Opinion
NOT TO BE PUBLISHED
Santa Cruz County Super. Ct. No. 145493
ELIA, J.This appeal arises from an action brought by the owners of a residential subdivision after slope failures behind their homes caused damage to their properties. The City of Watsonville (City) cross-complained against several developers for contractual indemnity, citing improvement agreements that required the developers to defend the City in any lawsuits resulting from the developers' "operations." After a court trial, judgment was entered for respondents Michael Tansy, Patrick and Jill Corrigan, and their company, Corrigan Construction.
On appeal, the City contends that the trial court erroneously interpreted the term "operations" in the parties' improvement agreement, because the contract required respondents to indemnify the City for the attorney fees and costs it had incurred in defending the property owners' lawsuit. We will affirm the judgment.
Background
The parties stipulated to the underlying facts at trial. The affected properties were six residences in a development known as the Willowcreek Subdivision (WCS), Tract 1287 in Watsonville. They were upslope from an unimproved wildlife habitat known as the Upper Struve Slough. In 1979 Robert Pendo and Paul Savage had bought 18 acres of land consisting of Tract 1287 (the future WCS) and Tract 1293, which encompassed the Upper Struve Slough and a third parcel that later became the Creekside Subdivision.
In 1985 Pendo and Savage deposited excess material, or "fill, " from another project along the slope of the Upper Struve Slough, on the property that eventually became the WCS. In 1989 Pendo and Savage sold the entire 18 acres to OWOM, Inc., which in turn sold it to Benno Pabst. Pabst sold the property to Willowcreek Subdivision, Ltd. (WCSL), a development partnership between Pabst and Kephart Construction.
In June 1991 WCSL entered into an improvement agreement with the City to develop Tract 1287. Construction began in late 1991 but was discontinued in January 1993 for financial reasons. During this period WCSL constructed a retaining wall on the subdivision just inside the boundary with the Upper Struve Slough. The partnership also "completed all rough grading, excavation, soil compaction and soil testing, and installed subsurface drainage and underground utilities in the Willowcreek Subdivision." Thus, it was WCSL that performed "[a]ll grading work shown on the Improvement Plans" for the subdivision.
In 1993 two banks acquired the 18-acre parcel at trustee sales, and in July 1994 they conveyed the WCS to respondents, while retaining Tract 1293 (the Upper Struve Slough and the Creekside parcel). On July 18, 1994 Patrick Corrigan, on behalf of himself and Tansy, entered into an improvement agreement with the City in which he agreed "to perform and to improve such streets and easements and make and install certain other public and on-site improvements in and near the Project." More specifically, as "Developer, " Corrigan undertook to "construct, install and furnish at Developer's expense, in a good workmanlike manner, all improvements as set forth in the improvement plans and/or final map according to City improvement standards, to fulfill all requirements of Title 13 of the Watsonville Municipal Code, and all requirements of the soils engineer. All improvements to be completed within two years from date of agreement." This provision was identical to the one between the City and WCS in 1991. Indeed, the entire contract was identical, except for the total improvement cost and the corresponding amounts of the required bonds.
During 1995 and 1996 Corrigan and Tansy completed construction of the WCS. Their work included "completing the streets, curbs, gutters and sidewalk, and the v-ditch shown on the improvement plans and constructing individual residences." In 1995 they began selling the improved lots. In 1997 Corrigan and Tansy purchased Tract 1293 and executed a separate improvement agreement with the City to develop that land, but they sold the tract to the Holcomb Corporation in 1998. The Holcomb Corporation conveyed the Upper Struve Slough (which had remained undeveloped) to the City in November 2001.
In early 2001, and again in July and December of 2002, slope failures occurred behind the WCS residences, causing damage to six of the properties as well as the retaining wall adjacent to the Upper Struve Slough. Beginning in January 2003 the owners of the six homes filed lawsuits against various parties, including Corrigan Construction and the City, alleging negligence, breach of warranty, strict liability, and related causes of action. The claims against the City included an allegation that it had failed to use reasonable care in maintaining and inspecting its adjacent property to prevent damage to the plaintiffs' property. The plaintiffs alleged that the City had known that its property had been slipping and sliding before the damage occurred but had failed to take any remedial action.
