Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC379451, Mary Thornton House and Richard E. Rico, Judges.
Alexander’s Law, Thomas M. Alexander, Jr., and Jessica C. Alexander for Plaintiff and Appellant.
Garrett & Tully, Ryan C. Squire and Jennifer R. Slater for Defendant and Respondent.
GRIMES, J.
Birdie Mae Smith (plaintiff) appeals from a judgment entered pursuant to a settlement agreement under section 664.6 of the Code of Civil Procedure. Plaintiff contends the settlement agreement is invalid and, even if there was a valid agreement, the trial court lacked jurisdiction to enforce it. We affirm the court’s finding the parties reached a binding settlement agreement and complied with the requirements of section 664.6 in asking the court to retain jurisdiction to enforce it. We also affirm the court’s order permitting entry of a stipulated judgment pursuant to the settlement agreement. However, we reverse that part of the order directing execution of a written settlement agreement that included a term the parties did not orally agree upon before the court.
All further statutory references will be to the Code of Civil Procedure unless otherwise specified.
BACKGROUND
These facts are alleged in the operative verified second amended complaint: Plaintiff bought a home in Los Angeles in December 1973 and has lived there continuously since then. Beginning in 1990, plaintiff’s daughter, cross-defendant Joyce A. O’Guynn (daughter), made many fraudulent transfers of title to the home, using her name and aliases and forging the signatures of plaintiff and others. In 2006, the daughter fraudulently transferred title to the property to Carol Scott, receiving about $330,000 in sale proceeds. Ms. Scott signed two promissory notes secured by two deeds of trust in favor of New Century Mortgage in the amounts of $384,000 and $96,000, which were recorded against the property. New Century Mortgage later assigned the notes and deeds of trust to defendant U.S. Bank (bank). Ms. Scott never made a payment on the two loans, and the bank recorded a notice of trustee’s sale. Plaintiff was unaware of her daughter’s fraudulent activities until she received notice of the trustee’s sale. In September 2007, the bank acquired the property at a foreclosure sale for $430,349. Shortly after the bank recorded its trustee’s deed, plaintiff filed this lawsuit, claiming the bank never acquired valid title to the property because the transactions that led to the defaulted loans were fraudulent.
The bank filed a cross-complaint against the daughter for indemnity and declaratory relief. The bank alleged its trustee’s deed is valid and enforceable but that if plaintiff were to prevail in her claim the deed is not valid, then the daughter was liable to the bank because her fraud caused it to sustain damages. The bank alleged its damages included not only the amount paid for the property at the trustee’s sale but also all attorney fees and costs in defending plaintiff’s claims and prosecuting its cross-complaint under the tort of another doctrine. The bank also alleged that plaintiff was either a knowing participant in the fraud or negligently permitted her daughter to conduct the various fraudulent transactions.
Plaintiff, her daughter, the bank, and its title insurer engaged in extensive negotiations at a mandatory settlement conference with the assistance of the Honorable Owen Lee Kwong, an experienced full-time settlement judge. On April 21, 2009, the parties reached a settlement agreement and returned to the trial courtroom of the Honorable Mary Thornton House to state their agreement on the record and ask the court to retain jurisdiction to enforce it. Counsel for the bank stated the settlement on the record:
“MR. GARRETT: With the court’s permission, we’re prepared to recite on the record a settlement agreement that was negotiated very extensively and aggressively by Judge Kwong for much of the day today. [¶]... [¶] The terms of the settlement are as follows:
“Number 1. Payment by North American Title Insurance Company on behalf of U.S. Bank to Birdie Smith of $15,000 upon execution and delivery to me of the following: a dismissal with prejudice, a stipulated judgment of possession for all who presently live in the property or who may live in the property at the time of eviction, if eviction were to become necessary. And third, the signed settlement agreement consistent with these term. [¶]
“Next, all claims by Plaintiff Birdie Smith versus the bank and everyone except Joyce O’Guynn are released. [¶]
“Next, if the Plaintiff or someone on her behalf buys the property or the property is fully vacate[d] and left in broom-clean condition, reasonable wear and tear excepted, by 5:00 p.m. August 19, 2009, North American Title shall pay to Birdie Smith an additional $15,000. Time is of the essence. If she does not either purchase the property or cause it to be vacated by 5:00 p.m.[, ] August 19, 2009, this second payment shall not be made and the bank shall have the right to forthwith file an unlawful detainer judgment and evict Plaintiff and anyone else from the property.
