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

SEAMAN'S DIRECT BUYING SERVICE, INC., Plaintiff and Respondent, v. STANDARD OIL CO. OF CALIFORNIA, INC., Defendant and Appellant.

Civ. 26413.

Decided: March 03, 1982

Pillsbury, Madison & Sutro, Noble K. Gregory, Anthony P. Brown, William S. Mailliard, Jr., C. Douglas Floyd and Mark H. Penskar, San Francisco, for defendant and appellant and cross-respondent. Janssen, Malloy & Marchi, Clayton R. Janssen, Eureka, Lascher & Wilner and Edward L. Lascher, Ventura, for plaintiff and respondent and cross-appellant.

Standard Oil Co. of California, Inc. (Standard) appeals the judgment and a denial of its motion for judgment notwithstanding the verdict in this action by Seaman's Direct Buying Service, Inc. (Seaman).  A cross-appeal from the trial court's remittitur of punitive damages was filed by Seaman.

This action was brought against Standard for breach of contract and certain tortious acts.   The jury returned a verdict on Seaman's four theories of relief as follows:

1) On breach of contract, for Seaman, determining compensatory damages at $397,050;

2) On tortious (bad faith) breach of implied covenant of good faith and fair dealing arising from a contract, for Seaman, determining compensatory damages at $397,050 and punitive damages of $11,058,810;

3) On intentional interference with contractual relations and economic advantage, for Seaman, assessing compensatory damages of $1,588,200 and punitive damages at $11,058,810;

4) On fraud, for Standard.

The judge denied Standard's motion for new trial as Seaman accepted the condition of remittitur of punitive damages to $1,000,000 on the bad faith theory and to $6,000,000 on the interference theory.

Seaman was incorporated in 1966.   Mr. Volpi, Mr. Gromala and Mr. Harland were the original shareholders.   Seaman was engaged primarily in the business of ship's chandlery 1 in the City of Eureka, California.   In 1967, Seaman began supplying fuel to vessels as a consignee of Mobil Oil Corporation (Mobil).

By early 1971, the Federal Economic Development Administration (EDA) tentatively approved Eureka's plans to redevelop its waterfront.   In March 1971, Seaman agreed with Eureka to lease space in the redeveloped waterfront facility to conduct its business.   This lease could be modified to accommodate Seaman's planned expansion in business.   An extremely important aspect of Seaman's plans was to supply fuel to vessels as an independent supplier (not as a consignee), not only because of the inherent profits but also because fuel availability would attract vessels which would procure Seaman's other services and products.

For Seaman to develop this business, it needed a long-term supply contract with a major oil company.   Mobil and Standard were interested in Seaman's business and became the most promising prospects.   In 1971, Seaman began negotiations with Mr. Saupe, Standard's sales representative in Eureka.   Standard wanted Seaman to become a Chevron marine dealer.   Negotiations continued through 1972.

As Eureka needed more certainty regarding Seaman's ability to make lease payments, Mr. Saupe (with the assistance of his superiors at Standard and legal counsel) prepared a letter to Seaman dated October 11, 1972.   This letter invited Seaman's acceptance and agreement to the terms and conditions.   The main points of the letter included:  an initial 10-year supply period with three 10-year options for renewal,2 effective when Seaman occupied the EDA redevelopment facility;  a $75,000 interest-free loan from Standard to Seaman to be paid back at an amortized rate of one cent per gallon; 3  a price discount of four and a half cents per gallon;  and Standard's “right to cure” if Seaman defaulted on its lease to Eureka.   The letter contained significant ambiguity such as twice using the word “offer” but also containing language of future “mutual agreement ․ of the final agreements.”

After the October 11 letter had been signed by Mr. Volpi of Seaman, Eureka and Seaman modified their agreement to increase space leased to Seaman.   Also, Seaman terminated its negotiation with Mobil for a long-term fuel supply contract.   Both parties treated the October 11 document as though some agreement had been reached, although further negotiations on other points continued through most of 1973.

On November 20, 1973, Standard informed Seaman that it was unable to proceed with the plans to partially finance and supply fuel to Seaman because of the federal program of mandatory allocation of petroleum products which was implemented on November 1, 1973, in connection with a world-wide oil embargo problem.   Standard further stated that if the program is withdrawn and Standard's supply situation improves, it would be interested in supplying Seaman's needs.

