Rennie & Laughlin, Inc. v. Chrysler Corporation

• Decision Date: 08 March 1957
• Docket Number: No. 15210.,15210.
• Citation: 242 F.2d 208
• Parties: RENNIE & LAUGHLIN, Inc., a Corporation, Appellant, v. CHRYSLER CORPORATION, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

242 F.2d 208 (1957)

RENNIE & LAUGHLIN, Inc., a Corporation, Appellant, v. CHRYSLER CORPORATION, a Corporation, Appellee.

No. 15210.

United States Court of Appeals Ninth Circuit.

March 8, 1957.

Charles P. Gould, Spray, Gould & Bowers, Los Angeles, Cal., for appellant.

McCutchen, Black, Harnagel & Greene, G. William Shea, and Jack T. Swafford, Los Angeles, Cal., for appellee.

Before FEE, BARNES and HAMLEY, Circuit Judges.

BARNES, Circuit Judge.

Plaintiff appeals from an Order of the United States District Court for the Southern District of California, Central Division, dismissing its amended complaint and cause of action, for failure to state a claim upon which relief can be granted. Rule 12(b) (6), Federal Rules of Civil Procedure, 28 U.S.C.A.

The sole question presented by this appeal is whether the amended complaint, assuming all well-pleaded facts to be true and indulging in all inferences which reasonably may be drawn therefrom,¹ sets forth facts sufficient to state a legal claim.

The original complaint purported to allege a cause of action based on breach of contract and was filed on August 8, 1955. Thereafter, an amended complaint, reasserting fundamentally the same claim, was filed on April 5, 1956. It is this latter and superseding pleading which is now before this Court.

We first consider the amended complaint. It appears therefrom that the plaintiff and the De Soto Division of the defendant corporation entered into a written agreement in December 1949, whereby plaintiff became an authorized and direct dealer for De Soto and Plymouth motor vehicles, with the non-exclusive right to purchase said vehicles for resale, in the Los Angeles, California area.² The contract provided inter alia that it "shall terminate immediately by its own force without notice from either party in the event of (1) an attempted assignment of this agreement without De Soto's written consent." In September of 1951, following economic setbacks and a heart attack suffered by plaintiff's president and general manager, plaintiff advised defendant of its desire to sell its business. This information was conveyed to A. H. Langridge, defendant's Regional Manager. He, in turn, told plaintiff that the defendant corporation would procure a buyer for plaintiff's business "acceptable" to defendant. Subsequently, on or about October 1, 1951, negotiations for the sale of plaintiff's business were commenced with one Darwin C. McCredie and one George Peck, these prospective purchasers having been referred to plaintiff by Mr. Langridge. These negotiations culminated, according to the amended complaint, "in a final sale being made of Plaintiff's business to said prospective buyers on October 26, 1951," although "it was further agreed, on said date, that the formal contract of sale would be made on the 27th day of October, 1951, and the purchase price paid at that time." Prior to the execution of the written agreement of purchase, the defendant, through Mr. Langridge, advised the buyers that it would not give its written consent to the sale. Thereupon, McCredie and Peck "refused" to consummate the sale. As a consequence of defendant's refusal to approve the sale transaction, a new contract with defendant was executed on February 20th, 1952, by which plaintiff continued to represent defendant, and plaintiff entered into a management contract with McCredie and Peck by which the latter operated the auto agency. Continued financial losses finally forced plaintiff to terminate its franchise agreement and close down its business operations on March 31, 1954.

Plaintiff sought recovery in its amended complaint for the following damages sustained as a result of defendant's alleged breach of contract: $77,921.69, being the agreed price for the sale of plaintiff's business to McCredie and Peck; $102,686.64, being the losses incurred between October 27, 1951 and March 31, 1954; and $300,000.00, for injury to its reputation as an automobile dealer.

The amended complaint purports to ground plaintiff's action on the doctrine of waiver. It avers, "That having consented to the aforesaid sale to said purchasers, Defendant's subsequent revocation of said consent constituted a breach of said sales contract * * *" If in fact that were the only basis upon which plaintiff could conceivably proceed further discussion would be unnecessary, for it is settled that waiver can be employed only for defensive purposes.³ It can preclude the assertion of legal rights but it cannot be used to impose legal duties. The shield cannot serve as a sword.

