Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of San Bernardino County, No. VCVVS037577, Kyle S. Brodie, Judge.
Law Office of Gregory J. Pedrick and Gregory J. Pedrick for Plaintiff and Appellant.
Luce, Forward, Hamilton & Scripps, Roger C. Haerr, and Anthony D. Nash for Defendant and Respondent.
OPINION
McKINSTER, J.
Plaintiff and appellant A-1 Temporary Power Systems, Inc. (A-1) sued defendant and respondent Pulte Homes, Inc. (Pulte) to resolve disputes over power equipment A-1 had leased to Pulte. Although the trial court gave judgment for A-1, it limited the damages awarded to A-1. A-1 appeals. We affirm.
FACTS AND PROCEDURAL HISTORY
A-1 is in the business of renting or leasing temporary power equipment (moveable power poles and other electrical items) to builders for construction operations.
In 2002, A-1 orally agreed to provide Pacific Century Homes (Pacific), a developer, with power equipment for a residential construction project. U.S. Homes, Inc. (USH) bought the project to complete further phases. A-1’s equipment continued in use and USH paid for the rental.
Pulte bought the property from USH in 2003 to complete the final phases of the project. Part of the transaction between Pulte and USH included a written “Assignment of Contracts and Permits” (the assignment agreement). The assignment agreement included an appendix naming “[t]hat certain agreement for temporary power poles by and between Seller [USH] and A-1 Temp Power,” as one of the contracts assigned to Pulte.
Pulte took possession of the property, including the personal property (power and electrical equipment) on the premises. In December 2003, Pulte wanted to formalize any relationship with A-1, and asked A-1 to enter into standard contractual terms required of its suppliers, including provision of insurance. A-1 was unwilling to provide insurance, and instead proposed a bailment contract. Neither Pacific nor USH had executed any bailment agreement. Pulte also never approved the proposed bailment agreement. Pulte therefore asked A-1 to remove its equipment, because the parties were unable to reach an agreement.
A-1 declined to remove the equipment without being paid for the cost of removal. Pulte informed A-1 that it had until January 18, 2004, to remove its equipment. If the equipment was not removed, Pulte would remove the equipment itself and bill A-1 for the costs of removal. Pulte would store the equipment securely for a period of one week and then intended to dispose of it in a landfill. A-1 held to its view that Pulte could terminate the contract only by Pulte returning the equipment.
At this impasse, Pulte then contracted with Power Plus, Inc. (Power Plus) to remove A-1’s equipment and to supply comparable power and electrical equipment. A-1’s equipment was placed outside the project property. Pulte informed A-1 of the location of its equipment after Power Plus had removed it; A-1 photographed its equipment but refused to retrieve it at its own expense. Instead, it continued to bill Pulte for the use of the equipment, which bills Pulte refused to pay. A-1’s equipment was apparently ultimately abandoned, lost or destroyed.
A-1 filed an action against USH, Pulte and Power Plus, alleging causes of action for breach of contract, an open book account, unfair business practices, and intentional interference with an economic relationship. A-1 sought damages for the replacement value of its equipment, monthly rental until Pulte returns the equipment to A-1’s storage yard, and interest on all amounts claimed.
A-1 voluntarily dismissed USH when USH provided the assignment agreement. Power Plus moved successfully for summary judgment. Pulte’s motion for summary adjudication of issues was granted as to the unfair business practices cause of action.
After a court trial on the remaining causes of action (breach of contract and open book account), the court gave judgment for A-1, but limited the relief to two months’ rental value, or $1,470. The court found that a reasonable enforceable term for the lease was two months, that Pulte was not in default under the lease, and that Pulte had properly terminated the lease by instructing A-1 to retrieve its equipment.
A-1 complains that the trial court improperly disregarded applicable provisions of the California Uniform Commercial Code and the Civil Code. It therefore appeals the judgment, seeking an increase in the damage award.
ANALYSIS
I. Standard of Review
A-1 argues that the appropriate standard of review is de novo, characterizing the issues as matters of statutory interpretation. Pulte argues that the issues are more nuanced, involving determinations of disputed issues of fact as well as the application of legal principles. We agree with Pulte’s assessment. The judgment depended upon the characterization of the agreement as a commercial lease, and not a “needs or requirements” contract; this determination was dependent upon vigorously contested factual matters. Similarly, the issues of default, the intentions of the parties, the actual terms of the contract, and other matters were dependent upon the resolution of facts and determinations of credibility.