With Standard's help and advice, Seaman sought relief from the allocation program to enable Standard legally to supply Seaman.   On February 4, 1974, the Federal Energy Office (FEO) issued an order authorizing Standard to supply a specified quantity of fuel to Seaman.   The FEO also authorized Standard to appeal the February 4 order.   Standard did appeal the order because of its supply limitations, a policy change of not seeking new business, and Standard's belief that the order violated federal regulations.   On March 22, 1974, the FEO rescinded its earlier order authorizing Standard to supply Seaman.

Seaman appealed and obtained a temporary fuel supply from Mobil, its base period supplier.4  The FEO denied Seaman's appeal but later granted Seaman an exception from the normal allocation rules over Standard's objection.   This exception was expressly contingent upon a “decree issued by a [California] court ․ determining that a contract between Seaman's and SOCAL [Standard] ․ did in fact exist under state law.”   Seaman requested Standard to stipulate to a declaratory judgment that the October 11 instrument was a binding supply contract.   As Standard no longer wanted to contract with and supply Seaman, it refused to so stipulate.   Had Standard entered a stipulation and a prompt judgment favorable to Seaman occurred, Seaman or its shareholders were in a position to keep the business financially intact until the new facility was completed.   Rather than sue for a declaratory judgment, Seaman discontinued operations.   If Seaman filed suit and was obliged to go to trial, and won a favorable judgment, it would have been too late from Seaman's business standpoint to develop the business.

By April 1976, Eureka had completed the waterfront redevelopment facility.   Eureka tendered to Seaman that part of the facility covered by Seaman's lease agreement, and Seaman defaulted on the rent payments.

Standard first contends the document to support the alleged contract did not contain essential terms and, therefore, failed to satisfy the statute of frauds.   We analyze this contention in two parts:  is the contract governed by the statute of frauds, and is an essential term omitted so as to make the writing defective and violative of the statute?

 An agreement which by its terms cannot be performed within one year must be in writing (Civ.Code, § 1624, subd. 1).   As the October 11 document calls for a 10-year supply period, it is subject to the Civil Code's statute of frauds.

 A contract for the sale of goods in excess of $500 must also be in writing and is not enforceable beyond the quantity of goods shown in the writing (Com.Code, § 2201, subd. (1)).  Seaman contends because the October 11 document encompasses far more than just a sale of goods, it is not subject to the Commercial Code provision.   We reject this position as Standard's sale of goods to Seaman was the substantial and predominant aspect of the agreement.  (See Steiner v. Mobil Oil Corp. (1977) 20 Cal.3d 90, 98, 141 Cal.Rptr. 157, 569 P.2d 751.)   Thus we find the agreement subject to both provisions of the statute of frauds.

 In discussing the statute of frauds, cases have distinguished the existence of the memorandum which evidences an agreement from the agreement itself.  (See, e.g., Crowley v. Modern Faucet Mfg. Co. (1955) 44 Cal.2d 321, 323, 282 P.2d 33.)  “A memorandum functions only as evidence of the contract and need not contain every term.”  (Kerner v. Hughes Tool Co. (1976) 56 Cal.App.3d 924, 934, 128 Cal.Rptr. 839.)   Although the essential terms of the contract must be in writing (1 Witkin, Summary of Cal.Law, Contracts, § 206, p. 187), omitted inessential terms will be reasonably supplied (see Kerner, supra, at pp. 933–934, 128 Cal.Rptr. 839).   The law does not favor but leans against the destruction of contracts because of uncertainty;  and it will, if feasible, so construe the agreement as to carry into effect the reasonable intentions of the parties if that can be ascertained (Boyd v. Bevilacqua (1966) 247 Cal.App.2d 272, 287, 55 Cal.Rptr. 610).   Oral or extrinsic evidence may not be used to contradict the terms of the writing (Com.Code, § 2202).   Evidence of trade usage or course of dealing is admissible to explain ambiguity in the agreement (Com.Code, § 2202, subd. (a)).

 In the present case, Standard contends the writing was deficient as to the essential terms of quantity, price, parties and term.

We find the October 11 memorandum sufficient regarding price.   Seaman was to pay Standard's posted wholesale prices less four and a half cents per gallon for Diesel No. 2 and four cents per gallon for Diesel No. 1 for fuel delivered in tank loads.   The parties and term of the agreement were clear although some ambiguity existed as to who controlled the three 10-year options.   It would have been reasonable to construe this ambiguity against Standard, the party who drafted the agreement, but other evidence shows Standard controlled the option rights.

