Sunniland Fruit, Inc. v. Verni

• Decision Date: 26 August 1991
• Docket Number: No. F011066,F011066
• Court: California Court of Appeals Court of Appeals
• Parties: SUNNILAND FRUIT, INC., Plaintiff, Cross-defendant and Appellant, v. Saverio VERNI, Defendant, Cross-complainant and Appellant.

Page 824

284 Cal.Rptr. 824

233 Cal.App.3d 892

SUNNILAND FRUIT, INC., Plaintiff, Cross-defendant and Appellant, v. Saverio VERNI, Defendant, Cross-complainant and Appellant.

No. F011066.

Court of Appeal, Fifth District, California.

Aug. 26, 1991.

Certified for Partial Publication ^*

[233 Cal.App.3d 894] Burger & Flaherty, Peter H. Mixon and Ralf Christe, Sacramento, for plaintiff, cross-defendant and appellant.

[233 Cal.App.3d 895] Chinello, Chinello, Shelton & Auchard, Andrew B. Jones and Daniel I. Aller III, Fresno, for defendant, cross-complainant and appellant.

OPINION

THAXTER, Associate Justice.

After a non-jury trial the court below entered judgment denying all relief on the complaint filed by plaintiff/appellant Sunniland Fruit, Inc. and on the cross-complaint filed by defendant/appellant Saverio Verni. The action arose from a dispute involving Sunniland's picking, packing, and marketing of Verni's 1985 table grape crop under a written contract between the parties. Sunniland's complaint alleged breach of contract, a common count, and a claim on an account stated and sought recovery of $169,337.40 consisting of a crop advance of $150,000 and an additional $19,337.40 in fees and charges incurred on behalf of Verni but not recovered through the sale of the grapes. Verni's cross-complaint alleged breach of contract and fraud.

We will agree with Sunniland that the trial court erroneously interpreted the contract as not requiring repayment of the $150,000 advance because of insufficient crop proceeds. We will reverse and remand with directions to correct that error and to determine if Verni is entitled to any offsets against the $150,000 advance. We will also remand for further proceedings on the issue of attorneys fees. In other respects we will affirm the judgment.

FACTS

Sunniland, as a licensed commission merchant/broker (see Food & Agr.Code, § 56101 et seq.), is in the business of packing, storing, and marketing various types of fresh fruit, including table grapes. Verni is a grape farmer. In the spring of 1985, Verni negotiated a written contract with Sunniland, under the terms of which Sunniland was to harvest, field-pack, and market Verni's table grapes.

Sunniland was to pick only USDA No. 1 grapes and to use its best efforts to market the grapes at a profitable rate. In return for its services, Sunniland was to receive a commission on all grapes sold and a per lug harvesting/packing charge. A limited number of other charges were authorized under the contract. Verni was responsible for the cultural practices needed to bring the crop to harvest.

The contract identified three possible ways of marketing the grapes: f.o.b. (freight on board), a delivered sale, and reconsignment. The best return is likely if the grapes are sold f.o.b. The least advantageous return is likely when grapes are sold by reconsignment because a second commission merchant subtracts his or her costs (including a second commission) from the sale in addition to those subtracted by the original broker. A product is reconsigned only when the broker is unable to sell the product f.o.b. or delivered sale.

Addendum 2 to the contract provided for a $150,000 advance to Verni for "preharvest expenses." Sunniland contends the money was an interest-free loan. Verni contends it was a minimum recovery guarantee and that Sunniland "purchased" his 1985 grape harvest for a minimum of $150,000.

Sunniland drafted the contract between the parties. The contract does not expressly address what would happen if no profit were realized from the 1985 crop. Verni and Sunniland president Mike Colavita agree they did not discuss the meaning of Addendum 2 or how it related to the other provisions of the contract. Verni did not expressly agree to return the advance if no profit was realized. Colavita did not agree to "purchase" Verni's crop. He expected Verni to repay the advance if insufficient profit was generated. Both parties anticipated sufficient profit to cover the advance and the costs of marketing.

Unfortunately, the 1985 table grape market was glutted and the general quality of grapes was down. It was difficult, if not impossible, for farmers to make a profit irrespective of the quality of their grapes. The f.o.b. market was very tight. Only "first label" grapes could be sold f.o.b. Most of Verni's grapes, although meeting USDA No. 1 grade, were of "second label" quality.

