was no assignment or
assumption of [1] "The general rule is that the mere assignment of rights under an
executory contract does not cast upon the assignee any of the personal liabilities imposed
by the contract upon the assignor. (3 Cal.Jur. 281, § 33; Lisenby v. Newton, 120 Cal. 571
[52 P. 813, 65 Am.St.Rep. 203]; Wilson v. Beazley, 186 Cal. 437 [199 P. 772].) But the
rule is, of course, otherwise in a case where the assignee obligates himself to perform the
covenants binding upon his assignor." (Barberich v. Pooshichian, 59 Cal.App. 507, 510
[211 P. 236]. [2] See also Armstrong Co. v. Shell Co. of Calif., 98 Cal.App. 769, 775-776
[277 P. 887].) " 'A person becoming a member of an existing firm, or forming a
partnership with another in the latter's existing business, does not thereby become liable
for the debts already incurred, nor does the new firm become liable for them. An
agreement, express or implied, is necessary to create such liability, not only between the
creditors and the new firm but also as between the partners; that is to say, the
presumption is against the assumption of such liability, and the burden to prove it is upon
the one who asserts it. ...' " (Wine Packing Corp. of Calif. v. Voss, 37 Cal.App.2d 528,
533-534 [100 P.2d 325].) [3] In our case, at most, the partnership acquired the property
subject to the lien of the chattel mortgage, there being nothing in the partnership
agreement or in the assignment from Mrs. Compere indicative of an intent to assume an
obligation of any kind.
[4] Plaintiff advances still another theory for assumption of liability by the Williamsons,
this time limited to partnership property. He directs attention to section 2411 of the Civil
Code (Uniform Partnership Act, § 17; now Corp. Code, § 15017) which in 1947 provided
that a person admitted as a partner "into an existing partnership" is liable for all the
"obligations of the partnership arising before his admission" as though he had been a
partner when such obligations were incurred "except that this liability shall be satisfied
only out of partnership property." There are authorities which indicate that these
provisions are actually as well as literally limited to the case of a person who becomes a
member of an existing partnership. (See Wine Packing Corp. of Calif. v. Voss, supra, 37
Cal.App.2d 528, and Hargis v. Hargis, 221 Ark. 654 [255 S.W.2d 663].) If that be the law,
then section 2411 does not here apply for lack of evidence [137 Cal.App.2d 316] that the
Comperes operated as partners prior to the time they and the Williamsons became
partners. In any case, the urge to apply section 2411 comes too late because the possible
application of section 2411 to the Williamsons was no part of plaintiff's theory during the
trial. The lack of such a theory is clearly indicated by the fact that plaintiff presented and
requested one instruction based upon section 2411 in relation solely to other parties, not
to the Williamsons. These other parties were defendants Carl Semonian and Harry
Tarpinian, who entered this partnership in March, 1948, taking over the Compere's 75 per
cent with the consent of the Williamsons. fn. 4 This instruction concerning Semonian and
Tarpinian concluded with the statement that "a person admitted as a partner into an
existing partnership is liable for all the obligations of the partnership arising before his
admission as though he had been a partner when such obligations were incurred," section
2411 being cited in its support. We note that even as a section 2411 instruction it was
defective in omitting the very important limitation "except that this liability shall be
satisfied only out of partnership property." In view of these circumstances, plaintiff is not
now in a position to urge section 2411 as a basis for imposing liability upon the
Williamsons.
Plaintiff correctly states that it was the October 13, 1947, agreement which the jurors had
in mind when they found that after the partnership was entered into the Williamsons
assumed the obligation evidenced by the note sued upon. fn. 5 He advances certain
theories as to the legal effect of that agreement, theories that are of significance chiefly in
connection with the question whether the parties could and did rescind the October
agreement.
One of these theories is that this agreement functioned as a ratification by the principal
(the partnership and its members) of the act of its agent (Mrs. Compere) in acquiring the
property and incurring the purchase price obligation. There inheres in this the same
fallacy that we have mentioned [137 Cal.App.2d 317] in relation to the same theory in
connection with the original articles of copartnership, the absence of the essential
elements of principal and agent.
Another theory advanced by plaintiff is that the October, 1947, agreement had the effect
of making the Williamsons the principal obligors and the Comperes mere sureties, to the
extent at least of 50 per cent of the obligation, upon the asserted analogy of the situation
which obtains when a new partnership succeeds an old one and assumes the obligations
of the old, citing Eastin v. Roberts, Carpenter & Co., 19 Cal.App.2d 567, 571 [66 P.2d
224]. Whether that doctrine applies here or not, we need not decide. Plaintiff's connection
with the October agreement is that of third party beneficiary. In that capacity, he may
enforce the contract of assumption "at any time before the parties thereto rescind it" (Civ.
Code, § 1559). [5] Until the "creditor-beneficiary has accepted the benefit or has
detrimentally acted in reliance thereon, the assuming party may rescind. But as long as
the assuming promisor continues to retain the consideration from the original promisee,
the contract for the benefit of the third party cannot be rescinded or revoked. (Pitzer v.
Wedel, 73 Cal.App.2d 86 [165 P.2d 971]; Pearsall v. Townsend, 7 Cal.App.2d 162 [45
P.2d 824].)" (Dick v. Woolson, 106 Cal.App.2d 415, 419-420 [235 P.2d 119].) [6]
"Rescission," of course, denotes the return by the promissors (here, the Williamsons) to
the promisees (the Comperes) of the consideration which the latter had given the former
for the promise to assume the obligation. Here, that requirement was met. The
Williamsons relinquished the additional 25 per cent interest in the partnership which they
acquired by their assumption contract and transferred it back to the Comperes from
whom they had received it.
[7] Concerning the rescission contract fn. 6 of March 3, 1948, plaintiff contends that its
failure expressly to mention that [137 Cal.App.2d 318] clause of the October agreement
which declared that payment of the note would be a partnership expense, operated as a
failure to rescind that clause. We do not so view it. The express rescission of the October
agreement as a whole was adequate and effective without specifically listing and
separately rescinding each and every clause it contained.
Plaintiff claims that the rescission came too late, that it came after plaintiff had accepted
as a third party beneficiary. He predicates this claim upon the fact that on March 1, 1948,
he filed an action against the Comperes and the Williamsons individually to collect the
deficiency on the note. In so doing he was not accepting or enforcing the agreement of
October 13th because he had not yet learned of its existence.
[8] Plaintiff's principal remaining complaint is that the instructions which the court gave
the jury concerning assumption by the Williamsons of obligations that had been created
prior to the effective date of the partnership did not place before the jury plaintiff's
various theories of liability. Irrespective of the question whether the evidence entitled him
to instructions upon any of those theories, he is not in a position now to complain, for he
failed to present them in appropriate form to the court. For example, plaintiff criticizes
instructions 11 and 13 (which were to the effect that a partner is liable for all obligations
incurred by a partnership after he becomes a partner and for such previously incurred
obligations of the business as he assumes and agrees to pay) not on the ground that they
were erroneous (they were correct as far as they went) but because they did not expound
plaintiff's theories of assumption of the debt by way of estoppel, ratification of an agent's
act by his principal, acceptance of the benefits of Mrs. Compere's assignment to the
partnership, and Williamsons' out of court claims to ownership of the assets of the
business. Those theories obviously had to do with the means, manner and method of
assuming or incurring indebtedness. If plaintiff desired that the jury be particularly
instructed in respect thereto he should have requested that the instructions which the
court gave be made more specific or he should have asked for qualifying instructions.
(See Ornales v. Wigger, 35 Cal.2d 474, 478-479 [218 P.2d 531]; Kuehn v. Lowthian, 124
Cal. [137 Cal.App.2d 319] App.2d 867, 871-873 [269 P.2d 666].) Plaintiff says his
instruction Number 10, fn. 7 which the court denied, was on these subjects but he is
mistaken. His Number 10 would have informed the jury concerning the power of a
partner to act for his partnership but said nothing about estoppel, ratification, or any of
the other theories mentioned. Plaintiff's requested instructions Numbers 8, 28, and 31 did
touch upon those theories but each went too far and in effect would have, if given,
directed a verdict in favor of the plaintiff. Number 8 declared that the Williamsons
received as partners all the assets of the business and cannot be heard to deny that they
must assume the balance of the purchase price. Number 28 stated "as a matter of law"
that the Williamsons were partners when the obligation to pay the purchase price was
incurred. Number 31 declared that the Williamsons could not rescind their agreement or
assumption of liability because they had retained the consideration for their promise to
pay the obligation to plaintiff, which consideration consisted of "the assets of plaintiff's
business, which he had sold to the partnership." Plaintiffs' Number 9 dealt with the
character of proof required when a stranger asserts the existence of a partnership, but we
are unable to consider and determine the propriety of this requested instruction because it
appears from the record that "this instruction also contained other material" than that
which is set forth in the record upon this appeal. Moreover, as noted earlier in this
opinion, plaintiff is not in a position to challenge instructions numbered 11 and 13. They
are chargeable to him as appellant because the record is silent as to their source, whether
requested by the plaintiff or the defendants or given by the court upon its own motion.
The court gave two instructions (Numbers 15 and 16) which dealt with rescission of
contract. Plaintiff takes exception to them not upon the ground that they incorrectly
expressed the law but that the court in effect committed to the jury the interpretation of
the written contracts of October, 1947, and March, 1948. Whether or not that was error
seems immaterial in view of the fact that the jury arrived at correct interpretations.
It was not error to deny plaintiff's instructions 19-22, inclusive. They would, erroneously,
have given the jury May [137 Cal.App.2d 320] 5th instead of April 24, 1947, as the date
when the obligation for the payment of the purchase price was incurred.
Plaintiff's instructions Numbers 7 and 24-27, inclusive, were offered by him in support of
his claim that the first written articles of partnership were effective as of May 3, 1947.
The court's refusal to give them, whether proper or improper, could not have been
prejudicial in view of the fact that the jury found with plaintiff on that point.
We find no abuse of discretion in the denial of plaintiff's motion to amend his complaint.
The amendments, designed to conform to proof, did not present any issues concerning
which the proof, as we view it, furnished a predicate for a different judgment that was
rendered.
We find no merit in plaintiff's claim that it was error to deny his motion for judgment
notwithstanding the verdict and his motion to vacate the judgment as to the Williamsons
and enter judgment in his favor against them.
The portion of the judgment appealed from and the order denying the motion to vacate a
portion of the judgment and render judgment in plaintiff's favor are affirmed.
Peters, P. J., and Bray, J., concurred.
FN 1. A few days before April 24, 1947, through E. W. Taylor, plaintiff orally agreed to
sell the business to Mrs. Compere. The transaction, because Taylor had no broker's
license, was handled as a sale from plaintiff to Taylor and from Taylor to Mrs. Compere.
Not later than April 24, 1947, Taylor as seller and Mrs. Compere as purchaser signed an
agreement in writing (dated April 21, 1947) whereby he promised to sell the business and
she promised to buy it upon certain terms and conditions which included a promise by the
purchaser to make a $10,000 down payment and to give a promissory note in the sum of
$27,500 payable at the rate of $500 per month with interest at 5 1/2 per cent. This
agreement also recited the payment of $500 by William George Compere and Edwina
Compere and designated them as the purchaser.
On April 24, 1947, Taylor, Mrs. Compere and Griffin met at the office of the Bay Cities
Escrow Company and opened two escrows, one relating to the sale from Griffin to
Taylor, the other relating to the sale from Taylor to Compere. The Taylor-Compere
escrow agreement, signed by Taylor and both Comperes, designated Taylor as vendor and
Edwina Compere as vendee, incorporated the provisions of the April 21 agreement by
declaring that "the herein escrow instructions are subject to the terms and conditions of a
Uniform Agreement of Sale and Deposit Receipt executed by the parties hereto"
(emphasis added) and stated that the note and a chattel mortgage securing its payment
would be executed by William George Compere and Edwina Compere, his wife, in favor
of Norman B. Griffin.
On the same day the Comperes signed the note and the chattel mortgage and placed them
in escrow. Taylor put in escrow a bill of sale conveying the business to "Edwina
Compere," a notice of intended sale, under the Bulk Sales Act, designating "Edwina
Compere" as the vendee, and an assignment of lease to "Edwina Compere" which
assignment was in writing accepted by her and approved by the lessors.
FN 2. We observe that the record fails to indicate the source of instructions 11 and 13
(whether requested by plaintiff or defendant or given on the court's own motion); hence,
presumably requested by plaintiff-appellant and not subject to challenge by him upon
appeal.
FN 3. Plaintiff complains of parol evidence that was admitted concerning the occasion,
purpose and intent of the parties in preparing and executing the partnership agreement
dated May 3, 1947.
We find no error in that, plaintiff being a stranger to that agreement. The parol evidence
rule applies as "between the parties and their representative, or successors in interest"
(Code Civ. Proc., § 1856) or "between the parties thereto, or their successors in interest
by a subsequent title" (Code Civ. Proc., § 1962, subd. 2). Moreover, plaintiff can show no
prejudice to his case, because the jury found in his favor when it found the agreement
was effective retroactively as of May 3, 1947.
Plaintiff contends that because in a certain other action Williamson assertedly made a
claim to certain moneys "by reason of the partnership agreement ... dated May 3, 1947"
and because in another action he asserted through his attorneys that the property covered
by the chattel mortgage was sold to Williamson "on April 24, 1947," he was conclusively
bound by such declarations and they tended to prove the commencement of the
partnership as of April 24th, or at least by May 3, 1947. It would appear that such
statements were, at most, evidence in the case and merely conflicted with Williamson's
testimony that there was no partnership created by oral agreement and no partnership
agreement prior to the written agreement which was dated May 3, 1947.
Plaintiff complains that the court erroneously curtailed his examination of Williamson
concerning a statement made by the latter upon deposition in another action wherein
Williamson assertedly claimed that his title to and in to the property of the business dated
back as early as sometime in April. Asked what he wished to prove, plaintiff's counsel
said he wished to show that the witness was "estopped" to deny his partnership from the
beginning, "by reason of the fact that he claims title to these assets of the partnership
which were acquired at the beginning of the partnership in this suit." The court ruled that
Williamson would not thereby be estopped to deny that he became a partner before he in
fact did become a partner, and so informed the jury at the time. We see no error in that.
Plaintiff's offer of proof set forth no element of estoppel, at most an out of court statement
by Williamson inconsistent with his testimony in court. If plaintiff had the latter in mind
he should have so informed the court.
FN 4. The trial court directed a verdict in favor of Semonian and Tarpinian and plaintiff
did not appeal from the portion of the judgment which was in their favor.
FN 5. Plaintiff claims it was error for the court to admit evidence of a conversation the
parties had just before they prepared and executed the October 13th agreement and also
error to submit to the jury the interpretation of the agreement. We are not convinced it
was error, but even if it were the plaintiff has not been prejudiced because the jury found
in his favor concerning the effect of the agreement, and the Williamsons have not
appealed.
FN 6. Plaintiff assigns as error, in violation of the parol evidence rule, Williamson's
testimony concerning a conversation he and Mrs. Compere had prior to the drafting and
execution of this contract. That testimony merely showed the occasion for changing the
partnership arrangement, including the fact that Mrs. Compere felt she should not
continue to carry on with the management of the business and the fact that she and her
husband were leaving California. That testimony did not purport to interpret the contract
or vary its terms. The writing was so clearly a contract of rescission, the admission of the
testimony could have done no possible harm.
Upon the ground that a written instrument presents questions of law for determination by
the court only, plaintiff claims it was reversible error to submit to the jury the question
whether or not the October agreement was rescinded. If there were only legal questions
involved, no harm was done because the jury correctly viewed the 1948 agreement as one
of rescission.
FN 7. Plaintiff's requested instructions bear one series of numbers; those actually given
by the court, another series of numbers.
alance of the purchase price. Number 28 stated "as a matter of law" that the Williamsons
were partners when the obligation to pay the purchase price was incurred. Number 31
declared that the Williamsons could not rescind their agreement or assumption of liability
because they had retained the consideration for their promise to pay the obligation to
plaintiff, which consideration consisted of "the assets of plaintiff's business, which he had
sold to the partnership." Plaintiffs' Number 9 dealt with the character of proof required
when a stranger asserts the existence of a partnership, but we are unable to consider and
determine the propriety of this requested instruction because it appears from the record
that "this instruction also contained other material" than that which is set forth in the
record upon this appeal. Moreover, as noted earlier in this opinion, plaintiff is not in a
position to challenge instructions numbered 11 and 13. They are chargeable to him as
appellant because the record is silent as to their source, whether requested by the plaintiff
or the defendants or given by the court upon its own motion.
The court gave two instructions (Numbers 15 and 16) which dealt with rescission of
contract. Plaintiff takes exception to them not upon the ground that they incorrectly
expressed the law but that the court in effect committed to the jury the interpretation of
the written contracts of October, 1947, and March, 1948. Whether or not that was error
seems immaterial in view of the fact that the jury arrived at correct interpretations.
It was not error to deny plaintiff's instructions 19-22, inclusive. They would, erroneously,
have given the jury May [137 Cal.App.2d 320] 5th instead of April 24, 1947, as the date
when the obligation for the payment of the purchase price was incurred.
Plaintiff's instructions Numbers 7 and 24-27, inclusive, were offered by him in support of
his claim that the first written articles of partnership were effective as of May 3, 1947.
The court's refusal to give them, whether proper or improper, could not have been
prejudicial in view of the fact that the jury found with plaintiff on that point.
We find no abuse of discretion in the denial of plaintiff's motion to amend his complaint.
The amendments, designed to conform to proof, did not present any issues concerning
which the proof, as we view it, furnished a predicate for a different judgment that was
rendered.
We find no merit in plaintiff's claim that it was error to deny his motion for judgment
notwithstanding the verdict and his motion to vacate the judgment as to the Williamsons
and enter judgment in his favor against them.
The portion of the judgment appealed from and the order denying the motion to vacate a
portion of the judgment and render judgment in plaintiff's favor are affirmed.
Peters, P. J., and Bray, J., concurred.
FN 1. A few days before April 24, 1947, through E. W. Taylor, plaintiff orally agreed to
sell the business to Mrs. Compere. The transaction, because Taylor had no broker's
license, was handled as a sale from plaintiff to Taylor and from Taylor to Mrs. Compere.
Not later than April 24, 1947, Taylor as seller and Mrs. Compere as purchaser signed an
agreement in writing (dated April 21, 1947) whereby he promised to sell the business and
she promised to buy it upon certain terms and conditions which included a promise by the
purchaser to make a $10,000 down payment and to give a promissory note in the sum of
$27,500 payable at the rate of $500 per month with interest at 5 1/2 per cent. This
agreement also recited the payment of $500 by William George Compere and Edwina
Compere and designated them as the purchaser.
On April 24, 1947, Taylor, Mrs. Compere and Griffin met at the office of the Bay Cities
Escrow Company and opened two escrows, one relating to the sale from Griffin to
Taylor, the other relating to the sale from Taylor to Compere. The Taylor-Compere
escrow agreement, signed by Taylor and both Comperes, designated Taylor as vendor and
Edwina Compere as vendee, incorporated the provisions of the April 21 agreement by
declaring that "the herein escrow instructions are subject to the terms and conditions of a
Uniform Agreement of Sale and Deposit Receipt executed by the parties hereto"
(emphasis added) and stated that the note and a chattel mortgage securing its payment
would be executed by William George Compere and Edwina Compere, his wife, in favor
of Norman B. Griffin.
On the same day the Comperes signed the note and the chattel mortgage and placed them
in escrow. Taylor put in escrow a bill of sale conveying the business to "Edwina
Compere," a notice of intended sale, under the Bulk Sales Act, designating "Edwina
Compere" as the vendee, and an assignment of lease to "Edwina Compere" which
assignment was in writing accepted by her and approved by the lessors.
FN 2. We observe that the record fails to indicate the source of instructions 11 and 13
(whether requested by plaintiff or defendant or given on the court's own motion); hence,
presumably requested by plaintiff-appellant and not subject to challenge by him upon
appeal.
FN 3. Plaintiff complains of parol evidence that was admitted concerning the occasion,
purpose and intent of the parties in preparing and executing the partnership agreement
dated May 3, 1947.
We find no error in that, plaintiff being a stranger to that agreement. The parol evidence
rule applies as "between the parties and their representative, or successors in interest"
(Code Civ. Proc., § 1856) or "between the parties thereto, or their successors in interest
by a subsequent title" (Code Civ. Proc., § 1962, subd. 2). Moreover, plaintiff can show no
prejudice to his case, because the jury found in his favor when it found the agreement
was effective retroactively as of May 3, 1947.
Plaintiff contends that because in a certain other action Williamson assertedly made a
claim to certain moneys "by reason of the partnership agreement ... dated May 3, 1947"
and because in another action he asserted through his attorneys that the property covered
by the chattel mortgage was sold to Williamson "on April 24, 1947," he was conclusively
bound by such declarations and they tended to prove the commencement of the
partnership as of April 24th, or at least by May 3, 1947. It would appear that such
statements were, at most, evidence in the case and merely conflicted with Williamson's
testimony that there was no partnership created by oral agreement and no partnership
agreement prior to the written agreement which was dated May 3, 1947.
Plaintiff complains that the court erroneously curtailed his examination of Williamson
concerning a statement made by the latter upon deposition in another action wherein
Williamson assertedly claimed that his title to and in to the property of the business dated
back as early as sometime in April. Asked what he wished to prove, plaintiff's counsel
said he wished to show that the witness was "estopped" to deny his partnership from the
beginning, "by reason of the fact that he claims title to these assets of the partnership
which were acquired at the beginning of the partnership in this suit." The court ruled that
Williamson would not thereby be estopped to deny that he became a partner before he in
fact did become a partner, and so informed the jury at the time. We see no error in that.
Plaintiff's offer of proof set forth no element of estoppel, at most an out of court statement
by Williamson inconsistent with his testimony in court. If plaintiff had the latter in mind
he should have so informed the court.
FN 4. The trial court directed a verdict in favor of Semonian and Tarpinian and plaintiff
did not appeal from the portion of the judgment which was in their favor.
FN 5. Plaintiff claims it was error for the court to admit evidence of a conversation the
parties had just before they prepared and executed the October 13th agreement and also
error to submit to the jury the interpretation of the agreement. We are not convinced it
was error, but even if it were the plaintiff has not been prejudiced because the jury found
in his favor concerning the effect of the agreement, and the Williamsons have not
appealed.
FN 6. Plaintiff assigns as error, in violation of the parol evidence rule, Williamson's
testimony concerning a conversation he and Mrs. Compere had prior to the drafting and
execution of this contract. That testimony merely showed the occasion for changing the
partnership arrangement, including the fact that Mrs. Compere felt she should not
continue to carry on with the management of the business and the fact that she and her
husband were leaving California. That testimony did not purport to interpret the contract
or vary its terms. The writing was so clearly a contract of rescission, the admission of the
testimony could have done no possible harm.
Upon the ground that a written instrument presents questions of law for determination by
the court only, plaintiff claims it was reversible error to submit to the jury the question
whether or not the October agreement was rescinded. If there were only legal questions
involved, no harm was done because the jury correctly viewed the 1948 agreement as one
of rescission.
FN 7. Plaintiff's requested instructions bear one series of numbers; those actually given
by the court, another series of numbers.
Mitchell v. Marklund, 238 Cal.App.2d 398

[Civ. No. 494. Fifth Dist. Nov. 24, 1965.]
HILMA RENEE MITCHELL et al., Plaintiffs and Appellants, v. ANNIE MARKLUND
et al., Defendants and Respondents.
COUNSEL
Annette La Rue for Plaintiffs and Appellants.
William M. Miles and Miles & Sears for Defendants and Respondents.
OPINION
BROWN (R.M.), J.
This appeal originated in an action brought by the plaintiffs-appellants against the
defendants-respondents seeking to obtain a prohibitory injunction and to impose a
constructive trust upon real and personal property and to enforce a provision of a property
settlement agreement between their parents. Plaintiffs appeal from an adverse judgment.
Plaintiffs are the adult daughter and adult son of a John A. Marklund, now deceased, and
Soleria Renee Marklund. Soleria was alive at the time of trial. The defendant Annie
Marklund is the second wife of John. The defendant Thomas W. Chidlaw is a court-
appointed referee in a partition action brought by John against Soleria during the former's
life, and still holds or controls funds which are affected by this action. He is a mere
stakeholder as to this action.
On June 23, 1958, John and Soleria executed a property settlement agreement in
connection with a divorce proceeding. The paragraph giving rise to the controversy here
involved provides: "That both parties desire that all of the property of which they die
possessed go equally to their two children, Charles A. Marklund of Madera and Hilma
Mitchell of Fresno, California or if either child predeceases either or both of their parents
that the share of said child should go to the children of the said deceased child. That in
order to effect this disposition of their property, the parties hereto agree to execute wills
including such provisions and that said wills when executed shall be irrevocable."
On July 15, 1958, an interlocutory decree of divorce was granted to Soleria. The decree
adopted, confirmed and approved the property settlement agreement, a fully executed
copy of which was physically incorporated therein. The court [238 Cal.App.2d 401]
specifically retained jurisdiction to entertain a partition action upon good cause being
shown in connection with certain real property owned by John and Soleria, referred to
hereinafter as the ranch property. A final decree of divorce was subsequently entered. No
appeal was taken from either decree.
John married Annie Marklund on November 21, 1959. He placed certain real property in
joint tenancy in his name and the name of Annie. He successfully initiated an action
seeking partition of the ranch, which was sold by the defendant Chidlaw, acting under
appointment of the court. On April 6, 1961, John assigned to Annie his interest in the
proceeds of the sale of the ranch. On April 6, 1961, he made and executed a will naming
Annie as sole beneficiary and specifically disinheriting the plaintiffs herein. John died on
June 13, 1961. His estate was administered and the assets distributed to Annie.
The plaintiffs commenced this action seeking to impose a trust upon all property, real and
personal, which Annie received from John, either by inter vivos transfers or by
testamentary gift, and seeking an injunction prohibiting the defendant Chidlaw from
paying over to Annie and prohibiting Annie from receiving from Chidlaw, any further
moneys derived from the sale of the ranch. The complaint was predicated upon the
promise of John to execute an irrevocable will in favor of these plaintiffs contained in the
property settlement agreement and embodied in the divorce decrees. Plaintiffs tried their
case with the agreement as the basis of their right to recover.
The theory of the defense was that the agreement was rescinded, revoked, or abandoned
during the lifetime of John A. Marklund; that there was a material failure of consideration
for the agreement of John, and that it would be inequitable to decree quasi-specific
enforcement of John's promise to make a will in favor of the plaintiffs.
At the nonjury trial of the action, the defendants established that on July 30, 1959, Soleria
made and executed a formal will naming as beneficiaries her several grandchildren, her
son, her daughter, and the Trinity Lutheran Church. A special bequest in favor of her son
was made conditional. The residuary clause provides that one-half of the residue should
go to her son and one-half to her daughter, with a gift over to her son-in-law if her
daughter predeceased her. It was also established by irrefutable evidence that, prior to the
death of [238 Cal.App.2d 402] John, Soleria received a sum in excess of $33,000 from
the proceeds of the sale of the ranch and deposited the same in account No. 19749, with
Guarantee Savings and Loan Association, Fresno, California, in the names of herself and
her daughter, as joint tenants. By exhibits introduced into evidence, it was also
established that Soleria subsequently purchased stocks in the names of herself and her
daughter, as joint tenants.
The trial judge found, in relevant part: "That bitter litigation between John A. Marklund
and Soleria Renee Marklund continued from the time of the filing of the divorce
complaint until the date of John A. Marklund's death; that Soleria Renee Marklund,
during the lifetime of John A. Marklund, had notice that he did not feel nor intend to be
bound by said agreement above referred to; that Soleria Renee Marklund violated the
terms of said above quoted agreement during the lifetime of the said John A. Marklund
by executing a will disposing of her property contrary to the terms thereof, and further by
placing her share of the proceeds of the sale of the said ranch in a savings account
standing in the names of herself and Hilma Renee Mitchell, as joint tenants, and
subsequently transferring some of her funds into stocks listed in the names of herself and
Hilma Renee Mitchell, as joint tenants, without making equal or any provision for her
other child; that by reason of her breach of said agreement, said Soleria Renee Mitchell
had no right to enforce said agreement against John A. Marklund, or his estate, and the
same was not binding on him.
"That at the time of her marriage to John A. Marklund, defendant Annie Marklund did not
know of the agreement between John A. Marklund and Soleria Renee Marklund,
hereinabove mentioned.
"That plaintiffs herein gave no material consideration to either Soleria Renee Marklund
or John A. Marklund for the execution of said agreement herein mentioned. Neither did
they change their position in reliance thereon. That it would be harsh and inequitable to
grant the relief prayed for, and plaintiffs have not proved that to refuse to grant it would
be inequitable to them; ..."
The trial judge concluded "that said agreement ... was materially breached prior to the
death of John A. Marklund and is and was, therefore, unenforceable by her or the
plaintiffs herein"; judgment in favor of the defendants was entered accordingly, and this
appeal followed. [238 Cal.App.2d 403]
The appellants do not appear to specify any particular charges of error or errors, nor do
they object to any ruling made by the trial court or complain of any misconduct. There is
no charge of insufficiency of the evidence and no objection is made to the form or
sufficiency of the findings or conclusions, or that such do not support the judgment.
In their opening brief the appellants set forth bald statements of legal principles. (See
Richard v. Richard, 123 Cal.App.2d 900 [267 P.2d 867].) The theory for which they are
stated is speculative. We are unable to determine exactly what the plaintiffs' theory is--res
judicata? or lack of jurisdiction? [1] If res judicata, it may not be raised for the first time
on appeal. (Ogier v. Pacific Oil & Gas Development Corp., 135 Cal.App.2d 776, 781
[288 P.2d 101].) [2] If lack of jurisdiction, it may be challenged on appeal for the first
time. They state, "Plaintiffs are suing to enforce their rights under a final judgment" and
argue that the original property settlement was merged in the interlocutory and final
decrees of divorce and is not now subject to attack.
[3] To the problem as to whether or not the appellants can change their theory on appeal,
where the matter was tried on the basis of their rights being based on the settlement
agreement, to the theory that their rights are based on a final judgment, we refer to
Panopulos v. Maderis, 47 Cal.2d 337 [303 P.2d 738], which sets forth the general rule that
this cannot be done when the theory newly presented involves disputed questions of fact
or mixed questions of law and fact, but there are exceptions where a question of law only
is presented on the facts appearing in the record. (See also Barrera v. De La Torre, 48
Cal.2d 166, 172 [308 P.2d 724]; Ward v. Taggart, 51 Cal.2d 736, 742 [336 P.2d 534].) [4]
The question of whether or not a property settlement agreement is incorporated into a
divorce decree so as to merge therein is one of law. (See Messenger v. Messenger, 46
Cal.2d 619, 626 [297 P.2d 988]; Biagi v. Biagi, 233 Cal.App.2d 624, 628 [43 Cal.Rptr.
707].) We have therefore considered the newly presented theory of the plaintiffs and find
it to be without merit. [5] The agreement to make wills cannot acquire the status of a
judgment by the physical incorporation of the property settlement in which it is embodied
into the interlocutory decree of divorce for the reason that it is beyond the power of a
court, sitting as a divorce court, to make. [6] First, no court may compel the making of a
will (Ludwicki v. Guerin, 57 Cal.2d 127, 130 [17 Cal.Rptr. 823, [238 Cal.App.2d 404]
367 P.2d 415]). [7] Second, the power of the court to dispose of the property of the parties
to a divorce action is limited to their community property (Robinson v. Robinson, 65
Cal.App.2d 118, 119 [150 P.2d 7]).
It is the general rule that the court has no jurisdiction to assign separate property of one
spouse to the other (Fox v. Fox, 18 Cal.2d 645, 646 [117 P.2d 325]), and where it does do
so, such matters are not res judicata (Sonnicksen v. Sonnicksen, 45 Cal.App.2d 46, 58
[113 P.2d 495]); and the court may not declare a homestead on separate property of one
spouse in favor of the other (Miller v. Miller, 227 Cal.App.2d 322 [38 Cal.Rptr. 571]). [8]
It does not have jurisdiction to destroy the survivorship aspect of a joint tenancy deed
(Davis v. Davis, 222 Cal.App.2d 691 [35 Cal.Rptr. 281]). [9] The disposition of a
husband's estate exceeds the court's power, and California courts have no jurisdiction to
fashion a divorce decree which divests a husband of all interest in his land, for the
purpose of vesting it in his children when they reach adulthood. (Farley v. Farley, 227
Cal.App.2d 1, 7 [38 Cal.Rptr. 357].) Therefore, in this case the divorce court lacked
power to order John to make a will disposing of his separate property.
Appellants have also set forth that even if the property settlement agreement had not been
merged in the judgment, no rescission has been shown and that the trial court did not so
find. However, it did find, on ample evidence, that Soleria materially breached the
contract by executing her will and establishing the joint tenancy in the savings account
and the stock with her daughter.
We note that the appellants have relied a great deal on the language set forth in Brown v.
Superior Court, 34 Cal.2d 559 [212 P.2d 878], and Brewer v. Simpson, 53 Cal.2d 567 [2
Cal.Rptr. 609, 349 P.2d 289], the latter case being a subsequent determination of the
litigation between the same parties as involved in the former case. It will be noted that the
Brewer case set forth facts where the wife received the benefits of a reciprocal agreement
on the death of the husband and proceeded to do otherwise than as agreed, which does
not apply to the facts in the case before us.
The appellants have failed to mention any of the breaches as far as Soleria is concerned,
though we think that her breaches were a determinative factor on which the lower court
made its decision. [10] As stated in Notten v. Mensing, 3 Cal.2d 469, 473 [45 P.2d 198],
"It is clear that a will, [238 Cal.App.2d 405] even a mutual will, is ambulatory until
death and hence may be revoked, notwithstanding an agreement not to revoke.
[Citations.] However, ... where there is a valid agreement not to revoke, which agreement
is fair and reasonable and adequately supported by consideration, equity will grant a sort
of 'quasi-specific performance' by making the parties who receive the estate constructive
trustees for the intended beneficiaries under the revoked mutual will, in accordance with
the terms of the contract." (See also Ludwicki v. Guerin, supra, 57 Cal.2d 127.)
In volume 97, Corpus Juris Secundum, Wills, section 1367, pages 306-307, there is a
discussion on agreements to make mutual wills. It is stated: "Moreover, while both or all
of the parties to such an agreement are yet alive, any party may recede therefrom, and
revoke his will or make a different disposition of his property, on giving proper notice to
the other party or parties of his act in so doing, or where such other or others have actual
knowledge thereof [fn. Corpus Juris quoted in Allen v. Dillard, 129 P.2d 813, 820, 15
Wash.2d 35; 69 C.J. p. 1301 note 74], and provided such other is afforded an ample
opportunity to make a new will, and has not changed his position, to his detriment, in
reliance on the agreement.
"On the other hand, a revocation or alteration of his will by one of the parties to such an
agreement in secret, or without notice to, or the knowledge of, the other or others,
although all are yet alive, does not release such party from his obligations under the
agreement, and it remains enforceable against him. A breach of such an agreement by one
of the parties may, however, be treated by the other party or parties, at their option, as
releasing them from their obligations under the agreement.
"Failure to make a valid will constitutes a breach of an agreement to execute mutual
wills; but if both parties fail to do so, neither can take advantage of the other's failure."
The trial court found that there was a repudiation of the contract by Soleria by the
activities in which she engaged after the divorce decree and this was more than sufficient
to release her former husband from his obligations under the contract.
[11] As stated in Sonnicksen v. Sonnicksen, supra, 45 Cal.App.2d 46, at page 57,
"Repudiation is a question of fact and intent." And in Thompson v. Boyd, 217 Cal.App.2d
[238 Cal.App.2d 406] 365, at page 382 [32 Cal.Rptr. 513], the court said: "The question
of whether a contract has been cancelled, rescinded, or abandoned is a mixed question of
law and fact which is addressed to the trial court."
Civil Code section 1559 states: "A contract, made expressly for the benefit of a third
person, may be enforced by him at any time before the parties thereto rescind it."
[12] While the court has held in Sonnicksen v. Sonnicksen, supra, that such third party
beneficiaries were entitled to enforce their rights in a suit to quiet title, we think that the
rights of such third party beneficiaries are dependent on whether or not the agreement to
take care of them is still in force and effect.
[13] "The principles governing rescission of third-party beneficiary contracts are those
applicable to the rescission of contracts generally." (R. J. Cardinal Co. v. Ritchie, 218
Cal.App.2d 124, 149 [32 Cal.Rptr. 545].)
[14a] There is no showing whatsoever in the trial of this matter that there was any
particular consideration other than mutual promises for the agreement of Soleria and John
to make reciprocal wills or that the beneficiaries had any knowledge or changed their
position.
In volume 57, American Jurisprudence, Wills, section 706, pages 476-477, it is said:
"This is in accord with the general rule which is supported by the weight of authority, but
not with entire unanimity, that the parties to a contract entered into for the benefit of a
third person may rescind the contract as they see fit, without the assent of the third
person, at any time before the contract is accepted, adopted, or acted upon by him, and
such rescission deprives the third person of any rights under or because of such contract."
Further, in volume 57, American Jurisprudence, Wills, section 714, at page 484, it is said
that there is support for the proposition that a will jointly signed by two testators, or
separate wills, executed pursuant to a contract, "can be revoked by the one while the
other is living without committing a breach of contract of which equity will take
cognizance to require specific performance, provided notice of such revocation is given
to the other party or he has acquired knowledge of the revocation in some other manner."
In our case, the court found that Soleria did have notice that John was not going to be
bound by the provisions of the will and she proceeded to make a new and different will
and put certain property in joint tenancy. [238 Cal.App.2d 407]
In Riley v. Riley, 118 Cal.App.2d 11, the court stated at page 15 [256 P.2d 1056]: "The
parties to a contract entered into for the benefit of third persons may rescind or abrogate it
without the assent of such third persons at any time before the contract is accepted,
adopted or acted upon by such third persons. ... In 12 American Jurisprudence, at page
843, it is stated:
" 'According to the weight of authority, the parties to a contract entered into for the
benefit of a third person may rescind, vary or abrogate the contract as they see fit, without
the assent of the third person, at any time before the contract is accepted, adopted, or
acted upon by him, and such rescission deprives the third person of any rights under or
because of such contract.' "
[15] Whether or not a property settlement agreement has been abrogated by the parties is
a question of fact. (Rose v. Rose, 175 Cal.App.2d 585, 590 [346 P.2d 460]; Tompkins v.
Tompkins, 202 Cal.App.2d 55, 59 [20 Cal.Rptr. 530].)
[14b] The judgment is affirmed.
Conley, P. J., and Stone, J., concurred.
Levy v. Bellmar Enterprises, 241 Cal.App.2d 686
[Civ. No. 29324. Second Dist., Div. Two. Apr. 25, 1966.]
JERRY LEVY, Plaintiff and Appellant, v. BELLMAR ENTERPRISES et al., Defendants
and Respondents.
COUNSEL
Thaler & Karen and Howard L. Thaler for Plaintiff and Appellant.
Ervin, Cohen & Jessup and Gerald Vance Dicker for Defendants and Respondents.
OPINION
HERNDON, J.
Plaintiff appeals from the judgment of dismissal entered after the trial court had sustained
respondents' demurrers to the third amended complaint filed herein. fn. 1
By his original complaint appellant sought to recover from respondents under the theory
that he was a third party beneficiary of a "written agreement of joint venture" entered into
by the respondents. It was alleged that respondents had agreed among themselves to form
a joint venture to develop a series of television shows starring Joey Bishop and that their
written agreement provided in part as follows: "Jerry Levy is to be employed by the
Venture as Associate or Assistant Producer at a compensation of Three Hundred and Fifty
Dollars ($350.00) for each new program. The Venture agrees to accord Levy credit as
Associate or Assistant Producer on the positive prints of each program which credit shall
be the normal and reasonable credit afforded to an Associate or Assistant Producer and
need not be on a separate card." [241 Cal.App.2d 689]
The complaint further alleged that the defendants, pursuant to the terms of their written
agreement, did employ appellant at the agreed compensation; that he performed the
required services until November 1962; and that thereafter "without cause or justification
defendants, and each of them, failed and refused to permit plaintiff to further render his
services" and failed to pay him further compensation.
[1] Respondents' demurrers to this complaint were sustained for the very proper reason
that it failed to allege that the agreement, to which appellant was not a party, was made
for his benefit. (Southern Cal. Gas Co. v. ABC Construction Co., 204 Cal.App.2d 747,
750 et seq. [22 Cal.Rptr. 540] and authorities cited therein.)
In support of their demurrers, respondents further pointed out that since all parties to the
agreement were named as defendants and charged with having caused the termination of
appellant's employment, appellant could not seek to enforce further future performance of
their contract against them because his own allegations indicate that they must have
mutually rescinded that portion of the agreement which related to him. (Civ. Code, §
1559.) fn. 2
[2] Finally, respondents' demurrers were correctly sustained upon the ground that even if
it were assumed that appellant was a third party beneficiary of an employment contract
expressly made for his benefit, and one which the contracting parties were powerless to
rescind, nevertheless he would have no greater right than he would have had if he had
contracted directly with respondents for his employment. Since his employment was for
no definite or specified period and since no consideration was given therefor other than
the rendition of services, it was terminable at will. (Ruinello v. Murray, 36 Cal.2d 687,
689 [227 P.2d 251]; Speegle v. Board of Fire Underwriters, 29 Cal.2d 34, 39-40 [172 P.2d
867]; Ferreyra v. E. & J. Gallo Winery, 231 Cal.App.2d 426, 430-432 [41 Cal.Rptr. 819].)
Although appellant thrice exercised the privilege granted him to amend his complaint, he
never seriously attempted to eliminate any of these specified defects therein. He added
vague allegations to the effect that prior to the time that respondents entered into their
joint venture agreement, they had made representations to him that their agreement would
[241 Cal.App.2d 690] provide for his employment by them at a specified consideration
which would continue "for so long as programs were produced" and "said employment to
continue for as long as the said Joey Bishop Show remained in existence." But he never
alleged that such agreement was expressly made for his benefit, as a creditor, assignee,
donee or otherwise.
Even if certain of the joint venturers conceivably might be deemed the promisees of the
others insofar as appellant's employment was contemplated by the terms of the contract,
and even if appellant might have enforced his rights thereunder so long as these
"promisees" had not joined the other "promisors" in terminating this portion of their
agreement, it is clear that appellant cannot force both the "promisees" and the
"promisors" to perform their agreement when they have mutually agreed to terminate that
portion thereof. Prior to their alleged joint determination to terminate appellant's
employment, the respondents had performed their agreement by hiring appellant and he
has been paid in full for all services rendered.
Finally, it may be noted that regardless of any oral representations that might have been
made to appellant prior to the execution of the written agreement under which he asserts
his rights as third party beneficiary, the written agreement on which he relies contains no
provision whatsoever concerning the duration of appellant's employment.
[3] However, even assuming that appellant and respondents had entered into a direct oral
or written contract providing for his employment "so long as the Joey Bishop Show
remained in existence," nevertheless such contract, being for an indefinite period, might
be terminated by either party unless supported by some further consideration bargained
for and given by appellant in addition to his rendition of the services required of him by
the employment contract itself. (Cf. Boehm v. Spreckels, 183 Cal. 239, 249 [191 P. 5];
Brown v. National Electric Works, 168 Cal. 336, 338 [143 P. 606]; Davidson v. Laughlin,
138 Cal. 320, 323 [71 P. 345, 5 L.R.A N.S. 579]; Ferreyra v. E. & J. Gallo Winery, supra,
231 Cal.App.2d 426, 430-431; Thacker v. American Foundry, 78 Cal.App.2d 76, 84 [177
P.2d 322]; Millsap v. National Funding Corp., 57 Cal.App.2d 772, 776 [135 P.2d 407];
Seifert v. Arnold Bros., Inc., 138 Cal.App. 324, 326 [31 P.2d 1059].)
[4] Apparently seeking to establish some such additional consideration, appellant alleged
that in reliance upon respondents' oral representations he "(a) did change the residence of
[241 Cal.App.2d 691] himself and his family from the State of New York to the State of
California; (b) substantially terminated his business endeavors in the State of New York
in order to come to California; (c) substantially curtailed all other business and
commercial endeavors in which he was engaged to devote his time and energies in his
production capacity for the 'Joey Bishop Show'; and (d) rejected numerous other offers of
employment, all to [his] detriment and unconscionable injury in reasonable and justifiable
reliance upon the said representations of [respondents], and each of them."
The weakness of this theory, of course, lies in the fact that appellant does not allege that
such "considerations" were bargained for as the exchange for the promise of a
nonterminable employment. [5] The following quotation from Ferreyra v. E. & J. Gallo
Winery, supra, 231 Cal.App.2d 426, 431-432, disposes of appellant's arguments on this
point:
"In Simmons v. California Institute of Technology, 34 Cal.2d 264, the court stated at page
272 [209 P.2d 581]: 'The true consideration of a contract may be shown by extrinsic
evidence (Shiver v. Liberty Bldg.-Loan Assn., 16 Cal.2d 296 [106 P.2d 4]; ...
" 'But the consideration for a promise must be an act or a return promise, bargained for
and given in exchange for the promise. (Bard v. Kent, 19 Cal.2d 449 [122 P.2d 8, 139
A.L.R. 1032]; Tiffany & Co. v. Spreckels, 202 Cal. 778 [262 P. 742]; Williams v.
Hasshagen, 166 Cal. 386 [137 P. 9]; Lasar v. Johnson, 125 Cal. 549 [58 P. 161]; Rest.,
Contracts, § 75; see Williston, Contracts [rev. ed.] §§ 61, 100, 102, 102a.) In the words of
section 75 of the Restatement of Contracts (com. b.): "Consideration must actually be
bargained for as the exchange for the promise. ... The existence or nonexistence of a
bargain where something has been parted with by the promisee or received by the
promisor depends upon the manifested intention of the parties. ... The fact that the
promisee relies on the promise to his injury, or the promisor gains some advantage
therefrom, does not establish consideration without the element of bargain or agreed
exchange." (Language approved in Bard v. Kent, supra, p. 452.)'
"In Savage v. Spur Distributing Co., 33 Tenn.App. 27 [228 S.W.2d 122], the plaintiff
claimed that his additional consideration given for the employment contract was the
detriment to himself in giving up his former job, moving his family, finding new living
quarters, and buying a new home at inflated prices. The court rejected this argument,
stating at [241 Cal.App.2d 692] page 125 [228 S.W.2d]: 'These things, however, do not
appear to have been mutually understood by the parties as any part of the agreed
exchange or consideration. Defendant's offer was only for plaintiff's services as its
assistant secretary. This was the only consideration moving to it. These other things were
of no benefit to it. At most they were merely a detriment to him incident to preparing
himself to accept its offer--only the same sort of detriment that ordinarily results to any
employee who leaves one employment and goes elsewhere to accept another.' (San
Francisco Brewing Corp. v. Bowman, 52 Cal.2d 607, 614 [343 P.2d 1]; see also Page v.
New Orleans Public Service, Inc., 184 La. 617 [167 So. 99]; Lynas v. Maxwell Farms,
279 Mich. 684 [273 N.W. 315]; and Skagerberg v. Blandin Paper Co., 197 Minn. 291
[266 N.W. 872], to the same effect.)"
[6] Factually the Ferreyra case was a far stronger one in support of appellant's
contentions herein, and, since a hearing was denied by our Supreme Court therein, it
stands "as a decision of a court of last resort in this state, until and unless disapproved by
[the Supreme Court] or until change of the law by legislative action." (Cole v. Rush, 45
Cal.2d 345, 351 [289 P.2d 450, 54 A.L.R.2d 1137]; Estate of Brissel, 218 Cal.App.2d
841, 844 [32 Cal.Rptr. 458]; Housing Authority v. Peters, 120 Cal.App.2d 615, 616 [261
P.2d 561].)
[7] Finally, appellant argues that it was improper to sustain the demurrer to his third
amended complaint because in it he had sought declaratory relief based upon the same
facts which previously had been held to state no cause of action. That is to say, appellant's
third amended complaint made no attempt to correct or supply the deficiencies noted in
his second amended complaint but set forth the identical allegations and then merely
added a further paragraph asserting that a controversy existed between the parties as to
whether or not he was entitled to any relief in the premises. Such belated attempts by a
plaintiff to do by indirection what he has failed to do directly have consistently been
rejected by the courts and must be rejected here. [8] As stated in Girard v. Miller, 214
Cal.App.2d 266, 276-277 [29 Cal.Rptr. 359]:
"Plaintiff contends he had a right to go to trial upon his causes of action for declaratory
relief and to quiet title, as if they were the only causes of action pleaded. We cannot agree
that the other causes of action can be ignored. ...
"After three amendments the complaint stated all of the facts upon which plaintiff
depended for a judgment that the [241 Cal.App.2d 693] lot of defendants is subject to the
restrictions. The situation is analogous to one in a suit for money in which all the facts are
alleged in one count and are found insufficient to state a cause of action; the defect is not
cured by the addition of a common count. [Citation.] When the court determined the facts
pleaded were insufficient to entitle Girard to a judgment declaring the lot subject to the
restrictions it was not error to decline to send the case to trial upon a cause of action for
declaratory relief, based upon the same facts. [Citation.]
"Under section 1061 of the Code of Civil Procedure the court may refuse to exercise the
power to grant declaratory relief where the same is not necessary or proper at the time
under all the circumstances. The availability of another form of relief that is adequate will
usually justify refusal to grant declaratory relief. [Citations.] The refusal to exercise the
power is within the court's legal discretion and will not be disturbed on appeal except for
abuse of discretion. [Citation.] No abuse of discretion is shown in the refusal to exercise
the power when the plaintiff in the action in which declaratory relief is sought has alleged
in separate causes of action all the facts upon which he relies for relief and they have
been found insufficient." (See also Western Homes, Inc. v. Herbert Ketell, Inc., 236
Cal.App.2d 142, 146 [45 Cal.Rptr. 856], where a similar result was reached in an attempt
to state a cause of action based upon the theory of third party beneficiary.)
Roth, P. J., and Fleming, J., concurred.
FN 1. Plaintiff's notice of appeal actually is directed to the order sustaining the demurrer
rather than to the judgment of dismissal. However, on our own motion we have examined
the original file herein and such augmented record reveals that a judgment of dismissal
was entered following the filing of plaintiff's notice of appeal. In the interest of justice we
treat plaintiff's notice as one prematurely filed but directed to this appealable judgment of
dismissal rather than to the order sustaining the demurrer. (Vibert v. Berger, 64 Cal.2d 65,
69 [48 Cal.Rptr. 886, 410 P.2d 390].)
FN 2. Section 1559 of the Civil Code provides: "A contract, made expressly for the
benefit of a third person, may be enforced by him at any time before the parties thereto
rescind it." (Italics added.)
Bass v. John Hancock Mut. Life Ins. Co. , 10 Cal.3d 792

[S.F. No. 23057. Supreme Court of California. February 19, 1974.]
BELVA BASS, Plaintiff and Appellant, v. JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY, Defendant and Respondent
In Bank. (Opinion by Burke, J., expressing the unanimous view of the court.)
COUNSEL
Thorne, Clopton, Herz & Stanek and Richard W. Herz for Plaintiff and Appellant.
Bohnett, Bohnett & Weber and Michael C. Weber for Defendant and Respondent.
OPINION
BURKE, J.
In this case we discuss the responsibility of an employer and its group insurer toward
employees entitled to coverage under group disability and life insurance programs
negotiated by employee labor unions. Here, decedent J. T. Bass evidently waived
coverage under a 1964 group plan offered by his employer, Ford Motor Company, despite
the fact that such insurance was offered free of charge to all employees.
The question presented herein is whether Ford, and defendant insurer, John Hancock
Mutual Life Insurance Company, were entitled to rely upon that waiver as a continuing
one, effectively relieving Hancock of liability under a subsequent 1967 group plan as to
which decedent was not consulted. We have concluded that Bass must be deemed to have
been covered by the 1967 plan and that defendant Hancock should be held liable under
the group policy to plaintiff, Bass' surviving spouse.
Decedent Bass was employed by Ford during the entire period from 1947 to his death in
1968. Prior to 1964, Ford offered to its employees a voluntary group plan written by
Hancock whereby disability insurance, supplemental to existing mandatory state
disability insurance, was available upon payment by the employee of an additional
premium. If an employee desired such supplemental insurance, Ford's custom was to
have the employee sign an application therefor. Bass had refused to participate in this
contributory plan.
In October 1964, as a result of labor negotiations with Ford, the existing Hancock group
plan was amended to provide for disability and [10 Cal.3d 795] life benefits without
charge to the employee. Ford sent a letter to all employees not previously enrolled in the
Hancock program explaining the new benefits. Ford also directed its various supervisors
to solicit personally each employee who had neither participated in the former
contributory plan nor responded to the information letter.
Accordingly, in 1964 Bass was solicited upon three different occasions by Ford
representatives, who urged and encouraged him to apply for the Hancock coverage.
Although the record is not clear on the question, we may reasonably assume that Bass
was told of the various benefits provided and of the fact that the insurance was free of
charge. Bass, however, adamantly refused to apply and wrote across the copy of the
application furnished to him the words "I don't want." fn. 1 Thereafter, Bass continued to
be covered by the state disability plan for which a salary deduction was made.
In October 1967, the Ford union contract was renegotiated, as was customary every three
years. As part of the new contract, the Hancock plan was amended once more to provide
for increased benefits. Although three years had passed since Bass had refused coverage,
neither Ford nor Hancock solicited Bass' desires with respect to the 1967 plan. Instead,
Ford distributed to all its employees, including Bass, an information booklet explaining
the new coverage and the benefits provided. The booklet, conceded at oral argument to
have been prepared by Hancock, stated that "This Certificate-Booklet becomes applicable
to you on October 25, 1967 if you are then at work, otherwise on the first day worked
thereafter." The booklet made no mention of any necessity for applying for coverage
under the plan. Indeed, under the heading "Who is eligible for the Program," the booklet
states "The Life and Disability Insurance Program is available to you if you are a regular
full-time employee of the Ford Motor Company represented by the UAW under the
Collective Bargaining Agreement dated October 25, 1967." Plaintiff testified that she and
Bass read the booklet and were "happy" that they were covered by the 1967 plan.
Bass died in 1968 in a car accident. Plaintiff brought this action against defendant
Hancock to recover benefits assertedly payable under the 1967 group plan. She waived
jury trial and the trial court entered judgment in Hancock's favor. The court found that
Bass "had a choice, he could accept or refuse insurance coverage," and that Bass chose to
refuse coverage. The court also found that since Ford paid no premiums to Hancock [10
Cal.3d 796] to insure Bass, Hancock would have no liability in any event. Plaintiff
appeals.
1. Bass' waiver of coverage
[1a] It seems evident to us that a waiver which occurred in 1964 is not necessarily
controlling with respect to rights under a 1967 insurance program. Traditional legal
principles convince us that the trial court erred in concluding otherwise. Bass was a third
party beneficiary under the Ford-UAW union contract and the Ford-Hancock group
insurance program, and as such he initially acquired valuable rights to insurance
coverage. (See Civ. Code, § 1559; Reynolds Elec. etc. Co. v. Workman's Comp. App. Bd.,
65 Cal.2d 429, 433 [55 Cal.Rptr. 248, 421 P.2d 96] [labor union contract]; Johnson v.
Holmes Tuttle Lincoln-Merc., 160 Cal.App.2d 290, 296-298 [325 P.2d 193] [liability
insurance contract].) [2a] Although the rights of a third party beneficiary may be
voluntarily waived or disclaimed (Stanley v. Robert S. Odell and Co., 97 Cal.App.2d 521,
533-534 [218 P.2d 162]), the burden is on the party claiming the waiver "... to prove it by
clear and convincing evidence that does not leave the matter to speculation, and 'doubtful
cases will be decided against a waiver' [citation]." (City of Ukiah v. Fones, 64 Cal.2d
104, 107-108 [48 Cal.Rptr. 865, 410 P.2d 369]; Humphrey v. Equitable Life Assur. Soc.,
67 Cal.2d 527, 535 [63 Cal.Rptr. 50, 432 P.2d 746] [group disability and life policy].)
[1b] We may assume that the contract rights which Bass acquired under the 1964
insurance program were, as the trial court found, unequivocally and voluntarily waived or
disclaimed by him. Yet the record contains no evidence whatever that Bass subsequently
relinquished the new rights to coverage which accrued to him in 1967 by reason of the
renegotiation of Ford's labor contract and the amendment of the Hancock group plan. fn.
2 True, one might assume that Bass, having refused free [10 Cal.3d 797] insurance
coverage under the 1964 plan, probably would have also refused similar coverage under
the amended 1967 plan. Yet we can as easily assume that Bass finally appreciated the
benefits of the Hancock plan and, as his wife testified, was "happy" to be covered by it.
[2b] As we pointed out in City of Ukiah v. Fones, supra, 64 Cal.2d 104, 108, "... the very
necessity of such speculation demonstrates that the ... proof of waiver is not 'clear and
convincing' within the meaning of the cases ...." [1c] We note that it would have been a
simple matter for Ford or Hancock to solicit Bass' desires on the matter of the 1967 plan,
as had been done in 1964. Yet in the absence of a renewed rejection or disclaimer from
Bass, or other "clear and convincing" indicium of waiver, we must conclude that Bass
retained his group insurance rights under the 1967 plan. fn. 3
2. Hancock's liability to plaintiff
[3] Defendant Hancock contends that even if Bass did not waive his rights to coverage,
plaintiff's cause of action would be against Ford rather than Hancock, since Ford paid
Hancock no premiums on Bass' account. To the contrary, nonpayment of premiums may
have constituted a breach of Ford's obligations to Hancock, but would not affect the right
of Bass (or plaintiff) to enforce coverage which Hancock agreed to extend to all Ford
employees. fn. 4 In a series of recent cases we have held that the employer is the agent of
the insurer in performing the duties of administering group insurance policies, including
the payment of premiums, and that accordingly the insurer shares responsibility for the
employer's mistakes. [10 Cal.3d 798] (Elfstrom v. New York Life Ins. Co., 67 Cal.2d 503
[63 Cal.Rptr. 35, 432 P.2d 731]; Amberg v. Bankers Life Co., 3 Cal.3d 973 [92 Cal.Rptr.
273, 479 P.2d 633]; Bareno v. Employers Life Ins. Co., 7 Cal.3d 875 [103 Cal.Rptr. 865,
500 P.2d 889].) We see no reason to deviate from this principle in the instant case. Indeed,
we note that Hancock's own representative admitted at trial that if a Ford employee were
not included in the calculation of premiums by reason of clerical error or mistake,
Hancock would nevertheless honor his claim under the group policy and backcharge Ford
for the unpaid premiums.
In the instant case, Ford's "mistake" was in assuming that Bass had rejected coverage
under the 1967 group plan, without verifying that fact with Bass himself. We think that
this kind of mistake is one for which Hancock should share responsibility despite the
nonpayment of premiums.
The judgment is reversed and the cause remanded to the trial court with directions to
calculate the amount owing to plaintiff under the subject policy and to enter judgment in
plaintiff's favor for such amount.
Wright, C. J., McComb, J., Tobriner, J., Mosk, J., Sullivan, J., and Clark, J., concurred.
FN 1. Bass was the only one of some 3,500 employees of the Ford San Jose plant who
refused the 1964 coverage. The evidence does not explain the reason for Bass' refusal.
FN 2. The language of the informational booklet distributed to Ford employees (and
certified as accurate by Hancock) reinforces our conclusion that the 1967 plan was an
entirely new arrangement unaffected by a prior waiver. The booklet, in addition to stating
that it "becomes applicable to you on October 25, 1967" also provided that "When this
Certificate-Booklet becomes applicable to you, it supersedes, replaces and makes void
any and all certificates and supplements thereto that may have been previously issued to
you describing the Life and Disability Insurance Program." As Bass had, on at least three
prior occasions, been instructed to write "Do not want" upon applications for coverage
under prior plans rejected by him, Bass could reasonably assume that he was covered by
the 1967 plan in the absence of executing a similar rejection. For cases discussing the
effect of statements made in informational booklets to employees regarding group
insurance coverage, see Annot., 36 A.L.R.3d 541; see also Humphrey v. Equitable Life
Assur. Soc., supra, 67 Cal.2d 527, 532-535.
FN 3. Although the cases suggest that the beneficiary of a third party beneficiary contract
ordinarily must signify his acceptance of the "offer" represented by that contract (see
Bogart v. George K. Porter Co., 193 Cal. 197, 207 [223 P. 959, 31 A.L.R. 1045]; 12
Cal.Jur.2d, Contracts, § 265, and cases cited), we think the instant case presents a
situation excusing compliance with that rule. Both the 1967 Ford-UAW contract and the
1967 Ford-Hancock plan were self-executing in the sense that they contemplated
automatic coverage for all Ford employees; neither the contract nor the plan (as described
in the informational booklet distributed to Ford employees) required employees to make
formal application for coverage. Under these circumstances, acceptance of Ford's "offer"
would have been an idle and unnecessary act.
Defendant points out that under the 1967 master policy itself, reference is made to a
"written application" required of certain Ford employees. The record discloses, however,
that neither defendant nor Ford tendered any application form to Bass or otherwise
solicited his desires in the matter. Neither the 1967 Ford labor contract nor the
informational booklet refers to any requirement that an application be filed, and it would
appear unjust to charge Bass with knowledge of provisions in a master policy which was
never submitted to him.
FN 4. The textwriters agree that an employee who otherwise satisfies the conditions of a
group plan may maintain an action against the insurer as a third party beneficiary. (See 2
Williston, Contracts (3d ed.) § 369, pp. 906-907; 4 Corbin, Contracts, § 807, p. 213.) The
same reasoning would apply, of course, to the employee's beneficiaries.
Silveyra v. Harper, 82 Cal.App.2d 761

[Civ. No. 13424. First Dist., Div. One. Dec. 9, 1947.]
AUGUSTIN SILVEYRA, Appellant, v. JOY P. HARPER, Respondent.
COUNSEL
Fabian D. Brown for Appellant.
O'Keefe & O'Keefe for Respondent.
OPINION
PETERS, P. J.
Plaintiff, Augustin Silveyra, brought this action against defendant, Joy P. Harper, to
recover from defendant on a $6,000 promissory note alleged to have been executed by
defendant. The defendant denied liability, and in addition, counterclaimed for $12,000,
claiming that plaintiff was indebted to him in that sum under the terms of a contract
alleged to have been breached by plaintiff. The trial court found that the promissory note
was unsupported by consideration and found for defendant on his counterclaim for the
full amount requested--$12,000. From this judgment plaintiff appeals.
Appellant has filed a three-page opening brief and a two and a third-page closing brief.
Respondent has filed a four-page reply brief. Neither counsel has seen fit to summarize
the facts, nor has either counsel analyzed the points of law involved in relation to the
facts. This has imposed a totally unnecessary burden on this court.
The following statement of facts is taken from the reporter's transcript:
During the year 1945 respondent, a contractor and trainer of race horses, agreed with one
Vallejo Leal to construct a road from Tia Juana, Mexico, to the Pacific Ocean, over
certain property owned by Leal. By July, 1945, Leal owed respondent $14,000 for work
already performed. Leal did not have the money to pay this debt and respondent
discontinued work. Under these circumstances, on July 14, 1945, in Tia Juana, Leal,
respondent and appellant (the latter being the manager of a Tia Juana race track) met for
the purpose of ascertaining whether appellant would advance money to Leal so that he
could pay respondent for his past and future work on the road. Respondent testified that a
contract was entered into in writing signed by all three of the parties. Respondent had no
copy of the contract [82 Cal.App.2d 764] and when, upon demand during the trial,
appellant could not produce it, he contending no such contract had been executed, the
trial court permitted respondent to testify over objections as to its terms. He testified that
by this written agreement appellant agreed to advance to Leal the sum of $20,000 at 20
per cent interest, which loan was to be secured by a mortgage on the real property owned
by Leal. The money was to be paid to Leal for the use and benefit of respondent, it being
agreed that $6,000 in cash was to be paid to respondent upon the execution of the
agreement so that respondent could meet his payroll and pay past due bills, $4,000 one
week from the date of the agreement, and $10,000 30 or 40 days from the date of the
agreement. Pursuant to the terms of this agreement, appellant, on July 14, 1945, paid to
respondent the sum of $6,000. Respondent, thereupon, as contemplated by the agreement
and in reliance upon it, once again started work on the road, worked on it for two weeks,
and incurred labor and other charges of $4,000. Appellant, however, did not, as provided
in the agreement, pay to respondent or to Leal for respondent the sum of $4,000 one week
after July 14, 1945, nor at any other time. Thereupon, respondent stopped work on the
road. The reason why appellant refused to pay the $4,000 and the $10,000 required to be
paid by him under the contract is that Leal, and the appellant were unable "to legalize"
the mortgage. In other words, for reasons that do not appear, appellant did not secure
from Leal the mortgage he was to receive as security for the money advanced. The trial
court interpreted the contract to mean that appellant was absolutely obligated to pay to
respondent the sum of $14,000 owed by Leal to respondent and further obligated
appellant to pay the $4,000 required under the contract to be paid on July 21, 1945,
making a total of $18,000. Of this sum he had paid respondent $6,000, leaving a balance
of $12,000. It was on this theory that the trial court gave judgment against the appellant
on his counterclaim for $12,000, although Leal had not complied with the agreement by
giving appellant the promised mortgage.
[1a] The promissory note which forms the basis of the action by appellant against
respondent was for $6,000 and was admittedly signed by respondent. It is dated "San
Diego, California, August 6th, 1945." Respondent testified, and the trial court found, that
in fact the note was executed [82 Cal.App.2d 765] in Tia Juana, Mexico. Appellant
testified that about July 31, 1945, he loaned to respondent $6,000 so that respondent
could finish his road contract with Leal. He denied knowing anything else about that road
contract and denied entering into the contract discussed above. He stated that the August
6, 1945, note was given as evidence of this loan, and had not been repaid. Respondent
denied this story in its entirety, and the trial court has found in accordance with
respondent's testimony. This conflict must be resolved in favor of respondent.
Respondent testified that on August 6, 1945, appellant was manager of a race track in Tia
Juana. Respondent, as agent and trainer for the owners, had certain race horses stabled at
the track, the horses being valued at in excess of $10,000. Appellant claimed respondent
owed him $6,000. If respondent's story is to be believed, and since the trial court so found
we must conclusively presume it is true, this claim was based apparently on the $6,000
advanced by appellant to respondent under the Silveyra- Harper-Leal contract of July 14,
1945. Respondent denied that he owed appellant $6,000 or any other sum, but appellant
threatened that unless respondent signed the $6,000 note, he, the appellant, would detain
the race horses in Tia Juana. Respondent testified that the owners of the horses had
instructed him to bring the horses to the United States. Under these circumstances
respondent signed the note in order to release the horses. The trial court found that the
note was unsupported by consideration and that finding is obviously supported.
[2] No attempt was made to prove the Mexican law, and no findings were made on that
subject. Under such circumstances, since this court may not take judicial notice of the law
of a foreign country, in the absence of proof to the contrary it will be presumed that the
foreign law is the same as California law even where the California law is statutory law.
(See many cases collected 5 Cal.Jur. p. 430, § 12; 3 Cal.Jur., 10-Yr. Supp., p. 724, § 12.)
It is most difficult to ascertain from appellant's scanty briefs the exact basis of his attack
on the judgment. [1b] The judgment, insofar as it denies appellant any relief on his cause
of action on the promissory note, is obviously supported by the evidence and findings,
and the findings support the judgment. So far as the contract forming the basis of the
counterclaim is concerned, it seems to be [82 Cal.App.2d 766] appellant's thought that
the contract was between appellant and Leal for the benefit of respondent, and that
because the contract was never completed by the giving of security, respondent as a third
party beneficiary could acquire no rights thereunder. No authority is cited for this
position. [3] While it is the law of California that a third party beneficiary of a contract
may sue thereon (Civ. Code, § 1559), it is also the law that the parties to such contract
may rescind, no estoppel being present, at any time prior to the institution of suit by the
beneficiary. (More v. Hutchinson, 187 Cal. 623 [203 P. 97]; K. Lundeen Corp. v. Barlow,
120 Cal.App. 391 [7 P.2d 1102]; see note 12 Cal.L.Rev. 328.) Here, the parties interpreted
the contract of July 14, 1945, as requiring appellant immediately, and before security was
provided, to pay to respondent $6,000. That must have been the interpretation of the
parties because that sum was paid. [4] The contract also contemplated that respondent, on
the faith of the contract, would immediately, and before security was provided, start work
on the road and incur obligations which appellant agreed to pay up to $4,000 on July 21,
1945. In reliance on that agreement respondent did incur obligations up to $4,000. That
sum appellant must pay even if this were a third party beneficiary contract which
normally could be rescinded by the parties before the beneficiary has commenced suit,
because such rescission cannot affect rights of third parties that have vested in reliance on
the contract and pursuant to its terms prior to the rescission. As to the $4,000, appellant is
estopped from exercising his normal right of rescission for the obvious reason that, in
reliance on appellant's promise to pay, respondent recommenced work, and thus changed
his position to his injury by incurring $4,000 of obligations. In his reply brief appellant
concedes the existence of such an estoppel as to the $4,000. But the same cannot be said
as to the balance of the judgment. [5] The judgment was for $12,000. The $8,000
difference between the $4,000 already mentioned, and the amount of the judgment, was
to pay off Leal's obligation to respondent which had been incurred prior to the date the
contract was entered into. Obviously, appellant was not going to pay that sum to
respondent unless and until he got his promised security. As to this obligation, if the
contract was a third party beneficiary contract, no estoppel exists because respondent in
[82 Cal.App.2d 767] no way changed his position to his damage in reliance on that part
of the promise. Thus either because Leal and appellant rescinded, or because the contract
was never completed by the giving of security, respondent cannot recover as to this
$8,000.
The preceding discussion has proceeded on the theory that this was a third party
beneficiary contract. A more logical interpretation of the relationship of the parties,
however, is that this was a tripartite agreement. Respondent testified that that all three
signed the agreement and assumed obligations thereunder. Respondent was therefore not
a mere beneficiary of the contract, but was a party to it. The contract required appellant to
advance $6,000 at once to respondent before the promised mortgage was to be executed.
That portion of the contract went into immediate operation and was executed. The
contract also required respondent to immediately commence work and contemplated that
he would incur obligations. This respondent did to the extent of $4,000. [6] While the
contract contemplated that security would be given by Leal to appellant, that could not
have been an implied condition precedent to the obligation to pay the $4,000. That
obligation became fixed and certain upon the execution by respondent of that part of the
contract. But, as to the balance of $8,000 for which judgment has been granted, it was
obviously an implied condition that Leal furnish appellent the mortgage security. That
condition not having been performed, and no elements of estoppel being present as to this
portion of the contract, the obligation to pay this sum never came into existence.
It is quite apparent, therefore, that, whether the agreement be treated as a third party
beneficiary contract or a tripartite transaction, the same result follows--the judgment may
be sustained only to the extent of $4,000, and must be reversed as to the balance.
Appellant, citing as his sole authority section 1938 of the Code of Civil Procedure,
contends that the trial court erred in allowing respondent to give oral testimony of the
contents of the contract over appellant's objection that the contract was the best evidence.
The respondent testified that the contract was delivered to appellant, and the court
permitted respondent to demand production of the contract during the trial. Appellant
urges that this violated section 1938 in that that section requires "reasonable notice" [82
Cal.App.2d 768] to be given the party in possession of the document to produce it.
[7] When respondent's counsel, during the trial demanded the production of the
document, appellant's counsel did not complain that he needed further time to secure the
document, or that he had been taken by surprise and damaged by this late request, but
took the position that "there never was any such document" and "there is no such
document." In other words, appellant's position was that no such document had ever been
executed. How appellant could have been prejudiced by not being given reasonable
notice to produce a document appellant claimed did not exist does not appear. Obviously,
no prejudice could have resulted and it was not error to admit secondary evidence of the
contents of the contract. (See, generally, IV Wigmore on Evidence, 3d ed., § 1208, p. 375;
Jones v. Jones, 38 Cal. 584; Burke v. Table Mountain Water Co., 12 Cal. 403.)
[8] Appellant also objects to a ruling permitting secondary evidence, respondent's copy,
of the receipt which respondent testified he gave to appellant's attorney. Demand was
made for the original at the trial but counsel stated that he did not have it. The court,
without objection by appellant, admitted the copy. The failure to object on the ground that
reasonable notice had not been given to produce operates as a waiver. (See, generally, 10
Cal.Jur. p. 858, § 137; 5 Cal.Jur., 10-Yr.Supp., (1944 Rev.) p. 661, § 137.)
None of the other rulings of which complaint is made could possibly have been
prejudicial.
That portion of the judgment denying to plaintiff any relief on his cause of action is
affirmed; that portion of the judgment granting affirmative relief to defendant in the
amount of $12,000, and based upon the counterclaim, is reversed. The trial court is
instructed to modify its findings, conclusions and judgment so as to reduce the judgment
to $4,000 as herein indicated; both sides to bear their own costs on this appeal.
Ward, J., and Bray, J., concurred.
JUDICIAL COUNCIL OF CALIFORNIA

ADMINISTRATIVE OFFICE OF THE COURTS
455 Golden Gate Avenue
San Francisco, California, 94102-3688
Report
TO: Members of the Judicial Council
FROM: Civil and Small Claims Advisory Committee
Hon. Elihu Berle, Chair
Patrick O’Donnell, Committee Counsel
Small Claims and Limited Cases Subcommittee
Hon. Mary Thornton House, Chair
Cara Vonk, Subcommittee Counsel, 415-865-7669
cara.vonk@jud.ca.gov
DATE: September 23, 2004
SUBJECT: Unlawful Detainer: Obsolete Pilot Project Pleading Forms (revoke
forms 982.1(90S) and 982.1(95S); and amend Cal. Rules of Court,
rule 201.2 ) (Action Required)
Issue Statement
Code of Civil Procedure section 1167.2, which established a pilot project in
several trial courts requiring deposit with the court of unpaid prospective rent for
the period from the date of commencement of the unlawful detainer action to the
date of the anticipated trial, expired and the statute was repealed effective July 1,
1999. Another section that immediately followed the pilot project, Code of Civil
Procedure section 1167.25, provided for service on holdover tenants in cases
participating in the pilot project. That section was repealed as obsolete effective
January 1, 2001, and the related Judicial Council form CP10.6, Prejudgment Claim
of Right to Possession—Unlawful Detainer was revoked July 1, 2002. The
complaint and reply forms developed to implement the unlawful detainer pilot
program are obsolete and should also be revoked, and rule 201.2 of the California
Rules of Court should be amended to delete its reference to the reply form.
Recommendation
The Civil and Small Claims Advisory Committee recommends that the Judicial
Council, effective January 1, 2005:
1. Revoke the Complaint—Unlawful Detainer (Pilot Project—C.C.P. § 1167.2)
(form 982.1(90S) and Reply—Unlawful Detainer (Pilot Project—C.C.P. §
1167.2) (form 982.1(95S); and
2. Amend rule 201.2 of the California Rules of Court to delete obsolete form
982.1(95S) from the list of Judicial Council pleading forms and replace it
with form 982.1(95), which is the last pleading form in the series after form
982.1(95S) has been revoked.
The text of amended rule 201.2 is attached at page 3. The revoked forms are
attached at pages 4–7.
Rationale for Recommendation
The pilot project ended in 1999. Therefore the forms are obsolete and should be
repealed. Reference to the form proposed for repeal should be deleted from the
rule.
Alternative Actions Considered
No alternative actions were considered.
Comments From Interested Parties
Because these are technical amendments, the proposal was not circulated for
comment.
Implementation Requirements and Costs
No special costs are anticipated.
2
Rule 201.2 of the California Rules of Court is amended, effective January 1, 2005, to
read:
Rule 201.2. Judicial Council pleading forms
1
2
(a) [Pleading forms] The forms listed under the "Pleading" heading on the list of
3
Judicial Council forms in division III of the Appendix to the California Rules of
4
Court (forms 982.1(1)-982.1(95S)982.1(95)) are approved by the Judicial Council
5
as required by Code of Civil Procedure section 425.12.
6
7
(b)–(c) ***
8
3
ATTORNEY OR PARTY WITHOUT ATTORNEY (NAME AND ADDRESS):
TELEPHONE: FOR COURT USE ONLY
ATTORNEY FOR (NAME):
NAME OF COURT, JUDICIAL DISTRICT OR BRANCH COURT, IF ANY:
PLAINTIFF:
DEFENDANT:
DOES 1 TO
COURT CASE
NUMBER:
COMPLAINT-Unlawful Detainer (Pilot Project-C.C.P. 1167.2)
Riverside Consolidated/Coordinated Courts and the Downey, El Cajon
and North Santa Barbara County Municipal Courts
PRETRIAL RENT DEPOSIT DEMAND $
1. This pleading including attachments and exhibits consists of the following number of
pages:
2. a. Plaintiff is an individual over the age of 18 years. a partnership.
a public agency. a corporation.
other (specify):
Plaintiff has complied with the fictitious business name laws and is doing
business under the fictitious name of (specify):
b.
3. Defendants named above are in possession of the premises located at (street address,
city, and county):
4. Plaintiff's interest in the premises is as owner other (specify):
5. The true names and capacities of defendants sued as Does are unknown to plaintiff.
defendants (names):
6. a. On or about (date):
agreed to rent the premises for a month - to - month tenancy other
tenancy (specify):
payable monthly
at a rent of (specify): $ other (specify
frequency):
due on the first of the month other day (specify):
b. During the last six months, the lowest monthly rent charged for the premises was
(specify): $
c. This written oral agreement was made with
plaintiff's predecessor in interest
plaintiff
other (specify):
plaintiffs agent
d. The defendants not named in item 6a are
subtenants assignees other (specify):
e. The agreement was later changed as follows (specify):
f. A copy of the written agreement is attached and labeled Exhibit A.
7. Plaintiff has performed all conditions of the rental agreement.
8. a. The following notice was served on defendant (name):
3-day notice to quit
3-day notice to pay rent or quit
3-day notice to perform covenant or quit other (specify):
b. The period stated in the notice expired on (date):
and defendants failed to
comply with the requirements of the notice by that date.
c. All facts stated in the notice are true.
The notice included an election of forfeiture.
d.
A copy of the notice is attached and labeled Exhibit B.
e.
(Continued)
Form Adopted by the
Code Civ. Proc., § 425.12
COMPLAINT-Unlawful Detainer (Pilot Project-C.C.P. -
1167.2)
Judicial Council of California
982.1(90S) [New July 1,1995]
4
SHORT TITLE: CASE
NUMBER:
COMPLAINT-Unlawful Detainer (Pilot Project-C.C.P.§
1167.2)
9. a. The notice referred to in item 8 was served
by personally handing a copy to defendant on (date):
by leaving a copy with (name or description):
,a person
at
defendant's residence
of suitable age or discretion, on (date):
business AND mailing a copy to defendant at his or her place of
residence on (date):
because defendant cannot be found at his or her residence or usual place
of business.
(and
giving a copy
by posting a copy on the premises on (date):
to a person residing at the premises) AND mailing a copy to defendant at
the premises on (date):
because defendant's residence and usual place of business cannot be
ascertained OR
because no person of suitable age or discretion can there be found.
(not for 3-day notice. See Civil Code section 1946 before using) by
sending a copy by certified or registered mail
addressed to defendant on (date):
b. information about service of the notice on the other defendants is
contained in attachment 9.
10. The premises have no outstanding citation(s) issued by a state or local government
agency for violations of law pertaining to health,
safety, housing, building, or fire standards.
11. At the time the 3-day notice to pay rent or quit was served, the amount of rent
due was (specify): $
12. per day.
The fair rental value of the premises is (specify):
$
13. Plaintiff is entitled to immediate possession of the premises.
Defendants' continued possession is malicious, and plaintiff is entitled to treble
damages. (State specific facts supporting
14.
this claim in attachment 14.)
A written agreement between the parties provides for attorney fees.
15.
16. Defendants' tenancy is subject to the local rent control or eviction control
ordinance of (city or county, title of ordinance,
and date of passage):
Plaintiff has met all applicable requirements of the ordinances.
17. Other allegations are stated in attachment 17.
18. Plaintiff remits to the jurisdictional limit, if any, of the court.
19. Plaintiff demands that defendant(s) be required to post with this court the amount of
(specify): $ as a
pre-trial deposit of prospective rent.
20. PLAINTIFF REQUESTS
a. possession of the premises.
b. pretrial rent deposit in the amount of (specify): $
costs incurred in this proceeding.
c.
past due rent of (specify): $
d.
per day
e. damages at the rate of (specify): $
treble the amount of rent and damages found due.
f.
g. reasonable attorney fees.
forfeiture of the agreement.
h.
i. other (specify):
.....................................................................................
(TYPE OR PRINT NAME)
(SIGNATURE
OF PLAINTIFF OR ATTORNEY)
VERIFICATION
(Use a different verification form f the verification is by an attorney or
for a corporation or partnership.)
I am the plaintiff in this proceeding and have read this complaint. I declare under penalty
of perjury under the laws of the State of
California that this complaint is true and correct.
Date:
.....................................................................................
(Type or print name)
(SIGNATURE OF PLAINTIFF)
COMPLAINT-Unlawful Detainer (Pilot Project-
C.C.P. 1167.2) Page two
982.1(90s) [New July 1, 1995]
5
ATTORNEY OR PARTY WITHOUT ATTORNEY (Name and Address):
TELEPHONE: FOR COURT USE ONLY
ATTORNEY FOR (Name):
Name of Court, judicial district or branch court, if any:
PLAINTIFF:
DEFENDANT:
COURT CASE
NUMBER:
REPLY-Unlawful Detainer (Pilot Project-C.C.P. § 1167.2)
Riverside Consolidated/Coordinated Courts and the Downey, El Cajon
and North Santa Barbara County Municipal Courts
1. PLEASE BE ADVISED THAT
a. In order to protect your rights in this case, you should complete and file this form
with the court immediately, but in no event later
than 5 calendars days after the date of service upon you of the summons and
complaint. You may (1) file this form with the clerk
of the court or (2) mail it to the court by registered or certified mail, return receipt
requested, postmarked during the 5-calendar-day period.
This case will be scheduled for a pretrial hearing. At that hearing the court will
determine whether there is a substantial conflict
b.
as to a material fact or facts relevant to the unlawful detainer. At the end of the
hearing the court may order you to make a rent
deposit with the court, as requested by the landlord. At the pretrial hearing you will
be allowed to verbally answer the complaint
and present your testimony, the written declarations of others, and documentary or
physical evidence as to material facts relevant
to the unlawful detainer. if the court determines that a pretrial rent deposit is
required, it will be no greater than an amount equal
to 15 days' rent or $500, whichever is less.
c. Should the court order you to make a pretrial rent deposit and you have timely
returned this "reply form," you will have two court
days from the date of the hearing to make the deposit. If you fail to timely return
this "reply form" and the court orders a pretrial
rent deposit, you must make the deposit that same day to preserve your right to a
trial. Failure to make a court-ordered pretrial rent
deposit will result in judgment being entered against you for possession of your
residence.
I deny each of the allegations of the plaintiff's complaint and add the following defenses:
2. AFFIRMATIVE DEFENSES (Check the boxes below that apply and
briefly state the facts to support the defenses under item 2k.)
(nonpayment of rent only) Plaintiff has breached the warranty to provide
habitable premises.
a.
b. Plaintiff waived, changed, or canceled the notice to quit.
c. Plaintiff served defendant with the notice to quit or filed the complaint to
retaliate against defendant.
d. Plaintiff has failed to perform his or her obligations under the rental
agreement.
e. By serving defendant with the notice to quit or filing the complaint, plaintiff
is arbitrarily discriminating against the defendant
in violation of the Constitution or laws of the United States or California.
f. Plaintiff's demand for possession violates the local rent control or eviction
control ordinance of (city or county, title of ordinance,
and date of passage):
g. Plaintiff accepted rent from defendant to cover a period of time after the
date stated in paragraph 8b of the complaint.
(nonpayment of rent only) On (date):
defendant offered the rent due but
h.
plaintiff would not accept it.
i. Defendant made needed repairs and properly deducted the cost from the
rent, and plaintiff did not give proper credit.
j. Other affirmative defenses.
(Continued on reverse)
Form Adopted by the Judicial
Code Civ. Proc., § 425.12
REPLY-Unlawful Detainer (Pilot Project-C.C.P. §
1167.2)
Council of California 982.1 (95S)
[New July 1, 1995]
6
CASE
NUMBER
SHORT TITLE:
FACTS SUPPORTING AFFIRMATIVE DEFENSES CHECKED ABOVE
(Identify each item separately.)
k.
Continued on Attachment 2k.
OTHER STATEMENTS
3.
a. Defendant vacated the premises on (date):
b. Defendant claims a credit for deposits of (specify): $
The fair rental value of the premises in item 12 of the complaint is
excessive (explain):
c.
Other (specify):
d.
4. DEFENDANT REQUESTS
a. that plaintiff take nothing requested in the complaint.
b. costs incurred in this proceeding.
c. reasonable attorney fees.
Other (specify):
d.
(SIGNATURE OF DEFENDANT OR ATTORNEY)
(SIGNATURE OF DEFENDANT OR ATTORNEY)
VERIFICATION
(Use a different verification form if the verification is by an attorney or for
a corporation or partnership.)
I am the defendant in this proceeding and have read this reply. I declare under penalty of
perjury under the laws of the State of California
that the foregoing is true and correct.
Date:
(SIGNATURE OF DEFENDANT)
982.1 (95S) [New July 1. 1995]
Page two
REPLY-Unlawful Detainer (Pilot Project-C.C.P. §
1167.2)
7
FORECLOSURE, SUBPRIME MORTGAGE LENDING, AND
THE MORTGAGE ELECTRONIC REGISTRATION SYSTEM
Christopher L. Peterson *
TABLE OF CONTENTS
I. THE AMERICAN REAL PROPERTY RECORDING SYSTEM
THE ORIGIN AND OPERATION OF MERS
II.
THE QUESTIONABLE LEGAL FOUNDATION OF MERS
III.
A. MERS Does Not Own Legal Title to Mortgages Registered On Its
Database
B. MERS Lacks Standing to Bring Mortgage Foreclosures
C. MERS’ Foreclosure Efforts Implicate the Federal Fair Debt
Collection Practices Act
i. MERS is a Third Party Debt Collector
ii. Mortgage Servicers that Cloak Themselves in MERS’ Name
Should be Construed as Debt Collectors
D. Loans Recorded in MERS’ Name May Lack Priority Against
Subsequent Purchasers for Value and Bankruptcy Trustees
ANALYZING MERS’ ROLE IN THE RESIDENTIAL MORTGAGE MARKET
IV.
A. MERS and the Mortgage Foreclosure Crisis

B. MERS and Atrophy of the Land Title Information Infrastructure
C. Title Recording Law and Democratic Governance
V. CONCLUSION
INTRODUCTION
In the past two years, subprime mortgage lending has forced the American
economy to the brink of a depression and fundamentally undermined world faith in
American consumer financial markets. 1 A host of dubiously underwritten
mortgage loans helped inflate a bubble in residential real estate values. 2 As it has
Associate Dean of Academic Affairs and Professor of Law, University of Utah, S.J.
Quinney College of Law. The author wishes to thank the following for helpful
conversations, comments, encouragement, research assistance, and/or suggestions: April
Charney, Ron Fuller, Dave Hall, Michael Kent, Kathleen Keest, Tera Peterson, Diane
Thompson, and Michael Wolf. I am also grateful for helpful comments and questions
posed
by faculty, students, and other participants attending presentations related to this project
at
Seton Hall University, the University of Houston Law Center, Ohio State University, and
Harvard Law School.
Compare Paul Krugman, Crisis of Confidence, N.Y. TIMES, April 14, 2008 with Robert
J.
Samuelson, How this Crisis is Different, WASH. POST., March 18, 2008.
2
Kareem Fahim & Janet Roberts, Foreclosures, With No End in Sight, N.Y. TIMES,
May 17, 2009, at NJ 1.
Electronic copy available at: http://ssrn.com/abstract=1469749
MERS - Working Draft 9/9/2009 6:38 PM
2008] MORTGAGE ELECTRONIC REGISTRATION SYSTEM

2
become clear that millions of Americans are not capable of repaying loans crafted
for them by commission hungry brokers, the liquidity of securities drawn from
those loans froze. 3 Currently about 25 percent of all subprime home mortgages are
delinquent with millions more likely to follow. 4 One rating agency predicts that
between 40% and 50% of all subprime mortgages originated since 2006 will
eventually end in foreclosure. 5 As the volume of foreclosures increased, it put
downward pressure home prices creating the first decline in the national median
price for previously owned homes since the Great Depression of the 1930s. 6
According to one estimate over a quarter of all American households are currently
have negative equity—they owe more on their home mortgage than their home is
worth. 7 About half of all subprime borrowers are underwater on their loans. 8
Thousands of financial “foreclosure rescue” predators and con artists are openly
stalking desperate families looking for a financial lifeline. 9 County and municipal
governments in the Los Angeles area have begun campaigns to exterminate a
scourge of mosquitoes breeding in the rotten water of swimming pools behind
thousands of abandoned suburban homes. 10 In Cleveland, Ohio an estimated
15,000 of the area’s 84,000 single-family homes are sitting vacant and
deteriorating into urban blight with squatters and scavengers taking over entire
neighborhoods. 11 America lost friends in places as far off as Norway and Australia
when municipal pension funds bottomed out on investments in American subprime
Joshua Boak, IMF Puts Subprime Loss Near $1 Trillion: Economic Damage
Equals $143 for Every Person on the Planet, CHI. TRIB., April 9, 2008, C1.
Paul Gores, Trouble at Home Among the 50 States and District of Columbia,
MILWAUKEE
JOURNAL SENTINEL, August 21, 2009, at 1; E. Scott Reckard, State’s Mortgage Woes
forecast to Rise: Delinquencies on Loans will continue to Climb through 2009,

TransUnion
Projects, L.A. TIMES, August 25, at 2.
Grant Bailey, Vincent Barberio, & Glenn Costello, Revised Loss Expectations for
2006 and 2007 Subprime Vintage Collateral, www.fitchratings.com, March 25,
2008, at 2.
Banks Collect Houses Amid Subprime Fallout, INT’L HERALD TRIB., July 3, 2007,
10.
Jody Shenn, ‘Underwater’ Mortgages to Hit 48%, Deutsche Bank Says,
Bloomberg.com, August 5, 2009, available at:
http://www.bloomberg.com/apps/news?pid=20601110&sid=ac9y1xr7yNhQ.
8
Les Christie, Underwater World, CNNMoney.com, August 6, 2009
Donna Leinwand, Foreclosure Rescue Scams Multiply: States, FTC Tackle
‘Fraud Virus’ Hitting Some Homeowners, USA TODAY, August 4, 2008, at 3A.
10
Steve Chawkins, A Magical Misery Tour in Stockton, L.A. TIMES, December 13,
2007, A1; Devid Streitfeld, Blight Moves in After Foreclosures: Untended
Properties Become Eyesores; Then There are the Uninvited Guests: Mosquitoes,
Vandals and Squatters, L.A. TIMES, August 28, 2007, A1.
11
Erik Eckholm, Foreclosures Force Suburbs to Fight Blight, N.Y. TIMES, March 3,
2007,
A1 (“Many of the houses are filled with smelly trash and mattresses used by vagrants.
They
have been stripped of aluminum siding, appliances, pipes and anything else that
scavengers
can sell to scrap dealers.”); Alex Kotlowitz, All Boarded Up, N.Y. TIMES, March 8, 2009
(“The city estimates that 10,000 houses, or 1 in 13, are vacant. The county treasurer says
it's
more likely 15,000. Most of the vacant houses are owned by lenders who foreclosed on
the
properties and by the wholesalers who are now sweeping in to pick up houses in bulk, as
if
they were trading in baseball cards.”
Electronic copy available at: http://ssrn.com/abstract=1469749


3
mortgage securities. 12 The International Monetary Fund estimates subprime losses
at nearly a trillion dollars; about $143 for every person on the planet. 13
Reckless overleveraging on Wall Street combined with losses in mortgage
securities to squeeze the investment banking establishment. Two of the nation’s
formerly most reputable investment houses, Bear Sterns and Lehman Brothers,
collapsed when it became clear that its billions of dollars of their subprime
mortgage assets were virtually worthless. 14 For its part, the Federal Reserve Board
of Governors slashed interest rates on loans offered to member banks, keeping the
economy afloat, but fueling concerns of a return to 1970s-style stagflation. 15
Teetering on the edge of financial abyss, the Fed opened up new credit lines to
Wall Street investment firms, creating financial arrangements not unlike deposit
insurance, but chillingly devoid of traditional deposit insurance regulatory
oversight—without any explicit prior approval from Congress, 16 In addition to the
crumpled Wall Street investment houses and hedge funds, smaller subprime
mortgage loan originators folded up their tents like the Bedouin—over 100
different subprime mortgage origination companies systematically collapsed. 17
Currently over four hundred banks are on the FDIC’s “problem list.” 18
With so many fundamental changes, opportunities for moral hazard, agency
cost problems, consumer abuses, and impending lawsuits, perhaps the only group
with plethora of opportunities are law professors looking for salient article topics.
Indeed, the academy has responded with a new crop of scholarship exploring the
role of investment bankers, rating agencies, hedge funds, mortgage brokers,
mortgage originators, and loan servicers. It is, however, somewhat ironic that
virtually no academic attention has been paid to the one particular company that
has been a party in more subprime mortgage loans than any other. Mortgage
Electronic Registration Systems, Inc., commonly known as “MERS”, is a
corporation registered in Delaware and headquartered in the Virginia suburbs of
Washington, D.C. 19 MERS operates a computer database designed to track
12
Julia Werdigier, Wall St.’s Pullback on Financing Creates Openings for
Europe’s Smaller Banks, N.Y. TIMES, March 22, 2008, C3.
13
Boak, supra note X, at C1.
14
WILLIAM D. COHAN, HOUSE OF CARDS; A TALE OF HUBRIS AND

WRETCHED
EXCESS ON WALL STREET 4 (2009); Devin Leonard, How Lehman got Its Real
Estate Fix, N.Y. TIMES, May 3, 2009, at BU 1.
15
Tom Lauricella, Quarterly Markets Review: Trying to Get Up Off the Mat ---
Bernanke Offers a Hand, As Stocks Fall in Quarter; Where's the Turning Point?
WALL ST. J., April 1, 2008, C1.
16
Top Officials: Bear Rescue was not a Bailout; Senators are Told Possible
Collapse was Threat to Global Financial System, CHI. TRIB., April 4, 2008, C1.
17
Steve Stecklow, Subprime Lender’s Failure Sparks Lawsuit Against Wall Street
Banks: People Who Bought Its Notes Lost All; FBI Comes Calling, WALL. ST. J.,
April 9, 2008, A1.
18
Damian Paletta & David Enrich, Banks on Sick List Top 400: Industry’s Helath
Slides as Bad Loans Pile Up; Deposit-Insurance Fund Shrinks, WALL. ST. J.,
August 28, 2009.
19
Carson Mullen, MERS: Tracking Loans Electronically, MORTGAGE BANKING,
May 31, 2000, 62

4
servicing and ownership rights of mortgage loans anywhere in the United States. 20
Originators and secondary market players pay membership dues and per-
transaction fees to MERS in exchange for the right to use and access MERS
records. 21
But, in addition to keeping track of ownership and servicing rights, MERS has
attempted to take on a different, more aggressive, legal role. When closing on
home mortgages, mortgage lenders now often list MERS as the “mortgagee of
record” on the paper mortgage—rather than the lender that is the actual
mortgagee. 22 The mortgage is then recorded with the county property recorder’s
office under MERS, Inc.’s name, rather than the lender’s name—even though
MERS does not solicit, fund, service, or ever actually own any mortgage loans.
MERS then purports to remain the mortgagee for the life of a mortgage loan even
after the original lender or a subsequent assignee transfers the loan into a pool of
loans that are ultimately sold to investors—a process known as securitization.
Although MERS is a young company, 60 million mortgage loans are registered on
its system. 23 Indeed, today MERS is legally involved in the origination of
approximately 60% of all mortgage loans in the United States. 24 In past
generations, employees of county recording offices kept records of each individual
company that recorded mortgage loans and mortgage loan assignments. But today,
increasingly recording officials carry on something of a bizarre puppet show,
dutifully filing away records of the name of one company repeated over, and over
again: MERS.
MERS justifies its role in mortgage loan closings and securitization deals by
explaining that it is acting as a “nominee” for the parties. 25 The mortgage lending
industry obtains two principal benefits from attempting to use MERS as a
“mortgagee of record in nominee capacity.” First, under state secured credit laws,
when a mortgage is assigned, the assignee must record the assignment with the
county recording office, or risk losing priority vis-à-vis other creditors, buyers, or
lienors. Most counties charge a fee, ranging from $25 to $50, to record the
assignment, and use these fees to cover the cost of maintaining the real property
records. 26 Some counties also use recording fees to fund their court systems, legal
aid organizations, low income housing programs, or schools. 27 In this respect,

MERS’ role in acting as a mortgagee of record in nominee capacity is simply a tax
20
Howard Schneider, MERS Aids Electronic Mortgage Program, MORTGAGE
BANKING, January 1, 1997.
21
Id.
22
See infra note X and accompanying text.
23
Kate Berry, Foreclosures Turn Up Heat on MERS, AM. BANKER, July 10, 2007,
at 1.
24
Id.
25
26
Andrew Lipton, Mortgage Electronic Registration Systems, Inc. (MERS): Its
Impact on the Credit Quality of First-Mortgage Jumbo MBS Transactions,
Moody’s Investors Service Structure Finance Special, April 30, 1999, at 2.
27
See, e.g., Chelan County Auditor, Recording Fee Disbursement,
http://www.co.chelan.wa.us/ad/adr_fees.htm, (viewed Sept. 2, 2009) (illustrating
distribution of county recording fees in the State of Washington).


