Farms v. Sandstone Marketing
Filed
6/24/13 Mt. Whitney Farms v. Sandstone
Marketing CA5
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
MT. WHITNEY FARMS, LLC et al.,
Plaintiffs and
Appellants,
v.
SANDSTONE MARKETING, INC.,
Defendant and
Appellant.
F062505
(Super.
Ct. No. 08CECG03286)
SANDSTONE MARKETING, INC.,
Plaintiff and
Appellant,
v.
MT. WHITNEY FARMS, LLC et al.,
Defendants and
Appellants.
(Super.
Ct. No. 08CECG03276)
APPEAL from
a judgment of the Superior Court of
County. M. Bruce Smith, Judge.
Felger & Associates and Warren P. Felger for
Plaintiffs, Defendants and Appellants Mt. Whitney Farms, LLC and Felger Farms.
Perkins, Mann & Everett, Douglas V. Thornton, Robert
W. Branch, and Craig A. Tristao for Plaintiff, Defendant and Appellant
Sandstone Marketing, Inc.
-ooOoo-
This case involves an appeal and a protective
cross-appeal. The appeal is from a
judgment entered on a jury verdict awarding $230,685 to Sandstone Marketing,
Inc., and awarding nothing to Mt. Whitney Farms, LLC, and Felger Farms. (In accordance with the parties’ practice in
their briefs, we will refer to Mt. Whitney Farms, LLC, and Felger Farms,
collectively, as “the growers†and to Sandstone Marketing, Inc., as “Sandstone.â€) The growers contend the jury’s verdict was
contrary to the law, precluded by the growers’ contract with Sandstone, and
unsupported by sufficient evidence. In a
protective cross-appeal, Sandstone contends an erroneous jury instruction on
its breach of contract cause of action requires a new trial on that cause of
action in the event that the verdict on another cause of action is reversed in
accordance with the growers’ theory on appeal.
We conclude there is no merit to the growers’ contentions on appeal and
affirm the judgment. As a result, we do
not reach the issue raised by Sandstone.
FACTS AND PROCEDURAL HISTORY
After
several months of negotiations and
consultations between the growers and Sandstone, the parties entered into a
contract for the growers to plant and grow various kinds of melons from seed to
be provided by Sandstone. The contract
required the growers to act in “a timely and farmerlike manner†in producing
the crop, and to “perform [their] responsibilities and obligations under [the]
Agreement in accordance with good farming practices as applied generally in the
vicinity of the Property.†The growers
were required to irrigate and apply chemicals to the crop, employing “clean,
safe and sound farming practices.†They
were required to consult with Sandstone at least weekly regarding “farming
practices and future plans for irrigation and chemical applications.†Sandstone was required to harvest, pack, and
market the melons; it set the planting schedule in accordance with its anticipation
of market conditions at the projected time of harvest. Within 30 days after completion of the
harvest, Sandstone was required to pay the growers the greater of a price per
carton of harvested melons or $750 per acre under cultivation. The parties contemplated, based on the
growers’ past production figures, a harvest of over 100,000 boxes of melons,
but the contract did not specify any required yields.
In the time
during which the contract was being negotiated, the growers disked and tilled
the fields, and applied pre-planting irrigation and weed-control chemicals, all
in anticipation of reaching an agreement with Sandstone. The final contract was executed a few days
before planting was scheduled to begin.
The growers
bought a used planter in anticipation of entering into the contract. Once planting started, they discovered it
needed repairs and, during two separate periods waiting for parts, the planting
was delayed. When the plants emerged, it
was apparent that germination had been poor.
The parties estimated that 40 to 50 percent of the seeds germinated, as
opposed to 70 or 75 percent germination for a normal crop. (Sandstone contended at trial the delay in
planting had resulted in overly dry soil conditions; the growers argued the
seeds had been damaged by heat while under Sandstone’s control.) Thereafter, conditions in the fields
deteriorated. (Sandstone contended this
was because the growers failed to apply herbicides and pesticides in a timely
manner and failed to take adequate measures to protect portions of the fields
from rabbits; the growers contended weeds and rabbits were minor problems and
that insect infestations occurred unexpectedly and were beyond their
control.) Sandstone began harvesting the
melons on September 10, 2008, but stopped harvesting after packing 5,882 boxes
and declared a breach of the contract on September 16, 2008, because, it
said, failure to properly farm the fields had resulted in poor yields. When it terminated the contract, Sandstone
offered to harvest the remaining marketable melons in the field and to pay
“[o]utside of the contract†the same price per box for the melons that had been
established in the contract, without the minimum “per acre†price. The growers rejected this offer.
