Opinion
11-23-1949
COLUMBIA OUTFITTING CO. v. FREEMAN. Civ. 14095.
Oscar Samuels, Tevis Jacobs, San Francisco (Robert Sills, San Francisco, of counsel), for plaintiff and respondent. Alen Ames, Sanborn H. Smith, Abraham Glicksberg, San Francisco, for defendant and appellant.
COLUMBIA OUTFITTING CO.
v.
FREEMAN.
Nov. 23, 1949.
Hearing Granted Jan. 19, 1950. *
Oscar Samuels, Tevis Jacobs, San Francisco (Robert Sills, San Francisco, of counsel), for plaintiff and respondent.
Alen Ames, Sanborn H. Smith, Abraham Glicksberg, San Francisco, for defendant and appellant.
PETERS, Presiding Justice.
Columbia Outfitting Company brought an action against B. H. Freeman, doing business as Freeman Adjustment Bureau, a duly state licensed collection agency, for $1,927,18 on a common count, it being claimed that Freeman had collected that amount for Columbia and failed to remit. Freeman answered and, in addition, cross-complained, admitting he had in his possession $1,849.72 belonging to Columbia, but claiming that Columbia owed him $69,761.63 under the terms of a pleaded contract. He prayed for judgment in the amount of the difference--$67,911.91. The parties stipulated at the trial that the amount retained by Freeman was $1,849.72, less $549.34 which had been expended by him. Judgment was entered in favor of Columbia in the amount of $1,300.38 and against Freeman on his cross-complaint. From that judgment Freeman appeals.
Facts.
Columbia is a corporation. It operates a retail store in San Francisco. Freeman, as one of four or five collection agents, has been collecting delinquent accounts for Columbia since 1938. From 1938, until May of 1946, Freeman operated under oral agreements made with the successive credit managers of Columbia under which he advanced all costs and expenses, and, after collection, he remitted to Columbia 50% of the principal collected, he keeping the balance.
Columbia sold a large amount of merchandise on time contracts. These were evidenced by contracts printed on cards kept in numerical order by Columbia, and signed by the customers and guarantors. These contracts provided that the customer or guarantors waived the statute of limitations, and, in the event suit was necessary to collect, agreed to pay interest, costs of collection and an attorney's fee.
The accounts turned over to the collection agencies by Columbia ranged from several months old to as much as twenty years old. Freeman, both before and after May of 1946, handled his assignments as follows: He would first eliminate those accounts incapable of collection because of bankruptcy of the debtor, or his death, or because the amount involved was so small that further action was impracticable. The retained cards he would arrange in alphabetical order, and he would then attempt to trace the customer and guarantors. For this purpose he used city and telephone directories, records of the Motor Vehicle Department, tax and assessment rolls, judgment books and other media. Each account was put through this process. If the debtor was found, investigation was then made as to whether further action was feasible, and particularly as to whether he had any attachable property. Freeman would then attempt to collect by sending letters to the debtor, and, if this failed, he would turn the case over to one of his attorneys for the filing of the appropriate action. In order to maintain these actions, an assignment of the contract in question from Columbia to Freeman was frequently made. These assignments were quite uniformly signed by the credit manager of Columbia. Admittedly, Freeman was much more successful in making collections than were the other agents used by Columbia.
In 1946, S. W. Porter was the general manager and a member of the board of directors of Columbia. He had worked for the company in various capacities for a period of ten years, and had been appointed general manager in June of 1945. He was thoroughly familiar with the arrangements made by the various credit managers to collect delinquent accounts. In March of 1946, he hired, on behalf of Columbia, Edward Flottemesch, as credit manager. The principal problem involved on this appeal revolves around the question as to the extent of Flottemesch's authority--actual, implied, or ostensible. Admittedly, it was within his powers to transfer accounts to collection agencies, and, where necessary, to sign assignments. Admittedly, the various collection agents, including Freeman, dealt almost exclusively with the credit manager, and admittedly, during the crucial negotiations about be described, Freeman dealt exclusively with Flottemesch.