Accordingly, the appropriate standard of review is mixed. As to the trial court’s determinations of facts and issues of credibility, the substantial evidence standard of review is appropriate. (Piedra v. Dugan (2004) 123 Cal.App.4th 1483, 1489.) As to those issues, our review “begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the trial court’s factual determinations.” (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 501.)
To the extent this court must construe statutes and legal principles, questions of law are presented that we review de novo. (International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606, 611.)
II. The Judgment Was Proper
A. A-1’s Argument
The thrust of A-1’s position is that its furnishing of power equipment under the oral agreement should be governed by both the Civil Code and the California Uniform Commercial Code, and treated as both a bailment and a lease. If the provision of the equipment under the oral agreement is treated as a bailment, under A-1’s theory, it should be entitled to much greater damages, e.g., “rents up to and including trial,” for Pulte’s alleged failure to return the power equipment.
According to A-1’s theory of the case, the contract was effectively a “needs and requirements” contract, whereby Pulte (and its predecessors) agreed to obtain all its needs or requirements from A-1. This claim is foundational to A-1’s claim of entitlement to “lost profits” damages.
Pulte succeeded to the month-to-month lease of the power equipment (personal property “goods”) that A-1 had delivered for hire at the project site. Under California Uniform Commercial Code section 10305, therefore, Pulte was subject to the lease contract inherited from its predecessors. A-1 argues that Civil Code section 1697 applied, providing that an oral contract may be modified, in writing, without new consideration. Pulte and A-1 failed to agree on terms modifying the preexisting oral contact, however.
Under California Uniform Commercial Code section 10201, subdivision (e)(3), the term of the existing oral contract must be deemed a reasonable term. The trial court found that the contract was in the nature of a month-to-month lease. A-1 contends that it was contradictory and unreasonable for the trial court to then conclude that a reasonable term was two months; A-1 argues that this was an erroneous attempt by the trial court to modify the terms of the contract, but neither California Uniform Commercial Code section 10201, subdivision (e)(3), nor Civil Code section 1697 granted the court the power to modify the term of the lease contract.
A-1 then urges that Pulte never properly terminated the lease agreement. California Uniform Commercial Code section 10103, subdivision (a)(26), provides that “ ‘[t]ermination’ [of a commercial lease] occurs when either party pursuant to a power created by agreement or law puts an end to the lease contract otherwise than for default.” A-1 relies on Civil Code section 1933 for the exclusive means of termination of a contract-for-hire: “The hiring of a thing terminates: [¶] 1. At the end of the term agreed upon; [¶] 2. By the mutual consent of the parties; [¶] 3. By the hirer acquiring a title to the thing hired superior to that of the [lessor]; or [¶] 4. By the destruction of the thing hired.” Under Civil Code section 1958, governing bailments for hire, “At the expiration of the term for which personal property is leased, the lessee must return it to the lessor at the place contemplated by the parties at the time of leasing; or, if no particular place was so contemplated by them, at the place at which it was at that time.”
A-1 insists that Civil Code section 1933 is the exclusive means by which Pulte could terminate the lease in the absence of some supplemental agreement. There was no supplemental agreement. Although A-1 does not proffer the argument in so many words, by implication, it must be arguing that the goods had not been nonwillfully destroyed, Pulte had not acquired title to the goods, the parties did not mutually consent to terminate the lease, and the end of the agreed term of the lease had not been reached.
Moreover, A-1 argues, under Civil Code section 1958, Pulte failed to return the goods to A-1’s premises. A-1 maintains, therefore, that there was never a termination of the ongoing month-to-month lease agreement, and the lease therefore continued, with further damages accruing.
A-1 also insists that the agreement was never properly terminated under California Uniform Commercial Code section 10103 because Pulte was in default. From November 14, 2003, when Pulte purchased the project property, to January 14, 2004, two months later, Pulte never paid anything to A-1 for its power equipment. A-1 argues that, under California Uniform Commercial Code section 10529, it is entitled to rents for its equipment, up to and including the time of judgment: “After default by the lessee under the lease contract . . . the lessor may recover from the lessee as damages: [¶] (1) For goods accepted by the lessee and not repossessed by or tendered to the lessor . . . (A) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor . . . [and] (C) any incidental damages allowed under [California Uniform Commercial Code s]ection 10530, less expenses saved in consequence of the lessee’s default.” (Cal. U. Com. Code, § 10529, subd. (a).) A-1 vigorously contends that the trial court erred in failing to apply California Uniform Commercial Code section 10529: “Under the Commercial Code, Pulte is liable for on-going rents on non-returned items until such time as Pulte lawfully terminates the contract, as well as for lost profits that can be attributed to A-1 having been denied the opportunity to complete the portion of the contract assigned to other suppliers.”
