SUNSET STERNAU FOOD CO v. BONZI

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District Court of Appeal, Fifth District, California.

SUNSET-STERNAU FOOD CO., Plaintiff and Respondent, v. Rudy BONZI, Defendant and Appellant.

Civ. 210.

Decided: August 05, 1963

Albert E. Levy, Goldstein, Barceloux & Goldstein, P. M. Barceloux, Burton J. Goldstein, San Francisco, Zeff, Halley & Price and E. Dean Price, Modesto, for appellant. Cleveland J. Stockton, Modesto, Eisner & Titchell and Haskell Titchell, San Francisco, for respondent.

This is an appeal by defendant Rudy Bonzi from a judgment in favor of plaintiff Sunset-Sternau Food Co., a corporation, in the sum of $48,641.41, plus prejudgment interest and costs. The action from which the appeal arose is founded primarily upon the theory of the right of an agent to implied indemnity and reimbursement from a principal for a judgment in favor of a third party satisfied by the agent.

Viewing the evidence in the light most favorable to plaintiff and disregarding conflicts and contradictions, the facts are as follows:

Plaintiff is engaged in the business of processing and selling fruits and nuts. Prior to the transaction which is the subject of this controversy it had never acted as a broker or agent. Defendant is engaged in the industrial waste and drayage business. He had handled commercial waste from plaintiff's plant for some years. He had purchased wet apricot pits from plaintiff which he processed and sold for his own account. Apricot pits yield a small kernel which is ground into paste and is used as an almond substitute in the baking and confectionary industries. Defendant had acquired some nut cracking equipment with a view to converting it, setting up his own plant and entering into the business of cracking apricot pits to obtain kernels for resale. From sometime in the spring until the early summer of 1955, there were conferences between defendant, plaintiff's president, Sidney Sternau, and other representatives of plaintiff which culminated in an oral agreement that defendant would establish a pit cracking plant; that plaintiff would act as his selling agent for a 5 percent commission; and that, since plaintiff was well known in the fruit and nut industry and defendant was unknown, all contracts for the sale of kernels would be entered into by plaintiff as seller, but for the account of defendant as undisclosed principal.

In July 1955, Mr. Sternau arranged for the brokerage firm of Prince, Keeler & Company, Inc., hereinafter referred to as Prince, to act as brokers in New York on an agreed commission of 2 percent. Sternau, a representative of Prince, and Mr. Kaplan, a representative of American Almond Products Co., met in New York for the purpose of interesting American Almond in the purchase of apricot kernels. A small sample, which had been furnished by defendant, was left with Mr. Kaplan. On July 25, 1955, Prince wrote to plaintiff, advising that American Almond was interested in the kernels but wanted 200 pounds of kernels for a sample testing. Plaintiff contacted defendant and advised him of the request. Defendant had sufficient apricot pits cracked by another firm to yield 200 pounds of kernels and shipped the sample to American Almond on August 31st. On August 1, 1955, Prince advised plaintiff by wire that the price of kernels was 17 cents per pound and that American Almond would buy at that price, subject to the approval of the 200-pound sample. Steven Tarrico, plaintiff's assistant and plant manager, checked New York prices and found them to be 18 cents per pound. He telephoned defendant, advising him of the price and defendant agreed to make the price 17 1/2 cents. Further negotiations between plaintiff and Prince followed, culminating in an enforceable contract entered into September 1, 1955, showing American Almond Products Co., Inc. as buyer and Sunset-Sternau Food Co. as seller, covering approximately 75 tons of Sunset Regular Apricot Kernels, at 17 1/2 cents per pound for delivery one-half October 31st, balance November 30, 1955. Mr. Sternau testified that plaintiff was acting as agent for defendant; that title was to remain in Bonzi until the kernels were paid for by American Almond; that the kernels were to be transmitted by defendant to plaintiff and shipped east consolidated with plaintiff's other freight; and that payment was to be made to plaintiff who would deduct the 5 percent commission and remit the balance to defendant.

About September 19, 1955, fire destroyed a substantial portion of the apricot pit and kernel stock in California resulting in a short supply market. The price of kernels rose to 43 cents per pound.

The shipment due under the contract with American Almond on October 31, 1955, was not made. On November 3, 1955, plaintiff's attorney wrote to defendant, advising him that American Almond was going to file a suit for damages for breach of contract and plaintiff would join Bonzi as a cross-defendant in that action or would hold him liable for any damages sustained by plaintiff because of defendant's failure to deliver the kernels.