When Flottemesch became credit manager he found considerable difficulty in ascertaining the status of the delinquent accounts in the hands of the various collection agents. He asked for and secured from Portner, authority to call in all accounts from the various collection agents. Under date of March 28, 1946, he addressed a letter to Freeman (similar letters were sent to the other agents) making formal demand upon him 'to return all claims placed with you by our company for collection and to render an accounting of all money and property of value received by you which has not already been paid over.' The letter also contained the following sentence: 'As the new credit manager for the Columbia Outfitting Company, I am endeavoring to analyze the condition of all accounts and to institute a new method of handling all deliquent accounts.' Flottemesch signed this letter and admittedly he had express authority from Portner to send it. At that time Freeman had in his possession about 800 Columbia accounts. At that time Columbia was not the only client of Freeman. He collected accounts for other clients.
Before Freeman had returned the contracts and the requested accounting, Flotemesch determined that Freeman, in the past, had rendered more efficient service to Columbia than had the other agents, and determined that it would be in the best interests of Columbia if all delinquent accounts were turned over to Freeman for collection. Portner admitted that he granted express authority to Flottemesch to take such action. Flottemesch then approached Freeman with such a proposal. Freeman pointed out to the credit manager that if he took over all of Colbumbia's accounts he would be forced to devote all of his time to Columbia to the exclusion of his other clients, that he would have to invest a large sum of money in investigations, and that Columbia might recall the accounts, as they had just done, after work had been done upon them. He, therefore, told Flottemesch that he would not proceed without the protection of a written contract. Flottemesch agreed that such suggestion was fair. Freeman then suggested that he would make a rough draft of a proposed contract and submit it to Flottemesch. The credit manager agreed to this procedure. Freeman returned to his office, consulted with his attorneys, and then prepared a proposed contract. The proposed agreement was in the form of a letter addressed to Freeman and intended to be signed by Flottemesch. Freeman telephone to Flottemesch and read him the proposal over the phone. Flottemesch agreed that the proposal was fair, and suggested that Freeman have the letter typed on Columbia stationery, which he agreed to furnish. Freeman had the letter so prepared and sent the original and a copy of Flottemesch. The latter signed the original as 'Credit Manager, Columbia Outfitting Co.,' and returned it to Freeman, keeping a copy which he apparently kept in his desk. This is the letter that is the basis of Freeman's cross-complaint. It reads as follows: 'May 9, 1946 'B. H. Freeman '512 Flood Building 'San Francisco, California 'Dear Mr. Freeman: 'This is to confirm our oral agreement heretofore had with you with respect to all accounts [that] have been previously assigned to you for collection and which may hereafter be assigned to you for collection. 'You are to have the exclusive right to work said accounts and to enforce payment of same by suit or otherwise, and for your services to us you are to receive and retain all sums save fifty per cent of the unpaid principal which you will remit to us. You may retain any and all interest and the mentioned fifty per cent of the unpaid principal sum collected on said account or accounts; all costs of suit or otherwise are to be advanced by you and said costs to be returned to you from the first moneys collected on said account or accounts. 'It is expressly understood that we have the right at any time to recall, in writing, any or all of the said accounts which we may have heretofore assigned to you, or which we may hereafter assign to you, and in that event you are to receive from us all costs which you may have advanced in working said recalled account or accounts, and also your full commission on the principal sum due on said recalled account or accounts. 'It is further understood that you will render to us a statement on all accounts already assigned and to be assigned in the future, periodically as you have in the past. 'Trust the above meet[s] with your approval and looking forward to your keeping up your good work, we are 'Yours, very truly, 'Edward Flottemesch 'Credit Manager, Columbia Outfitting Co.'
Freeman testified that he discussed the second paragraph with Flottemesch. The latter was not clear on this subject. Flottemesch was not certain whether he had consulted Portner before signing the contract. Portner testified that he knew nothing at all about the contract until after Flottemesch left the employ of Columbia in May of 1947. In view of the findings, these conflicts must be resolved in favor of Columbia.
After the contract was executed, Freeman testified that he examined about 25,000 delinquent accounts in Columbia's files and came to the conclusion that about 8,000 were possible of collection. Columbia witnesses estimated that the original number in their files did not exceed 8,000. This conflict, too, must be resolved against Freeman. There is no dispute that he 'processed' about 8,000 contracts, and returned several thousand to Columbia as uncollectible. On all the contracts retained by him he did some work, which, in the aggregate, amounted to a great deal of work. Between May, 1946, and April, 1947, Freeman had his attorneys file actions on about 1,000 of the accounts, and during that period he remitted to Columbia, as its share of his collections, on an average of $320 per month. By March of 1947, Freeman had completely processed more of the accounts and was prepared to file suit in about 1,000 more cases, as soon as his attorneys could handle the load.
