PIEDMONT PUBLISHING COMPANY v. ROGERS

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District Court of Appeal, Second District, Division 2, California.

PIEDMONT PUBLISHING COMPANY, Plaintiff and Respondent, v. Mary Pickford ROGERS and Charles Buddy Rogers, Defendants and Appellants.

Civ. 28223.

Decided: April 14, 1966

Harned Pettus Hoose, Ronald K. Perry and Ronald L. Hartman, Beverly Hills, for appellants. Womble, Carlyle, Sandridge & Rice, Winston–Salem, N.C., and Gibson, Dunn & Crutcher, Sherman Welpton, Jr., and Robert S. Warren, Los Angeles, for respondents.

This is the second appeal (see Piedmont Publishing Co. v. Rogers, 193 Cal.App.2d 171, 14 Cal.Rptr. 133) 1 in an action by respondent Piedmont Publishing Co. (Piedmont) against Mary Pickford Rogers and her husband Charles Buddy Rogers (Rogers) to specifically enforce a written option agreement dated May 25, 1953 (contract), whereby Piedmont was to purchase Rogers' stock in the Triangle Broadcasting Corporation (Triangle), a North Carolina corporation.   The Rogers' and Piedmont respectively owned 500 shares and 1000 shares in Triangle.

Under the contract Piedmont had the option to purchase Rogers stock at the end of any one of Triangle's fiscal years 1956, 1957, 1958 and 1959.   The option price was to be computed by Triangle's “regularly employed independent certified public accountants” according to a formula set forth in the contract, in pertinent part as follows:

“5. * * * an amount per share equal to the sum of the amounts specified in (i) and (ii), below, divided by the number of shares outstanding at the beginning of any such period: 2

“(i) an amount equal to the total book value at the beginning of any such period of Triangle's common stock * * *; 3  and

“(ii) an amount determined by multiplying the average annual net profits (as defined below), if any, of Triangle subsequent to April 30, 1954, in accordance with the following schedule:

“ * * *.

“(3) Average annual profits multiplied by:

1956     5

1957     4

1958     3

1959     2

“ * * *.” 4

In July of 1956 Piedmont attempted to exercise its option.   Rogers refused to comply.   Piedmont brought this action for declaratory relief and specific performance.   A cross-complaint was filed sounding in fraud.   The question of fraud was disposed of contrary to Rogers' contention at the original trial and is not an issue on this appeal.5

At the original trial specific performance was granted.   The option price was adjudged to be $133,243.95.   From that first judgment Rogers appealed.

The Appellate Decision affirmed the first judgment, but required modifications because “ * * * in computing the option price neither the accountants nor the trial court included good will in ‘total book value’ as used in the formula.”   (Appellate Decision, p. 183, 14 Cal.Rptr. p. 140.)   It defined good will for the purpose of this case as follows:

“Component parts of that good will would be:

“a. The fair market value of the telecasting license, * * *.

“b. The fair market value of the television station, as its listening audience grew in numbers, and as the value of its advertising contracts consequently became greater.

“c. The fair market value of Triangle's contract with National Broadcasting Company.” 6  (Id. p. 183, 14 Cal.Rptr. p. 140.)

The Appellate Decision noted:

“This feature of this case has not been argued by counsel * * *, except inferentially.”  (Id. p. 183, 14 Cal.Rptr. p. 140.)   It proceeded to discuss book value, and whether or not good will must be included as a part of the total book value, and enunciated rules of construction as applicable to contracts generally and as specifically applicable to the contract at bench.

The formula is specifically construed:

“Let us now consider * * * what the contracting parties intended to include in their formula to compute the option price of the stock.7

“They used the words ‘total book value’ in the formula.  (Id. p. 188, 14 Cal.Rptr. p. 143.)

“ * * *.

“So we think the conclusion necessarily follows that by adding the word ‘total’ to ‘book value’ the parties meant to include the value of Triangle's intangible asset,—the license to telecast, the advertising value of the station, and Triangle's contract with National Broadcasting Company.  (Id. p. 188, 14 Cal.Rptr. p. 143.)

“ * * *.

“Mr. Borthwick testified that in computing the option price he gave no consideration to the intangible items of value we have been talking about.

“He testified:  ‘Q.   Will you state your reasons therefor?   A.  Yes, because it was not purchased.   Such things, if purchased, might be added to the assets as an intangible asset, but since they were not purchased or bought or paid for, there is no requirement in generally accepted accounting principles that they be entered in the books, and in fact, quite the contrary.’ 8

“ * * *.

“But we are not dealing here with rules for accounting in corporate bookkeeping.   Our problem here is to determine what the parties meant to include in their formula.

“That problem is one of law and fact, and is not to be determined solely upon principles of accounting.