We are most concerned with the quantity.   As an essential term, it must be reduced to writing.   Further, the statute of frauds of Commercial Code section 2201 states the contract is unenforceable beyond the quantity shown in the writing.   However, a “requirements contract” is specifically authorized by Commercial Code section 2306 and may sufficiently define the quantity term so as to satisfy the statute of frauds.   As the October 11 agreement contemplated Seaman as a Chevron marine dealer, it is reasonable to conclude that Standard would supply Seaman's fuel requirements and Seaman would buy exclusively from Standard.   Other writings of the parties show estimated requirements.   Trade usage and business custom are also relevant.  “Under subdivision (a) of section 2202 [of the Commercial Code], established trade usage and custom are a part of the contract unless the parties agree otherwise.   Since the contracts in question are silent about the applicability of the usage and custom, evidence of such usage and custom was admissible to explain the meaning of the quantity figures.”  (Heggblade-Marguleas-Tenneco, Inc. v. Sunshine Biscuit, Inc. (1976) 59 Cal.App.3d 948, 955, 131 Cal.Rptr. 183).   Also, it is Hornbook law that ambiguity in a written contract should be construed contrary to the drafting party (see 1 Witkin, Summary of Cal.Law, Contracts, § 535, pp. 456–457).   Hence, Standard should not complain of the ambiguity it created.   To resolve this ambiguity, testimony showed Seaman believed the agreement to be a requirements contract.   We hold the contract to be enforceable.

The next issue concerns Seaman's recovery on the theory of intentional interference with contractual relations and economic advantage.   The essence of Seaman's claim is that Standard's conduct interfered with and caused Seaman to breach its lease with Eureka and thereby lose substantial anticipated profits.   The alleged malevolent conduct is Standard's breach of contract, appeal of the FEO order which authorized Standard to supply Seaman despite the federal mandatory allocation program, and failure to stipulate to the existence of a contract with Seaman.

Standard contends the trial court erroneously instructed the jury, thus permitting tort recovery with punitive damages on breach of contract allegations.   It contends the instructions precluded jury consideration of Standard's asserted privileges and its alleged absence of intent to interfere.

 The tort which is involved in the present case, “intentional interference with contractual relations,” has common principles with intentional interference with prospective economic advantage (Lowell v. Mother's Cake & Cookie Co. (1978) 79 Cal.App.3d 13, 17, 144 Cal.Rptr. 664).   These torts are relatively new and their present scope and limits are somewhat vague (ibid.).   To be actionable, the defendant's conduct which interferes with the relationship between plaintiff and another party, i.e., Eureka, “must be unjustified and/or without privilege” (id. at p. 18, 144 Cal.Rptr. 664).   The cases “ ‘ “have turned almost entirely upon the defendant's motive or purpose, and the means by which he” ’ ” seeks to interfere (ibid.).5  Thus, “defendant's motive or purpose frequently is the determining factor” (Prosser, Law of Torts (4th ed. 1971) § 129, p. 927).

 Standard contends several of the jury instructions were erroneous, but we focus our attention on those instructions dealing with Standard's “state of mind.”   The court instructed the jury Seaman must prove as an element of the tort “that Standard Oil acted intentionally to disrupt the relationship.”   The court further instructed, “A defendant is deemed to have acted intentionally if it knew disruption or interference with an advantageous relationship was substantially certain to result from its conduct.” 6  On Seaman's request, the court also instructed that a “party's erroneous belief that its conduct was required or sanctioned by law cannot serve as an excuse or justification.”

We find these instructions to be erroneous.   They gave the jury an improper understanding of intent.   The instructions precluded the jury from even considering Standard's motive and purpose.   Rather, the jury was told Standard's knowledge that Seaman would not be able to perform its lease with Eureka was the sole “state of mind” necessary to establish liability.   It denied Standard the substance of its defense it acted without tortious intent but rather in an honest belief the contract was unenforceable due to the federal allocation program or the statute of frauds.   The instructions also deny Standard the defense that even if it breached an enforceable contract, it did so without a motive to deliberately hinder Seaman's performance with Eureka.   Under the facts of the present case, these erroneous instructions encouraged a finding of tort liability even if Standard proved it had a good faith and reasonable belief that it need not or could not perform its alleged contract with Seaman.