On
September 19, 2008, Sandstone filed suit against the growers for breach of
contract. On September 22, 2008, the
growers filed their separate action for breach of contract. On the stipulation of the parties, the trial
court ordered consolidation of the two cases under the case number of the
growers’ action. The matter went to
trial on the growers’ second amended complaint and Sandstone’s third amended
complaint. The growers’ second amended complaint
asserted causes of action for breach of contract, conversion, trespass, and
fraud. Sandstone’s third amended
complaint asserted causes of action for breach of contract, breach of implied
covenant of good faith and fair dealing, fraud, and reformation.
After the
close of evidence, the jury was instructed and given a special verdict
form. Among other questions, the special
verdict form asked whether the growers did “all of the significant things that
the melon contract required them to do.â€
The jury answered, “No.†In other
questions, the jury determined that Sandstone did not knowingly or recklessly
make a “false representation of an important fact†to the growers, and did not
make a promise that was important to the transaction without the intent to
perform when it made the promise. The
net result of these determinations was that the growers were denied recovery on
their causes of action. The jury also
answered “No†to the question, “Did Sandstone Marketing do all of the
significant things that the melon contract required it to do?†In accordance with the special verdict form,
this answer resulted in a judgment against Sandstone on its breach of contract
cause of action. However, the jury
answered “Yes†to the question, “Did [the growers] unfairly interfere with
Sandstone Marketing’s right to receive the benefits of the melon
contract?†The jury concluded
Sandstone’s damages from this interference were $230,685. The jury also found against Sandstone on its
fraud cause of action. Judgment was
entered accordingly, and the growers’ motion for judgment notwithstanding the
verdict was denied.
The growers
first contend that, as a matter of law, there cannot be a breach of the implied
covenant of good faith and fair dealing unless there is also a separate breach
of the underlying contract. They contend
that because the jury ruled against Sandstone on its breach of contract cause
of action, the award of damages on the bad faith cause of action constitutes a
necessarily inconsistent verdict. The
growers’ contention is wrong both on the law and in its factual premise that
the jury found the growers had not breached the contract.
In asserting the legal requirement
of an underlying breach of contract in addition to the breach of the implied
covenant of good faith and fair dealing, the growers rely primarily upon
Cal.3d 566. That case, however, supports
a contrary conclusion. It has long been
established that the implied covenant of good faith and fair dealing exists
only when there is an underlying contract (see id. at p. 576; see also 1 Witkin, Summary of Cal. Law (10th
ed. 2005) Contracts, § 800, p. 894), but it is not the law that a
separate actionable breach of contract is a necessary precondition for recovery
for breach of the implied covenant of good faith and fair dealing (
Cal.3d at p. 578; see also Carma
Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2
Cal.4th 342, 373). Instead, even where
conditions exist that would prevent a party from recovering for breach of
contract, “the nonperformance by one party of its contractual duties cannot
excuse a breach of the duty of good faith and fair dealing by the other party
while the contract between them is in effect and not rescinded.†(Gruenberg
v. Aetna Ins. Co., supra, 9 Cal.3d at p. 578.) In Gruenberg,
the plaintiff refused to appear for examination under oath concerning his fire
loss; arson charges were pending against him at the time. (Id.
at pp. 570-571.) Based on policy
language that permitted the insurance company to deny coverage for failure of
the insured to cooperate in the investigation, the company denied
coverage. (Ibid. & fn. 2.) The
plaintiff sued for “outrageous conduct and bad faith†(id. at p. 572), which the Supreme Court characterized as equivalent
to a cause of action for breach of the implied covenant of good faith and fair
dealing. (Id. at p. 575.) The court
held that the failure of the plaintiff to perform all his duties under the
insurance contract did not prevent his action against the defendant for failing
in its duty of good faith and fair
dealing under the contract. (
Ins. Co. (2000) 23 Cal.4th 390, 402, 405.)
