Irving Tier Co. v. Griffin

This appeal involves two separate actions which were consolidated for trial. In each plaintiff sought damages for breach of contract involving the alleged sale by plaintiff to defendants of various items of convalescent hospital equipment and furniture. The first, action 324854, was predicated upon an alleged written contract; the second, action 326574, upon three alleged oral contracts. From the judgment entered in favor of plaintiff as to the action upon the written contract and as to two of the three causes of action in the action upon the oral contracts defendants appeal,

The concept of estoppel to assert the statute of frauds and the requisites for applying this doctrine are discussed in the case of Monarco v. Lo Greco, 35 Cal.2d 621 , 623-624 [ 220 P.2d 737 ], as follows: “The doctrine of estoppel to assert the statute of frauds has been consistently applied by the courts of this state to prevent fraud that would result from refusal to enforce oral contracts in certain circumstances. Such fraud may inhere in the unconscionable injury that would result from denying enforcement of the contract after one party has been induced by the other seriously to change his position in reliance on the contract [citations], or in the unjust enrichment that would result if a party who has received the benefits of the other’s performance were allowed to rely upon the statute. [Citations.] In many cases both elements are present. Thus not only may one party have so seriously changed his position in reliance upon, or in performance of, the contract that he would suffer an unconscionable injury if it were not enforced, but the other may have reaped the benefits of the contract so that he would be unjustly enriched if he could escape its obligations. [Citations.] ”

Although there are numerous cases in California which have discussed the applicability of the doctrine of estoppel to assert the statute of frauds, we have found only a handful which did so in the context of a contract involving the sale of goods. In Booth v. A. Levy & J. Zentner Co., 21 Cal.App. 427 [ 131 P. 1062 ], the plaintiff sought to recover damages for the defendant’s refusal to accept and pay for a load of cranberries which the plaintiff’s assignor had allegedly sold to the defendant. In response to the defendant’s contention that the memorandum signed by the parties was not sufficient to take the transaction out of the statute of frauds, the plaintiff claimed that the defendant was estopped to rely upon the statute of frauds. The facts upon which the plaintiff relied in making this contention were that the plaintiff’s assignor had shipped the cranberries to the defendant and upon the defendant’s refusal to accept and pay for the cranberries, the assignor had sold them to a third party at a loss. In holding that the defendant was not estopped to assert the statute of frauds, the appellate court stated as follows: “We see nothing in the record to support the contention that defendant is estopped to rely upon the statute of frauds. It is a plain ease where the seller chose

In Little v. Union Oil Co., 73 Cal.App. 612 [ 238 P. 1066 ], the appellate court affirmed a judgment of the trial court sustaining the defendant’s demurrer to the plaintiff’s complaint, which alleged as follows: that the plaintiff and the defendant entered into an oral agreement by which the latter agreed to deliver gasoline to the plaintiff for one year; that in reliance upon this agreement the plaintiff contracted with a third party to sell to it the gasoline supplied by the defendant; that the defendant subsequently refused to perform its contract with the plaintiff; and that due to the defendant’s breach of the subject contract the plaintiff was unable to perform his contract with the third party, thereby suffering damages based upon his loss of profits. In holding that such allegations did not call for the application of the estoppel doctrine and that the plaintiff’s complaint therefore failed to state a cause of action, the appellate court stated as follows: “Appellant’s position, in view of the facts pleaded, is that of one who, while he has relied on representations which, the other elements being present, would result in an estoppel, has not changed his position to his injury; but, the general market conditions being such that a resale at a profit is certain, he contends that to permit the seller to assert the invalidity of the oral agreement would result in a change of his otherwise advantageous position in the market and a consequent loss. The result of such application of the doctrine would be its use as an instrument of gain or profit while its object is protective and limited to saving harmless or making whole the person in whose favor it arises [citations].” (Pp. 620-621.)

The case of Goldstein v. McNeil, 122 Cal.App.2d 608 [ 265 P.2d 113 ], is one in which the doctrine of estoppel was successfully applied under the following factual circumstances : The plaintiff, on July 26, 1950, under an oral contract, sold 14 used cars to the defendants for $29,450, free on board Shreveport, Louisiana, the automobiles to be delivered to the defendants’ place of business in San Francisco. At the request of the defendants, the plaintiff paid $210 for caravan fees and had the automobiles shipped to California. However, when the defendants inspected the automobiles, which had reached Fresno in caravan, the defendants refused

