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District Court of Appeal, First District, Division 1, California.

Leon N. LEBOIRE, Plaintiff, v. Ken F. ROYCE et al., Defendants, Cross-Complainants, and Appellants,

Hyman-Michaels Company, Cross-Defendant and Respondent. KEN ROYCE, INC., Plaintiff and Appellant, v. HYMAN-MICHAELS COMPANY, Respondent.

HYMAN-MICHAELS COMPANY, Plaintiff and Respondent, v. KEN ROYCE, INC., Defendant and Appellant.*

No. 17978.

Decided: September 29, 1959

Freed & Freed, Eli Freed, Kurt W. Melchior, San Francisco, for appellants. Philip S. Ehrlich, Irving Rovens, Fred Leuenberger, San Francisco, for respondent.

In these actions, Ken Royce, Inc., seeks contribution from Hyman-Michaels Company (1) in respect to commissions allegedly paid to Leon N. Leboire pursuant to the contract of August 12, 1947, between Royce and Leboire which was involved and construed in Leboire v. Royce, 100 Cal.App.2d 610, 224 P.2d 106, and attorney fees expended by Royce in a second action brought against it by Leboire for collection of the commissions here in question, and (2) in respect to attorney fees paid by Royce upon appeal from the judgment rendered in the first Leboire action.

Royce's claim for reimbursement for a portion of the attorney fees paid upon appeal in the first action, is predicated upon a special agreement of March 24, 1949, between Royce and Hyman-Michaels on that subject. Its claim for reimbursement for a portion of the commissions allegedly paid Leboire and for attorney fees in the second action is predicated upon the provisions of certain joint venture agreements between Royce and Hyman-Michaels whereby, Royce asserts, the joint venturers assumed the burden of Royce's obligation to pay Leboire certain commissions as expressed in the Royce-Leboire contract of August 12, 1947.

By the Royce-Leboire contract, Royce agreed to pay Leboire a commission of 2 1/2% ‘on the consummated deal of tractors purchased from the Chinese government through or from Mr. Tom Davis, or through or from General Commodities Corporation, Ltd., covering the purchase’ of certain described items. Royce also agreed to pay Leboire a commission upon ‘any further purchases from above parties within one year from * * * date.’

Royce's duty to pay this commission on subsequent purchases applies to joint venture purchases in which Royce has only a part interest as well as purchases in which Royce has the sole interest. Leboire v. Royce, 100 Cal.App.2d 610, 616, 224 P.2d 106. However, Hyman-Michaels was neither a party to the contract of August 12, 1947, nor to said action. It is not bound by the contract nor by the judgment rendered in said action.

The Leboire commissions here involved are those which may have accrued (1) in respect to purchases of equipment made pursuant to a joint venture agreement of November 29, 1947, between Mariannas Trading Company as first party and Hyman-Michaels and Royce as second parties, and (2) in respect to purchases of equipment by Hyman-Michaels from the Central Bank of China pursuant to their contract of March 1, 1948, in which on April 14, 1948, Royce became a joint venturer with Hyman-Michaels upon terms expressed in their joint venture agreement of August 22, 1947, which latter agreement was later superseded by a joint venture agreement of December 10, 1948, between Royce and Hyman-Michaels.1

Royce's claim that his obligation to Leboire became an obligation of the joint ventures depends primarily upon the meaning to be attached to a certain clause appearing in the two joint venture agreements last mentioned. In paragraph 8 of the agreement of August 22, 1947, the parties described the various facilities and services they would respectively furnish to the joint venture, some at cost and some without cost, and declared that all actual out-of-pocket expenses of either party incurred in connection with the business and affairs of the joint venture would be deemed a joint venture expense, describing some of such expenses by way of illustration, not of limitation. That paragraph then concluded:

‘All expenses incurred by either party prior to the execution of this agreement in and about the procuring of the said contract with General Commodities Corporation, Ltd. are hereby assumed by the joint venture, and shall be repaid to the First Party [Hyman-Michaels, not Royce] in mode and manner as hereinbelow provided. In this connection it is understood and agreed that the actual expenses of David W. Evans and John Langan in connection with their trips to Okinawa and/or Shanghai, China, or any other Islands upon which the equipment may be located, for the purpose of inspecting the equipment which is the subject matter of this contract, shall be borne by the joint venture and the joint venture shall reimburse the Second Party [Royce, not Hyman-Michaels] for said expenses.’

