Opinion
NOT TO BE PUBLISHED
APPEALS from a judgment of the Superior Court of San Diego County No. GIC827498, Linda B. Quinn, Judge.
AARON, J.
I
INTRODUCTION
The appeals in the above-captioned case arise out of litigation instituted by plaintiffs Hardage Hotels X, LLC, successor in interest to Hardage Hotels III, LLC (Hotels), and Hardage Construction Corporation (Construction), against defendant First Co., in connection with leakage and other problems resulting from installation of heating, ventilating, and air conditioning (HVAC) units manufactured by First Co. in a newly-constructed hotel built by Construction and owned by Hotels. The plaintiffs claimed that the leaking HVAC units stained the exterior of the hotel and caused mold growth. The plaintiffs also sued, and eventually settled with, the air conditioning company that installed the HVAC units. First Co. cross-complained for equitable indemnity against the plumbing company that was involved in the installation of the HVAC units. The plaintiffs also reached a settlement with this party.
The litigation was initiated by Hardage Hotels III, LLC. However, during the course of events, the current owner of the hotel at issue in the case, Hardage Hotels X, LLC was brought into the litigation.
After many months of pretrial proceedings, First Co. offered to settle Construction's claims against it. Construction agreed to the settlement terms and, pursuant to that settlement agreement, eventually dismissed its complaint against First Co. Prior to Construction dismissing its complaint against First Co., however, First Co. filed a cross-complaint against Construction for equitable indemnity.
Hotels and First Co. went to trial on Hotels's causes of action for negligence, breach of express warranty, and breach of implied warranties. The jury found in favor of Hotels on its negligence and breach of express warranty claims. The jury found that First Co., Hotels, and Construction were all partially at fault for the damages caused by the leaking HVAC units, specifically finding that First Co. was 48 percent at fault, Hotels was 18 percent at fault, and Construction was 34 percent at fault. The jury's findings precluded recovery by Hotels on its claims that First Co. breached the implied warranties of merchantability and fitness.
After trial, First Co. moved for judgment notwithstanding the verdict (JNOV) on Hotels's express warranty claim, arguing that there was insufficient evidence to support the jury's finding on that claim. First Co. also moved for credits and offsets based on the settlement amounts that Hotels had received from the air conditioning company and the plumbing company, as well as the amount that represented the jury's allocation of Hotels's fault for the damages.
The trial court granted judgment notwithstanding the verdict (JNOV) in favor of First Co. on the express warranty claim, and also agreed to offset the judgment by 18 percent for Hotels's allocation of fault, as well as by the settlement payments made to Hotels by the air conditioning company and the plumbing company. The court entered judgment against First Co. for the amount of damages that the jury awarded, reduced by these offsets.
Construction brought a posttrial motion to dismiss First Co.'s cross-complaint against it, arguing that the settlement agreement between it and First. Co. had settled the entire controversy between those two parties. The trial court denied the motion and entered judgment on First Co.'s cross-complaint for 34 percent of the damage award, representing the allocation of Construction's fault, as found by the jury.
Both Hotels and Construction appeal from the judgment. Hotels raises a number of contentions on appeal: (1) that the trial court erred in granting First Co.'s motion for JNOV on Hotels's express warranty claim; (2) that the trial court erred in allowing First Co. to offset the judgment against it with the settlement payments made by the air conditioning company and the plumbing company; (3) that the trial court erred in failing to find that privity existed between Hotels and First Co.; and (4) that the trial court erred in refusing to instruct the jury with respect to Hotels's potential position as a third-party beneficiary of the express warranty, and/or erred in instructing the jury concerning language in the express warranty that First Co. argued constituted a disclaimer of any implied warranties.
In its appeal, Construction argues that the trial court should have dismissed First Co.'s cross-complaint against Construction because the settlement agreement between Construction and First Co. included a settlement of the claims in First Co.'s cross-complaint. In a related argument, Construction maintains that it is entitled to recover all defense costs it incurred after accepting First Co.'s settlement offer.
First Co. filed a protective cross-appeal in the event that this court agrees with Hotels's contention that the trial court erred in granting JNOV on the express warranty claim.
We conclude that the trial court did not err in ruling on the parties' motions. The court properly granted First Co.'s motion for JNOV with respect to the express warranty claim, because there is insufficient evidence to support the jury's findings pertaining to this claim. The court also properly granted First Co.'s motion for credits and offsets. Further, there was no instructional error. Finally, we conclude that the trial court was correct in denying Construction's motion to dismiss First Co.'s cross-complaint, because the settlement agreement between those two parties clearly shows that they did not agree that First Co. would release its claims against Construction as part of their settlement. Our conclusion renders First Co.'s protective cross-appeal moot.
II
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual background
Construction was the general contractor for the Woodfin Suites Hotel project. Construction purchased 196 HVAC units from First Co. between May 1999 and November 1999 for use in the hotel. First Co. designed, manufactured and shipped 196 HVAC units, one for each room in the hotel, to Construction pursuant to purchase orders. The HVAC units were shipped to the site where the hotel was being built. A "Limited Warranty" issued by First Co., which warranted against "defects in material and workmanship" for one year after the installation of the units, was delivered with each of the units.
Construction installed the HVAC units in the guest rooms of the hotel. Construction contracted with Air Conditioning Company, Inc. (ACCO) to design and install the return air portion of the HVAC system in the hotel, and contracted with Nicodemus Plumbing and Mechanical to install the condensate lines for the HVAC system.
At some point after the HVAC units were installed, an employee of Construction contacted Matthew Bodine, the independent sales agent for First Co. who had arranged the sale between First Co. and Construction. The Construction employee informed Bodine that the HVAC units were leaking. Bodine visited the hotel site and was shown four or five units that were leaking onto the exterior of the building. According to Bodine, "everybody understood what was going on with the equipment, " i.e., that "[t]he units had nowhere to drain." Bodine told the Construction employee that they would have to install sufficient return air and unplug any plugged condensate lines to allow the HVAC units to properly drain.
An engineer from First Co. visited the hotel in May 2000 in an attempt to resolve the leak problems. The engineer observed excess condensate that was caused by a lack of sufficient return air. The engineer brought secondary drain pans with him to catch the excess condensate and installed one or two of the secondary drain pans that day. First Co. later shipped secondary drain pans to be installed in each of the remaining HVAC units. First Co. also provided "dams" to catch "some of that [excess] water and impede it where it would hopefully have a little bit more time to evaporate inside" of the units.
First Co. extended the usual 12-month warranty period to either Construction or Hotels for an additional three months.
The record is unclear as to which party the extended warranty was given. Although Hotels contends in its briefing that the warranty was extended to it, it cites to the testimony of Harold Hammer, a vice president of marketing and sales for First Co., who was asked, "Have you calculated what the warranty period was for this sale to Hardage Construction Corporation?" Hammer explained his calculation of the warranty period, and added, "and we extended the warranty from March 2001 to June 2001, an extra three months." When asked why First Co. had extended the warranty period, Hammer explained, "To the best of my recollection, it was a request from Hardage, or the people there, and it was good customer service, because they had―you know, said they had some supposed problems, so we felt like, you know it wasn't any problem to extend it out to them." From this testimony, it is unclear as to which Hardage entity the warranty was extended.
First Co. representative Tom Zear told Joseph Andrick, the general manager of the Woodfin Suites Hotel, to forward to First Co. some bids for painting the exterior of the hotel. After receiving bids from Andrick, Zear indicated that he believed the bids "might be too high, " in part because First Co. had anticipated having to paint only where the leaking water had left marks on the building, but the bids were for painting the entire exterior of the hotel.
After an attempt to clean the stains from the exterior of the hotel was unsuccessful, Hotels and Construction demanded that First Co. pay for repainting the entire hotel.
B. Procedural background
Hotels and Construction filed suit against First Co. on March 24, 2004. The plaintiffs originally asserted claims for breach of contract and negligence.
As mentioned earlier, a party named Hotels III, LLC, together with Construction, originally filed suit against First Co. The complaint was eventually amended to name Hardage Hotels X, LLC as the successor in interest to Hardage Hotels III, LLC. Although in describing the procedural background of this case First Co. suggests that Hardage Hotels III, LLC was not a proper party to the litigation because it did not own the hotel at a particular point in time, we do not concern ourselves with any questions as to whether the proper plaintiff was named, because no party has raised this as an issue on appeal. We therefore refer to the plaintiff in this case as Hotels, and do not further distinguish between the various Hardage Hotels corporate entities.
The plaintiffs filed a first amended complaint (FAC) approximately a month after they filed the original complaint, naming First Co. as a defendant and adding ACCO as a defendant, as well. The FAC included causes of action for negligence, strict products liability, breach of contract, breach of express warranty, and breach of implied warranties.
On June 20, 2006, First Co. filed a cross-complaint against ACCO, alleging causes of action for implied equitable indemnification, equitable apportionment, declaratory relief and negligence. ACCO filed a cross-complaint against First Co. for equitable indemnity, comparative contribution, and declaratory relief. ACCO later amended its cross-complaint, adding Nicodemus Plumbing & Mechanical and Paul Nicodemus (jointly Nicodemus Plumbing) as defendants.
Sometime prior to mid-October 2007, Hotels and Construction reached a settlement with Nicodemus Plumbing pursuant to which Nicodemus Plumbing agreed to pay the plaintiffs $42,500 in exchange for the release of all of the plaintiffs' claims against it. Nicodemus Plumbing filed a motion for a determination that the settlement was made in good faith within the meaning of Code of Civil Procedure section 877.6. In late October 2007, Hotels and Construction reached a settlement agreement with ACCO pursuant to which ACCO agreed to pay the plaintiffs $10,000 in exchange for the plaintiffs' dismissal of their claims against ACCO. ACCO moved for a determination that the settlement between it and the plaintiffs was a good faith settlement, in accordance with Code of Civil Procedure section 877.6. It appears from the record that First Co. opposed ACCO's good faith settlement motion, but not Nicodemus's, arguing that the ACCO settlement was not made in good faith because the settlement amount was far too low in relation to ACCO's share of fault. The trial court granted Nicodemus Plumbing's motion for good faith settlement. After initially denying ACCO's motion for good faith settlement, the court later granted the motion.
Code of Civil Procedure section 877.6 provides in pertinent part: "(a)(1) Any party to an action in which it is alleged that two or more parties are joint tortfeasors or co-obligors on a contract debt shall be entitled to a hearing on the issue of the good faith of a settlement entered into by the plaintiff or other claimant and one or more alleged tortfeasors.... [¶] (c) A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor or co-obligor 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. [¶] (d) The party asserting the lack of good faith shall have the burden of proof on that issue."
