El Rio Oils, Canada, Limited v. Pacific Coast Asphalt Co.

CourtCalifornia Court of Appeals
Citation213 P.2d 1,95 Cal.App.2d 186
Decision Date20 December 1949

William A. Reppy, Oxnard, and Dolley, Knight, Woods & Hightower, Los Angeles, for appellant El Rio Oils.

Durley, Todd & Fox, Oxnard, and Churchill, Teague & Romney, by E. Perry Churchill, Ventura, for Pacific Coast Asphalt Co., Inc.

Don R. Holt, Ventura, Caryl Warner, Los Angeles, of counsel, for respondent Ralph Edgington.

McCOMB, Justice.

Plaintiff appeals from (1) a judgment denying dissolution of a corporation, and (2) a judgment on the cross-complaint decreeing specific performance of a contract to sell oil and awarding defendant damages for breach of said contract in the amount of $138,299.43.

Defendant appeals from a judgment in favor of the intervenor predicated upon defendant's breach of contract in the amount of $48,181.14.


Viewing the record pursuant to the rules set forth in Re Estate of Isenberg, 63 Cal.App.2d 214, 217, 146 P.2d 424, and bearing in mind that an appellate court will not consider matters not appearing in the record (People v. O'Neill, 78 Cal.App.2d 888, 892, 179 P.2d 10), the evidence discloses:

In 1937 plaintiff drilled an oil well on leased land. In 1938, with the permission of lessor, a refinery was constructed on the leased premises in which refinery plaintiff owned an interest. The purpose of the refinery was to refine and manufacture asphalt from the oil produced by plaintiff. This venture was a failure and in 1939 plaintiff was on the verge of bankruptcy and sought the assistance of the lessors (the Chases) of the land upon which it had drilled an oil well. As a result of various negotiations plaintiff and the Chases entered into an agreement for the formation of defendant corporation. Plaintiff and the Chases were to have an equal stock ownership in defendant and each was to provide an equal share of the capital to successfully operate defendant. The Chases were to devote their time and attention to the management of defendant and plaintiff agreed to furnish for the life of the wells all oil produced on the leased premises to the extent that such oil could be used by defendant in the production and sale of asphalt and other products. It was agreed that plaintiff would not sell its oil to anyone other than defendant but that defendant could sell any oil in excess of its own requirements which plaintiff produced.

Pursuant to the agreement defendant corporation was organized and stock issued in equal amounts to plaintiff and the Chases. After defendant corporation was formed the Chases took over the active management of the company. Plaintiff did not furnish its share of the financial assets necessary for the operation of the company. Defendant company did not prosper and early in 1940, plaintiff and defendant mutually agreed to modify their original contract as to the method of fixing the price of oil sold by plaintiff to defendant. In effect it was agreed that defendant would continue its efforts to develop a market for the oil produced by plaintiff and that plaintiff would accept for the oil the price which defendant was able to pay and continue in operation. In 1943 when defendant's operations became successful this arrangement was terminated and the provisions in the original contract were resumed, to wit, that defendant should pay plaintiff the current market price for the oil purchased. In May, 1944, plaintiff and defendant agreed to another modification of their original contract by providing that plaintiff should have the right to sell to anyone the oil produced by it over and beyond the requirements of defendant. As thus modified both parties continued to operate according to the agreement through the year 1945.

In 1947 defendant entered into a contract with intervenor to sell all of the asphalt produced from the oil located on plaintiff's lease during the year 1947, and intervenor agreed to buy the same. Plaintiff had notice of this contract. Plaintiff continued to perform its agreement with defendant until on or about April 7, 1947, on which date it refused to deliver to defendant oil produced from its wells, and thereafter refused to deliver any oil to defendant. On April 7, 1947, plaintiff filed a complaint seeking the dissolution of defendant corporation on the ground that internal dissension existed between the stockholders of defendant corporation and that its business could no longer be continued with advantage or profit to the stockholders.

Defendant filed a cross-complaint against plaintiff seeking (1) specific performance of its contract with plaintiff, and (2) damages for breach of the contract. Thereafter intervenor filed a complaint in intervention seeking damages against defendant for breach of its contract with him.


The trial court found that:

1. It was not true that there was such internal dissension between the stockholders of defendant that its affairs could not be conducted with advantage or profit to the stockholders, but that the sole motive of plaintiff in filing the suit for dissolution of defendant corporation was to avoid its contractual obligation to deliver all the oil produced on its lease to defendant.