Paragraph 8 of the joint venture agreement of December 10, 1948, omitted the latter of these two sentences (expenses of Evans and of Langan) and ended with the next to the last sentence, recast to read as follows: ‘All expenses of either party prior to the execution of this agreement in and about the procuring of said equipment are hereby assumed by the joint venture, and shall be repaid to the first party [Hyman-Michaels] in mode and manner as hereinbelow provided.’

Royce would have us ignore the limiting words ‘and shall be repaid to the first party’ in each of these agreements. Also, he would ignore the concluding sentence (‘In this connection’ the expenses of Evans and Langan shall be borne by the venture, which ‘shall reimburse the Second Party’ therefor) in the August 22, 1947, agreement. That would give full effect to the words ‘all expenses incurred by either party,’ but is that what the parties intended? Perhaps the only ‘prior’ expenses of Royce which both parties knew about or contemplated were the travel expenses of Evans and Langan. Perhaps the ‘prior’ expenses of Hyman-Michaels were potentially varied in character. Each of the agreements recites that Hyman-Michaels had entered into a certain purchase contract with a named third party and that the joint venturers were taking it over. Conceivably, Hyman-Michaels had in each case incurred a variety of expenses prior to the execution of the joint venture agreement. If so, perhaps the parties meant to limit reimbursement to Hyman-Michaels when speaking of ‘all’ prior expenses and contemplated reimbursement of Royce in respect only to the Evans and Langan expenses mentioned in the 1947 agreement.

In such a situation, the agreements present ambiguities for the resolution of which extrinsic evidence is admissible. See Beneficial Fire & Casualty Ins. Co. v. Kurt Hitke & Co., 46 Cal.2d 517, 523–525, 297 P.2d 428, and Schmidt v. Macco Construction Co., 119 Cal.App.2d 717, 731, 260 P.2d 230, and cases cited in each. Also, as observed by this court in MacIntyre v. Angel, 109 Cal.App.2d 425, 429, 240 P.2d 1047, 1050, ‘it appears that the parties are in disagreement as to the meaning of the writing which they signed, as was the case in Wachs v. Wachs, 11 Cal.2d 322, 325, 79 P.2d 1085, Woodbine v. Van Horn, 29 Cal.2d 95, 104, 173 P.2d 17, and Union Oil Co. of California v. Union Sugar Co., 31 Cal.2d 300, 305, 188 P.2d 470. As in each of those cases, the writing seems susceptible to either of the interpretations respectively urged by the parties. We cannot to a certainty and with sureness, by a mere reading of the document, determine which is the correct interpretation.’ In such a situation extrinsic evidence becomes admissible as an aid to interpretation.

The trial judge, in recognition of this principle, admitted and considered extrinsic evidence pertinent to this inquiry. He held that neither the joint venture agreement of August 22, 1947, nor that of November 29, 1947, nor that of December 10, 1948, assumed any of the obligations of Royce to Leboire under their contract of August 12, 1947.

The evidence supports those findings. Although the first joint venture agreement was dated August 22, 1947, it was in the course of drafting from about that date until about October 17, 1947, when it reached final form and was signed. Meanwhile, it went through many revisions during the course of which there were many conferences between the parties and their counsel. At no time until after the expiration of that period did Royce or his attorney mention Leboire or the Leboire contract to Hyman-Michaels or its representatives or attorneys, none of whom ever heard of Leboire or the Leboire contract until after the expiration of that period. Indeed, it did not occur to Royce until Leboire's first action against him was filed (November 6, 1947) that the might be liable to Leboire for commissions on purchases made by or in conjunction with a third party such as Hyman-Michaels in their joint venture undertakings. Moreover, the Leboire-Royce contract was not brought to the attention of Royce's own attorney until the first Leboire action was filed.2 It is true that Royce introduced some evidence tending to indicate that he did at an earlier date tell Hyman-Michaels of the existence of a contract with Leboire, but that merely created a conflict which the trial court resolved against Royce.