Thus, A-1 argues, it should be entitled to lost profits, measured by how much Pulte paid the competitor, Power Plus, or $5,700. Three years before trial, A-1 gave one of the predecessor developers an option to buy the equipment for $13,912.83, and since then “the cost of building materials has skyrocketed.” A-1 sought to recover this value as “residual interest” in its nonreturned property. It also sought $51,795.28 in unpaid rents from January 2004 through the date of trial, and an additional $6,467.28 for the posttrial period, for a total award of $77,895.39.
B. The Agreement Was Not a “Needs or Requirements” Contract
A-1’s claim for lost profits is dependent on its thesis that the oral lease agreement was a “needs or requirements” contract. The trial court found otherwise, and that determination is supported by substantial evidence.
First, it may be questioned whether a “needs or requirements” contract is strictly applicable to leases, inasmuch as the doctrine and its acceptance have been developed in the realm of sales. (Cf. Fisher v. Parsons (1963) 213 Cal.App.2d 829, 832-834; but see Bed, Bath & Beyond of La Jolla, Inc. v. La Jolla Village Square Venture Partners (1997) 52 Cal.App.4th 867, 875-876.)
Leaving aside the issue of applicability to leases, however, it is plain that the instant agreement was not a “needs or requirements” contract. A-1’s president, Edward Cullen, testified on A-1’s behalf at trial, describing A-1’s business in general. A-1 has a large supply of equipment, and it can service many contractors at once. The contract was manifestly not one in which Pulte or its predecessors agreed to lease whatever amounts of goods A-1 could supply (output contract). There was also no term expressly providing or necessarily implying that Pulte or its predecessors would rely exclusively on A-1 to supply all its power equipment needs or requirements (needs or requirements contract).
“Needs or requirements” contracts may be valid and not illusory, notwithstanding the uncertainty of one of the terms, i.e., consideration, consisting of the precise quantity of goods to be provided. “Where the proposal is to furnish all goods of a certain kind that the other party may need or require in a certain business for a definite period, acceptance results in a contract. Although the acceptor does not in this situation agree to take any particular quantity (for he or she may not need any), there is consideration, because the acceptor has parted with the right to buy the goods elsewhere.” (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 228, p. 263; see also Fisher v. Parsons, supra, 213 Cal.App.2d 829, 835.)
Here, the trial court found that there was “no evidence that Pacific Century Homes ever agreed to buy all of its power equipment from A-1. In fact, when A-1 set out to memorialize its understanding of the agreement with Pulte, it did not include any language indicating that Pulte was contractually obligated to use A-1’s services to the exclusion of all others.”
A-1 argues that the “trial court’s judgment suggests that no such contract exists absent an exclusive agreement inclusive of any and all business the ‘acceptor’ may have across its entire market spectrum.” A-1 is mistaken. The trial court’s ruling did not require that Pulte, a major builder, could only have had a “needs or requirements” contract if it had contracted with A-1 for the whole of its power equipment needs for its entire global business. The court’s ruling concerned this contract, which pertained solely to the current development project at the property location. The court’s finding was that, even as to this certain business for a fixed period, location or project, the terms of the agreement itself did not include a “needs or requirements” term.
This finding was proper; neither the oral agreement, nor A-1’s attempt to create a written agreement with Pulte, was by its terms a needs or requirements contract. With this finding, A-1’s claims to lost profits also fail.
C. The Agreement Was a Commercial Lease Governed by the California Uniform Commercial Code
California Uniform Commercial Code section 10600 provides that the terms of division 10 of that code “shall apply to all lease contracts that are first made or that first become effective between the parties on or after January 1, 1990. . . .” The oral lease agreement between A-1 and Pacific began sometime in 2002 or 2003, well after the enactment of division 10 of the California Uniform Commercial Code.
The Senate Digest of the bill enacting division 10 of the California Uniform Commercial Code, recited: “Under existing law, various provisions generally regulate the rights, duties, and liabilities of the parties to leases of personal property. [¶] This bill would enact a single comprehensive and detailed statutory body of law governing the various aspects of leases of personal property, including their formation, construction, effect, and performance.” (Legis. Counsel’s Dig., Sen. Bill No. 1580, Stats. 1988 (1987-1988 Reg. Sess.) Summary Dig., p. 463.)
