Abatti

The question in this appeal is whether the court properly exercised its discretion in resolving competing creditors’ claims to an insufficient common fund. Or, phrased differently, if the court can’t increase the size of the pie, how should it cut the slices? We hold the court was correct in denying defendants’ motion to approve a settlement with plaintiffs where the settlement was an attempt to finesse the lien of a judgment creditor imposed pursuant to Code of Civil Procedure section 688.1. In other words, where the pie is ample, equity requires that each creditor be given a portion.

Factual and Procedural Background

In 1972, plaintiffs, Ben and Tony Abatti (Abatti), acquired an option to buy land owned by defendants, Ed and Nel Eldridge. The purchase price of $246,500 was payable either in cash or over five years in ten equal, semiannual payments of principal plus interest at a variable rate with title to be vested in the buyer subject only to Abatti’s purchase money deed of trust if the installment sale were selected.

Plaintiffs timely exercised their option in August 1976. Defendants, however, were unable to transfer proper title because of an encumbrance on the…