 The jury instructions relating to Standard's appeal of the FEO order also cast an improper disparagement on that act.   At Seaman's request, the following instructions were given:

“It is no justification for Standard Oil's interference that the FEO (that's the Federal Energy Office) rescinded its initial assignment of Standard Oil as Seaman's supplier, since Standard Oil was under no legal obligation to appeal that initial assignment and the FEO did not request Standard Oil to take such an appeal.” 7

The instruction is substantively wrong.   Seaman obtained the FEO order which had an impact on Standard's fuel supply and compliance with federal regulations.   Standard, which no longer wanted to supply Seaman and which presumably believed it legally could not, had a right to appeal.   It exercised this right, and the FEO's rescission of its original order vindicated Standard's position.   Although Standard was not required or requested to appeal, it was entitled to do so.   The motives for securing a proper adjudication can reach far beyond the instant contract.   Such conduct, especially when the legal position proves correct, is not improper.  “[I]t is well settled that no actionable wrong is committed where ․ the defendant's conduct consists of something which he had an absolute right to do [citations].”  (Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 996, 135 Cal.Rptr. 720 (action for intentional interference with contract rights).)   It was wrong to instruct in essence that one who exercises a right when he has no obligation to do so, by that reason alone, is not justified in exercising the right.

 The jury was also instructed erroneously as to the effect of Standard's failure to stipulate to the existence of a contract with Seaman:

“Standard Oil could have complied with the Federal Energy Act and all regulations thereunder by stipulating to the entry of a decree for declaratory relief and a judgment for declaratory relief, or otherwise admitting the existence of a valid contract between Standard Oil and Seaman's.”

The effect of this instruction is to hold Standard liable in tort despite a good faith and reasonable (but wrong) belief that no contract existed.   The existence of an enforceable contract was hotly contested at trial and on appeal and with credible merit.   However, these instructions suggest if Standard does not forego its right to have the validity of the contract adjudicated, the element of intentional and wrongful interference follows.   Again, the jury is precluded from correctly considering the critical element of Standard's motive or purpose.   Therefore, these instructions of alleged misconduct by Standard were erroneous and prejudicial.   It is probable that had instructions been given which correctly reflected the law, the jury would have reached a verdict more favorable to Standard on the intentional interference claim.   Therefore, we hold the judgment in favor of Seaman on the claim of intentional interference with contractual relations or economic advantage must be reversed.

Standard finally contends Seaman's judgment for tortious breach of the implied covenant of good faith and fair dealing arising from a contract must be reversed.   Standard advances two grounds for its position:  the judgment is contrary to law;  the jury instructions were erroneous.   We will initially examine the first ground.

 “There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.  [Citations.]”  (See, e.g., Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658, 328 P.2d 198.)   Both parties agree this rule is clearly established.   The crux of the appeal here, however, is whether this rule authorizes damages in the tort context and, if so, it should apply in the present case.

Damages in contract for breach of the implied covenant are governed by Civil Code section 3300.8  On the other hand, when recovery is alleged in tort exemplary damages are authorized (Civ.Code, § 3294).9

Cases finding that a breach of the implied covenant of good faith and fair dealing is a tort, deal with specially limited circumstances.   The cases we have examined have invariably allowed recovery for damages in contract for the breach of such an implied covenant.  (Bleecher v. Conte (1981) 29 Cal.3d 345, 350, 626 P.2d 1051;  Crail v. Blakely (1973) 8 Cal.3d 744, 749–750, 106 Cal.Rptr. 187, 505 P.2d 1027;  Redke v. Silvertrust (1971) 6 Cal.3d 94, 100, 98 Cal.Rptr. 293, 490 P.2d 805;  Flying Tiger Line, Inc. v. U. S. Aircoach (1958) 51 Cal.2d 199, 203–204, 331 P.2d 37 (with fraud implications);  Nelson v. Abraham (1947) 29 Cal.2d 745, 751, 177 P.2d 931;  Masonite Corp. v. Pacific Gas & Electric Co. (1976) 65 Cal.App.3d 1, 9, 135 Cal.Rptr. 170.)   Something more is required, however, before recovery in tort is justified.   The nature and extent of the duty imposed by such an implied promise will depend on the contractual purposes.