“Next, North American Title Insurance Company shall assign to Ms. Smith, without recourse, an undivided 50 percent interest in North American Title’s subrogation rights versus Joyce O’Guynn. The impact of that is that if Ms. O’Guynn does not honor a commitment that she’ll be making in a moment here to assist Ms. Smith, her mother, in purchasing this property, then the bank’s rights will have the right to be enforced by way of subrogation, and that would be a very substantial claim against Ms. O’Guynn, including the $30,000 that would be paid here and very substantial attorneys’ fees.
“Next, Garrett & Tully shall forthwith prepare a settlement agreement consistent with this agreement.
“Next, this agreement is enforceable under Code of Civil Procedure section 664.6. [¶]
“Next, Joyce O’Guynn will make her best efforts to assist her mother, Birde Smith, in purchasing the property from the bank. If she is not successful, Joyce O’Guynn is subject to full prosecution of all subrogation rights from North American Title.
“Next, this court retains jurisdiction to enforce this agreement.”
The trial court then asked each party whether they understood and accepted the terms of the settlement.
“THE COURT:... Ms. Smith, do you understand these terms and conditions of the settlement?
“THE PLAINTIFF: I understand, but I don’t see it being enforced.
“THE COURT: Well
“MR. GAUGH [plaintiff’s counsel]: Her concerns are her daughter’s performance.
“THE COURT: Okay. There seems to be conditions attached to that.
“MR. GARRETT [the bank’s counsel]: And there’s very substantial sanctions if she does not, very substantial.
“THE COURT: My question to you is, Ms. Smith, despite your concerns, do you still agree to the conditions we just talked about?
“THE PLAINTIFF: I’m really not sure. So much has been done. I really don’t believe -- I don’t
“THE COURT: Do you want to talk with your lawyer for a second?
“THE PLAINTIFF: Yes.”
At that point, there was a pause in the proceedings as plaintiff and her attorney discussed the settlement agreement in the hallway. With the permission of the court and plaintiff’s counsel, the daughter joined the conversation in the hallway between plaintiff and her counsel. Plaintiff then returned to the courtroom with her attorney and the exchange continued:
“THE COURT:... Ms. Smith, have you had a chance to talk with your attorney and have you gotten the ability to reflect on the conditions of the settlement that were read in court just a few minutes ago?
“THE PLAINTIFF: Yes, I’ve had a chance to talk with him.
“MR. GAUGH [plaintiff’s counsel]: Your honor
“THE COURT: Based upon that discussion, my question is pretty simple. And I will tell you, you know, most people don’t leave the courtroom happy. They’ve had to make a compromise, which I suspect is what happened here. So I can empathize or I understand what you’re feeling. [¶] But my question is, based on what the settlement is, are you willing to accept those terms and go along with the procedure that they’ve worked out?”
Plaintiff’s counsel then interjected that plaintiff wanted to be assured that her daughter was committed to the settlement before plaintiff herself agreed to the settlement. The trial court then asked the daughter whether she understood and agreed to the terms of the settlement agreement, and the daughter said yes.
The trial court then returned to question plaintiff:
“THE COURT: Ms. Smith, understanding that from your daughter, do you agree to the terms of the settlement?
“MR. GAUGH [plaintiff’s counsel]: You have to verbalize.
“THE COURT: We need to hear it.
“THE PLAINTIFF: Yes.”