5
evasion tool. 28 By paying MERS a fee, the parties to a securitization lower their
operating costs. The second advantage MERS offers its customers comes later
when homeowners fall behind on their monthly payments. In addition to its
document custodial role, and its role as a tax evasion broker, MERS also frequently
attempts to bring home foreclosure proceedings in its own name, rather than the
name of the actual owner of the loan, which is often a trust owned by investors. 29
This eliminates the need for the trust—a purely legal business entity with no
employees, offices, or assets other than its loans—to foreclose in its own name, or
to reassign the loan to a loan servicing company to bring the foreclosure. 30
Throughout history, executioners have always worn masks. In the American
mortgage lending industry, MERS has become the veiled man wielding the home
foreclosure axe.
This Article is the first academic piece that explores the legal and public
policy foundations of the MERS system. Part I provides a brief explanation of the
origins of the county real property recording systems and the law governing real
property liens. Part II explains how MERS works, why mortgage bankers created
the company, and what MERS has done to transform the underlying assumptions
of state real property recording law. Part III explores three controversial legal
issues confronting MERS and the companies that have relied on it. In particular,
this Part queries whether MERS actually has standing to bring foreclosure actions;
whether MERS should be considered a debt collector under the federal Fair Debt
Collection Practices Act; and whether loans recorded in MERS’ name should have
priority in various collateral competitions under state law and the federal
bankruptcy code. Next, Part IV explores whether MERS bears some responsibility
for the current mortgage foreclosure crisis and what the long term effects of
privatized land title records will have on our public information infrastructure. Part
IV also considers the deeper question of whether the mortgage banking industry, in
creating and embracing MERS, has subverted the democratic governance of the
nation’s real property recording system.
I. THE AMERICAN REAL PROPERTY RECORDING SYSTEM
Public land title records have been a fundamental feature of American law
since before the founding of the Republic. Unlike feudal Europe, where most real
property was tied up in successive generations of aristocratic families, most early
colonists came to America seeking new opportunities. 31 Relatively wide
availability and lack of ancestral estates facilitated more frequent transfers of real
property among businesses and families. 32 Moreover, the American entrepreneurial
28
29
Christopher L. Peterson, Predatory Structured Finance, 28 CARDOZO L. REV.
2185, 2208-12 (2007).
30
Id.
31
POWELL ON REAL PROPERTY §82.01[1][b] (Michael Allen Wolf ed., 2007)
32
Id.

6
spirit combined with the modest means of most colonists to create great demand
for loans secured by the one widely available asset: land. 33
Perhaps then, it is not surprising that in the early seventeenth century,
Americans began experimenting with laws requiring that parties create public
records of conveyances and mortgages. 34 For example, in 1636 the General Court
of Massachusetts’ Plymouth Bay Colony adopted its first recording law which
required that “all sales exchanges fites mortgages leases or other Conveyences of
howses and lands the sale to be acknowledged before the Governor or any one of
the Assistants and committed to the public Record.” 35 Similarly, in 1639 the
Connecticut General Court insisted that “all bargines or mortgages of land
whatsoever shall be accounted of no value until they be recorded.”36 Particularly
suspicious of concealed ownership, early Virginia law only required public
recording of real property interests when the grantee did not take possession of the
property. 37 By the revolution, every English colony had adopted a statutes
requiring that parties to a mortgage record their names, and a description of the
property in public office designed for that purpose. 38 Then, as now, mortgagees
that fail to record their mortgages or assignments, risk losing the ability to enforce
their contract as against a subsequent purchaser for value. 39
The necessity and usefulness of these early public title records is attested to by
their nearly universal and uninterrupted force in subsequent American law. Indeed,
Pennsylvania’s first recording act, first adopted in 1717, remains in force to this
day. 40 Currently, all fifty states and the District of Columbia have recording
statutes similar to their colonial predecessors. 41 Moreover, preservation of public
records of mortgages proved so successful, in the twentieth century, all fifty states
have adopted Article 9 of the Uniform Commercial Code which creates an
analogous recording system for virtually all forms of personal property. 42 The
early colonial objective of these laws was, as it is today, to prevent disputes over
property rights and to facilitate the use of land as collateral by creating a
transparent public record that facilitates certainty in private bargains. Title
recording acts preserve an accessible history of land ownership with “the same
dignity and evidentiary value that attaches to public records” all for the benefit of
33
SYDNEY HOMER & RICHARD SYLLA, A HISTORY OF INTEREST RATES 280-

81 (3d ed. 1996).
34
See, e.g., Piddge v. Tyler, 4 Mass. 541, 543-44 (1808) (discussing evolution of title and
mortgage recording law in Massachusetts).
35
Powell, supra note X, at § 82.01[1][b] (quoting 11 Records of the Colony of New
Plymouth in New England 12 (D. Pulsifer ed. 1861)). The earliest American deed record
was a deed copied into the Plymouth Bay Colony’s record book in 1627. PATTON AND
PALOMAR ON LAND TITLES § 4 (3d ed. 2003).
36
Id. (quoting Trumbell, Connecticut Public Records of the Colony Prior to the Union
with
the New Haven Colony May 1665 35 (1850)).
37
POWELL, supra note X, at §82.01[1][b]. Virginia adopted its first recording statute in
1639. PATTON AND PALOMAR, supra note X, at § 4 n.7.
38
PATTON AND PALOMAR, supra note X, at § 4.
39
5 TIFFANY ON REAL PROPERTY § 1457 (1939); CARYL A. YZENBAARD,
RESIDENTIAL REAL ESTATE TRANSACTIONS §5:7 (1991); GRANT S. NELSON

&
DALE WHITMAN, 1 REAL ESTSTE FINANCE LAW § 5.34 (5th ed. 2007
40
PATTON AND PALOMAR, supra note X, at § 4 n.7.
41
PATTON & PALOMAR, supra note X, at § 4.
42
UNIF. COM. CODE. Art. 9. § X.

7
the entire community. 43 Real property recording systems create an archive that
protects communities from commercial chaos following floods, earthquakes, fire,
hurricanes, financial panics, wars, and other disasters. Public land title records
created a platform, or infrastructure, upon which private commerce could take
place. Indeed, real property recording statutes are the earliest and most practical
expression of the American commitment to the use of transparent rule of law in the
preservation and orderly exchange of property rights.
All this is not to suggest that maintaining public land title records has been
easy or inexpensive. To record a mortgage or an assignment of a mortgage, the
mortgagee must generally deliver a copy of the document in question (often
executed in the presence of witnesses or a notary public) to a county clerk that time
stamps, indexes, and files the document. Most counties charge a fee, ranging from
$25 to $50, to cover the cost of maintaining the recording system, and possibly to
generate revenue for other county services such as schools, roads, or legal aid
offices. 44 The basic structure of most county title recording systems has included
two indexes: one that alphabetically lists the name of every grantor that has
recorded a document within a given time frame, and another that lists the name of
every grantee that has recorded a document within the same time frame. 45 When a
mortgage lender—which, like a buyer, is characterized as a “purchaser” under
property law—contemplates offering a loan secured by the land, it can use these
indexes to verify that the debtor actually owns clear title to the land in question. 46
The lender wants to know whether the prospective debtor has already sold the land
or granted a mortgage to someone else. Historically, prospective purchasers began

their search by looking for the debtor’s name in the grantee index in reverse
chronological order. The prospective lender searches under the borrower’s name
until it finds a record showing the name of the individual or business that sold or
gave the property to the borrower. This process is repeated for the debtor’s grantor,
and in turn the grantor’s grantor, creating a chain of title all the way back until a
“root of title” is found. 47 Next, the creditor searches the grantor index in
chronological order for each past owner of the land to discover whether it has been
sold or mortgaged to anyone not yet discovered. The creditor will want to find a
release showing that any past mortgages granted by any past or present owner have
been satisfied. After a thorough search, the recording system can reassure
prospective purchasers of the safety of their investment.
As America’s population has grown, time has passed, and commerce has
become more complex, real property title recording systems have become
voluminous and increasingly difficult to search. 48 In addition to deeds and
mortgages, they also can now include other property interests such as mechanics’
liens, tax liens, and easements. As a result, title insurance companies have
43
PATTON & PALOMAR, supra note X, at § 4.
44
Lipton, supra note X, at 2.
45
POWELL, supra note X, at § 82.03[2][b].
46
POWELL, supra note X, at § 82.01[2][a].
47
POWELL, supra note X, at § 82.03[2][b].
48
Charles Szypszak, Public Registries and Private Solutions: An Evolving
American Real Estate Conveyance Regime, 24 WHITTIER L. REV. 663, 665-67
(2003).

8
developed expertise in bearing the cost of uncertainty associated with purchasing
interests in real property. Mortgage originators generally purchase insurance from
companies that specialize in searching title records that can be transferred to
secondary market mortgage assignees. 49 Moreover, because many counties
continue to use older, paper-based real property records, title insurance companies
have been maintaining “plant” copies of the public real property records since the
1960s. 50 These insurers, in effect, have carbon copies of most county real property
records and continually update them by entering each new recorded document into
their systems. 51 These private plant real property records are now generally
maintained on computers and are easier to search than public title records, but they
cannot function without the law creating legal incentives to deposit records into the
central government maintained system. Moreover, private plant recording systems
lack the permanence and stability of public records since title insurers are subject
to computer malfunction, fires, theft, bankruptcy, and are only willing maintain
records to the extent that is profitable to do so. While plant systems are easier to
search, they do not have the track record of hundreds of years of stability that
backs up public systems. Despite the introduction of private plant records, the
public title records continue to serve as the authoritative evidentiary benchmark in
disputes and as an archive upon which plant records can be constructed or
reconstructed.
49
Szypszak, supra note X, at 683.
50
11 THOMPSON ON REAL PROPERTY § 92.05(b) (David A. Thomas, ed., 2nd
Thomas ed. 2002).
51
Quintin Johnstone, Land Transfers: Process and Processors, 22 Valpo. U. L.
Rev. 493, 507-08 (1988).

9
Figure A. Subprime Mortgage Loan Origination under Traditional
Interpretation of State Land Title Recording Acts.
Figure A. provides a graphic representation of the origination, assignment, and
recording of a typical subprime mortgage loan under a traditional interpretation of
state land title recording acts. In a typical subprime mortgage loan, a homeowner
communicates with a mortgage broker that receives a commission for selling the
loan. At closing the homeowner signs a promissory note on behalf of the
originating lender and a mortgage or deed of trust with the originator as the
mortgagee or the trust beneficiary. Before closing the originator generally
purchases a title insurance policy from a title insurer that searches the public land
title records, or a plant copy taken from the public records. Typically subprime
originators quickly assign their loans to a seller, which is usually a subsidiary of an
investment bank. Ultimately the promissory note and mortgage are then assigned,
along with many other loans, to a special purpose vehicle that usually takes the
form of a trust. A special purpose vehicle is a business entity that is exclusively a
repository for the loans—it does not have any employees, offices, or assets other
than the loans it purchases. A pooling and servicing agreement specifies a trustee
to manage the loan assets and a servicer to collect monthly payments and interact
with the homeowner. The trust, then, transfers the right to receive the income
stream to an underwriter and then various investors such as mutual funds, hedge
funds, pension funds, and insurance companies. Under a traditional interpretation
of state land title recording acts, the seller and the trust must both record their
assignments in order to protect the priority of their mortgage against a subsequent
bona fide purchaser for value. Despite the costs recording mortgages and

10
assignments, not a single American legislature has ever seriously considered
eliminating their public land title recording acts. 52

II. THE ORIGIN AND OPERATION OF MERS
Given the venerable and uninterrupted legacy of land title recording acts, it is
interesting that first fundamental change to the American public land title
recording systems in over three hundred years was not initiated by publically
elected leaders. Instead, the Mortgage Electronic Recording System was conceived
of and created by a tight-knit group of powerful mortgage industry insiders. 53 In
October of 1993, a task force of mortgage finance companies released a “white
paper” at an annual convention of mortgage bankers. 54 The paper suggested that an
electronic book entry system of tracking mortgage loans would be better for the
mortgage lending industry than the legal system of county recording offices. 55 The
paper encouraged comments from the real estate finance industry, leading to the
formation of a steering committee affiliated with the Mortgage Bankers
Association of America (MBA). 56 The MBA is a trade association supported
through dues paid by mortgage lending companies that conducts public relations
for the industry. This committee of mortgage bankers retained Ernst & Young, an
accounting firm, to study the feasibility of developing MERS. In addition to
studying the technological and financial hurdles, the accounting firm also did some
telephone interviews with mortgage loan originators, servicers, warehouse lenders,
custodians, assignment processors, and employees at Fannie Mae and Freddie Mac.
The accountants’ primary conclusion was that that the finance industry could save
a lot of money by deciding not to pay the fees that local governments require to
record mortgage assignments. 57
The legislative history of the MERS concept is not found in Congressional or

state assembly records, but in the trade magazine Mortgage Banking. In 1995 and
1996 the MBA trade association’s steering committee developed a business plan
that would make MERS a reality. 58 The principal consultant involved in creating
MERS explained that the “[o]riginal investors came in ‘on faith’ ... because the
52
PATTON & PALOMAR, supra note X, at §4 (“Recording acts are now in force in
all the states and the District of Columbia.”).
53
Mullen, supra note X (“MERSCORP, Inc., was formed by Mortgage Bankers
Association of America (MBA) member companies as a central electronic loan
registry in an ambitious attempt to help lenders streamline the lending process and
eliminate the need to record assignments when selling loans to other mortgage
companies.”).
54
Phyllis K. Slesinger & Daniel McLaughlin, Mortgage Electronic Registration
System, 31 ID. L. REV. 805, 810-11 (1995).
55
Id.
56
Id.
57
Slessinger & McLaughlin, supra note X, at 811-12 (estimating savings of $51.7
million annually for mortgage servicers and $14.1 million annually for mortgage
originators).
58
Schneider, supra note X.

11
details of how MERS would work weren’t ironed out until mid-1996 at working
group meetings involving different industry players.” 59 MERS’ Senior Vice
President of Operations and Information Management explained that the legal and
technological questions behind MERS were answered when “[l]enders and
servicers of various sizes, along with the secondary market agencies, ‘got in a
room together, walked through the process, and came to an agreement.’” 60 Two
years after releasing the initial white paper, MERS, Inc. incorporated in Delaware
as a non-stock corporation owned by mortgage banking companies that made
initial capital contributions ranging from $10,000 to $1,000,000. 61 According to a
Mortgage Banking Association Executive Vice President involved in the creation
of MERS the primary goal of the MERS initiative was to “[l]ower costs for
servicers.” 62
Although at first, MERS was only able to attract the participation of Fannie
Mae and Freddie Mac, private label subprime mortgage securitizers began using
MERS in 1999. 63 Today, mortgage finance companies currently use the MERS’
name to interact with the land title recording system in one of two ways: either by
recording MERS’ name as an assignee, or by recording MERS’ name as the
original mortgagee. Figure B provides a graphic representation of the former.

Under this recording strategy the originating lender makes a traditional mortgage
loan by listing itself as the payee on the promissory note and as the mortgagee on
the security instrument. The loan is then assigned to a seller for repackaging
through securitization for investors. However, instead of recording the assignment
to the seller or the trust that will ultimately own the loan, the originator pays
MERS a fee to record an assignment to MERS in the county records. MERS’
counsel maintains that MERS becomes a “mortgagee of record” even though its
ownership of the mortgage is fictional. 64
59
Id.
60
Id.
61
Id. The charter members of MERS, Inc. were: 1st Nationwide Mortgage; Allied
Group Mortgage, Inc.; American Home Funding; American Land Title
Association; Crestar Mortgage Corp.; Fannie Mae; Freddie Mac; GE Capital
Mortgage Services, Inc.; GMAC Residential Funding Corp.; HomeSide Lending,
Inc.; Knutson Mortgage Corp; Lau Capital Funding; Merrill Lynch Credit Corp;
Mortgage Bankers Association of America; Mortgage Guaranty Insurance Corp.;
Northwest Mortgage, Inc.; ReliaStar Mortgage Corp.; Source One Mortgage
Services Corp.; Texas Commerce Bank, NA; Chase Manhattan Mortgage; and,
Weyerhaeuser Mortgage Company. Id. Mortgage Electronic Registration Systems,
Inc. is actually a wholly owned subsidiary of MERSCORP, Inc. The dual structure
of the company was designed to prevent creditors of MERSCORP from attempting
to seize loans recorded in the Mortgage Electronic Registration Systems, Inc.’s
name in the event that MERSCORP, Inc. declares bankruptcy. Mullen, supra note
X, at 62.
62
Id.
63
Mullen, supra note X.
64
R.K. Arnold, Yes, There is Life on MERS, 11 PROBATE & PROPERTY 32, 34
(July/August 1997). Arnold explains:

12
Figure B. Subprime Mortgage Loan Recording with MERS as Purported
Assignee.
Although MERS records an assignment in the real property records, the
promissory note which creates the legal obligation to repay the debt is not
negotiated to MERS. 65 Everyone agrees that MERS is never entitled to receive a
borrower’s monthly payments, nor is MERS ever entitled to receive the proceeds
of a foreclosure or deed of trust sale. MERS has no actual financial interest in any
mortgage loan. MERS does not even provide lien releases of the mortgages it
purports to own, instead referring title attorneys, refinancing lenders, and

consumers to the loan’s servicer. 66 MERS’ revenue comes, not from repayment of
When a mortgage is registered on the MERS system, it receives a
mortgage identification number (MIN). The borrower executes a
traditional paper mortgage naming the lender as mortgagee, and the
lender executes an assignment of the mortgage to MERS. Both
documents are recorded in the public land records, making MERS the
mortgagee of record. From that point on, no additional mortgage
assignments will be recorded because MERS will remain the mortgagee
of record throughout the life of the loan.
Id.
65
66
Please Release Me!, INSIDE MERS, Jan./Feb. 2004, 2. MERS instructs servicers
to prepare and record lien releases entirely on their own. But, the servicers are
instructed to do so in MERS’ name, even though MERS has nothing to do with the
decision to release the lien. Id.

13
the loan or the disposition of collateral, but from fees that the originator and other
mortgage finance companies pay to MERS. Once a loan is assigned to MERS, the
public land title records no longer reveal who (or what) actually owns a lien on the
property in question.
After a few years in business, MERS decided it could help mortgage
financiers pay even less to county governments by simply doing away with the first
assignment to MERS, and instead listing MERS as the mortgagee in the original
mortgage. Figure C provides a graphic representation of subprime mortgage loan
origination where the parties record MERS’ name as the original mortgagee. Once
again, although MERS does not actually advance any loan principal to the
homeowner, does not have the right to receive any payments from the borrower,
and is not the actual party in interest in any foreclosure proceeding. Nevertheless,
the actual mortgagee pays a fee to MERS to induce MERS to record the mortgage
in MERS’ name. By eliminating the reference to an actual mortgagee or the actual
assignee, MERS estimated it would save the originator an average of $22.00 per
loan. 67
67
MERS Frequently Asked Questions, Does MERS change the current mortgage
closing process?, www.mersinc.org/why_mers/faq.aspx, viewed June 9, 2004
(“[Y]ou’ll save $22 or more per loan when you specify MERS as the Original
Mortgage of Record in the mortgage or deed of trust.”); Mullen, supra note X
(“The good news for companies embracing the system changes was that using
MOM [MERS as Original Mortgagee], as the practice has come to be known,
provides an immediate cost reduction of approximately $22 per loan.”). Early
estimates suggest that the average cost reduction when MERS acts as an
“assignee” were “between $15 and $17 a loan.” Lipton, supra note X, at 2. More
recent estimates suggest that using MERS saves lenders and servicers
approximately $40 over the entire life of a mortgage loan. David F. Borrino,
MERS: Ten Years Old, USFN,
http://imis.usfn.org/Resources/ArticleLibrary/1733.aspx, (May 11, 2006) viewed
July 13, 2006.

14
Figure C. Subprime Mortgage Loan Recording with MERS as Purported
Mortgagee.
In addition to its record keeping and recording system liaison roles, MERS has
also become directly involved in consumer finance litigation. Historically, when a
homeowner defaults on a home mortgage the owner of the mortgage loan, or a
servicer hired to collect borrower payments, sues the homeowner in a foreclosure
action. In states requiring judicial proceedings for foreclosure, this process also
typically involves either in-house or retained outside legal counsel. 68 In states that
allow non-judicial foreclosure, this process is often faster and may not involve
significant participation by attorneys. 69 But, when MERS is listed in county
records as the owner of a mortgage, courts have generally made the natural
assumption that the appropriate plaintiff for brining a foreclosure action is MERS.
In order to move foreclosures along as quickly as possible, MERS has allowed
actual mortgagees and loan assignees or their servicers to bring foreclosure actions
in MERS’ name, rather than in their own name. 70 Thus, not only does use of
MERS’ services allow financiers to avoid county recording taxes, it also allows
68
12 THOMPSON ON REAL PROPERTY § 101.04(b)(1) (1994 & Supp. 2007).
69
12 THOMPSON ON REAL PROPERTY § 101.04(c)(1) (1994 & Supp. 2007).
70
MERS, STATE BY STATE MERS RECOMMENDED FORECLOSURE

PROCEDURES,
supra note X, at 8 (“Employees of the servicer will be certifying officers of MERS.
This means thay are authorized to sign any necessary documents as an officer of
MERS. . . . In other words, the same individual that signs the documents for the
servicer will continue to sign the documents, but now as an officer of MERS.”)

15
them to list an obscure, evidently official institution as the instigator of a
foreclosure.
With these services on offer, the mortgage finance industry quickly and
wholeheartedly embraced recording and foreclosing its mortgage loans in the name
of MERS, rather than the actual parties in interest. Instead of legislation or a
landmark court ruling, mortgage industry insiders report that the key development
in the acceptance of the MERS was the endorsement of credit rating agencies such
as Moody’s, Standard and Poor’s, and Fitch Investment. 71 For example, in 1999—
before any significant appellate judicial opinion on the subject—Moody’s investor
services issued a report concluding that MERS’ mechanism to put creditors on

notice of a mortgage would not be harmed. 72 Moody’s concluded without citation
to any court opinion, or even to any state recording statute, that “subsequent
creditors of the entity selling the mortgages to the MBS [mortgage backed
securities] transactions [sic] should not be able to contest the conveyance of the
mortgages based on lack of notice.” 73 In a front page article covering the Moody’s
opinion Mortgage Banking reported that “the most significant finding in the report
specified that in transactions where the securitizer used MERS, there would be no
need for new assignments of mortgages to the trustee of MBS transactions.” 74
With the rating agencies’ stamp of approval, the use of MERS exploded in the
early 2000s. By late 2002 MERS had recorded its name, instead of the actual
assignee or mortgagee, in ten million residential home mortgages. 75 As the
subprime mortgage refinancing boom took off, MERS registered an average of
21,000 loans on its system per day. 76 Only a year later, the total number of loans
recorded in MERS name doubled to 20 million. 77 By May of 2007, this number
had tripled again to 60 million loans. 78 Sixty percent of all new mortgage loan
originations are recorded under MERS’ name, and more than half of the nation’s
existing residential loans are recorded under MERS name. 79 Not satisfied, MERS’
CEO insists that “[o]ur mission is to capture every mortgage loan in the country.” 80
III. THE QUESTIONABLE LEGAL FOUNDATION OF MERS
Because MERS came to “own” over half of the nation’s mortgage loans in a
time span more brief than many lawsuits, there is sparse appellate law explicitly
dealing with the company and its unprecedented attempt to usurp county title
recording systems and become the national foreclosure plaintiff. The few opinions
that exist confronted issues of first impression with little in the way of legislative
71
72
73
74
75
MERS Registers 10 Million Loans, INSIDE MERS, Nov./Dec. 2002, 1.
76
Id.
77
MERS Registers 20 Million Loans, INSIDE MERS, Jan./Feb. 2004, 1.
78
Berry, supra note, X, at 1.
79
MERS Registers 20 Million Loans, supra note X, at 1; Berry, supra note X.
80
Id.

16
or scholarly advice. Moreover, most of these opinions were written without the
benefit of hindsight brought to light by the recent collapse of the nation’s subprime
mortgage lending industry. Accordingly, as the judiciary presides over the forced
displacement of millions of American families from their homes, it is worthwhile
to take a fresh look at the legal foundation of MERS’ role in the land title
recording and home foreclosure systems. This Part looks at three important
doctrinal questions that remain unanswered regarding MERS: whether MERS
owns title to mortgages either as a mortgagee or an assignee; whether MERS has
standing to bring foreclosure lawsuits; whether MERS is a “debt collector” for
purposes of the federal Fair Debt Collection Practices Act; and, whether MERS has
priority against subsequent bona fide purchasers for value (including bankruptcy
trustees). While these are basic doctrinal questions, they nonetheless have
profound consequences, not only for the mortgage lending industry, but also for
the world economy.
A. MERS Does Not Own Legal Title to Mortgages Registered on Its Database
While the preceding Parts of this article have explained what MERS does, it
remains unclear what MERS is. Obviously, at the most simple level, MERS is a
Delaware corporation that provides mortgage loan related services. But even
MERS’ own contracts, attorneys, and spokespersons present a muddled account of
MERS’ identity in relationship to the mortgage loans registered on its database.
For example, the boilerplate contract provision used by mortgage originators in
“MERS as original mortgagee” loan contract states:
“MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a

separate corporation that is acting solely as nominee for Lender and
Lender’s successors and assigns. MERS is the mortgagee under this
Security Instrument. MERS is organized and existing under the laws of
Delaware, and has an address and telephone number of P.O. Box 2026,
Flint, MI 48501-2026, tel. (888) 679-MERS. 81
The second sentence seems to suggest that MERS is some sort of agent—a
“nominee”—of the actual mortgagee. Yet, the third sentence flatly asserts that
“MERS is the mortgagee.” Which is it? 82 What is clear is that MERS cannot be
both. Surely, it is axiomatic the same entity cannot simultaneously be both an agent
and a principal with respect to the same property right. 83
81
Mortgage Electronic Registration Systems, Inc. v. Bluming, No. GD05-16795,
Civil Division, Court of Common Pleas of Allegheny County, PA, slip op. (May
31, 2006) (J. Timothy Patrick O’Reilly).
82
Cf Landmark Nat. Bank v. Kesler, No. 98489, 2008 WL 4180346, (Kan. App.
Sept 12, 2008) (“Specifically, the mortgage says that the mortgagee is MERS,
though ‘solely as nominee for the Lender.’ Does this mean that MERS really was
the mortgagee, even though it didn’t lend money or have any rights to loan
repayments?”).
83
The very first section of the Restatement of Agency Law clearly delineates that
an agent and a principal are different persons. Restatement (Third) of Agency Law

17
Nevertheless, other explanatory materials written by MERS to assist its
members in understanding the MERS system are equally schizophrenic. For
example, the company’s Recommended Foreclosure Procedures report takes the
position that MERS is merely an agent:
MERS acts as a nominee (a form of agent) for the servicer and beneficial
owner of a mortgage loan in the public land records. MERS is designed to
operate within the legal framework in all U.S. jurisdictions and did not
require any changes to existing laws. 84
In contrast, MERS takes the opposite position when confused loan officers and
foreclosure attorneys press with pointed questions like “Under what section of law
does MERS, if named ‘nominee’ have the authority to assign and/or discharge the
mortgage?”; “Is a nominee like a power of attorney for the lender?”; and, “How
ought the mortgage be recorded in the clerk’s office?” 85 In response to these three
questions MERS’ Vice President and Corporate Counsel explained:
Mortgage Electronic Registration systems, Inc. (MERS) gets its authority
to assign and/or discharge a mortgage because MERS is the mortgagee,
and as such holds legal title to the mortgage. ... The nominee language
does not take away from the fact that MERS is the mortgagee. 86
MERS’ position is no clearer in litigation. Interestingly, the company tends to
argue it is an actual mortgagee or assignee when it brings foreclosure actions;

but, when sued in cases alleging fraud, deceptive practices, or other statutory
consumer protection claims associated with loans registered on its system,
MERS argues it is merely an agent without exposure to liability. 87 Even more
§1.01 (“Agency is the fiduciary relationship that arises when one person (a
“principal”) manifests assent to another person (an “agent”) that the agent shall act
on the principal’s behalf and subject to the principal’s control. . . .”). Moreover,
neither the popularity of MERS’ self-characterization, nor its contractual recitation,
are controlling. Id. § 1.02 (“An agency relationship arises only when the elements
stated in § 1.01 are present. Whether a relationship is characterized as agency in an
agreement between the parties or in the context of industry or popular usage is not
controlling.”).
84
MORTGAGE ELECTRONIC REGISTRATION SYSTEM, INC., STATE-BY-STATE

MERS
RECOMMENDED FORECLOSURE PROCEDURES 4 (2002) (hereinafter “MERS

STATE-
BY-STATE FORECLOSURE PROCEDURES”). Interestingly, the report does not cite
any legal authority for the proposition that MERS operates within the legal
authority of every state in the Union.
85
MERS Forum, FAQ with Sharon Horstkamp, MERS Vice President and
Corporate Counsel, www.mersinc.org/forum/viewreplies.aspx?id=13&tid=73 last
viewed June 9, 2004.
86
Id. (emphasis added).
87
Compare Landmark Nat. Bank v. Kesler, No. 98,489, 2008 WL 4180346, at
*1-*2 (Kan. Ct. App., Sept. 12 ,2008) (“What is MERS’s interest? MERS claims
that it holds the title to the second mortgage . . . . MERS objects to its

18
perplexing, in a series of bankruptcy cases filed and then consolidated in the
same bankruptcy court, MERS simultaneously brought the same type of
foreclosure related actions both solely in its own name and as a nominee on
behalf of other entities. 88
While the language in MERS boilerplate contracts is not particularly
enlightening, the basic economic principals of the law provide a simple answer to
this puzzle. The American legal tradition looks to the economic realities of a
transaction in determining whether a business is a secured creditor—including a
mortgagee. 89 The most familiar application of this principal is found in the
Uniform Commercial Code’s distinction between a security interest and a lease. 90
The U.C.C. insists that the words used by the parities to a contract are not
controlling. 91 Contracts where the parties explicitly describe a transaction as a
lease are universally construed as a security agreement where there is no
reasonably foreseeable likelihood of the “lessor” regaining possession of the goods
after the “lease” term. 92 Security agreements governing realty—mortgages and
deeds of trust—are no different on this point. Contracts creating mortgages are

construed as such even where the parties choose to describe the bargain with
different language. 93 It is equally axiomatic that where contracts do not create a
characterization as an agent...”) with In re Escher, 369 B.R. 862 (E.D. Pa. 2007)
(“MERS’ role as nominee leads the Court to conclude that it cannot be liable on
any of the Plaintiff’s [Truth in Lending or Pennsylvania consumer protection]
claims. A nominee is understood to be an agent for another. . . . Therefore MERS
will be dismissed from this action and no further reference to MERS will be
made.” ); Hartman v. Deutsche Bank Nat. Trust Co., No. 07-5407, 2008 WL
2996515, *2 (E.D.Pa. Aug. 1, 2008) (accepting MERS’ argument that it could not
be liable under the Truth in Lending Act because there was no colorable allegation
“that ... [the plaintiff’s] mortgage loan was assigned to MERS, or that MERS was
ever the owner of that obligation.”); Brief in Support of Defendant’s Motion to
Dismiss at 3, King v. Ocwen, Civil Action No. 07-11359, 2008 WL 2063553
(E.D.Mich, April 14, 2008) (arguing that MERS could not be liable for Fair Debt
Collection Practices Act violations because “HSBC was the mortgagee for the
property. Ocwen is the servicer for the property. [And,] MERS acted solely as the
nominee for the original mortgagee of the property”) (emphasis added).
88
In re Hawkins, No. BK-S-07-13593-LBR, 2009 WL 901766 (Bkrctcy.D.Nev.
March 31, 2009) (holding MERS lacks standing to lift automatic stay).
89
Blanco v. Novoa, 854 So.2d 672, 674 (Fla.App.Ct., 2003); Land Mark Nat. Bank
v. Kessler, No. 98,489, 2008 WL 4180346, at *1 (Kan. Ct. App., Sept. 12 ,2008);
Major's Furniture Mart, Inc. v. Castle Credit Corp., Inc., 602 F.2d 538, 543 (3rd
Cir.1979)
90
U.C.C. § 1-203 (2005).
91
In re Homeplace Stores, Inc., 228 B.R. 88, 94 (Bankr.D.Del.1998).
92
In re WorldCom, Inc., 339 B.R. 56, 64 (Bankr..S.D.N.Y. 2006); Edwin E.
Huddleson, III, Old Wine in New Bottles:UCC Article 2a Leases, 39 Ala. L. Rev.
615, 627 (1988).
93
Standard Leasing Corp. v. Schmidt Aviation, Inc., 576 S.W.2d 181, 184 (Ark.,
1979); Trustees of Zion Methodist Church v. Smith, 81 N.E.2d 649, 650 (Ill.App.
Ct.,1948); Parry v. Reinertson, 224 N.W. 489, 490 (Iowa 1929); Hargrove v. Gerill

19
mortgage, courts will not construe one to exist merely because of boilerplate
language in the written memorialization of the deal. 94 MERS is not a mortgagee
(or an assignee) simply because ink on paper makes this assertion—rather the law
compels courts to look to the economic nature of the transaction to identify MERS’
role. 95
Indeed, the fundamental economic reality of MERS involvement in the

mortgage lending industry suggests that MERS is not a mortgagee with respect to
any loan registered on its database. A mortgagee is simply the party to whom a
parcel of real estate is mortgaged. Or, as Blacks Law Dictionary explains, a
“mortgagee” is “[o]ne to whom property is mortgaged; the mortgage creditor, or
lender. -- Also termed mortgage-holder.” 96 MERS is not the party to whom family
homes are mortgaged for at least three fundamental economic reasons. First,
MERS does not fund any loans. No money coming out of a MERS deposit account
is tendered as loan principal to homeowners. Second, no homeowners promise to
pay MERS any money. To this effect, MERS is never identified as the payee in a
promissory note and MERS is never entitled to receive any monthly payments
from the mortgagor. Finally, and perhaps most important, MERS is never entitled
to receive the proceeds of a foreclosure sale. Instead, these funds go to the actual
mortgagee (or assignee of the mortgagee) that is the true owner of the lien.
In cases where MERS claims to own legal title to mortgages by virtue of
assignment its position is no stronger. Unlike the investment trust that actually
owns the mortgage in a typical subprime securitization structure, MERS does not
pay the loan originator value in exchange for the mortgage. On the contrary, the
originator or a servicer pays MERS to take the “assignment.” 97 In these cases
Corp., 464 N.E.2d 1226, 1230, (Ill.App. Ct.1984); In re Berg, 387 B.R. 524, 555
(Bankr..N.D., 2008).
94
Secretary of Veterans Affairs v. Roma Food Enterprises of Florida, Inc., 840
So.2d 1066, 1066-67 (Fla.App.Ct., 2003); Moon v. Moon, 776 N.Y.S.2d 324, 325
(N.Y.A.D., 2004).
95
Ja-Mo Associates, Inc. v. 56 Fulton St. Garage Corp. 30 A.D.2d 287, 290 (N.Y.
A.D. 1968) (“While the court is not bound by the label which the parties applied to
the payment and may examine the true nature of the transaction, the payment here
bore none of the distinguishing characteristics which would render section 233 (of
the Real Property Law . . . ) applicable. There was no intention that the landlord
hold the money as security.”) (citations omitted); Szabo Food Service, Inc. of
North Carolina v. Balentines, Inc., 206 S.E.2d 242, 249 (N.C. 1974); (“It has long
been the rule with us that in determining whether a contract is one of bailment for
use, a lease with an option to purchase, or one of sale with an attempt to retain a
lien for the purchase price, the courts ‘do not consider what description the parties
have given to it, but what is its essential character.”) (citation omitted); Lee v.
Barnes, 362 P.2d 237, 240 (Wash. 1961) (“The label affixed to a security interest
by the parties does not necessarily determine its legal significance.”); See also
Dougherty v. Salt, 125 N.E. 94 (1919) (widely studied case explaining that “[a]
note so given is not made for “value received,” however its maker may have
labeled it.”)
96
BLACK'S LAW DICTIONARY (8th ed. 2004), mortgagee.
97
Arnold, supra note , at 33.

20
MERS is still not entitled to receive repayment of the mortgage loan. 98 Nor is
MERS entitled to the proceeds of a foreclosure sale. 99 MERS is being paid fees to
provide record keeping and foreclosure services, rather than MERS paying to own
liens on family residences.
Federal consumer protection and bankruptcy law also suggests that the MERS
does not own legal title to loans registered on its database. For example, under both
the Truth in Lending Act and the Home Ownership and Equity Protection Act a
mortgage assignee can be liable for an original lender’s violations of those
statutes. 100 If MERS actually does own legal title mortgages it takes on
“assignment,” then it would have taken on potential liability under these statutes
for millions of the nation’s residential mortgage loans. Perhaps even more absurd,
suppose for a moment that MERS were to declare bankruptcy. If courts ultimately
agreed that MERS owns legal title to mortgage liens, it stands to reason that the
company’s creditors would have a claim on that property. Yet it is commercial
madness to suggest that the right to foreclose on over half nation’s residential loans
could be sucked into one small company’s bankruptcy proceedings—even though
that company never paid value for a single mortgage loan. 101
Moreover, the venerable rule that a mortgage follows a negotiated promissory
note belies MERS’ claim of owning legal title to mortgages. 102 Courts are virtually
unanimous in holding that where a mortgage lender with a promissory note
negotiates that note to a holder, the holder of the promissory note also obtains any
mortgage securing that note. 103 Indeed, this is the very reason why the U.S.
98
MERS RECOMMENDED FORECLOSURE PROCEDURES, supra note X, at 4

(“MERS
does not create or transfer beneficial interests in mortgage loans or create
electronic assignments of the mortgage. What MERS does do is eliminate the need
for subsequent recorded assignments altogether. The transfer process of the
beneficial ownership of mortgage loans does not change with the arrival of
MERS.”).
99
Id.
100
15 U.S.C. § 1641 (2006).
101
Section 541 of the Bankrtupcty Code states that a bankrupt company’s estate “is
comprised of all the following property, wherever located and by whomever held:
all legal or equitable interests of the debtor in property as of the commencement of
the case.” 11 U.S.C. § 541(a)(1) (2009). Realistically, if the issue were ever forced
to the forefront, one would expect a court to conclude that the liens “owned” by
MERS were not included in MERS, Inc.’s bankruptcy estate because “[p]roperty of
the states does not include . . . any power that the debtor may exercise soley for the
benefit of an entity other than the debtor.” Id. at 541(b)(1). This merely affirms the
point: MERS does not own mortgages.
102
RESTATMENT (THIRD) OF PROPERTY: MORTGAGES §5.4 (a), cmt. B (1997);
NELSON & WHITMAN, supra note X, at §5.27; GEORGE E. OSBORNE,

HANDBOOK
ON THE LAW OF MORTGAGES § 223 (1970);
103
In re Ivy Properties, Inc., 109 B.R. 10, 14 (Bkrtcy.D.Mass.,1989) (under
Massachusetts common law the assignment of a debt carries with it the underlying
mortgage); Margiewicz v. Terco Properties of Miami Beach, Inc., 441 So.2d 1124,
1125 (Fla.Dist. Ct. App.1983) (When a note secured by a mortgage is assigned, the
mortgage follows the note into the hands of the assignee); Rodney v. Arizona

21
Supreme Court held—over a century ago—that a “mortgage can have no separate
existence” from its promissory note. 104 MERS claim to own legal title to
mortgages, despite the promissory notes those mortgages secure having been
negotiated elsewhere, flies in the face of the legal maxim endorsed by the Supreme
Court: accessorium non ducit, sequitur principalem—the accessory does not lead,
but rather follows the principal. 105 Mortgages are inseparable from promissory
notes because of “the ‘dependent and incidental relation’ that a mortgage has with
the obligation it secures....” 106 The parties to mortgage securitizations do not
generally negotiate promissory notes to MERS. 107 Doing so would make no sense,
since MERS does not pay value for the note and is not entitled to receive payment.
Moreover, negotiating a note to MERS would expose MERS to assignee liability

for misbehavior on the part of loan originators by virtue of statutory and common
law assignee liability rules. 108 If a mortgage follows the note, then ultimately the
mortgage is owned by the trustee (assuming the securitization parities successfully
complete their paperwork), to whom the note is eventually endorsed. Suppose for a
moment that a disagreement arose between MERS and a securitization trustee over
who had legal title to a mortgage loan deposited into a securitization trust: No one
Bank, 836 P.2d 434, 436 (Ariz. Ct. App.1992); Brewer v. Atkeison, 25 So. 992,
993 (Ala. 1899) (“[A]n assignment by the mortgagee of one of the mortgage notes
operates as an assignment pro tanto of the lien upon the lands.”); Martindale v.
Burch, 10 N.W. 670, 671 (Iowa 1881) (“That an assignment or transfer of a note,
secured by a mortgage, operates as an assignment of the mortgage lien, is a settled
rule of law.”); Robinson Female Seminary v. Campbell, 55 P. 276. 277 (Kan.
1898) (“the assignment of the note operated as an assignment of the mortgage
made to secure the note.”); Page v. Pierce, 26 N.H. 371, 1853 WL 2428, at *4
(1853) (“It is settled in this State, that the assignment of a debt secured by a
mortgage of land, is ipso facto an assignment of the security also.”).
104
Carpenter v. Longan, 83 U.S. 271, 274 (1872). Compare Jackson v. Mortgage
Electronic Registration Systems, Inc., Slip Op., 2009 WL 2461257, *5 (Minn.
Aug. 13, 2009) (“By acting as the nominal mortgagee of record for its members,
MERS has essentially separated the promissory note and the security instrument,
allowing the debt to be transferred without an assignment of the security
instrument.”) with MERS STATE-BY-STATE FORECLOSURE PROCEDURES, supra

note X, at 5 (“To reflect the interrelationship of the promissory note and mortgage
and to ensure these two instruments are tied together properly, the recital paragraph
names MERS, solely as nominee for Lender, as benefirciary.”).
105
Id. at 276.
106
In re Hwang, -- B.R--, 2008 WL 4200129 at *5 (Bkrtcy.C.D.Cal. Sept. 4 2008)
(quoting Carpenter, 83 U.S. at 276).
107
Landmark Nat’l Bank v. Kessler, Land Mark Nat. Bank v. Kessler, No. 98,489,
2008 WL 4180346, at *1 (Kan. Ct. App., Sept. 12 ,2008); Peterson, Predatory
Structured Finance, supra note X, at X; Steven L. Schwarcz, The Alchemy of Asset
Securitization, 1 STAN. J.L. BUS. & FIN. 133, X (1994).
108
See, e.g., 15 U.S.C. § 1641. Furthermore, although MERS would be considered
a holder, it would not be considered a holder in due course, since it does not pay
value for the negotiated instrument. Uniform Commercial Code § 3-3XX.

22
can seriously claim that courts would award legal title to MERS instead of the
trustee acting on behalf of investors that actually paid for the loan.
In thousands of cases around the country MERS’ counsel continues to recite
the statement that “MERS holds legal title to the mortgage” as though it were the
finance equivalent of some tantric mantra. Yet, any meaningful economic analysis
of this claim exposes it as a simple falsehood. MERS does not own the lien
because it does not own the proceeds of the sale rendering disposition of the
property seized in exercising the lien.
B. MERS Lacks Standing to Bring Foreclosure Actions
If MERS does not own the liens on which it is recorded as mortgagee or
assignee, this naturally raises the question of where it gets the authority to bring
lawsuits attempting to eject families from their homes. The concept of standing, or
locus standi, refers to the capacity of a litigant to show a sufficient connection to
the subject matter of a lawsuit to justify the party's participation in the case. In state
courts, the requirement of standing sounds in the police powers of the state’s
sovereign authority to administer justice. 109 But in federal courts, the standing
doctrine derives from the justiciability requirement of Article III, §2 of the
Constitution which grants the federal judiciary the power to resolve only actual
cases and controversies. 110 The Supreme Court has developed an extensive
jurisprudence for determining whether the standing requirement of Article III is
satisfied. 111 Many state supreme courts have imbedded this federal jurisprudence
into their own state law, making their standing doctrines indistinguishable despite
differing sources of law. 112 On the other hand, some states have not followed
federal law in resolving the outer bounds of their standing requirements. 113 States
that have developed their own standing rules have generally been more permissive
109
See Hawkeye Bancorporation v. Iowa College Aid Com'n, 360 N.W.2d 798,
802 (Iowa 1985) (Unlike the federal courts, state courts are not bound by
constitutional strictures on standing; with state courts, standing is a self-imposed
rule of restraint); N.Y. State Club Ass'n, Inc. v. City of New York, 487 U.S. 1, 8
n.2 (1988) (“the special limitations that Article III of the Constitution imposes on
the jurisdiction of the federal courts are not binding on the state courts”); Asarco
Inc. v. Kadish, 490 U.S. 605, 617 (1989) (holding that the constraints of Article III
do not apply to state courts).
110
U.S. CONST. Art. III, § 2.
111
Allen v. Wright, 468 U.S. 737, 751 (1984) (court recognizes the extensive body
of case law on standing).
112
See Stasha D. McBride, Civil Procedure: Time to Stand back: Unnecessary
Gate-Keeping to Oklahoma Courts, 56 Okla. L. Rev. 177, 177 (2003) (the
Oklahoma Supreme Court has implemented state standing requirements that
precisely mirror the federal standing doctrine)
113
Helen Hershkoff , State Courts and the “Passive Virtures”: Rethinking the
Judicial Function, 114 Harv. L. Rev. 1833, 1838 (2001) (Many state courts do
conform the scope of their judicial function to the Article III model).

23
in allowing plaintiffs to state a claim. 114 And, the Supreme Court has conceded to
states the power to do so, even where state courts adjudicate federal questions. 115
Federal courts, and states that model federal justiciability requirements,
impose a three part standing test requiring: (1) an injury in fact, (2) causation, and
(3) redressability. 116 Under the injury element, the Supreme Court has explained
that courts must find a “concrete and particularized invasion of a legally protected
interest.” 117 The causation element requires a fairly traceable connection between
the alleged injury in fact and the alleged conduct of the defendant. 118 And, for an
injury to be redressable, it must be likely that “the plaintiff’s injury will be
remedied by the relief the plaintiff seeks in bringing the suit.” 119 When a debtor
cannot repay a mortgage loan this causes a clear injury in fact to the investors that
have purchased securities that draw on revenue from that loan’s monthly
payments. What is less is clear how a debtor’s failure to pay causes an injury in
fact to MERS, a company that has no factual expectation of receiving loan
payments or the proceeds of a foreclosure sale. MERS makes the same amount of
money with respect to the original mortgage agreement whether the borrower
repays or not.
Even if a court is willing to accept MERS’ dubious claim that it owns legal
title to a mortgage, this purely nominal ownership does not give rise to an actual
injury in fact required by the latest standing precedent. In June of 2008 the
Supreme Court confronted for the first time the question of whether “bare legal
title” to a financial obligation is sufficient to create standing under Article III. In

Sprint Communications, Co. v. APCC Services, Inc. 120 the Court heard facts which
bear a resemblance to those involved in MERS transactions. The Sprint case
involved public payphone customers who made long-distance telephone calls using
114
It is unclear whether under their police powers states may adopt more restrictive
standing rules than federal courts. Arguably state courts may be obliged to apply
law at least as permissive on standing as federal standing rules when adjudicating a
federal claim. However, when adjudicating a state claim, one would suspect that
state courts are free to decline to exercise their sovereign power provided that
doing so does not deny due process of law. See generally Helen Hershoff, State
Courts and the “Passive Virtues”: Rethinking the Judicial Function, 114 HARV. L.
REV. 1833, 1835-37 (2001) (analyzing relationship of state standing law in relation
to the federal case and controversy requirement).
115
Asarco, Inc. v. Kadish, 490 U.S. 605, 617-18 (1989) (permitting adjudication of
federal claims in state court where plaintiff would not have met federal
justiciability requirements). In contrast, where a state claim is removed from state
court to federal court, the federal judiciary applies federal standing law. Int’l
Primate Prot. League v. Adm’rs Tulane Educ. Fund, 895 F.2d 1056, 1058 (5th cir.
1990).
116
Sprint Communications Co., L.P. v. APCC Services, Inc., 128 S.Ct. 2531, 2535
(2008).
117
Id.
118
Id.
119
Id.
120
Sprint Communications Co., L.P. v. APCC Services, Inc., 128 S.Ct. 2531
(2008).

24
a toll free “1-800” telephone number and an access code that allowed customers to
draw on prepaid calling cards issued by Sprint Communications, a long-distance
carrier. 121 Sprint Communications, in turn, had contracts with payphone operators
to pay “dial-around” fees to the operators to compensate them for the cost of
allowing payphone users to connect to Sprint’s long-distance services in the first
place. 122 Because payphone operating companies have had difficulty obtaining
payment from Sprint and other long distance carriers, many operators assigned
their dial-around claims to billing and collection firms called “aggregators” to sue
on their behalf. 123 The named plaintiff, an aggregator called APCC Services, had
separately agreed to remit all the proceeds of its lawsuit back to the payphone
operators and that the operators would pay quarterly fees for the aggregator’s
services based on the number of payphones maintained by each operator. 124 In
defending the lawsuit, Sprint argued that the APCC services did not have standing
because it was the payphone operators, rather than the aggregator that brought the
suit, that were injured in fact. 125 The federal district court disagreed arguing that an
assignee for purposes of collection is entitled to bring a lawsuit when an assignor
transfers absolute legal title to a debt. 126 The U.S. Court of Appeals for D.C.
Circuit eventually agreed, allowing APCC’s claims to go forward. 127 In a close 5-
4 decision, Justice Breyer delivered a majority opinion with an extensive
discussion of the history of standing in assignment. Although prior to the 17th
century English law did not recognize assignments at all, by the early 18th century
equity would allow suits by an assignee of the equitable interest in a debt where the
assignee also had a power of attorney granted by the original obligee. 128 The
original obligee could also sue based on the theory that it retained legal title to the
debt, even though it had assigned away its beneficial interest. 129 The majority then
went on to point to a more recent history suggesting that “courts have long found
ways to allow assignees to bring suit; that where assignment is at issue, courts—
both before and after the founding—have always permitted the party with legal
title alone to bring suit; and that there is a strong tradition of specifically so suits
by assignees for collection.” 130
Chief Justice Roberts, writing the Sprint minority, focused on the fact that
under its compensation arrangement with payphone operators APCC did not was
not entitled to any of the proceeds of a successful lawsuit. Chief Justice Roberts’
dissent took issue with the majority’s historical characterizations emphasizing that
“[w]e have never approved federal-court jurisdiction over a claim where the entire
121
Id at 2534.
122
Sprint Communications Co., L.P. v. APCC Services, Inc., 128 S.Ct. 2531, 2534
(2008).
123
Id.
124
Id.
125
Id. at 2542.
126
Id. at 2534.
127
Id. at 2534–35.
128
Id. at 2536–37.
129
Id. at 2537.
130
Id. at 2541.

25
relief requested will run to a party not before the court. Never.” 131 The dissent
expressed concern that by granting standing to collection agencies that lack some
beneficial interest, such as the payphone claim aggregators, the right to sue risks
becoming a “marketable commodity” severed from a personal stake in the
litigation. 132 For its part, the majority contended that the dissent’s concerns were
over-stated since federal courts routinely entertain suits which will result in relief
for parties that are not themselves directly bringing suit” such as where “[t]rustees
bring suits to benefit their trusts.” 133
In its role as a foreclosure lawsuit plaintiff, MERS is in many respects
comparable to APCC services and other payphone dial around fee claim
aggregators. Like the aggregators, MERS does not own any equitable or beneficial
interest in the debts it collects. 134 Similar to APCC, MERS remits the proceeds of
any foreclosure sale to the actual, beneficial loan owners and is compensated out
fees for registering loans on the MERS system.
Still, there are at least two crucial distinctions between payphone aggregators,
such as APCC Services, and MERS. First, MERS’ claim of ownership rests on an
argument that it holds only legal title to the mortgage, rather than legal title to the
debt. But this claim flies in the face of Supreme Court jurisprudence treating notes
and mortgages securing notes as inseparable. 135 Thus, the Court’s holding that “an
assignment of the note carries the mortgage with it, while an assignment of the
latter alone is a nullity.” 136 Second (and perhaps even more fundamentally), the
Sprint case is distinguishable from MERS because in the relationship between

payphone operators and claim aggregators, such as APCC Services, there is only
one assignment and one party that purports to hold legal title to the debt. In a
mortgage securitization deals, there is another party that already lays claim to legal
title to the debt: the trustee that holds legal title to trust assets on behalf of
investors that purchase beneficial interests—meaning asset backed securities—
drawn from the trust. In securitization deals, mortgage loans are deposited into a
trust where the trustee holds legal title to trust assets for the benefit of the investors
who, by definition, hold a beneficial interest in trust assets. 137 It is an ancient and
universally accepted common law principal tested again and again on bar exams
across our country that trustees derive their power to control trust assets by a
131
Id. at 2551 (Roberts, C.J., dissenting).
132
Id.
133
Id. at 2543 (majority opinion).
134
Landmark Nat’l Bank v. Kessler, X at *5 (labeling MERS as “a party with no
beneficial interest [that] is outside the realm of necessary parties.”)
135
Carpenter v. Longan, 83 U.S. 271, 274, (1872). (Where negotiable note is
secured by mortgage, “the note and mortgage are inseparable..., the assignment of
the note carries the mortgage with it, while an assignment of the latter alone is a
nullity.”)
136
Carpenter, 83 U.S. at 274. See also In re Hwang, -- B.R--, 2008 WL 4200129 at
*6 (Bkrtcy.C.D.Cal. Sept. 4 2008) (holding “Only the Holder of the Note is the
‘Real Party in Interest.’”).
137
Peterson, Predatory Structured Finance, supra note X, at 2209; Steven L.
Schwarcz, The Alchemy of Asset Securitization, 1 STAN. J.L. BUS. & FIN. 133,
135 (1994).

26
dividing equitable ownership and legal ownership of trust assets. 138 Prior to the
introduction of MERS to the mortgage markets, in the history of the Anglo-
American common law, there has been no case that holds that a debt collection
plaintiff that lacks any beneficial interest in the debt has standing to sue even
where legal title to that debt is held by a trustee. Nor has there ever been a case that
holds that there are two separate legal titles to the same property. Indeed, MERS
owns neither the beneficial interest in the debt that is owned by investors; nor does
it own legal title to the debt because that is held by the trustee. In order to
reconcile MERS’ claim to owning legal title to mortgage loans registered on its
system, with the trustee’s right to claim the same thing, one must hypothesize
some new form of “meta” legal title hitherto unknown in our system. To grant
MERS standing based on legal title held by someone else, is to treat the notion of
legal title as some magical nonsense where ownership means nothing other than a
willingness on the part of courts to let financiers seize homes however is most
convenient for them.
The case against MERS’ standing is only stronger where MERS acts as an
“original mortgagee” instead of an assignee. In these cases, MERS is not an
assignee at all, and therefore must base its claim to standing purely on its
economically fictitious claim of owning a borrower’s home in title theory states, or
on owning a valuable lien in lien theory states. 139 Particularly in title theory states,
surely it is absurd to claim that MERS, rather than the trustee of the investors that
paid value, legally owns the hundreds of thousands of family homes with loans
registered on MERS’ record keeping system.
In at least one sense MERS’ argument that it has standing to bring foreclosure
lawsuits is fortuitous. Currently there is a growing split in authority on whether
MERS has standing to bring foreclosure actions against homeowners. 140 Generally,
courts that look beyond the formal labels affixed to MERS by the parties have been
reluctant to grant standing. 141 In contrast, courts granting standing have generally
138
Rest. 2d Trusts § 2, cmnt. f. (“In a trust there is a separation of interests in the
subject matter of the trust, the beneficiary having an equitable interest and the
trustee having an interest which is normally a legal interest.”).
139
A majority of American jurisdictions adhere to a lien theory of mortgages that

holds the mortgagor retains legal title to the realty, while mortgagee holds only a
lien as security. Thompson on Real Property, supra note X at §101.01(b)(2). A
minority of jurisdictions continue to adhere to the English view that mortgages are
a conveyance of a defeasible interest. Id. at § 101.01(b)(1). In this older, minority
view title shifts to the mortgagee, but the mortgagor retains a rights of possession
and redemption. Id.
140
See Baxter Dunaway, Statutory prerequisites--Standing and assignment of
mortgages to be of record, 5 L. Distressed Real Est. § 73:15 (Updated 2008) (there
has been litigation over the standing of MERS, however the majority of the cases
have held MERS has standing); LaSalle Bank NA v. Lamy, 12 Misc.3d 1191, 824
N.Y.S.2d 796, at *2 (2006).
141
Compare LaSalle Bank NA v. Lamy, 12 Misc.3d 1191, 824 N.Y.S.2d 796, at *2
(2006) (“[T]his court and others have repeatedly held that a nominee of the owner
of the note and mortgage, such as Mortgage Electronic Registration Systems, Inc.
MERS), may not prosecute a mortgage foreclosure action in its own name as

27
written conclusory opinions that refuse to look beyond MERS’ nominal claims of
ownership. 142 Perhaps the issue of whether MERS has standing to foreclose on
homeowners will present an ideal test case to erect a bulwark on the holding in
Sprint Communications. Chief Justice Roberts and the other Sprint dissenters were
concerned that allowing debt collectors with only naked legal title to bring
collection lawsuits would lead to the commoditization of standing. By holding that
MERS does not have standing to bring lawsuits courts would at least take the
position that assignees for purposes of debt collection lack standing where another
party, such as a trustee for a loan held in trust, already holds legal title to the debt.
C. MERS’ Foreclosure Efforts Implicate the Federal Fair Debt
The primary federal statute promoting civility, transparency, and accuracy in
debt collection is the federal Fair Debt Collection Practices Act (FDCPA). 143 This
statute, adopted in 1977, aims to provide minimum standards of public decency
and civilized behavior in the collection of debts. 144 For example, the statute forbids
harassment, false or misleading representations, and a variety of other unfair
collection tactics, including threatening foreclosure when not legally entitled to do
so. 145 The statute also includes disclosure provisions, such as a requirement that
debt collectors give consumers written validation and verification of the debt itself
as well as the identity of the creditor in order to prevent collection of debts or fees
not actually owed. 146 The statute is enforced by the Federal Trade Commission,
banking regulators, and a private right of action allowing consumers to sue for
statutory punitive damages, costs, and attorney’s fees. 147 While there is a well
established tradition of robust judicial interpretation of the boundaries of this
important federal statute, its application to MERS, the country’s leading home
mortgage foreclosure specialist, remains unsettled. At least two important legal
nominee for the original lender because it lacks ownership of the note and
mortgage at the time of the prosecution of the action.”) (unreported disposition)
with In re Sheridan, No. 08-20381-TLM, 2009 WL 631355 (Bkcrtcy.D.Idaho
March 12, 2009) (In homeowner’s bankrtupcy, MERS lacked standing to file a
motion for relief from the automatic stay that would facilitate foreclosure under
state law).
142
See, e.g., In re Sina, 2006 WL 2729544 (Minn.App. 2006) (“Although the
record shows that ALS serviced the mortgage, the assignment of the mortgage was
recorded in MERS’s name. And by agreement, MERS retained the power to
foreclose the mortgage in its name. Because MERS is the record assignee of the
mortgage, we conclude that MERS has standing to foreclose the property by
advertisement.”).
143
Pub. L. No. 95-109, 91 Stat. 874, codified at 15 U.S.C. § 1692 et seq.
144
Id.
145
15 U.S.C. §§ 1692d-1692f.
146
15 U.S.C. § 1692g(a); Hubbard v. Nat’l Bond & Collection Assocs., Inc., 126
B.R. 422, 427-28 (Bankr. Del. 1991).
147
15 U.S.C. § 1692k, l.

28
conclusions are likely: first, MERS itself should be covered by the statute; and
second, servicers and foreclosure attorneys that use MERS’ name without actual
involvement of MERS itself should also be covered by the statute.
MERS is a Third Party Debt Collector Subject to the Fair Debt
1.
While ambitious in its goals, the FDCPA is confined in scope. The statute only
governs the practices of “debt collectors” which are generally defined as “any
person who ... regularly collects or attempts to collect, directly or indirectly, debts
owed or due or asserted to be owed or due another.” 148 By contrast, creditors—the
entity that originally extends credit creating a debt—are generally not required to
comply with the statute. 149 The purpose behind this somewhat artificial distinction
was to focus enforcement independent third party debt collection agencies that
specialize in collecting loans and accounts in default. 150 In the late ‘70s Congress
believed that debt collection agencies accounted for the most serious and
widespread debt collection abuses. 151 This view was supported by the belief that
market forces would discipline abusive practices by creditors, since they could be
expected to fear the loss of repeat business and reputational harm. In contrast, third
party debt collectors are not selected by consumers in a market transaction. Since
creditors contract with third party debt collectors, consumers do not have the
ability to discipline collection agencies by refusing to do business with them.
Over the lifespan of the FDCPA, demarcating this important legal boundary
between a creditor and a debt collector has proven troublesome, particularly with
respect to residential mortgage markets. Thus, in an exception the statute directs
that the definition of “debt collector” does not include:
[A]ny person collecting or attempting to collect any debt owed or due
or asserted to be owed or due another to the extent such activity ...
(ii) concerns a debt which was originated by such person [or] (iii)
concerns a debt which was not in default at the time it was obtained
by such person. 152
Thus, in most cases, the FDCPA does not apply to servicers that collect monthly
payments on behalf of the securitization trustee because the servicer generally
obtains servicing rights prior to the borrower’s default. 153 Indeed, Congress
designed the exception for third party collectors that obtain debts prior to default
with mortgage loan servicers primarily in mind. 154
148
15 U.S.C. § 1692a(6).
149
15 U.S.C. § 1692a(4), (6).
150
SENATE REPORT NO. 95-382, at 3-4(1977).
151
SENATE REPORT NO. 95-382, at 3-4(1977).

152
15 U.S.C. § 1692a(6)(F).
153
Dawson v. Dovenmuehle Mortgage inc., No. 00-6171, 2002 WL 501499, at *5
(“A loan servicer, someone who services but does not own the debt, is not a ‘debt
collector’ if the servicer begins servicing of the loan before default....”).
154
SENATE REPORT NO. 95-382, at 3-4(1977); Statements of General Policy or
Interpretation Staff Commentary on the Fair Debt Collection Practices Act, 53 Fed.
Reg. 50097, 50103 (Dec. 13, 1988) (“The exception [in 1692a(6)(F)(iii)] for debts

29
Unlike mortgage loan servicers and actual mortgage creditors, there is a strong
argument that MERS should be treated as a debt collector under the FDCPA.
Certainly, by bringing foreclosure lawsuits is MERS is “attempt[ing] to collect,
[either] directly or indirectly, debts” within the meaning of the statute. 155 While
some earlier cases dissented, the overwhelming majority of state and federal courts
have concluded that bringing a foreclosure action is a debt collection activity
governed by the Act. 156 Moreover, whatever the mortgage closing documents say,
because MERS remits all proceeds of its collection activities to the actual owner of
the loan (usually a securitization trustee) MERS is clearly collecting a debt that is
owed to another business entity. MERS is also not a “creditor” as it is defined in
the statue since creditors “offer or extend credit.” 157 While MERS does keep track
of servicing rights on its database, and does allow actual creditors to use MERS’
name in communicating with county government officials, MERS does not ever
extend credit by actually funding loans with its own capital. Similarly, unlike
mortgage brokers or mortgage origination companies, MERS does not “originate”
loans in any meaningful sense. 158 On the contrary, MERS is more akin to third
party debt collectors that are immune from shopping discipline since it is the
creditor that chooses to do business with MERS rather than the borrower.
MERS’ best argument that it is not merely a third party debt collector (that
also happens to maintain a database and communicate with county officials) is that,
like a mortgage loan servicer, MERS “obtains” its loans prior to those loans
entering into default. 159 Unfortunately, the FDCPA does not provide a definition of
the term “obtain.” Moreover, the word’s ordinary meaning, “to gain or attain
usually by planned action or effort,” is not particularly enlightening in this
commercial context. 160 Clearly if MERS “obtains” a mortgage loan by registering
it on its database and by listing itself as a mortgagee or assignee on loan documents
and with county officials, then the statute does not apply to the company.
However, the legislative history of this provision of the statute was intended to
provide an exception for mortgage loan servicers and assignees where servicing
rights or ownership of the debt were transferred prior to the loan falling into
not in default when obtained applies to parties such as mortgage service companies
whose business is servicing current accounts.”); Wagner v. Am. Nat’l Educ. Corp.,
Clearinghouse No. 36,132 (D. Conn. 1983) (servicing company was not a debt
collector for purposes of the FDCPA).

155
15 U.S.C. § 1692a(6). The Supreme Court has held that collection lawsuits are
debt collection within the FDCPA. Hientz v. Jenkins, 514 U.S. 291, 294 (1995).
156
Wilson v. Draper & Goldberg, 443 F.3d 373 (4th Cir. 2006); Kaltenbach v.
Richards, 464 F.3d 524 (5th Cir. 2006); Shapiro & Meinhold v. Zartman, 823 P.2d
120 (Colo. 1992); Galusk v. Blumenthal, 1994 WL 323121 (N.D.Ill. June 26,
1994). Cf Bergs v. Hoover, Bax, & Slovacek, LL.P., 2003 WL 22255679 (N.D.
Tex. Sept. 24, 2003).
157
15 U.S.C. § 1692a(4).
158
15 U.S.C. § 1692a(6)(F)(ii).
159
15 U.S.C. § 1692a(6)(F)(iii).
160
MERRIAM-WEBSTER ONLINE DICTIONARY. 2009

30
arrears. 161 MERS is not a servicing company because, prior to default, it does not
actually collect any payments nor communicate with debtors regarding loan
repayment terms. Nor does MERS obtain a loan in the same way a traditional
assignee would, since—at best—it only has a highly dubious claim of owning
some form of nominal legal title. 162 The Senate Report accompanying passage of
the original Act, explains that a loan is obtained by a servicer “when taken for
servicing.” 163 In this more meaningful and contextually relevant sense, MERS
“obtains” an account to collect through foreclosure action once the loan servicer or
trustee makes the effort of bringing a foreclosure suit in MERS’ name. Indeed, the
only time MERS ever has any actual responsibility with respect to any mortgage
loan collection or servicing is when—after default—the actual parities in interest
turn to MERS’ legal identity to bring a foreclosure action. If, for a moment, one
disregards the ink on paper and instead looks at the actual economic activity
engaged in by the various parities, MERS looks much less like a servicer or
creditor than it does a third party foreclosure specialist. Unlike servicers, “whose
business is servicing current accounts,” MERS’ collection activities are focused
exclusively and completely on collecting loans on the eve of foreclosure.
As FDCPA jurisprudence goes forward, failing to treat MERS as a debt
collector risks opening up a gaping loophole in the FDCPA. If MERS is not a debt
collector, third party debt collection mills may attempt to circumvent the statute by
instructing doctors, hospitals, landlords, credit card lenders, and others to list
MERS, or some similar company, as an “obligee of record in nominee capacity” in
the loan or account origination documents. Even if the actual creditor only calls on
the debt collector to collect the account or loan in the event that it falls into arrears,
the debt collector’s argument for a statutory exemption would be functionally
indistinguishable from that currently asserted by MERS in foreclosure cases. Debt

collection mills must not be allowed to insulate themselves from the FDCPA by
including an economically meaningless claim of ownership in loan origination
documents. Indeed, it was the possibility of just this type of circumvention that
grounds the universally accepted rule that as a remedial consumer protection
statute, the FDCPA must be construed broadly in favor of debtors. 164
161
S. Rep. No. 95-382, at 3 (1977) ( X- quote ). The Federal Trade Commission’s
Staff Commentary also reflects this policy by explaining that: “The exception (iii)
for debts not in default when obtained applies to parties such as mortgage service
companies whose business is servicing current accounts.”). 53 Fed. Reg. 500097,
50103 (Dec. 13, 1988).
162
163
SENATE REPORT NO. 95-382, at 3-4(1977) (“[T]he committee does not intend
the definition [of debt collector] to cover the activities of . . . mortgage service
companies and others who service outstanding debts for others, so long as the
debts were not in default when taken for servicing.”) (emphasis added);
164
See, e.g., Brown v. Card Service Center. 464 F.3d 450, 453 (“Because the
FDCPA is a remedial statute, we construe its language broadly, so as to effect its
purpose. Accordingly, . . . we have held that certain communications from lenders
to debtors should be analyzed from the perspective of the “least sophisticated

debtor.”).

31
2. Mortgage Servicers that Cloak Themselves in MERS’ Name should be as
Construed as Debt Collectors
One of the puzzling, and arguably suspicious, ironies behind the MERS’
business model is the combination of its remarkable breadth in market share with
translucent depth in market participation. Because MERS itself is a relatively
small company, it does not have the resources to use its own employees to bring
the hundreds of thousands of foreclosures in which it is a named party. 165 For
MERS itself to participate in all of these foreclosures, the company would need
loafers (as opposed to boots) on the ground in virtually every county courthouse in
the nation. That would entail a large human resources operation, regional middle
management, scores of leases on local office spaces, secretarial support, and many
more costly expenses and managerial headaches.
MERS has solved this problem with characteristically novel and arguably
flawed legal mumbo jumbo. MERS, and the mortgage servicers and foreclosure
attorneys it works with, simply tell the court or anyone else that asks that the
servicer’s employee or the foreclosure attorney is an employee of MERS, even
though MERS does not pay the individual a salary or any other compensation. 166
Indeed, MERS has adopted a company policy of naming thousands of individual
employees of other companies and law firms “certifying officers” of MERS. 167
Employees of lenders, loan servicers, or foreclosure attorneys do not become

165
MERS’ web page lists the contact information for only five attorneys and two
paralegals. MERS Departments,
http://www.mersinc.org/about/departments.aspx?id=2 (viewed Sept. 5, 2009).
166
Mortgage Electronic Registration System, Inc., MERS Law Seminar for USFN
Conference, 15 (April 21, 2002) (document on file with author) (“Question : Who
should be named as a certifying officer? [Answer:] Anyone that signs 'documents
for the Lender currently should be named as a certifying officer. This way, the
Lender's procedures will not need to be changed and the same people will continue
to execute the documents.”).
167
Question and Answer document produced by MERS for a training conference
explains:
Question: What is a Certifying Officer?
A certifying officer is an employee of the Lender who is appointed a
MERS officer by a MERS Corporate Resolution. The Resolution
allows the certifying officer to execute documents as a MERS officer.
Question: Does the title that the employee holds as an employee of the
Lender correspond to the title that the employee holds as a MERS
Certifying Officer?
No. All MERS Certifying Officers are appointed assistant secretaries
and vice presidents of Mortgage Electronic Registration Systems, Inc.

That means that if an employee is a Senior Vice President of the
Lender, that employee is not a Senior Vice President of MERS. The
employee is an assistant secretary and vice president of MERS.
Conference, 15 (April 21, 2002) (document on file with author).

32
officers of MERS through an actual, individually considered action on the part of
the MERS’ board of directors. 168 Rather, the employees of other companies and
firms simply fill in a “Corporate Resolution Request Form” on MERS’ web
page. 169 The webpage, which includes fields for the employee’s name, address,
and the date, then automatically regurgitates a boilerplate document listing the
names just entered on the electronic form. 170 The company even provides
telephone customer support service by a paralegal for those who have trouble
getting their corporate resolutions off of the web page. 171
Courts and homeowners often actually believe servicer employees and
foreclosure attorneys are employees of MERS because MERS makes an effort to
give this relationship the appearance of a traditional employment. For example,
“certifying officers” are given a job title. 172 In states where courts have not
demanded additional information of greater authority “certifying officers” describe
themselves as an “assistant secretary of MERS.” 173 For more chary states, a MERS
letter to servicers and foreclosure specialists explains further: “However, in a few

states it has been brought to our attention that it is required that the signatory hold
the office of vice president or above.” No problem, explains the letter: “Therefore
it is acceptable to use the title of vice president in Maryland, Mississippi,
Nebraska, Oklahoma, Kansas, North Carolina, South Carolina and
Pennsylvania.” 174 For good measure the web page “corporate resolution request
form” allows servicers and foreclosure specialists to order as many MERS
corporate seals as they would like—for a convenient, reasonable fee of $25.00
each. 175 Perhaps, for a company that pretends to “own” half of the nation’s
mortgages, pretending to have hundreds of “vice presidents” all over the country is
not much of a stretch.
However, for adjudicators hoping to faithfully implement the federal Fair Debt
Collection Practices Act, the substance, rather than the form, of employment
relationships of those that collect debts is meaningful. The FDCPA demands that
courts look past the nominal labels debt collectors give themselves and determine
who is actually engaging in what type of economic activity. For example, debt
168
Conference, 15 (April 21, 2002) (document on file with author) (“Question: How
do we update our officer list? [Answer:] Go to the MERS web site
www:mersinc.org, and under MERS ProductPMERS Online>Foms, click on the
Corporate Resolution Request Form and follow the instructions.”).
169
MERS, Corporate Resolution Request Form,

www.mersinc.org/MersProducts/forms/crrf/crrf.aspx (last viewed: April 6, 2009).
170
Id. See also Mortgage Electronic Registration System, Inc., MERS Law
Seminar for USFN Conference, 15-16 (April 21, 2002) (document on file with
author) (providing a sample certifying officer resolution).
171
Id.
172
Conference, 14-15 (April 21, 2002).
173
MERS, Corporate Resolution Request Form,
www.mersinc.org/MersProducts/forms/crrf/crrf.aspx (last viewed: April 6, 2009).
174
Id.
175
Id.

33
collectors that pretend to send letters from an attorney, where an attorney has not
actually reviewed the file in question, commit an actionable deception under the
statute. 176 Similarly, third party debt collectors cannot obtain an exemption from
the statute simply by pretending to be the original creditor. 177 And, importantly,
creditors that pretend to be debt collectors are explicitly regarded as such under the
statute. 178
If the courts ratify MERS’ claim to have hundreds or even thousands of “vice
presidents” around the country (without paying a single cent in compensation to
any of them) ejecting people from their homes, what is to prevent any credit card
lender, hospital, or land lord from adopting “corporate resolutions” naming their
third party debt collectors vice presidents of their own companies? Presumably,
under MERS’ rationale, the FDCPA could be circumvented simply by including a
“corporate resolution” purporting give the debt collector a job title along with any
assignment of a debt for collection.
Furthermore, courts have an obligation to take a step back for a moment to
look at these relationships from the perspective of a confused, frightened
homeowner teetering on the brink of foreclosure and possibly even
homelessness. 179 How is a homeowner to understand with whom they can
negotiate a settlement, or from whom to obtain additional information, or how to
distinguish a legitimate employee of a legitimate company from the thousands of
mortgage related con artists and charlatans currently swirling around American
families? 180 The Consumer Credit Protection Act in general, and the Fair Debt
Collection Practices title of that Act in particular, took the position that even
misleading (as opposed to false) representations had no place in the debt collection
industry because of the great potential for consumer abuse and the threat to the
American economy from undermining our collective faith in financial markets and
institutions. 181 To effectuate this policy of transparency and honesty,

176
Clomon v. Jackson, 988 F.2d 1314 (2d. Cir. 1993).
177
15 U.S.C. § 1692e(11) .
178
15 U.S.C. § 1692a(6) (“The term ‘debt collector’ . . . includes any creditor who,
in the process of collecting his own debts, uses any name other than his own which
would indicate that a third person is collecting or attempting to collect such debts,
such term includes any person who uses any instrumentality of interstate
commerce or the mails in any business the principal purpose of which is the
enforcement of security interests.”).
179
Clommon, 988 F.2d at 1318 (“The basic purpose of the least-sophisticated-
consumer standard is to ensure that the FDCPA protects all consumers, the gullible
as well as the shrewd. This standard is consistent with the norms that courts have
traditionally applied in consumer-protection law.”).
180
John Leland, Swindlers Find Growing Market in Foreclosures, N.Y. TIMES,
January 15, 2009, at A1; Vivian S. Toy, Penetrating the Maze of Mortgage Relief,
N.Y. TIMES, June 14, 2009, at RE1; Riva Richmond, Online Scammers Target the
Jobless, N.Y. TIMES, August 6, 2009, at B6.
181
15 U.S.C. § 1692(a), (c) (“There is abundant evidence of the use of abusive,

deceptive, and unfair debt collection practices by many debt collectors. Abusive
debt collection practices contribute to the number of personal bankruptcies, to
marital instability, to the loss of jobs, and to invasions of privacy. ... Means other

34
misrepresentations and misleading statements are evaluated from the perspective of
the “least sophisticated consumer” standard. 182 Unsophisticated consumers that
receive communications from a MERS “vice president” or “assistant secretary” are
likely to believe that this individual serves a different role in the foreclosure
process than he or she actually does. Having foreclosure communications
conducted in MERS’ name may lead consumers to believe that the servicer has
turned the case over to a quasi-official entity that lacks the authority to negotiate
loan modifications, short sales, or settlements. The effect could be to pacify the
consumer at the point they are most likely to resist through actively litigating
(often in a pro se capacity) their all too often legitimate counter claims and
defenses. Indeed, this is precisely the sort of deception targeted by the federal
statute promoting “fair” debt collection.
D. Loans Recorded in MERS’ Name May Lack Priority against Subsequent
Purchasers for Value and Bankruptcy Trustees
Perhaps the single most troubling legal question that remains unanswered with
respect to MERS’ legal foundation is whether recording assignments or mortgages
in MERS’ name is sufficient protect lienors against subsequent purchasers,

including especially a bankruptcy trustee. A primary objective of rules requiring
recording mortgages in county recording systems is to provide a rough form of
notice to subsequent purchasers of pre-existing ownership claims. To create an
incentive to promptly and accurately record mortgages, state recording statutes
often depart from the customary “first in time, first in right” priority rule when a
mortgagee fails to properly record. 183 Under state law, if a mortgagee fails to
properly record its mortgage, and then someone subsequently buys or lends against
the home, the subsequent purchaser can often take priority over the first. 184 In
jurisdictions stylized as “notice” states, a subsequent purchaser for value takes
priority over an earlier mortgagee if the purchaser had no actual or constructive
notice at the time of the conveyance. 185 A purchaser is generally thought to have
constructive notice if the original mortgagee successfully recorded her mortgage
with the appropriate county recording office. 186 In some states, a purchaser also
has “inquiry notice” if there are facts, such as possession, that would alert the
purchaser of the prior interest. 187 In “race-notice” states, the subsequent purchaser
takes free of the prior mortgage only if she took without actual or constructive
notice and successfully records before the prior mortgagee. 188 In all fifty states, if
than misrepresentation or other abusive debt collection practices are available for
the effective collection of debts.”)
182
Clomon v. Jackson, 988 F.2d 1314 (2d. Cir. 1993); Gammon v. GC Services
Ltd. Partnership, 27 F.3d 1254 (7th Cir. 1996).
183
POWELL ON REAL PROPERTY § 82.01[3].
184
Id. at § 82.02[1][a].
185
Id.
186
Id. at § 82.02[1][d][ii].
187
Id. at § 82.02[1][d][iii].
188
Id. at § 82.02[1][a].

35
the original debtor files for bankruptcy, a chapter 7 trustee can avoid the mortgage
loan if under state law a hypothetical bona fide purchaser would have had
priority. 189 In such cases, the result is that mortgage lenders are treated as
unsecured creditors and are likely to receive only pennies on the dollar, rather than
the full fair market value of the home at the time of the bankruptcy petition. 190
Indeed, state recording statutes and the federal bankruptcy code, place severe
financial penalties on mortgage lenders that make even minor clerical errors in
recording their home mortgage liens. Taking only few examples from the many
possible is sufficiently illustrative. Courts have invalidated recorded mortgages
because a notary acknowledgment form, although signed by a mortgagor and a

witness, did not clearly indicate who was physically present before the notary at
the time of signing—even when there was no actual dispute over the identity of the
individuals in question. 191 Merely forgetting to affix a notary’s seal can lead to
avoidance. 192 The lack of a second witness signature rendered a mortgage
avoidable by a bankruptcy trustee, even though the mortgage was physically
registered with the town clerk and fully searchable in the title records. 193 There are
many cases where incorrect property descriptions rendered mortgages
avoidable. 194 Even omission of the amount t of a mortgage debt has led to
invalidation of a mortgage record. 195 In all of these cases, the result of the minor
variation from the norm contemplated by the state legislature was the avoidance of
189
11 USC 544(a)(3); In re Seaway Exp. Corp., 912 F.2d 1125, 1128 (9th Cir.
1990) (“[A] bona fide purchaser prevails over a prior unrecorded conveyance.”).
190
David Lloyd & Ariane Holtschlag, Chapter 13 Strip-Off of Junior Mortgages:
Not Whether, But How Under Current Law, 28 AM. BANKR. INST. J. 12, 12 (2009).
191
In re Stubbs, 330 B.R. 717, 726-30 (N.D. Ind. 2005). See also In re
Cocanougher, 378 B.R. 518 (Ky 2007) (omission of debtors’ names on
acknowledgement rendered mortgage avoidable).
192
In re Marsh, 12 S.W.3d 449 (Tenn. 2000) (notary public’s accidental failure to
affix his seal on acknowledgement of deed of trust rendered instrument null and
void as to subsequent bona fide purchaser).
193
In re Ryan, 851 F.2d 502, 505 (1st Cir. 1988) (“Although “recorded” in the
sense it was physically placed in the records of the town clerk, the original
mortgage deed was not an “effectual” or valid recording under Vermont law
because it was signed by only one witness. It was as if never recorded.”) (citations
omitted). See also In re Cornelius, 2009 WL 2179128 (Bank. Ohio 2009) (Chapter
7 trustee had priority over mortgagee because of improperly acknowledged
mortgage).
194
Poncelet v. English, 795 P.2d 436 (Mont. 1990); O'Neill v. Lola Realty Corp.,
264 A.D. 60 (N.Y. 1942); Norton v. Fuller, 251 P. 29 (Utah 1926).
195
Bullock v. Battenhousen, 108 Ill. 28, 1883 WL 10352, *5 (Ill. 1883) (”The
spirit of our recording system requires that the record of a mortgage should
disclose, with as much certainty as the nature of the case will admit, the real state
of the incumbrance. If a mortgage is given to secure an ascertained debt, the
amount of such debt should be stated. By omitting to so state the debt the widest
door is opened for fraud of every description, and to prevent the same the law
declares such a mortgage fraudulent and void as to creditors and subsequent
purchasers.”).

36
the mortgagor’s lien—in effect reducing a home mortgage loan to a debt no
different than an unsecured credit card.
While the results in these cases are easily criticized as harshly formalistic and
unbridled from the parties’ original contractual intentions, courts defend with stern
sermons on the importance of maintaining transparent records of ownership
interests in land. A federal bankruptcy judge’s recent defense of these cases is
worth quoting at length:
Lest one think that the . . . Courts have exalted form over substance,
it is critical to note several concepts. . . . [W]we are dealing with
interests in land—not a security interest in an inventory of plumbing
fixtures, in chinchillas, in canned corn, or in a lawn and garden
tractor. Land. Land is certainly the asset which people deem to be
their most important “possession”: There is no other “thing” more
important historically in our culture than an interest in land, whether
that interest be in a condominium, in a house, or in farm. Land. The
transferring of interests in land has been entrusted to a system of
records that allows people to be certain that this single most
important asset in their lives is indeed going to be theirs, and that the
encumbrances recorded with respect to this asset are in fact accurate
and valid. It is therefore absolutely imperative that transactions in
land be guaranteed to vest title in the people who invested in those
transactions, and that the investors know definitively the interests in

the land in which they invest which may affect their interests in this
singularly important asset. The record of land transactions in the
Recorder's Office provides this critical assurance. Perhaps the most
critical aspect of this “chain” of assurance is to guarantee as much as
possible on the face of an instrument that a person purported to have
signed a document which affects interests in land actually did sign
that document. 196
Financiers’ decisions to record their mortgages and mortgage assignments
in MERS’ name, rather than their own, must be judged within this
contextual tradition.
Historically, virtually no state recording statutes have explicitly authorized
mortgagees or mortgage assignees to vicariously record using the name of an agent
or nominee. Nevertheless, in its landmark legal opinion that does not cite cases or
statutes, Moody’s Investor Service asserted that “[t]he recording system has been
set up to provide notice of security interests, but not necessarily the identity of
secured parties.” 197 This would be a more persuasive argument if virtually every
recording act ever adopted did not, in fact, require record keeping for both the
name of mortgagors and mortgagees—thus the use of grantor-grantee indexes in
the vast majority of states. 198 Indeed, the very first American recording statute,
adopted by Massachusetts Bay Colony in 1640, required recording of the names of
196
Stubbs, 330 B.R. at 730.
197
Moodys, supra note X, at 3.
198
14 POWELL ON REAL PROPERTY §82.03[2][b].

37
the parties—including both “the names of the grauntor and grauntee.” 199 Under its
most plain and simple reading, that statute does not contemplate nor allow
obscuring actual ownership through naming only a “mortgagee of record in
nominee capacity.” Indeed there are many cases, and compelling secondary
authority, suggesting that errors in or omission of the name of a mortgagee
invalidate either the recording or even the mortgage agreement itself, rendering the
mortgage avoidable. 200 The policy of requiring the recordation of the actual
mortgagee’s name sounds in the longstanding title recordation act goal of
“prevent[ing] secret conspiracies between mortgagors and mortgagees as to the
fact and amount of indebtedness to the prejudice of subsequent purchasers and
creditors, by compelling them to at once make known the real claim.” 201 If the
identity of mortgagees were unimportant, legislatures could easily have drafted
recording statutes, and record keeping systems, to merely require disclosure of the
existence of a lien, with no reference to who owns it. Moreover, rather than using a
grantor-grantee index, real property records could have been designed to only use
tract indexes. But, by and large, legislatures did not do this. And as much as MERS
and the mortgage lending industry may wish it were otherwise, recording acts
specify that the name of the mortgagee or assignee must be included and that
records and indexes be drawn up from the names of both parties. 202 Surely MERS
executives knew this and that fact more than any other explains why the company
would so frequently engage in the contortioned linguistic gymnastics of claiming
199
14 POWELL ON REAL PROPERTY §82.01[1][b] (quoting 1 RECORDS OF THE
GOVERNOR AND COMPANY OF THE MASSACHUSETTS BAY IN NEW

ENGLAND 306
(N. Shurtleff ed. 1853)).
200
Disque v. Wright, 49 Iowa 538, 1878 WL 623 (Iowa 1878) (“It has been
frequently held that slight omissions in the acknowledgment of a deed destroy the
effect of the record as constructive notice. A fortiori, it seems to us, should so
important and vital an omission as that of the name of the grantee have that
effect.”); Chauncey v. Arnold, 24 N.Y. 330 (N.Y. 1862) (“No mortgagee or
obligee was named in [a mortgage], and no right to maintain an action thereon, or
to enforce the same, was given therein to the plaintiff or any other person. It was,
per se, of no more legal force than a simple piece of blank paper.”); Richey v.
Sinclair, 67 Ill. App. 580 (Ill. App. 1896) (mortgage that did not name mortgagee,
though it described note secured thereby as payable "to the order of" named
person, was void for failure to name mortgagee); Allen v. Allen, 51 N.W. 473, 474
(1892) (omission of name of grantee invalidated conveyance because “A legal title
to real property cannot be established by parol.”) See also 2 PATTON AND
PALOMAR ON LAND TITLES § 338 (3d ed. 2009) (“It is axiomatic that a deed will be
inoperative as a conveyance unless it designates someone to whom the title passes.
A grantee is as necessary to the validity of a grant as that there should be a grantor
or a property granted.”); 59 CJS MORTGAGES § 306 (“Notice may be deemed not
present in cases of insufficient attestation or where the instrument itself is so
defective as to be void as a matter of law, as where it wholly omits the name of the
mortgagee.”) (citations omitted).
201
Bullock, 108 Ill. 28, at *5.
202
14 POWELL ON REAL PROPERTY §82.03[2][b].

38
that it is simultaneously both an agent and a principal with respect to the mortgages
it “owns.”
IV. ANALYZING MERS’ ROLE IN THE RESIDENTIAL MORTGAGE

MARKET
Looking beyond the problematic legal doctrine associated with MERS, an
analysis of the role the company plays holds at least three important insights: (1)
the MERS system was one additional contributing factor in the genesis of the
mortgage foreclosure crisis; (2) the company’s private, for profit, database and tax
evasion services are causing atrophy in the nation’s public real property
information infrastructure; and (3), the financial industry’s sponsorship and
embrace of MERS in the absence of legislation or meaningful judicial precedent

reflects a troubling anti-democratic shift in housing policy.
A. MERS and the Subprime Mortgage Lending Foreclosure Crisis
While there is plenty of blame to go around, the MERS recording and
foreclosure system was yet one additional contributing cause of the American
mortgage foreclosure crisis. MERS facilitates predatory structured finance by
decreasing the exit costs of originators. As investment banks, hedge funds,
institutional investors, and the credit rating agencies weighed the risks of dumping
billions upon billions of dollars into mortgage securities drawn out of the balance
sheets of thinly capitalized, bankruptcy-prone mortgage lenders, MERS provided
an important additional inducement. In previous research I have argued that in the
run-up to the foreclosure crisis mortgage origination companies were used as
disposable liability filters. 203 When thinly capitalized originators churned out more
and more securitized loans, claims against those lenders accumulated, while their
assets did not. 204 Once the projected costs of disgruntled investor recourse
demands and borrower predatory lending lawsuits exceeded the projected costs of
bankruptcy and reformation under a new corporate guise, originator management
would predictably discard their corporate identity. 205 MERS made this easier by
offering a super-generic placeholder that transcended the aborted life of lenders.
MERS reassured investors that even when an originator goes bankrupt, county
property records would remain unaffected and foreclosure could proceed apace. By
serving as the true mortgagee’s proxy in recording and foreclosure, MERS abetted
a fly-by-night, pump-and-dump, no-accountability model of structured mortgage
finance.
Moreover, the use of MERS’ corporate identity facilitates separation of
foreclosure actions and litigation of predatory lending and servicing claims. When
MERS (or more accurately servicers or foreclosure specialists acting in MERS’
name) brings foreclosure actions, it justifies this entitlement based on a claim of
legal ownership of mortgage liens. But, when borrowers attempt to assert counter
claims challenging the legality of mortgage brokers, lenders, trusts, or servicers,
203
Peterson, Predatory Structured Finance, supra note X, at 2275.
204
Id.
205
Id.

