Gerdlund v. Electronic Dispensers International

• Decision Date: 16 March 1987
• Docket Number: Nos. H000734,H001058,s. H000734
• Citation: 190 Cal.App.3d 263,235 Cal.Rptr. 279
• Court: California Court of Appeals Court of Appeals
• Parties: , 118 Lab.Cas. P 56,601, 2 IER Cases 120 Susan GERDLUND, et al., Plaintiffs and Respondents, v. ELECTRONIC DISPENSERS INTERNATIONAL, Defendant and Appellant. Susan GERDLUND, et al., Plaintiffs and Appellants, v. ELECTRONIC DISPENSERS INTERNATIONAL, Defendant and Respondent.

Page 279

235 Cal.Rptr. 279

190 Cal.App.3d 263, 118 Lab.Cas. P 56,601, 2 IER Cases 120

Susan GERDLUND, et al., Plaintiffs and Respondents, v. ELECTRONIC DISPENSERS INTERNATIONAL, Defendant and Appellant.

Susan GERDLUND, et al., Plaintiffs and Appellants, v. ELECTRONIC DISPENSERS INTERNATIONAL, Defendant and Respondent.

Nos. H000734, H001058.

Court of Appeal, Sixth District, California.

March 16, 1987.

Review Denied June 18, 1987.

[190 Cal.App.3d 266] Brian M. O'Dea, Spinetta, Randick & O'Dea, Oakland, for defendant and appellant.

Michael T. Morrissey, Kurahara, Morrissey & Street, San Jose, for plaintiffs and respondents.

BRAUER, Associate Justice.

Plaintiffs Leroy Gerdlund and Susan Gerdlund filed suit against Electronic Dispensers International (EDI) claiming that EDI breached a written agreement by terminating them as sales representatives without good cause. Prior to trial EDI brought an in limine motion seeking to exclude evidence of oral representations made by EDI to the Gerdlunds that they would not be terminated as long as they performed well. Following an evidentiary hearing, the court denied EDI's motion and the matter proceeded to trial. A jury rendered a verdict in favor of the Gerdlunds and awarded them $287,573 in damages. On appeal EDI claims that the judgment must be reversed because the court erred in admitting parol evidence which contradicted the terms of the written contract. Our review of the cases interpreting the parol evidence rule leads us to the same conclusion. We therefore reverse the judgment.

The Gerdlunds have appealed separately from an order determining costs (Civil No. H001058), contending that the trial court abused its discretion in setting the date from which to calculate pre-judgment interest. On our own motion we have ordered consolidation of the two appeals. Our reversal of the judgment in favor of the Gerdlunds renders their ancillary appeal moot. Accordingly we will dismiss appeal No. H001058 and direct that the trial court vacate the order appealed from.

FACTS

The following facts are not in dispute.

EDI manufactures bar dispensing equipment. Leroy Gerdlund started work as an independent sales representative for EDI products in 1967 and began to develop a territory consisting of California, Arizona, and Nevada. From 1970 to 1973 he worked for EDI as director of marketing and also acted in the capacity of manager of sales for the three-state area.

In 1973 Gerdlund returned to full time sales work in the field. He was joined by his wife, Susan, and together they formed S & L Sales, a partnership (S & L). The two continued to develop a market for EDI products. By 1975 their territory had expanded to include Utah, Colorado and New Mexico.

Although Leroy had worked under various representative agreements with EDI over the years, the first agreement between S & L and EDI was the "Representative Agreement" in question here (the agreement), dated January 1, 1975. The agreement was signed by the Gerdlunds and by Wayne Easley, President of EDI and Jay Kegerreis, its marketing manager. We quote here the pertinent portions of the agreement: "11. EFFECTIVE PERIOD: TERMINATION [p] This agreement shall be effective until thirty (30) days after notice of termination given by either party. Notice of termination may be given at any time and for any reason, and the date of any such notice shall be the postmark date if mailed, or the transmission date if wired.... [p] 13. THE AGREEMENT COMPLETE. [p] This agreement contains the entire agreement between the Company and the Representative. There are no oral or collateral agreements of any kind...."

Relations between S & L and EDI were smooth until September of 1976. At a meeting during a trade show held in San Francisco the second week of September, EDI announced to its assembled sales people that their contracts were terminated pending negotiation of new agreements based upon an altered commission structure. Either at this meeting or shortly thereafter through the mail, all EDI representatives including the Gerdlunds received a letter dated September 15, 1976, which confirmed the termination of all existing agreements, and a draft of a new agreement, dated October 15, 1976.

