Opinion
F072462 F073495
01-02-2018
JACO OIL COMPANY, Plaintiff and Appellant, v. SULLIVAN PETROLEUM COMPANY, Defendant and Respondent.
Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, Catherine E. Bennett, David J. Cooper and Vanessa Franco Chavez for Plaintiff and Appellant. Damrell, Nelson, Schrimp, Pallios, Pacher & Silva, Angela Schrimp de la Vergne, Kathy L. Monday and Maria Fatima Gioletti for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. S1500-CV-278554)
OPINION
APPEAL from a judgment of the Superior Court of Kern County. David R. Lampe, Judge. Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, Catherine E. Bennett, David J. Cooper and Vanessa Franco Chavez for Plaintiff and Appellant. Damrell, Nelson, Schrimp, Pallios, Pacher & Silva, Angela Schrimp de la Vergne, Kathy L. Monday and Maria Fatima Gioletti for Defendant and Respondent.
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Jaco Oil Company (Jaco Oil) appeals from the judgment entered for defendant, Sullivan Petroleum Company (Sullivan Petroleum), following a bench trial. The trial court found Jaco Oil had not proven its claims against Sullivan Petroleum for breach of contract, breach of the implied covenant of good faith and fair dealing, money had and received, and declaratory relief. Jaco Oil also contests the trial court's subsequent award of attorney fees. For the reasons set forth below, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Jaco Oil manages and operates gasoline stations in Kern County, California. Sullivan Petroleum is a distributor of Chevron-branded petroleum products, referred to as a "jobber" in the industry.
On March 4, 2004, Sullivan Petroleum and Jaco Oil entered into a contract for the purchase and sale of Chevron-branded petroleum products, entitled "Chevron Dealer Petroleum—Products Agreement." Pursuant to the parties' agreement, Sullivan Petroleum agreed to purchase petroleum products from Chevron directly and then supply those petroleum products to Jaco Oil for its gas stations.
Section 3.2(a) of the agreement provides, in relevant part:
"Prices for the Products shall be No Dollars and One Cent ($0.01) per gallon over the posted price at the Chevron Facility, FOB Chevron. With the exception of Chevron's No Dollars and Two Cents ($0.02) per gallon bonus payable during the initial three (3) year term of this Agreement, any and all allowances, discounts or rebates, including temporary competition price allowances, of Jobber shall be passed through to Dealer."
Around August 2012, Chevron began offering a prompt payment discount to its West Coast jobbers, including Sullivan Petroleum. Under this offer, if Sullivan Petroleum agreed to pay Chevron earlier than obligated under its invoices, it would receive a credit on all gasoline purchased. At some point Jaco Oil learned of this discount and requested that Sullivan Petroleum, which had chosen to accept Chevron's offer, pass through a proportionate discount on the products bought by Jaco Oil. Sullivan Petroleum denied Jaco Oil's request.
This lawsuit followed. At the time of trial, Jaco Oil alleged it was owed more than $775,000 in unpaid pass-through discounts on the basis that the phrase "any and all discounts" was unambiguous and included the prompt payment discount. Sullivan Petroleum denied this claim, asserting the prompt payment discount was not the kind of discount that Sullivan Petroleum was obligated to pass through under the agreement. The trial court received and considered substantial evidence regarding the negotiations leading to the agreement and trade usage.
Evidence Regarding Negotiations
Negotiations regarding the ultimate agreement began with a phone call and a letter of intent. Initially, Sullivan Petroleum's president, Timothy Sullivan, called the chief operating officer for Jaco Oil, Charles McCan, and the two discussed the tentative terms of an agreement. These terms were first memorialized in an April 2003 letter of intent drafted by McCan. With respect to pricing, McCan's letter stated there would be "[a] fee of .01 cent per gallon for Sullivan's Petroleum. All discounts rebates or other financial incentives will be passed to Jaco in the entirety." Sullivan responded with a different letter of intent on June 20, 2003. In this letter, Sullivan Petroleum stated, "Any temporary competitive allowances offered by Chevron to any of your stations shall be passed through to you."
