Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of San Diego County, Steven R. Denton, Judge, Super. Ct. No. GIC830853
McINTYRE, J.
SourcingLink.Net, Inc. (SourcingLink) appeals a judgment entered after the trial court granted the motion of defendant Carrefour, S.A. (Carrefour) for judgment notwithstanding the verdict (JNOV) on the ground (1) the jury's breach of contract verdict could not stand because the parties had not entered into an enforceable contract and (2) the jury improperly awarded SourcingLink benefit-of-the-bargain damages on its fraud claim.
SourcingLink argues that the trial court erred in granting the motion because it had an enforceable contract with Carrefour and it was entitled to recover its lost profits under its fraud cause of action. It also argues that the trial court erred in limiting what damages evidence it could present on its fraud claim and that the matter should be remanded for a new trial as to its out-of-pocket fraud damages. We reject SourcingLink's arguments and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
SourcingLink is a computer software company that develops products to help retail businesses such as Carrefour "source" or search for inventory from suppliers. In 1994, Carrefour began using SourcingLink's first generation software product and it paid for the product on a pay-as-you-go basis. In 1999, SourcingLink developed a second generation software product called MySourcingCenter or MSC and charged users a fixed yearly subscription fee for the product.
The parties negotiated for Carrefour to use MSC and they ultimately executed a written agreement, the Letter Agreement, that contemplated Carrefour's rollout of MSC in three phases. The Letter Agreement was "subject to final agreements" between the parties and provided that Carrefour could terminate its use of the software for any reason with 90 days written notice. Shortly thereafter, Carrefour entered into a Letter of Intent with two other companies to create a joint venture called GlobalNetXchange or GNX to provide a marketplace for retailers. The Letter of Intent expressed the joint venturers' intent "to evaluate the practicality to have [SourcingLink] participate in" the joint venture.
SourcingLink learned about GNX through a public announcement and SourcingLink's stock price immediately began to fall after the announcement. Carrefour arranged a meeting between representatives of GNX and SourcingLink to determine whether MSC could be incorporated into the GNX platform. Although that meeting went poorly, SourcingLink and Carrefour continued to negotiate and they ultimately executed a second agreement, the Services Agreement, on March 31, 2000, whereby SourcingLink would provide consulting services on an hourly basis to help Carrefour and its suppliers implement GNX.
The Services Agreement contained a schedule detailing the scope of work and guaranteed that Carrefour would pay SourcingLink a minimum of $9 million over three years regardless of the number of hours of services that SourcingLink provided. The parties also terminated the Letter Agreement and agreed to release each other from any liability arising thereunder. Paragraph 4 of the Services Agreement entitled "Other Agreements" contemplated that Carrefour would use its best efforts to cause GNX to enter into servicing agreements with SourcingLink and anticipated that the parties would enter into a software licensing agreement. Specifically, paragraph 4.02 of the Letter Agreement provided:
"Carrefour shall enter into a Software Licensing Agreement with [SourcingLink] provided, however, that such Software Licensing Agreement shall be (i) reasonably satisfactory to both parties and (ii) on terms and conditions reasonably similar to those terms and conditions set forth in the form of agreement attached hereto as Exhibit A. If such agreement has not been consummated by the date of this Agreement, then Carrefour and [SourcingLink] each hereby agrees to use its best efforts to consummate such agreement expeditiously, with an expectation that such consummation shall occur within 90 to 120 days of the date hereto."
Exhibit A referenced in paragraph 4.02, is an eight page unexecuted contract granting Carrefour the right to use SourcingLink's software for a 10-year term. The form contract provided that the parties would negotiate the terms and consideration to be paid by Carrefour for the software and the annual support fee and use their best good faith efforts to reach a reasonable license fee and support fee for use and support of the software.
In February 2003, one month before the Services Agreement was scheduled to end, SourcingLink's CEO, Marcel Van Heesewijk, wrote to Jeremy Hollows, Carrefour's Director of Information and Systems, stating that SourcingLink was owed about $465,000 on the $9 million three-year contract minimum, proposing to provide additional services as an amendment to the current contract and outlining a method for Carrefour to fulfill its obligation to pay SourcingLink a licensing fee for certain software applications.
The following month, Van Heesewijk sent Hollows an e-mail asking how Carrefour would "fulfill it's obligation to contract a software license under Section 4.02, and Exhibit A" to the Services Agreement. Van Heesewijk suggested that deploying MSC as proposed in an attached contract amendment provided a greater value than any alternative new software development or license obligation payout. He also attached a list of historical fees that Carrefour had been paying SourcingLink and then calculated a profit margin and provided a methodology for determining the amount of the support fee. The fees totaled $535,260 and the payout amount totaled $4,539,625. Ultimately, Carrefour paid SourcingLink the sums owed under the Services Agreement, but never licensed any software from SourcingLink.