39
MERS hides behind its claim of nominee status. One former mortgage lender has
estimated that in the mid-2000s approximately 70 percent of brokered loan
applications submitted to mortgage lenders involved some form of broker
encouraged fraud. 206 Similarly, Professor Porter’s study of mortgage loans in
Chapter 13 bankruptcy found that residential mortgage creditors did not supply a
promissory note in 41.1% of cases involving a home mortgage. 207 Because
promissory notes are not recorded, nor where MERS is involved, is the actual
identity of the note holder revealed, consumers and their counsel can verify neither
the identity of the parties involved, nor even the amount of the debt in question. In
an ordinary foreclosure, using MERS’ name erects a tactical barrier to judicial
resolution of these types of problems. MERS confuses and pacifies borrowers (and
sometimes courts) at precisely the crucial moment: on the eve of foreclosure. Once
a family looses their home, their leverage and appetite for litigation dissipate. The
separation of predatory lending litigation from foreclosure litigation facilitated by
bringing foreclosure in MERS’ name decreases the costs of foreclosure and dulls
the deterrent force of consumer protection law. MERS represents the mortgage
finance industry’s best effort to create a single, national foreclosure plaintiff that
always has foreclosure standing, but never has foreclosure accountability.
Obviously MERS is not responsible for the failed monetary and regulatory
policy of the Federal Reserve Board. 208 The President and Congress could have
intervened in the troubling trends toward unrealistic mortgage loans. 209 Mortgage
brokers and lenders systematically strove for volume and commissions, rather than
sustainable home ownership. 210 Federal banking regulators obstructed the efforts
of state legislators and attorneys general to bring the market to heel. 211 The credit
rating agencies rashly gave their seal of approval to the risky, complex packaged
and repackaged mortgage loans securities. 212 While MERS may have reassured
investors of the viability of churned residential mortgage backed securities, it had
little to do with the over-leveraging of hedge funds, bond insurers, or the
government sponsored housing enterprises. 213 The recognition of MERS’ role in
206
RICHARD BITNER, CONFESSIONS OF A SUBPRIME LENDER: AN INSIDER’S

TALE
OF GREED, FRAUD, AND IGNORANCE 45 (2008).
207
Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87
TEX. L. REV. 121, 147(2008).
208
Paul Krugman, How Did Economists Get it So Wrong?, N.Y. TIMES, Sept. 6,
2009, MM36.
209
Jo Becker, Sheryl Gay Stolberg, & Stephen Labaton, White House Philosophy
Stoked Mortgage Bonfire, N.Y. TIMES, December 21, 2008, at A1.
210
Bitner, supra note X, at 181-82.
211
Christopher L. Peterson, Federalism and Predatory Lending: Unmasking the
Deregulatory Agenda, 78 TEMPLE L. REV. 1, 96-97 (2005); Christopher L.
Peterson, Preemption, Agency Cost Theory, and Predatory Lending by Banking
Agents: Are Federal Regulators Biting Off More than they Can Chew?, 56 AM. U.
L. REV. 515, 549-551 (2007).
212
Steven L. Schwarcz, Understanding the Subprime Financial Crisis, 60 S.C. L
REV. 549, 550-52 (2009).
213
Frederick Tung, The Great Bailout of 2008-09, 25 EMORY BANKR. DEV. J. 333,
336 (2009); Binyamin Appelbaum, Carol D. Leonning & David S. Hilzenrath,

40
facilitating the foreclosure crisis is not to ignore nor excuse these other causal
factors. Nevertheless, it is a mistake to list the contribute factors associated with
the crisis and omit MERS.
B. MERS and Atrophy of the Land Title Information Infrastructure
Over time, the widespread recording of loans and loan assignments in MERS’
name will assist fraudsters and cause decay in the accuracy of public real property
records. Suppose, for example, in a transaction where MERS is recorded as the
original mortgagee, a mortgage broker or originator convinces a homeowner to
sign a renewal note and mortgage after the original note and mortgage have been
assigned. (This is imminently plausible when many homeowners sign anything put
in front of them. 214 ) Then, further suppose the broker or originator attempts to sell
the subsequent renewal note and mortgage to a bona fide purchaser for value. If
the prospective purchaser wanted to rely on public records, it would search with
the county and discover the original mortgage listed in MERS’ name. If the
originator acted quickly so that the date of the original loan was proximate in time
to the subsequent loan, then the purchaser would naturally assume that the loan
recorded in MERS’ name was the self-same loan they planned to purchase.
Because the original mortgage is recorded in the name of MERS, and because
there is no public record of the assignment of the original note, the subsequent
bona fide purchaser would have no publically available way to discover the
fraud—and the entire transaction could be completed without recording a single
fraudulent document. In the ironic and inevitable litigation both purchasers would
claim that in MERS’ original recording MERS was acting as their agent, leaving
the court to award priority where both lenders have a essentially the same “claim”
based on the same recording. Two or more mortgages against the same property
could easily end up in different (or even the same) pool of mortgages that are
securitized for investors. Recording real property ownership interests in the name
of an agent, rather than the actual owner, opens the door to unscrupulous agents
using the same record to fool multiple principals. And our long standing case law
and statutes will have little advice on how to equitably resolve competing claims of
priority since this body of authority assumes that purchasers will record their own,
rather than their agent’s name. Envy not the judges and law clerks assigned to
write these forthcoming opinions.
Similarly, MERS may also spawn fraud, confusion, and litigation by
facilitating fraudulent mortgage loan releases. One reason recording statutes
require that the actual mortgagee’s or mortgage assignee’s name be kept in the
How Washington Failed to Rein in Fannie, Freddie, WASH. POST., Sept. 14, 2008,
Bus. Sec.
214
JAMES M. LACKO & JANIS K. PAPPALARDO, FED. TRADE COMM'N,

IMPROVING
CONSUMER MORTGAGE DISCLOSURES: AN EMPIRICAL ASSESSMENT OF

CURRENT
AND PROTOTYPE DISCLOSURE FORMS 26-29 (2007), http://
www.ftc.gov/os/2007/06/P025505MortgageDisclosureReport.pdf; Todd J. Zywicki
& Joseph D. Adamson, The Law and Economics of Subprime Lending, 80 U.
COLO. L. REV. 1, 72-73(2009).

41
records is to help ensure that liens can only be released by the party entitled to do
so. For example, recording statutes attempt to prevent unscrupulous land owners
from recording a false mortgage satisfaction and then obtaining another loan under
false pretenses. Any of MERS’ thousands of unmonitored, unpaid, and
unsupervised vice presidents and assistant secretaries can file fraudulent
satisfactions that are indistinguishable from authentic records. Homeowners that
happen to be a MERS vice president (or have a coconspirator that is or posses as a
MERS vice president) could record mortgage satisfactions, then sell the home or
obtain a new loan and all-the-while the public real property records would not
reveal the previous unpaid debt.
In the wake of the subprime crisis, this decline in the value of the public
records is already occurring. 215 For example, in loans where MERS is listed as the
mortgagee, virtually any company can show up, claim to own the note, and
proceed to foreclose on a family that is in arrears. Because MERS has so many
“certifying officers” a court cannot easily verify whether the individual acting in
MERS’ name is actually representing the real party in interest given that the public
records do not reveal who that party is. One can imagine an original mortgagee,
either through error or fraud, foreclosing on a defaulting family despite having
assigned the loan into a structured finance deal. In a MERS as original mortgagee
transaction, the assignment would not be recorded, and the only name on the public
records would be MERS’. Neither the courts nor a purchaser at a judicial or non-
judicial foreclosure sale could use the public records to discover that someone
other than the company or individual bringing foreclosure action actually owns the
proceeds of the sale.
Moreover, in recent years, many courts have been indulgent in dispensing with
normal the requirement that a foreclosure plaintiff produce the original promissory
note. Not wanting investors to suffer forfeiture because of a record keeping
problem, many courts have instead accepted affidavits claiming that original note
was lost or even a copy of the pooling and servicing agreement naming the
servicer. 216 Conversely, because in structured finance deals, originators,
215
Creola Johnson, Fight Blight: Cities Sue to Hold Lenders Responsible for the
Rise in Foreclosures and Abandoned Properties, 2008 UTAH L. REV. 1169, 1185.
216
Porter, supra note X, at 172-74;Raymond H. Brescia, Beyond Balls and Strikes:
Towards a Problem Solving Ethic in Foreclosure Proceedings, CASE W.R. L. REV.
305, 345 (2009); Chris Markus, Ron Taylor, & Blak Bogt, From Main Street to
Wall Street: Mortgage Loan Securitization and New Challenges Facing
Foreclosure Plaintiffs in Kentucky, 36 N. KY. L. REV. 395, 406 (2009). A few
courts have begun insisting on more accurate documentation form foreclosure

plaintiffs. , In re Foreclosure Cases, Nos. 1:07CV2282 (N.D. Ohio Oct. 31, 2007)
(dismissing consolidated foreclosure cases for failure to produce evidence
demonstrating ownership or assignment of promissory notes); Bank of New York
v. Williams, 979 So. 2d 347 (Fla. Dist. Ct. App. 2008) (affirming dismissal of the
foreclosure complaint for failure to show ownership interest in mortgage and note);
HSBC Bank USA, Nat'l Ass'n v. Perboo, No. 38167/07, 2008 WL 2714686 (N.Y.
Sup. Ct. July 11, 2008) (denying foreclosure plaintiff's application for default
judgment); Wells Fargo Bank, Nat'l Ass'n v. Reyes, No. 5516/08, 2008 WL

42
securitizers, and trustees have been notoriously lax in keeping track of promissory
notes, it is possible that an employee of an original lender or a broker (either of
whom could credibly claim to represent MERS) could conceivably still retain
possession of the actual original promissory note, despite having received funds
from the assignment of the loan. 217 A court could easily order a foreclosure, sell
the home, give the funds to someone not entitled to them, and the actual owner
would never be the wiser. The clever thief would make payments on behalf of the
defaulting borrower during the pendency of the foreclosure (the unwitting family
would certainly not complain) to keep the actual loan assignee from
investigating. 218 Because so many finance professional have lost their jobs, and
some were not especially reliable in the best of times, one should think that the risk
of such schemes is now acute. 219 Moreover, given the empirical and anecdotal
evidence of shoddy record keeping in this industry, it is entirely possible that an
originator or servicer could unintentionally foreclose on a loan that it does not
actually own. 220 The ubiquitous use of the MERS label in our public real property
records along with our new casual flexibility in notions of corporate identity
facilitates this sort of fraud and mistake.
When half of the nation’s mortgages are all recorded under the name of one
company that does not publish its own records, the ability of the public (including
both consumers and lenders) to use public records to evaluate who owns real
property interests will inevitably decline. In county recording officers around the
country, real property records increasingly repeated MERS’ name over and over
again. In an often repeated Irish fable a boy marks a leprechaun’s gold with red
handkerchief tied around a tree. 221 He returns only to find that the leprechaun has
tied red handkerchiefs tied around every tree in the forest. Recording mortgages in
MERS’ name leaves a message signaling the existence of a lien. But it does not
reveal who owns the lien or who has the right to release it. If present trends and the
MERS agenda continues apace, we should expect that eventually virtually every
home in the country will, at one point or another, have a MERS recording against
it. Viewed alone, county real property records will become a forest where each tree
has its own handkerchief. To discover a more accurate picture of the title status of
2466257 (N.Y. Sup. Ct. June 19, 2008) (dismissing complaint for plaintiff's failure
to establish ownership of mortgage).
217
Johnson v. Melnikoff, Slip op., 20 Misc.3d 1142, 2008 WL 4182397, *1 (N.Y.

Supp Sept. 11, 2008)
218
An especially clever strategist would continue to make the payments for a year
or more while concealing the proceeds and running the same scheme several times
over.
219
See, e.g., Cary Spivak, Criminal Past No Barrier to Mortgage Field: Ex-Cons
Who Got Loan-Originating Licenses Commit Scores of Frauds that Cost
Customers Millions, MILWAUKEE J. SENT., March 14, 2009, A1.
220
Cf Nosek v. Ameriquest Mortgage Company, 386 B.R. 374, 379 (2008)
(attorneys sanctioned for defending Ameriquest in an eight day trial while never
advising the Court that Ameriquest was neither the note holder nor the mortgagee).
221
AMY T. PETERSON & DAVID J. DUNWORTH, MYTHOLOGY IN OUR MIDST: A
GUIDE TO CULTURAL REFERENCES 93 (2004).

43
a home, the public will be forced to turn to MERS, Inc. This will makes the public
records derivative of and subordinate to the MERS system. 222
Moreover, this decline in the usefulness of public records is exacerbated
financially because MERS is usurping the recording fees that once funded
maintenance, innovation, and vigilance in public record keeping systems.

Proponents of MERS often cite figures on how much money the mortgage finance
industry “saves” by recording under MERS’ name rather than real parties in
interest. In some sense, this notion of savings is a misnomer. One could just as
easily characterize the commercial pattern as crippling budget cuts in public
information infrastructure designed to create transparency in ownership of real
property. By allowing the mortgage lending industry to circumvent their traditional
obligation to maintain fraud resistant public records, in the long run, the courts will
facilitate commercial uncertainty, inefficient litigation, and disappointed
expectations.
Recording mortgages in the name of MERS and subsequent refusal to record
assignments is not a technological innovation. On the contrary, it is an example of
atrophy in the mortgage market’s legal infrastructure. Companies that specialize in
shipping goods need highways, bridges, and ports—physical infrastructure
completely indispensible to commerce. But despite the importance of creating and
maintaining such infrastructure, collective action problems make the hard work of
facilitating infrastructure impossible for individual market actors. These companies
and the consumers they serve need the firm hand of government to organize the
leadership and extract the resources necessary to facilitate infrastructure for the
benefit of all. Commerce in shared human obligation—loans—is not so terribly
different. Profit-seeking individual companies are not well suited to maintaining a
platform of transparent information systems easily accessible to our communities.
MERS and its proponents are no doubt sincere in their belief that their private,
undemocratic information system is a boon to business. However, this belief is

premised on a short term view of maximizing profit at the expense of maintaining
a public information system. It is certainly true that county recording systems are
technologically outdated. However, the solution to outdated infrastructure is to
modernize that infrastructure, not abandon it. If MERS is allowed to continue to
plot its own course as the national residential property ownership oracle and
foreclosure plaintiff, the burden of reconstructing chains of real property
ownership in cases of fraudulent or erroneous conveyance will increasingly shift
from county recorders to litigation. 223 The national system of public land title
record keeping will become derivative and its usefulness will decay.
222
MERSCorp, Inc. v. Romaine, 861 N.E.2d 81, 88 (N.Y. 2006) (Kaye, J.
dissenting in part) (“[T]he MERS system will render the public record useless by
masking beneficial ownership of mortgages and eliminating records of assignments
altogether. Not only will this information deficit detract from the amount of public
data accessible for research and monitoring of industry trends, but it may also
function, perhaps unintentionally, to insulate a noteholder from liability, mask
lender error and hide predatory lending practices.”)
223
It is likely that this litigation will often be pro se or will be handled by
consumer attorneys that are not paid enough to assemble and wade through the
factually complex private land title evidence. Cases where courts maledict pro se

44
C. Title Recording Law and Democratic Governance
A fair critique of MERS must include recognition of the dated, expensive, and
cumbersome nature of county real property records and state recording statutes.
Unlike the relatively homogenous personal property lien recording systems
governed by Article 9 of the Uniform Commercial Code, the National Conference
of Commissioners on Uniform State Laws and the American Law Institute have
not been able to prevail on state legislatures to standardize real property mortgage
and recording laws. Moreover, unlike personal property lien records, which are
usually maintained by a Secretary of State, real property records are generally
maintained by each county. This further diversifies record keeping standards and
operating procedures. It is only fair to say that, even with the use of title insurer
plant copies, recording and searching in county property records is time
consuming, expensive, and often not especially reliable. 224 In contrast, MERS
gives each loan a unique identifier, is accessible through the internet, and is
organized n one nationwide system. 225
Still, the consumer protection critique of MERS is not just about what MERS
does wrong, but also what the process of creating MERS prevented. By taking
upon itself the reformation of the county recording systems created by state law,
MERS and the mortgage finance industry circumvented the state and national
debate that normally precedes significant legislative change. The MERS system,
while digital and nationwide in scope, is not equally available to all. It has given a
single corporation the opportunity to grant special “vice president” status to its
favored side in foreclosure disputes. It has been manipulated into a device to make
foreclosure easier and more anonymous for financiers. The financial industry could
have channeled its dissatisfaction with county property records into a campaign for
legal reform. This would have necessitated a debate where consumers, county
officials, researchers, poverty advocates, and anyone else could have participated.
Fifteen years ago, if the finance industry put its formidable legislative muscle
behind a public reformation of county recording systems, perhaps today we would
have a national system maintained by a federal regulator, or a statewide systems
supported by a new Article of the Uniform Commercial Code. Instead financiers
chose to act alone, creating an entirely new system that competes financially with
public records, undermines the accuracy of public records, and was never
authorized by the elected leaders that guide a republican system of law.
In a moment of refreshing candor, not long ago a MERS senior vice president
concluded an extolling public relations piece with the explanation that “MERS is
foreclosure defendants and underpaid consumer counsel are illustrative of the
MERS led trend toward erosion of clear, public mortgage records. See, e.g., Lumzy
v. Mortgage Electronic Registration Systems, Inc., Slip op., 2008 WL 3992671
(S.D. Miss. Aug. 21, 2008) (dismissing Fair Debt Collection Practices Act suit
against MERS because “her conclusory and convoluted allegations do not pass
muster.”) .
224
14 POWELL ON REAL PROPERTY § 82.03[2].
225
Arnold, supra note X, at 35.

45
owned and operated by and for the mortgage industry.” 226 It is ironic and perhaps
not coincidental that the syntactical form of the sentence bears such close
resemblance to President Lincoln’s Gettysburg address. One will no doubt recall
that Americans have generally aspired to “government of the people, by the
people, for the people,” rather than of, by, and for the mortgage bankers. 227 MERS’
attempt to “capture every mortgage loan in the country” 228 is an effort to supplant
the public land title recording systems’ lien records, many of which predate the
Constitution itself, with a purely private system. Perhaps MERS, Inc. is correct that
doing so is more efficient; is more modern; and, maybe they are right that it is even
be better for the American people at the margin. But, this effort is without question
a surrender of the messy compromises inherent in representative democracy to the
seductively easy lure of mercantile oligarchy. Bankers just complain so much less
when courts, regulators, and legislators let them do whatever they want. Still,
perhaps those of us with romantic attachments to our Republic and the rule of law
will be excused for supposing that if the mortgage bankers wanted a newer, more
efficient, national land title recording system, they should have asked Congress or
the legislatures first.
VI. CONCLUSION
This Article has explored the legal and public policy foundations of the
Mortgage Electronic Registration System. MERS maintains a central national
database tracking mortgage servicing rights for loans registered on its system. In
addition to its database, MERS has taken on two related but distinct roles in the
American home mortgage market. First, mortgage finance companies use MERS’
name as a proxy in county land title records in order to avoid paying taxes to local
governments for recording assignments during the life of a loan. Second, where
local courts have allowed it, MERS creates something of a foreclosure
doppelganger by allowing the actual parties in interest to bring residential
foreclosures under MERS’ corporate identity instead of their own. Recording
loans in the name MERS, rather than the actual parities in interest, has generally
not been explicitly authorized under the state title recording acts that trace their
lineage back to the earliest years of the American republic. By adopting such a
radical shift in how mortgages are recorded and foreclosed without legislative
change, the mortgage finance companies have rebuilt their industry on a legal
foundation of sand. MERS’ claim to own legal title to a mortgage loan’s security
interest, divorced from the promissory note and entitlement to receive loan
payments, is in direct tension with precedent that has been well settled for over a
hundred years. MERS’ role in prosecuting home mortgage foreclosures should
bring it within the scope of the federal Fair Debt Collection Act—a statute that
MERS has generally made little attempt to comply with. And it is unclear whether
recording a mortgage or mortgage assignment in the name of someone other than
that actual mortgagee and assignee should be sufficient to protect those actual
226
Arnold, supra note X, at 36.
227
GARRY WILLS, LINCOLN AT GETTYSBURG: THE WORDS THAT REMADE
AMERICA 145-47 (1992) .
228
MERS Registers 20 Million Loans, supra note X, at 1.

46
parties in interest from subsequent purchasers. Indeed there is a compelling
argument that loans where MERS is recorded as the original mortgagee should be
avoidable by bankruptcy trustees in many states.
The shift away from recording loans in the name of actual mortgagees and
assignees represents an important policy change that erodes not only the tax base
of local governments, but also the usefulness of the public land title information
infrastructure. MERS did not, by itself, cause the mortgage finance crisis and its
ensuing aftermath. However, it was an important cog in the machine that churned
out the millions of unsuitable, poorly underwritten, and incompletely documented
mortgages that were destined for foreclosure. In the aftermath of the mortgage
finance crisis that has crippled the American economy, necessitated massive
taxpayer bailouts of financial institutions, and left millions of American families
ejected from their homes, the judiciary has an obligation to aggressively reexamine
our financiers’ cut corners, false assumptions, and jaundiced legal theory.
In Sheehy v. Miles (1892), 93 Cal. 288, 292 [28 P. 1046], the

following appears: "In the case of Turner v. McDonald, 76 Cal.
177 [18 P. 262, 9 Am.St.Rep. 189], this court said: 'A perfect title
must be one that is good and valid beyond all reasonable doubt';
and in that case it was conceded by counsel upon both sides that
a title, to be good, 'should be free from litigation, palpable
defects, and grave doubts, should consist of both legal and
equitable titles, and should be fairly deducible of record.' It
would seem, in fairness to the vendee, that the foregoing
requirements should be held absolutely necessary, in order to
fully satisfy the covenant of perfect title. Certainly such a
condition of title must exist before it can be said to be good and
valid beyond reasonable doubt. [Citations.]"
Title is duly perfected when all steps have been taken to make it
perfect, i.e., to convey to the purchaser that which he has
purchased, valid and good beyond all reasonable doubt.
(Hocking v. Title Ins. & Trust Co. (1951), 37 Cal.2d 644, 649 [234
P.2d 625, 40 A.L.R.2d 1238]), which includes good record title
(Gwin v. Calegaris (1903), 139 Cal. 384 [73 P. 851]), ..." (Kessler
v. Bridge (1958) 161 Cal.App.2d Supp. 837, 841 [327 P.2d 241].)
In reliance upon the general principle that "All applicable laws

in existence when an agreement is made necessarily enter into it
and form a part of it as fully as if they were expressly referred to
and incorporated in its terms." (4 Cal.Jur. 10-Yr.Supp. 138, §
186, and cases there cited; see also Lelande v. Lowery (1945), 26
Cal.2d 224, 226 [157 P.2d 639]), and upon the further statement
that "It is the general rule that applicable municipal ordinances
are 'law' within the rule that every contract is made with
reference to, subject to, and presumably in contemplation of,
existing law" (110 A.L.R. 1048), plaintiff urges that Palm
Springs ordinance No. 39 was a part of the contract of title
insurance issued to her by defendant, and that violation by the
city council of such ordinance and violation by the county
recorder of the Subdivision Map Act, constituted a breach of the
title policy. She further contends (apparently because the policy
describes the lots by reference to the recorded subdivision map)
that by the terms of the policy she was assured of a perfect title to
"subdivision lots." [3] It is established law in this state that the
title to such a lot embraces an easement to use all of the streets
disclosed on the subdivision map. (Danielson v. Sykes (1910),
157 Cal. 686, 689 [109 P. 87].) Since, says plaintiff, "the Palm
Springs subdivision ordinance required these easements to be in
a certain condition, namely, graded and paved" and "As such
conditions did not exist in this matter," plaintiff's title is not
perfect. With respect to the statement in Smith v. Bank of
America etc. Assn. (1936), supra, 14 Cal.App.2d 78, 85, that "A
common meaning [of the word title] is complete ownership, in
the sense of all the rights, privileges, powers and immunities an
owner may have with respect to land," plaintiff further urges
that "an owner of a subdivided lot in the City of Palm Springs
would regard among his 'rights and privileges' with respect to his
lot the graded and paved streets." She argues additionally that
such a Palm Springs lot owner has an " 'immunity' of
significance and value, for if the streets are not improved the city
can improve them and charge him a [37 Cal.2d 651] proportion
of the price of the improvement by virtue of the various
improvement acts contained in the Streets and Highways Code .
Plaintiff also contends that the acceptance and recording of the

subdivision map in violation of existing law "results in the entire
subdivision being in a litigious state as the same is either wholly
void or voidable," and she is deprived of a record title. She
admits inability to find a case in point, but urges that the
provisions of section 11626 of the Business and Professions
Code, allegedly violated by the county recorder, are mandatory,
and that the Subdivision Map Act is for the protection of the
public. (See Smith v. Bach (1920), 183 Cal. 259, 262 [191 P. 14].)
She therefore urges application of the general rule stated in 50
American Jurisprudence 43, 44, section 20, as follows: "There
are numerous instances of instruments or proceedings held to be
void because of the failure to comply with a statutory provision
relating thereto. This is true of mandatory provisions,
compliance with which is a condition precedent to the privilege
conferred. In fact, a mandatory provision in a statute has been
defined as one the omission to follow which renders the
proceeding to which it relates illegal and void."
[5] Concerning the rule of construction making applicable laws

part of a contract, defendants rely upon the statement [37 Cal.2d
652] in Wing v. Forest Lawn Cemetery Assn. (1940), 15 Cal.2d 472,
476 [101 P.2d 1099], that "This rule, however, should be limited
to those laws which are 'applicable' and which affect 'the
validity, construction, discharge or enforcement of the contract,'
[citations] and care should be taken that its application is not
extended to lengths which approach absurdity." It is defendants'
argument that Palm Springs ordinance No. 39 simply prescribed
certain requirements which were to be met before the city council
accepted a subdivision map, and did not purport to affect the title
to the lots therein plotted, and, further, such ordinance did not
affect the "validity, discharge or enforcement" of the title
insurance contract. We are persuaded that defendants' position is
well taken. Not only do the ordinance provisions pleaded and
relied on by plaintiff fail to suggest an intention to affect either
land titles or title insurance contracts, but plaintiff has cited no
authority and we are aware of none which would extend the rule
of construction upon which she relies to import an undertaking
(other than an express one) by the contracting parties that, prior
to the making of the contract, other persons (here, the subdivider
and the city council) had complied with all laws which might
have a bearing upon the value of the land (here, as affected by
the physical condition of adjacent streets), the title to which is the
subject matter of the contract.
The Court of Appeal in the case of:
Seidell v. Anglo-California Trust Co., 55 Cal.App.2d 913

Seidell v. Anglo-California Trust Co., 55 Cal.App.2d 913
C. V. SEIDELL et al., Appellants, v. ANGLO-CALIFORNIA TRUST COMPANY (a
Corporation) et al., Respondents.
“ [1c] In this case the challenged unlawful detainer judgment
determined issues tendered by these appellants in their answer
which constituted legal defenses of alleged specific violations of
the statute in failing to give the notice of sale required [55
Cal.App.2d 922] by section 2924 of the Civil Code, lack of
consideration for the note secured by the trust deed, and other
asserted defects going to the validity of the trust deed and note
secured thereby, and to the proceedings on the sale of that
property under the provisions of the deed. All of those issues of
law, as distinguished from equity, affecting the legality of the
note, deed of trust and the sale were properly determined against
the defendants in that unlawful detention suit. If the answer
contained equitable issues of fraud, as the Supreme Court said in
the Cheney case, supra, they had no place in that unlawful
detainer proceeding, and the findings thereon were immaterial
and may therefore be disregarded. They were harmless.”
The Court in the case of: Stephens, Partain & Cunningham v.

Hollis (1987) 196 Cal.App.3d 933 , 242 Cal.Rptr. 259;
Ruled the following:
“ To the limited extent provided by subdivision (b)(3) of section
1161a, title to the property may be litigated in an unlawful
detainer proceeding. (Cheney v. Trauzettel (1937) 9 Cal.2d 158, 159
[69 P.2d 832].) While an equitable attack on title is not permitted
(Cheney, supra, 9 Cal.2d at p. 160), issues of law affecting the
validity of the foreclosure sale or of title are properly litigated.
(Seidell v. Anglo-California trust Co. (1942) 55 Cal.App.2d 913, 922
[132 P.2d 12], approved in Vella v. Hudgins, supra, 20 Cal.3d at
p. 256.)”
Asuncion v. Superior Court (W. C. Financial, Inc.) (1980) 108

Cal.App.3d 141 , 166 Cal.Rptr. 306
[Civ. No. 22722. Court of Appeals of California, Fourth Appellate District, Division One.
July 14, 1980.]
PETER T. ASUNCION et al., Petitioners, v. THE SUPERIOR COURT OF SAN DIEGO
COUNTY, Respondent; W. C. FINANCIAL, INC., Real Party in Interest.
(Opinion by Brown (Gerald), P. J., with Cologne and Staniforth, JJ., concurring.) [108
Cal.App.3d 142]
COUNSEL
Dennis E. Holz, Gregory A. Veach and Joyce A. Wharton for Petitioners.
Carmine J. Bua and John C. Lessel for Real Party in Interest.
OPINION
BROWN (Gerald), P. J.
Action in unlawful detainer, filed in municipal court on October 15, 1979, by real party,
W. C. Financial, Inc. (Financial) under Code of Civil Procedure section 1161a,
subdivision 4, claiming lawful sale to Financial of the real property located at 4404
Logan Avenue, City of San Diego. Defendants Peter and Teresa Asuncion successfully
moved in the municipal court for a transfer of the action to superior court on the ground
title to real property worth more [108 Cal.App.3d 143] than $15,000 was in issue, a
subject not within the jurisdiction of the municipal court. Also, the Asuncions on October
24, 1979, filed a complaint against Financial in the superior court alleging fraud, usury,
unfair business practices, truth in lending violations, undue influence, and other causes,
and requesting title to the property be quieted in their favor, rescission or cancellation of
deed, and actual and punitive damages. After transfer of the eviction action to superior
court, Financial obtained an order of the superior court retransferring the action to the
municipal court. The Asuncions have petitioned this court for a writ of mandate,
contending at this stage of the proceedings neither the superior nor the municipal court
appears willing to take jurisdiction of the eviction, and further, to permit the eviction
action to proceed summarily in the lower court will deprive the Asuncions of their
legitimate defenses based on fraud and will irreparably damage them by causing their
eviction from their home before their action in the superior court can be resolved. They
have owned the subject real property since 1971, and by mid-1979 had an equity in the
property exceeding $20,000.
The Asuncions' complaint in the superior court alleges: Financial regularly engages in
unlawful, unfair and fraudulent business practices; it locates persons with substantial
equity in encumbered residential real property who are in default on their home loans;
represents to these homeowners Financial will offer them advice and assistance, and
further states the homeowners must act at once to prevent foreclosure, despite the fact
homeowners have 90 days to cure a default; offers to loan the homeowners funds to pay
off the defaults, with the real property to be security for the loan; and then induces the
homeowners to sign legal papers which they do not understand and which obligate the
homeowners to repay sums greatly in excess of their present undertakings, charge
usurious rates of interest, and, unbeknownst to the homeowners, grant Financial legal title
to the property. Since the assumed new obligation is always more burdensome than the
existing loans, which the homeowner could not meet, there is a further default on the new
agreement, and Financial then evicts the homeowners and converts the equity to its own
use.
Here it is alleged the Asuncions in 1971 obtained a purchase money mortgage on the
property of $19,800 with monthly payments of $149. In 1978 they executed a second
trust deed on an obligation of $3,500, with payments of $64.84. They missed two
payments on the second trust deed in June and July 1979. The beneficiary of the second
trust [108 Cal.App.3d 144] deed filed a notice of default to commence foreclosure on
July 12. On July 19 representatives of Financial contacted the Asuncions. The Asuncions
signed papers on that date which they were told were necessary to prevent foreclosure on
their home. The legal effect of those papers was, among other things, to grant title to the
property to Financial, subject to a 45-day option to reacquire the property by executing in
Financial's favor a $12,000 promissory note at 18 percent "or more" payable in three
years. Financial in return promised to retire a furniture company debt in the sum of
$1,126.36 and to pay the second trust deed of approximately $3,500. Financial recorded
the grant deed immediately after its execution on July 19. On October 15, 1979, it
commenced the unlawful detainer action alleging expiration of the option on September
3, 1979, resulting in ownership of the property in Financial.
The net effect of the parties' dealings is, Financial has loaned the Asuncions about $4,800
for 45 days, in return for real property having an equity in excess of $20,000. It is alleged
such loan may be usurious, as well as fraudulent and in violation of a number of laws,
both state (unfair business practices, Bus. & Prof. Code, § 17200 et seq.; and usury, Cal.
Const., art. XV, § 1, and Deering's Ann. Uncod. Measures 1919-1 (1973 ed.) p. 78; 10
West's Ann. Civ. Code (1954 ed., 1979 Cum. Supp.) foll. § 1916 at p. 39) and federal
(truth in lending, 15 U.S.C. § 1601 et seq.).
It is generally recognized the summary unlawful detainer action is not a suitable vehicle
to try complicated ownership issues involving assertions of fraud and deceptive practices
such as the Asuncions allege here. In holding an unlawful detainer action is not res
judicata on the question of fraud in the acquisition of title, Gonzales v. Gem Properties,
Inc. (1974) 37 Cal.App.3d 1029, 1036 [112 Cal.Rptr. 884], pointed out, "The summary
nature of unlawful detainer proceedings suggests that, as a practical matter, the likelihood
of the defendant's being prepared to litigate the factual issues involved in a fraudulent
scheme to deprive him of his property, no matter how diligent defendant is, is not great."
Normally, the unlawful detainer action may encompass only a "narrow and sharply
focused examination of title" directed at the formal validity of the trustee sale (Vella v.
Hudgins (1977) 20 Cal.3d 251, 255 [142 Cal.Rptr. 414, 572 P.2d 28]). Similarly, in a case
which permitted the summary eviction of a gas station franchisee despite multiple
asserted defenses of fraud, estoppel, bad faith, and violations of the franchise investment
law, the court would not permit consideration of the franchisee's affirmative demands for
relief by cross-complaint in the [108 Cal.App.3d 145] unlawful detainer, and further
pointed out the defendant's right to raise such matter defensively in the eviction action
had to be balanced against the interest in preserving the summary nature of eviction. "In
causes where the legality of the reason for an eviction may be in issue, the court, in
deciding whether to permit affirmative defenses, may balance the interest in preserving
the summary nature of the unlawful detainer action against the public policies furthered
by protecting the defendant from eviction under the alleged defenses." (Mobil Oil Corp.
v. Handley (1978) 76 Cal.App.3d 956, 963 [143 Cal.Rptr. 321]; see alsoS.P. Growers
Assn. v. Rodriguez (1976) 17 Cal.3d 719, 724 [131 Cal.Rptr. 761, 552 P.2d 721].)
Similarly, another court found antitrust violations were not a proper defense in an
unlawful detainer action. (Union Oil Co. v. Chandler (1970) 4 Cal.App.3d 716 [84
Cal.Rptr. 756].)
Although no case appears to hold directly that ownership issues such as are raised here
may, or may not, justify slowing the pace of eviction actions, the following cases are
helpful in indicating the direction of legal development on this issue. Language inS.P.
Growers Assn. v. Rodriguez, supra, 17 Cal.3d 719, 730,indicates the possibility
commercial evictions should be treated differently than residential evictions, permitting
affirmative defenses more liberally in the latter situation. (See com. in Mobil Oil Corp. v.
Handley, supra 76 Cal.App.3d 956, 966.) The affirmative defenses of retaliatory eviction
and violation of the Agricultural Labor Relations Act have been permitted in unlawful
detainer actions (Schweiger v. Superior Court (1970) 3 Cal.3d 507 [90 Cal.Rptr. 729, 476
P.2d 97];Vargas v. Municipal Court (1978) 22 Cal.3d 902 [150 Cal.Rptr. 918, 587 P.2d
714]). Likewise, the defendant may defend by showing use of rent money to make repairs
as authorized by statute. (See Aweeka v. Bonds (1971) 20 Cal.App.3d 278, 282 [97
Cal.Rptr. 650].) InVargas, supra the court held, to exclude from an eviction action the
defense of retaliatory eviction for exercising protected rights under the ALRA, denied the
tenant/farm-workers due process, by undermining the essential fairness and basic
integrity of that judicial proceeding (Vargas v. Municipal Court, supra 22 Cal.3d 902,
915). However, the court left to the municipal court discretion to determine whether and
for how long to postpone the eviction proceeding while awaiting the outcome of pending
proceedings before the ALRB.
There is some inconsistency between the language ofVella v. Hudgins, supra clearly
limiting the scope of issues in eviction proceedings [108 Cal.App.3d 146] to the
narrowest formalities of conveyance of title, and the statement inVargas, supra, "[T]he
essential fairness and basic integrity required of a judicial proceeding by due process is
clearly violated if only one party to the controversy is permitted to present evidence
relating to the matters at issue."(22 Cal.3d at p. 915.) We note, however, the court in Vella
was not directly faced with the issue of accommodating summary procedures and
affirmative defenses, for there the issue was the res judicata effect of an eviction already
consummated, in a later action based on fraud. Vargas, however, directly faced the issue
in the context of a retaliatory eviction for protected exercise of collective bargaining
rights, and that court's language applies here as well. [1] We are prepared to hold
homeowners cannot be evicted, consistent with due process guaranties, without being
permitted to raise the affirmative defenses which if proved would maintain their
possession and ownership. Such a procedure would be as unfair as the situation forbidden
in Vargas. Accordingly, title to the property is inevitably in issue in this unlawful detainer
action, and the action is not within the jurisdiction of the municipal court.
As we see it, after the eviction is transferred to the superior court, a number of procedural
devices exist to facilitate accommodating the eviction action with the fraud action which
the Asuncions separately filed. A possibility, which we understand is frequently utilized
in other counties, is for the superior court to stay the eviction proceedings until trial of the
fraud action, based on the authority of Code of Civil Procedure section 526 which
permits a preliminary injunction to preserve the status quo on such grounds as irreparable
injury, multiplicity of legal actions, or unconscionable relative hardship. fn. 1 (See,
e.g.,Continental [108 Cal.App.3d 147] Baking Co. v. Katz (1968) 68 Cal.2d 512, 528 [67
Cal.Rptr. 761, 439 P.2d 889], and see generally discussion of subject in 2 Witkin, Cal.
Procedure (2d ed. 1970) Provisional Remedies, § 47, p. 1496; § 73, pp. 1511-1512.) Bond
would be required to obtain such an injunction (Code Civ. Proc., § 529), which could be
waived for an indigent litigant (Conover v. Hall (1974) 11 Cal.3d 842, 851, 853 [114
Cal.Rptr. 642, 523 P.2d 682]). It has been held where foreclosure of a trust deed would
moot a claim of right under a deed, and the deed is attacked as a fraudulent conveyance, a
preliminary injunction is permitted to prevent foreclosure pending trial (Weingand v.
Atlantic Sav. & Loan Assn. (1970) 1 Cal.3d 806 [83 Cal.Rptr. 650, 464 P.2d 106]).
Staying the eviction here is analogous.
An alternate possibility might be consolidation of the actions.
Since this court is not a suitable forum to determine the need for a preliminary injunction
nor its terms and conditions, we leave such matters for determination in the trial court.
We hold only, the Asuncions are entitled to defend this eviction action based on the
claims of fraud and related causes which they have asserted, and accordingly the action
necessarily exceeds the jurisdiction of the municipal court and cannot be tried there.
Let a writ of mandate issue, directing the superior court to vacate its order transferring
this action to the municipal court, and to retain jurisdiction over the matter so long as
substantive issues of ownership remain to be litigated. Petitioners shall have costs in this
proceeding. Attorneys' fees incurred in this proceeding may form part of the Asuncions'
damages if they prevail in their claim of fraud. (See Civ. Code, § 3333; Walters v. Marler
(1978) 83 Cal.App.3d 1, 30 [147 Cal.Rptr. 655].)
Cologne, J., and Staniforth, J., concurred.
FN 1. But see, Mobil Oil Corp. v. Superior Court (1978) 79 Cal.App.3d 486 [145
Cal.Rptr. 17]. There a service station lessee filed a Los Angeles Superior Court action
seeking declaratory relief and affirmative remedies for wrongful termination of franchise.
The gist of the relief sought was to maintain the lessee in possession. Then in a different
district of that same court, Mobil Oil filed unlawful detainer against the lessee. The lessee
obtained from the superior court a stay of the unlawful detainer, which the appellate court
vacated on writ of mandate. The court stated the stay was an abuse of discretion because
there were no facts presented to the trial court which would justify the granting of a stay.
(Id at p. 495.) It is unclear why the court reached this conclusion, but it appears to have
relied on a combination of preserving the summary nature of unlawful detainer, and the
fact the lessee did not seek a preliminary injunction in his lawsuit against Mobil. (Id at p.
495.) The court also noted the lessee was bringing a lengthy and complex representative
action, imposing a heavy burden on the evicting franchisor by delaying his action.
Although it would be premature for us to determine the effect of this case on the
Asuncions' right to a stay, we note Mobil Oil Corp. involves a commercial, rather than a
residential, eviction. Insofar as the preliminary injunction question is concerned, the
Asuncions have not yet had the opportunity to present facts in the trial court warranting
either such an injunction or a stay, whereas in Mobil Oil Corp., supra the stay had already
been issued on a record the appellate court perceived as inadequate.
[4] It is well established that a state court has concurrent jurisdiction to enforce a right
created by federal law unless the law excludes concurrent jurisdiction or is incompatible
with such jurisdiction. (Dowd Box Co. v. Courtney (1962) 368 U.S. 502, 507-508 [7
L.Ed.2d 483, 486-488, 82 S.Ct. 519]; Williams v. Horvath (1976) 16 Cal.3d 834, 837
[129 Cal.Rptr. 453, 548 P.2d 1125]; McCarroll v. L.A. County etc. Carpenters (1957) 49
Cal.2d 45, 59 [315 P.2d 322].)
Moreover, it must be remembered that Union Oil involved a
commercial lease, while the present case concerns eviction from
a residential dwelling. Like the lessee in Union Oil, defendants
may file a separate suit to vindicate their business rights, but the
existence of such an alternative provides small comfort to a
residential tenant. As Justice Douglas puts it, "the home, even
though it be in the slums, is where man's roots are. To put him
into the street ... deprives the tenant of a fundamental right
without any real opportunity to defend. Then he loses the essence
of the controversy, being given only empty promises that
somehow, somewhere, someone may allow him to litigate the
basic question in the case." (Lindsey v. Normet (1972) 405 U.S.
56, 90 [31 L.Ed.2d 36, 60, 92 S.Ct. 862] (Douglas, J.,
dissenting).)
[9] In short, the present threat to the summary nature of

unlawful detainer proceedings is no greater than that we faced in
Schweiger, and, as in Schweiger, it must be balanced against the
more important interest of vindicating statutory public policy.
Some minor delay may be incurred in determining if plaintiff's
motive was retaliatory; but as the Supreme Court has noted,
"Some delay, of course, is inherent in any fair-minded system of
justice. ... Our courts were never intended to serve as rubber
stamps for landlords seeking to evict their tenants, but rather to
see that justice be done before a man is evicted from his home."
(Pernell v. Southall Realty (1974) 416 U.S. 363, 385 [40 L.Ed.2d
198, 214, 94 S.Ct. 1723].) We therefore conclude that the defense
presented in this case may be raised in an unlawful detainer
proceeding.
This conclusion is unaltered by the fact that in the present case

the housing agreement between plaintiff and defendants
specified that shelter was provided only for employees. To state
that a landlord may evict a tenant who is not an employee adds
little or nothing to the powers landlords already have. A landlord
may normally evict a tenant for any reason or for no reason at
all, but he may not evict for an improper reason: here, retaliation
for the tenant's efforts to vindicate an important statutory right.
fn. 5 [17 Cal.3d 731]

Wright, C. J., McComb, J., Tobriner, J., Sullivan, J., Clark, J.,
and Richardson, J., concurred.
Applying the traditional rule that a judgment rendered by a court

of competent jurisdiction is conclusive as to any issues
necessarily determined in that action, the courts have held that
subsequent fraud or quiet title suits founded upon allegations of
irregularity in a trustee's sale are barred by the prior unlawful
detainer judgment. (Freeze v. Salot (1954) 122 Cal.App.2d 561 [266
P.2d 140]; Bliss v. Security-First Nat. Bank (1947) 81 Cal.App.2d 50
[183 P.2d 312]; Seidell v. Anglo-California Trust Co. (1942) 55
Cal.App.2d 913 [132 P.2d 12].) Where, however, the claim sought to
be asserted in the second action encompasses activities not
directly connected with the conduct of the sale, applicability of
the res judicata doctrine, either as a complete bar to further
proceedings or as a source of collateral estoppel, is much less
clear.
Vella v. Hudgins , 20 Cal.3d 251

[L.A. No. 30779. Supreme Court of California. December 8, 1977.]
NANCY C. VELLA, Plaintiff and Appellant, v. EVERETT R. HUDGINS, Defendant and
Appellant
(Opinion by Richardson, J., expressing the unanimous view of the court.) RULED:
“ Recently, in Wood v. Herson (1974) 39 Cal.App.3d 737 [114 Cal.Rptr. 365], the Court
of Appeal held that a suit for specific performance of a contract to convey was foreclosed
by a prior unlawful detainer judgment which had decided all issues of fact material to the
second action. Noting that the Woods' affirmative defense of fraud in the unlawful
detainer action was virtually identical to the fraud allegations upon which their suit for
specific performance was based, the court concluded that even though title "normally is
not a permissible issue in an unlawful detainer action," the essential issues had been fully
and fairly disposed of in the earlier proceeding. (Id., at p. 740.) The court cited in support
of its ruling such varied factors as the length of the "summary" unlawful detainer hearing
(seven days), the scope of discovery by the parties ("extensive" and "complete"), the
quality of the evidence ("detailed"), and the general character of the action ("[c]learly ...
not the customary unlawful detainer proceeding"). (Id., at pp. 742, 745.) A lengthy and
comprehensive superior court record replete with precise findings of fact persuaded the
Wood court that application of collateral estoppel to curtail further litigation would
involve "no miscarriage of justice -- [the] Woods have had their day in court ...." (Id., at
p. 745; see also High v. Cavanaugh (1962) 205 Cal.App.2d 495 [23 Cal.Rptr. 121]; cf.
Gonzales v. Gem Properties, Inc., supra, 37 Cal.App.3d 1029; Haase v. Lamia, supra, 229
Cal.App.2d 654; Byrne v. Baker, supra, 221 Cal.App.2d 1; Patapoff v. Reliable Escrow
Service Corp., supra, 201 Cal.App.2d 484.)
[3] We agree that "full and fair" litigation of an affirmative defense -- even one not
ordinarily cognizable in unlawful detainer, if it is [20 Cal.3d 257] raised without
objection, and if a fair opportunity to litigate is provided -- will result in a judgment
conclusive upon issues material to that defense. In a summary proceeding such
circumstances are uncommon. Wood, however, appears to be an appropriate example.
There, the parties apparently chose to waive speedy resolution of the issue of possession
in favor of an extensive adjudication of their conflicting claims by a superior court
invested with jurisdiction to deal with any issues the disputants agreed to try. The more
usual case is accurately characterized by our statement in Cheney: "Matters affecting the
validity of the trust deed or primary obligation itself, or other basic defects in the
plaintiff's title, are neither properly raised in this summary proceeding for possession, nor
are they concluded by the judgment." (Cheney v. Trauzettel, supra, 9 Cal.2d at p. 160.)
[4] The doctrine of res judicata, whether applied as a total bar to further litigation or as
collateral estoppel, "rests upon the sound policy of limiting litigation by preventing a
party who has had one fair adversary hearing on an issue from again drawing it into
controversy and subjecting the other party to further expense in its reexamination." (In re
Crow (1971) 4 Cal.3d 613, 622-623 [94 Cal.Rptr. 254, 483 P.2d 1206], italics added.)
[1b] The record herein fails to disclose that Vella had the fair adversary hearing
contemplated by us in Crow. The municipal court, in Hudgins' unlawful detainer action,
was empowered to examine the conduct of the trustee's sale (if its validity had been
challenged), and properly could consider whatever equitable defenses Vella might have
raised insofar as they pertained directly to the right of possession. [5] The court had no
jurisdiction, however, to adjudicate title to property worth considerably more than its
$5,000 jurisdictional limit (§ 86), nor could its judgment on the issue of possession
foreclose relitigation of matters material to a determination of title except to the extent
that the summary proceeding afforded Vella a full and fair opportunity to litigate such
matters.
[6] The burden of proving that the requirements for application of res judicata have been
met is upon the party seeking to assert it as a bar or estoppel. (Paladini v. Municipal
Markets Co. (1921) 185 Cal. 672, 674 [200 P. 415]; see Eichler Homes, Inc. v. Anderson
(1970) 9 Cal.App.3d 224, 234 [87 Cal.Rptr. 893]; 4 Witkin, Cal. Procedure (2d ed. 1971)
Judgment, § 199, p. 3337.) [1c] In the matter before us Hudgins has failed to sustain that
burden. [20 Cal.3d 258]
The record offered in support of the plea of res judicata is virtually barren. Evidently the
unlawful detainer proceedings were unrecorded or untranscribed, for no transcript of the
municipal court hearing exists, and no findings of fact or conclusions of law were made,
other than a notation in the trial judge's minute order to the effect that Vella had not
proved her affirmative defenses of "waiver and [equitable] estoppel and tender." The
sparse record presented to us fails to show either the precise nature of the factual issues
litigated, or the depth of the court's inquiry. We decline to assume, given the summary
character of this type of action, that the mere pleading of a defense without objection by
the adverse party necessarily demonstrates adequate opportunity to litigate the defense.
The fact that in the unlawful detainer action both parties submitted trial-length estimates
of two hours, whereas trial of the second action consumed four days, while not
controlling, does create a strong inference that the former proceeding was a conventional
unlawful detainer action, unlike the elaborate and highly atypical proceeding considered
in Wood. (See Gonzales v. Gem Properties, Inc., supra, 37 Cal.App.3d at p. 1036.)
[7] We are of the further opinion that section 1161a does not require a defendant to
litigate, in a summary action within the statutory time constraints (§§ 1167, 1179a), a
complex fraud claim involving activities not directly related to the technical regularity of
the trustee's sale. [1d] In the absence of a record establishing that the claim was asserted
and that the legal and factual issues therein were fully litigated, we conclude that the
question of fraudulent acquisition of title was not foreclosed by the adverse judgment in
the earlier summary proceeding.
We do not envision that our holding will impose any unwarranted burden on the plaintiff
in an unlawful detainer action prosecuted under section 1161a. In return for speedy
determination of his right to possession, plaintiff sacrifices the comprehensive finality
that characterizes judgments in nonsummary actions. Moreover, he has adequate
protection against multiple litigation, for ordinarily he can prevent the introduction of
extrinsic issues by making appropriate objections to the defendant's pleadings or proof;
alternatively, he may request preparation of a transcript (§§ 269, 274c) and written
findings (§ 632), both of which may subsequently be offered, together with any
stipulation by the parties as to the issues to be tried, in support of a plea of res judicata.
(Goodman v. Dam (1931) 112 Cal.App. 244, 246 [296 P. 623]; see also Hamilton v.
Carpenter (1940) 15 Cal.2d 130 [98 P.2d 1027].) [20 Cal.3d 259]
The cause is retransferred to the Court of Appeal, Second Appellate District, for
disposition of the appeals on the merits.
Bird, C. J., Tobriner, J., Mosk, J., Clark, J., Manuel, J., and Newman, J., concurred.
Quotes from case law on the power of sale:
Bank of America v. La Jolla Group II (2005)129

[No. F045318. Fifth Dist. May. 19, 2005.] at page: 712 stated:
“[3] “..””“A power of sale in a deed of trust is a creature of contract, arising from the
parties' agreement. "The power of sale only exists if it is expressly granted by the
trustor in the security documents." (4 Miller & Starr, Cal. Real Estate (3d ed. 2003) §
10:123, p. 381.) The statutory scheme governing nonjudicial foreclosures does not
expand the beneficiary's sale remedy beyond the parties' agreement, but instead
provides additional protection to the trustor: "Statutory provisions regarding the
exercise of the power of sale provide substantive rights to the trustor and limit the
power of sale for the protection of the trustor." (Ibid.”
Bisno v. Sax, 175 Cal.App.2d 714

[Civ. No. 24042. Second Dist., Div. Two. Dec. 2, 1959.]
“Miller and Starr assert that "[t]he statutory presumption [created by section 2924]
only applies to the propriety of the required notices, [and] it does not apply to other
requirements of the foreclosure process." (4 Miller & Starr, supra, § 10:211, p. 680.)
For the reasons stated above, we agree.”
“The section 2924 presumptions pertain only to notice requirements, not to every
defect or inadequacy short of fraud. [129 Cal.App.4th 715] ”
“Katemis v. Westerlind, 120 Cal.App.2d 537, 543 [261 P.2d 553]: "The general rule in
equity is that time is not of the essence unless it has been made so by its express terms
or is necessarily so from the nature of the contract. (Williston on Contracts, vol. III
(rev. ed. 1936), p. 2385.) In Miller v. Cox, 96 Cal. 339 [31 P. 161], it is stated that the
intent to make a particular date, or time, 'the essence of the contract must be clearly,
unequivocally and unmistakably shown by an express declaration. ... [4] In order to
render time thus essential, it must be [175 Cal.App.2d 722] clearly and expressly
stipulated that it shall be so; it is not enough that a time is mentioned during which or
before which something shall be done [citations.]' (P. 345.)”
“No action other than foreclosure can be brought upon a trust
deed note (Brown v. Jensen, 41 Cal.2d 193, 195-196 [259 P.2d 425];
34 Cal.Jur.2d, § 430, pp. 101-102), and both of these instruments
contemplate a foreclosure in the customary manner--sale under
the power conferred upon the trustee.”
“Civil Code, section 3275, provides: "Whenever, by the terms of an obligation, a party
thereto incurs a forfeiture, or a loss in the nature of a forfeiture, by reason of his
failure to comply with its provisions, he may be relieved therefrom, upon making full
compensation to the other party, except in case of a grossly negligent, willful, or
fraudulent breach of duty." (Emphasis added.) [15”
“[17] That a court of equity will relieve the debtor from the enforcement of an
acceleration clause when confronted with genuinely equitable grounds therefor
seems to be settled law. See annotation to 70 American Law Reports 993, 1000. This
is true whether the court considers an acceleration of maturity as a penalty or not. A
nisi prius judge pertinently observes in Bard v. Rabinfried Realty Co., 126 Misc. 427
[213 N.Y.S. 44, 45]: "[W]hatever the holding may be on this matter of definition, the
courts have shown a tendency to [175 Cal.App.2d 727] get away from the general
rule, and in a number of cases have relieved mortgagees from their defaults on the
basis of doing equity." Likewise, in Caspert v. Anderson Apartments, 94 N.Y.S.2d
521, 525: "There is no undeviating rule that equity must enforce the covenants of a
mortgage regardless of surrounding circumstances. The whole system of equity
jurisprudence presents an excellent example of the triumph of equitable principles
over strict and inflexible dogmas of the common law. Pomeroy on Equity
Jurisprudence, Section 382, Fifth Edition. The growth of the jurisdiction of equity is
founded on cases which have broken away from rigid and irrevocable enforcement
of agreements."
“Mr. Justice Cardozo, dissenting in Graf v. Hope Bldg. Corporation, 254 N.Y. 1 [171
N.E. 884, 70 A.L.R. 984], at pages 886-888 [171 N.E.], says: "There is no undeviating
principle that equity shall enforce the covenants of a mortgage, unmoved by an appeal
ad misericordiam, however urgent or affecting. The development of the jurisdiction of
the chancery is lined with historic monuments that point another course. ... To all this,
acceleration clauses in mortgages do not constitute an exception. They are not a class
by themselves, removed from interference by force of something peculiar in their
internal constitution. In general, it is true, they will be enforced as they are written. ...
However fixed the general rule and the policy of preserving it, there may be
extraordinary conditions in which the enforcement of such a clause according to the
letter of the covenant will be disloyalty to the basic principles for which equity exists. ...
The restriction, however, is not obdurate, for always the gravity of the fault must be
compared with the gravity of the hardship. [Citations.] Let the hardship be strong
enough, and equity will find a way, though many a formula of inaction may seem to
bar the path. [Citations.]" This dissent was quoted with approval in Murphy v. Fox,
___ Okla. ___ [278 P.2d 820-825]. Other New York cases apply the principles
enunciated by Mr. Justice Cardozo. See Norbant Realty Corp. v. A. C. Oaks, Inc., 116
N.Y.S.2d 215, 216; Rockaway Park Series Corp. v. Hollis Auto. Corp., 206 Misc. 955
[135 N.Y.S.2d 588, 590]; Scelza v. Ryba, 169 N.Y.S.2d 462, 464.”
“[18] California recognizes that: "Equity does not wait upon precedent which exactly
squares with the facts in controversy, but will assert itself in those situations where
right and justice would be defeated but for its intervention." (Times-Mirror Co. v.
Superior Court, 3 Cal.2d 309, 331 [44 P.2d 547].) In the same spirit it is said in Wuest
v. Wuest, 53 Cal.App.2d 339, 346 [127 P.2d 934]: "Living as we do in [175 Cal.App.2d
729] a world of change, equitable remedies have necessarily and steadily been
expanded to meet increasing complexities of such changing times, and no inflexible
rule has been permitted to circumscribe the power of equity to do justice. As has been
well said, equity has contrived its remedies 'so that they shall correspond both to the
primary right of the injured party, and to the wrong by which that right has been
violated,' and 'has always preserved the elements of flexibility and expansiveness, so
that new ones may be invented, or old ones modified, in order to meet the requirement
of every case, and to satisfy the needs of a progressive social condition, in which new
primary rights and duties are constantly arising, and new kinds of wrongs are
constantly committed.' (1 Pom. Eq.Jur., 4th ed., p. 125, § 111.)" While the briefs and
our own research have failed to reveal any case which is factually parallel with the one
at bar, it does appear that principles concerning forfeitures were applied to a trust deed
foreclosure in McCue v. Bradbury, 149 Cal. 108, 113 [84 P. 993].”
“Equity having taken jurisdiction over a cause does complete justice, even to the extent
of exceeding the specific prayers of the complaint when necessary. [19] Petersen v.
Ridenour, 135 Cal.App.2d 720, 727 [287 P.2d 848]: "It is fundamental that equity,
having taken jurisdiction, will grant complete relief. This is especially true in a
declaratory judgment action. [20] 'If a controversy exists as in this proceeding and a
complaining party is entitled to some relief a trial court may not refuse to declare the
rights of the parties concerning the controversy. [Citation.] [21] The purpose of the
action is to set at rest or at least quiet, until the occurrence of further events, the rights
and relations of the parties. [Citations.]" [22] "[T]he absence of a prayer is not fatal,
the court being charged under section 580, Code of Civil Procedure with the duty in a
contested case of granting any relief consistent with the case made by the complaint
and embraced within the issue." (See also Selby v. Battley, 149 Cal.App.2d 659, 664-
665 [309 P.2d 120].)”
CALIFORNIA CIVIL CODE SECTION:

2953. Any express agreement made or entered into by a borrower at
the time of or in connection with the making of or renewing of any
loan secured by a deed of trust, mortgage or other instrument
creating a lien on real property, whereby the borrower agrees to
waive the rights, or privileges conferred upon him by Sections 2924,
2924b, 2924c of the Civil Code or by Sections 580a or 726 of the Code
of Civil Procedure, shall be void and of no effect. The provisions
of this section shall not apply to any deed of trust, mortgage or
other liens given to secure the payment of bonds or other evidences
of indebtedness authorized or permitted to be issued by the
Commissioner of Corporations, or is made by a public utility subject
to the provisions of the Public Utilities Act.
SUPERIOR COURT OF CALIFORNIA, COUNTY OF KERN Chapter

III. Civil Rules and Civil Case Management
It is the policy of the Superior Court of California, County of Kern, to manage all civil
cases from the date of filing through final disposition. All parties are subject to this policy
and are expected to proceed diligently and expeditiously in preparing civil cases for trial.
(Effective 7/1/03)
"Civil cases" as used in these Rules shall not include domestic relations/family law
matters, juvenile court matters, probate matters, special petitions, actions brought for
equitable relief only entitled to preferential setting for trial without the use of juries, asset
forfeiture cases (Health and Safety Code Sections 11470 et seq.), and criminal matters.
All other cases will be included and classified at filing as general civil. (Effective 7/1/03)
Nothing in these rules shall prevent a court, in an individual case, from issuing an
exception order based on a specific finding that the interests of justice require a
modification of the routine processes as prescribed by these rules. (Effective 7/1/03)
In civil matters filed in the Regional Courts, the court shall determine the appropriate
location for the trial at the case management conference. The judge, using information
concerning the parties’ residences, the attorneys’ residences, the likely witness’ locations,
estimated trial days, and other relevant factors, will determine the need to retain the case
at the Regional Division for trial or to transfer the matter to the Metropolitan Court Civil
Division. (Effective 7/1/03)
If the matter is to be tried at the Metropolitan Division, the judicial officer shall set a trial
setting conference no later than three (3) weeks following the case management
conference. The Metropolitan Court Civil Division shall subsequently assign a judge for
all purposes upon receipt of the filing, and notify all parties of the time and Department
for the Trial Setting Conference. (Effective 7/1/03)
A transfer to the Metropolitan Court Civil Division under this policy shall not affect the
time standards for disposition of civil cases in this county. (Effective 7/1/03)
Rule 3.1 Application of Rules - Case Types (Effective 7/1/03)
These rules apply to limited and unlimited jurisdiction general civil cases filed in the
Kern County Superior Court. (Effective 7/1/03)
- 7 - SUPERIOR COURT OF CALIFORNIA, COUNTY OF KERN
Rule 3.2 Facsimile Filing of Civil Actions (Effective 7/1/03; rev.
1/1/06)
The Superior Court of California, County of Kern, have elected to allow the filing of civil
documents by facsimile transmission through Official Payments Corporation. California
Rules of Court 2.300 through 2.306 apply to facsimile filing of civil documents by
attorneys or parties without attorney. (Effective 7/1/03)
(a) To fax directly to any court’s 800 Audiotex fax number, filing attorneys and parties
should call Official Payments Corporation at (800) 322-4945 to register their fax number,
credit card number and expiration date. (Effective 7/1/03; rev. 7/1/04; rev. 1/1/06)
(b) The court’s facsimile machine shall be available 24 hours a day, although filings
received after 5:00 p.m. or on Court Holidays shall be deemed filed on the next court day.
(Effective 7/1/03)
(c) If any of the Rules are not followed, including those provisions of the applicable rules
not printed here, the court will not accept the filing of the document. The proper
transmission of a document by a facsimile machine is the responsibility of the filing
attorney or party, not the court. The filing agency must pay all applicable fees at the time
of filing. (Effective 7/1/03)
(d) Confirmation of the filing of the document shall be given by the standard
confirmation of facsimile machines. The court will not fax a copy of the cover sheet back
to the filing attorney or party. (Effective 7/1/03)
Rule 3.3 Telephonic Court Appearances (Effective 7/1/03; rev. 1/1/06)
Within the Superior Court of California, County of Kern, the Superior Court Division and
Departments within said Division listed in Addendum 2 allow telephonic court
appearances through CourtCall. The telephonic court appearances are permitted only for
non-testimonial Law and Motion, Case Management Conference proceedings including
conferences that include trial setting and probate proceedings. CourtCall may be arranged
by contacting CourtCall, LLC at 6383 Arizona Circle, Los Angeles, California 90045, toll
free telephone number (888) 88-COURT or (310) 342-0888, fax number (310) 743-1850
or (888) 88FAXIN. Contact must be made at least five (5) court days in advance of the
appearance or with leave of Court on Ex Parte application and payment of a motion filing
fee. Counsel should refer to California Rules of Court Rule 3.670, as amended 1/1/01.
(Effective 7/1/03; rev. 1/1/06)
Rule 3.4 Pretrial Hearings and Other Motions - Civil (Effective 7/1/03)
All Law and Motion matters will be heard pursuant to the courtroom schedule
(Addendum 1A through 1K). Hearing dates for Law and Motion matters in Metro
Division are not required to be pre-cleared. However, hearing dates for ex parte matters
must be pre-cleared with the Fast Track clerks. In the Regional Divisions, a Civil Law
and Motion date can be obtained at the court Civil Division office/counter or by calling
the Civil Division as follows: (Effective 7/1/03)
Superior Court - East Division (Ridgecrest) (760) 384-5900
Superior Court - East Division (Mojave) (661) 824-7100
Superior Court - East Division (Kern River) (760) 549-2000
Superior Court - North Division (Delano) (661) 720-5800
Superior Court - North Division (Shafter) (661) 746-7500
Superior Court - South Division (Lamont) (661) 868-5800
Superior Court - South Division (Taft) (661) 763-8531
Rule 3.4.1 Motions for New Trial or Motions to Set Aside and Vacate (Effective 7/1/03)
Motions for a new trial or motions to set aside and vacate a judgment shall be heard by
the trial judge. When the trial judge is unavailable, the motion shall be noticed in a
Department and before a judge designated by the Presiding Judge pursuant to Code of
Civil Procedure Section 663. A motion for a new trial shall be noticed by the Clerk of the
Court in accordance with Code of Civil Procedure Section 661. (Effective 7/1/03)
Rule 3.5 Ex Parte Applications and Orders (Effective 7/1/03)
All ex parte applications which require notice will be noticed in the Civil Division or
Direct Calendar Court for a ruling. All ex parte matters must be precleared. Copies of all
papers to be presented at the hearing shall be filed with the court no later than 12:00 noon
the day before the scheduled hearing time. These documents may be "faxed." (Effective
7/1/03)
(a) The Presiding or Direct Calendar Judge shall be available for the signing of ex parte
orders or shall designate a judge or judges who will be available for such signing.
(Effective 7/1/03)
(b) Attorneys shall not seek to have ex parte orders signed by judges other than those
assigned by the Presiding Judge. (Effective 7/1/03)
(c) Requests for ex parte orders shall be based solely on the moving papers
without oral argument or comment by counsel, but the judge may, in his or her own
discretion, exempt matters from this provision. (Effective 7/1/03)
(d) Notice shall be in accordance with California Rule of Court 3.1203(a)(b), and all
paperwork shall be submitted no later than 12:00 noon the day before the scheduled
hearing. (Effective 7/1/03)
Rule 3.6 Juror Fees and Expenses (Effective 7/1/03)
Jury fees and mileage shall be governed by the Code of Civil Procedure, Section 631, et
seq. Unless otherwise ordered by the Presiding Judge, the Clerk’s Office will not accept
client’s personal checks for daily jury fees. These fees should be paid by the attorney’s
firm’s check. (Effective 7/1/03)
Rule 3.7 Actions on Promissory Notes and Contracts Providing for the Payment of
Attorney’s Fees (Effective 7/1/03)
(a) The following attorney’s fees shall be awarded under normal conditions in actions on
promissory notes and contracts providing for the payment of attorney’s fees and
foreclosures: (Effective 7/1/03)
Default action on note or contract, exclusive of costs: (Effective 7/1/03)
20% of the first $5,000 with minimum fee of $150.00;
15% of the next $10,000;
10% of the next $35,000;
5% of the amount over $50,000. (Effective 7/1/03)
In an action upon contract providing for an attorney’s fee, the clerk shall include in the
judgment an attorney’s fee in accordance with this schedule (not to exceed the amount
prayed for). (Effective 7/1/03)
(b) Additional Fees (Effective 7/1/03)
A petition for compensation for additional services rendered under Subsection (a) of this
rule, or in a probate or other proceeding, shall include an itemized statement of the
services rendered or to be rendered by the attorney and a reference in the caption and
prayer to the request for additional fees. An appearance by the attorney or the parties is
not normally required. In determining such fees, the court shall consider the experience
of counsel, the time expended, the complexity of the issues, the amount involved and the
results achieved. (Effective 7/1/03)
Rule 3.8 Selection of Monitoring Judge and Setting of Case Management
Conference (Effective 7/1/03)
(a) At the time the complaint is filed, the clerk will select a monitoring judge at random
by drawing from the pool of judges assigned and shall set a case management conference
for the case on said judge’s calendar not more than 180 days thereafter, and issue notice
thereof, which notice will be served on all defendants by plaintiff and on all cross-
defendants not already parties to the action by cross-complainants. The term "monitoring
judge" as used in these Rules shall include direct calendaring judges as well as judges
who are assigned cases for “all purposes” by the Presiding Department. (Effective 7/1/03)
(b) The monitoring judge to whom the case is assigned shall be responsible to move the
case along to an orderly disposition under these Rules. All motions provided for under
these Rules shall be made to the monitoring judge. If the assigned judge is operating a
direct calendar court, the assignment shall be deemed for "all purposes." (Effective
7/1/03)
Rule 3.9 Discovery (Effective 7/1/03)
During the period prior to the case management conference, the parties are, at a
minimum, to engage in the basic discovery necessary to determine the presence or
absence of all necessary parties in the action, to determine the issues which are in actual
controversy and those without substantial controversy, and to properly evaluate the case
for meaningful settlement negotiations. (Effective 7/1/03)
Rule 3.10 Final Case Management Conference (Effective 7/1/03; rev. 1/1/06)
(a) At least five (5) days prior to the final case management conference, or at least fifteen
(15) days prior to the date the matter is set for trial in the absence of a final case
management conference, each party shall serve on every other party and submit to the
court the following: (Effective 7/1/03)
(1) Said party’s proposed jury instructions. All parties are invited to use the Instruction
Request form for the standard CACI instructions. If any standard instructions are not on
the request form, or if any special instructions are going to be requested, they must be
served with the request form. (Effective 7/1/03; rev. 1/1/06)
(2) All motions in limine in written form, together with any points and authorities in
support thereof. (Effective 7/1/03)
(3) A list of all witnesses that said party intends to call in his or her case in chief.
(Effective 7/1/03)
(4) A proposed generic statement of the case to be read to the jury at the beginning of the
case. (Effective 7/1/03)
(5) A list of all photographs, documents, physical objects or other tangible things that said
party intends to have marked as an exhibit and introduced in evidence at the time of trial.
(In matters where a final case management conference has been set, said items will
actually be brought to the final case management conference for examination). (Effective
7/1/03)
(b) Prior to the final case management conference, or prior to the trial if no final case
management conference is set, counsel will confer in an effort to resolve the jury
instructions, issues raised in the motions in limine, the generic statement of the case, and
the admissibility of the various photographs, documents, physical objects and other
tangible things included in each party’s exhibit list. In addition, counsel shall review the
witness lists and make their best estimate of the time anticipated for the direct and cross-
examination of each of the witnesses. Counsel will also attempt to work out stipulations
concerning issues which are not contested. At the time of the final case management
conference or at the time of trial, if no final case management conference is set, efforts
will be made to resolve the remaining issues and, to the extent that they are unresolved by
agreement, will be ruled upon by the court. Final Case Management orders shall be
generated settling the jury instructions (subject to augmentation after the evidence is
received), providing rulings on the motions in limine, providing for the admission of
certain photographs, documents, physical objects or other tangible things, and settling the
generic statement of the case. A master list of witnesses and the anticipated time involved
for each witness will also be generated for use of court and counsel. Such other orders
will be made as may be appropriate for the management of the anticipated trial. (Effective
7/1/03)
(c) All final case management documents shall be filed (pursuant to California Rules of
Court 3.1110) under a cover sheet which lists the documents submitted. (Effective 7/1/03)
Rule 3.11 Stayed Cases (Effective 7/1/03)
When an action subject to these rules is stayed for one or more of the reasons set forth in
subparagraph (d) of Rule 3.1385 of the California Rules of Court, the responsible party,
in addition to filing the notice of stay and notice that the stay is vacated or no longer in
effect, shall file with the court on a periodic basis no less frequently than every ninety
(90) days, a status report advising the court, to the extent applicable, of the following:
(Effective 7/1/03)
(a) Efforts being made to obtain relief from the stay so that the action in this court can
proceed. (Effective 7/1/03)
(b) The progress being made in the federal or higher state court action in which the stay
was issued to resolve the issues which would otherwise require litigation in this court.
(Effective 7/1/03)
(c) The propriety of severing parties, causes of action and/or cross-actions which would
be subject to the stay and proceeding with the balance of the litigation. (Effective 7/1/03)
Rule 3.12 Disallowance of Interruptions (Effective 7/1/03)
Once the case has been assigned to a trial court by the Presiding Department or called to trial
by a Direct Calendar Department, it shall proceed without interruption to conclusion. No
adjournment will be allowed to explore settlement, conduct discovery, marshal evidence or
prepare for the presentation of any subsequent portion of the trial, except in unusual
circumstances without fault of the moving party where good cause is shown in the sound
discretion of the trial judge. It is also anticipated that each party will have his or her witnesses
available to present his or her case without interruption or delay. An unexcused inability of a
party to proceed because of a failure to schedule adequate witnesses, or otherwise, may result
in sanctions being imposed, including a determination by the trial judge that said party has
rested. (Effective 7/1/03)
Rule 3.13 Differential Case Management (Effective 7/1/03)
Pursuant to California Rule of Court 209.1(c), all general civil cases are presumed to be
Plan One (1) cases subject to disposition within twelve (12) months from date of filing of
complaint. (Effective 7/1/03)
Rule 3.14 Collection Cases (Effective 7/1/03; rev. 1/1/07)
In the event that during the pendency of the action, whether the defendants have appeared
or not, the parties agree to resolve that matter with a program of periodic payments, all
monitoring and time requirements can be terminated, provided that
the conditions in (a) through (d) below are met. If the periodic payment agreement
satisfies these conditions, the case will be deemed "disposed of" and will no longer be
monitored. (Effective 7/1/03; rev. 1/1/07)
(d) The parties file with the court a written stipulation and agreement setting forth in
detail the terms of the periodic payments which, if made, will fully satisfy the obligations
which generated the litigation. (Effective 7/1/03)
(e) That the stipulation and agreement further provide that on full performance of the
agreement by the defendants, plaintiff will request a dismissal of the entire action with
prejudice; and in the absence of such a request, the court may dismiss the action on its
own motion, without notice to the parties, after forty-five (45) days has expired from the
due date of the last payment unless plaintiff, within that time, requests entry of judgment
as provided in Subparagraph (c). (Effective 7/1/03)
(f) That the stipulation and agreement further provide that in the event defendant fails to
make any of the payments required, plaintiff may, by written declaration, notify the court
of defendant’s default and the amount then due under the agreement and request that the
court enter judgment accordingly, together with costs of suit. (Effective 7/1/03)
(g) That the stipulation and agreement be unconditional so that a judicial determination
will not be required and the court’s only remaining function in the case would be to enter
a dismissal as provided in Subparagraph (b) or a judgment as provided in Subparagraph
(c). (Effective 7/1/03)
(h) That the parties shall file with the court a request for dismissal without prejudice
reserving to the court jurisdiction to set aside such dismissal to enter judgment as
provided in (c) hereof. (Effective 7/1/03)
RULE 3.14.1 Application of Rules 3.14.2 and 3.14.3 (Adopted 1/1/08)
Rules 3.14.2 and 3.14.3 apply only to those cases designated on the civil case cover
sheet as Rule 3.740 collections. (Adopted 1/1/08)
RULE 3.14.2 Time for Filing (Adopted 1/1/08)
(a) All named defendants must be served and a proof of service must be filed or an
order for publication of the summons must be obtained as to each
named defendant within one hundred eighty (180) days of the date
of filing of the complaint. (Adopted 1/1/08)
(b) At the time the complaint in a Rule 3.740 collection action is filed, the clerk
shall issue an order to show cause re dismissal to the plaintiff
designating a date of hearing on the order to show cause not less
than one hundred eighty (180) days nor more than two hundred
(200) days after filing. If not less than ten (10) days prior to the
order to show cause the plaintiff files a proof of service or an order
for publication of the summons as to each named defendant or
answer or other responsive pleading filed by each named defendant,
a request for entry of default, a default judgment, a request for
dismissal of the entire action, a stipulated judgment or stipulation for
entry of judgment, or a notice of settlement, the order to show cause
will be continued by the clerk to a date no less than three hundred
forty (340) days and nor more than three hundred sixty (360) days
after the date of filing of the complaint. The order to show cause
shall be vacated if the plaintiff obtains a default judgment at least ten
(10) court days before the order to show cause hearing. (Adopted
1/1/08)
RULE 3.14.3 Case Management Conferences (Adopted 1/1/08)
(a) Upon the filing of an answer or other responsive pleading by any named
defendant in a collections case, the clerk shall set a case
management conference not less than ninety (90) days
following the date of filing of the first answer or responsive
pleading. The clerk shall give notice to all parties appearing
in the action of the date, time and department of the case
management conference. (Adopted 1/1/08)
(b) The plaintiff shall serve written notice of the case management
conference on any parties appearing in the action after
service of notice of the case management conference by the
clerk. (Adopted 1/1/08)
(c) All parties who have appeared in the action shall file with the
court and serve on all parties a case management statement
no less than fifteen (15) days prior to the date of the case
management conference. Failure to timely file and serve a
case management statement constitutes a waiver of any
objection to action taken by the court at the case management
conference, including setting the case for trial, ordering the
case to judicial arbitration, or setting a mandatory settlement
conference. (Adopted 1/1/08)
(d) If, based on its review of the written submissions of the parties
and such other information as is available, the court
determines that appearances at the conference are not
necessary, the court may issue a case management order and
notify the parties that no appearance is required. (Adopted
1/1/08)
(e) At the case management conference, counsel for each party and
each self-represented party must appear personally or by
telephone as provided in California Rules of Court Rule
3.670 and Rule 3.3 of these rules; must be familiar with the
case; and must be prepared to discuss and commit to the
party's position on the issues listed in Rules 3.724 and 3.727
of the California Rules of Court. (Adopted 1/1/08)
Rule 3.15 Uninsured Motorist Cases (Effective 7/1/03)
(a) At the time of filing a complaint for personal injury or wrongful death or at any time
thereafter, plaintiff may file a declaration with the court establishing the items set forth in
(1) through (4) below. On receipt of such a declaration, the court may classify the case as
"uninsured motorist". (Effective 7/1/03)
(1) All the named defendants are believed to be uninsured and the action is filed to
protect the running of the statute of limitations in the event that insurance is later
discovered or plaintiff, after filing the action, has learned that all the defendants are
uninsured.
1 (Effective 7/1/03)
(2) Plaintiff is proceeding to arbitration with his or her insurer under the uninsured
motorist provision of his or her insurance policy, and does not intend to proceed in the
action against the uninsured defendants. (Effective 7/1/03)
(3) In resolving the case with the defendants, it has been determined that defendants were
underinsured within the meaning of plaintiff’s policy which provides underinsured
motorist’s coverage. (Effective 7/1/03)
(4) Plaintiff’s counsel has sought from plaintiff’s insurer a concession of uninsured status
of defendant to avoid the filing of the action or to dismiss it and plaintiff’s insurer has
refused. (Effective 7/1/03)
(b) Cases classified as uninsured motorist will be placed on a review calendar and
plaintiff will file a certificate of progress every 90 days advising the
court of the status of his claim against his insurer and the progress of the arbitration
proceeding, if any. (Effective 7/1/03)
(c) In the event that plaintiff’s claim against his insurer is not resolved within 180 days after
being designated uninsured motorist, the court may require plaintiff’s counsel to appear
for a hearing to determine when the matter will be resolved and the action dismissed or
reclassified as general civil litigation. (Effective 7/1/03)
(d) When plaintiff’s claim is resolved against his insurer, plaintiff’s counsel shall give notice to
the insurer that the action is pending in this court and shall seek consent from the insurer
to dismiss the action. The notice shall contain the complete title of the cause, case number
and a statement to the effect that the case is governed by these Rules and that, effective as
of that date of the notice, the case is reclassified as general civil litigation and a proof of
service or certificate of progress is due sixty (60) days therefrom under California Rule of
Court 3.110. In filing the original of such notice with the court with appropriate proof of
service, plaintiff’s attorney shall provide the court withe the name, address and phone
number of the appropriate representative of plaintiff’s insurer. The filing of such a notice
with the court does not preclude the need to file a formal substitution of attorneys unless
plaintiff’s attorney intends to remain of record. (Effective 7/1/03)
Rule 3.16 Alternative Dispute Resolution (Effective 7/1/03)
Rule 3.16.1 Alternative Dispute Resolution Policy (Effective 7/1/03)
It is the policy of the Superior Court that the parties in every general civil case participate
in voluntary mediation, arbitration, neutral evaluation, an early settlement conference or
some other appropriate alternative dispute resolution process prior to trial. (Effective
7/1/03)
Rule 3.16.2 Mandatory Arbitration (Effective 7/1/03)
It is the policy of the Superior Court that Plan One (1), Two (2) and Three (3) at-issue
long cause civil actions except those excluded by statute, pending on or filed after the
operative date of these rules be submitted to arbitration. (Effective 7/1/03)
Rule 3.16.3 Order to Show Cause (OSC) Procedure (Effective 7/1/03)
Upon appointment of the arbitrator, the court will set the case for an OSC as to why the
matter has not been arbitrated within the ninety (90) day arbitration
period. Upon timely completion of arbitration, the OSC will be removed from the
calendar. (Effective 7/1/03)
Rule 3.16.4 Voluntary Civil Mediation (Effective 7/1/03)
Rule
3.16.4.1 Purpose of Program (Effective 7/1/03)
(a) The purpose of the civil mediation program is to promote and facilitate the voluntary
mediation of civil disputes. (Effective 7/1/03)
(b) This program is not established pursuant to the Civil Mediation Act, Code of Civil
Procedure section 1775, et seq. (Effective 7/1/03)
Rule
3.16.4.2 Eligible Cases (Effective 7/1/03)
The mediation program provided for in these rules is available to all general civil cases,
regardless of the type of action or relief sought. (Effective 7/1/03)
Rule
3.16.4.3 Election to Mediate (Effective 7/1/03)
Parties to the action may opt for mediation only upon the voluntary agreement of all
parties to the case. (Effective 7/1/03)
Rule
3.16.4.4 Mediation in Lieu of Judicial Arbitration (Effective 7/1/03)
(a) Parties to any civil action assigned to judicial arbitration may elect voluntary
mediation. Parties who seek to mediate a case in lieu of judicial arbitration must file a
stipulation to mediate with the Court no later than the initial case management
conference. (Effective 7/1/03)
(b) The Court must exempt a case from judicial arbitration under California Rule of Court
1600.5(f) or (g) upon filing a stipulation to mediate. (Effective 7/1/03)
(c) Upon conclusion of the mediation, parties must file a Statement Regarding Mediation
which states that mediation has been completed and that the parties to the action or the
authorized representatives of the insured’s insurance company participated in the
mediation. (Effective 7/1/03)
Rule
3.16.4.5 No Tolling of Time Limits (Effective 7/1/03)
(a) The election to mediate in lieu of judicial arbitration will not suspend any time periods
specified by statute, the California Rules of Court or these local rules. (Effective 7/1/03)
(b) Absent an order providing for additional time, actions in which mediation has not
taken place within the period specified herein, will be subject to an order to show cause
why the action should not be dismissed, the answer stricken, or other appropriate
sanctions imposed. (Effective 7/1/03)
Rule
3.16.4.6 Selection of Mediation Provider (Effective 7/1/03)
The parties must select a mediator, panel of mediators or mediation program of their
choice to conduct the mediation. The mediation provider need not be an attorney. The
parties are not required to select a mediation provider from the Court’s list. (Effective
7/1/03)
Rule
3.16.4.7 Payment of Mediation Provider (Effective 7/1/03)
The cost of mediation must be borne by the parties equally unless the parties agree
otherwise. (Effective 7/1/03)
Rule 3.16.5 Settlement Conference (Effective 7/1/03)
On a date not less than twenty (20) days nor more than forty (40) days from the trial date,
a settlement conference will be held pursuant to California Rule of Court 3.1380. The
Court shall designate the date, time and place of such settlement conference. (Effective
7/1/03)
Rule 3.17 Unlawful Detainers (Effective 1/1/07)
Rules 3.17.1 through 3.17.16 apply to all unlawful detainer and forcible detainer actions
filed after January 1, 2007. (Effective 1/1/07)
Rule 3.17.1 Filing the Complaint (Effective 1/1/07)
(a) All complaints for unlawful detainer shall, if based upon a notice terminating the
tenancy or right to possession, be accompanied by the original such notice attached as an
exhibit to the complaint as required by Code of Civil Procedure Section 1166. (Effective
1/1/07)
(b) A complaint for unlawful detainer of residential property shall be accompanied by a
copy of any written rental agreement or lease regarding the premises, including any
amendments or addenda to such agreement, as required by Code of Civil Procedure
Section 1166, unless the complaint alleges that the lease or rental agreement is oral, that
neither the original nor a copy of the written rental agreement or lease is in the possession
or control of the plaintiff, or the action is based solely on subdivision (2) of Code of Civil
Procedure 1161. (Effective 1/1/07)
(c) At the time the complaint in an unlawful detainer action is filed, the clerk shall issue
an order to show cause re dismissal to the plaintiff designating a date of hearing on the
order to show cause not more that forty-five (45) days after filing. The order to show
cause will be dropped from calendar upon filing of an answer or other responsive
pleading, an amended complaint converting the action to an ordinary civil action, a
request for entry of default, a request for dismissal, a stipulated judgment or stipulation
for entry of judgment, or a notice of settlement. (Effective 1/1/07)
(d) Unless otherwise ordered, the minimum undertaking required for an order for
immediate possession of the premises pursuant to Code of Civil Procedure Section 1166a
shall be ten (10) times the monthly rental or $2,500, whichever is greater. (Effective
1/1/07).
Rule 3.17.2 Proof of Service (Effective 1/1/07)
(a) A proof of service or application for service by posting and mailing pursuant to Code
of Civil Procedure Section 415.45 must be filed within twenty (20) days of the date of
filing of the complaint, unless an answer or other responsive pleading has been filed.
(Effective 1/1/07)
(b) All applications for service by posting and mailing pursuant to Code of Civil
Procedure Section 415.45 shall include a date by which service shall be completed, which
date shall not exceed ten (10) days following the date of filing of the application.
(Effective 1/1/07)
(c) No application for service by posting and mailing pursuant to Code of Civil Procedure
Section 415.45 shall be granted unless the requirements of due diligence have been
satisfied. The requirements of due diligence shall be deemed satisfied if the declaration of
attempted service shows at least three (3) separate attempts to serve, on three (3) different
dates, not more than two (2) of which may be on a holiday as defined in Code of Civil
Procedure Section 10, with at least one (1) such attempt before noon and one (1) such
attempt after noon. (Effective 1/1/07)
(d) In cases in which service of the summons and complaint is made by posting and
mailing pursuant to Code of Civil Procedure Section 415.45, proof of service by posting
and mailing shall be filed within ten (10) days of the date of issuance of the order
permitting service pursuant to Code of Civil Procedure Section 415.45. (Effective 1/1/07)
Rule 3.17.3 Settlement (Effective 1/1/07)
(a) A settlement agreement may provide that, in the event of default, the non-defaulting
party may seek additional relief from the court by filing an ex parte application for such
relief. Any settlement agreement providing for such ex parte relief shall contain one (1)
of the following (Effective 1/1/07):
(1) A proof of service showing that the ex parte application was served on the defaulting
party (Effective 1/1/07),
(2) A declaration stating either that notice of the filing of the ex parte application was
given to the defaulting party, specifying how and when such notice was given (Effective
1/1/07),
(3) A declaration demonstrating that such notice should be excused pursuant to Rule
3.1204(b)(2) or (3) of the California Rules of Court.
(Effective 1/1/07)
(b) Unless notice is excused, the ex parte application or the declaration shall describe the
relief requested, and the date and time of the hearing on the ex parte application.
(Effective 1/1/07)
(c) A hearing on the ex parte application shall be held no sooner than forty-eight (48)
hours after the later of the filing of the application ro notice to the allegedly defaulting
party unless such notice was excused. If service of the notice is by mail, then the hearing
shall be held no sooner than five (5) days after the date of mailing. (Effective 1/1/07)
(d) Objection, if any, to the ex parte application shall be by written declaration under
penalty of perjury, filed and served on all interested parties at or prior to the time of the
hearing, and shall state with specificity the grounds for such objection. (Effective 1/1/07)
(e) Applications for further relief in cases in which the settlement agreement does not
provide for an ex parte application procedure for further relief shall be upon noticed
motion. There shall be a rebuttable presumption that applications for orders shortening
time for hearing of such motions
seeking possession and other cases in which time is of the essence are meritorious.
(Effective 1/1/07)
(f) Nothing in these rules shall preclude a party from seeking to enforce the terms of a
settlement agreement in an unlawful detainer action by appropriate motion pursuant to
Code of Civil Procedure Section 664.6 or other controlling authority. (Effective 1/1/07)
Rule 3.17.4 Stipulations for Entry of Judgment (Effective 1/1/07)
Any stipulation between parties that provides terms and conditions for settlement of an unlawful
detainer action must include by entry of judgment (Effective 1/1/07):
(a) A statement, pursuant to Rule 3.1385 of the California Rules of Court, that plaintiff
will file a request for dismissal of the entire action either within forty-five (45) days of
the date of the filing of the stipulation or upon some other specified date no more than
ninety (90) days following the date of filing of the stipulation. (Effective 1/1/07)
(b) A place for the court to set a date for an order to show cause re dismissal at which the parties
may appear if the terms and conditions are not met and upon which the court may dismiss the
case if the parties fail to appear and the plaintiff has not filed a request for dismissal as provided
in Rule 3.17.4(a). (Effective 1/1/07)
(c) If the stipulation is presented for court approval prior to the date of trial, and the
parties do not intend to appear at trial, an order vacating the trial date. (Effective 1/1/07)
(d) A clear and concise statement of the ex parte application, opposition and order process
by which remedies are available to either party in the event of a default in any of the
terms and conditions of the stipulation. The clerk shall not enter judgment upon the mere
declaration of either party. (Effective 1/1/07)
Rule 3.17.5 Setting Case for Trial (Effective 1/1/07)
(a) Within twenty-five (25) days of the date of filing of the complaint, the plaintiff shall
file a request to set for trial unless a request for entry of default or request for dismissal
has been filed. (Effective 1/1/07)
(b) The case will be set for trial not more than twenty (20) days after the date of filing of
the memorandum to set the case for trial. The court shall give notice of trial in accordance
with Code of Civil Procedure Section 594. (Effective 1/1/07)
(c) If a jury is demanded, the clerk shall, in addition to the trial date, set the case for a
case management conference with ten (10) days of the date of filing of the request to set
for trial. (Effective 1/1/07)
Rule 3.17.6 Request/Counter Request to Set for Trial (Effective 1/1/07)
(a) A request or counter request to set for trial shall be completed on the Judicial Council for
Request/Counter Request to Set Case for Trial - Unlawful Detainer form UD-150. The filing of a
request or counter request to set the case for trial shall be deemed a representation by such party
that the case is at issue and will be ready for trial on the date first assigned for trial. (Effective
1/1/07)
(b) Any other party to the action may file a counter-request to set the case for trial.
Failure of any party to file a counter-request to set the case for trial shall be deemed
agreement by the party failing to file with all the matters represented in the request to set
the case for trial. (Effective 1/1/07)
(c) The case will be set for trial within twenty (20) days of the date of filing of the request
to set case for trial. (Effective 1/1/07)
Rule 3.17.7 Case Management (Effective 1/1/07)
All parties, or counsel if represented, shall appear at the case management conference.
Parties or counsel appearing at the case management conference shall be fully prepared to
discuss all aspects related to trial of the case, including the estimated time of trial and
matters which may be stipulated to prior to trial. (Effective 1/107)
Rule 3.17.8 Default (Effective 1/1/07)
(a) Request for entry of default shall be made within forty-five (45) days of the date of
filing of the action unless an answer or other response has been filed, or the action is
dismissed or finally disposed of in its entirety. (Effective 1/1/07)
(b) Plaintiff shall, within six (6) months of entry by the clerk of a default judgment for
possession of the premises only, set the case for a default hearing for judgment for money
damages, or shall submit a declaration pursuant to Code of Civil Procedure Section
585(b) and (d). Failure of the plaintiff to cause a request for judgment for such damages
to be entered within six (6) months of the date of entry of a judgment for possession only
shall result in an order to appear to show cause why sanctions for such failure shall not be
imposed. Monetary or other appropriate sanctions
may be imposed at the order to appear for failure to comply with this rule. (Effective
1/1/07)
Rule 3.17.9 Conversion of Cases to Ordinary Civil Action (Effective 1/1/07)
In the event possession becomes no longer an issue at any time prior to trial, or, in the
event of an uncontested proceeding, prior to entry of judgment of possession, it shall be
the duty of plaintiff to immediately notify the court. If, at any time prior to entry of
judgment for possession, it appears that no defendant is in possession, or that possession
is otherwise not an issue, then the trial date shall be immediately vacated, and the case
shall be converted by the court to an ordinary civil action. Plaintiff shall thereafter have
thirty (30) days within which to file an amended complaint, and the case shall be set for
an order to show cause re dismissal to be heard forty-five (45) days following conversion
of the action to an ordinary civil action. (Effective 1/1/07)
Rule
3.17.10 Motions for Summary Judgment or Summary Adjudication (Effective 1/1/07)
(a) All motions for summary judgment or summary adjudication shall be filed with the
court (Effective 1/1/07):
(1) At least five (5) days prior to the hearing if personally served on the opposing party,
or (Effective 1/1/07)
(2) At least ten (10) days prior to the hearing if served on the opposing party by any other
means of service. (Effective 1/1/07)
(b) Opposition to a motion for summary judgment or summary adjudication shall be filed
and served no later than one (1) court day prior to the date of hearing on the motion.
(Effective 1/1/07)
Rule
3.17.11 Trial (Effective 1/1/07)
(a) Trial will take place on the date scheduled unless continued by order upon properly
noticed motion showing good cause for such continuance. (Effective 1/1/07)
(b) Motions for continuance of the trial made on the date of trial are disfavored, and will
be granted only upon a clear showing of good cause. (Effective 1/1/07)
(c) The prevailing party after trial shall prepare the judgment. (Effective 1/1/07)
(d) All unlawful detainer trials, including jury trials, shall be electronically recorded unless a
party requests that the trial be stenographically recorded. Any request for stenographic
recording shall be made in writing not less than five (5) days prior to the date the case is first
set for trial. The party requesting stenographic recording shall post court reporter fees equal
to one-half day’s fees at the time the request is made. (Effective 1/1/07)
Rule
3.17.12 Jury Trials in Unlawful Detainer Actions (Effective 1/1/07)
(a) Jury fees and court reporter’s fees, if a court reporter is desired, shall be posted by the
party requesting a jury not later than five (5) days prior to the date first assigned for trial.
(Effective 1/1/07)
(b) If the estimated time for trial exceeds one (1) calendar day, for each subsequent day of
trial, the jury fees and court reporter’s fees, if a reporter is desired, shall be posted by the
party requesting the jury trial, by the close of business the day before the next scheduled
trial date. (Effective 1/1/07)
(c) All requested and relevant jury instructions shall be submitted to the court no later than 9:00
A.M. on the date first assigned for trial. (Effective 1/1/07)
(d) Any and all motions, including motions in limine, shall be submitted in writing to the
court no later than 9:00 A.M. on the date first assigned for trial. (Effective 1/1/07)
(e) Case management conference will be set at the time jury is demanded. (Effective
1/1/07)
(f) Failure to comply with any of the above will result in a waiver of jury and the trial
will proceed immediately by court. (Effective 1/1/07)
Rule
3.17.13 Attorney’s Fees (Effective 1/1/07)
(a) In actions for unlawful detainer for possession of residential property, whether multi-
family or single family, if the prevailing party is entitled to an award of attorney’s fees
the attorney’s fees awarded by the court shall not, except upon good cause shown, exceed
the following amounts (Effective 1/1/07):
(1) In cases in which judgment is entered by default as a result of the failure of any
defendant to respond to the complaint, the sum of $300. (Effective 1/1/07)
(2) In cases in which at least one (1) defendant has filed an answer or
responsive pleading, but which are uncontested at trial, the sum of $400. (Effective
1/1/07)
(3) In cases contested at trial, the sum of $500. (Effective 1/1/07)
(b) Where a party in a residential unlawful detainer action wishes to seek attorney fees in excess
of the fees set forth in Rule 3.17.13(a), such fees may be awarded only upon application and
declaration setting forth good cause therefor in cases in which no answer or response has been
filed by any defendant, or upon regularly noticed motion in cases in which an answer or response
has been filed by at least one (1) defendant. (Effective 1/1/07)
(c) In actions for unlawful detainer for possession of non-residential property, the
prevailing party may recover, if entitled to recovery of attorney’s
fees, such amount as may be awarded upon ex parte application
and declaration in cases in which no defendant appeared, or upon
properly noticed motion for an award of attorney’s fees in actions
in which at least one (1) defendant has appeared. (Effective 1/1/07)
Rule
3.17.14 Order to Show Cause Re Dismissal (Effective 1/1/07)
(a) An order to show cause re dismissal will be taken off calendar if a trial date has been
set, a request to set case for trial has been filed, the case is dismissed, or if there has been
a settlement or other final disposition of the entire matter. (Effective 1/1/07)
(b) All parties who have made a general appearance in the case shall attend the hearing on
the order to show cause, either in person or by telephonic appearance. (Effective 1/1/07)
Rule
3.17.15 Motion to Set Aside Default and Vacate Default Judgment and/or for Stay of
Execution of Judgment (Effective 1/1/07)
(a) Ex parte applications for orders shortening time for hearing on a motion to vacate a
default judgment and/or set aside a default, or for a stay of execution of a writ of
possession shall comply with California Rules of Court Rule 3.1200. (Effective 1/1/07)
(b) Except for good cause shown, only one (1) request for stay of execution will be
granted per case, and stays of execution will be limited to seven (7) days from the date
originally scheduled for the lock-out to occur. (Effective 1/1/07)
(c) Except for good cause shown, no stay of execution will be granted in cases
settled or disposed of by agreement of the parties or by stipulation of the parties, unless
the parties have agreed otherwise in writing or on the record in open court. (Effective
1/1/07)
(d) Except for good cause shown, motions to vacate a default judgment and/or to set aside
a default shall not be granted ex parte. (Effective 1/1/07)
Rule
3.17.16 Failure to Comply with Rules (Effective 1/1/07)
Any failure to comply with these rules shall result in the issuance of an order to show
cause why sanctions, including monetary sanctions, issue sanctions, evidence sanctions
or terminating sanctions, should not be imposed. (Effective 1/1/07)
- 27 –
SUPERIOR COURT OF CALIFORNIA, COUNTY OF KERN
Chapter III. Civil Rules and Civil Case Management
It is the policy of the Superior Court of California, County of Kern, to manage all
civil cases from the date of filing through final disposition. All parties are subject
to this policy and are expected to proceed diligently and expeditiously in
preparing civil cases for trial. (Effective 7/1/03)
"Civil cases" as used in these Rules shall not include domestic relations/family
law matters, juvenile court matters, probate matters, special petitions, actions
brought for equitable relief only entitled to preferential setting for trial without the
use of juries, asset forfeiture cases (Health and Safety Code Sections 11470 et
seq.), and criminal matters. All other cases will be included and classified at
filing as general civil. (Effective 7/1/03)
modification of the routine processes as prescribed by these rules. (Effective
7/1/03)
In civil matters filed in the Regional Courts, the court shall determine the
appropriate location for the trial at the case management conference. The judge,
using information concerning the parties’ residences, the attorneys’ residences,
the likely witness’ locations, estimated trial days, and other relevant factors, will
determine the need to retain the case at the Regional Division for trial or to
transfer the matter to the Metropolitan Court Civil Division. (Effective 7/1/03)
If the matter is to be tried at the Metropolitan Division, the judicial officer shall
set a trial setting conference no later than three (3) weeks following the case
management conference. The Metropolitan Court Civil Division shall
subsequently assign a judge for all purposes upon receipt of the filing, and notify
all parties of the time and Department for the Trial Setting Conference. (Effective
7/1/03)
A transfer to the Metropolitan Court Civil Division under this policy shall not
affect the time standards for disposition of civil cases in this county. (Effective
7/1/03)
These rules apply to limited and unlimited jurisdiction general civil cases filed in
the Kern County Superior Court. (Effective 7/1/03)
Rule 3.2 Facsimile Filing of Civil Actions (Effective 7/1/03; rev. 1/1/06)
The Superior Court of California, County of Kern, have elected to allow the filing
of civil documents by facsimile transmission through Official Payments
- 10 -
Corporation. California Rules of Court 2.300 through 2.306 apply to facsimile
filing of civil documents by attorneys or parties without attorney. (Effective

