Seaman's Direct Buying Service, Inc. v. Standard Oil Co.

Decision Date30 August 1984
Citation206 Cal.Rptr. 354,686 P.2d 1158,36 Cal.3d 752
CourtCalifornia Supreme Court
Parties, 686 P.2d 1158, 39 UCC Rep.Serv. 46 SEAMAN'S DIRECT BUYING SERVICE, INC., Plaintiff and Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA, Defendant and Appellant. L.A. 31588.

Page 354

206 Cal.Rptr. 354
36 Cal.3d 752, 686 P.2d 1158, 39 UCC Rep.Serv. 46
SEAMAN'S DIRECT BUYING SERVICE, INC., Plaintiff and Appellant,
v.
STANDARD OIL COMPANY OF CALIFORNIA, Defendant and Appellant.
L.A. 31588.
Supreme Court of California,
In Bank.
Aug. 30, 1984.
Rehearing Denied November 15, 1984.

[36 Cal.3d 758]

Page 355

[686 P.2d 1159] Janssen, Malloy & Marchi, Clayton R. Janssen, Eureka, Lascher & Lascher, and Edward L. Lascher, Ventura, for plaintiff and appellant.

Wylie A. Aitken, Santa Ana, Glen T. Bashore, North Fork, Richard D. Bridgman, Oakland, Edwin Train Caldwell, Robert E. Cartwright, San Francisco, Victoria De Goff, Berkeley, Sanford Gage, Beverly Hills, John Gardenal, San Francisco, G. Dana Hobart, Marina Del Rey, Harvey R. Levine, San Diego, Edward I. Pollock, Los Angeles, Arne Werchick, Sausalito, Stephen I. Zetterberg, Claremont and Leonard Sacks, Northridge, as amici curiae on behalf of plaintiff and appellant.

Page 356

[686 P.2d 1160] 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.

Horvitz & Greines, Ellis J. Horvitz, Encino and Gideon Kanner, Los Angeles, as amici curiae on behalf of defendant and appellant.

BY THE COURT: **

This case, which arises out of a complex factual setting, presents three issues for decision. (1) Was the letter agreement signed by Seaman's Direct Buying Service, Inc. and Standard Oil of California, Inc. sufficient to satisfy the statute of frauds? (2) Is "intent" an element of a cause of action for intentional interference with contractual relations? (3) May a plaintiff recover in tort for breach of an implied covenant of good faith and fair dealing in a noninsurance, commercial contract?

[36 Cal.3d 759]

I.

Plaintiff, Seaman's Direct Buying Service, Inc. (Seaman's), is a close corporation composed of three shareholders. During the late 1960's and early 1970's, Seaman's operated as a ship chandler, i.e., a dealer in ship supplies and equipment, in the City of Eureka (City). By 1970, Seaman's business encompassed a number of activities including acting as a "general contractor" for incoming vessels, i.e., refurbishing their supplies, selling tax-free goods for off-shore use, and managing a small marine fueling station as the consignee of Mobil Oil Company (Mobil).

Around this time, the City decided to condemn the decrepit waterfront area where Seaman's was located for development into a modern marina. To this end, it sought funds from the federal Economic Development Agency (EDA). Seaman's saw the redevelopment as a way to expand and modernize its operations. Accordingly, the company approached the City with a plan to lease a large portion of the new marina. Seaman's planned to use some of the area for its own operations and to profitably sublet the remainder.

In early 1971, Seaman's and the City signed an initial lease for a relatively small area, with the understanding that the lease could be renegotiated to include the larger area that Seaman's wanted. The renegotiation was conditioned on Seaman's providing evidence of financial responsibility to both the EDA and the City's bonding consultants.

A major element of Seaman's planned expansion, and the key to approval of the larger lease, was Seaman's operation of a marine fuel dealership with modernized fueling equipment. To secure such a dealership, Seaman's opened negotiations with several oil companies, but soon narrowed the field to Mobil and the defendant here, Standard Oil of California (Standard).

While negotiations with both companies were progressing, the City began pressuring Seaman's for a final decision on the marina lease. The City's bonding consultants demanded written evidence of a binding agreement with an oil supplier before they would approve leasing the larger area to Seaman's.

Upon reaching a tentative agreement with Standard, Seaman's requested evidence of that agreement--"something that would be binding on both parties"--to show to the City. In response, Standard sent a "letter of intent" setting forth the terms of negotiation. However, the letter explicitly provided[36 Cal.3d 760] that the terms were not binding. Since Seaman's needed a binding commitment, it continued to negotiate with Mobil.