“We include the value of the telecasting license, the value of the television station, and the value of the National Broadcasting Company contract in the term ‘total book value’ as used in the formula for the purposes of this case only.   We do not hold that good will must necessarily include such items in all corporate accounting.9  * * *.  (Id. 189, 190, 191, 14 Cal.Rptr. pp. 144, 145.)

“So we conclude that it was the intention of the parties when they used the words ‘total book value’ in their agreement, to include the value of the telecasting license, the increasing value of the television station, and the value of the National Broadcasting Company contract in computing the option price.

“Therefore, the decision of the trial court must be modified in this respect, and the case referred to the Superior Court for further proceedings to compute the total book value of the Pickford–Rogers stock, as we have construed the formula.

“This means, of course, the value at the time the option was exercised.

“The case is to be retried on the sole issue of the fair market value of the total good will of Triangle, as we have defined its three component parts * * *.

“We agree with the trial court's finding that the option price, not including the items of good will specified, was $133,243.95.10

“To that sum shall be added one-third of the value of these three items of good will, to be ascertained by the Superior Court, and the total sum shall be adjudged to be paid to the Pickfords [Rogers] as a condition of specific performance.”

The Appellate Decision concluded:

“As we hold that good will was a part of ‘total book value’ as used in the formula, the tender in any event was insufficient.

“But that does not require us to reverse and send the whole case back for retrial.  (P. 192, 14 Cal.Rptr. p. 146.)

“ * * *.

“We have read the reporter's transcript, and find substantial evidence that supports all of the findings, except those as to computation of the purchase price of the stock.”  (P. 192, 14 Cal.Rptr. p. 146.)

It is clear from said excerpt that the appellate court construed the formula after analyzing the contents of the record.   It then specifically dissected the phrase “total book value”.   The omissions of the first trial court are then itemized and directions given for the proper disposition of the case on retrial.

At the original trial there was no conflicting evidence, extrinsic or otherwise, as to the meaning of the formula.

The original trial judge determined the meaning of the formula from the four corners of the contract,11 except perhaps as he may have been affected by the colloquy hereinafter referred to.

The Appellate Decision construed it as a matter of law.

 The original trial judge made no specific findings that either total book value or the multiplier included the elements of good will as defined by the Appellate Decision.   Even if such findings had been made in the trial court contrary to the construction of the Appellate Decision, in the absence of conflicting extrinsic evidence sustaining such assumed findings of the original trial judge, they would not have been binding upon the court rendering the Appellate Decision.

 The construction of a contract made by an appellae court from the four corners of the instrument involved, even though different from that placed upon it by a trial court, is final when its decision becomes final.  (Fox v. Fox, 42 Cal.2d 49, 52, 265 P.2d 881;  Trubowitch v. Riverbank Canning Company, 30 Cal.2d 335, 339, 182 P.2d 182;  Estate of Platt, 21 Cal.2d 343, 352, 131 P.2d 825;  Southern California Gas Company v. Ventura Pipe Line Construction Company, 150 Cal.App.2d 253, 257, 309 P.2d 849;  Alkus v. Johnson–Pacific Co., 80 Cal.App.2d 1, 8, 181 P.2d 72;  Estate of Norris, 78 Cal.App.2d 152, 159, 177 P.2d 299.)

On retrial the record shows there was no uncertainty in the mind of the trial court as to what the Appellate Decision meant.   As its beginning the following took place:

“Now, I take it that our proceeding is limited * * * to this decision * * * which * * * sets up the law of the case, * * * and * * * the purpose of this proceeding is to determine the good will of Triangle, and that is composed of three parts;  one, the fair market value of the telecasting license;  two, the fair market value of the television station;  and three, the fair market value of the contract with National Broadcasting Company.

“ * * *.

“MR. WELPTON:  Correct, your Honor.

“MR. HOOSE:  Yes, your Honor.”

Piedmont, in its opening statement clarified its position:

“Now, I might say at the outset, while we recognize this is the law of the case * * * we wish to make our position clear that we don't agree with the court's construction of the contract.   We think the elements of good will are included in the formula.

“THE COURT:  Maybe none of us would agree, but it is all behind us.”   (Emphasis added.)

Thereafter, Piedmont said:

“So we have been all through this for ten weeks before, and we submit that we do have the law of the case.   It is res judicata.

“We are bound to the sole issue of what the value of the good will is.   This is the issue for your Honor to decide, * * * the other point that I make out of this lack of res judicata, or lack of the law of the case would be to the extent that there might be duplicative payment required under what the District Court has determined or to the extent your Honor would find the court assumed a fact which was not in existence, * * * that would make it subject to the exception * * *.

“ * * *.

“ * * * so if I make a statement that seem to be taking exception to the District Court's decision, it is true we do except as to what it decided, because we think it is erroneous, but we feel bound by it, except to the extent that we are showing it must be duplicative * * *.  (Emphasis added.)

