Hunt Foods v. Phillips

• Decision Date: 11 October 1957
• Docket Number: No. 15216.,15216.
• Citation: 248 F.2d 23
• Parties: HUNT FOODS, Inc., a Corporation, Appellant, v. Wellington PHILLIPS and H. W. Liholm, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

248 F.2d 23 (1957)

HUNT FOODS, Inc., a Corporation, Appellant, v. Wellington PHILLIPS and H. W. Liholm, Appellees.

No. 15216.

United States Court of Appeals Ninth Circuit.

August 7, 1957.

Rehearing Denied October 11, 1957.

Cushing, Cullinan, Duniway & Gorrill, San Francisco, Cal., for appellant.

Hancock, Elkington & Rothert, San Francisco, Cal., for appellees.

Before STEPHENS, Chief Judge, and HEALY and POPE, Circuit Judges.

STEPHENS, Chief Judge.

In this diversity case, appellees Wellington Phillips and H. W. Liholm, partners doing business under the name of Wellington Phillips & Co., seek damages for breach of contract. In 1951 appellees were engaged in the business of bidding for sales of canned goods and other products to military purchasing offices in California. Appellee Phillips was the chief moving force behind the partnership, having had some twenty-five years experience in various aspects of the grocery and canned food business. The appellees' bidding business in 1951, although fairly new, was profitable, and the outlook for the future was bright. Phillips, in August and September, 1951, talked to Mr. Flynn, Hunt Foods' Sales Manager for the Northern California District, as to the possibility of exclusively handling Hunt's products in the military commissaries. Various discussions later took place between Phillips, Flynn, Mr. Miller, District Sales Manager for all districts of Hunt Foods, Mr. Reed, Export and Government Supply Manager, and Mr. Church, Credit Manager for Hunt Foods. It was disputed at the trial as to the gist of those conversations. Phillips had critical discussions with Mr. Flynn, who was deceased at the time of the trial. Phillips alleged that he told Flynn that his then bidding business in 1951 was very profitable and he would earn $15,000 profit that year; that he told Flynn that he would be willing to act as jobber in sales of Hunt Foods products to the military commissary stores in Northern California if such appointment were exclusive and that he would sell no other brand of canned food products to such commissary stores. Phillips said he told Flynn that because Hunt Foods salesmen were presently selling at wholesale prices to the commissary stores, that it would take him a period of time to obtain a profit for himself on the resale of such products to the stores until changing market conditions or general price changes made it feasible to add or create a mark-up or percentage of profit for himself. Hunt Foods products were then selling considerably below the price of other brands for the same quantity, and it was the intention of Phillips to eventually obtain a fair profit margin by increasing the resale price of Hunt products more than would be done by competitors when there was a price increase, and to decrease Hunt resale prices less than the decrease of competitors when there was a general price decline. In both situations Hunt products would still be selling below that of competitors.

Phillips said he told Flynn that it would take two or three years to make up for early losses while he was building up sales and gradually increasing the resale price of the goods. Phillips said that Flynn agreed that Hunt salesmen would no longer sell to the commissaries, but that they would receive sales credit for all sales made by Phillips. Phillips said Flynn told him such arrangement was acceptable to him as District Sales Manager and that Phillips should talk to Mr. Miller, District Sales Manager for all districts, at the company's principal office at Fullerton, California. Phillips contacted Miller, who stated that any arrangements made by Flynn were acceptable to him. Phillips also arranged with Mr. Church, Credit Manager of appellant, for a certain amount of credit.

In November, 1951, Mr. Flynn signed and distributed, to Hunt salesmen in his area and to military commissaries, a letter confirming the appointment of Phillips as exclusive military service jobber.

Phillips commenced promotion and sales of Hunt products in December, 1951, and continued the jobber arrangement until April, 1953, at which time Hunt informed Phillips that it was terminating the arrangement. It was not disputed that, during the period of the arrangement, the sales of Hunt products to the military commissaries was doubled. The arrangement Hunt had with Phillips was unique, and Hunt had no similar arrangement with anyone else. Hunt terminated the arrangement with Phillips and turned over its entire nationwide sales to military commissaries to a nationwide firm.