Finally, Seaman's and Standard reached an agreement on all major points. Upon Seaman's repeated requests for an instrument evidencing a binding commitment, Standard, on October 11, 1972, wrote a letter setting forth the terms of the agreement. In the letter, Standard proposed (1) to sign a Chevron Marine Dealer agreement with Seaman's for an initial term of

Page 357

[686 P.2d 1161] 10 years; (2) to advance Seaman's the cost of the new fueling facilities, or up to $75,000, which sum was to be amortized over the life of the agreement at the rate of one cent per gallon of oil; (3) to provide a 4.5 cent discount per gallon off the posted price of fuel; and (4) to sign an agreement providing for Standard's right to cure in case of default by Seaman's.

The letter concluded "this offer is subject to our mutual agreement on the specific wording of contracts to be drawn, endorsement and/or approval by governmental offices involved, and continued approval of Seaman's credit status at the time the agreements are to go into effect.[ 1 If this approach and proposal meets with your approval, we would appreciate your acknowledgement and acceptance of these terms by signing and returning two copies of this letter. We can then proceed further with the drafting of the final agreements ...." (Emphasis added.) The letter was signed by an agent of Standard and--under the legend, "we accept and agree to the terms and conditions stated herein"--by an agent of Seaman's. (Emphasis added.)

According to Seaman's, the signing of this letter was a momentous occasion. One of those present suggested, "Well, shouldn't we have souvenir pens here and I will exchange pens," as "when the President signs a bill into law." Standard's representative exclaimed that it was "going to be great doing business with [Seaman's]" and that the agreement was a "feather in his cap." One of the parties declared, "We finally have a contract" and "we're on our way."

Seaman's immediately presented the letter to the City and shortly thereafter signed a 40-year lease for the entire area it sought in the marina. Seaman's also ended negotiations with Mobil after informing them that a contract had been signed with Standard.

Conditions in the oil industry soon changed, however. By the end of 1972, what had been a "buyer's market" had become a "seller's market." As a [36 Cal.3d 761] result, in January of 1973, Standard adopted a "no new business" policy. During 1973, Standard and Seaman's signed a temporary marine dealership agreement designed to supply Seaman's with the fuel it needed while the new marina was under construction. The marine dealership agreement contemplated in the October 11, 1972, letter, however, was never signed.

In November of 1973, a federal program mandating the allocation of petroleum products among existing customers went into effect. By letter dated November 20, 1973, Standard told Seaman's that the new federal "regulations require suppliers to supply those purchasers to whom they sold during [the base period of 1972]. Our records disclose that we did not supply diesel fuel to you at any time during 1972.... [p] Under the circumstances, we will not be able to go forward with the financing we [have] been discussing. In the event the mandatory program is withdrawn and our supply situation improves, we would, of course, be pleased to again discuss supplying your needs."

In telephone calls and personal meetings with Seaman's, Standard indicated that the new federal regulations were the only barrier to the contract. "[I]f it wasn't for the [federal agency], ... [Standard] would be willing to go ahead with the contract ...." "If [Seaman's could] get the federal government to change that order so that Standard could supply [Seaman's] with fuel [Standard] would be very happy ...." Standard even supplied Seaman's with the forms necessary to seek a supply authorization from the federal agency and helped fill them out.

As a result of these efforts, a supply order was issued on February 4, 1974. Standard responded by changing its position. The company contended now that no

Page 358

[686 P.2d 1162] binding agreement with Seaman's had ever been reached. Therefore, Standard decided to appeal the order "[b]ecause [it] did not want to take on any new business." When Seaman's learned of the appeal, it twice wrote to Standard requesting an explanation. None was forthcoming. Standard's federal appeal was successful. Internal memoranda reveal Standard's reaction to this result: "[g]reat ! !" "We are recommending to other div[isions] that they follow your example."

Seaman's then appealed and this decision was, in turn, reversed. The new decision provided that an order "direct[ing] [Standard] to fulfill supply obligations to Seaman's" would be issued upon the filing of a copy of a court decree that a valid contract existed between the parties under state law.

Seaman's asked Standard to stipulate to the existence of a contract, explaining that it could not continue in operation throughout the time that a [36 Cal.3d 762] trial would take. In reply, Standard's representative laughed and said, "See you in court." Seaman's testified that if Standard had cooperated, Seaman's would have borrowed funds to remain in business until 1976 when the new marina opened.

Seaman's discontinued operations in early 1975. Soon thereafter, the company filed suit against Standard, charging Standard with breach of contract, fraud, breach of the implied covenant of good faith and fair dealing, and interference with Seaman's contractual relationship with the City. The case was tried before a jury which returned a verdict for...

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