Special contractual purposes of insurance contracts are indicated by passages from the cases such as the following:

“[The insured] did not seek by the contract involved here to obtain a commercial advantage but to protect herself against the risks of accidental losses, including the mental distress which might follow from the losses.   Among the considerations in purchasing liability insurance, as insurers are well aware, is the peace of mind and security it will provide in the event of an accidental loss, and recovery of damages for mental suffering has been permitted for breach of contracts which directly concern the comfort, happiness or personal esteem of one of the parties.  (Chelini v. Nieri, 32 Cal.2d 480, 482 [196 P.2d 915].)”  (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 434 [58 Cal.Rptr. 13, 426 P.2d 173].)

“The insured in a contract like the one before us does not seek to obtain a commercial advantage by purchasing the policy—rather, he seeks protection against calamity.   As insurers are well aware, the major motivation for obtaining disability insurance is to provide funds during periods when the ordinary source of the insured's income—his earnings—has stopped.   The purchase of such insurance provides peace of mind and security in the event the insured is unable to work.”  (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819 [169 Cal.Rptr. 691, 620 P.2d 141].)

Thus it becomes clear insurance companies carry a special responsibility to honor this implied covenant giving rise to an action sounding in tort where the covenant is breached (see Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809, 818–819, 169 Cal.Rptr. 691, 620 P.2d 141;  Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 575, 108 Cal.Rptr. 480, 510 P.2d 1032).   Moreover, failure of the insurer to honor the covenant accompanied by oppression, fraud, or malice will justify the award of punitive damages under Civil Code section 3294 (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922–923, 148 Cal.Rptr. 389, 582 P.2d 980).   As is said in Egan, supra :

“In the present context, the principal purpose of section 3294 is to deter acts deemed socially unacceptable and, consequently, to discourage the perpetuation of objectionable corporate policies.  [Citation.]  Traditional arguments challenging the validity of exemplary damages lose force when a punitive award is based on this justification.   The special relationship between the insurer and the insured illustrates the public policy considerations that may support exemplary damages in cases such as this.

“As one commentary has noted, ‘The insurers' obligations are ․ rooted in their status as purveyors of a vital service labeled quasi-public in nature.   Suppliers of services affected with a public interest must take the public's interest seriously, where necessary placing it before their interest in maximizing gains and limiting disbursements ․  [A]s a supplier of public service rather than a manufactured product, the obligations of insurers go beyond meeting reasonable expectations of coverage.   The obligations of good faith and fair dealing encompass qualities of decency and humanity inherent in the responsibilities of a fiduciary.   Insurers hold themselves out as fiduciaries, and with the public's trust must go private responsibility consonant with that trust.’  (Goodman & Seaton, Foreword:  Ripe for Decision, Internal Workings and Current Concerns of the California Supreme Court (1974) 62 Cal.L.Rev. 309, 346–347.)   Furthermore, the relationship of insurer and insured is inherently unbalanced;  the adhesive nature of insurance contracts places the insurer in a superior bargaining position.   The availability of punitive damages is thus compatible with recognition of insurers' underlying public obligations and reflects an attempt to restore balance in the contractual relationship.  [Citations.]”  (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809, 820, 169 Cal.Rptr. 691, 620 P.2d 141.)

We detect an unwillingness on the part of the Supreme Court to expand the law allowing recovery in tort, including punitive damages, for the breach of every commercial contract.   Where the dominant purpose of such a contract is merely the obtaining of a commercial advantage and there attends to it no particular aspect of protection against mental distress, no special relationship giving rise to public policy or public interest considerations and no lack of balance in the contractual relationship as is characteristic in contracts of adhesion, tort recovery including punitive damages is not available.

The only case brought to our attention which finds tort liability for breach of contract covenants outside the areas of insurance coverage or involving a special relationship is Photovest Corp. v. Fotomat Corp. (7th Cir. 1979) 606 F.2d 704, cert. den. 1980, 445 U.S. 917, 100 S.Ct. 1278, 63 L.Ed.2d 601.