On November 13, 2007, First Co. served Construction with an offer to compromise pursuant to Code of Civil Procedure section 998. Specifically, First Co. offered Construction $18,700 to settle Construction's claims against First Co. The following day, First Co. filed a motion for leave to amend its cross-complaint to name Construction as a cross-defendant. Two days later, counsel for Construction signed a document entitled, "Notice of Acceptance of Cal. Code Civ. Pro. § 998 Offer to Compromise." On December 3, Construction opposed First Co.'s motion to amend the cross-complaint, arguing, among other things, that Construction's acceptance of First Co.'s offer to compromise had resulted in the settlement of First Co.'s indemnity claims against Construction.
On December 14, the court granted First Co.'s motion to file a first amended cross-complaint (FACC), and the FACC was deemed filed and served as of that date.
Also on December 14, Construction and Hotels filed a second amended complaint (SAC). First Co. demurred to the SAC on a number of grounds. The trial court overruled the demurrer in part, and sustained it in part, without leave to amend. The court sustained the demurrer as to Hotels's claim for breach of contract, noting that Hotels had conceded that it was not a party to a written contract with First Co. The court overruled the demurrer as to the plaintiffs' other causes of action.
On February 6, Construction filed a request for dismissal of its complaint against First Co. The court dismissed Construction's complaint the same day.
Prior to trial, Hotels filed a trial brief in anticipation of First Co. arguing at trial that its express warranty disclaimed any and all implied warranties. Hotels argued that the purported disclaimer of implied warranties in First Co.'s express warranty was ineffective, for two reasons. Hotels contended that the disclaimer was ineffective because it was not communicated to the buyer at the time of the sale, and also because the disclaimer was not sufficiently conspicuous. Hotels also argued that the express warranty's purported disclaimer of the implied warranty of merchantability was ineffective because it failed to expressly use the word "merchantability, " as required by statute.
First Co. filed a number of motions in limine in which it sought to limit the evidence that Hotels would be allowed to present on a number of issues, including Hotels's claim for breach of implied warranties. The trial court denied First Co.'s motion in limine pertaining to the claims for breach of implied warranties.
A jury trial was held between April 16 and May 1, 2008.
On April 29, First Co. filed a motion for directed verdict on Hotels's express warranty and implied warranty causes of action. First Co. had not served the motions on Hotels prior to submitting them to the court. The court discussed the motions with counsel, and initially granted both motions for directed verdict that afternoon. However, the following morning, Hotels requested that the court reconsider its granting of the motions for directed verdict, arguing that the weight of authority supported waiting for the jury's verdict and then considering First Co.'s arguments as a motion for judgment notwithstanding the verdict. The trial court reversed its rulings on the directed verdict motions, and denied the motions without prejudice to First Co. bringing a motion for judgment notwithstanding the verdict.
The court instructed the jury on May 1, and counsel for the parties presented their closing arguments that day. The jury began deliberating that afternoon.
On May 12, 2008, the jury returned its verdicts. On the negligence cause of action, the jury apportioned responsibility for the damage to the hotel as follows: (a) First Co., 48 percent; (b) Hotels, 18 percent; and (c) Construction, 34 percent. The jury determined that Hotels's damages included $115,640 for the cost of removing and repairing the stains on the hotel's exterior; $21,450 for the cost of mold remediation; $17,400 for lost hotel revenue "for removing and repairing stains, not including lost revenue for taking the rooms out of service for repair and replacement of the HVAC units/wall sleeves"; and $28,000 for the investigative costs of its expert.
It does not appear that the jury deliberated on all of the days that the court was open between May 1 and May 12. Rather, it appears that the jury was not required to deliberate on a number of those days, and that on at least one of the days, the jury did not deliberate because one of the jurors failed to come to the courthouse.
The jury also made findings in Hotels's favor on its express warranty cause of action. Specifically, the jury found that (a) First Co. had "represent[ed] to Hotels by a statement of fact that the materials and workmanship of the HVAC units would be free from defects"; (b) Hotels "rel[ied] on First Co.'s statement of fact in deciding to use the HVAC units"; (c) the "HVAC units failed to have the same quality as represented" by First Co.; and (d) "the failure of the HVAC units to meet the quality as represented" was "a substantial factor in causing harm to [Hotels]." The jury awarded Hotels damages on the express warranty claim in the same amounts as it awarded on the negligence claim, with the addition of an award of $107,317 for the costs "to remove and replace all HVAC units and wall sleeves."
On May 21, First Co. filed a motion for judgment notwithstanding the verdict (JNOV) in which it requested that the court enter judgment in its favor on Hotels's cause of action for breach of express warranty. That same day, First Co. also filed a "Motion for Credits and Offsets Against Judgment." In this motion, First Co. asked the court to reduce the amount of the jury's damage award on the negligence cause of action by the amount that the jury found was caused by, or attributable to, Hotels's comparative negligence, and to credit First Co. for the amounts that Hotels obtained from its settlements with ACCO and Nicodemus Plumbing.
First Co. also specifically requested in its motion that the court enter judgment in favor of First Co. on Hotels's claim for consequential damages under to the express warranty, on the ground that the express warranty covered only replacement parts and not consequential damages.
On June 20, 2008, the court entered a minute order granting First Co.'s JNOV. The court stated:
"First Co.'s Motion for Judgment Notwithstanding the Verdict is granted as to plaintiff's cause of action for express warranty. Generally, the rule is that privity of contract between plaintiff and defendant is essential to recover in an action for breach of express warranty. Exceptions to that general rule have been established. The authority supporting this has been cited by both parties. There is no authority to support a conclusion that the requirement of privity has been eliminated, without finding facts that create an exception to the existence of privity. There has been no evidence presented that supports the conclusion that privity is not essential in this case. Although plaintiff argues that the various plaintiff related entities are all one and the same, there is no basis in law to find that one who elects to establish separate business entities in law[] can later elect to ignore the separateness of those entities for the purpose of creating a favorable position in litigation. Further, the Court notes that plaintiff has not pled the theory of third party beneficiary for the purpose of establishing an exception to the general rule that privity is an element of a cause of action for breach of express warranty."
With respect to First Co.'s motion for credits and offsets, the court made the following ruling:
"Defendant's Motion for Credits and Offsets Against Judgment is granted as follows:
"1. On the tort causes of action, the award of $182,490.00 is reduced by 18 %, that is, to $149,641.80.
"2. On the tort causes of action, the judgment is reduced by pre-trial settlements with ACCO and Nicodemus in the total... amount of $52,500.00, that is, to $97,141.80."
On July 3, 2008, Construction moved to dismiss First. Co.'s first amended cross-complaint against it, based on its contention that the settlement agreement between Construction and First Co. included the claims in First Co.'s cross-complaint. On
August 1, the court issued a tentative ruling denying Construction's motion. The court noted that nothing in First Co.'s settlement offer or in Construction's acceptance mentioned anything about First Co. releasing its claims against Construction. The court also cited to correspondence between the parties after Construction had accepted First Co.'s settlement offer, and noted that Construction had dismissed its complaint and released its claims against First Co. without seeking a corresponding release from First Co. After hearing from the parties, the court affirmed its tentative ruling denying Construction's motion to dismiss First Co.'s cross-complaint.
The court entered judgment in favor of Hotels on August 25, 2008. After applying the credits and offsets to the jury's negligence award of $182,490, the court entered judgment against First Co. in the amount of $97,141.80, and awarded Hotels $13,983.94 in costs. Also on August 25, the court entered judgment in the amount of $40,313.85, plus $7,668.02 in costs, in favor of First Co. on its cross-complaint against Construction.
Hotels filed a timely notice of appeal from the judgment on its complaint on October 24, 2008. Construction filed a timely notice of appeal from the judgment on First Co.'s cross-complaint the same day.
On November 12, 2008, First Co. filed a "Notice of Protective Cross-Appeal" from the judgment entered on Hotels's complaint.
III
DISCUSSION
A. Hotels's appeal
1. The trial court did not err in granting First Co.'s motion for JNOV
Hotels contends that the trial court erred in granting First Co.'s motion for JNOV on Hotels's claim for breach of express warranty. Specifically, Hotels asserts that the trial court erred in concluding that Hotels had to establish privity between it and First Co., or in the alternative, that Hotels had to establish that it had relied on the warranty. Hotels also contends that the trial court erred in concluding that Hotels's failure to assert a separate cause of action for breach of express warranty under a third party beneficiary theory precluded Hotels from having that theory submitted to the jury.
We conclude that the trial court was correct in granting First Co.'s motion for JNOV on Hotels's cause of action for breach of express warranty. There clearly was no privity between Hotels and First Co., since Hotels did not purchase the HVAC units from First Co. Although there are occasions when one who is not in privity with the party making an express warranty may nevertheless enforce the warranty, the circumstances of this case do not fall within such an exception. In particular, there is simply no evidence to support the jury's finding that Hotels relied on a statement of fact made by First Co. "that the materials and workmanship of the HVAC units would be free from defects." We therefore affirm the trial court's ruling on First Co.'s JNOV motion.
In response to a question on the special verdict form, the jury found that Hotels did not purchase the HVAC units from First Co. The evidence supports this finding.
a. Standard of review
A trial court's "power to grant a judgment notwithstanding the verdict is identical to [the court's] power to grant a directed verdict. [Citations.]" (Hauter v. Zogarts (1975) 14 Cal.3d 104, 110 (Hauter).) "The trial judge cannot weigh the evidence [citations], or judge the credibility of witnesses. [Citation.] If the evidence is conflicting or if several reasonable inferences may be drawn, the motion for judgment notwithstanding the verdict should be denied. [Citations.]" (Ibid.)
" 'A motion for judgment notwithstanding the verdict of a jury may properly be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence to support the verdict. If there is any substantial evidence, or reasonable inferences to be drawn therefrom, in support of the verdict, the motion should be denied.' [Citation.]" (Hauter, supra, 14 Cal.3d at p. 110.)
b. There is no evidence to support the jury's verdict on the express warranty claim
Hotels contends that the trial court erred in ruling that "privity of contract is essential in order to recover in an action for breach of express warranty." Hotels insists that "privity is not a requirement for breach of express warranty, " relying on footnote 8 in Hauter, supra, 14 Cal.3d at p. 115, in which the Supreme Court stated: "Privity is not required for an action based upon an express warranty." We agree with Hotels that privity is not necessarily required in order for a plaintiff to succeed on a claim for breach of express warranty. However, we disagree with Hotels's contention that under the California Uniform Commercial Code, a remote purchaser may enforce an express warranty that it was not aware existed prior to its receiving the products in question. Although we are bound to view the evidence pertaining to this issue in the light most favorable to Hotels, our review of the record discloses no evidence, nor any reasonable inference from the evidence, that would support the jury's verdict on Hotels's express warranty claim.
