Textainer Equipment Management v.
Pacific Interlink



















Filed 3/29/13 Textainer Equipment Management v. Pacific
Interlink CA1/1

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>NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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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opinion has not been certified for publication or ordered published for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



FIRST
APPELLATE DISTRICT



DIVISION
ONE




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TEXTAINER EQUIPMENT MANAGEMENT LIMITED, Plaintiff and Respondent, v. PACIFIC INTERLINK SDN BDH, Defendant and Appellant.

A133155 (San Francisco City & County Super. Ct. No. CGC10498933)

Textainer
Equipment Management Limited (Textainer) sued Pacific Interlink SDN BDH
(Pacific) for unpaid rent on shipping containers Pacific lost while it had them
on lease from Textainer. Pacific asserts
it does not owe rent because Textainer did not fulfill its contractual
obligation to invoice Pacific for the lost containers’ replacement
value—payment of which would have stopped rent from accruing. Textainer asserts it had no obligation to invoice
Pacific, which could have paid the pre-set replacement value at any time to
stop accrual of rent. After inspecting
the parties’ lease agreement, the trial court ruled in favor of Textainer and
awarded it rent and other damages. We affirm.

Factual Background

On April 1,
2001, Pacific agreed, by written
agreement, to lease intermodal shipping containers from Textainer. The 2001 agreement sets forth the general
terms governing the lease. A later 2006
schedule, active at all times relevant to this appeal, specifies Pacific’s
minimum container commitment, the daily rental charges per container, the
containers’ original replacement values, and a formula for calculating
depreciated replacement value.

Paragraph
10 of the 2001 agreement is titled “RISK OF LOSS AND DAMAGE.” It provides:
“Lessee is liable for all loss . . . to the Containers subsequent to
delivery and prior to return to Lessor, regardless of when such loss . . . may
be discovered. Lessee is obligated to
pay all Rental Charges on lost . . . Containers until the Off-hire Date of each
Container.” Further, “Lessee shall pay
to Lessor the Replacement Value for such Container in accordance with the provisions
of the Lease.”

For a lost
container, paragraph 1 of the agreement defines “Off-hire Date” as “the date
upon which Lessee has paid the Replacement Value of the Container to
Lessor.”

Paragraph 6
governs “BILLING AND PAYMENT.”
Subparagraph (c) provides: “In the event that Lessee shall become
responsible under the Lease for the Replacement Value of Containers, Lessor
will charge Lessee, and Lessee will pay Lessor for the Replacement Value of
such Containers.” The general terms of
paragraph 6 provide: “PAYMENT OF ALL
CHARGES MUST BE MADE IN ACCORDANCE WITH INSTRUCTIONS STATED ON EACH INVOICE
ISSUED BY LESSOR. ALL CHARGES INVOICED BY LESSOR ARE DUE AND PAYABLE WITHIN
THIRTY (30) DAYS FROM THE DATE OF EACH INVOICE.
IF LESSOR’S INVOICE IS NOT PAID WHEN DUE, LESSOR MAY CHARGE, AS
ADDITIONAL RENTAL, A SERVICE CHARGE AT THE RATE OF 1.5% PER MONTH (18% PER
ANNUM) ON THE UNPAID BALANCE.”

In 2003,
Pacific declared some containers lost.
Pacific and Textainer negotiated a discounted replacement value and
Textainer agreed to forego rental charges following the declared loss. Textainer told Pacific it was getting special
treatment, that freezing rental charges was an “abnormal practise,” and that
other customers facing similar losses were not getting so favorable a
deal.

Four years
later, in 2007, the events giving rise to the present dispute unfolded. On September 13, 2007, Pacific informed
Textainer it had lost 131 containers. On
July 19, 2008, Pacific informed Textainer of another 141 lost
containers. Pacific did not pay the
containers’ replacement values. Nor did
Textainer invoice Pacific for them.
Instead, Pacific attempted to negotiate a reduced replacement
value. Textainer resisted, saying it
could not repeat the accommodations made in 2003.

