Sunset-Sternau Food Co. v. Bonzi

• Decision Date: 18 February 1964
• Docket Number: SUNSET-STERNAU
• Citation: 60 Cal.2d 834,36 Cal.Rptr. 741,389 P.2d 133
• Court: California Supreme Court
• Parties: , 389 P.2d 133 FOOD CO., Plaintiff and Respondent, v. Rudy BONZI, Defendant and Appellant. S. F. 21499.

Page 741

36 Cal.Rptr. 741

60 Cal.2d 834, 389 P.2d 133

SUNSET-STERNAU FOOD CO., Plaintiff and Respondent, v. Rudy BONZI, Defendant and Appellant.

S. F. 21499.

Supreme Court of California, In Bank.

Feb. 18, 1964.

Albert E. Levy, P. M. Barceloux, Burton J. Goldstein, Goldstein, Barceloux & Goldstein San Francisco, E. Dean Price and Zeff, Halley & Price, Modesto, for defendant and appellant.

Cleveland J. Stockton, Modesto, Haskell Titchell and Eisner & Titchell, San Francisco, for plaintiff and respondent.

TOBRINER, Justice.

The main issue in this appeal turns upon whether a section of the statute of frauds, Civil Code section 2309, applies to an oral agency agreement and prevents the agent from suing the undisclosed principal on an implied promise of indemnity. Although section 2309 does not clearly specify whether it covers only the agent's authority to bind the principal to a third party or extends to the relationship between the agent and the principal, we believe it is confined to the agent's power to bind the principal only. The wording of the section, its placement in the code, a reluctance of the cases and commentators to give broad sweep to statutes which render oral agreements unenforceable, and the California decisions which have heretofore unanimously held section 2309 not applicable to agency agreements, sustain this conclusion.

We find no merit in three subsidiary points raised by defendant: (1) that the statute of limitations bars the cause of action for indemnity; (2) that another action pending between the same parties precludes the present action; and (3) that plaintiff's failure formally to notify defendant of the third party's suit against plaintiff destroys its cause of action for indemnity.

Defendant Rudy Bonzi entered into an oral agency agreement with plaintiff Sunset-Sternau that plaintiff act as its agent in the procurement of a buyer for its apricot kernels. The parties agreed that plaintiff would deal in its own name because it was well known in the field. Pursuant to the agency agreement plaintiff elicited an offer of 17 cents a pound from American Almond Products Co. Inc. (hereinafter called Almond Products). After obaining approval from defendant undisclosed principal to sell for 17 1/2 cents, plaintiff entered into a written contract in its own name with Almond Products for the sale of 75 tons at that price.

Subsequently, a fire destroyed a substantial portion of the California apricot pit and kernel stock, and the price of apricot kernels rose rapidly. Defendant did not deliver the kernels on the contract date. Plaintiff's attorney notified defendant that Almond Products intended to sue plaintiff and in that event plaintiff would join defendant as cross-defnedant.

All parties then attended a settlement meeting at which plaintiff offered to forego its commission if defendant would deliver. Although defendant questioned neither the authority of plaintiff to act as agent nor the validity of the contract of sale, he would not commit himself as to delivery. The next day defendant said he still would not deliver.

At the time of the fire defendant possessed an inventory of 541 tons of dried pits which when processed would yield 108 tons of kernels. About a week after the fire he sold 431 tons of dried pits to another buyer for 46 cents a pound. After the meeting he sold the remaining pits for 65 cents a pound. He obtained a total remuneration of $52,602 for his inventory. It he had fulfilled the contract, he would have received $26,750, less the cost of cracking the pits.

Almond Products successfully sued plaintiff in the United States District Court for damages resulting from the breach of contract and recovered $41,309.10. Plaintiff unsuccessfully appealed (Sunset-Sternau Food Co. v. American Almond Products Co. (9 Cir. 1958), 259 F.2d 93) and then satisfied the judgment.

Plaintiff sued defendant for indemnity. At the trial defendant admitted the making of the oral agreement and knowledge of its terms. He also admitted that he knew of the provisions of the contract entered into by plaintiff and Almond Products. Plaintiff's cause of action rested upon the implied promise of indemnity and reimbursement from a principal to an agent for liability incurred as a result of the performance of the agency agreement. The court rendered judgment for plaintiff in the sum of $48,641 plus prejudgment interest and costs. Defendant has appealed.

