T. M. Cobb Co. v. Superior Court

• Decision Date: 02 July 1984
• Docket Number: S.F. 24572
• Citation: 204 Cal.Rptr. 143,36 Cal.3d 273,682 P.2d 338
• Parties: , 682 P.2d 338 T.M. COBB COMPANY, INC., Petitioner, v. The SUPERIOR COURT of Marin County, Respondent; Sherre STURM et al., Real Parties in Interest.
• Court: California Supreme Court

Page 143

204 Cal.Rptr. 143

36 Cal.3d 273, 682 P.2d 338

T.M. COBB COMPANY, INC., Petitioner, v. The SUPERIOR COURT of Marin County, Respondent Sherre STURM et al., Real Parties in Interest.

S.F. 24572.

Supreme Court of California In Bank.

July 2, 1984.

Charles D. McPhee, Jr., Hardy & McPhee, San Francisco, for petitioner.

Soni Leighton, Michael D. Nelson Inc., Danville, for real parties in interest.

BIRD, Chief Justice.

The sole issue presented by this case is whether an offer of compromise made pursuant to section 998 of the Code of Civil Procedure is revocable.

I.

The relevant facts are not in dispute. Real parties in interest, Sherre Sturm and William Conrow (hereafter, real parties), sued petitioner, T.M. Cobb Company, Inc., and others for the negligent design and construction of real parties' residence. Cobb was the manufacturer and supplier of approximately 60 units of sash and glass for the windows used in the construction of the residence. Extensive leaks developed in and around the windows after construction was completed. ¹

On July 21, 1982, real parties mailed to petitioner an offer to compromise pursuant to section 998 of the Code of Civil Procedure. ² In the offer, real parties proposed a settlement in the amount of $10,000. In a declaration to the trial court, real parties' attorney stated that on or about August 16, 1982, petitioner made a counteroffer of $7,000 or $8,000 on the condition the offer be accepted that day. The counteroffer was rejected, and the parties continued the discovery process.

Several depositions were taken in August. The deposition testimony suggested that petitioner was considerably more culpable than real parties had realized at the time the original offer was made. As a result, on August 20, 1982, real parties wrote to petitioner stating that they were revoking their offer of July 21st. Petitioner received the letter the following day. In a letter to real parties dated August 25, 1982, petitioner acknowledged that it had received real parties' letter purporting to revoke their offer. Petitioner nevertheless stated that it was accepting real parties' offer of July 21st. On the same day, petitioner filed its "acceptance" in superior court pursuant to section 998. ³

Real parties then filed a motion to strike petitioner's acceptance and petitioner filed a motion for entry of judgment in accordance with the offer. The superior court granted real parties' motion to strike and denied petitioner's motion for entry of judgment.

Petitioner now seeks a peremptory writ of mandate directing the superior court to vacate its order striking petitioner's acceptance and to grant petitioner's motion to enter judgment in accordance with the offer.

II.

This court must decide whether an offer of compromise made pursuant to section 998 may be revoked by the offeror prior to its acceptance by the offeree.

Section 998, subdivision (b) provides: "Not less than 10 days prior to commencement of the trial as defined in subdivision 1 of Section 581, any party may serve an offer in writing upon any other party to the action to allow judgment to be taken in accordance with the terms and conditions stated at that time. If such offer is accepted, the offer with proof of acceptance shall be filed and the clerk or the judge shall enter judgment accordingly. If such offer is not accepted prior to trial or within 30 days after it is made, whichever occurs first, it shall be deemed withdrawn, and cannot be given in evidence upon the trial."

"The fundamental rule of statutory construction is that the court should ascertain the intent of the Legislature so as to effectuate the purpose of the law. [Citations.]" (Select Base Materials v. Board of Equal. (1959) 51 Cal.2d 640, 645, 335 P.2d 672; accord Martinez v. Traubner (1982) 32 Cal.3d 755, 758, 187 Cal.Rptr. 251, 653 P.2d 1046; Moyer v. Workmen's Comp. Appeals Bd. (1973) 10 Cal.3d 222, 230, 110 Cal.Rptr. 144, 514 P.2d 1224.) In determining such intent, the court must first look to the words of the statute. (Ibid.)

Section 998 is completely silent as to the revocability or irrevocability of offers made pursuant to that section. The statute does provide, inter alia, for termination by operation of law: an offer "shall be deemed withdrawn" if it "is not accepted ... within 30 days after it is made ...." Petitioner asserts that this language signifies that the offer is irrevocable for those 30 days. However, real parties contend that the use of the word "withdrawn" in section 998 indicates that offers made pursuant to that section are revocable prior to acceptance.