The Assembly Committee on the Judiciary’s report on the bill indicated that the parties’ freedom of contract would be preserved: “[I]n recognition of the diversity of the transactions to be governed, the sophistication of many of the parties to these transactions, and the common law tradition as it applies to the bailment for hire or lease, freedom of contract has been preserved. . . . Thus, despite the extensive regulatory scheme established by this Division, the parties to a lease will be able to create private rules to govern their transaction.” (Assem. Com. on Judiciary, com. on Sen. Bill No. 1580 (1987-1988 Reg. Sess.) reprinted at Deering’s Ann. Cal. U. Com. Code (2003 ed.) foll. § 10102, p. 682.) Thus, “[a] court may apply this Division by analogy to any transaction, regardless of form, that creates a lease of personal property other than goods, taking into account the expressed intentions of the parties to the transaction and any differences between a lease of goods and a lease of other property. Such application has precedent as the provisions of the Division on Sales (Division 2) have been applied by analogy to leases of goods. [Citations.] Whether such application would be appropriate for other bailments of personal property, gratuitous or for hire, should be determined by the facts of each case. See Mieske v. Bartell Drug Co., 92 Wash.2d 40, 46-48, 593 P.2d 1308, 1312 (1979). [¶] Further, parties to a transaction creating a lease of personal property other than goods, or a bailment of personal property may provide by agreement that this Division applies. Upholding the parties’ choice is consistent with the spirit of this Division.” (Assem. Com. on Judiciary, com. on Sen. Bill No. 1580 (1987-1988 Reg. Sess.) reprinted at Deering’s Ann. Cal. U. Com. Code (2003 ed.) foll. § 10102, p. 683.)
From these comments, we glean the intention of the Legislature that, although freedom of contract is preserved to the parties to agree to arrangements and terms, such as a bailment, in addition to or in lieu of a lease of goods under the California Uniform Commercial Code, such an arrangement will be dependent upon the facts of each case, and upon the terms to which the parties in fact agreed. In the absence of such an additional agreement, however, division 10 (leases) of the California Uniform Commercial Code automatically applies to any lease of goods entered into on or after January 1, 1990.
Despite A-1’s efforts to get Pulte to agree to a bailment contract, however, neither Pulte nor any of its predecessors ever signed a bailment agreement.
Cullen testified that the “vast majority” of A-1’s contracts were oral. A-1 did not send a written “bailment agreement” until Pulte had advised A-1 that it had purchased the project, and requested clarification from A-1 as to the terms and conditions of the agreement.
The bailment agreement, stated to be A-1’s “standard” bailment agreement, contained a clause defining the “rental period” as “ ‘commenc[ing] from the date of the shipment[/]installation of said equipment covered by this agreement from the point of shipment and shall continue until the said shipment is returned to the . . . bailor’s yard or such other point as the bailor shall in writing direct.’ ” Cullen acknowledged, however, that Pulte never signed the written “bailment agreement.” In addition, he conceded, no such written agreement was ever signed by Pacific or by USH.
As to any other terms of the oral agreement, Cullen could not recall any specific terms negotiated between A-1 and Pacific, and he never spoke directly to anyone at USH after USH took over the property. He simply assumed that USH continued the oral agreement begun by Pacific.
In his deposition, Cullen testified that Pulte never “directly” entered into a bailment agreement with A-1, but characterized the situation as a “bailment by osmosis,” based solely on the conduct of the parties: Pulte “accepted the equipment. They never rejected any of the equipment. They had it available for them. They used it. And that constitutes a bailment.” Pulte, of course, disputed at trial whether they had in fact accepted or used the equipment.
Pulte’s manager, Chris Warrick, testified that within days after Pulte purchased the project property, he contacted A-1 and asked for a contract to continue supplying the power equipment to the project. He received A-1’s bailment agreement and “sales order,” but he refused to sign them: “I did not understand what a bailment agreement was. . . . I had never heard of that term before. I asked a couple other project managers about it. They had never heard of it. So I absolutely wasn’t going to sign a bailment agreement. I didn’t understand it.” A-1’s letter, attaching the bailment agreement and sales order, requested “your [i.e., Pulte’s] approval”; Warrick on that basis believed that Pulte’s approval was therefore required before a contract could be entered into. Pulte did not agree, and therefore took the position that no contract, and certainly no bailment agreement, arose. In addition, A-1 was refusing to provide the insurance that Pulte required of all its providers.