In addition, it happened that Evans and Langan left for the islands August 30, 1947, to inspect, accept and load equipment purchased from General Commodities Corporation, Ltd. They returned October 13, 1947. Accordingly, their expenses were incurred prior to the execution of the August 22, 1947, agreement. It was quite natural for Royce's attorney to include a specific provision for Royce's reimbursement therefor, as was done in the form of the last sentence of paragraph 8 of that agreement. Specific coverage of this expense item, which is so closely connected with the joint venture in hand (inspection, acceptance and loading of the very equipment being purchased) suggests that the parties did not regard it as included in the ‘all’ prior expenses of the immediately preceding sentence. Much less is it likely that they would have looked upon a purely personal expense of Royce (such as his contractual obligation to pay commissions to Leboire) as coming within the purview of ‘all’ prior expenses in the next to the last sentence of paragraph 8 of the 1947 agreement.

The foregoing factors were appropriate for consideration by the trial court. ‘A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.’ Civ.Code, § 1647. The meaning of the contracting parties must be determined by their intent at the time of its execution, not by something that happened later and was not in contemplation at the time. Houge v. Ford, 44 Cal.2d 706, 713, 285 P.2d 257.

The extrinsic evidence in this case furnished a reasonable basis for the trial court's interpretation of the agreement. When, as here, an agreement is ambiguous and extrinsic evidence is admitted in aid of its interpretation, the question of its meaning becomes one of fact. Where the facts are in dispute and the meaning of the agreement turns upon the resolution of that conflict, the determination of that dispute must be left to the trier of the facts. Walsh v. Walsh, 18 Cal.2d 439, 444, 116 P.2d 62; MacIntyre v. Angel, supra, 109 Cal.App.2d 425, 435, 240 P.2d 1047; Herrmann v. Fireman's Fund Ins. Co., 127 Cal.App.2d 560, 274 P.2d 501, hearing by Supreme Court denied.

The joint venture agreement of November 29, 1947, with the Mariannas Trading Company had no similar provision for assumption of prior expenses of any of the venturers. It did have a provision, which Royce invokes, for contribution by one joint venturer to another who, after termination of the venture, pays a claim, liability or expense asserted against or incurred by him only. However, it is a claim, liability or expense ‘asserted against the joint venture’ or asserted or incurred by either of the venturers ‘as a result or consequence of the joint venture herein provided for, and the operation and conduct of its business.’ The agreements of August 22, 1947, and December 10, 1948, have like provisions. It seems obvious that no such provision was intended to or could operate to pick up an antecedent personal obligation of one of the venturers (such as Royce's contract to pay commissions to Leboire) and make it an obligation of the joint venture.

Royce argues that it can hold Hyman-Michaels in quasi contract for a share of the cost of Leboire's commissions, upon the theory of benefits received. But the trial court found that the purchases here involved were not made from any of the persons mentioned in the Royce-Leboire contract and that all thereof were attributable to persons other than Leboire. Support for these findings is furnished by evidence that the purchases were made through or from Mariannas Trading Company and Bank of China, respectively, not through or from Tom Davis or General Commodities Corporation, Ltd., also lack of evidence that any of the purchases were attributable to Leboire and positive evidence that the Bank of China contract was attributable solely to one F. T. Li, long known to Hyman-Michaels and who as a representative of the Bank of China negotiated directly with Hyman-Michaels. Such findings thus supported furnish no basis for a theory that in respect to the purchases in question Hyman-Michaels received and accepted benefits from the Royce-Leboire contract.