Further in the proceedings Piedmont argued, referring to the original trial:  “ * * * It was ten weeks * * * and resulted in some 8,000 pages of transcript.  * * * We are down to the sole issues, * * * and in accordance with this District Court decision and that is what is the value of good will.   We thought it was included in the option formula.   The trial court 12 construed the option as we construe it.

“The Appellate Court construed it different, saying something has to be added.   That is the sole issue we have.”  (Emphasis added.)

Thus, it is plain from the statements excerpted, which are a fair sample of many others, that on retrial Piedmont, conceding in one breath that the Appellate Decision was the law of the case, argued in another that the portion thereof which included good will in total book value was erroneous.   To support its position, on retrial, Piedmont urged that at the original trial counsel and the trial judge assumed that good will was included in the multiplier, and that the directions of the Appellate Decision, if followed, would result in a duplicative payment to Rogers.

The only portion of the original record of 8,000 pages of reporter's transcript to which we are cited to support this argument, is the following colloquy at the original trial:  (colloquy)

“MR. HOOSE:  There is a dispute between the accountants as to what was intended to be in the multipliers—as I understand it;  I must be cautious in stating the opposition here, but at least there is some support which they will offer for their view that the multipliers themselves are part of the good will.

“Your Honor, we have a view which varies from that, and I think these notations which were made by Mr. Rover on these corrections as part of this formula devised by his staff, will be helpful as to what was intended for the use of the multipliers.

“THE COURT:  What do you contend was intended in those multipliers?

“MR. HOOSE:  Under our theory, the intention was not to include [in] the multiplier the value of the franchise purchased—that is an entirely different thing from good will, and it is a very substantial item that should have been placed on the books, and our contention is that it wasn't placed there * * * and we anticipate that good will should not have included such an item.   Under our theory it related to the good will factor minus the value of the franchise—that is the value of the Government permit, so the multiplier would have to relate to good will sans that feature under our view.”  (Emphasis added.) 13

The most that can be said of the colloquy is that Rogers may have conceded that the multiplier included good will as it is commonly accepted and generally defined in Words and Phrases.  (See footnote 9, supra.)   Therefore, vague as it is, it might be argued that it included item (b) but it was specifically “sans the value of the telecasting franchise” and nothing was said about the National Broadcasting contract.

 On retrial, evidence was taken over appellants' objection, to prove the multiplier included the good will factors described by the Appellate Decision.   Since the formula in question had already been construed by the Appellate Decision, we think the evidence was irrelevant and the objection to it should have been sustained.   The parties and the court were bound as a matter of law by the construction placed on the formula by the Appellate Decision.

Thus, in Hilton v. McNitt, 200 Cal.App.2d 879, 19 Cal.Rptr. 688, one of the cases relied upon by Piedmont, the court says at p. 885, 19 Cal.Rptr. p. 691:  “There must be some good reason for departing from the law of the case.   Counsel cite no precedent which recognizes the propriety of a trial judge's receiving oral evidence upon the meaning of a writing which has been construed on appeal as a matter of law, and we know of no such case.”

Piedmont's fundamental position was and is that the “ * * * good reason for departing from the law of the case” in the matter before us is that the Appellate Decision did not intend to rewrite the contract of the parties and to do so would cause a harsh and unjust result.   This contention is supplemented with the argument that the law of the case is a procedural rule and should not be followed when it causes a harsh and unjust result.  (England v. Hospital of Good Samaritan, 14 Cal.2d 791, 795, 97 P.2d 813;  United Dredging Company v. Industrial Accident Commission, 208 Cal. 705, 284 P. 922;  Hilton v. McNitt, 200 Cal.App.2d 879, 884, 19 Cal.Rptr. 688;  Rutledge v. Rutledge, 134 Cal.App.2d 689, 694, 286 P.2d 429.)   The Appellate Decision, it argues, erroneously included (a), (b) and (c) in total book value and that allegedly new evidence suggested by the colloquy and a claimed latent ambiguity in the formula, substantially and materially different from that before the original trial court, would show that the parties by their negotiations, intended to include (a), (b) and (c) in the multiplier.   All of the allegedly new evidence submitted on retrial was known to and available to Piedmont at all times.   Some of it actually was introduced at the original trial.   None of it qualifies as new evidence in the legally accepted sense.  (36 Cal.Jur.2d 235.)

However, for the purpose of this case we accept the doctrine that the evidence need not be new in the sense required to support a motion for a new trial.   The cases cited by Piedmont so indicate.  (Vangel v. Vangel, 45 Cal.2d 804, 291 P.2d 25, 55 A.L.R.2d 1385;  Hilton v. McNitt, 200 Cal.App.2d 879, 19 Cal.Rptr. 688;  Wicktor v. County of Los Angeles, 177 Cal.App.2d 390, 2 Cal.Rptr. 352;  Rutledge v. Rutledge, 134 Cal.App.2d 689, 286 P.2d 429;  Corning Hospital Dist. v. Superior Court, 57 Cal.2d 488, 20 Cal.Rptr. 621, 370 P.2d 325;  McLeran v. Benton, 73 Cal. 329, 14 P. 879;  Nieto v. Carpenter, 21 Cal. 455;  Pigeon Point Ranch, Inc. v. Perot, 59 Cal.2d 227, 28 Cal.Rptr. 865, 379 P.2d 321;  DiGenova v. State Board of Education, 57 Cal.2d 167, 18 Cal.Rptr. 369, 367 P.2d 865;  England v. Hospital of the Good Samaritan, 14 Cal.2d 791, 97 P.2d 813.)