Phillips, during the existence of the arrangement, did not promptly pay to Hunt all sums owing, for goods sold by Phillips and charged to him. But Hunt apparently was satisfied with the increased sales, and therefore did not press Phillips too hard as to credit problems. When Hunt did terminate the agreement, Phillips owed Hunt approximately $25,000. After the termination, Phillips made payments to Hunt so that by July, 1953, he owed Hunt $13,319.37. Phillips then signed three written promises to pay, called trade acceptances, each in the sum of $4,439.79, representing the balance due to Hunt. Phillips paid $1,824.21 on the first trade acceptance, but the balance of the trade acceptance was never paid, nor were payments ever made on the other two acceptances. Phillips admitted liability on the acceptances for the balance of $11,495.16.

In November, 1954, Phillips sued Hunt Foods for breach of the oral contract. Hunt Foods also filed a counterclaim and cross-complaint seeking $11,495.16, based on the balance owing on the three trade acceptances signed by Phillips.

A non-jury trial was had in the District Court. The trial judge found that an oral agreement was entered into between the parties for an unspecified period of time commencing on December 1, 1951. The Court further held that Hunt Foods, Inc. violated and breached the oral agreement and awarded damages of $21,500 to appellees. Judgment was rendered in favor of appellant on its cross-complaint for $11,495.16, being the admitted balance then due and owing on the three trade acceptances signed by Phillips. Hunt Foods, Inc. appeals from the judgment.

The Appeal

First, appellant argues that when the trial court rendered judgment in its favor for $11,495.16 on its cross-complaint, the Court should have allowed attorneys' fees, interest and costs. The award to appellant was based on the then past due trade acceptances. Appellees, in their answer to the cross-complaint, admitted acceptance of the three trade acceptances and the correctness of the balance due and owing. There was no issue in the case relating to the admitted liability of appellees upon such trade acceptances. It is apparent that the attorneys' fees and costs incurred by appellant were incurred in defending against the demands of appellees' complaint. We find no error in the action of the trial judge in not awarding costs or attorneys' fees under the circumstances of this case.

The question whether Hunt Foods should have been allowed interest on the trade acceptances from date of maturity is another matter. California law is here controlling as to this issue since the trade acceptances were executed in California and were to mature and be payable in California.

California Civil Code, § 3287 provides:

"§ 3287. Interest on damages; right to recover; time from which interest runs

"Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt. This section is applicable to recovery of damages and interest from any such debtor, including any political subdivision of the State. (As amended Stats.1955, c. 1477, p. 2689, § 1.)"

The amount due appellant was liquidated and was represented by the three trade acceptances. Under California law, if appellant had sued appellees on the acceptances, appellant would have been entitled to interest from the date of maturity of each of the acceptances. Hansen v. Covell, 1933, 218 Cal. 622, 24 P.2d 772, 89 A.L.R. 670; California Lettuce Growers v. Union Sugar Company, 1955, 45 Cal.2d 474, 289 P.2d 785, 49 A.L.R.2d 496. But appellees argue that the trade acceptance obligation is completely offset by the trial judge's award of $21,500 to them as damages for breach of contract, and therefore the interest on the trade acceptances was properly omitted by the trial court. Appellees do not here claim that they are entitled to interest on their award prior to judgment. It is obvious that appellees' claim for damages was an unliquidated claim; and, under California law, they would not have been entitled to interest prior to judgment. We are thus presented with a liquidated claim being asserted by appellant and an unliquidated claim being asserted by appellees in defense. The following quotation in Hansen v. Covell, 24 P.2d 772, 775, is pertinent:

"On the theory that a debtor may not defeat the creditor\'s right to interest on a liquidated sum by setting up an unliquidated claim as an offset, the result reached in the case of Pearson v. Ryan, 42 R.I. 83, 105 A. 513, 3 A.L.R. 805, has been applied in a number of jurisdictions. In a note to that case in 3 A.L.R. p. 809 et seq., the general rule is stated that: `Where the amount of a claim under a contract is certain and liquidated, or is ascertainable but is reduced by reason of the existence of an unliquidated set-off or counterclaim thereto, interest is properly allowed on the balance found to be due from the time it became due. * * *\' California is credited with having adopted that doctrine in the case of McCowen v. Pew, 18 Cal.App. 482, 123 P. 354, 355. The trial court in the present case applied the rule, which is also stated in the same note, that where the

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