Seaman's Direct Buying Service, Inc. v. Standard Oil Co. of California, Inc.
| Decision Date | 03 March 1982 |
| Citation | 129 Cal.App.3d 416,181 Cal.Rptr. 126 |
| Court | California Court of Appeals Court of Appeals |
| Parties | , 33 UCC Rep.Serv. 1227 SEAMAN'S DIRECT BUYING SERVICE, INC., Plaintiff and Respondent, v. STANDARD OIL CO. OF CALIFORNIA, INC., Defendant and Appellant. Civ. 26413. |
Pillsbury, Madison & Sutro, Noble K. Gregory, Anthony P. Brown, William S. Mailliard, Jr., C. Douglas Floyd and Mark H. Penskar, San Francisco, for defendant and appellant and cross-respondent.
Janssen, Malloy & Marchi, Clayton R. Janssen, Eureka, Lascher & Wilner and Edward L. Lascher, Ventura, for plaintiff and respondent and cross-appellant.
Standard Oil Co. of California, Inc. (Standard) appeals the judgment and a denial of its motion for judgment notwithstanding the verdict in this action by Seaman's Direct Buying Service, Inc. (Seaman). A cross-appeal from the trial court's remittitur of punitive damages was filed by Seaman.
This action was brought against Standard for breach of contract and certain tortious acts. The jury returned a verdict on Seaman's four theories of relief as follows:
1) On breach of contract, for Seaman, determining compensatory damages at $397,050;
2) On tortious (bad faith) breach of implied covenant of good faith and fair dealing arising from a contract, for Seaman, determining compensatory damages at $397,050 and punitive damages of $11,058,810;
3) On intentional interference with contractual relations and economic advantage, for Seaman, assessing compensatory damages of $1,588,200 and punitive damages at $11,058,810;
4) On fraud, for Standard.
The judge denied Standard's motion for new trial as Seaman accepted the condition of remittitur of punitive damages to $1,000,000 on the bad faith theory and to $6,000,000 on the interference theory.
Seaman was incorporated in 1966. Mr. Volpi, Mr. Gromala and Mr. Harland were the original shareholders. Seaman was engaged primarily in the business of ship's chandlery 1 in the City of Eureka, California. In 1967, Seaman began supplying fuel to vessels as a consignee of Mobil Oil Corporation (Mobil).
By early 1971, the Federal Economic Development Administration (EDA) tentatively approved Eureka's plans to redevelop its waterfront. In March 1971, Seaman agreed with Eureka to lease space in the redeveloped waterfront facility to conduct its business. This lease could be modified to accommodate Seaman's planned expansion in business. An extremely important aspect of Seaman's plans was to supply fuel to vessels as an independent supplier (not as a consignee), not only because of the inherent profits but also because fuel availability would attract vessels which would procure Seaman's other services and products.
For Seaman to develop this business, it needed a long-term supply contract with a major oil company. Mobil and Standard were interested in Seaman's business and became the most promising prospects. In 1971, Seaman began negotiations with Mr. Saupe, Standard's sales representative in Eureka. Standard wanted Seaman to become a Chevron marine dealer. Negotiations continued through 1972.
As Eureka needed more certainty regarding Seaman's ability to make lease payments, Mr. Saupe (with the assistance of his superiors at Standard and legal counsel) prepared a letter to Seaman dated October 11, 1972. This letter invited Seaman's acceptance and agreement to the terms and conditions. The main points of the letter included: an initial 10-year supply period with three 10-year options for renewal, 2 effective when Seaman occupied the EDA redevelopment facility; a $75,000 interest-free loan from Standard to Seaman to be paid back at an amortized rate of one cent per gallon; 3 a price discount of four and a half cents per gallon; and Standard's "right to cure" if Seaman defaulted on its lease to Eureka. The letter contained significant ambiguity such as twice using the word "offer" but also containing language of future "mutual agreement ... of the final agreements."
After the October 11 letter had been signed by Mr. Volpi of Seaman, Eureka and Seaman modified their agreement to increase space leased to Seaman. Also, Seaman terminated its negotiation with Mobil for a long-term fuel supply contract. Both parties treated the October 11 document as though some agreement had been reached, although further negotiations on other points continued through most of 1973.
On November 20, 1973, Standard informed Seaman that it was unable to proceed with the plans to partially finance and supply fuel to Seaman because of the federal program of mandatory allocation of petroleum products which was implemented on November 1, 1973, in connection with a world-wide oil embargo problem. Standard further stated that if the program is withdrawn and Standard's supply situation improves, it would be interested in supplying Seaman's needs.
