Opinion
Charles A. Zellar and Francis X. Vieira, Stockton, for appellants.
Freeman & Rishwain, by Maxwell M. Freeman, Stockton, and Roger H. Bernhardt, San Francisco, for respondent.
OPINION
GARGANO, Associate Justice.
This is an appeal by appellants Edwin Arioto, Edwin Hoffman and Robert Duckworth, co-partners, doing business under the firm name and style of Pixey Distributing Co., hereafter referred to as Pixey, from a judgment awarding respondent Delta Dynamics, Inc., hereafter referred to as Delta, $21,500, together with interest and attorneys' fees for the breach of a distributorship agreement. Appellants also appeal from the court's denial of their motion for a new trial.
There is no dispute as to the following essential facts. Delta was the developer of certain safety devices for firearms designed to lock the trigger of hand guns. On March 23, 1961, Delta granted Pixey the exclusive distributorship for the sale of its product throughout the United States for a five-year term. In return Pixey agreed to sell 50,000 units during the first year of the contract and 100,000 units during each succeeding year. Pixey initially ordered 10,000 gun locks which Delta delivered in August of 1961. In late 1961 Pixey delivered to Delta a document entitled 'purchase order.' This document called for Delta to ship Pixey another 10,000 gun locks 'as needed.' Pixey, however, did not request delivery of the 10,000 gun locks nor did it order delivery of an additional 30,000 units to meet the 50,000 quota for the first year as specified by the contract. Delta, by written notice, then terminated Pixey's exclusive distributorship and ultimately brought this action to recover damages for Pixey's alleged breach of its agreement to sell 50,000 gun locks during the first year of operation. The trial court agreed with Delta's contention that Pixey had breached its agreement and awarded Delta $16,000 as lost profits for the 40,000 units which Pixey did not sell and an additional $5,500 as reimbursement for Delta's actual production costs for the 10,000 units which were manufactured but not delivered.
The main controversy between the parties centers on the interpretation of the distributorship agreement which they signed on March 23, 1961. Succinctly, Pixey contends that it merely agreed to try to sell a specified number of Delta's gun locks each year and that Delta's only remedy, if Pixey failed to do so, was to terminate the contract. On the other hand, Delta maintains that Pixey's agreement to sell Delta's product was both a condition upon retention of the distributorship and an implied promise to buy the product. Thus, a recital of the pertinent provisions of the contract is essential. These pertinent provisions follow:
'* * *
'WHEREAS, DELTA has applied for a Pending Application for United States Patent, Application Serial No. 848794 on a safety device for firearms; and
'WHEREAS, DELTA desires to appoint PIXEY as exclusive distributee of this device throughout the United States, sub ject 'NOW THEREFORE, IT IS AGREED:
'1. DELTA hereby appoints PIXEY as distributee of the safety device for firearms described in the Pending Application for United States Patent.
'2. DELTA agrees to manufacture or cause to be manufactured the device in a polished aluminum or satin aluminum finish form. The price of each device to PIXEY shall be the sum of $1.00 F.O.B., Stockton, California, including Pin and Walsco Lock 1963N; provided, however, that in the event the cost of production and/or delivering each device shall increase over the initial cost thereof, DELTA may raise its price to PIXEY but not to exceed a total increase of 10cents per unit during the original five-year term of this Agreement. The price raise shall be adjusted on a yearly basis at the end of each year of this Agreement. Any increase in cost of producing and/or delivering said units as herein stated shall be added to the price and paid by PIXEY.
'DELTA agrees to furnish the devices in four different models initially, namely, Models A, B, C and D. A minimum of 1,000 of each model shall be ordered initially, provided, however, that the total initial order shall be 10,000 units.
'* * *
'4. PIXEY accepts the appointment as exclusive distributee and will diligently attempt to promote the sale and stimulate interest in DELTA's product.
'5. PIXEY agrees to sell not less than 50,000 units within one year from the date of delivery of the initial order, provided that the initial order shall be placed within 30 days from the date of this Agreement, 100,000 units during the second year from the date of delivery by DELTA of said initial order, and 100,000 units for each successive year thereafter and until the end of five years from the date of delivery of the initial order, at which time this Agreement will terminate and be subject to renegotiation between the parties hereto. If in any one year more than the minimum quota specified herein have been sold by PIXEY, then said excess may be credited on the quota for the succeeding year to the end, however, that by the expiration of the five-year term of this Agreement (that is to say, five years from the date of the delivery of the initial order hereunder) PIXEY will have ordered from DELTA 450,000 units. Should PIXEY fail to distribute in any one year the minimum number of devices to be distributed by it but including any carryover from previous years, then this Agreement shall be subject to termination at the end of the year during which PIXEY failed to meet its quota upon 30 days' notice in writing given by DELTA to PIXEY.
