T. M. Cobb Co. v. Superior Court
204 Cal. Rptr. 143, 36 Cal. 3d 273, 682 P.2d 338 (1984)
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Rule of Law:
A statutory offer of compromise made pursuant to California Code of Civil Procedure § 998 is governed by general contract law principles and is revocable by the offeror at any time prior to its acceptance.
Facts:
- Sherre Sturm and William Conrow sued T. M. Cobb Company, Inc. (Cobb), alleging negligent design and construction of their home due to extensive leaks from windows Cobb manufactured and supplied.
- On July 21, 1982, Sturm and Conrow mailed Cobb a written offer to compromise the lawsuit for $10,000, pursuant to § 998.
- Around August 16, 1982, Cobb made a verbal counteroffer of $7,000 or $8,000, which Sturm and Conrow rejected.
- Following the rejected counteroffer, depositions were taken which suggested to Sturm and Conrow that Cobb's culpability was significantly greater than they had previously believed.
- On August 20, 1982, Sturm and Conrow sent a letter to Cobb expressly revoking their July 21st offer.
- Cobb received the letter of revocation on August 21, 1982.
- On August 25, 1982, Cobb sent a letter acknowledging receipt of the revocation but nevertheless attempting to accept the original $10,000 offer.
Procedural Posture:
- Sherre Sturm and William Conrow sued T. M. Cobb Company, Inc. and others in California Superior Court (trial court).
- Cobb filed its purported acceptance of Sturm and Conrow's § 998 offer with the superior court.
- Sturm and Conrow (real parties in interest) filed a motion to strike Cobb's acceptance.
- Cobb filed a motion for entry of judgment in accordance with its accepted offer.
- The superior court granted Sturm and Conrow's motion to strike the acceptance and denied Cobb's motion for entry of judgment.
- Cobb (petitioner) sought a peremptory writ of mandate from the California Supreme Court to compel the superior court to vacate its order and enter judgment.
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Issue:
Is a settlement offer made pursuant to California Code of Civil Procedure § 998 revocable by the offeror at any time before it has been accepted?
Opinions:
Majority - Bird, C. J.
Yes, a settlement offer made pursuant to § 998 is revocable before acceptance. The statute is silent on the issue of revocability, so well-established principles of contract law, under which an offer may be revoked any time before acceptance, should apply. The court reasoned that since the Legislature did not expressly make these offers irrevocable, it intended for the general contract rule to govern. Applying this rule serves the statute's purpose of encouraging settlements, as parties are more likely to make offers if they know they can revise them based on newly discovered evidence. To hold otherwise would have an inhibitory effect on settlement offers and could bind parties to inadequate compromises based on incomplete information.
Dissenting - Broussard, J.
No, a settlement offer made pursuant to § 998 is irrevocable for the statutory period. The statute's structure, which provides for only two outcomes (acceptance or deemed withdrawal with cost consequences), implies irrevocability. Allowing revocation introduces an unintended third outcome and could lead to anomalous results, such as a revoking party still gaining the statute's cost benefits. Historical precedent from similar New York statutes treated such offers as irrevocable. Furthermore, the statute creates an irrevocable option contract, with the consideration being the offeror's potential to recover costs, thereby binding the offeror to keep the offer open for the statutory period to give the offeree a stable opportunity to consider it and promote settlement.
Analysis:
This decision solidifies that statutory settlement offers under C.C.P. § 998 are governed by standard contract law principles unless the statute explicitly provides otherwise. By holding these offers are revocable, the court prioritized flexibility for offerors, allowing them to adapt to new information discovered during litigation. This ruling encourages parties to make settlement offers earlier in the process without fear of being locked into an unfavorable position. However, it also introduces uncertainty for offerees, who no longer have a guaranteed period to consider an offer and may feel pressured to accept quickly before a potential revocation.