On November 15, 1955, Mr. Kaplan, his attorney, Mr. O'Connor, Mr. Sternau, Mr. Tarrico, defendant and his attorney, Mr. Price, met in Price's offices. Subsequently on the same day the same persons, except for the attorneys, met at plaintiff's plant. At one or both of these conferences Mr. Kaplan said his company needed the kernels and did not want to file a suit; that he would pay better than the contract price to get delivery; that he would pay for the expense of having the pits cracked by California Packing Company if defendant would deliver. Mr. Sternau offered to forego the price of 60 tons of apricot pits which he had sold to defendant that season but which were unpaid for and would also forego the agreed commission if defendant would deliver. At these meetings defendant did not question the contract or challenge plaintiff's authority to act as his agent. He said he would think it over and advise them the next morning. By letter dated November 16, 1955, his attorney, Price, advised that defendant would be unable to crack or deliver any apricot kernels that season.

At the time of the fire defendant had an inventory of 541 tons of dried pits which would product 108 tons of kernels, or more than sufficient to fill the contract. About a week after the fire, he sold 436 tons of dried pits to Continental Nut Company for $91.70 per ton. On November 16, 1955, he sold the remaining tons to Continental for $130 per ton. For his inventory of pits he received $52,602.71. If he had filled the contract he would have received $26,750, less the cost of cracking the pits.

At the trial defendant admitted the making and the terms of the oral contract of agency, and admitted that he knew of the contract entered into between plaintiff and American Almond. His testimony as to these matters conflicted in only one material part. He testified that he believed the contract with American Almond was for 7 1/2 tons instead of 75 tons of apricot kernels.

American Almond commenced an action in the United States District Court against plaintiff, which we shall refer to as the Federal action, and on May 2, 1957, obtained judgment which was affirmed on appeal August 18, 1958, and satisfied by plaintiff on October 6, 1958, by the payment of $41,309.10. Defendant was not made a party defendant; was not impleaded as a cross-defendant; was never served; and plaintiff neither gave him a copy of the complaint nor advised him of the pendency of the suit.

This action was filed on June 11, 1959. The complaint contains two counts. The first, based on the theory of indemnification and right to reimbursement, alleges that plaintiff, pursuant to oral authorization, acted as agent for defendant, as undisclosed principal, in selling 75 tons of apricot kernels to American Almond Products Co., Inc. of New York; that defendant failed to deliver; that American Almond sued plaintiff in the United States District Court (California) for breach of contract and recovered judgment, which was affirmed on appeal (Sunset-Sternau Food Co. v. American Almond Prod. Co., 9 Cir., 259 F.2d 93); that plaintiff then satisfied the judgment; and that defendant, as principal, is liable to plaintiff, as agent, for the amount of the judgment, plus interest, attorneys' fees and costs. The second court alleges a common count for money laid out and expended. Defendant answered, denying the material allegations of the complaint and raised four affirmative defenses, only three of which are relevant here: (1) unenforceability of the agreement of agency by virtue of the provisions of sections 1724, subdivision 1, and 2309 of the Civil Code; (2) the bar of the statute of limitations; and (3) another action pending between the same parties for the same cause.

On this appeal defendant restates the defenses just mentioned as grounds for reversal and adds that, since plaintiff failed to notify defendant of the pendency of the Federal action, plaintiff thereby waived any rights it may have had against defendant.

Basically, the question involved in defendant's first group of contentions and arguments is this: Do the provisions of the equal dignities rule (Civ.Code, § 2309) foreclose an agent who, acting pursuant to an oral authorization from, and in behalf of, his principal, enters into a contract with a third person for the sale in his own name of the principal's goods in an amount which brings the contract within the purview of the statute of frauds (Civ.Code, § 1724, subd. 1) and its counterparts (Civ.Code, § 1624a, subd. 1; Code Civ.Proc. § 1973, subd. 1) from looking to the principal for indemnity for all damages sustained by reason of the principal's failure to deliver the goods to the third party?

Defendant contends that, written authorization absent, there is no agency and therefore no right to indemnity, and that this is so even if the principal admits the oral authorization. Plaintiff, on the other hand, claims that the meaning of the equal dignities rule is that the agent's contract with a third person, if required to be in writing, is not enforceable against the principal in an action with the third party, if the principal so elects, in the absence of written authority to the agent; but does not apply as between principal and agent.

None of the authorities to which defendant has referred us are in point. Generally, the decisions cited by him fall into three classifications: those in which the question was not whether an agency had been created but whether a third party may hold the principal on a contract entered into by an agent whose authority was not in writing (Georgia Peanut Co. v. Famo Products Co., 9 Cir., 96 F.2d 440; Cooke v. Newmark Grain Co., 54 Cal.App. 283, 201 P. 615; McNear v. Petroleum Export Corp., 208 Cal. 162, 280 P. 684); those standing for the proposition that where a third party deals with an agent acting for an undisclosed principal, without knowledge of the agency, and a contract is entered into between the third party and the agent, the third party may then hold the agent liable (Coover v. Cox, 95 Cal.App. 1, 272 P. 343; London v. Zachary, 92 Cal.App.2d 654, 207 P.2d 1067; and Murphy v. Helmrich, 66 Cal. 69, 4 P. 958); and those dealing with the necessity of a writing for employment of an agent to sell realty (Civ.Code, § 1624, subd. 5); (McRae v. Ross, 170 Cal. 74, 148 P. 215; Henry v. Nelms, 113 Cal.App. 587, 298 P. 822). The additional cases of Barrios v. Foley, 83 Cal.App. 105, 256 P. 573, and Murphy v. Munson, 95 Cal.App.2d 306, 212 P.2d 603, do not help defendant. In Barrios, a broker sued the seller for commissions for the sale of dried grapes and the seller prevailed, but the rationale of the decision is that the broker had not performed and thus had not earned his commission. The factual situation involved in Murphy, which is too remote from the facts in the instant case to justify summarizing, compelled a determination that the buy-sell contract was that of the buyer and the clerk who signed his name to the writing was not the buyer's agent but a mere amanuensis.

In support of affirmance, plaintiff cites a case which is exactly in point and which we regard as dispositive of this contention. In Meadows v. Clark, 33 Cal.App.2d 24, 90 P.2d 851, the agent, Meadows, under oral authorization from Clark to purchase certain cattle, entered into a written agreement with a third party for the purchase. In the suit brought by Meadows against Clark for a balance due on his commission, Clark demurred and raised the statute of frauds and the equal dignities rule. The demurrer was sustained and judgment entered for Clark. On appeal, the judgment was reversed. Prior cases dealing with the question here under consideration were discussed and at pages 28–29 of the opinion, at page 853 of 90 P.2d the court said:

‘The case cited above [Kutz v. Fleisher, 67 Cal. 93, 7 P. 195] does not mention Civil Code, sections 2309 or 1624a, nor does it mention section 1973a of the Code of Civil Procedure. However, the court definitely states that it is not a case of vendor selling to a vendee, but of an agent or broker buying and selling for a principal; hence, the statute of frauds does not apply. Civil Code, section 1624a and Code of Civil Procedure, section 1973a, apply to sales of lands and goods exceeding the value of $500, and say nothing about a contract between principal and agent. In the case at bar, we do not find the condition of the vendor selling personal property to the vendee, but the situation of a principal and agent, whereby the latter is suing for commissions earned by reason of the sale of personal property.

‘Section 1624 of the Civil Code, subdivision 5, and section 1973 of the Code of Civil Procedure, subdivision 5, expressly require that an agreement authorizing or employing an agent or broker to purchase or sell real estate for compensation or a commission must be in writing. No other code section requires the same concerning a contract between the principal and agent for the latter to purchase or sell personal property. Since the legislature has expressly stated that for real estate the agent must have written authority to collect his commission and has failed to make such a requirement concerning personal property, it is quite clear that it intended to allow an agreement between principal and agent for the purchase or sale of personal property to be oral. [Citations.]’

The cases relied upon by the court in Meadows fully support the conclusion reached. Further support is found in Marks v. Walter G. McCarty Corp., 33 Cal.2d 814, 205 P.2d 1025. In the last cited case a broker sued to recover commissions for procuring the sale of a hotel, its realty, furniture and equipment, under a memorandum authorization held to be insufficient to satisfy the statute of frauds for want of the signature of the party to be charged. At page 823 of 33 Cal.2d, at page 1030 of 205 P.2d, the Supreme Court said:

‘Although the plaintiff is prevented by the statute of frauds from recovering a commission on the sale of the real estate there is no such barrier in this case to his recovery of a commission on the sale of the personal property as to which no written memorandum is required.’