In March, 1947, Portner became dissatisfied with some of the more aggressive methods employed by Freeman. Portner was particularly annoyed by the publicity given a mandamus action brought by Freeman against a judge of the Municipal Court who had refused to enter default judgments against delinquent debtors on the ground that the waiver of the statute of limitations was void. It should be here pointed out that Freeman was correct in his legal position in that case and ultimately prevailed, and that Flottemesch approved the bringing of the action. Portner had several conversations with Freeman on this subject, and when Freeman refused to drop the mandamus action, Portner determined to take other action. Under date of March 18, 1947, he wrote to Freeman expressing displeasure about the filing of the mandamus action and directing him to stop that action immediately. The letter contains this language: '2. You are to continue the collection of those accounts you have begun * * * '3. You return to us the balance of those accounts which you have in your possession. '4. You give us an accounting of everything to date. 'We regret that this action had to be taken, but inasmuch as you stated that the only methods you would continue are these, which we feel are too aggressive, we have no other alternative. 'This action is not to be construed in any way as a criticism of your work or of your integrity. As a collection agency you have done an excellent job. But we still feel that the methods are possibly too aggressive for us. 'Thanking you for your past services, we are, 'Very truly yours, 'The Columbia 'S. W. Portner.'
Freeman immediately, in writing and orally, asked Portner for a more detailed explanation of this request. More particularly he asked Portner at what stage a collection should be regarded as 'begun.' Portner claimed that his letter was self-explanatory and refused any further clarification. Freeman discussed the March 18th letter with Flottemesch, and Flottemesch, discussed the matter with Portner. Freeman demanded that Columbia clearly indicate what accounts were being recalled. Flottemesch, under date of March 24, 1947, wrote to Freeman as follows: 'In answer to your letter of March 21 and in clarifying Mr. Portner's letter of March 18, you are to keep all accounts that suit has been filed upon and return all others. 'Very truly yours. 'Columbia [Signed] 'E. Flottemesch 'Credit Manager'
Based upon these requests, Freeman retained only those accounts on which suit had actually been filed, and returned to Columbia 3609 accounts, the remaining Columbia accounts in his files. The returned accounts aggregated in amount $138,188.60. Subsequently, Freeman made formal demand for one-half of this amount plus costs expended, or $69,761.63. The lawyers for Columbia then wrote to Freeman refusing to recognize his claimed contract rights, but tendering back to him all of the returned accounts that were in the process of collection. Freeman refused the tender. Columbia then brought suit for one-half the amounts of principal collected by Freeman and not remitted, and Freeman cross-complained for the amount claimed by him, less what he admittedly owed Columbia. The case was tried on the cross-complaint, resulting in a judgment on all issues for Columbia.
Findings of Fact and Conclusions of Law
The findings and conclusions are most detailed, and cover practically every phase of the evidence. The court concluded that Flottemesch had no authority, express, implied or ostensible, to enter into the challenged contract; that the contract was never ratified by Columbia; that Freeman was guilty of fraudulent conduct in procuring the contract; that the contract does not require Columbia to pay sums to Freeman on the recalled accounts other than costs expended by him; that should the contract be construed as requiring payments of one-half the principal, it is unconscionable and therefore unenforceable; that if it be so construed, the provision constitutes a penalty and is unenforceable; that Freeman did not perform the implied covenant of the contract that he should attempt to collect all accounts assigned to him and collectible, but returned to Columbia all accounts on which suit had not been filed although some of the accounts were in the process of collection; and that Freeman violated the contract in refusing to accept the accounts tendered to him by the attorneys for Columbia.
Did Flottemesch have authority to enter into the Contract?