A few days later, the bank circulated a written settlement agreement and stipulated judgment for signature, but plaintiff refused to sign them. Instead, she fired her attorney and obtained new counsel. The bank filed a motion to enforce the settlement agreement under section 664.6. Plaintiff opposed, arguing that she had not understood what she was agreeing to, there was no meeting of the minds, and the court had not properly retained jurisdiction to enforce the settlement. The trial court granted the motion to enforce the settlement agreement and entered the bank’s proposed order on July 29, 2009. Because plaintiff continued to refuse to sign the settlement agreement and stipulated judgment, on September 22, 2009, the court ordered the clerk of the court to execute them on behalf of plaintiff, her counsel, and the daughter. The court also ordered the bank to deliver the $15,000 settlement check to plaintiff’s counsel.
Plaintiff timely appealed and also brought a petition for writ of supersedeas before this court seeking to stay the July 29, 2009 order enforcing the settlement agreement, including a stay of eviction proceedings taken pursuant to the stipulated judgment for possession that was executed after plaintiff failed to buy the house or leave it by August 19, 2009. This court granted the petition on November 23, 2009, staying enforcement of the judgment pending appeal, on the conditions that plaintiff file a motion in the trial court within 10 days to fix the amount of an undertaking pursuant to section 917.4 and post the undertaking in the amount and manner fixed by the trial court. Further, this court ordered the stay would terminate if plaintiff failed to satisfy those conditions.
After briefing was complete, the bank moved to dismiss this appeal on the ground that plaintiff had waived her right to appeal when she cashed the $15,000 check provided to her pursuant to the terms of the settlement agreement. The bank later withdrew its motion. We will not award fees or costs to any party in connection with this motion.
STANDARD OF REVIEW
In a statutory settlement proceeding, we review the trial court’s determination of factual matters for substantial evidence, including the trial court’s determination that the parties entered into a binding settlement agreement in open court. To the extent we engage in the proper interpretation of section 664.6, including the determination whether the statutory requirements were met, we exercise our independent review. (Gauss v. GAF Corp. (2002) 103 Cal.App.4th 1110, 1116.)
DISCUSSION
1. The trial court had jurisdiction to enforce the settlement agreement.
Section 664.6 provides: “If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.” Here, the parties were present in court when the bank’s lawyer recited the terms of their agreement on the record. Each party stated his or her agreement with the terms of the settlement orally on the record before the court, including the term asking the court to retain jurisdiction to enforce their settlement agreement. (Fiege v. Cooke (2004) 125 Cal.App.4th 1350, 1353-1356 [parties and counsel discussed settlement with court before going on the record with counsel relating settlement terms; “[n]o more was necessary”].)
“A settlement agreement is a contract, and the legal principles which apply to contracts generally apply to settlement contracts.” (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 810-812; see alsoCiv. Code § 1636 [contracts must be enforced according to the “mutual intention of the parties as it existed at the time of contracting”].) “ ‘The existence of mutual consent is determined by objective rather than subjective criteria, the test being what the outward manifestations of consent would lead a reasonable person to believe. [Citation.] Outward manifestations thus govern the finding of mutual consent required by Civil Code sections 1550, 1565 and 1580 for contract formation.” (60 Cal.App.4th at p. 811.) When the parties orally agree before the court on the material terms and conditions of a proposed written settlement agreement, the fact that one or more parties later refuses to sign the written agreement does not alter the binding effect of the oral agreement. (Elyaoudayan v. Hoffman (2003) 104 Cal.App.4th 1421, 1429-1430.)
The record supports the trial court’s finding that though plaintiff was not entirely satisfied with the agreement and had concerns whether her daughter would perform, plaintiff clearly understood the terms of the settlement and agreed to them. By suing the bank, plaintiff was able to remain in her house after the bank bought it at the foreclosure sale, presumably without paying any mortgage, rent or taxes. Meantime, the bank had paid over $430,000 for the property and recorded a deed, the validity of which was in dispute. Neither party could permit the uncertainty of their situation to go on forever. Plaintiff and the bank both were motivated to resolve the dispute over the validity of title, either by plaintiff or someone on her behalf acquiring title from the bank, or by plaintiff vacating the premises and abandoning her claim that the bank’s title was invalid.
Plaintiff received valuable consideration from the bank. The bank paid plaintiff $15,000. The bank conditionally agreed to pay plaintiff an additional $15,000 if she vacated the house and left it in broom-clean condition or bought it back within 120 days. The bank also caused its title insurer to assign to plaintiff half its subrogation rights against the daughter. The presence of the title insurer at the settlement proceedings suggests the title insurer believed it faced potential liability because of the fraudulent transactions of the daughter that affected title to the property. The subrogation rights against the daughter were potentially of substantial value, even if plaintiff did not buy the house. However, the damages the bank would incur, and thus the liability of the title insurer to the bank, could be reduced or eliminated if the house were sold for enough money, either to plaintiff or to someone else, to make the bank whole.
Plaintiff’s chief contention on appeal is that the lack of specificity with regard to her daughter’s promise to help her mother in purchasing the property left the parties with an agreement to agree on a material term, not a meeting of the minds. Plaintiff points to the failure to specify how daughter would use her “best efforts” to complete the sale to highlight the deficiencies of the settlement. We explain in section 2 below why we are not persuaded by plaintiff’s arguments.
2. The best efforts clause did not render the settlement agreement vague or illusory.
Best efforts agreements have been recognized and enforced by courts since at least 1917. In the seminal case of Wood v. Lucy, Lady Duff-Gordon (1917) 222 N.Y. 88 [118 N.E. 214], Justice Cardozo, writing for the court, implied a “reasonable efforts” term in a contract. Though the contract did not promise in so many words that a clothing distributor would market a fashion designer’s creations, the court reasoned the distributor’s “promise to pay [the designer] one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly, was a promise to use reasonable efforts to bring profits and revenues into existence.” (118 N.E. at p. 215.)
Examples of common best efforts agreements include contracts for research and development (e.g., Polyglycoat Corp. v. C. P. C. Distributors, Inc. (S.D.N.Y. 1982) 534 F.Supp. 200); leases of mineral rights on a royalty basis (e.g., Nordan-Lawton Oil and Gas Corp. of Texas v. Miller (W.D.La. 1967) 272 F.Supp. 125, 135, affd. (5th Cir. 1968) 403 F.2d 946; publishing contracts (e.g., Van Valkenburgh, N. & N., Inc. v. Haden P. Co. (1972) 330 N.Y.S.2d 329 [281 N.E.2d 142] (Van Valkenburgh)); and licensing agreements (e.g., Marsu B.V. v. Walt Disney Co. (9th Cir. 1999) 185 F.3d 932, 936-937). Recently, the court in Baron Financial Corp. v. Natanzon (D.Md. 2007) 509 F.Supp.2d 501, enforced a settlement agreement in which a key term was one party’s promise to “use his best efforts to maximize the profitability” of a company. (Id. at p. 509.)
California law recognizes the enforceability of best efforts agreements. (See, e.g., Midland Pacific Building Corp. v. King (2007) 157 Cal.App.4th 264, 273-275 [seller of land promised developer to use best efforts to get city approval of low-density tract map]; US Ecology, Inc. v. State of California (2001) 92 Cal.App.4th 113 [state promised licensor of long term radioactive waste site to use best efforts to acquire land from federal government]; Larkin v. Williams, Woolley, Cogswell, Nakazawa & Russell (1999) 76 Cal.App.4th 227 [partnership agreement required law partners to use best efforts to serve interests of firm and its clients]; see also Third Story Music, Inc. v. Waits (1995) 41 Cal.App.4th 798, 805 (Third Story Music) [finding courts “routinely” imply covenants to use good faith or best efforts to generate profits for a licensor (italics added)].)