The above cases are not too helpful.   Some were flat reversals.

 A reversal sets at large all issues for retrial and evidence de novo may be submitted.   There is a wide difference between a reversal and a reversal with directions, or an affirmance with specific directions (infra).   As pointed out, there is even a difference between a reversal with specific directions and one which directs only procedure “in accordance with instructions herein expressed.”  (English v. Olympic Auditorium, Inc., 10 Cal.App.2d 196, 201–202, 52 P.2d 267.)

Some of the cases were reversed with directions to take an accounting.   In each case the evidence taken was required expressly or implicitly by the mandate of the appellate opinion involved.   Insofar as there appears to be a departure from the Appellate Decision, it is pointed out that to literally and rigorously enforce the law of the case would cause a harsh and unjust result.

In others, it is pointed out that subsequent decisions of the Supreme Court had changed the law of the case and that in such circumstances it would be harsh and unjust to apply the law of the case.

In none of the cases cited, however, do we have a situation where, as in the case at bench, a particular paragraph of a contract, the vital one at issue, has been construed without the aid of extrinsic evidence, as a matter of law.

Piedmont's contentions are apparently predicated on the argument that at the original trial, the colloquy led to an assumption of fact which made it unnecessary to introduce additional evidence.

Although the evidence adduced on retrial is not different, even within the purview of the cases cited by Piedmont, we proceed to analyze the allegedly new and material evidence, solely to test the alleged harshness or injustice of the Appellate Decision.

The new evidence supplementing the colloquy upon which Piedmont relied, is best reflected by the testimony of Mr. Hoyt.14

In this connection, it should be pointed out that at the original trial, Harold Essex, general manager of Triangle, and one of the parties to the negotiations from the beginning, testified that the purpose of the multiplier as it wound up was to compensate for an earlier exercise of the option as opposed to a later one.

In its brief on the appeal before us, Piedmont explains this testimony by arguing that the purpose of the Essex testimony was “to provide for the good will of the company since the profits would probably be low in the first years of operation.   Mr. Hoyt finally agreed * * * that an initial multiplier of 5 was not unreasonable.”

We do not agree that the explanation made by Piedmont to this court is a complete explanation or that it is the only explanation or inference which can be drawn from the Essex testimony.   It is quite conceivable that the tribunal which authored the Appellate Decision, with the Essex testimony before it, elected to believe that Mr. Essex meant exactly what he said or drew an inference which does not agree with Piedmont's explanation to us.

The court, on retrial, adopted Piedmont's position.   It found that (a), (b) and (c) were included in the multiplier, and to permit their inclusion in total book value, would rewrite the contract of the parties and result in duplicative payment.

The decisive finding of the court on retrial is number 12:

“In the prior trial of this case * * * it was, in effect, conceded by * * * Rogers that the value of good will of Triangle was to be compensated for by the multiplier 15 * * *, and, accordingly, no evidence was presented directly on the issue of whether or not the parties had by their negotiations and contract agreed that the value of the good will of Triangle was to be thus covered.   In the light of the decision of the District Court of Appeal * * *, there was presented in this trial new evidence relating to this issue which is materially and substantially different 16 from that presented in the prior record and * * * this Court now finds that [the parties] * * * in negotiating and agreeing upon the * * * contract of May 25, 1953, agreed that the provisions of paragraph 5(ii) were to cover or compensate for the total value of the intangible assets or good will of Triangle.   It would be contrary to the terms of said contract * * * to require * * * plaintiff to pay twice for the good will of Triangle under the terms of its contract.   The court cannot rewrite the terms of the contract * * *;  therefore, it would bring about a manifestly inequitable and unjust result to require the plaintiff as a condition to specific performance to pay any additional amount * * * for the purchase * * * over and above the amount previously adjudged * * * to be due under the terms of the formula of said contract.”

The acceptance of Piedmont's theory on retrial nullified the Appellate Decision.

We are asked to affirm this nullification.   We cannot do so for many reasons.

On the record:

1. There was no attempt in the original trial to value (a), (b) and (c), although there was evidence by way of the colloquy and otherwise from which some limited findings might have been made as to what items, if any, were included in the multiplier.

[6] 2.   There was no concession at the original trial and there could have been no valid assumption that the multiplier included (a), (b) and (c).   On the sole basis of the colloquy, no finding to this effect could have been validly made.