The Gerdlunds were unhappy with several aspects of the proposed agreement. Over the following two months they and EDI attempted to negotiate an agreement that would be acceptable to both sides. During this time the Gerdlunds continued full time work for the company. They were told that they were in no danger of losing their jobs; the termination announced on or about September 15 was merely a formality in order that a new commission structure could be worked out. Eventually negotiations broke down and at a meeting with Easley and Kegerreis on November 19, 1976, the Gerdlunds were told they were terminated as sales reps for EDI as of that day.

During the course of their affiliation with EDI the Gerdlunds were repeatedly given assurances by Easley that as long as they did a good job the territory would be theirs. There was no question but that they did do a good job. During the early years Gerdlund barely made expenses and expended considerable personal time and money in the process of building a customer base for EDI products in the western states. EDI's sales rose dramatically in the western territory from 1967 to 1976, in large part as a result of the Gerdlunds' efforts. The Gerdlunds were consistently the top performers for EDI. According to Leroy Gerdlund, S & L accounted for approximately 25 percent of EDI's total U.S. sales of $4.7 million in 1976. S & L's projected earnings for that year were $107,963.

Two experts testified at trial, giving widely divergent opinions of the market value of S & L sales as of January 1977, based on the 1976 earnings figure of $107,963. The Gerdlunds' expert estimated the value of S & L at $401,714; EDI's expert found the value to be approximately $35,000.

The case was tried on two causes of action: 1) breach of the written agreement, incorporating both the express oral representations and the implied covenant of good faith and fair dealing; and 2) fraudulent misrepresentation against Wayne Easely individually. The jury found that EDI had breached the employment agreement and assessed damages in the amount of $287,573. The jury also found that no fraud had been committed by Easley.

ISSUES

The principal issue presented by this appeal is whether evidence of the oral representations made by EDI should have been barred by the application of the parol evidence rule. EDI also raises the following points: 1) the agreement should be interpreted according to Nevada law; 2) the trial court erroneously instructed the jury on the legal effect of the parol evidence rule; 3) the trial court erroneously instructed the jury on the covenant of good faith and fair dealing; and 4) the parol evidence was inadmissible to prove fraud on the part of Easley. Judgment in favor of Easely precludes the necessity of addressing this last issue. Since we reverse on the basis that the parol evidence should not have been submitted to the jury, we do not find it necessary to address the claimed instructional error in regard to this evidence. We will comment briefly on the matter of the choice of law before turning to our analysis of the parol evidence rule and the related issue of the implied covenant of good faith and fair dealing.

Governing Law

The agreement contained the following provision: "15. GOVERNING LAW ... This agreement shall be governed by and interpreted in accordance with the laws of the State of Nevada."

As a general rule in California contracting parties may specify what law is to control their contract, as long as there is a reasonable basis for that choice and the law chosen does not contravene a strong public policy of California. (Gamer v. DuPont Glore Forgan, Inc. (1976) 65 Cal.App.3d 280, 135 Cal.Rptr. 230.)

EDI is a Nevada corporation with headquarters in Reno. The territory of S & L sales included the state of Nevada. There is no doubt that the parties had a substantial relationship with that state.

While we do not question the validity of the choice of law provision, we fail to see how application of Nevada law would make the slightest difference here, since, as EDI readily concedes, "the parol evidence rule as applied by the State of Nevada is consistent with the rule as applied in the State of California." Furthermore, EDI bases its argument here primarily on California cases, as do the Gerdlunds. Since there is no apparent conflict in the law, and no conceivable prejudice to either party, we will decide the case on the basis of California law.

The Parol Evidence Rule

First we note that where, as here, the trial court's interpretation of the agreement did not turn on the credibility of extrinsic evidence and did not require a resolution of a conflict in that evidence, we are not bound by the result below and must make our own independent determination. (Delucchi v. Co. of Santa Cruz (1986) 179 Cal.App.3d 814, 820, 225 Cal.Rptr. 43.)

The parol evidence rule generally prohibits the introduction of any extrinsic evidence to vary or contradict the terms of an integrated written instrument. (Code Civ.Proc. § 1856.) It is based upon the premise that the written instrument is the agreement of the parties. (Tahoe National Bank v. Phillips (1971) 4 Cal.3d 11, 22-23, 92 Cal.Rptr. 704, 480 P.2d 320.) Its application involves a two part analysis: 1) was the writing intended to be an integration, i.e. a complete and final expression of the parties' agreement, precluding any evidence of collateral agreements (Masterson v. Sine (1968) 68 Cal.2d 222, 65 Cal.Rptr. 545, 436 P.2d 561); and 2) is the agreement susceptible of the meaning contended for by the party offering the evidence? (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641.)

A determination of admissibility...