Plaintiff contends her daughter’s promise to use best efforts to help her buy the house is vague and illusory because it did not specify what her daughter had to do. It appears during settlement negotiations, the parties discussed the daughter using best efforts to find an investor and help the investor obtain financing to buy plaintiff’s house so plaintiff could continue to live in it. The daughter apparently discussed with the bank during the settlement negotiations a purchase price of $230,000. For reasons not reflected in the record, the parties here chose not to specify in their settlement agreement what acts the daughter was required to take to fulfill her best efforts promise.
We do not need to know why plaintiff relied on a promise of best efforts from the daughter who had allegedly defrauded plaintiff for over 16 years. The parties had the right to use a best efforts clause without specifying a standard of performance. Under California law, we cannot make a better agreement for the parties if in our view their contract seems imprudent or to operate harshly. (See Walnut Creek Pipe Distributors, Inc. v. Gates Rubber Co. (1964) 228 Cal.App.2d 810, 815 [“The courts cannot make better agreements for parties than they themselves have been satisfied to enter into or rewrite contracts because they operate harshly or inequitably. It is not enough to say that without the proposed implied covenant, the contract would be improvident or unwise or would operate unjustly. Parties have the right to make such agreements. The law refuses to read into contracts anything by way of implication except upon grounds of obvious necessity”].)
“Whatever the test of best efforts, there is no question but that courts today regard the standard of best efforts -- like that of good faith -- as a workable standard in a wide variety of situations for determining whether or not there has been a breach.” (Farnsworth, On Trying to Keep One’s Promises: The Duty of Best Efforts in Contract Law (1984) 46 U.Pitt. L.Rev. 1, 12.) Courts construing a best efforts contract that does not specify the performance to be required commonly hold the promisor to the standard of diligence a reasonable person would use under the circumstances. (E.g., Bloor v. Falstaff Brewing Corp. (1979) 601 F.2d 609, 614-615 [licensor may not treat licensee’s brands less favorably than its own]; Van Valkenburgh, supra, 281 N.E.2d 142 [publisher who promised to use best efforts to promote author’s book series may not also promote similar competing series]; cf. Third Story Music, supra, 41 Cal.App.4th at p. 805 [holding it unnecessary to imply covenant of good faith in licensing agreement but finding that in a proper case, “imposing the duty of good faith creates a binding contract where, despite the clear intent of the parties, one would not otherwise exist”].)
Professor Farnsworth describes both the best efforts duty and the duty of good faith and fair dealing as “conveniently vague standards.” He noted the duty of good faith has been developed extensively in court decisions and analyzed in treatises and law reviews, whereas the best efforts duty “has been largely ignored.” Recognizing there is no substantial body of law from which established standards have emerged describing what a promisor must do to fulfill the duty of best efforts, Professor Farnsworth observed “[i]n some cases, common sense will do.” (Farnsworth, On Trying to Keep One’s Promises: The Duty of Best Efforts in Contract Law, supra, 46 U.Pitt. L.Rev. 7, 12.) Some legal commentators recommend counsel consider defining what “best efforts” means in a contract to reduce the risk of later disputes and more favorable results if disputes do arise. (Coplan, “Best Efforts” Clauses in Contracts (Aug. 1998) California Lawyer 64-66 [MCLE self-study article published by approved State Bar of California continuing legal education provider].)
The record indicates the daughter understood she was supposed to help her mother buy the property or find an investor to buy the property on plaintiff’s behalf, that she actually found an investor, the property was appraised, she discussed price with the bank, and she sought financing but encountered difficulty because the “banks [are] beginning to loan money again.” The fact the parties did not agree on the price at which plaintiff might buy back the house does not render the agreement vague and illusory, because California law imposes on the bank a duty to set the purchase price fairly. (Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474 [contract permitting buyer of sugar beets to set the price was not illusory; court implied obligation to set price fairly in accordance with covenant of good faith, to protect enforceability of agreement].)