SourcingLink filed this action in June 2004 and the matter proceeded to trial on SourcingLink's claims that Carrefour (1) breached the Services Agreement by refusing to enter into a licensing agreement with SourcingLink on terms similar to those set forth in Exhibit A to the Services Agreement and (2) fraudulently represented that it would enter into a licensing agreement with SourcingLink for its software. During trial, Carrefour moved to limit the testimony of SourcingLink's damages expert, James Skorheim. The trial court ruled that SourcingLink's breach of contract damages under the Services Agreement were limited to damages caused by Carrefour's failure to license the shipping and inspection functionalities of MSC. It also ruled that SourcingLink's damages for fraudulent inducement were limited by the 90-day termination provision in the Letter Agreement and precluded Skorheim from offering a damages model based on an assumption that the Letter Agreement would continue for a 10-year period.
The jury received two verdict forms, each containing multiple questions, separately addressing the breach of contract and fraud causes of action. The jury found in SourcingLink's favor on both causes of action and awarded damages of $4,539,625 on each of the claims. Carrefour filed a motion for JNOV, arguing that the evidence was legally insufficient to support the verdict on both claims. The trial court agreed and entered a judgment in Carrefour's favor. SourcingLink timely appealed. Although the notice of appeal mentions the order granting Carrefour's motion for an award of attorney fees and costs, SourcingLink provided no argument on this issue.
DISCUSSION
I. JNOV
A. Standard of Review
A trial court may grant a JNOV motion if there is no substantial evidence to support the verdict. (Tognazzini v. San Luis Coastal Unified School Dist. (2001) 86 Cal.App.4th 1053, 1057-1058.) In deciding whether to grant the motion, the trial court cannot weigh the evidence or assess credibility (Castro v. State of California (1981) 114 Cal.App.3d 503, 512) and must view the evidence in the light most favorable to the verdict, disregard conflicting evidence, and indulge in every legitimate inference to support the verdict. (Paykar Construction, Inc. v. Spilat Construction Corp. (2001) 92 Cal.App.4th 488, 493-494.) "On appeal, we determine de novo whether there is substantial evidence to support the verdict and whether the moving party is entitled to judgment in its favor as a matter of law." (Id. at p. 494.)
B. Breach of Contract
The jury concluded that (1) the software licensing provisions of the Services Agreement created a binding contract on Carrefour to license SourcingLink's shipping, tracking and inspection software functionalities, (2) Carrefour's breach of the contract caused SourcingLink harm, and (3) the evidence and the prior conduct of the parties established an agreement that the reasonable consideration to be paid by Carrefour for the software license was $4,539,625.
In its JNOV motion, Carrefour argued that the breach of contract claim failed because there was no evidence of a meeting of the minds concerning a reasonable price for the contemplated software. The trial court agreed, noting that the jury adopted the shipping and tracking license and fee calculations proposed by Van Heesewijk in his April 2003 e-mail, but there was no evidence in the record that when the parties entered into the Services Agreement they came to any agreement or even contemplated this method for calculating the license fees. The court also noted that the Services Agreement contained no agreement on the amount of these fees and that Exhibit A to the Services Agreement indicated the parties would use their best efforts to determine these fees.
SourcingLink contends the trial court erred in granting the motion because the promises in paragraph 4.02 and the detail in Exhibit A unambiguously show that the parties agreed to "reasonable" license and support fees for the software and merely left the particulars of that negotiation to a later date. However, under Delaware law (which the parties agree governs) "an agreement to agree" is not an enforceable contract. (Raisler Sprinkler Co. v. Automatic Sprinkler Co. of America (Del.Super. 1934) 171 A. 214, 219-220.) For an agreement to be binding and enforceable, its material provisions must be certain and definite and the price to be paid is generally considered to be a material provision of a contract. (Hindes v. Wilmington Poetry Society (Del. 1958) 138 A.2d 501, 503.) The question then becomes whether the parties had such an agreement.