7/1/03)
(a) To fax directly to any court’s 800 Audiotex fax number, filing attorneys
and parties should call Official Payments Corporation at (800) 322-4945
to register their fax number, credit card number and expiration date.
(Effective 7/1/03; rev. 7/1/04; rev. 1/1/06)
(b) The court’s facsimile machine shall be available 24 hours a day, although
filings received after 5:00 p.m. or on Court Holidays shall be deemed filed
on the next court day. (Effective 7/1/03)
(c) If any of the Rules are not followed, including those provisions of the
applicable rules not printed here, the court will not accept the filing of the
document. The proper transmission of a document by a facsimile machine
is the responsibility of the filing attorney or party, not the court. The filing
agency must pay all applicable fees at the time of filing. (Effective
7/1/03)
Confirmation of the filing of the document shall be given by the standard
(d)
confirmation of facsimile machines. The court will not fax a copy of the
cover sheet back to the filing attorney or party. (Effective 7/1/03)
Within the Superior Court of California, County of Kern, the Superior Court
Division and Departments within said Division listed in Addendum 2 allow
telephonic court appearances through CourtCall. Telephonic court appearances
are permitted for non-testimonial hearings and conferences in general civil cases
and in unlawful detainer and probate proceedings. A party may appear by
telephone at the following hearings, conferences and proceedings: (1) case
management conferences, provided the party has made a good faith effort to meet
and confer and has timely served and filed a case management statement before
the conference date; (2) trial setting conferences; (3) hearings on law and motion,
except motions in limine; (4) hearings on discovery motions; (5) status
conferences, including conferences to review the status of an arbitration or
mediation; (6) hearings to review the dismissal of an action. CourtCall may be
arranged by contacting CourtCall, LLC at 6383 Arizona Circle, Los Angeles,
California 90045, toll free telephone number (888) 88-COURT or (310) 342-
0888, fax number (310) 743-1850 or (888) 88FAXIN. Court Call arrangements
must be confirmed no later than 3:00 p.m. the day before the scheduled hearing.
Counsel should refer to California Rules of Court 3.670, as amended 1/1/08.
(Effective 7/1/03; rev. 7/1/09)
- 11 -
All Law and Motion matters will be heard pursuant to the courtroom
schedule
(Addendum 1A through 1M. Addendums, which are subject to change, are
posted on the court website or available for free at all Kern County Court
locations. Hearing dates for Law and Motion matters in Metro Division are
not
required to be pre-cleared. However, hearing dates for ex parte matters must
be
pre-cleared with the Fast Track clerks. In the Regional Divisions, a Civil Law
and Motion date can be obtained at the court Civil Division office/counter or
by
calling the Civil Division as follows: (Effective 7/1/03)
Motions for a new trial or motions to set aside and vacate a judgment shall be
heard by the trial judge. When the trial judge is unavailable, the motion shall be
noticed in a Department and before a judge designated by the Presiding Judge
pursuant to Code of Civil Procedure Section 663. A motion for a new trial shall
be noticed by the Clerk of the Court in accordance with Code of Civil Procedure
Section 661. (Effective 7/1/03)
Rule 3.4.2 Order to Appear for Judgment Debtor Examination (Effective 7/1/09)
There shall be no continuances granted if Judgment Creditor is unable to serve the

Judgment Debtor. If not able to serve, must re-file new Order to Appear along
with the appropriate filing fee. (Effective 7/1/09)
All ex parte applications which require notice will be noticed in the Civil
Division or Direct Calendar Court for a ruling. All ex parte matters must be
precleared. Copies of all papers to be presented at the hearing shall be filed

with
the court no later than 12:00 noon the day before the scheduled hearing time.
These documents may be "faxed." (Effective 7/1/03) .
(a) The Presiding or Direct Calendar Judge shall be available for the signing
of ex parte orders or shall designate a judge or judges who will be
available for such signing. (Effective 7/1/03)
- 12 -
(b) Attorneys shall not seek to have ex parte orders signed by judges other
than those assigned by the Presiding Judge. (Effective 7/1/03)
without oral argument or comment by counsel, but the judge may, in his or
her own discretion, exempt matters from this provision. (Effective 7/1/03)
(d) Notice shall be in accordance with California Rule of Court 3.1203(a)(b),
and all paperwork shall be submitted no later than 12:00 noon the day
before the scheduled hearing. (Effective 7/1/03)

Jury fees and mileage shall be governed by the Code of Civil Procedure, Section
631, et seq. Unless otherwise ordered by the Presiding Judge, the Clerk’s Office
will not accept client’s personal checks for daily jury fees. These fees should be
paid by the attorney’s firm’s check. (Effective 7/1/03)
(a) The following attorney’s fees shall be awarded under normal conditions in
actions on promissory notes and contracts providing for the payment of
attorney’s fees and foreclosures: (Effective 7/1/03)
15% of the next $10,000;
10% of the next $35,000;
In an action upon contract providing for an attorney’s fee, the clerk shall
include in the judgment an attorney’s fee in accordance with this schedule
(not to exceed the amount prayed for). (Effective 7/1/03)
A petition for compensation for additional services rendered under
Subsection (a) of this rule, or in a probate or other proceeding, shall
include an itemized statement of the services rendered or to be rendered by
the attorney and a reference in the caption and prayer to the request for
additional fees. An appearance by the attorney or the parties is not
normally required. In determining such fees, the court shall consider the
experience of counsel, the time expended, the complexity of the issues, the
amount involved and the results achieved. (Effective 7/1/03)
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Rule 3.8 Selection of Monitoring Judge and Setting of Case Management Conference
(Effective 7/1/03)
(a) At the time the complaint is filed, the clerk will select a monitoring judge
at random by drawing from the pool of judges assigned and shall set a case
management conference for the case on said judge’s calendar not more
than 180 days thereafter, and issue notice thereof, which notice will be
served on all defendants by plaintiff and on all cross-defendants not
already parties to the action by cross-complainants. The term "monitoring
judge" as used in these Rules shall include direct calendaring judges as
well as judges who are assigned cases for “all purposes” by the Presiding
Department. (Effective 7/1/03)
(b) The monitoring judge to whom the case is assigned shall be responsible to
move the case along to an orderly disposition under these Rules. All
motions provided for under these Rules shall be made to the monitoring
judge. If the assigned judge is operating a direct calendar court, the
assignment shall be deemed for "all purposes." (Effective 7/1/03)

absence of all necessary parties in the action, to determine the issues which are in
actual controversy and those without substantial controversy, and to properly
evaluate the case for meaningful settlement negotiations. (Effective 7/1/03)
(a) At least five (5) days prior to the final case management conference, or at
least fifteen (15) days prior to the date the matter is set for trial in the
absence of a final case management conference, each party shall serve on
every other party and submit to the court the following: (Effective 7/1/03)
Said party’s proposed jury instructions. All parties are invited to
(1)
use the Instruction Request form for the standard CACI
instructions. If any standard instructions are not on the request
form, or if any special instructions are going to be requested, they
must be served with the request form. (Effective 7/1/03; rev.
1/1/06)
(2) All motions in limine in written form, together with any points and
authorities in support thereof. (Effective 7/1/03)
(3) A list of all witnesses that said party intends to call in his or her
case in chief. (Effective 7/1/03)
- 14 -

(4) A proposed generic statement of the case to be read to the jury at
the beginning of the case. (Effective 7/1/03)
(5) A list of all photographs, documents, physical objects or other
tangible things that said party intends to have marked as an exhibit
and introduced in evidence at the time of trial. (In matters where a
final case management conference has been set, said items will
actually be brought to the final case management conference for
examination). (Effective 7/1/03)
(b) Prior to the final case management conference, or prior to the trial if no
final case management conference is set, counsel will confer in an effort to
resolve the jury instructions, issues raised in the motions in limine, the
generic statement of the case, and the admissibility of the various
photographs, documents, physical objects and other tangible things
included in each party’s exhibit list. In addition, counsel shall review the
witness lists and make their best estimate of the time anticipated for the
direct and cross-examination of each of the witnesses. Counsel will also
attempt to work out stipulations concerning issues which are not
contested. At the time of the final case management conference or at the
time of trial, if no final case management conference is set, efforts will be
made to resolve the remaining issues and, to the extent that they are
unresolved by agreement, will be ruled upon by the court. Final Case
Management orders shall be generated settling the jury instructions
(subject to augmentation after the evidence is received), providing rulings

on the motions in limine, providing for the admission of certain
photographs, documents, physical objects or other tangible things, and
settling the generic statement of the case. A master list of witnesses and
the anticipated time involved for each witness will also be generated for
use of court and counsel. Such other orders will be made as may be
appropriate for the management of the anticipated trial. (Effective 7/1/03)
(c) All final case management documents shall be filed (pursuant to
California Rules of Court 3.1110) under a cover sheet which lists the
documents submitted. (Effective 7/1/03)
Stayed Cases (Effective 7/1/03)
Rule 3.11
When an action subject to these rules is stayed for one or more of the reasons set
forth in subparagraph (d) of Rule 3.1385 of the California Rules of Court, the
responsible party, in addition to filing the notice of stay and notice that the stay is
vacated or no longer in effect, shall file with the court on a periodic basis no less
frequently than every ninety (90) days, a status report advising the court, to the
extent applicable, of the following: (Effective 7/1/03)
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(a) Efforts being made to obtain relief from the stay so that the action in this
court can proceed. (Effective 7/1/03)
(b) The progress being made in the federal or higher state court action in
which the stay was issued to resolve the issues which would otherwise
require litigation in this court. (Effective 7/1/03)
(c) The propriety of severing parties, causes of action and/or cross-actions
which would be subject to the stay and proceeding with the balance of the
litigation. (Effective 7/1/03)
Once the case has been assigned to a trial court by the Presiding Department or called
to trial by a Direct Calendar Department, it shall proceed without interruption to
conclusion. No adjournment will be allowed to explore settlement, conduct
discovery, marshal evidence or prepare for the presentation of any subsequent portion
of the trial, except in unusual circumstances without fault of the moving party where
good cause is shown in the sound discretion of the trial judge. It is also anticipated
that each party will have his or her witnesses available to present his or her case
without interruption or delay. An unexcused inability of a party to proceed because
of a failure to schedule adequate witnesses, or otherwise, may result in sanctions
being imposed, including a determination by the trial judge that said party has rested.
(Effective 7/1/03)
Pursuant to California Rule of Court 209.1(c), all general civil cases are presumed
to be Plan One (1) cases subject to disposition within twelve (12) months from
date of filing of complaint. (Effective 7/1/03)
In the event that during the pendency of the action, whether the defendants have
appeared or not, the parties agree to resolve that matter with a program of periodic
payments, all monitoring and time requirements can be terminated, provided that
the conditions in (a) through (d) below are met. If the periodic payment
agreement satisfies these conditions, the case will be deemed "disposed of" and
will no longer be monitored. (Effective 7/1/03; rev. 1/1/07)
(d) The parties file with the court a written stipulation and agreement setting
forth in detail the terms of the periodic payments which, if made, will fully
satisfy the obligations which generated the litigation. (Effective 7/1/03)
(e) That the stipulation and agreement further provide that on full
performance of the agreement by the defendants, plaintiff will request a
dismissal of the entire action with prejudice; and in the absence of such a
- 16 -
request, the court may dismiss the action on its own motion, without
notice to the parties, after forty-five (45) days has expired from the due
date of the last payment unless plaintiff, within that time, requests entry of
judgment as provided in Subparagraph (c). (Effective 7/1/03)
(f) That the stipulation and agreement further provide that in the event
defendant fails to make any of the payments required, plaintiff may, by
written declaration, notify the court of defendant’s default and the amount
then due under the agreement and request that the court enter judgment
accordingly, together with costs of suit. (Effective 7/1/03)
That the stipulation and agreement be unconditional so that a judicial
(g)
determination will not be required and the court’s only remaining function
in the case would be to enter a dismissal as provided in Subparagraph (b)
or a judgment as provided in Subparagraph (c). (Effective 7/1/03)
That the parties shall file with the court a request for dismissal without
(h)
prejudice reserving to the court jurisdiction to set aside such dismissal to
enter judgment as provided in (c) hereof. (Effective 7/1/03)
Application of Rules 3.14.2 and 3.14.3 (Adopted 1/1/08)
RULE 3.14.1
Rules 3.14.2 and 3.14.3 apply only to those cases designated on the
civil case cover sheet as Rule 3.740 collections. (Adopted 1/1/08)
Time for Filing (Adopted 1/1/08)
RULE 3.14.2
(a) All named defendants must be served and a proof of service must be
filed or an order for publication of the summons must be obtained as
to each named defendant within one hundred eighty (180) days of
the date of filing of the complaint. (Adopted 1/1/08)
(b) At the time the complaint in a Rule 3.740 collection action is filed,
the clerk shall issue an order to show cause re dismissal to the
plaintiff designating a date of hearing on the order to show cause not
less than one hundred eighty (180) days nor more than two hundred

- 17 -
shall be vacated if the plaintiff obtains a default judgment at least
ten (10) court days before the order to show cause hearing. (Adopted
1/1/08)
(a) Upon the filing of an answer or other responsive pleading by any
named defendant in a collections case, the clerk shall set a case
management conference not less than ninety (90) days following the
date of filing of the first answer or responsive pleading. The clerk
shall give notice to all parties appearing in the action of the date,
time and department of the case management conference. (Adopted
1/1/08)
conference on any parties appearing in the action after service of

notice of the case management conference by the clerk. (Adopted
1/1/08)
All parties who have appeared in the action shall file with the court
(c)
and serve on all parties a case management statement no less than
fifteen (15) days prior to the date of the case management
conference. Failure to timely file and serve a case management
statement constitutes a waiver of any objection to action taken by
the court at the case management conference, including setting the
case for trial, ordering the case to judicial arbitration, or setting a
mandatory settlement conference. (Adopted 1/1/08)
(d) If, based on its review of the written submissions of the parties and
such other information as is available, the court determines that
appearances at the conference are not necessary, the court may issue
a case management order and notify the parties that no appearance is
required. (Adopted 1/1/08)
(e) At the case management conference, counsel for each party and each
self-represented party must appear personally or by telephone as
provided in California Rules of Court Rule 3.670 and Rule 3.3 of
these rules; must be familiar with the case; and must be prepared to
discuss and commit to the party's position on the issues listed in
Rules 3.724 and 3.727 of the California Rules of Court. (Adopted
1/1/08)
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(a) At the time of filing a complaint for personal injury or wrongful death or
at any time thereafter, plaintiff may file a declaration with the court
establishing the items set forth in (1) through (4) below. On receipt of
such a declaration, the court may classify the case as "uninsured motorist".
(Effective 7/1/03)
(1) All the named defendants are believed to be uninsured and the
action is filed to protect the running of the statute of limitations in
the event that insurance is later discovered or plaintiff, after filing
the action, has learned that all the defendants are uninsured.
(Effective 7/1/03)
(2) Plaintiff is proceeding to arbitration with his or her insurer under
the uninsured motorist provision of his or her insurance policy, and
does not intend to proceed in the action against the uninsured
defendants. (Effective 7/1/03)
In resolving the case with the defendants, it has been determined
(3)
that defendants were underinsured within the meaning of plaintiff’s
policy which provides underinsured motorist’s coverage.
(Effective 7/1/03)
(4) Plaintiff’s counsel has sought from plaintiff’s insurer a concession

of uninsured status of defendant to avoid the filing of the action or
to dismiss it and plaintiff’s insurer has refused. (Effective 7/1/03)
(b) Cases classified as uninsured motorist will be placed on a review calendar
and plaintiff will file a certificate of progress every 90 days advising the
court of the status of his claim against his insurer and the progress of the
arbitration proceeding, if any. (Effective 7/1/03)
(c) In the event that plaintiff’s claim against his insurer is not resolved within
180 days after being designated uninsured motorist, the court may require
plaintiff’s counsel to appear for a hearing to determine when the matter
will be resolved and the action dismissed or reclassified as general civil
litigation. (Effective 7/1/03)
(d) When plaintiff’s claim is resolved against his insurer, plaintiff’s counsel
shall give notice to the insurer that the action is pending in this court and
shall seek consent from the insurer to dismiss the action. The notice shall
contain the complete title of the cause, case number and a statement to the
effect that the case is governed by these Rules and that, effective as of that
date of the notice, the case is reclassified as general civil litigation and a
proof of service or certificate of progress is due sixty (60) days therefrom
under California Rule of Court 3.110. In filing the original of such notice
- 19 -
with the court with appropriate proof of service, plaintiff’s attorney shall
provide the court withe the name, address and phone number of the
appropriate representative of plaintiff’s insurer. The filing of such a notice
with the court does not preclude the need to file a formal substitution of
attorneys unless plaintiff’s attorney intends to remain of record. (Effective
7/1/03)
It is the policy of the Superior Court that the parties in every general civil case
participate in voluntary mediation, arbitration, neutral evaluation, an early
settlement conference or some other appropriate alternative dispute resolution
process prior to trial. (Effective 7/1/03)
Mandatory Arbitration (Effective 7/1/03)
Rule 3.16.2
It is the policy of the Superior Court that Plan One (1), Two (2) and Three (3) at-
issue long cause civil actions except those excluded by statute, pending on or filed
after the operative date of these rules be submitted to arbitration. (Effective
7/1/03)
Upon appointment of the arbitrator, the court will set the case for an OSC as to
why the matter has not been arbitrated within the ninety (90) day arbitration
Rule
The purpose of the civil mediation program is to promote and facilitate the
(a)
voluntary mediation of civil disputes. (Effective 7/1/03)
(b) This program is not established pursuant to the Civil Mediation Act, Code
of Civil Procedure section 1775, et seq. (Effective 7/1/03)
Rule
The mediation program provided for in these rules is available to all general civil
cases, regardless of the type of action or relief sought. (Effective 7/1/03)
- 20 -
Rule
Parties to the action may opt for mediation only upon the voluntary agreement of
all parties to the case. (Effective 7/1/03)
Rule
(a) Parties to any civil action assigned to judicial arbitration may elect
voluntary mediation. Parties who seek to mediate a case in lieu of judicial
arbitration must file a stipulation to mediate with the Court no later than
the initial case management conference. (Effective 7/1/03)
(b) The Court must exempt a case from judicial arbitration under California
Rule of Court 1600.5(f) or (g) upon filing a stipulation to mediate.
(Effective 7/1/03)
Upon conclusion of the mediation, parties must file a Statement Regarding
(c)
Mediation which states that mediation has been completed and that the
parties to the action or the authorized representatives of the insured’s
insurance company participated in the mediation. (Effective 7/1/03)
Rule
(a) The election to mediate in lieu of judicial arbitration will not suspend any
time periods specified by statute, the California Rules of Court or these
local rules. (Effective 7/1/03)
(b) Absent an order providing for additional time, actions in which mediation
has not taken place within the period specified herein, will be subject to an
order to show cause why the action should not be dismissed, the answer
stricken, or other appropriate sanctions imposed. (Effective 7/1/03)
Rule
The parties must select a mediator, panel of mediators or mediation program of
their choice to conduct the mediation. The mediation provider need not be an
attorney. The parties are not required to select a mediation provider from the
Court’s list. (Effective 7/1/03)
Rule
Payment of Mediation Provider (Effective 7/1/03)
3.16.4.7
The cost of mediation must be borne by the parties equally unless the parties
agree otherwise. (Effective 7/1/03)
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On a date not less than twenty (20) days nor more than forty (40) days from the
trial date, a settlement conference will be held pursuant to California Rule of
Court 3.1380. The Court shall designate the date, time and place of such
settlement conference. (Effective 7/1/03)
Rules 3.17.1 through 3.17.16 apply to all unlawful detainer and forcible detainer
actions filed after January 1, 2007. (Effective 1/1/07)
(a) All complaints for unlawful detainer shall, if based upon a notice
terminating the tenancy or right to possession, be accompanied by the
original such notice attached as an exhibit to the complaint as required by
Code of Civil Procedure Section 1166. (Effective 1/1/07)
(b) A complaint for unlawful detainer of residential property shall be
accompanied by a copy of any written rental agreement or lease regarding
the premises, including any amendments or addenda to such agreement, as
required by Code of Civil Procedure Section 1166, unless the complaint

alleges that the lease or rental agreement is oral, that neither the original
nor a copy of the written rental agreement or lease is in the possession or
control of the plaintiff, or the action is based solely on subdivision (2) of
Code of Civil Procedure 1161. (Effective 1/1/07)
(c) At the time the complaint in an unlawful detainer action is filed, the clerk
shall issue an order to show cause re dismissal to the plaintiff designating
a date of hearing on the order to show cause not more that forty-five (45)
days after filing. The order to show cause will be dropped from calendar
upon filing of an answer or other responsive pleading, an amended
complaint converting the action to an ordinary civil action, a request for
entry of default, a request for dismissal, a stipulated judgment or
stipulation for entry of judgment, or a notice of settlement. (Effective
1/1/07)
(d) Unless otherwise ordered, the minimum undertaking required for an order
for immediate possession of the premises pursuant to Code of Civil
Procedure Section 1166a shall be ten (10) times the monthly rental or
$2,500, whichever is greater. (Effective 1/1/07).
(a) A proof of service or application for service by posting and mailing
- 22 -
pursuant to Code of Civil Procedure Section 415.45 must be filed within
twenty (20) days of the date of filing of the complaint, unless an answer or
other responsive pleading has been filed. (Effective 1/1/07)
(b) All applications for service by posting and mailing pursuant to Code of
Civil Procedure Section 415.45 shall include a date by which service shall
be completed, which date shall not exceed ten (10) days following the date
of filing of the application. (Effective 1/1/07)
(c) No application for service by posting and mailing pursuant to Code of
Civil Procedure Section 415.45 shall be granted unless the requirements of
due diligence have been satisfied. The requirements of due diligence shall
be deemed satisfied if the declaration of attempted service shows at least
three (3) separate attempts to serve, on three (3) different dates, not more
than two (2) of which may be on a holiday as defined in Code of Civil
Procedure Section 10, with at least one (1) such attempt before noon and
one (1) such attempt after noon. (Effective 1/1/07)
(d) In cases in which service of the summons and complaint is made by
posting and mailing pursuant to Code of Civil Procedure Section 415.45,
proof of service by posting and mailing shall be filed within ten (10) days
of the date of issuance of the order permitting service pursuant to Code of
Civil Procedure Section 415.45. (Effective 1/1/07)
(a) A settlement agreement may provide that, in the event of default, the non-
defaulting party may seek additional relief from the court by filing an ex
parte application for such relief. Any settlement agreement providing for
such ex parte relief shall contain one (1) of the following (Effective
1/1/07):
(1) A proof of service showing that the ex parte application was served
on the defaulting party (Effective 1/1/07),
(2) A declaration stating either that notice of the filing of the ex parte
application was given to the defaulting party, specifying how and
when such notice was given (Effective 1/1/07),
A declaration demonstrating that such notice should be excused
(3)
pursuant to Rule 3.1204(b)(2) or (3) of the California Rules of
Court. (Effective 1/1/07)
Unless notice is excused, the ex parte application or the declaration shall
(b)
describe the relief requested, and the date and time of the hearing on the
ex parte application. (Effective 1/1/07)
(c) A hearing on the ex parte application shall be held no sooner than forty-
- 23 -
eight (48) hours after the later of the filing of the application ro notice to
the allegedly defaulting party unless such notice was excused. If service
of the notice is by mail, then the hearing shall be held no sooner than five
(5) days after the date of mailing. (Effective 1/1/07)
(d) Objection, if any, to the ex parte application shall be by written declaration
under penalty of perjury, filed and served on all interested parties at or

prior to the time of the hearing, and shall state with specificity the grounds
for such objection. (Effective 1/1/07)
(e) Applications for further relief in cases in which the settlement agreement
does not provide for an ex parte application procedure for further relief
shall be upon noticed motion. There shall be a rebuttable presumption that
applications for orders shortening time for hearing of such motions
seeking possession and other cases in which time is of the essence are
meritorious. (Effective 1/1/07)
(f) Nothing in these rules shall preclude a party from seeking to enforce the
terms of a settlement agreement in an unlawful detainer action by
appropriate motion pursuant to Code of Civil Procedure Section 664.6 or
other controlling authority. (Effective 1/1/07)
Stipulations for Entry of Judgment (Effective 1/1/07)
Rule 3.17.4
Any stipulation between parties that provides terms and conditions for settlement of an
unlawful detainer action must include by entry of judgment (Effective 1/1/07):
(a) A statement, pursuant to Rule 3.1385 of the California Rules of Court, that
plaintiff will file a request for dismissal of the entire action either within
forty-five (45) days of the date of the filing of the stipulation or upon some
other specified date no more than ninety (90) days following the date of
filing of the stipulation. (Effective 1/1/07)
(b) A place for the court to set a date for an order to show cause re dismissal at
which the parties may appear if the terms and conditions are not met and upon
which the court may dismiss the case if the parties fail to appear and the plaintiff
has not filed a request for dismissal as provided in Rule 3.17.4(a). (Effective
1/1/07)
(c) If the stipulation is presented for court approval prior to the date of trial,
and the parties do not intend to appear at trial, an order vacating the trial
date. (Effective 1/1/07)
(d) A clear and concise statement of the ex parte application, opposition and
order process by which remedies are available to either party in the event
of a default in any of the terms and conditions of the stipulation. The clerk
shall not enter judgment upon the mere declaration of either party.
- 24 -
(Effective 1/1/07)
(a) Within twenty-five (25) days of the date of filing of the complaint, the
plaintiff shall file a request to set for trial unless a request for entry of
default or request for dismissal has been filed. (Effective 1/1/07)
(b) The case will be set for trial not more than twenty (20) days after the date
of filing of the memorandum to set the case for trial. The court shall give
notice of trial in accordance with Code of Civil Procedure Section 594.
(Effective 1/1/07)
(c) If a jury is demanded, the clerk shall, in addition to the trial date, set the
case for a case management conference with ten (10) days of the date of
filing of the request to set for trial. (Effective 1/1/07)
Request/Counter Request to Set for Trial (Effective 1/1/07)
Rule 3.17.6
(a) A request or counter request to set for trial shall be completed on the Judicial
Council for Request/Counter Request to Set Case for Trial - Unlawful Detainer
form UD-150. The filing of a request or counter request to set the case for trial
shall be deemed a representation by such party that the case is at issue and will be
ready for trial on the date first assigned for trial. (Effective 1/1/07)
(b) Any other party to the action may file a counter-request to set the case for
trial. Failure of any party to file a counter-request to set the case for trial
shall be deemed agreement by the party failing to file with all the matters
represented in the request to set the case for trial. (Effective 1/1/07)
(c) The case will be set for trial within twenty (20) days of the date of filing of
the request to set case for trial. (Effective 1/1/07)
All parties, or counsel if represented, shall appear at the case management
conference. Parties or counsel appearing at the case management conference shall
be fully prepared to discuss all aspects related to trial of the case, including the
estimated time of trial and matters which may be stipulated to prior to trial.
(Effective 1/107)
(a) Request for entry of default shall be made within forty-five (45) days of
the date of filing of the action unless an answer or other response has been
filed, or the action is dismissed or finally disposed of in its entirety.
- 25 -
(Effective 1/1/07)
(b) Plaintiff shall, within six (6) months of entry by the clerk of a default
judgment for possession of the premises only, set the case for a default
hearing for judgment for money damages, or shall submit a declaration
pursuant to Code of Civil Procedure Section 585(b) and (d). Failure of the
plaintiff to cause a request for judgment for such damages to be entered
within six (6) months of the date of entry of a judgment for possession
only shall result in an order to appear to show cause why sanctions for
such failure shall not be imposed. Monetary or other appropriate sanctions
may be imposed at the order to appear for failure to comply with this rule.
(Effective 1/1/07)
Conversion of Cases to Ordinary Civil Action (Effective 1/1/07)
Rule 3.17.9
In the event possession becomes no longer an issue at any time prior to trial, or, in
the event of an uncontested proceeding, prior to entry of judgment of possession,
it shall be the duty of plaintiff to immediately notify the court. If, at any time
prior to entry of judgment for possession, it appears that no defendant is in
possession, or that possession is otherwise not an issue, then the trial date shall be
immediately vacated, and the case shall be converted by the court to an ordinary
civil action. Plaintiff shall thereafter have thirty (30) days within which to file an
amended complaint, and the case shall be set for an order to show cause re
dismissal to be heard forty-five (45) days following conversion of the action to an
ordinary civil action. (Effective 1/1/07)
Rule
(a) All motions for summary judgment or summary adjudication shall be filed
with the court (Effective 1/1/07):
At least five (5) days prior to the hearing if personally served on
(1)
the opposing party, or (Effective 1/1/07)
(2) At least ten (10) days prior to the hearing if served on the opposing
party by any other means of service. (Effective 1/1/07)
(b) Opposition to a motion for summary judgment or summary adjudication
shall be filed and served no later than one (1) court day prior to the date of
hearing on the motion. (Effective 1/1/07)
Rule
(a) Trial will take place on the date scheduled unless continued by order upon
properly noticed motion showing good cause for such continuance.
(Effective 1/1/07)
 26 -
(b) Motions for continuance of the trial made on the date of trial are
disfavored, and will be granted only upon a clear showing of good cause.
(Effective 1/1/07)
(c) The prevailing party after trial shall prepare the judgment. (Effective
1/1/07)
(d) All unlawful detainer trials, including jury trials, shall be electronically
recorded unless a party requests that the trial be stenographically recorded.
Any request for stenographic recording shall be made in writing not less than
five (5) days prior to the date the case is first set for trial. The party
requesting stenographic recording shall post court reporter fees equal to one-
half day’s fees at the time the request is made. (Effective 1/1/07)
Rule
(a) Jury fees and court reporter’s fees, if a court reporter is desired, shall be
posted by the party requesting a jury not later than five (5) days prior to
the date first assigned for trial. (Effective 1/1/07)
(b) If the estimated time for trial exceeds one (1) calendar day, for each
subsequent day of trial, the jury fees and court reporter’s fees, if a reporter
is desired, shall be posted by the party requesting the jury trial, by the
close of business the day before the next scheduled trial date. (Effective
1/1/07)
(c) All requested and relevant jury instructions shall be submitted to the court no
later than 9:00 A.M. on the date first assigned for trial. (Effective 1/1/07)
(d) Any and all motions, including motions in limine, shall be submitted in
writing to the court no later than 9:00 A.M. on the date first assigned for
trial. (Effective 1/1/07)
(e) Case management conference will be set at the time jury is demanded.
(Effective 1/1/07)
(f) Failure to comply with any of the above will result in a waiver of jury and
the trial will proceed immediately by court. (Effective 1/1/07)
Rule
(a) In actions for unlawful detainer for possession of residential property,
whether multi-family or single family, if the prevailing party is entitled to
an award of attorney’s fees the attorney’s fees awarded by the court shall
not, except upon good cause shown, exceed the following amounts
(Effective 1/1/07):
- 27 -
(1) In cases in which judgment is entered by default as a result of the
failure of any defendant to respond to the complaint, the sum of
$300. (Effective 1/1/07)
responsive pleading, but which are uncontested at trial, the sum of
$400. (Effective 1/1/07)
(b) Where a party in a residential unlawful detainer action wishes to seek attorney
fees in excess of the fees set forth in Rule 3.17.13(a), such fees may be awarded
only upon application and declaration setting forth good cause therefor in cases
in which no answer or response has been filed by any defendant, or upon
regularly noticed motion in cases in which an answer or response has been filed
by at least one (1) defendant. (Effective 1/1/07)
(c) In actions for unlawful detainer for possession of non-residential property,
the prevailing party may recover, if entitled to recovery of attorney’s fees,
such amount as may be awarded upon ex parte application and declaration
in cases in which no defendant appeared, or upon properly noticed motion
for an award of attorney’s fees in actions in which at least one (1)
defendant has appeared. (Effective 1/1/07)
Rule
(a) An order to show cause re dismissal will be taken off calendar if a trial
date has been set, a request to set case for trial has been filed, the case is
dismissed, or if there has been a settlement or other final disposition of the
entire matter. (Effective 1/1/07)
(b) All parties who have made a general appearance in the case shall attend
the hearing on the order to show cause, either in person or by telephonic
appearance. (Effective 1/1/07)
Rule

(a) Ex parte applications for orders shortening time for hearing on a motion to
vacate a default judgment and/or set aside a default, or for a stay of
execution of a writ of possession shall comply with California Rules of
Court Rule 3.1200. (Effective 1/1/07)
(b) Except for good cause shown, only one (1) request for stay of execution
will be granted per case, and stays of execution will be limited to seven (7)
- 28 -
days from the date originally scheduled for the lock-out to occur.
(Effective 1/1/07)
settled or disposed of by agreement of the parties or by stipulation of the
parties, unless the parties have agreed otherwise in writing or on the
record in open court. (Effective 1/1/07)
(d) Except for good cause shown, motions to vacate a default judgment and/or
to set aside a default shall not be granted ex parte. (Effective 1/1/07)
Rule
Any failure to comply with these rules shall result in the issuance of an order to
show cause why sanctions, including monetary sanctions, issue sanctions,
evidence sanctions or terminating sanctions, should not be imposed. (Effective
1/1/07)
 29 -
CALIFORNIA STATE RULES OF COURT:
Chapter 4. Ex Parte Applications

Rule 3.1200. Application
Rule 3.1201. Required documents
Rule 3.1202. Contents of application
Rule 3.1203. Time of notice to other parties
Rule 3.1204. Contents of notice and declaration regarding notice
Rule 3.1205. Filing and presentation of the ex parte application
Rule 3.1206. Service of papers
Rule 3.1207. Personal appearance requirements
Rule 3.1200. Application
181
The rules in this chapter govern ex parte applications and orders in civil cases, unless
otherwise provided by a statute or a rule. These rules may be referred to as “the ex parte
rules.”
Rule 3.1200 adopted effective January 1, 2007.
Rule 3.1201. Required documents
A request for ex parte relief must be in writing and must include all of the
following:
(1) An application containing the case caption and stating the relief requested;
(2) A declaration in support of the application making the factual showing
required
under rule 3.1202(c);
(3) A declaration based on personal knowledge of the notice given under rule
3.1204;
(4) A memorandum; and
(5) A proposed order.
Rule 3.1202. Contents of application
(a) Identification of attorney or party
An ex parte application must state the name, address, and telephone number of
any
attorney known to the applicant to be an attorney for any party or, if no such
attorney is known, the name, address, and telephone number of the party if
known
to the applicant.
(b) Disclosure of previous applications
If an ex parte application has been refused in whole or in part, any subsequent
application of the same character or for the same relief, although made upon
an
alleged different state of facts, must include a full disclosure of all previous
applications and of the court’s actions.
(c) Affirmative factual showing required
182
An applicant must make an affirmative factual showing in a declaration
containing
competent testimony based on personal knowledge of irreparable harm,

immediate
danger, or any other statutory basis for granting relief ex parte.
(Subd (c) amended effective January 1, 2007.)
Rule 3.202 amended effective January 1, 2007; adopted effective January 1,

2007.
Rule 3.1203. Time of notice to other parties
(a) Time of notice
A party seeking an ex parte order must notify all parties no later than 10:00
a.m. the
court day before the ex parte appearance, absent a showing of exceptional
circumstances that justify a shorter time for notice.
(Subd (a) amended effective January 1, 2008.)
(b) Time of notice in unlawful detainer proceedings
A party seeking an ex parte order in an unlawful detainer proceeding may provide
shorter notice than required under (a) provided that the notice given is reasonable.
Rule 3.1203 amended effective January 1, 2008; adopted effective January 1, 2007.
Rule 3.1204. Contents of notice and declaration regarding notice
(a) Contents of notice
When notice of an ex parte application is given, the person giving notice

must:
1. State with specificity the nature of the relief to be requested and
the date,
time, and place for the presentation of the application; and
(2) Attempt to determine whether the opposing party will appear to oppose the
application.
(b) Declaration regarding notice
An ex parte application must be accompanied by a declaration regarding

notice
stating:
183
(1) The notice given, including the date, time, manner, and name of the party
informed, the relief sought, any response, and whether opposition is expected
and that, within the applicable time under rule 3.1203, the applicant
informed
the opposing party where and when the application would be made;
(2) That the applicant in good faith attempted to inform the opposing party
but
was unable to do so, specifying the efforts made to inform the opposing
party;
or
(3) That, for reasons specified, the applicant should not be required to inform
the
opposing party.
(c) Explanation for shorter notice
If notice was provided later than 10:00 a.m. the court day before the ex parte
appearance, the declaration regarding notice must explain:
(1) The exceptional circumstances that justify the shorter notice; or
(2) In unlawful detainer proceedings, why the notice given is reasonable.
Rule 3.1205. Filing and presentation of the ex parte application
Notwithstanding the failure of an applicant to comply with the requirements

of rule
3.1203, the clerk must not reject an ex parte application for filing and must
promptly
present the application to the appropriate judicial officer for consideration.
Rule 3.1206. Service of papers
Parties appearing at the ex parte hearing must serve the ex parte application
or any
written opposition on all other appearing parties at the first reasonable

opportunity.
Absent exceptional circumstances, no hearing may be conducted unless such

service has been made.
Rule 3.1207. Personal appearance requirements
184
An ex parte application will be considered without a personal appearance of

the applicant in the following cases only:
(1) Applications to file a memorandum in excess of the applicable page limit;
(2) Applications for extensions of time to serve pleadings;

(3) Setting of hearing dates on alternative writs and orders to show cause; and
(4) Stipulations by the parties for an order.
Rule 3.1207 amended effective January 1, 2008; adopted effective January 1,

2007.
2009 California Rules of Court

Rule 3.670. Telephone appearance
(a) Policy favoring telephone appearances
The intent of this rule is to promote uniformity in the practices and procedures relating to
telephone appearances in civil cases. To improve access to the courts and reduce
litigation costs, courts should permit parties, to the extent feasible, to appear by telephone
at appropriate conferences, hearings, and proceedings in civil cases.
(Subd (a) adopted effective January 1, 2008.)
(b) Application
This rule applies to all general civil cases as defined in rule 1.6 and to unlawful detainer
and probate proceedings.
(Subd (b) relettered effective January 1, 2008; previously repealed and adopted as subd
(a) effective July 1, 1998; previously amended effective January 1, 1999, January 1,
2001, January 1, 2003, and January 1, 2007.)
(c) General provision authorizing parties to appear by telephone
Except as provided in (e)(2), a party may appear by telephone at the following

conferences, hearings, and proceedings:
(1) Case management conferences, provided the party has made a good faith effort to
meet and confer and has timely served and filed a case management statement before the
conference date;
(2) Trial setting conferences;
(3) Hearings on law and motion, except motions in limine;
(4) Hearings on discovery motions;
(5) Status conferences, including conferences to review the status of an arbitration or a

mediation; and
(6) Hearings to review the dismissal of an action.
(Subd (c) amended and relettered effective January 1, 2008; previously repealed and
adopted as subd (b) effective July 1, 1998; previously amended effective July 1, 1999,
and January 1, 2003.)
(d) Required personal appearances
Except as provided in (e)(3), a personal appearance is required for hearings, conferences,

and proceedings not listed in (c), including the following:
(1) Trials and hearings at which witnesses are expected to testify;
(2) Hearings on temporary restraining orders;
(3) Settlement conferences;
(4) Trial management conferences;
(5) Hearings on motions in limine; and
(6) Hearings on petitions to confirm the sale of property under the Probate Code.
In addition, except as provided in (e)(3), a personal appearance is required for the

following persons:
(7) Applicants seeking an ex parte order, except when the applicant is seeking an order:
(A)For permission to file a memorandum in excess of the applicable page limits;
(B) For an extension of time to serve pleadings;
(C) To set hearing dates on alternative writs and orders to show cause; or
(D)By stipulation of the parties;

(8) Persons ordered to appear to show cause why sanctions should not be imposed for
violation of a court order or a rule; or
(9) Persons ordered to appear in an order or citation issued under the Probate Code.
At the proceedings under (7), (8), and (9), parties who are not required to appear in
person under this rule may appear by telephone.
(Subd (d) amended and relettered effective January 1, 2008; adopted as subd (c) effective
July 1, 1998; previously amended effective July 1, 2002, and January 1, 2003.)
(e) Court discretion to modify rule
(1) Policy favoring telephone appearances in civil cases
In exercising its discretion under this provision, the court should consider the general
policy favoring telephone appearances in civil cases.
(2) Court may require personal appearances
The court may require a party to appear in person at a hearing, conference, or proceeding
listed in (c) if the court determines on a hearing-by-hearing basis that a personal
appearance would materially assist in the determination of the proceedings or in the
effective management or resolution of the particular case.
(3) Court may permit appearances by telephone
The court may permit a party to appear by telephone at a hearing, conference, or

proceeding under (d) if the court determines that a telephone appearance is appropriate.
(Subd (e) adopted effective January 1, 2008.)
(f) Need for personal appearance
If, at any time during a hearing, conference, or proceeding conducted by telephone, the
court determines that a personal appearance is necessary, the court may continue the
matter and require a personal appearance.
(Subd (f) adopted effective January 1, 2008.)
(g) Notice by party
(1) A party choosing to appear by telephone at a hearing, conference, or proceeding under

this rule must either:
(A)Place the phrase "Telephone Appearance" below the title of the moving, opposing, or
reply papers; or
(B) At least three court days before the appearance, notify the court and all other parties
of the party's intent to appear by telephone. If the notice is oral, it must be given either in
person or by telephone. If the notice is in writing, it must be given by filing a "Notice of
Intent to Appear by Telephone" with the court at least three court days before the
appearance and by serving the notice at the same time on all other parties by personal
delivery, fax transmission, express mail, or other means reasonably calculated to ensure
delivery to the parties no later than the close of the next business day.
(2) If after receiving notice from another party as provided under (1) a party that has not
given notice also decides to appear by telephone, the party may do so by notifying the
court and all other parties that have appeared in the action, no later than noon on the court
day before the appearance, of its intent to appear by telephone.
(3) If a party that has given notice that it intends to appear by telephone under (1)
subsequently chooses to appear in person, the party must so notify the court and all other
parties that have appeared in the action, by telephone, at least two court days before the
appearance.
(4) The court, on a showing of good cause, may permit a party to appear by telephone at a
conference, hearing, or proceeding even if the party has not given the notice required
under (1) or (2) and may permit a party to appear in person even if the party has not given
the notice required in (3).
(Subd (g) amended and relettered effective January 1, 2008; adopted as subd (d) effective
July 1, 1998; previously amended effective January 1, 1999, July 1, 1999, January 1,
2003, and January 1, 2007.)
(h) Notice by court
After a party has requested a telephone appearance under (g), if the court requires the
personal appearance of the party, the court must give reasonable notice to all parties
before the hearing and may continue the hearing if necessary to accommodate the
personal appearance. The court may direct the court clerk, a court-appointed vendor, a
party, or an attorney to provide the notification. In courts using a telephonic tentative
ruling system for law and motion matters, court notification that parties must appear in
person may be given as part of the court's tentative ruling on a specific law and motion
matter if that notification is given one court day before the hearing.
(Subd (h) amended and relettered effective January 1, 2008; adopted as subd (e) effective
July 1, 1998; previously amended effective January 1, 1999, and January 1, 2003.)
(i) Private vendor; charges for service

A court may provide teleconferencing for court appearances by entering into a contract
with a private vendor. The contract may provide that the vendor may charge the party
appearing by telephone a reasonable fee, specified in the contract, for its services.
(Subd (i) relettered effective January 1, 2008; adopted as subd (f) effective July 1, 1998;
previously amended effective January 1, 2003.)
(j) Audibility and procedure
The court must ensure that the statements of participants are audible to all other
participants and the court staff and that the statements made by a participant are identified
as being made by that participant.
(Subd (j) amended and relettered effective January 1, 2008; adopted as subd (f) effective
March 1, 1988; previously relettered as subd (c) effective January 1, 1989, and as subd
(g) effective July 1, 1998; previously amended effective January 1, 2003, and January 1,
2007.)
(k) Reporting
All proceedings involving telephone appearances must be reported to the same extent and
in the same manner as if the participants had appeared in person.
(Subd (k) relettered effective January 1, 2008; adopted as subd (h) effective July 1, 1998;
previously amended effective January 1, 2003.)
(l) Conference call provider
A court, by local rule, may designate a particular conference call provider that must be
used for telephone appearances.
(Subd (l) relettered effective January 1, 2008; adopted as subd (i) effective July 1, 1998;
previously amended effective January 1, 1999, and January 1, 2003.)
(m) Information on telephone appearances
The court must publish notice providing parties with the particular information necessary
for them to appear by telephone at conferences, hearings, and proceedings in that court
under this rule.
(Subd (m) amended and relettered effective January 1, 2008; adopted as subd (j) effective
March 1, 1988; previously amended effective January 1, 2003, and January 1, 2007.)
Rule 3.670 amended effective January 1, 2008; adopted as rule 298 effective March 1,
1988; previously amended effective January 1, 1989, July 1, 1998, January 1, 1999, July
1, 1999, January 1, 2001, July 1, 2002, and January 1, 2003; previously amended and
renumbered effective January 1, 2007.
Star: for the family Hills,

temporary mailing address:
care of: 3018 Linden Avenue,
[Bakersfield, California]
non domestic without the U.S.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF KERN
GMAC MORTGAGE LLC, CASE #: S-1500 –CL-237061-LHB
PLAINTIFF,
NOTICE OF & MOTION TO SET ASIDE
& VACATE THE NOVEMBER 5, 2009
&
JUDGMENTS & ORDERS OF DEPT. 8
JUDGE KENNETH C TWISSELMAN II;
-VS- SUPPORTING AFFIDAVITS; MOTION
FOR
MANDATORY JUDICIAL NOTICE
STAR HILLS, MEMORANDUM OF POINTS &
AUTHORITIES
IN SUPPORT OF MOTION TO SET
ASIDE &
ET AL, VACATE OF Star: Hills.
DEFENDANTS. [ C.C.P. §
HEARING DATE:
________________________________ TIME: 8:30 A.M.; DEPT.: 8
[Bakersfield], California state
GMAC MORTGAGE LLC, CASE #: S-1500–CL-237061-LHB
PLAINTIFF,
AFFIDAVIT OF Star: Hills IN SUPPORT
OF
MOTION TO SET ASIDE & VACATE,
11/5/09;
JUDGMENTS & ORDERS, ETC.
-VS-
STAR HILLS,
ET AL,
DEFENDANTS.
[ C.C.P. §
________________________________

[Bakersfield, California ]
PLAINTIFF,
AFFIDAVIT OF Joseph Baker
IN SUPPORT OF MOTION
TO SET ASIDE & VACATE, 11/5/09
10/22/09 JUDGMENTS & ORDERS,
-VS- ETC. OF Star: Hills.
STAR HILLS,
ET AL,
DEFENDANTS.
[ C.C.P. §
________________________________

[Bakersfield], California state

PLAINTIFF,
MEMORANDUM OF POINTS &
AUTHORITIES IN SUPPORT OF
MOTION TO SET ASIDE & VACATE
11/5/09 & 10/22/09 JUDGMENTS &
-VS- ORDERS ETC. OF Star: Hills.
STAR HILLS,
ET AL,
DEFENDANTS.
[ C.C.P. §
________________________________
STATEMENT OF FACTS
Plaintiff Star: Hills (hereafter referred to as Star) is a sovereign woman of God
living on the land in the De-Jure Country called California Republic. Defendants
are Corporate Entities, Lending Institutions, licensed legal fictions subject to the
laws of the De-Facto State of California, and the Jurisdiction of this Court.
Defendant United Vision Financial is a Corporation Licensed in California with a
Mortgage Brokers License, and they are an Independent Contractor who sells
Refinance Mortgages by contracting with other Mortgage Institutions to provide the
funding of the Refinance Mortgages which they process. Does are Employees,
officers, Contractors, Agents of Defendants who helped and assisted or perpetrated
the acts alleged in the complaint whose true names are not known by plaintiff, but
will be added to the complaint by Plaintiff when they are discovered. The identity of
a previously named Doe Defendant has been discovered by Plaintiff whose name is
added herein as a named Defendant, Charles R. Hoecker, Vice President
CUSTOMER CARE LOAN SERVICING FOR GMAC MORTGAGE, who
undertook a Fiduciary Contractual Obligation as a Trustee to Collect
Mortgage Payments for the Originator of the Loan or their Assignee, etc.,
MortgageIt Inc.
The Plaintiff, through their Counsel & or third parties hired by them have
committed
a fraud upon the Court wherein they falsely claimed to have posted a summons
on
the premises of Star on April 13, 2009, and falsified a proof of service which
they
presented to the Court Clerk for filing on May 1, 2009, in Violation of Local Rules
of
Court Rule 3.17.2(d) which required it to be filed within ten (10) days of
issuance of the Order of April 9, 2009, which was April 19, 2009, committing
fraud,
forgery and perjury under the laws of the state of California which Caused the
Said
Court Clerk to enter Clerks Default & Clerks Default Judgment, which Star did
not
become aware of until around May 12, 2009, which caught Star by Surprise, as
no
Summons was ever posted by said Defendants on her said premises, & Star
never
received any actual Notice from the alleged Service by Posting & Mailing,
having
not received it in the mail from the said Defendants either; any failure to file
an
answer to the alleged complaint, was Excusable Neglect as Star was never
aware
of any such Posting or Mailing having never actually received any such copy
of a
Summons & Complaint FROM SAID Plaintiff GMAC MORTGAGE LLC;
Star FILED AN EX PARTE MOTION TO VACATE THE TRIAL DATE WHICH
WAS UNLAWFULLY ARBITRARILY SET BY DEPARTMENT 17 JUDGE
LORNA BRUMFIELD AT THE OCTOBER 22, 2009 HEARING ON HER

MOTION TO VACATE THE DEFAULT, DEFAULT JUDGMENT & TO
WITHDRAW THE WRIT OF POSSESSION WHICH WAS SET TO BE HEARD
IN DEPARTMENT 17 ON NOVEMBER 5, 2009 BUT WAS ARBITRARILY
TRANSFERRED TO A COMMISSIONER ON THE MORNING OF NOVEMBER
5 AT 8:30 A.M. WITHOUT ANY PRIOR NOTICE TO Star: Hills OR ANY OTHER
PARTIES, WHICH VIOLATED STATE & FEDERAL DUE PROCESS OF LAW,
AS Star HAD THE RIGHT TO OBJECT TO A COMMISSIONER HEARING THE
MOTION WHO WAS NOT FAMILIAR WITH THE CASE & WHO WAS NOT A
QUALIFIED JUDGE TO HEAR LAW & MOTION PROCEEDINGS OR
QUESTIONS OF FACT IN THE CASE. THE MOTION TO VACATE THE TRIAL
DATE WAS ARBITRARILY RULED ON & DENIED BY DEPARTMENT 14
COMMISSIONER ON THE VAGUE GROUND THAT IT DID NOT COMPLY
WITH CALIFORNIA RULES OF COURT RULE 3.1200 WHICH IN ACTUALITY
PROVIDED NO BASIS IN FACT OR LAW FOR SUCH A DENIAL BY THE
COMMISSIONER, AS SAID RULE MERELY STATES: “Rule 3.1200.
Application” “The rules in this chapter govern ex parte applications and orders in
civil cases, unless otherwise provided by a statute or a rule. These rules may be
referred to as "the ex parte rules." The Motion was an “Emergency” Motion, &
was timely served on Plaintiffs Counsel according to the Rules, & a Notice of Non
Appearance in Compliance with California Rules of Court was served & Filed,
which Required the Court to Rule on the merits of Motion as if Star was present .
The only Objection made by Counsel was that it was allegedly made under Threat
& Duress which was only speculation, oinion & conclusion of said Counsel without
any evidence or testimony ever presented in the eharing, which was a
misrepresentation of the meaning of the written statement by Star where she signed
under penalty of Perjury. The statement only means that she was forced to sign the
document under “PENALTY OF PERJURY UNDER THE LAWS OF THE STATE
OF CALIFORNIA” AGAINST HER WILL AS SHE IS A SOVEREIGN WOMAN
UNDER GOD NOT SUBJECT TO SUCH REQUIREMENTS & SHOULD BE
ALLOWED TO SIGN IT UNDER HER RELIGIOUS CONVICTIONS BY
AFFIRMATION AS SET FORTH IN THE BOOK OF EXODUS IN THE HOLY
BIBLE. SUCH STATEMENT DID NOT AFFECT THE VALIDITY OF THE
CONTENTS OF THE DOCUMENT OR THE FACTS & LAW SET FORTH
THEREIN. DENIAL ON SUCH BASIS WAS PREJUDICIAL REVERSIBLE
ERROR. APART & SEPARATE FROM THE MOTION WAS A WRITTEN
OBJECTION TO THE ARBITRARY SETTING OF A SUMMARY TRIAL DATE
FOR NOVEMBER 5, 2009 WITHOUT ANY CASE MANAGEMENT HEARING
WHICH CASE MANAGEMENT HEARING WAS EXPRESSLY REQUIRED
UNDER LOCAL RULES OF COURT UNDER LOCAL RULES FOR UNLAWFUL
DETAINERS UNDER LOCAL RULE “ 3.17.7 Case Management (Effective
1/1/07)” WHICH STATES: “ All parties, or counsel if represented, shall appear at the
case management conference. Parties or counsel appearing at the case management
conference shall be fully prepared to discuss all aspects related to trial of the case,
including the estimated time of trial and matters which may be stipulated to prior to
trial.
(Effective 1/1/07)”. THE NOTICE OF THE TRIAL DATE ORDERED ON OCTOBER
22 BY JUDGE BRUMFIELD WAS OT RECEIVED IN THE MAIL BY Star UNTIL
OCTOBER 26, 2009 IN THE AFTERNOON AFTER 2:00 P.M. (SEE EX PARTE
MOTION PREVIOUSLY FILED IN THE RECORD IN THIS CASE DENIED BY
DEPARTMENT 14 COMMISSIONER ETIENNE) THE SAID ACTUAL NOTICE
WAS LESS THAN THE TEN DAY NOTICE REQUIRED BY STATE RULES OF
COURT REGARDING UNLAWFUL DETAINERS FOR SUMMARY TRIALS
RENDERING THE SUBSEQUENT TRIAL & PROCEEDINGS VOID OR
VOIDABLE AS A MATTER OF CALIFORNIA LAW. HE FOREGOING DOES NOT
TAKE INTO ACCOUNT THE EXPRESS PROVISIONS IN BOTH STATE RULES
OF COURT & LOCAL RULES OF COURT ALLOWING FOR PRE TRIAL
DISCOVERY & DISPOSITIVE MOTIONS

3.17.10 Motions for Summary Judgment or Summary Adjudication (Effective
1/1/07)
(a)All motions for summary judgment or summary adjudication shall be filed with the
At least five (5) days prior to the hearing if personally served on
(1)the opposing party, or (Effective 1/1/07)
(2)At least ten (10) days prior to the hearing if served on the opposing party by any
other means of service. (Effective 1/1/07)
(b)Opposition to a motion for summary judgment or summary adjudication shall be
filed and served no later than one (1) court day prior to the date of hearing on the
motion. (Effective 1/1/07)
I
PRIOR TO THE ALLEGED TRIAL OF NOVEMBER 5
2009 Star: Hills HAD FILED & SERVED OBJECTIONS TO
THE DENIAL OF PRETRIAL DISCOVERY ; PRE TRIAL
MOTIONS & PREPARATION AS A DENIAL OF DUE
PROCESS OF LAW EQUAL PROTECTION UNDER
THE LAWS & A FAIR IMPARTIAL TRIAL & A
MOTION TO VACATE THE NOVEMBER 5
2009 TRIAL DATE TO ALLOW THE SAID
REQUIRED DISCOVERY; DISPOSITIVE
MOTIONS & PREPARATION AS
REQUIRED BY LAW
A
THE SAID OBJECTIONS & MOTION WERE ORIGINALLY
SET FOR HEARING IN DEPARTMENT 17 BEFORE JUDGE
LORNA H. BRUMFIELD AT 8:30 A.M. ON NOVEMBER 5, 2009
& WAS TRANSFERRED TO DEPARTMENT 14 WITHOUT ANY
PRIOR NOTICE TO BE HEARD BY A COMMISSIONER
WHO DENIED THE SAID MOTION ON A VAGUELY
STATED UNCLEAR TECHNICALITY THAT IT
DID NOT COMPLY WITH RULES OF COURT
RULE 3.1200
CALIFORNIA CODE OF CIVIL PROCEDURE C.C.P. SECTION 473. (b)

The court may, upon any terms as may be just, relieve a
party
or his or her legal representative from a judgment,
dismissal, order, or other proceeding taken against him or
her through his or her mistake, inadvertence, surprise, or
excusable neglect. Application for this relief shall be
accompanied by a copy of the answer or other pleading
proposed to be filed therein, otherwise the application
shall not be granted, and shall be made within a reasonable
time, in no case exceeding six months, after the judgment,
dismissal, order, or proceeding was taken. However, in the
case of a judgment, dismissal, order, or other proceeding
determining the ownership or right to possession of real or
personal property, without extending the six-month period,
when a notice in writing is personally served within the
State of California both upon the party against whom the
judgment, dismissal, order, or other proceeding has been
taken, and
upon his or her attorney of record, if any, notifying that
party and his or her attorney of record, if any, that the
order, judgment, dismissal, or other proceeding was taken
against him or her and that any rights the party has to
apply for relief under the provisions of Section 473 of the
Code of Civil Procedure shall expire 90 days after service
of the notice, then the application shall be made within 90
days after service of the notice upon the defaulting party
or his or her attorney of record, if any, whichever service
shall be later. No affidavit or declaration of merits shall
be required of the moving party. Notwithstanding any other
requirements of this section, the court shall, whenever an
application for relief is made no more than six months after
entry of judgment, is in proper form, and is accompanied by
an attorney's sworn affidavit attesting to his or her
mistake, inadvertence, surprise, or neglect, vacate any (1)
resulting default entered by the clerk against his or her
client, and which will result in entry of a default
judgment, or (2) resulting default judgment or dismissal
entered against his or her client, unless the court finds
that the default or dismissal was not in fact caused by the
attorney's mistake, inadvertence, surprise, or neglect. The
court shall, whenever relief is granted based on an
attorney's
affidavit of fault, direct the attorney to pay reasonable
compensatory legal fees and costs to opposing counsel or
parties.
However, this section shall not lengthen the time within
which an
action shall be brought to trial pursuant to Section
583.310.
California Code Of Civil Procedure Section 663
A judgment or decree, when based upon a decision by the

court,
or the special verdict of a jury, may, upon motion of the
party
aggrieved, be set aside and vacated by the same court, and
another
and different judgment entered, for either of the following
causes,
materially affecting the substantial rights of the party and
entitling the party to a different judgment:
1. Incorrect or erroneous legal basis for the decision,
not
consistent with or not supported by the facts; and in such
case when the judgment is set aside, the statement of
decision shall be amended and corrected.
2. A judgment or decree not consistent with or not
supported by
the special verdict.
Rules 3.17.1 through 3.17.16 apply to all unlawful detainer and forcible detainer
actions filed after January 1, 2007. (Effective 1/1/07)
Plaintiff Star: Hills (hereafter referred to as Star) is a sovereign woman of God
living on the land in the De-Jure Country called California Republic. Defendants
are Corporate Entities, Lending Institutions, licensed legal fictions subject to the
laws of the De-Facto State of California, and the Jurisdiction of this Court.
Defendant United Vision Financial is a Corporation Licensed in California with a
Mortgage Brokers License, and they are an Independent Contractor who sells
Refinance Mortgages by contracting with other Mortgage Institutions to provide the
funding of the Refinance Mortgages which they process. Does are Employees,
officers, Contractors, Agents of Defendants who helped and assisted or perpetrated
the acts alleged in the complaint whose true names are not known by plaintiff, but
will be added to the complaint by Plaintiff when they are discovered. The identity of
a previously named Doe Defendant has been discovered by Plaintiff whose name is
added herein as a named Defendant, Charles R. Hoecker, Vice President
CUSTOMER CARE LOAN SERVICING FOR GMAC MORTGAGE, who
undertook a Fiduciary Contractual Obligation as a Trustee to Collect
Mortgage Payments for the Originator of the Loan or their Assignee, etc.,
MortgageIt Inc.
2. The Defendant GMAC MORTGAGE is a Contracting Party to the Origination
of the
Loan, and is a Party to the Original alleged Refinance Mortgage Loan Contract
with
Defendants United Vision Financial, via Baron DiGianDomenico with the
Lender
MORTGAGEIT INC., & alleged "Barrower" Sui Juris Plaintiff Star: Hills on
or around:
5 /17 / 2007, as well as being a third Party Contractor with Mortgage It Inc.
whereby
they became the "Servicer" of the Alleged Mortgage Refinance Loan on or
before
May 17, 2007 undertaking a Fiduciary Trustee Obligation. Defendant GMAC
was a
PARTY in to the Contractual Relationship between United Vision Financial,
and
Plaintiff Star: Hills, and they undertook a Fiduciary Trustee Position in
that
Relationship, and Purported to Purchase the Home and Property of Star:
Hills at an
alleged Public Sale on 11/ 13/ 2008, and currently Claim that they are the
Owner
of the Title to said Home & Property, which has Created an on going
Controversy
over the Lawful Title to the said Home & Land, making them a Proper
and
Necessary Party to this Action., as Plaintiff seeks to Quiet Title Against
them in
this Action, and seeks other specified relief & damages against GMAC
MORTGAGE.
JURISDICTION
3. The above named Court has Jurisdiction over this Action pursuant to the
provisions of
of California Constitution Article 6, Sections 1-22, and California Civil Code
Section
1688-1693, for Enforcement of Rescission, and other Sections for Fraud, Deceit,
Constructive fraud, Breach of Contract, as well as to Quiet Title, Etc. and
pursuant
to the facts that the Plaintiffs home and property is located on the land at 3018
Linden
Avenue, [Bakersfield], in the De-Jure third Judicial District of tens Kern:
county,
California: the land, and the Defendants Perpetrated the Acts alleged in the
Complaint
within Kern: County, California: the land, and the Defendants conduct
Business
within the De-Facto County of Kern, State of California.

FACTS & ALLEGATIONS
Baron DiGiandomenico & United Vision Financial
INCORPORATION BY REFERENCE
Star: Hills hereby Incorporates by Reference as if fully set forth herein all the
contents of
her previously filed Complaints in this Action including the contents of all Exhibits
attached to or filed therewith said Complaints, which are made a part hereof this
Complaint, and which Plaintiff Star:Hills hereby Requests that the Court take
Judicial Notice of the same Pursuant to the Express Provisions of California
Evidence Code Section 451-453, Et Sequiter.
4. In late February 2007, a person from United Vision Financial who was believed
to be a
Broker at the time, made a telephone call to Star Hills, by the First name of
Baron, who
made a verbal offer of a 1 % Per cent Interest Rate, and to cut her Mortgage
Payments in
half , waive any prepayment penalty, and stated that these terms would be fixed
and would
never change. Baron also stated that every five years there was a ‘roll over
period’ of some
kind, but that these were fixed payment amounts and percentages and they
would
not increase, ever. At that time Star’s payments had been about 1300-1400
a month
for the previous year, (2006-2007), and about $800 the year before that (2005-
2006),
and in that previous year Star had paid an extra amount of about $132 per
month
‘principle only’ to bring the principle down; but the principle amount had
barely
changed in 2 years, after paying thousands of dollars in addition to fees and
penalties.
5. When Star asked Baron “what is the catch?”, because she had never heard of
such a
low interest rate Baron, said that he could “Pull Strings” and he only talked
about
predatory lenders and how they scam people, but he was an honest man to warn
her of
these criminals and assured her that he was not one of them. Baron gave Star his
private
cell phone number and Star called it to make sure it was his, and it was. After
Baron
called Star about ten (10) more times, over a 2 & 1/2 month time period, he won
the trust
of Star. Baron, said he had appraisers and he would send over one who would
appraise
the house and it had probably gone up in value and they would lend her up to
the full
amount of the appraisal which they sent and later told Star it was appraised it
at around
280,000 dollars.
6. The said Agent, Baron, said that he could “Pull Strings” when Star told him that
She
had no provable income and was not a ‘taxpayer’, AND FURTHER STATED
THAT
ALL SHE NEEDED WAS A “Voucher”, and that it could be anyone, even
someone who
works at a gas station with a tax I.D. Star provided Baron with two people that
she had
done ‘free’ research and volunteer work for, but they did not qualify with the
banks,
however the third one did. Baron called Star on May 16th, 2007 and he told her
that the
credit check process was about to expire and would roll over to a new period, and
that if
she did provide a voucher, and if she did not sign an agreement before 5 pm on
May
17th 2007, that she would have to start the entire credit check process over again,
and
that this process would take an additional month or two, and he informed her that
banks had already denied her and that this was the third bank and they had
been
talking for over two months already, and that she really needed to wrap this up
because
her credit score was lower than before and she may not qualify at all if it goes
to
another check period. Thereafter when Star asked Baron if She could cut
her
payments in half and get the 1 % and everything else he had offered if she
decided not
to take anymore money Baron said she could, but then offered her an $ 11,000
loan,
representing to her that it would not change her payments much, which
influenced her
into taking the loan. Baron rushed Star into signing a deal and took advantage of
her
vulnerable situation wherein he gathered that she was financially struggling to
manage,
care for and maintain two homes, a boat, two vehicles, including insurance
property
taxes, upkeep and maintenance, while suffering from bad health which cause
her to
lose an extreme amount of weight from 150 pounds down to 108 pounds on a 5’
9’
frame. In the face of this he stated that he guaranteed that everything would
reflect
what he had stated including waiver of pre payment penalties, 1 % per cent
Interest
rate that was a fixed rate, and monthly payments to be cut in half, never to
increase.
7. Baron sent a notary to Star’s home who he said would explain the terms of the
contract
to her fully, but when the notary arrived at Star’s home with the papers to sign,
she was
unable to explain anything contained in them. Star questioned the notary about
the
meaning of the contract & expressed to the notary that it did not appear to
reflect the
pre-payment waiver that Baron had promised, and asked her if the language
contained
in it meant what Baron claimed it meant, but the notary did not understand the
meaning
of the contract and could not explain it to her. Star called Baron immediately
with the
notary present and asked him to explain it to Star so that the notary could be a
witness
to the offer he was making and explain to both of them that the contract he
gave the
notary to have Star sign, reflected that offer correctly. Baron claimed that the
papers he
had sent with the notary were just a standard form and due to the roll over
credit check
period, that he didn’t have time to type it all up correctly, and because Star
took months
to decide that time was now running out. But he assured Star that he would
correct it to
reflect the exact proposal he had made as fore-mentioned, before sending it to
the bank,
and that he would send the notary back for Star to sign off on the changes he
would
make later that day. Due to the time running out as asserted by Baron, Star:
Hills could
not read all of the papers brought to her by the Notary, which were
approximately an
inch thick with legal sized sheets. In addition there was no time to consult an
attorney
for advice, and Baron knew that there was no attorney present to assist Star:
Hills with
understanding the documents presented to her by the Notary sent by Baron to
her home.
Believing that Baron was telling her the truth, Star signed these
papers, and
later that day the Notary came back with a one page paper that ‘appeared’ to
correct the
pre payment mistake, although Star did not fully understand the meaning of
other
language in the contract, she was coerced and rushed by the Notary.
Note: The Notary was about 8 months pregnant and when she came back with
the
alleged corrections for Star to sign off on, she had a small child left in her warm
car and
did not come inside Star’s house but instead she rushed Star for a signature
while also
claiming that she was late for another appointment concerning her child, and
again the
notary could not explain the changes or the meaning of the language contained
in the
addendum.
8. United Vision Financial & Baron DiGiandomenico falsified the loan application
form in
Violation of State and Federal Laws wherein they falsely, knowingly, willingly,
fraudulently lied on the form where it requests the name of the person who
interviewed
the borrower and the date of the alleged interview. On the loan application it
states that
the interview was conducted on may 1, 2007, and further states that the
person
conducting the interview by telephone of Star Hills was Dan Michaels
when in fact
they knew that Dan Michaels never once spoke to Star: Hills regarding
the
proposed Mortgage Refinance Loan, and that in fact there were many
telephone
calls over a two month period made by agent and loan consultant Baron
DiGiandomenico to Star: Hills by whereby said defendant was attempting
to
convince Star to accept the proposed loan using tactics of undue
influence and
rushing her to sign at the last
minute with the threat that if she did not sign she could lose the loan due to
a lower
credit rating.
9. The foregoing falsification of the loan application rendered the alleged

Transaction of
May 17, 2007 void Ab Initio Rendering any alleged Foreclosure and Sale of
home and
property also Null and Void Ab Initio, of no effect and unenforceable as a
matter of law.
see Exhibit # 2, copy of falsified Loan Application, attached hereto this
Complaint,
which is hereby Incorporated herein by reference and is made a part
hereof of this
Complaint.
DEFENDANT GMAC MORTGAGE

10. Defendant GMAC MORTGAGE of Pennsylvania & Iowa, had a Prearranged
Contract
Agreement with Defendant United Vision Financial, of California, & the
Lender
MortgageIt Inc. of New York, prior to the May 17 2007 Transaction & Signing
of the
alleged Mortgage Refinance Contract by Star: Hills, which Contractual
Relationship was
kept Secret and not Fully Disclosed to Star: Hills, Sui Juris Plaintiff herein. Said
Parties
intentionally kept Star: Hills in the dark concerning said Prior Arrangement
& the
said Secrecy was a Fraud, Breach of Trust, & Breach of Fiduciary from the
start. Said
Secret arrangement was a Conspiracy from the start between said Parties, with
the Motive,
Design, Purpose & Intent to Breach the Contract, Breach the Trust, Breach the
Fiduciary Duty Owed to Star: Hills, and to use Fraud, Deceit, and Constructive
Fraud to
steal her home and committing wrongful and Unlawful Conversion of the
personal
property, & the Title to her Home & Property. The Defendants Baron
DiGiandomenico
& Doe Defendant Charles R. Hoecker, Vice President CUSTOMER CARE
LOAN
SERVICING FOR GMAC MORTGAGE, and other unknown Doe Defendants
entered
into the said Conspiracy prior to the Date of May 17, 2007 for said
Purposes.
11. Each of said Co Conspirators, Defendants United Vision Financial, of

California,
MortgageIt Inc., of New York, & GMAC MORTGAGE, of Iowa &
Pennsylvania, had a
MORTAGE BROKERS LICENSE and Owed a Fiduciary Duty to Star: Hills,
their
Client, and Customer, from the time of their Entry into the Conspiracy to the
present,
and still Owe said Duty which includes the Duty of Full Disclosure of all facts &
Knowledge in their Possession which Effect or Affect the Rights &
Interests of
Star: Hills relating to the alleged Transaction of May 17, 2007, & the Actual
Transaction
Prior to May 17, 2007, which secretly took place without her knowledge or
Consent, to
the present, and on going into the future from the present forward until full
payment,
compensation, Remedy, Judgment & Justice is obtained by Star: Hills
Plaintiff Sui
Juris.
INVOLUNTARY TRUST
12. Based upon the foregoing said Conspiracy between the said Defendants there
was an
Involuntary Trust Created at the Inception of said Unlawful Illegal Conspiracy,
under
which Involuntary Trust said Parties were bound as Trustees of all Personal
Property of
Star: Hills which came into their possession after entering into said Conspiracy,
including
but not limited to Credits, Monies, Payments, including any late fees and
Penalties,
Prepayment Fees, Title or hazard Insurance fees, Service Fees, Processing
Fees,
Broker Fees, Servicing Fees, etc., and her Home & Land, as well as the Legal,
Lawful,
Equitable Title & Actual Title to said Home & Property, Pursuant to the
Laws of
the State of California, as expressly set forth under California Civil Code
Section
2223 & 2224, and California Civil Code, Section 3439, under Title 1,
California
Uniform Fraudulent Transfer Act. All the said Personal Property are owed
by all said
Defendants to Star: Hills and payable by said Defendants under the said
Involuntary
Trust as a matter of Law under the Laws of the State of California.
13. At the time of the alleged Mortgage Refinance Loan Transaction of May 17,
2007
said Defendant GMAC MORTAGE became a TRUSTEE and undertook a
binding
Fiduciary Obligation of full Disclosure & Fair Dealing with Star: Hills under
the Laws
of Contract under the Laws of the State of California, and they had
previously agreed
to do this with Mortgage Loan Contractor, Defendant United Vision Financial,
and
Lender MortgageIt Inc., having had an on going professional business
Relationship with
United Vision Financial. DEFENDANT GMAC Owed a Fiduciary Duty to Star:
Hills
upon entering into said alleged Contract. Defendant GMAC MORTGAGE
Promised,
by their Contracting with UNITED VISION FINANCIAL & Star: Hills that
they would
Comply with & Obey all laws of the State of California, and they never
intended to do
so, committing Fraud, Constructive Fraud, Deceit Breach of Trust & Breach of
Fiduciary
upon Star: Hills from the outset, Violating their Fiduciary Duty Owed to
Star: Hills,
and breaching the Contract between her, United Vision Financial, & the
Lender
Contracted by United Vision Financial, MortgageIt Inc. & GMAC
MORTGAGE.
GMAC MORTGAGE Violated the laws of Interest and Usury of the State
of
California, and Violated the alleged Refinance Mortgage Loan Contract,
which allows
only the “Holder of the Note” to make any interest Rate changes or increases,
and
GMAC was never the “Holder of the Note”. See Exhibit # _ , Attached hereto
this
Complaint which is hereby Incorporated by Reference as if fully set forth
herein, and
is made a part of this complaint, which Plaintiff Requests the Court to take
Judicial
Notice of Pursuant to the Provisions of California Evidence Code Sections
451-453,
Et Sequiter. The said Fraud was Premeditated, Intentional, Willing, &
Knowing, with
Intent to Cause Injury & Harm to Star: Hills, which makes them Liable to
Star:
Hills for Exemplary or Punitive Damages, as Determined by a Jury.
NO STANDING UNDER THE NOTE

14. GMAC Mortgage unlawfully changed and increased the interest Rate on
the Note on
numerous occasions based on their own Calculations. GMAC had no
Lawful
Standing, Right, or Authorization to Calculate Interest Rate Changes or
Increases,
under the terms of the note nor to bill Star: Hills for any Interest Rate
increases or
changes as they never held the note at the time they purported to make
interest
rate changes and increases, as only the "note holder" had the Right under
the terms
of the contract and promissory Note to Calculate any changes in the
interest rate.
see of the said Mortgage Contract Deed of trust and Note in Exhibits 4 &
11
which attached hereto and is hereby Incorporated into this complaint by
reference
as if fully set forth, and is made a part hereof this complaint which plaintiff
hereby
requests the Court take Judicial Notice of under the express provisions of
California
Evidence Code Section 451-453 Et Sequiter. Based upon the foregoing all
the interest
Rate increased and changes by GMAC Mortgage are Null and Void Ab
Initio and
unenforceable by GMAC Mortgage in this case.
15. Defendant GMAC MORTGAGE had no Lawful Standing, Right, or

Authorization to
Institute Foreclosure proceedings under the Note, they had no Right of
Enforcement, and
as they were never the Lender or the Holder of the Note and only the "Holder of
the
Note" had any Right or Standing under the terms of the Contract and the
Note and
under the Law of the State of California to enforce the alleged Mortgage
Refinance
Contract and the terms of the Note. Their Actions in purporting to do so
were Fraud
& unlawful and wrongful Conversion of the Title to Home and property of
Star and
theft of the same. All said Actions of GMAC MORTGAGE are Void Ab
Initio and
have no effect whatsoever under the Law. Star is Entitled to a
Reconveyance of the
Title to her home and Property and the Return of all Credit, Monies,
Penalties,
Fees, Interest, & Payments made or wrongfully taken under the Fraudulent
alleged
Refinanced Mortgage Contract.
UNDUE INFLUENCE & FRAUD

16. None of Defendants GMAC MORTGAGE; UNITED VISION FINANCIAL;
Baron
DiGiandomenico; nor the Lender MORTGAGEIT INC. ever informed Star
that this
Contract was for a purchase of Credit, with Usury and Interest added to the
price of the
purchase. Star only recently discovered this after going through the papers left
with her
by UNITED VISION FINANCIAL via Baron's Notary Public. Star was
previously under
the false and mistaken Notion or Impression that she was being Loaned Cash
Money at
Face Value by the Lender. Based upon the foregoing the alleged Loan and Note
is Void
Ab Initio as there was never the full disclosure to Star of the true meaning and
terms of
the Contract by Baron or any of the Defendants when she asked for an
explanation of
the meaning of the papers she was signing, which signing was done under
Undue
Influence of Baron and the Notary as set forth previously, and the papers
being about
an inch thick, Legal sized, she was not given any time to read them, being
told by
Baron that if she did not sign then and there that she had a real chance of
losing the
Loan based on a lower Credit Rating which was threat of circumstances
beyond her
power and control to change, avoid, or prevent, and had a coercive effect on
Star,
undue influence without which she would have not signed the papers and
there
would have been no alleged contract at that time on May 17, 2007. Under
these
facts there was never any meeting of the minds required for their to be a
valid and
binding contract.
WAIVER PROVISIONS UNDER ARTICLE 10 OF NOTE
17. The "waiver provision" under Article 10 of the Note was Unlawful and
Unconstitutional
in Violation of the State and Federal Laws Requiring Due Process of Law,
Notice and
opportunity to be heard and to defend rights and interest, including under State
and
Federal Constitutions, the California Civil Code, California Commercial Code,
and the
maxims of jurisprudence. Said article did not constitute a knowing, fully
informed,
voluntary waiver of any right of notice of dishonor, or right to presentment of
the original
note, the instrument the demand for payment was based on, since it was not the
lender
who was making demand for payment on the note. The denial of due process is
inherent
in the fact that since only the lender or holder of the note had any right under
the alleged
contract to enforce the terms of the alleged contract, there is no way for the
borrower to
determine if the party (GMAC in this case), demanding payment has any right
to do so
under the alleged contract if they are not the original lender, (in this case
GMAC
MORTGAGE was not the lender) unless there is an inherent right outside
statutory or
written law to demand presentment of the original instrument the alleged
obligation or
debt is based upon. In the case of a woman unlearned in the law such as Star
was, without
council requesting her to sign such a waiver without any explanation or
understanding on
her part is the intent to commit fraud and theft by deception as is fully set out
herein
prior. It is further clear that any such right of notice of dishonor and
presentment, and a
request by the lender and the trustees, assigns, contractors, servicers, etc., for
waiver of
such a right without explanation, understanding, or knowledege of the meaning
or
purpose of such a waiver, amounts to an unknowing waiver, and a waiver
without real
consent, which also elicits Prima Facia Evidence of intent and prior knowledge
of the
party requesting the unknowing waiver that neither the original lender nor the
Servicer
GMAC MORTGAGE would be Holder of the Note at the time of Foreclosure,
and would
not be able to produce it on Demand nor prove that they had any Right to
enforce the
terms of the alleged Contract or Note. This is Prima Facia Evidence supporting
a
Premeditated Conspiracy to Defraud the "borrower" out of her home and
property.
The alleged 'Waiver" of Presentment under "10" of the Note, is further Void
Ab Initio
based upon the fact that it Intentionally Misinforms and Omits from its
Explanation of
the Meaning of the Term "Right" of "Presentment" the fact that the
Meaning of the
said Term under the Law, and under the California UCC Code is the Right to
Demand
that the alleged Creditor Present the Original Instrument, in this Case the
Original
Promissory Note, which the alleged Debt is based upon, which gives the alleged
Creditor
the Right demand payment and to Enforce the Note as a matter of Law. If
GMAC
MORTAGE WAS IN FACT "HOLDER OF THE NOTE" AT THE TIME OF
THE
ALLEGED FOREGLOSURE THEY HAD A DUTY UNDER THE LAW OF
THE
STATE OF CALIFORNIA TO PRESENT THE ORIGINAL NOTE TO Star
UPON
HER WRITTEN DEMAND FOR PROOF THAT THEY HELD THE NOTE
AND HAD
THE RIGHT TO ENFORCE THE TERMS OF THE NOTE AND TO
COLLECT THE
ALLEGED DEBT. THEIR FAILURE TO DO SO CAUSED THE ALLEGED
DEBT TO
BE DISCHARGED AS A MATTER OF CALIFORNIA LAW UNDER THE
CALIFORNIA COMMERCIAL CODE CITED HEREAFTER WHICH
NOW
REQUIRES A TOTAL RECONVEYANCE OF THE TITLE BACK TO Star.
If GMAC
MORTGAGE WAS NOT HOLDER OF THE NOTE AT THE TIME OF
ALLEGED
FORECLOSURE THEN THE LENDER MORTGAGEIT INC., WAS
REQUIRED TO
PRESENT THE ORIGINAL NOTE TO Star PRIOR TO THE INSTITUTION
OF ANY
ALLEGED FORECLOSURE PROCEEDINGS, AS WELL AS SERVE A
NOTICE OF
DISHONOR TO Star, PER THE TERMS OF THE NOTE AND
AGREEMENT, AS
ONLY THE LENDER AND HOLDER OF THE NOTE HAD ANY RIGHT TO
ENFORCE THE SAID TERMS OF THE NOTE AND ALLEGED
AGREEMENT.
SAID DEFENDANTS ACTIONS VIOLATED CALIFORNIA LAW UNDER
COMMERCIAL CODE SECTION 1304, WHICH MANDATES:" Every
contract or
duty within this code imposes an obligation of good faith in its performance
and
enforcement." AS WELL AS A VIOLATION OF SECTION 3309(b), WHICH
MANDATES "(b) A person seeking enforcement of an instrument under
subdivision (a)
shall prove the terms of the instrument and the person's right to enforce the
instrument."
SAID DEFENDANTS VIOLATED CALIFORNIA COMMERCIAL CODE
SECTION
3501. (a) , WHICH MANDATES: "Presentment" means a demand made by or
on
behalf of a person entitled to enforce an instrument (1) to pay the instrument
made to
the drawee or a party obliged to pay the instrument or, in the case of a note or
accepted
draft payable at a bank, to the bank, or (2) to accept a draft made to the
drawee.aND
VIOLATED THE PROVISIONS UNDER " (1) Presentment may be made at
the place of
payment of the instrument and shall be made at the place of payment if the instrument is
payable at a
bank in the United States; may be made by any commercially reasonable means, including an
oral, written,
or electronic communication; is effective when the demand for payment or acceptance is
received by the
person to whom presentment is made; and is effective if made to any one of two or
more
makers, acceptors, drawees, or other payors. (2) Upon demand of the person to
whom
presentment is made, the person making presentment shall (A) exhibit the
instrument, (B)
give reasonable identification and, if presentment is made on behalf of another
person,
reasonable evidence of authority to do so, and (C) sign a receipt on the
instrument for any
payment made or surrender the instrument if full payment is made. (3) Without
dishonoring the instrument, the party to whom presentment is made may (A)
return the
instrument for lack of a necessary indorsement, or (B) refuse payment or
acceptance for
failure of the presentment to comply with the terms of the instrument, an
agreement of the
parties, or other applicable law or rule."
" 3502. (a) Dishonor of a note is governed by the following rules: (1) If the note
is payable
on demand, the note is dishonored if presentment is duly made to the maker
and the note
is not paid on the day of presentment.
(2) If the note is not payable on demand and is payable at or through a bank or
the terms
of the note require presentment, the note is dishonored if presentment is duly
made and
the note is not paid on the day it becomes payable or the day of presentment,
whichever is
later. (3) If the note is not payable on demand and paragraph (2) does not apply,
the note
is dishonored if it is not paid on the day it becomes payable."
EQUITABLE & COLLATERAL ESTOPPEL

18. GMAC is Equitably and Collaterally Estopped from asserting any Defense of
Waiver of
Notice of Dishonor and Presentment of the Original Promissory Note prior to
the
Instituting Foreclosure proceedings, based upon their Intital, Intentional,
Willing,
Knowing & Premeditated Concealment of the fact that they knew they
would
Institute Foreclosure proceedings without being in Possession of the Note,
which
possession of the Note was a Mandatory Prerequisite of the alleged
Mortgage
Refinance Contract that only the "Note Holder" can Institute Foreclosure
proceedings, and only the "Note Holder" had the Right to Enforce the
alleged
Contract. There was no waiver, nor could there be of the statutory requirement
under
California Commercial Code CITED PRIOR that the "Holder of the Note"
serve
a Notice of Dishonor, and thereafter make a presentment of the Original
Promissory
Note, due to the fact the said parties failed and refused to explain the meaning
of the
alleged contract, and the alleged Waiver when they were asked and requested
by Star
via her conversations, Interviews, and Negotiations with their Loan Agent
Baron
DiGiamdomenico, which is stated in the original Complaints filed in this Case
# F 1500
CV 265552; which the court is required to take Judicial Notice of. Based upon
these facts
there was no knowing Voluntary Waiver of any alleged Rights of Star: Hills
including
any Right of Notice of Dishonor and Presentment of the Original Note. Based
on all the
foregoing facts, the said Parties failure to give Notice of Dishonor and
Presentment of
the Note Caused the alleged debt to be Discharged, as a Matter of Law
under the
Express Provisions of California Commercial Code and GMAC
MORTGAGE, their
Successors, Agents, Assigns, and Officers are Estopped and Barred as a
Matter of Law
of the State of California from enforcing any alleged Foreclosure or Sale of the
home
and property of Star: Hills and any such alleged Foreclosure and Sale are
Null and
Void Ab Initio.
VOID SALE OF STAR'S HOME AND PROPERTY
19. Defendant GMAC MORTGAGE purported to purchase the property and

home of Star
at an alleged Public Auction on November 13, 2008, for a price of 80,000+
dollars, a
price well below the announced sales price Valuation of $280,000. Said alleged
purchase
by GMAC was well below the fair market value of the house. Said Defendant
GMAC has
admitted in papers filed with this Court that they Received the Notice of
Rescission of the
alleged Mortgage Contract and signature on the Promissory Note prior to the
date of the
alleged Public Auction / Sale of the home and property of Star. GMAC Sale
Trustee
Omar Solorzano was also served with a Notice of the Rescission prior to the
alleged Sale
and had full knowledge that the alleged Contract and Note the alleged Sale was
based on
was Null and Void Ab Intio, and the alleged Sale was Void Ab Initio, and they
had no
Right or Authority under Law of the State of California to hold such a Sale.
They were
also served with a Notice at the location of the said Sale outside the
Bakersfield City
Hall, in writing, as were all persons present, which Notice was also posted at
several
places in and around the Sale location, which stated "Caveat Emptor"
"Caveat Actor",
the purported Public Auction / Sale of the Property and home of Star located
at "3018
Linden Avenue, Bakersfield, California", is Fraud upon the Public, and is
Void Ab
Initio. Though fully informed of the fact that the alleged Sale was Void Ab
Initio
because the Contract it was based on was Void Ab Initio, said Defendants ETS
SERVICES and Omar Solorzano proceeded with the alleged Public Sale of the
Home
and Property of Star, and when no one from the Public bid on the home, the
Sale
Trustee and the Auctioneer purported to sell the home to GMAC
MORTGAGE at far
below the Fair Market Value, committing a knowing Fraud upon the Public
and
committing Slander of Title against Star as well as a Trespass on the Title to
her home
and Property, which now has created a Controversy over the Title and
Property of the
said home, which is a Cause of Action herein for Quiet Title against GMAC
MORTGAGE, as GMAC MORTGAGE is now a third party Trespasser on
said Title.
GMAC MORTGAGE, along with Baron DiGiandomenico, & Lender
MORGAGEIT
INC, Violated the Laws of California, Forbidding Fraud, Constructive Fraud,
Deceit,
Wrongful and Unlawful Conversion etc., and are Liable to Star: Hills for said
Violations.
20. The alleged Sale of the Home & Property of Star on 11 / 13 / 2008 by
Defendant ETS
SERVICES, LLC & TRUSTEE OMAR SOLORZANO, was Void Ab Initio and
of no
effect and unenforceable under the law, as the Right of Foreclosure and of
Sale of
said Property was previously Transfered by the Lender to MERS in the
DEED OF
TRUST DATED MAY 17, 2007 AND HAD NEVER BEEN REVOKED OR
REASSIGNED BY THE LENDER OR THE HOLDER OF THE NOTE. Any
alleged
Assignment or Appointment by Defendant GMAC MORTGAGE of the Power
of Sale Or
Foreclosure to Defendant ETS SERVICE, LLC, & ALLEGED SALE
TRUSTEE
OFFICER OMAR SOLORZANO WAS VOID AB INITIO WITHOUT ANY
RIGHT
UNDER THE CONTRACT OR THE NOTE, AS GMAC MORTGAGE WAS
NEVER
THE LENDER OR THE "NOTE HOLDER" AS EXPRESSLY REQUIRED
BY THE
TERMS OF THE NOTE & ALLEGED CONTRACT. SEE PAGE 3 OF DEED
OF
TRUST DATED MAY 17, 2007.
21. Defendants ETS SERVICES, LLC, AND SALE TRUSTEE OFFICER OMAR
SOLORZANO had a prior agreement and Contractual Relationship with
Defendant
GMAC MORTGAGE. Said Defendants ETS SERVICES, LLC & OMAR
SOLORZANO
entered into the Conspiracy to Fraudulently steal & Convert the Home &
Property of
Star by an agreement to pose as Sale Trustee for GMAC MORTGAGE , when
they knew
GMAC MORTGAGE had no authority under law to appoint them or assign
them as a
Sale Trustee to sell the said Property because GMAC MORTGAGE was not the
Lender
nor the Note Holder, and had no Right to institute Foreclosure proceedings or
Enforce
the terms of the Note. Thereafter they were served with the Notice of
Rescission by Star,
and ignored the fact that the Foreclosure and Saale was Void Ab Initio
knowing they
were committing a Fraud upon the Public by going ahead with the purported
public
Sale. ETS SERVICES 7 OMAR SOLORZANO TOOK THE OVERT STEP IN
FURTHERANCE OF THE SAID CONSPIRACY, after they knew the
proposed Sale was
Void, of offering the Home & Property of Star for sale to the Public. They took
another
Overt step in furtherance of the conspiracy when they purported to sell the said
Home &
Property of Star to their Employer Contractor GMAC MORTGAGE for a
price well
below the Fair Market Value of the Property, some $80,000 + dollars, which
was the
completion of the said Conspiracy. DEFENDANT GMAC MORTGAGE took
the Overt
Step in furtherance of the said Conspiracy of purporting to Foreclose on the
said
Property when they knew they had no Right to enforce the terms of the Note or
Contract
because they were never the Lender or Holder of the Note, and never had the
Right of
Foreclosure or Sale, which was previously granted to MERS, and never
revoked , or
Assigned or Granted to anyone else by the lender MORTGAGEIT INC.
GMAC
MORTGAGE took the further Overt Step in furtherance of the Conspiracy
when they
purported to exercise a Right to Sell the said Home & Property, and appoint
ETS
SERVICES AS THE SALE TRUSTEE AND OMAR SOLORZANO AS THE
SALE
OFFICER, WITHOUT ANY LAWFUL AUTHORITY TO DO SO. GMAC
MORTGAGE TOOK THE FINAL STEP IN FURTHERANCE OF THE
CONSPIRACY WHEN THEY PURPORTED TO PURCHASE THE SAID
HOME &
PROPERTY AT THE ALLEGED PUBLIC AUCTION ON NOVEMBER 13,
2008.
22. One month afterward Star received a call from GMAC MORTGAGE, and
during that
call Star Requested a true signed copy of the contract by both parties and a
copy of the
Appraisal which Star had paid for. They promised to send it right away, but
still to this
day Star never received either document. Within 30 days Star also received a
Notice of
Interest Rate Change FROM DEFENDANT GMAC which appeared to say
the interest
was going up higher than what she had ever paid in the past, and appeared to
say her
payments would triple. Star was outraged and called Baron immediately to
ask him
how this could change when he promised her it was fixed at one percent and
the
payments would never increase. Baron said to Star, “Oh they always do that,
it means
nothing, I will fix it, fax me the paper and ill take care of it, do not worry,
don’t panic,
it’s nothing” Star tried to fax the letter to Baron but the fax did not go
through. Star
called him again, and he said he was having trouble with his fax, and gave her
a second
fax number, which also failed.
23. Star attempted to call Baron several more times over a period of the next two
months
but could not reach him, and she left messages on a voice mail and with the
operator at
United Vision Financial, but her calls were never returned. She finally came
across
Barons private cell phone number which she had misplaced, and a man
answered and
said that she had a wrong number. Star checked the number and it was the
same one
she had reached Baron on only a couple of months prior. Star called GMAC
and told
them the agreement was not what she had been promised as Baron had
explained to
her, but they just told her that she signed it and there was nothing they could
do.
GMAC violated the Original Contract agreement with Baron & United Vision
Financial
which they were bound by as a Trustee & Fiduciary for Mortgage It Inc., the
24. After making payments to GMAC throughout the next year, 2007-2008,
Star kept
receiving higher interest rate change Notices every month, and the principle
owed kept
going up every month. She saw that the principle was only going up, and she
was only
paying interest and never making a dent in the principle. Since these events Star
has
received interest Rate changes up to nearly 9 % every single Month, and the
loan
amount kept going up every month from $ 211,000 Dollars $ 245, 141.53 which
is the
amount that was on the Notice of Sale taped to her door in October of 2008.
The bills she received from GMAC reflected that she owed MORE than she had
ever
borrowed, even after faithfully paying thousands upon thousands for 3 years.
Finally
Star sent GMAC a letter offering to accept their claim upon proof of such claim,
and to
send her proof of the note signed by both parties. She sent a check with an offer
that by
cashing the check, GMAC had closed the old account number and agreed to
make a
new account number, and a new agreement that upon proof of claim Star would
pay.
GMAC cashed the check agreeing to the terms of her offer.
Based UPON THE FOREGOING INTENTIONAL Misrepresentation, Deceit,
Fraud, breach of contract, breach of fiduciary, intentional concealment, undue
influence, etc., Star Hills stopped payments on the alleged Mortgage debt, and
thereafter demanded in writing proof of their claim against her, a copy of the
Original Contract, Property Appraisal, and the Note which the Claim was
based upon.
25. The demands for proof of claim, and a copy of the original Contract, Appraisal
of the
Property, and the Original Note have never been complied with by
anyone,INCLUDING
Defendant GMAC MORTGAGE which was a Breach of Contract by the SAID
PARTIES INCLUDING GMAC MORTGAGE.
26. Plaintiff has subsequently discovered that said Defendants and the Original
Sales Person
by the name of “ Baron” & his United Vision Financial, knowingly
intentionally over
valued the said Home and Property of Star’s by having an agent, contractor,
or
employee conduct an appraisal which the alleged mortgage loan would be
based upon,
and that appraisal was more than double the value of what the County Tax
Assessor
Appraised the Home at. Said false appraisal was $280, 000 and was made to
exceed the
amount of any Homestead Exemption which might subsequently be claimed
by Star
herein upon Discovery of the fraud. The latest Appraisal by the Tax Assessor,
for this
year’s Property Taxes is 116, 711 dollars which is well within the Homestead
Exemption now being claimed by Star pursuant to her recently filed
Declaration of
Homestead.
27. Plaintiff has recently become aware of some facts and law which she was not
aware
of at the time she was approached over the telephone by the Defendants. Article
I
Section 10 of the Federal Constitution mandates that no state shall make
anything other
than Gold or Silver coin a tender in payment of Debts, and it says much more
than that.
Plaintiff incorporates all the federal constitutional provisions under said
Article 1,
Section 10 herein this complaint as if fully set forth.
28. Plaintiff herein is a Christian woman whose faith lies in the ancient Scriptures
set
out in the Holy Bible, and particular to these circumstances are the following
scriptures: Leviticus 19: 37, and Deuteronomy 25:15, which Star hereby
incorporates herein this Complaint by reference as if fully set forth herein and
requests the court to take Judicial Notice of pursuant to California Evidence
Code
Section 451-453 Et Sequiter.
CAUSES OF ACTION
ALL AGAINST DEFENDANT GMAC MORTGAGE

I
FRAUD
Plaintiff hereby incorporates all the foregoing facts and allegations herein by
reference as
if fully set forth. The foregoing Actions of the Defendants including GMAC
MORTGAGE amounted to Fraud for which Defendant GMAC

MORTGAGE is
Liable to Plaintiff Star: Hills.
II
CONSTRUCTIVE FRAUD
reference as
MORTGAGE amounted to Constructive Fraud for which Defendant GMAC
MORTGAGE is Liable to Plaintiff Star: Hills.
III
DECEIT
reference as
MORTGAGE amounted to Deceit for which Defendant GMAC

MORTGAGE is
to Plaintiff Star: Hills.
IV
BREACH OF CONTRACT
reference as
MORTGAGE amounted to Breach of Contract, for which Defendant GMAC
V
BREACH OF FIDUCIARY
reference
as if fully set forth. The foregoing Actions of the Defendants including

GMAC
MORTGAGE amounted to Breach of Fiduciary for which Defendant GMAC
VI
ENFORCEMENT OF RESCISSION
reference as
MORTGAGE entitles Plaintiff to Enforcement of the Rescission of the Alleged

Mortgage
Refinance Contract of May 17, 2007, including a Permanent Restraining

Order
Enjoining GMAC MORTGAGE from taking any further Actions against

Star: Hills,
and a Total Reconveyance of the Title to her Property & home.

