Opinion
2d Civ. B322766
02-28-2024
THE WINE COUNTRY GATEWAY RECREATIONAL VEHICLE PARK, LLC et al., Plaintiff and Appellant, v. EAGLE ENERGY, INC. et al., Defendant and Respondent.
Point Law Group and Troy M. Muller; Bleau Fox and Thomas P. Bleau, for Plaintiffs and Appellants. Adamski Moroski Madden Cumberland &Green, Joshua M. George and Michelle L. Gearhart, for Defendants and Respondents.
NOT TO BE PUBLISHED
Superior Court County No. 16CVP-0027 of San Luis Obispo Linda D. Hurst and Hernaldo J. Baltodano, Judges
Point Law Group and Troy M. Muller; Bleau Fox and Thomas P. Bleau, for Plaintiffs and Appellants.
Adamski Moroski Madden Cumberland &Green, Joshua M. George and Michelle L. Gearhart, for Defendants and Respondents.
GILBERT, P. J.
This case is an example of the uncertainty that a poorly written contract can create. A supplier of motor fuels contracted with three service station operators to be the exclusive supplier of fuels. Chief among the contracts' flaws is that they contain three inconsistent pricing provisions.
The three station operators, believing the supplier was overcharging them, sued the supplier for breach of contract and related causes of action. Two of the station operators stopped purchasing fuel from the supplier and found other sources of fuel. The supplier cross-complained against those two station operators for breach of the exclusive supply contracts. Summary adjudication was granted in favor of the supplier and on all causes of action in the complaint and cross-complaint, leaving only the question of damages on the supplier's cross-complaint.
The trial court interpreted the contracts pursuant to Commercial Code section 2305 as open price contracts, allowing the supplier to charge any commercially reasonable price. Thus, the supplier did not breach the contracts, but the two station operators who purchased fuel from alternative sources did. A jury awarded the supplier damages on its cross-complaint against the two station operators for the unamortized portion of money advanced to the station operators by the supplier and for lost profits.
All statutory references are to the Commercial Code unless indicated otherwise.
Because the contracts limited damages, we reverse the award of damages for lost profits. In all other respects, we affirm.
FACTS
Background
ConocoPhillips is a manufacturer of gasoline and other petroleum products under the Phillips 66 brand. ConocoPhillips directly owns some service stations and also franchises some service stations. Other service stations are independently owned but carry the Phillips 66 branding and sell Phillips 66 products.
ConocoPhillips created Phillips 66 as a separate company in 2012 after a spinoff. As the contracts refer to both, for ease of reference, we refer to the manufacturer as ConocoPhillips unless context provides otherwise.
The Wine Country Gateway Recreational Vehicle Park, LLC (Wine Country), Templeton Market &Deli, Inc. (Templeton Market), Letters, Inc. and its principal John Letters (collectively Letters) are owners of independent service stations (collectively the Purchasers). Each of the Purchasers separately contracted with Eagle Energy, Inc. (Eagle). Eagle is a middleman or "jobber" between ConocoPhillips and the Purchasers; that is, Eagle purchases gasoline directly from ConocoPhillips and arranges for it to be delivered to the Purchasers.
"The Purchasers," collectively refers to the two parties on appeal, Wine Country and Letters, unless context indicates otherwise.
ConocoPhillips sells gasoline wholesale at two prices: the "rack price" or the "dealer tank wagon" (DTW) price. The rack price is the price charged at ConocoPhillips's racks where the tanker trucks are filled. The DTW price is usually charged to direct dealers and franchises. It is usually higher that the rack price because it includes transportation costs. The manufacturer, however, has the discretion to charge jobbers either price. ConocoPhillips charged Eagle the DTW price, even though Eagle had to contract with a fuel hauler to deliver the gasoline to the Purchasers. The price of gasoline can change daily.
Contracts
The Purchasers entered into two contracts with Eagle: a "Branded Station Contract and Supply Agreement" (Purchase Contract) and a Letter of Intent. The contracts between Eagle and each of the Purchasers are substantially the same.
Purchase Contract
The term of each Purchase Contract is 10 years. Paragraph 2 of the Purchase Contract provides in part, "Seller agrees to sell and deliver to Purchaser the commodities agreed to in the Commodity Schedule, attached as Exhibit A, at the price at the time of delivery." Exhibit A lists types of ConocoPhillips motor fuels. Across from each fuel listed is "Price at time of rack receipt."
Paragraph 3 of the Purchase Contract provides in part, "Purchaser agrees to purchase and pay for product(s) under the terms and conditions specifically stated in the Commodity Schedule." The Commodity Schedule lists "Price" as "Price at time of rack receipt."