3. Even if the concession of Rogers in the colloquy, together with the explanation of Piedmont of the Essex testimony, were before the first appellate tribunal by way of evidence (the explanation was not) it would not have been binding on that appellate tribunal in the absence of a finding by the trial court accepting Piedmont's inferences therefrom as a finding of fact.   Further, the language of the Appellate Decision indicates, as already pointed out, that the phrase “total book value” was construed from the language of the contract without regard to extrinsic evidence to explain it or the multiplier.

4. The construction most favorable to Piedmont which this court can make accepting the colloquy as an undefined admission, is that there may be some duplication in requiring separate payment in whole or in part for items (b) and (c).

5. The very point raised on retrial and now urged, to wit:  that the law of the case did not and could not require the court on retrial to rewrite the contract, since the parties intended to include (a), (b) and (c) in the multiplier, was raised by Piedmont in a petition for rehearing and in a petition for hearing before the Supreme Court on the first appeal.   Both petitions were denied.   The Appellate Decision was therefore final in all respects.

 6.   The evidence on retrial does not support Finding 12.   Piedmont itself so concedes when it argues that the first trial court made certain assumptions concerning the elements of value included in the multiplier based on the colloquy.   As we have demonstrated, the most the first trial court could have assumed was (b) and possibly (c) or some portion thereof was included in the multiplier.   Therefore, a finding that the option price determined by the first trial court includes the value of (a), (b) and (c), is equivalent to a finding that item (a) and possibly item (c) has no value whatsoever.   There is no evidence whatsoever to support such a finding.

 We accept the doctrine that the law of the case is a procedural rule and need not be followed when it results in harshness or injustice.

In England v. Hospital of Good Samaritan, 14 Cal.2d 791 at page 795, 97 P.2d 813, at page 814, the court states the general rule:

“The doctrine of the law of the case is recognized as a harsh one * * * and the modern view is that it should not be adhered to when the application of it results in a manifestly unjust decision.  United Dredging Co. v. Industrial Acc. Comm., 208 Cal. 705, 284 P.2d 922.”   See also Hilton v. McNitt, 200 Cal.App.2d 879, 884, 19 Cal.Rptr. 688;  Rutledge v. Rutledge, 134 Cal.App.2d 689, 694, 286 P.2d 429.

No satisfactory explanation has been made by Rogers for their failure to insist in the original trial upon a valuation of (a), (b) and (c).   Nor does Piedmont explain why, in view of the colloquy, it did nothing to determine what Rogers did concede.

 Assuming, as we must, that Rogers meant to make some concession in the colloquy, we find nothing in the Appellate Decision which would preclude a trial court from taking evidence on the meaning of the colloquy.   To the contrary, we believe that to correctly determine the value of items (b) and (c) as directed by the Appellate Decision, evidence must be taken and findings made to determine duplication of payment, if any.

It has been noted that even though on retrial the court did not follow the mandate of the Appellate Decision, it did nevertheless receive evidence from a number of experts presented by both sides of the total value of Triangle, each of whom gave an opinion as to the total value of the telecasting station, inclusive of all assets, tangible and intangible.   Some of them gave specific evidence as to the separate value of (a), (b) and (c), as required by the mandate of the Appellate Decision, but the court in the only finding which it made on this subject, to wit:  Finding 11, disregarded any specific value for (a), (b), or (c).

To prevent a third trial,17 this court searched the record to discover what the undefined concession in the colloquy did mean and such uncontradicted evidence or valid findings which would permit evaluation of (a), (b) and (c), and thus enable it to meet the mandate of the Appellate Decision.   The testimony, however, is in substantial conflict.   We are not finders of fact.   It is clear from the record too that the testimony of John Alden Grimes, an expert produced by Piedmont, was accepted by the trial judge and the evidence of other experts was disregarded.   In these circumstances we find no uncontradicted evidence upon which to make or direct any findings as to the value of (a), (b) and (c).

On retrial, it appears to have been overlooked that the contract specifically provides that the option price as fixed by the formula should be “ * * * determined by Triangle's regularly employed independent certified public accountants * * *.” 18

 This part of the contract and the finding thereon is also the law of the case.   Piedmont, on retrial, should be required to have its regularly employed certified public accountants present a good faith appraisal of (a), (b) and (c) for inclusion in total book value.   The sole issue, then, in respect of the valuation of such items would be whether the accountants so charged exercised good faith in making it.   This means to us that if good faith is found, the fact that a procession of experts would have varying opinions is immaterial.

 On this fact of the litigation, we hold that Piedmont is correct in its contention that total book value and the fair market value of items (a), (b) and (c) to be included therein as required in the contract, must be determined as of “ * * * the beginning of any such period * * * ” in respect of the date the option was exercised, to wit:  April 30, 1956.