In Photovest, the federal District Court found defendant Fotomat breached its implied covenant of good faith and fair dealing (id. at pp. 727–728).   Although this finding is proper, Fotomat claimed the court had misapplied and broadly expanded California law by allowing tort recovery for such contract covenant breach.   The Seventh Circuit Court responded that this California doctrine is not limited exclusively to insurance cases (id. at p. 728), and to this extent we are in accord.   Unfortunately, the court provided us with no California authority for just how far we might expand the liability in tort for breach of a covenant in contract.   The California cases the Seventh Circuit cites to support its response are inapposite because they do not establish tort liability in California for breach of implied contract covenants.10  Moreover, the Seventh Circuit stated:

“The district court held that Fotomat's ‘multiple breaches of its contract with Photovest constitute under Indiana law an oppressive, intentional, and tortious wrong for which punitive damages are appropriate.  [Fn. omitted.]   The court would reach the same conclusion under California law.’ ”  (Italics added;  id. at p. 729.) 11

We do not accept the federal district court's conclusion relative to California law and, in any event, it is clear from the Court of Appeals' decision in Photovest that the law of Indiana, not California, was being applied in that case.12

 Our review of California law shows tortious breach of contract presently has developed only in those areas where public policy or a special relationship justifies the imposition of a more severe measure of damages.13  In addition, it is the well settled rule of the state that punitive damages may not be awarded in an action based on breach of contract, even though the defendant's breach was willful or fraudulent (Dryden v. Tri-Valley Growers, supra, 65 Cal.App.3d 990, 999, 135 Cal.Rptr. 720).

The reasons for imposing liability for tortious breach of contract in the insurance context do not apply in the context of a typical commercial contract such as is evidenced by the record here (see Egan, supra, 24 Cal.3d at p. 819, 169 Cal.Rptr. 691, 620 P.2d 141;  Crisci, supra, 66 Cal.2d at p. 434, 58 Cal.Rptr. 13, 426 P.2d 173).   This contract was for commercial advantage only.

This court recently considered the issue at bar in a commercial loan context, holding the tort recovery was inapplicable to that case (see Wagner v. Benson (1980) 101 Cal.App.3d 27, 161 Cal.Rptr. 516).   In Wagner, at page 33, 161 Cal.Rptr. 516, we stated:

“In every contract there is an implied covenant of good faith and fair dealing ․  A breach of this duty may be a tort as well as a breach of the underlying contract [citations].   However, not every breach of the covenant of good faith and fair dealing creates liability in tort.   A bad faith cause of action sounding in tort has never been extended to contractual relationships other than in the insurance field (see Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 135, fn. 8 [135 Cal.Rptr. 802] ).   This does not mean such claims are limited only to insurance transactions.   Modern tort law is not confined to causes of action recognized by legal precedent [citation].”  (Italics added.)

This correct description of the state of the law shows insurance cases do not necessarily represent the limit of possibility of tort recovery.   We can properly conclude, however, it is not available in ordinary commercial contracts.   The judgment allowing damages based on breach of the implied covenant of good faith and fair dealing must be reversed with direction to dismiss the cause of action.

This holding obviates the need to discuss Standard's contention of erroneous jury instructions.   This holding and the holding reversing judgment in favor of Seaman on the intentional interference action also obviate the need to address Seaman's cross-appeal from the remittitur of punitive damages.

Both theories of relief stem from common facts.   Seaman concedes, and we hold to be the law of the case, that Seaman may recover ultimately on only one theory of law.

Judgment for Seaman on the action for intentional interference with contractual relations and economic advantage is reversed with directions to conduct further proceedings consistent with this opinion.   Judgment for Seaman on the action for breach of implied covenants of good faith and fair dealing is reversed with directions to dismiss.   In all other respects, judgment is affirmed.   Each party shall bear its own costs on appeal.


1.   Supplying facilities, stores and services to vessels.

2.   The document was silent as to which party controlled the options, but prior negotiations indicated Standard did.

3.   It was unclear what would happen to the one cent per gallon amortization payment after Seaman paid the loan.   Would the discount increase from four and a half cents to five and a half cents or would the one cent discount be lost by Seaman?