Paragraph 4 provides for exclusivity. The Purchaser agrees to buy petroleum products only from Eagle throughout the term of the agreement.
Paragraph 5 provides for improvements and amortization. Eagle agrees to make improvements to the Purchaser's service stations as set forth in the Letter of Intent. Eagle may also advance money to the Purchaser for other purposes. The cost of the improvements and money advanced will be amortized over the life of the Purchase Contract. The paragraph provides, "In the event of termination prior to the date set forth above, all damages for early termination shall be limited to Purchaser's repayment of the unamortized portion of the improvements and programs."
Paragraph 8 concerns termination. It provides, in part, "This Contract shall terminate upon its expiration or by the Seller for any stated reason under the Contract or if the Purchaser . . . defaults on any of its obligations under this Contract, including the continuing purchase of commodities from Seller ...."
Paragraph 10 of the Purchase Contract is an integration clause that provides, "[T]his contract shall constitute the final, complete and exclusive statement of the terms of the contract."
Letter of Intent
In addition to the Purchase Contract, the parties executed a Letter of Intent. The Letter of Intent states that it shall serve as a commitment from Eagle to brand the Purchasers' properties with the Phillips 66 brand. The Letter of Intent further states, "The 'jobber' shall make the following improvements at the 'Property' and programs available to the [Purchasers]." Under the heading "Programs" is included, "Provide [Purchasers] with 76 DTW pricing."
Procedure
The Purchasers' third amended complaint alleged that Eagle and its officer, Linda Schultze (hereafter collectively Eagle), breached the contracts by charging at least $0.03 per gallon over the agreed DTW pricing. The complaint stated causes of action for breach of contract, fraud, unfair business practices, reformation, and contract and declaratory relief.
Eagle filed a motion for summary adjudication against Wine Country and Letters on all of the substantive causes of action. The trial court granted the motion, ruling that the contracts contained open price terms and were governed by the Commercial Code. Section 2305 allows the seller of goods under a contract with open price terms to set prices as long as the prices are reasonable and set in good faith. The court concluded that Eagle set reasonable prices in good faith and did not breach its contract.
In spite of the trial court's ruling, Wine Country and Letters stopped purchasing fuel from Eagle, contracted for fuel with other distributors, and debranded their stations. Eagle cross-complained against Wine Country and Letters for breach of contract. Eagle did not allege Templeton Market breached its contract.
Eagle moved for summary adjudication on Templeton Market's causes of action against Eagle, and on Eagle's crosscomplaint against Wine Country and Letters. Based on its ruling in Eagle's previous motion for summary adjudication, the trial court granted Eagle's motions. The only issue remaining for trial was the amount of damages on Eagle's cross-complaint against Wine Country and Letters.
A jury trial was held on the issue of damages. The jury awarded Eagle against Wine Country $77,531.45 for lost profits on fuel sales and $124,943.18 for unamortized rebate and upfront money, for a total of $202,474.63. The jury awarded Eagle against Letters $290,212 for lost profits and $29,894.92 for unamortized rebate and upfront money, for a total of $320,106.92.
DISCUSSION
I.
The Contracts
In the pantheon of badly written contracts, these stand out. In paragraph 2 of the Purchase Contract, Eagle agrees to sell the commodities listed in the Commodity Schedule attached as Exhibit A "at the price at the time of delivery." Paragraph 3 of the Purchase Contract obligates the Purchasers to purchase the products "under the terms and conditions stated in the Commodity Schedule." The Commodity Schedule lists "Price at time of rack receipt." The "Price at the time of rack receipt" in paragraph 3 would seem to directly contradict "price at the time of delivery" in paragraph 2. The matter is further confused by the Letter of Intent attached to the Purchase Contracts, that appear to require Eagle to "Provide [Purchasers] with 76 DTW pricing." The Letter of Intent is the only place that DTW pricing is mentioned.
Contract Interpretation is a Judicial Function
The Purchasers contend that the trial court erred in interpreting the contracts as a matter of law instead of providing the contracts to the jury to interpret.
The interpretation of a written contract is solely a judicial function unless the interpretation turns upon the credibility of extrinsic evidence, even when conflicting inferences may be drawn from uncontroverted evidence. (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 439 (Garcia).)
As extrinsic evidence the Purchasers point to the Letter of Intent. But the Purchasers point to no question of credibility about the Letter of Intent that requires submission to the jury. Moreover, the Purchasers argue that the Letter of Intent and the Purchase Contract must be read together. Assuming that to be so, the Letter of Intent is not extrinsic evidence to the Purchase Contract.