(See also 23 Cal.Jur.2d, Statute of Frauds, § 33, p. 268; 1 Witkin, Summary of California Law (7th ed. 1960) Contracts, § 106, p. 114; 3 Williston on Contracts, § 512, pp. 654–655.)

Under the authorities above referred to, we are impelled to hold that the statute of frauds and section 2309 of the Civil Code have no application which defeats the plaintiff's right to recover and there was no error in this respect.

Defendant next contends that the plaintiff's cause of action is barred by the two year statute of limitations embodied in section 339, subdivision 1, of the Code of Civil Procedure. Both parties concede, and we agree, that the two year statute governs. The question is when the statute commenced to run; whether, as defendant claims, on November 16, 1955, at the time defendant repudiated the plaintiff's contract with American Almond and thereby breached the agency contract, in which event the action is barred, or, as plaintiff claims, when it satisfied the judgment on October 6, 1958, in which case the action is not barred. No California case dealing with this precise question has been found. Defendant contends an agency relationship is contractual in nature and the cause of action accrues at time of breach. Consistent with that theory, he relies upon cases arising from breach of contract or breach of implied warranty. Such cases are not controlling here, for a cause of action for reimbursement is not one for breach of the original agreement. Rather, it is founded upon a promise of the principal which the law implies. The general rule is stated in Rimington v. General Accident Group of Ins. Cos., 205 Cal.App.2d 394, at 397, 23 Cal.Rptr. 40, at 42, thusly:

‘* * * an agent pursuing the instructions of his principal and acting within the scope of his authority who then becomes personally liable for the performance of the contract made for his principal, can look to the principal for indemnity for the damage sustained. (Restatement, Second Agency secs. 438, 439, pp. 322–334; 2 Am.Jur., Agency sec. 294, pp. 231–232.)’

The statement is based in part upon comment c, section 438, Restatement Second of Agency, where it is said:

‘The right of reimbursement arises upon, and not until, payment is made by the agent, and the statute of limitations runs in the principal's favor from such time and not from the time when the debt against the agent or the principal matured.’

The law of New York is in accord. In Walkof v. Fox, 90 Misc. 338, 153 N.Y.S. 27, it is stated at page 28:

‘A principal is undoubtedy liable to his agent for any loss which the agent incurs through the performance of any acts directed by the principal to be performed in his behalf. This rule rests upon a contract which is necessarily ordinarily implied in the relationship of principal and agent. Just as an agreement to pay for work performed for the benefit of another at his request will be implied from the request, so an agreement to pay for any loss properly incurred in and flowing from the performance of such work will also be implied. No agreement to indemnify an agent merely from a legal liability incurred in the performance of that work, but not resulting in actual loss, can, however, be ordinarily inferred. Until actual loss has resulted to the agent from such liability, a payment of the amount of such liability might in many instances result in the enrichment of the agent at the expense of the principal. The courts have therefore refused to permit an agent, in the absence of special circumstances, to recover against his principal the amount of a liability which has even been reduced to judgment until the agent has paid or satisfied the judgment and the liability has been changed to an actual loss.’

The New York rule is clearly stated in Admiral Oriental Line v. United States, 2 Cir., 86 F.2d 201, decided under New York law. At page 204, of 86 F.2d, it is said:

‘So viewed the only question would be whether it stated a cause of action, which in turn depends upon whether an agent may sue before he has suffered loss, even when a third party is suing him. As a complaint in an action at law, such a petition would be premature; the plaintiff having paid nothing, may not yet call for indemnity. [Citations.] In equity, however, the rule is otherwise; before paying the debt a surety may call upon the principal to exonerate him by discharging it; he is not obliged to make inroads into his own resources when the loss must in the end fall upon the principal. [Citations.]’

The right of an agent to reimbursement is akin to the right of a surety to reimbursement. In 46 California Jurisprudence Second, Suretyship and Guaranty, section 79, page 345, the following discussion appears:

‘Inasmuch as a cause of action for reimbursement from the principal is not on the original obligation but on an assumpsit which the law implies, the indebtedness of the principal to the surety does not accrue, and the statute of limitations does not begin to run, until the surety pays the obligation. Until then there is no enforceable demand.’