The basic problem in this case revolves around the question as to whether Flottemesch had express, implied or ostensible authority to enter into the contract of May 9, 1946. The basic finding supporting the conclusion that no such authority existed reads as follows: 'That at the time of his conversation with Flottemesch and the preparation of said letter by him Freeman was well aware that Portner was the General Manager of Columbia, and that Flottemesch had been but recently employed by Columbia. That Freeman had no prior dealings with Flottemesch and did not investigate the authority of Flottemesch; that he did not contact Portner or any officer of Columbia; that Flottemesch was not given express authority by Columbia to execute any contracts on behalf of Columbia nor did his duties as Credit Manager of Columbia authorize him to execute any contract on behalf of Columbia and that Flottemesch was not given express authority by Columbia nor did his said duties of Credit Manager authorize him to assign any delinquent accounts of Columbia to Freeman on any basis other than that theretofore existing; that Flottemesch was given a desk in the general office of Columbia in which office were also located the stenographers and cashier and he was not held out by Columbia as having such authority. That Flottemesch did not at any time advise Portner nor any other officer of Columbia of the existence of said letter of May 9, 1946, nor did he place the same in any file of Columbia, and neither Portner nor any other officer of Columbia ascertained the existence of the same until, following the termination of the employment of Flottemesch by Columbia, which was on or about May 10, 1947, Portner found a copy of the same loose in Flottemesch's desk among other papers.'
As opposed to this finding, the following uncontradicted evidence testified to by Columbia's own witnesses, appears in the record:
1. Freeman had been collecting for Columbia since 1938, and had always transacted all of his business through the then credit manager of Columbia, and Portner knew this was the fact;
2. Flottemesch testified that he spoke to Freeman at least several times a week and was in constant contact with him about the accounts;
3. Portner testified that he first gave Flottemesch express authority to recall all delinquent accounts, and then gave him express authority to enter into an arrangement with Freeman for the latter to become the sole collection agent for Columbia;
4. Portner admitted that Flottemesch had authority to sign assignments to Freeman;
5. Portner testified, in response to the question: 'As a matter of fact, the handling of the accounts is entirely left to your credit manager?' 'That is correct.'
When this evidence is considered it appears certain that the finding that Flottemesch did not have authority to enter into the contract is not only unsupported but is contrary to the evidence produced by Columbia. The evidence, as a matter of law, demonstrates that Flottemesch had at least ostensible if not express authority to enter into the challenged agreement.
The law on this subject is reasonably clear. The following sections of the Civil Code are pertinent:
Section 2315. 'An agent has such authority as the principal, actually or ostensibly, confers upon him.'
Section 2316. 'Actual authority is such as a principal intentionally confers upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to possess.'
Section 2317. 'Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess.'
Section 2318. 'Every agent has actually such authority as is defined by this title, unless specially deprived thereof by his principal, and has even then such authority ostensibly, except as to persons who have actual or constructive notice of the restriction upon his authority.'
Section 2319. 'An agent has authority:
1. To do everything necessary or proper and usual, in the ordinary course of business, for effecting the purpose of his agency; * * *.'
The general principles above stated are summarized in § 50 of the Restatement of the Law of Agency, as follows: 'Unless otherwise agreed, authority to make a contract is inferred from authority to conduct a transaction, if the making of such a contract is incidental to the transaction, usually accompanies such a transaction, or is reasonably necessary to accomplish it.' See, also § 51.
The cases demonstrate that under the uncontradicted evidence Flottemesch had at least ostensible authority to enter into the contract with Freeman. The rule, supported by many authorities, is stated as follows in 1 Cal.Jur. 739, § 39: 'There are two essential features of an ostensible authority, viz., the third person must believe that the agent had authority, and such belief must be generated by some act or neglect of the person to be held.' Both elements exist here. The only possible interpretation of the evidence is that Freeman believed, and reasonably believed, that Flottemesch had authority to act. The evidence of Portner and Flottemesch, already summarized, demonstrates that his belief was 'generated' by the acts of Columbia and its duly authorized agents.
Portner admitted that he gave Flottemesch express authority to arrange with Freeman to handle all of Columbia's accounts. But Columbia urges, in effect, that although Flottemesch had authority to contract with Freeman, he entered into a contract providing that Freeman was to receive, if the accounts were recalled, an amount in excess of what Columbia thinks is reasonable, and in excess of what Portner thought would be the basis of the contract. Stated legally, the real question presented is whether a principal is bound when his agent, with power to contract, contracts for a sum in excess of what the principal believes is reasonable. The answer to this question is clear, and is supplied by the case of Whitton v. Sullivan, 96 Cal. 480, 31 P. 1115. That was an action brought by Whitton against Sullivan for services rendered by Whitton as a stenographer. Sullivan was running for Congress. He authorized an agent to enter into a contract for stenographic services, but testified that he expressly limited the agent's authority to a contract to pay for such services only if he won the election. The agent contracted with Whitton to pay 30 cents a folio, without limitation. Sullivan lost the election and refused to pay. It will be noted that the case is a much stronger one in favor of the principal than is the instant one, because in the Whitton case the agent with power to contract had an express limitation upon his powers, while in the instant case, the claimed limitation at most was implied. The Court stated 96 Cal. at page 483, 31 P. at page 1115:
'It will thus be seen that Bowden was authorized by appellant to make a contract with respondent to perform this work, and under such authorization he made a contract with respondent, who performed the work thereunder. Appellant's cause of complaint is, simply, that his agent, Bowden, exceeded the limitations placed upon his powers, by contracting to pay respondent a greater price for the work than was included in his authority of agency. But this is a matter between the principal and his agent, and with which the party doing the work has no concern.