With Standard's help and advice, Seaman sought relief from the allocation program to enable Standard legally to supply Seaman. On February 4, 1974, the Federal Energy Office (FEO) issued an order authorizing Standard to supply a specified quantity of fuel to Seaman. The FEO also authorized Standard to appeal the February 4 order. Standard did appeal the order because of its supply limitations, a policy change of not seeking new business, and Standard's belief that the order violated federal regulations. On March 22, 1974, the FEO rescinded its earlier order authorizing Standard to supply Seaman.
Seaman appealed and obtained a temporary fuel supply from Mobil, its base period supplier. 4 The FEO denied Seaman's appeal but later granted Seaman an exception from the normal allocation rules over Standard's objection. This exception was expressly contingent upon a "decree issued by a [California] court ... determining that a contract between Seaman's and SOCAL [Standard] ... did in fact exist under state law." Seaman requested Standard to stipulate to a declaratory judgment that the October 11 instrument was a binding supply contract. As Standard no longer wanted to contract with and supply Seaman, it refused to so stipulate. Had Standard entered a stipulation and a prompt judgment favorable to Seaman occurred, Seaman or its shareholders were in a position to keep the business financially intact until the new facility was completed. Rather than sue for a declaratory judgment, Seaman discontinued operations. If Seaman filed suit and was obliged to go to trial, and won a favorable judgment, it would have been too late from Seaman's business standpoint to develop the business.
By April 1976, Eureka had completed the waterfront redevelopment facility. Eureka tendered to Seaman that part of the facility covered by Seaman's lease agreement, and Seaman defaulted on the rent payments.
Standard first contends the document to support the alleged contract did not contain essential terms and, therefore, failed to satisfy the statute of frauds. We analyze this contention in two parts: is the contract governed by the statute of frauds, and is an essential term omitted so as to make the writing defective and violative of the statute?
An agreement which by its terms cannot be performed within one year must be in writing (Civ.Code, § 1624, subd. 1). As the October 11 document calls for a 10-year supply period, it is subject to the Civil Code's statute of frauds.
A contract for the sale of goods in excess of $500 must also be in writing and is not enforceable beyond the quantity of goods shown in the writing (Com.Code, § 2201, subd. (1)). Seaman contends because the October 11 document encompasses far more than just a sale of goods, it is not subject to the Commercial Code provision. We reject this position as Standard's sale of goods to Seaman was the substantial and predominant aspect of the agreement. (See Steiner v. Mobil Oil Corp. (1977) 20 Cal.3d 90, 98, 141 Cal.Rptr. 157, 569 P.2d 751.) Thus we find the agreement subject to both provisions of the statute of frauds.
In discussing the statute of frauds, cases have distinguished the existence of the memorandum which evidences an agreement from the agreement itself. (See, e.g., Crowley v. Modern Faucet Mfg. Co. (1955) 44 Cal.2d 321, 323, 282 P.2d 33.) "A memorandum functions only as evidence of the contract and need not contain every term." (Kerner v. Hughes Tool Co. (1976) 56 Cal.App.3d 924, 934, 128 Cal.Rptr. 839.) Although the essential terms of the contract must be in writing (1 Witkin, Summary of Cal.Law, Contracts, § 206, p. 187), omitted inessential terms will be reasonably supplied (see Kerner, supra, at pp. 933-934, 128 Cal.Rptr. 839). The law does not favor but leans against the destruction of contracts because of uncertainty; and it will, if feasible, so construe the agreement as to carry into effect the reasonable intentions of the parties if that can be ascertained (Boyd v. Bevilacqua (1966) 247 Cal.App.2d 272, 287, 55 Cal.Rptr. 610). Oral or extrinsic evidence may not be used to contradict the terms of the writing (Com.Code, § 2202). Evidence of trade usage or course of dealing is admissible to explain ambiguity in the agreement (Com.Code, § 2202, subd. (a)).
In the present case, Standard contends the writing was deficient as to the essential terms of quantity, price, parties and term.
We find the October 11 memorandum sufficient regarding price. Seaman was to pay Standard's posted wholesale prices less four and a half cents per gallon for Diesel No. 2 and four cents per gallon for Diesel No. 1 for fuel delivered in tank loads. The parties and term of the agreement were clear although some ambiguity existed as to who controlled the three 10-year options. It would have been reasonable to construe this ambiguity against Standard, the party who drafted the agreement, but other evidence shows Standard controlled the option rights.
We are most concerned with the quantity. As an essential term,...
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