After exchanging letters, the parties met with attorney Charles Melton to formalize an agreement. Melton believed his role was that of a scrivener, memorializing the agreement as the parties negotiated it. Melton produced a first draft of the agreement and sent it to both sides. In that draft, the prices section included the following language regarding pass-through discounts, "All temporary competition price allowances of Jobber shall be passed through to Dealer if the resulting price for the applicable Products would be less than the price in the first sentence of this Section 3.2(a)." Melton stated he drafted this provision "with the language being taken directly from the letter of intent."
Several drafts followed, modifying various portions of the agreement unrelated to this appeal. In the fifth draft, sent on February 13, 2004, the parties modified the language slightly to, "All temporary competition price allowances of Jobber shall be passed through to Dealer." Around that time, McCan hired an attorney based in New York, Robert Bassman, to review the agreement. By February 25, 2004, Bassman had changed the relevant language to state, "With the exception of discounts for prompt payment and Chevron's No Dollars and Two Cents ($0.02) per gallon bonus payable during the initial . . . three (3) year term of this Agreement, any and all allowances, discounts or rebates, including temporary competition price allowances, of Jobber shall be passed through to Dealer." (Underscore omitted.) Bassman was familiar with prompt payment discounts in the industry at the time, but believed Chevron only introduced the concept to its business practices in 2010, well after the initial contract was drafted.
On March 2, 2004, prior to the final draft, the phrase "discounts for prompt payment and" was deleted from the changes Bassman made, leaving the clause in the form ultimately included in the contract. Bassman testified that he had a couple conversations with Melton before, he believed, he removed the language himself. Melton testified in a similar manner, stating Bassman had added the language about prompt payments without discussing it with Melton and without any discussions about the topic between Melton and McCan. Melton testified Bassman removed the language himself. McCan provided a different account, testifying he noticed the language excepting discounts for prompt payments while in Melton's office, scratched the language out himself, and told Melton he would not sign the agreement with that clause included.
McCan stated Jaco Oil's goal in the contract was to "make sure that it was clear that we wanted all of those discounts, rebates, allowances, whatever the major oil dreamed up." He had heard of prompt payment discounts in lubricant sales and, upon realizing such discounts may exist in gasoline sales, removed the exception to passing through such discounts in case such discounts arose in the future. Likewise, Tom Jamieson, president of Jaco Oil, testified he had heard of prompt payment discounts in various industry segments and, not knowing what deals may arise in the future, wanted the "any and all" language included to insure whatever later discounts arose would be included in the deal.
In contrast, Sullivan testified that Sullivan Petroleum intended that "any discounts generated by Chevron would be passed through to the Fastrip stores that we supplied. So any discount that was generated from Chevron for that facility would be passed through by us to those stores in total." For this reason, his letter of intent referred only to "temporary competitive allowances offered by Chevron." At the time of the negotiations, Sullivan had never even heard of the term "prompt payment discount." He believed, throughout the negotiations, that the discount language referred to the temporary competitive allowances referenced in his version of the letter of intent. McCan, Sullivan, and Melton each testified they never discussed prompt payment discounts in the negotiations.
The Court's Ruling
Following a bench trial, the court issued a statement of decision, ruling in favor of Sullivan Petroleum. The court found the agreement was "ambiguous on its face and is certainly ambiguous when the Court considers the extrinsic evidence offered by Sullivan [Petroleum]." Specifically, the court found ambiguity because Section 3.2(a) qualifies the words "any and all . . . discounts" by using the term "of Jobber." The court reasoned that the phrase "of Jobber" created an ambiguity in light of the two primary meanings of the word "of" in the English language: "1) something 'derived or coming from;' and 2) 'belonging to.' " The court thus concluded "any and all discounts" . . . "of Jobber" could mean either discounts coming from Sullivan Petroleum or discounts belonging to Sullivan Petroleum. According to the court, discounts belonging to Sullivan Petroleum "perhaps should be passed through," while discounts coming from Sullivan Petroleum would not include the prompt payment discount because it comes from Chevron.