Finally we note the case of Mosekian v. Davis Canning Co., 229 Cal.App.2d 118 [ 40 Cal.Rptr. 157 ], where a judgment for damages for breach of an oral contract was affirmed upon the principle of estoppel. In that case the facts were as follows: The plaintiff and the defendants entered into an oral contract by which the latter agreed to purchase the plaintiff’s crop of peaches under an “ ‘open contract’ ” (p. 120), pursuant to the custom in the peach-canning industry whereby canners contracted to buy crops before maturity, agreeing to pay whatever price per ton the cannery association thereafter set. Relying upon this contract the plaintiff sought no other buyer for his crop. When the peaches ripened the defendants repudiated the contract, so that the plaintiff, being unable to dispose of his crop to a cannery, was forced to sell it at a “ ‘dry yard.’” (P. 120.) The trial court found that the plaintiff reasonably relied upon the agreements and representations of the defendants and was induced thereby to sell his crop of peaches to the defendants and to hold this crop for the use and benefit of the defendants and seek no other buyers for the crop until after the defendants repudiated the contract, by which date a portion of the crop had fallen due to overripening and a substantial part of the plaintiff’s peaches had become too ripe for sale to fresh fruit packers. Accordingly, the trial court concluded that the plaintiff was entitled to damages measured by the difference between the canning price and the dry yard price. The appellate court affirmed this judgment as to defendant Davis Canning Company, commenting as to the estoppel issue solely that “Plaintiff’s change of position brings the ease within the rationale of the Monarco case.” (P 124.)

Before proceeding to discuss the instant case in the light of the foregoing cases it should be pointed out that whether a contracting party should be estopped to assert the statute of frauds is usually a question of fact the determination of which, if supported by substantial evidence, will not be disturbed on appeal unless the contrary conclusion is the only one to be reasonably drawn from the facts. (Albers v. County of Los Angeles, 62 Cal.2d 250 , 266 [ 42 Cal.Rptr. 89 , 398 P.2d 129 ]; Henry v. City of Los Angeles, 201 Cal.App.2d 299 , 306

Turning now to the facts of the instant case in order to determine if the trial court correctly concluded that defendants were estopped to deny the two oral contracts upon which defendants were found to be liable to plaintiff in damages, we first describe in general terms the nature and manner of operation of plaintiff’s business as revealed by the record. Plaintiff, a closed California corporation, is in the business of supplying equipment and furniture to convalescent hospitals and rest homes. In this capacity it acts as a "middleman” or wholesale buyer and seller, taking orders from such hospital and rest home operators, purchasing items from manufacturers to fill these orders, and selling the ordered items to the hospital or rest home. In this operation, plaintiff’s profits are based on the difference between its purchase price and its selling price.

With regard to plaintiff’s activities in conjunction with the oral contract involving the various items of furniture, the record reveals that on April 20, 1962 Elliott Silver, one of plaintiff’s salesmen, accompanied defendants to the Merchandise Mart in San Francisco to look at various items of furniture which defendants would need to buy for the Aloha Convalescent Hospital, which was at the time being built in Hayward and which upon completion would be operated by defendants as lessees. On the same day, plaintiff placed orders with the manufacturers of the following items: one three-piece sectional, one turquoise chair and matching ottoman, two persimmon chairs, one pineapple lamp, four dining tables, and eight tangerine chairs. On May 24, 1962, after the order for the lamp had been cancelled by mutual consent and after plaintiff had notified the two manufacturers involved that the delivery date should be postponed, defendants, by their attorney, sent plaintiff a letter indicating that they did not recognize as binding any agreements or contracts which plaintiff and defendants had entered into concerning defendants’ purchase of furniture from plaintiff and that plaintiff would take sole responsibility for any further action on its part to obtain furniture for defendants. Plaintiff did not cancel the order for these furniture items but, upon receiving them from the manufacturer, tendered delivery to defendants who refused to accept or pay for them.

Concerning plaintiff’s subsequent disposal of the subject furniture the record reveals the following: The sectional was