'* * *
'8. In connection with the promotion, distribution, advertising and sale of the devices, PIXEY agrees to make no claim, representation or warranty as to the effectiveness of the device to control the discharge of firearms unless and until such claim, representation or warranty shall have first been submitted to and approved by DELTA. In this connection, should DELTA require a disclaimer to accompany the sale of said devices, PIXEY agrees to include the same.
'9. DELTA agrees to protect PIXEY from any patent infringement actions related to this product.
'10. This Agreement is personal in nature and cannot be assigned by PIXEY without prior written consent of DELTA. This Agreement may be assigned by DELTA to any corporation formed by it to manufacture the devices described herein. In such event PIXEY agrees to enter into an Agreement identical in form with this with said new concern, and upon the execution of said Agreement, this Agreement shall be superseded and of no further effect.
'11. In the event of breach of this Agreement by either party, the party prevailing Pixey correctly maintains that a contract must be construed as a whole and the intention of the parties must be gathered from the entire instrument rather than isolated portions (Civ.Code § 1641; Hamilton v. Salopek, 71 Cal.App.2d 104, 161 P.2d 955; Hoagland v. City of Los Angeles, 103 Cal.App.2d 499, 229 P.2d 823). However, we do not agree with Pixey's conclusion that when the agreement is so construed it is clear that the parties intended to create only an exclusive distributorship and to limit Delta's remedies to termination. To the contrary, when we read the entire agreement we conclude that the trial court properly construed it to provide that Delta gave Pixey the exclusive right to distribute its product and bound Pixey to purchase the minimum annual quotas specified.
Paragraph 5 of the contract indicates that Pixey's agreement to sell not less than 50,000 gun locks during the first year of operation and not less than 100,000 units during each succeeding year is an unconditional promise which alone seems to subject Pixey to liability for damages if it fails to meet these commitments. And in light of the other provisions of the contract this promise clearly does subject Pixey to liability for damages.
First, the contract not only appoints Pixey as the exclusive distributor of Delta's product throughout the United States; it also absolutely obligates Delta to manufacture and sell its gun locks to Pixey at an agreed purchase price. Thus, had the venture been successful Delta would have been absolutely committed to sell its product exclusively to Pixey for five years at an agreed purchase price. Delta also would have been burdened with making annual arrangements for the manufacture of the product according to Pixey's requirements. With these considerations in mind it would be unreasonable to construe the contract to mean that Pixey had no firm obligation to buy Delta's product, not even during the first year of operation when Delta dbviously had manufacturing commitments of its own to fulfill. In a less compelling situation the Supreme Court in Long Beach Drug Company v. United Drug Company, 13 Cal.2d 158, 88 P.2d 698, 89 P.2d 386, implied a promise by the distributor to purchase the manufacturer's products under a distributorship agreement which obligated the manufacturer to supply the distributor's requirements without an express promise to buy on the part of the distributor.
Second, regardless of what reciprocal obligations may be inferred from Delta's obligation to produce the gun locks for five years, the parties expressly provided that Pixey was obligated to distribute the full 450,000 quota of gun locks within five years. Paragraph 5 allows Pixey to apply any excess over one year's quota to the next year's quota. And significantly, that paragraph expressly provides that at the end of the five years 'PIXEY will have ordered from DELTA 450,000 units.'
Third, there is no provision in the contract regulating the retail price of Delta's product. The contract apparently allows Pixey, as the middleman, to control the retail price. This in turn indicates that the parties contemplated a contract to purchase Delta's product as well as a distributorship. In addition, Paragraph 11 allows attorneys' fees to the prevailing party 'in any action for damages or enforcement of the terms of this Agreement * * *.' (Emphasis added.) This suggests that the parties contemplated remedies other than termination of the agreement.
In opposition Pixey argues that since Paragraph 5 contains both the termination clause and Pixey's promise to sell Delta's gun locks, termination of the agreement is Pixey's only remedy. Significantly, however, the words used are not in the imperative. To the contrary, the agreement provides that it 'shall be subject to termination' which implies that this remedy is optional, rather than exclusive. As the court Nelson v. Spence,
'Where a contract expressly provides a remedy for a breach thereof, the language used in the contract must clearly indicate an intent to make the remedy exclusive. Inner Shoe Tire Co. v. Tondro, 83 Cal.App. 689, 695, 257 P. 211; Pratt-Low Preserving Co. v. Evans, 55 Cal.App. 724, 731, 204 P. 241, 244. In Pratt-Low, supra, the court said: 'It is significant, however, that the parties have used the term may, instead of shall or must, and ordinarily this word implies permission, and not a mandate. If the parties had intended to make it exclusive, it would have been a simple task to so provide.' In contracts which have been held to contain exclusive remedies, the language used by the parties indicated, expressly, an intent to make the remedy exclusive. Wheeler v. Oppenheimer, 140 Cal.App.2d 497, 499, 295 P.2d 128, 129, 'Seller only to be liable for such costs and expenses' [emphasis supplied]); Artukovich v. Pacific States etc. Co., 78 Cal.App.2d 1, 4, 176 P.2d 962, 964: 'The measure of damage is the price of defective material only' (emphasis supplied); United Iron Works v. Standard Brass Casting Co., 98 Cal.App. 517, 519, 277 P. 183, 184: 'All defective castings will be replaced and foundry shall not be responsible for any * * * contingent damages caused by reason of defective castings.' (Emphasis supplied.)'
Pixey also asserts that Paragraphs 8 and 10 demonstrate that no contract of sale was intended or contemplated. Paragraph 8 requires Delta's prior approval of Pixey's representations in promotional and advertising activities. Thus, Pixey maintains that Delta retained some indicia of ownership in its product subsequent to delivery to Pixey. Paragraph 10 states that the agreement is 'personal in nature' and Pixey maintains that this statement precludes the idea of a buy and sell agreement.
Pixey's arguments are without substance. Paragraph 8 simply protects Delta against inaccurate representations or warranties which Pixey might make in connection with its advertising and promotional programs. Even if the language of Paragraph 10, 'personal in nature,' indicates agency characteristics in the contract, it does not purport to affect other rights of the parties which the contract establishes. In Long Beach Drug Company v. United Drug Company, supra, 13 Cal.2d 158, 173, 88 P.2d 698, 89 P.2d 386, when the court implied a promise to purchase in a distributorship agreement it stated that it was immaterial whether in the final analysis the contract was construed as a contract of agency or as a contract of sale and purchase.
Finally, Pixey relies on Newby v. Anderson, 36 Cal.2d 463, 224 P.2d 673, to support its position that it merely agreed to try to sell the gun locks. The Newby case is distinguishable. In Newby the contract inter alia provided '* * * in order to retain exclusive distribution 'The Andersons' must purchase * * *' a minimum quota of 400,000 gallons of 'Aquella.' It also specified two consequences if defendants failed to order the minimum quota; the manufacturer had the right either to sell in defendant's exclusive territory or to terminate the contract. Thus, the court focused on the clearly conditional language of the agreement and the two specified consequences in holding that defendants did not undertake 'absolutely and in all events to purchase the specified minimum quota * * *.'
Pixey's second contention for reversal is that at best Paragraph 5 of the agreement is at least ambiguous as to the intended exclusiveness of termination as a remedy; hence the court erred when it refused to allow parole evidence to explain the ambiguity. The record indicates that when Mr. Gibson, Pixey's trial counsel, examined Mr. Edwin E. Hoffman the following transpired:
'A. All right now Mr. Hoffman: During the negotiation that culminated in the execution of this contract between your company and Delta Dynamics, was there any conversation or discussion as to what would happen as far as Pixey Distributing 'MR. FREEMAN: Objected to as calling for parole evidence.
'MR. GIBSON: Your Honor, in this case parole evidence is admissible. The contract is ambiguous and we are trying to elicit from the testimony of various witnesses what the intentions of the parties were.
That is the purpose of my asking this question.
'MR. FREEMAN: Your Honor, the only problem we are now concerned with in this case is the meaning of A, B, C and D.
'MR. GIBSON: It's a question of the interpretation of the contract, Your Honor.
'THE COURT: The objection will be sustained.'
It is settled under the parole evidence rule that extrinsic evidence, with certain limited exceptions not pertinent to this appeal, is not admissible to change, vary or add to the terms of a fully integrated written instrument (Civ.Code § 1856). Accordingly, it has been the rule of this state that parole evidence is not admissible to interpret or explain an instrument which is 'plain on its face.' Unless there is some ambiguity on the face of an instrument which needs explaining, the plain meaning of words must be accepted and not disturbed by evidence that they were used in a different sense (Barnhart Aircraft, Inc., v. Preston, 212 Cal. 19, 297 P. 20; Holliday v. Porter, 136 Cal.App. 480, 29 P.2d 276). The integrated contract is neither ambiguous or uncertain on its face.
It is true that parole evidence is admissible to explain a latent ambiguity which may exist although the writing is plain on its face (Estate of Donnellan, 164 Cal. 14, 127 P. 166; Blumenthal v. Neider, 183 Cal.App.2d 419, 6 Cal.Rptr. 317). It is also true that parole evidence is admissible to show that words which have a plain meaning when used in their ordinary sense were actually used in a different sense under business custom or usage (Ermolieff v. R.K.O. Radio Pictures, Inc., 19 Cal.2d 543, 122 P.2d 3). However, it is evident from counsel's question that he was not attempting to lay a foundation to show a patent ambiguity, nor was he attempting to prove that the words used in the contract were used in some special or technical sense. To the contrary, counsel's question was seemingly an attempt to change, vary or add to the terms of the agreement. Hence the trial court properly sustained the objection.