However, giving the facts alleged in the complaint their most liberal import and disregarding the semantic deficiencies, there does appear one possible theory for an action, which is not totally devoid of merit, and requires discussion.

In substance, the theory is this. The 1949 agreement created rights and duties in both parties. Since, in the absence of an express and clear provision to the contrary, contract rights are generally assignable,⁴ it follows that an implied term of the agreement was that plaintiff could assign its rights thereunder and defendant was obligated to perform to the assignee. But a limitation on the right to assign had been included in the contract: the provision that the written consent of the defendant first be obtained. This protective condition, like other defenses, was waivable.⁵ Defendant, by reason of the conduct of its agent, Mr. Langridge, in securing and orally approving the prospective buyers, may have waived its right to require written consent. Accordingly, if the restrictive condition was waived, defendant was under a duty to render performance to the assignee, and its refusal to recognize this duty constituted a breach of contract.

Do the alleged facts sustain such a claim? It is of importance to a thorough understanding of the problem and its resolution that the unique context in which this issue is posed be fully perceived. We are not dealing with the usual situation in which this question arises, where the assignee after the assignment has been completed sues the obligor for failure to perform. There the obligor sets up the defense of lack of written consent. The reply is that written consent was waived. In the instant case no assignment came into being, or was effectuated, or if one were made, it was vitiated, and this is an action between the contracting parties. The considerations which govern the determination of the ordinary type of assignments case do not necessarily apply to the case at bar.

The gravamen of plaintiff's grievance is the effect defendant's conduct had on plaintiff's contractual relations with Mc- Credie and Peck. What then was the status of these relations at the time defendant informed plaintiff that it would not consent to the sale?

Two different interpretations of the amended complaint are possible. The first is that the oral agreement between plaintiff and McCredie and Peck represented the final and fixed expression of the mutual assent of those parties to all material terms of the contract; the parties contemplating that the "formal contract" would be only a written memorial of their prior binding agreement.⁶ The second construction would be that plaintiff and the prospective buyers did not intend that a binding contract should arise until the terms of the agreement had been reduced to writing.⁷ It plainly appears that the former meaning is the one given the contractual relationship by the plaintiff, especially in light of the averment that the oral agreement was a "final sale" and only the "formal contract" remained to be executed. ¶X, Amended Complaint, Tr. 63 If we have properly construed the allegations, what then were the positions of the parties when defendant balked at giving written consent? By hypothesis, a valid and binding agreement was executed by plaintiff and the prospective buyers on October 26, 1951. Legal rights and correlative duties were created in each party. The amended complaint is not clear as to what transpired thereafter. It states simply that the buyers, McCredie and Peck, "refused to complete the said sale." Thus, it is not certain whether this particular refusal was a unilateral act of the buyers, in which event it would constitute an anticipatory breach of contract, or whether the plaintiff and the buyers mutually agreed to rescind the agreement. If the former be true, plaintiff's recourse lay not against defendant, but against the buyers who repudiated their contract. On the other hand, if there was a mutual rescission, plaintiff is placed in the untenable position of arguing that it should recover damages for losses which it alone occasioned. The alleged injuries would be due to plaintiff's voluntary relinquishment of its contractual rights against the buyers and not to any action on the part of the defendant. Plaintiff could not be permitted to shift the responsibility for its alleged injuries — a responsibility which it alone must bear — to the defendant.

While it seems clear that plaintiff viewed its oral agreement with the buyers as binding, whether it was or was not binding before the execution of the written document is a question of fact.⁸ Therefore, we would be reticent to affirm the dismissal of the action if, despite the wording of the complaint, another construction of the agreement between plaintiff and the buyers would furnish a basis for a claim. But regardless of the interpretation given that agreement the plaintiff cannot prevail.

Assuming for the moment — and it is a tenuous assumption — that the oral agreement can legitimately be characterized as preliminary negotiation, plainti...