The trial court agreed that no bailment had arisen, and certainly not a “bailment by osmosis”: “A-1 contends that Pulte made ‘telling confessions’ that it did not understand the legal requirements of contracts governing the rental of personal property. What Pulte representatives admitted to not understanding were the details of A-1’s proffered ‘bailment agreement.’ In fairness to Pulte, the term ‘bailment’ is not a matter of common knowledge. . . . ‘Although people enter into bailment agreements every day, the diversity and significance of bailments generally are unknown to lay persons and ignored by lawyers.’ [Citation.] It might be even more accurate to say that although people frequently enter into bailment agreements, they rarely, if ever, think in those terms. [¶] At the risk of piling on, the Court notes that A-1 is in a particularly poor position to chastise Pulte for not understanding what is required under a bailment relationship. A-1’s president, Mr. Cullen, testified that A-1 and Pulte had a ‘bailment by osmosis.’ Mr. Cullen’s definition of that term was somewhat vague, and in any event the Court is aware of no legal authority defining such a relationship. The suggestion that Pulte should have been more familiar with the law of bailments is the sort of stone that is best left unthrown in A-1’s glass house.”
There was no evidence that the parties intended a bailment in addition to or supplemental to the lease of the equipment. A-1’s efforts to obtain an express bailment agreement failed. There was no need to imply a bailment agreement, as the California Uniform Commercial Code applied by its own terms to the transaction, to prescribe the rights and duties of the lessor and lessee, as well as any remedies. The court’s finding that the transaction was treated as a commercial lease, without the addition of bailment terms, was supported by the evidence.
D. Pulte Properly Terminated the Lease
California Uniform Commercial Code section 10103, subdivision (a)(26), provides: “ ‘[t]ermination’ [of a commercial lease] occurs when either party pursuant to a power created by agreement or law puts an end to the lease contract otherwise than for default.” Although A-1 maintains that Civil Code section 1933 provides the exclusive means of termination (of a bailment agreement), a “power created by agreement or law” for termination of a commercial lease of goods is more flexible.
California Uniform Commercial Code section 10505 provides for cancellation and termination of a commercial lease contract: “(a) On cancellation of the lease contract, all obligations that are still executory on both sides are discharged, but any right based on prior default or performance survives, and the canceling party also retains any remedy for default of the whole lease contract or any unperformed balance.
“(b) On termination of the lease contract, all obligations that are still executory on both sides are discharged but any right based on prior default or performance survives.
“(c) Unless the contrary intention clearly appears, expressions of ‘cancellation,’ ‘rescission,’ or the like of the lease contract may not be construed as a renunciation or discharge of any claim in damages for an antecedent default.” The terms “termination” and “cancellation” are not further explained in division 10 (leases) of the California Uniform Commercial Code, but by analogy to the sales provisions of the California Uniform Commercial Code, “(3) ‘Termination’ occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On ‘termination’ all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives. [¶] (4) ‘Cancellation’ occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of ‘termination’ except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance.” (Cal. U. Com. Code, § 2106, subds. (3) and (4).)
There can be no question here, under the evidence presented on both sides, that the parties could not come to a mutual agreement on any terms for continuation of the contract. Ultimately, on January 14, 2004, Pulte indicated that it did not wish to do business with A-1, and directed A-1 to retrieve its goods.
A-1 did not wholly refuse to retrieve its property; rather, it undertook to do so if Pulte would pay its normal charges for removal. Cullen testified that A-1’s letter stated, “ ‘if you will pay us our normal rate, hourly rate, we will pick up the equipment in your behalf.’ ” As he put it, “we expected some payment from somebody.”
Pulte did not prevent A-1 from retrieving its equipment, even though it did not agree to pay the cost of that removal.
Regardless of which party bore the responsibility for the expenses of the removal of A-1’s goods, there could be no question that both parties clearly understood that the contract, such as it was, had been either terminated or cancelled as of January 14, 2004: Pulte had manifestly “put an end” to the arrangement, and A-1, by offering to retrieve its goods (for a price) mutually agreed that the contract had been ended.
A-1’s insistence, both here and below, that Pulte could “terminate” the contract only if Pulte itself physically redelivered the goods to A-1’s premises, is both misplaced and unreasonable. In view of the lack of evidence that the agreement included the Civil Code bailment provisions, e.g., Civil Code section 1933, any commercially reasonable means of terminating or cancelling the contract was available to the parties. Pulte’s notice was commercially reasonable to serve that purpose. There was no requirement that Pulte itself undertake to return the goods to A-1’s location as the sole means of terminating the agreement.
