Howard v. Hancock Oil Co. of California

• Decision Date: 23 January 1934
• Docket Number: No. 7042.,7042.
• Citation: 68 F.2d 694
• Parties: HOWARD v. HANCOCK OIL CO. OF CALIFORNIA.
• Court: U.S. Court of Appeals — Ninth Circuit

68 F.2d 694 (1934)

HOWARD v. HANCOCK OIL CO. OF CALIFORNIA.

No. 7042.

Circuit Court of Appeals, Ninth Circuit.

January 23, 1934.

O'Melveny, Tuller & Myers and Albert Parker, all of Los Angeles, Cal., for appellant.

Knight & Armour, of Long Beach, Cal., for appellee.

Before WILBUR, SAWTELLE, and MACK, Circuit Judges.

MACK, Circuit Judge.

This is an appeal by the receiver of the State Company from an order of the District Court allowing the claim of the Hancock Oil Company in the sum of $121,011.69, with interest, as a general claim against the receivership estate.

The claim arose out of the following transactions: On or about March 7, 1928, the State Company and the Richfield Oil Company entered into a written agreement, the former to sell and the latter to buy, during a period of three years from March 7, 1928, and continuing thereafter subject to cancellation by either on six months' notice, the total amount, up to a certain maximum, of crude petroleum oil of specified gravity and temperature, owned by the State Company at its dehydrating plant at the Long Beach oil field. The agreed price for oil of the specified gravity was to be 10 cents per barrel higher than the prices publicly offered by the Standard Oil Company of California for oil of like gravity and quality. On November 7, 1928, while this contract was in force, the Hancock Oil Company and the State Company agreed in writing, the former to sell and deliver, and the latter to receive and pay for, all the surplus oil, up to a certain amount, owned by Hancock in excess of the requirements of its refinery and of its contracts then in force. The price was to be 5 cents per barrel above the price publicly offered by the Standard, and the contract was to continue in force from November 7, 1928, to March 7, 1931, unless terminated under certain conditions, on notice by either party.

The relevant sections of this contract are set out in the margin.¹

At the time of the execution of this second contract, there was in force an irrevocable order by State on and accepted by Richfield executed contemporaneously with their agreement of March 7, 1928, for payment to the Security Trust & Savings Bank of Long Beach of all sums to become due thereunder. On November 7, 1928, State and Hancock executed escrow instructions, accepted and approved by Security, by which it was agreed that Security, without authorization from Hancock, would not consent to revocation or modification of State's order on Richfield, and that Security would pay to Hancock the amount due under Hancock's contract with State, out of the moneys paid it by Richfield subject to priorities as specified in the agreement, the essential parts of which are set out in the margin.²

Deliveries under the contract between State and Richfield continued until January 15, 1931; deliveries under the contract between Hancock and State until January 21, 1931. Some time prior to February 24, 1931, Richfield went into receivership. On creditor's bill filed February 24, 1931, by the Dollar Oil Corporation and admission of its allegations by defendant, the State Company, a receiver was appointed for State, the bill alleging, inter alia, that State was "particularly embarrassed by the large claim of the Hancock Oil Company in the amount of over $121,011.69." On behalf of State and Security, the receiver filed a proof of claim against Richfield in the sum of $172,675.18 for deliveries of oil between December 1, 1930, and January 15, 1931.

Hancock filed the present contested claim for $121,011.68, plus interest, for deliveries of oil to State between December 1, 1930, and January 21, 1931. The District Court, confirming the report of the special master, allowed the claim as a general claim, and also ordered that all funds received from Richfield, as provided in the escrow instructions of Hancock and State, be paid to Security First National Bank of Los Angeles at the Long Beach main office, and distributed in accordance with the escrow instructions.

The contentions of appellant, urged below and repeated here, are (1) that the contract between Hancock and State, together with the escrow instructions created not a general obligation on the part of State to pay for the oil delivered, but only a limited obligation to pay out of the particular fund created by Richfield's payments to the bank; or (2) that the agreement between Hancock and State was not a contract of purchase and sale, but a contract creating an agency under which State was to sell oil for Hancock to Richfield. In support of these contentions, and on the theory that the written agreements were ambiguous, evidence was offered to aid in the construction of the contract. The findings of the special master, adopted by the District Judge, were to the effect that there was no ambiguity in the written agreements, that the objections to the receipt of any evidence as an aid to the construction of the contract were therefore well taken. and that the contract was one of purchase and sale between Hancock and State, in which the provisions regarding payment out of moneys paid by Richfield were made, not to limit State's obligation to a particular fund, but to give Hancock the benefit of additional security. If these findings are supported by the evidence, Hancock as seller was a creditor of State, as purchaser.