In any event, even if we should assume that Paragraph 5 of the agreement is ambiguous, the trial court's decision is still not reversible on this point because Pixey failed to make an adequate offer of proof. As the appellate court aptly and succinctly stated in Ransom v. Ransom, 215 Cal.App.2d 258, 264, 30 Cal.Rptr. 53, 57:
The question asked by Pixey's counsel to Mr. Hoffman pertains to a conversation. Thus, we cannot assume that the answer would have been favorable to Pixey's position when engaging in pure speculation. Pixey asserts, however, that an adequate offer of proof was made when trial counsel was examining Edwin Arioto. An examination of the transcript indicates that all questions directed to Mr. Arioto called for his subjective understanding of the meaning of certain provisions in the contract and were clearly objectionable. Moreover, counsel made no attempt to show what Mr. Arioto would have stated had he been permitted to answer.
'The requirement of the offer of proof serves two practical purposes. First, it permits the trial court to reconsider and correct an erroneous exclusionary ruling in the light of all the facts. Second, it permits the appellate court to determine if the ruling was erroneous and, if so, whether it was sufficiently prejudicial to justify a reversal of the judgment.' (California Civil Procedure During Trial, Continuing Education of the Bar, 1960, sec. 13.26.)' Pixey's contention that the trial court erred when it awarded Delta $5,500 for production costs is entirely without merit. The parties stipulated prior to trial that the production cost per unit was approximately 60cents, and that the profit per unit was 40cents. Moreover, Delta's witness testified that the additional 10,000 units were manufactured at the verbal request of defendant Hoffman. Thus, there was substantial evidence for the court to find that Delta had incurred out-of-pocket costs amounting to $5,500 and was entitled to recover these costs as consequential damages in addition to its loss of profits as a result of Pixey's breach of contract (Civ. Code § 3300). It is settled that when a party is given the privilege to terminate he can secure damages for any liability which has accrued prior to termination (B. L. Metcalf Gen'l. Contractor, Inc. v. Earl Erne, Inc., 212 Cal.App.2d 689, 693, 28 Cal.Rptr. 382). The damages awarded to respondent all occurred during the one year prior to termination.
Mr. Sherman Clay Womble, Jr., testified as follows:
Pixey contends that the court improperly denied its motion for new trial on the ground of lack of jurisdiction, and that the judgment should be reversed for this if for no other reason. However, an order denying a motion for new trial is not an appealable order (Torres v. City of Los Angeles, 58 Cal.2d 35, Cal.Rptr. 866, 372 P.2d 906). Thus, if appellants believed that the trial court would not rule on the merits of their motion because of an improper determination of the jurisdictional issue, their remedy was mandate and not appeal. As the court stated in Free v. Furr, 140 Cal.App.2d 378, 385, 295 P.2d 134, 139:
'After the entry of the judgment notwithstanding the verdict, the plaintiff filed a notice of intention to move for a new trial. When the motion came on for hearing, counsel for defendants objected to its being heard on the claim that the time for ruling on it had expired. The court sustained this objection. The holding was clearly erroneous for, notwithstanding the filing of an appeal, the court retained jurisdiction to rule on the motion for a new trial, Hatfield v. Levy Brothers, 18 Cal.2d 798, 807, 117 P.2d 841, and as the 60-day period within which a motion for new trial must be determined or deemed denied runs from the date of service of the notice of entry of judgment, or if none, as in this case, from the date of filing of the notice of intention to move for a new trial, the court should have decided the motion on its merits. Plaintiff's only remedy, however, was to apply to this court for a writ of mandate ordering the trial judge to proceed to hear the motion for, notwithstanding the erroneous ruling, the time within which a motion for new trial could be granted expired under the specific provisions of section 660 of the Code of Civil Procedure 60 days after May 18, 1955. There is nothing which this court can now do to reinstate or review the motion in the court below.'
The judgment is affirmed. The attempted appeal from the order denying a new trial is dismissed.
CONLEY, P. J., and STONE, J., concur.
'Q. Later on--and I'll show you Plaintiff's Exhibit 2--they ordered a second tin thousand units, is that correct?
A. That's correct.
Q. Did you understand that these were to be delivered within the one year period?
A. Yes. This was verbally--in fact
MR. GIBSON: This was what verbally?
THE WITNESS: Well, this was given to us in writing here for ten thousand, but verbally we were told to order an additional--have a standby ready of an additional ten thousand. We have on stock 22,000 of these units.
MR. FREEMAN: Q. You presently have 22,000?
A. We presently have 22,000 at the verbal request of Mr. Hoffman. In addition to that
Q. All right. Now, that accounts for 20,000 units.'