Plaintiff’s reliance on Terry v. Conlan (2005) 131 Cal.App.4th 1445 is misplaced. That case did not construe a best efforts promise. The court in that case correctly found the parties failed to agree on material terms of their settlement agreement. An essential term was that a ranch would be held in trust but the parties did not agree how it would be managed. Another essential term was that the ranch would be structured as a QTIP trust for tax purposes but other settlement provisions made that impossible. The best efforts promise in this case, unlike the settlement agreement in Terry v. Conlan, does not require the trial court to fill in gaps in material terms essential to form a contract or to adjudicate differences between the parties as opposed to interpreting their agreement.
We decline the bank’s request to take judicial notice of many documents that are irrelevant to our analysis of the enforceability of the settlement agreement. Reading between the lines of the request for judicial notice, we infer the bank wants us to understand it had a meritorious argument that plaintiff must have known of her daughter’s involvement in the many fraudulent transactions involving the property. We have no hesitation finding the court has jurisdiction to enforce this settlement agreement without having to consider the additional documents the bank asks us to judicially notice.
3. The trial court did not have authority to modify the terms of the settlement agreement.
We have found the trial court has jurisdiction to enforce the terms of the settlement agreement the parties made orally before the court. However, the court was without jurisdiction to order the clerk to sign a settlement agreement containing additional terms. “Often, in cases where an oral settlement is placed on the record in the trial court, a written agreement will follow. If difficulties or unresolvable conflicts arise in drafting the written agreement, the oral settlement remains binding and enforceable under section 664.6. Having orally agreed to settlement terms before the court, parties may not escape their obligations by refusing to sign a written agreement that conforms to the oral terms. The oral settlement, like any agreement, ‘imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.’ ” (Elyaoudayan v. Hoffman, supra, 104 Cal.App.4th at p. 1431.)
The proposed written settlement agreement included a term not stated by the parties before the court, that if the daughter was not successful in helping plaintiff buy the property, then she was subject to full prosecution of the title insurer’s subrogation rights “in a sum no less than $100,000.” The parties clearly reserved the subrogation rights against the daughter but not the provision the daughter’s liability would be no less than $100,000. The record indicates that plaintiff’s former counsel requested the parties include the $100,000 floor on daughter’s liability on the subrogation rights of the title insurer. It is immaterial, however, which party bargained for the modification in deciding whether the court had jurisdiction to enforce the settlement agreement with that new term not stated orally before the court. The parties were entitled to modify the agreement they placed on the record in a subsequent writing signed by the parties. But the court was without power to modify the agreement without a writing signed by all parties. Therefore, we reverse and vacate that portion of the order of September 22, 2009 directing the clerk to sign the settlement agreement for plaintiff, plaintiff’s attorney and her daughter. The court properly ordered the clerk to enter the stipulated judgment for possession, however, because the parties agreed on the terms of that judgment orally before the court, and we do not disturb that portion of the September 22, 2009 order.
DISPOSITION
The order of July 29, 2009, granting the motion to enforce the parties’ settlement agreement is affirmed. The order of September 22, 2009, enforcing the settlement is also affirmed to the extent the trial court ordered execution of the stipulated unlawful detainer judgment pursuant to that agreement. The order of September 22, 2009, is reversed to the extent the court ordered the clerk to sign a written settlement agreement on behalf of plaintiff, plaintiff’s counsel, and the daughter containing a clause that was not part of the settlement agreement the parties asked the court to enforce. If plaintiff satisfied the conditions of a stay of enforcement of the stipulated judgment, the stay is hereby lifted. The matter is remanded for further proceedings as may be requested by the parties pursuant to the court’s section 664.6 jurisdiction.
Respondent is awarded its costs on appeal.
We concur: RUBIN, ACTING P. J., FLIER, J.