Royce advances the further argument that its payment of commissions to Leboire pertained to Royce's participation in the joint venture and constitute ‘payments made and personal liabilities reasonably incurred by’ Royce ‘in the ordinary and proper conduct’ of the business of the venture, in respect of which the venture must indemnify him. Corp.Code, § 15018 (b). That statute does not apply here. These were not obligations incurred ‘in the ordinary and proper conduct’ of the joint venture business. As the trial court properly found, they were incurred before the formation of the joint venture and were neither assumed nor made use of by the joint venture.

Royce's claim for reimbursement of a portion of the attorney fees expended by it in the second Leboire suit falls with Royce's claim for contribution in respect to commissions paid to Leboire.

There remains the question of the fees which Royce paid its attorneys for the conduct of its appeal in the first suit brought by Leboire. On March 22, 1949, Hyman-Michaels wrote Royce a letter referring to the first action of Leboire v. Royce and the judgment that had been rendered therein against Royce, and saying, ‘Based upon the terms and conditions3 herein set forth, and not otherwise, we are prepared to assume liability to the extent as hereinafter set forth.’ Royce paid attorneys' fees in the total amount of $2,500 for legal services rendered upon the appeal in the first Leboire action.

Basing its claim upon paragraph (9) of said letter, Royce seeks reimbursement from Hyman-Michaels in the amount of $1,500, 60% of said $2,500. Royce faces a finding by the trial court that the attorneys' fees incurred by it in connection with said appeal were agreed upon without the written approval or consent of Hyman-Michaels and that Hyman-Michaels did not arbitrarily refuse to approve the amount of said attorneys' fees. The court concluded Royce had not shown a right to reimbursement for any portion of such expenditure for attorneys' fees.

In challenging this finding and conclusion, Royce cites only the testimony of Mr. Royce that he was charged $2,000 for legal services upon the appeal to the District Court of Appeal and $500 for consultation services in connection with going to the Supreme Court; that he paid those fees; that they were reasonable; that he notified Hyman-Michaels and demanded it pay its share but it refused to do so and never indicated what it thought would be a fair fee and never offered to pay anything at all.

Royce contends that the proviso that ‘no attorney's fees shall be agreed upon or be binding upon us until they have received our written approval and consent’ is in effect a promise to share in the payment of a reasonable attorney's fee, invoking Collins v. Vickter Manor, Inc., 47 Cal.2d 875, 306 P.2d 783. In that case the court said that in an otherwise enforceable contract a ‘contractual provision for performance to the satisfaction of one of the parties ordinarily calls for such performance as would be satisfactory to a reasonable person.’ 47 Cal.2d at page 882, 306 P.2d at page 788. There the court was speaking of the acceptance or rejection of a soil compaction report and contour and filing maps. The court said further ‘where the question is whether an agreed performance will satisfy a requirement of commercial value or quality, operative fitness or mechanical ability, the party to whom such performance is tendered is not justified in claiming arbitrarily, unreasonably, or capriciously that he is not satisfied, in order to evade liability.’ 47 Cal.2d at page 882, 306 P.2d at page 788.

Here, we have a different sort of undertaking. One of the essential conditions of the promise to pay was that Hyman-Michaels' counsel ‘be consulted in connection with all matters involved in the pending litigation.’ (Paragraph 8 of the letter.) Royce has cited us to no evidence showing that Royce complied with this requirement. The very fact that Royce paid the amount billed it by its attorneys, before communicating with Hyman-Michaels in respect thereto, has some tendency to show lack of the required degree of consultation. It was not a mere matter of ascertaining the reasonable value of legal services rendered in the performance of a specifically described and standardized task. That task might turn out to be either the prosecution of an appeal to final judgment or negotiations looking toward a settlement, or some of each. There would naturally be involved questions of policy, strategy and tactics and questions as to how much time and effort it would be worth while to expend upon this, that or the other phase of the project. The requirement for advance approval of the fees was a practicable means of assuring Hyman-Michaels that it would, through its counsel, be consulted and have a participating voice ‘in connection with all matters involved’ at each stage of the developing situation. Royce has not shown us a sufficient basis for overruling the trial court's finding and conclusion in this matter.

