C. R. Fedrick, Inc. v. Sterling-Salem Corp.

• Decision Date: 08 November 1974
• Docket Number: STERLING-SALEM,No. 72-3118,72-3118
• Citation: 507 F.2d 319
• Parties: C. R. FEDRICK, INC., Plaintiff-Appellee, v.CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 319

507 F.2d 319

C. R. FEDRICK, INC., Plaintiff-Appellee, v. STERLING-SALEM CORPORATION, Defendant-Appellant.

No. 72-3118.

United States Court of Appeals, Ninth Circuit.

Nov. 8, 1974.

Dario De Benedictis, (argued), of Thelen, Marin, Johnson & Bridges, San Francisco, Cal., for defendant-appellant.

Edward K. Allison (argued), of Ehrlich & Allison, San Francisco, Cal., for plaintiff-appellee.

Before MERRILL and BROWNING, Circuit Judges, and REAL, ^* District judge.

REAL, District Judge.

This appeal brings before this Court what is, perhaps, a classic example of the various inadequacies of a Federal Court's diversity of citizenship jurisdiction.

Defendant-appellant, Sterling-Salem Corporation (hereafter Sterling) appeals from a judgment rendered by the District Court on behalf of plaintiff-respondent C. R. Fedrick, Inc. (hereafter Fedrick) on a claim arising out of a purported breach of contract in which Sterling was to supply certain equipment for a construction job at Incline Village, Nevada.

Fedrick's trial theory and the basis upon which the trial court made its findings of fact and conclusions of law and entered judgment against Sterling in the sum of $56,882.95 is grounded in promissory estoppel (Restatement of the Law of Contracts, Section 90).

Sterling, an Ohio corporation, duly authorized to conduct business in California, is engaged-- through its division Topco-- in the manufacture and sale of sewage pumping equipment, including prefabricated sewage stations. In Mid-1969, Topco orally authorized one Marvin Derfler (hereafter Derfler) to act as its independent commission agent in the California area; and Derfler was so employed in the Fall of 1969 when the events now in controversy arose.

Fedrick is a licensed contractor in the State of California. In August, 1969, when the Incline Village General Improvements District (hereafter District) invited bids for the construction of certain sewage pump stations at Incline Village, Nevada, Fedrick-- in response to said invitation and in order to meet the scheduled bid opening on September 4, 1969-- solicited price quotations on the equipment necessary for the construction of these sewage pumping stations.

Chas. Lowe Company (hereafter Lowe), a supplier of pumps and other construction equipment, contacted Fedrick for the purpose of quoting prices on the equipment for what was then known as Sewage Pumping Stations Nos. 7, 8 and 9 of the District's planned Incline Village project.

Sharing office space with Lowe, but having no other connection with it, ¹ Derfler, together with Jay Gwinn, a Lowe employee, obtained price quotations from Topco on the equipment needed for Pumping Stations 7 and 9. Derfler having informed Topco that its customer in this instance was Lowe, Topco, in the absence of Derfler, responded with price quotations to Lowe on Pumping Stations 7 and 9, at bids of $11,329.00 and $6,115.00 respectively, for a total of $17,444.00.

Upon reviewing this quotation, Lowe, through its employee, Herb Roedel, then submitted a quotation to Fedrick for $45,900.00-- $21,700.00 for Station 7, $16,200.00 for Station 8, and $8,000.00 for Station 9. The variances are not totally accounted for in the evidence before the trial court. However, the difference in the Topco's quotations for Stations 7 and 9 and Lowe's quotation to Fedrick for Stations 7 and 9 is at least partially accounted for by Topco's arrangement with Derfler by which the would customarily add an amount to Topco's bid to represent his commission compensation when he in turn quoted his own bid.

An additional portion of the difference between the oral quotation to Topco's customer and its subsequent written breakdown may be attributed to Topco's correction of its obvious failure to include in its quotation to Derfler and Lowe a rotor necessary for one of the pumping stations. Derfler, however, had previously noticed the error and corrected it before submission of the bid by Lowe to Fedrick. The quotation by Topco to Derfler was then adjusted to reflect this correction, thereby changing the price of the two stations to $21,944.00 in lieu of the original $17,444.00 bid. ²

Fedrick, utilizing the quotation received from Lowe, submitted its bid to the District, with all the foregoing occurring on September 4, 1969. As required by the District's bidding procedures, the bid stated that Lowe was the supplier and Topco ³ the manufacturer of the equipment to be used on Stations 7 and 9. Equipment for Pump Station 8 was listed as supplied by Coast Pump Company and manufactured by Allis Chalmers.