With respect to the court's granting JNOV on the express warranty cause of action, Hotels also contends that "even if privity were a requirement for breach of express warranty, it existed in this case." Later in its briefing on appeal, Hotels also argues that the trial court erred in failing to find, as a matter of law, that privity existed between Hotels and First Co. We reject Hotel's position with respect to the existence of privity, as we more fully discuss in part III.A.3., post.
To be clear, we are deciding this case under the peculiar set of facts presented here, and do not intend to suggest that in other circumstances a remote purchaser may not enforce an express warranty. In particular, we note that we are not dealing with a consumer purchaser or consumer goods. We limit the holding of this case to its facts, analyzed under the Uniform Commercial Code as it has been adopted in California.
(i) Express warranty law
While " ' "[t]he general rule is that privity of contract is required in an action for breach of either express or implied warranty and that there is no privity between the original seller and a subsequent purchaser who is in no way a party to the original sale" [citations.]' [citation]" (Blanco v. Baxter Healthcare Corp. (2008) 158 Cal.App.4th 1039, 1058-1059), privity is not always required in such cases. California Uniform Commercial Code section 2313 codifies the law pertaining to express warranties as follows:
"(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.
"(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.
"(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an 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."
California Uniform Commercial Code section 2103, subdivisions (1)(a) and (1)(d) defines "[b]uyer" to mean "a person who buys or contracts to buy goods, " while a "[s]eller" is "a person who sells or contracts to sell goods." The statute does not define "bargain" or "basis of the bargain."
"Hence, to prevail on a breach of express warranty claim, the plaintiff must prove (1) the seller's statements constitute an ' "affirmation of fact or promise" ' or a ' "description of the goods" '; (2) the statement was ' "part of the basis of the bargain" '; and (3) the warranty was breached. [Citation.]" (Weinstat v. Dentsply Internat., Inc. (2010) 180 Cal.App.4th 1213, 1227 (Weinstat).) Where a plaintiff purchases a product from a retailer or someone other than the manufacturer, and therefore is not in privity with the manufacturer, the manufacturer may still be liable to that plaintiff if the manufacturer made representations to the plaintiff that became "part of the basis of the bargain" between the plaintiff and the manufacturer. (See Cal. U. Com. Code, § 2313, subds. (1)(a)-(1)(c).)
We note that a manufacturer might also be liable to a retail consumer for breaching warranty claims pursuant to statutory provisions outside the provisions of the California Uniform Commercial Code, such as provisions of the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et seq.).
"Pre-Uniform Commercial Code law governing express warranties required the purchaser to prove reliance on specific promises made by the seller. [Citations.]" (Weinstat, supra, 180 Cal.App.4th at p. 1227.) "The Uniform Commercial Code, however, does not require such proof. Instead, the official comment to section 2313 explains that... '[i]n actual practice affirmations of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement. Rather, any fact which is to take such affirmations, once made, out of the agreement requires clear affirmative proof.' [Citation.] The statute thus creates a presumption that the seller's affirmations go to the basis of the bargain." (Weinstat, supra, at p. 1227.)
"The phrase 'part of the basis of the bargain' is obscure at best and its effect has generated significant comment and disagreement. (See [Hauter], supra, 14 Cal.3d at pp. 115–116 [noting disagreement but declining to resolve whether basis of bargain requirement eliminates reliance altogether]; Note, Express Warranties Under the Uniform Commercial Code: Is There a Reliance Requirement? (1991) 66 N.Y.U. L.Rev. 468.) The term [']bargain' is not specifically defined in the Uniform Commercial Code but is integral to the definition of 'agreement, ' which refers to 'the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade....' (§ 1201, subd. (b)(3).) In turn the 'contract' is 'the total legal obligation that results from the parties' agreement as determined by this code and as supplemented by any other applicable laws.' (§ 1201, subd. (b)(12).)" (Weinstat, supra, 180 Cal.App.4th at pp. 1227-1228.)
Although resolving the question whether certain warranty statements made by a party constituted "part of the basis of the bargain" may be complex, it appears to be undisputed that a defendant may avoid the obligations of an express warranty if that defendant affirmatively establishes that the plaintiff did not, in fact, rely on the purported warranty statements.
(ii) Analysis
The jury found that First Co. made statements of fact that its HVAC units would be free from defects, and further found that Hotels relied on those statements in deciding to use the HVAC units in question. The trial court determined that it could not uphold the jury's verdict in this respect based on the evidence presented at trial and the law of express warranties. We agree with the trial court's conclusion, although for reasons slightly different from those the trial court provided.
The CACI instruction regarding breach of express warranty that the court gave to the jury in this case reflects California Uniform Commercial Code section 2313. The court gave the following modified CACI 1230 instruction:
"Hardage Hotels X claims that it was harmed by the First Co. SPU series HVAC units because First Co. represented, either by words or actions, that the SPU series HVAC units would be free from defects in material and workmanship for 1 year after installation or 18 months after manufacture, but the SPU series HVAC units were not as represented. To establish this claim, Hardage Hotels X must prove all the following:
"1. That First Co. gave Hardage Hotels X a warranty described in Exhibit No. 67;
"2. That the First Co. SPU series HVAC units did not perform as promised and did not meet the quality of the description;
"3. That Hardage Hotels X took reasonable steps to notify First Co. within a reasonable time that the SPU series HVAC units were not as represented;
"4. That Hardage Hotels X was harmed; and
"5. That the failure of the SPU series HVAC units to be as represented was a substantial factor in causing Hardage Hotels X's harm.
"Formal words such as "warranty" or "guarantee" are not required to create a warranty. It is also not necessary for First Co. to have specifically intended to create a warranty. But a warranty is not created if First Co. simply stated the value of the goods or only gave its opinion of or recommendation regarding the goods."
The general CACI 1230 instruction provides: "[Name of plaintiff] claims that [he/she/it] was harmed by the [product] because [name of defendant] represented, either by words or actions, that the [product] [insert description of alleged express warranty, e.g., "was safe"], but the [product] was not as represented. To establish this claim, [name of plaintiff] must prove all of the following:
The trial court also instructed the jury with a modified version of CACI 1240, entitled "Affirmative Defense to Express Warranty-Not 'Basis of Bargain, '" as follows:
"First Co. is not responsible for any harm to Hardage Hotels X if First Co. proves that Hardage Hotels X did not rely on its warranty in deciding to use the HVAC units."
CACI 1240 provides: "[Name of defendant] is not responsible for any harm to [name of plaintiff] if [name of defendant] proves that [name of plaintiff] did not rely on [his/her/its] [statement/description/sample/model] in deciding to [purchase/use] the
The jury was asked on the special verdict form, "Did First Co. represent to Hardage Hotels by a statement of fact that the materials and workmanship of the HVAC units would be free from defects?" The jury responded, "Yes." The jury was then asked, "Did Hardage Hotels rely on First Co.'s statement of fact in deciding to use the HVAC units?" The jury responded, "Yes" to this question, as well. However, the record does not support the jury's finding that Hotels, as opposed to Construction, relied on the warranty claims made by First Co. In fact, Hotels has pointed to no evidence in the record that would support the jury's conclusion that Hotels relied on any of First Co.'s statements "in deciding to use the HVAC units."
The only evidence in the record that pertains to this issue is the testimony of Samuel Hardage, the sole managing member of Hotels V, LLC―the entity that owned the hotel at the time Construction contracted with First Co. Samuel Hardage testified not only that he had no involvement in "the individual purchasing decisions" of Construction, but also that he had no memory of ever having seen any warranty issued by First Co. Specifically, Hardage testified as follows:
The record demonstrates that the only managing "member" of Hardage Hotels V, LLC, was listed as "Samuel A. Hardage, President, HSH V, Inc., Manager." Further, Hardage testified that he was "not aware" of other employees being employed by Hardage Hotels V, LLC.
"Q. Did First Company issue a warranty for the HVAC units at the hotel?
"A. I don't know whether they did or didn't.
"Q. Do you recall ever seeing a copy of that warranty, express warranty?
"A. Not that I recall."
Notably, Hotels does not cite to any evidence that would support the jury's finding that Hotels, as opposed to Construction, relied on First Co.'s warranty "in deciding to use the HVAC units." (Italics added.) Rather, Hotels attempts to side-step the issue by arguing that the law does not require that it establish reliance, or, alternatively, that "the timing of the reliance is no longer material" under section 2313 of the California Uniform Commercial Code. Neither of Hotels's contentions is entirely accurate.
First, Hotels is imprecise in its assertion concerning the role that reliance plays in express warranty matters. Hotels appears to concede that "[l]ack of reliance is... an affirmative defense, with the burden of proof shifted to the defendant to show that the plaintiff did not rely on the warranty." Hotels cites Hauter, supra, 14 Cal.3d at pp. 115-116, for the proposition that the Supreme Court has concluded that section 2313 of the California Uniform Commercial Code has "either eliminated reliance altogether, or shifted the burden of proving non reliance to the seller."
The court in Keith v. Buchanan (1985) 173 Cal.App.3d 13, 22-23, explained the diminution in the importance of reliance as a factor in express warranty claims:
"Under former provisions of law, a purchaser was required to prove that he or she acted in reliance upon representations made by the seller. [Citation.] California Uniform Commercial Code section 2313 indicates only that the seller's statements must become 'part of the basis of the bargain.' According to official comment 3 to this Uniform Commercial Code provision, 'no particular reliance... need be shown in order to weave [the seller's affirmations of fact] into the fabric of the agreement. Rather, any fact which is to take such affirmations, once made, out of the agreement requires clear affirmative proof.' [Citation.]
"The California Supreme Court, in discussing the continued viability of the reliance factor, noted that commentators have disagreed in regard to the impact of this development. Some have indicated that it shifts the burden of proving nonreliance to the seller, and others have indicated that the code eliminates the concept of reliance altogether. (Hauter v. Zogarts, supra, 14 Cal.3d at pp. 115-116.) The court did not resolve this issue, but noted that decisions of other states prior to that time had 'ignored the significance of the new standard and have held that consumer reliance still is a vital ingredient for recovery based on express warranty.' [Citations.]
"The shift in language clearly changes the degree to which it must be shown that the seller's representation affected the buyer's decision to enter into the agreement. A buyer need not show that he would not have entered into the agreement absent the warranty or even that it was a dominant factor inducing the agreement. A warranty statement is deemed to be part of the basis of the bargain and to have been relied upon as one of the inducements for the purchase of the product. In other words, the buyer's demonstration of reliance on an express warranty is 'not a prerequisite for breach of warranty, as long as the express warranty involved became part of the bargain. [Citation.] If, however, the resulting bargain does not rest at all on the representations of the seller, those representations cannot be considered as becoming any part of the "basis of the bargain"... ' [Citation.]