'This principle is clearly declared in Mechem on Agency, Section 283, where the author, speaking as to general and special agents, says: 'In either case, the question of the authority of the agent must depend, so far as it involves the rights of innocent third persons who have relied thereon, upon the character bestowed, and not upon the instructions given. Or in other words, the principal is bound to third persons who have relied thereon in good faith, and in ignorance of any limitations or restrictions, by the apparent authority he has given to the agent, and not by the actual or express authority, where that differs from the apparent, and this, too, whether the agency be a general or a special one.''
While it is true that in the above case the principal conceded that the agent had authority to contract, and that in the instant case Columbia claims its credit manager had no such authority, as already pointed out, Portner admitted he gave authority to Flottemesch to enter into a deal with Freeman to serve as sole collection agent. Having such authority, any limitation on that authority which would prevent him from contracting with Freeman for such purpose was a secret limitation and does not release the principal from liability. Case v. McConnell & Forrester, 5 Cal.App.2d 688, 692, 44 P.2d 414.
The same principle is illustrated by the case of Robinson v. American Fish, etc., Co., 17 Cal.App. 212, 119 P. 388. There an agent contracted with respondent for the purchase of fish. The principal contended that the agent only had authority to contract for the purchase of fish on consignment. It was held that the agent had ostensible authority to contract for the absolute purchase of the fish and that the limitation on his authority was without legal effect so far as third persons were concerned. In so holding, the Court stated, 17 Cal.App. at page 219, 119 P. at page 390: 'The law will not, of course, permit a principal to escape the liability which it attaches to him by reason of such circumstances, as are present here upon the plea that the agent has violated or transcended some limitation that he has secretly or without the knowledge of those with whom his agent as such is to deal placed upon the latter's authority as such agent, and in this case it will imply from the conduct of appellant authority in Junta to make the agreement into which the jury found that he entered with Meng. As is said by all the law writers and all the cases, the rule is that 'quiescence is tantamount to acquiescence,' and forbids the principal denying an authority which his own conduct has invited those with whom he was dealing to assume. * * * 'Where the special character of the agency is not known, and the principal has clothed the agent with apparent powers, strangers, in dealing with the agent, may assume that such apparent powers are possessed. The principal cannot, by private communications with his agent, limit the authority which he allows the agent to assume.' Clark on Contracts, p. 734, and cases cited.' See, also, Safeway Stores v. King Lumber Co., 45 Cal.App.2d 17, 22-23, 113 P.2d 483; Gaine v. Austin, 58 Cal.App.2d 250, 260, 136 P.2d 584; Gallagher v. Equitable Gas Light Co., 141 Cal. 699, 705, 75 P. 329.
Under these cases, and many more that might be cited, it follows that the findings and conclusion that Flottemesch had no actual, implied or ostensible authority to enter into the contract are totally unsupported, and contrary to the testimony of Columbia's own witnesses. It must be held that, as a matter of law, Flottemesch had at least ostensible authority to enter into the contract of May 9, 1946. This being so, the knowledge of Flottemesch is imputed to the principal. Columbia Pictures Corp. v. DeToth, 87 Cal.App.2d 620, 630, 197 P.2d 580.
Other Arguments of Columbia.
Columbia quite property contends that if the judgment may be sustained on any theory, it must be affirmed. This requires a consideration of the other findings and conclusions of the trial court.