Meanwhile,
Textainer continued to invoice Pacific for monthly rental charges for the lost
containers, and Pacific paid rent through the July 2009 invoice. Pacific paid this rent despite wanting, and
telling Textainer it wanted, a freeze in rental charges while the replacement
value negotiations played out. Textainer
replied to Pacific that rental charges per container “w[ould] only be
terminated as and when we receive the full replacement value.” In one instance, Textainer stated, in an
internal e-mail, it had told Pacific “termination of [rental charges] will be
as per the invoice date.” If Pacific was
told this, there is no evidence Pacific ever requested an invoice at the time.

In January
2010, Textainer accused Pacific of breach of the lease agreement based on its
failure to pay rent after July 2009.
After some back and forth, Textainer sent, in March 2010, an invoice for
all then-lost containers in the amount of $443,656.87, a number accurately
reflecting the replacement value without any discount.

Having not
been paid, Textainer sued Pacific for breach
of contract on April 22, 2010.
Textainer alleged breach based on Pacific’s failure to pay rent and
failure to pay the replacement value of the lost containers.

In May
2010, a month after Textainer’s lawsuit, Pacific remitted $310,416.17href="#_ftn1" name="_ftnref1" title="">[1]
to Textainer, which the parties agree is the lost containers’ replacement value
minus the rent paid on those containers since the September 2007 and July 2008
statements of loss—rent Pacific claims it did not owe because, according to
Pacific, the statements of loss stopped rent from accruing. The remittance did not end the dispute.

After a
bench trial on April 18, 2011 and May 2, 2011, the trial court issued a
statement of decision on July 6, 2011.
It found the language of the lease agreement answered the questions
before it. It ruled Textainer had no
obligation to invoice Pacific for the replacement value of the lost containers,
and thus rent did not stop accruing on them while the replacement value went
unpaid. It awarded Textainer $79,519.05
in unpaid rent, $133,262.73 for the remaining unpaid replacement value
(necessitated by Pacific’s deduction from the May 2010 remittance), various
service charges and relocation costs, and attorney fees and costs, to be
determined later. Judgment for Textainer
was entered on July 6, 2011, in the amount of $261,455.50. An amended judgment entered on July 26, 2011,
added an award of $59,316.91 for attorney fees and costs.

Pacific
filed a timely notice of appeal from
the July 6, 2011, judgment on September 6, 2011.

Discussion

This appeal
presents a question of contract interpretation.
Where, as here, the parties do not dispute the relevant facts and do not
make arguments regarding the “credibility of conflicting extrinsic evidence,”
contract interpretation is “a question of law for de novo review by the
appellate court.” (Mayer v. C.W. Driver (2002) 98 Cal.App.4th 48, 57.)

Textainer
asserts, and the trial court concluded, Pacific owes daily rental charges on
each lost container through the date Pacific paid the replacement value for
that container. Textainer relies on
paragraphs 1 and 10 of the 2001 agreement.
Looking solely at these paragraphs, when a container is lost, Pacific
indeed must keep paying daily rent charges as Textainer asserts. When Pacific pays the replacement value, the
container is finally “off-hired” and rent charges no longer accrue.

Pacific
claims, however, paragraphs 1 and 10 must be read in connection with paragraph
6. (See Zubia v. Farmers Ins. Exchange (1993) 14 Cal.App.4th 790, 797
[“ ‘language in a contract must be construed in the context of that
instrument as a whole’ ”].)
Paragraph 6 states Textainer “will charge” Pacific for a lost
container’s replacement value once Pacific “become[s] responsible” for it. Under Pacific’s reading of paragraph 6,
Textainer must invoice Pacific for a lost container’s replacement value within
a reasonable period of time. If
Textainer fails to do so, it is effectively thwarting Pacific’s contractual
right to freeze rent by paying the replacement value. (See Locke
v. Warner Bros., Inc. (1997) 57 Cal.App.4th 354, 363
[“ ‘ “[W]here a contract confers on one party a discretionary power
affecting the rights of the other, a duty is imposed to exercise that
discretion in good faith and in accordance with fair dealing.” [Citations.]’
[Citations.]”].) Pacific reads
too much into paragraph 6.

Paragraph 6
does state Textainer “will charge” Pacific for lost containers once Pacific
“become[s] responsible” for them, but it does not prohibit Pacific from making
payments in advance of invoice or render such payments impossible. Nor does it require Textainer to issue an invoice
before its right to payment accrues.
Rather, the stated purpose of the invoice requirement is to start a
30-day period after which accrued payments become “due” and Textainer may levy
late charges of 1.5 percent per month on overdue balances.

