National Computer Rental, Ltd. v. Bergen Brunswig Corp.

Citations: 59 Cal. App. 3d 58; 130 Cal. Rptr. 360; 1976 Cal. App. LEXIS 1611Docket: Civ. 47094

Court: California Court of Appeal; June 14, 1976; California; State Appellate Court

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In the case of National Computer Rental, Ltd. v. Bergen Brunswig Corporation, the California Court of Appeals affirmed a judgment in favor of the defendant, Bergen Brunswig, in a breach of contract dispute. The plaintiff, a computer equipment leasing company, had entered into a 24-month lease agreement with the defendant, which included an option for the defendant to terminate the lease after 12 months by paying a specified fee. During negotiations to potentially exercise this termination option, the parties discussed amending the lease terms, including a proposal from the plaintiff that would reduce the termination fee if the defendant retained certain equipment.

On September 13, 1973, the plaintiff sent a proposed amendment to the lease, which included provisions for the release of the initial equipment, a reduction in monthly rental for additional equipment, and the retention of a specific component for an extended period. The defendant hesitated to sign the amendment because it was contingent on securing a contract with the State of Pennsylvania, which was uncertain. However, the plaintiff and defendant eventually reached an oral agreement indicating that the defendant's obligation to lease additional equipment would depend on securing the Pennsylvania contract, and that the previously discussed waiver of the termination fee would remain in effect even if the contract was not awarded. The court's decision ultimately upheld the trial court's findings regarding the enforceability of the agreements made during the negotiations.

On September 21, 1973, the defendant signed an amendment to a contract but did not secure the anticipated contract, informing the plaintiff of this on October 7, 1973. At the plaintiff's request, the defendant later agreed to release the Fabric-Tec core involved in the amendment. On April 1, 1974, the plaintiff initiated a lawsuit against the defendant, seeking $4,123.60 in unpaid rent for Raleigh equipment, $884 in taxes due under the original agreement, and a $22,100 termination fee. The defendant admitted to the first two claims but disputed the termination fee.

After a trial, the court dismissed the termination fee claim but awarded the plaintiff $5,007.60 for unpaid taxes and rent, minus $2,000 in attorney fees to the defendant, resulting in a net judgment of $3,007.60 in favor of the plaintiff. The plaintiff appealed this decision. The trial court found that the parties had mutually rescinded the termination fee obligation and that the plaintiff had waived this obligation as part of the agreement. 

The court noted that the intent of the parties regarding the amendment was supported by extrinsic evidence, and the plaintiff's claims about the termination fee were inconsistent with their earlier actions, including their demand to eliminate the relevant paragraph of the amendment. The court also ruled that the defendant was entitled to attorney fees under section 1717 of the Civil Code, as the defendant was deemed the "prevailing party" despite the plaintiff holding a judgment for unchallenged amounts. The judgment was ultimately affirmed.

Dunn, J. concurred with the majority on affirming the judgment that denied the plaintiff recovery for a termination fee. However, he dissented regarding the majority's classification of the defendant as the 'prevailing party,' which warranted the award of attorney's fees and costs. The issue involves whether an oral agreement existed alongside the original lease and its amendment, potentially not violating the parol evidence rule. While agreeing that a valid oral agreement was established post-amendment, Dunn disagrees with the majority's rationale, which claims the oral agreement's admission did not breach the parol evidence rule due to its timing. He criticizes this reasoning as lacking legal authority and potentially undermining established California law.

Dunn outlines the parol evidence rule's two key aspects: the admissibility of extrinsic evidence that alters a written agreement and the interpretation of written agreements. He emphasizes that extrinsic evidence of prior or contemporaneous agreements can be admitted if the written instrument was not intended to be a final, complete expression of the parties' agreement. This nonintegration can be shown if the collateral term could reasonably be a separate agreement or if it would not necessarily be included in the written document. Dunn references the Masterson v. Sine case to illustrate that proof of prior agreements is barred only if the written instrument is adopted as the complete agreement. He concludes that a trial court must assess the written instrument, the circumstances surrounding its execution, and evidence of any collateral agreements to determine the presence of integration, thereby allowing consideration of the alleged oral agreement.