The trial court concluded 'That Freeman was guilty of fraudulent conduct toward Columbia in seeking to procure and procuring from Edward Flottemesch the purported letter agreement of May 9, 1946.' It was apparently the theory of the trial court that this conclusion was justified in view of Columbia's claim that the 'recall provision' was incorporated into the agreement although not previously discussed, and the agreement purports to 'confirm our oral agreement.' Columbia also contends that the fact that Freeman agreed to prepare a 'rough draft' and then consulted his attorneys, in some way constituted a fraud upon Columbia. The findings and conclusion that Freeman was fraudulent are totally unsupported in law or in fact. Freeman agreed to draft the type of agreement he wanted. Admittedly, the reason he wanted the written agreement was because he wanted to protect himself against the recall of the accounts, as had just been done. Freeman, as any sensible and reasonable business man would do, consulted his lawyers. Certainly, it would be a novel proposition to hold that if a business man about to enter into a contract that would change the future nature of his business, consults his lawyers without notifying the other contracting party, he is guilty of fraud. No such inference is possible. After preparing the contract, Freeman first read it over the telephone to Flottemesch and then sent him two copies through the mail. No pressure was put upon the credit manager. He had plenty of time and opportunity to consult his superiors or the company lawyers. The fact that he did not do so, does not make Freeman guilty of fraud.
The court also found and concluded that if the contract should be construed to require payment of one-half of the principal on recall by Columbia, such provision 'is unconscionable and therefore unenforceable.' This action is at law, not in equity. Normally, the adequacy of the consideration, in the absence of fraud, duress, or mistake, cannot be inquired into in such an action, even though its terms may be harsh. Gazos Creek Mill, etc., Co. v. Coburn, 8 Cal.App. 150, 156, 96 P. 359; Adams v. Cook, 15 Cal.2d 352, 101 P.2d 484. While it is true that where the contract is one 'such as no man in his senses and not under a delusion would make on the one hand, and as no honest and fair man would accept on the other.' Swanson v. Hempstead, 64 Cal.App.2d 681, 688, 149 P.2d 404, 407, the court will not enforce it, this contract was not of such a nature. It must be remembered that this is not a case of one person skilled in the business contracting with a novice. Freeman and Columbia both had years of experience in the problems growing out of the collection of delinquent accounts. Flottemesch was a credit manager. Under such circumstances, the adequacy of the consideration was for the parties to pass upon.
The conclusion that Freeman violated the contract by refusing to accept back the accounts tendered to him by the attorneys for Columbia is unwarranted. Portner demanded back all accounts on which collections had not been 'begun.' Freeman asked for a clarification. Portner refused to give it to him. Flottemesch then categorically demanded in writing the return of all accounts on which suit had not been filed. Freeman complied with the request. Flottemesch, legally, having ostensible authority to enter into the contract had authority to send this letter amplifying Portner's ambiguous demand. After the accounts were recalled Freeman was not required to reaccept them.
Columbia also seeks to uphold the judgment on the theory that if the contract be construed to require payment of one-half the face amount of all recalled accounts, such provision 'constitutes a penalty and is therefore unenforceable,' as the trial court concluded. It is the theory of Columbia that the provision in question, in legal effect, amounted to an attempt to fix in advance the amount of damages, was therefore a penalty, and violates § 1670 of the Civil Code. Freeman correctly points out that this is not an action to recover damages for a breach of contract. By recalling the accounts, Columbia did not break the contract. It was exercising an express right or option given to it by the contract. It was simply complying with the contract, and exercising its option under the contract. Kuhlemeier v. Lack, 50 Cal.App.2d 802, 123 P.2d 918; Payne v. Pathe Studios, Inc., 6 Cal.App.2d 136, 44 P.2d 598. It is true that if the contract had provided that a recall of the accounts would constitute a breach, and then provided the damages in case of a breach, such provision would be a penalty and unenforceable. (8 Cal.Jur. p. 844, § 94.) Of course, if the provision in fact or in law was a penalty provision, the fact that it was couched in terms of an option, would not prevent it being interpreted as a penalty. White v. City of San Diego, 126 Cal.App. 501, 508, 14 P.2d 1062. But in the instant case it is obvious that the 'recall' provision is not a subterfuge for a penalty. The provision was inserted so as not to place Freeman at the whim or caprice of Columbia. It was also inserted to protect Columbia, by permitting it to recall accounts if it so desired. It was not a penalty provision at all.