The judgment is affirmed.


1.  The judgment in the first action of Leboire v. Royce was for commissions payable to Leboire in respect to purchases from General Commodities Corporation, Ltd., pursuant to contracts dated August 22, 1947, and October 23, 1947. See Leboire v. Royce, supra, 100 Cal.App.2d 610, 224 P.2d 106 That judgment against Royce was paid. Hyman-Michaels contributed toward its payment, pursuant to an agreement of March 22, 1949, between it and Royce, without admitting any liability of any kind toward Royce or Leboire.

2.  Royce says that this lack of knowledge of Leboire and his contract was not a factor when the agreement of December 10, 1948, was written and signed. The first Leboire action had been tried. It went to judgment in June of 1948. Leboire's claims were then known. That is not necessarily a reason for giving a different meaning to the provision that ‘[a]ll expenses incurred by either party prior to execution of this agreement * * * shall be repaid to the first party [Hyman-Michaels] * * *’ It is more natural to infer that the parties used these words in December of 1948 in the same sense and with the same meaning as in the 1947 agreement. It would be more in Royce's interest than Hyman-Michaels' to effect a change in meaning by a change in verbiage. No such change was made. Accordingly, retention of the 1947 wording in the 1948 agreement furnishes no basis for overruling the trial court's interpretation of the joint venture agreements.

3.  Those terms and conditions were expressed in these words: ‘1. This letter and the contents thereof shall not in any way constitute a contract for the benefit of a third person, and no liability to the plaintiff in the action above referred to is admitted by virtue of the execution hereof. ‘2. This letter shall not be construed as an admission of any liability to you and/or Leboire and/or any third person, and our assumption of liability hereunder upon the terms and conditions herein set forth is based exclusively upon considerations to us and not arising out of any legal liability to you or to the plaintiff or to any third person. We are assuming liability hereinafter set forth, although advised by our counsel Phillip S. Ehrlich that we owe no legal liability to you and/or Leboire and/or any third person arising out of the judgment hereinabove referred to, or any other relationship existing between you and/or Leboire and/or ourselves, or arising out of any other controversies in which you or Leboire may be involved. ‘3. Our assumption of liability hereunder is not and shall not be construed as a precedent or in any manner requiring us to assume any liability hereafter in any other controversies between you and Leboire, and our action hereunder is not indicative of our future course of conduct in any other controversy in which you and Leboire may be involved. ‘4. Our action hereunder shall not be nor shall it be construed as in any way affecting our legal position or status in this matter, or in any other controversies that may arise between you and/or Leboire and/or ourselves. ‘5. This letter shall be inadmissible in any court of law or equity in which you and the undersigned are involved, except in the event of litigation between you and the undersigned based upon this memorandum to enforce performance thereof. ‘6. In the event the judgment above referred to is reduced to not to exceed 40% of its face amount, we will consider it as a proper item of expense of the joint venture and it will be shared proportionately 60% by us and 40% by you as other expenses of the joint venture. ‘7. In the event the judgment is sustained in the full amount, or in any amount in excess of 40% of its face amount, the excess over 40% will be borne by you and the undersigned equally, that is to say, it will be apportioned 50% to you and 50% to us and shared accordingly as part of the expenses of the joint venture. ‘8. Philip S. Ehrlich, our counsel, shall be consulted in connection with all matters involved in the pending litigation, and no settlement binding upon us shall be effectuated without our written consent and approval. ‘9. We shall likewise assume our share of attorney's fees and costs conditioned upon the same ratios upon which we are assuming the judgment, and provided further that no attorney's fees shall be agreed upon or be binding upon us until they have received our written approval and consent. ‘If we have correctly set forth our understanding, please sign a duplicate copy of this letter under the word ‘Approved’ and it shall constitute a binding agreement between us.'

FRED B. WOOD, Justice.

BRAY, P. J., and TOBRINER, J., concur.

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