Substantial evidence supported the trial judge's implied finding that the amendment to the lease was not an integration under the Masterson rule. Thus, an alleged oral agreement made prior to the lease amendment could coexist with the written amendment as valid agreements. This oral agreement stipulated that the defendant's obligation to lease additional equipment depended on securing a Pennsylvania contract and that the plaintiff would waive a termination fee if the defendant prematurely terminated the lease, despite not obtaining the contract. The trial court's implied finding that this oral agreement could naturally exist separately from the written amendment was upheld, as it did not contradict the written terms and could reasonably be seen as something not included in the written instrument.

The case is likened to Brawthen v. H. R Block, Inc., where an employment contract was deemed not to fully encapsulate the parties' agreement, allowing for extrinsic evidence of an oral agreement regarding termination. 

Regarding attorney's fees, the trial judge deemed the defendant the "prevailing party," awarding attorney's fees and costs. However, the dissent argues this was erroneous since the plaintiff won on two minor claims, despite the defendant prevailing on the major issue of the termination fee. Civil Code section 1717 allows for attorney's fees to the prevailing party in contract actions, irrespective of whether they are designated in the contract. The majority's ruling that the defendant was the prevailing party relied on the premise that the primary issue litigated—the termination fee—was decided in favor of the defendant, despite the overall judgment favoring the plaintiff for other claims.

The record contradicts the majority's view that the issues of unpaid rent and taxes were not litigated. The defendant made a settlement offer of $4,123.60 for unpaid rent, but this was part of a total settlement for all three claims and did not include the $884 owed in taxes. The plaintiff's complaint clearly asserted a right to recover all three claims, and the defendant's answer denied liability for each. The defendant did not admit liability for the two smaller items in any pleadings or documents, and their lack of defense at trial does not qualify them as the prevailing party under Civil Code section 1717. The case Weller v. Brown is cited, where the court emphasized the importance of pleadings in determining contested issues, and concluded that the defendant was the prevailing party only because the judgment specifically addressed the easement issue. In contrast, in Sierra Union and Gibson, the courts ruled that plaintiffs, despite not obtaining a complete victory, were still entitled to costs due to having judgments in their favor. The case of Levy v. Ross is also mentioned, highlighting claims based on a written guarantee for recovery and attorney's fees. Thus, the legal precedent suggests that a party must have a judgment in their favor to be considered the prevailing party for cost recovery.

The court reversed a prior judgment favoring the plaintiffs for $2,750, highlighting that the defendants had offered this amount as the sole payment due under a guaranteed instrument before trial. The court indicated that if a retrial confirms only this payment is owed, the offer could suffice to deny the plaintiffs attorneys' fees. The principle from Levy states that if a plaintiff recovers more than what the defendant proposed pretrial, the plaintiff is deemed the prevailing party entitled to attorney's fees. The defendants attempted to argue their status as the prevailing party by citing Babcock v. Omansky and Merlino v. Fresno Macaroni Mfg. Co., but these cases were not supportive of their position. In Babcock, a defendant was awarded attorney's fees after prevailing on a contractual cause of action, despite not succeeding on a related tort claim. Conversely, in the current case, the plaintiffs secured a judgment on their contractual claims against the defendants. In Merlino, the defendants were deemed prevailing parties because they obtained the affirmative relief they sought, a situation not mirrored here as the defendants did not achieve their desired outcomes in their answer. The court concluded that the plaintiffs were the prevailing party based on the circumstances and thus entitled to attorney's fees and costs under Civil Code section 1717.

A defendant can only be considered a prevailing party if the contested issue that allowed the plaintiff to win was removed from trial through the defendant's pleadings or pretrial documents. If this elimination does not occur, the judgment in favor of the defendant on other issues—regardless of their significance—does not change the plaintiff's status as the prevailing party. Civil Code section 1717 defines a "prevailing party" as the one in whose favor a final judgment is rendered, and this definition does not necessitate that the party receives all sought relief. This interpretation is supported by several cases. In the current case, since the judgment favors the plaintiff, the plaintiff is deemed the prevailing party under this definition, warranting the reversal of any cost and attorney fee awards to the defendant, directing the trial court to instead award these to the plaintiff. Additionally, attorney fees can be recoverable as costs even when the party is not explicitly named in the contract, as established in prior case law.