Los Angeles City School District v. Landier Investment Co.

The present proceeding grew out of various contracts entered into during the years 1948 and 1950, between the plaintiffs and defendant Landier Management Company, for the transportation of the pupils of plaintiff school districts. Within a year following the letting of the last contract, it was represented to the plaintiffs that three members of their governing board had an interest contrary to law in the subject of certain of the aforesaid agreements. Accordingly, in November of 1951, plaintiffs filed an action for declaratory relief wherein the asserted interest was set forth and wherefore it was prayed that the contracts in question be declared void ad initio and they recover the entire sum paid out thereunder, amounting to $1,548,852.74. The Landier defendants appeared by way of answer, which included a denial that the three members’ participation in the several transactions constituted an “interest” proscribed by California statutes. Much of the then pertinent law is discussed in People v. Becker (1952), 112 Cal.App.2d 324 [ 246 P.2d 103 ], and People v. Elliott (1953), 115 Cal.App.2d 410 [ 252 P.2d 661 ], which sustained the removal from office of two board members mentioned in the complaint for declaratory relief.

The action was noticed for trial on May 27, 1952, and thereafter continued from time to time; finally, on March 18,

As to the possibility of defendants’ relief from their obligation by way of discharge in bankruptcy, the letter declared that “it seems to us that those possibilities are as well covered in this settlement as they can be in business transactions of this sort,” adding: “(t)he threat of a judgment in the amount of twice the unpaid balance due on the settlement is just about as potent an economic weapon as the Board could have to enforce payment of the full amount provided by the settlement.” Counsel for defendants gave written approval of this letter which “constitutes an accurate statement of the offer to settle the subject litigation which is hereby confirmed by Mr. F. P. Landier and Landier Investment Co.” On August 17, 1954, a “Stipulation for Settlement” was executed by a representative of plaintiffs’ governing board, defendant Landier (for himself and Landier Investment) and the attorneys for all parties concerned, and thereafter filed with the court; subsequently the action was dismissed as to defendants Landier Management and Landier Transit and marked “off calendar” as to F. P. Landier and Landier Investment.

Three payments, totalling $99,291.33, were subsequently made. In June of 1958 defendants substituted present counsel as their attorneys; and thereafter, on July 30, 1958, they noticed a motion to be relieved of the “Stipulation for Settlement” executed by them and filed with the lower court almost four years previously. Contending that its provisions constituted a penalty with no relation to any damage sustained (Civ. Code, § 1670), defendants prayed that paragraph three of the Stipulation be modified to provide that in the event of default, judgment be entered for the balance due and unpaid, not for twice the unpaid balance due as therein provided, and that the payments theretofore made be adjudged a reasonable and fair settlement of the litigation; and that the action accordingly be dismissed with prejudice to them. The motion was denied; and on November 5, 1958 (appellants concededly then being in default), on ex parte application of respondents, judgment in the sum of $300,971.06, double the balance unpaid, was rendered for plaintiffs pursuant to the stipulation on the original complaint.

Ordinarily a party may be relieved from a stipulation only upon timely application to the court wherein it was made, notice thereof first being given to the opposing party (46 Cal.Jur.2d, Stipulations, p. 46). A hearing should then be had on affidavits and counter affidavits (Warburton v. Kieferle, 135 Cal.App.2d 278 , 286 [ 287 P.2d 1 ]), and the court, in the exercise of its sound discretion, may set aside a stipulation entered into through inadvertence, excusable neglect, fraud, mistake of fact or law, where the facts stipulated have changed or there has been a change in the underlying conditions that could not have been anticipated, or where special circumstances exist rendering it unjust to enforce the stipulation (46 Cal.Jur.2d, supra, pp. 43-44). See also Gonzalez v. Pacific Greyhound Lines, 34 Cal.2d 749 , 755 [ 214 P.2d 809 ]. In the case at bar, appellants properly complied with the requirement that the discretion and powers of the trial court to grant relief must first be invoked; but failed to file any supporting affidavit which would explain the lack of timeliness manifest on the face of the written motion. The competency of appellants’ previous counsel is not challenged, nor is there any claim of misrepresentation; in short the memorandum of points and authorities accompanying the motion simply suggests that their execution of the stipulation was based on a mistake of law and other special circumstances, including an asserted change in the law governing the main action.