"The official Uniform Commercial Code comment in regard to section 2-313 'indicates that in actual practice affirmations of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement.' [Citations.] It is clear from the new language of this code section that the concept of reliance has been purposefully abandoned. [Citations.]
"The change of the language in section 2313 of the California Uniform Commercial Code modifies both the degree of reliance and the burden of proof in express warranties under the code. The representation need only be part of the basis of the bargain, or merely a factor or consideration inducing the buyer to enter into the bargain. A warranty statement made by a seller is presumptively part of the basis of the bargain, and the burden is on the seller to prove that the resulting bargain does not rest at all on the representation." (Italics added.)
Although Keith indicates that reliance is no longer an element of an express warranty claim, the explanation provided by the Keith court confirms that there remains an element of the express warranty claim that is intimately tied to reliance, i.e., the "part of the basis of the bargain" requirement that is set out under subdivisions (a), (b), and (c) of section 2313: "[T]he buyer's demonstration of reliance on an express warranty is 'not a prerequisite for breach of warranty, as long as the express warranty involved became part of the bargain. [Citation.] If, however, the resulting bargain does not rest at all on the representations of the seller, those representations cannot be considered as becoming any part of the "basis of the bargain."... ' [Citation.]" (Keith, supra, 173 Cal.App.3d at p. 23, italics added.)
Thus, although a plaintiff may not have to affirmatively establish that he or she "relied" on the defendant's statements, per se, the statute does require that the alleged statement of fact became "part of the basis of the bargain." Courts have held that statements made in advertisements or on labels that a remote purchaser may view before buying a product may be presumed to have been "part of the basis of the bargain" because such statements are intended to induce sales of the product. (See Keith, supra, 173 Cal.App.3d 13, 22, and cases cited therein ["It is clear that statements made by a manufacturer or retailer in an advertising brochure which is disseminated to the consuming public in order to induce sales can create express warranties."].) Courts have also held that statements that manufacturers make to direct purchasers (i.e., those with whom a manufacturer is in privity) that may occur contemporaneously with the sale or that are placed within the packaging of the product should be considered to be statements of fact or promises that are "part of the basis of the bargain" between those direct purchasers and the manufacturer making the statements or promises. (See Weinstat, supra, 180 Cal.App.4th at p. 1227 [determining that dentists who purchased dental device directly from a manufacturer who provided a warranty inside the instruction booklet accompanying the device could pursue class action against manufacturer for breach of express warranty].) The factual scenario presented here does not fall under either of these scenarios.
The CACI instructions appear not to include this portion of the statute, and to erroneously view the "part of the basis of the bargain" language as being an affirmative defense, like reliance, rather than an element of the claim, as evidenced by the title of CACI 1240: "Affirmative Defense to Express Warranty―Not 'Basis of Bargain.' " However, the concepts of "reliance" and "basis of the bargain" are not co-extensive, and should not be treated as such. A plaintiff must demonstrate that a defendant made a statement of fact or promise that "bec[ame] part of the basis of the bargain" (Cal. U. Com. Code, § 2313) by showing either that the defendant made the statement or promise to the plaintiff, or that it was made available to the plaintiff, or that the plaintiff considered the statement as part of the bargain at the time the plaintiff decided to purchase the product or in connection with the plaintiff purchasing the product. After the plaintiff makes such a showing, the defendant can overcome the presumption of reliance that is created as a result of statements of fact or promises that "bec[ame] a part of the basis of the bargain, " by affirmatively establishing that the plaintiff did not, in fact, rely on those statements of fact or promises. We thus clarify that when the Keith court stated, "A warranty statement made by a seller is presumptively part of the basis of the bargain, and the burden is on the seller to prove that the resulting bargain does not rest at all on the representation, " the court meant that a "warranty statement made by a seller" before, during or as part of the sale made to the plaintiff "is presumptively part of the basis of the bargain...." (Keith, supra, 173 Cal.App.3d at p. 23.) When a remote purchaser becomes aware of the existence of a warranty long after having already decided to purchase the product from someone other than the manufacturer, that warranty cannot reasonably be considered to have been "part of the basis of the bargain" (Cal. U. Com. Code, § 2313).
We emphasize that we do not intend that our holding in this case to be analogized to other factual situations, particularly those to which the provisions of the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et seq.) apply.
Again, there is no evidence that any representative of Hotels was ever aware of the existence of the First Co. warranties, even after the HVAC units were installed. Rather, there is evidence that employees of Construction knew of the warranties and may in fact have relied on the warranties in deciding to purchase the HVAC units. However, Construction, which purchased the units and, as the trial court noted, is a separate legal entity from Hotels, settled all of its claims against First Co., including its express warranty claim. The evidence simply does not support the jury's finding that Hotels relied on First Co.'s warranties.
Second, Hotels cites the comments to section 2313 of California Uniform Commercial Code in support of its claim that the "timing of reliance is no longer material, " and its assertion that reliance can occur "before, during or after the sale of the goods." In making this claim, Hotels seems to suggest that the warranty need not have been "part of the basis of the bargain." We reject such an assertion.
The language on which Hotels relies is the following:
"The precise time when words of description or affirmation are made or samples are shown is not material. The sole question is whether the language or samples or models are fairly to be regarded as part of the contract. If language is used after the closing of the deal (as when the buyer when taking delivery asks and receives an additional assurance), the warranty becomes a modification, and need not be supported by consideration if it is otherwise reasonable and in order (Section 2-209)." (Cal. U. Com. Code, § 2313, comment 7.)
This comment clearly demonstrates that the "question is whether the language or samples or models are fairly to be regarded as part of the contract." (Ibid., italics added.) The "contract" referred to is the sales contract between the warranting party and the purchasing party. Here, it is not the purchasing party, i.e., Construction, that is making the warranty claim. As noted above, Construction previously settled its claims against First Co., including its warranty claim. Any language in First Co.'s warranty cannot be deemed to have become part of a contract between First Co. and Hotels, since there is no evidence that any such contract ever existed.
Finally, Hotels relies on Ibrahim v. Ford (1989) 214 Cal.App.3d 878, to support its position. Hotels points to its notification of First Co. of the problem with the HVAC units and First Co.'s attempt to make repairs. According to Hotels, reliance may be "manifested by efforts to repair the product and the defendant's acceptance of responsibility to correct the problem, " and cites the following language from Ibrahim:
"[T]he court instructed the jury that plaintiff had the burden of proving that she 'relied on that written statement [i.e., the manufacturer's warranty].' This too was error, because Ford, not plaintiff, had the burden of proving nonreliance. (See Keith v. Buchanan (1985) 173 Cal.App.3d 13, 22-23; Deering's Ann. Cal. U. Com. Code, § 2313 (1986 ed.) p. 108, West's Ann. Cal. U. Com. Code (1964 ed.) p. 249; cf. Seely v. White Motor Co. (1965) 63 Cal.2d 9, 13 [45 Cal.Rptr. 17, 403 P.2d 145] ['The reliance on the warranty... [is] manifested by plaintiff's continued efforts to have the truck repaired, and by defendant's acceptance of the responsibility to correct the [problem]'].)" (Ibrahim, supra, 214 Cal.App.3d at pp. 890-891, fn. omitted.)
The only language in Ibrahim that even arguably supports Hotels's position is the following language that the Ibrahim court quotes from Seely v. White Motor Co., supra, 63 Cal.2d 9, 13, in a parenthetical: " 'The reliance on the warranty... [is] manifested by plaintiff's continued efforts to have the truck repaired, and by defendant' acceptance of the responsibility to correct the [problem].' " We conclude that Seely does not assist Hotels. Seely involved a consumer who purchased a truck through the defendant's dealer. The warranty that the defendant offered was clearly displayed on the purchase order that the plaintiff signed. Within this context, the Seely court stated, "The natural tendency of White's promise was to induce buyers to rely on it, and plaintiff did so rely in purchasing the goods. The reliance on the warranty, and the warranty itself, are manifested by plaintiff's continued efforts to have the truck repaired, and by defendant's acceptance of the responsibility to correct the galloping." (Seely, supra, 63 Cal.2d at p. 13.) The Seely court went on to explain, "The statute requires only that plaintiff rely on the warranty. It does not additionally require that he be aware that it was made by the manufacturer instead of the dealer to reach the one who in fact made it. Surely if plaintiff sought to have a part replaced that was covered by the warranty, White could not escape its obligation by showing that plaintiff thought the warranty White made was made by the dealer." (Id. at pp. 13-14.)
Seely was decided prior to California's adoption of the Uniform Commercial Code; at that time, a plaintiff was required to prove that he or she relied on the seller's express warranty in purchasing the defective product.
The circumstances in Seely do not correspond to the circumstances in this case. It is clear that the plaintiff in Seely was provided with the defendant's warranty at the time he decided to purchase the truck. Under those circumstances, the parties' post-sale conduct supported the conclusion that the plaintiff had relied on the warranty that was provided to him at the time he purchased the truck. Here, in contrast, there is simply no evidence that Hotels relied, or could have relied, on the warranty in deciding to use the First Co. HVAC units. The fact that at some point an employee of the hotel may have contacted First Co. for help in fixing the leaking HVAC units does not constitute sufficient evidence to establish that the First Co. warranty was "part of the basis of the bargain" between First Co. and Hotels. In addition, the fact that First Co. may have attempted to ameliorate the leak problem is not evidence that First Co. understood that Hotels was relying on the warranty. Rather, it is entirely possible that First Co. believed that it was responding to a warranty claim by Construction-the party with whom it was in privity and the party to whom it had given express warranties.
As noted above, Construction settled its claims against First Co. The fact that Construction may have settled its express warranty claim for less than what that claim may have been worth according to the jury is not a reason for this court to allow an entirely separate legal entity, i.e., Hotels, to recover on an express warranty claim that has no support in the record.
2. The trial court did not err in granting First Co.'s motion for
credits and offsets
Hotels challenges the trial court's granting of credits to First Co. for the amounts that Hotels recovered as a result of settlements with two other parties to the litigation.
After the jury returned its verdict, First Co. moved to reduce the tort damage award by 18 percent, which represented Hotels's comparative negligence, and also requested credit for the amounts that Hotels received pursuant to pretrial settlements with ACCO and Nicodemus Plumbing. The trial court granted First Co.'s motion, reducing Hotels's judgment by 18 percent, and reducing the remaining amount by an additional $52,500, representing the combined total of the settlement amounts that Hotels received from ACCO and Nicodemus Plumbing. Hotels takes issue with the court's crediting First Co. for the amount of the settlement payments that Hotels received from the settling defendant and cross-defendant.
