Delta Dynamics, Inc. v. Arioto

• Court: United States State Supreme Court (California)
• Citation: 446 P.2d 785,72 Cal.Rptr. 785,69 Cal.2d 525
• Decision Date: 13 November 1968
• Parties: , 446 P.2d 785 DELTA DYNAMICS, INC., Plaintiff and Respondent, v. Edwin ARIOTO et al., Defendants and Appellants. Sac. 7822.

Page 785

72 Cal.Rptr. 785 69 Cal.2d 525, 446 P.2d 785 DELTA DYNAMICS, INC., Plaintiff and Respondent,
v.
Edwin ARIOTO et al., Defendants and Appellants. Sac. 7822. Supreme Court of California,
In Bank. Nov. 13, 1968.
As Modified on Denial of Rehearing Dec. 11, 1968.

Page 786

[446 P.2d 786] [69 Cal.2d 526] Charles A. Zeller and Francis X. Vieira, Stockton, for defendants and appellants.

Maxwell M. Freeman, Stockton, and Roger H. Bernhardt, San Francisco, for plaintiff and respondent.

TRAYNOR, Chief Justice.

Plaintiff Delta Dynamics, Inc. developed a trigger lock for use as a safety device on firearms. On March 23, 1961, it entered into a contract with defendants, partners doing business as the Pixey Distributing Co., for the distribution and sale of the locks throughout the United States. The contract was to run for five years from the date of the first delivery of the locks, and Pixey was given an option to renew the contract for another five years. Delta agreed to manufacture or arrange for the manufacture of the locks and to supply them to Pixey, which it appointed as exclusive distributor. Pixey agreed to pay for the locks at specified prices. Pixey promised to promote the locks diligently and 'to sell not less than 50,000 units within one year from the date of delivery of the initial order' and not less than 100,000 units in each of the succeeding four years. 'Should Pixey fail to [69 Cal.2d 527] distribute in any one year the minimum number of devices to be distributed by it * * * this agreement shall be subject to termination' by Delta on 30 days' notice. The contract also provided that 'In the event of breach of this agreement by either party, the party prevailing in any action for damages or enforcement of the terms of this Agreement shall be entitled to reasonable attorneys' fees.'

Pixey ordered and paid for 10,000 locks, and Delta delivered them in August 1961. In October 1961 Pixey executed a written purchase order requesting Delta to supply 10,000 additional locks to be delivered 'as needed.' Pixey never requested delivery of that order, however, and it did not order any of the 30,000 additional locks needed to meet the 50,000 quota for the first year. On October 1, 1962, Delta terminated the agreement. Thereafter it brought this action to recover damages for Pixey's failure to purchase the first year's quota.

After a nonjury trial the court entered judgment for Delta. It interpreted the contract as requiring Pixey to purchase 50,000 locks in the first year, which commenced with the initial delivery of 10,000 locks, and rejected Pixey's defense that Delta's exclusive remedy for Pixey's failure to meet the quota was the right to terminate the contract. Pixey appeals.

We note at the outset that there is no merit in Pixey's contention that it did not agree to buy 50,000 locks from Delta in the first year, but only to sell that number to third parties. Since Pixey agreed to buy the locks from Delta, the only source of supply, its promise to sell 50,000 locks to third parties clearly implied a promise to buy that number from Delta, and the trial court correctly so found.

Pixey contends, however, that the termination clause made Delta's right to terminate the contract Delta's exclusive remedy for Pixey's failure to meet the annual quota and that the trial court erred in refusing to admit extrinsic evidence offered to prove that the termination clause had that meaning. ¹

Page 787

[446 P.2d 787] [69 Cal.2d 528] 'The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.' To determine whether offered evidence is relevant to prove such a meaning the court must consider all credible evidence offered to prove the intention of the parties. 'If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, is 'fairly susceptible of either one of the two interpretations contended for * * *.' (citations), extrinsic evidence to prove either of such meanings is admissible.' (Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co. (1968) 69 A.C. 28, 32, 35, 69 Cal.Rptr. 561, 565, 442 P.2d 641, 645.)

In the present case the parties may have included the termination clause to spell out with specificity the condition on which Delta would be excused from further performance under the contract, or to set forth the exclusive remedy for a failure to meet the quota in any year, or for both such purposes. That clause is therefore reasonably susceptible of the meaning contended for by Pixey, namely, that it expresses the parties' determination that Delta's sole remedy for Pixey's failure to meet a quota was to terminate the contract. There is nothing in the rest of the contract to preclude that interpretation. It does not render meaningless the provision for the recovery of attorneys' fees in the event of an action for damages for breach of the contract, for the attorneys' fees provision would still have full effect with respect to other breaches of the contract. ² Accordingly, the trial court committed[69 Cal.2d 529] prejudicial error by excluding extrinsic evidence offered to prove the meaning of the termination clause contended for by Pixey....