Normally an agent who becomes personally liable for the performance of a contract which he has undertaken for his principal may hold the principal for indemnity for damages sustained because of breach of that contract. (Rimington v. General Acc. Group of Ins. Companies (1962), 205 Cal.App.2d 394, 23 Cal.Rptr. 40; Rest.2d Agency, §§ 438, 439, pp. 322-334.) We must determine here, however, whether the possible application of Civil Code section 2309 to an oral agency agreement involving the sale of personal property ¹ negates the principal's liability. That section provides: 'An oral authorization is sufficient for any purpose, except that an authority to enter into a contract required by law to be in writing can only be given by an instrument in writing.' (Emphasis added.)

Plaintiff concedes that since the contract concerning the apricot kernels exceeded the amount of $500 it was 'a contract required by law to be in writing.' ² It argues, however, that section 2309 only precludes liability of the principal to the third party on the contract entered into by the agent and does not affect the agency agreement between agent and principal. Defendant counters that an oral agency agreement to enter into a contract required by law to be in writing creates no enforceable agency.

We must, of course, apply the California statute of frauds to a situation which is precisely covered by the language of the statute. If the extent of coverage is unclear, however, we know of no policy reasons which compel a resolution of the ambiguity in favor of its wide application. ³

The language of section 2309 is unclear; it discloses ambiguity on its face. The section commences with a broad statement of enforceability, i. e., 'An oral authorization is sufficient for any purpose * * *.' Next follow words of limitation, i. e., '* * * except that an authority to enter into a contract required by law to be in writing can only be given by an instrument in writing.' (Emphasis added.) This language does not literally tell us whether the Legislature meant merely to foreclose the enforcement of the ultimate contract by the third party against the principal or additionally to prevent enforcement of the agency agreement by the agent.

Two factors, however, point to the more restricted view. In the first instance, the word 'authority' is a technical term used in the law of agency to refer to the power of the agent to obligate the principal to a third party. Thus it does not apply to the obligations between the principal and agent. In the second instance, the code commissioners' notes concerning the chapter of the title, which includes section 2309, state: 'Under this heading, the representation of one person by another is the only subject treated. * * * The mutual relation of principal and agent are a branch of Service and are defined in the Title on that subject.' ⁴ (Emphasis added.)

An unbroken line of California cases support the resolution of the ambiguity in the manner above stated: section 2309 does not apply to the agency agreement between principal and agent. Thus in the early case of Kutz v. Fleisher (1885), 67 Cal. 93, 7 P. 195, a stockbroker orally agreed to buy, sell and pay assessments on stock for his client. The broker expended funds which the client refused to pay; the broker sued. In granting relief the court held that the statute of frauds did not bar recovery stating: 'It was not a case of a sale of personal property by a vendor to a vendee, but of a broker (plaintiff) purchasing and selling stocks for account of another (defendant,) * * *.' (At p. 93 of 67 Cal., at p. 195 of 7 P.)

Athough the court in Kutz did not specifically mention section 2309, subsequent cases have held that this section does not indicate a different result. In A. L. Jameson & Co. v. Redfield (1931), 118 Cal.App. 59, 4 P.2d 817, defendant had orally authorized 'certain purchases and sales, made for the defendant by the plaintiff as borker, of various listed and unlisted stock.' (P. 60 of 118 Cal.App., p. 817 of 4 P.2d.) ⁵ Thereafter defendant could not pay the broker the amount he owed upon the account. The court, after originally holding the action barred by section 2309, reversed itself upon rehearing and, relying on Kutz, upheld the right of the stockbroker to recover his losses from the principal. It stated 'The question of avlidity of such transactions, we think is not affected by the statute of frauds.' (118 Cal.App. at p. 61, 4 P.2d at p. 818.) ⁶

The analogous case of Meadows v. Clark (1939), 33 Cal.App.2d 24, 90 P.2d 851, involved a broker who, pursuant to an oral agreement, found, and entered into a contract with, a buyer for the sale of defendant's cattle. Defendant performed the contract but refused to pay the commission. Following the resoning of Kutz and Jameson, the court sustained the validity of the oral agency agreement and granted the plaintiff broker the recovery of his commission. As further support for its holding the court relied on the fact that Civil Code section 1624, subdivision 5, expressly requires that an agency agreement for the sale of real property for compensation be in writing although no such code section pertains to personal property. The court reasoned that the absence of such a statutory mandate demonstrated the legislative intent to sanction and sustain an oral agency for the purchase and sale of personal property. ⁷

Similarly, the court in another action for the recovery of commissions. Marks v. Walter G. McCarty Corp. (1949), 33...