We review a ruling granting or denying a motion for offsets under an abuse of discretion standard. (Erreca's v. Superior Court (1993) 19 Cal.App.4th 1475, 1504-1505 (Erreca's).) However, to the extent that we must decide whether the trial court's ruling was consistent with statutory requirements, we apply the independent standard of review. (Burden v. Snowden (1992) 2 Cal.4th 556, 562.)
Code of Civil Procedure section 877 allows for nonsettling tortfeasors to receive a credit for settlement proceeds paid by joint tortfeasors. That statute provides:
"Where a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment is given in good faith before verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort, or to one or more other co-obligors mutually subject to contribution rights, it shall have the following effect:
"(a) It shall not discharge any other such party from liability unless its terms so provide, but it shall reduce the claims against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it whichever is the greater." (Code Civ. Proc., § 877.)
Code of Civil Procedure section 877.6 provides in pertinent part: "(a)(1) Any party to an action wherein it is alleged that two or more parties are joint tortfeasors or co-obligors in a contract debt shall be entitled to a hearing on the issue of the good faith of a settlement entered into by the plaintiff or other claimant and one or more alleged tortfeasors....[¶] (c) A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor or co-obligor 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. [¶ ] (d) The party asserting the lack of good faith shall have the burden of proof on that issue."
"The pro tanto reduction provision works to prevent settlements from producing double recoveries in the case of a single injury caused by joint tortfeasors. The general theory of compensatory damages bars double recovery for the same wrong. The principal situation is where joint or concurrent tortfeasors are jointly and severally liable for the same wrong. Only one complete satisfaction is permissible, and, if partial satisfaction is received from one, the liability of others will be correspondingly reduced. [Citation.] [¶]... But no case has been presented, nor has any been found, in which section 877 has been applied to tortfeasors involved in separate torts. The reason appears obvious: Ordinarily, no danger of a double recovery exists where separate tortfeasors cause separate injuries." (Carr v. Cove (1973) 33 Cal.ApP.3d 851, 854 (Carr); see also Greathouse v. Amcord, Inc. (1995) 35 Cal.App.4th 831, 840 (Greathouse) [setoff provision of section 877 applies only when the acts of multiple defendants have combined to cause one "indivisible" injury].) Thus, a plaintiff is entitled to only a single recovery of full compensatory damages for a single injury.
According to Hotels, the settlement amounts that ACCO and Nicodemus Plumbing paid should not be credited to First Co. because the judgment against First Co. does not represent a double recovery for Hotels. Hotels contends that its expert "removed damage caused by ACCO from his cost of repair" and similarly "removed all damage categories relating to Nicodemus from his [c]ost of [r]epair." Hotels argues that there was thus no danger of a double recovery in this case because Hotels did not seek to recover from First Co. "the cost to repair the improper return air caused by ACCO or the cost to repair plumbing problems caused by Nicodemus [Plumbing]." Hotels contends that its settlements with ACCO and Nicodemus Plumbing were related to the repair of those entities' defective work only, and were not related to the cost of repairing the HVAC units themselves or the damage to the hotel's exterior.
In response, First Co. contends that because ACCO and Nicodemus Plumbing were alleged joint tortfeasers in causing Hotels's damages, under Code of Civil Procedure section 877, First Co. is entitled to a credit against the tort judgment for any settlement payments that ACCO and Nicodemus Plumbing made to Hotels.
Neither party is entirely correct. Hotels alleged that it had suffered a number of different types of injuries in this case, and the defendants alleged claims based on a number of different injuries against each other. For example, in Hotels's second amended complaint, it alleged causes of action for negligence and breach of contract against ACCO. Specifically, Hotels alleged that ACCO had been negligent with respect to the venting and fire safety of the condensate drain piping, the termination of the condensate drains, the use of PVC piping for the condensate lines, mold infestation in the ductwork, and insufficient return air. Hotels's breach of contract claim alleged that ACCO had failed to meet the terms of its written agreement, and sought breach of contract damages "to the extent the HVAC system must be repaired and/or replaced." At some point during the litigation, ACCO filed a cross-complaint against Nicodemus Plumbing for equitable indemnity, comparative contribution and declaratory relief. It is clear from the pleadings, and from the damages that Hotels sought in the special verdict form, that Hotels was seeking relief for a number of different injuries it believed it had suffered. That relief included replacement of the HVAC units themselves, replacement of necessary plumbing, ducting, and/or other parts related to, but separate from, the HVAC units, removal of the stains on the building's exterior caused by the leaking HVAC units, and lost revenues from having to repair or replace the HVAC units and from having to remove the stains on the building.
Thus, ACCO and Nicodemus Plumbing were alleged to be both tortfeasors and parties to breaches of contracts. The remedies sought under these two theories were not necessarily the same. It therefore appears that some portion of the settlement payments that ACCO and Nicodemus Plumbing made to Hotels might have been allocated to the settlement of claims of damage caused solely by ACCO's and Nicodemus Plumbing's breaches of contract. These contract damages would have been distinct from the damage amounts that Hotels sought from First Co. under its tort claim. However, it also appears that the settlements were made, at least in part, to settle tort claims against ACCO and Nicodemus Plumbing for the same damage for which Hotels sought recovery from First Co., i.e., damage to the hotel's exterior, mold growth, lost profits, and/or expert fees. Code of Civil Procedure section 877 applies only with respect to settlements by joint tortfeasors claimed to be liable for the same damages. (See Shell Oil Co. v. Nat'l Union Fire Ins. Co. (1996) 44 Cal.App.4th 1633, 1651-1652.)
Although ACCO and Nicodemus Plumbing were alleged to have been jointly liable for some of the same injuries for which First Co. was ultimately found liable, they were also alleged to have been liable for separate injuries. For this reason, First Co. might not have been entitled to receive credit for those portions of the settlement awards that were allocated to the settlement of claims for separate injuries. However, there does not appear to have been any allocation of the settlement amounts to the different claims that Hotels made against ACCO or Nicodemus.
If Hotels wanted to prevent First Co. from receiving an offset for the amounts of its settlements with ACCO and Nicodemus, it was incumbent on Hotels to establish that the settlements were for damages different from those attributable to First Co. (See L.C. Rudd & Son v. Superior Court (1997) 52 Cal.App.4th 742, 750 ["It is the burden of the settling parties to explain to the court and to all other parties the evidentiary basis for any allocations and valuations made sufficient to demonstrate that a reasonable allocation was made. [Citation.]"].) "Since the settling parties have the most knowledge of the value of the various claims they are attempting to settle, they are required to make an allocation of settlement proceeds among those various claims, subject to court approval of the showing made. This situation is analogous to cases in which settlement payments are contingent or where noncash consideration is paid for settlement." (Regan Roofing Co. v. Superior Court (1994) 21 Cal.App.4th 1685, 1702 (Regan Roofing), citing Arbuthnot v. Relocation Realty Service Corp. (1991) 227 Cal.App.3d 682, 689-690.)
"In the typical one-plaintiff, multiple-defendants, personal injury action each tortfeasor is potentially liable for the same injury to the plaintiff. Therefore the full settlement by one defendant will offset a judgment against other tortfeasors; no allocation of the settlement is required. But many lawsuits and many settlements do not fit this pattern. In some, the amount of the offset is uncertain because one settlement covers multiple plaintiffs or causes of action with different damages [citations], or because a sliding scale settlement is used and payments by the settling defendant are contingent upon the degree of plaintiff's success against the remaining defendants [citation]). In others, the amount of the offset is clouded by injection of noncash consideration into the settlement [citations] or, as here, by settling claims for separate injuries not all of which would be attributable to conduct of the remaining defendants." (Alcal Roofing & Insulation v. Superior Court (1992) 8 Cal.App.4th 1121, 1124 (Alcal Roofing).)
"In a situation where the cash amount of the settlement does not dictate the amount of the offset, the settling parties must include an allocation or a valuation in their agreement. A natural tension will exist between plaintiff, who benefits by undervaluing the settlement in order to permit greater recovery against the remaining defendants, and the settling defendant, who would want the settlement value high enough to be approved in order to relieve settling defendant from liability for comparative indemnity or contribution. '[R]equiring a joint valuation by the plaintiff and the settling defendant should generally produce a reasonable valuation.' [Citation.]" (Alcal Roofing, supra, 8 Cal.App.4th at pp. 1124-1125.) " 'The statutory requirement of good faith extends not only to the amount of the overall settlement but as well to any allocation which operates to exclude any portion of the settlement from the setoff. [Citations.]' [Citation.]" (Regan Roofing Co. v. Superior Court (1994) 21 Cal.App.4th 1685, 1701.)
Hotels failed to specify at the time the trial court was considering whether the settlements were made in good faith what, if any, portion of the settlements was to be allocated to the tort claims, and what portion was to be allocated to the breach of contract claims. It should have done so if it wanted to ensure that First Co. would not be entitled to an offset for the entire amount of the settlements that the trial court determined to be in good faith.
In the absence of a good faith agreement between Hotels and ACCO or Hotels and Nicodemus Plumbing allocating the settlement proceeds, First Co. is entitled to a setoff of the entire amount of both settlements. (See Erreca's, supra, 19 Cal.App.4th at pp. 1494-1496.)
We conclude that the trial court did not abuse its discretion in ruling that First Co. was entitled to credit offsets for the full settlement amounts paid to Hotels by ACCO and Nicodemus plumbing. In the absence of an explicit allocation or a demonstration that an allocation was intended, the trial court reasonably concluded that the tort judgment against First Co. should be offset by the entire amount of the settlements.
3. The trial court did not err in refusing to find that privity existed between Hotels and First Co.
Hotels argues that the trial court should have found that it was in privity with First Co. as a matter of law. We disagree.
"[T]here is no privity between the original seller and a subsequent purchaser who is in no way a party to the original sale. [Citations.]' [Citation.]" (Fieldstone, supra, 54 Cal.App.4th at p. 371.) Hotels and Construction are different corporate entities, and there is no evidence in the record that Hotels entered into any contract with First Co. Rather, the evidence establishes that Construction was the party that purchased the HVAC units from First Co.
Hotels nevertheless contends that it and First Co. are "in vertical privity with one another because they occupy adjoining links in the chain of distribution." Specifically, Hotels asserts that privity exists because First Co.'s invoices demonstrate that First Co. shipped the HVAC units to the Woodfin Suites Hotel. There is no authority to support Hotels's suggestion that privity exists between a seller and the entity to which the seller's product is delivered. Further, the invoices demonstrate that Construction was the party with which First Co. contracted.
