Unpublished Disposition, 886 F.2d 1319 (9th Cir. 1981)

MEMORANDUM^* 

Cal-Metal appeals from the final judgment of the district court finding it liable for breach of contract and awarding damages of $2,044,239.70. This court has jurisdiction under 28 U.S.C. § 1291.

Cal-Metal asserts twelve distinct grounds of appeal. These may be grouped into six major claims of error. Cal-Metal contends that the district court erred in: (1) finding that Cal-Metal breached the contract; (2) failing to find that Cal-Metal had been induced by Ajax not to invoke the cancellation clause of the contract; (3) interpreting the cancellation clause to require payment for seller's lost profits; (4) finding that Ajax was unsuccessful in transferring certain components of the Cal-Metal job to other contracts, and thus wrongly charging those components to Cal-Metal's liability; (5) finding that Cal-Metal entered into an oral agreement to pay interest on outstanding progress bills and in awarding such interest as part of Ajax's damages; (6) imposing prejudgment interest. Cal-Metal also argues that Ajax's behavior constituted bad faith and estops Ajax from any recovery. We affirm in all respects.

FACTUAL BACKGROUND

In the summer of 1981, Cal-Metal entered into a contract with Ajax for the design and production by Ajax of specialty equipment for use in the production of high strength tubular pipe for the oil industry. The contract specified a delivery date of December 1981, and a purchase price of $1,907,450. In November of 1981, Cal-Metal placed a hold on the contract due to a down-turn in the oil business. Work stopped while Cal-Metal sought alternative ways to finance the project. In December of 1981, Cal-Metal's principal officer, Mr. Wilkinson, made a cancellation offer of $100,000 to Ajax. Ajax rejected the offer. Wilkinson then asked Ajax to prepare its own estimate of cancellation charges. On December 18, 1981, an Ajax officer, Mr. Jennings, responded to Wilkinson's request by stating in a letter that cancellation charges represented so much of the total contract price that cancellation was not a practical solution.

At a meeting in January 1982 between Wilkinson and Ajax representatives, Wilkinson agreed to pay interest, at one point above prime, on Ajax's outstanding bills to the extent that they could be justified, provided that Ajax treat the contract as being on hold and not commence a legal action. During the rest of 1982 the contract remained on hold.

In April 1983, Ajax demanded in writing that Cal-Metal either release the contract or cancel it. Cal-Metal had been sold at that point to a new company, Kaiser Pipe Company, jointly owned by Wilkinson and Kaiser Steel Corporation. Wilkinson responded in a letter that no contract had been placed or would be placed with Ajax. Ajax then brought this lawsuit.

Following a bench trial, the district court concluded that Cal-Metal had never canceled the contract, but that Cal-Metal had breached or repudiated the contract. The district court found that Cal-Metal was liable for this breach under California Commercial Code Sec. 2708(2), in the amount of $1,418,931. The district court also found that Ajax was entitled to recover interest of $316,175.63 on outstanding bills under the January 1982 agreement. In addition, the district court exercised its discretion and awarded Ajax prejudgment interest at the statutory rate of 7% totaling $309,132.57.

STANDARD OF REVIEW

Interpretation of a contract is a mixed question of fact and law. Where the language of the contract or a principle of contract law to be applied is in question, this court makes an independent review. The factual findings are reviewed for clear error. Miller v. Safeco Title Ins. Co., 758 F.2d 364, 367 (9th Cir. 1985).

The district court indicated three grounds for finding that Cal-Metal breached the contract. First, the court found that Cal-Metal had failed to make timely payments on progress bills delivered by Ajax pursuant to the contract¹ . Second, the court found that the hold order of November 14, 1981, constituted an anticipatory repudiation. Third, the court found that Wilkinson's May 1983 letter constituted a final repudiation.

Wilkinson's letter itself provides more than adequate support in the record for the finding that Cal-Metal and Wilkinson²  totally repudiated the contract in May of 1983. In light of this conclusion, we need not consider the significance of the earlier actions.