Having found ambiguity in the agreement, the court then considered the extrinsic evidence, particularly the conflicting evidence regarding the inclusion and striking of the prompt payment language in the drafts. The court found the "most credible evidence is that Bassman added the 'prompt payment' language without discussing it with the parties and later removed the language without discussing it with either of the parties, or Mr. Melton." The court specifically stated in "weighing the evidence, Melton's testimony is more credible to the Court" on that issue. Despite these findings, the court concluded that even "after resorting to extrinsic evidence, the ambiguity is not fully resolved."
However, the court found the evidence showed "the parties never actually manifested an intent to include 'prompt payment' discounts when agreeing upon the price terms including any and all discounts 'of Jobber' to be passed through." The court therefore found that "although a contract had been formed in all other respects, no contract had been formed as to 'prompt payment' discounts." As a result, the court concluded Jaco Oil could not prove a breach of the contract had occurred because it could not show the contract covered the disputed discounts.
The court ultimately awarded fees to Sullivan Petroleum under the terms of the agreement. Both the breach ruling and the fee award were timely appealed. The cases were then consolidated for appeal.
DISCUSSION
Jaco Oil argues the trial court erred in its interpretation of the contract. As an initial matter, Jaco Oil contends the contract is unambiguous and its use of the term "any and all" demonstrates that the prompt payment discount is included within the scope of the agreement. Should we disagree, Jaco Oil contends the record evidence does not support Sullivan Petroleum's reading of the contract and that the trial court failed to properly apply several principles of construction in reaching its conclusion that prompt payment discounts were not part of the agreement. Because it contends the trial court erred in adopting Sullivan Petroleum's version of the agreement, Jaco Oil contends the trial court improperly awarded fees to Sullivan Petroleum. Standard of Review and Applicable Law
"We interpret a contract de novo if the interpretation does not turn on the credibility of extrinsic evidence." (Windsor Pacific LLC v. Samwood Co., Inc. (2013) 213 Cal.App.4th 263, 273, disapproved on another ground in Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 756, fn. 3.) When a trial court has resolved a disputed factual issue regarding the meaning of a contract, we review that ruling under the substantial evidence rule. (Carpenter & Zuckerman, LLP v. Cohen (2011) 195 Cal.App.4th 373, 378.) "Interpretation of the applicable laws and their application to undisputed facts present questions of law that are subject to de novo review." (Weakly-Hoyt v. Foster (2014) 230 Cal.App.4th 928, 931.)
" 'Under long-standing contract law, a "contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Civ. Code, § 1636.) Although "the intention of the parties is to be ascertained from the writing alone, if possible" (id., § 1639), "[a] contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates" (id., § 1647). "However broad may be the terms of a contract, it extends only to those things . . . which it appears that the parties intended to contract." (Id., § 1648.)' " (Iqbal v. Ziadeh (2017) 10 Cal.App.5th 1, 7-8.)
All further statutory references are to the Civil Code unless otherwise indicated.
A "contract is ambiguous [if its terms are] reasonably susceptible to more than one interpretation." (Scheenstra v. California Dairies, Inc. (2013) 213 Cal.App.4th 370, 389.) "The analysis of ambiguity is not necessarily limited to the words of the contract. Trial courts are required to receive provisionally any proffered extrinsic evidence that is relevant to show whether the contractual language is reasonably susceptible to a particular meaning." (Id. at p. 390.) If the court finds ambiguity in the contract, it may then consider the evidence offered when construing the disputed provisions. (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1351.) The Contract is Ambiguous and the Trial Court's Interpretation Proper
Jaco Oil argues that the phrase "any and all" discounts is unambiguous and, therefore, should be understood to cover all potential types of discounts, including the contested prompt payment discount. It again asserted a form of this position at oral argument, contending that because any and all discounts is a broad term, it should be Sullivan Petroleum's burden to demonstrate the parties intended to exclude the disputed discount. This position necessarily assumes the plain language of the contract includes all discounts, regardless of type or kind. Were this a case where the contract only stated "any and all discounts" shall be passed through, Jaco Oil's position would be strengthened immensely. However, the language of the contract includes the additional "of Jobber" qualification and our interpretation should consider the impact of that language if possible. (See In re Tobacco Cases I (2010) 186 Cal.App.4th 42, 49 ["We must give significance to every word of a contract, when possible, and avoid an interpretation that renders a word surplusage."].) Jaco Oil never argues any and all discounts of Jobber is an unambiguous phrase. In our independent review, construing the phrase "any and all . . . discounts" along with the modifying language "of Jobber," we conclude, as did the trial court, that the contract is ambiguous. Accordingly, we reject Jaco Oil's core arguments, including the position any and all discounts presumably includes prompt payment discounts in its language, in this appeal.