When interpreting a contract, the goal is to ascertain the shared intention of the parties. (E.I. du Pont de Nemours & Co. v. Shell Oil Co. (Del.Super. 1985) 498 A.2d 1108, 1113.) In discerning the intent of the parties, the contract should be read as a whole and, if possible, interpreted to reconcile all the provisions of the document. (Warner Communications Inc. v. Chris-Craft Industries, Inc. (1989) 583 A.2d 962, 967, aff'd Chris-Craft Industries, Inc. v. Warner Communications, Inc. (Del. Super. 1989) 567 A.2d 419; Raughley v. Delaware Coach Co. (Del. Super. 1952) 47 Del. 343, 349; Empire Box Corp. of Stroudsburg v. Illinois Cereal Mills (Del.Super. 1952) 91 A.2d 248.) When the language of a contract is plain and unambiguous, binding effect should be given to its evident meaning. (Rhone-Poulenc Basic Chemicals Co. v. American Motorists Ins. Co. (Del.Super. 1992) 616 A.2d 1192, 1195.) Only where contract language is susceptible of more than one reasonable interpretation may a court look to parol evidence; otherwise, only the language of the contract itself is considered in determining the intentions of the parties. (Citadel Holding Corp. v. Roven (Del.Super. 1992) 603 A.2d 818, 822; Eagle Industries, Inc. v. DeVilbiss Health Care, Inc. (Del.Super. 1997) 702 A.2d 1228, 1232.)
SourcingLink does not assert that the Services Agreement and Exhibit A thereto are ambiguous; accordingly, we turn to the language of these documents to ascertain the intent of the parties. Paragraph 4.02 of the Services Agreement, stated that "Carrefour shall enter into a Software Licensing Agreement with [SourcingLink]," however, the parties then conditioned the agreement on the satisfaction of certain prerequisites, namely, that: (1) the agreement would be reasonably satisfactory to both parties; (2) the terms and conditions of the agreement would be "reasonably similar" to those set forth in the attached "form" agreement, Exhibit A; and (3) if the parties had not consummated such an agreement by the date of the execution of the Services Agreement, they would use their best efforts to consummate the agreement expeditiously, "with an expectation that such consummation" would occur within 90 to 120 days.
SourcingLink does not argue that it consummated a software agreement with Carrefour by the date of the execution of the Services Agreement or within 90 to 120 days thereafter; rather, it argues that the language of paragraph 4.02 and Exhibit A created a binding contract. The language of paragraph 4.02, however, does not support this assertion as it reflects that the parties expected or intended to consummate a software licensing agreement if only certain conditions were satisfied. The parties referred to Exhibit A to the Services Agreement as a "form" agreement, suggesting they did not intend to be bound by its terms. Exhibit A also contained signature lines for the parties; thus, the parties contemplated that acceptance of the contract's terms would be signified by signing it. Their failure to sign the form agreement suggests they did not create a binding contract.
Moreover, Exhibit A to the Services Agreement lacked several crucial elements. First, Exhibit A indicated that SourcingLink "has developed certain computer software programs" as listed on an exhibit to Exhibit A and that SourcingLink would grant Carrefour a license to use the software in consideration for licensing fees paid by Carrefour. However, the exhibit to the form agreement labeled "Software" does not list any software and thus, the actual subject of the licensing agreement was not specified.
More importantly, the parties never agreed on the consideration to be paid for the licenses. The form agreement under the subheading "License Fees" stated that the parties "shall negotiate the terms and consideration to be paid" and "shall use their best good faith efforts to reach a reasonable license fee and support fee[.]" SourcingLink contends that through this language the parties agreed to a "reasonable" price for the license and support fees and that Delaware courts apply a more modern approach to contract interpretation in situations where, as here, the parties agreed to a reasonable price.
We agree that under certain situations a contract wherein the parties agreed to a "reasonable price" is sufficiently certain to be enforceable. (See generally, Corbin on Contracts (1993) § 4.3, pp. 567-569 [no indefiniteness if parties "agree upon payment of a 'reasonable' price"].) The documents here, however, do not support SourcingLink's contention that the parties agreed to a "reasonable price" for the software. SourcingLink's argument ignores (1) the language in Exhibit A that the parties would "negotiate" the consideration to be paid and "use their best good faith efforts to reach" reasonable license and support fees, and (2) the statements in paragraph 4.02 that Exhibit A was merely a "form" agreement, any licensing agreement need only be "reasonably similar" to those set forth in the "form" agreement and the parties would use their best efforts to consummate an agreement.
The language of paragraph 4.02 and Exhibit A make it clear that the parties did not come to a meeting of the minds regarding what software would be licensed or the amount to be paid therefore. SourcingLink's argument that the parties agreed to a "reasonable" fee for the software is inconsistent with the language leaving the matter for subsequent negotiation. Accordingly, the trial court did not err when it granted Carrefour's motion for JNOV as to this cause of action.
