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Court of Appeal, Fifth District, California.

E. T. RUNYAN, Plaintiff and Respondent, v. PACIFIC AIR INDUSTRIES, INC., Defendant and Appellant.

Civ. 1008.

Decided: April 14, 1969

E. W. Sheridan, Long Beach, for defendant and appellant. Young, Wooldridge, Paulden & Self, and Robert J. Self, Bakersfield, for plaintiff and respondent.


The defendant appeals from a judgment approving the rescission of a contract, which awarded to plaintiff an area service license to represent the defendant in four counties of the state, namely, Kern, Tulare, Kings and Inyo Counties; the judgment also awarded consequential damages to the plaintiff pursuant to section 1692 of the Civil Code. While the appeal from the judgment is in form all-inclusive, the defendant does not devote any part of his brief to a claim that evidence does not support a conclusion that the rescission was justified; on the other hand, appellant claims that the judgment does not give to the defendant its full rights by failing to specify the property and money to which it claims to be entitled under equitable principles relative to rescission.

As no attack is made on that portion of the judgment which holds that the rescission was proper, we shall give only passsing attention to that portion of the relief and devote our attention principally to the claims made by appellant. However, a short summary of the contentions of the parties and a glance at the pleadings and the testimony given at the two-day trial is an essential for an understanding of the controversy.

E. T. Runyan had been a geologist and engineer employed by the Tidewater Oil Company for some 17 years; shortly before the execution of the contract with the defendant he was receiving a salary of $12,900 a year. Apparently, he became dissatisfied with his status as an employee and his wish to become an entrepreneur was inflamed by an advertisement in The Wall Street Journal which gave notice that Pacific Air Industries, Inc., a corporation whose activities were centered in Long Beach, California, desired to issue a photogrammetrical franchise subcentered in Kern County. He answered the advertisement and afterwards held a number of conferences with Mr. Donald Lewis, president of the corporation. He resigned his position wtih Tidewater Oil Company on or about February 18, 1966, and on March 9, a contract was executed awarding, for a consideration of $25,000, a photogrammetric franchise for the four counties above specified. Considering the evidence most favorable to the prevailing respondent, as we must do, we conclude that the record fully justifies the findings of the trial court that the Pacific Air Industries did not perform its agreement contained in the area service contract, but, on the contrary, substantially failed to observe its promises and that, as a consequence, the appellant was entitled to rescind and to receive back the $25,000 which he had paid for the fourcounty license. The findings of fact and conclusions of law specify in detail the failure of consideration on the part of the defendant as follows:

‘(a) After the execution of said area service contract defendant, without plaintiff's consent, continued to solicit and transact business in the four county business territory which had been exclusively assigned to plaintiff.

‘(b) Defendant failed to install in plaintiff's Bakersfield office the agreed upon photogrammetric mapping and laboratory equipment and photo library within a reasonable time following execution of said contract.

‘(c) Defendant failed to provide plaintiff with an outside advertising sign within a reasonable time following execution of said contract.

‘(d) Defendant failed to provide plaintiff with one full month of sustained promotional and technical sales efforts following the opening of plaintiff's Bakersfield office.

‘(e) Defendant failed to provide plaintiff with two to four months of necessary intensive training at its Long Beach plant prior to plaintiff opening up his Bakersfield office, and, as a result, plaintiff was not technically nor administratively qualified to operate his franchise business.

‘(f) Defendant failed to select for plaintiff specific individuals with special skills to form the nucleus of a mapping team.

‘(g) Defendant charged plaintiff for supplementary services on an arbitrary percentage basis rather than according to a definite rate schedule.’

The court based its judgment in favor of the plaintiff on the first cause of action contained in the complaint, which alleged failure of consideration, but held that counts II, III, and IV were not proven; these counts were based respectively on theories of fraudulent lack of intention of performance by the defendant, known falsity of representation, and for money loaned (being the $25,000 above referred to plus interest).

It logically follows that the portion of the judgment and findings requiring the return to plaintiff of the $25,000 plus legal interest is sound and must be affirmed.

We turn to the additional award in the sum of $5,273.25. The total damages, aside from the $25,000 and interest, are attempted to be justified in the brief of the respondent. The findings of fact and conclusions of law clearly show that the trial court calculated respondent's net consequential damages as follows:

The $550 and $532 were consequential damages and could properly be restored to the plaintiff by the judgment. The evidence also showed that his receipts from contracts in the area, which represented in a measure the work which Mr. Runyan did there and which were specifically approved by the defendant, in the total sum of $3,065, were retained by him and should be, and are, approved by this court.