In 34 American Jurisprudence, Limitation of Actions, section 144, page 116, it is said, ‘* * *, as between principal and surety, the statute begins to run from the time of the payment of the debt by the surety.’

The courts of this state have, in recent years, recognized the implied indemnity doctrine as applying to the field of torts, i. e., when one who, through no moral fault of his own but because of an obligation cast upon him by the law, sustains loss, he may look for indemnity to the real tortfeasor ultimately liable to the injured person. In considering when the statute of limitations commences to run on the implied promise of indemnity, the court, in Pacific Employers Ins. Co. v. Hartford Acc. & Ind. Co., 9 Cir., 228 F.2d 365, 373, decided under California law, held that the two year statute provided by California Code of Civil Procedure, section 339, subdivision 1, is applicable to an action for the enforcement of a right based upon an implied contract of indemnity, and that the right accrued on the date the indemnitee settled with the injured third party. Neither reason nor justice requires a different rule governing the right of an agent to seek indemnification from his principal.

Accordingly, we hold that the agent's right to reimbursement accrues when he has sustained actual loss, and the two years period commenced to run in favor of the principal on that date. In this case, the statute commenced to run on October 6, 1958, the date plaintiff satisfied the judgment of American Almond and, since the complaint was filed on June 11, 1959, the action was commenced timely.

Defendant's contention that because plaintiff filed a municipal court action against him seeking to recover the price of 60 tons of apricot pits sold by plaintiff to defendant in 1955, which action was pending at the time of commencement and trial of this action, plaintiff thereby split a single cause of action and the trial court erred in determining that the municipal court action did not compel abatement of this suit or operate to bar recovery, is devoid of merit. A cause of action on a contract to recover the purchase price of goods is different from an agent's cause of action for reimbursement arising from an implied promise of indemnity on the part of the principal. The trial court's finding that that sale was a totally separate, distinct transaction is correct.

Defendant lastly contends that, since plaintiff failed to give him formal notice of the pendency of the Federal action, plaintiff waived any right to recover reimbursement. It is claimed that defendant was deprived of the right to intervene in the prior suit, to conduct his own defense and to select his own counsel to control and settle the litigation.

The general rule is that, when suit is brought by a third party against the agent upon a claim as to which he is entitled to indemnity from the principal, he may notify the principal and request a defense, and, if he fails to give the principal an opportunity to defend or compromise, he can recover the amount paid upon the claim only if he proves that he made a reasonable defense. The question of whether a defense was made in good faith is one of fact. (See Rest. 2d Agency, comment e, § 438, p. 326; Rest., Restitution, comment f, § 76, p. 339.)

The record discloses that, on November 3, 1955, defendant was given written notice by plaintiff's attorney that plaintiff would hold defendant liable for all damages arising from a breach of contract suit then threatened by American Almond; that on November 15, 1955, defendant participated in conferences with plaintiff and a representative of American Almond at which time he was told that the suit for damages would be filed against plaintiff if defendant failed to deliver the apricot kernels in accordance with the contract and defendant would be held liable to plaintiff; and that, following those conferences, he repudiated the contract, leaving plaintiff to stand suit. Obviously, under the circumstances of this case, the defendant, had he been notified of the actual filing of the Federal action by American Almond against plaintiff, would not have been likely to join in that suit voluntarily.

Defendant has cited no authority establishing that notice to the principal of the pendency of an action brought by a third party against the agent on the latter's contract is a condition precedent to the agent's right to recover from the principal for all loss sustained. Further, defendant has shown no prejudice. Plaintiff defended the action vigorously and in good faith, raising all possible defenses and urging its claimed defenses through an appeal from the adverse judgment.

Where, as here, the principal admits that the agent was authorized to sell his goods, participates in the making of the agent's contract to the extent of fixing the price and furnishing a sample to the buyer, participates in conferences with the agent and the buyer in which he is urged to perform, has both written and oral notice that the buyer intends to sue the agent, and the agent, in turn, intends to hold him liable, for nonperformance, and thereafter repudiates the agent's contract, he waives any requirement of actual notice of the suit subsequently brought, even if, under a different factual situation, he might have been entitled to notice.

The judgment is affirmed.

RALPH M. BROWN, Justice.

CONLEY, P. J., and STONE, J., concur.

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