C. Fraud
The jury concluded that between February 28, 2000 and the execution of the Services Agreement in March 29, 2000, Carrefour represented to SourcingLink that it would license software from SourcingLink without the intention of doing so, Carrefour intended to deceive SourcingLink by making this representation, SourcingLink reasonably relied on the representation when it entered into the Services Agreement and the false representation caused it harm in the amount of $4,539,625.
Carrefour's JNOV motion did not challenge the jury's fraud findings; rather, it argued that the damages SourcingLink sought for the misrepresentation about entering into a software license were identical to the damages it claimed for breach of the Services Agreement and that the economic loss doctrine precluded SourcingLink from seeking recovery of such benefit-of-the-bargain damages for fraud. In its ruling on the motion, the trial court noted that the damages awarded were the same as the damages awarded for breach of contract, but that the record contained no evidence as to the amount of out-of-pocket-damages suffered by SourcingLink and that the damages awarded did not reflect damages actually suffered by SourcingLink as a result of Carrefour's fraud.
SourcingLink contends the trial court erred in granting JNOV because its fraud damages included its lost profits under the Services Agreement, including the loss of its rights under the Letter Agreement, regardless of the enforceability of the Services Agreement. At its core, SourcingLink's contention raises the issue of the proper measure of damages for fraud. Accordingly, before we can address this contention, we must review the law concerning the proper measure of damages for fraud.
There are two possible methods for measuring fraud damages in California – the out-of-pocket rule or the benefit-of-the-bargain rule. The out-of-pocket measure of damages "is directed to restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent transaction, and thus awards the difference in actual value at the time of the transaction between what the plaintiff gave and what he received." (Stout v. Turney (1978) 22 Cal.3d 718, 725.) In contrast, the benefit-of-the-bargain measure of damages "is concerned with satisfying the expectancy interest of the defrauded plaintiff by putting him in the position he would have enjoyed if the false representation relied upon had been true. It awards the difference in value between what the plaintiff actually received and what he was fraudulently led to believe he would receive." (Ibid.)
Civil Code section 3333 is the measure of damages for torts in general, allowing the victim to be compensated "for all the detriment proximately caused thereby, whether it could have been anticipated or not." This statute, however, does not set forth a benefit-of-the-bargain measure of damages; it "simply sets out the measure of damages long recognized in torts, namely, to compensate a plaintiff for a loss sustained rather than give him the benefit of any contract . . . ." (Overgaard v. Johnson (1977) 68 Cal.App.3d 821, 823-824.) Stated differently, fraud damages under Civil Code section 3333 should place victims of fraud in the position they would have occupied had the misrepresentations not occurred; they cannot, however, be placed in a better position than that. (Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 54-55; Christansen v. Roddy (1986) 186 Cal.App.3d 780, 790-791; Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 504; Eckert Cold Storage, Inc. v. Behl (E.D.Cal. 1996) 943 F.Supp. 1230, 1234.) However, a statutory exception to the out-of-pocket loss rule is recognized for the sale of goods, giving the defrauded buyer of goods the same remedies as those specified for breach of warranty, and thus gives him or her the benefit-of-the-bargain. (Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 430-431, citing Com. Code, § 2721.)
With this background, we examine the damages awarded by the jury. Notably, the only damage evidence presented by SourcingLink was for lost profits anticipated from the purported licensing agreement, i.e., benefit-of-the-bargain damages. Specifically, SourcingLink offered the opinion of James Skorheim, an accountant, that the value of a 10-year license fee and support fee for Carrefour's breach of paragraph 4.02 of the Services Agreement was $5,950,798. Skorkeim testified that he based his analysis on correspondence between Van Heesewijk and Hollows. The jury apparently rejected the adjustments that Skorheim made to Van Heesewijk's calculations and awarded $4,539,625 under both the contract and fraud theories of recovery, the total suggested by Van Heesewijk as fulfilling Carrefour's obligations for the purported licensing agreement. In fact, SourcingLink's counsel argued to the jury that the damages it sought for breach of contract and fraud were the same.
The question presented is whether the jury improperly awarded SourcingLink benefit-of-the-bargain damages for Carrefour's fraud. The trial court concluded that the jury made such an improper award and we agree. (Carrefour did not appeal the jury's fraud findings leading to its damage award and, for purposes of this appeal, we assume that the record contains substantial evidence to support these findings.)
As a threshold matter, we agree with SourcingLink's assertion that Civil Code section 3333 sets forth the appropriate measure of damages for its fraud claim. Accordingly, we will not address Civil Code section 3343, which applies to the purchase, sale or exchange of property. Additionally, we reject SourcingLink's contention that it is entitled to benefit-of-the-bargain damages under the Commercial Code because SourcingLink is not the defrauded buyer of goods and it cited no California (or Delaware) authority to support its argument that a software license (i.e., a right to use software) constitutes a "good" within the meaning of the Commercial Code. (Com. Code, § 2105 [goods are "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale"].)