The additional cases cited as
authority by the growers that there must be a breach of both an express
contractual obligation and a breach
of the implied covenant all address the issue of whether tort damages, in
addition to contract damages, are available to a plaintiff who alleges breach
of the implied covenant of good faith and fair dealing. (See, e.g., Careau & Co. v. Security Pacific Business Credit, Inc. (1990)
222 Cal.App.3d 1371, 1395; Kruse v. Bank
of America (1988) 202 Cal.App.3d 38, 57.)
Those cases are inapplicable in the circumstance of this case.
In addition, the facts do not
support the growers’ contention that the jury found there had been no breach of
contract by the growers. In the verdict
form regarding Sandstone’s breach of contract action against the growers, the
jury found Sandstone had not done all “of the significant things that the melon
contract required it to do.â€
name="_ftnref1" title="">[1] The jury was instructed that, if that was
their finding, they were to skip the remainder of the questions on that cause
of action (which included the question of whether the growers failed to perform
under the contract) and proceed to the questions on Sandstone’s cause of action
against the growers for breach of the implied covenant of good faith and fair
dealing. The jury did find, on the
growers’ cause of action for breach of contract, that the growers did not do
“all of the significant things that the melon contract required them to
do.†On this record, it cannot be said
that the jury found there had been no breach of contract by the growers.
The growers next contend that
because the contract did not require them to deliver a definite quantity of
melons, Sandstone was not entitled to recover for lost profits. This argument confuses the obligations of the
parties under the contract with the measure of damages for breach of those
obligations. The growers assert that
“there is nothing in the melon contract itself that gives even a hint that the
contracting parties agreed to deliver a certain quantity of melons to
Sandstone.†That is correct, as far as
it goes. However, the contract clearly
requires the growers to use good farming practices in the production of the
crop, and it is their extensive failure to do so that is the basis for
Sandstone’s claim of liability for breach of the implied covenant of good faith
and fair dealing. Imposing liability for
the failure to perform as required by the contract does not in any way
constitute, as the growers phrase it, “rewrit[ing] the parties’ contract to add
a provision for the delivery of a certain quantum of melons.â€
Nevertheless, the purpose of
damages for breach of the implied covenant, or any other breach of contract, in
the absence of some different measure stated in the contract, is to place the
non-breaching party in as good a position as it would have been if the other
party had not breached the contract.
Such damages in a contract setting are limited, as the jury here was
instructed, to compensation for harm “that when the contract was made, both
parties knew or could reasonably have foreseen … was likely to occur in the
ordinary course of events as [a] result of the breach of the contract.†(See Sun-Maid
Raisin Growers v. Victor Packing Co. (1983) 146 Cal.App.3d 787, 791.) It is in the context of establishing the
reasonably foreseeable harm, not in the context of establishing the underlying
breach of the implied covenant, that evidence of the parties’ reasonable and
shared expectations for the crop become relevant. Thus, the representation by one of the
growers, Forrest Felger, that his past crops for other packers had produced a
certain volume of melons per acre, the undisputed evidence that he had relayed
that history to Sandstone’s agent, and the agent’s testimony that he had used
that estimate as the basis for entering into contracts for the resale of melons
he expected to harvest from the growers’ fields, constituted a basis upon which
the jury could quantify the harm done by the growers’ failure to use good
farming practices to produce a crop in keeping with the parties’ reasonable
expectations. When considered in light
of other evidence of costs of production and sales price for the melons, the
shared production estimates of the parties formed a sufficient basis for an
award of lost profits resulting from the growers’ failure to use good farming
practices.
The growers contend the disclaimer
of warranties contained in the contract constituted an agreement by the parties
that Sandstone could not recover consequential damages under any
circumstances. The disclaimer paragraph
states: “The Melons are being sold by
[the growers] ‘AS IS, WITH ALL FAULTS, WITHOUT ANY REPRESENTATION AND
WARRANTIES.’†Under the growers’
proposed interpretation of the contract, the disclaimer of warranties clause
would wholly negate the growers’ duty, expressed earlier in the contract, to
use good farming practices in the production of the crop, as well as their
specifically enumerated duties to irrigate the crop, to apply needed chemicals
and fertilizers, and to maintain sanitary growing conditions to “avoid any
contamination of the Melons.†In the
context of the contract, the disclaimer of warranties is clearly intended to
protect the growers from issues concerning the price the melons might bring upon
sale in the marketplace by Sandstone, and to protect the growers from claims
concerning the quality of the melons if
the growers used good farming practices and otherwise discharged their duties
under the contract. Any other
interpretation would be unreasonable and would render all of the growers’
duties and undertakings in the contract illusory. (Civ. Code, § 1643.)