Evidence of gross and/or net income of Triangle subsequent to the option date, whether more or less for the purpose of showing market value as of the option date, is immaterial.   The honest opinion of Triangle's certified public accountants predicated on what has been accomplished prior to that date, plus firm expectations of what may reasonably be expected to eventuate in the future, should be the test.

In this connection, it should be stated that although the Appellate Decision and this opinion suggest there is value in items (a), (b) and (c), we do not mean to convey the impression that we accept in whole or in part the figures testified to by any of the experts at the retrial.

We have already indicated that nothing in the Appellate Decision or in this opinion requires duplicative payment.   There can be no confusion, however, that item (a) has not heretofore been provided for.   With respect to (b) and (c) there may be duplication or some duplication.   Based solely upon evidence of what was conceded in the colloquy and not upon evidence of what was intended by the negotiations to be included in the multiplier, a finding should be made, if there is any, or the extent to which there is duplication of payment for items (b) and (c).

We agree with the trial court's finding that one-third of the fair market value of Triangle, exclusive of items (a), (b) and (c) was, on the date of the exercise of Piedmont's option, $133,243.95.

The first judgment, as readopted on retrial, is again affirmed, but this case is again remanded to the trial court with directions as follows:

Evidence shall be taken on the meaning of the colloquy and a determination made whether such evidence affects in whole or in part a duplication of payment for items (b) and/or (c).   Findings shall be made by the trial court of the extent of such duplication, if any.   Thereafter, the case shall be retried on the sole issue of the good faith determination of Piedmont's certified public accountants of the fair market value of the total good will of Triangle, as we here reiterate its three component parts, viz:

a. The fair market value of the telecasting license.

b. To the extent the findings made as to the effect of the colloquy disclose no duplication, the fair market value of the television station, as its listening audience grew in numbers, and as the value of its advertising contracts consequently became greater.

c. To the extent the findings made as to the effect of the colloquy disclose no duplication, the fair market value of Triangle's contract with National Broadcasting Company.

All valuations are, of course, as of the date of the exercise by Piedmont of its option, April 30, 1956.

When evidence has been taken on the meaning of the colloquy and determination by findings made as to duplication, if any, as to items (b) and (c), and findings made respectively as to the market value of each (a), (b) and (c);  one-third of the total value thereof shall be added to the sum of $133,243.95, and the total sum so found and adjudged shall be paid to Rogers as a condition of specific performance.

The judgment as herein modified is affirmed.   The case is remanded to the trial court for proceedings in accordance with the views herein expressed and the specific directions above outlined.

Costs on appeal, exclusive of the cost of appellants' opening and closing briefs, to appellants.

 Appellants are allowed the sum of $100 toward the costs of appellants' opening and closing briefs.   We limit the allowance because said briefs are extravagantly verbose.

This controversy has been in dispute between the parties for ten years and in litigation in the courts for eight.   I would resolve the cause on the present record rather than send it back for a third trial which could rival in length the first trial of ten weeks and the second trial of eight weeks.

The issue before the court is a simple one, viz. the price to be paid under the option contract for the 1956 purchase by Piedmont of the Rogers one-third interest in Triangle.   Under the contract the option price was to be one-third the sum of

(i) the total book value of Triangle, and

(ii) five times its average annual net profits.

At the first trial Judge Ford computed the option price by finding, in rounded figures, that

(i) the total book value of Triangle in 1956 was $209,000,

(ii) its average annual net profits for the previous two years were $38,000, and five times the average annual net profits amounted to $190,000.

He computed the option price thus:

He entered judgment for specific performance conditioned on payment of $133,000.

The judgment was affirmed by the District Court of Appeal in an opinion by Justice Drapeau, which, however, concluded that the term total book value in the contract “include[d] the value of Triangle's intangible assets”, i.e. the broadcasting franchise, the goodwill of the station, and the network affiliation contract.   Since these had not been taken into account in determining the option price, the case was sent back to the trial court with directions to determine the value of these items and add it to Judge Ford's figures in order to arrive at a total book value which would include “the fair market value of the total goodwill of Triangle.”

In effect, the Drapeau opinion concluded that under the contract the term total book value included both tangible and intangible assets, that the figure for total book value used by Judge Ford in his computation of the option price had been based solely on tangible assets (about which there has since been no quarrel), and had failed to include intangibles.   The Drapeau opinion instructed the trial court to determine the value of the intangible assets of Triangle and add it to that of the tangible assets in order to arrive at a figure of total book value which would include both tangible and intangible assets.

At the second trial before Judge Rhone, Piedmont put on evidence to show that the net worth of Triangle in 1956, covering all items, tangible and intangible, including the fair market value of the franchise, the network affiliation contract, and other elements of goodwill, was $440,000.   Mr. Grimes, Piedmont's principal valuation witness, testified he had not found it possible to value the franchise and the network affiliation contract separately from the business itself and for that reason had made an appraisal which covered all net assets, both tangible and intangible.