Both parties read too much into the above-quoted language. This language addresses only the effect that a lapse of a prescribed period of time--30 days--will have on an offer made pursuant to the statute. Upon expiration of the 30-day period, the offer is considered withdrawn, and it may no longer be accepted. That is not the situation here. The statute does not address whether an offeror may voluntarily withdraw his or her offer prior to acceptance by the offeree and prior to the expiration of the 30-day period. Nothing in the quoted language of the statute resolves the question whether such an offer is revocable or irrevocable. ⁴

It is a well-established principle of contract law that an offer may be revoked by the offeror any time prior to acceptance. (Civ.Code, § 1586; Grieve v. Mullaly (1930) 211 Cal. 77, 79, 293 P. 619; 1 Witkin, Summary of Cal.Law (8th ed. 1973) Contracts, § 122, p. 122; Rest.2d Contracts, § 42.) In light of this firmly established principle of contract law, it is clear that if the Legislature intended to make section 998 offers irrevocable, it would have expressly and unequivocally said so. ⁵ It did not. In the absence of such language, the general rule that offers may be revoked prior to acceptance should apply.

Petitioner argues, however, that under section 998, general contract law has no applicability until after an offer has been made and accepted. Relying on the recent Court of Appeal decision in Gallagher v. Heritage (1983) 144 Cal.App.3d 546, 192 Cal.Rptr. 614, petitioner argues that general contract law principles simply do not apply to the process of offer and acceptance under the statute. In Gallagher, the court held that "[o]nce a statutory offer is made and the time for acceptance [has] expired, the offeror is cloaked with the protections provided in [section 998]," (id., at p. 550, 192 Cal.Rptr. 614) and the offer may not be revoked by a subsequent oral offer. (Id., at pp. 547-548, 192 Cal.Rptr. 614.) In reaching its conclusion, the Court of Appeal stated that "when an acceptance has not been effected [pursuant to section 998], contract law has no applicability." (Ibid.)

The Gallagher court did not clearly state why it felt contract law had no applicability. The court appears to have reasoned that general contract law does not apply to the process of offer and acceptance under section 998 because the "timeliness, manner and method of offer and acceptance, is set forth in [section 998]." (Gallagher, supra, 144 Cal.App.3d at p. 550, 192 Cal.Rptr. 614, fn. omitted.) However, this reasoning is not persuasive. Section 998 addresses some, but not all, of the aspects of the offer and acceptance process. As previously noted, it has no provision regarding the revocability of section 998 offers. (Ante, p. 145 of 204 Cal.Rptr., p. 330 of 682 P.2d) Nor does it address the effect of a subsequent statutory offer on a prior statutory offer. These questions can only be answered by turning to general principles of contract law.

Unlike the Gallagher court, other courts have applied general contract law principles to statutory offers of compromise. For example, in Distefano v. Hall (1968) 263 Cal.App.2d 380, 385, 69 Cal.Rptr. 691, defendants' second statutory offer was held to have extinguished their first statutory offer in accord with the general contract rule that a subsequent offer made prior to acceptance extinguishes and replaces a prior offer. ⁶ The Court of Appeal reasoned "that the theory of section 997 ⁷ is that the process of settlement and compromise is a contractual one, and the applicable principles are those relating to contracts in general [citation]." (Id., at p. 385, 69 Cal.Rptr. 691.)

And, in Ward v. Superior Court (1973) 35 Cal.App.3d 67, 69, 110 Cal.Rptr. 501, a purported revocation of a section 998 offer was held to be ineffective because it had not been communicated directly to the offeree as required by well-established principles of contract law. Citing Distefano, the court noted that "acceptance [of a statutory offer of compromise] is governed by the basic laws of contract." (Ward v. Superior Court, supra, 35 Cal.App.3d at p. 69, 110 Cal.Rptr. 501.)

The reasoning in Distefano and Ward is persuasive. Since section 998 involves the process of settlement and compromise and since this process is a contractual one, it is appropriate for contract law principles to govern the offer and acceptance process under section 998. There is no reason to postpone the application of contract law principles until after an offer has been made and accepted. ⁸

Of course, general contract law principles should apply to section 998 offers and acceptances only where such principles neither conflict with the statute nor defeat its purpose. (See Distefano, supra, 263 Cal.App.2d at pp. 384-385, 69 Cal.Rptr. 691.) As recognized in numerous Court of Appeal decisions, the clear purpose of section 998 and its predecessor, former section 997, is to encourage the settlement of lawsuits prior to trial. (Shain v. City of Albany, supra, 106 Cal.App.3d at pp. 298-299, 165 Cal.Rptr. 69; Brown v. Nolan (1979) 98 Cal.App.3d 445, 449, 159 Cal.Rptr. 469; Distefano v. Hall, supra, 263 Cal.App.2d at p. 385, 69 Cal.Rptr. 691; Bennett v. Brown (1963) 212 Cal.App.2d 685, 688, 28 Cal.Rptr. 485.) Both parties contend that their position best effectuates that...