We are of the opinion that the documents themselves unambiguously express the intention of the parties. Since, however, the evidence offered by appellant is not inconsistent with the conclusions of the court below, we shall also consider it, even though it may have been properly excluded under the parol evidence rule.

1. Of course if the parties had so wished, they could have limited the obligation of State to pay out of a particular fund, as was done in the cases cited by appellant. In most of them, however, the only statement of a promise to pay was expressly qualified in the very sentence by some such phrase as "as follows," Chambers v. Jaynes, 4 Pa. 39 (1846); Warman Steel Casting Co. v. Redondo Beach Chamber of Commerce, 34 Cal. App. 37, 166 P. 856 (1917); or "in manner hereinafter specified," W. W. Montague & Co. v. Leonard, 135 Cal. 209, 67 P. 126 (1901); "payable as and when," Carpenter v. Elmer R. Sly Co., 109 Cal. App. 539, 293 P. 162, 163 (1930); or "according to the following conditions," Palmer v. Guillow, 224 Mass. 1, 112 N. E. 493 (1916). In Frank v. Butte & Boulder Mining & Lumber Co., 48 Mont. 83, 135 P. 904 (1913), there was no express promise to pay other than the statement that the money advanced "shall be repaid * * * by the said company, out of the first earnings of its business." Cf. Lyman v. Northern Pac. El. Co., 62 F. 891 (C. C. Minn., 1894). In Gardiner v. Equitable Office Bldg. Corp., 294 F. 496, 498 (C. C. A. 2d, 1923), there was a separate promise to pay "$100,000 cash and $100,000 par value of the common stock of the company." The cash commission was to be paid out of the first moneys available from the sale of the preferred stock and second mortgage bonds of the company. But the company contemplated was never formed, and the deal was not actually consummated in the way anticipated. In Orman v. Ryan, 25 Colo. 383, 55 P. 168 (1897), there was an unqualified promise to pay, but there was no time of payment specified, other than when the particular fund should be realized. The case was tried by the plaintiffs on the theory that the liability of the defendants was conditioned on the fund being realized, and the court refused to allow them to shift, on rehearing of the appeal, to the theory that it was not. There is, however, considerable authority to the effect that such a contract creates an unconditional liability to pay within a reasonable time. See Nunez v. Dautel, 19 Wall. 560, 22 L. Ed. 161 (1873); Morrison v. Sycamore Canyon Gravel Co., 102 Cal. App. 536, 283 P. 84 (1929). Cf. Barber Asphalt Paving Co. v. City of Denver, 72 F. 336 (C. C. A. 8th, 1896).

In the contract between Hancock and State, an unconditional promise to pay appears three times; once in connection with term and quantity; again in connection with prices; and finally in connection with the time of payment. When the manner of payment, out of moneys paid into Security by Richfield, was finally mentioned, it was introduced by the phrase, "and, in this connection, it is expressly understood and agreed," thus making an addition rather than a qualification or condition.

Appellee suggests, as a further indication that the obligation of State was not limited to the particular fund, that Hancock was not entitled to the entire fund or even a definite part of it, but only to the balance remaining up to the amount of State's indebtedness after Security had been repaid for its expenses and advances to State. The strength of this argument is, however, considerably diminished by the limitation in the escrow agreement that at no time should the advances to State, plus the amount due Hancock, exceed 95 per cent. of crude oil delivered to Richfield.

Consideration of the contract as a whole, as well as of its particular provisions, supports the finding that the provisions regarding the payments by Richfield were intended to provide additional security to Hancock, rather than to limit its right to the particular fund. It is not altogether uncommon for the seller to attempt to tie up the proceeds or profits of resale as security for its own claim arising out of its sale of the goods. In Bush v. Merrill, 156 S. W. 606, 610 (Tex. Civ. App., 1913), a contract with respect to land containing very similar provisions, reserving title in the seller until the entire purchase price should be paid, specifying terms of resale, and requiring payment of the balance of the purchase price directly out of the proceeds of resale, was construed to create an unconditional obligation to pay the balance within a reasonable time, "with the several provisions for the benefit of the ...