Judge Rhone accepted this appraisal and adopted it as his finding of fact for the net worth of Triangle in 1956 as a going concern, including all assets, tangible and intangible.   Clearly, this figure of net worth is equivalent to that of total book value as defined in the Drapeau opinion.1  However, instead of using this figure to calculate the option price, Judge Rhone concluded that the contract provisions fixing the option price had included the value of intangibles in item (ii) of the formula, the multiplier of average annual net profits, and for that reason failed to make use of the figure he had found for total book value.   The majority holds, and I agree, that this conclusion was inconsistent with the prior decision of the District Court of Appeal and erroneously departed from the law of the case without a strong factual justification to back it up.

But although we disagree with the legal conclusion of Judge Rhone as to how the factual data developed at the trial should be applied, nevertheless as a result of the testimony before his court we now have a valid finding, fully supported by the evidence, of the net worth of all assets of Triangle in 1956, tangible and intangible, which we can use to substantially attain the objective delineated in the Drapeau opinion.

Judge Rhone's findings, when combined with those of Judge Ford which we have already approved on the previous appeal, give us sufficient data to terminate this case.   If we substitute the correct figure of $440,000 for the figure of $209,000 in the formula used by Judge Ford to calculate the option price, item (i) will then reflect a total book value which includes all assets of Triangle, tangible and intangible.   The three items of goodwill which the District Court of Appeal determined should have been included within the option price but were not, will then be fully contained within the item, total book value.   The rounded figures become:

Instead of this, the majority opinion directs, among other things, a recalculation of the option price by Triangle's regularly employed accountants, Ernst and Ernst.   It is true that the contract in the first instance required the calculation of the option price to be made by Triangle's accountants.   However, their interpretation of the contract insofar as intangibles are concerned has been superseded by that of the courts, first by Judge Ford and then by the District Court of Appeal.   The instructions in the Drapeau opinion on remand directed that the intangible assets not shown on Triangle's books be evaluated for inclusion within the option price.   Evaluation of the goodwill of a television station, of a telecasting franchise, and of a network affiliation contract is not, strictly speaking, a matter of accounting at all, but rather one of appraisal by an expert appraiser conversant with values in the field.   Mr. Grimes fully qualified as such an expert, and his opinion furnished a solid basis for the valuation of these intangibles.   There is no need to require Ernst and Ernst to repeat calculations from Triangle's books of other elements making up the option price, elements which had already been presented at the first trial and been accepted by Judge Ford and by the District Court of Appeal.

In my view Judge Rhone's findings on total book value appropriately reconciled the directions of the original contract with those of the Drapeau opinion and have provided us with all the data we need to give effect to the interpretation of the contract adopted by the District Court of Appeal.   I would put an end to this litigation by increasing the option price to $210,162.78, and affirming the judgment.

FOOTNOTES

1.   Herein referred to as Appellate Decision.

2.   This excerpted paragraph 5 comprising items (i) and (ii) will be referred to as the “formula”.

3.   This item (i) will be referred to as “total book value”.

4.   This item (ii) of the formula will be referred to as the “multiplier”.

5.   For more extended facts and disposition of this facet of the litigation, see Appellate Decision.

6.   These component parts will hereafter sometimes be referred to severally or collectively as “a”, “b” and “c”.

7.   All emphasis in excerpts, unless otherwise noted, are added.

8.   None of the items of good will as defined by the Appellate Decision were carried on the books of Triangle since nothing had been paid for them.   This unquestionably is correct accounting practice.   However, it is also correct accounting practice to place a value on such items if a sale of the business is involved.In this connection, it should be noted too that William A. Maynard, Controller of Piedmont and Secretary and Controller of Triangle, testified at the second trial as follows:“No, good will would normally be placed on the books only in case of sale.   There has been no sale here, therefore the item of good will does not appear on Triangle's books.“ * * *.“ * * *.  I have not intended to reflect any type of good will, all-inclusive, because as I said before, good will in my opinion should not go on the books except in case of sale at which time you can determine the value.“ * * *.”

9.   Volume 18A Words and Phrases, pp. 210–230, devotes 20 pages to definitions of good will.   A fair reflection is at p. 215, as follows:“ ‘Good will’ is the advantage or benefit acquired by an establishment beyond the mere value of the capital stock, funds, or property employed therein, in consequence of the general public patronage.  Hodde v. Hahn, 222 S.W. 799, 803, 283 Mo. 320.”The Appellate Decision when it construed the formula had these usual definitions in mind and deliberately defined it as something else for the purposes of this case only.

10.   This statement is misleading.   The trial court made no finding that the option price did not include the items of good will specified.   The phrase “not including the items of good will specified” is an appositional one added by the District Court of Appeal.