The plaintiffs eventually settled with respondents, and Farmers Insurance Company paid the plaintiffs on behalf of the City. Meanwhile, in May 2005 the City filed its cross-complaint, naming respondents as well as the owners of Tract 1287 before it was acquired by the banks. In its allegations against respondents the City pointed to paragraph 8 of the July 1994 improvement agreement, which obligated Patrick Corrigan to defend the City from all claims arising out of his operations on Tract 1287, and paragraph 9, which required him to obtain liability and property insurance on the property and name the City as an additional insured. The City sought the attorney fees and costs it had paid to defend against the owners' lawsuits. It did not pursue its claims against WCSL or Pendo and Savage.
Paragraph 8, the "HOLD HARMLESS" provision, stated: "Developer shall hold City, its elective and appointive boards, commissions, officers, agents and employees, harmless from any liability or damage or claims for damage for personal injury, including death, as well as from claims for property damage which may arise from Developer or Developer's contractors, subcontractors, agents or employees' operations under this Agreement, whether such operations be by Developer or by any of Developer's contractors, or by any one or more persons directly or indirectly employed by or acting as agent for Developer or any of Developer's contractors or subcontractors. Developer shall defend City and its elective and appointive boards, commissions, officers, agents and employees from any suits or actions at law or inequity for damages caused, or alleged to have been caused, by reason of any of the aforesaid operations...." The paragraph further stated that it applied "to all damages of every kind suffered, or alleged to have been suffered, by reason of any of the aforesaid operations refered [sic] to in this paragraph, regardless of whether or not [sic] the City has prepared, supplied or approved plans and/or specifications for the project, or regardless of whether or not [sic] such insurance policies shall have been determined to be applicable to any of such damages or claims for damage."
The central issue at trial was whether the City's litigation costs arose from respondents' "operations, " thereby entitling the City to recover those costs from respondents under paragraph 8, the "hold harmless" provision, of the 1994 improvement agreement. The City argued that respondents' "operations" referred to the obligation to construct, install, and furnish the improvements depicted in the plans, including the retaining wall and fill slope, "even though they had both already been constructed." Because of the requirement to "furnish" all of the improvements, respondents were "responsible for the work of [their] predecessors." Respondents, on the other hand, maintained that the parties' agreement was for completion of unfinished improvements-namely, streets, curbs, gutters, sidewalks, and a v-ditch. Both parties insisted that their own conduct had not caused or contributed to the damage.
The City initially asserted liability under the 1997 agreement as well, but it did not pursue this avenue at trial.
Construction of the houses was the subject of a subsequent set of plans, which were completed in about September 1994 and approved the following spring.
At trial the court heard testimony from two civil engineers who had examined the site after the damage occurred. Tansy testified regarding his expectations in undertaking the WCS project, and Alan J. Smith, City Attorney for Watsonville, explained the significance of the difference in fees from those charged to WCSL. The court also admitted documentary evidence relevant to the parties' intent. At the conclusion of trial, the court found that the word "operations" meant respondents' "own work, " which was "limited to completing the streets, curbs, gutters, sidewalk and the V-ditch shown on the improvement plan and the construction of the individual residences. This was the work [that] provided the basis for calculation of the bond amounts... and for the fees shown in Exhibit A of the Agreement." In the court's view, had the City intended to require respondents to indemnify the City for losses arising from the previously completed work of their predecessor, they could have inserted that language into paragraph 8 of the agreement. On January 7, 2009, the court entered judgment for respondents.
Respondents' engineering expert attributed the damage to a deep landslide underneath the retaining wall. The City's expert testified that it was not a landslide but a failure of the retaining wall caused by the extra four feet of fill in the area of the owners' homes. The City had alleged that respondents had constructed an additional retaining wall and placed additional fill on the slope, which contributed to the damage.
Discussion
The City's primary contention on appeal is that the trial court incorrectly construed the July 1994 improvement agreement. In the City's view, the contract was clear: It required the developer to furnish all improvements, including grading, in accordance with the improvement plan. Because the agreement was clear, the court erroneously relied on extrinsic evidence that did not disclose any latent ambiguity.