2. Plaintiff had entered into an agreement to deliver all the oil produced on its lease to defendant.

3. Defendant had entered into an agreement with intervenor to sell all the asphalt produced from the oil furnished by plaintiff to the intervenor who had in turn agreed to purchase all of said asphalt.


The trial court entered judgment (1) decreeing specific performance of the contract between plaintiff and defendant, (2) awarding defendant damages against plaintiff for the breach of its contract, and (3) awarding intervenor damages against defendant for breach of its contract with intervenor.

Plaintiff's Appeal

Contentions of Plaintiff: First: That there is no credible evidence to support the finding that plaintiff entered into a contract in July, 1939, for the sale of its oil to defendant for the life of plaintiff's wells.

It is the established rule that courts of appeal will not pass upon the credibility of evidence. Where, as in the instant case, there is substantial evidence to support the findings, a reviewing court will not look further into the evidence. Section 1847, Code Civil Procedure *; Joerger v. Pacific Gas & Electric Co., 207 Cal. 8, 24, 276 P. 1017; Bealmer v. Smith, 91 Cal.App.2d 179, 204 P.2d 642.

In the instant case it is conceded that Glywn S. Chase and J. Warren Chase gave testimony which would sustain the questioned finding. We must assume that the trial court believed this testimony and resolved any conflicts therein in favor of defendant.

Second: That the contract which plaintiff made for the sale of its oil was made with the Chase brothers personally and was not enforceable by defendant.

This proposition is untenable. The record discloses, and the trial court found, that the agreement which plaintiff made with the Chase brothers for the sale of its oil during the life of the wells on its lease contemplated the formation of defendant corporation and was for the benefit of the corporation. In other words it was a preorganization agreement made for the benefit of the corporation and hence enforceable by defendant after its organization as a corporation. (See Central Heights, etc., Co. v. Memorial Parks, 40 Cal.App.2d 591, 607, 105 P.2d 596.)

In the present case the evidence discloses that defendant after its formation as a corporation adopted and ratified the contract, relied upon the agreement, and in all particulars performed the obligation imposed upon it by such agreement.

Third: That there is no evidence of the authority of plaintiff's agents to enter into the contract with defendant.

This proposition is without merit. Mr. Roberts and Mr. Von Bohm, who were in turn managing directors of plaintiff, each testified that they were the agents of plaintiff with power to handle the affairs of such corporation. Such testimony was clearly admissible under the rule that when the question of the existence of an agency is involved, the testimony of the agent is competent to establish the fact of agency and the extent thereof. (Kast v. Miller and Lux, 159 Cal. 723, 728, 115 P. 932.)

Fourth: That the contract between plaintiff and defendant was not enforceable because of a lack of mutuality.

This proposition is likewise without merit. In consideration of plaintiff's promise to sell all its oil to defendant, defendant promised and agreed to take its entire requirements of oil from plaintiff and to use its best efforts to develop a market for the oil produced by plaintiff. Mutual promises constitute consideration. (Gallagher v. Equitable Gas Light Co., 141 Cal. 699, 707, 75 P. 329.) A promise to buy all that the promisor requires or needs in its business from the promisee constitutes a valid consideration for the vendor's promise to furnish the goods or merchandise which the promisor may need. (Marin Water Power Co. v. Town of Sausalito, 168 Cal. 587, 600, 143 P. 767; Bartlett Springs Co. v. Standard Box Co., 16 Cal.App. 671, 672, 117 P. 934. See also Cooper v. Lansing Wheel Co., 94 Mich. 272, 54 N.W. 39, 40, 34 Am.St.Rep. 341; Parks v. Griffith & Boyd Co., 123 Md. 233, 91 A. 581, 585; Williston on Contracts, Vol. I, revised ed page 353, section 104-A et seq. Cf. Webber v. Johnston, 214 Cal. 378, 381 et seq., 5 P.2d 886.

California Refining Co. v. Producers' Refining Corp., 25 Cal.App.2d 104, 76 P.2d 553, is not here in point for the reason that in the cited case there was no agreement to sell and purchase all the requirements needed in the business; neither was there an agreement to develop a market for the vendor's product. Garrison v. Edward Brown & Sons, 25 Cal.2d 473, 154 P.2d...

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