Outdoor Services, Inc. v. Pabagold, Inc.

• Decision Date: 18 September 1986
• Citation: 230 Cal.Rptr. 73,185 Cal.App.3d 676
• Court: California Court of Appeals Court of Appeals
• Parties: OUTDOOR SERVICES, INC., Plaintiff and Respondent, v. PABAGOLD, INC., Defendant and Appellant. A021667.

Page 73

230 Cal.Rptr. 73

185 Cal.App.3d 676

OUTDOOR SERVICES, INC., Plaintiff and Respondent, v. PABAGOLD, INC., Defendant and Appellant.

A021667.

Court of Appeal, First District, Division 3, California.

Sept. 18, 1986.

Cohen and Jacobson, Lawrence A. Jacobson, Burlingame, for defendant and appellant

Stimmel & Stimmel, Lee D. Stimmel, Patricia Nichols, San Francisco, for plaintiff and respondent.

BARRY-DEAL, Associate Justice.

Pabagold, Inc. (Pabagold), appeals from an order confirming an arbitration award and judgment in favor of Outdoor Services, Inc. (Outdoor Services). ¹ Pabagold argues that Outdoor Services was not a third party beneficiary of the contract between Pabagold and Mediasmith, an advertising agency, and therefore could not enforce the arbitration agreement contained in the contract. Pabagold also asserts that even if Outdoor Services was a third party beneficiary, it waived its rights under the arbitration agreement by filing a cross-complaint against Pabagold in an action brought by Gannett Outdoor Co., Inc., of Southern California

(Gannett) against Outdoor Services. Finally, Pabagold argues that it was wrongfully denied a continuance of the arbitration hearing because its counsel withdrew six days before the hearing. We affirm the judgment.

BACKGROUND

In March 1981, Pabagold entered into a written contract with Mediasmith, by which Mediasmith agreed to plan and place an advertising campaign for Pabagold's product, Hawaiian Gold Pabatan suntan lotion. The contract authorized Mediasmith to enter into contracts with third parties in order to effectuate the advertising program and to make timely payments to those third parties for goods and services for Pabagold's account. Pabagold was to be fully responsible to Mediasmith for all authorized expenditures. Pabagold agreed to pay Mediasmith's fee for services, including agreed-upon special services and out-of-pocket expenses. The contract contained a provision for the recovery of attorney's fees and costs incurred in enforcing the agreement, as well as a clause that any dispute arising under the contract would be settled by arbitration.

In April 1981, Mediasmith entered into an oral contract with Outdoor Services, by which Outdoor Services agreed to purchase outdoor advertising space for Pabagold's account in exchange for a 5 percent commission on the gross billings for the advertising placements. As required by the contract, Mediasmith provided Pabagold with a written media estimate for the outdoor advertising, which was signed and authorized by Pabagold's vice president, Frank T. Fitzsimmons, Jr. Outdoor Services was not mentioned on the estimate.

Outdoor Services purchased from billboard advertisers $187,244.60 worth of posting and maintenance of outdoor advertising displays and earned $8,545.42 in commissions. Upon Outdoor Services' demand upon Mediasmith for payment, Mediasmith requested payment from Pabagold. Pabagold failed to pay Mediasmith, which in turn did not pay Outdoor Services. Certain outdoor advertising companies began claiming independent liability on the part of Outdoor Services.

Mediasmith filed a complaint for breach of contract against Pabagold in San Francisco Superior Court in July 1981 and on three occasions unsuccessfully sought a writ of attachment against Pabagold. Thereafter, in November 1981, Gannett, one of the outdoor billboard companies with whom Outdoor Services had placed advertising pursuant to its contract with Mediasmith, filed a complaint against Outdoor Services.

On November 20, 1981, Outdoor Services filed a demand against Pabagold with the American Arbitration Association for arbitration as a third party beneficiary of the Pabagold-Mediasmith contract. Mediasmith, on December 14, 1981, filed a cross-demand with the American Arbitration Association for arbitration against Pabagold. On January 5, 1982, Outdoor Services filed an answer and a cross-complaint against Mediasmith and Pabagold in the Gannett action.

The American Arbitration Association granted jurisdiction over the arbitration between Mediasmith and Pabagold based on the arbitration clause contained in their contract, but required Outdoor Services to get either the consent of the parties to the arbitration or a court order as to the ability of Outdoor Services to participate in the arbitration. Pabagold refused its consent, but on March 22, 1982, Outdoor Services' petition to compel arbitration was granted by the San Francisco Superior Court.

On May 26, 1982, counsel for Pabagold failed to appear at a duly noticed prehearing conference at which the parties were to have set a hearing date for the arbitration. On the following day, Pabagold's counsel requested a continuance, and the arbitration was continued to September 1982. Pabagold's counsel again failed to appear at a duly noticed prearbitration conference on August 27, 1982.

