Langenberg v. Guy

FINLAYSON, P. J.

This is an action to recover damages for the alleged breach of a contract. Judgment passed for plaintiff. Defendant, appealing from that judgment, claims, among other things, that his conduct did not amount to a breach of his agreement. If this contention be well taken it is determinative of the ease, and in that event it will not be necessary to consider any of the other points presented by the appeal.

Defendant offered in writing to employ plaintiff’s truck and driver for the hauling of lumber for one year if plaintiff would purchase a certain Indiana truck outfit then owned by defendant’s son-in-law, one Arthur L. Knudson. When he made the proposal, August 6, 1920, defendant was the sole owner of a lumber business carried on by him in the city of Los Angeles under the name of Pico Heights Lumber Company. The instrument which evidences the proposal, the italics being ours, is as follows:

“August 6, 1920.

“Mr. G. 0. Langenberg,

“Los Angeles, Calif.

“Dear Sir:

“In consideration of the purchase of the Indiana truck outfit from our Mr. Knudson we will employ your truck and driver for lumber hauling for a period of one year from date of delivery of new truck, as our business warrants. This is based on city hauls, excluding the shoestring strip and San Fernando district, at $2.00 per M. board feet and the prevailing rate to outside points, and on loads of from 3000 to 6000 feet.

■“ [Signed] Pico Heights Lumber Company,

“By Geo. F. Guy.”

Plaintiff claims that some time prior to September 25, 1920, he purchased the truck of Knudson in accordance with defendant’s offer; that such purchase, became and was a sufficient executed consideration for defendant’s promise; and that thereupon defendant immediately became legally obligated to perform his promise to employ plaintiff’s truck and driver in the hauling of lumber for the one-year period mentioned in the written offer. Plaintiff commenced hauling lumber for defendant on September 25, 1920, under -the terms of the written offer, and continued to do so until November 12, 1920, on which day defendant sold his business to a third party and thereupon notified plaintiff that, as he did not have any more business, he would have no more hauling for him to do. There is no suggestion that the sale of the business was not bona fide in every particular.

Respondent claims that appellant, by selling his business, voluntarily put it out of his power to perform his part of the contract, thus preventing performance by respondent, and that such prevention of performance constituted a breach of the contract by appellant, entitling respondent immediately to sue for damages. Appellant, on the other hand, claims that his contract contains neither an express nor an implied undertaking on his part not to sell his business ; that, therefore, he could sell as he did without thereby violating his agreement; and that his sale of the business and his consequent inability to continue hiring respondent’s truck and driver did not subject him to damages as for a breach of contract.

The ease turns upon the proper interpretation to be put upon the contract as evidenced by appellant’s written offer. As in most cases of the kind, but slight if any assistance can be derived from judicial decisions on other contracts, save in so far as the reasoning of the courts in other cases may prove helpful as guides to a correct interpretation of the particular contract under consideration. In the main each case must rest upon it own bottom.

The words of the contract which are of vital significance—■ the ones which we think are determinative of appellant’s right to sell his business prior to the expiration of one year —are the words, “as our business warrants.” With this language in the contract appellant’s only undertaking was to employ the truck and its driver during the year as warranted by his business. Bearing in mind this provision, we now proceed to consider the nature of appellant’s obligation in so far as his right to sell his business is concerned.

There is no basis for a contention that appellant has violated any express term of his contract. In no part of the instrument signed by him does he expressly covenant not to sell his business. Therefore, whether he could rightfully sell it during the year without breaching his contract with respondent depends entirely upon whether the contract imports an implied obligation on appellant’s part not to sell the business prior to the year’s expiration. That, in the last analysis, is the ultimate question presented for solution. If the contract does import such an implied undertaking on appellant’s part, then upon selling the business before the end of the year he would become liable as for a breach of Ills agreement. For of course it must be conceded that where a party to a contract of employment obligates himself by either an express or an implied agreement not to disable himself from continuing the employment for a stipulated time, he will make himself liable in damages for breach of contract if, by a sale of his business before the expiration of the stipulated period, he voluntarily puts it out of his power to continue the employment to the end of its term in the manner agreed to by him. (White v. Lumiere North Americam Co., 79 Vt. 206 [64 Atl. 1121], and notes to that case in 6 L. r. A. (N. S.), p. 807 et seq.) It may also be conceded that, in the absence of some provision in a contract of employment which tends to negative the implication that the employment will continue uninterruptedly during a specified term, one who has bound himself to employ another during a definite time for a compensation, the amount whereof can be earned and determined only by an actual performance of the services over the whole of the stipulated period, will render himself liable for damages for breach of contract if he makes a disposition of his affairs which renders it impossible for him to receive the services in the manner contemplated by the contract. (Note to Turner v. Sawdon & Co., 2 B. R. C. 774.) In every such case the question in the last analysis is simply this: Do the terms of the contract—and, if the contract is ambiguous, do the circumstances under which it was made —necessitate the implication that the employer has undertaken not to dispose of his business during a fixed period of time ?