On September 16, 1969, Fedrick executed a prime contract with the District for construction of the project, while October 29, 1969, found Fedrick directing its printed form of Purchase Order Agreement to 'Topco in care of Lowe.' This mailing was done in apparent compliance with Fedrick's common practice of addressing its purchase orders to the manufacturer of the equipment and not to the supplier. Although the evidence is far from clear, the trial court found that this purchase order eventually was mailed to Lowe's San Pedro office from its Emeryville office but never forwarded to Topco in Ohio. Topco's Ohio office was never advised of the receipt of the purchase order in San Pedro, and the purchase order was never signed or otherwise accepted by an employee of Topco. In addition, Lowe had never advised Topco that it had in any way accepted Topco's price quotation for Stations 7 and 9. ⁴

Two or three weeks after the bid date Derfler and Roedel, Lowe's employee, met with a representative of Fedrick to deliver a Topco Pumping Station Catalogue. Thereafter, as is customary, Topco, through Derfler, made submittals ⁵ to Fedrick and the District upon the equipment which it had quoted to Lowe. During the period for which these submittals were under consideration by the District, Topco and Fedrick came to an impasse as to ability of the equipment which Topco has offered to meet the requirements of the District. The disputes were never resolved; and on March 11, 1970, Topco, by letter, in effect withdrew itself from consideration regarding its providing of Stations 7 and 9.

Fedrick then obtained Stations 7 and 9 elsewhere at a higher cost than that quoted by Topco on September 4, 1969. This suit solely against Sterling followed, and damages were founded on the delay in and additional cost of the completion of the District project by Fedrick.

As to Sterling's liability, ⁶ the District Court's judgment on behalf of Fedrick can withstand this appeal if (a) the trial court's findings concerning agency relationship between Topco and Lowe are not clearly erroneous, i.e., are adequately supported by the record, or (b) Topco is estopped by force of the Restatement of Contracts, Section 90 (Revised) from denying a contractual relationship between Topco and Fedrick.

The record does not seem to support the trial court's finding of an agency relationship between Topco and Lowe. ⁷ The evidence, it appears, is to the contrary since both Derfler and Lowe disclaimed any agency relationship. There is no evidence to the effect that Fedrick ever believed that it was dealing directly with Topco by means of any agency with Lowe. For all that Fedrick knew, Lowe could have previously purchased the equipment from Topco and then had it in stock for its own account. The judgment of the District Court, therefore, cannot stand on this theory of the case.

As an alternative, Fedrick asks this court to affirm on the Restatement of Contracts Section 90 (Revised) which provides:

'A promise which the promisor should reasonably expect to induce action or forebearance on the part of the promisee or a third person and which does induce such action or forebearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.'

This revised Section 90 extends to third parties the benefits that erstwhile Section 90 created solely between promisor and promisee. It brings to this court, as a matter of first impression, the application of this revised Section 90 to price quotations by manufacturers to general contractors. That this court should not make this extension is compelled by the facts here and, further, by a consideration of the consequences of such application to like situations.

To apply Revised Section 90 here, we need address ourselves to the various elements involved in price quotation situations. Hence, there must be:

1. A manufacturer; 2. An intermediary, for our purposes, independent of the manufacturer, i.e., not an agent; 3. Reasonable expectation that a particular third party will rely upon the manufacturer's promise ⁸ and 4. Identity of the terms of the promise.

Fedrick clearly cannot meet these requirements. Although the first two elements appear present in light of the evidence introduced in this case, the recore cannot support a finding of elements 3 and 4: (a) Topco was dealing with Lowe as its customer and (b) the price quoted by Topco to Lowe and the price quoted by Lowe to Fedrick are manifestly dichotomous.

Section 90 (Revised) can, if interpreted in any other manner, give further concern in these situations. Under the provision of former Section 90, the possible defenses, if any, were clearly drawn between the promisor and promisee. Here, defenses that Topco may have asserted against Lowe cannot be determined in a trial only between Topco and Fedrick; nor can any defenses that Lowe may have vis-a-vis Fedrick be the subject of an inquiry by the District Court in a trial between Fedrick and Topco.

Fedrick's suggestion of the applicability of Section 90 (Revised) would turn manufacturers price listing literally on its head. An application of Fedrick's proposed ...