What it means to be a discount of Sullivan Petroleum is not readily ascertainable from the language of the contract, nor is such a phrase readily understood in general. As the trial court noted, consistent with Sullivan Petroleum's position, this phrase is reasonably susceptible to meaning only discounts offered by Sullivan Petroleum in its business dealings, either directly or, as in the case here, through Chevron. Likewise, consistent with Jaco Oil's position, it is also reasonably susceptible to meaning any discount enjoyed by Sullivan Petroleum that affects the price of the products it sells. As such, the trial court properly admitted and considered evidence offered by the parties regarding the meaning of that phrase and the parties' mutual intent when contracting to pass through certain discounts.
When the trial court received the negotiations evidence, it faced an immediate conflict regarding the parties' intent as to pass-through discounts. Sullivan Petroleum presented evidence that the kind of discount contemplated was only the discounts that Chevron created to be passed through to resellers such as Jaco Oil. According to Sullivan Petroleum's witnesses, the concept of a prompt payment discount was unheard of in the industry when it came to gasoline sales.
Jaco Oil's evidence conflicted in certain respects with Sullivan Petroleum's. Although Jaco Oil's negotiator, McCan, had not initially thought prompt payment discounts were relevant to gasoline sales, upon seeing the term introduced into the draft language of the contract by his own attorney, he testified he then insisted the "any and all" language capture such discounts should they become available in the future. McCan's testimony implied this idea was expressed to Sullivan Petroleum through statements to Melton that McCan would not sign the deal if it excluded such discounts and McCan's scratching out of that language from the contract in front of Melton. Melton, however, testified McCan made no such statement and engaged in no such conduct. Jaco Oil's own lawyer, Bassman, believed he had included and removed the language regarding prompt payment discounts himself.
Faced with this contradicting testimony, the trial court weighed the evidence and concluded Melton's testimony was the most credible, meaning McCan's alleged expression regarding Jaco Oil's intent to take a much broader range of potential discounts than both parties initially contemplated was not expressed to Sullivan Petroleum or negotiated by the parties. As noted above, such credibility determinations are reviewed for substantial evidence. Here, substantial supporting evidence exists in the form of Melton's and Bassman's testimony regarding the negotiations that occurred, along with the testimony from both sides that prompt payment discounts existed in some spaces within the industry but were neither regularly part of nor generally contemplated in the type of contract being negotiated.
Jaco Oil concedes that it is " not challenging any factual findings " including the trial court's "credibility determinations."
The impact of this determination is that, while the parties intended to pass a certain kind of discount through to Jaco Oil, there was no agreement that the discounts contemplated within the scope of that agreement included prompt payment discounts offered to Sullivan Petroleum by Chevron. While use of the phrase "any and all" indicates the parties intended a broad range of discounts be included, "any and all" is not a panacea that necessarily pulls otherwise excluded rights into a contract. (See Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 953-954 [finding any and all language cannot be read to release claims that are statutorily nonwaivable].) More to the point, though, is the fact the ambiguity in this agreement does not arise from the phrase "any and all" but from the fuller application of the phrase "discounts . . . of Jobber." The "of Jobber" language leads to a reasonable question regarding what kind of discount falls within the scope of the "any and all" language. This question is different from the argument as framed by Jaco Oil, whether a prompt payment discount is a type "of Jobber" discount included in the concept of "any and all." Thus, contrary to Jaco Oil's position in this appeal, the trial court's ruling did not abdicate its duty to resolve the meaning of "any and all" or "discount." Rather, resolution of the factual dispute led to the trial court's proper conclusion that "any and all discounts of Jobber" does not include discounts offered only to Sullivan Petroleum by Chevron, such as the prompt payment discount in dispute.