Appellants properly maintain that a stipulation is a contract (Palmer v. City of Long Beach, 33 Cal.2d 134 ,

In the early case bearing upon a similar problem, it was observed that “the court should require a stronger showing to justify relief from the effect of a mistake in law than in case of a mistake as to the matter of fact” (Ward v. Clay, 82 Cal. 502 , 510 [ 23 P. 50 , 227]); thus, it must be established that the mistake of law was mutual or arose from a misrepresentation of the law by one party of which the other was aware but did not rectify (Civ. Code, § 1578). As to the changes in the law which are said to control, the amendments to the Education Code, subsequently to be discussed, were enacted in 1955, some three years prior to the motion for relief; during that period the stipulation was acted upon by the parties and the agreement partly performed.

These considerations, apart from any view taken of the formal grounds of the motion, might well have influenced

Taking up the claim that the provision for double payment constitutes a penalty, paragraph III of the stipulation reads in pertinent part as follows: ‘ ‘ Said defendants shall have thirty days’ grace from and after the due date of any of said installments within which to pay such installments. In the event default occurs in the payment of any such installment and said default continues for thirty days after written notice of such default ... a judgment in favor of the plaintiffs . . . and against said defendants Felicien P. Landier and Landier Investment Co. for twice the amount of the unpaid balance of said $264,776.86 shall be entered without further notice.” Generally recognized is the principle that an agreement for the payment of a penalty is invalid; our statutory law and its interpretation in this state are in accord therewith. Thus, section 1670 of the Civil Code declares that a provision in a contract which provides for the amount of damages to be

Indicative of such intent is the use by respondents’ counsel of the terms “economic weapon” and “economic sanction” in the course of correspondence leading up to the stipulation—this letter, it will be recalled, was approved by appellants’ then attorney as “an accurate statement of the offer to settle the subject litigation.” (Emphasis added.) While the terminology used is not conclusive it is entitled to some weight (Better Food Mkts. v. American Dist. Tel. Co., supra, 40 Cal.2d 179 , 187). Correspondence between the parties also discloses the statement by appellants’ counsel, under date of June 22, 1954, that “ (i)f a judgment is entered against F. P. Landier and Landier Investment Co., the amount of the judgment, if the plaintiffs were successful in said action, would necessarily be the amount prayed for in the complaint, or over $1,000,000.00.” (Emphasis added.) The accuracy of this evaluation of the problem was never challenged; instead, we have in the case at bar, first, an agreement substituting (in a lesser sum) the amount of damages sustained for a certain and definite measure of damages fixed by decisional law (Miller v. McKinnon, supra, 20 Cal.2d 83 , 88-89), and second, the inclusion therein of a provision calling for payment of certain monies in the event of nonpayment of the lesser sum. Assuming, despite Miller v. McKinnon, supra, that the original damages were not readily ascertainable, they certainly became ascertainable at the time of the execution of the stipulation;

Appellants’ second and final contention deals with certain additions to the Education Code following the filing of the complaint herein, it being claimed that such legislation eliminated respondents’ right to proceed further thereon. In 1943, section 1011, Education Code, was enacted to provide that no member of the governing board of any school district shall be interested in any contract made by that board. In 1955, following the institution of the present suit for declaratory relief, sections 1011.1, 1011.2 and 1011.3 were adopted. .They restrict the circumstances under which a contract may be voided when entered into by a board composed of a member who is “interested” therein. For example, section 1011.1 provides that no such contract is void or voidable under section 1011 if (a) the fact of such interest is disclosed or known to the governing board and thereafter ratified, and (b) the transaction is just and reasonable as to the school district. To give to the 1955 legislation, supra, the interpretation claimed by appellants would be to render the provisions thereof retroactive in their operation. There is nothing in the pertinent legislation to indicate that it was intended by our Legislature that the same shall have any such retroactive

For the foregoing reasons, the judgment is affirmed.

Wood, P. J., and Fourt, J., concurred.

Appellants’ petition for a hearing by the Supreme Court was denied April 6, 1960. Schauer, J., Spence, J., and Peters, J., were of the opinion that the petition should be granted.