As we have pointed out, any claim that appellant breached his contract necessarily must be grounded upon the theory of an implied undertaking on his part not to sell his business before the expiration of the year, there being no express agreement on his part not to do so. The question then is this: Does an agreement to hire a truck and its driver to haul lumber for a year, as the business of the hirer warrants, carry an implied obligation on the hirer’s part that he will not during the year put it out of his power to continue furnishing lumber for hauling?

The words “as our business warrants” give to the hirer of the truck a latitude and a freedom of action and often found in contracts of employment for a definite period. Their presence here makes this contract of employment somewhat analogous to those contracts of purchase and sale where the buyer agrees to take such an amount of goods as he may “require” in the course of his business. It seems to be generally held in actions to recover damages for the breach of such “requirement contracts,” as they often are called, that if the buyer sells his business and thus reduces his requirements to the vanishing point, he does not thereby breach his contract. Thus in Drake v. Vorse, 52 Iowa, 417 [3 N. W. 465], the plaintiff, a manufacturer of castings, and the defendant, a manufacturer of school furniture, entered into a contract whereby the former was to furnish the latter with all the castings which the defendant “may want” during the year 1873. In May of that year the defendant formed a partnership with another, and thereafter the business was carried on by the firm, which refused to receive any castings from the plaintiff. It was held that the defendant had the right to discontinue his business at any time; that he did so when he formed the partnership; that the contract was not binding on the firm, and that the defendant was not liable for damages, though the plaintiff had incurred considerable expense in preparing for the manufacture of the castings and the defendant had made a general statement at the time of entering into the contract as to the amount he would probably want during the year. In that ease the court says: “But, conceding that it [the contract] bound him [the defendant] to order and take of the plaintiff all the castings he should want, it could not, we think, have the effect to preclude him from entering into a partnership, nor could it become obligatory upon the firm. It was certainly the defendant’s privilege to discontinue business at any time when it should appear to him that his interest demanded it, and that, too, without becoming liable to the plaintiff in damages. He did discontinue business upon his individual account. After that he did not individually want or need any castings, and as the firm was not bound to take any we do not think that the defendant became liable.” The following cases are to the same effect: McKeever Canonsburg Iron Co. v. McKeever, 138 Pa. 184 [16 Atl. 97, 20 Atl. 938]; Kanaskat L. & S. Co. v. Cascade Timber Co., 80 Wash. 561 [142 Pac. 15]; Hamlyn & Co. v. Wood & Co. [1891], 2 Q. B. 488; Pfann v. Turner etc. L. Co., 194 Fed. 69 [114 C. C. A. 89]. See, also, Kenan etc. v. Yorkville etc. Co., 260 Fed. 28 [171 C. C. A. 64]. In a note to Diamond Alkali Co. v. Aetna Explosives Co., 7 A. L. R., at page 507, the annotator, speaking of these “requirement contracts,” says: “Where the buyer exercises good faith and is free from fraud in disposing of, or making a change in, his business, such change will have the effect of releasing him from the obligation of the contract to purchase his requirements of a certain commodity used in his certain business, to the extent that the change in the business does away with the necessity for the use of the commodity.”