Hotels also suggests that there exists what it refers to as "contractual privity" between First Co. and Hotels because First Co. extended to Hotels the express warranty that First Co. had given to Construction. However, the record establishes that Hotels was not a party to the contract between Construction and First Co., and there is no indication that First Co. extended the warranty in exchange for consideration, thereby creating a contract between First Co. and Hotels. Further, although Hotels asserts that the warranty was extended to it, as noted above, the record is unclear as to which Hardage entity the warranty was extended. We therefore reject Hotels's argument that the trial court should have found, as a matter of law, that Hotels was in privity with First Co.
4. The trial court did not err in instructing the jury
a. Third-Party beneficiary
Hotels argues that the trial court should have instructed the jury concerning Hotels's status as a third party beneficiary of the contract between First Co. and Construction. Hotels further contends that since the trial court did not instruct the jury on this issue, the court erred in failing to submit a special interrogatory to the jury, following the verdict, concerning Hotels's status as a beneficiary. We conclude that the court did not err in either respect.
"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." (Civ. Code, § 1559.) "The intent to benefit a third party must appear ' "on the terms of the contract." ' [Citation.] As explained by well-reasoned case law: ' " ' "A third party should not be permitted to enforce covenants made not for his benefit, but rather for others. He is not a contracting party; his right to performance is predicated on the contracting parties' intent to benefit him...." ' [Citations.]... [¶] The fact that... the contract, if carried out to its terms, would inure to the third party's benefit is insufficient to entitle him or her to demand enforcement. [Citation.]" ' " (Landale-Cameron Court, Inc. v. Ahonen (2007) 155 Cal.App.4th 1401, 1410-1411 (Landale-Cameron).) " '[I]t is well settled that Civil Code section 1559 excludes enforcement of a contract by persons who are only incidentally or remotely benefited by it. [Citations.]' " (California Emergency Physicians Medical Group v. PacifiCare of California (2003) 111 Cal.App.4th 1127, 1137-1138 (California Emergency).)
" ' "Whether a third party is an intended beneficiary or merely an incidental beneficiary to the contract involves construction of the parties' intent, gleaned from reading the contract as a whole in light of the circumstances under which it was entered. [Citation.]" ' [Citation.]" (Landale-Cameron, supra, 155 Cal.App.4th at p. 1411.)
"Third party beneficiary status is a matter of contract interpretation. [Citation.] For that reason, the contract must be set out in the pleadings: 'A plaintiff must plead a contract which was made expressly for his benefit and one in which it clearly appears that he was a beneficiary.' [Citation.]" (California Emergency, supra, 111 Cal.App.4th at p. 1138.)
Hotels admittedly did not plead the existence of a contract made expressly for its benefit. Hotels sought to amend its pleadings late in the litigation to add this claim, but the trial court denied that request. On appeal, Hotels does not contend that the trial court abused its discretion in denying its request to amend its pleadings; Hotels has thus forfeited any claim that the court abused its discretion in denying Hotels's request to amend its complaint.
Hotels nevertheless maintains that it was not required to allege the existence of a third party beneficiary contract in order to be entitled to submit this theory to the jury, citing Gilbert Financial Corp. v. Steelform Contracting Co. (1978) 82 Cal.App.3d 65 (Gilbert). According to Hotels, the court in Gilbert reversed the trial court's dismissal of the plaintiff's complaint―which did not specifically allege the existence of its third party beneficiary status―on the ground that the plaintiff was clearly a third party beneficiary of the contract between a subcontractor and the general contractor who constructed the plaintiff's building. We disagree with Hotels's contention.
The appeal in Gilbert arose from the dismissal of the plaintiff's complaint. No evidence had been presented to the trial court. Thus, the appellate court was determining whether the allegations set forth in the plaintiff's complaint sufficiently demonstrated that the plaintiff was in fact a third party beneficiary of the contract between the subcontractor and the general contractor. Although it appears that the plaintiff in Gilbert did not set forth a separate cause of action under a third party beneficiary theory, it is clear that the allegations in the complaint demonstrated that the subcontractor had, in effect, assumed the role of the general contractor to provide construction services for the plaintiff, such that the plaintiff was clearly the intended beneficiary of the contract between the subcontractor and the general contractor. (Gilbert, supra, 82 Cal.App.3d at pp. 67-68, 70 ["[T]he general contractor, Appel, had the duty under its contract with Gilbert to furnish all the material and labor necessary to construct the building in question. Steelform subcontracted with Appel to furnish the materials and labor necessary for the construction of the roof. Clearly, Steelform (the promissor) realized it was assuming Appel's (the promisee) duties for this phase of the construction, and that Gilbert was the ultimate beneficiary of its performance as the owner of the building."].)
This case does not present an analogous situation. The pleadings in the present case did not allege sufficient facts from which one could determine that Hotels was a third-party beneficiary of the sales contract between Construction and First Co. There was no allegation that First Co. knew of Construction's relationship with Hotels, or that First Co. knew that the sale would benefit Hotels rather than the company to which it sold its HVAC units. Further, Hotels sought to amend the complaint to include sufficient allegations to establish that it was a third-party beneficiary years after the original complaint was filed-not at the demurrer stage. When addressing a demurrer, the court must look at the complaint to see whether there is any theory under which the plaintiff could succeed, given the facts alleged. The Gilbert court determined that the facts, as alleged in that case, could support a third-party beneficiary theory. The trial court in this case was under no similar obligation at the late stage of the proceedings at which Hotels sought leave to amend.
Further, even if the trial court had allowed Hotels to amend its pleadings to allege that it was a third-party beneficiary of the contract between Construction and First Co., it does not appear that such a claim would be meritorious. " 'The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract. [Citation.] If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person. The parties are presumed to intend the consequences of a performance of the contract.' [Citation.]" (Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225, 1232 (Prouty).)
"This rule is codified: '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.' (Civ. Code, § 1559.) 'The word "expressly, " by judicial interpretation, has now come to mean merely the negative of "incidentally." ' [Citation.]" (Prouty, supra, 121 Cal.App.4th at pp. 1232-1233.) "Also, the contract need not be exclusively for the benefit of the third party. He does not need to be the sole or the primary beneficiary." (Id. at p. 1233.) "In contrast, '[a] third party who is only incidentally benefited by performance of a contract is not entitled to enforce it. [Citation.] " 'The fact that he is incidentally named in the contract, or that the contract, if carried out according to its terms, would inure to his benefit, is not sufficient to entitle him to demand its fulfillment. It must appear to have been the intention of the parties to secure to him personally the benefit of its provisions.' [Citation.]" (Ibid., italics omitted.)
"Generally, it is a question of fact whether a particular third person is an intended beneficiary of a contract. [Citation.] However, where... the issue can be answered by interpreting the contract as a whole and doing so in light of the uncontradicted evidence of the circumstances and negotiations of the parties in making the contract, the issue becomes one of law that we resolve independently." (Prouty, supra, 121 Cal.App.4th at p. 1233.)
The only evidence of the "contract" between Construction and First Co. are copies of the invoices that First Co. enclosed with the HVAC units. Those invoices clearly show that First Co. billed Construction for the units. The fact that the HVAC units were delivered to the Woodfin Suites Hotel construction site does not indicate that First Co. was aware of who owned the hotel. In fact, it appears that First Co. may not have been aware that a third party even existed, since its only dealings were with Construction. First Co.'s representative testified that at the time of the sale of the units, he thought that Construction and the Woodfin Suites Hotel were the same entity. First Co. could not have intended to benefit a third-party owner of the hotel who First Co. was not even aware existed.
Because Hotels did not allege in its complaint facts from which one could conclude that it was a third-party beneficiary of the sales contract between Construction and First Co., and because there is no evidence that Hotels was an intended third-party beneficiary of that contract, the trial court did not err in declining Hotels's request to instruct the jury with respect to a third-party beneficiary theory.
b. Instruction on the express warranty's purported disclaimer of implied warranties
In a trial brief, Hotels requested that the trial court determine that the express warranty's purported disclaimer of any implied warranties was insufficient as a matter of law. The trial court did not rule on the issue. At trial, when the parties and the trial court were discussing proposed jury instructions, First Co. suggested that the court instruct the jury with CACI 1242 "Affirmative Defense―Exclusion of Implied Warranties." Hotels objected to giving this instruction and argued that the court should decide the issue of whether the implied warranties were disclaimed, as a matter of law. The trial court agreed not to instruct the jury with CACI 1242, but made no determination as to whether the purported disclaimer was insufficient as a matter of law.
During closing argument, First Co.'s counsel referred to the portion of the express warranty that purports to disclaim liability for consequential damages. The court did not instruct the jury with respect to any purported disclaimer of consequential damages.
On appeal, Hotels suggests that the trial court should have determined as a matter of law that none of the purported disclaimers in the express warranty were sufficient, and should therefore have instructed the jury to disregard the disclaimer language. Hotels contends that the lack of an instruction on this issue may have confused the jury and caused the jury to fail to award Hotels all of the damages to which Hotels believes it was entitled.
The problems with Hotels's argument concerning the lack of instruction as to the purported disclaimer of any implied warranties in the express warranty are twofold. First, the argument that the court should have instructed the jury to disregard the purported disclaimer is irrelevant because the jury rejected Hotels's claims for breaches of the implied warranty of merchantability and the implied warranty of fitness. Specifically, the jury found that Hotels had not purchased the HVAC units from First Co.―a finding that precludes recovery on either of the implied warranty causes of action. (See Fieldstone Co. v. Briggs Plumbing Products, Inc. (1997) 54 Cal.App.4th 357, 371 [" 'Vertical privity is a prerequisite in California for recovery on a theory of breach of the implied warranties of fitness and merchantability. [Citations.]' [Citation.] '[T]here is no privity between the original seller and a subsequent purchaser who is in no way a party to the original sale. [Citations.]' [Citation.]"].) Further, with respect to the claim pertaining to the implied warranty of fitness, the jury found that the HVAC units were suitable for the particular purpose for which Hotels wanted to use them, thereby concluding that there was no breach of the implied warranty of fitness.
Second, to the extent that Hotels is also complaining that an instructional error with respect to the purported disclaimers caused the jury to be confused as to how to award Hotels consequential damages pursuant to its express warranty claim, this argument is irrelevant in view of our determination that the trial court correctly granted First Co.'s motion for JNOV on Hotels's express warranty claim.
B. Construction's appeal
Construction appeals from the judgment entered against it on First Co.'s cross-complaint. Construction contends that the trial court erred in denying its motion to dismiss First Co.'s cross-complaint on the ground that the parties had settled First Co.'s claims against Construction. Construction further contends that it should recover the costs it incurred defending against First Co.'s cross-complaint.