Underlying the parties' dispute is a factual premise that is itself at issue. Respondents assume that their "operations" did not include the completed work of their predecessors, while the City maintains that if that prior work was defective, then respondents' job was not complete. We first note that the parties stipulated that the previous developer, WCSL, had constructed a retaining wall adjacent to the Upper Struve Slough and had completed the rough grading, excavation, soil compaction, soil testing, and installation of subsurface drainage. Nevertheless, in the City's view, it was respondents' "obligation to finish everything in the development plans that had not been finished and the manufactured lots were never finished by the predecessor developers because they did not meet the requirements of the development plans and were never accepted by the City." The City emphasizes that the contract required completion of all work, including grading, in accordance with the improvement plan. It is "no excuse" that the extra fill was placed there by someone else; respondents themselves had the contractual duty to "correct this existing problem before they furnished the subdivision to the City." Thus, according to the City, respondents' "operations" included the obligation to remove the extra fill that had been placed on the lots by WCSL.
In examining the improvement agreement, the trial court recognized the fundamental principles underlying interpretation of contractual language. The court noted that contracts must be construed so as "to give effect to the mutual intention of the parties as it existed at the time of contracting." (Civ. Code, § 1636; see also City of Chino v. Jackson (2002) 97 Cal.App.4th 377, 382 [applying general rule to indemnity agreement].) The parties' intent is ascertained from the language of the contract alone, "if the language is clear and explicit, and does not involve an absurdity." (Civ. Code, § 1638; see also § 1639 [intention is ascertained by writing alone, if possible].) The Supreme Court has cautioned, however, that the meaning of particular words or groups of words varies with their context and the surrounding circumstances. " 'A word has no meaning apart from these factors; much less does it have an objective meaning, one true meaning.' " (Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33, 38.)
Where the parties offer conflicting interpretations of words used in a contract, the trial court must provisionally receive any proffered extrinsic evidence that is relevant to show a meaning of which the contract is reasonably susceptible. (Id. at pp. 39-40.) Indeed, " '[t]he exclusion of parol evidence regarding such circumstances merely because the words do not appear ambiguous to the reader can easily lead to the attribution to a written instrument of a meaning that was never intended.' " (Id. at p. 39.) Thus, it is reversible error for a trial court to refuse to consider such extrinsic evidence merely because the court believes the language to be clear and unambiguous, as the proffered evidence may reveal a latent ambiguity-that is, it may suggest more than one meaning of which the contract language is reasonably susceptible. (Id at pp. 40-41; see also Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 847 [ambiguity "exists when a contractual provision is susceptible of two or more reasonable constructions"].)
Once the court determines that an ambiguity exists, it may admit a party's extrinsic evidence to aid in construing the contract. (City of Chino v. Jackson, supra, 97 Cal.App.4th at p. 383; DVD Copy Control Ass'n, Inc. v. Kaleidescape, Inc. (2009) 176 Cal.App.4th 697, 713.) This step in the analytical process, the resolution of the ambiguity, is "a question of law if no parol evidence is admitted or if the parol evidence is not in conflict. However, where the parol evidence is in conflict, the trial court’s resolution of that conflict is a question of fact and must be upheld if supported by substantial evidence." (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1351; Benach v. County of Los Angeles, supra, 149 Cal.App.4th at p. 847.)
The City initially contends that the court improperly deemed the agreement uncertain without engaging in the required analysis of whether the proffered extrinsic evidence was relevant to prove a meaning of which the agreement was reasonably susceptible. This assertion is without foundation. It was not necessary to state explicitly the obvious fact that the meaning of "operations" was in dispute. Whether the court conducted the proper analysis to determine whether the evidence offered by respondents was reasonably susceptible of the meaning accorded it by respondents is of no consequence, since it is a question of law, which we review independently. (Wolf v. Superior Court, supra, 114 Cal.App.4th at p. 1351; Benach v. County of Los Angeles, supra, 149 Cal.App.4th at p. 847.)