VII
QUIET TITLE
reference as
MORTGAGE Entitles Star: Hills to Quiet Title on her Property & home
located at :
3018 Linden Avenue, [Bakersfield], California state.
VIII
UNLAWFUL CONVERSION
reference as
MORTGAGE amounted to UNLAWFUL AND FRAUDULENT TRANSFER

&
OBLIGATION FOR WRONGFUL GAIN, in Violation of California Uniform
Fraudulent Transfer Act, At Title 1, of California Civil Code, Section 3439,

for
which Defendant GMAC MORTGAGE is Liable to Plaintiff Star: Hills.
IX
CONSPIRACY TO COMMIT FRAUD
reference as
MORTGAGE amounted to Conspiracy to commit Fraud for which

Defendant GMAC
X
CONSPIRACY TO COMMIT UNLAWFUL CONVERSION
Plaintiff hereby incorporates all the foregoing facts and allegations herein
by
reference as if fully set forth. The foregoing Actions of the Defendants

including
GMAC MORTGAGE amounted to Conspiracy to Commit Unlawful

Conversion of
Title, for which Defendant GMAC MORTGAGE is Liable to Plaintiff

Star: Hills.
XI
SLANDER OF TITLE
reference as
if fully set forth. The foregoing Actions of GMAC MORTGAGE amounted

to
SLANDER OF TITLE of Plaintiffs Property & home, for which Defendant

GMAC
MORTGAGE is to Plaintiff Star: Hills.
XII
INVOLUNTARY TRUST
California Civil Code Section 2223 & 2224
reference as
if fully set forth. Under the foregoing facts Plaintiff is Entitled to Relief against
DEFENDANTS INCLUDING GMAC MORTGAGE under the involuntary

Trust
including all her personal property now in possession of any of said Defendants,
as set
forth in the complaint.
XIII
EQUITABLE RELIEF
INCLUDING
EQUITABLE INDEMNIFICATION,
DECLARATORY &
INJUNCTIVE RELIEF
reference as
MORTGAGE Star: Hills is Entitled to Equitable Relief including Equitable
Indemnification, Declaratory & Injunctive Relief against said Defendants.
-DAMAGES-
The foregoing Actions of said Defendant GMAC MORTGAGE Caused the
following Damages to Plaintiff Star: Hills:
I. Loss of approximately $ 72,000 dollars of lawful money and or credit (subject to

future
amendment) due to the conspiracy, & Fraud, etc.
II. Loss of Title to Home & Property due to the Conspiracy & Fraud, etc.
III. Mental & Emotional Distress & Anguish due to the Conspiracy & Fraud, etc.
IV. Cost of Suit.
PRAYER
Star: Hills Sui Juris Plaintiff hereby prays to God Almighty the Creator of the
Universe for
the following Relief :
I. $ 72,000 Dollars ,subject to Amendment, for the Conspiracy & Fraud,etc., or as

determined
by a Jury.
II. Compensation for Mental & emotional Distress & Anguish due to the Conspiracy
& Fraud,
etc., or as determined by a Jury.
III. Compensation for Court fees and Costs, Cost of suit.
IV. Equitable Relief including an Order Enforcing Rescission of the alleged

Mortgage
Contract & Note, a Declaratory Judgment that the Alleged Forclosure and Sale
of the
Home & Property were Void Ab Initio,& Injunctive Relief and Permanent
Restraining Order Enjoining said Defendants from taking any further actions
against
Star based upon the alleged Foreclosure & Sale of her Home & Property,
including an
Order for Total Reconveyance of Title to her Home & Property, and order
Quiting the
Title to said Property & home.
V. Punitive or Exemplary Damages as Determined by a Jury for Fraud with Malice

and
Intent to do Injury and harm to Star: Hills.
VI. Any other Relief the Court deems right and proper under the facts & law of the
Case.
______________________
Dated: 2 / 30 / 2009. Star: Hills, Sui Juris
all Rights Reserved,
Plaintiff in Case #: S 1500
CV 265552.
VERIFICATION
Star: Hills hereby affirms under the Penalty of Perjury under the laws of
the
State of California that she executed the foregoing Amended Verified
Complaint
and that the contents of the same are true and correct, Except as to those
matters
based upon information and belief, and as to those matters she believes
them to be
true. Executed on this ___ day of February, 2009 in the Republic of

California, County
of Kern, City of Bakersfield,
_____________________
Star: Hills, Sui Juris
all Rights Reserved,
Plaintiff in Case #: S 1500
CV 265552.
INDEX OF EXHIBITS
#1: MORTGAGE LOAN ORIGINATION AGREEMENT

BETWEEN UNITED VISION FINANCIAL &
Star: Hills.
#2: UNIFORM RESIDENTIAL LOAN APPLICATION

DATED MAY 17, 2007, 17:35 FALSIFIED BY
DEFENDANT
UNITED VISION FINANCIAL & Baron DiGiandominico
ON
PAGE 4 SIGNED ON MAY 1, 2007.
#3: RESPA SERVICING DISCLOSURE FROM

DEFENDANT
MORTGAGEIT INC., DATED MAY 17, 2007.
#4: ADJUSTABLE RATE NOTE DATED MAY 17, 2007,

WITH LENDER MORTGAGEIT INC. SHOWING ONLY
THE "NOTE HOLDER" HAD THE RIGHT UNDER
THE ORIGINAL PROMMISSORY NOTE AND THE
AGREEMENT SIGNED ON MAY 17, 2007 TO
RECEIVE PAYMENT & TO DETERMINE INTEREST
RATE INDEX CHANGES, INCREASES IN INTEREST;
& ALLEGED WAIVER UNDER NUMBER 10 OF THE
NOTE, OMITING FULL MEANING OF WAIVER OF
PRESENTMENT.
#5: HAZARD INSURANCE AUTHORIZATION &

REQUIREMENTS DATED MAY 17, 2007 STATING
UNDER 10 "LEMDERS LOSS PAYABLE
ENDORSEMENT 438 BFU TO BE AFFIXED TO
POLICY IN FAVOR OF: GMAC MORTGAGE, LLC.
#6: TEMPORARY PAYMENT COUPON FROM

MORTGAGE IT INC., DATED MAY 17, 2007
STATING "PLEASE SEND YOUR PAYMENT
DIRECTLY TO GMAC MORTGAGE, LLC
SERVICING DEPT. GMAC MORTGAGE,
LLC PO BOX 780, WATERLOO, IA 50704-0780
#7: FEDERAL TRUTH IN LENDING DISCLOSURE

STATEMENT PAGE 2 ITEMIZATION OF AMOUNTS
OF AMOUNT FINANCED FROM CREDITER
MORTGAGE INC., DATED MAY 17, 2007 SHOWING
"PREPAID FINANCE CHARGE" OF 3.6 % , $ 7,992
DOLLARS GOING TO DEFENDANT UNITED VISION
FINANCIAL.
#8: PROOF SHEET PAGES 1-4 SHOWING DATE OF

DOCUMENTS MAY 17, 2007 BROKER
FEE, PROCESSING FEE, UNDER WRITING FEE
PAID TO DEFENDANT UNITED VISION FINANCIAL
#9: PREPAYMENT PENALTY ADDENDUM TO NOTE

WHICH VIOLATEDTHE TERMS OF THE ORIGINAL
AGREEMENT BETWEEN Star: Hills AND UNITED
VISION FINANCIAL AND Star: Hills DATED, MAY 17,
2007.
#10: CLOSING INSTRUCTIONS DATED MAY 17, 2007,

FROM DEFENDANT MORTGAGEIT INC., PAGES 1-3
SHOWING BROKERS FEE, PROCESSING FEE,
UNDERWRITNG FEE PAID TO TO DEFENDANT
UNITED VISION FINANCIAL.
#11: DEED OF TRUST DATED MAY 17,2007, SHOWING

LENDER
AS MORTGAGEIT INC., "APPLICABBLE LAW"
INCLUDING
CONTROLLING APPLICABBLE CALIFORNIA LAW
(PAGE2)
POWER OF FORECLOSURE & SALE IRREVOCABLY
GRANTED & CONVEYED TO MERS ON PAGE 3 &
NEVER
LAWFULLY TRANSFERED TO GMAC MORTGAGE,
OR ETS
SERVICES NOR OMAR SOLORZANO.
#12: ADJUSTABLE RATE RIDER DATED MAY 17, 2007

SHOWING
INTEREST RATE AT 1.25 PERCENT (PAGE 1) AND
ONLY
"NOTE HOLDER" COULD CHANGE THE NEW RATE
INDEX
& CALCULATE INTEREST CHANGES PAGE 2-3.
#13: NOTICE OF TRUSTEE SALE BY THE "DULY

APPOINTED
TRUSTEE" "ETS SERVICES" & "TRUSTEE SALE
OFFICER"
"Omar Solorzano" ,WHO HAD NO POWER OF
FORECLOSURE
OR SALE UNDER THE DEED OR NOTE RENDERING
THE
ALLEGED NOTE VOID AB INITIO.
#14: DECEPTIVE LETTER FROM GMAC MORTGAGE

TO
Star: Hills FROM DEFENDANT Charles R. Hoecker
VICE
PRESIDENT OF CUSTOMER CARE, LOAN SERVICES
STATING THE REFERENCED ACCOUNT WAS ONLY
TRANSFERED EFFECTIVE 7 / 1 / 2007 WHEN
DOCUMENTS
SHOW THEY HAD BEEN NAMED AS SERVICER IN
THE
ORIGINAL LOAN DOCUMENTS FROM THE START
ON
MAY 17, 2007 HAVING NEVER BEEN LENDER OR
HOLDER
OF THE ORIGINAL PROMISSORY NOTE WITH THE
RIGHT
OF ENFORCEMENT OF THE NOTE, NOR RIGHT TO
CALCULATE INTERETS RATE CHANGES.
PROOF OF SERVICE
I THE UNDERSIGNED HEREBY DECLARE UNDER PENALTY OF PERJURY

UNDER
THE LAWS OF THE STATE OF CALIFORNIA THAT I SERVED THE HERE
ATTACHED DOCUMENTS DESCRIBED AS:
NOTICE OF & MOTION TO SET ASIDE & VACATE THE NOVEMBER 5, 2009
ORDERS & JUDGMENT OF DEPT. 8 JUDGE
OF Star: Hills
ON THE PARTIES NAMED BELOW BY PERSONAL DELIVERY
AT THE ADDRESS SET FORTH BELOW
ON THE DAY OF: 11 / / 2009,

GMAC MORTGAGE LLC
C/O: COUNSEL OF RECORD,
EARL WALLACE,
RUZICA & WALLACE LLP,
16520 Bake Parkway, Suite 280
IRVINE, CA. 92618
I am not a party to the within action. I am over the age of Eighteen years. My
Address is
550 N. Fulton Street, Fresno, California. Executed by my hand on this 30th day of
February,
2009, in the County of Kern, Republic of California,
/S/____________________________
Alan David.
Star: Hills
temporary mailing location,
near: [Bakersfield], California
Sui Juris alleged “Defendant ” in #: S-1500-CL-237061 SMK.
GMAC MORTGAGE LLC, CASE #: S 1500 -CL-237061 SMK.

RELATED CASE #: S 1500-CL-
236547;
plaintiff,
-VS-
NOTICE OF OBJECTIONS TO
OCTOBER 22, 2009 ORDER OF DEPT. 17
JUDGE LORNA BRUMFIELD &
EMERGENCY EX PARTE APPLICATION
TO VACATE TRIAL DATE OF 11 / 5 /
STAR HILLS,
ET AL,
defendants.
HEARING DATE: 11 / 5 / 2009;
TIME: 8:30 A. M.; DEPT. #: 17
_______________________________ HONORABLE JUDGE Lorna Brumfield
TO: THE ABOVE NAMED COURT & ALL INTERESTED PARTIES &
THEIR
ATTORNEYS OF RECORD IN THE ABOVE ENTITLED ACTION;
PLEASE
TAKE NOTICE OF THE FOLLOWING;
1. On the day of / / 2009, at the hour of 8: 30 A.M. or as soon thereafter

as the
matter can be heard, Star: Hills ALLEGED [“DEFENDANT”], ( hereafter called
“Star” )
in the above entitled action will move the above named Court &
Department 17
HONORABLE Judge Lorna Brumfield for an Order TO SET ASIDE & /
OR
VACATE THE CLERKS DEFAULT, & CLERKS DEFAULT JUDGMENT
ENTERED
ON MAY 8, 2009, & TO VACATE THE WRIT OF POSSESSION SIGNED
ON
MAY 8, 2009, & allowing Star to proceed on the Answer attached to the
supporting
affidavit, which was filed on April 1, 2009 in this Action, & to Proceed on
her
previously filed Answer, which is in Exhibit #: 1 attached to the here
accompanying
Supporting Affidavit / Declaration of Star, PURSUANT TO THE EXPRESS
PROVISIONS OF THE CALIFORNIA CODE OF CIVIL PROCEDURE
SECTIONS:
473 & 473.5, & ITS INHERENT POWER TO GRANT EQUITABLE
RELIEF,
BASED UPON THE FOLLOWING GROUNDS;
(1) The Plaintiff, through their Counsel & or third parties hired by them have
committed
a fraud upon the Court wherein they falsely claimed to have posted a
summons on
the premises of Star on April 13, 2009, and falsified a proof of service
which they
presented to the Court Clerk for filing on May 1, 2009, in Violation of Local
Rules of
Court Rule 3.17.2(d) which required it to be filed within ten (10) days
of
issuance of the Order of April 9, 2009, which was April 19, 2009,
committing fraud,
forgery and perjury under the laws of the state of California which
Caused the Said
Court Clerk to enter Clerks Default & Clerks Default Judgment, which
Star did not
become aware of until around May 12, 2009, which caught Star by
Surprise, as no
Summons was ever posted by said Defendants on her said premises, &
Star never
received any actual Notice from the alleged Service by Posting &
Mailing, having
not received it in the mail from the said Defendants either; any failure to
file an
answer to the alleged complaint, was Excusable Neglect as Star was never
aware
of any such Posting or Mailing having never actually received any such
copy of a
Summons & Complaint FROM SAID Plaintiff GMAC MORTGAGE LLC;
(2) Star previously filed a timely Answer to the Plaintiffs Complaint on April
1,
2009, SEE EXHIBIT #: 1 ATTACHED TO THE ACCOMPANYING
SUPPORTING AFFIDAVIT / DECLARATION OF Star , A COPY OF
SAID
ANSWER FILED ON APRIL 1, 2009, WHICH Star HEREIN
REQUESTS
LEAVE TO FILE IN THIS ACTION & DEFEND AGAINST THE SAID
COMPLAINT AS SHE HAS VIABLE DEFENSES AGAINST THE SAID
ACTION
INCLUDING THAT THE ALLEGED TITLE THEY CLAIM TO THE
PROPERTY
IS VOID AB INITIO HAVING BEEN OBTAINED FROM AN ALLEGED
PUBLIC SALE THAT WAS VOID AB INITIO, DUE TO A PRIOR
RESCISSION
OF THE ALLEGED MORTGAGE CONTRACT IT WAS BASED UPON.
Said Answer was later rejected by the court clerk & mailed back to
Star,
due to service on the wrong attorney which was due to no fault of Star
as she
was never given any Notice of a change of attorneys by either the Court
Clerk or
by the said PLAINTIFF GMAC; This was totally inadvertent by Star due
to no
notice of change of attorneys from the court or from the Plaintiff GMAC
MORTGAGE LLC; & IS AN EXCUSABLE MISTAKE OF FACT &
EXCUSABLE
NEGLECT; WHICH CAUGHT Star BY SURPRISE.
(3) A MISCARRIAGE OF JUSTICE HAS OCCURRED DUE TO THE

SAID
FRAUD DECEIT, DECEPTION, PERJURY OF PLAINTIFF GMAC
MORTGAGE LLC, & OR THEIR ATTORNEYS & OR EMPLOYEES
OR
CONTRACTORS WHICH HAS DENIED Star STATE & FEDERAL
DUE
PROCESS OF LAW, NOTICE & OPPORTUNITY TO BE HEARD
AND TO
DEFEND AGAINST THE ALLEGATIONS IN THE UNLAWFUL
DETAINER
ACTION FILED BY THE SAID PLAINTIFF, WHICH HAS CAUSED
DAMAGE
& INJURY TO Star WHEREBY SHE IS PRESENTLY BEING
THREATENED
WITH THE WRONGFUL SEIZURE OF HER HOME & LAND IF SAID
CLERKS
DEFAULT & ENTRY OF CLERKS DEFAULT JUDGMENT IS NOT
SET
ASIDE & OR VACATED BY THE ABOVE NAMED COURT, WHICH
INJURY WILL BECOME IRREPARABLE IF SAID CLERKS
DEFAULT &
CLERKS DEFAULT JUDGMENT IS NOT IMMEDIATELY &
FORTHWITH
SET ASIDE & OR VACATED, BEFORE THE TAKING & OR
SEIZURE OF
THE SAID HOME & LAND OF Star: Hills.
(4) ANY CLAIMS OF SAID PLAINTIFF GMAC MORTGAGE LLC TO THE

TITLE
& PROPERTY IN QUESTION IS BASED SOLELY UPON THE
PRIOR
FRAUD & DECEIT OF SAID PLAINTIFF AND THUS PLAINTIFF
COMES
INTO THE ACTION WITH UNCLEAN HANDS & ARE ESTOPPED
OR
BARRED BY THE CLEAN HANDS DOCTRINE FROM PURSUING
THIS
ACTION OR FROM OBTAINING ANY RELIEF FROM Star: Hills
WHATSOEVER;
(5) ENTRY OF CLERKS DEFAULT & CLERKS DEFAULT JUDGMENT

WAS NOT DUE TO ANY LACK OF APPLICATION OF DUE
DILIGENCE ON THE PART OF Star & HAPPENED DESPITE THE
APPLICATION OF DUE DILIGENCE BY Star DUE STRICTLY TO
THE SAID FRAUD OF SAID PLAINTIFF & THEIR ATTORNEYS &
CONTRACTORS, ETC., WHICH NOW REQUIRES THAT THE COURT
GRANT THIS MOTION & ISSUE THE RELIEF REQUESTED TO
PREVENT A GROSS MISCARRIAGE OF JUSTICE FOR WHICH
THERE IS NO ADEQUATE SPEEDY REMEDY IN THE ORDINARY
COURSE OF LAW UNLESS THE COURT ISSUES THE RELIEF
HEREIN REQUESTED;
2. This Motion is based on this Notice, the accompanying supporting

declaration &
Exhibits attached thereto, as well as the pleadings, papers & Orders in the
Courts
Case file, & the here accompanying Request for Judicial Notice;
3. Wherefore Star: Hills prays to the Creator of the Universe for the following
Relief;
I. The Court Takes Judicial Notice as Requested herein & as Expressly
Required
by Law, and;
II. Grants this Motion, and;
III. Issues an Order setting aside or vacating the Entry of Clerks Default &
Clerks
Default Judgment, of May 1 & 8 2009, & allowing Star: Hills to File &
Proceed on the
Answer to the Plaintiffs Complaint that was previously filed on April 13,
2009, &;
IV. Issues whatever other Relief the Court Deems Right & Proper under the
Facts &
Law of this Case.
On this day, the – -day-of-the-sixth- month-Two-thousand-

and-nine,
_____________
_____
Star: Hills
all rights
reserved
Sui Juris, in #:
S 1500 CL
237061 SMK.
///
///
///
///
///
///
///
///
///
///
///
Star: Hills
Sui Juris Plaintiff in #: S 1500 -CL-237061 SMK.
GMAC MORTGAGE LLC, S 1500 -CL-237061 SMK.
plaintiff,
-VS- AFFIDAVIT OF Star: Hills

IN SUPPORT OF MOTION
FOR ORDER SETTING ASIDE
STAR HILLS & OR VACATING MAY 8, 2009
ET AL, ENTRY OF CLERKS DEFAULT
& CLERKS DEFAULT JUDGMENT, ETC.
HEARING DATE: 6 / / 2009;

DEPT. #: 17; TIME: 8:30 A.M
defendants.
________________________________
1. Comes now, the living woman known by: Star: Hills who says and declares:
2. I am called the “defendant”, Sui Juris in the above entitled action.
3. I have personal knowledge of the following matters, & I am competent to

testify as to
the same matters if I am called upon to do so, & I will so testify if called
upon.
4. On the day of April 9, 2009 Plaintiff in Case #: S 1500-CL-237061,
“PLAINTIFF ”
GMAC MORTGAGE LLC, APPLIED FOR AN ORDER TO SERVE
SUMMONS BY
POSTING & MAILING FOR UNLAWFUL DETAINER AGAINST Star: Hills,
WHO
WAS NAMED AS “DEFENDANT” IN THE SAID CASE. The COURT,
GRANTED
THE APPLICATION ON THE SAME DAY, & ISSUED AN ORDER ON
THAT DAY
APRIL 9, 2009 DIRECTING THAT PLAINTIFF GMAC MORTGAGE LLC,
SERVE
SUMMONS & COMPLAINT BY POSTING IT ON THE PREMISES &
FURTHER
THAT THEY IMMEDIATELY THEREAFTER MAIL BY CERTIFIED MAIL,
COPY OF THE SUMMONS & COMPLAINT TO THE ALLEGED
DEFENDANT
Star: Hills. SEE COPY OF THE SAID “APPLICATION” & “ORDER”
ATTACHED
HERETO THIS AFFIDAVIT AS EXHIBIT NUMBER #: 2 , WHICH IS
HEREBY
INCORPORATED HEREIN THIS AFFIDAVIT BY REFERENCE AS IF
FULLY
SET FORTH & WHICH IS HEREBY MADE A PART HEREOF THIS
AFFIDAVIT.
5. The said “Application” for order to serve summons by posting for unlawful
Detainer
was defective under local rules of court rule 3.17.2 (b), which rule
Expressly
required that: “ All applications for service by posting and mailing pursuant
to code
of civil procedure section 415.45 shall include a date by which
service shall
be completed, which date shall not exceed ten (10) days
following
the date of filing of the application. (Effective 1 / 1 / 07). See
attached
local rules in Exhibit #: 10, which are incorporated herein by reference as if
fully set
forth & is hereby made a part of this Affidavit.
6. The said Application did not have such a date by which service
shall be
completed, which is evident by the copy of the said application
which is
attached hereto this complaint as Exhibit number #: 2 . Therefore
the clerk
PRESUMABLY should have rejected the said application as
defective and
also issued an order to show cause why sanctions should not be
issued
for failure to comply with the said local court rule as is
required under
LOCAL RULE OF COURT RULE 3.17.16 WHICH MANDATES THAT:
“Failure to
comply with these rules shall Result in the issuance of an order
to show
cause why sanctions, including monetary sanctions, issue
sanctions,
evidence sanctions or terminating sanctions, should not be
imposed.
(Effective 1 / 1 /07 ).”
7. Local rule of court rule 3.17.2 (d) requires the following: “ in cases in
which
service of the summons and complaint is made by posting & mailing
pursuant to
Code of Civil Procedure Section 415.45 proof of service by posting
and
mailing shall be filed within ten (10) days of the date of
issuance of the order permitting service pursuant to Code
of
415.45 Civil Procedure Section (Effective 1 / 1 / 07).”
8. The date of issuance of the order permitting service pursuant to Code of
Civil
Procedure Section 415.45 WAS April 9, 2009. See Exhibit number #:2
attached
hereto this Affidavit which has been incorporated herein by reference as if
fully
set forth, and is made a part hereof this complaint. The date of the filing
of the
proof of service of summons and complaint by posting and mailing was
May 1, 2009,
& was entered into the courts computer on May 8 2009, and back dated by
the
deputy clerk “Michelle” to May 1, according to information provided by
another
deputy court clerk. SEE EXHIBIT #: 3 COPY OF PROOF OF SERVICE
FILED ON
MAY 1, 2009, & APPLICATION FOR ENTRY OF CLERKS DEFAULT &
CLERKS
DEFAULT JUDGMENT, & APPLICATION & WRIT OF POSSESSION.
9. Having NOT BEEN RECEIVED OR SEEN BY Star PRIOR TO SAID
DATE,
it WAS NOT DISCOVERED BY Star until around May 12, 2009, after a
search of
the Courts case file at that time. Since the said time of discovery of the
said
“Entry of Clerks Default” & “Clerks Default Judgment” Star: Hills has
been
attempting to obtain an administrative remedy from the Court Clerk
Requesting
correction of the Erroneous Entry based upon the said Defective paperwork
filed with
the Court Clerk in Violation of the said Local Rules of Court, to no avail,
and so
she is now left with no choice but to bring this Motion for Relief from
the Court.
SEE COPY OF ADMINISTRATIVE COMPLAINT SERVED ON THE
CLERK OF
THE COURT TERRY McNALLY ON MAY 26, 2009, & RESPONSE &
REPLY TO
HIS RESPONSE ATTACHED HERETO AS EXHIBIT NUMBER 4, WHICH
ARE
ALL HEREBY INCORPORATED BY REFERENCE AS IF FULLY SET
FORTH
HEREIN, & WHICH ARE HEREBY MADE A PART OF THIS
AFFIDAVIT.
10. According to the courts record in the case file the proof of service of
summons &
complaint by posting and mailing presented to the court clerk for filing on
May 1,
2009 should have been rejected as defective under local rules of court rule
3.17.2 (d)
as it was presented 12 days after the ten (10) day deadline under said rule, and
should have been presented to the court for filing no later than April 19,
2009. Based upon the foregoing the court clerk should have issued an
order to show cause why sanctions should not be issued against plaintiff
GMAC MORTGAGE LLC, FOR THEIR FAILURE TO COMPLY WITH
THE LOCAL RULES OF COURT, UNDER LOCAL RULE 3.17.16.

11. On May 1, 2009 the said Plaintiff GMAC MORTAGE LLC, APPLIED
FOR ENTRY
OF CLERKS DEFAULT & CLERKS DEFAULT JUDGMENT & A
DEPUTY
CLERK ENTERED THE SAID CLERKS DEFAULT & DEFAULT
JUDGMENT ON
THE DAY OF May 8, 2009, & SIGNED A WRIT OF POSSESSION FOR
THE
HOME AND PROPERTY OF Star: Hills WHICH WAS BASED UPON
THE
PRIOR LATE FILED PROOF OF SERVICE OF SUMMONS &
COMPLAINT BY
POSTING, ALLEGEDLY SIGNED BY JOE DEVERS. THESE
DOCUMENTS
SHOULD HAVE BEEN REJECTED BY THE CLERK WITH AN ORDER
TO
SHOW CAUSE WHY SANCTIONS SHOULD NOT BE ISSUED AGAINST
GMAC
MORTGAGE FOR FAILURE TO COMPLY WITH LOCAL RULES OF
COURT
I.E. FAILURE TO FILE THE PROOF OF SERVICE WITHIN THE TEN
DAYS
OF ISSUANCE OF THE ORDER FOR POSTING & MAILING ON
APRIL 9,
2009. SINCE THE DISCOVERY OF THESE VIOLATIONS OF SAID
LOCAL
RULES OF COURT BY PLAINTIFF GMAC MORTGAGE LLC, &
THEIR
ATTORNEYS, Star: Hills HAS BEEN ATTEMPTING TO OBTAIN AN
ADMINISTRATIVE REMEDY FROM THE COURT CLERK, COURT
ADMINISTRATOR , EXECUTIVE OFFICER, TERRY McNALLY,
WHICH HAS
FAILED TO PRODUCE ANY POSITIVE ACTION WHATSOEVER ON
THE
PART OF THE SAID COURT CLERK, AND HAS ESTABLISHED
THAT THE
SAID COURT CLERK APPARENTLY HAS NO POWER OR
AUTHORITY TO
ENFORCE THE LOCAL RULES OF COURT OF KERN COUNTY
SUPERIOR
COURT, WHICH APPARENTLY RENDERS THE APPLICABLE LOCAL
RULES
A VAIN AND FUTILE EXERCISE IN THE CASE OF DOCUMENTS
BEING
DELIVERED TO THE CLERK FOR FILING WHICH ARE NOT IN
WITHIN
COMPLIANCE WITH THE LOCAL COURT RULES, IN THE CASE
OF
LOCAL RULE 3.17.16 WHICH IS AN EXPRESS REQUIREMENT TO
ISSUE
AN ORDER TO SHOW CAUSE WHY SANCTIONS SHOULD NOT BE
ISSUED
FOR FAILURE TO COMPLY WITH THE SAID RULE.
12. As stated herein prior on page 2, line 28, Star: Hills previously filed a
Verified
Answer to the said complaint of plaintiff GMAC MORTGAGE LLC, ON
APRIL
1, 2009, AFTER SHE WAS SENT A NOTICE BY THE CLERK IN THE
MAIL
THAT THE UNLAWFUL DETAINER HAD BEEN FILED ON MARCH
26, 2009
WHICH ANSWER WAS TIMELY FILED. THEREAFTER THE CLERK
SENT THE
FILED ANSWER BACK IN THE MAIL AROUND APRIL 13, 2009, AND
AFTER A
SEARCH OF THE COURTS CASE FILE IT WAS DISCOVERED THAT
THE
COURT HAD ISSUED AN ORDER ON APRIL 9, 2009 DIRECTING
THAT THE
SUMMONS & COMPLAINT BE SERVED ON Star BY POSTING &
MAILING
PURSUANT TO PROVISIONS OF CALIFORNIA CODE OF CIVIL
PROCEDURE.
THEREAFTER, WHEN THE COURT CLERK LATER UN-FILED &
MAILED
BACK THE SAID VERIFIED ANSWER ON THE SAME DAY, APRIL 13,
2009
DUE TO SERVICE ON THE PRIOR ATTORNEYS FOR GMAC
MORTGAGE IN
THE PRIOR CASE WHICH HAD BEEN DISMISSED, CASE #: S 1500
CL 236547
SMK, “ THE ENDRES LAW FIRM ”, David R. Endres 2121 2nd Street,
Suite C105,
Davis, CA. 95618, UPON RECEPTION OF THE RETURNED ANSWER, &
THE
DISCOVERY OF THE ORDER TO SERVE SUMMONS BY POSTING &
MAILING
ISSUED ON APRIL 9, 2009 BY THE COURT, Star DECIDED TO WAIT
UNTIL
THE SERVICE BY POSTING & MAILING WAS WAS ACCOMPLISHED
BY THE
SAID PLAINTIFF GMAC MORTGAGE LLC, BEFORE RE FILING THE
SAID
ANSWER & SERVING IT ON THE SUBSTITUTED ATTORNEYS FOR
SAID
GMAC MORTGAGE LLC., & THEREAFTER AWAITED THE REQUIRED
POSTING OF THE SUMMONS, WHICH NEVER CAME.
13. THEREAFTER, UPON CHECKING OF THE COURTS CASE FILES ON
THE DAY
OF TUESDAY MAY 5 2009, AFTER RECEIVING SOME DOCUMENTS
IN THE
MAIL BY COUNSEL FOR GMAC MORTGAGE LLC, ENTITLED
REQUEST FOR
ENTRY OF DEFAULT & REQUEST / COUNTER REQUEST TO SET
CASE FOR
TRIAL ” THERE WAS NO PROOF OF SERVICE OF POSTING &
MAILING OF
THE SAID SUMMONS & UNLAWFUL DETAINER COMPLAINT, WHICH
WAS A
VIOLATION OF THE SAID LOCAL RULES OF COURT, AGAIN,
WHICH HAD
REQUIRED THAT SAID PLAINTIFF FILE THE PROOF OF SERVICE
OF
SUMMONS BY POSTING & MAILING WITHIN TEN (10) DAYS OF
ISSUANCE
OF THE ORDER ON APRIL 9, 2009, GRANTING THE APPLICATION
FOR
SAID POSTING & MAILING OF THE SUMMONS & COMPLAINT,
WHICH
MEANS THE PROOF OF SERVICE WAS REQUIRED TO BE FILED
BY APRIL
19, 2009. IT WAS SUBSEQUENTLY DISCOVERED ON OR AROUND
TUESDAY
MAY 12, 2009 BY Star THAT APPARENTLY THE COURT CLERK HAD
BACK
FILED AN ALLEGED PROOF OF SERVICE OF SUMMONS BY
POSTING &
MAILING ON THE DAY OF FRIDAY MAY 8, 2009, BACKDATING IT
TO MAY
1, 2009, ALLEGEDLY THE DAY IT WAS RECEIVED BY THE CLERK
IN THE
MAIL, & THAT THE CLERK HAD ALSO FILED AN ENTRY OF
CLERKS
DEFAULT & CLERKS DEFAULT JUDGMENT ON SAID FRIDAY MAY
8, 2009,
AS WELL AS A WRIT OF POSSESSION ON THE SAME DAY, MAY 8,
2009.
IN FACT Star HAD NEVER RECEIVED ANY ACTUAL SERVICE OF
THE
SUMMONS & COMPLAINT BY POSTING AS IT WAS NEVER
ACTUALLY
POSTED BY ANYONE AT ANYTIME ON THE PREMISES OF Star:
Hills BY A
Joe Devers, OR ANYONE ELSE ON APRIL 13, 2009, OR AT ANY
OTHER TIME.
IN ADDITION TO ALL THE FORGOING, Star NEVER RECEIVED A
COPY OF
SAID SUMMONS & COMPLAINT BY MAIL EITHER.
FURTHERMORE
THERE IS EVIDENCE IN THE COURTS CASE FILE & PRESENTED
HERE
IN EXHIBIT 5 ATTACHED TO THIS AFFIDAVIT THAT IT APPEARS
THAT
MORE THAN ONE PERSON HAS BEEN SIGNING THE NAME OF “
JOE
DEVERS ” WHO IS NOT JOE DEVERS, & COMMITTING FRAUD,
FORGERY,
OR OTHERWISE IMPERSONATING Joe Devers, BY SIGNING HIS
NAME ( IF
THERE IS ANY SUCH PERSON NAMED Joe Devers) AS THERE ARE
THREE
DIFFERENT SIGNATURES IN THE COURTS CASE FILE BEARING
THE
NAME JOE DEVERS, WHICH EACH APPEAR TO HAVE BEEN
WRITTEN BY
A DIFFERENT HAND, & IT FURTHER APPEARS THAT THE LAW
OFFICES
OF EARL WALLACE, COMMITTED A FRAUD UPON THE COURT BY
MERELY
MAILING A COPY OF SOMETHING BY MAIL IN IRVINE
CALIFORNIA &
THEN FALSIFYING A PROOF OF SERVICE OF SUMMONS BY
POSTING,
FORGING THE NAME JOE DEVERS ON THE PROOF OF SERVICE,
WITHOUT ANY SUMMONS OR COMPLAINT HAVING EVER BEEN
POSTED
ON THE PREMISES OF Star: Hills. SEE EXHIBIT #: 5 ATTACHED
HERETO
THIS AFFIDAVIT WHICH IS INCORPORATED HEREIN BY
REFERENCE AS
IF FULLY SET FORTH & IS HEREBY MADE A PART OF THIS
AFFIDAVIT,
& WHICH THIS COURT HAS BEEN REQUESTED TO TAKE
JUDICIAL
NOTICE OF PURSUANT TO THE EXPRESS PROVISIONS OF
CALIFORNIA
EVIDENCE CODE SECTION 451-453, Et Sequiter, WHICH IS A COPY
OF
THREE DOCUMENTS FILED IN THE COURTS CASE FILE IN THIS
CASE #:
S 1500 -CL-237061 SMK, WHICH ALL BEAR THE NAME “Joe Devers”,
WHICH
DIFFERENT SIGNATURES ARE HIGHLIGHTED WITH YELLOW FOR
THE
COURT TO EXAMINE.
EACH SAID SIGNATURE CLEARLY APPEARS DISTINCTLY
DIFFERENT &
TO HAVE BEEN WRITTEN BY DIFFERENT HANDS. FURTHERMORE
THE
HAND WRITTEN COVER SHEET IN THE COURTS CASE FILE, THE
ALLEGED PROOF OF SERVICE OF SUMMONS BY POSTING &
MAILING
OF Joe Devers, AS WELL AS THE WRIT OF POSSESSION
ALLEGEDLY
RECEIVED BY THE COURT CLERK ON MAY 1, 2009, FROM GMAC
MORTGAGE LLC, WAS NEVER SERVED ON Star, INSTEAD THEY
SENT
THE TWO PAGES FOR ENTRY OF CLERKS DEFAULT & CLERKS
DEFAULT
JUDGMENT, ALONG WITH ANOTHER DOCUMENT THAT WAS NOT
EVEN
FILED IN THE COURTS CASE FILE, WHICH IS A REQUEST TO
SET THE
CASE FOR TRIAL, WHICH IS SIGNED BY A DIFFERENT PERSON, A
“ DAVE
CABRERA”. SEE EXHIBIT #:6 ATTACHED TO THIS AFFIDAVIT, A
COPY OF
THE DOCUMENTS MAILED TO Star: Hills, SHOWING THAT
DIFFERENT
DOCUMENTS WHICH WERE NOT FILED IN THE COURTS CASE
FILE BY
GMAC MORTGAGE LLC, WERE MAILED BY SAID ATTORNEY FOR
GMAC
MORTGAGE LLC, TO Star: Hills, WHICH ESTABLISHES FRAUD, &
VIOLATION
OF CALIFORNIA LAWS REGARDING FILING & SERVICE OF
PAPERS &
PROOFS OF SERVICE, WHICH EXHIBIT IS INCORPORATED
HEREIN BY
REFERENCE AS IF FULLY SET FORTH.
ALSO SEE DOCUMENTS IN EXHIBIT #:7 ATTACHED HERETO,
WHICH
ARE A COPY OF WHAT PLAINTIFF GMAC MORTGAGE LLC
ACTUALLY
FILED IN THE COURTS CASE FILE BUT DID NOT SERVE ON Star,
ESTABLISHING FRAUD, & VIOLATION OF STATE LAW RE SERVICE
&
FILING OF PAPERS, ETC.
14. Movant herein Star: Hills has had a Security Camera installed since prior
to the
alleged time of the posting of Summons & complaint by Plaintiff GMAC
MORTGAGE LLC., ON APRIL 13, 2009, WHICH DEVICE KEEPS A

PERMANENT RECORD OF THE DATE & TIME OF ALL PEOPLE
COMING
& GOING FROM & TO THE PREMISES OF Star, AS WELL AS A
PERMANENT
VIDEO RECORDING OF ALL SUCH PEOPLE COMING & GOING.
15. THE TECHNICIAN WHO INSTALLED THE SECURITY SYSTEM HAS
SINCE
EXECUTED AN AFFIDAVIT AS TO THE TRUE FACTS REGARDING
ITS
INSTALLATION, & OPERATION, AND AS TO WHAT IS RECORDED
IN THE
ELECTRONIC RECORD, AND FURTHER THAT THERE IS NO
RECORDING
OF ANYONE POSTING ANYTHING ON THE DAY OF APRIL 13, 2009
OR AT
ANY OTHER TIME BEFORE OR SINCE ON THE SYSTEM. SEE THE
SAID
AFFIDAVIT OF Joseph William ATTACHED HERETO THIS AFFIDAVIT
AS
EXHIBIT #: 8 WHICH IS HEREBY INCORPORATED HEREIN BY
REFERENCE
AS IF FULLY SET FORTH, & IS MADE A PART HEREOF THIS
AFFIDAVIT,
WHICH THE COURT IS HEREBY REQUESTED TO TAKE JUDICIAL
NOTICE
OF PURSUANT TO THE EXPRESS MANDATORY PROVISIONS OF
CALIFORNIA EVIDENCE CODE SECTION 451-453 Et Sequiter.
16. SAID TECHNICIAN Joseph William HAS PRODUCED A VIDEO DVD
OF ALL
ENTRIES IN THE SAID ELECTRONIC RECORD LOG IN THE
COMPUTER
OF ANYONE COMING & GOING ON THE SAID ALLEGED DAY OF
SERVICE
ON APRIL 13, 2009, WHICH IS INCLUDED AS AN EXHIBIT
ATTACHED TO
THIS AFFIDAVIT MARKED EXHIBIT #: 9, WHICH Star HEREBY
REQUESTS
THE COURT TO TAKE JUDICIAL NOTICE OF PURSUANT TO THE
CLEAR
MANDATORY EXPRESS PROVISIONS OF CALIFORNIA EVIDENCE
CODE
SECTIONS 451-453 Et Sequiter. The said video disk DVD record shows a
number
of persons coming and going, but there is no one posting anything on the
said
premises, though there are a couple of notices which Star herself has
posted on the
front door which can be seen in the video, and which are still on the
front door
at present. Further SEE THE ATTACHED PRINTED LOG OF ALL
THE
ENTRIES INTO THE ELECTRONIC RECORDING SYSTEM BETWEEN
THE
DATES APRIL 11, 2009 TO APRIL 14 2009, WHICH BEARS THE TITLE
AT
THE TOP OF THE PAGE : “NETWORK CAMERA RECORDER”
WHICH
SHOWS 19 ENTRIES ON APRIL 13, 2009 BETWEEN THE TIMES OF
“6:23:18
- 21:29:05 ” ( 6:23: 18 A.M. – 9:29:05 P.M.). SAID TECHNICIAN, Joseph
William
HAS VIEWED ALL SAID ENTRIES, AND ALL ENTRIES IN THE
SYSTEM
AND STATES THAT THERE IS NO EVIDENCE OF ANYONE EVER
POSTING
ANYTHING ON THE PREMISES OF Star: Hills AT ANY TIME.

17. In light of all the foregoing facts it is clear that a fraud was perpetrated
upon
the Court & upon Star: Hills by the said Counsel Earl Wallace, his
employees, &
or contractors acting on behalf of the Plaintiff GMAC MORTGAGE LLC,
WHICH
MUST NOW BE REMEDIED BY THE COURT, BY SETTING ASIDE &
OR
VACATING THE PRIOR ENTRY OF CLERKS DEFAULT & ENTRY OF
THE
CLERKS DEFAULT JUDGMENT ON MAY 8, 2009, AS WELL AS
VACATING
THE WRIT OF POSSESSION ALSO ISSUED ON MAY 8, 2009,
IMMEDIATELY
& FORTHWITH TO PREVENT THE PRESENTLY THREATENED
SEIZURE OF
THE HOME OF Star BY THE KERN COUNTY SHERIFF, WHICH HAS
BEEN
PRESENTLY STAYED BY THE FILING OF A BANKRUPTCY ACTION
IN THE
EASTERN DISTRICT BANKRUPTCY COURT IN FRESNO,
CALIFORNIA, CASE
#: 09-14472-A-11, WHICH Star ALSO HEREBY REQUESTS THAT THE
COURT
HEREIN TAKE JUDICIAL NOTICE OF UNDER CALIFORNIA
EVIDENCE
CODE SECTION 451-453, Et Sequiter.
18. At this time Star: Hills is suffering from an ongoing threat of the wrongful
Seizure of her Home by the said plaintiff GMAC MORTGAGE LLC,
BASED
UPON THE SAID WRONGFULLY OBTAINED ENTRY OF CLERKS
DEFAULT
& CLERKS DEFAULT JUDGMENT, & WRIT OF POSSESSION WHICH
HAS
BEEN STAYED BY THE FEDERAL BANKRUPTCY COURT IN
EASTERN
DISTRICT COURT OF CALIFORNIA BANKRUPTCY CASE #: 09-14472-A-
7.
19. Star: Hills hereby Requests that this Court take Judicial Notice of the
Matters set
out in the prior cited “ADMINISTRATIVE COMPLAINT” previously
served on
COURT CLERK, ADMINISTRATOR, EXECUTIVE OFFICER, TERRY
McNALLY
A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT NUMBER #
4,
PURSUANT TO EXPRESS PROVISIONS SET FORTH IN CALIFORNIA
EVIDENCE CODE SECTION 451-453, ET SEQUITER, & THE COURTS
COMMON LAW & INHERENT POWER TO DO SO. JUDICIAL
NOTICE IS
ALSO HEREBY REQUESTED OF THE PRIOR RELATED CASE #: S 1500-
CL-
236547 , WHEREIN THE SAME PLAINTIFF GMAC MORTGAGE LLC,
SUED
Star FOR THE SAME CAUSE OF ACTION & THE SAME SET OF
FACTS,
BUT WERE REPRESENTED BY A DIFFERENT ATTORNEY & LAW
FIRM,
DAVID ENDRES, THE ENDRES LAW FIRM, WHO FOR SOME
UNSPECIFIED
CAUSE OR REASON WILLINGLY DISMISSED THE CASE AFTER
THEY
WERE SERVED WITH A NOTICE OF RELATED ACTIONS BY Star,
WHICH
NOTICE OF RELATED ACTION IS FILED IN BOTH SAID CASES IN
THE
ABOVE NAMED COURT, WHICH Star ALSO REQUESTS THE COURT
TO
TAKE JUDICIAL NOTICE OF UNDER EVIDENCE CODE SECTION
451-453
Et Sequiter.
20. The alleged Proof of Service of Summons by Posting & Mailing received
by the
Court on May 1, 2008 was allegedly signed by a “Joe Devers”, who stated
under
Penalty of perjury under the laws of the State of California that he had
posted
a copy of the complaint and summons on the premises of Star: Hills on the
day of
April 13, 2009, (this was also the day that Star: Hills filed her Answer to
the said
Complaint, see copy in Exhibit #: 1 attached hereto) WHICH HAS BEEN
HERE
REBUTTED & DIS PROVEN BY THE EVIDENCE & TESTIMONY
PRESENTED
HEREIN THIS AFFIDAVIT & EXHIBITS ATTACHED HERETO.
21. If Star would have previously known that said Plaintiff & their counsel,
employees, & contractors were going to do what they have done,
committing the
falsification of proof of service of summons & complaint by posting &
mailing she
would have went ahead and re served the verified Answer she previously
filed on
April 1, 2009 in this case, AND AVOIDED THESE PROBLEMS, BUT SHE
HAD
NO SUCH PRIOR WARNING OF THE COMING FRAUD, WHICH WAS
BEYOND HER POWER OR ABILITY TO PREVENT, AVOID, OR
CHANGE
DUE TO HER IGNORANCE OF THE T RUE MOTIVES & INTENTIONS
OF
SAID PLAINTIFF & THEIR COUNSEL, EMPLOYEES & CONTRACTORS,
WHICH IGNORANCE IS EQUAL TO EXCUSABLE NEGLECT,
INADVERTENCE
OR MISTAKE WHICH ARE NOW GROUNDS FOR GRANTING THIS
MOTION
& FOR THE RELIEF REQUESTED HEREIN BY Star, WHICH Star
HEREBY
RESPECTFULLY REQUESTS THE COURT TO GRANT & ISSUE SAID
RELIEF
IMMEDIATELY & FORTHWITH, TO AVOID THE PENDING
MISCARRIAGE
OF JUSTICE OF WRONGFUL SEIZURE AND THEFT OF HER HOME
&
PROPERTY AS A RESULT OF THE SAID FRAUD.
Respectfully Presented,
____________________
Star: Hills
all rights reserved
Sui Juris in #:
S 1500 -CL-
237061 SMK
- DECLARATION -
By my autograph placed below and in good faith I hereby affirm that the
foregoing is true & correct to the best of my ability so help me God. Exodus 20.
Executed by my hand on this day, the- -day-of- the-sixth-month, Two-
thousand-and-nine,
____________________
Star: Hills
all rights reserved
Sui Juris in #:
S 1500-CL-
237061 SMK
///
///
///
///
///
///
///
///
///
EXHIBIT PAGE
INDEX OF EXHIBITS
------------------------------------------
#1: VERIFIED ANSWER OF Star: Hills FILED ON APRIL 1,

2009 IN CASE #: S-1500 CL-237061 SMK; & LATER
UN
FILED AND MAILED BACK DUE TO SERVICE ON
THE
WRONG ATTORNEYS FOR GMAC MORTGAGE LLC.
ON APRIL 13, 2009.
#2: APPLICATION & ORDER FOR SERVICE OF

SUMMONS BY POSTING SIGNED BY JUDGE
ON APRIL 9, 2009.
#3: PROOF OF SERVICE OF SUMMONS BY

POSTING ENTERED INTO COMPUTER ON
MAY 8, BACKDATED TO MAY 1 BY A DEPUTY
CLERK.
#4: ADMINISTRATIVE COMPLAINT SERVED

ON COURT ADMINISTRATOR, CLERK,
EXECUTIVE OFFICER TERRY MCNALLY
ON MAY 26, 2009.
#5: COPY OF THREE DIFFERENT DOCUMENTS FILED IN

THE COURTS CASE FILE WHICH APPEAR TO HAVE
3 DIFFERENT SIGNATURES WITH THE NAME “JOE
DEVERS” SIGNED BY THREE DIFFERENT HANDS
#6: COPY OF DOCUMENTS MAILED TO Star: Hills

WHICH
WERE DIFFERENT FROM THE ACTUAL DOCUMENTS
FILED BY GMAC MORTGAGE LLC IN THE COURTS
CASE FILE IN #: S 1500 -CL-237061 SMK
#7: COPY OF DOCUMENTS ACTUALLY FILED BY
PLAINTIFF GMAC MORTGAGE LLC ON MAY
1 & 8, 2009 WHICH WERE NOT SERVED ON
Star: Hills IN VIOLATION OF CALIFORNIA
LAW REGARDING SERVICE & FILING OF
COURT PAPERS.
#8: AFFIDAVIT OF Joseph William REGARDING

INSTALLATION, OPERATION, & RECORDS
STORAGE OF SECURITY CAMERA HE INSTALLED
FOR Star: Hills PRIOR TO DATE OF ALLEGED
POSTING OF APRIL 13, 2009.
#9: A DVD VIDEO & PRINTOUT OF ELECTRONIC LOG

FROM SECURITY CAMERA INSTALLED BY Joseph
William SHOWING ALL COMING & GOING FROM &
TO THE PREMISES & SHOWING THAT THERE WAS
NO POSTING ON THE PREMISES ON APRIL 13 2009
ESTABLISHING FRAUD ON THE COURT BY
PLAINTIFF
GMAC MORTGAGE LLC & THEIR COUNSEL EARL
WALLACE.
#10: LOCAL RULES OF KERN COUNTY SUPERIOR

COURT
RULES 3.17.2 (b) & (d) & RULE 3.17.16
ESTABLISHING
THAT THE APPLICATION FOR SERVICE OF
SUMMONS
BY POSTING & PROOF OF SERVICE OF SUMMONS
BY
POSTING FILED BY PLAINTIFF GMAC MORTGAGE
LLC
WERE IN VIOLATION OF LOCAL RULES OF COURT
WHICH REQUIRED THAT THE COURT ISSUE
ORDERS
TO SHOW CAUSE WHY SANCTIONS SHOULD NOT
BE
IMPOSED AS REQUIRED UNDER LOCAL RULE
3.17.16
Star: Hills
Sui Juris Plaintiff in #: F 1500 CV 265552.
Star: Hills, CASE #: S 1500 -CL-237061 SMK.
plaintiff,
MEMORANDUM OF POINTS &

-VS- AUTHORITIES IN SUPPORT OF
MOTION
FOR ORDER SETTING ASIDE OR
VACATING
ETS Services, LLC CLERKS DEFAULT & CLERKS
DEFAULT
Omar Solorzano, JUDGMENTS, of Star: Hills.
UNITED VISION FINANCIAL;
John Does 1-99, HEARING DATE: / / 2009;
DEPT. #: 17 ; TIME: 8:30 A.M
defendants.
_______________________________
INCORPORATION BY REFERENCE
Star hereby incorporates all the facts & information set forth in her accompanying
affidavit served and filed herewith this motion & memorandum, herein by
reference as if fully set forth as well as the contents of all accompanying Exhibits
attached to said Affidavit, which Star Requests the Court to take Judicial
Notice of pursuant to its statutory, common law, and inherent power to do so.
STATEMENT OF FACTS
After attempting to obtain an Administrative Remedy from the Clerk,
Administrator, Executive Officer of the Court for a Wrongful & fraudulent
entry of Clerks Default & Clerks Default Judgment, Star: Hills now brings her
motion for an Order to set aside & or Vacate the said Clerks Default & Default
Judgment which was entered on May 8, 2009, along with a Writ of Possession issued
on the same day, May 8, 2009. THE SAID ENTRY OF CLERKS DEFAULT &
DEFAULT JUDGMENT WAS NOT DISCOVERED BY Star
Hills IN THIS CASE UNTIL MAY 12, 2009, WHICH IS WHEN THE
FRAUDULENT PROOF OF SERVICE OF SUMMONS WAS ALSO
DISCOVERED IN THE COURTS CASE FILE. IN LIGHT OF THE
FURTHER DISCOVERY THAT THE SAID PLAINTIFF & THEIR COUNSEL
EARL WALLACE VIOLATED TWO (2) LOCAL RULES OF COURT
RULES : 3.17.2 (b) & 3.17.2 (d) REGARDING APPLICATION
FOR LEAVE TO SERVE SUMMONS & COMPLAINT BY POSTING &
MAILING, & FILING OF THE PROOF OF SERVICE OF SUMMONS BY
POSTING & MAILING, Star ATTEMPTED TO OBTAIN AN
ADMINISTRATIVE REMEDY FROM THE COURT CLERK,
ADMINISTRATOR, & EXECUTIVE OFFICER, TERRY McNALLY, WHICH
PROVED TO BE FUTILE, AS SHOWN IN EXHIBITS ATTACHED TO THE

SUPPORTING AFFIDAVIT ACCOMPANYING THIS MOTION, EVEN
THOUGH LOCAL RULE OF COURT 3.17.16 CLEARLY STATES THAT: “
Failure to comply with these rules shall Result in the issuance of
an order to show cause why sanctions, including monetary
sanctions, issue sanctions, evidence sanctions or terminating
sanctions, should not be imposed. (Effective 1 / 1 /07 ).” And despite the
fact that Local Rule of Court Rule 1.2 & 1.2.1 clearly states : “ Duties of
presiding judge; “ Administrative Duties: “ Give general direction and
supervision to the Court Executive Officer and prescribe the general policy
within which the clerks office shall function. It shall be the
responsibility of the Court Executive Officer to plan, organize, staff and
direct the detailed operations of the non judicial activities of the Court.
(Effective 7/1/2003) ”.
Due to the wrongful entry of Clerks Default & Default Judgment in this
case Star: Hills has had to file a Bankruptcy Action in the Federal District
Bankruptcy Court in the Eastern District of Fresno to obtain a stay of the
Seizure of her home & property, currently threatened by a wrongfully
obtained WRIT OF EXECUTION WHICH WAS OBTAINED BY PLAINTIFF
GMAC MORTGAGE LLC, BY WAY OF THE CLEAR FRAUD & PERJURY
OF THEIR COUNSEL, COUNSELS EMPLOYEES, AND OR
CONTRACTORS, WHICH IS SET FORTH IN THE ACCOMPANYING
AFFIDAVIT & EXHIBITS ATTACHED THERETO OF Star: Hills, AND THE

AFFIDAVIT OF Joseph William, along with the dvd of security camera &
electronic log printout.
Based upon all the evidence & facts it is clear that a miscarriage of justice has
occurred due to fraud & perjury of Plaintiffs counsel and or employees or
contractors,
which has caught Star by surprise, due to excusable neglect and inadvertence
despite the application of due diligence by Star. Star has applied due diligence
since the discovery of these matters to obtain a correction and remedy from
the administrative side of the court and now seeks a remedy and correction from
the Judicial side of the Court, without which remedy she will suffer irreparable
damage & injury due to wrongful loss of her home & property.
ISSUES OF LAW PRESENTED
I
STANDARDS FOR ENTRY OF CLERKS DEFAULT
& DEFAULT JUDGMENT;
A
THE LAW IN CALIFORNIA ALLOWS ENTRY OF CLERKS
DEFAULT & CLERKS DEFAULT JUDGMENT IF A
DEFENDANT FAILS TO ANSWER THE COMPLAINT OF
THE PLAINTIFF
AS SET FORTH UNDER CALIFORNIA CODE OF CIVIL
PROCEDURE SECTION 585
B
IN THIS CASE Star: Hills ANSWERED THE COMPLAINT
IN CASE #: S 1500 -CL-237061 SMK ON APRIL 1, 2009
BUT THE ANSWER WAS MAILED BACK TO HER
ON APRIL 13, 2009 DUE TO A TECHNICALITY
________________________________________________________________________
__
The law of the State of California allows entry of a Clerks Default &
Clerks Default Judgment under certain & limited conditions which are set
forth in California Code of Civil Procedure Section 585. Under CALIFORNIA
C. C. P. SECTION 585 “ Judgment if defendant fails to answer complaint ” a
Clerks Default & Clerks Default Judgment may be entered “if the defendant
fails to answer the complaint, as follows:” Thereafter it sets out the specific
conditions and circumstances under which a plaintiff may obtain Clerks Default
& Default Judgment. In this Case Star: Hills did file a timely Answer to the
Complaint on April 1, 2009 in this Action, Case #: S-1500-CL-237061 SMK, a
copy of which is attached to the accompanying Supporting Affidavit of Star:
Hills as Exhibit #: 1, which is incorporated into the motion & this memorandum
by reference as if fully set forth, which this Court has been requested to take
Judicial Notice of under Evidence Code Section 451-453, Et Sequiter.
On this day, the -day-of-the-sixth-month, Two-thousand-and-

nine,
Respectfully
Presented,
_______________________
Star: Hills
all rights reserved
Sui Juris in #:
S 1500 CV 265552.
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Star: Hills
Sui Juris Plaintiff in #: S 1500 -CL-237061 SMK.
GMAC MORTGAGE LLC, S 1500 -CL-237061 SMK.
plaintiff,
-VS- REQUEST FOR JUDICIAL NOTICE

OF Star: Hills IN SUPPORT OF HER
MOTION TO SET ASIDE & OR
VACATE,
STAR HILLS ETC.
ET AL,
HEARING DATE: 6 / / 2009;

DEPT. #: 17; TIME: 8:30 A.M
defendants.
________________________________
1. Star: Hills in the above entitled Action hereby Requests that the above
named Court
take Judicial Notice of the following matters pursuant to the Express
Provisions of
California Evidence Code Section 451-453 Et Sequiter.
2. This Request is made in Support of the here accompanying Motion to set

aside & or
vacate the Clerks Default & Default Judgment, & Writ of Possession.
MATTERS TO BE JUDICIALLY NOTICED
(1) The contents of all documents attached to the supporting

affidavit of Star: Hills in exhibits 1-10.
(2) The contents of the courts case files in cases #: S 1500 -CL-237061
SMK, & S 1500 CL 236547, & CASE #: S 1500 CV 265552 WDP;
(3) The bankruptcy action filed by Star: Hills in federal

district
bankruptcy court in eastern district of California Case #:
09-
14472-A-11, recently converted to a Chapter 7 Case.
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PROOF OF SERVICE
I THE UNDERSIGNED HEREBY DECLARE UNDER PENALTY OF PERJURY

UNDER
THE LAWS OF THE STATE OF CALIFORNIA THAT I SERVED THE HERE
ATTACHED DOCUMENTS DESCRIBED AS:
NOTICE OF & MOTION OF Star: Hills,

FOR COURT ORDER SETTING ASIDE & OR VACATING CLERKS
DEFAULT & CLERKS DEFAULT JUDGMENT, & VACATING WRIT OF
POSSESSION OF MAY 8, 2009,
ON THE PARTIES NAMED BELOW AT THE ADDRESSES TO FOLLOW BY

PLACING
TRUE AND ACCURATE COPIES OF THE SAME IN A SEALED ENVELOPE,

WITH
POSTAGE PREPAID, CAUSING THE SAME TO BE MAILED BY FIRST CLASS

U.S.
MAIL TO THE FOLLOWING PARTIES IN THIS ACTION AT THE ADDRESSES

SET
FORTH BELOW ON THE DAY OF: 6 / / 2009,
DEFENDANTS:
PLAINTIFF GMAC MORTGAGE LLC, RELATED CASE 237061:

GMAC MORTGAGE; PLAINTIFF GMAC
MORTGAGE LLC,
ETS SERVICES, LLC, C/O:
C/O: COUNSEL OF RECORD
COUNSEL OF RECORD: Earl R. Wallace, Esq.
DUNCAN; SALMON; RUZICKA & WALLACE, LLP,
TOLENO; ROBERT; 16520 BAKE PARKWAY,
SUITE 280,
DUNCON, LLP IRVINE, CA 92618
4375 JUTLAND DRIVE, SUITE 200
P.O. BOX 17935,
SAN DIEGO, CA., 92177-0935.
I am not a party to the within action. I am over the age of Eighteen years. My
Address is
550 N. Fulton Street, Fresno, California. Executed by my hand on this day of

JUNE,
2009, in the County of Kern, Republic of California,
/S/___________________
Alan David.
APPLICATION OF RESCISSION
In Riley v. Riley, 118 Cal.App.2d 11, the court stated at page 15 [256
P.2d 1056]: "The parties to a contract entered into for the benefit of
third persons may rescind or abrogate it without the assent of such third
persons at any time before the contract is accepted, adopted or acted
upon by such third persons. ... In 12 American Jurisprudence, at page
843, it is stated:
" 'According to the weight of authority, the parties to a contract entered
into for the benefit of a third person may rescind, vary or abrogate the
contract as they see fit, without the assent of the third person, at any
time before the contract is accepted, adopted, or acted upon by him, and
such rescission deprives the third person of any rights under or because
of such contract.' "
As stated in Sonnicksen v. Sonnicksen, supra, 45 Cal.App.2d 46, at page
57, "Repudiation is a question of fact and intent." And in Thompson v.
Boyd, 217 Cal.App.2d [238 Cal.App.2d 406] 365, at page 382 [32
Cal.Rptr. 513], the court said: "The question of whether a contract has
been cancelled, rescinded, or abandoned is a mixed question of law and
fact which is addressed to the trial court."
Civil Code section 1559 states: "A contract, made expressly for the
benefit of a third person, may be enforced by him at any time before the
parties thereto rescind it."
[12] While the court has held in Sonnicksen v. Sonnicksen, supra, that
such third party beneficiaries were entitled to enforce their rights in a
suit to quiet title, we think that the rights of such third party
beneficiaries are dependent on whether or not the agreement to take
care of them is still in force and effect.
[13] "The principles governing rescission of third-party beneficiary
contracts are those applicable to the rescission of contracts generally."
(R. J. Cardinal Co. v. Ritchie, 218 Cal.App.2d 124, 149 [32 Cal.Rptr.
545].)
CODE OF CIVIL PROCEDURE

SECTION 1060-1062.5
1060. Any person interested under a written instrument, excluding a
will or a trust, or under a contract, or who desires a declaration
of his or her rights or duties with respect to another, or in respect
to, in, over or upon property, or with respect to the location of
the natural channel of a watercourse, may, in cases of actual
controversy relating to the legal rights and duties of the respective
parties, bring an original action or crosscomplaint in the superior
court for a declaration of his or her rights and duties in the
premises, including a determination of any question of construction
or validity arising under the instrument or contract. He or she may
ask for a declaration of rights or duties, either alone or with other
relief; and the court may make a binding declaration of these rights
or duties, whether or not further relief is or could be claimed at
the time. The declaration may be either affirmative or negative in
form and effect, and the declaration shall have the force of a final
judgment. The declaration may be had before there has been any
breach of the obligation in respect to which said declaration is
sought.
1060.5. Any individual claiming to be a nonresident of the State of
California for the purposes of the Personal Income Tax Law may
commence an action in the Superior Court in the County of Sacramento,
or in the County of Los Angeles, or in the City and County of San
Francisco, against the Franchise Tax Board to determine the fact of
his or her residence in this state under the conditions and
circumstances set forth in Section 19381 of the Revenue and Taxation
Code.
1061. The court may refuse to exercise the power granted by this
chapter in any case where its declaration or determination is not
necessary or proper at the time under all the circumstances.
1062. The remedies provided by this chapter are cumulative, and
shall not be construed as restricting any remedy, provisional or
otherwise, provided by law for the benefit of any party to such
action, and no judgment under this chapter shall preclude any party
from obtaining additional relief based upon the same facts.
1062.3. (a) Except as provided in subdivision (b), actions brought
under the provisions of this chapter shall be set for trial at the
earliest possible date and shall take precedence over all other
cases, except older matters of the same character and matters to
which special precedence may be given by law.
(b) Any action brought under the provisions of this chapter in
which the plaintiff seeks any relief, in addition to a declaration of
rights and duties, shall take such precedence only upon noticed
motion and a showing that the action requires a speedy trial.
1062.5. Any insurer who issues policies of professional liability
insurance to health care providers for professional negligence, as
defined in Chapter 1 as amended by Chapter 2, Statutes of 1975,
Second Extraordinary Session, any health care provider covered by
such a policy, or any potentially aggrieved person, may bring an
action in the superior court for a declaration of its, his, or her
rights, duties, and obligations under Chapter 1 as amended by Chapter
2, Statutes of 1975, Second Extraordinary Session.
The court shall permit any of the following persons to intervene
in the action:
(1) The Attorney General.
(2) Any other person whose appearance is determined by the court
to be essential to a complete determination or settlement of any
issues in the action.
The action shall be commenced in the superior court in the county
in which the Attorney General is required to reside and keep his
office pursuant to Section 1060 of the Government Code.
The action shall be set for trial at the earliest possible date
and shall take precedence over all cases other than those in which
the state is a party.
The court may make a binding declaration of the rights, duties,
and obligations of the insurer, whether or not further relief is or
could be claimed at the time. The declaration may be affirmative or
negative in form and effect and shall have the force and effect of a
final judgment.
If the declaration is appealed, the appeal shall be given
precedence in the court of appeal and Supreme Court and placed on the
calendar in the order of its date of issue immediately following
cases in which the state is a party.
The remedy established by this section is cumulative, and shall
not be construed as restricting any remedy established for the
benefit of any party to the action by any other provision of law. No
declaration under this section shall preclude any party from
obtaining additional relief based upon the same facts.
SECTION 10631064
1063. The party prosecuting a special proceeding may be known as
the plaintiff, and the adverse party as the defendant.
1064. A judgment in a special proceeding is the final determination
of the rights of the parties therein. The definitions of a motion
and an order in a civil action are applicable to similar acts in a
special proceeding.
SECTION 10671077
(1067.) Section Ten Hundred and Sixtyseven. The writ of
certiorari may be denominated the writ of review.
1068. (a) A writ of review may be granted by any court when an
inferior tribunal, board, or officer, exercising judicial functions,
has exceeded the jurisdiction of such tribunal, board, or officer,
and there is no appeal, nor, in the judgment of the court, any plain,
speedy, and adequate remedy.
(b) The appellate division of the superior court may grant a writ
of review directed to the superior court in a limited civil case or
in a misdemeanor or infraction case. Where the appellate division
grants a writ of review directed to the superior court, the superior
court is an inferior tribunal for purposes of this chapter.
1069. The application must be made on the verified petition of the
party beneficially interested, and the court may require a notice of
the application to be given to the adverse party, or may grant an
order to show cause why it should not be allowed, or may grant the
writ without notice.
1069.1. The provisions of Section 1089 as to a return by demurrer
or answer apply to a proceeding pursuant to this chapter.
1070. The writ may be directed to the inferior tribunal, Board, or
officer, or to any other person having the custody of the record or
proceedings to be certified. When directed to a tribunal, the Clerk,
if there be one, must return the writ with the transcript required.
1071. The writ of review must command the party to whom it is
directed to certify fully to the court issuing the writ at a time and
place then or thereafter specified by court order a transcript of
the record and proceedings (describing or referring to them with
convenient certainty), that the same may be reviewed by the court;
and requiring the party, in the meantime, to desist from further
proceedings in the matter to be reviewed.
1072. If a stay of proceedings be not intended, the words requiring
the stay must be omitted from the writ; these words may be inserted
or omitted, in the sound discretion of the Court, but if omitted, the
power of the inferior Court or officer is not suspended or the
proceedings stayed.
1073. The writ must be served in the same manner as a summons in
civil action, except when otherwise expressly directed by the Court.
1074. The review upon this writ cannot be extended further than to
determine whether the inferior tribunal, Board, or officer has
regularly pursued the authority of such tribunal, Board, or officer.
1075. If the return of the writ be defective, the Court may order a
further return to be made. When a full return has been made, the
Court must hear the parties, or such of them as may attend for that
purpose, and may thereupon give judgment, either affirming or
annulling, or modifying the proceedings below.
1076. A copy of the judgment, signed by the Clerk, must be
transmitted to the inferior tribunal, Board, or officer having the
custody of the record or proceeding certified up.
1077. A copy of the judgment, signed by the Clerk, entered upon or
attached to the writ and return, constitute the judgment roll.
SECTION 10841097
(1084.) Section Ten Hundred and Eightyfour. The writ of mandamus
may be denominated a writ of mandate.
1085. (a) A writ of mandate may be issued by any court to any
inferior tribunal, corporation, board, or person, to compel the
performance of an act which the law specially enjoins, as a duty
resulting from an office, trust, or station, or to compel the
admission of a party to the use and enjoyment of a right or office to
which the party is entitled, and from which the party is unlawfully
precluded by such inferior tribunal, corporation, board, or person.
of mandate directed to the superior court in a limited civil case or
in a misdemeanor or infraction case. Where the appellate division
grants a writ of review directed to the superior court, the superior
court is an inferior tribunal for purposes of this chapter.
1085.5. Notwithstanding this chapter, in any action or proceeding
to attack, review, set aside, void, or annul the activity of the
Director of Food and Agriculture under Division 4 (commencing with
Section 5001) or Division 5 (commencing with Section 9101) of the
Food and Agricultural Code, the procedure for issuance of a writ of
mandate shall be in accordance with Chapter 1.5 (commencing with
Section 5051) of Part 1 of Division 4 of that code.
1086. The writ must be issued in all cases where there is not a
plain, speedy, and adequate remedy, in the ordinary course of law.
It must be issued upon the verified petition of the party
beneficially interested.
1087. The writ may be either alternative or peremptory. The
alternative writ must command the party to whom it is directed
immediately after the receipt of the writ, or at some other specified
time, to do the act required to be performed, or to show cause
before the court at a time and place then or thereafter specified by
court order why he has not done so. The peremptory writ must be in a
similar form, except that the words requiring the party to show
cause why he has not done as commanded must be omitted.
1088. When the application to the court is made without notice to
the adverse party, and the writ is allowed, the alternative must be
first issued; but if the application is upon due notice and the writ
is allowed, the peremptory may be issued in the first instance. With
the alternative writ and also with any notice of an intention to
apply for the writ, there must be served on each person against whom
the writ is sought a copy of the petition. The notice of the
application, when given, must be at least ten days. The writ cannot
be granted by default. The case must be heard by the court, whether
the adverse party appears or not.
1088.5. In a trial court, if no alternative writ is sought, proof
of service of a copy of the petition need not accompany the
application for a writ at the time of filing, but proof of service of
a copy of the filed petition must be lodged with the court prior to
a hearing or any action by the court.
1089. On the date for return of the alternative writ, or on which
the application for the writ is noticed, or, if the Judicial Council
shall adopt rules relating to the return and answer, then at the time
provided by those rules, the party upon whom the writ or notice has
been served may make a return by demurrer, verified answer or both.
If the return is by demurrer alone, the court may allow an answer to
be filed within such time as it may designate. Nothing in this
section affects rules of the Judicial Council governing original writ
proceedings in reviewing courts.
1089.5. Where a petition for writ of mandate is filed in the trial
court pursuant to Section 1088.5, and where a record of the
proceedings to be reviewed has been filed with the petition or where
no record of a proceeding is required, the respondent shall answer or
otherwise respond within 30 days after service of the petition.
However, where a record of the proceeding to be reviewed has been
requested pursuant to Section 11523 of the Government Code, or
otherwise, and has not been filed with the petition, the party upon
whom the petition has been served, including any real party in
interest, shall answer or otherwise respond within 30 days following
receipt of a copy of the record.
1090. If a return be made, which raises a question as to a matter
of fact essential to the determination of the motion, and affecting
the substantial rights of the parties, and upon the supposed truth of
the allegation of which the application for the writ is based, the
court may, in its discretion, order the question to be tried before a
jury, and postpone the argument until such trial can be had, and the
verdict certified to the court. The question to be tried must be
distinctly stated in the order for trial, and the county must be
designated in which the same shall be had. The order may also direct
the jury to assess any damages which the applicant may have
sustained, in case they find for him.
1091. On the trial, the applicant is not precluded by the return
from any valid objection to its sufficiency, and may countervail it
by proof either in direct denial or by way of avoidance.
1092. The motion for new trial must be made in the Court in which
the issue of fact is tried.
1093. If no notice of a motion for a new trial be given, or if
given, the motion be denied, the Clerk, within five days after
rendition of the verdict or denial of the motion, must transmit to
the Court in which the application for the writ is pending, a
certified copy of the verdict attached to the order of trial; after
which either party may bring on the argument of the application, upon
reasonable notice to the adverse party.
1094. If no return be made, the case may be heard on the papers of
the applicant. If the return raises only questions of law, or puts
in issue immaterial statements, not affecting the substantial rights
of the parties, the court must proceed to hear or fix a day for
hearing the argument of the case.
If a petition for a writ of mandate filed pursuant to Section
1088.5 presents no triable issue of fact or is based solely on an
administrative record, the matter may be determined by the court by
noticed motion of any party for a judgment on the peremptory writ.
1094.5. (a) Where the writ is issued for the purpose of inquiring
into the validity of any final administrative order or decision made
as the result of a proceeding in which by law a hearing is required
to be given, evidence is required to be taken, and discretion in the
determination of facts is vested in the inferior tribunal,
corporation, board, or officer, the case shall be heard by the court
sitting without a jury. All or part of the record of the proceedings
before the inferior tribunal, corporation, board, or officer may be
filed with the petition, may be filed with respondent's points and
authorities, or may be ordered to be filed by the court. Except when
otherwise prescribed by statute, the cost of preparing the record
shall be borne by the petitioner. Where the petitioner has proceeded
pursuant to Section 68511.3 of the Government Code and the Rules of
Court implementing that section and where the transcript is necessary
to a proper review of the administrative proceedings, the cost of
preparing the transcript shall be borne by the respondent. Where the
party seeking the writ has proceeded pursuant to Section 1088.5, the
administrative record shall be filed as expeditiously as possible,
and may be filed with the petition, or by the respondent after
payment of the costs by the petitioner, where required, or as
otherwise directed by the court. If the expense of preparing all or
any part of the record has been borne by the prevailing party, the
expense shall be taxable as costs.
(b) The inquiry in such a case shall extend to the questions
whether the respondent has proceeded without, or in excess of
jurisdiction; whether there was a fair trial; and whether there was
any prejudicial abuse of discretion. Abuse of discretion is
established if the respondent has not proceeded in the manner
required by law, the order or decision is not supported by the
findings, or the findings are not supported by the evidence.
(c) Where it is claimed that the findings are not supported by the
evidence, in cases in which the court is authorized by law to
exercise its independent judgment on the evidence, abuse of
discretion is established if the court determines that the findings
are not supported by the weight of the evidence. In all other cases,
abuse of discretion is established if the court determines that the
findings are not supported by substantial evidence in the light of
the whole record.
(d) Notwithstanding subdivision (c), in cases arising from private
hospital boards or boards of directors of districts organized
pursuant to The Local Hospital District Law, Division 23 (commencing
with Section 32000) of the Health and Safety Code or governing bodies
of municipal hospitals formed pursuant to Article 7 (commencing with
Section 37600) or Article 8 (commencing with Section 37650) of
Chapter 5 of Division 3 of Title 4 of the Government Code, abuse of
discretion is established if the court determines that the findings
are not supported by substantial evidence in the light of the whole
record. However, in all cases in which the petition alleges
discriminatory actions prohibited by Section 1316 of the Health and
Safety Code, and the plaintiff makes a preliminary showing of
substantial evidence in support of that allegation, the court shall
exercise its independent judgment on the evidence and abuse of
discretion shall be established if the court determines that the
findings are not supported by the weight of the evidence.
(e) Where the court finds that there is relevant evidence that, in
the exercise of reasonable diligence, could not have been produced
or that was improperly excluded at the hearing before respondent, it
may enter judgment as provided in subdivision (f) remanding the case
to be reconsidered in the light of that evidence; or, in cases in
which the court is authorized by law to exercise its independent
judgment on the evidence, the court may admit the evidence at the
hearing on the writ without remanding the case.
(f) The court shall enter judgment either commanding respondent to
set aside the order or decision, or denying the writ. Where the
judgment commands that the order or decision be set aside, it may
order the reconsideration of the case in the light of the court's
opinion and judgment and may order respondent to take such further
action as is specially enjoined upon it by law, but the judgment
shall not limit or control in any way the discretion legally vested
in the respondent.
(g) Except as provided in subdivision (h), the court in which
proceedings under this section are instituted may stay the operation
of the administrative order or decision pending the judgment of the
court, or until the filing of a notice of appeal from the judgment or
until the expiration of the time for filing the notice, whichever
occurs first. However, no such stay shall be imposed or continued if
the court is satisfied that it is against the public interest. The
application for the stay shall be accompanied by proof of service of
a copy of the application on the respondent. Service shall be made in
the manner provided by Title 5 (commencing with Section 405) of Part
2 or Chapter 5 (commencing with Section 1010) of Title 14 of Part 2.
If an appeal is taken from a denial of the writ, the order or
decision of the agency shall not be stayed except upon the order of
the court to which the appeal is taken. However, in cases where a
stay is in effect at the time of filing the notice of appeal, the
stay shall be continued by operation of law for a period of 20 days
from the filing of the notice. If an appeal is taken from the
granting of the writ, the order or decision of the agency is stayed
pending the determination of the appeal unless the court to which the
appeal is taken shall otherwise order. Where any final
administrative order or decision is the subject of proceedings under
this section, if the petition shall have been filed while the penalty
imposed is in full force and effect, the determination shall not be
considered to have become moot in cases where the penalty imposed by
the administrative agency has been completed or complied with during
the pendency of the proceedings.
(h) (1) The court in which proceedings under this section are
instituted may stay the operation of the administrative order or
decision of any licensed hospital or any state agency made after a
hearing required by statute to be conducted under the Administrative
Procedure Act, as set forth in Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code,
conducted by the agency itself or an administrative law judge on the
staff of the Office of Administrative Hearings pending the judgment
of the court, or until the filing of a notice of appeal from the
judgment or until the expiration of the time for filing the notice,
whichever occurs first. However, the stay shall not be imposed or
continued unless the court is satisfied that the public interest will
not suffer and that the licensed hospital or agency is unlikely to
prevail ultimately on the merits. The application for the stay shall
be accompanied by proof of service of a copy of the application on
the respondent. Service shall be made in the manner provided by Title
5 (commencing with Section 405) of Part 2 or Chapter 5 (commencing
with Section 1010) of Title 14 of Part 2.
(2) The standard set forth in this subdivision for obtaining a
stay shall apply to any administrative order or decision of an agency
that issues licenses pursuant to Division 2 (commencing with Section
500) of the Business and Professions Code or pursuant to the
Osteopathic Initiative Act or the Chiropractic Initiative Act. With
respect to orders or decisions of other state agencies, the standard
in this subdivision shall apply only when the agency has adopted the
proposed decision of the administrative law judge in its entirety or
has adopted the proposed decision but reduced the proposed penalty
pursuant to subdivision (b) of Section 11517 of the Government Code;
otherwise the standard in subdivision (g) shall apply.
(3) If an appeal is taken from a denial of the writ, the order or
decision of the hospital or agency shall not be stayed except upon
the order of the court to which the appeal is taken. However, in
cases where a stay is in effect at the time of filing the notice of
appeal, the stay shall be continued by operation of law for a period
of 20 days from the filing of the notice. If an appeal is taken from
the granting of the writ, the order or decision of the hospital or
agency is stayed pending the determination of the appeal unless the
court to which the appeal is taken shall otherwise order. Where any
final administrative order or decision is the subject of proceedings
under this section, if the petition shall have been filed while the
penalty imposed is in full force and effect, the determination shall
not be considered to have become moot in cases where the penalty
imposed by the administrative agency has been completed or complied
with during the pendency of the proceedings.
(i) Any administrative record received for filing by the clerk of
the court may be disposed of as provided in Sections 1952, 1952.2,
and 1952.3.
(j) Effective January 1, 1996, this subdivision shall apply to
state employees in State Bargaining Unit 5. For purposes of this
section, the court is not authorized to review any disciplinary
decisions reached pursuant to Section 19576.1 of the Government Code.
1094.6. (a) Judicial review of any decision of a local agency,
other than school district, as the term local agency is defined in
Section 54951 of the Government Code, or of any commission, board,
officer or agent thereof, may be had pursuant to Section 1094.5 of
this code only if the petition for writ of mandate pursuant to such
section is filed within the time limits specified in this section.
(b) Any such petition shall be filed not later than the 90th day
following the date on which the decision becomes final. If there is
no provision for reconsideration of the decision, or for a written
decision or written findings supporting the decision, in any
applicable provision of any statute, charter, or rule, for the
purposes of this section, the decision is final on the date it is
announced. If the decision is not announced at the close of the
hearing, the date, time, and place of the announcement of the
decision shall be announced at the hearing. If there is a provision
for reconsideration, the decision is final for purposes of this
section upon the expiration of the period during which such
reconsideration can be sought; provided, that if reconsideration is
sought pursuant to any such provision the decision is final for the
purposes of this section on the date that reconsideration is
rejected. If there is a provision for a written decision or written
findings, the decision is final for purposes of this section upon the
date it is mailed by firstclass mail, postage prepaid, including a
copy of the affidavit or certificate of mailing, to the party seeking
the writ. Subdivision (a) of Section 1013 does not apply to extend
the time, following deposit in the mail of the decision or findings,
within which a petition shall be filed.
(c) The complete record of the proceedings shall be prepared by
the local agency or its commission, board, officer, or agent which
made the decision and shall be delivered to the petitioner within 190
days after he has filed a written request therefor. The local
agency may recover from the petitioner its actual costs for
transcribing or otherwise preparing the record. Such record shall
include the transcript of the proceedings, all pleadings, all notices
and orders, any proposed decision by a hearing officer, the final
decision, all admitted exhibits, all rejected exhibits in the
possession of the local agency or its commission, board, officer, or
agent, all written evidence, and any other papers in the case.
(d) If the petitioner files a request for the record as specified
in subdivision (c) within 10 days after the date the decision becomes
final as provided in subdivision (b), the time within which a
petition pursuant to Section 1094.5 may be filed shall be extended to
not later than the 30th day following the date on which the record
is either personally delivered or mailed to the petitioner or his
attorney of record, if he has one.
(e) As used in this section, decision means a decision subject to
review pursuant to Section 1094.5, suspending, demoting, or
dismissing an officer or employee, revoking, denying an application
for a permit, license, or other entitlement, imposing a civil or
administrative penalty, fine, charge, or cost, or denying an
application for any retirement benefit or allowance.
(f) In making a final decision as defined in subdivision (e), the
local agency shall provide notice to the party that the time within
which judicial review must be sought is governed by this section.
As used in this subdivision, "party" means an officer or employee
who has been suspended, demoted or dismissed; a person whose permit,
license, or other entitlement has been revoked or suspended, or whose
application for a permit, license, or other entitlement has been
denied; or a person whose application for a retirement benefit or
allowance has been denied.
(g) This section shall prevail over any conflicting provision in
any otherwise applicable law relating to the subject matter, unless
the conflicting provision is a state or federal law which provides a
shorter statute of limitations, in which case the shorter statute of
limitations shall apply.
1094.8. (a) Notwithstanding anything to the contrary in this
chapter, an action or proceeding to review the issuance, revocation,
suspension, or denial of a permit or other entitlement for expressive
conduct protected by the First Amendment to the United States
Constitution shall be conducted in accordance with subdivision (d).
(b) For purposes of this section, the following definitions shall
apply:
(1) The terms "permit" and "entitlement" are used interchangeably.
(2) The term "permit applicant" means both an applicant for a
permit and a permitholder.
(3) The term "public agency" means a city, county, city and
county, a joint powers authority or similar public entity formed
pursuant to Section 65850.4 of the Government Code, or any other
public entity authorized by law to issue permits for expressive
conduct protected by the First Amendment to the United States
Constitution.
(c) A public agency may, if it so chooses, designate the permits
or entitlements to which this section applies by adopting an
ordinance or resolution which contains a specific listing or other
description of the permits or entitlements issued by the public
agency which are eligible for expedited judicial review pursuant to
this section because the permits regulate expressive conduct
protected by the First Amendment to the United States Constitution.
(d) The procedure set forth in this subdivision, when applicable,
shall supersede anything to the contrary set forth in this chapter.
(1) Within five court days after receipt of written notification
from a permit applicant that the permit applicant will seek judicial
review of a public agency's action on the permit, the public agency
shall prepare, certify, and make available the administrative record
to the permit applicant.
(2) Either the public agency or the permit applicant may bring an
action in accordance with the procedure set forth in this section.
If the permit applicant brings the action, the action shall be in the
form of a petition for writ of mandate pursuant to Section 1085 or
1094.5, as appropriate.
(3) The party bringing the action pursuant to this section shall
file and serve the petition on the respondent no later than 21
calendar days following the public agency's final decision on the
permit. The title page of the petition shall contain the following
language in 18point type:
"ATTENTION: THIS MATTER IS ENTITLED TO PRIORITY AND SUBJECT
TO
THE EXPEDITED HEARING AND REVIEW PROCEDURES CONTAINED IN
SECTION
1094.8 OF THE CODE OF CIVIL PROCEDURE."
(4) The clerk of the court shall set a hearing for review of the
petition no later than 25 calendar days from the date the petition is
filed. Moving, opposition, and reply papers shall be filed as
provided in the California Rules of Court. The petitioner shall
lodge the administrative record with the court no later than 10
calendar days in advance of the hearing date.
(5) Following the conclusion of the hearing, the court shall
render its decision in an expeditious manner consistent with
constitutional requirements in view of the particular facts and
circumstances. In no event shall the decision be rendered later than
20 calendar days after the matter is submitted or 50 calendar days
after the date the petition is filed pursuant to paragraph (4),
whichever is earlier.
(e) If the presiding judge of the court in which the action is
filed determines that, as a result of either the press of other court
business or other factors, the court will be unable to meet any one
or more of the deadlines provided within this section, the presiding
judge shall request the temporary assignment of a judicial officer to
hear the petition and render a decision within the time limits
contained herein, pursuant to Section 68543.8 of the Government Code.
Given the short time period involved, the request shall be entitled