A-1’s conduct, and even its proposed written bailment agreement, did not provide exclusively that the lessee was personally required to redeliver the goods as the exclusive mechanism of termination. Cullen testified that A-1 generally delivered its equipment to a building site, and at the end of a project the equipment would be returned to A-1. It was common for either the client or A-1 to pick up the used equipment; Cullen stated, “We will pick it up quite frequently.” A-1 had also been “known to waive the cost of returning the equipment for certain builders if their accounts are in order or if we think we will get some type of advantage with some additional projects,” but otherwise, A-1 would “expect them to return the equipment and endure the cost thereof.”
A-1’s proposed “bailment agreement” included a provision reserving the right for A-1 to retrieve its goods if any invoices were unpaid for 45 days. Nothing in A-1’s standard practice therefore precluded it from retrieving its own equipment, even if the parties disputed who ought to pay for the expense of retrieval. A-1’s contention that Pulte never terminated the contract cannot be sustained.
E. The Damages Awarded Were Proper
The main thrust of A-1’s arguments is its dissatisfaction with the measure of damages awarded.
Preliminarily, we note that A-1 was clearly entitled to some measure of damages under the agreement. Even though the contract was oral, it was nevertheless enforceable under the appropriate statute of frauds, as the court found.
The statute of frauds applicable to commercial leases is California Uniform Commercial Code section 10201. It provides that a lease contract over the value of $1,000 must be in writing. (Cal. U. Com. Code, § 10201, subd. (a).) Here, the court found that the lease was over $1,000, but was undisputedly oral, not written. Nevertheless, California Uniform Commercial Code section 10201, subdivision (d), provides that an oral agreement not otherwise satisfying the statute of frauds is enforceable if the party to be charged admits that a lease contract was made, or if the lessee has accepted the goods. (Cal. U. Com. Code, § 10201, subd. (d)(2), (3).) The court found that Pulte did not admit that a lease was made, but that it had necessarily “received” the goods that were on the site when it purchased the project. The statute of frauds thus did not bar enforcement.
The court was then obliged to find the term of the contract. In the absence of a writing specifying the term, or the admission by the party to be charged of a particular term, then a reasonable lease term must be implied. (Cal. U. Com. Code, § 10201, subd. (e).)
Here, the court found that a reasonable term was two months, i.e., the two-month period of fruitless negotiations.
The court found that A-1’s practice of billing monthly for the rental of the equipment showed that A-1 viewed the agreement as a month-to-month lease. Pulte contacted A-1 promptly after taking over the project. Each party believed the other was attempting to modify the terms of the existing oral agreement; in reality, the court found, each party was attempting to ascertain what the terms of the existing oral agreement had been. In any event, it became clear almost immediately that the parties could not agree to the conditions under which they would do business. Pulte insisted that A-1 provide insurance, and A-1 insisted that Pulte agree to a bailment, including redelivery of the goods to A-1’s premises. Because of the failure to agree, Pulte severed the relationship.
A-1 had been in the practice of charging $735 per month for its equipment. The court concluded that the period of negotiations, from November 14, 2003, to January 14, 2004, constituted a reasonable term. This was also consonant with A-1’s month-to-month treatment of the arrangement. The court therefore gave judgment to A-1 for two months’ rental, or $1,470.
A-1 complains that it was entitled to a greater measure of damages under California Uniform Commercial Code section 10529, because Pulte was in default under the contract. Pulte had never paid anything, even during the two months that it unquestionably retained possession of the equipment on the project premises.
California Uniform Commercial Code section 10529 provides for the remedies to which a lessor is entitled upon default of the lessee. In particular, A-1 wishes to “recover . . . [f]or goods accepted by the lessee and not repossessed by or tendered to the lessor, . . . (A) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, (B) the present value as of the same date of the rent for the then remaining lease term of he lease agreement, and (C) any incidental damages allowed under Section 10530.”
“(a) After default by the lessee under the lease contract of the type described in subdivision (a) of, or paragraph (1) of subdivision (c) of, Section 10523 or, if agreed, after other default by the lessee, if the lessor complies with subdivision (b), the lessor may recover from the lessee as damages:
The trial court found that California Uniform Commercial Code section 10529 did not apply: “A-1 contends that it is entitled to unpaid rents because Pulte did not return the power equipment. It cites [California Uniform] Commercial Code section 10529, subdivision (a)(1), in support of the argument, but that section by its terms applies when the lessee has defaulted. Here, Pulte did not default under the lease. It terminated it. The provisions of section 10529 are therefore not applicable.”