Finally, the growers contend the
evidence was insufficient to permit the jury to award lost profits to
Sandstone. Once again, the growers’
contentions are based upon their confusion of two distinct concepts, in this
case, the anticipated profits from a lost business opportunity and the loss of
profits from a business transaction that had already taken place. In the former category, the risk is that
sometimes businesses make a profit and sometimes they do not; therefore the
courts require a reasonably concrete basis for speculation that a business
would have made a profit if it had undertaken performance on a contract. In S.
C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529, upon which
the growers rely, a contractor who claimed it had not been timely paid by the
bank for one project asserted damages for its lost profit on subsequent
projects that it had been unable to bid on because the bank’s action had
impaired the contractor’s capital. (
anticipated profits cannot be recovered if it is uncertain whether any profit
would have been derived at all from the proposed undertaking.†(Id.
at p. 536.) The court concluded the
contractor had failed to demonstrate lost anticipated profits because it did
not introduce proof of its costs and efficiency for the lost projects, nor the
likely profit attributable to the projects.
(Id. at p. 538.) Instead, the contractor only presented
evidence that it generally included a 5 to 8 percent profit into the price when
it submitted bids for projects. (
evidence was not the best available evidence, and an award of damages for lost
anticipated profits was not permissible.
(Id. at p. 538.) In the other cases cited by the growers: the plaintiff sought damages for lost
anticipated profits because the truck sold by the defendant was not operable (
(1983) 142 Cal.App.3d 152, 157, 161); the plaintiffs refused to enter into a
10-year lease of farm land, thereby depriving the defendant of use of the land
(Nelson v. Reisner (1958) 51 Cal.2d
161, 162-163, 167-168, 171); and the defendant cancelled a service station
lease, depriving the plaintiff of profit on future sales of gasoline (
Cal.App.3d 354, 358, 366). In all those
cases, the complaintants sought damages based on events that did not happen,
and the question was whether they sufficiently proved lost profits that were
inherently speculative.
In the present case, by contrast,
Sandstone sought its lost profits only for the year of the melon contract. It introduced evidence that it had entered
into contracts with buyers based on its anticipated harvest of melons under its
contract with the growers, thereby establishing the gross sales for that
contract year. Sandstone introduced
evidence of what it would have paid to the growers and others under the contract
as the gross cost of the melons if the growers had performed under the
contract. And it introduced evidence
that in some cases it bought other melons on the open market to fulfill the
contracts it had entered into in anticipation of receiving melons from the
growers. This was sufficient evidence
from which to calculate Sandstone’s lost profit for the year in question. (See Sun-Maid
Raisin Growers v. Victor Packing Co., supra, 146 Cal.App.3d at pp.
790-791.) Sandstone did not seek profits
based on speculation about future years, nor loss of profits based, for
example, on damage to its standing in the industry because it was unable to
deliver melons after the growers’ default.
Such claims as these, which Sandstone did not make, would present a
different issue on which S. C. Anderson,
Inc. v. Bank of America, supra, 24 Cal.App.4th 529 and the other cited
cases might provide guidance. As the
case was tried, however, the evidence of lost profit for the single year in
question was fully adequate to sustain the jury’s award of damages. (See, e.g., Sun-Maid Raisin Growers v. Victor Packing Co., supra, 146
Cal.App.3d at pp. 791-792; Tomlinson v.
Wander Seed & Bulb Co. (1960) 177 Cal.App.2d 462, 473-474.)
The judgment is affirmed.
Sandstone Marketing, Inc., is awarded costs on appeal.
_____________________
DETJEN,
J.
WE CONCUR:
_____________________
WISEMAN, Acting P.J.
_____________________
LEVY, J.
name="_ftn1" title="">[1] Sandstone’s
protective cross-appeal contends the instructions prejudiced it because the
instructions on the breach of contract cause of action misstated the law
regarding excuse of performance. Even if
that is so, however, the error did not prejudice the growers, and they do not contend that the instructions did so.