4.   Mobil was no longer interested in a long-term supply contract with Seaman.

5.   The tort is an intentional one.   However, cases have required something more than ordinary “intent.”   For example, “intentional acts by [defendant] calculated to destroy or disrupt” was required in Jos. Schlitz Brewing Co. v. Downey Distributor (1980) 109 Cal.App.3d 908, 917, 167 Cal.Rptr. 510.In Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc. (1981) 116 Cal.App.3d 111, 126, 172 Cal.Rptr. 74, this court used the language “defendants' intentional conduct designed to disrupt the relationship” (citing Buckaloo v. Johnson (1975) 14 Cal.3d 815, 827, 122 Cal.Rptr. 745, 537 P.2d 865).A recent Ninth Circuit Court decision, applying California law under pendent jurisdiction, states:“Tortious interference requires a state of mind and a purpose more culpable than ‘intent’ under the Restatement definition ․  Inquiry into the motive or purpose of the actor is necessary․  Where the actor's conduct is not criminal or fraudulent, and absent some other aggravating circumstances, it is necessary to identify those whom the actor had a specific motive or purpose to injure by his interference and to limit liability accordingly.   The extent of liability, for this tort, is fixed in part by the motive or purpose of the actor.”  (DeVoto v. Pacific Fid. Life Ins. Co. (9th Cir. 1980) 618 F.2d 1340, 1347.)Also, interesting in DeVoto is the discussion distinguishing J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60 (negligent interference with prospective economic advantage).  J'Aire is a specific application of the tort of negligence.   As in all negligence cases, foreseeability of harm is crucial.   Intentional interference, which unlike negligence may warrant punitive damages, focuses on the motive and purpose of the defendant.  J'Aire, therefore, is clearly distinguishable.

6.   Seaman requested this instruction and cited Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 922, 114 Cal.Rptr. 622, 523 P.2d 662 (a case involving fraud, deceit and conversion) and the Second Restatement of Torts, section 766.

7.   The California authority cited in support of this instruction, Lowell v. Mother's Cake & Cookie Co., supra, 79 Cal.App.3d 13, 20, footnote 1, 144 Cal.Rptr. 664, does not furnish authority for the instruction.   The Lowell footnote talks about the defense of justification by giving requested advice as set forth in Restatement of Torts section 772 (see also Walsh v. Glendale Fed. Sav. & Loan Assn. (1969) 1 Cal.App.3d 578, 588–589, 81 Cal.Rptr. 804).  Lowell observes there was no suggestion third parties had made a request of defendant for advice, one of the elements necessary to establish this defense.   Thus, the defense was inapplicable in that case.Likewise, here this defense may not apply because there is no showing of a request for advice.   But the mere inapplicability of one of several defenses to the tort does not authorize giving such an instruction.   Other defenses of justification may apply.   Moreover, each such instruction on a defense of justification which is supported by evidence should be framed in terms of its elements (see, e.g., Walsh, supra, 1 Cal.App.3d 578, 588–589, 81 Cal.Rptr. 804) and the question of its presence or absence should be left to the jury.   By contrast here, the jury was directed as a matter of law FEO's rescission was no justification to Standard's interference.

8.   Civil Code section 3300 states:  “For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this Code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.”

9.   Civil Code section 3294 reads as follows:“(a) In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.“(b) An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice.   With respect to a corporate employer, the advance knowledge, ratification, or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.“(c) As used in this section, the following definitions shall apply:“(1) ‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or conduct which is carried on by the defendant with a conscious disregard of the rights or safety of others.“(2) ‘Oppression’ means subjecting a person to cruel and unjust hardship in conscious disregard of that person's rights.“(3) ‘Fraud’ means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.”

10.   Schoolcraft v. Ross (1978) 81 Cal.App.3d 75, 146 Cal.Rptr. 57 (contract damages) and Osborne v. Cal-Am Financial Corp. (1978) 80 Cal.App.3d 259, 145 Cal.Rptr. 584 (rescission) allow a remedy only in contract;  Ohashi v. Verit Industries (9th Cir. 1976) 536 F.2d 849, involved fraudulent misrepresentation which the jury found not to be present here.

11.   In applying Indiana law, the Seventh Circuit affirmed the punitive damages award but reversed the compensatory damages award for tortious breach of contract.   The breach of contract measure was sufficient compensatory damages (id. at p. 730).

12.   “[T]he [district] court apparently applied Indiana law regarding tortious breach of contract because the tort occurred in Indiana.   The parties have not contested this.”  (Id. at p. 729, fn. 36.)“It is, therefore, clear under Indiana law that in the proper circumstances punitive damages may be awarded on a tort theory in a breach of contract case.”  (Id. at p. 729.)

13.   In Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330, the court found it unnecessary to decide whether tort recovery would be available for breach of implied covenants of good faith and fair dealing (id. at p. 179, fn. 12, 164 Cal.Rptr. 839, 610 P.2d 1330).  Tameny involved an employer (fiduciary) which discharged an employee who was directed but refused to commit an illegal act.   The employer was held liable in tort on the common law doctrine of wrongful discharge (id. at p. 178, 164 Cal.Rptr. 839, 610 P.2d 1330).

COLOGNE, Acting Presiding Judge.

STANIFORTH and WORK, JJ., concur.

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