to priority.
(f) In any action challenging the issuance, revocation,
suspension, or denial of a permit or entitlement, the parties to the
action shall be permitted to jointly waive the time limits provided
for herein.
1095. If judgment be given for the applicant, the applicant may
recover the damages which the applicant has sustained, as found by
the jury, or as may be determined by the court or referee, upon a
reference to be ordered, together with costs; and a peremptory
mandate must also be awarded without delay. Damages and costs may be
enforced in the manner provided for money judgments generally. In
all cases where the respondent is an officer of a public entity, all
damages and costs, or either, which may be recovered or awarded,
shall be recovered and awarded against the public entity represented
by the officer, and not against the officer so appearing in the
proceeding, and are a proper claim against the public entity for
which the officer appeared and shall be paid as other claims against
the public entity are paid; but in all such cases, the court shall
first determine that the officer appeared and made defense in the
proceeding in good faith. For the purpose of this section, "public
entity" includes the state, a county, city, district or other public
agency or public corporation. For the purpose of this section,
"officer" includes officer, agent or employee.
1096. The writ must be served in the same manner as a summons in a
civil action, except when otherwise expressly directed by order of
the Court. Service upon a majority of the members of any Board or
body, is service upon the Board or body, whether at the time of the
service the Board or body was in session or not.
(1097.) Section Ten Hundred and Ninetyseven. When a peremptory
mandate has been issued and directed to any inferior tribunal,
corporation, Board, or person, if it appear to the Court that any
member of such tribunal, corporation, or Board, or such person upon
whom the writ has been personally served, has, without just excuse,
refused or neglected to obey the same, the Court may, upon motion,
impose a fine not exceeding one thousand dollars. In case of
persistence in a refusal of obedience, the Court may order the party
to be imprisoned until the writ is obeyed, and may make any orders
necessary and proper for the complete enforcement of the writ.
SECTION 11021105
1102. The writ of prohibition arrests the proceedings of any
tribunal, corporation, board, or person exercising judicial
functions, when such proceedings are without or in excess of the
jurisdiction of such tribunal, corporation, board, or person.
1103. (a) A writ of prohibition may be issued by any court to an
inferior tribunal or to a corporation, board, or person, in all cases
where there is not a plain, speedy, and adequate remedy in the
ordinary course of law. It is issued upon the verified petition of
the person beneficially interested.
of prohibition directed to the superior court in a limited civil case
or in a misdemeanor or infraction case. Where the appellate
division grants a writ of review directed to the superior court, the
superior court is an inferior tribunal for purposes of this chapter.
1104. The writ must be either alternative or peremptory. The
alternative writ must command the party to whom it is directed to
desist or refrain from further proceedings in the action or matter
specified therein, until the further order of the court from which it
is issued, and to show cause before such court at a time and place
then or thereafter specified by court order why such party should not
be absolutely restrained from any further proceedings in such action
or matter. The peremptory writ must be in a similar form, except
that the words requiring the party to show cause why he should not be
absolutely restrained must be omitted.
1105. The provisions of the preceding Chapter, except of the first
four sections thereof, apply to this proceeding.
SECTION 525534
525. An injunction is a writ or order requiring a person to refrain
from a particular act. It may be granted by the court in which the
action is brought, or by a judge thereof; and when granted by a
judge, it may be enforced as an order of the court.
526. (a) An injunction may be granted in the following cases:
(1) When it appears by the complaint that the plaintiff is
entitled to the relief demanded, and the relief, or any part thereof,
consists in restraining the commission or continuance of the act
complained of, either for a limited period or perpetually.
(2) When it appears by the complaint or affidavits that the
commission or continuance of some act during the litigation would
produce waste, or great or irreparable injury, to a party to the
action.
(3) When it appears, during the litigation, that a party to the
action is doing, or threatens, or is about to do, or is procuring or
suffering to be done, some act in violation of the rights of another
party to the action respecting the subject of the action, and tending
to render the judgment ineffectual.
(4) When pecuniary compensation would not afford adequate relief.
(5) Where it would be extremely difficult to ascertain the amount
of compensation which would afford adequate relief.
(6) Where the restraint is necessary to prevent a multiplicity of
judicial proceedings.
(7) Where the obligation arises from a trust.
(b) An injunction cannot be granted in the following cases:
(1) To stay a judicial proceeding pending at the commencement of
the action in which the injunction is demanded, unless the restraint
is necessary to prevent a multiplicity of proceedings.
(2) To stay proceedings in a court of the United States.
(3) To stay proceedings in another state upon a judgment of a
court of that state.
(4) To prevent the execution of a public statute by officers of
the law for the public benefit.
(5) To prevent the breach of a contract the performance of which
would not be specifically enforced, other than a contract in writing
for the rendition of personal services from one to another where the
promised service is of a special, unique, unusual, extraordinary, or
intellectual character, which gives it peculiar value, the loss of
which cannot be reasonably or adequately compensated in damages in an
action at law, and where the compensation for the personal services
is as follows:
(A) As to contracts entered into on or before December 31, 1993,
the minimum compensation provided in the contract for the personal
services shall be at the rate of six thousand dollars ($6,000) per
annum.
(B) As to contracts entered into on or after January 1, 1994, the
criteria of clause (i) or (ii), as follows, are satisfied:
(i) The compensation is as follows:
(I) The minimum compensation provided in the contract shall be at
the rate of nine thousand dollars ($9,000) per annum for the first
year of the contract, twelve thousand dollars ($12,000) per annum for
the second year of the contract, and fifteen thousand dollars
($15,000) per annum for the third to seventh years, inclusive, of the
contract.
(II) In addition, after the third year of the contract, there
shall actually have been paid for the services through and including
the contract year during which the injunctive relief is sought, over
and above the minimum contractual compensation specified in subclause
(I), the amount of fifteen thousand dollars ($15,000) per annum
during the fourth and fifth years of the contract, and thirty
thousand dollars ($30,000) per annum during the sixth and seventh
years of the contract. As a condition to petitioning for an
injunction, amounts payable under this clause may be paid at any time
prior to seeking injunctive relief.
(ii) The aggregate compensation actually received for the services
provided under a contract that does not meet the criteria of
subparagraph (A), is at least 10 times the applicable aggregate
minimum amount specified in subclauses (I) and (II) of clause (i)
through and including the contract year during which the injunctive
relief is sought. As a condition to petitioning for an injunction,
amounts payable under this subparagraph may be paid at any time prior
to seeking injunctive relief.
(C) Compensation paid in any contract year in excess of the
minimums specified in clauses (i) and (ii) of subparagraph (B) shall
apply to reduce the compensation otherwise required to be paid under
those provisions in any subsequent contract years. However, an
injunction may be granted to prevent the breach of a contract entered
into between any nonprofit cooperative corporation or association
and a member or stockholder thereof, in respect to any provision
regarding the sale or delivery to the corporation or association of
the products produced or acquired by the member or stockholder.
(6) To prevent the exercise of a public or private office, in a
lawful manner, by the person in possession.
(7) To prevent a legislative act by a municipal corporation.
526a. An action to obtain a judgment, restraining and preventing
any illegal expenditure of, waste of, or injury to, the estate,
funds, or other property of a county, town, city or city and county
of the state, may be maintained against any officer thereof, or any
agent, or other person, acting in its behalf, either by a citizen
resident therein, or by a corporation, who is assessed for and is
liable to pay, or, within one year before the commencement of the
action, has paid, a tax therein. This section does not affect any
right of action in favor of a county, city, town, or city and county,
or any public officer; provided, that no injunction shall be granted
restraining the offering for sale, sale, or issuance of any
municipal bonds for public improvements or public utilities.
An action brought pursuant to this section to enjoin a public
improvement project shall take special precedence over all civil
matters on the calendar of the court except those matters to which
equal precedence on the calendar is granted by law.
526b. Every person or corporation bringing, instigating, exciting
or abetting, any suit to obtain an injunction, restraining or
enjoining the issuance, sale, offering for sale, or delivery, of
bonds, or other securities, or the expenditure of the proceeds of the
sale of such bonds or other securities, of any city, city and
county, town, county, or other district organized under the laws of
this state, or any other political subdivision of this state,
proposed to be issued, sold, offered for sale or delivered by such
city, city and county, town, county, district or other political
subdivision, for the purpose of acquiring, constructing, completing,
improving or extending water works, electric works, gas works or
other public utility works or property, shall, if the injunction
sought is finally denied, and if such person or corporation owns,
controls, or is operating or interested in, a public utility business
of the same nature as that for which such bonds or other securities
are proposed to be issued, sold, offered for sale, or delivered, be
liable to the defendant for all costs, damages and necessary expenses
resulting to such defendant by reason of the filing of such suit.
527. (a) A preliminary injunction may be granted at any time before
judgment upon a verified complaint, or upon affidavits if the
complaint in the one case, or the affidavits in the other, show
satisfactorily that sufficient grounds exist therefor. No
preliminary injunction shall be granted without notice to the
opposing party.
(b) A temporary restraining order or a preliminary injunction, or
both, may be granted in a class action, in which one or more of the
parties sues or defends for the benefit of numerous parties upon the
same grounds as in other actions, whether or not the class has been
certified.
(c) No temporary restraining order shall be granted without notice
to the opposing party, unless both of the following requirements are
satisfied:
(1) It appears from facts shown by affidavit or by the verified
complaint that great or irreparable injury will result to the
applicant before the matter can be heard on notice.
(2) The applicant or the applicant's attorney certifies one of the
following to the court under oath:
(A) That within a reasonable time prior to the application the
applicant informed the opposing party or the opposing party's
attorney at what time and where the application would be made.
(B) That the applicant in good faith attempted but was unable to
inform the opposing party and the opposing party's attorney,
specifying the efforts made to contact them.
(C) That for reasons specified the applicant should not be
required to so inform the opposing party or the opposing party's
attorney.
(d) In case a temporary restraining order is granted without
notice in the contingency specified in subdivision (c):
(1) The matter shall be made returnable on an order requiring
cause to be shown why a preliminary injunction should not be granted,
on the earliest day that the business of the court will admit of,
but not later than 15 days or, if good cause appears to the court, 22
days from the date the temporary restraining order is issued.
(2) The party who obtained the temporary restraining order shall,
within five days from the date the temporary restraining order is
issued or two days prior to the hearing, whichever is earlier, serve
on the opposing party a copy of the complaint if not previously
served, the order to show cause stating the date, time, and place of
the hearing, any affidavits to be used in the application, and a copy
of the points and authorities in support of the application. The
court may for good cause, on motion of the applicant or on its own
motion, shorten the time required by this paragraph for service on
the opposing party.
(3) When the matter first comes up for hearing, if the party who
obtained the temporary restraining order is not ready to proceed, or
if the party has failed to effect service as required by paragraph
(2), the court shall dissolve the temporary restraining order.
(4) The opposing party is entitled to one continuance for a
reasonable period of not less than 15 days or any shorter period
requested by the opposing party, to enable the opposing party to meet
the application for a preliminary injunction. If the opposing party
obtains a continuance under this paragraph, the temporary
restraining order shall remain in effect until the date of the
continued hearing.
(5) Upon the filing of an affidavit by the applicant that the
opposing party could not be served within the time required by
paragraph (2), the court may reissue any temporary restraining order
previously issued. The reissued order shall be made returnable as
provided by paragraph (1), with the time for hearing measured from
the date of reissuance. No fee shall be charged for reissuing the
order.
(e) The opposing party may, in response to an order to show cause,
present affidavits relating to the granting of the preliminary
injunction, and if the affidavits are served on the applicant at
least two days prior to the hearing, the applicant shall not be
entitled to any continuance on account thereof. On the day the order
is made returnable, the hearing shall take precedence over all other
matters on the calendar of the day, except older matters of the
same character, and matters to which special precedence may be given
by law. When the cause is at issue it shall be set for trial at the
earliest possible date and shall take precedence over all other
cases, except older matters of the same character, and matters to
which special precedence may be given by law.
(f) Notwithstanding failure to satisfy the time requirements of
this section, the court may nonetheless hear the order to show cause
why a preliminary injunction should not be granted if the moving and
supporting papers are served within the time required by Section 1005
and one of the following conditions is satisfied:
(1) The order to show cause is issued without a temporary
restraining order.
(2) The order to show cause is issued with a temporary restraining
order, but is either not set for hearing within the time required by
paragraph (1) of subdivision (d), or the party who obtained the
temporary restraining order fails to effect service within the time
required by paragraph (2) of subdivision (d).
(g) This section does not apply to an order issued under the
Family Code.
(h) As used in this section:
(1) "Complaint" means a complaint or a crosscomplaint.
(2) "Court" means the court in which the action is pending.
527.3. (a) In order to promote the rights of workers to engage in
concerted activities for the purpose of collective bargaining,
picketing or other mutual aid or protection, and to prevent the evils
which frequently occur when courts interfere with the normal
processes of dispute resolution between employers and recognized
employee organizations, the equity jurisdiction of the courts in
cases involving or growing out of a labor dispute shall be no broader
than as set forth in subdivision (b) of this section, and the
provisions of subdivision (b) of this section shall be strictly
construed in accordance with existing law governing labor disputes
with the purpose of avoiding any unnecessary judicial interference in
labor disputes.
(b) The acts enumerated in this subdivision, whether performed
singly or in concert, shall be legal, and no court nor any judge nor
judges thereof, shall have jurisdiction to issue any restraining
order or preliminary or permanent injunction which, in specific or
general terms, prohibits any person or persons, whether singly or in
concert, from doing any of the following:
(1) Giving publicity to, and obtaining or communicating
information regarding the existence of, or the facts involved in, any
labor dispute, whether by advertising, speaking, patrolling any
public street or any place where any person or persons may lawfully
be, or by any other method not involving fraud, violence or breach of
the peace.
(2) Peaceful picketing or patrolling involving any labor dispute,
whether engaged in singly or in numbers.
(3) Assembling peaceably to do any of the acts specified in
paragraphs (1) and (2) or to promote lawful interests.
(4) Except as provided in subparagraph (iv), for purposes of this
section, "labor dispute" is defined as follows:
(i) A case shall be held to involve or to grow out of a labor
dispute when the case involves persons who are engaged in the same
industry, trade, craft, or occupation; or have direct or indirect
interests therein; or who are employees of the same employer; or who
are members of the same or an affiliated organization of employers or
employees; whether such dispute is (a) between one or more employers
or associations of employers and one or more employees or
associations of employees; (b) between one or more employers or
associations of employers and one or more employers or associations
of employers; or (c) between one or more employees or associations
of employees and one or more employees or associations of employees;
or when the case involves any conflicting or competing interests in a
"labor dispute" or "persons participating or interested" therein (as
defined in subparagraph (ii)).
(ii) A person or association shall be held to be a person
participating or interested in labor dispute if relief is sought
against him or it, and if he or it is engaged in the same industry,
trade, craft, or occupation in which such dispute occurs, or has a
direct or indirect interest therein, or is a member, officer, or
agent of any association composed in whole or in part of employers or
employees engaged in such industry, trade, craft, or occupation.
(iii) The term "labor dispute" includes any controversy concerning
terms or conditions of employment, or concerning the association or
representation of persons in negotiating, fixing, maintaining,
changing, or seeking to arrange terms or conditions of employment
regardless of whether or not the disputants stand in the proximate
relation of employer and employee.
(iv) The term "labor dispute" does not include a jurisdictional
strike as defined in Section 1118 of the Labor Code.
(c) Nothing contained in this section shall be construed to alter
or supersede the provisions of Chapter 1 of the 197576 Third
Extraordinary Session, and to the extent of any conflict between the
provisions of this act and that chapter, the provisions of the latter
shall prevail.
(d) Nothing contained in this section shall be construed to alter
the legal rights of public employees or their employers, nor shall
this section alter the rights of parties to collectivebargaining
agreements under the provisions of Section 1126 of the Labor Code.
(e) It is not the intent of this section to permit conduct that is
unlawful including breach of the peace, disorderly conduct, the
unlawful blocking of access or egress to premises where a labor
dispute exists, or other similar unlawful activity.
527.6. (a) A person who has suffered harassment as defined in
subdivision (b) may seek a temporary restraining order and an
injunction prohibiting harassment as provided in this section.
(b) For the purposes of this section, "harassment" is unlawful
violence, a credible threat of violence, or a knowing and willful
course of conduct directed at a specific person that seriously
alarms, annoys, or harasses the person, and that serves no legitimate
purpose. The course of conduct must be such as would cause a
reasonable person to suffer substantial emotional distress, and must
actually cause substantial emotional distress to the plaintiff.
As used in this subdivision:
(1) "Unlawful violence" is any assault or battery, or stalking as
prohibited in Section 646.9 of the Penal Code, but shall not include
lawful acts of selfdefense or defense of others.
(2) "Credible threat of violence" is a knowing and willful
statement or course of conduct that would place a reasonable person
in fear for his or her safety, or the safety of his or her immediate
family, and that serves no legitimate purpose.
(3) "Course of conduct" is a pattern of conduct composed of a
series of acts over a period of time, however short, evidencing a
continuity of purpose, including following or stalking an individual,
making harassing telephone calls to an individual, or sending
harassing correspondence to an individual by any means, including,
but not limited to, the use of public or private mails, interoffice
mail, fax, or computer email. Constitutionally protected activity is
not included within the meaning of "course of conduct."
(c) Upon filing a petition for an injunction under this section,
the plaintiff may obtain a temporary restraining order in accordance
with Section 527, except to the extent this section provides a rule
that is inconsistent. A temporary restraining order may be issued
with or without notice upon an affidavit that, to the satisfaction of
the court, shows reasonable proof of harassment of the plaintiff by
the defendant, and that great or irreparable harm would result to the
plaintiff. In the discretion of the court, and on a showing of good
cause, a temporary restraining order or injunction, issued under this
section may include other named family or household members who
reside with the plaintiff. A temporary restraining order issued under
this section shall remain in effect, at the court's discretion, for
a period not to exceed 15 days, or, if the court extends the time for
hearing under subdivision (d), not to exceed 22 days, unless
otherwise modified or terminated by the court.
(d) Within 15 days, or, if good cause appears to the court, 22
days from the date the temporary restraining order is issued, a
hearing shall be held on the petition for the injunction. The
defendant may file a response that explains, excuses, justifies, or
denies the alleged harassment or may file a crosscomplaint under
this section. At the hearing, the judge shall receive any testimony
that is relevant, and may make an independent inquiry. If the judge
finds by clear and convincing evidence that unlawful harassment
exists, an injunction shall issue prohibiting the harassment. An
injunction issued pursuant to this section shall have a duration of
not more than three years. At any time within the three months before
the expiration of the injunction, the plaintiff may apply for a
renewal of the injunction by filing a new petition for an injunction
under this section.
(e) This section does not preclude either party from
representation by private counsel or from appearing on the party's
own behalf.
(f) In a proceeding under this section if there are allegations or
threats of domestic violence, a support person may accompany a party
in court and, if the party is not represented by an attorney, may
sit with the party at the table that is generally reserved for the
party and the party's attorney. The support person is present to
provide moral and emotional support for a person who alleges he or
she is a victim of domestic violence. The support person is not
present as a legal adviser and may not provide legal advice. The
support person may assist the person who alleges he or she is a
victim of domestic violence in feeling more confident that he or she
will not be injured or threatened by the other party during the
proceedings if the person who alleges he or she is a victim of
domestic violence and the other party are required to be present in
close proximity. This subdivision does not preclude the court from
exercising its discretion to remove the support person from the
courtroom if the court believes the support person is prompting,
swaying, or influencing the party assisted by the support person.
(g) Upon the filing of a petition for an injunction under this
section, the defendant shall be personally served with a copy of the
petition, temporary restraining order, if any, and notice of hearing
of the petition. Service shall be made at least five days before the
hearing. The court may for good cause, on motion of the plaintiff or
on its own motion, shorten the time for service on the defendant.
(h) The court shall order the plaintiff or the attorney for the
plaintiff to deliver a copy of each temporary restraining order or
injunction, or modification or termination thereof, granted under
this section, by the close of the business day on which the order was
granted, to the law enforcement agencies within the court's
discretion as are requested by the plaintiff. Each appropriate law
enforcement agency shall make available information as to the
existence and current status of these orders to law enforcement
officers responding to the scene of reported harassment.
An order issued under this section shall, on request of the
plaintiff, be served on the defendant, whether or not the defendant
has been taken into custody, by any law enforcement officer who is
present at the scene of reported harassment involving the parties to
the proceeding. The plaintiff shall provide the officer with an
endorsed copy of the order and a proof of service that the officer
shall complete and send to the issuing court.
Upon receiving information at the scene of an incident of
harassment that a protective order has been issued under this
section, or that a person who has been taken into custody is the
subject of an order, if the protected person cannot produce a
certified copy of the order, a law enforcement officer shall
immediately attempt to verify the existence of the order.
If the law enforcement officer determines that a protective order
has been issued, but not served, the officer shall immediately notify
the defendant of the terms of the order and shall at that time also
enforce the order. Verbal notice of the terms of the order shall
constitute service of the order and is sufficient notice for the
purposes of this section and for the purposes of Section 273.6 and
subdivision (g) of Section 12021 of the Penal Code.
(i) The prevailing party in any action brought under this section
may be awarded court costs and attorney's fees, if any.
(j) Any willful disobedience of any temporary restraining order or
injunction granted under this section is punishable pursuant to
Section 273.6 of the Penal Code.
(k) (1) A person subject to a protective order issued under this
section shall not own, possess, purchase, receive, or attempt to
purchase or receive a firearm while the protective order is in
effect.
(2) The court shall order a person subject to a protective order
issued under this section to relinquish any firearms he or she owns
or possesses pursuant to Section 527.9.
(3) Every person who owns, possesses, purchases or receives, or
attempts to purchase or receive a firearm while the protective order
is in effect is punishable pursuant to subdivision (g) of Section
12021 of the Penal Code.
(l) This section does not apply to any action or proceeding
covered by Title 1.6C (commencing with Section 1788) of the Civil
Code or by Division 10 (commencing with Section 6200) of the Family
Code. This section does not preclude a plaintiff from using other
existing civil remedies.
(m) The Judicial Council shall promulgate forms and instructions
therefor, and rules for service of process, scheduling of hearings,
and any other matters required by this section. The petition and
response forms shall be simple and concise, and their use by parties
in actions brought pursuant to this section shall be mandatory.
(n) A temporary restraining order or injunction relating to
harassment or domestic violence issued by a court pursuant to this
section shall be issued on forms adopted by the Judicial Council of
California and that have been approved by the Department of Justice
pursuant to subdivision (i) of Section 6380 of the Family Code.
However, the fact that an order issued by a court pursuant to this
section was not issued on forms adopted by the Judicial Council and
approved by the Department of Justice shall not, in and of itself,
make the order unenforceable.
(o) Information on any temporary restraining order or injunction
relating to harassment or domestic violence issued by a court
pursuant to this section shall be transmitted to the Department of
Justice in accordance with subdivision (b) of Section 6380 of the
Family Code.
(p) There is no filing fee for a petition that alleges that a
person has inflicted or threatened violence against the petitioner,
or stalked the petitioner, or acted or spoken in any other manner
that has placed the petitioner in reasonable fear of violence, and
that seeks a protective or restraining order or injunction
restraining stalking or future violence or threats of violence, in
any action brought pursuant to this section. No fee shall be paid for
a subpoena filed in connection with a petition alleging these acts.
No fee shall be paid for filing a response to a petition alleging
these acts.
(q) (1) Subject to paragraph (4) of subdivision (b) of Section
6103.2 of the Government Code, there shall be no fee for the service
of process of a protective order, restraining order, or injunction to
be issued, if any of the following conditions apply:
(A) The protective order, restraining order, or injunction issued
pursuant to this section is based upon stalking, as prohibited by
Section 646.9 of the Penal Code.
(B) The protective order, restraining order, or injunction issued
pursuant to this section is based upon a credible threat of violence.
(C) The protective order, restraining order, or injunction is
issued pursuant to Section 6222 of the Family Code.
(2) The Judicial Council shall prepare and develop application
forms for applicants who wish to avail themselves of the services
described in this subdivision.
527.7. (a) It shall be unlawful for any group, association,
organization, society, or other assemblage of two or more persons to
meet and to advocate, and to take substantial action in furtherance
of, the commission of an unlawful act of violence or force directed
to and likely to produce the imminent and unlawful infliction of
serious bodily injury or death of another person within this state.
(b) Whenever it reasonably appears that any group, association,
society, or other assemblage of two or more persons has met and taken
substantial action in furtherance of the commission of an act of
violence made unlawful by subdivision (a) and will engage in those
acts in the future, any aggrieved individual may bring a civil action
in the superior court to enjoin the advocacy of the commission of
any act of violence made unlawful by subdivision (a) at any future
meeting or meetings. Upon a proper showing by clear and convincing
evidence, a permanent or preliminary injunction, restraining order,
or writ of mandate shall be granted.
(c) Whenever it appears that an action brought under this section
was groundless and brought in bad faith for the purpose of
harassment, the trial court or any appellate court may award to the
defendant attorney's fees and court costs incurred for the purpose of
defending the action.
527.8. (a) Any employer, whose employee has suffered unlawful
violence or a credible threat of violence from any individual, that
can reasonably be construed to be carried out or to have been carried
out at the workplace, may seek a temporary restraining order and an
injunction on behalf of the employee and, at the discretion of the
court, any number of other employees at the workplace, and, if
appropriate, other employees at other workplaces of the employer.
(b) For the purposes of this section:
(1) "Unlawful violence" is any assault or battery, or stalking as
prohibited in Section 646.9 of the Penal Code, but shall not include
lawful acts of selfdefense or defense of others.
(2) "Credible threat of violence" is a knowing and willful
statement or course of conduct that would place a reasonable person
in fear for his or her safety, or the safety of his or her immediate
family, and that serves no legitimate purpose.
(3) "Course of conduct" is a pattern of conduct composed of a
series of acts over a period of time, however short, evidencing a
continuity of purpose, including following or stalking an employee to
or from the place of work; entering the workplace; following an
employee during hours of employment; making telephone calls to an
employee; or sending correspondence to an employee by any means,
including, but not limited to, the use of the public or private
mails, interoffice mail, fax, or computer email.
(c) This section does not permit a court to issue a temporary
restraining order or injunction prohibiting speech or other
activities that are constitutionally protected, or otherwise
protected by Section 527.3 or any other provision of law.
(d) For purposes of this section, the terms "employer" and
"employee" mean persons defined in Section 350 of the Labor Code.
"Employer" also includes a federal agency, the state, a state agency,
a city, county, or district, and a private, public, or quasipublic
corporation, or any public agency thereof or therein. "Employee" also
includes the members of boards of directors of private, public, and
quasipublic corporations and elected and appointed public officers.
For purposes of this section only, "employee" also includes a
volunteer or independent contractor who performs services for the
employer at the employer's worksite.
(e) Upon filing a petition for an injunction under this section,
the plaintiff may obtain a temporary restraining order in accordance
with subdivision (a) of Section 527, if the plaintiff also files an
affidavit that, to the satisfaction of the court, shows reasonable
proof that an employee has suffered unlawful violence or a credible
threat of violence by the defendant, and that great or irreparable
harm would result to an employee. In the discretion of the court, and
on a showing of good cause, a temporary restraining order or
injunction issued under this section may include other named family
or household members who reside with the employee, or other persons
employed at his or her workplace or workplaces.
A temporary restraining order granted under this section shall
remain in effect, at the court's discretion, for a period not to
exceed 15 days, unless otherwise modified or terminated by the court.
(f) Within 15 days of the filing of the petition, a hearing shall
be held on the petition for the injunction. The defendant may file a
response that explains, excuses, justifies, or denies the alleged
unlawful violence or credible threats of violence or may file a
crosscomplaint under this section. At the hearing, the judge shall
receive any testimony that is relevant and may make an independent
inquiry. Moreover, if the defendant is a current employee of the
entity requesting the injunction, the judge shall receive evidence
concerning the employer's decision to retain, terminate, or otherwise
discipline the defendant. If the judge finds by clear and convincing
evidence that the defendant engaged in unlawful violence or made a
credible threat of violence, an injunction shall issue prohibiting
further unlawful violence or threats of violence. An injunction
issued pursuant to this section shall have a duration of not more
than three years. At any time within the three months before the
expiration of the injunction, the plaintiff may apply for a renewal
of the injunction by filing a new petition for an injunction under
this section.
(g) This section does not preclude either party from
representation by private counsel or from appearing on his or her own
behalf.
(h) Upon filing of a petition for an injunction under this
section, the defendant shall be personally served with a copy of the
petition, temporary restraining order, if any, and notice of hearing
of the petition. Service shall be made at least five days before the
hearing. The court may, for good cause, on motion of the plaintiff or
on its own motion, shorten the time for service on the defendant.
(i) (1) The court shall order the plaintiff or the attorney for
the plaintiff to deliver a copy of each temporary restraining order
or injunction, or modification or termination thereof, granted under
this section, by the close of the business day on which the order was
granted, to the law enforcement agencies within the court's
discretion as are requested by the plaintiff. Each appropriate law
enforcement agency shall make available information as to the
existence and current status of these orders to law enforcement
officers responding to the scene of reported unlawful violence or a
credible threat of violence.
(2) At the request of the plaintiff, an order issued under this
section shall be served on the defendant, regardless of whether the
defendant has been taken into custody, by any law enforcement officer
who is present at the scene of reported unlawful violence or a
credible threat of violence involving the parties to the proceedings.
The plaintiff shall provide the officer with an endorsed copy of the
order and proof of service that the officer shall complete and send
to the issuing court.
(3) Upon receiving information at the scene of an incident of
unlawful violence or a credible threat of violence that a protective
order has been issued under this section, or that a person who has
been taken into custody is the subject of an order, if the plaintiff
or the protected person cannot produce an endorsed copy of the order,
a law enforcement officer shall immediately attempt to verify the
existence of the order.
(4) If the law enforcement officer determines that a protective
order has been issued, but not served, the officer shall immediately
notify the defendant of the terms of the order and obtain the
defendant's address. The law enforcement officer shall at that time
also enforce the order, but may not arrest or take the defendant into
custody for acts in violation of the order that were committed prior
to the verbal notice of the terms and conditions of the order. The
law enforcement officer's verbal notice of the terms of the order
shall constitute service of the order and constitutes sufficient
notice for the purposes of this section and for the purposes of
Section 273.6 and subdivision (g) of Section 12021 of the Penal Code.
The plaintiff shall mail an endorsed copy of the order to the
defendant's mailing address provided to the law enforcement officer
within one business day of the reported incident of unlawful violence
or a credible threat of violence at which a verbal notice of the
terms of the order was provided by a law enforcement officer.
(j) (1) A person subject to a protective order issued under this
section shall not own, possess, purchase, receive, or attempt to
purchase or receive a firearm while the protective order is in
effect.
(2) The court shall order a person subject to a protective order
issued under this section to relinquish any firearms he or she owns
or possesses pursuant to Section 527.9.
(3) Every person who owns, possesses, purchases or receives, or
attempts to purchase or receive a firearm while the protective order
is in effect is punishable pursuant to subdivision (g) of Section
12021 of the Penal Code.
(k) Any intentional disobedience of any temporary restraining
order or injunction granted under this section is punishable pursuant
to Section 273.6 of the Penal Code.
(l) Nothing in this section may be construed as expanding,
diminishing, altering, or modifying the duty, if any, of an employer
to provide a safe workplace for employees and other persons.
(m) The Judicial Council shall develop forms, instructions, and
rules for scheduling of hearings and other procedures established
pursuant to this section. The forms for the petition and response
shall be simple and concise, and their use by parties in actions
brought pursuant to this section shall be mandatory.
(n) A temporary restraining order or injunction relating to
harassment or domestic violence issued by a court pursuant to this
section shall be issued on forms adopted by the Judicial Council of
California and that have been approved by the Department of Justice
pursuant to subdivision (i) of Section 6380 of the Family Code.
However, the fact that an order issued by a court pursuant to this
section was not issued on forms adopted by the Judicial Council and
approved by the Department of Justice shall not, in and of itself,
make the order unenforceable.
(o) Information on any temporary restraining order or injunction
relating to harassment or domestic violence issued by a court
pursuant to this section shall be transmitted to the Department of
Justice in accordance with subdivision (b) of Section 6380 of the
Family Code.
(p) There is no filing fee for a petition that alleges that a
person has inflicted or threatened violence against an employee of
the petitioner, or stalked the employee, or acted or spoken in any
other manner that has placed the employee in reasonable fear of
violence, and that seeks a protective or restraining order or
injunction restraining stalking or future violence or threats of
violence, in any action brought pursuant to this section. No fee
shall be paid for a subpoena filed in connection with a petition
alleging these acts. No fee shall be paid for filing a response to a
petition alleging these acts.
(q) (1) Subject to paragraph (4) of subdivision (b) of Section
6103.2 of the Government Code, there shall be no fee for the service
of process of a temporary restraining order or injunction to be
issued pursuant to this section if either of the following conditions
apply:
(A) The temporary restraining order or injunction issued pursuant
to this section is based upon stalking, as prohibited by Section
646.9 of the Penal Code.
(B) The temporary restraining order or injunction issued pursuant
to this section is based upon a credible threat of violence.
(2) The Judicial Council shall prepare and develop application
forms for applicants who wish to avail themselves of the services
described in this subdivision.
527.9. (a) A person subject to a temporary restraining order or
injunction issued pursuant to Section 527.6 or 527.8 of the Code of
Civil Procedure, or subject to a restraining order issued pursuant to
Section 136.2 of the Penal Code, or Section 15657.03 of the Welfare
and Institutions Code, shall relinquish the firearm pursuant to this
section.
(b) Upon the issuance of a protective order pursuant to
subdivision (a), the court shall order the person to relinquish any
firearm in that person's immediate possession or control, or subject
to that person's immediate possession or control, within 24 hours of
being served with the order, either by surrendering the firearm to
the control of local law enforcement officials, or by selling the
firearm to a licensed gun dealer, as specified in Section 12071 of
the Penal Code. A person ordered to relinquish any firearm pursuant
to this subdivision shall file with the court a receipt showing the
firearm was surrendered to the local law enforcement agency or sold
to a licensed gun dealer within 48 hours after receiving the order.
In the event that it is necessary to continue the date of any hearing
due to a request for a relinquishment order pursuant to this
section, the court shall ensure that all applicable protective orders
described in Section 6218 of the Family Code remain in effect or
bifurcate the issues and grant the permanent restraining order
pending the date of the hearing.
(c) A local law enforcement agency may charge the person subject
to the order or injunction a fee for the storage of any firearm
relinquished pursuant to this section. The fee shall not exceed the
actual cost incurred by the local law enforcement agency for the
storage of the firearm. For purposes of this subdivision, "actual
cost" means expenses directly related to taking possession of a
firearm, storing the firearm, and surrendering possession of the
firearm to a licensed dealer as defined in Section 12071 of the Penal
Code or to the person relinquishing the firearm.
(d) The restraining order requiring a person to relinquish a
firearm pursuant to subdivision (b) shall state on its face that the
respondent is prohibited from owning, possessing, purchasing, or
receiving a firearm while the protective order is in effect and that
the firearm shall be relinquished to the local law enforcement agency
for that jurisdiction or sold to a licensed gun dealer, and that
proof of surrender or sale shall be filed with the court within a
specified period of receipt of the order. The order shall also state
on its face the expiration date for relinquishment. Nothing in this
section shall limit a respondent's right under existing law to
petition the court at a later date for modification of the order.
(e) The restraining order requiring a person to relinquish a
firearm pursuant to subdivision (b) shall prohibit the person from
possessing or controlling any firearm for the duration of the order.
At the expiration of the order, the local law enforcement agency
shall return possession of any surrendered firearm to the respondent,
within five days after the expiration of the relinquishment order,
unless the local law enforcement agency determines that (1) the
firearm has been stolen, (2) the respondent is prohibited from
possessing a firearm because the respondent is in any prohibited
class for the possession of firearms, as defined in Sections 12021
and 12021.1 of the Penal Code and Sections 8100 and 8103 of the
Welfare and Institutions Code, or (3) another successive restraining
order is used against the respondent under this section. If the local
law enforcement agency determines that the respondent is the legal
owner of any firearm deposited with the local law enforcement agency
and is prohibited from possessing any firearm, the respondent shall
be entitled to sell or transfer the firearm to a licensed dealer as
defined in Section 12071 of the Penal Code. If the firearm has been
stolen, the firearm shall be restored to the lawful owner upon his or
her identification of the firearm and proof of ownership.
(f) The court may, as part of the relinquishment order, grant an
exemption from the relinquishment requirements of this section for a
particular firearm if the respondent can show that a particular
firearm is necessary as a condition of continued employment and that
the current employer is unable to reassign the respondent to another
position where a firearm is unnecessary. If an exemption is granted
pursuant to this subdivision, the order shall provide that the
firearm shall be in the physical possession of the respondent only
during scheduled work hours and during travel to and from his or her
place of employment. In any case involving a peace officer who as a
condition of employment and whose personal safety depends on the
ability to carry a firearm, a court may allow the peace officer to
continue to carry a firearm, either on duty or off duty, if the court
finds by a preponderance of the evidence that the officer does not
pose a threat of harm. Prior to making this finding, the court shall
require a mandatory psychological evaluation of the peace officer and
may require the peace officer to enter into counseling or other
remedial treatment program to deal with any propensity for domestic
violence.
(g) During the period of the relinquishment order, a respondent is
entitled to make one sale of all firearms that are in the possession
of a local law enforcement agency pursuant to this section. A
licensed gun dealer, who presents a local law enforcement agency with
a bill of sale indicating that all firearms owned by the respondent
that are in the possession of the local law enforcement agency have
been sold by the respondent to the licensed gun dealer, shall be
given possession of those firearms, at the location where a
respondent's firearms are stored, within five days of presenting the
local law enforcement agency with a bill of sale.
527.10. (a) The court shall order that any party enjoined pursuant
to Sections 527.6 and 527.8 be prohibited from taking any action to
obtain the address or location of a protected party or a protected
party's family members, caretakers, or guardian, unless there is good
cause not to make that order.
(b) The Judicial Council shall promulgate forms necessary to
effectuate this section.
528. An injunction cannot be allowed after the defendant has
answered, unless upon notice, or upon an order to show cause; but in
such case the defendant may be restrained until the decision of the
Court or Judge granting or refusing the injunction.
529. (a) On granting an injunction, the court or judge must require
an undertaking on the part of the applicant to the effect that the
applicant will pay to the party enjoined any damages, not exceeding
an amount to be specified, the party may sustain by reason of the
injunction, if the court finally decides that the applicant was not
entitled to the injunction. Within five days after the service of
the injunction, the person enjoined may object to the undertaking.
If the court determines that the applicant's undertaking is
insufficient and a sufficient undertaking is not filed within the
time required by statute, the order granting the injunction must be
dissolved.
(b) This section does not apply to any of the following persons:
(1) Either spouse against the other in a proceeding for legal
separation or dissolution of marriage.
(2) The applicant for an order described in Division 10
(commencing with Section 6200) of the Family Code.
(3) A public entity or officer described in Section 995.220.
529.1. (a) In all actions in which the court has granted an
injunction sought by any plaintiff to enjoin a construction project
which has received all legally required licenses and permits, the
defendant may apply to the court by noticed motion for an order
requiring the plaintiff to furnish an undertaking as security for
costs and any damages that may be incurred by the defendant by the
conclusion of the action or proceeding as the result of a delay in
the construction of the project. The motion shall be made on the
grounds that there is no reasonable possibility that the plaintiff
will obtain a judgment against the moving defendant and that the
plaintiff will not suffer undue economic hardship by filing the
undertaking.
(b) If the court, after hearing, determines that the grounds for
the motion have been established, the court shall order that the
plaintiff file the undertaking in an amount specified in the court's
order as security for costs and damages of the defendant. The
liability of the plaintiff pursuant to this section for the costs and
damages of the defendant shall not exceed five hundred thousand
dollars ($500,000).
(c) As used in this section, a construction project includes, but
is not restricted to, the construction, surveying, design,
specifications, alteration, repair, improvement, maintenance,
removal, or demolition of any building, highway, road, parking
facility, bridge, railroad, airport, pier or dock, excavation or
other structure, development or other improvement to real or personal
property.
529.2. (a) In all civil actions, including, but not limited to,
actions brought pursuant to Section 21167 of the Public Resources
Code, brought by any plaintiff to challenge a housing project which
is a development project, as defined by Section 65928 of the
Government Code, and which meets or exceeds the requirements for low
or moderateincome housing as set forth in Section 65915 of the
Government Code, a defendant may, if the bringing of the action or
the seeking by the plaintiff of particular relief including, but not
limited to, injunctions, has the effect of preventing or delaying the
project from being carried out, apply to the court by noticed motion
for an order requiring the plaintiff to furnish an undertaking as
security for costs and any damages that may be incurred by the
defendant by the conclusion of the action or proceeding as the result
of a delay in carrying out the development project. The motion
shall be made on the grounds that: (1) the action was brought in
bad faith, vexatiously, for the purpose of delay, or to thwart the
low or moderateincome nature of the housing development project,
and (2) the plaintiff will not suffer undue economic hardship by
filing the undertaking.
(b) If the court, after hearing, determines that the grounds for
the motion have been established, the court shall order that the
plaintiff file the undertaking in an amount specified in the court's
order as security for costs and damages of the defendant. The
liability of the plaintiff pursuant to this section for the costs and
damages of the defendant shall not exceed five hundred thousand
dollars ($500,000).
(c) If at any time after the plaintiff has filed an undertaking
the housing development plan is changed by the developer in bad faith
so that it fails to meet or exceed the requirements for low or
moderateincome housing as set forth in Section 65915 of the
Government Code, the developer shall be liable to the plaintiff for
the cost of obtaining the undertaking.
530. In all actions which may be hereafter brought when an
injunction or restraining order may be applied for to prevent the
diversion, diminution or increase of the flow of water in its natural
channels, to the ordinary flow of which the plaintiff claims to be
entitled, the court shall first require due notice of the application
to be served upon the defendant, unless it shall appear from the
verified complaint or affidavits upon which the application therefor
is made, that, within ten days prior to the time of such application,
the plaintiff has been in the peaceable possession of the flow of
such water, and that, within such time, said plaintiff has been
deprived of the flow thereof by the wrongful diversion of such flow
by the defendant, or that the plaintiff, at the time of such
application, is, and for ten days prior thereto, has been, in
possession of the flow of said water, and that the defendant
threatens to divert the flow of such water; and if such notice of
such application be given and upon the hearing thereof, it be made to
appear to the court that plaintiff is entitled to the injunction,
but that the issuance thereof pending the litigation will entail
great damage upon defendant, and that plaintiff will not be greatly
damaged by the acts complained of pending the litigation, and can be
fully compensated for such damage as he may suffer, the court may
refuse the injunction upon the defendant giving a bond such as is
provided for in section five hundred and thirtytwo; and upon the
trial the same proceedings shall be had, and with the same effect as
in said section provided.
531. An injunction to suspend the general and ordinary business of
a corporation can not be granted without due notice of the
application therefor to the proper officers or managing agent of the
corporation, except when the people of this state are a party to the
proceeding.
532. (a) If an injunction is granted without notice to the person
enjoined, the person may apply, upon reasonable notice to the judge
who granted the injunction, or to the court in which the action was
brought, to dissolve or modify the injunction. The application may
be made upon the complaint or the affidavit on which the injunction
was granted, or upon affidavit on the part of the person enjoined,
with or without the answer. If the application is made upon
affidavits on the part of the person enjoined, but not otherwise,
the person against whom the application is made may oppose the
application by affidavits or other evidence in addition to that on
which the injunction was granted.
(b) In all actions in which an injunction or restraining order has
been or may be granted or applied for, to prevent the diversion,
pending the litigation, of water used, or to be used, for irrigation
or domestic purposes only, if it is made to appear to the court that
great damage will be suffered by the person enjoined, in case the
injunction is continued, and that the person in whose behalf it
issued can be fully compensated for any damages suffered by reason of
the continuance of the acts enjoined during the pendency of the
litigation, the court in its discretion, may dissolve or modify the
injunction. The dissolution or modification shall be subject to the
person enjoined giving a bond in such amount as may be fixed by the
court or judge, conditioned that the enjoined person will pay all
damages which the person in whose behalf the injunction issued may
suffer by reason of the continuance, during the litigation, of the
acts complained of. Upon the trial the amount of the damages must be
ascertained, and in case judgment is rendered for the person in
whose behalf the injunction was granted, the amount fixed as damages
must be included in the judgment, together with reasonable attorney's
fees. In any proceedings to enforce the liability on the bond, the
amount of the damages as fixed in the judgment is conclusive.
533. In any action, the court may on notice modify or dissolve an
injunction or temporary restraining order upon a showing that there
has been a material change in the facts upon which the injunction or
temporary restraining order was granted, that the law upon which the
injunction or temporary restraining order was granted has changed, or
that the ends of justice would be served by the modification or
dissolution of the injunction or temporary restraining order.
534. In any action brought by a riparian owner to enjoin the
diversion of water appropriated or proposed to be appropriated, or
the use thereof, against any person or persons appropriating or
proposing to appropriate such waters, the defendant may set up in his
answer that the water diverted or proposed to be diverted is for the
irrigation of land or other public use, and, in such case, he shall
also in such answer set forth the quantity of water desired to be
taken and necessary to such irrigation of land or the public use, the
nature of such use, the place where the same is used or proposed to
be used, the duration and extent of the diversion or the proposed
diversion, including the stages of the flow of the stream at and
during the time in which the water is to be diverted, and that the
same may be diverted without interfering with the actual and
necessary beneficial uses of the plaintiff, and that such defendant
so answering desires that the court shall ascertain and fix the
damages, if any, that will result to the plaintiff or to his riparian
lands from the appropriation of the water so appropriated or
intended to be appropriated by defendant.
The plaintiff may serve and file a reply to the defendant's answer
stating plaintiff's rights to the water and the damage plaintiff
will suffer by the defendant's taking of the water, and plaintiff may
implead as parties to the action all persons necessary to a full
determination of the rights of plaintiff to the water and the damages
plaintiff will suffer by the proposed taking by defendant, and the
court shall have jurisdiction to hear and determine all the rights to
water of the plaintiff and other parties to the action, and said
parties shall have a right to state and prove their rights, and shall
be bound by the judgment rendered the same as though made parties
plaintiff at the commencement of the action.
Upon the trial of the case the court shall receive and hear
evidence on behalf of the respective parties, and if the court finds
that the allegations of such answer are true as to the aforesaid
matters, and that the appropriation and diversion of such waters is
for irrigation of land or other public use and that, after allowing
sufficient water for the actual and necessary beneficial uses of the
plaintiff and other parties, there is water available to be
beneficially appropriated by such defendant so answering, the court
shall fix the time and manner and extent of such appropriation and
the actual damages, if any, resulting to the plaintiff or other
parties on account of the same, and in fixing such damages the court
shall be guided by Article 5 (commencing with Section 1263.410) of
Chapter 9 of Title 7 of Part 3, and if, upon the ascertainment and
fixing of such damages the defendant, within the time allowed in
Section 1268.010 for the payment of damages in proceedings in eminent
domain, shall pay into court the amount of damages fixed and the
costs adjudged to be paid by such defendant, or give a good and
sufficient bond to pay the same upon the final settlement of the
case, the injunction prayed for by the plaintiff shall be denied to
the extent of the amount the defendant is permitted to appropriate,
as aforesaid, and the temporary injunction, if any has been granted,
shall be vacated to the extent aforesaid; provided, that any of the
parties may appeal from such judgment as in other cases; and
provided, further, that if such judgment is in favor of the defendant
and if he upon and pending such appeal shall keep on deposit with
the clerk of said court the amount of such damages and costs, or the
bond, if it be given, so awarded to be paid to the plaintiff or other
parties in the event such judgment shall be affirmed, no injunction
against the appropriation of the amount the defendant is permitted to
appropriate as aforesaid shall be granted or enforced pending such
appeal, and, upon the acceptance by the plaintiff or other parties of
such amount so awarded or upon the affirmation of such decision on
appeal so that such judgment shall become final, the defendant shall
have the right to divert and appropriate from such stream, against
such plaintiff or other parties and his successors in interest, the
quantity of water therein adjudged and allowed. Upon the filing of
such answer as is herein provided for, the parties plaintiff or other
parties and defendant shall be entitled to a jury trial upon the
issues as to damages so raised, as provided in Title 7 (commencing
with Section 1230.010) of Part 3, applying to proceedings in eminent
domain.
QUIET TITLE PROVISIONS
SECTION 760.010-760.060
760.010. As used in this chapter:

(a) "Claim" includes a legal or equitable right, title, estate,
lien, or interest in property or cloud upon title.
(b) "Property" includes real property, and to the extent
applicable, personal property.
760.020. (a) An action may be brought under this chapter to

establish title against adverse claims to real or personal property
or any interest therein.
(b) An action may be brought under this chapter by parties to an
agreement entered into pursuant to Section 6307 or 6357 of the Public
Resources Code to confirm the validity of the agreement.
(c) Nothing in this section shall be construed to limit the right
of members of the public to bring or participate in actions
challenging the validity of agreements entered into pursuant to
Section 6307 or 6357 of the Public Resources Code.
760.030. (a) The remedy provided in this chapter is cumulative and

not exclusive of any other remedy, form or right of action, or
proceeding provided by law for establishing or quieting title to
property.
(b) In an action or proceeding in which establishing or quieting
title to property is in issue the court in its discretion may, upon
motion of any party, require that the issue be resolved pursuant to
the provisions of this chapter to the extent practicable.
760.040. (a) The superior court has jurisdiction of actions under

this chapter.
(b) The court has complete jurisdiction over the parties to the
action and the property described in the complaint and is deemed to
have obtained possession and control of the property for the purposes
of the action with complete jurisdiction to render the judgment
provided for in this chapter.
(c) Nothing in this chapter limits any authority the court may
have to grant such equitable relief as may be proper under the
circumstances of the case.
760.050. Subject to the power of the court to transfer actions, the

proper county for the trial of an action under this chapter is:
(a) Where the subject of the action is real property or real and
personal property, the county in which the real property, or some
part thereof, is located.
(b) Where the subject of the action is personal property, the
county in which the personal property is principally located at the
commencement of the action or in which the defendants, or any of
them, reside at the commencement of the action.
760.060. The statutes and rules governing practice in civil actions

generally apply to actions under this chapter except where they are
inconsistent with the provisions of this chapter.

SECTION 761.010-761.040
761.010. (a) An action under this chapter is commenced by filing a

complaint with the court.
(b) Immediately upon commencement of the action, the plaintiff
shall file a notice of the pendency of the action in the office of
the county recorder of each county in which any real property
described in the complaint is located.
761.020. The complaint shall be verified and shall include all of

the following:
(a) A description of the property that is the subject of the
action. In the case of tangible personal property, the description
shall include its usual location. In the case of real property, the
description shall include both its legal description and its street
address or common designation, if any.
(b) The title of the plaintiff as to which a determination under
this chapter is sought and the basis of the title. If the title is
based upon adverse possession, the complaint shall allege the
specific facts constituting the adverse possession.
(c) The adverse claims to the title of the plaintiff against which
a determination is sought.
(d) The date as of which the determination is sought. If the
determination is sought as of a date other than the date the
complaint is filed, the complaint shall include a statement of the
reasons why a determination as of that date is sought.
(e) A prayer for the determination of the title of the plaintiff
against the adverse claims.
761.030. (a) The answer shall be verified and shall set forth:
(1) Any claim the defendant has.
(2) Any facts tending to controvert such material allegations of
the complaint as the defendant does not wish to be taken as true.
(3) A statement of any new matter constituting a defense.
(b) If the defendant disclaims in the answer any claim, or suffers
judgment to be taken without answer, the plaintiff shall not recover
costs.
761.040. (a) The defendant may by cross-complaint seek affirmative

relief in the action.
(b) If the defendant seeks a determination of title as of a date
other than the date specified in the complaint, the cross-complaint
shall include the date and a statement of the reasons why a
determination as of that date is sought.

SECTION 762.010-762.090
762.010. The plaintiff shall name as defendants in the action the

persons having adverse claims to the title of the plaintiff against
which a determination is sought.
762.020. (a) If the name of a person required to be named as a

defendant is not known to the plaintiff, the plaintiff shall so state
in the complaint and shall name as parties all persons unknown in
the manner provided in Section 762.060.
(b) If the claim or the share or quantity of the claim of a person
required to be named as a defendant is unknown, uncertain, or
contingent, the plaintiff shall so state in the complaint. If the
lack of knowledge, uncertainty, or contingency is caused by a
transfer to an unborn or unascertained person or class member, or by
a transfer in the form of a contingent remainder, vested remainder
subject to defeasance, executory interest, or similar disposition,
the plaintiff shall also state in the complaint, so far as is known
to the plaintiff, the name, age, and legal disability (if any) of the
person in being who would be entitled to the claim had the
contingency upon which the claim depends occurred prior to the
commencement of the action.
762.030. (a) If a person required to be named as a defendant is

dead and the plaintiff knows of a personal representative, the
plaintiff shall join the personal representative as a defendant.
(b) If a person required to be named as a defendant is dead, or is
believed by the plaintiff to be dead, and the plaintiff knows of no
personal representative:
(1) The plaintiff shall state these facts in an affidavit filed
with the complaint.
(2) Where it is stated in the affidvit that such person is dead,
the plaintiff may join as defendants "the testate and intestate
successors of ____ (naming the deceased person), deceased, and all
persons claiming by, through, or under such decedent," naming them in
that manner.
(3) Where it is stated in the affidavit that such person is
believed to be dead, the plaintiff may join the person as a
defendant, and may also join "the testate and intestate successors of
____ (naming the person) believed to be deceased, and all persons
claiming by, through, or under such person," naming them in that
manner.
762.040. The court upon its own motion may, and upon motion of any
party shall, make such orders as appear appropriate:
(a) For joinder of such additional parties as are necessary or
proper.
(b) Requiring the plaintiff to procure a title report and
designate a place where it shall be kept for inspection, use, and
copying by the parties.
762.050. Any person who has a claim to the property described in

the complaint may appear in the proceeding. Whether or not the
person is named as a defendant in the complaint, the person shall
appear as a defendant.
762.060. (a) In addition to the persons required to be named as

defendants in the action, the plaintiff may name as defendants "all
persons unknown, claiming any legal or equitable right, title,
estate, lien, or interest in the property described in the complaint
adverse to plaintiff's title, or any cloud upon plaintiff's title
thereto," naming them in that manner.
(b) In an action under this section, the plaintiff shall name as
defendants the persons having adverse claims that are of record or
known to the plaintiff or reasonably apparent from an inspection of
the property.
(c) If the plaintiff admits the validity of any adverse claim, the
complaint shall so state.
762.070. A person named and served as an unknown defendant has the

same rights as are provided by law in cases of all other defendants
named and served, and the action shall proceed against unknown
defendants in the same manner as against other defendants named and
served, and with the same effect.
762.080. The court upon its own motion may, and upon motion of any
party shall, make such orders for appointment of guardians ad litem
as appear necessary to protect the interest of any party.
762.090. (a) The state may be joined as a party to an action under

this chapter.
(b) This section does not constitute a change in, but is
declaratory of, existing law.

SECTION 763.010-763.040
763.010. (a) The form, content, and manner of the service of

summons shall be the same as in civil actions generally.
(b) If upon affidavit it appears to the satisfaction of the court
that the plaintiff has used reasonable diligence to ascertain the
identity and residence of and to serve summons on the persons named
as unknown defendants and persons joined as testate or intestate
successors of a person known or believed to be dead, the court shall
order service by publication pursuant to Section 415.50 and the
provisions of this article. The court may, in its discretion,
appoint a referee to investigate whether the plaintiff has used
reasonable diligence to ascertain the identity and residence of
persons sought to be served by publication, and the court may rely on
the report of the referee instead of the affidavit of the plaintiff
in making the order for service by publication.
(c) Nothing in this section authorizes service by publication upon
any person named as an unknown defendant who is in open and actual
possession of the property.
763.020. Whenever the court orders service by publication, the

order is subject to the following conditions:
(a) The plaintiff shall post, not later than 10 days after the
date the order is made, a copy of the summons and complaint in a
conspicuous place on the real property that is the subject of the
action.
(b) The plaintiff shall record, if not already recorded, a notice
of the pendency of the action.
(c) The publication shall describe the property that is the
subject of the action. In addition to particularly describing the
property, the publication shall describe the property by giving its
street address, if any, or other common designation, if any; but, if
a legal description of the property is given, the validity of the
publication shall not be affected by the fact that the street address
or other common designation recited is erroneous or that the street
address or other common designation is omitted.
763.030. (a) Whenever the court orders service by publication, the
publication may:
(1) Name only the defendants to be served thereby.
(2) Describe only the property in which the defendants to be
served thereby claim interests.
(b) Judgment against a defendant who fails to appear and answer
following service under this section shall be conclusive against the
defendant named in respect only to property described in the
publication.
763.040. Whenever the court orders service by publication, the

court before hearing the case shall require proof that the summons
has been served, posted, published as required, and that the notice
of pendency of action has been filed.

SECTION 764.010-764.080
764.010. The court shall examine into and determine the plaintiff's
title against the claims of all the defendants. The court shall not
enter judgment by default but shall in all cases require evidence of
plaintiff's title and hear such evidence as may be offered
respecting the claims of any of the defendants, other than claims the
validity of which is admitted by the plaintiff in the complaint.
The court shall render judgment in accordance with the evidence and
the law.
764.020. (a) If in an action under this chapter the validity or

interpretation of a gift, devise, bequest, or trust, under a will or
instrument purporting to be a will, whether admitted to probate or
not, is involved:
(1) The will or instrument purporting to be a will is admissible
in evidence.
(2) All questions concerning the validity of the gift, devise,
bequest, or trust shall be finally determined in the action.
(3) If the will has been admitted to probate and the gift, devise,
bequest, or trust has been interpreted by a final decree of the
probate court, the interpretation is conclusive as to the proper
construction thereof.
(b) Nothing in this section deprives a party of the right to a
jury trial in any case where, by law, the right is now given.
764.030. The judgment in the action is binding and conclusive on
all of the following persons, regardless of any legal disability:
(a) All persons known and unknown who were parties to the action
and who have any claim to the property, whether present or future,
vested or contingent, legal or equitable, several or undivided.
(b) Except as provided in Section 764.045, all persons who were
not parties to the action and who have any claim to the property
which was not of record at the time the lis pendens was filed or, if
none was filed, at the time the judgment was recorded.
764.045. Except to the extent provided in Section 1908, the

judgment does not affect a claim in the property or part thereof of
any person who was not a party to the action if any of the following
conditions is satisfied:
(a) The claim was of record at the time the lis pendens was filed
or, if none was filed, at the time the judgment was recorded.
(b) The claim was actually known to the plaintiff or would have
been reasonably apparent from an inspection of the property at the
time the lis pendens was filed or, if none was filed, at the time the
judgment was entered. Nothing in this subdivision shall be construed
to impair the rights of a bona fide purchaser or encumbrancer for
value dealing with the plaintiff or the plaintiff's successors in
interest.
764.060. The relief granted in an action or proceeding directly or

collaterally attacking the judgment in the action, whether based on
lack of actual notice to a party or otherwise, shall not impair the
rights of a purchaser or encumbrancer for value of the property
acting in reliance on the judgment without knowledge of any defects
or irregularities in the judgment or the proceedings.
764.070. Notwithstanding any other provision of this chapter, the

judgment in the action is not binding or conclusive on the following:
(a) The state, unless individually joined as a party to the

action.
(b) The United States, unless the United States is individually
joined as a party to the action and federal law authorizes judgment
in the action to be binding or conclusive as to its interests.
764.080. (a) In any action brought to quiet title to land that has
been subject to an agreement entered into pursuant to Section 6307 or
6357 of the Public Resources Code, at the time set for trial the
court shall, at the request of any party, receive evidence on the
nature of the agreement. After receiving that evidence, the court
shall render a statement of decision. In the case of an agreement
pursuant to Section 6357, the statement of decision shall include a
recitation of the underlying facts and a determination whether the
agreement meets the criteria of Section 6357 and other law applicable
to the validity of boundary line agreements. In the case of an
agreement pursuant to Section 6307, the statement of decision shall
recite the relevant facts and shall contain a determination whether
the requirements of Section 6307 of the Public Resources Code,
Sections 3 and 4 of Article 10 of the California Constitution, and
other applicable law have been met. If the court finds the agreement
to be valid, the judgment in the action shall quiet title in the
parties named in the agreement in accordance with the agreement. If
the judgment is entered prior to the effective date of the agreement,
the judgment shall provide that, upon the effective date, title is
quieted in the parties in accordance with the agreements. However,
no action may be brought pursuant to this section until the State
Lands Commission has approved the agreement following a public
hearing. All such actions shall be set on the trial calendar
within one year from the filing of a memorandum to set, unless the
court extends this time for good cause.
(b) Nothing in this section shall be construed to limit the right
of members of the public to bring or participate in actions
challenging the validity of agreements entered into pursuant to
Section 6307 or 6357 of the Public Resources Code. Any action
brought by a member of the public shall be set on the trial
calendar within one year from the filing of a memorandum to set,
unless the court extends this time for good cause.

SECTION 437c-438
437c. (a) Any party may move for summary judgment in any action or
proceeding if it is contended that the action has no merit or that
there is no defense to the action or proceeding. The motion may be
made at any time after 60 days have elapsed since the general
appearance in the action or proceeding of each party against whom the
motion is directed or at any earlier time after the general
appearance that the court, with or without notice and upon good cause
shown, may direct. Notice of the motion and supporting papers shall
be served on all other parties to the action at least 75 days before
the time appointed for hearing. However, if the notice is served by
mail, the required 75-day period of notice shall be increased by
five days if the place of address is within the State of California,
10 days if the place of address is outside the State of California
but within the United States, and 20 days if the place of address is
outside the United States, and if the notice is served by facsimile
transmission, Express Mail, or another method of delivery providing
for overnight delivery, the required 75-day period of notice shall be
increased by two court days. The motion shall be heard no later
than 30 days before the date of trial, unless the court for good
cause orders otherwise. The filing of the motion shall not extend
the time within which a party must otherwise file a responsive
pleading.
(b) (1) The motion shall be supported by affidavits, declarations,
admissions, answers to interrogatories, depositions, and matters of
which judicial notice shall or may be taken. The supporting papers
shall include a separate statement setting forth plainly and
concisely all material facts which the moving party contends are
undisputed. Each of the material facts stated shall be followed by a
reference to the supporting evidence. The failure to comply with
this requirement of a separate statement may in the court's
discretion constitute a sufficient ground for denial of the motion.
(2) Any opposition to the motion shall be served and filed not
less than 14 days preceding the noticed or continued date of hearing,
unless the court for good cause orders otherwise. The opposition,
where appropriate, shall consist of affidavits, declarations,
admissions, answers to interrogatories, depositions, and matters of
which judicial notice shall or may be taken.
(3) The opposition papers shall include a separate statement that
responds to each of the material facts contended by the moving party
to be undisputed, indicating whether the opposing party agrees or
disagrees that those facts are undisputed. The statement also shall
set forth plainly and concisely any other material facts that the
opposing party contends are disputed. Each material fact contended
by the opposing party to be disputed shall be followed by a reference
to the supporting evidence. Failure to comply with this requirement
of a separate statement may constitute a sufficient ground, in the
court's discretion, for granting the motion.
(4) Any reply to the opposition shall be served and filed by the
moving party not less than five days preceding the noticed or
continued date of hearing, unless the court for good cause orders
otherwise.
(5) Evidentiary objections not made at the hearing shall be deemed
waived.
(6) Except for subdivision (c) of Section 1005 relating to the
method of service of opposition and reply papers, Sections 1005 and
1013, extending the time within which a right may be exercised or an
act may be done, do not apply to this section.
(7) Any incorporation by reference of matter in the court's file
shall set forth with specificity the exact matter to which reference
is being made and shall not incorporate the entire file.
(c) The motion for summary judgment shall be granted if all the
papers submitted show that there is no triable issue as to any
material fact and that the moving party is entitled to a judgment as
a matter of law. In determining whether the papers show that there
is no triable issue as to any material fact the court shall consider
all of the evidence set forth in the papers, except that to which
objections have been made and sustained by the court, and all
inferences reasonably deducible from the evidence, except summary
judgment may not be granted by the court based on inferences
reasonably deducible from the evidence, if contradicted by other
inferences or evidence, which raise a triable issue as to any
material fact.
(d) Supporting and opposing affidavits or declarations shall be
made by any person on personal knowledge, shall set forth admissible
evidence, and shall show affirmatively that the affiant is competent
to testify to the matters stated in the affidavits or declarations.
Any objections based on the failure to comply with the requirements
of this subdivision shall be made at the hearing or shall be deemed
waived.
(e) If a party is otherwise entitled to a summary judgment
pursuant to this section, summary judgment may not be denied on
grounds of credibility or for want of cross-examination of witnesses
furnishing affidavits or declarations in support of the summary
judgment, except that summary judgment may be denied in the
discretion of the court, where the only proof of a material fact
offered in support of the summary judgment is an affidavit or
declaration made by an individual who was the sole witness to that
fact; or where a material fact is an individual's state of mind, or
lack thereof, and that fact is sought to be established solely by the
individual's affirmation thereof.
(f) (1) A party may move for summary adjudication as to one or
more causes of action within an action, one or more affirmative
defenses, one or more claims for damages, or one or more issues of
duty, if that party contends that the cause of action has no merit or
that there is no affirmative defense thereto, or that there is no
merit to an affirmative defense as to any cause of action, or both,
or that there is no merit to a claim for damages, as specified in
Section 3294 of the Civil Code, or that one or more defendants either
owed or did not owe a duty to the plaintiff or plaintiffs. A motion
for summary adjudication shall be granted only if it completely
disposes of a cause of action, an affirmative defense, a claim for
damages, or an issue of duty.
(2) A motion for summary adjudication may be made by itself or as
an alternative to a motion for summary judgment and shall proceed in
all procedural respects as a motion for summary judgment. However, a
party may not move for summary judgment based on issues asserted in
a prior motion for summary adjudication and denied by the court,
unless that party establishes to the satisfaction of the court, newly
discovered facts or circumstances or a change of law supporting the
issues reasserted in the summary judgment motion.
(g) Upon the denial of a motion for summary judgment, on the
ground that there is a triable issue as to one or more material
facts, the court shall, by written or oral order, specify one or more
material facts raised by the motion as to which the court has
determined there exists a triable controversy. This determination
shall specifically refer to the evidence proffered in support of and
in opposition to the motion which indicates that a triable
controversy exists. Upon the grant of a motion for summary judgment,
on the ground that there is no triable issue of material fact, the
court shall, by written or oral order, specify the reasons for its
determination. The order shall specifically refer to the evidence
proffered in support of, and if applicable in opposition to, the
motion which indicates that no triable issue exists. The court shall
also state its reasons for any other determination. The court shall
record its determination by court reporter or written order.
(h) If it appears from the affidavits submitted in opposition to a
motion for summary judgment or summary adjudication or both that
facts essential to justify opposition may exist but cannot, for
reasons stated, then be presented, the court shall deny the motion,
or order a continuance to permit affidavits to be obtained or
discovery to be had or may make any other order as may be just. The
application to continue the motion to obtain necessary discovery may
also be made by ex parte motion at any time on or before the date the
opposition response to the motion is due.
(i) If, after granting a continuance to allow specified additional
discovery, the court determines that the party seeking summary
judgment has unreasonably failed to allow the discovery to be
conducted, the court shall grant a continuance to permit the
discovery to go forward or deny the motion for summary judgment or
summary adjudication. This section does not affect or limit the
ability of any party to compel discovery under the Civil Discovery
Act (Title 4 (commencing with Section 2016.010) of Part 4).
(j) If the court determines at any time that any of the affidavits
are presented in bad faith or solely for purposes of delay, the
court shall order the party presenting the affidavits to pay the
other party the amount of the reasonable expenses which the filing of
the affidavits caused the other party to incur. Sanctions may not
be imposed pursuant to this subdivision, except on notice contained
in a party's papers, or on the court's own noticed motion, and after
an opportunity to be heard.
(k) Except when a separate judgment may properly be awarded in the
action, no final judgment may be entered on a motion for summary
judgment prior to the termination of the action, but the final
judgment shall, in addition to any matters determined in the action,
award judgment as established by the summary proceeding herein
provided for.
(l) In actions which arise out of an injury to the person or to
property, if a motion for summary judgment was granted on the basis
that the defendant was without fault, no other defendant during
trial, over plaintiff's objection, may attempt to attribute fault to
or comment on the absence or involvement of the defendant who was
granted the motion.
(m) (1) A summary judgment entered under this section is an
appealable judgment as in other cases. Upon entry of any order
pursuant to this section, except the entry of summary judgment, a
party may, within 20 days after service upon him or her of a written
notice of entry of the order, petition an appropriate reviewing court
for a peremptory writ. If the notice is served by mail, the initial
period within which to file the petition shall be increased by five
days if the place of address is within the State of California, 10
days if the place of address is outside the State of California but
within the United States, and 20 days if the place of address is
outside the United States. If the notice is served by facsimile
transmission, Express Mail, or another method of delivery providing
for overnight delivery, the initial period within which to file the
petition shall be increased by two court days. The superior court
may, for good cause, and prior to the expiration of the initial
period, extend the time for one additional period not to exceed 10
days.
(2) Before a reviewing court affirms an order granting summary
judgment or summary adjudication on a ground not relied upon by the
trial court, the reviewing court shall afford the parties an
opportunity to present their views on the issue by submitting
supplemental briefs. The supplemental briefing may include an
argument that additional evidence relating to that ground exists, but
that the party has not had an adequate opportunity to present the
evidence or to conduct discovery on the issue. The court may reverse
or remand based upon the supplemental briefing to allow the parties
to present additional evidence or to conduct discovery on the issue.
If the court fails to allow supplemental briefing, a rehearing shall
be ordered upon timely petition of any party.
(n) (1) If a motion for summary adjudication is granted, at the
trial of the action, the cause or causes of action within the action,
affirmative defense or defenses, claim for damages, or issue or
issues of duty as to the motion which has been granted shall be
deemed to be established and the action shall proceed as to the cause
or causes of action, affirmative defense or defenses, claim for
damages, or issue or issues of duty remaining.
(2) In the trial of the action, the fact that a motion for summary
adjudication is granted as to one or more causes of action,
affirmative defenses, claims for damages, or issues of duty within
the action shall not operate to bar any cause of action, affirmative
defense, claim for damages, or issue of duty as to which summary
adjudication was either not sought or denied.
(3) In the trial of an action, neither a party, nor a witness, nor
the court shall comment upon the grant or denial of a motion for
summary adjudication to a jury.
(o) A cause of action has no merit if either of the following
exists:
(1) One or more of the elements of the cause of action cannot be
separately established, even if that element is separately pleaded.
(2) A defendant establishes an affirmative defense to that cause
of action.
(p) For purposes of motions for summary judgment and summary
adjudication:
(1) A plaintiff or cross-complainant has met his or her burden of
showing that there is no defense to a cause of action if that party
has proved each element of the cause of action entitling the party to
judgment on that cause of action. Once the plaintiff or
cross-complainant has met that burden, the burden shifts to the
defendant or cross-defendant to show that a triable issue of one or
more material facts exists as to that cause of action or a defense
thereto. The defendant or cross-defendant may not rely upon the mere
allegations or denials of its pleadings to show that a triable issue
of material fact exists but, instead, shall set forth the specific
facts showing that a triable issue of material fact exists as to that
cause of action or a defense thereto.
(2) A defendant or cross-defendant has met his or her burden of
showing that a cause of action has no merit if that party has shown
that one or more elements of the cause of action, even if not
separately pleaded, cannot be established, or that there is a
complete defense to that cause of action. Once the defendant or
cross-defendant has met that burden, the burden shifts to the
plaintiff or cross-complainant to show that a triable issue of one or
more material facts exists as to that cause of action or a defense
thereto. The plaintiff or cross-complainant may not rely upon the
mere allegations or denials of its pleadings to show that a triable
issue of material fact exists but, instead, shall set forth the
specific facts showing that a triable issue of material fact exists
as to that cause of action or a defense thereto.
(q) This section does not extend the period for trial provided by
Section 1170.5.
(r) Subdivisions (a) and (b) do not apply to actions brought
pursuant to Chapter 4 (commencing with Section 1159) of Title 3 of
Part 3.
(s) For the purposes of this section, a change in law does not
include a later enacted statute without retroactive application.
438. (a) As used in this section:

(1) "Complaint" includes a cross-complaint.
(2) "Plaintiff" includes a cross-complainant.
(3) "Defendant" includes a cross-defendant.
(b) (1) A party may move for judgment on the pleadings.
(2) The court may upon its own motion grant a motion for judgment
on the pleadings.
(c) (1) The motion provided for in this section may only be made
on one of the following grounds:
(A) If the moving party is a plaintiff, that the complaint states
facts sufficient to constitute a cause or causes of action against
the defendant and the answer does not state facts sufficient to
constitute a defense to the complaint.
(B) If the moving party is a defendant, that either of the
following conditions exist:
(i) The court has no jurisdiction of the subject of the cause of
action alleged in the complaint.
(ii) The complaint does not state facts sufficient to constitute a
cause of action against that defendant.
(2) The motion provided for in this section may be made as to
either of the following:
(A) The entire complaint or cross-complaint or as to any of the
causes of action stated therein.
(B) The entire answer or one or more of the affirmative defenses
set forth in the answer.
(3) If the court on its own motion grants the motion for judgment
on the pleadings, it shall be on one of the following bases:
(A) If the motion is granted in favor of the plaintiff, it shall
be based on the grounds that the complaint states facts sufficient to
constitute a cause or causes of action against the defendant and the
answer does not state facts sufficient to constitute a defense to
the complaint.
(B) If the motion is granted in favor of the defendant, that
either of the following conditions exist:
(i) The court has no jurisdiction of the subject of the cause of
action alleged in the complaint.
(ii) The complaint does not state facts sufficient to constitute a
cause of action against that defendant.
(d) The grounds for motion provided for in this section shall
appear on the face of the challenged pleading or from any matter of
which the court is required to take judicial notice. Where the
motion is based on a matter of which the court may take judicial
notice pursuant to Section 452 or 453 of the Evidence Code, the
matter shall be specified in the notice of motion, or in the
supporting points and authorities, except as the court may otherwise
permit.
(e) No motion may be made pursuant to this section if a pretrial
conference order has been entered pursuant to Section 575, or within
30 days of the date the action is initially set for trial, whichever
is later, unless the court otherwise permits.
(f) The motion provided for in this section may be made only after
one of the following conditions has occurred:
(1) If the moving party is a plaintiff, and the defendant has
already filed his or her answer to the complaint and the time for the
plaintiff to demur to the answer has expired.
(2) If the moving party is a defendant, and the defendant has
already filed his or her answer to the complaint and the time for the
defendant to demur to the complaint has expired.
(g) The motion provided for in this section may be made even
though either of the following conditions exist:
(1) The moving party has already demurred to the complaint or
answer, as the case may be, on the same grounds as is the basis for
the motion provided for in this section and the demurrer has been
overruled, provided that there has been a material change in
applicable case law or statute since the ruling on the demurrer.
(2) The moving party did not demur to the complaint or answer, as
the case may be, on the same grounds as is the basis for the motion
provided for in this section.
(h) (1) The motion provided for in this section may be granted
with or without leave to file an amended complaint or answer, as the
case may be.
(2) Where a motion is granted pursuant to this section with leave
to file an amended complaint or answer, as the case may be, then the
court shall grant 30 days to the party against whom the motion was
granted to file an amended complaint or answer, as the case may be.
(3) If the motion is granted with respect to the entire complaint
or answer without leave to file an amended complaint or answer, as
the case may be, then judgment shall be entered forthwith in
accordance with the motion granting judgment to the moving party.
(4) If the motion is granted with leave to file an amended
complaint or answer, as the case may be, then the following
procedures shall be followed:
(A) If an amended complaint is filed after the time to file an
amended complaint has expired, then the court may strike the
complaint pursuant to Section 436 and enter judgment in favor of that
defendant against that plaintiff or a plaintiff.
(B) If an amended answer is filed after the time to file an
amended answer has expired, then the court may strike the answer
pursuant to Section 436 and proceed to enter judgment in favor of
that plaintiff and against that defendant or a defendant.
(C) Except where subparagraphs (A) and (B) apply, if the motion is
granted with respect to the entire complaint or answer with leave to
file an amended complaint or answer, as the case may be, but an
amended complaint or answer is not filed, then after the time to file
an amended complaint or answer, as the case may be, has expired,
judgment shall be entered forthwith in favor of the moving party.
(i) (1) Where a motion for judgment on the pleadings is granted
with leave to amend, the court shall not enter a judgment in favor of
a party until the following proceedings are had:
(A) If an amended pleading is filed and the moving party contends
that pleading is filed after the time to file an amended pleading has
expired or that the pleading is in violation of the court's prior
ruling on the motion, then that party shall move to strike the
pleading and enter judgment in its favor.
(B) If no amended pleading is filed, then the party shall move for
entry of judgment in its favor.
(2) All motions made pursuant to this subdivision shall be made
pursuant to Section 1010.
(3) At the hearing on the motion provided for in this subdivision,
the court shall determine whether to enter judgment in favor of a
particular party.
SUPERIOR COURT OF CALIFORNIA, COUNTY OF KERN Chapter

III. Civil Rules and Civil Case Management
It is the policy of the Superior Court of California, County of Kern, to manage all civil
cases from the date of filing through final disposition. All parties are subject to this policy
and are expected to proceed diligently and expeditiously in preparing civil cases for trial.
(Effective 7/1/03)
"Civil cases" as used in these Rules shall not include domestic relations/family law
matters, juvenile court matters, probate matters, special petitions, actions brought for
equitable relief only entitled to preferential setting for trial without the use of juries, asset
forfeiture cases (Health and Safety Code Sections 11470 et seq.), and criminal matters.
All other cases will be included and classified at filing as general civil. (Effective 7/1/03)
modification of the routine processes as prescribed by these rules. (Effective 7/1/03)
In civil matters filed in the Regional Courts, the court shall determine the appropriate
location for the trial at the case management conference. The judge, using information
concerning the parties’ residences, the attorneys’ residences, the likely witness’ locations,
estimated trial days, and other relevant factors, will determine the need to retain the case
at the Regional Division for trial or to transfer the matter to the Metropolitan Court Civil
Division. (Effective 7/1/03)
If the matter is to be tried at the Metropolitan Division, the judicial officer shall set a trial
setting conference no later than three (3) weeks following the case management
conference. The Metropolitan Court Civil Division shall subsequently assign a judge for
all purposes upon receipt of the filing, and notify all parties of the time and Department
for the Trial Setting Conference. (Effective 7/1/03)
A transfer to the Metropolitan Court Civil Division under this policy shall not affect the
time standards for disposition of civil cases in this county. (Effective 7/1/03)
These rules apply to limited and unlimited jurisdiction general civil cases filed in the
Kern County Superior Court. (Effective 7/1/03)
Rule 3.2 Facsimile Filing of Civil Actions (Effective 7/1/03; rev.
1/1/06)
The Superior Court of California, County of Kern, have elected to allow the filing of civil
documents by facsimile transmission through Official Payments Corporation. California
Rules of Court 2.300 through 2.306 apply to facsimile filing of civil documents by
attorneys or parties without attorney. (Effective 7/1/03)
(a) To fax directly to any court’s 800 Audiotex fax number, filing attorneys and parties
should call Official Payments Corporation at (800) 322-4945 to register their fax number,
credit card number and expiration date. (Effective 7/1/03; rev. 7/1/04; rev. 1/1/06)
(b) The court’s facsimile machine shall be available 24 hours a day, although filings
received after 5:00 p.m. or on Court Holidays shall be deemed filed on the next court day.
(Effective 7/1/03)
(c) If any of the Rules are not followed, including those provisions of the applicable rules
not printed here, the court will not accept the filing of the document. The proper
transmission of a document by a facsimile machine is the responsibility of the filing
attorney or party, not the court. The filing agency must pay all applicable fees at the time
of filing. (Effective 7/1/03)
(d) Confirmation of the filing of the document shall be given by the standard
confirmation of facsimile machines. The court will not fax a copy of the cover sheet back
to the filing attorney or party. (Effective 7/1/03)
Within the Superior Court of California, County of Kern, the Superior Court Division and
Departments within said Division listed in Addendum 2 allow telephonic court
appearances through CourtCall. The telephonic court appearances are permitted only for
non-testimonial Law and Motion, Case Management Conference proceedings including
conferences that include trial setting and probate proceedings. CourtCall may be arranged
by contacting CourtCall, LLC at 6383 Arizona Circle, Los Angeles, California 90045, toll
free telephone number (888) 88-COURT or (310) 342-0888, fax number (310) 743-1850
or (888) 88FAXIN. Contact must be made at least five (5) court days in advance of the
appearance or with leave of Court on Ex Parte application and payment of a motion filing
fee. Counsel should refer to California Rules of Court Rule 3.670, as amended 1/1/01.
(Effective 7/1/03; rev. 1/1/06)
All Law and Motion matters will be heard pursuant to the courtroom schedule
(Addendum 1A through 1K). Hearing dates for Law and Motion matters in Metro
Division are not required to be pre-cleared. However, hearing dates for ex parte matters
must be pre-cleared with the Fast Track clerks. In the Regional Divisions, a Civil Law
and Motion date can be obtained at the court Civil Division office/counter or by calling
the Civil Division as follows: (Effective 7/1/03)
Motions for a new trial or motions to set aside and vacate a judgment shall be heard by
the trial judge. When the trial judge is unavailable, the motion shall be noticed in a
Department and before a judge designated by the Presiding Judge pursuant to Code of
Civil Procedure Section 663. A motion for a new trial shall be noticed by the Clerk of the
Court in accordance with Code of Civil Procedure Section 661. (Effective 7/1/03)
All ex parte applications which require notice will be noticed in the Civil Division or
Direct Calendar Court for a ruling. All ex parte matters must be precleared. Copies of all
papers to be presented at the hearing shall be filed with the court no later than 12:00 noon
the day before the scheduled hearing time. These documents may be "faxed." (Effective
7/1/03)
(a) The Presiding or Direct Calendar Judge shall be available for the signing of ex parte
orders or shall designate a judge or judges who will be available for such signing.
(Effective 7/1/03)
(b) Attorneys shall not seek to have ex parte orders signed by judges other than those
assigned by the Presiding Judge. (Effective 7/1/03)
without oral argument or comment by counsel, but the judge may, in his or her own
discretion, exempt matters from this provision. (Effective 7/1/03)
(d) Notice shall be in accordance with California Rule of Court 3.1203(a)(b), and all
paperwork shall be submitted no later than 12:00 noon the day before the scheduled
hearing. (Effective 7/1/03)
Jury fees and mileage shall be governed by the Code of Civil Procedure, Section 631, et
seq. Unless otherwise ordered by the Presiding Judge, the Clerk’s Office will not accept
client’s personal checks for daily jury fees. These fees should be paid by the attorney’s
firm’s check. (Effective 7/1/03)
(a) The following attorney’s fees shall be awarded under normal conditions in actions on
promissory notes and contracts providing for the payment of attorney’s fees and
foreclosures: (Effective 7/1/03)
15% of the next $10,000;
10% of the next $35,000;
In an action upon contract providing for an attorney’s fee, the clerk shall include in the
judgment an attorney’s fee in accordance with this schedule (not to exceed the amount
prayed for). (Effective 7/1/03)
A petition for compensation for additional services rendered under Subsection (a) of this
rule, or in a probate or other proceeding, shall include an itemized statement of the
services rendered or to be rendered by the attorney and a reference in the caption and
prayer to the request for additional fees. An appearance by the attorney or the parties is
not normally required. In determining such fees, the court shall consider the experience
of counsel, the time expended, the complexity of the issues, the amount involved and the
results achieved. (Effective 7/1/03)
Rule 3.8 Selection of Monitoring Judge and Setting of Case Management
Conference (Effective 7/1/03)
(a) At the time the complaint is filed, the clerk will select a monitoring judge at random
by drawing from the pool of judges assigned and shall set a case management conference
for the case on said judge’s calendar not more than 180 days thereafter, and issue notice
thereof, which notice will be served on all defendants by plaintiff and on all cross-
defendants not already parties to the action by cross-complainants. The term "monitoring
judge" as used in these Rules shall include direct calendaring judges as well as judges
who are assigned cases for “all purposes” by the Presiding Department. (Effective 7/1/03)
(b) The monitoring judge to whom the case is assigned shall be responsible to move the
case along to an orderly disposition under these Rules. All motions provided for under
these Rules shall be made to the monitoring judge. If the assigned judge is operating a
direct calendar court, the assignment shall be deemed for "all purposes." (Effective
7/1/03)
absence of all necessary parties in the action, to determine the issues which are in actual
controversy and those without substantial controversy, and to properly evaluate the case
for meaningful settlement negotiations. (Effective 7/1/03)
(a) At least five (5) days prior to the final case management conference, or at least fifteen
(15) days prior to the date the matter is set for trial in the absence of a final case
management conference, each party shall serve on every other party and submit to the
court the following: (Effective 7/1/03)
(1) Said party’s proposed jury instructions. All parties are invited to use the Instruction
Request form for the standard CACI instructions. If any standard instructions are not on
the request form, or if any special instructions are going to be requested, they must be
served with the request form. (Effective 7/1/03; rev. 1/1/06)
(2) All motions in limine in written form, together with any points and authorities in
support thereof. (Effective 7/1/03)
(3) A list of all witnesses that said party intends to call in his or her case in chief.
(Effective 7/1/03)
(4) A proposed generic statement of the case to be read to the jury at the beginning of the
case. (Effective 7/1/03)
(5) A list of all photographs, documents, physical objects or other tangible things that said
party intends to have marked as an exhibit and introduced in evidence at the time of trial.
(In matters where a final case management conference has been set, said items will
actually be brought to the final case management conference for examination). (Effective
7/1/03)
(b) Prior to the final case management conference, or prior to the trial if no final case
management conference is set, counsel will confer in an effort to resolve the jury
instructions, issues raised in the motions in limine, the generic statement of the case, and
the admissibility of the various photographs, documents, physical objects and other
tangible things included in each party’s exhibit list. In addition, counsel shall review the
witness lists and make their best estimate of the time anticipated for the direct and cross-
examination of each of the witnesses. Counsel will also attempt to work out stipulations
concerning issues which are not contested. At the time of the final case management
conference or at the time of trial, if no final case management conference is set, efforts
will be made to resolve the remaining issues and, to the extent that they are unresolved by
agreement, will be ruled upon by the court. Final Case Management orders shall be
generated settling the jury instructions (subject to augmentation after the evidence is
received), providing rulings on the motions in limine, providing for the admission of
certain photographs, documents, physical objects or other tangible things, and settling the
generic statement of the case. A master list of witnesses and the anticipated time involved
for each witness will also be generated for use of court and counsel. Such other orders
will be made as may be appropriate for the management of the anticipated trial. (Effective
7/1/03)
(c) All final case management documents shall be filed (pursuant to California Rules of
Court 3.1110) under a cover sheet which lists the documents submitted. (Effective 7/1/03)
Rule 3.11 Stayed Cases (Effective 7/1/03)
When an action subject to these rules is stayed for one or more of the reasons set forth in
subparagraph (d) of Rule 3.1385 of the California Rules of Court, the responsible party,
in addition to filing the notice of stay and notice that the stay is vacated or no longer in
effect, shall file with the court on a periodic basis no less frequently than every ninety
(90) days, a status report advising the court, to the extent applicable, of the following:
(Effective 7/1/03)
(a) Efforts being made to obtain relief from the stay so that the action in this court can
proceed. (Effective 7/1/03)
(b) The progress being made in the federal or higher state court action in which the stay
was issued to resolve the issues which would otherwise require litigation in this court.
(Effective 7/1/03)
(c) The propriety of severing parties, causes of action and/or cross-actions which would
be subject to the stay and proceeding with the balance of the litigation. (Effective 7/1/03)
Once the case has been assigned to a trial court by the Presiding Department or called to trial
by a Direct Calendar Department, it shall proceed without interruption to conclusion. No
adjournment will be allowed to explore settlement, conduct discovery, marshal evidence or
prepare for the presentation of any subsequent portion of the trial, except in unusual
circumstances without fault of the moving party where good cause is shown in the sound
discretion of the trial judge. It is also anticipated that each party will have his or her witnesses
available to present his or her case without interruption or delay. An unexcused inability of a
party to proceed because of a failure to schedule adequate witnesses, or otherwise, may result
in sanctions being imposed, including a determination by the trial judge that said party has
rested. (Effective 7/1/03)
Pursuant to California Rule of Court 209.1(c), all general civil cases are presumed to be
Plan One (1) cases subject to disposition within twelve (12) months from date of filing of
complaint. (Effective 7/1/03)
In the event that during the pendency of the action, whether the defendants have appeared
or not, the parties agree to resolve that matter with a program of periodic payments, all
monitoring and time requirements can be terminated, provided that
the conditions in (a) through (d) below are met. If the periodic payment agreement
satisfies these conditions, the case will be deemed "disposed of" and will no longer be
monitored. (Effective 7/1/03; rev. 1/1/07)
(d) The parties file with the court a written stipulation and agreement setting forth in
detail the terms of the periodic payments which, if made, will fully satisfy the obligations
which generated the litigation. (Effective 7/1/03)
(e) That the stipulation and agreement further provide that on full performance of the
agreement by the defendants, plaintiff will request a dismissal of the entire action with
prejudice; and in the absence of such a request, the court may dismiss the action on its
own motion, without notice to the parties, after forty-five (45) days has expired from the
due date of the last payment unless plaintiff, within that time, requests entry of judgment
as provided in Subparagraph (c). (Effective 7/1/03)
(f) That the stipulation and agreement further provide that in the event defendant fails to
make any of the payments required, plaintiff may, by written declaration, notify the court
of defendant’s default and the amount then due under the agreement and request that the
court enter judgment accordingly, together with costs of suit. (Effective 7/1/03)
(g) That the stipulation and agreement be unconditional so that a judicial determination
will not be required and the court’s only remaining function in the case would be to enter
a dismissal as provided in Subparagraph (b) or a judgment as provided in Subparagraph
(c). (Effective 7/1/03)
(h) That the parties shall file with the court a request for dismissal without prejudice
reserving to the court jurisdiction to set aside such dismissal to enter judgment as
provided in (c) hereof. (Effective 7/1/03)
RULE 3.14.1 Application of Rules 3.14.2 and 3.14.3 (Adopted 1/1/08)
Rules 3.14.2 and 3.14.3 apply only to those cases designated on the civil case cover
sheet as Rule 3.740 collections. (Adopted 1/1/08)
RULE 3.14.2 Time for Filing (Adopted 1/1/08)
(a) All named defendants must be served and a proof of service must be filed or an
order for publication of the summons must be obtained as to each
named defendant within one hundred eighty (180) days of the date
of filing of the complaint. (Adopted 1/1/08)
(b) At the time the complaint in a Rule 3.740 collection action is filed, the clerk
shall issue an order to show cause re dismissal to the plaintiff
designating a date of hearing on the order to show cause not less
than one hundred eighty (180) days nor more than two hundred
shall be vacated if the plaintiff obtains a default judgment at least ten
(10) court days before the order to show cause hearing. (Adopted
1/1/08)
(a) Upon the filing of an answer or other responsive pleading by any named
defendant in a collections case, the clerk shall set a case
management conference not less than ninety (90) days
following the date of filing of the first answer or responsive
pleading. The clerk shall give notice to all parties appearing
in the action of the date, time and department of the case
management conference. (Adopted 1/1/08)
conference on any parties appearing in the action after
service of notice of the case management conference by the
clerk. (Adopted 1/1/08)
(c) All parties who have appeared in the action shall file with the
court and serve on all parties a case management statement
no less than fifteen (15) days prior to the date of the case
management conference. Failure to timely file and serve a
case management statement constitutes a waiver of any
objection to action taken by the court at the case management
conference, including setting the case for trial, ordering the
case to judicial arbitration, or setting a mandatory settlement
conference. (Adopted 1/1/08)
(d) If, based on its review of the written submissions of the parties
and such other information as is available, the court
determines that appearances at the conference are not
necessary, the court may issue a case management order and
notify the parties that no appearance is required. (Adopted
1/1/08)
(e) At the case management conference, counsel for each party and
each self-represented party must appear personally or by
telephone as provided in California Rules of Court Rule
3.670 and Rule 3.3 of these rules; must be familiar with the
case; and must be prepared to discuss and commit to the
party's position on the issues listed in Rules 3.724 and 3.727
of the California Rules of Court. (Adopted 1/1/08)
(a) At the time of filing a complaint for personal injury or wrongful death or at any time
thereafter, plaintiff may file a declaration with the court establishing the items set forth in
(1) through (4) below. On receipt of such a declaration, the court may classify the case as
"uninsured motorist". (Effective 7/1/03)
(1) All the named defendants are believed to be uninsured and the action is filed to
protect the running of the statute of limitations in the event that insurance is later
discovered or plaintiff, after filing the action, has learned that all the defendants are
uninsured.
2 (Effective 7/1/03)
(2) Plaintiff is proceeding to arbitration with his or her insurer under the uninsured
motorist provision of his or her insurance policy, and does not intend to proceed in the
action against the uninsured defendants. (Effective 7/1/03)
(3) In resolving the case with the defendants, it has been determined that defendants were
underinsured within the meaning of plaintiff’s policy which provides underinsured
motorist’s coverage. (Effective 7/1/03)
(4) Plaintiff’s counsel has sought from plaintiff’s insurer a concession of uninsured status
of defendant to avoid the filing of the action or to dismiss it and plaintiff’s insurer has
refused. (Effective 7/1/03)
(b) Cases classified as uninsured motorist will be placed on a review calendar and
plaintiff will file a certificate of progress every 90 days advising the
court of the status of his claim against his insurer and the progress of the arbitration
proceeding, if any. (Effective 7/1/03)
(c) In the event that plaintiff’s claim against his insurer is not resolved within 180 days after
being designated uninsured motorist, the court may require plaintiff’s counsel to appear
for a hearing to determine when the matter will be resolved and the action dismissed or
reclassified as general civil litigation. (Effective 7/1/03)
(d) When plaintiff’s claim is resolved against his insurer, plaintiff’s counsel shall give notice to
the insurer that the action is pending in this court and shall seek consent from the insurer
to dismiss the action. The notice shall contain the complete title of the cause, case number
and a statement to the effect that the case is governed by these Rules and that, effective as
of that date of the notice, the case is reclassified as general civil litigation and a proof of
service or certificate of progress is due sixty (60) days therefrom under California Rule of
Court 3.110. In filing the original of such notice with the court with appropriate proof of
service, plaintiff’s attorney shall provide the court withe the name, address and phone
number of the appropriate representative of plaintiff’s insurer. The filing of such a notice
with the court does not preclude the need to file a formal substitution of attorneys unless
plaintiff’s attorney intends to remain of record. (Effective 7/1/03)
It is the policy of the Superior Court that the parties in every general civil case participate
in voluntary mediation, arbitration, neutral evaluation, an early settlement conference or
some other appropriate alternative dispute resolution process prior to trial. (Effective
7/1/03)
Rule 3.16.2 Mandatory Arbitration (Effective 7/1/03)
It is the policy of the Superior Court that Plan One (1), Two (2) and Three (3) at-issue
long cause civil actions except those excluded by statute, pending on or filed after the
operative date of these rules be submitted to arbitration. (Effective 7/1/03)
Upon appointment of the arbitrator, the court will set the case for an OSC as to why the
matter has not been arbitrated within the ninety (90) day arbitration
Rule
(a) The purpose of the civil mediation program is to promote and facilitate the voluntary
mediation of civil disputes. (Effective 7/1/03)
(b) This program is not established pursuant to the Civil Mediation Act, Code of Civil
Procedure section 1775, et seq. (Effective 7/1/03)
Rule
The mediation program provided for in these rules is available to all general civil cases,
regardless of the type of action or relief sought. (Effective 7/1/03)
Rule
Parties to the action may opt for mediation only upon the voluntary agreement of all
parties to the case. (Effective 7/1/03)
Rule
(a) Parties to any civil action assigned to judicial arbitration may elect voluntary
mediation. Parties who seek to mediate a case in lieu of judicial arbitration must file a
stipulation to mediate with the Court no later than the initial case management
conference. (Effective 7/1/03)
(b) The Court must exempt a case from judicial arbitration under California Rule of Court
1600.5(f) or (g) upon filing a stipulation to mediate. (Effective 7/1/03)
(c) Upon conclusion of the mediation, parties must file a Statement Regarding Mediation
which states that mediation has been completed and that the parties to the action or the
authorized representatives of the insured’s insurance company participated in the
mediation. (Effective 7/1/03)
Rule
(a) The election to mediate in lieu of judicial arbitration will not suspend any time periods
specified by statute, the California Rules of Court or these local rules. (Effective 7/1/03)
(b) Absent an order providing for additional time, actions in which mediation has not
taken place within the period specified herein, will be subject to an order to show cause
why the action should not be dismissed, the answer stricken, or other appropriate
sanctions imposed. (Effective 7/1/03)
Rule
The parties must select a mediator, panel of mediators or mediation program of their
choice to conduct the mediation. The mediation provider need not be an attorney. The
parties are not required to select a mediation provider from the Court’s list. (Effective
7/1/03)
Rule
3.16.4.7 Payment of Mediation Provider (Effective 7/1/03)
The cost of mediation must be borne by the parties equally unless the parties agree
otherwise. (Effective 7/1/03)
On a date not less than twenty (20) days nor more than forty (40) days from the trial date,
a settlement conference will be held pursuant to California Rule of Court 3.1380. The
Court shall designate the date, time and place of such settlement conference. (Effective
7/1/03)
Rules 3.17.1 through 3.17.16 apply to all unlawful detainer and forcible detainer actions
filed after January 1, 2007. (Effective 1/1/07)
(a) All complaints for unlawful detainer shall, if based upon a notice terminating the
tenancy or right to possession, be accompanied by the original such notice attached as an
exhibit to the complaint as required by Code of Civil Procedure Section 1166. (Effective
1/1/07)
(b) A complaint for unlawful detainer of residential property shall be accompanied by a
copy of any written rental agreement or lease regarding the premises, including any
amendments or addenda to such agreement, as required by Code of Civil Procedure
Section 1166, unless the complaint alleges that the lease or rental agreement is oral, that
neither the original nor a copy of the written rental agreement or lease is in the possession
or control of the plaintiff, or the action is based solely on subdivision (2) of Code of Civil
Procedure 1161. (Effective 1/1/07)
(c) At the time the complaint in an unlawful detainer action is filed, the clerk shall issue
an order to show cause re dismissal to the plaintiff designating a date of hearing on the
order to show cause not more that forty-five (45) days after filing. The order to show
cause will be dropped from calendar upon filing of an answer or other responsive
pleading, an amended complaint converting the action to an ordinary civil action, a
request for entry of default, a request for dismissal, a stipulated judgment or stipulation
for entry of judgment, or a notice of settlement. (Effective 1/1/07)
(d) Unless otherwise ordered, the minimum undertaking required for an order for
immediate possession of the premises pursuant to Code of Civil Procedure Section 1166a
shall be ten (10) times the monthly rental or $2,500, whichever is greater. (Effective
1/1/07).
(a) A proof of service or application for service by posting and mailing pursuant to Code
of Civil Procedure Section 415.45 must be filed within twenty (20) days of the date of
filing of the complaint, unless an answer or other responsive pleading has been filed.
(Effective 1/1/07)
(b) All applications for service by posting and mailing pursuant to Code of Civil
Procedure Section 415.45 shall include a date by which service shall be completed, which
date shall not exceed ten (10) days following the date of filing of the application.
(Effective 1/1/07)
(c) No application for service by posting and mailing pursuant to Code of Civil Procedure
Section 415.45 shall be granted unless the requirements of due diligence have been
satisfied. The requirements of due diligence shall be deemed satisfied if the declaration of
attempted service shows at least three (3) separate attempts to serve, on three (3) different
dates, not more than two (2) of which may be on a holiday as defined in Code of Civil
Procedure Section 10, with at least one (1) such attempt before noon and one (1) such
attempt after noon. (Effective 1/1/07)
(d) In cases in which service of the summons and complaint is made by posting and
mailing pursuant to Code of Civil Procedure Section 415.45, proof of service by posting
and mailing shall be filed within ten (10) days of the date of issuance of the order
permitting service pursuant to Code of Civil Procedure Section 415.45. (Effective 1/1/07)
(a) A settlement agreement may provide that, in the event of default, the non-defaulting
party may seek additional relief from the court by filing an ex parte application for such
relief. Any settlement agreement providing for such ex parte relief shall contain one (1)
of the following (Effective 1/1/07):
(1) A proof of service showing that the ex parte application was served on the defaulting
party (Effective 1/1/07),
(2) A declaration stating either that notice of the filing of the ex parte application was
given to the defaulting party, specifying how and when such notice was given (Effective
1/1/07),
(3) A declaration demonstrating that such notice should be excused pursuant to Rule
3.1204(b)(2) or (3) of the California Rules of Court.
(Effective 1/1/07)
(b) Unless notice is excused, the ex parte application or the declaration shall describe the
relief requested, and the date and time of the hearing on the ex parte application.
(Effective 1/1/07)
(c) A hearing on the ex parte application shall be held no sooner than forty-eight (48)
hours after the later of the filing of the application ro notice to the allegedly defaulting
party unless such notice was excused. If service of the notice is by mail, then the hearing
shall be held no sooner than five (5) days after the date of mailing. (Effective 1/1/07)
(d) Objection, if any, to the ex parte application shall be by written declaration under
penalty of perjury, filed and served on all interested parties at or prior to the time of the
hearing, and shall state with specificity the grounds for such objection. (Effective 1/1/07)
(e) Applications for further relief in cases in which the settlement agreement does not
provide for an ex parte application procedure for further relief shall be upon noticed
motion. There shall be a rebuttable presumption that applications for orders shortening
time for hearing of such motions
seeking possession and other cases in which time is of the essence are meritorious.
(Effective 1/1/07)
(f) Nothing in these rules shall preclude a party from seeking to enforce the terms of a
settlement agreement in an unlawful detainer action by appropriate motion pursuant to
Code of Civil Procedure Section 664.6 or other controlling authority. (Effective 1/1/07)
Rule 3.17.4 Stipulations for Entry of Judgment (Effective 1/1/07)
Any stipulation between parties that provides terms and conditions for settlement of an unlawful
detainer action must include by entry of judgment (Effective 1/1/07):
(a) A statement, pursuant to Rule 3.1385 of the California Rules of Court, that plaintiff
will file a request for dismissal of the entire action either within forty-five (45) days of
the date of the filing of the stipulation or upon some other specified date no more than
ninety (90) days following the date of filing of the stipulation. (Effective 1/1/07)
(b) A place for the court to set a date for an order to show cause re dismissal at which the parties
may appear if the terms and conditions are not met and upon which the court may dismiss the
case if the parties fail to appear and the plaintiff has not filed a request for dismissal as provided
in Rule 3.17.4(a). (Effective 1/1/07)
(c) If the stipulation is presented for court approval prior to the date of trial, and the
parties do not intend to appear at trial, an order vacating the trial date. (Effective 1/1/07)
(d) A clear and concise statement of the ex parte application, opposition and order process
by which remedies are available to either party in the event of a default in any of the
terms and conditions of the stipulation. The clerk shall not enter judgment upon the mere
declaration of either party. (Effective 1/1/07)
(a) Within twenty-five (25) days of the date of filing of the complaint, the plaintiff shall
file a request to set for trial unless a request for entry of default or request for dismissal
has been filed. (Effective 1/1/07)
(b) The case will be set for trial not more than twenty (20) days after the date of filing of
the memorandum to set the case for trial. The court shall give notice of trial in accordance
with Code of Civil Procedure Section 594. (Effective 1/1/07)
(c) If a jury is demanded, the clerk shall, in addition to the trial date, set the case for a
case management conference with ten (10) days of the date of filing of the request to set
for trial. (Effective 1/1/07)
Rule 3.17.6 Request/Counter Request to Set for Trial (Effective 1/1/07)
(a) A request or counter request to set for trial shall be completed on the Judicial Council for
Request/Counter Request to Set Case for Trial - Unlawful Detainer form UD-150. The filing of a
request or counter request to set the case for trial shall be deemed a representation by such party
that the case is at issue and will be ready for trial on the date first assigned for trial. (Effective
1/1/07)
(b) Any other party to the action may file a counter-request to set the case for trial.
Failure of any party to file a counter-request to set the case for trial shall be deemed
agreement by the party failing to file with all the matters represented in the request to set
the case for trial. (Effective 1/1/07)
(c) The case will be set for trial within twenty (20) days of the date of filing of the request
to set case for trial. (Effective 1/1/07)
All parties, or counsel if represented, shall appear at the case management conference.
Parties or counsel appearing at the case management conference shall be fully prepared to
discuss all aspects related to trial of the case, including the estimated time of trial and
matters which may be stipulated to prior to trial. (Effective 1/107)
(a) Request for entry of default shall be made within forty-five (45) days of the date of
filing of the action unless an answer or other response has been filed, or the action is
dismissed or finally disposed of in its entirety. (Effective 1/1/07)
(b) Plaintiff shall, within six (6) months of entry by the clerk of a default judgment for
possession of the premises only, set the case for a default hearing for judgment for money
damages, or shall submit a declaration pursuant to Code of Civil Procedure Section
585(b) and (d). Failure of the plaintiff to cause a request for judgment for such damages
to be entered within six (6) months of the date of entry of a judgment for possession only
shall result in an order to appear to show cause why sanctions for such failure shall not be
imposed. Monetary or other appropriate sanctions
may be imposed at the order to appear for failure to comply with this rule. (Effective
1/1/07)
Rule 3.17.9 Conversion of Cases to Ordinary Civil Action (Effective 1/1/07)
In the event possession becomes no longer an issue at any time prior to trial, or, in the
event of an uncontested proceeding, prior to entry of judgment of possession, it shall be
the duty of plaintiff to immediately notify the court. If, at any time prior to entry of
judgment for possession, it appears that no defendant is in possession, or that possession
is otherwise not an issue, then the trial date shall be immediately vacated, and the case
shall be converted by the court to an ordinary civil action. Plaintiff shall thereafter have
thirty (30) days within which to file an amended complaint, and the case shall be set for
an order to show cause re dismissal to be heard forty-five (45) days following conversion
of the action to an ordinary civil action. (Effective 1/1/07)
Rule
(a) All motions for summary judgment or summary adjudication shall be filed with the
(1) At least five (5) days prior to the hearing if personally served on the opposing party,
or (Effective 1/1/07)
(2) At least ten (10) days prior to the hearing if served on the opposing party by any other
means of service. (Effective 1/1/07)
(b) Opposition to a motion for summary judgment or summary adjudication shall be filed
and served no later than one (1) court day prior to the date of hearing on the motion.
(Effective 1/1/07)
Rule
(a) Trial will take place on the date scheduled unless continued by order upon properly
noticed motion showing good cause for such continuance. (Effective 1/1/07)
(b) Motions for continuance of the trial made on the date of trial are disfavored, and will
be granted only upon a clear showing of good cause. (Effective 1/1/07)
(c) The prevailing party after trial shall prepare the judgment. (Effective 1/1/07)
(d) All unlawful detainer trials, including jury trials, shall be electronically recorded unless a
party requests that the trial be stenographically recorded. Any request for stenographic
recording shall be made in writing not less than five (5) days prior to the date the case is first
set for trial. The party requesting stenographic recording shall post court reporter fees equal
to one-half day’s fees at the time the request is made. (Effective 1/1/07)
Rule
(a) Jury fees and court reporter’s fees, if a court reporter is desired, shall be posted by the
party requesting a jury not later than five (5) days prior to the date first assigned for trial.
(Effective 1/1/07)
(b) If the estimated time for trial exceeds one (1) calendar day, for each subsequent day of
trial, the jury fees and court reporter’s fees, if a reporter is desired, shall be posted by the
party requesting the jury trial, by the close of business the day before the next scheduled
trial date. (Effective 1/1/07)
(c) All requested and relevant jury instructions shall be submitted to the court no later than 9:00
A.M. on the date first assigned for trial. (Effective 1/1/07)
(d) Any and all motions, including motions in limine, shall be submitted in writing to the
court no later than 9:00 A.M. on the date first assigned for trial. (Effective 1/1/07)
(e) Case management conference will be set at the time jury is demanded. (Effective
1/1/07)
(f) Failure to comply with any of the above will result in a waiver of jury and the trial
will proceed immediately by court. (Effective 1/1/07)
Rule
(a) In actions for unlawful detainer for possession of residential property, whether multi-
family or single family, if the prevailing party is entitled to an award of attorney’s fees
the attorney’s fees awarded by the court shall not, except upon good cause shown, exceed
the following amounts (Effective 1/1/07):
(1) In cases in which judgment is entered by default as a result of the failure of any
defendant to respond to the complaint, the sum of $300. (Effective 1/1/07)
responsive pleading, but which are uncontested at trial, the sum of $400. (Effective
1/1/07)
(b) Where a party in a residential unlawful detainer action wishes to seek attorney fees in excess
of the fees set forth in Rule 3.17.13(a), such fees may be awarded only upon application and
declaration setting forth good cause therefor in cases in which no answer or response has been
filed by any defendant, or upon regularly noticed motion in cases in which an answer or response
has been filed by at least one (1) defendant. (Effective 1/1/07)
(c) In actions for unlawful detainer for possession of non-residential property, the
prevailing party may recover, if entitled to recovery of attorney’s
fees, such amount as may be awarded upon ex parte application
and declaration in cases in which no defendant appeared, or upon
properly noticed motion for an award of attorney’s fees in actions
in which at least one (1) defendant has appeared. (Effective 1/1/07)
Rule
(a) An order to show cause re dismissal will be taken off calendar if a trial date has been
set, a request to set case for trial has been filed, the case is dismissed, or if there has been
a settlement or other final disposition of the entire matter. (Effective 1/1/07)
(b) All parties who have made a general appearance in the case shall attend the hearing on
the order to show cause, either in person or by telephonic appearance. (Effective 1/1/07)
Rule
(a) Ex parte applications for orders shortening time for hearing on a motion to vacate a
default judgment and/or set aside a default, or for a stay of execution of a writ of
possession shall comply with California Rules of Court Rule 3.1200. (Effective 1/1/07)
(b) Except for good cause shown, only one (1) request for stay of execution will be
granted per case, and stays of execution will be limited to seven (7) days from the date
originally scheduled for the lock-out to occur. (Effective 1/1/07)
settled or disposed of by agreement of the parties or by stipulation of the parties, unless
the parties have agreed otherwise in writing or on the record in open court. (Effective
1/1/07)
(d) Except for good cause shown, motions to vacate a default judgment and/or to set aside
a default shall not be granted ex parte. (Effective 1/1/07)
Rule
Any failure to comply with these rules shall result in the issuance of an order to show
cause why sanctions, including monetary sanctions, issue sanctions, evidence sanctions
or terminating sanctions, should not be imposed. (Effective 1/1/07)
Vella v. Hudgins 20 Cal.3d 251 (1977);

[L.A. No. 30779. Supreme Court of California. December 8, 1977.]
NANCY C. VELLA, Plaintiff and Appellant, v. EVERETT R. HUDGINS,

Defendant and Appellant
(Opinion by Richardson, J., expressing the unanimous view of the court.)
COUNSEL
Joseph L. Shalant for Plaintiff and Appellant.
Milton Zerin and L. Dean Petty for Defendant and Appellant.
OPINION
RICHARDSON, J.
Plaintiff Nancy C. Vella brought this action to set aside a trustee's sale, alleging that
defendant Everett R. Hudgins, holder of a note secured by a second deed of trust on
her residence, fraudulently induced her to default on the note. [1a] The question
which we consider is whether the present suit is precluded by the prior adjudication
of the fraud issue in an unlawful detainer action between the parties.
The trial court found that Vella, who originally owned the subject property, had for
several years maintained a confidential and intimate relationship with defendant.
Vella encountered financial difficulty and the property became subject to multiple
encumbrances, including a second deed of trust then held by the Penrod
Corporation. In May of 1969, Hudgins purchased the note and the second trust deed
securing it, informing Vella that he had acquired the note to protect her from [20
Cal.3d 254] default, and assuring her that she need not worry about making
payments on the obligation. Relying upon that promise and the confidential nature
of their relationship, Vella ceased paying on the note, and used her resources to
discharge other debts. Thereafter, the parties quarreled, and Hudgins directed the
trustee named in the second deed of trust to give appropriate notice of default and
election to sell. The trustee complied and Hudgins subsequently purchased the
property at the trustee's sale in September of 1969. The record indicates the
property at that time had a fair market value in excess of $40,000.
Vella immediately filed the present suit, framed as an action for injunctive relief and
for imposition of a constructive trust. Meanwhile, Hudgins served Vella with a
three-day notice to quit the premises and thereafter promptly initiated unlawful
detainer proceedings under Code of Civil Procedure section 1161a. (All statutory
references are to that code, unless otherwise specified.) In the unlawful detainer
action Vella asserted as an affirmative defense the same allegations of fraud that
form the basis for the present equity action which was then pending. Judgment in
the unlawful detainer suit was given for Hudgins and Vella was evicted. That
judgment is now final.
Hudgins unsuccessfully urged the unlawful detainer judgment as a bar to the

present action. His motion to strike the complaint was denied, and the cause
proceeded to trial on the merits. After a four-day trial, the court, on the basis of
detailed findings of fact, concluded that Vella's default had been induced by
Hudgins' fraud and ordered the property returned to Vella.
Both Vella and Hudgins appealed, raising not only the res judicata issue which we
consider herein, but various other unrelated issues. The Court of Appeal, without
considering these other issues, reversed the trial court judgment solely on the
ground that Vella's fraud claim had been conclusively adjudicated in the prior
unlawful detainer proceeding, and that judgment for Hudgins in that action cut off
Vella's right to pursue an independent claim for equitable relief. We conclude that
the unlawful detainer judgment was not res judicata under the circumstances, and
consequently will retransfer the cause to the Court of Appeal for consideration of
the remaining issues in the appeals. (See Taylor v. Union Pac. R.R. Corp. (1976) 16
Cal.3d 893, 895 [130 Cal.Rptr. 23, 549 P.2d 855].) [20 Cal.3d 255]
The history and scope of unlawful detainer actions have been

discussed at length in several recent appellate decisions. (E.g.,
Gonzales v. Gem Properties, Inc. (1974) 37 Cal.App.3d 1029,
1033-1035 [112 Cal.Rptr. 884]; Union Oil Co. v. Chandler
(1970) 4 Cal.App.3d 716, 721-722 [84 Cal.Rptr. 756]; cf. Green
v. Superior Court (1974) 10 Cal.3d 616, 631-634 [111 Cal.Rptr.
704, 517 P.2d 1168].) [2] For our present purpose, it is sufficient
to note that the proceeding is summary in character; that,
ordinarily, only claims bearing directly upon the right of
immediate possession are cognizable (Green, supra, at pp. 632-
634; Knowles v. Robinson (1963) 60 Cal.2d 620, 625 [36
Cal.Rptr. 33, 387 P.2d 833]; Cheney v. Trauzettel (1937) 9
Cal.2d 158, 159 [69 P.2d 832]; see Cruce v. Stein (1956) 146
Cal.App.2d 688 [304 P.2d 118]); and that cross-complaints and
affirmative defenses, legal or equitable, are permissible only
insofar as they would, if successful, "preclude removal of the
tenant from the premises." (Green, supra, at p. 634, fn. 19;
Union Oil Co., supra, at p. 725.)
As a consequence of the foregoing principles, a judgment in

unlawful detainer usually has very limited res judicata effect and
will not prevent one who is dispossessed from bringing a
subsequent action to resolve questions of title (Cheney v.
Trauzettel, supra, 9 Cal.2d at p. 160; Byrne v. Baker (1963) 221
Cal.App.2d 1, 5-6 [34 Cal.Rptr. 178]; Bekins v. Trull (1924) 69
Cal.App. 40, 45 [230 P. 24]), or to adjudicate other legal and
equitable claims between the parties (Gonzales v. Gem
Properties, Inc., supra, 37 Cal.App.3d 1029; Union Oil Co. v.
Chandler, supra, 4 Cal.App.3d 716; Haase v. Lamia (1964) 229
Cal.App.2d 654, 658 [40 Cal.Rptr. 518]; Patapoff v. Reliable
Escrow Service Corp. (1962) 201 Cal.App.2d 484 [19 Cal.Rptr.
886]; cf. Staudigl v. Harper (1946) 76 Cal.App.2d 439, 449 [173
P.2d 343]).
A qualified exception to the rule that title cannot be tried

in unlawful detainer is contained in Code of Civil
Procedure section 1161a, which extends the summary
eviction remedy beyond the conventional landlord-tenant
relationship to include certain purchasers of property
such as Hudgins. Section 1161a provides for a narrow
and sharply focused examination of title. To establish that
he is a proper plaintiff, one who has purchased property
at a trustee's sale and seeks to evict the occupant in
possession must show that he acquired the property at a
regularly conducted sale and thereafter "duly perfected"
his title. (§ 1161a, subd. 3.) Thus, we have declared that
"to this limited extent, as provided by the statute, ... title
may be litigated in such a proceeding." (Cheney v.
Trauzettel, supra, 9 Cal.2d at p. 159.) [20 Cal.3d 256]
Applying the traditional rule that a judgment rendered by a court of competent
jurisdiction is conclusive as to any issues necessarily determined in that action, the
courts have held that subsequent fraud or quiet title suits founded upon allegations
of irregularity in a trustee's sale are barred by the prior unlawful detainer
judgment. (Freeze v. Salot (1954) 122 Cal.App.2d 561 [266 P.2d 140]; Bliss v.
Security-First Nat. Bank (1947) 81 Cal.App.2d 50 [183 P.2d 312]; Seidell v. Anglo-
California Trust Co. (1942) 55 Cal.App.2d 913 [132 P.2d 12].) Where, however, the
claim sought to be asserted in the second action encompasses activities not directly
connected with the conduct of the sale, applicability of the res judicata doctrine,
either as a complete bar to further proceedings or as a source of collateral estoppel,
is much less clear.
Recently, in Wood v. Herson (1974) 39 Cal.App.3d 737 [114 Cal.Rptr. 365], the
Court of Appeal held that a suit for specific performance of a contract to convey was
foreclosed by a prior unlawful detainer judgment which had decided all issues of
fact material to the second action. Noting that the Woods' affirmative defense of
fraud in the unlawful detainer action was virtually identical to the fraud allegations
upon which their suit for specific performance was based, the court concluded that
even though title "normally is not a permissible issue in an unlawful detainer
action," the essential issues had been fully and fairly disposed of in the earlier
proceeding. (Id., at p. 740.) The court cited in support of its ruling such varied
factors as the length of the "summary" unlawful detainer hearing (seven days), the
scope of discovery by the parties ("extensive" and "complete"), the quality of the
evidence ("detailed"), and the general character of the action ("[c]learly ... not the
customary unlawful detainer proceeding"). (Id., at pp. 742, 745.) A lengthy and
comprehensive superior court record replete with precise findings of fact persuaded
the Wood court that application of collateral estoppel to curtail further litigation
would involve "no miscarriage of justice -- [the] Woods have had their day in
court ...." (Id., at p. 745; see also High v. Cavanaugh (1962) 205 Cal.App.2d 495 [23
Cal.Rptr. 121]; cf. Gonzales v. Gem Properties, Inc., supra, 37 Cal.App.3d 1029;
Haase v. Lamia, supra, 229 Cal.App.2d 654; Byrne v. Baker, supra, 221 Cal.App.2d
1; Patapoff v. Reliable Escrow Service Corp., supra, 201 Cal.App.2d 484.)
[3] We agree that "full and fair" litigation of an affirmative defense -- even one not
ordinarily cognizable in unlawful detainer, if it is [20 Cal.3d 257] raised without
objection, and if a fair opportunity to litigate is provided -- will result in a judgment
conclusive upon issues material to that defense. In a summary proceeding such
circumstances are uncommon. Wood, however, appears to be an appropriate
example. There, the parties apparently chose to waive speedy resolution of the issue
of possession in favor of an extensive adjudication of their conflicting claims by a
superior court invested with jurisdiction to deal with any issues the disputants
agreed to try. The more usual case is accurately characterized by our statement in
Cheney: "Matters affecting the validity of the trust deed or primary obligation
itself, or other basic defects in the plaintiff's title, are neither properly raised in this
summary proceeding for possession, nor are they concluded by the judgment."
(Cheney v. Trauzettel, supra, 9 Cal.2d at p. 160.)
[4] The doctrine of res judicata, whether applied as a total bar to further litigation or
as collateral estoppel, "rests upon the sound policy of limiting litigation by preventing
a party who has had one fair adversary hearing on an issue from again drawing it into
controversy and subjecting the other party to further expense in its reexamination."
(In re Crow (1971) 4 Cal.3d 613, 622-623 [94 Cal.Rptr. 254, 483 P.2d 1206], italics
added.)
[1b] The record herein fails to disclose that Vella had the fair adversary hearing
contemplated by us in Crow. The municipal court, in Hudgins' unlawful detainer
action, was empowered to examine the conduct of the trustee's sale (if its validity had
been challenged), and properly could consider whatever equitable defenses Vella might
have raised insofar as they pertained directly to the right of possession. [5] The court
had no jurisdiction, however, to adjudicate title to property worth considerably more
than its $5,000 jurisdictional limit (§ 86), nor could its judgment on the issue of
possession foreclose relitigation of matters material to a determination of title except to
the extent that the summary proceeding afforded Vella a full and fair opportunity to
litigate such matters.
[6] The burden of proving that the requirements for application of res judicata have
been met is upon the party seeking to assert it as a bar or estoppel. (Paladini v.
Municipal Markets Co. (1921) 185 Cal. 672, 674 [200 P. 415]; see Eichler Homes, Inc.
v. Anderson (1970) 9 Cal.App.3d 224, 234 [87 Cal.Rptr. 893]; 4 Witkin, Cal. Procedure
(2d ed. 1971) Judgment, § 199, p. 3337.) [1c] In the matter before us Hudgins has
failed to sustain that burden. [20 Cal.3d 258]
y unwarranted burden on the plaintiff in an unlawful detainer action prosecuted

under section 1161a. In return for speedy determination of his right to possession,
plaintiff sacrifices the comprehensive finality that characterizes judgments in
nonsummary actions. Moreover, he has adequate protection against multiple
litigation, for ordinarily he can prevent the introduction of extrinsic issues by
making appropriate objections to the defendant's pleadings or proof; alternatively,
he may request preparation of a transcript (§§ 269, 274c) and written findings (§
632), both of which may subsequently be offered,The record offered in support of
the plea of res judicata is virtually barren. Evidently the unlawful detainer
proceedings were unrecorded or untranscribed, for no transcript of the municipal
court hearing exists, and no findings of fact or conclusions of law were made, other
than a notation in the trial judge's minute order to the effect that Vella had not
proved her affirmative defenses of "waiver and [equitable] estoppel and tender."
The sparse record presented to us fails to show either the precise nature of the
factual issues litigated, or the depth of the court's inquiry. We decline to assume,
given the summary character of this type of action, that the mere pleading of a
defense without objection by the adverse party necessarily demonstrates adequate
opportunity to litigate the defense. The fact that in the unlawful detainer action both
parties submitted trial-length estimates of two hours, whereas trial of the second
action consumed four days, while not controlling, does create a strong inference that
the former proceeding was a conventional unlawful detainer action, unlike the
elaborate and highly atypical proceeding considered in Wood. (See Gonzales v. Gem
Properties, Inc., supra, 37 Cal.App.3d at p. 1036.)
[7] We are of the further opinion that section 1161a does not require a defendant to
litigate, in a summary action within the statutory time constraints (§§ 1167, 1179a),
a complex fraud claim involving activities not directly related to the technical
regularity of the trustee's sale. [1d] In the absence of a record establishing that the
claim was asserted and that the legal and factual issues therein were fully litigated,
we conclude that the question of fraudulent acquisition of title was not foreclosed by
the adverse judgment in the earlier summary proceeding.
We do not envision that our holding will impose any unwarranted burden on the
plaintiff in an unlawful detainer action prosecuted under section 1161a. In return
for speedy determination of his right to possession, plaintiff sacrifices the
comprehensive finality that characterizes judgments in nonsummary actions.
Moreover, he has adequate protection against multiple litigation, for ordinarily he
can prevent the introduction of extrinsic issues by making appropriate objections to
the defendant's pleadings or proof; alternatively, he may request preparation of a
transcript (§§ 269, 274c) and written findings (§ 632), both of which may
subsequently be offered,The record offered in support of the plea of res judicata is
virtually barren. Evidently the unlawful detainer proceedings were unrecorded or
untranscribed, for no transcript of the municipal court hearing exists, and no
findings of fact or conclusions of law were made, other than a notation in the trial
judge's minute order to the effect that Vella had not proved her affirmative defenses
of "waiver and [equitable] estoppel and tender." The sparse record presented to us
fails to show either the precise nature of the factual issues litigated, or the depth of
the court's inquiry. We decline to assume, given the summary character of this type
of action, that the mere pleading of a defense without objection by the adverse party
necessarily demonstrates adequate opportunity to litigate the defense. The fact that
in the unlawful detainer action both parties submitted trial-length estimates of two
hours, whereas trial of the second action consumed four days, while not controlling,
does create a strong inference that the former proceeding was a conventional
unlawful detainer action, unlike the elaborate and highly atypical proceeding
considered in Wood. (See Gonzales v. Gem Properties, Inc., supra, 37 Cal.App.3d at
p. 1036.)
together with any stipulation by the parties as t together with any stipulation by the
parties as to the issues to be tried, in support of a plea of res judicata. (Goodman v.
Dam (1931) 112 Cal.App. 244, 246 [296 P. 623]; see also Hamilton v. Carpenter
(1940) 15 Cal.2d 130 [98 P.2d 1027].) [20 Cal.3d 259]
The cause is retransferred to the Court of Appeal, Second Appellate District, for
disposition of the appeals on the merits.
Bird, C. J., Tobriner, J., Mosk, J., Clark, J., Manuel, J., and Newman, J., concurred.
 Lincoln Place Tenants Assn. v. City of Los Angeles (2007) *

Sep. 19, 2007. No. B193235.

Oct. 10, 2007. No. B193235.
 73 Cal.App.4th 1150
Glendale Fed. Bank v. Hadden (1999)
Jul 29, 1999. No. G020633.
 155 Cal.App.4th 425

Lincoln Place Tenants Assn. v. City of Los Angeles (2007) 155 Cal.App.4th 425
Sep. 19, 2007. No. B193235.
 10 Cal.3d 616
Green v. Superior Court
January 15, 1974. S.F. No. 22993.
 20 Cal.3d 251
Vella v. Hudgins
December 8, 1977. L.A. No. 30779.
 4 Cal.App.3d 716
Union Oil Co. v. Chandler
February 24, 1970. Civ. No. 26025.
 37 Cal.App.3d 1029
Gonzales v. Gem Properties, Inc.
March 18, 1974. Civ. No. 42065.
 73 Cal.App.3d 410
Nork v. Pacific Coast Medical Enterprises, Inc.
 133 Cal.App.3d 171

BARNHOUSE v. CITY OF PINOLE
June 29, 1982. Civ. No. 50631.
 192 Cal.App.3d 1513

Marquez-Luque v. Marquez
June 29, 1987. No. H000857.
 195 Cal.App.3d 1032

Superior Motels, Inc. v. Rinn Motor Hotels, Inc.
October 29, 1987. No. A025611.
 207 Cal.App.3d 822

Fragomeno v. Insurance Co. of the West
January 31, 1989. No. B033011.
 210 Cal.App.3d 1156

Hudec v. Robertson
May 23, 1989. No. D006845.
 236 Cal.App.2d 758

Turem v. Texaco, Inc.
Aug. 24, 1965. Civ. No. 28254.
 248 Cal.App.2d 551

Cohen v. Superior Court
Feb. 15, 1967. Civ. No. 24147.
 251 Cal.App.2d 560

Russell v. Geis
June 2, 1967. Civ. No. 763.
Gonzales v. Gem Properties, Inc. , 37 Cal.App.3d 1029

[Civ. No. 42065. Court of Appeals of California, Second Appellate District, Division
Four. March 18, 1974.]
JOSEPH GONZALES, Plaintiff and Respondent, v. GEM PROPERTIES, INC., et al.,
Defendants and Appellants
(Opinion by Jefferson, Acting P. J., with Kingsley and Dunn, JJ., concurring.) [37
Cal.App.3d 1030]
COUNSEL
Levinson, Marcus & Bratter, Burton S. Levinson, Lawrence R. Lieberman, Fields, Fehn
& Feinstein and N. Mitchell Feinstein for Defendants and Appellants.
Ron Sievers, Terry J. Hatter, Jr., and Peter L. Wallin for Plaintiff and Respondent.
OPINION
JEFFERSON, Acting P. J.
Plaintiff Joseph Gonzales filed an amended complaint seeking to cancel a trustee's deed
and redeem property sold at a trustee's sale. He also sought punitive damages from the
defendants, Gem Properties, Inc., and Max D. Kessler. After a trial by the court, judgment
was entered for the plaintiff; the trustee's sale was declared void and the deed of the
trustee invalid. Defendants were assessed $5,000 in punitive damages. They have
appealed the judgment.
The case is before us on a partial clerk's transcript which includes the judgment roll (rules
5, 52, Cal. Rules of Court; Code Civ. Proc., § 670). fn. 1 Thus, the sufficiency of the
evidence to support the trial court's findings of fact is not in issue. (Part I, 6 Witkin, Cal.
Procedure (2d ed. 1971) Appeal, § 240, p. 4233; 5 Cal.Jur.3d, Appellate Review, § 496, p.
149.)
The court's findings disclose that, in 1962, plaintiff Gonzales was the owner of a
residence in Lakewood. On December 28, 1962, Gonzales had borrowed $3,100,
executing a promissory note and second deed on the property. The loan was payable in
monthly installments to the Aames Mortgage Company, which was acting as collection
agent.
Plaintiff made payments into 1967, at which time the principal balance had been reduced
to $691.88. Early in that year, a dispute arose between plaintiff and Aames concerning
payments on the note, the details of which are not clear; Aames "refused plaintiff's tender
of payments and instituted foreclosure proceedings ... on April 20, 1967, by recording a
Notice of Default and election to sell" the property. Plaintiff received notice of this on
May 17, 1967. The findings show he was told that he had 90 days from the receipt of the
notice to pay up arrearages on the loan. He thought he had until mid-August to take care
of this matter. [37 Cal.App.3d 1032]
On June 29, 1967, defendant Gem Properties, Inc., purchased plaintiff's delinquent note
and the second trust deed. Gem Properties, Inc. was wholly owned by the Kesslers,
George, Edna and their son, Max D. Kessler. It was a corporation partly engaged in the
business of purchasing obligations in default which were secured by real property and
obtaining title to the real property by holding a trustee's sale at which the corporation is
the successful bidder. Plaintiff had no immediate knowledge that Gem had acquired his
obligation. After purchasing it, Gem Properties substituted Max D. Kessler in place of the
named trustee on the second trust deed.
When plaintiff discovered the transfer and the identity of the defendants before the
trustee's sale he attempted to make tender of the money owed. The defendants evaded
him. The defendants attempted to discourage competitive bidding at the sale. The
defendants were widely known in their trade as persons willing to employ tricks and
devices to acquire property for amounts below its actual value.
On August 11, 1967, Max D. Kessler, acting as trustee, sold plaintiff's property to Gem
Properties, Inc. for $691.88, plus the costs of foreclosure. He then executed a trustee's
deed of sale in favor of Gem. The sale price was greatly disproportionate to the value of
the property.
The clerk's record shows that, on August 31, 1967, Gem Properties filed an action for
unlawful detainer against Gonzales in Los Cerritos Municipal Court in order to obtain
possession. (See Code Civ. Proc., § 89.) Plaintiff herein obtained counsel and filed an
answer and a cross-complaint in the unlawful detainer proceeding, alleging that plaintiff's
default on the note had been waived by Gem Properties' predecessor in interest and that
plaintiff had not received notice of the sale. Plaintiff herein also filed a complaint in the
superior court seeking to invalidate the trustee's sale.
The unlawful detainer action was tried in the municipal court on November 7, 1967.
Plaintiff herein asserts in his respondent's brief that the municipal court judge refused to
transfer the case to the superior court, struck his cross-complaint and then proceeded to
take some evidence concerning the circumstances of the sale; the record before us does
not establish what actually occurred because it does not include a transcript of the
municipal court proceedings. fn. 2 The municipal court entered judgment for Gem
Properties, Inc. in January 1968. Detailed findings of fact and conclusions of law were
made by the municipal court which appear to have [37 Cal.App.3d 1033] covered issues
not raised by the defensive pleading in the action. The municipal court declared that the
sale had been regular and proper, that the trustee's deed was valid, and that Gonzales'
claims of waiver (of payments on the note) and valid tender were untrue.
An appeal was taken from that judgment to the appellate department of the superior
court, and the judgment was affirmed without written opinion. Plaintiff was dispossessed
of the property in August 1968 (and has remained out of possession since that date).
After trial in the superior court on an amended complaint, which sought redemption of
the property, together with punitive damages on the ground that defendants had
fraudulently conspired to deprive plaintiff of his property interest, the superior court
made findings of fact and conclusions of law which differed substantially from those
previously made in the municipal court. It found that the defendants here had acted
"collusively, deliberately and oppressively" to obtain plaintiff's property at a minimal
price for their own gain. It concluded that the defendants' conduct was fraudulent,
deliberate, reckless and malicious.
[1a] Defendants contend on this appeal, as they did in the trial court, that the doctrine of
res judicata should have been applied to bar plaintiff's suit for equitable relief in the
superior court, as the matter had already been litigated in the unlawful detainer
proceedings in the municipal court.
[2] A general statement of the doctrine of res judicata is "that an existing final judgment
rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction,
is conclusive of causes of action and of facts or issues thereby litigated, as to the parties
and their privies, in all other actions in the same or any other judicial tribunal of
concurrent jurisdiction." (46 Am.Jur.2d, Judgments, § 394, p. 558.) Thus, when applied, it
does bar a second action between the same parties on the same subject matter involved in
the prior action. (46 Am.Jur.2d, Judgments, § 407, p. 575.) The doctrine (in civil cases)
"rests upon the sound policy of limiting litigation by preventing a party who has had one
fair adversary hearing on an issue from again drawing it into controversy and subjecting
the other party to further expense in its reexamination." (In re Crow, 4 Cal.3d 613, 622
[94 Cal.Rptr. 254, 483 P.2d 1206].)
[1b] The crucial issue in the case before us is whether plaintiff did have a "fair adversary
hearing" in the municipal court, one that resulted in a judgment on the merits of his case,
precluding his subsequent suit.
A brief discussion of the history and purpose of the action of unlawful detainer is
necessary. (Code Civ. Proc., § 1159-1179a.) Prior to 1929, it [37 Cal.App.3d 1034]
constituted a summary method, created by statute, for litigating the right to possession of
real property between landlords and tenants. Title to property was not in issue. (Francis v.
West Virginia Oil Co., 174 Cal. 168 [162 P. 394].) It is still the rule that, generally, neither
cross-complaints nor counterclaims raising any issue extrinsic to the right of immediate
possession are allowed in unlawful detainer proceedings, as their introduction would
defeat the basic statutory purpose of unlawful detainer, i.e., a speedy determination of the
right to possession, as distinguished from broader issues of title. (Knowles v. Robinson,
60 Cal.2d 620 [36 Cal.Rptr. 33, 387 P.2d 833].)
The United States Supreme Court has recently considered the constitutionality of the
Oregon unlawful detainer statute which provides a summary method, similar to that of
California, for determining the right to possession of real property. The court held that
Oregon could constitutionally enact and apply legislation which segregated an action for
possession of real property from the issue of title. (Lindsey v. Normet (1972) 405 U.S. 56
[31 L.Ed.2d 36, 92 S.Ct. 862].) One basic assumption made by the court in arriving at the
result is pertinent to our discussion here: the assumption that other remedies would
remain available to defendants in unlawful detainer actions to obtain affirmative relief if
such were warranted, with respect to rights involving the same property. (See Lindsey,
405 U.S. p. 66 [31 L.Ed.2d p. 46].)
In 1929, the California Legislature added Code of Civil Procedure section 1161a to its
unlawful detainer statutes (added Stats. 1929, ch. 393, § 1), providing that the summary
procedures would henceforth be available not only to landlords but to persons who had
obtained title to real property under certain specifically enumerated circumstances,
including, inter alia, "3. Where the property has been duly sold in accordance with
section 2924 of the Civil Code, under a power of sale contained in a deed of trust
executed by him, or a person under whom he claims, and the title under the sale has been
duly perfected." fn. 3
The extent to which this addition to the code required the court hearing the unlawful
detainer action to inquire into the title of the plaintiff seeking possession pursuant to
section 1161a was considered by the California Supreme Court in 1937, in Cheney v.
Trauzettel, 9 Cal.2d 158 [69 P.2d 832]. The court stated: "The trial court properly held
that in the summary [37 Cal.App.3d 1035] proceeding in unlawful detainer the right to
possession alone was involved, and the broad question of title could not be raised and
litigated by cross-complaint or affirmative defense. [Citations.] It is true that where the
purchaser at a trustee's sale proceeds under section 1161a of the Code of Civil Procedure
he must prove his acquisition of title by purchase at the sale; but it is only to this limited
extent, as provided by the statute, that the title may be litigated in such a proceeding.
[Citations.] ... Irrespective of the merits of the defenses raised by the [defendant's]
answer, the alleged equitable grounds of attack on plaintiff's title have no place in the
present summary proceeding, for if such issues are permissible, the proceeding entirely
loses its summary character. In our opinion the plaintiff need only prove a sale in
compliance with the statute and deed of trust, followed by purchase at such sale, and the
defendant may raise objections only on that phase of the issue of title. Matters affecting
the validity of the trust deed or primary obligation itself, or other basic defects in the
plaintiff's title, are neither properly raised in this summary proceeding for possession nor
are they concluded by the judgment." The holding in Cheney was recently followed in
MCA, Inc. v. Universal Diversified Enterprises Corp., 27 Cal.App.3d 170, 176 [103
Cal.Rptr. 522].
Since Cheney, the cases have held that, in an unlawful detainer proceeding, the court
must make a limited inquiry into the basis of the plaintiff's title when acquired through
proceedings described in Code of Civil Procedure section 1161a. (Abrahamer v. Parks,
141 Cal.App.2d 82 [296 P.2d 341]; Kartheiser v. Superior Court, 174 Cal.App.2d 617
[345 P.2d 135].) Some of the cases have determined that a municipal trial court has a duty
to hear equitable defenses offered by the defendant. (Altman v. McCollum, 107
Cal.App.2d Supp. 847 [236 P.2d 914]; Kessler v. Bridge, 161 Cal.App.2d Supp. 837 [327
P.2d 241].) Pendency of another action concerning title has been held immaterial insofar
as it might affect the unlawful detainer proceeding. (Cruce v. Stein, 146 Cal.App.2d 688
[304 P.2d 118].) The doctrine of res judicata has been applied by some courts to a
subsequent action when it appeared that the defendant in the unlawful detainer suit had
opportunity to litigate, or actually had litigated, in full his claim to title. (Seidell v. Anglo-
California Trust Co., 55 Cal.App.2d 913 [132 P.2d 12]; Bliss v. Security-First Nat. Bank,
81 Cal.App.2d 50 [183 P.2d 312]; Freeze v. Salot, 122 Cal.App.2d 561 [266 P.2d 140].
See also High v. Cavanaugh, 205 Cal.App.2d 495 [23 Cal.Rptr. 121].)
More recent cases have tended to emphasize that the unlawful detainer defendant's
affirmative equitable action is not barred by res judicata in a subsequent suit. It was stated
in Byrne v. Baker, 221 Cal.App.2d 1, 7 [34 Cal.Rptr. 178], in affirming plaintiff's
judgment in unlawful detainer, [37 Cal.App.3d 1036] that "Any claims of title that
appellant [defendant] may have may be determined in the quiet title action now pending."
And, in Patapoff v. Reliable Escrow Service Corp., 201 Cal.App.2d 484 [19 Cal.Rptr.
886], res judicata was not applied to bar a subsequent suit for damages, based upon fraud.
Specific performance of a contract of sale was litigated in a subsequent suit in Haase v.
Lamia, 229 Cal.App.2d 654 [40 Cal.Rptr. 518], and found not barred by an earlier
favorable determination in the municipal court in favor of the then defendant.
Thus, it appears that the problem of determining at what point the unlawful detainer
proceeding has provided the means of litigating equitable attacks by the defendant therein
on plaintiff's title has been resolved with varying results.
As indicated previously, the critical question is whether or not the unlawful detainer
defendant has had adequate opportunity to present his case. The summary nature of
unlawful detainer proceedings suggests that, as a practical matter, the likelihood of the
defendant's being prepared to litigate the factual issues involved in a fraudulent scheme to
deprive him of his property, no matter how diligent defendant is, is not great. Fraudulent
transactions are not ordinarily conducted openly; frequently they are bared only by
investigation and discovery procedures. Investigation and discovery are not always
available to a defendant who must face the time element of unlawful detainer proceedings
provided in Code of Civil Procedures sections 1167, 1179a.
We believe that the Legislature did not intend, by the passage of section 1161a, to require
a defendant to litigate the elements of an action for affirmative equitable relief in such
summary proceedings or to be forever barred from suit. While the issue of immediate
possession is within the province of the unlawful detainer court, as well as the
requirement, where applicable, placed upon the plaintiff to assert technical compliance
with Civil Code section 2924, the issue of title obtained by fraud, which includes but
extends beyond the holding of a trustee's sale, remains open for further litigation.
In the case before us, the record does not establish that plaintiff received a full adversary
hearing on all the issues involved in his subsequent suit, such as the trustee's practice of
discouraging competitive bidding at a foreclosure sale in order to help obtain the property
for the corporation, in which he had an interest. It does not appear that the unlawful
detainer court, in the exercise of its limited power to inquire, properly could have
received and considered evidence of the fraud. We conclude that the subsequent [37
Cal.App.3d 1037] suit was not barred by the doctrine of res judicata. (See Patapoff,
supra.)
[3] The judgment, made in the instant action by the trial court, merely recites that the
proceedings held to acquire title were void; no disposition of plaintiff's request for
redemption of the property was ordered. If the defendants have sold the residence to a
bona fide purchaser for value, it obviously was not within the court's power to order
return of the property to the plaintiff. (Strutt v. Ontario Sav. & Loan Assn., 11 Cal.App.3d
547 [90 Cal.Rptr. 69].) It is, however, within the equitable power of the court to award
compensatory damages to the plaintiff which will render him as whole as possible at this
point in time if the property cannot be returned. (18 Cal.Jur.2d, Equity, § 16, p. 154.)
Since we have determined that compensation can be awarded if the property cannot be
returned, we remand the judgment for the trial court's consideration of compensation to
be awarded. It is thus unnecessary for us to consider at this time defendant Kessler's
contention that punitive damages were improperly assessed against him in the absence of
a compensatory damage award.
The judgment is affirmed insofar as it declares the trustee's sale to be void and the
trustee's deed to be invalid; it is reversed insofar as it fails to award to plaintiff either a
return of the property or compensation for its loss. The case is remanded to the trial court
for the sole purpose of modifying its judgment so as to grant such relief as may be proper
and of taking testimony, if necessary, on such matters. Respondent shall recover costs on
appeal.
Kingsley, J., and Dunn, J., concurred.
FN 1. The record discloses that defendant Gem Properties, Inc. requested the preparation
of a reporter's transcript, but this request was later withdrawn.
FN 2. The same claim was made in written materials submitted to the superior court by
plaintiff. Defendants concede only that the cross-complaint of plaintiff was stricken as it
prayed for affirmative relief, but contends that the court actually heard substantial
evidence on all pertinent issues raised by plaintiff's defenses.
FN 3. Civil Code section 2924 sets forth the notices required concerning default,
intention to sell, and actual sale of property which secures performance of an obligation
in default. Section 2924b provides a procedure for receiving special notice of default.
Section 2924c concerns cure of default.
Cases Citing "37 Cal.App.3d 1029":
Moeller v. Lien
Jun 7, 1994. No. B070991.
 20 Cal.3d 251
Vella v. Hudgins
December 8, 1977. L.A. No. 30779.
 39 Cal.App.3d 737
Wood v. Herson
June 10, 1974. Civ. No. 42147.
 67 Cal.App.3d 162
Evans v. Superior Court
February 15, 1977. Civ. No. 49325.
 108 Cal.App.3d 141

ASUNCION v. SUPERIOR COURT
July 14, 1980. Civ. No. 22722.
 139 Cal.App.3d 1044

MEHR v. SUPERIOR COURT
February 17, 1983. No. AO18602.
 140 Cal.App.3d 236

MEDFORD v. SUPERIOR COURT
February 10, 1983. Civ. No. 67447.
 194 Cal.App.3d 460

Old National Financial Services, Inc. v. Seibert
August 26, 1987. No. A035522.
 197 Cal.App.3d Supp. 6

Castillo v. Friedman
November 18, 1987. Civ. A. No. 17098.
 207 Cal.App.3d 822

Fragomeno v. Insurance Co. of the West
January 31, 1989. No. B033011.
Union Oil Co. v. Chandler (1970) 4 Cal.App.3d 716 , 84

Cal.Rptr. 756
[Civ. No. 26025. Court of Appeals of California, First Appellate District, Division One.
February 24, 1970.]
UNION OIL COMPANY OF CALIFORNIA, Plaintiff and Respondent, v. JOSEPH
CHANDLER, Defendant and Appellant
(Opinion by Molinari, P. J., with Sims and Elkington, JJ., concurring.)
COUNSEL
Maxwell Keith for Defendant and Appellant.
Brobeck, Phleger & Harrison and Richard Haas for Plaintiff and Respondent.
OPINION
MOLINARI, P. J.
Defendant Joseph Chandler appeals from a judgment in an unlawful detainer action

restoring plaintiff Union Oil Company of California (hereinafter referred to as "Union")
to possession of certain property and awarding damages in favor of Union against
Chandler. We find each of the several assignments of error made by Chandler to be
without merit. Accordingly, we affirm the judgment.
On November 18, 1966, Union leased a service station in Fremont, California, to

Chandler pursuant to a written lease for a period of three years commencing on
November 18, 1966 and ending on the 17th day of November, 1969. This lease contained
three clauses which are pertinent to this appeal. Clause 2 provided that the term of the
lease was three years "subject, however, (a) to sooner termination by Lessee at any time
on not less than ninety (90) days' written notice to Union and (b) to sooner termination in
accordance with any other provision of this Lease relating to or providing for sooner
termination." Clause 9 permitted Union to terminate the lease at any time upon certain
specified defaults on the part of Chandler. Clause 10 provided that Union could terminate
the lease at any time during the first 12-month period by giving Chandler 30 days' prior
written notice of such termination.
On September 18, 1967, Union gave Chandler notice that it was terminating the lease
pursuant to clause 10. Chandler did not vacate and the instant unlawful detainer action
was commenced. Chandler's answer consisted of a general denial and the assertion of
three separate affirmative defenses. The first affirmative defense alleged that no good
cause existed for the termination of the lease, that Union acted in bad faith, and that
Union had unclean hands. The second affirmative defense alleged that Union was in
violation of federal antitrust laws. The third affirmative defense alleged that Union's
action was violative of the California antitrust laws.
The pretrial conference order designates the instant action as one for [4 Cal.App.3d 720]
unlawful detainer and delineates the issues as follows: (1) Whether or not the plaintiff
had the right to terminate the lease as of October 17, 1967; (2) the amount of damages, if
any, for withholding possession; and (3) the amount of attorneys' fees due plaintiff, if any.
At the trial the court rejected offers of proof on the part of Chandler with respect to the
second and third affirmative defenses. The trial court also ruled that the provisions of
clause 10 were not ambiguous, but permitted extrinsic evidence on whether or not
coercion or unfair dealing was indulged in by Union in the actual execution of the lease.
The cause proceeded to trial before a jury, but it was stipulated that the issue of equitable
estoppel was an equity question which was to be submitted to the court for its
determination. The trial judge announced that he determined the issues of equitable
estoppel in favor of Union. The court also announced that since the provisions of clause
10 were unambiguous the interpretation of that provision was a matter for the court. The
trial court thereupon announced that under clause 10 Union was entitled to terminate the
lease without a showing of good cause and that Union was entitled to possession of the
premises. Counsel for the parties then stipulated as to the amount of the damages which
had accrued, and Chandler stipulated that he would surrender possession of the premises
on March 8, 1968, the following Friday. Pursuant to the stipulation the trial court made its
order that Chandler vacate the premises on March 8, 1968. Counsel for Union was
thereupon directed to prepare findings of fact and conclusions of law, and the form of
judgment.
Other pertinent facts will be set out hereafter where germane to the discussion.
Contentions
Chandler makes five assertions of error. He asserts that the trial court erred (1) in
determining that clause 10 of the lease required no showing of cause by Union prior to
termination; (2) in excluding Chandler's offer of proof that Union's termination of the
lease was in bad faith; (3) in refusing to entertain the issue of promissory fraud; (4) in
refusing to submit the issue that the termination of the lease was in furtherance of a plan
in violation of the antitrust laws of the United States and the State of California; and (5)
in making certain findings of fact beyond the scope of the issues litigated.
[1] Union makes the contention that since Chandler agreed to vacate the station
voluntarily on March 8, 1968, a voluntary surrender was effected, thus making the issue
of possession moot. We dispose of this contention here. The record discloses that,
although formal judgment had not been entered, the trial court had announced that Union
was entitled [4 Cal.App.3d 721] to a judgment for possession, and that the stipulation
agreeing to surrender possession two days later was made in order to minimize damages.
The record is clear that the stipulation was entered into under the compulsion of the trial
court's announced decision which merely required the formalization incident to the
preparation of findings of fact and conclusions of law, and the judgment. The record
discloses, moreover, that the trial court granted a stay of execution pursuant to stipulation
until March 8, 1968. We observe, moreover, that the judgment subsequently entered
provides that Union was restored to possession and that Chandler was ordered to vacate
no later than March 8, 1968. Under the circumstances, it is clear that Chandler was
deprived of possession by the judgment of the court. Accordingly, Chandler did not waive
his right to appeal on the issue of possession. (See Schubert v. Bates, 30 Cal.2d 785, 791-
792 [185 P.2d 793].)
Nature of Unlawful Detainer Proceeding
[2] Before entering upon a discussion of Chandler's contentions, it is appropriate to

observe that an unlawful detainer action is a summary proceeding, the primary purpose of
which is to obtain the possession of real property in the cases specified by statute.
(Fontana Industries, Inc. v. Western Grain etc. Co., 167 Cal.App.2d 408, 411 [334 P.2d
611]; Markham v. Fralick, 2 Cal.2d 221, 227 [39 P.2d 804]; Arnold v. Krigbaum, 169 Cal.
143, 146 [146 P. 423, Ann. Cas. 1916D 370]; see Code Civ. Proc., § 1161.) [3]
Accordingly, a general rule has emerged that, since the sole issue before the court is the
right to possession, neither a counterclaim nor a cross-complaint, nor affirmative
defenses, are admissible in an action in unlawful detainer, even though the alleged cause
contained therein grows out of the subject matter involved in the original suit. (Smith v.
Whyers, 64 Cal.App. 193, 194 [221 P. 387]; Arnold v. Krigbaum, supra, at p. 145;
Lakeside Park Assn. v. Keithly, 43 Cal.App.2d 418, 422 [110 P.2d 1055]; Knowles v.
Robinson, 60 Cal.2d 620, 625 [36 Cal.Rptr. 33, 387 P.2d 833]; Cheney v. Trauzettel, 9
Cal.2d 158, 159 [69 P.2d 832].) The purpose of this rule is to prevent tenants who have
violated the covenants of their leases from frustrating the ordinary and summary remedy
provided by statute for the restitution of the premises. (Abstract Inv. Co. v. Hutchinson,
204 Cal.App.2d 242, 248 [22 Cal.Rptr. 309]; Lakeside Park Assn. v. Keithly, supra;
Knowles v. Robinson, supra.) As observed in Lakeside Park, supra, and reiterated in
Knowles, supra, "The reason for this rule is that ... the injecting of other issues extrinsic
to the right of possession may defeat the very purpose of the statute." (P. 422.)
Accordingly, under this general rule a tenant is not permitted to interpose a defense usual
or permissible in ordinary actions at law. (Arnold v. Krigbaum, supra, at p. 146.) [4
Cal.App.3d 722]
[4] The general rule, however, has two recognized exceptions. The first exception is
where the tenant has voluntarily surrendered possession before the issues of fact are
finally joined. (Servais v. Klein, 112 Cal.App. 26, 36 [296 P. 123]; Heller v. Melliday, 60
Cal.App.2d 689, 697 [141 P.2d 447].) The basis for this exception is that since the right to
possession is no longer in issue, the rationale underlying the general rule evaporates and
the action thus becomes an ordinary one for damages. The second exception is that which
permits the court to inquire into equitable considerations in an unlawful detainer suit.
(See Schubert v. Lowe, 193 Cal. 291, 295-296 [223 P. 550]; Johnson v. Chely, 43 Cal.
299, 305; Manning v. Franklin, 81 Cal. 205, 207-208 [22 P. 550]; Pico v. Cuyas, 48 Cal.
639, 642; Gray v. Maier & Zobelein Brewery, 2 Cal.App. 653, 658 [84 P. 280]; Knight v.
Black, 19 Cal.App. 518, 525-527 [126 P. 512]; Rishwain v. Smith, 77 Cal.App.2d 524,
531 [175 P.2d 555]; Strom v. Union Oil Co., 88 Cal.App.2d 78, 83 [198 P.2d 347];
Abstract Inv. Co. v. Hutchinson, supra, 204 Cal.App.2d 242, 247-248.) In Abstract Inv.,
supra, it was observed that "An equitable defense is '[a] defense to an action on grounds
which, prior to the passing of the Common Law Procedure Act (17 and 18 Vict. c. 5)
would have been cognizable only in a court of equity.' [Citation.]" and that "It has also
been construed to mean a defense which a court of equity would recognize or one
founded upon some distinct ground of equitable jurisdiction. [Citation.]" (P. 248.) In
Schubert, supra, the Supreme Court cited, with approval, language in Gray, supra, that in
an unlawful detainer action the equitable powers of the court may not be extended "'into a
full examination of all the equities involved, to the end that exact justice may be done.'"
(193 Cal. at p. 295.)
In Schubert, supra, the defendant was permitted to raise the equitable defense that the
tenancy was not a month-to-month tenancy as alleged by the plaintiff, but that his
occupation was under an oral agreement to lease. Similarly, in Rishwain, supra, the
defendants pleaded and proved that as a part of the consideration for the purchase of the
plaintiffs' mercantile business the plaintiffs agreed to lease the building in which the
business was located. In Johnson, supra, the tenant was permitted to show that, being
already in possession, he was induced to enter into the lease upon which the landlord was
relying through deception and imposition practiced upon the tenant by the landlord. The
equitable defense urged in Manning, supra, was that the relationship was not that of
landlord and tenant but a sale of an interest in property; and, similarly, in Pico, that it was
a partnership. (See also Henderson v. Allen, 23 Cal. 519, 521.) In Gray, supra, the tenant
was permitted to urge that the landlord had acquiesced to a subletting although the lease
contained a provision against subletting. The equitable defense set up in Knight, supra,
was that exact compliance with the security for rent by way of a chattel mortgage on
furniture was [4 Cal.App.3d 723] impossible and that the tenant had offered to deposit
with the landlord gold coin to the full amount of the security. The defense of bad faith,
consisting of intentional evasiveness and noncooperation in accepting timely payment of
rent, was permitted in Strom, supra. In Abstract Inv., supra, it was held that the tenant
should have been permitted to produce proof of his special defense that his eviction was
sought solely on the ground that he was a Negro. In that case the rationale of the court
was that the defense upon constitutional propositions and statutes seeking to prevent
discrimination and to insure equal protection under the law has its foundation in equitable
principles. (204 Cal.App.2d 242, 248.)
The Pretrial Conference Order
[5] It is well settled that the pretrial conference order controls the subsequent course of
the litigation, that issues not designated in the pretrial conference order are not issues in
the case, and that the pretrial conference order supersedes the pleadings where
inconsistent with them unless modified at or before trial. (Oliver v. Swiss Club Tell, 222
Cal.App.2d 528, 541 [35 Cal.Rptr. 324]; Agricultural Ins. Co. v. Smith, 262 Cal.App.2d
772, 777 [69 Cal.Rptr. 50]; City of Los Angeles v. County of Mono, 51 Cal.2d 843, 847
[337 P.2d 465]; Cal. Rules of Court, rule 216.) [6] In the present case no request for an
amendment or correction was made by either party. Accordingly, this court accepts the
pretrial conference order as defining and limiting the issues in the case. (Continental
Constr. Co. v. Thos. F. Scollan Co., 228 Cal.App.2d 385, 388 [39 Cal.Rptr. 432]; Baird v.
Hodson, 161 Cal.App.2d 687, 689-690 [327 P.2d 215]; Cal-Neva Lodge, Inc. v. Marx,
178 Cal.App.2d 186, 187 [2 Cal.Rptr. 889]; California Steel Buildings, Inc. v. Transport
Indem. Co., 242 Cal.App.2d 749, 758 [51 Cal.Rptr. 797]; Cal. Rules of Court, rule 216;
cf. rules 215(b), and 218.) [7] In the instant case the pretrial conference order states that
the action is one for unlawful detainer and delineates the issue which is pertinent to this
appeal as follows: "Whether or not the plaintiff had the right to terminate the lease as of
October 17, 1967." Accordingly, in the light of the principles applicable to unlawful
detainer actions, that issue is restricted to determining Union's right to possession subject
to such equitable defenses as are permitted in such actions.
Clause 10
[8a] Clause 10 of the subject lease provides as follows: "Probationary Period: If Lessee
has not operated the Station for a period of twelve months prior to the date of the
execution of this Lease, then Union may terminate this Lease at any time during the first
12-month period of this Lease by giving Lessee thirty (30) days' prior written notice of
such [4 Cal.App.3d 724] termination; provided, however, that the 12-month period
during which Union may exercise such right of termination shall be reduced by the length
of time that the Lessee has operated the Station prior to the date of the execution of this
Lease." In contending that the court erred in interpreting this clause to mean that Union
had the right to terminate the lease during the first 12-month period of occupancy without
any showing of cause, Chandler asserts that it was the intent of the parties that the lease
could not be terminated under the provisions of clause 10 except for cause.
The trial court determined that the provisions of clause 10 were unambiguous and that
they gave Union the right to terminate the lease on notice during the first 12 months. [9]
In considering the propriety of this determination we observe where the interpretation of
an instrument does not turn on the credibility of extrinsic evidence, the interpretation is
solely a judicial function and is, therefore, a question of law. Under these circumstances
we are not bound by the trial court's interpretation. (See Parsons v. Bristol Dev. Co., 62
Cal.2d 861, 865-866 [44 Cal.Rptr. 767, 402 P.2d 839]; Estate of Platt, 21 Cal.2d 343, 352
[131 P.2d 825]; Estate of Russell, 69 Cal.2d 200, 213 [70 Cal.Rptr. 561, 444 P.2d 353].)
In the present case neither party offered extrinsic evidence as an aid to interpretation; nor
did either party seek to invoke the principle declared in Pacific Gas & Elec. Co. v. G. W.
Thomas Drayage etc. Co., 69 Cal.2d 33, 39-40 [69 Cal.Rptr. 561, 442 P.2d 641], which
permits extrinsic evidence where such evidence is relevant to prove a meaning to which
the language of the instrument is reasonably susceptible. (See Delta Dynamics, Inc. v.
Arioto, 69 Cal.2d 525, 528 [72 Cal.Rptr. 785, 446 P.2d 785].)
[8b] Our independent examination of the lease leads us to the conclusion that the trial
court's interpretation was correct. The language of clause 10 clearly states that Union had
the right to terminate the lease at any time during the first 12-month period. An identical
privilege was given to Chandler who could terminate the lease at any time during the life
of the lease upon the giving of a 90-day notice. From a reading of the lease and the
related clauses we think it clear that it was the intent of the parties that Union could
terminate the lease during the first 12-month period with or without cause and, thereafter,
only for cause as specified in clause 9. The meaning of clause 10 is not altered by the
prefatory phrase "Probationary Period." As in the case of the other clauses this phrase was
in the nature of an "informatory caption" which pointed to the language which followed
it. When read with the operative language which follows it, the meaning of clause 10 is
that Union reserved the unlimited and unrestricted right during the first 12-month period
to determine whether Chandler was a satisfactory lessee to whom it was willing to be
bound for the prescribed term beyond the first 12 months of the lease. [4 Cal.App.3d
725]
Bad Faith
Chandler asserts that the trial court erred in not allowing the jury to determine whether or
not Union was in bad faith in using the termination clause. The offer of proof was that
Union was exercising the cancellation provision to control Union's retail prices as part of
an unlawful price-fixing scheme. We observe, therefore, that this claim of error is
interrelated with Chandler's contention that the termination of the lease was in
furtherance of a plan to violate the antitrust laws of the United States and the State of
California. We also note here that neither of these defenses was delineated as an issue in
the pretrial conference order and we are concerned with them only if they are proper
equitable defenses to an unlawful detainer action within the delineated broad issue
"Whether or not the plaintiff had the right to terminate the lease as of October 17, 1967."
Accordingly, we now proceed to consider the "antitrust defenses."
The Antitrust Laws
The trial court rejected the "antitrust defenses" on the basis that they were beyond the
scope of an unlawful detainer action. The offer of proof was that Union was exercising
clause 10 of the lease to enforce a resale gasoline price-fixing scheme in Northern
California and that the lease was being terminated because Chandler would not accede to
such scheme. In support of his contention that such defenses are proper in an unlawful
detainer action, Chandler relies on the principles declared in Abstract Inv., supra, 204
Cal.App.2d 242. As indicated above, Abstract Investment held that a lessee could assert a
defense to an unlawful detainer action that he was being evicted solely because he was a
Negro. In the light of this holding Chandler urges that the policy against combinations
and contracts in restraint of trade are analogous to the policy against racial
discrimination.
Before considering the application of Abstract Investment to the instant case we observe
that, aside from Abstract Investment, the California cases which have permitted the courts
to inquire into equitable considerations in unlawful detainer actions have done so on the
basis that if the equitable defense is made out the facts or conditions upon which the right
to terminate depends do not exist. In Abstract Investment there was engrafted upon this
rationale the analogous principle that an eviction cannot be ordered where it calls into
play state action which is violative of the federal or state Constitutions. (204 Cal.App.2d
242, 255.) The rationale of Abstract Investment is that a constitutional defense based on a
broad equitable principle which has substantial justice for its objective outweighs the
interest in preserving the summary nature of an action. (P. 249.) In Hill v. Miller, 64
Cal.2d 757, 759-760 [51 Cal.Rptr. 689, 415 P.2d 33], the Supreme Court, commenting on
the holding in Abstract Investment, observed that [4 Cal.App.3d 726] "In that case it was
held that to make available to a discriminating landlord the aid and processes of a court in
effecting a discrimination would involve the state in action prohibited by the Fourteenth
Amendment." (P. 760.)
[10] Adverting to the instant case, we apprehend that the type of private discrimination
alleged here does not offend the federal and state Constitutions. Accordingly, the court's
action in ordering Chandler's eviction would not be violative of the federal and state
Constitutions even if it could be shown that the motivation for Chandler's eviction was
his refusal to engage in an unlawful price-fixing scheme in violation of the federal
antitrust laws and the Cartwright Act. Therefore, absent any constitutional proscriptions,
we see no basis for extending the exception to the general rule prohibiting affirmative
defenses in an unlawful detainer action to include defenses such as those alleged here
which are extrinsic to the facts upon which the right to terminate rests. If Union has in
fact violated the federal antitrust laws or the Cartwright Act, Chandler has an adequate
remedy at law which he may enforce in the proper forum. (See § 4, Clayton Act, 38 Stat.
731, 15 U.S.C.A. § 15; §§ 1 and 2 of the Sherman Act, 26 Stat. 209, as amended, 50 Stat.
693, 15 U.S.C.A. §§ 1 and 2; Simpson v. Union Oil Co., 377 U.S. 13 [12 L.Ed.2d 98, 84
S.Ct. 1051]; Bus. & Prof. Code, §§ 16700 to 16758.) When we weigh the complex and
protracted nature of antitrust cases in the light of the adequate remedies and damages
afforded an aggrieved party in such cases against the interest in preserving the summary
nature of an unlawful detainer action, we believe the latter to be of paramount
importance. The interest of doing substantial justice in the unlawful detainer action which
exists where the basis of the eviction is racial discrimination is not present where the
motivation for the eviction finds its roots in an antitrust violation. In the latter case
substantial justice is more efficaciously achieved in the separate actions which are readily
available to the aggrieved party. In this regard we note that Chandler has on file in the
same court as the present case an action against Union alleging violation of the
Cartwright Act. fn. 1
[11] With respect to the federal antitrust laws, we observe that, in any event, the state
courts have no jurisdiction to construe or enforce the federal antitrust laws. This
jurisdiction is vested in the federal courts. (Freeman v. Bee Machine Co., Inc., 319 U.S.
448, 451, fn. 6 [87 L.Ed. 1509, 1512, 63 S.Ct. 1146]; Blumenstock Bros. Advertising
Agency v. Curtis Publishing Co., 252 U.S. 436, 440 [64 L.Ed. 649, 652, 40 S.Ct. 385];
General Talking Pictures Corp. v. De Marce, 203 Minn. 28 [279 N.W. 750, 753]; Burgess
v. Hogan (La.App.) 175 So.2d 924, 925.) In Burgess it was held [4 Cal.App.3d 727] that
the alleged violation of the Clayton Act prohibiting agreements creating a monopoly or
designed to lessen competition in interstate commerce by a lessee did not affect his right
to terminate a lease with sublessees in an action of eviction by summary proceeding. (Pp.
925-926.) We also note that acts violative of federal antitrust laws may be enjoined by an
action brought in the federal courts. (15 U.S.C.A. § 26.) In the instant case Chandler did
avail himself of this remedy by filing an action in the federal court seeking an injunction
to prevent Union from taking any action to remove him from the station, basing his
petition on the federal antitrust laws and alleging, essentially, that Chandler's pricing
policies were the basis of Union's termination of the lease under clause 10. fn. 2
Promissory Fraud
Chandler asserts that the trial court erred in not allowing the issue of promissory fraud to
be decided by the jury. This claim is predicated upon an offer of proof made by him that
Union should be estopped from exercising a right to terminate the lease based upon
promises by Union's representative, Mr. Roland Simonson, that clause 10 only applied to
dealers who turned the station into a garage and did heavy mechanical work. Chandler is
apparently complaining that this offer of proof was improperly rejected because the trial
court restricted the issue to whether there was any undue pressure or coercion on
Chandler showing that his signing of the lease was not a free and voluntary act.
The record reflects that the following extrinsic evidence was admitted by the trial court
on this issue: Chandler testified that he had been a service station operator in the Fremont
area for about eight years; that Union sought him out to operate the subject service
station; that in the course of his first meeting with Simonson concerning taking over the
station Chandler was told that the station lease was "just [a] standard three-year oil
company lease"; that Chandler expressed interest in taking over the station but asked
Simonson for a copy of the lease; that Chandler was told that Simonson would bring it to
their next meeting; that at the next meeting Simonson neglected to bring a copy of the
lease, but did deliver the keys to the station to Chandler; that this occurred approximately
a week before the operative date of the lease; that approximately two days before the
station opened [4 Cal.App.3d 728] Chandler again requested a copy of the lease from
Simonson, who assured Chandler he would get the lease to him; that on the day the
station opened Chandler was finally tendered a copy of the lease, and was told by
Simonson that he had to sign it that day; that when he read clause 10 he observed to
Simonson that he would be a fool to sign the lease because he didn't have a three-year
lease but only a thirty-day lease; that Simonson told him the clause didn't apply to him
and that, with his background, he didn't have to worry about the clause; that the clause
was put in by Union to protect it against a dealer who would only want a garage for
heavy repair work and who would not be interested in pumping a volume of gasoline;
that then he signed the lease; and that since he had given up his other business he had the
choice of either signing the lease or getting out.
Simonson testified that he did not show Chandler a copy of the lease prior to the day it
was signed, although Chandler had requested it, because of the time required to obtain
credit information; that Chandler did tell him he wanted to take it home to study it; that
he told Chandler he could take it home but that he could not dispense any products until
the lease was signed; that on the day he presented the lease to Chandler he began to read
it aloud to Chandler who, after a portion was read, stopped him with the observation that
since it was a standard form lease it was unnecessary to read everything that was in the
lease; that they went over clause 10; that Chandler did state that he had only a 30-day
lease and that Simonson agreed with him; that he didn't tell Chandler to ignore or forget
about clause 10; and that he attempted to explain its meaning by citing an example of
what it meant; and that he cited as an example that Union did not want the station to be
run as a garage with major overhaul work.
The record also discloses that court and counsel treated the issue tendered by the
foregoing evidence as "equitable estoppel" and that, since it was an equity question,
Chandler's counsel stipulated that the issue was to be determined by the court and not by
the jury. Accordingly, upon the basis of this evidence, the trial court made findings that
Simonson at no time made any statements or promises to Chandler which were false or
intended to deceive or mislead Chandler; that Chandler did not rely on any statement or
promise made by Simonson purporting to interpret, limit, modify or change the terms of
the proffered lease; that Chandler read clause 10 before signing the lease; that he knew
and understood the terms of the clause; that he was free to sign or not to sign the
proffered lease; and that he signed with full knowledge that during the first year the lease
was terminable by Union at any time on 30 days' notice.
It is apparent from the foregoing that the trial court permitted Chandler to present a
proper equitable defense to the instant unlawful detainer action and that, whether it be
deemed couched in terms of promissory fraud or [4 Cal.App.3d 729] equitable estoppel,
the evidence encompassed by Chandler's offer of proof was received and considered by
the trier of fact. Upon receiving such evidence the court found the facts contrary to
Chandler's contention. These findings negative the existence of the elements required to
establish the equitable defense asserted by Chandler predicated upon the evidence
proffered by him. Since the court found against the defense of equitable estoppel, there
were no factual issues for the jury to decide. (See Richard v. Degen & Brody, Inc., 181
Cal.App.2d 289, 295 [5 Cal.Rptr. 263].)
Chandler's assertion that the extrinsic evidence permitted by the court only went to the
defense of coercion, oppression and undue influence, and not to the issue of fraud is
without merit. As indicated above, Chandler was permitted to prove the elements of fraud
upon which he was predicating promissory fraud as an equitable defense to an unlawful
detainer action within the permissible limits. We here observe, moreover, that no issue of
fraud was tendered by the pleadings nor was any delineated in the pretrial conference
order. [12] Furthermore, as already pointed out, the affirmative defense of fraud could not
be urged in an unlawful detainer action unless it presented the type of equitable defense
recognized as an exception to the general rule which proscribes counterclaims, cross-
complaints or affirmative defenses in such actions.
The Findings
The final contention made by Chandler is that the court made findings of fact beyond the
scope of issues litigated and that certain findings of fact are erroneous.
In urging that findings were made outside the scope of the issues litigated, Chandler
reiterates the contention that the court limited his equitable defense to the issue of
coercion and that, therefore, any finding beyond that which found that Chandler was free
to sign or not sign the lease as he saw fit is immaterial and should be disregarded. As
already discussed, the court admitted evidence of the circumstances surrounding the
execution of the lease in order to determine whether Union, by its conduct, would
become estopped from asserting the provisions of clause 10. The evidence adduced was
not limited to coercion but to all of Simonson's conduct with respect to the circumstances
surrounding the execution of the lease in order to determine whether clause 10 was
rendered inoperative as a result of such conduct.
Chandler states that finding No. 2 is erroneous but he does not point out the deficiency
except to state that Union is liable for Simonson's misrepresentations under established
principles of agency. Finding No. 4 is attacked on the basis that there is no support in the
evidence that Chandler knew [4 Cal.App.3d 730] that clause 10 gave him a lease
terminable upon 30 days' notice during the first year. In considering these objections we
note that Chandler does not challenge the correctness of finding No. 3 by which the court
found that no false statements or promises were made to Chandler by Simonson and that
there was no attempt by Simonson to mislead or deceive Chandler. This finding,
therefore, negates Chandler's criticism of findings 2 and 4 since each is based on the
determination, upon conflicting evidence, that Simonson made no misrepresentations and
that Chandler under the circumstances and in the light of the evidence was fully aware of
the meaning of clause 10 and still freely chose to execute the lease. In sum, the question
really presented by the challenge to the findings is whether there was any substantial
evidence in the record to support the findings of the trial court. Upon the basis of the
evidentiary record and the resolution by the trial court of the conflicting evidence, we
find that the findings are supported by substantial evidence.
Attorneys' Fees on Appeal
Clause 13 of the lease provides that "Lessee agrees to reimburse Union for any costs and
expenses (including attorney's fees) incurred by tenant under this or any other provision
of this Lease." Union contends that this provision includes services on appeal and has
requested that we permit the trial court to make this determination upon the filing of the
remittitur.
The judgment is affirmed. Plaintiff may file in the superior court a motion for attorneys'
fees within 30 days from the date of the filing of the remittitur.
Sims, J., and Elkington, J., concurred.
FN 1. Chandler also filed an injunction proceeding in Alameda County to compel Union

to resume gasoline deliveries to the station which were apparently suspended concurrent
with the notice to quit the premises. The petition was denied.
FN 2. The federal court made findings of fact and conclusions of law which, in pertinent
part, stated: "9. There is adequate reason to believe that the decision of defendant Union
Oil Company to terminate the lease during the probationary period could well have been
predicated upon factors in no way related to the price of gasoline charged by the plaintiff
at his service station. 10. The evidence ... fails to establish that plaintiff's pricing policies
were the cause for Union Oil Company's determination to terminate the lease in
accordance with Clause 10. 11. Upon ... the evidence adduced before this Court, it cannot
be found that the plaintiff is likely to prevail in the ultimate trial of this cause, and the
Court so finds.
Cases Citing "4 Cal.App.3d 716":
 24 Cal.App.4th 1837
Cinnamon Square Shopping Center v. Meadowlark Enterprises
May 20, 1994. No. G013330.
 10 Cal.3d 616
Green v. Superior Court
January 15, 1974. S.F. No. 22993.
 17 Cal.3d 719
S.P. Growers Assn. v. Rodriguez
August 10, 1976. L.A. No. 30595.
 20 Cal.3d 251
Vella v. Hudgins
December 8, 1977. L.A. No. 30779.
 30 Cal.3d 244
Barela v. Superior Court
November 27, 1981. L.A. No. 31444.
 37 Cal.3d 644
Fisher v. City of Berkeley
December 27, 1984. S.F. No. 24675.
 38 Cal.3d 824
E. S. Bills, Inc. v. Tzucanow
June 24, 1985. L.A. No. 31839.
 7 Cal.App.3d 479
Mihans v. Municipal Court
May 11, 1970. Civ. No. 27931.
 17 Cal.App.3d 1
Gray v. Whitmore
April 23, 1971. Civ. No. 27565.
 23 Cal.App.3d 993
Estate of Molera
March 6, 1972. Civ. No. 29160.
 27 Cal.App.3d 170
MCA, Inc. v. Universal Diversified Enterprises Corp.
August 14, 1972. Civ. No. 38189.
 29 Cal.App.3d 843
Childs v. Eltinge
January 5, 1973. Civ. No. 11973.
 49 Cal.App.3d 62
Underground Constr. Co. v. Pacific Indemnity Co.
June 12, 1975. Civ. No. 33167.
 53 Cal.App.3d 900
Briggs v. Electronic Memories & Magnetics Corp.
December 19, 1975. Civ. No. 46635.
 66 Cal.App.3d 1
Civic Western Corp. v. Zila Industries, Inc.
January 18, 1977. Civ. No. 47686.
 70 Cal.App.3d 742
Vasey v. California Dance Co.
June 15, 1977. Civ. Nos. 48339, 49044.
 73 Cal.App.3d 410
 76 Cal.App.3d 956
Mobil Oil Corp. v. Handley
Jan. 19, 1978. Civ. No. 51036.
Strickland v. Becks
July 19, 1979. Civ. A. No. 14374.
 108 Cal.App.3d 141

ASUNCION v. SUPERIOR COURT
July 14, 1980. Civ. No. 22722.
 108 Cal.App.3d 552

SCHULMAN v. VERA
July 24, 1980. Civ. No. 20698.
 130 Cal.App.3d 596
KWOK v. BERGREN
March 17, 1982. Civ. No. 50936.
 138 Cal.App.3d 90
CUSTOM PARKING, INC. v. SUPERIOR COURT (MacANNAN)
December 14, 1982. No. A019092.
 140 Cal.App.3d 236

February 10, 1983. Civ. No. 67447.
 145 Cal.App.3d 27
CLASSEN v. WELLER
July 19, 1983. Civ. No. 52304.
 148 Cal.App.3d 654

FISH CONSTRUCTION CO. v. MOSELLE COACH WORKS, INC.
November 2, 1983. Civ. No. 69006.
 157 Cal.App.3d 991

DEAL v. MUNICIPAL COURT
June 28, 1984. Civ. No. 69418.
 162 Cal.App.3d 1259

MALDONADO v. SUPERIOR COURT
December 21, 1984. No. A024351.
 173 Cal.App.3d 380

ROTH v. MORTON'S CHEFS SERVICES, INC.
October 16, 1985. No. B010040.
 194 Cal.App.3d 460

August 26, 1987. No. A035522.
 195 Cal.App.3d 1032

October 29, 1987. No. A025611.

Green v. Superior Court , 10 Cal.3d 616
QUOTE FROM ABOVE CITED CASE:
“The landlord contends, however, that the recognition of such a defense

will completely undermine the speedy procedure contemplated for
unlawful detainer actions. In the first place, however, while the state does
have a significant interest in preserving a speedy repossession remedy, that
interest cannot justify the exclusion of matters which are essential to a just
resolution of the question of possession at issue. As the Court of Appeal
observed in Abstract Investment Co. v. Hutchinson (1962) 204 Cal.App.2d
242, 249 [22 Cal.Rptr. 309]: "Certainly the interest in preserving the
summary nature of an action cannot outweigh the interest of doing
substantial justice. To hold the preservation of the summary proceeding of
paramount importance would be analogous to the 'tail wagging the dog.'"
[S.F. No. 22993. Supreme Court of California. January 15, 1974.]
ROGER GREEN, Petitioner, v. THE SUPERIOR COURT OF THE CITY AND

COUNTY OF SAN FRANCISCO, Respondent; JACK SUMSKI, Real Party in Interest
In Bank. (Opinion by Tobriner, J., expressing the unanimous view of the court.)
COUNSEL
Gilbert T. Graham and Lawrence L. Curtice for Petitioner.
Allan David Heskin, Myron Moskovitz and Rosalyn M. Chapman as Amici Curiae on
behalf of Petitioner.
No appearance for Respondent or for Real Party in Interest.
OPINION
TOBRINER, J.
Under traditional common law doctrine, long followed in California, a landlord was
under no duty to maintain leased dwellings in habitable condition during the term of the
lease. In the past several years, however, the highest courts of a rapidly growing number
of states and the District of Columbia have reexamined the bases of the old common law
rule and have uniformly determined that it no longer corresponds to the realities of the
modern urban landlord-tenant relationship. Accordingly, each of these jurisdictions has
discarded the old common law rule and has adopted an implied warranty of habitability
for residential leases. fn. 1 In June 1972, the California Court of Appeal reviewed this
emerging out-of-state precedent in the case of Hinson v. Delis (1972) 26 Cal.App.3d 62
[102 Cal.Rptr. 661], and, persuaded by the reasoning of these decisions, held that a
warranty of habitability is implied by law in residential leases in California. We granted a
hearing in the instant case, and a companion case, fn. 2 to consider the Hinson decision
and to determine whether the breach of such implied warranty may be raised as a defense
by a tenant in an unlawful detainer action.
For the reasons discussed below, we have determined that the Hinson court properly
recognized a common law implied warranty of habitability in residential leases in
California, and we conclude that the breach of such warranty may be raised as a defense
in an unlawful detainer action. [10 Cal.3d 620]
First, as the recent line of out-of-state cases comprehensively demonstrate, the factual and
legal premises underlying the original common law rule in this area have long ceased to
exist; continued adherence to the time-worn doctrine conflicts with the expectations and
demands of the contemporary landlord-tenant relationship and with modern legal
principles in analogous fields. To remain viable, the common law must reflect the
realities of present day society; an implied warranty of habitability in residential leases
must therefore be recognized.
Second, we shall point out that the statutory "repair and deduct" provisions of Civil Code
section 1941 et seq. do not preclude this development in the common law, for such
enactments were never intended to be the exclusive remedy for tenants but have always
been viewed as complementary to existing common law rights.
Finally, we have concluded that a landlord's breach of this warranty of habitability may
be raised as a defense in an unlawful detainer action. Past California cases have
established that a defendant in an unlawful detainer action may raise any affirmative
defense which, if established, will preserve the tenant's possession of the premises. As we
shall explain, a landlord's breach of a warranty of habitability directly relates to whether
any rent is "due and owing" by the tenant; hence, such breach may be determinative of
whether the landlord or tenant is entitled to possession of the premises upon nonpayment
of rent. Accordingly, the tenant may properly raise the issue of warranty of habitability in
an unlawful detainer action.
1. The facts of the instant case.
We begin with a brief review of the facts of the instant case, which reveal a somewhat
typical unlawful detainer action. On September 27, 1972, the landlord Jack Sumski
commenced an unlawful detainer action in the San Francisco Small Claims Court seeking
possession of the leased premises and $300 in back rent. The tenant admitted nonpayment
of rent but defended the action on the ground that the landlord had failed to maintain the
leased premises in a habitable condition. The small claims court awarded possession of
the premises to the landlord and entered a money judgment for $225 against the tenant.
The tenant then appealed the decision to the San Francisco Superior Court, where a de
novo trial was held pursuant to section 117j of the Code of Civil Procedure. In support of
his claim of uninhabitability, the tenant submitted a copy of an October 1972 inspection
report of the San Francisco Department of Public Works disclosing some 80 housing code
[10 Cal.3d 621] violations in the building in question, as well as an order of the
department scheduling a condemnation hearing for January 19, 1973. In addition, in
testimony at trial, petitioner and his roommate detailed a long list of serious defects in the
leased premises which had not been repaired by the landlord after notice and which they
claimed rendered the premises uninhabitable. Some of the more serious defects described
by the tenants included (1) the collapse and nonrepair of the bathroom ceiling, (2) the
continued presence of rats, mice, and cockroaches on the premises, (3) the lack of any
heat in four of the apartment's rooms, (4) plumbing blockages, (5) exposed and faulty
wiring, and (6) an illegally installed and dangerous stove. fn. 3 The landlord apparently
did not attempt to contest the presence of serious defects in the leased premises, but
instead claimed that such defects afforded the tenant no defense in an unlawful detainer
action.
The superior court judge ultimately agreed with the landlord's contention, holding that the
"repair and deduct" provisions of Civil Code section 1941 et seq. constituted the tenant's
exclusive remedy under these circumstances. fn. 4 Accordingly, the superior court entered
judgment for the landlord, awarding him $225 and possession of the premises.
The tenant thereafter sought certification and transfer of the case to the Court of Appeal
(see Cal. Rules of Court, rules 62, 63), but the superior court denied the request. The
tenant then sought a writ of mandate or prohibition from the Court of Appeal, contending
that the trial court had erroneously failed to follow the Hinson decision. The Court of
Appeal denied the writ summarily; the tenant thereafter sought a hearing in this court. [1]
Because of the statewide importance of the general issues presented (cf. Treber v.
Superior Court (1968) 68 Cal.2d 128, 131 [65 Cal.Rptr. 330, 436 P.2d 330]; Brown v.
Superior Court (1971) 5 Cal.3d 509, 515 [96 Cal.Rptr. 584, 487 P.2d 1224]), we
exercised [10 Cal.3d 622] our discretion and issued an alternative writ of mandate, fn. 5
staying the execution of judgment conditioned upon the tenant's payment into court of all
rent which had accrued since the superior court judgment and all future rent as it became
due. fn. 6 We now turn to the general legal issues presented.
2. The transformation of the landlord-tenant relationship and developments in analogous

areas of law compel the recognition of a common law implied warranty of habitability in
residential leases in California.
[2] At common law, the real estate lease developed in the field of real property law, not
contract law. Under property law concepts, a lease was considered a conveyance or sale
of the premises for a term of years, subject to the ancient doctrine of caveat emptor. Thus,
under traditional common law rules, the landlord owed no duty to place leased premises
in a habitable condition and no obligation to repair the premises. (3 Holdsworth, A
History of English Law (5th ed. 1966) pp. 122-123; see, e.g., Brewster v. DeFremery
(1867) 33 Cal. 341, 345-346.) These original common law precepts perhaps suited the
agrarianism of the early Middle Ages which was their matrix; at such time, the primary
value of a lease lay in the land itself and whatever simple living structures may have been
included in the leasehold were of secondary importance and were readily repairable by
the typical "jack-of-all-trades" lessee farmer. Furthermore, because the law of property
crystallized before the development of mutually dependent covenants in contract law, a
lessee's covenant to pay rent was considered at common law as independent of the
lessor's covenants. Thus even when a lessor expressly covenanted to make repairs, the
lessor's breach [10 Cal.3d 623] did not justify the lessee's withholding of the rent. (See 6
Williston, Contracts (3d ed. 1962) § 890, pp. 580-589; Arnold v. Krigbaum (1915) 169
Cal. 143, 145 [146 P. 423].)
In recent years, however, a growing number of courts have begun to re-examine these
"settled" common law rules in light of contemporary conditions, and, after thorough
analysis, all of these courts have discarded the traditional doctrine as incompatible with
contemporary social conditions and modern legal values. This emerging line of decisions,
along with a veritable flood of academic commentaries, fn. 7 demonstrates the
obsolescence of the traditional common law rule absolving a landlord of any duty to
maintain leased premises in a habitable condition during the term of the lease.
The recent decisions recognize initially that the geographic and economic conditions that
characterized the agrarian lessor-lessee transaction have been entirely transformed in the
modern urban landlord-tenant relationship. We have suggested that in the Middle Ages,
and, indeed, until the urbanization of the industrial revolution, the land itself was by far
the most important element of a lease transaction; this predominance explained the law's
treatment of such leases as conveyances of interests in land. In today's urban residential
leases, however, land as such plays no comparable role. The typical city dweller, who
frequently leases an apartment several stories above the actual plot of land on which an
apartment building rests, cannot realistically be viewed as acquiring an interest in land;
rather, he has contracted for a place to live. As the Court of Appeal for the District of
Columbia observed in Javins v. First National Realty Corporation (1970) 428 F.2d 1071,
1074 [138 App.D.C. 369]: "When American city dwellers, both rich and poor, seek
'shelter' today, they seek a well known package of goods and services -- a package which
includes not merely walls and ceilings, but also adequate heat, light and ventilation,
serviceable plumbing facilities, secure windows and doors, proper sanitation, and proper
maintenance." (Fn. omitted.) [10 Cal.3d 624]
In the past, California courts have increasingly recognized the largely contractual nature
of contemporary lease agreements and have frequently analyzed such leases' terms
pursuant to contractual principles. (See, e.g., Medico-Dental etc. Co. v. Horton &
Converse (1942) 21 Cal.2d 411, 418-419 [132 P.2d 457]; Groh v. Kover's Bull Pen, Inc.
(1963) 221 Cal.App.2d 611 [34 Cal.Rptr. 637]. See generally Note, The California Lease-
Contract or Conveyance? (1952) 4 Stan.L.Rev. 244.) Similarly, leading legal scholars in
the field have long stressed the propriety of a more contractually oriented analysis of
lease agreements. (1 American Law of Property (Casner ed. 1952) § 3.11, pp. 202-205; 2
Powell, Real Property (rev. ed. 1967) ¶ 221 [1], p. 179; 6 Williston, Contracts (3d ed.
1962) § 890A, pp. 592-613.) Our holding in this case reflects our belief that the
application of contract principles, including the mutual dependency of covenants, is
particularly appropriate in dealing with residential leases of urban dwelling units.
Modern urbanization has not only undermined the validity of utilizing general property
concepts in analyzing landlord-tenant relations, but it has also significantly altered the
factual setting directly relevant to the more specific duty of maintaining leased premises.
As noted above, at the inception of the common law rule, any structure on the leased
premises was likely to be of the most simple nature, easily inspected by the lessee to
determine if it fit his needs, and easily repairable by the typically versatile tenant farmer.
Contemporary urban housing and the contemporary urban tenant stand in marked contrast
to this agrarian model.
First, the increasing complexity of modern apartment buildings not only renders them
much more difficult and expensive to repair than the living quarters of earlier days, but
also makes adequate inspection of the premises by a prospective tenant a virtual
impossibility; complex heating, electrical and plumbing systems are hidden from view,
and the landlord, who has had experience with the building, is certainly in a much better
position to discover and to cure dilapidations in the premises. Moreover, in a multiple-
unit dwelling repair will frequently require access to equipment and areas solely in the
control of the landlord.
Second, unlike the multi-skilled lessee of old, today's city dweller generally has a single,
specialized skill unrelated to maintenance work. Furthermore, whereas an agrarian lessee
frequently remained on a single plot of land for his entire life, today's urban tenant is
more mobile than ever; a tenant's limited tenure in a specific apartment will frequently
not justify efforts at extensive repairs. Finally, the expense of needed repairs will often be
outside the reach of many tenants for "[l]ow and middle [10 Cal.3d 625] income tenants,
even if they were interested in making repairs, would be unable to obtain any financing
for major repairs since they have no long-term interest in the property." (Javins v. First
National Realty Corporation (1970) 428 F.2d 1071, 1078-1079 [138 App.D.C. 369].)
In addition to these significant changes, urbanization and population growth have

wrought an enormous transformation in the contemporary housing market, creating a
scarcity of adequate low cost housing in virtually every urban setting. fn. 8 This current
state of the housing market is by no means unrelated to the common law duty to maintain
habitable premises. For one thing, the severe shortage of low and moderate cost housing
has left tenants with little bargaining power through which they might gain express
warranties of habitability from landlords, and thus the mechanism of the "free market" no
longer serves as a viable means for fairly allocating the duty to repair leased premises
between landlord and tenant. fn. 9 For another, the scarcity of adequate housing has
limited further the adequacy of the tenant's right to inspect the premises; even when
defects are apparent the low income tenant frequently has no realistic alternative but to
accept such housing with the expectation that the landlord will make the necessary
repairs. Finally, the shortage of available low cost housing has rendered inadequate the
few remedies that common law courts previously have developed to ameliorate the harsh
consequences of the traditional "no duty to repair" rule. fn. 10 [10 Cal.3d 626]
These enormous factual changes in the landlord-tenant field have been paralleled by
equally dramatic changes in the prevailing legal doctrines governing commerical
transactions. Whereas the traditional common law "no duty to maintain or repair" rule
was steeped in the caveat emptor ethic of an earlier commercial era (see, e.g., Nelson v.
Meyers (1928) 94 Cal.App. 66, 75-76 [270 P. 719]), modern legal decisions have
recognized that the consumer in an industrial society should be entitled to rely on the skill
of the supplier to assure that goods and services are of adequate quality. In seeking to
protect the reasonable expectations of consumers, judicial decisions, discarding the
caveat emptor approach, have for some time implied a warranty of fitness and
merchantability in the case of the sale of goods. (See Klein v. Duchess Sandwich Co.,
Ltd. (1939) 14 Cal.2d 272, 276-283 [93 P.2d 799]; Escola v. Coca Cola Bottling Co.
(1944) 24 Cal.2d 453, 461-468 [150 P.2d 436] (Traynor, J., concurring.) Peterson v. Lamb
Rubber Co. (1960) 54 Cal.2d 339, 341-348 [5 Cal. Rptr. 863, 353 P.2d 575]. See
generally Jaeger, Warranties of Merchantability and Fitness for Use (1962) 16 Rutgers
L.Rev. 493.) In recent years, moreover, California courts have increasingly recognized
the applicability of this implied warranty theory to real estate transactions; prior cases
have found a warranty of fitness implied by law with respect to the construction of new
housing units. (See Aced v. Hobbs-Sesack Plumbing Co. (1961) 55 Cal.2d 573, 582-583
[12 Cal.Rptr. 257, 360 P.2d 897]; cf. Kriegler v. Eichler Homes, Inc. (1969) 269
Cal.App.2d 224, 227-229 [74 Cal.Rptr. 749]; Avner v. Longridge Estates (1969) 272
Cal.App.2d 607, 609-615 [77 Cal.Rptr. 633].) fn. 11 [10 Cal.3d 627]
In most significant respects, the modern urban tenant is in the same position as any other
normal consumer of goods. (See Note, The Tenant as Consumer (1971) 3 U.C. Davis
L.Rev. 59.) Through a residential lease, a tenant seeks to purchase "housing" from his
landlord for a specified period of time. The landlord "sells" housing, enjoying a much
greater opportunity, incentive and capacity than a tenant to inspect and maintain the
condition of his apartment building. A tenant may reasonably expect that the product he is
purchasing is fit for the purpose for which it is obtained, that is, a living unit. Moreover,
since a lease contract specifies a designated period of time during which the tenant has a
right to inhabit the premises, the tenant may legitimately expect that the premises will be
fit for such habitation for the duration of the term of the lease. It is just such reasonable
expectations of consumers which the modern "implied warranty" decisions endow with
formal, legal protection. (Cf. Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269-
271 [54 Cal.Rptr. 104, 419 P.2d 168]. See generally Leff, Contract as a Thing (1970) 19
Am. U.L. Rev. 131.)
Finally, an additional legal development casts significant light upon the continued vitality
of the traditional common law rule. The past half century has brought the widespread
enactment of comprehensive housing codes throughout the nation; in California, the
Department of Housing and Community Development has established detailed, statewide
housing regulations (see Health & Saf. Code, § 17921; Cal. Admin. Code, tit. 25, §§
1000-1090), and the Legislature has expressly authorized local entities to impose even
more stringent regulations. (See Health & Saf. Code, § 17951.) These comprehensive
housing codes affirm that, under contemporary conditions, public policy compels
landlords to bear the primary responsibility for maintaining safe, clean and habitable
housing in our state. As the Supreme Court of Wisconsin declared with respect to that
state's housing code: "[T]he legislature has made a policy judgment -- that it is socially
(and politically) desirable to impose these duties on a property owner -- which has
rendered the old common law rule obsolete. To follow the old rule of no implied warranty
of habitability in leases would, in our opinion, be inconsistent with the current legislative
policy concerning housing standards." (Pines v. Perssion (1961) 14 Wis.2d 590, 596 [111
N.W.2d 409, 412-413]; see Buckner v. Azulai (1967) 251 Cal.App.2d Supp. 1013, 1015
[59 Cal. Rptr. 806, 27 A.L.R.3d 920].) [10 Cal.3d 628]
Unquestionably these numerous factual and legal developments have completely eroded
the foundations of the traditional common law rule. As noted earlier, the highest courts of
seven of our sister states and the Circuit Court of Appeals for the District of Columbia
have discarded the traditional common law doctrine and have explicitly recognized an
implied warranty of habitability in residential leases. The Supreme Court of Wisconsin
was the first to adopt this approach in 1961, and since 1969 the Supreme Courts of
Hawaii, New Jersey, New Hampshire, Illinois, Iowa, and Massachusetts and the Circuit
Court of Appeals for the District of Columbia have followed this lead. fn. 12
The Court of Appeal decision in Hinson v. Delis (1972) 26 Cal.App.3d 62 [102 Cal.Rptr.
661], was decided in the wake of this rapidly burgeoning, uniform trend of out-of-state
decisions. fn. 13 In Hinson, after a landlord had refused to repair a number of defects that
had developed in the tenant's apartment -- including a rotting bathroom floor, a defective
toilet and an improperly fitting, drafty front door -- the tenant withheld over two months
rent, $200, and requested an inspection of the premises by a local housing inspector. The
inspection confirmed the existence of a number of substantial housing code violations,
and when the landlord received an official letter from the inspector he finally made the
needed repairs. The landlord then demanded that the tenant pay the $200 that had been
withheld, but, although the tenant ultimately agreed to resume paying her full rent as of
the date of the completion of repairs, she continued to insist that she did not owe the full
rent for the period when the premises had been in an unfit condition.
The tenant filed a declaratory judgment action seeking a declaration that her obligation to
pay full rent was dependent upon the landlord's compliance "with his duty to substantially
obey the housing codes and make the premises habitable," and also seeking to enjoin the
landlord from evicting her during the pendency of the action. The landlord agreed not to
evict the plaintiff during the court proceedings, but the trial court concluded that although
the landlord had violated several housing code regulations, the [10 Cal.3d 629] plaintiff
had no legal or equitable right to unilaterally withhold rent. Accordingly, the trial court
entered a declaratory judgment that the tenant owed the landlord the full back rent.
The Court of Appeal, however, relying heavily on the line of out-of-state decisions cited
above, reversed the trial court's judgment and held that a warranty of habitability was
implied by law in the tenant's lease, and that a landlord's breach of such warranty could
justify a tenant's refusal to pay the full amount of the rent. The Hinson court emphasized,
however, that "the tenant is not absolved from all liability for rent, but remains liable for
the reasonable rental value of the premises, as determined by the trial court, for such time
as the premises were in violation of the housing codes." (26 Cal.App.3d at p. 70.) The
court therefore remanded the case to the trial court to determine to what extent, if any, the
landlord's alleged breach of an implied warranty of habitability excused the tenant's rental
obligation.
For the reasons discussed at length above, we believe that the traditional common law
rule has outlived its usefulness; we agree with the Hinson court's determination that
modern conditions compel the recognition of a common law implied warranty of
habitability in residential leases.
3. The "repair and deduct" remedy of section 1941 et seq. of the Civil Code was not
intended as the exclusive remedy for tenants in this field and does not preclude the
recognition of a common law warranty of habitability.
[3] The landlord in the present case suggests, however, that sections 1941 through 1942.1
of the Civil Code foreclose this court from adopting a common law implied waranty of
habitability. In general, these sections place a statutory duty of maintenance and repair
upon lessors of residential property and authorize a tenant, after giving reasonable notice
of "dilapidations" to his landlord, either to quit the premises without further liability for
rent or to repair the dilapidations himself and to deduct the cost of such repairs -- up to
one month's rent -- from his rent. A 1970 amendment to section 1942 prohibits a tenant
from using the "repair and deduct" option more often than "once in any 12-month
period." The landlord argues that the remedies provided the tenant in section 1942 were
intended as the exclusive remedies for any failure of the landlord in his duty to repair. As
noted earlier, the trial court in the instant case accepted the landlord's contention on this
point, but we do not agree.
Although past cases have held that the Legislature intended the remedies afforded by
section 1942 to be the sole procedure for enforcing the statutory duty on landlords
imposed by section 1941 (see, e.g., Van Every v. [10 Cal.3d 630] Ogg (1881) 59 Cal.
563, 566; Seiber v. Blanc (1888) 76 Cal. 173, 174 [18 P. 260]), no decision has suggested
that the Legislature designed these statutory provisions to displace the common law in
fixing the respective rights of landlord and tenant. On the contrary, the statutory remedies
of section 1942 have traditionally been viewed as additional to, and complementary of,
the tenant's common law rights.
In the century since the statutes were first enacted, for example, California courts have
evolved the "constructive eviction" doctrine as a common law remedy completely
independent of this statutory framework; under the modern constructive eviction
decisions, a tenant's right to terminate his lease has not been measured by the standards of
sections 1941 or 1942, but by the developing standard that permits abandonment
whenever a landlord's "acts or omissions [render the premises] unfit for the purposes for
which they were leased." (Groh v. Kover's Bull Pen, Inc. (1963) 221 Cal. App.2d 611,
614 [34 Cal.Rptr. 637]; Giraud v. Milovich (1938) 29 Cal.App.2d 543, 547 [85 P.2d
182].) Moreover, courts have permitted a tenant to utilize this common law constructive
eviction doctrine, even when the tenant had apparently waived his rights under sections
1941 and 1942. (See Buckner v. Azulai (1967) 251 Cal.App.2d Supp. 1013, 1015 [59 Cal.
Rptr. 806, 27 A.L.R.3d 920]; cf. Barkett v. Brucato (1953) 122 Cal.App.2d 264 [264 P.2d
978]. See generally, Note, Partial Constructive Eviction: The Common Law Answer in
the Tenant's Struggle for Habitability (1970) 21 Hastings L.J. 417, 426.) These cases
illustrate that the statutory framework of section 1941 et seq. has never been viewed as a
curtailment of the growth of the common law in this field. fn. 14
Furthermore, the limited nature of the "repair and deduct" remedy, in itself, suggests that
it was not designed to serve as an exclusive remedy for tenants in this area. As noted
above, section 1942 only permits a tenant to expend up to one month's rent in making
repairs, and now also provides that this self-help remedy can be invoked only once in any
12-month period. These limitations demonstrate that the Legislature framed the section
only [10 Cal.3d 631] to encompass relatively minor dilapidations in leased premises.
(See Nelson v. Myers (1928) 94 Cal.App. 66, 75 [270 P. 719]; Loeb, The Low-Income
Tenant in California: A Study in Frustration (1970) 21 Hastings L.J. 287, 292.) As the
facts of the instant case reveal, in the most serious instances of deterioration, when the
costs of repair are at all significant, section 1942 does not provide, and could not have
been designed as, a viable solution. fn. 15
Thus, we conclude that Civil Code section 1941 et seq. do not preclude the development
of new common law principles in this area, and we now hold that a warranty of
habitability is implied by law in residential leases in California.
4. A tenant may raise a landlord's breach of an implied warranty of habitability as a

defense in an unlawful detainer proceeding.
[4a] The landlord in a companion case (see fn. 2) contends, however, that even if we
should uphold such a warranty, we could never permit a tenant to raise a landlord's breach
of it in an unlawful detainer action. Relying initially on the fact that the Hinson decision
itself involved a declaratory judgment action and not an unlawful detainer action, the
landlord maintains that the trial court's refusal to permit the defense of a "warranty of
habitability" in the instant case fully conforms with Hinson. We cannot agree.
In the first place, nothing in the Hinson decision supports such a distinction. Although the
issue in Hinson arose in a declaratory judgment context, as we discuss below the decision
itself endorses procedural protections which were specifically designed for unlawful
detainer proceedings. (See infra, at pp. 636-637.) Moreover, a number of the out-of-state
decisions on which the Hinson court based its opinion explicitly applied this warranty of
habitability doctrine in an unlawful detainer context. (See Marini v. Ireland (1970) 56
N.J. 130 [265 A.2d 526, 40 A.L.R.3d 1356]; Javins v. First National Realty Corporation
(1970) 428 F.2d 1071 [138 App. D.C. 369]; see also Jack Spring, Inc. v. Little (1972) 50
Ill.2d 351 [280 [10 Cal.3d 632] N.E.2d 208]; Rome v. Walker (1972) 38 Mich.App. 458
[196 N.W.2d 850].)
Second, and more fundamentally, we have concluded that even apart from the Hinson
decision, no legal doctrine bars a tenant from raising such a critical defense in an
unlawful detainer action. We note initially that absolutely nothing in the statutory
provisions governing unlawful detainer proceedings prohibits the assertion of any
defense. fn. 16
The landlord contends, however, that to preserve the summary nature of the procedure,
California courts have in the past limited the matters which may be raised by a defendant
in an unlawful detainer action, and that these judicially created limits foreclose the tenant
from utilizing a breach of warranty defense.
The doctrine invoked by the landlord was most recently analyzed by our court in
Knowles v. Robinson (1963) 60 Cal.2d 620, 625 [36 Cal.Rptr. 33, 387 P.2d 833]. In
Knowles we explained: "[W]here an objection is interposed in an action for unlawful
detainer, no cross-complaint or counter-claim may survive. The remedy of unlawful
detainer is designed to provide means by which the timely possession of premises which
are wrongfully withheld may be secured to the person entitled thereto. The summary
character of the action would be defeated if, by cross-complaint or counter-claim, issues
irrelevant to the right of immediate possession could be introduced." (Italics added.) The
court in Lakeside Park Assn. v. Keithly (1941) 43 Cal.App.2d 418, 422 [110 P.2d 1055],
similarly observed that: "The reason for this rule is that the statute provides for the action
of unlawful detainer as a summary proceeding, ... and that the injecting of other issues
extrinsic to the right of possession may defeat the very purpose of the statute." (Italics
added.)
[5] The basic teaching of Knowles, Lakeside, and the entire line of cases these decisions
reflect, fn. 17 is that a defense normally permitted because it "arises out of the subject
matter" of the original suit is generally excluded [10 Cal.3d 633] in an unlawful detainer
action if such defense is extrinsic to the narrow issue of possession, which the unlawful
detainer procedure seeks speedily to resolve. fn. 18 Neither Knowles, Lakeside nor any
other California decision, however, prohibits a tenant from interposing a defense which
does directly relate to the issue of possession and which, if established, would result in
the tenant's retention of the premises. fn. 19 The thrust of the Knowles' line of [10 Cal.3d
634] cases is basically to prevent tenants from frustrating the summary statutory remedy
through introduction of extraneous matter; the decisions accomplish this objective by
confining the unlawful detainer action to issues directly relevant to the ultimate question
of possession.
[4b] The crucial issue in this case thus becomes whether a landlord's breach of a warranty
of habitability directly relates to the issue of possession. Holding that such breach was
irrelevant to the question of possession, early California cases refused to permit a defense
that the landlord had breached a covenant to repair premises. (See, e.g., Arnold v.
Krigbaum (1915) 169 Cal. 143, 145 [146 P. 423]; Frasier v. Witt (1923) 62 Cal.App. 309,
315 [217 P. 114].) These decisions, however, rested primarily upon the ancient property
doctrine of "independent covenants," under which a tenant's obligation to pay rent was
viewed as a continuing obligation which was not excused by the landlord's failure to
fulfill any covenant of repair he may have assumed. As indicated earlier in this opinion,
the entire foundation of the "independent covenants" doctrine rested on the central role
played by land in the lease transaction of the Middle Ages; the doctrine simply reflected
the fact that in those early times covenants regarding the maintenance of buildings were
generally "incidental" to the furnishing of land, and did not go to the root of the
consideration for the lease. In that setting, a landlord's breach of such an "incidental"
covenant to repair was reasonably considered insufficient to justify the tenant's refusal to
pay rent, the tenant's main obligation under the lease. fn. 20 [10 Cal.3d 635]
The transformation which the residential lease has undergone since the Middle Ages,
however, has completely eroded the underpinnings of the "independent covenant" rule.
Today the habitability of the dwelling unit has become the very essence of the residential
lease; the landlord can as materially frustrate the purpose of such a lease by permitting
the premises to become uninhabitable as by withdrawing the use of a portion of the
premises. (See fn. 20, supra.) Thus, in keeping with the contemporary trend to analyze
urban residential leases under modern contractual principles, we now conclude that the
tenant's duty to pay rent is "mutually dependent" upon the landlord's fulfillment of his
implied warranty of habitability. (See Medico-Dental etc. Co. v. Horton & Converse
(1942) 21 Cal.2d 411, 419-421 [132 P.2d 457].) fn. 21 Such was essentially the holding
of the Court of Appeal in Hinson v. Delis (26 Cal.App.3d at p. 71) as well as a number of
the out-of-state cases which have recently adopted the implied warranty of habitability
rule. (See pp. 631, 632, ante.) As the Supreme Judicial Court of Massachusetts stated
most recently: "The old common law treatment of the lease as a property conveyance and
the independent covenants rule which stems from his treatment have outlived their
usefulness." (Boston Housing Authority v. Hemingway (1973) ___ Mass. ___ [293
N.E.2d 831, 841].)
Once we recognize that the tenant's obligation to pay rent and the landlord's warranty of
habitability are mutually dependent, it becomes clear that the landlord's breach of such
warranty may be directly relevant to the issue of possession. If the tenant can prove such
a breach by the landlord, he may demonstrate that his nonpayment of rent was justified
and that no rent is in fact "due and owing" to the landlord. Under such circumstances, of
course, the landlord would not be entitled to possession of the premises. (See Skaggs v.
Emerson (1875) 50 Cal. 3, 6; Giraud v. Milovich (1938) 29 Cal.App.2d 543, 547-549 [85
P.2d 182].) [10 Cal.3d 636]
The landlord contends, however, that the recognition of such a defense will completely
undermine the speedy procedure contemplated for unlawful detainer actions. In the first
place, however, while the state does have a significant interest in preserving a speedy
repossession remedy, that interest cannot justify the exclusion of matters which are
essential to a just resolution of the question of possession at issue. As the Court of Appeal
observed in Abstract Investment Co. v. Hutchinson (1962) 204 Cal.App.2d 242, 249 [22
Cal.Rptr. 309]: "Certainly the interest in preserving the summary nature of an action
cannot outweigh the interest of doing substantial justice. To hold the preservation of the
summary proceeding of paramount importance would be analogous to the 'tail wagging
the dog.'"
Second, we believe the landlord's contention greatly exaggerates the detrimental effect of
the recognition of this defense on the summary unlawful detainer procedure. As
illustrated by the numerous California precedents cited and discussed above (see fn. 19),
defendants in unlawful detainer actions have long been permitted to raise those
affirmative defenses -- both legal and equitable -- that are directly relevant to the issue of
possession; over the years, the unlawful detainer action has remained an efficient,
summary procedure. We see no reason why the availability of a warranty of habitability
defense should frustrate the summary procedure when the availability of these other
defenses has not.
Indeed, the landlord's dire forecast fades in the light of the host of recent out-of-state
decisions which, in adopting a warranty of habitability, have explicitly permitted the issue
to be raised in summary dispossession proceedings. (See p. 631, ante.) In addition,
several "model" landlord-tenant codes, recently drafted under the auspices of highly
regarded legal bodies, have also recommended the recognition of this defense in such
summary actions. (See National Conference of Commissioners on Uniform State Laws,
Uniform Residential Landlord-Tenant Act (1972) § 4.105; American Bar Foundation,
Model Residential Landlord-Tenant Code (Tent. Draft 1970) §§ 2-203(1), 3-210.) As
these authorities recognize, this development accords with "[t]he salutary trend toward
determination of the rights and liabilities of litigants in one, rather than multiple
proceedings ...." (Jack Spring, Inc. v. Little (1972) 50 Ill.2d 351 [280 N.E.2d 208, 213].)
Moreover, as the Hinson court indicated, sound procedural safeguards suffice to protect
the landlord's economic interests without depriving the tenant of a meaningful
opportunity to raise the breach of warranty issue. The Hinson court, elaborating on a
procedural mechanism suggested by the Court of Appeal for the District of Columbia in
the Javins opinion (428 [10 Cal.3d 637] F.2d at p. 1083, fn. 67), stated: "If the tenant
claims that all or a part of rent is not due because of defects in the premises, the trial court
may, during the pendency of the action and at the request of either party, require the
tenant to make the rental payments at the contract rate into court as they become due for
as long as the tenant remains in possession. At the trial of the action the court can then
determine how the rent paid into court should be distributed." (26 Cal.App.3d at p. 71.)
Such a procedure can serve as a fair means of protection of landlords from potential
abuses of the proposed warranty of habitability defense. (See National Conference of
Commissioners on Uniform State Laws, Uniform Residential Landlord and Tenant Act
(1972) § 4.105.)
4. Conclusion.
We have concluded that a warranty of habitability is implied by law in residential leases

in this state and that the breach of such a warranty may be raised as a defense in an
unlawful detainer action. Under the implied warranty which we recognize, a residential
landlord covenants that premises he leases for living quarters will be maintained in a
habitable state for the duration of the lease. This implied warranty of habitability does not
require that a landlord ensure that leased premises are in perfect, aesthetically pleasing
condition, but it does mean that "bare living requirements" must be maintained. fn. 22 In
most cases substantial compliance with those applicable building and housing code
standards which materially affect health and safety will suffice to meet the landlord's
obligations under the common law implied warranty of habitability we now recognize. fn.
23 As the Hinson court [10 Cal.3d 638] observed: "[m]inor housing code violations
standing alone which do not affect habitability must be considered de minimus and will
not entitle the tenant to reduction in rent ...." (26 Cal.App.3d at p. 70.)
In the instant case, the tenant defended the unlawful detainer action on the grounds that
the premises were not in a habitable condition; in support of this claim, as noted above,
he presented a city housing inspection report detailing some 80 violations of local
housing and building codes, including major defects in the building's plumbing and
electrical facilities. At trial the tenant also testified that he had repeatedly informed the
landlord of plumbing blockages, a collapsed bathroom ceiling, lack of heat in four rooms,
exposed and faulty wiring and an illegally installed and dangerous stove, but that the
landlord had failed to make any repairs within a reasonable period of time. Although this
evidence of substantial defects in the premises was not controverted at trial, the court
granted judgment for the landlord, on the theory that, whatever the condition of the
premises, the tenant's exclusive remedy was provided by section 1941 et seq. of the Civil
Code. As discussed above, that conclusion was erroneous and thus we must remand this
case to the trial court so that it may determine whether the landlord has breached the
implied warranty of habitability as defined in this opinion.
If the trial court does find a breach of implied warranty, the court must then determine the
extent of the damages flowing from this breach. Recent decisions have suggested that in
these circumstances the "tenant's damages shall be measured by the difference between
the fair rental value of the premises if they had been as warranted and the fair rental value
of the premises as they were during occupancy by the tenant in the unsafe or unsanitary
condition." (Mease v. Fox (Iowa 1972) 200 N.W.2d 791, 797; Boston Housing Authority
v. Hemingway (1973) ___ Mass. ___ [293 N.E.2d 831, 845]; Academy Spires, Inc. v.
Jones (1970) 108 N.J.Super. 395 [261 A.2d 413, 417].)
We recognize that the ascertainment of appropriate damages in such cases will often be a
difficult task, not susceptible of precise determination, but in this respect these cases do
not differ significantly from a host of analogous situations, in both contract and tort law,
in which damages cannot be computed with complete certainty. (See, e.g., Shoemaker v.
Acker (1897) 116 Cal. 239, 245 [48 P. 62]; Donahue v. United Artists Corp. (1969) 2
Cal.App.3d 794, 804 [83 Cal.Rptr. 131]; Story Parchment [10 Cal.3d 639] Co. v.
Paterson Co. (1931) 282 U.S. 555, 562-567 [75 L.Ed. 544, 548-551, 51 S.Ct. 248].) In
these situations, trial courts must do the best they can and use all available facts to
approximate the fair and reasonable damages under all of the circumstances. (See
McGregor, Damages (13th ed. 1972) § 258, p. 184; McCormick, Damages (1935) § 27, p.
101.) fn. 24
In the instant case, the tenant has already quit the premises and thus the only matter to be
determined on remand is the question of money damages owing to the landlord. In
unlawful detainer actions generally, however, if the trial court determines that the
landlord's breach of warranty is total, and that the tenant owes no rent whatsoever, the
court should, of course, enter judgment for the tenant in the unlawful detainer action. If
the court determines, however, that the damages from the breach of warranty justify only
a partial reduction in rent, the tenant may maintain possession of the premises only if he
pays that portion of the back rent that is owing, as directed by the trial court. (See Code
Civ. Proc., § 1174; cf. Academy Spires, Inc. v. Brown (1970) 111 N.J.Super. 447 [268
A.2d 556, 562]; Javins v. First National Realty Corporation (1970) 428 F.2d 1071, 1083
[138 App.D.C. 369].) If the tenant fails to pay such sum, the landlord is entitled to a
judgment for possession. Finally, of course, if the trial court finds that the landlord has
not breached the warranty of habitability, it should immediately enter judgment in favor
of the landlord.
In summary, we have concluded that the traditional common law rule which imposed no
warranty of habitability in residential leases is a product of an earlier, land-oriented era,
which bears no reasonable relation to the social or legal realities of the landlord-tenant
relationship of today. The United States Supreme Court has observed that "the body of
private property law ..., more than almost any other branch of law, has been shaped by
distinctions whose validity is largely historical." (Jones v. United States [10 Cal.3d 640]
(1960) 362 U.S. 257, 266 [4 L.Ed.2d 697, 705, 80 S.Ct. 725, 78 A.L.R.2d 233]), and on
previous occasions in recent years our own court has responded to the changes wrought
by modern conditions by discarding outworn common law property doctrines. (See
Rowland v. Christian (1968) 69 Cal.2d 108 [70 Cal.Rptr. 97, 443 P.2d 561, 32 A.L.R.3d
496].) In taking a similar step today, we do not exercise a novel prerogative, but merely
follow the well-established duty of common law courts to reflect contemporary social
values and ethics. As Justice Cardozo wrote in his celebrated essay "The Growth of the
Law" chapter V, pages 136-137: "A rule which in its origin was the creation of the courts
themselves, and was supposed in the making to express the mores of the day, may be
abrogated by courts when the mores have so changed that perpetuation of the rule would
do violence to the social conscience. ... This is not usurpation. It is not even innovation. It
is the reservation for ourselves of the same power of creation that built up the common
law through its exercise by the judges of the past."
Let a peremptory writ of mandate issue directing the superior court to vacate the San
Francisco Superior Court judgment entered in the case of Sumski v. Green, S.C.A. No.
11836 on January 3, 1973, and instructing the court to proceed with the trial of the
unlawful detainer action in accordance with the views expressed herein.
Wright, C. J., McComb, J., Mosk, J., Burke, J., Sullivan, J., and Clark, J., concurred.
FN 1. See Pines v. Perssion (1961) 14 Wis.2d 590 [111 N.W.2d 409]; Lemle v. Breeden
(1969) 51 Hawaii 426 [462 P.2d 470, 40 A.L.R.3d 637]; Javins v. First National Realty
Corporation (1970) 428 F.2d 1071 [138 App.D.C. 369], cert. den., 400 U.S. 925 [27
L.Ed.2d 185, 91 S.Ct. 186]; Marini v. Ireland (1970) 56 N.J. 130 [265 A.2d 526, 40
A.L.R.3d 1356]; Kline v. Burns (1971) 111 N.H. 87 [276 A.2d 248]; Jack Spring, Inc. v.
Little (1972) 50 Ill.2d 351 [280 N.E.2d 208]; Mease v. Fox (Iowa 1972) 200 N.W.2d 791;
Boston Housing Authority v. Hemingway (Mass. 1973) 293 N.E.2d 831.
FN 2. Hall v. Municipal Court, S.F. 22992, also decided this day, post, p. 641 [111
Cal.Rptr. 721, 517 P.2d 1185].
FN 3. The instant record contains no allegations -- by either the landlord or tenant -- that
the premises were in an uninhabitable condition at the time they were first rented by
petitioner. Consequently we have no occasion in the instant case to pass on the question
of whether a lease of such premises constitutes an "illegal contract" (see Shephard v.
Lerner (1960) 182 Cal.App.2d 746 [6 Cal.Rptr. 433]; Brown v. Southall Realty Company
(D.C.Mun.App. 1968) 237 A.2d 834) or, conversely, whether the tenant should be
considered to have "assumed the risk" of uninhabitable premises. On the present record,
the case at bar involves only an allegation that the landlord failed to maintain the leased
premises in a habitable condition. (Cf. Javins v. First National Realty Corporation (1970)
428 F.2d 1071, 1079 [138 App.D.C. 369].)
FN 4. The superior court judgment states: "The court finds that defendant has not
complied with sec. 1941 Civil Code et seq. and is not entitled to relief or withholding of
rent by reason of such failure to comply."
FN 5. The propriety of relief by writ of mandate under these circumstances was

recognized in Schweiger v. Superior Court (1970) 3 Cal.3d 507, 517-518 [90 Cal.Rptr.
729, 476 P.2d 97].
FN 6. Petitioner Green failed to make the requisite payments of rent into court, but
instead quit the premises, allegedly because of continued deterioration of the dwelling;
thus, our stay of execution is no longer in force. The landlord claims that this
development has rendered the case moot, and he urges that the action be dismissed.
Petitioner has properly pointed out, however, that the trial court judgment of $225 is still
outstanding against him. Inasmuch as this outstanding adverse money judgment was
rendered without consideration of the effects of a possible breach of an implied warranty
of habitability, the present controversy is not moot.
Moreover, because of the general importance of the underlying warranty of habitability

issue and the frequency with which this issue will arise, we believe that in any event we
should resolve the question in the instant case. As we stated recently in Liberty Mut. Ins.
Co. v. Fales (1973) 8 Cal.3d 712, 715-716 [106 Cal.Rptr. 21, 505 P.2d 213]: "If an action
involves a matter of continuing public interest and the issue is likely to recur, a court may
exercise an inherent discretion to resolve that issue, even though an event occurring
during its pendency would normally render the matter moot. [Citations.]"
FN 7. The list of recent law review articles on this subject, uniformly advocating the
adoption of an implied warranty of habitability as a more realistic approach to
contemporary conditions, is virtually endless. (E.g., Lesar, Landlord and Tenant Reform
(1969) 35 N.Y.U.L.Rev. 1279; Quinn & Phillips, The Law of Landlord-Tenant: A Critical
Evaluation of the Past With Guidelines for the Future (1969) 38 Fordham L.Rev. 225;
Schoskinski, Remedies of the Indigent Tenant: Proposal for Change (1966) 54 Geo.L.J.
519; Loeb, Low Income Tenants in California: A Study in Frustration (1970) 21 Hastings
L.J. 287; Moskovitz, Rent Withholding and the Implied Warranty of Habitability (1970) 4
Clearinghouse Rev. 49; Note, Repairing the Duty to Repair (1971) 11 Santa Clara Law.
298.)
FN 8. Section 33250 of the Health and Safety Code, enacted in 1970, documents this
condition in California. The section states: "[The Legislature] finds and declares that
there continues to exist throughout the state a seriously inadequate supply of safe and
sanitary dwelling accommodations for persons and families of low income. This
condition is contrary to the public interest and threatens the health, safety, welfare,
comfort and security of the people of this state."
FN 9. In light of this inequality of bargaining power, the Massachusetts Supreme Judicial

Court, in recently recognizing a warranty of habitability for residential leases, held that
such warranty generally could not be waived by any provision in the lease or rental
agreement. (See Boston Housing Authority v. Hemingway (1973) ___ Mass. ___ [293
N.E.2d 831, 843].) We agree that public policy requires that landlords generally not be
permitted to use their superior bargaining power to negate the warranty of habitability
rule. The Legislature has recently reached a similar conclusion with respect to tenants'
rights under Civil Code section 1941 et seq. (See Civ. Code, § 1942.1.)
FN 10. Thus, for example, the doctrine of "constructive eviction," which expanded the
traditional "covenant of quiet enjoyment" from simply a guarantee of the tenant's
possession of the premises (see Connor v. Bernheimer (N.Y. Com. Pleas 1875) 6 Daly
295, 299; Georgeous v. Lewis (1912) 20 Cal.App. 255, 258 [128 P. 768]) to a protection
of his "beneficial enjoyment" of the premises through the maintenance of basic, necessary
services (Groh v. Kover's Bull Pen, Inc. (1963) 221 Cal.App.2d 611, 614 [34 Cal.Rptr.
637]; Sierad v. Lilly (1962) 204 Cal.App.2d 770, 773 [22 Cal.Rptr. 580]), gives little help
to the typical low income tenant today because to avail himself of the doctrine a tenant
must vacate the premises. (See, e.g., Veysey v. Moriyama (1921) 184 Cal. 802, 805-806
[195 P. 662, 20 A.L.R. 1363]; Lori, Ltd. v. Wolfe (1948) 85 Cal.App.2d 54, 65 [192 P.2d
112].) In the present housing market many tenants cannot find any alternative housing
which they can afford, and thus this reform of the common law rules has in reality
provided little comfort to most needy tenants. (See Loeb, The Low-Income Tenant in
California: A Study in Frustration (1970) 21 Hastings L.J. 287, 304.)
FN 11. Indeed, even before the turn of the century, common law courts had recognized an
implied warranty of habitability in leases of furnished rooms or furnished houses. In the
seminal case of Ingalls v. Hobbs (1892) 156 Mass. 348, 350 [31 N.E. 286]) the Supreme
Judicial Court of Massachusetts explained why the traditional no warranty of habitability
rule did not apply to such rentals: "[T]here are good reasons why a different rule should
apply to one who hires a furnished room, or a furnished house .... Its fitness for
immediate use ... is a far more important element entering into the contract than when
there is a mere lease of real estate. ... An important part of what the hirer pays for is the
opportunity to enjoy it without delay, and without the expense of preparing it for use. It is
very difficult, and often impossible, for one to determine on inspection whether the house
and its appointments are fit for the use for which they are immediately wanted, and the
doctrine of caveat emptor, which is ordinarily applicable to a lessee of real estate, would
often work injustice if applied to cases of this kind. It would be unreasonable to hold,
under such circumstances, that the landlord does not impliedly agree that what he is
letting is a house suitable for occupation in its condition at the time."
Recent cases have recognized that the rationale underlying the Ingalls court's adoption of
an implied warranty of habitability in the rental of furnished dwellings is now applicable
to urban residential leases generally. (See, e.g., Boston Housing Authority v. Hemingway
(1973) ___ Mass. ___ [293 N.E.2d 831, 841]; Javins v. First National Realty Corporation
(1970) 428 F.2d 1071, 1078 [138 App.D.C. 369].) Our decision today may be seen as a
logical development of the common law principles embodied in the Ingalls decision.
FN 12. The cases are cited in fn. 1, supra. Moreover, lower courts in several additional
states have also recently recognized the existence of an implied warranty of habitability.
(See, e.g., Amanuensis Ltd. v. Brown (1971) 65 Misc.2d 15 [318 N.Y.S.2d 11];
Quesenbury v. Patrick (Colorado Cty.Ct. 1972) C.C.H. Pov.L.Rptr. ¶ 15,803; Glyco v.
Schultz (Ohio Mun.Ct. 1972) C.C.H. Pov.L.Rptr. ¶ 16,608.)
FN 13. The Hinson decision was decided prior to the Illinois, Iowa, and Massachusetts
decisions cited in footnote 1, but subsequent to all the other out-of-state authority.
FN 14. Two of the recent decisions of our sister states have reached similar conclusions
under comparable circumstances. In Jack Spring, Inc. v. Little (1972) 50 Ill.2d 351 [280
N.E.2d 208] the Illinois Supreme Court recognized a common law implied warranty of
habitability in the face of an argument that a state statute which provided for rent
withholding by welfare recipients was intended as the exclusive remedy in the area. And
in Boston Housing Authority v. Hemingway (1973) ___ Mass. ___ [293 N.E.2d 831, 839-
842 and fn. 10] the Massachusetts Supreme Judicial Court went even further, holding that
a general statutory rent withholding procedure did not preclude the development of a
common law implied warranty of habitability which would be available to a tenant even
if he did not comply with the established statutory procedure. (See also Amanuensis Ltd.
v. Brown (1971) 65 Misc.2d 15 [318 N.Y.S.2d 11].)
FN 15. In the recent case of Academy Spires, Inc. v. Brown (1970) 111 N.J.Super. 477
[268 A.2d 556] the landlord similarly claimed that a tenant's only remedies under the
governing New Jersey "warranty of habitability" precedent, Marini v. Ireland (1970) 56
N.J. 130 [265 A.2d 526, 40 A.L.R.3d 1356], were to "repair and deduct" or to abandon
the premises. In rejecting this contention in a case involving the malfunctioning of a
heating system, water pipes, elevators and an incinerator in a multi-storied apartment
building, the court declared: "Was the tenant required to make the repairs to this 400-unit
complex as a prerequisite to availability of the relief given by Marini? If the answer to
that question is in the affirmative, Marini has no meaning to tenants in multi-family
dwellings who need the relief most. Obviously, few such tenants have the means to lay
out the capital ...." (268 A.2d at p. 560.)
FN 16. Section 1170 of the Code of Civil Procedure provides that in summary unlawful
detainer proceedings "the defendant may appear and answer or demur" (italics added),
and under section 431.30, an "answer" may contain "[a] statement of any new matter
constituting a defense" but may not claim affirmative relief. Thus, nothing in the statutory
scheme precludes a defendant from interposing an affirmative defense in an unlawful
detainer proceeding.
FN 17. See, e.g., Arnold v. Krigbaum (1915) 169 Cal. 143, 145 [146 P. 423]; Cheney v.
Trauzettel (1937) 9 Cal.2d 158, 159 [69 P.2d 832]; Knight v. Black (1912) 19 Cal.App.
518, 527-528 [126 P. 512]; D'Amico v. Riedel (1949) 95 Cal.App.2d 6, 8 [212 P.2d 52].
FN 18. An exception to this rule has been recognized when the tenant has voluntarily
surrendered possession of the premises before the trial of the unlawful detainer action.
(See, e.g., Servais v. Klein (1931) 112 Cal.App. 26, 36 [296 P. 123]; Heller v. Melliday
(1943) 60 Cal.App.2d 689, 697 [141 P.2d 447].) In such a case, the right to possession
would no longer be at issue and thus the need for a speedy procedure, underlying the rule,
would evaporate.
FN 19. Although several Court of Appeal decisions have suggested that the Knowles
doctrine precludes the introduction of all affirmative defenses in unlawful detainer
actions except for "equitable" defenses (see, e.g., Union Oil Co. v. Chandler (1970) 4
Cal.App.3d 716, 721-722 [84 Cal.Rptr. 756]; Rydell v. Beverly Hills P. & P. Co. (1927)
88 Cal.App. 216, 219 [262 P. 818]; Knight v. Black (1912) 19 Cal.App. 518, 527-528
[126 P. 512]), this characterization is inaccurate on two grounds. First, past cases have not
permitted the interposition of any conceivable equitable defense, but have allowed only
those defenses which, if established, would preclude the landlord from recovering
possession of the property. Second, California decisions have at the same time permitted
the introduction of "legal" defenses whenever such defenses, if proven, would have
preserved possession in the tenant.
Two cases aptly illustrate the first proposition. In Smith v. Whyers (1923) 64 Cal.App.
193, 195 [221 P. 387], the court refused to permit a tenant to raise the "equitable defense"
that the lease under which she held possession had been obtained by fraud, because even
if the tenant established the invalidity of the lease, she would not have been entitled to
retain possession but could only have rescinded and obtained damages. By contrast, in
Johnson v. Chely (1872) 43 Cal. 299, 305, a tenant was permitted to defend an unlawful
detainer action on the ground that the landlord's lease was obtained by fraud, for the
tenant had been in possession prior to the lease and thus by demonstrating its invalidity
would have been entitled to retain possession. (See, e.g., Schubert v. Lowe (1924) 193
Cal. 291, 295-296 [223 P. 550]; Rishwain v. Smith (1947) 77 Cal.App.2d 524, 531-533
[175 P.2d 555]; Gray v. Maier & Zobelein Brewery (1906) 2 Cal.App. 653, 657-658 [84
P. 280].)
Moreover, the Johnson case also demonstrates that the rule permitting defenses that are
relevant to the issue of possession is not limited to "equitable" defenses, but applies
equally to "legal" defenses. In permitting the tenant to set up the defenses of fraud under
the circumstances discussed above, the Johnson court specifically noted that such defense
"wherever set up, is of legal and not of merely equitable cognizance ...." (Italics added.)
(Johnson v. Chely (1872) 43 Cal. 299, 305.) Similarly, the court in Giraud v. Milovich
(1938) 29 Cal.App.2d 543, 547-549 [85 P.2d 182], permitted a tenant in an unlawful
detainer action to raise the legal defense of "partial eviction" which excused the tenant's
nonpayment of rent and precluded the landlord from obtaining possession of the
premises. (See also Skaggs v. Emerson (1875) 50 Cal. 3, 6; cf. Arnold v. Krigbaum
(1915) 169 Cal. 143, 146-147 [146 P. 423].) Indeed several of the early cases from which
the so-called "equitable defense" exception emanated permitted defenses which might
more appropriately be characterized as legal than equitable. (See, e.g., Knight v. Black
(1912) 19 Cal.App. 518, 526 [126 P. 512]; Strom v. Union Oil Co. (1948) 88 Cal.App.2d
78, 81-85 [198 P.2d 347].)
Two of the more recent unlawful detainer cases, Abstract Investment Co. v. Hutchinson
(1962) 204 Cal.App.2d 242 [22 Cal.Rptr. 309] and Schweiger v. Superior Court (1970) 3
Cal.3d 507 [98 Cal.Rptr. 729, 476 P.2d 97], provide perhaps the clearest indication that
the determination of whether a defense may be raised in such a proceeding does not turn
on whether such defense is "equitable" or "legal" in nature, but rather upon whether the
establishment of the defense will preclude the removal of the tenant from the premises. In
Abstract Investment the court permitted a tenant to raise the landlord's alleged racially
discriminatory motive as a defense in an unlawful detainer action. The court reasoned
that if such discrimination were established, constitutional principles would bar the state
from giving affirmative aid to the landlord's eviction efforts; hence, the proffered defense
was directly relevant to whether the tenant could retain possession of the premises.
Although the court noted the "equitable" considerations involved, the tenant's defense, in
light of its constitutional basis, could at least equally be characterized as "legal" in nature.
In Schweiger, following the lead of Abstract Investment, we upheld a tenant's defense to

an unlawful detainer action on the ground that the landlord's attempt to evict a tenant was
in retaliation for his exercise of his right to "repair and deduct" granted by Civil Code
section 1941 et seq. Without specifically labelling this defense as "legal" or "equitable,"
our court recognized that to prevent the emasculation of the "repair and deduct" remedy,
we were compelled to permit such a defense in an unlawful detainer action. (3 Cal.3d at
pp. 513-517.)
FN 20. The traditional "independent covenant" rule only applied to covenants, such as the
covenant to repair buildings, which were "collateral" to the landlord's obligation to
provide land to the tenant; because of the importance of land in early leases, the common
law generally recognized that the tenant's obligation to pay rent was mutually dependent
upon the landlord's fulfillment of his covenant to furnish the land. Thus, if the landlord
deeded away even a small portion of the leased land, the common law considered this a
"partial actual eviction" and relieved the tenant of his rental obligation. (See Giraud v.
Milovich (1938) 29 Cal.App.2d 543, 547-549 [85 P.2d 182].)
FN 21. Our rejection of the "independent covenant" rule in this context was
foreshadowed by the Court of Appeal decision in Groh v. Kover's Bull Pen, Inc. (1963)
221 Cal.App.2d 611 [34 Cal.Rptr. 637]. In Groh, the landlord had covenanted to repair
the roof of a store he rented, but failed to make the repairs. During the rainy season,
severe leaks led the tenant to terminate the lease and sue for the return of his security
deposit. The landlord claimed that his covenant to repair was "independent" of the
tenant's covenant to pay rent, and thus that the tenant could only sue for damages but
could not terminate the lease. The Groh court rejected this contention and found that the
landlord's breach of his duty to repair did release the tenant from his obligations under the
lease because "the covenant undertaken by defendants to repair the roof goes to the very
root of the consideration for the lease." (221 Cal.App.2d at p. 614.)
FN 22. The recent case of Academy Spires, Inc. v. Brown (1970) 111 N.J.Super. 477 [268
A.2d 556] gives a good indication of the general scope of the warranty of habitability. In
that case, a tenant in a multi-story apartment building complained of a series of defects,
including (1) the periodic failure to supply heat and water, (2) the malfunctioning of an
incinerator, (3) the failure in hot water supply, (4) several leaks in the bathroom, (5)
defective venetian blinds, (6) cracks in plaster walls, (7) unpainted condition of walls and
(8) a nonfunctioning elevator. The Academy Spires court held: "Some of these clearly go
to bare living requirements. In a modern society one cannot be expected to live in a
multi-storied apartment building without heat, hot water, garbage disposal or elevator
service. Failure to supply such things is a breach of the implied covenant of habitability.
Malfunction of venetian blinds, water leaks, wall cracks, lack of painting, at least of the
magnitude presented here, go to what may be called 'amenities.' Living with lack of
painting, water leaks and defective venetian blinds may be unpleasant, aesthetically
unsatisfying, but does not come within the category of uninhabitability. Such things will
not be considered in diminution of the rent." (268 A.2d at p. 559.) (See also Gillette v.
Anderson (1972) 4 Ill.App.3d 838 [282 N.E.2d 149] (warranty of habitability breached
by failure to provide adequate bathing facilities).)
FN 23. We also believe that the standards of "tenantability" set out in Civil Code section
1941.1, though not strictly applicable in this context of their own force, may provide
some helpful guidance in determining whether a landlord has satisfied the common law
warranty of habitability.
FN 24. The case of Academy Spires, Inc. v. Brown (1970) 111 N.J.Super. 477 [268 A.2d
556, 561-562] demonstrates one reasonable response to the problem. The Academy
Spires court, after fully acknowledging the difficulty of precisely determining damages
resulting from a landlord's breach of an implied warranty of habitability, assessed
damages by a "percentage reduction of use" approach, under which the court reduced the
tenant's rental obligation by a percentage corresponding to the relative reduction of use of
the leased premises caused by the landlord's breach. In applying this approach, the
Academy Spires court carefully reviewed both the importance of the particular defects in
the premises (including failure to supply heat, hot water, elevator service and a working
incinerator) and the length of time such defects had existed (from one or two days to
several weeks), and finally concluded that under all the circumstances "the diminution in
rent of 25% is a fair amount." (268 A.2d at p. 562.) (See also Samuelson v. Quinones
(1972) 119 N.J.Super. 338 [291 A.2d 580, 583]; Morbeth Realty Corp. v. Rosenshine
(1971) 67 Misc.2d 325 [323 N.Y.S.2d 363, 366-367].)
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Jan. 30, 2001. No. A092451.
 Fairchild v. Park (2001) *

July 19, 2001. No. B133570.
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 __ Cal.App.4th Supp.__
Hyatt v. Tedesco (2002)
Jan. 31, 2002. No. BV23290.
 Cunningham v. Universal Underwriters (2002) *

Apr. 30, 2002. No. D038121.
 Drouet v. Superior Court (Broustis) (2003) *

Aug. 11, 2003. No. S096161.
 Arnold v. California Exposition & State Fair (Capitol Racing, LLC) (2004) *
Dec. 29, 2004. No. C045353.
 Andrews v. Mobile Aire Estates (2005) *

Jan. 4, 2005. No. B166491.
 Underwood v. Corsino (2005) *

Oct. 6, 2005. No. B175020.
 State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (2006) *
Oct. 10, 2006. No. A111643.
 Cequel III Communications I, LLC, v. Local Agency Formation Commission of

Nevada Co. (Truckee Donner Public Utility Dist.) (2007) *
Apr. 3, 2007. No. C052238.
 Drybread v. Chipain Chiropractic Corp. (2007) *
Jun. 6, 2007. No. C053568.
 Drybread v. Chipain Chiropractic Corp. (2007) *

Jun. 12, 2007. No. C053568.

Sep. 19, 2007. No. B193235.

Oct. 10, 2007. No. B193235.
 10 Cal.4th 1185
Peterson v. Superior Court
Aug 21, 1995. No. S029736.
 23 Cal.4th 754
Snukal v. Flightways Manufacturing, Inc. (2000)
Jul 17, 2000. No. S067271.
 31 Cal.4th 583
Drouet v. Superior Court (Broustis) (2003) 31 Cal.4th 583
Aug. 11, 2003. No. S096161.
 10 Cal.App.4th Supp. 1
Salazar v. Maradeaga
Aug 6, 1992. Civ. A. No. BV 19133.
 39 Cal.App.4th 1167
Landeros v. Pankey
Oct 30, 1995. No. B082190.
People v. Superior Court (Jump)
Nov 14, 1995. No. B095107.
Beilenson v. Superior Court
Apr 24, 1996. No. B097615.
 47 Cal.App.4th 1151
In re Daniel M.
Jul 29, 1996. No. B098060.
Haywood v. Superior Court (2000)
Jan. 25, 2000. No. B135613.
Reliance Ins. Co. v. Superior Court (Wells) (2000)
Oct. 25, 2000. No. H020411.
Fairchild v. Park (2001) 90 Cal.App.4th 919
July 19, 2001. No. B133570.
North 7th Street Associates v. Constante (2001) 92 Cal.App.4th Supp. 7
July 17, 2001. No. BV22892.
Hyatt v. Tedesco (2002) 96 Cal.App.4th Supp. 62
Jan. 31, 2002. No. BV23290.
 98 Cal.App.4th 1141
Cunningham v. Universal Underwriters (2002) 98 Cal.App.4th 1141
Apr. 30, 2002. No. D038121.
 125 Cal.App.4th 498

Arnold v. California Exposition and State Fair (Capitol Racing, LLC) (2004) 125
Cal.App.4th 498
Dec. 29, 2004. No. C045353.
 125 Cal.App.4th 578

Andrews v. Mobile Aire Estates (2005) 125 Cal.App.4th 578
Jan. 4, 2005. No. B166491.
 133 Cal.App.4th 132

Underwood v. Corsino (2005) 133 Cal.App.4th 132
Oct. 6, 2005. No. B175020.
 143 Cal.App.4th 1098

State Farm General Ins. Co. v. Wells Fargo Bank (2006) 143 Cal.App.4th 1098
Oct. 10, 2006. No. A111643.
 149 Cal.App.4th 310

Cequel III Communications I, LLC v. Local Agency Formation Com. of Nevada
County (Truckee Donner Public Utility Dist.) (2007) 149 Cal.App.4th 310
Apr. 3, 2007. No. C052238.
 151 Cal.App.4th 1063
Drybread v. Chipain Chiropractic Corp. (2007) 151 Cal.App.4th 1063
Jun. 6, 2007. No. C053568.
 155 Cal.App.4th 425

Lincoln Place Tenants Assn. v. City of Los Angeles (2007) 155 Cal.App.4th 425
Sep. 19, 2007. No. B193235.
 12 Cal.3d 374
Pollard v. Saxe & Yolles Dev. Co.
August 20, 1974. S.F. No. 23029.
 17 Cal.3d 129
Birkenfeld v. City of Berkeley
June 16, 1976. S.F. No. 23370.
 17 Cal.3d 719
S.P. Growers Assn. v. Rodriguez
August 10, 1976. L.A. No. 30595.
 20 Cal.3d 251
Vella v. Hudgins
December 8, 1977. L.A. No. 30779.
 20 Cal.3d 512
Henrioulle v. Marin Ventures, Inc.
January 19, 1978. S. F. No. 23619.
 20 Cal.3d 578
American Motorcycle Assn. v. Superior Court
February 9, 1978. L.A. No. 30737.
 21 Cal.3d 181
Jara v. Municipal Court
May 2, 1978. L.A. No. 30788.
 22 Cal.3d 388
Hale v. Morgan
September 28, 1978. S.F. No. 23641.
 22 Cal.3d 902
Vargas v. Municipal Court
December 21, 1978. L.A. No. 30732.
 29 Cal.3d 46
Knight v. Hallsthammar
February 13, 1981. L.A. No. 31235.
 30 Cal.3d 244
Barela v. Superior Court
November 27, 1981. L.A. No. 31444.
 30 Cal.3d 721
Marina Point, Ltd. v. Wolfson
February 8, 1982. L.A. No. 31199.
 36 Cal.3d 291
Davies v. Superior Court
July 2, 1984. S.F. No. 24625.
 38 Cal.3d 454
Becker v. IRM Corp.
April 29, 1985. S.F. No. 24618.
 38 Cal.3d 564
County Sanitation Dist. No. 2 v. Los Angeles County Employees' Assn.
May 13, 1985. L.A. No. 31850.
 38 Cal.3d 824
E. S. Bills, Inc. v. Tzucanow
June 24, 1985. L.A. No. 31839.
 40 Cal.3d 488
Kendall v. Ernest Pestana, Inc.
December 5, 1985. S.F. No. 24851.
 50 Cal.3d 448
Estate of Propst
Apr 2, 1990. No. S006951.
Appel v. Beyer
May 6, 1974. Civ. A. No. 13237.
 42 Cal.App.3d 496
Paramount Gen. Hosp. Co. v. National Medical Enterprises, Inc.
October 15, 1974. Civ. No. 42549.
 48 Cal.App.3d 841
Petroleum Collections Inc. v. Swords
June 4, 1975. Civ. No. 2079.
 55 Cal.App.3d 131
Guntert v. City of Stockton
January 12, 1976. Civ. No. 14752.
 55 Cal.App.3d 948
Golden v. Conway
March 1, 1976. Civ. No. 33680.
 68 Cal.App.3d 329
Clark v. Patterson
March 23, 1977. Civ. No. 39469.
 70 Cal.App.3d 742
Vasey v. California Dance Co.
June 15, 1977. Civ. Nos. 48339, 49044.
Quevedo v. Braga
July 1, 1977. Civ. A. No. 13901.
 73 Cal.App.3d 410
 76 Cal.App.3d 956
Mobil Oil Corp. v. Handley
Jan. 19, 1978. Civ. No. 51036.
 79 Cal.App.3d 486
Mobil Oil Corp. v. Superior Court
March 8, 1978. Civ. No. 52585.
 81 Cal.App.3d 604
Four Seas Inv. Corp. v. International Hotel Tenants' Assn.
June 6, 1978. Civ. No. 41054.
 85 Cal.App.3d 981
Werschkull v. United California Bank
Oct. 30, 1978. Civ. No. 40491.
Secretary of Housing & Urban Dev. v. Layfield
Dec. 7, 1978. Civ. A No. 14028.
Castle Park No. 5 v. Katherine
Feb. 14, 1979. Civ. A. N. 14258.
 92 Cal.App.3d 302
Kriz v. Taylor
Apr. 25, 1979. Civ. No. 55162.
Strickland v. Becks
July 19, 1979. Civ. A. No. 14374.
 98 Cal.App.3d 638
De La Vara v. Municipal Court
November 13, 1979. Civ. No. 56401.
Lee v. Vignoli
August 16, 1979. Civ. A. No. 144417.
 101 Cal.App.3d 903

STOIBER v. HONEYCHUCK
February 5, 1980. Civ. No. 4001.
 102 Cal.App.3d 164

DAVIS v. SUPERIOR COURT
February 15, 1980. Civ. No. 48456.
 108 Cal.App.3d 552

SCHULMAN v. VERA
July 24, 1980. Civ. No. 20698.

CAZARES v. ORTIZ
July 14, 1980. Civ. A. No. 150119.
 116 Cal.App.3d 633

BUTLER v. COUNTY OF LOS ANGELES
March 9, 1981. Civ. No. 59372.
 119 Cal.App.3d 670
LAGUNA ROYALE OWNERS ASSN. v. DARGER
May 28, 1981. Civ. No. 21950.
 120 Cal.App.3d 101

SMITH v. DAVID
March 23, 1981. Civ. No. 4302.

KARZ v. MECHAM
April 16, 1981. Civ. A. No. 14698.

KEMP v. SCHULTZ
May 29, 1981. Civ. A. No. 134236.
 128 Cal.App.3d 403

MENDOZA v. COUNTY OF TULARE
January 5, 1982. Civ. No. 4905.
 138 Cal.App.3d 90
CUSTOM PARKING, INC. v. SUPERIOR COURT (MacANNAN)
December 14, 1982. No. A019092.
 138 Cal.App.3d 256

MOBIL OIL CORP. v. ROSSI
December 17, 1982. Civ. No. 24670.
 140 Cal.App.3d 236

February 10, 1983. Civ. No. 67447.

PEOPLE v. LITTLE
April 12, 1983. Crim. No. 19810.
 147 Cal.App.3d 81
RUE-ELL ENTERPRISES, INC. v. CITY OF BERKELEY
 148 Cal.App.3d 654

FISH CONSTRUCTION CO. v. MOSELLE COACH WORKS, INC.
November 2, 1983. Civ. No. 69006.
 153 Cal.App.3d 858
PENNER v. FALK
March 28, 1984. Civ. No. 69318.

DEPARTMENT OF TRANSPORTATION v. KERRIGAN
February 21, 1984. Civ. A. No. 1290.
 157 Cal.App.3d 991

DEAL v. MUNICIPAL COURT
June 28, 1984. Civ. No. 69418.
 162 Cal.App.3d 1259

MALDONADO v. SUPERIOR COURT
December 21, 1984. No. A024351.
 163 Cal.App.3d 989

MASON v. SUPERIOR COURT
January 22, 1985. No. E001353.
 166 Cal.App.3d 18
BRUCE v. CITY OF ALAMEDA
March 26, 1985. No. A023366.
 169 Cal.App.3d 509

SABERI v. BAKHTIARI
June 21, 1985. No. A018846.
 175 Cal.App.3d 289

BUENA VISTA GARDENS APARTMENTS ASSN. v. CITY OF SAN DIEGO
PLANNING DEPT.
December 5, 1985. No. D001376.
 181 Cal.App.3d 1148

BALASSY v. SUPERIOR COURT
June 3, 1986. No. B017141.
 184 Cal.App.3d 642

ADLER v. ELPHICK
August 20, 1986. No. A033782.
 184 Cal.App.3d 1089

MURO v. SUPERIOR COURT
August 26, 1986. No. B019073.
 189 Cal.App.3d 809
CARNATION CO. v. OLIVET EGG RANCH
August 20, 1986. No. A010176.

Park Magnolia v. Fields
February 25, 1987. Civ. A. No. 17052.
 194 Cal.App.3d 460

August 26, 1987. No. A035522.
 195 Cal.App.3d 1032

October 29, 1987. No. A025611.
 207 Cal.App.3d 719

Schraer v. Berkeley Property Owners' Assn.
January 30, 1989. No. A030366.
 215 Cal.App.3d 457

Minelian v. Manzella
November 8, 1989. No. B043724.
 219 Cal.App.3d 1359

Bruno v. Superior Court
Apr 30, 1990. No. A048089.
Knowles v. Robinson , 60 Cal.2d 620

[L.A. Nos. 26821, 26977.
In Bank.
Dec. 31, 1963.]
ELMA MATTIE KNOWLES, Plaintiff and Respondent, v. JAMES E. ROBINSON et al.,

Defendants, Cross-complainants and Appellants; R. B. SHANE et al., Cross-defendants
and Respondents.
COUNSEL
Vizzard, Baker, Sullivan & McFarland and Allan H. McFarland for Defendants, Cross-
complainants and Appellants.
Borton, Petrini, Conron, Brown & Condley and George A. Brown for Plaintiff and
Respondent and Cross-defendants and Respondents.
OPINION
PEEK, J.
Consolidated appeals have been taken by defendants James E. and Ruby Robinson in this
unlawful detainer action, the first from an order striking their cross-complaint, and the
second from the judgment for plaintiff on the merits.
For many years plaintiff's deceased husband and James Robinson, as partners, engaged in
farming on property located in Kern County. During these years the Robinsons resided on
the premises and operated and managed the partnership farming activities.plaintiff's
husband either owned or leased from others the lands so utilized. After her husband's
death plaintiff entered into a similar partnership agreement with Robinson. Subsequently
this arrangement was discarded and plaintiff leased the farmlands, including the dwelling,
to Robinson. Thereafter, and proceeding in accordance with the lease, plaintiff notified
Robinson of the termination of the lease as of December 31, 1961. Robinson refused to
vacate the premises and the present proceedings in unlawful detainer were instituted by
plaintiff on January 8, 1962.
In order to better understand and resolve the various contentions [60 Cal.2d 622] made
by defendants we have set forth at length the proceedings taken by the parties prior to
trial.
On January 22 defendants' demurrer to plaintiff's complaint was overruled.
On January 25, within the time allowed by the order overruling the demurrer, defendants
filed their answer and a cross-complaint. By their answer defendants denied generally all
of the allegations of plaintiff's complaint. By their cross-complaint they sought to bring in
new parties who were alleged to have conspired with plaintiff to deprive defendants of
certain alleged rights under the partnership agreement and thus to fraudulently induce
defendants to enter into the lease.
On the following day, January 26, plaintiff filed a notice of motion to strike defendants'
cross-complaint and the matter was set for hearing on Monday, February 5.
On Friday, February 2, defendants filed a document entitled "first amended cross-

complaint" alleging substantially the same matters as were set forth in their original
cross-complaint.
On February 5 plaintiff filed a notice of motion to strike defendants' amended cross-

complaint and requested an order shortening time for hearing the motion.
On February 9 plaintiff's motion to strike defendants' original cross- complaint was

granted.
On February 19 plaintiff's motion to advance the case and for special setting for trial was
granted. It was further ordered that no pretrial conference was required.
On February 21 plaintiff's motion to strike defendants' amended cross- complaint was

granted and judgment was entered for the cross-defendant as to the cross-complaint.
On February 23 defendants' counsel requested a pretrial conference. In his affidavit he

stated that two days were necessary for trial and requested that the matter be heard before
a jury.
On February 26 defendants' appeal from the judgment on the cross-complaint was filed.
On March 2 the matter was set for pretrial on April 19 at 9:30 a.m. and for trial on the
merits at 10 a.m. on the same day. Defendants' application for supersedeas was denied by
the District Court of Appeal and the matter proceeded to pretrial.
At the outset of the pretrial conference on April 19 (seven [60 Cal.2d 623] weeks after
the setting for pretrial) defendants filed their pretrial statement. In that statement it was
contended in part as follows: "The defendants, by way of affirmative defense in this
matter and to deny the title of the plaintiff in said land, filed a document entitled 'cross-
complaint'. ... It is the defendants' contention that this cross- complaint can equally be
called a cross-complaint, counterclaim or affirmative defense, but is properly before the
Court, and the defendants wish to re-amend their answer and incorporate an affirmative
defense therein showing that plaintiff has no right, title, and interest in and to the
premises on which the house is situated and which is the subject of litigation herein.
Defendants at the pretrial hearing ask leave of court to amend their answer and insert said
affirmative defense which is, in substance, the same cross-complaint which has been
dismissed herein by the Court." (Italics added.) It was further stated that "Defendants did
not complete the deposition of the defendant James E. Robinson in this case until April 3,
1962 and said depositions were not completed and typed until April 10, 1962 ... in the
taking of said deposition of the defendant, it developed, that there are various written
documents consisting of either contracts or codicils with reference to the property in
question which have been prepared by and under the direction of plaintiff, and defendants
desire leave to take depositions of several other parties who, it developed, had
considerable knowledge about the facts of this case in question ... defendants ask
continuance of this matter for sufficient time to complete discovery proceedings in said
matter."
Defendants further demanded a jury trial, and stated again that the trial would take two
days. Demand was also made for strict compliance with all pretrial rules. Finally it was
requested that the matter be continued until defendants' appeal from the order striking
their cross-complaint could be concluded.
In answer to defendants' statement counsel for plaintiff replied "Now, let me say this: He
has asked for leave; one of the things, he comes in with a pretrial motion, and he has
known about this for six weeks. He could have made a motion and got to file this
amended answer and I wouldn't have objected to it. It is a statutory rule that at the pretrial
conference the court without prior notice of motion to amend an answer doesn't have the
authority ipso facto to amend the thing. However, I am anxious to get this thing to trial,
your [60 Cal.2d 624] Honor, and if the court wants to consider the allegations of his
cross-complaint as an affirmative defense to this complaint I am willing to stipulate that
the court may so consider them today, waiving any requirement that a notice of motion be
filed or anything else, so that as to the cross-complaint from which he has appealed, if he
wants to say, 'Well, we will consider that to be in this case an affirmative defense,' I am
willing to stipulate it may be so considered, your Honor." (Italics added.)
The record of the pretrial conference reveals that the court in attempting to resolve the
issues was laboring vainly in a climate not at all conducive to the results desired. The
difficulties are well illustrated by the resigned but hopeful expression of the court that
some portion of counsels' statements might "refer to our issues here." Finally, after
discussions extending over nearly 40 pages of transcript and during which the trial court
attempted as best it could to define the issues to be tried, it concluded the conference with
the comment: "I think any person consulting this record would be inclined to consider
that we have engaged in pretrial in that we have been over the position of both sides, and
the court sees nothing that would be gained by any further delay in getting to an issue on
this original lawsuit."
The same atmosphere was carried over into the trial on the merits, which immediately
followed the conference. Here again an examination of the transcript of the two days of
trial more than confirms the trial court's observation that this was a case that could have
been tried in twenty minutes. The transcript is replete with constant bickering and
attempts by defendants' counsel to inject matters wholly outside the issues involved and
which were more properly matters to be determined in an action for an accounting of the
partnership, previously instituted by defendants against plaintiff.
At the conclusion of the trial during which evidence was offered and received on all
issues framed by the complaint, the answer, the cross- complaint and the answer thereto,
the court made findings that "defendants waived a trial by jury upon their failure to post a
fee within the time required by law. ... The parties suffered no prejudice by reason of
failure to prepare a formal pretrial order or failure to comply with other requirements of
the pretrial rules, if there was any such failure; that this cause in fact should have taken
two hours or less to try ...." Based on these and other [60 Cal.2d 625] findings going to
the merits and supported by substantial evidence the court concluded that the lease under
which the defendants were in possession of the premises was lawfully terminated on the
31st day of December 1961; that no misrepresentations were made to, nor fraud practiced
upon the defendants in procuring the lease or otherwise; and that the defendants were
guilty of unlawful detainer of the premises described in the complaint. Judgment was
entered for plaintiff, restoring possession of the premises to her, and awarding the sum of
$325 for unlawful detention of the premises at the rate of $2.50 per day since the 31st day
of December 1961.
[1a] Defendants' appeal from the order striking their cross- complaint must be determined
pursuant to the well established rule that where an objection is interposed in an action for
unlawful detainer, no cross- complaint or counterclaim may survive. [2] The remedy of
unlawful detainer is designed to provide means by which the timely possession of
premises which are wrongfully withheld may be secured to the person entitled thereto.
The summary character of the action would be defeated if, by cross- complaint or
counterclaim, issues irrelevant to the right of immediate possession could be introduced.
[3] Thus in Lakeside Park Assn. v. Keithly, 43 Cal.App.2d 418 [110 P.2d 1055], the court
held as follows: "The rule is firmly established in California that neither a cross-
complaint nor a counterclaim may be properly filed in a suit for unlawful detention of
property, even though the alleged cause therein contained grows out of the subject matter
involved in the original suit. (Schubert v. Lowe, 193 Cal. 291 [233 P. 550]; Knight v.
Black, 19 Cal.App. 518, 527 [126 P. 512]; Rydell v. Beverly Hills Pr. & Pub. Co., 88
Cal.App. 216 [262 P. 818]; 15 Cal.Jur. § 292, p. 865.) The reason for this rule is that the
statute provides for the action of unlawful detainer as a summary proceedings, to secure
possession of premises which are wrongfully withheld from the owner, and that the
injecting of other issues extrinsic to the right of possession may defeat the very purpose
of the statute." (P. 422.)
[1b] Exceptions to the foregoing rule are primarily grounded upon some circumstance
which removes the need of a timely repossession of the premises in question, such as
where a defendant has voluntarily surrendered possession prior to the joining of issues of
fact, and the question of possession has thus been removed. (Servais v. Klein, 112
Cal.App. 26, 33-34 [296 P. 123]; Heller v. Melliday, 60 Cal.App. [60 Cal.2d 626] 2d 689
[141 P.2d 447].) A further exception is suggested by defendants, that is when, as here, it is
alleged by cross-complaint that where one, while lawfully in possession pursuant to a life
estate granted by parol under a preexisting partnership agreement, is fraudulently induced
to enter into a lease upon which the unlawful detainer action is predicated, he is likewise
entitled to his cross-complaint.
It is true that the cases relied upon by defendants in support of such contention relate to
an exception but it is an exception to a different although similar rule. The rule is that
which prevents a tenant from denying the title of his landlord when in possession under a
lease, and the exception permits a denial of the title where the tenant did not take original
possession under the lease but while otherwise in lawful possession was fraudulently
induced to take the lease. In other words when a landlord seeks to bring an action in
unlawful detainer for violation of the terms of the lease the tenant may defend on the
ground that because of the fraud his possession is not under the lease. If such fraud can be
shown the landlord- tenant relationship is nonexistent and the tenant is not estopped to
deny the landlord's title. (See D'Amico v. Riedel, 95 Cal.App.2d 6, 9 [212 P.2d 52]; Smith
v. Whyers, 64 Cal.App. 193, 194-195 [221 P. 387].) The exception, then, is one which is
claimed to permit a defense not otherwise available to be raised in an unlawful detainer
action. But none of the cases hold that a defendant may seek affirmative relief, or bring in
other parties as defendants seek to do here, by a cross-complaint. It is manifest in the
instant case that, unlike the circumstances wherein a defendant is out of possession and is
held to be entitled to his cross-complaint, the purpose in providing a summary proceeding
for an unlawful detainer action continues to exist and such purpose would be frustrated if
a cross-complaint were held to lie.
Defendants further rely on cases involving actions in ejectment, but again such actions
are not summary proceedings and therefore are not persuasive. (Pacific Mut. Life Ins. Co.
v. Stroup, 63 Cal. 150; Franklin v. Merida, 35 Cal. 558 [95 Am. Dec. 129]; Tewksbury v.
Magraff, 33 Cal. 237; Caldwell v. Center, 30 Cal. 539 [89 Am. Dec. 131].) In only one of
such cases was there a cross-complaint filed and in that case no issue was raised, either
by motion to strike or otherwise, as to the propriety of the cross-complaint. (Baldwin v.
Temple, 101 Cal. 396 [35 P. 1008].) In Smith v. Whyers, [60 Cal.2d 627] supra, 64
Cal.App. 193, the court affirmed a judgment striking a cross-complaint and a
counterclaim in an unlawful detainer action. In D'Amico v. Riedel, supra, 95 Cal.App.2d
6, the court affirmed a judgment for plaintiff in an unlawful detainer action wherein an
affirmative defense sounding in fraud was stricken from the answer. In Kearney Inv. Co.
v. Golden Gate Ferry Co., 198 Cal. 560 [246 P. 322], a cross-complaint was filed and
considered but the action was one for the recovery of rents and not for unlawful detainer.
Nor are defendants entitled to rely upon cases such as Garfinkle v. Montgomery, 113
Cal.App.2d 149 [248 P.2d 52], where a plaintiff failed to make a timely objection to a
cross- complaint in an action similar to the instant one, and the cross-complaint was
adjudicated. Here objections were timely made by plaintiff. Hence defendants' reliance
on the foregoing and other similar cases is misplaced, and the motion to strike the cross-
complaint was properly granted.
[4a] In their appeal from the judgment on the merits, defendants claim that the trial court,
by its failure to comply with the California Rules of Court pertaining to pretrial
conference procedure (see Cal. Rules of Court, rules 208-222), fn. 1 committed
prejudicial error. Plaintiff, while apparently conceding that there were technical violations
of the pretrial rules, contends that defendants were not prejudiced thereby.
It must be conceded that there were substantial violations of the rules relating to pretrial
procedures.plaintiff failed to file a separate written statement of the factual and legal
issues involved in the litigation prior to or at the time of the pretrial conference, as
required where the parties do not prepare and file a joint statement. (Rule 210.) The rules
also require that a judge prepare and file with the clerk a written pretrial conference order
at, or within five days after a pretrial conference, and that the order shall be served upon
all attorneys to the action who may, within five days, request modifications or corrections
to the order. (Rule 214.) If such a request is denied, notice must be sent to each counsel.
(Rule 215.) Particularly pertinent to the instant proceedings [60 Cal.2d 628] is rule 220
which provides that no case shall be set for trial before the filing of a pretrial order.
[5] The foregoing rules are mandatory and the failure to comply therewith constitutes
error. But the failure to comply raises no jurisdictional issue and the error must be
demonstrated to be prejudicial before relief can be afforded. (American Home Assur. Co.
v. Essy, 179 Cal.App.2d 19 [3 Cal.Rptr. 586].)
[4b] The determinative issue herein is whether the trial court's departure from the strict
rules of procedure resulted in a miscarriage of justice. We can well imagine
circumstances wherein a course of conduct pursued by a court, however provoked it may
have been by counsel's tactics, would have severely prejudiced a litigant. But such is not
the present case. [6] Even gross departures from the rules are not, as a matter of law,
reversible. The complete lack of a pretrial conference has been held to not necessarily
constitute prejudicial error. (American Home Assur. Co. v. Essy, supra, 179 Cal.App.2d
19; see also Windiate v. Moore, 201 Cal.App.2d 509, 517 [19 Cal.Rptr. 860]; 49
Cal.L.Rev. 909, 910.)
[4c] The precise prejudice which defendants claim to have suffered is not readily
apparent. They assert that it relates to their failure to be given an opportunity to properly
plead, as an affirmative defense, the matters stated in the stricken cross-complaint. As
hereinbefore set out this was the primary matter of discussion throughout the pretrial
conference. During the trial the following statement was made by counsel for plaintiff:
"May I say further, however, even though [defendants' counsel] has not filed an
amendment to his answer setting up any affirmative defenses to this complaint, I
stipulated and will stipulate at this time, and stipulated at the pretrial conference, and I
presume that your Honor granted this stipulation, that the allegations of this cross-
complaint insofar as they are pertinent can be considered as an affirmative defense to the
complaint, and that is the maximum relief that he could obtain on appeal. ..." The court
then responded: "I understood he has the benefit of those stipulations." When counsel for
defendants was given an opportunity to speak, he stated: "As to the stipulation the
defendants cannot agree to any stipulation at this time without seeing what the stipulation
will provide or agree to in the pretrial order." Of course plaintiff's action may not be
deemed a true stipulation but rather a concession offered defendants that, as requested,
their answer could be amended to [60 Cal.2d 629] include, as an affirmative defense, the
matters alleged in their cross-complaint.
In spite of the claimed right to amend their answer in the manner and form most
advantageous to them, defendants have not, at any time, set forth the claimed affirmative
defense in any sufficient detail to permit evaluating it on its merits. They do not attempt
to demonstrate the manner in which they would have amended the answer other than as
requested in their original statement, had they been given an opportunity to do so
pursuant to a proper pretrial order. In fact, although some six weeks had elapsed between
the setting of the pretrial conference and the conference itself, defendants asked for
another continuance and for permission to amend without offering the form of the
amendment. The nature of the action was unlawful detainer--a summary proceeding
which then had been pending for three and a half months following the filing of the
complaint. The delays were attributable in the main to time consumed by defendants in
attempting to assert the aforementioned cross-complaint, to take an appeal from the
proper dismissal of the cross-complaint, and to make application for a writ of
supersedeas. Moreover, as far as appears, the trial was had on all issues including the
matters asserted in the stricken cross-complaint or any amendment to the answer which
defendants might have offered. As previously noted, counsel for plaintiff, in response to
defendants' request, conceded that without procedural formalities the court could consider
"the allegations of the cross-complaint as an affirmative defense," and it appears that the
court did take such matters into consideration in making its findings of fact and
conclusions of law. What new or different facts might have been put into evidence, what
different issues might have been properly before the court, and what different results
reasonably might have been expected, do not appear.
Other prejudice which defendants urge is that they intended to seek a jury trial as to some
issues, but that the manner in which the pretrial conference and trial were conducted
prevented a proper application. Defendants were aware of the scheduling some six weeks
before these events, and although they made application for a jury no fees therefore were
posted and trial proceeded without jury for that reason only.
Defendants also claim that depositions were completed only a few days before the
scheduled pretrial conference, and [60 Cal.2d 630] that new matters brought out in the
depositions required additional study, evaluation and research before trial; that they were
prevented from so doing by the fact that trial proceeded immediately after pretrial. But
the only deposition involved was that of the defendant James Robinson, which deposition
was taken not by defendants' counsel but by plaintiff's counsel. What new matters were,
for the first time, made known to defendants by plaintiff's examination of one of the
defendants does not appear, nor is prejudice apparent.
While the trial court unquestionably failed to comply with the pretrial conference rules,
fn. 2 defendants have completely failed to demonstrate that such a miscarriage of justice,
if any, has resulted therefrom as would avoid the application of section 4 1/2 of article VI
of the Constitution.
The judgment and order are affirmed.
Gibson, C. J., Traynor, J., Schauer, J., McComb, J., Peters, J., and Tobriner, J., concurred.
FN 1. The pretrial rules made reference to herein are those in existence at the time of the
instant proceedings. Effective January 1, 1963, certain of these rules have been amended,
as will hereinafter appear.
FN 2. Parenthetically, it might be noted herein that by amendment to the California Rules

of Court effective January 1, 1963, pretrial conferences are no longer mandatory in every
case. Rule 208 provides that a pretrial conference "shall be held in every civil case in
which a memorandum to set is filed, except cases set for trial under rules 221 and 222."
Rule 221† sets forth certain exemptions from the application of pretrial conference rules,
including "Every case in which the time estimated for trial is one day or less." Rule 222
provides for an order dispensing with pretrial conference and the pretrial order in a case
where the judge "is satisfied that a pretrial conference and pretrial order are not
necessary," upon the filing of a joint statement by the parties. In the instant case, under
the new rules, the trial court may have been justified in concluding this to be an exempt
case in view of his estimated time for trial.presumably defendants' counsel would not
have joined in the statement which would have permitted the trial court to make an order
dispensing with pretrial under rule 222.
California Code Of Civil Procedure

Section 387
California Code Of Civil Procedure Section 387;
(a) Upon timely application, any person, who has an interest

in the matter in litigation, or in the success of either of the
parties, or an interest against both, may intervene in the action or
proceeding. An intervention takes place when a third person is
permitted to become a party to an action or proceeding between other
persons, either by joining the plaintiff in claiming what is sought
by the complaint, or by uniting with the defendant in resisting the
claims of the plaintiff, or by demanding anything adversely to both
the plaintiff and the defendant, and is made by complaint, setting
forth the grounds upon which the intervention rests, filed by leave
of the court and served upon the parties to the action or proceeding
who have not appeared in the same manner as upon the commencement of
an original action, and upon the attorneys of the parties who have
appeared, or upon the party if he has appeared without an attorney,
in the manner provided for service of summons or in the manner
provided by Chapter 5 (commencing with Section 1010) Title 14 of Part
2. A party served with a complaint in intervention may within 30
days after service move, demur, or otherwise plead to the complaint
in the same manner as to an original complaint.
(b) If any provision of law confers an unconditional right to
intervene or if the person seeking intervention claims an interest
relating to the property to transaction which is the subject of the
action and that person is so situated that the disposition of the
action may as a practical matter impair or impede that person's
ability to protect that interest, unless that person's interest is
adequately represented by existing parties, the court shall, upon
timely application, permit that person to intervene.

SECTION 378-384
378. (a) All persons may join in one action as plaintiffs if:
(1) They assert any right to relief jointly, severally, or in the
alternative, in respect of or arising out of the same transaction,
occurrence, or series of transactions or occurrences and if any
question of law or fact common to all these persons will arise in the
action; or
(2) They have a claim, right, or interest adverse to the defendant
in the property or controversy which is the subject of the action.
(b) It is not necessary that each plaintiff be interested as to
every cause of action or as to all relief prayed for. Judgment may
be given for one or more of the plaintiffs according to their
respective right to relief.
379. (a) All persons may be joined in one action as defendants if

there is asserted against them:
(1) Any right to relief jointly, severally, or in the alternative,
in respect of or arising out of the same transaction, occurrence, or
series of transactions or occurrences and if any question of law or
fact common to all these persons will arise in the action; or
(2) A claim, right, or interest adverse to them in the property or
controversy which is the subject of the action.
(b) It is not necessary that each defendant be interested as to
every cause of action or as to all relief prayed for. Judgment may
be given against one or more defendants according to their respective
liabilities.
(c) Where the plaintiff is in doubt as to the person from whom he
or she is entitled to redress, he or she may join two or more
defendants, with the intent that the question as to which, if any, of
the defendants is liable, and to what extent, may be determined
between the parties.
379.5. When parties have been joined under Section 378 or 379, the
court may make such orders as may appear just to prevent any party
from being embarrassed, delayed, or put to undue expense, and may
order separate trials or make such other order as the interests of
justice may require.
382. If the consent of any one who should have been joined as
plaintiff cannot be obtained, he may be made a defendant, the reason
thereof being stated in the complaint; and when the question is one
of a common or general interest, of many persons, or when the parties
are numerous, and it is impracticable to bring them all before the
court, one or more may sue or defend for the benefit of all.
384. (a) It is the intent of the Legislature in enacting this

section to ensure that the unpaid residuals in class action
litigation are distributed, to the extent possible, in a manner
designed either to further the purposes of the underlying causes of
action, or to promote justice for all Californians. The Legislature
finds that the use of funds collected by the State Bar pursuant to
this section for these purposes is in the public interest, is a
proper use of the funds, and is consistent with essential public and
governmental purposes.
(b) Except as provided in subdivision (c), prior to the entry of
any judgment in a class action established pursuant to Section 382,
the court shall determine the total amount that will be payable to
all class members, if all class members are paid the amount to which
they are entitled pursuant to the judgment. The court shall also set
a date when the parties shall report to the court the total amount
that was actually paid to the class members. After the report is
received, the court shall amend the judgment to direct the defendant
to pay the sum of the unpaid residue, plus interest on that sum at
the legal rate of interest from the date of entry of the initial
judgment, to nonprofit organizations or foundations to support
projects that will benefit the class or similarly situated persons,
or that promote the law consistent with the objectives and purposes
of the underlying cause of action, to child advocacy programs, or to
nonprofit organizations providing civil legal services to the
indigent. The court shall ensure that the distribution of any unpaid
residual derived from multistate or national cases brought under
California law shall provide substantial or commensurate benefit to
California consumers.
(c) This section shall not apply to any class action brought
against any public entity, as defined in Section 811.2 of the
Government Code, or against any public employee, as defined in
Section 811.4 of the Government Code. However, this section shall not
be construed to abrogate any equitable cy pres remedy which may be
available in any class action with regard to all or part of the
residue.

Key Research For Stars Motion To Vacate Judgment2

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KEY RESEARCH FOR STARS MOTION TO VACATE JUDGMENT, ETC

Penzner v. Foster, 170 Cal.App.2d 106

WILLIAM L. PENZNER et al., Appellants, v. BESS FOSTER et al., Defendants; VAN

John Amos Fleming and Theodore R. Gabrielson for Appellants.

STONE, J. pro tem. fn. *

This is an appeal from a judgment in an action brought by appellants to quiet title

Griffin, P. J., and Mussell, J., concurred.

FN *. Assigned by Chairman of Judicial Council.

Cases Citing Penzner v. Foster, 170 Cal.App.2d 106

[Civ. No. 5693. Fourth Dist. May 1, 1959.]

 228 Cal.App.2d 605

New York Life Insurance Co. v. Doane, 13 Cal.App.2d

Randall & Bartlett for Appellant.

Kibbey, Cooper & Dulin and Walter B. Kibbey for Respondent.

Wood, J., and McComb, J., pro tem., concurred.

Loretz v. Cal-Coast Dev. Corp., 249 Cal.App.2d 176

EDWARD J. LORETZ et al., Plaintiffs and Respondents, v. CAL-COAST

E. C. Mahoney for Plaintiffs and Respondents.

Rattigan, J., and Christian, J., concurred.

Aviel v. Ng (2008) , Cal.App.4th

SIMON DAVID AVIEL et al., Plaintiffs, Cross-defendants and Respondents, v.

Patrick T. Galligan, for Appellants.

REARDON, ACTING P.J.-

A. The Lease Was Forfeited

Some basic terminology is in order. A "mortgage" is "a contract by which specific

2. The Ngs Attempt to Draw Distinctions Which Are Meaningless

B. The Court Properly Awarded Damages for Lost Rent

The judgment is affirmed in its entirety.

Sepulveda, J., and Rivera, J., concurred.

FN 4. The running of the statute of limitations on an obligation underlying a mortgage or

Elmore Jameson Co. v. Smith, 34 Cal.App.2d 609

ELMORE JAMESON COMPANY (a Corporation), Appellant, v. LESLIE SMITH et al.,

[Civ. No. 2341. Fourth Appellate District. September 20, 1939.]

ELMORE JAMESON COMPANY (a Corporation), Respondent, v. LESLIE SMITH et

[Civ. No. 2342. Fourth Appellate District. September 20, 1939.]

ELMORE JAMESON COMPANY (a Corporation), Respondent, v. LESLIE SMITH et

S. P. Williams for Appellant Elmore Jameson Company.

Marks, Acting P. J., concurred.

Cases Citing Elmore Jameson Co. v. Smith, 34 Cal.App.2d 609

[Civ. No. 2332. Fourth Appellate District. September 20, 1939.]:

 242 Cal.App.2d 427

Central Nat. Bank v. Bell, 5 Cal.2d 324

CENTRAL NATIONAL BANK OF OAKLAND (a National Banking Association),

Fitzgerald, Abbott & Beardsley and Charles A. Beardsley for Respondent.

The judgment is affirmed.

Cases Citing Central Nat. Bank v. Bell, 5 Cal.2d 324

 230 Cal.App.3d 424

 104 Cal.App.2d 536

 131 Cal.App.2d 208

 144 Cal.App.2d 578

 152 Cal.App.2d 200

 152 Cal.App.2d 448

 159 Cal.App.2d 649

 230 Cal.App.2d 264

Rowan v. Pedrotti, 138 Cal.App.2d 647

MARY ELLEN ROWAN, Appellant, v. ANGELO PEDROTTI, Respondent.

Lounibos & Lounibos for Respondent. [138 Cal.App.2d 648]

The judgment is affirmed.

Peek, J., and Schottky, J., concurred.

Kleckner v. Bank of America, 97 Cal.App.2d 30

LEONARD KLECKNER, Appellant, v. BANK OF AMERICA NATIONAL TRUST &

Laurence J. Rittenband and Jack Gold for Appellant.

The judgment is affirmed.