Though Sunniland claims it made its best effort to sell the Verni crop, it was unable to do so on favorable terms. The grapes sat for long periods of time in cold storage, generating additional storage charges provided for in the contract. When buyers were located, the prices obtained did not cover the costs already incurred for harvesting, packing, shipping, storage, and commission. Nearly 60 percent of the sales made were reconsignments. Some of the varieties sold better later in the season, but no profit was realized. The costs of marketing the grapes, plus Sunniland's commission, exceeded the income generated from sales by $19,337.40.

Verni was unaware of the problems Sunniland faced. Contrary to industry standards, there was little communication between Sunniland and Verni concerning the sales of his grapes during the marketing season. Verni learned of the difficulties in early October or November 1985. At that point most of the grapes harvested remained in cold storage or had been sold at prices insufficient to cover costs or generate a profit.

At the end of the season, Sunniland submitted a full accounting to Verni claiming Verni not only had to repay the $150,000 "advance" but also pay the additional $19,337.40 because marketing costs exceeded sales income by this amount. Simply put, Verni's account was some $19,000 in the red.

Understandably, Verni was not pleased with this result and filed a complaint with the California Department of Food and Agricultural Marketing Enforcement Branch (Department). The Department conducted an investigation and found numerous violations of the relevant regulations, mostly the result of insufficient record keeping. The Department also concluded Sunniland had not used its best efforts to market Verni's grapes, citing the delays in marketing and the high rate of reconsigned sales. It did not, however, identify buyers willing to purchase the grapes at higher prices and/or under more favorable terms. The Department's examination report was received in evidence. The report concluded that Sunniland overcharged Verni $95,434.97 and reflected that amount as an offset against Sunniland's total claim. Because the Department concluded that Verni still owed Sunniland $73,902.43, it took no further action on Verni's complaint.

DISCUSSION

I. The Trial Court Incorrectly Interpreted the Agreement As to the $150,000 Advance.

The key issue raised by the complaint is the interpretation of Addendum 2 to the written agreement. Sunniland contends the advance was a loan to be repaid at the time of the final accounting once it was established Verni would realize no return on his crop. Verni states the advance was a minimum recovery guarantee, not a loan. Even if the advance is a loan, Verni argues repayment was required under the contract only if there were funds due him at the end of the season.

Sunniland maintains we must construe the contract de novo. Verni argues the trial court made findings of fact from contradictory evidence and therefore we must review under a sufficiency of the evidence standard. Sunniland challenges the use of parol evidence by the trial court.

The language of Addendum 2 is:

"Shipper will advance Grower $150,000.00 for preharvest expenses. A $50,000.00 advance will be made by June 15th and the additional sum will be advanced by July 15th. The advance totaling $150,000 will be considered an interest free loan and will be deducted from the funds due the Grower."

The interpretation of a written instrument is a judicial function to be exercised according to the generally accepted canons of interpretation, unless the interpretation turns upon the credibility of extrinsic evidence. When the interpretation turns on a credibility determination, interpretation becomes a question of fact. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 402 P.2d 839.) When the contract is unambiguous, an appellate court is not bound by the trial court's interpretation of the contract. (Ibid.; see also Los Banos Gravel Co. v. Freeman (1976) 58 Cal.App.3d 785, 791-792, 130 Cal.Rptr. 180.) However, when the meaning of a contract is uncertain, and contradictory evidence is introduced to aid in the interpretation, the question of meaning is one of fact properly assigned to the fact finder and its findings should not be disturbed by the appellate tribunal. (Loree v. Robert F. Driver Co. (1978) 87 Cal.App.3d 1032, 1039-1040, 151 Cal.Rptr. 557.)

The extrinsic evidence Verni relies on to support his interpretation of Addendum 2 is his own testimony that he understood the $150,000 to be a minimum recovery. He argues the trial court obviously accepted this testimony as true and therefore we are bound by that finding. However, irrespective of any credibility determination, Verni's subjective intent or understanding cannot be used to establish an intent independent from the express written terms of the agreement.

Under the parol evidence rule, extrinsic evidence is not admissible to contradict express terms in a written contract or to explain what the agreement was. (BMW of North America, Inc. v. New Motor Vehicle Bd. (1984) 162 Cal.App.3d 980, 990, 209 Cal.Rptr. 50.) The agreement is the writing itself. (Ibid.) Parol evidence may be admitted to explain the meaning of a writing when the meaning urged is one to which the written contract term is reasonably susceptible or when the contract is ambiguous. (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 40, 69 Cal.Rptr. 561, 442 P.2d 641; BMW of...