Contrary to Jaco Oil's contention, the use of "any and all" does not necessarily mandate that both potential kinds of discounts be included in the agreement. If the parties did not intend to include certain kinds of discounts within the meaning ascribed to "of Jobber," the use of any and all will not bring those kinds of discounts within the meaning of the phrase.
Ultimately, a "contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting." (§ 1636.) "However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract." (§ 1648.) Coupled with the other undisputed factual evidence in this case, the trial court's resolution of the factual conflict regarding the parties' intent leads to a reasonable conclusion regarding the meaning of "any and all . . . discounts . . . of Jobber," that the parties did not contemplate this phrase would include the disputed prompt payment discount later offered to Sullivan Petroleum by Chevron. While the parties contemplated passing through certain kinds of discounts, the language they chose to convey this concept did not necessarily extend to the prompt payment discount at issue here.
Jaco Oil complains that such a conclusion fails to properly construe the disputed term against Sullivan Petroleum in light of Code of Civil Procedure section 1864's direction that, "When the terms of an agreement have been intended in a different sense by the different parties to it, that sense is to prevail against either party in which he supposed the other understood it, and when different constructions of a provision are otherwise equally proper, that is to be taken which is most favorable to the party in whose favor the provision was made." We do not agree. It is correct that the trial court determined the extrinsic evidence offered did not fully resolve the dispute regarding the specific meaning of the disputed provision. Nevertheless, the court's actual analysis suggested it had enough evidence to determine the proper meaning of the phrase with respect to inclusion of prompt payment discounts. Indeed, the court wrote that "the literal terms of the contract itself as well as the extrinsic evidence, establishes that neither party had any conscience [sic] regard for a 'prompt payment' discount applicable to all of [Sullivan Petroleum]'s purchases from Chevron since no major oil company had offered 'prompt payment' discounts in connection with the sale of fuel on the West Coast. [¶] Certainly, the parties never actually manifested an intent to include 'prompt payment' discounts when agreeing upon the price terms including any and all discounts 'of Jobber' to be passed through."
Regardless, our analysis, as Jaco Oil itself argues, is de novo. In our independent review, we have concluded the parties did not utilize language capturing the kind of discounts that would include the disputed prompt payment discount, a previously unheard of discount in the gasoline trade that was offered directly to Sullivan Petroleum by Chevron. We agree with the trial court that the parties never manifested an intent to include such discounts in the agreement and further note the evidence shows both parties intended to exclude such discounts throughout most of the negotiations. This is shown, first, when the parties framed the contract to only include temporary price allowances and, again, when Jaco Oil's own lawyer specifically excluded prompt payment discounts from the terms of the revised agreement. The court's resolution of the disputed facts demonstrates any different understanding later held by Jaco Oil was not discussed between the parties when creating the relevant language. In light of these undisputed facts, we do not view this as a circumstance where both proposed interpretations remain reasonable in light of the evidence. Rather, it is apparent from the extrinsic evidence that the ambiguity in the contract was appropriately resolved by excluding prompt payment discounts from the meaning of "any and all . . . discounts . . . of Jobber." We therefore affirm the trial court's ruling.
With respect to attorney fees, Jaco Oil only contests the fee award on the basis that, if we were to reverse the trial court's ruling on its breach of contract claim, Sullivan Petroleum would not be the prevailing party and, thus, would not be entitled to fees under the agreement. Having affirmed the trial court, we need not consider the fee issue further.
DISPOSITION
The judgment is affirmed. Costs are awarded to Sullivan Petroleum.
/s/_________
BLACK, J. WE CONCUR: /s/_________
DETJEN, Acting P.J. /s/_________
PEÑA, J.
Judge of the Fresno Superior Court assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.