Mustang Equipment, Inc. v. Welch

Citation564 P.2d 895,115 Ariz. 206
Decision Date04 May 1977
Docket NumberNo. 13040--PR,13040--PR
PartiesMUSTANG EQUIPMENT, INC., a corporation, Appellant, v. Ronald G. WELCH, Appellee. Ronald G. WELCH, Appellant and Cross-Appellee, v. The MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, Appellee and Cross-Appellant.
CourtSupreme Court of Arizona
Renaud, Cook, Miller & Cordova by John H. Seidel, Phoenix, for appellant

John R. Elliott, Phoenix, for appellant and cross-appellee.

Fennemore, Craig, von Ammon & Udall by Roger C. Mitten and Ruth V. McGregor, Phoenix, for appellee and cross-appellant.

HAYS, Justice.

We are asked in this case to decide whether the nondisclosure of a pretrial covenant not to execute, made between the plaintiff and one of three codefendants, has any effect on, 1) the trial litigated without the knowledge that such pretrial agreements existed, and (2) the validity and enforceability of the covenant itself as between the agreeing parties.

This case comes to us on a petition for review. The facts and procedural background necessary for our determination of this matter are as follows.

On February 18, 1972, the vehicle which the plaintiff below, Ronald G. Welch, was driving was struck in the rear by a truck owned by Mountain States Telephone & Telegraph (hereafter 'Mountain States') and driven by one Jose Lopez, an employee of Mountain States. A complaint was filed by Welch on January 22, 1973, naming Lopez and Mountain States as defendants.

Within a few days of the filing of the complaint, a conference took place between the plaintiff's attorney and the attorney for Mountain States. A representative of Mountain States was also present. While there was no evidence adduced at trial nor was there any testimony taken at any of the post-trial proceedings to indicate for the record precisely what took place at that meeting, we are able to glean the substance of that conference from certain affidavits filed with the post-trial motions and from a letter written soon after the meeting which apparently confirmed the agreements reached therein.* It appears that Mountain States had investigated the accident and had come up with a third defendant, Mustang Equipment, Inc. (hereinafter 'Mustang') against whom the plaintiff might Neither Mustang nor its attorneys were made aware of the above-described agreement at any time prior to or during the litigation of the personal injury action. In fact, the letter written by Mountain States' attorney and set forth in the footnote, Supra, specifically requested that the letter and its contents, which confirmed the agreement not to execute, be withheld from Mustang and its representatives. Neither was the trial court at any time prior to or during the trial made cognizant of the existence of the agreement.

successfully pursue a claim. Mountain States, according to the affidavit of the plaintiff's attorney, offered to provide the plaintiff with the name of the third defendant and with a certain engineer's report concerning the then unnamed party if the plaintiff would agree not to execute against Mountain States in the event that judgment were rendered against both Mountain States and the then unnamed defendant. The plaintiff agreed and thereafter amended his complaint to include Mustang as a defendant. Mountain States then cross-claimed against Mustang for the damage done to its vehicle.

In any event, the personal injury suit proceeded in normal fashion through the discovery stages and into trial. The jury returned a verdict in favor of the plaintiff, Welch, and defendant Lopez and against both Mountain States and Mustang in the amount of $20,000. After the time for appeal had run under rule 73(b), Rules of Civil Procedure, 16 A.R.S., Welch, via counsel, made a demand upon Mustang for payment of the full amount of the judgment. After inquiry as to why the plaintiff sought to collect the full amount from his client instead of from both corporate defendants, Mustang was informed for the first time of the Welch-Mountain States agreement that Welch would execute solely against Mustang if the verdict came back against both defendants, as in fact it did.

Pursuant to rule 60(c), Arizona Rules of Civil Procedure, 16 A.R.S., Mustang filed a Motion for Relief from the Judgment. Mustang's motion was subsequently denied by the trial court and an appeal was taken to the Court of Appeals, Division One.

In the meantime, the plaintiff, having been resisted in his attempt to execute against Mustang, sought to execute against Mountain States. Mountain States thereupon applied for an injunction and stay of execution and further filed a rule 60(c) motion for relief from the judgment, relying on the agreement. While the trial court denied Mountain States' motion for relief from the judgment, it granted it an injunction and stay of execution pending the determination of the appeal by Mustang of the denial of its rule 60(c) relief. Welch filed an appeal from the court's order enjoining and staying execution, and Mountain States cross-appealed from the portion of the court's order denying its motion for relief.