A-1 does not directly challenge whether substantial evidence supported the court’s finding that Pulte did not default. It does, however, point out that Pulte had not paid anything during the two months the parties were negotiating over the terms of any continued relationship.
Pulte’s position was that it had no contract with A-1, but the court had already rejected that argument. Pulte was the successor to the oral lease, and it had received the goods from A-1, by virtue of their presence on the premises.
Each party was, in effect, “insecure” with respect to the performance of the other party. California Uniform Commercial Code section 10401, subdivision (b), provides in part that, “If reasonable grounds for insecurity arise with respect to the performance of either party, the insecure party may demand in writing adequate assurance of due performance.” Here, the parties corresponded in writing several times to attempt to relieve their insecurities, and to establish precisely what performance was due, i.e., the actual terms of the existing oral contract. These communications began promptly, and carried on continuously. At several points in the correspondence, it appeared that it might have been possible to reach an agreement. Pulte’s stumbling blocks were its requirement that A-1 provide insurance and its refusal of the bailment language; otherwise, it indicated that it could probably reach an agreement on the remainder of A-1’s proposed terms. For A-1’s part, it wanted to cast the transaction as a bailment and it wanted to be paid before removing its equipment. It refused to provide the insurance demanded by Pulte, however.
California Uniform Commercial Code section 10401 provides in full: “(a) A lease contract imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired.
California Uniform Commercial Code section 10401, subdivision (c), provides that a repudiation of the lease occurs if the insecure party does not receive written assurances within a reasonable time, and a “reasonable time” is defined “not to exceed 30 days after receipt of a demand by the other party.” The negotiations here carried on for more than 30 days, but each party was insecure as to the other, and it appeared that agreement might still have been possible even after the 30-day period. Neither party treated the lease as unalterably repudiated until Pulte sent its letter on January 14, 2004, severing the relationship and ordering A-1 to remove its equipment.
Under the circumstances, in which it is undisputed that Pulte paid nothing during the two months it succeeded to the oral lease until its termination of the lease, and in view of the parties’ failure to relieve one another’s insecurity under California Uniform Commercial Code section 10401 within 30 days, the only rational conclusion is that Pulte was indeed in default under the oral lease for the two unpaid months. Thus, the court erred in holding that California Uniform Commercial Code section 10529 was inapplicable because Pulte was not in default.
Nonetheless, California Uniform Commercial Code section 10529 does not support A-1’s requested damages. California Uniform Commercial Code section 10505, subdivision (b), provides that, “[o]n termination of the lease contract, all obligations that are still executory on both sides are discharged but any right based on prior default or performance survives.” California Uniform Commercial Code section 10523 provides generally for the lessor’s remedies in case of default by the lessee, including the right to “take possession of goods previously delivered,” (Cal. U. Com. Code, § 10523, subd. (a)(3)) or “[d]ispose of the goods and recover damages ([Cal. U. Com. Code, §] 10527), or retain the goods and recover damages ([Cal. U. Com. Code, §] 10528), or in a proper case recover rent ([Cal. U. Com. Code, §] 10529).” (Cal. U. Com. Code, § 10523, subd. (a)(5).) California Uniform Commercial Code section 10525 provides in relevant part: “(b) After a default by the lessee . . . the lessor has the right to take possession of the goods. If the lease contract so provides, the lessor may require the lessee to assemble the goods and make them available to the lessor at a place to be designated by the lessor which is reasonably convenient to both parties.” (Italics added.) Whether the “lease contract so provides,” was, of course, one of the vigorously contested issues below, and the court found that there was no such contractual provision that Pulte be required to “assemble the goods and make them available” to A-1 “at a place to be designated by the lessor”—i.e., A-1’s premises. Certainly, there was no showing that requiring Pulte to deliver the equipment to A-1’s premises was “reasonably convenient to both parties.” Rather, A-1’s insistence that Pulte deliver the equipment to its premises was solely for A-1’s convenience.
Nevertheless, Pulte did assemble and deliver the equipment to a location, either in an unused portion of the project property, or just outside the project premises, and so notified A-1. This constituted a “tender[] to the lessor,” under California Uniform Commercial Code section 10529, subdivisions (a)(1) and (a)(2).