1. Additional background
First Co. served its section 998 offer to compromise on Construction on November 13, 2007. That offer provided:
"PLEASE TAKE NOTICE that defendant, FIRST CO., hereby offers to settle the above-entitled action pursuant to section 998 of the Code of Civil Procedure on the following terms and conditions:
"1. FIRST CO., through its insurance carrier, will pay plaintiff, HARDAGE CONSTRUCTION CORPORATION, the sum of eighteen thousand, seven hundred dollars ($18,700.000);
"2. HARDAGE CONSTRUCTION CORPORATION will dismiss its complaint against FIRST CO., with prejudice;
"3. HARDAGE CONSTRUCTION CORPORATION will release all of its claims against FIRST CO. arising out of this action, pursuant to Cal. Civ. Code § 1542.
"4. Both parties to bear their own attorneys fees and costs.
"If you accept this offer, please date and sign the accompanying Notice of Acceptance, and file this offer and Notice of Acceptance in the above-entitled action prior to trial or within 30 days after this offer is made, which ever occurs first, or else it will be deemed withdrawn."
On November 14, First Co. filed a motion for leave to file its FACC, in which it named Construction as a defendant. The FACC asserted causes of action against Construction for equitable indemnity, apportionment of fault, contribution, and declaratory relief.
On November 16, counsel for Construction executed the notice of settlement acceptance form that First Co. had included with its offer to compromise. The acceptance form states in relevant part:
"NOTICE IS HEREBY GIVEN that Plaintiff, HARDAGE CONSTRUCTION CORPORATION, hereby accepts the offer of settlement made by Defendant, FIRST CO., and agrees to dismiss its complaint against FIRST CO., with prejudice, and to provide FIRST CO. with a release of all claims pursuant to Cal. Civ. Code § 1542, in exchange for the sum of eighteen thousand, seven hundred dollars ($18,700.00), each party to bear their own attorney's fees and costs."
It appears that Construction served First Co. with the notice of settlement acceptance on November 19.
The parties appear to agree that the notice was either "issued" or "served" on November 19, 2007. The document provided in the record bears a date-stamp of November 19, 2007, although the stamp does not indicate who stamped the date on the document, or why it was done.
On November 26, counsel for Construction sent counsel for First Co. a letter reiterating that Construction had accepted First Co.'s offer to settle and requesting immediate payment of the settlement amount. The following day, November 27, First Co.'s attorney sent a letter to Construction's attorney requesting that Construction sign a Civil Code section 1542 waiver and dismiss its complaint against First Co., with prejudice, and indicating that after the settlement documents were signed, First Co. would forward a check to Construction. Enclosed with the letter was a six-page settlement agreement and "general release" that First Co. asked Construction to sign.
On December 3, Construction filed its opposition to First Co.'s motion for leave to amend its cross-complaint. Construction argued that First Co. had improperly turned the affirmative defenses of "right to offset, " "failure to mitigate, " "improper use, " and "failure to maintain" into affirmative causes of action against Construction. Construction also opposed First Co.'s motion on the ground that "First Co. and Hardage Construction Company have resolved their claims against one another."
On December 7, First Co.'s attorney sent Construction's attorney a revised settlement agreement and release form for signature. In the December 7 letter, counsel for First Co. states, "Enclosed please find a revised Settlement [a]nd Release Agreement, which contains signature lines for First Co. and our office. You will also note the revised Settlement Agreement has been modified to make it clear that First Co. is not releasing its claims against Hardage Construction Corporation as part of this settlement, or otherwise."
The trial court granted First Co.'s motion to file its FACC on December 14, and deemed the FACC filed as of that date.
On December 20, 2007, counsel for Construction sent a letter to First Co.'s attorney "regarding the settlement between Hardage Construction Corp.... and [First Co.]." In that letter, Construction's counsel stated:
"Hardage Construction and First Co. reached the settlement when Hardage Construction accepted First Co.'s CCP Section 998 Offer to Compromise. First Co.'s offer, dated November 12, 2007, contains the following four terms only:
"1. First Co. through its insurance carrier, will pay plaintiff, Hardage Construction $18,700;
"2. Hardage Construction will dismiss its complaint against First Co. with prejudice;
"3. Hardage Construction will release all of its claims against First Co. arising out of this action, pursuant to Civil Code Section 1542; and
"4. Both parties to bear their attorney fees and costs." (Italics in original.)
The December 20, 2007 letter also states,
"First Co. has since requested that Hardage Construction sign an agreement, purportedly to memorialize the settlement. However, the agreement proposed by First Co. contains additional terms that are not a part of the binding agreement between Hardage Construction and First Co. For example, on December 7, 2007, First Co. forwarded a proposed agreement that would require Hardage Construction to 'indemnify and hold harmless' First Co. against all other claims related to this action.... Another provision attempts to extend Hardage Construction's release to parties that are 'joint venturers' with Hardage Construction.... First Co. also attempts to introduce an attorney fee provision through the proposed agreement.... None of these terms were set forth in First Co.'s offer or Hardage Construction's acceptance."
On January 14, 2008, Construction filed an answer to First Co.'s FACC. The first paragraph of the answer states that Construction and First Co. "reached a binding settlement agreement ('the Agreement') on November 16, 2007, when HARDAGE CONSTRUCTION accepted FIRST CO.'s Code of Civil Procedure Section 998 Offer to Compromise. The Agreement bars, precludes, supersedes, and renders void all causes of action asserted by [FIRST CO.] against HARDAGE CONSTRUCTION. HARDAGE CONSTRUCTION's answer to the cross-complaint is therefore unnecessary. However, out of an abundance of caution, HARDAGE CONSTRUCTION answers the cross-complaint, but by doing so HARDAGE CONSTRUCTION does not waive any of its rights under the Agreement, nor does it relieve FIRST CO. of any of its obligations under the Agreement."
Despite the apparent disagreement between Construction and First Co. as to the scope of their settlement agreement, on January 29, 2008, Construction signed a document entitled "Waiver of California Civil Code Section 1542." On February 6, Construction filed with the court a request for dismissal, requesting that the court dismiss Construction's complaint against First Co. The court dismissed Construction's complaint that day.
Construction filed a motion in limine requesting that the court dismiss First Co.'s cross-complaint against Construction. The trial court deferred ruling on the motion until after the jury returned a verdict, but instructed the attorneys that they were not to mention the issue of First Co.'s potential claim against Construction for equitable indemnity.
The special verdict form asked the jury to apportion fault for Hotels's damages among First Co., Hotels, and Construction. As noted above, the jury found that First Co. was 48 percent at fault, Hotels was 18 percent at fault, and Construction was 34 percent at fault.
On June 12, 2008, during the hearing at which the court heard argument concerning First Co.'s motion for JNOV and its motion for credits and offsets, the court indicated that it would entertain a motion by Construction regarding the dismissal of First Co.'s cross-complaint against it.
On July 3, Construction filed a formal motion to dismiss First Co.'s cross- complaint. After full briefing on the issue, on July 30, the trial court issued a tentative ruling denying Construction's motion to dismiss the cross-complaint. The court heard oral argument from the parties on August 1. At the conclusion of that hearing, the court confirmed its tentative ruling and issued a minute order denying the motion to dismiss First Co.'s cross-complaint. The court's order provides in pertinent part:
"First Co.'s Code of Civil Procedure § 998 offer does not include any language that releases and dismisses First Co.'s claims against HCC [i.e., Construction]. Instead, the Code of Civil Procedure § 998 offer contains language that only releases HCC's claims against First. Co. and dismisses HCC's complaint against First Co. with prejudice. [Citation.]
"Moreover, HCC's notice of acceptance does not include any language that releases First Co.'s claims against HCC. [Citation.] Rather, HCC's notice of acceptance states that HCC 'hereby accepts the offer of settlement made by Defendant, FIRST CO., and agrees to dismiss its complaint against FIRST CO., with prejudice, and to provide FIRST CO. with a release of all claims pursuant to Cal. Civ. Code § 1542, in exchange for the sum of eighteen thousand, seven hundred dollars ($18,700.00), each party bearing their own attorney's fees and costs.'
"In addition, HCC's December 20, 2007 letter to First Co. acknowledges the terms and conditions of the Code of Civil Procedure § 998 offer and does not contain any indication by HCC that the Code of Civil Procedure § 998 offer included a release by First Co. of its claims against HCC. [Citation.]
"Furthermore, HCC dismissed its complaint and released its claims against First Co. without a matching release from First Co. [Citation.] This course [of conduct] suggests that the settlement did not include a release of First Co.'s claims against HCC."
The court entered judgment on First Co.'s cross-complaint against Construction on August 25, 2008, in the amount of $40,313.85.
2. The trial court did not err in denying Construction's motion to dismiss First Co.'s cross-complaint against Construction
a. Contract interpretation
Because resolution of this issue requires us to interpret the settlement agreement between the parties, we turn to principles of contract interpretation for guidance. " 'The basic goal of contract interpretation is to give effect to the parties' mutual intent at the time of contracting. [Citation.] When a contract is reduced to writing, the parties' intention is determined from the writing alone, if possible. [Citation.]' [Citation.]" (Cedars-Sinai Medical Center v. Shewry (2006) 137 Cal.App.4th 964, 979 (Cedars-Sinai).) "The words of a contract are to be understood in their ordinary and popular sense....' [Citation.]" (Ibid.)
" 'When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is "reasonably susceptible" to the interpretation urged by the party. If it is not, the case is over. [Citation.] If the court decides the language is reasonably susceptible to the interpretation urged, the court moves to the second question: what did the parties intend the language to mean?' [Citation.]" (Cedars-Sinai, supra, 137 Cal.App.4th at pp. 979-980.) "Whether the contract is reasonably susceptible to a party's interpretation can be determined from the language of the contract itself or from extrinsic evidence of the parties' intent. [Citation.]" (Id. at p. 980.) "Extrinsic evidence can include the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties. [Citations.] (Ibid.) "When no extrinsic evidence is introduced or the extrinsic evidence was not relied on by the trial court or is not in conflict, we independently construe the contract. [Citation.]" (Ibid.)
" 'California recognizes the objective theory of contracts [citation], under which "[i]t is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation." ' [Citation.] ' "The parties' undisclosed intent or understanding is irrelevant to contract interpretation.' [Citation.]" (Cedars-Sinai, supra, 137 Cal.App.4th at p. 980.)
b. First Co.'s settlement offer did not include an offer to settle First Co.'s cross-complaint against Construction
The language of the settlement agreement is not reasonably susceptible to the interpretation that Construction urges. It is clear from the terms of First Co.'s offer to settle that First Co. was not offering to release any of its potential claims against Construction. A review of First Co.'s offer to compromise shows that the offer included four basic terms. Two of the proposed terms set forth Construction's obligations under the agreement: (1) Construction would dismiss its complaint against First Co. with prejudice, and (2) Construction would release any and all additional claims against First Co. under Civil Code section 1542. Another of the proposed terms set forth First Co.'s obligation under the agreement: First Co. would pay Construction $18,700. The final term set forth the parties' mutual obligation: The parties would pay their own attorney fees. None of the proposed terms included language that indicates any intent by First Co. to release its claims against Construction.