The City nonetheless contends "that it was error for the trial court to rely on the extrinsic evidence in interpreting the agreement because the contract language was clear and the extrinsic evidence did not disclose any latent ambiguity." We believe, however, that the disputed language in the improvement agreement is ambiguous in the context of the document as a whole, even without extrinsic evidence. The agreement provided for the construction, installation, and furnishing of improvements set forth in the plans. Except for the difference in estimated costs, both the agreement and the plans to which it referred were substantively identical to those of the prior development arrangement between the City and WCSL. Using the same language allowed the City to maintain that it was respondents' contractual duty to furnish all improvements as set forth in the plans, even though some of the work depicted in those plans had already been performed. In other words, the entire job was the responsibility of respondents, "whether... done by them or their predecessor, " because they were "the last in the chain of the development. They are the ones who are responsible for selling this to the public. They are the ones who are making the profit off of this subdivision. They are the ones who are responsible for the ultimate condition of the subdivision." Respondents, on the other hand, pointed to the disparity in the anticipated cost of the improvements between their 1994 agreement with the City ($225,755) and the City's 1991 agreement with WCSL ($711,865) to support their contention that the 1994 agreement was intended to apply to performance of work that had not been completed by WCSL.
Whether "operations" was intended to refer to the entire project or only to the work respondents undertook was clearly at issue, and we cannot say that respondents' interpretation was unreasonable. Accordingly, notwithstanding the City's assertion that the term "operations" unambiguously referred to the entire development project, the trial court properly concluded that the contract was ambiguous and admitted extrinsic evidence to resolve the dispute over meaning of its terms.
In addition to the testimony of Tansy, the City Attorney for Watsonville, and the parties' civil engineering experts, the court also admitted several documents, including a resolution passed by the Watsonville City Council approving the agreement on July 12, 1994. The resolution stated that the agreement was for the "completion of unfinished improvements" for the WCS.
A second document is the one challenged on appeal: It is a memorandum written by the City Manager on June 30, 1994, as an agenda item for the July 12 City Council meeting. In the memorandum the City Manager recommended approval of the agreement with respondents. He noted the "similar" prior agreement with WCSL which had been interrupted by the developer's "financial difficulties" in February 1993. The City Manager described Corrigan's proposal as follows: "Mr. Patrick Corrigan proposes to complete the construction of the public and on-site improvements and construct the 31 single[-]family dwellings approved for this subdivision. The proposed improvements consist of installing the curb, gutter, sidewalk and street paving. The sewer lines, storm drain and water improvements have already been installed." (Italics added.)
The court found that these two documents supported its determination that the parties intended "operations" to be the improvements limited to construction of the residences and the areas encompassing the streets and sidewalks. The City takes issue with the admission of the memorandum, because respondents "failed to introduce any evidence that showed they were even aware of the Memo at the time the contract was entered into on July 18, 1994." Consequently, the City argues, this document could not help determine what the parties "believed the contract terms to be at the time they negotiated and entered into the Agreement."
Both documents were properly admitted. As respondents point out, the parties stipulated to their admissibility, and there is no objection in the record on the ground that the memorandum was irrelevant. In any event, even if respondents were unaware of the existence of this document, the City clearly was; thus, the memorandum reflects the City's intent in entering into the improvement agreement with respondents. The portion of the memorandum quoted above indicates that the City expected respondents to "complete" the construction of the improvements by "installing the curb, gutter, sidewalk and street paving."
This expression of intent through the City Manager's description of the proposed work was consistent with the evidence of respondents' intent supplied by testimony adduced at trial. Tansy testified that before the City passed the resolution approving the agreement, he investigated the site and concluded that what was "unfinished" was the "curbs, gutters, sidewalks, street paving and perimeter fence." Tansy also stated that no one from the City ever told him that he and Corrigan were expected "to warrant the quality of the work of the prior developers." By offer of proof (to which the City stipulated) Corrigan stated that (1) he had the same understanding and intent as Tansy; and (2) when Corrigan signed the agreement on behalf of himself and Tansy, "no one on behalf of the [C]ity of Watsonville informed him that he was going to be indemnifying the [C]ity for injury, death or damage caused by the operation of prior developers."
This evidence was sufficient to support the trial court's conclusion that the parties intended "operations" to refer to the undertaking and completion of those tasks that had not already been performed by WCSL. We agree with the trial court that if the City had wanted a promise from respondents to include a predecessor's work in the scope of their "operations, " it should have drafted the contract language specifically to set forth that obligation in language the promisor reasonably would have understood.
Disposition
The judgment is affirmed.
WE CONCUR: RUSHING, P. J., PREMO, J.