But quite irrespective of whether this contract may or may not be regarded as akin to those contracts of sale where the buyer’s agreement is to take such articles as the exigencies of his business may require during a fixed period of time, there are other considerations which point unerringly to the conclusion that appellant did not impliedly obligate himself not to sell his business during the one-year period. He did not bind himself to furnish respondent with any particular amount of lumber for hauling, nor did he agree to compensate respondent except for lumber hauled by the latter as and when warranted by the business. Bespondent, therefore, assumed certain risks which were every whit as fatal to his right to haul lumber throughout the year as a sale of appellant’s business would be. Those other risks were left altogether uncovered by the contract. They are risks against which it cannot be said that there was any protection by implication. For example, since appellant 'was obliged to employ the truck and its driver only so far as his “business warrants,” it is clear that■ if, during any part of the year, the prices of lumber had declined to a point where the business could not be carried on with profit, he could have closed Ms establishment and could have held his lumber for better prices, even though respondent may have been left for the better part of the year without any lumber to haul. Or appellant might have had labor troubles with his workers, such as strikes, which would have made it inexpedient for him to endeavor to move any lumber during the greater part of the year. Since risks of this character were indubitably assumed by respondent, the reasoning of the English court in Rhodes v. Forwood, 1 App. Cas. 256, 265, becomes pertinent. There Lord Cairns says: “ . . . there are really in this agreement several risks which are left altogether uncovered, and as to some of which it was very candidly admitted by the counsel for the respondents that no provision whatever was made, and that they could not say that there was even by implication any protection against those risks.” Then, after pointing out what these risks were, including, among others, the closing of the principal’s colliery on account of low prices, strikes, etc., Lord Cairns proceeds: “ ... if ... it could not be contended that there is any provision in this contract against any of those risks, why is it to be assumed with regard to the other, the fourth risk, namely, the risk of the colliery owner, not selling his coal elsewhere piecemeal but selling the colliery itself to a purchaser, that there is an implied undertaking against that one risk, although it is admitted that there is no undertaking at all against any of the other risks? . . . The simple point here appears to me to be, as it is admitted that there is no express contract which has been violated, can your Lordships say that there is any implied contract which has been violated? I can find none. I cannot find any implied contract that the colliery owner would not sell his colliery entire.” This ease was followed in Morris v. Dinnick, 25 Ont. Rep. 291, where the court says: “There is no undertaking [on the "part of defendant] to manufacture any defined quantity of goods, or indeed to manufacture at all; and according to the class of cases applicable, no such term should be implied. . . . In brief, this plaintiff was to get commission on the sale of all goods manufactured by the defendants, but they did not say they would manufacture; and the continuance of the concern was, therefore, left at large to be determined by the interests of the principal.”

Appellant, and not respondent, was the judge, and the sole judge, of how his lumber business should be conducted. As we have pointed out, there was no undertaking on appellant’s part to furnish respondent with any definite quantity of lumber for hauling. Indeed, appellant was not bound to operate his business at all if it appeared that he could not do so except at a loss. And if he could altogether cease operating his,business, he could sell it and get rid of it. Having the right to reduce his business to a minimum—and he unquestionably did have that right, since he was the sole judge of how the business should be managed to meet the varying exigencies arising from time to time—it follows that he had the right to reduce it to nothing, so far as respondent was concerned. What was said in In re English etc. Ins. Co., L. R. 5 Ch. 737, is in point. There a person entered into an agreement with an insurance company to act as the company’s agent for five years at a fixed annual salary and a commission of ten per cent on the net profits of each year. Less than two years after the agreement was entered into the company was wound up voluntarily. It was held that the agent was not entitled to damages by reason of the company having put it out of his power to make profits. “I am of the opinion,” says James, L. J., “that this was a contract which did not give the servant the right to determine what the extent of the business was to be. He could not call upon the directors to issue new policies, to accept new premiums, or to take new risks, if they were not minded to do it. He could not say, ‘Such a person has brought in a policy of insurance, and you must accept that. ’ Because, if he had a right to say ‘You must carry on the business,’ he would also have a right to say ‘You must carry on the business in the usual and proper manner, ’ and that would be giving a servant the right of controlling the master in the' mode in which he chose to carry on his business. Now, I am quite satisfied that the meaning of the contract was nothing of the kind. It was never intended to give the servant the right of dictating as to the extent of business, whether more or less, or nothing, but he simply took the chance of the company finding it a profitable business and carrying it on. The company had a right to reduce the business to a minimumj and if they had a right to reduce it to a minimum, they had a right to reduce it to nothing ■—as far as he was concerned. [Italics ours.] I was referred to a case at Common Law, McIntyre v. Belcher, 14 Com. B. (N. S.) 654, where this illustration was given: ‘If I sell a man all the apples from my apple tree, I have no right to cut down that tree. ’ But that is essentially different from a man saying ‘I am going to buy and sell apples, and I will give you 10 per cent upon the profits of the sale of them. ’ That must, of course, depend upon the amount of apples which the man who enters into the speculation will buy, and what price he will be able to sell them at. In such a case the other party could not say, ‘You are not making profits, because you go to a wrong market and buy upon bad terms; you have not got sufficient capital, and you are selling at a loss in order to get money. Therefore I am entitled to damages for the improper mode in which you carry on your business. ’ ”