Such a
reading is consistent with how courts view contractual promises to issue
invoices. Thus, even if paragraph 6
contained a promise to not only invoice, but to invoice promptly in the manner
Pacific claims, courts view such promises as ministerial or de minimus. And indeed, Pacific has cited no case
enforcing an invoicing promise in the manner it proposes.

Thus, in >Vowels v. Witt (1957) 149 Cal.App.2d
257, 262, a contractor rendering services was required to “ ‘bill . . .
for all costs incurred during the preceding calendar month,’ ” rendering
these amounts “ ‘immediately due and payable.’ ” The appellate court held the contractor could
collect on late bills, because late billing did not mean “the contractor did
not substantially perform the contract.”
(Ibid.; accord, >Gastronomical Workers Union Local 610 v.
Posadas de Puerto Rico Associates, Inc. (D.P.R. 2008) 544 F.Supp.2d
89, 95 [defendant “may not rely on the Funds’ alleged failure to send timely
invoices for its refusal to pay inasmuch as defendant’s obligation to make
these contributions stems from the [agreement at issue].”]; >Chas. T. Main, Inc. v. Massachusetts
Turnpike Authority (1964) 347 Mass. 154 (Main).)

Although
not from California, we find the Main
case, from Massachusetts’s highest court, instructive. It concerned a contract between an
engineering firm and the Massachusetts Turnpike Authority. The authority promised to make the final
payment for the firm’s services “ ‘[u]pon the completion and acceptance by the
[a]uthority of all construction work required by all of the construction
contracts and the final determination of the cost of construction.” (Main,
supra, 347 Mass. at pp. 155–157, fn
4. ) A formal final determination of
cost was not made until 1960, but both parties were clearly aware of the costs
due to the firm, over $170,000, as of 1958.
(Id. at pp. 165, 167.) The firm demanded interest on the balance for
the period between 1958 and 1960, but the authority rejected this claim,
asserting the balance was not due until the issuance of the final cost determination. (Id.
at p. 159.) The Supreme Judicial Court
of Massachusetts held as of 1958, “the authority had no further justification
for withholding” pay, the firm “was entitled to payment,” and entitled,
furthermore, to interest. (>Id. at p. 168.)

Analogizing
to the present case, Pacific knew, from the 2006 schedules, what it owed in
replacement costs. Textainer’s failure
to invoice did not change the fact that Pacific, under the lease, had to pay
replacement costs (the balance due in Main)
and had to pay for the lost use of the containers by way of continuing daily
rental charges (the interest in Main).


In closing,
we note the “pay rent until replacement value paid” method of handling lost
rental goods is not unique to the present case.
(See, e.g., In re Muma Services
Inc. (Bankr. D.Del. 2002) 279 B.R. 478, 488 [“NPR may elect to continue to
pay rent on the lost unit or may elect to pay the replacement value of the unit
which would stop the rent obligation”].)
In fact, it is quite common to measure restitution damages for lost
rental items as the sum of replacement value and loss of rent that could have
been earned. (People v. Thygesen (1999) 69 Cal.App.4th 988, 996 [“Any award . . .
shall be based on the reasonable replacement value of a cement mixer of like
style and age, as well as loss of rental value from the date of loss to the
date the mixer should have reasonably been replaced.”]; Collin v. American Empire Ins. Co. (1994) 21 Cal.App.4th 787, 818
[differentiating between loss of property and loss of use of that property];
accord, Walton Commercial Enterprises,
Inc. v. Associations, Conventions, Tradeshows, Inc. (Ohio Ct. App. 1990)
593 N.E.2d 64, 67 [“until the chattel is retaken by the lessor, the lessee’s
obligation to pay rent continues” and since in that case “the equipment could
not ever be returned, appellee’s duty to pay rent continued until appellee’s
tender of the monetary value of the equipment”].)

In sum,
Pacific was properly bound by the plain and express terms of its agreement with
Textainer.

Disposition

The
judgment is affirmed.



_________________________

Banke,
J.





We concur:





_________________________

Margulies, Acting P. J.





_________________________

Dondero, J.