Adverting first to the contract involving the sale of laundry equipment, we are of the opinion that no unconscionable injury would be incurred by plaintiff if it were prevented from enforcing this contract. We are persuaded to this conclusion as the only one that can be reasonably drawn from the facts on the basis that upon defendants’ repudiation of this contract plaintiff was able to, and did, cancel its order for this equipment, and in doing so was able to have the cancellation penalty waived, thus putting plaintiff in the same position as it was when it originally placed the order. Plaintiff argues that the unconscionable injury which it suffered in connection with this contract results from the following activities which it performed in relation to this contract: ordering the equipment which was custom made for defendants and which, by the nature of plaintiff’s operation, plaintiff did not have in stock; obligating itself to pay for the equipment; scheduling delivery of the equipment to coincide with the opening of defendants’ hospital; and furnishing defendants with expert advice as to the installation of the equipment. As to the fact that plaintiff furnished expert advice to defendants in connection with the laundry equipment, the record reveals that this advice was furnished to defendants before March 26, 1962, the date of the alleged contract, and that it was furnished not by plaintiff but by a representative of the manufacturer. Thus it is clear that plaintiff suffered no injury as a result of furnishing expert advice to defendants and that, in any event, whatever injury was in fact suffered as a result of these activities was not suffered in reliance upon the contract, which had not come into existence at the time the advice was furnished to defendants. And as to the other activities, while it is undisputed that plaintiff did perform such activities, it nevertheless cannot be successfully argued that because of their performance plaintiff would suffer an unconscionable injury if it were prevented from enforcing the contract against defendants. As a result of defendants’ repudiation of the oral contract and plaintiff’s cancellation of the order for the laundry equipment, the only injury which plaintiff would suffer if defendants were allowed to assert the statute of frauds as a defense to the enforcement of the contract would be the loss of profits which plaintiff incurred as a result of defendants’ refusal to proceed with the contract. Such a loss is insufficient to work an estoppel in the

We note, moreover, with respect to the oral contract involving the laundry equipment that during the trial counsel for both parties and the court made statements to the effect that since the order relating to this equipment had been cancelled, evidence as to plaintiff’s loss of profits on this contract was irrelevant. Furthermore, the record discloses that because the order had been cancelled the trial court granted defendants’ motion to strike the testimony of Irving Tier, plaintiff’s president, relating to plaintiff’s loss of profits on this contract. The strong suggestion in the record that the trial court concluded that the subject order was cancelled by mutual consent is inconsistent with the trial court’s ultimate decision that plaintiff have damages for defendants ’ breach of this oral contract based upon plaintiff’s loss of profits. In any event, as we have indicated, plaintiff was not entitled to damages upon this contract because the contract was barred by the statute of frauds.

Turning next to the oral contract by which defendants agreed to purchase certain items of furniture we first note that as the basis for unconscionable injury to plaintiff the trial court found that plaintiff, in reliance upon this agreement, changed its position “by the rendering of services, ordering of the merchandise, payment of freight and incurring the obligation to pay its suppliers for this merchandise within a certain specific time after delivery to plaintiff’s warehouse.” We are satisfied that these activities in and of themselves, either separately or in the aggregate, do not suffice to work an estoppel in view of the rationale of the Booth and Little cases since they amount to no more than activities of the ordinary seller who chooses for a profit to sell to a buyer goods which are manufactured at some distance from the place of delivery. The trial court did find, however, that the items of furniture which were the subject of this contract “were custom made for defendants ’ place of business, were not stock items and had no ready market. ’ ’ Such a finding, if supported by the evidence, would, when coupled with the finding as to the activities above

We are of the opinion that the trial court properly determined that plaintiff’s damages should be based upon its loss of anticipated profits rather than upon the difference between the contract price and the market price of the goods on the date of breach. This latter measure of damages, which is provided for in section 1784, subdivision (3), namely, the difference between the contract price and market price, may be applied, according to the specific language of section 1784, subdivision (3), only “Where there is an available market for the goods in question” and “in the absence of special circumstances, showing proximate damage of a greater amount. ...” (Los Angeles Coin-O-Mafic Laundries v. Harow, 195 Cal.App.2d 324 , 332 [15 Oal.Eptr. 693].) Limiting ourselves for the present to the latter criterion, we are of the opinion that the facts in the instant case reveal “special circumstances, showing proximate damage of a greater amount. . . .” These special circumstances, we believe, consist of the fact that the seller in the instant case was a “middleman,” who bought goods from manufacturers and sold them to convalescent hospitals and rest homes, and whose profits were based on the difference between its purchase price and its selling price.

There is ample authority to the effect that an award of damages based upon the difference between the contract price and the market price does not adequately compensate a middleman upon his buyer’s repudiation of an agreement to purchase goods from him, but that the proper measure of damages in such a case is the dealer’s anticipated profit. The rationale supportive of this principle is that “The rule that the seller’s damages are measured by the contract price minus

In Patty v. Berryman, 95 Cal.App.2d 159 [ 212 P.2d 937 ], the plaintiff entered into a contract with the defendant whereby the latter agreed to purchase from the plaintiff 22 prefabricated houses. At the time this contract was entered into the plaintiff did not own the subject houses; however, he had contracted with a third party to buy them. Before the time for delivery of the houses to the defendant, the latter repudiated the contract. Thereafter the plaintiff brought an action to recover the loss of anticipated profits which he suffered by reason of the defendant’s breach of the contract. The trial court awarded the plaintiff damages based on this measure and the judgment was affirmed by this court on appeal. In concluding that the trial court had applied the proper measure of damages based upon section 3300, which provides that “For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom,” this court noted that section 1784, subdivision (3) “has no application to a situation where the seller is a middleman and everyone knows his profit depends upon the difference in his purchase and selling price. Therefore, there are 'special circumstances’ here presen t that make market value a false factor. ’ ’ (P. 171.)

The Patty case was relied upon in Los Angeles Coin-O-Matic to sustain a judgment awarding a middleman damages based upon his loss of anticipated profits. In that case the plaintiff, who was in the business of buying industrial laundry equipment from a manufacturer and reselling it to a customer for a

The case of Rice v. Schmid, 18 Cal.2d 382 [ 115 P.2d 498 , 138 A.L.R. 589 ], which, upon superficial reading, appears to hold that section 1784, subdivision (3), contains the applicable measure of damages in the middleman situation, is, upon closer scrutiny, harmonious with the holdings in Patty and Los Angeles Coin-O-Matic. In Bice the plaintiff, a wholesale flour merchant, contracted to sell 6,000 barrels of flour to the defendant Schmid at a certain price. A portion of the flour had been delivered under the terms of the contract when Schmid sold his bakery to the remaining defendants who assumed the obligations of Schmid’s contract with the plaintiff. Subsequently further deliveries of flour were made to the bakery. Thereafter the defendants refused to accept further deliveries and the plaintiff sued to recover damages. In awarding the plaintiff damages the trial court took into consideration the fact that the plaintiff, at the time of entering into the subject contract with Schmid, contracted with a flour manufacturer to purchase the particular brands of flour which were the subject of the plaintiff’s contract with the defendants. Accordingly, the trial court awarded the plaintiff damages based upon the difference between the price at which the plaintiff had agreed to purchase the flour from the manufacturer and the price which the defendants had agreed to pay the plaintiff for the flour. In reversing the judgment, the Supreme Court held that the proper measure of damages to be applied in that case was the difference between the price which the plaintiff would have to pay for the flour on the open

Defendants argue, however, that the instant case is distinguishable from the Patty and Los Angeles Coin-O-Matic cases in that in contrast to the facts in those cases plaintiff in the instant case received the goods from the manufacturers and resold them after defendants’ breach of the various contracts. This contention is not entirely accurate insofar as the items covered by the written contract and the oral contract for furniture are concerned, these being the two contracts upon which plaintiff is entitled to damages. As to these contracts the record discloses that, although these articles were delivered to plaintiff, as of the time of trial plaintiff had been able to resell only some of the subject items. In any event, even assuming that all of the goods involved in the subject contracts had been delivered to plaintiff and were ultimately resold by it, we are of the opinion that this fact does not alter the conclusion which we have reached above. Our conclusion in this regard is based upon the rationale which Corbin expresses in concluding that an award of damages based upon the difference between the contract price and the market price does not adequately compensate a middleman for a buyer’s breach of a contract to purchase goods from him. As explained by Corbin, “the buyer’s breach does not make possible a new sale in which the profit lost by the buyer’s breach would be replaced. Every new sale by the seller would have brought in a new profit.” (Corbin, supra, pp. 541-542.)

Finally, although we do not deem this factor to be controlling, we note that even in a situation where the middleman receives the goods and resells them after the original buyer’s breach, section 1784, subdivision (3), would not be applicable if there were no available market for the goods in question. (Patty v. Berryman, supra, pp. 171-172; Los Angeles Coin-O-Matic Laundries v. Harow, supra, pp. 332-335 .) In the instant case the trial court determined that the goods which defendants had agreed to purchase under the written contract and the oral contract for the furniture were custom-made and specially ordered for defendants and that there was no ready market for these goods. Since this finding is supported by the

We therefore hold that the trial court erred in awarding plaintiff the sum of $692.25 for the loss of anticipated profits with respect to the oral contract for the sale of the laundry equipment, which was the subject of the third cause of action in action 326574.

The judgment is modified by deducting therefrom the sum of $692.25, and as thus modified is affirmed. Appellants shall recover one-fourth of their costs on appeal from respondent. Respondent shall bear its own costs on appeal.

Sullivan, P. J., and Sims, J., concurred.