11.   Piedmont disputes this.   Although in its brief it admits that “because of the concessions * * * at * * * the first trial as to the multiplier * * * the record presented to the District Court of Appeal did not include direct testimony as to the expressed intention of the parties * * *.   That evidence was first presented at the trial before Judge Rhone * * *.”To emphasize its position in this regard, Piedmont calls attention to six expressions in the Appellate Decision which it argues, show that the court rendering the Appellate Decision, took evidence into consideration extrinsic to the four corners of the contract.   We have examined and analyzed each reference and find that they fortify our conclusion that the Appellate Decision construes the contract and the formula from its four corners.

12.   This reference is to the original trial court.   The record of the original trial does not support this statement.   There was no finding at the original trial whether (a), (b) and (c) belonged in total book value or the multiplier, or that any of (a), (b) or (c) belonged in the multiplier.

13.   The colloquy demonstrates a difference of opinion on a vital issue.   We must assume that the adverse parties, for strategic reasons, were content to have the original trial court place its construction on the formula, predicated on the language of the instrument alone.If there was a latent ambiguity (Hilton v. McNitt, 200 Cal.App.2d 879, 19 Cal.Rptr. 688), as claimed among other things by respondent on retrial, it seems it should and could have been cleared up at the original trial if the parties had so desired.

14.   On retrial, Mr. Hoyt, after many pages of questions seeking to elicit what the parties had said and intended to include in the multiplier during negotiations, many of which were suggestive and leading, finally testified specifically as follows:  “ * * * What more was said * * * relating to the words, either ‘good will’ or ‘intangibles,’ and whether those terms appeared in any of the drafts that were submitted on this occasion, if you recall?   A Well, those terms appeared in the drafts, and I am a little doubtful in my mind whether they were at the first meeting or the second.   I think they were at both.   There was a term ‘good will,’ or ‘intangibles,’ I believe, according to my memory, they were used synonomously * * *.”“ * * * Q Was anything said about—you said good will and intangibles were discussed.   A My memory is that they were discussed together.   There were three things that I remember definitely were the intangible assets which, * * * included the amount * * * invested in stock, plus profits which were to be put in every year, nothing paid in dividends, and that was the basis of the tangible assets, * * *.“The second thing was this matter of depreciation, and the third thing was the matter of good will, and the good will, the first—eventually both the tangible assets and this matter of depreciation were covered in (i).“Now, then, the good will was—the whole discussion of good will was in connection with (ii).”There is nothing in this statement which would support a finding that item (a) or (c) was looked upon as an intangible.   Conceivably, it could support such a finding, if one had been made with respect to item (b).   A franchise to telecast and a contract with a telecasting company with international reach, are not inherently or necessarily intangibles.   The Appellate Decision dubs them so by making them a part of good will, and for that reason alone they may be so classified as part of this decision.   Obviously, however, the Appellate Decision's definition was not known to Hoyt and those with whom he was negotiating.   A sophisticated business man does not look upon a franchise to telecast and a contractual relationship as intangibles in the same sense as he regards good will (as it is ordinarily understood) an intangible.

15.   There was no such concession concerning good will as defined by the Appellate Decision.   We have set forth the colloquy in full.   In view of Piedmont's position so strenuously urged on this appeal, and as a matter of hindsight, it may very well be that if the original appellate tribunal had remanded with directions to take evidence and make findings as to what was meant by “total book value” and what was meant by the multiplier, instead of construing the contract and the formula, and stating as a matter of law what was included in total book value, that the court, on retrial, would have been justified in doing what it did.   As pointed out herein, the Appellate Decision defined “total book value” and settled what it meant.

16.   Hoyt's evidence was different, but it was not new.   It was available at the original trial.   In fact, Hoyt testified at some length in the original trial on the subject of the negotiations, and on retrial repeated much of it.

17.   The first action was filed April 16, 1958.   There have been two trials.   The first took ten weeks and resulted in 8,000 pages of reporter's transcript.   The retrial took eight weeks and resulted in approximately 6,000 pages of reporter's transcript.   This is the second appeal from a trial on the merits.   After the first appeal there was a petition for rehearing and a petition for hearing in the Supreme Court.   In addition, there was in the beginning a petition for mandate filed originally in the superior court and ending in the Supreme Court to compel a joinder of parties.   There have been proceedings for disqualification of a trial judge;  diverse proceedings in respect of the taking of numerous depositions and a flood of exhibits.

18.   “The amount to be paid on any exercise of either of the options provided in paragraphs 5 or 6 shall be determined by Triangle's regularly employed independent certified public accountants in accordance with the provisions of paragraph 5 or 6 as the case may be.  * * *.”

1.   “So we think the conclusion necessarily follows that by adding the word ‘total’ to ‘book value’ the parties meant to include the value of Triangle's intangible assets * * *.”  (193 Cal.App.2d 171, 188, 14 Cal.Rptr. 133, 143).

ROTH, Presiding Justice.

HERNDON, J., concurs.