The two appeals were consolidated by the Court of Appeals who reversed both orders and remanded the cause for a new trial. The Court of Appeals decision in this matter is vacated.

In recent years the courts of this jurisdiction have approved certain pretrial agreements, commonly known as 'Gallagher agreements,' made between a plaintiff and one of several codefendants which deal with how the agreeing defendant's liability, if any, will be handled after the verdict is rendered. City of Tucson v. Gallagher, 108 Ariz. 140, 493 P.2d 1197, 65 A.L.R.3d 597 (1972); Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (1969); Hemet Dodge v. Gryder, 23 Ariz.App. 523, 534 P.2d 454 (1975); City of Glendale v. Bradshaw, 16 Ariz.App. 348, 493 P.2d 515 (1972), Supplemented on rehearing, 16 Ariz.App. 483, 494 P.2d 383 (1972), Aff'd in part, rev'd in part, 108 Ariz. 582, 503 P.2d 803 (1972); Cf. Ulan v. Richtars, 8 Ariz.App. 351, 446 P.2d 255 (1968). As stated earlier, the question presented here is whether the failure to disclose the existence of such an agreement prior to or at trial either invalidates the agreement or in any way does harm to the integrity of the trial.

Preliminary to our consideration of the effect that the nondisclosure of the agreement Meeting first the contentions that the covenant is unsupported by consideration, we find his argument to be without merit. By the terms of the agreement, the plaintiff promised not to execute upon Mountain States in the event both defendants were found negligent while obtaining immediate access to a new and potentially liable defendant and an engineer's report which apparently tended to place the fault of the accident on that defendant. Consideration consists of a benefit to one party or a detriment to the other. Grant v. White, 103 Ariz. 257, 439 P.2d 828 (1968). While it is true that the plaintiff would have eventually obtained both the report and the additional defendant's name had he followed the normal channels of discovery, by obtaining the information in this manner he both expedited receipt of the information and obviated the need for at least a certain amount of discovery and/or investigation. Clearly, Welch was conferred a benefit under the terms of the agreement. Mountain States, on the other hand, was relieved by the agreement of its financial responsibilities if the verdict resulted in joint liability. Forbearance to assert a legal claim is valid consideration. Gill v. Kreutzberg, 24 Ariz.App. 207, 537 P.2d 44 (1975). We hold that there was valid and mutual consideration sufficient to support the Welch-Mountain States agreement.

may have on our disposition of this case, we must first consider whether the Welch-Mountain States agreement of this case is, in and of itself and with nondisclosure aside, a valid and binding Gallagher agreement. Welch argues that the agreement is unsupported by consideration and thus is unenforceable. Welch further contends that even if it is enforceable, it is distinguishable from the agreements involved in Gallagher, Bradshaw and Hemet Dodge and therefore, he argues, the holdings of those cases have no precedential value in our determination of this matter.

The plaintiff's contention that the Welch-Mountain States covenant is not a so-called Gallagher agreement is also without merit. Although the Welch-Mountain States agreement is concededly different in its specific terms and conditions from those considered and approved in Gallagher, Bradshaw and Hemet Dodge, we perceive the differences to be a matter of degree and not substance. In those cases, an agreement was reached between the plaintiff and one or more, but not all, of the defendants which dealt with how the judgment would be collected, if at all, from the agreeing defendant after the trial. Under the agreements the cooperating defendant stood to limit or extinguish his liability to the plaintiff while conferring on the plaintiff the benefit of a guaranteed predetermined recovery. While the benefit that the plaintiff received in this case was not in terms of a guaranteed recovery, it was a benefit which most certainly enhanced the probability that a verdict would be rendered in his favor and it expedited to a degree the investigatory and discovery stages of this litigation. Thus, while we recognize that the Welch-Mountain States agreement is substantially...

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    ...prompt disclosure is required to both the court and opposing counsel once such a settlement is made. 5 See Mustang Equip., Inc. v. Welch, 115 Ariz. 206, 211, 564 P.2d 895, 900 (1977); Gatto v. Walgreen Drug Co., 61 Ill.2d 513, 523, 337 N.E.2d 23, 29 (1975), cert. denied, 425 U.S. 936, 96 S.......
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