This leaves to be considered the award of the item called ‘loss of income,’ which represents what Mr. Runyan would have received as salary if he had continued to work for Tidewater. This award of $7,256.25 for that purpose, in our opinion, is unjustified. Mr. Runyan voluntarily terminated his salaried position with the Tidewater Oil Company, hoping to make a fortune through his proposed four-county license. His hopes were somewhat braced by a study made by the staff of Pacific Air Industries, Inc. in which it was predicted that he could make many times what proved to be his actual earnings during the first year of his license. But nothing was said in the contract between the two parties with respect to any salary to be paid him by the Pacific Air Industries, Inc., and the court found that no fraud was perpetrated by the defendant. The two considerations are entirely separate, salary on the one hand and entrepreneurial activity on the other, and there is nothing to justify an award of the equivalent of salary to the plaintiff.

Civil Code section 1692, added in the year 1961, contains the rules which are applicable to damages in this matter. That section reads as follows:

‘When a contract has been rescinded in whole or in part, any party to the contract may seek relief based upon such rescission by (a) bringing an action to recover any money or thing owing to him by any other party to the contract as a consequence of such rescission or for any other relief to which he may be entitled under the circumstances or (b) asserting such rescission by way of defense, counterclaim or cross-complaint.

‘If in an action or proceeding a party seeks relief based upon rescission and the court determines that the contract has not been rescinded, the court may grant any party to the action any other relief to which he may be entitled under the circumstances.

‘A claim for damages is not inconsistent with a claim for relief based upon rescission. The aggrieved party shall be awarded complete relief, including restitution of benefits, if any, conferred by him as a result of the transaction and any consequential damages to which he is entitled; but such relief shall not include duplicate or inconsistent items of recovery.

‘If in an action or proceeding a party seeks relief based upon rescission, the court may require the party to whom such relief is granted to make any compensation to the other which justice may require and may otherwise in its judgment adjust the equities between the parties.’

As is said in Padula v. Superior Court, 235 Cal.App.2d 567, 570, 45 Cal.Rptr. 500, 502:

‘In an action for the rescission of a contract, the trial court, in the exercise of its equity jurisdiction, has the power to adjudicate all of the rights as between the parties, within the subject of the litigation, and to adjust the equities between them. (Civ.Code, § 1692.)’

(See also: Williams v. Puccinelli, 236 Cal.App.2d 512, 520, 46 Cal.Rptr. 285; Myers v. Superior Court, 75 Cal.App.2d 925, 172 P.2d 84.)

The final objection of the respondent to the judgment is that it does not require that the plaintiff return to, or give credit for, the expenditures and personal property turned over to and used by Mr. Runyan and that the provision contained in the conclusions of law and numbered 5 as follows:

‘Plaintiff shall restore to defendant any consideration received by him which he still possesses'

is wholly inadequate by itself to do equity. This contention on the part of appellant is sound, although the right does not extend to the claim of the defendant that it expended some thousands of dollars in setting up its Bakersfield adjunct. In this connection, it would be equitable for the trial court, upon the further hearing of the case, to ascertain and deduct from the award of damages to plaintiff the reasonable value in use of the personal property supplied by the defendant to the plaintiff in the conduct by him of the Bakersfield office and the performance of the work during that period for which plaintiff was paid a part of the proceeds.

The conclusions incorporated in the judgment insofar as they determine that rescission of the area contract was proper and that the plaintiff is entitled to have returned to him the $25,000 plus legal interest and the award of specified consequential damages as discussed herein (to-wit, $3,065, $550 and $532) are sound and to that extent the judgment is approved. But it is reversed with respect to the allowance of the equivalent of a salary to the plaintiff, to the court's failure to deduct from the award to plaintiff the reasonable valu in use of the equipment furnished him by defendant for the conduct of the Bakersfield office, and to the failure by the trial court to state specifically what should be returned by the plaintiff to the defendant as a consequence of the rescission; the judgment is reversed as to said matters and the trial court is directed to retry those issues and to enter a judgment in accordance with this opinion. Costs on appeal are awarded to appellant.

CONLEY, Presiding Justice.

STONE and GARGANA, JJ., concur.