Construction nevertheless contends that First Co. offered to settle its action against Construction because First Co.'s settlement offer included introductory language that stated, "First Co. hereby offers to settle the above-entitled action pursuant to Section 998 of the Code of Civil Procedure), " and below the caption were the words "AND ALL RELATED CROSS-ACTIONS." The caption on the document appeared as follows:
"HARDAGE HOTELS III, L.L.C. AND
"HARDAGE CONSTRUCTION CORPORATION,
"Plaintiffs,
"v.
"FIRST CO., AIR CONDITIONING COMPANY, INC.
"and DOES 1 through 10, inclusive
"Defendants.
"AND ALL RELATED CROSS-ACTIONS."
Construction contends that it was "entitled to presume" that First Co. was offering "to 'settle the above-entitled action, ' including 'ALL RELATED CROSS-ACTIONS.'" Construction maintains that because the title caption on First Co.'s settlement offer included the words "ALL RELATED CROSS-ACTIONS, " the offer disclosed an intent to settle any potential cross-claims that First Co. might have had against Construction. Construction asserts that it "can properly assume the offer addresses and resolves the entire action unless it [i.e., the offer] specifically states otherwise."
Beyond the fact that the authority that Construction cites in support of this proposition does not comment on a situation similar to the one presented here, we disagree with Construction's claim that First Co.'s offer did not clearly set forth precisely what First Co. was offering. At the time that First Co. offered to settle the "above-entitled action, " First Co. had not even filed its cross-complaint. Thus, the only "action" that was pending at the time, and the only "action" mentioned in the substantive terms of the settlement offer, was Construction's action against First Co. We see no basis on which Construction could "properly assume the offer addresses and resolves" claims or a cross-complaint that had not yet been filed, particularly when the substantive terms of the offer mentioned neither such claims nor a cross-complaint, and did not state that each party would release its claims against the other.
Construction compares First Co.'s settlement offer with the settlement offer in Westamerica Bank (2007) 158 Cal.App.4th 109, and argues that the offer had to expressly exclude from its purview First Co.'s potential cross-claims against Construction. Construction notes that the offer in Westamerica Bank expressly excluded settlement of a cross-complaint, and, on this basis, concludes that a settlement offer must always expressly exclude a cross-complaint; if it does not, Construction argues, the offer should be presumed to resolve "the entire action between the parties." We reject Construction's argument that under Westamerica Bank parties should presume that all the claims against each other would be resolved in the absence of express language excluding some of those claims.
The court in Westamerica Bank described the offer to settle in that case as follows: " 'Defendants and Cross-Complainants Michelle Ross and MBG Industries, Inc. offer to have judgment taken against them on Westamerica Bank's Complaint only, pursuant to section 998 of the California Code of Civil Procedure for the total sum of Eleven Thousand One Dollars ($11,001.00), plus reasonable attorneys' fees and costs incurred by Westamerica Bank to date, if recoverable, to be determined by the Court.' " (Westamerica Bank, supra, 158 Cal.App.4th at p. 118.) The relevant language in the Westamerica Bank settlement offer that Construction cites constituted part of the substantive terms of the offer, not introductory language such as that upon which Construction relies in this case. The substantive terms of the settlement offer in this case make clear that First Co. is seeking dismissal of Construction's complaint only, just as the defendants in Westamerica Bank were offering judgment against them on only Westamerica Bank's complaint. That First Co. did not use the word "only" as in Westamerica Bank is of no significance. Again, the only complaint that existed between First Co. and Construction at the time of First. Co's settlement offer was Construction's complaint; First Co. made no offer to release its potential claims.
The fact that the court in Westamerica Bank concluded that an offer to settle only a single complaint in an action involving multiple complaints and cross-complaints was a valid settlement offer under section 998 demonstrates that a settlement offer need not dispose of all claims between the parties in order to be effective. There is no reason to presume that a settlement offer will dispose of all of the claims that the parties have against each other in the absence of substantive terms that demonstrate that is the intention of the parties. A proposal that states that the parties agree to release all pending and future claims against each other would be one method by which the parties could demonstrate their intention to dispose of both existing and potential claims between them. There was no such language in the settlement agreement in this case.
b. Even if we conclude that the settlement agreement is ambiguous, evidence of the parties' conduct after the settlement does not support Construction's proposed interpretation
Construction suggests that the trial court's interpretation of the settlement agreement is erroneous, and that the court should not have looked to the parties' post-agreement conduct in deciding the meaning of the settlement agreement. We disagree.
We have already described why the settlement agreement is not, in our view, reasonably susceptible to the interpretation that Construction suggests. However, assuming for the sake of argument that the language of the agreement is ambiguous and that it could be reasonably understood to mean what Construction claims it means―i.e., that the parties intended to resolve all claims between them, both existing and potential, and not only Construction's claims against First Co.―it is entirely appropriate to turn to extrinsic evidence to interpret the parties' agreement. (See, e.g., Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 435 [extrinsic evidence is admissible to resolve an ambiguity in a contract].)
The extrinsic evidence does not support Construction's position. Specifically, it is significant that Construction's attorney repeated the terms of the settlement agreement in a December 20, 2007 letter, and identified the parties' agreement as consisting of four terms only, none of which involves a release of First Co.'s claims against Construction. By December 20, 2007, the court had granted First Co. permission to file its FACC. Construction was thus clearly aware of the existence of First Co.'s claims at the time the letter was written, yet made no mention of those claims or their resolution in the letter.
Construction argues that in the six-page settlement agreement and "general release" that First Co. sent to Construction on November 27, after Construction notified First Co. that it was willing to accept the settlement offer, First Co. included language to the effect that the parties were settling all claims between them. Construction cites to this language in the November 27 document as evidence that the settlement offer was intended to cover First Co.'s cross-complaint claims against Construction. However, First Co. clearly notified Construction in its December 7 letter―which included a revised settlement agreement and release form―that it had sent the prior form in error, and that First Co. never had any intention of settling its claims against Construction. Even after being apprised of First Co.'s position, Construction later signed a Civil Code section 1542 waiver and dismissed its complaint against First Co.
It is problematic that Construction dismissed its own complaint and released its claims against First Co. approximately two months after the cross-complaint was filed, and after having received a letter from First Co. in which First Co. stated in no uncertain terms that its position was that the settlement agreement did not resolve First Co.'s claims against Construction. Construction had not requested, nor received, a matching release from First Co. at the time it dismissed its complaint. All of this conduct supports the conclusion that the parties' settlement agreement did not include First Co.'s claims against Construction.
c. Equity does not support Construction's position
Construction contends that it would be inequitable to permit First Co. to pursue its equitable indemnity claim against Construction and recover from Construction the amount that represents Construction's comparative fault, as determined by the jury. Construction suggests that doing so would simply allow First Co. to recoup the money it paid as a settlement to Construction, thereby undermining the purpose of Code of Civil Procedure section 998 and settlements in general. Construction also argues that by not dismissing First Co.'s cross-complaint based on the settlement agreement, this court would be permitting First Co. to "[g]ame [t]he [s]ystem." We disagree with Construction's contentions.
Construction appears to confuse its recovery pursuant to its own claims against First Co. for damages with First Co's right to indemnification by Construction for Construction's proportionate share of the damages that Hotels suffered. The jury found that Hotels suffered $182,490 in tort damages. The jury apportioned the fault among Hotels, Construction, and First Co. In the absence of First Co.'s cross-complaint against Construction, First Co. would have to pay the entire damage amount, reduced by Hotels's 18 percent apportionment and by the amounts paid by ACCO and Nicodemus Plumbing, because Hotels did not sue its related entity, Construction, and did not appear to be interested in seeking recovery from Construction. In other words, without an equitable indemnity claim, First Co. would have a judgment against it for an amount that represented both its share of liability for the damages, as well as joint tortfeasor Construction's share of the liability for the damages.
The judgment that First Co. received on its cross-complaint seeking Construction's proportionate share of the liability for Hotels's damages does not represent a recovery of the settlement payment that First Co. made to Construction to resolve Construction's claims against First Co. for its own personal damages.
We similarly reject Construction's contention that "because First Co. could seek the benefits of its Cross-Complaint if the offer were not accepted... it is entirely inequitable for First Co. to maintain its Cross-Complaint after HCC accepted the 998 offer." Construction is essentially arguing that if it had not settled with First Co., and instead had obtained a judgment against First Co. after trial, that judgment would have to be offset by any amount that First Co. recovered pursuant to its cross-complaint. Under this scenario, Construction would be more likely to have to pay First Co.'s costs because Construction's net recovery would likely be less than the amount that First Co. offered to settle the case. However, First Co.'s cross-complaint does not allege that First Co. suffered direct damages as a result of Construction's negligence, nor does it seek indemnity from Construction for Construction's comparative negligence for damages suffered by First Co. Rather, First Co.'s cross-complaint seeks indemnity from Construction for Hotels's damages. Thus, there would have been no offset of Construction's judgment against First Co. for any amount that Construction had to pay First Co. to indemnify First Co. for Construction's portion of the damages suffered by Hotels.
The trial court did not err in denying Construction's motion to dismiss First Co.'s cross-complaint. Construction is therefore not entitled to the costs of defending against the cross-complaint.
IV
DISPOSITION
The judgment is affirmed. Because we affirm the judgment, First Co.'s protective cross-appeal is dismissed as moot. First Co. is entitled to costs on appeal.
WE CONCUR: McINTYRE, Acting P. J.IRION, J.
"1. That [name of defendant] [insert one or more of the following:]
"[made a [statement of fact/promise] [to/received by] [name of plaintiff] that the [product] [insert description of alleged express warranty];] [or]
"[gave [name of plaintiff] a description of the [product];] [or]
"[gave [name of plaintiff] a sample or model of the [product];]
"2. That the [product] [insert one or more of the following:]
"[did not perform as [stated/promised];] [or]
"[did not meet the quality of the [description/sample/model];]
"3. [That [name of plaintiff] took reasonable steps to notify [name of defendant] within a reasonable time that the [product] was not as represented, whether or not [name of defendant] received such notice;]
"4. That [name of plaintiff] was harmed; and
"5. That the failure of the [product] to be as represented was a substantial factor in causing [name of plaintiff]'s harm."
[ product ]."