The trial court also concluded that, properly interpreted, the agreement of May 9, 1946, 'does not require Columbia to pay any sums to Freeman upon recall of any accounts which had not been collected by him other than costs expended in working such recalled accounts.' This purports to be an interpretation of that provision of the contract that gives Columbia the power to 'recall, in writing, any or all of the said accounts which we may have heretofore assigned to you, or which we may hereafter assign to you, and in that event you are to receive from us all costs which you may have advanced in working said recalled account or accounts, and also your full commission on the principal sum due on said recalled account or accounts.' There being no evidence as to the parties' intent, the construction of this clause is not a question of fact but one of law. In re Estate of Platt, 21 Cal.2d 343, 131 P.2d 825; Moore v. Wood, 26 Cal.2d 621, 160 P.2d 772; Western Coal & Mining Co. v. Jones, 27 Cal.2d 819, 167 P.2d 719, 164 A.L.R. 685; In re Estate of Wunderle, 30 Cal.2d 274, 181 P.2d 874; Trubowitch v. Riverbank Canning Co., 30 Cal.2d 355, 182 P.2d 182; In re Estate of Fleming, 31 Cal.2d 514, 190 P.2d 611.
The construction given to this clause by the trial court is in direct violation of the language employed. The clause clearly and without ambiguity gives to Columbia the right to recall any or all accounts transfered to Freeman for collection, whether or not any sum had been collected thereon by suit or otherwise; and required Columbia, in such event, to pay to Freeman his 'full commission on the principal sum due on said recalled account or accounts.'
Columbia, however, contends that such clause should be limited to accounts on which collections had actually been made, and in this connection relies on the case of O'Connell v. Federal Outfitting Co., 5 Cal.App.2d 327, 42 P.2d 1070. In that case the trial court had held that the Federal Outfitting Company was not liable to a collection agency. This judgment was reversed by the appellate court because of a conflict in the findings of the trial court. That was the actual holding of the case. In the course of its opinion the Court quoted a clause somewhat similar to the one here involved which reads as follows 5 Cal.App.2d at page 330, 42 P.2d at page 1071, 'The Federal Outfitting reserves the right to recall any account that they assigned to O'Connell and Nacht and in consideration the Federal Outfitting Co., agree to pay O'Connell and Nacht their full commission plus costs expended for each case thus recalled, where costs have been expended.' Also in the course of its opinion the appellate court said of this provision 5 Cal.App.2d at page 330, 42 P.2d at page 1071, 'A reasonable interpretation of this section is that the parties intended that the plaintiff should be paid the 'full commission' earned on collections made to date of recall plus whatever costs have been expended in making such collections. It will be noted that the commission is not rated on the face of the account assigned but on the 'collections' made. It is just as unreasonable to hold that, if the plaintiff should have paid $7 in court costs on a $500 account which is recalled, he should be entitled to the full commission on the whole account of which none had been collected, as to hold that, if he had collected $400 on the account without suit, he should receive nothing.'
In view of the court's actual holding in the case, this interpretation was probably dicta. But even were it not dicta, it would not be controlling here. The basis of the above interpretation was that 'the commission is not rated on the face of the account assigned but on the 'collections' made.' In our case there is no such provision. Here the Columbia was to pay to Freeman the 'full commission on the principal sum due on said recalled account or accounts.' Thus, the commission is payable on 'the face of the account assigned.' The above case is not in point.
It does not necessarily follow, as a matter of law, that Freeman is entitled to recover one-half the face value of all of the 3609 accounts returned by him. He is, of course, entitled to recover all costs expended by him. But the evidence shows that Freeman examined accounts first, to locate the debtor or debtors, and second, to ascertain if the account could be collected. Among the recalled accounts were about 1,000 on which Freeman testified he had decided to file suit. Certainly, as to these, he is entitled to one-half the face value. But if there are accounts among the other 2,000 odd which Freeman's investigations had determined were uncollectible, he is entitled to no portion of them. If any such accounts exist, reasonable good faith on Freeman's part would have required him to return them to Columbia, as soon as such fact was ascertained. He should be permitted to gain no advantage by retaining them in his files. This construction applies not only to all accounts, if any, as to which Freeman had not only made a definite determination were uncollectible, but also as to all accounts, if any, as to which, according to his usual practice, he had closed his investigation without locating the debtor.
The judgment appealed from is reversed.
WARD and BRAY, JJ., concur. --------------- * Subsequent opinion 223 P.2d 21.