On September 1, 1982, officers of Pabagold informed Outdoor Services that Pabagold would represent itself at the arbitration On September 16, after the hearing had commenced, the arbitrator granted a continuance until October 25 because Stuart G. Sall, one of Pabagold's officers who was representing Pabagold at the arbitration, was experiencing health problems. The arbitrator rendered his decision in favor of Outdoor Services on November 11. On January 21, 1983, an order confirming arbitration award and a judgment were entered. This appeal followed.

hearing. No mention was made that Pabagold was seeking new counsel. On September 6, Pabagold requested and obtained from all counsel a stipulation to continue the arbitration one day to September 8. However, on September 8, Pabagold appeared and requested a 60-day continuance in order to obtain counsel. The arbitrator denied the request, stating that Pabagold's conduct did not entitle it to a continuance.

DISCUSSION

Right to Enforce Arbitration as Third Party Beneficiary

Pabagold contends that Outdoor Services is not a third party beneficiary to the Pabagold-Mediasmith contract because Pabagold was unaware of its identity at the time the agreement was created. At most, Pabagold argues, Outdoor Services was an incidental beneficiary and therefore unable to enforce the arbitration agreement.

Arbitration can only be ordered if there is a contract for arbitration. (Code Civ.Proc., §§ 1281, 1281.2.)

The prevailing American rule permits a third party beneficiary under a contract to enforce it. (1 Witkin, Summary of Cal.Law (8th ed. 1973) Contracts, § 499, p. 428.) The rule is codified in Civil Code section 1559, which provides: "A contract, made expressly for the benefit of a third person, may be enforced by him [or her] at any time before the parties thereto rescind it." The promise in such a situation is treated as having been made directly to the third party. (Shell v. Schmidt (1954) 126 Cal.App.2d 279, 290, 272 P.2d 82.) It is not necessary that an express beneficiary be specifically identified in the contract; he or she may enforce it if he or she is a member of a class for whose benefit the contract was created. (Garratt v. Baker (1936) 5 Cal.2d 745, 748, 56 P.2d 225; Boliver v. Surety Co. (1977) 72 Cal.App.3d Supp. 22, 27, 140 Cal.Rptr. 259.) However, section 1559 excludes enforcement of the contract by persons who are only incidentally or remotely benefited by it. (Dateline Builders, Inc. v. City of Santa Rosa (1983) 146 Cal.App.3d 520, 526, 194 Cal.Rptr. 258.)

In Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394, 400-401, 113 Cal.Rptr. 585, 521 P.2d 841, the Supreme Court addressed the issue of third party beneficiaries: "American law generally classifies persons having enforceable rights under contracts to which they are not parties as either creditor beneficiaries or donee beneficiaries. (Rest., Contracts, §§ 133, subds. (1), (2), 135, 136, 147; 2 Williston on Contracts (3d ed. 1959) § 356; 4 Corbin on Contracts (1951) § 774; see Rest.2d Contracts (Tentative Drafts 1973) § 133, coms. b, c.) California decisions follow this classification. (Southern Cal. Gas Co. v. ABC Construction Co. (1962) 204 Cal.App.2d 747, 752, 22 Cal.Rptr. 540 ...; 1 Witkin, Summary of Cal. Law (8th ed. 1973) Contracts, § 500.) [p] A person cannot be a creditor beneficiary unless the promisor's performance of the contract will discharge some form of legal duty owed to the beneficiary by the promisee. (Hartman Ranch Co. v. Associated Oil Co. (1937) 10 Cal.2d 232, 244, 73 P.2d 1163 ...; Rest., Contracts, § 133, subd. (1)(b).) ... [p] A person is a donee beneficiary only if the promisee's contractual intent is either to make a gift to him [or her] or to confer on him [or her] a right against the promisor. (Rest., Contracts, § 133, subd. (1)(a).) If the promisee intends to make a gift, the donee beneficiary can recover if such donative intent must have been understood by the promisor from the nature of the contract and the circumstances accompanying its execution. (Lucas v. Hamm [1961] 56 The question of whether a third party is a creditor, donee, or incidental beneficiary is one of construction, and the intent must be evident from reading the contract as a whole under the light of the circumstances under which it was entered. (Walters v. Calderon (1972) 25 Cal.App.3d 863, 870, 102 Cal.Rptr. 89.) Thus, "[t]he test is whether an intent to benefit the third party appears from the terms of the contract [citation]." (Ibid.)

Cal.2d at pp. 590-591 [15 Cal.Rptr. 821, 364 P.2d 685].)"

The Pabagold-Mediasmith contract, in its standard terms and conditions, provided, inter alia, the following: "STANDARD TERMS AND CONDITIONS [p] 1) Mediasmith is authorized to enter into contracts with third parties, as appropriate and as authorized by a signed Media Estimate. Accordingly, Mediasmith may make contracts and arrangements with advertising media for space and/or time, and with others to effectuate the Client's advertising program and to obtain favorable terms and rates.... [p] 3)...