The Purchasers point to uncontroverted evidence that Eagle was not charging Wine Country a markup over the DTW price for several years. The Purchasers argue that the practical construction placed upon an ambiguous contract is a reliable means of determining the parties' intent. (Citing Bohman v. Berg (1960) 54 Cal.2d 787, 795.)
Certainly, that Eagle did not charge Wine Country a markup for several years is extrinsic evidence that might aid in the interpretation of the contracts. But interpretation of the contracts is a judicial function "unless the interpretation turns upon the credibility of extrinsic evidence." (Garcia, supra, 36 Cal.3d at p. 439.) Here because the evidence is uncontroverted, there is no issue of credibility for the jury.
The Purchasers claim that the contracts are ambiguous. That is true. But unless the resolution of the ambiguity involves the credibility of extrinsic evidence, resolution of the ambiguity is for the trial court, not the jury. Here there is no such extrinsic evidence. The court was correct in not submitting the interpretation of the contracts to the jury.
Trial Court's Interpretation of Contracts is Correct
In interpreting the Purchase Contracts, the trial court relied on section 2305. Section 2305 provides in part: "(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if [¶] (a) Nothing is said as to price; or [¶] (b) The price is left to be agreed by the parties and they fail to agree; or [¶] (c) The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. [¶] (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith."
Here the contracts did not set a specific price. Instead, the contracts provided for three conflicting measures of pricing: the price at the time of delivery, the price at the time of the rack receipt, and the DTW price. Nowhere in the contracts is the price of fuel stated in dollars and cents. Clearly "the price is not settled." (§ 2305.) The most reasonable conclusion is that the contracts left the price to be agreed by the parties. Thus Eagle could offer the fuel at any reasonable price. The contracts do not require the Purchasers to purchase any fuel. But the contracts are exclusive. If the Purchasers purchase any fuel, they must purchase it from Eagle. The Purchasers do not contest on appeal that $0.03 per gallon over DTW price is a commercially reasonable price.
The Purchasers point to their affidavits in opposition to Eagle's motion for summary adjudication. The Purchasers declared that they did not understand that Eagle would charge them a markup above the DTW price. But the Purchasers' subjective understanding is irrelevant. (Sunniland Fruit v. Verni (1991) 233 Cal.App.3d 892, 898.) Had the Purchasers intended to limit Eagle to DTW pricing, it would have been an easy matter to state so unequivocally in the Purchase Contract. But they did not do so. The only reference to DTW pricing is in the Letter of Intent. Even assuming that the Letter of Intent and the Purchase Contract must be read together, at best, "the price is not settled." (§ 2305.)
The Purchasers argue, that Eagle was not charging a markup on the DTW price for several years, shows that the parties intended the DTW pricing. But both charging the DTW price and a markup on that price is consistent with an open price contract.
The Purchasers argue, that because Eagle drafted the contracts, they must be interpreted in favor of the Purchasers. The Purchasers cite (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 801, for the proposition, "[i]f the uncertainty is not removed by application of the other rules of interpretation, a contract must be interpreted most strongly against the party who prepared it." But here there is another rule of interpretation. Section 2305 tells us how to interpret a contract where, as here, the price is not settled.
The trial court correctly interpreted the contracts as open price contracts. Eagle did not breach the contracts by charging a $0.03 markup over the DTW price.
II.
Damages on Eagle's Cross-Complaint
The Purchasers contend the damages awarded on Eagle's cause of action for breach of contract are erroneous because the Purchase contracts contain limited liability clauses.
(a) Lost Profits
The Purchasers contend lost profits are not recoverable. Paragraph 8 of the purchase contracts headed "Termination" provides in part: "This contract shall terminate . . . by the Seller for any stated reason under the Contract or if the Purchaser . . . defaults on any of its obligations under this Contract, including the continued purchase of commodities from Seller ...."
The Purchasers rely on Paragraph 5 headed "Amortization Agreement and Improvements." Paragraph 5 provides in part "all damages for early termination shall be limited to the Purchaser's repayment of the unamortized portion of the program."
Wine Country's Purchase Contract provides that damages are limited to repayment of the "amortized" portion of the program. The amortized portion would be the portion that had already been repaid. This is another example of how badly the contracts are written.
The Purchasers interpret the Purchase Contract to mean that their breach of the Purchase Contract automatically terminates it, and Eagle's damages are limited to the repayment of the unamortized portion of moneys Eagle advanced.
In response, Eagle points out that the Purchasers did not object at trial to an award of lost profits as damages for breach of contract. In fact, the Purchasers specifically requested jury instructions on lost profits. (CACI No. 3903N.) In addition, the managing member of Wine Country admitted at trial that Eagle was entitled to some lost profits.