Although SourcingLink correctly identified Civil Code section 3333 as the appropriate measure of damages, its analysis goes awry when it concludes that Civil Code section 3333 authorizes benefit-of-the-bargain damages. SourcingLink cites to Lazar v. Superior Court (1996) 12 Cal.4th 631 (Lazar) for the proposition that fraud plaintiffs may recover both out-of-pocket damages and benefit-of-the-bargain damages, but its reliance on Lazar for this proposition is misplaced. In Lazar, the plaintiff alleged that he was induced to relocate from New York to California and leave a secure job based on defendant's false verbal representations of continued employment, the defendant's financial position, and pay raises. Two years later, defendant terminated plaintiff and he was unable to find comparable employment. (Id. at p. 637.) Our high court held that, under the circumstances of that case, plaintiff was entitled to pursue tort damages under a fraud theory, as well as benefit-of-the-bargain damages under his breach of contract claim. (Id. at p. 646.) In other words, plaintiff lost anticipated benefits because the contract was terminated, not because the contract was entered into. To underscore this concept and eliminate any possible confusion, our high court recently explained that its reference to benefit-of-bargain damages in Lazar was to recovery under a breach of contract theory. (Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1175, fn. 4.)
We also agree with SourcingLink's general statement that a fraud victim is entitled to recover the loss of anticipated profits under Civil Code section 3333 when the loss was proximately caused by the fraud. (Stout v. Turney, supra, 22 Cal.3d at p. 726.) Here, however, the only evidence of lost profits submitted by SourcingLink related to its expected profits under the purported licensing agreement contained in the Services Agreement. As argued by Carrefour, the verdict impermissibly placed SourcingLink in a better position than had the misrepresentations not been made. Accordingly, the trial court did not err in granting JNOV on the fraud cause of action because the evidence did not support the damages award.
II. Evidentiary Ruling
The Services Agreement contained a provision terminating the Letter Agreement and releasing each party from any liability arising thereunder. SourcingLink alleged that Carrefour's misrepresentations induced it to enter into the Services Agreement and sought to introduce damage evidence based on the assumed continuation of the Letter Agreement for a 10-year period. Carrefour moved to limit the scope of SourcingLink's evidence. In ruling on the motion, the trial court noted that the evidence established that when the parties entered into the Services Agreement, they had already terminated the Letter Agreement. Accordingly, the trial court precluded SourcingLink from offering a damages model based on the assumption that the Letter Agreement would have continued for 10 years and limited SourcingLink's potential damages under the Letter Agreement to 90 days, the length of the termination provision contained in the Letter Agreement.
SourcingLink claims that the trial court erred in not allowing it to prove its out-of-pocket damages for a 10-year period and instead limiting evidence of its recoverable damages to 90 days. We disagree. SourcingLink can be compensated for the detriment it actually suffered (Civ. Code, § 3333) so as to restore it to the financial position it enjoyed prior to the fraudulent transaction. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240.) Accordingly, SourcingLink's damages are properly measured based on the value of the rights it gave up in reliance on Carrefour's misrepresentations regarding entering into a licensing agreement.
Here, the Letter Agreement was terminable by Carrefour upon 90-days notice and, as noted by the trial court, contained no fixed term. To award SourcingLink damages based on an assumption that the Letter Agreement would last 10 years would place it in a better position than had the misrepresentation not occurred. SourcingLink could have, but did not, present any evidence as to its out-of-pocket damages for a 90-day period.
SourcingLink's reliance on Kuffel v. Seaside Oil Co. (1970) 11 Cal.App.3d 354 (Kuffel) for the proposition that when a party is fraudulently induced to terminate an agreement, the party who committed the fraud may not limit damages by pointing to a termination clause in the agreement that it did not actually invoke, is misplaced. The Kuffel opinion is not persuasive as the court provided no analysis for its statement and then decided the matter on the unique facts presented. (Id. at p. 368, compare Martin v. U-Haul Company of Fresno (1988) 204 Cal.App.3d 396, 407-408 [where contract terminated without 30-days written notice, as required by contract, injured parties damages were limited to those damages attributable to 30-day period].) Thus, we find no error in the trial court's evidentiary ruling.
DISPOSITION
The judgment is affirmed. Respondent is entitled to its costs on appeal.
WE CONCUR: BENKE, Acting P. J., HUFFMAN, J.