II. AJAX'S ACTIONS ALLEGEDLY PREVENTING CAL-METAL FROM INVOKING THE CANCELLATION CLAUSE

The contract provided that Cal-Metal could cancel it upon written notice and upon payment to Ajax of reasonable and proper cancellation charges based on expenses incurred and commitments made by Ajax. Cal-Metal contends that Ajax's response to Cal-Metal's December, 1981 letter requesting Ajax to establish cancellation charges, misled Cal-Metal into believing that cancellation would not be possible. The district court found it implausible that a business person of Wilkinson's experience would be "tricked" by such a statement into not canceling if he in fact believed that cancellation was advantageous to Cal-Metal. This finding is not clearly erroneous.

III. INTERPRETATION OF THE CANCELLATION CLAUSE

Cal-Metal contends that the district court erred in finding that the cancellation clause provided for recovery of profits as well as expenses and outlays. The cancellation clause provides for payment to include "charges based on expenses incurred and commitments made by Ajax." Ajax presented evidence that the custom and usage in the industry was to include a profit element in such cancellation charges. When there is an industry custom, those in the industry are deemed to have contracted with reference to it unless the contrary appears. Midwest Television, Inc. v. Scott, Lancaster, Mills & Atha, Inc., 205 Cal. App. 3d 442, 451 (1988). An Ajax Vice President testified that Ajax's policy was to recover profits in the event of cancellation. Ajax also offered the testimony of an expert witness to the effect that companies would not enter an agreement which limited their recovery to expenses and overhead in the event of a cancellation. Cal-Metal attacked the credibility of these witnesses, but presented no evidence directly rebutting their testimony. In light of the whole contract, it is implausible that Ajax would have agreed to permit cancellation once the project had begun, on a pure recovery of cost basis. The district court committed no error.

Cal-Metal contends that various components worth $102,720 were transferred to a different job following the November, 1981 hold. Cal-Metal presented evidence from Ajax's internal voucher system reflecting that these components were transferred to the account of a job being done by Ajax for the Maverick Corporation. Ajax presented testimony by its financial officers that these accounting actions were never carried out in fact, and that no charges were actually billed to Maverick based on components belonging originally to the Cal-Metal job. The district court is in the best position to determine the credibility of testimony presented at trial. The district court's determination that no transfer was ever completed was not clearly erroneous.

The parties agree that in January of 1982 Cal-Metal and Ajax entered into an agreement under which Ajax would refrain from litigating over Cal-Metal's failure to make progress payments and Cal-Metal would agree to pay interest at one point above the prime rate if the costs reflected in Ajax's progress bills were justified. The district court awarded interest from the time the bills were due until the time this action was commenced.

Cal-Metal contends that the justification of the costs was a condition precedent to the interest agreement and that it was never carried out. The district court found that any question of the justification of the bills was settled by the trial itself. We agree with the district court that the trial constituted satisfaction of any condition precedent to justify costs. Upon review of the record, we further conclude that the district court's determination that these costs were justified is not clearly erroneous.

Cal-Metal also contends that any such agreement was an illegal oral modification of the contract. Because this contention was not presented to the trial court it is not properly before us on appeal.

California Civil Code Sec. 3287(b) authorizes the court to award interest on the unliquidated damages arising from a breach of contract. The court awarded such interest from the commencement of trial until the date of judgment. We find that imposition of such interest was properly within the district court's discretion. Cal-Metal has presented no basis for finding that the court abused that discretion.

Cal-Metal also contends that Ajax violated a covenant of good faith and fair dealing, and that Ajax's behavior estops it from recovery. These contentions are defeated by our determination that the district court's factual findings in favor of Ajax on the contract claims were not clearly erroneous.

CONCLUSION

The judgment of the district court is AFFIRMED. Ajax's request for attorneys' fees is DENIED.

AFFIRMED.