Where a party by his conduct induces the commission of an error, he is estopped from asserting it on appeal. (Redevelopment Agency v. City of Berkeley (1978) 80 Cal.App.3d 158, 166.) Similarly, a party may waive his right to attack error by expressly or impliedly agreeing at trial to the ruling or procedure attacked on appeal. (Ibid.)
Nevertheless, where the theory presented for the first time on appeal involves only a question of law, we have the discretion to consider the matter. (Redevelopment Agency v. City of Berkeley, supra, 80 Cal.App.3d at p. 167.) Here, as we have stated, the interpretation of these contracts is a judicial function. We exercise our discretion to consider the matter on the merits to avoid the injustice of allowing an unwarranted award of substantial damages to stand.
Paragraph 8 of the Purchase Contract unequivocally states that the contract "shall terminate" if the Purchaser defaults on any of its obligations under the contract. It is true that the Purchase Contract did not obligate the Purchasers to purchase any fuel from Eagle. But the Purchase Contract's exclusivity clause provides that as long as the Purchaser is in the business of selling fuel, the Purchaser must purchase its fuel from Eagle. It is undisputed that the Purchasers breached the Purchase Contract by purchasing fuel from other suppliers. Under the express terms of the Purchase Contract, it has terminated.
Eagle points to the beginning of Paragraph 8 of the Purchase Contract, "This Contract shall terminate by the Seller ...." Eagle argues only it can terminate the Purchase
Contract in the event of the Purchaser's breach. But Eagle ignores the disjunctive "or if the Purchaser ...." The plain meaning of the words in Paragraph 8 is that the Purchaser's default shall terminate the Purchase Contract.
Eagle cites section 2106, subdivision (3), defining "Termination" as "when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach." But the section merely defines terms as they are used in the Code. (See § 2103, subd. (2), "[d]efinitions applying to this division or to specified chapters thereof, and the sections in which they appear are: . . . 'Termination.' Section 2106.".) Section 2106, subdivision (3), does not prohibit the parties from agreeing that a contract will terminate for breach.
Paragraph 5 of the Purchase Contract expressly limits damages for early termination to the purchaser's "repayment of the unamortized portion of the program." In context, "the program," refers to the rebate and upfront money provided by Eagle to the Purchasers.
Eagle cites section 2708, subdivision (2), for the proposition that it is entitled to lost profits for buyer's breach. Section 2708, subdivision (2), clearly applies where the contract is silent as to the measure of damages. But Eagle cites no authority that section 2708, subdivision (2), applies where the parties expressly agree to limit damages.
Section 2708, subdivision (2), provides: "If the measure of damages provided in subdivision (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this division (Section 2710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale."
The language of the Purchase Contracts clearly precludes lost profits as damages on early termination. Eagle does not claim that it was forced into a contract of adhesion or even that the Purchasers had the greater bargaining power. In fact, that the limiting language in all the Purchase Contracts is similar, shows the language was drafted by Eagle. There is no reason to interpret section 2708, subdivision (2), as mandating the award of damages for lost profits where the parties have fairly bargained otherwise. We must reverse the award of lost profits.
(b) Rebate Damages
The Purchasers contend the jury could not have properly awarded damages based on the return of the unamortized portion of money advanced without being provided the contracts. As we have stated, interpretation of the contracts was a judicial function. Providing the jury with the contracts was irrelevant for assessing damages.
III.
Purchaser's Contentions on Summary Adjudication
The Purchasers contend that the trial court erred in granting Eagle's motion for summary adjudication on the fraud and unfair business practices causes of action.
The elements of a cause of action for fraud are: misinterpretation, knowledge of falsity, intent to induce reliance, justifiable reliance, and resulting damage. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.)
The fraud causes of action in the complaint alleged that Schultze as the controlling officer of Eagle entered into the contract "absent any intention of honoring or complying with the material DTW pricing term thereof ...." But the contract is an open price contract. It contains no "material DTW price term." The price was not certain. Eagle can charge any reasonable price.
The complaint does not allege that Schultze personally falsely represented that Eagle would charge the DTW price. It alleges only that the DTW price was a material term of the contract.
The Purchasers' cause of action for fraud is premised on the theory that their contracts call for DTW pricing. Similarly, the Purchasers' cause of action for unfair business practices is based on the theory that their contracts call for DTW pricing. The theory is wrong.
DISPOSITION
The award of damages for lost profits is reversed. In all other respects the judgment is affirmed. The parties are to bear their own costs.
We concur: YEGAN, J., CODY, J.