Thus, California Uniform Commercial Code section 10529, subdivision (a)(1), providing for recovery of “unpaid rent as of the date of entry of judgment” did not apply, as that measure is recoverable only for goods “not repossessed by or tendered to the lessor.” Similarly, California Uniform Commercial Code section 10529, subdivision (a)(2), was also inapplicable. That subdivision provides that the lessor may recover “accrued and unpaid rent as of the date of entry of judgment,” where the lessee has tendered the goods to the lessor, but the lessor is unable to dispose of them at a reasonable price. Here, Pulte did tender the goods, but A-1 made no effort to sell or dispose of the goods at a reasonable price, and there was no evidence that it would have been unavailing to make such an effort.
A-1 admitted at trial that the cost of removing its equipment was approximately $500. Instead of expending this sum to reclaim its equipment, which it could have reused or sold, or otherwise to make any effort to mitigate its damages, A-1 maintains that it should recover over $75,000 from Pulte, more than 50 times the value of the rents it lost ($1,470).
Here, there was no express duration in the lease agreement, which A-1 itself treated as month-to-month. Pulte and A-1 negotiated to find a basis to continue the lease, but after only two months, Pulte clearly and unequivocally terminated the lease. Whether Pulte was in default or not, and whether the lease was terminated or cancelled, the agreement had come to an end after two months. The court reasonably determined the agreement between A-1 and Pulte was for two months’ rental. Thereafter, and upon A-1’s refusal to retrieve its own equipment, Pulte assembled and stacked the equipment at a certain location, and so notified A-1. The cost of retrieval to A-1 would have been only $500. A-1 commonly both delivered and picked up its own equipment, and often waived its fee for doing so. There was therefore no hardship or impediment to A-1 retrieving its own equipment, even if it later sought to bill Pulte for that cost.
The damages awarded by the trial court, $1,470, representing two months’ rental of the equipment, was reasonable, and well supported by the evidence at trial.
DISPOSITION
The judgment is affirmed.
Respondent to recover its costs on appeal.
We concur: HOLLENHORST, Acting P. J., GAUT, J.
“(1) For goods accepted by the lessee and not repossessed by or tendered to the lessor, and for conforming goods lost or damaged after risk of loss passes to the lessee (Section 10219), (A) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, (B) the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and (C) any incidental damages allowed under Section 10530, less expenses saved in consequence of the lessee’s default; and
“(2) For goods identified to the lease contract where the lessor has never delivered the goods or has taken possession of them or the lessee has tendered them to the lessor, if the lessor is unable after reasonable effort to dispose of them at a reasonable price or the circumstances reasonably indicate that effort will be unavailing, (A) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, (B) the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and (C) any incidental damages allowed under Section 10530, less expenses saved in consequence of the lessee’s default.
“(b) Except as provided in subdivision (c), the lessor shall hold for the lessee for the remaining lease term of the lease agreement any goods that have been identified to the lease contract and are in the lessor’s control.
“(c) The lessor may dispose of the goods at any time before collection of the judgment for damages obtained pursuant to subdivision (a). If the disposition is before the end of the remaining lease term of the lease agreement, the lessor’s recovery against the lessee for damages is governed by Section 10527 or 10528, and the lessor will cause an appropriate credit to be provided against a judgment for damages to the extent that the amount of the judgment exceeds the recovery available pursuant to Section 10527 or 10528.
“(d) Payment of the judgment for damages obtained pursuant to subdivision (a) entitles the lessee to the use and possession of the goods not then disposed of for the remaining lease term of and in accordance with the lease agreement.
“(e) After default by the lessee under the lease contract of the type described in subdivision (a) of, or paragraph (1) of subdivision (c) of, Section 10523 or, if agreed, after other default by the lessee, a lessor who is held not entitled to rent under this section must nevertheless be awarded damages for nonacceptance under Section 10527 or 10528.” (Cal. U. Com. Code, § 10529.)
“(b) If reasonable grounds for insecurity arise with respect to the performance of either party, the insecure party may demand in writing adequate assurance of due performance. Until the insecure party receives that assurance, if commercially reasonable the insecure party may suspend any performance for which he or she has not already received the agreed return.
“(c) A repudiation of the lease contract occurs if assurance of due performance adequate under the circumstances of the particular case is not provided to the insecure party within a reasonable time, not to exceed 30 days after receipt of a demand by the other party.
“(d) Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered must be determined according to commercial standards.
“(e) Acceptance of any nonconforming delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance.”