What was said by Lord Esher in Hamlyn & Co. v. Wood & Co., supra, is pertinent here. There the defendants, who carried on business as brewers, entered into an agreement in writing by which they agreed to sell to the plaintiffs, and the plaintiffs agreed to buy, all the grain “made” by defendants from July 19, 1885, to September 30, 1895, at the average of the rates charged each year by certain specified firms. It will be noticed that the agreement was, not that defendants would sell the plaintiffs grain for ten years, but that they would sell, and the plaintiffs would buy, all grain made by the defendants for ten years. In 1890 the defendants sold their business, and in consequence ceased to supply grains to the plaintiffs. It was held that the contract did not contain any implied obligation on defendants’ part not to prevent themselves from continuing the sale of grains to the plaintiffs for the ten-year period. In the course of his opinion Lord Esher says: “It is admitted in the present case that there has been no breach of any express stipulation of the agreement, and therefore we are asked to imply a stipulation of which there has been a breach. The stipulation we are asked to imply is, not that the defendants contracted to carry on their business for ten years, but that they contracted that they would not during that period wilfully do anything to prevent their so doing; If you cannot imply the first of these stipulations as a matter of business, I should think it would be very difficult to imply the second.” So here, the terms of the contract before us do not include an implied undertaking on appellant’s part to carry on his lumber business during all of the year regardless of prices, strikes, or other contingencies affecting profits. And if we cannot imply an obligation on the part of appellant to carry on his business during the year, then, as was said in substance by Lord Esher, it would be very difficult to imply that he contracted that he would not during that period voluntarily do anything to prevent his carrying on his business.

Our conclusion from the foregoing is that the sale of appellant’s business, though it put it out of his power to furnish respondent with any more lumber for hauling, did not violate any express or implied term of the contract.

None of the cases relied upon by respondent conflicts with our conclusion. In Bagley v. Cohen, 121 Cal. 604 [53 Pac. 1117], cited by respondent, the court applied to the facts the unquestionably correct doctrine that one who voluntarily puts it out of his power to do what he has agreed to do, breaks his contract and is immediately liable to be sued thereon for damages, even though the time specified for full performance has not arrived. There the obligor, Gould, had expressly agreed to pay out of the profits to be realized by him in his business a debt which he owed the plaintiff. The contract before the court in that case clearly showed that Gould had impliedly undertaken not voluntarily to disable himself from realizing profits in his business; for only out of such profits could the debt, a fixed and definite sum of money, be paid in the manner in which he had expressly agreed it should be paid. In every judicial controversy under a contract it, as well as the law, must be interpreted. The interpreted contract is what the law enforces. Therefore, to ascertain whether there has been a breach the agreement must first be interpreted. It of course is freely conceded by us that if appellant had expressly or impliedly obligated himself to carry on his business during all of the one-year period, in order that lumber might be furnished by him to be hauled by respondent’s truck and driver, he would have been guilty of a breach of his contract. But, for the reasons which we have stated, no such obligation on appellant’s part can be implied. What we have said of the Bagley case applies with equal force and for substantially the same reason to Wolf v. Marsh, 54 Cal. 228, and Carter v. Rhodes, 135 Cal. 46 [66 Pac. 985]. In the only other case cited by respondent—Alderson v. Houston, 154 Cal. 1 [96 Pac. 884]—the defendant had expressly agreed to do the very thing which he later put it out of his power to do. That is to say, in that case the defendant had expressly agreed to furnish certificates of title which, had they been furnished by him as he had agreed, would have shown the properties to be clear of the assessment lieils which he later permitted to accrue. There was no question there as to whether the defendant had impliedly undertaken to do that which he subsequently put it out of his power to do. Whereas in the instant case the question is, Should the court read into appellant’s contract an implied undertaking to carry on his business in such a manner throughout the year that there would be deliveries of lumber to be hauled by respondent’s truck and driver? We think the terms of this contract do not warrant any such implication.

The judgment is reversed. .

Works, J., and Craig, J., concurred.

A petition for a rehearing of this cause was denied by the district court of appeal on May 29, 1926, and the following opinion then rendered thereon: