Unpublished Disposition, 914 F.2d 1496 (9th Cir. 1986)

No. 89-15880.

United States Court of Appeals, Ninth Circuit.

Before WIGGINS and LEAVY, Circuit Judges, and STEPHENS^* , District Judge.

MEMORANDUM^** 

Comtel Company L.P. ("Comtel") appeals from the judgment entered in favor of the defendant, 3H Industries, Inc. ("3H"), in its action for breach of written contract. Comtel sought to recover over $100,000 worth of commissions allegedly due under a Sales Representative Agreement ("agreement"). Following a trial to the court on specified written submissions, the district court concluded that 3H did not owe any commissions to Comtel, and that 3H did not waive, or was not estopped from denying that it owed Comtel commissions under the agreement. We affirm.

DISCUSSION

I. COMMISSIONS ON SALES TO ZENITH ELECTRONICS CORPORATION

The district court held that Comtel was not entitled to commissions for the Zenith power supply tester sales because: (1) Comtel was not authorized to sell the PT808 testers as they were not listed in Appendix A of the agreement; and (2) the testers sold to Zenith were "products intended for export" within the meaning of p 4A of the agreement.

Comtel argues that it is entitled to the commissions on the grounds: (1) 3H gave it oral authorization to sell PT808 testers; (2) the sales were not "intended for export" because the testers were delivered to Zenith in the United States; (3) the PT808 testers are not materially different from the PT900 testers which Comtel was authorized to sell; and (4) based on its course of conduct and representations, 3H is estopped to deny Comtel's right to the Zenith commissions.

The agreement provides that Comtel was authorized to sell the 3H products listed in Appendix A attached to the agreement. That product list does not include PT808 testers such as those sold to Zenith for which Comtel claims a ten percent commission. Paragraph 2 of the agreement provides, however, that at 3H's

sole discretion, Appendix "A" may be revised from time to time by notice to [Comtel] of deletion or modification of products to reflect changes in product availability. Any other amendment to Appendix "A" may only be accomplished in writing, to be signed by a Vice President of [3H], and by an authorized agent of [Comtel].

Comtel argues that in accordance with p 2, 3H orally modified Appendix A to include the PT808 testers so as "to reflect changes in product availability," as those testers were developed after the agreement was executed.¹  Comtel notes that all paperwork generated by 3H thereafter confirmed this oral understanding.² 

The district court correctly found that "any oral statements made by [3H] did not alter the terms of the written agreement." Paragraph 19 of the agreement expressly provides that " [t]his Agreement may not be modified orally, by course of dealing between the parties, or in any other manner, other than by an amendment, in writing, signed by the parties hereto."³  Paragraph 20 also provides that all "notices," which presumably includes "notice [s] ... of deletion or modification of products" listed in Appendix A, must be sent "via certified Mail," and therefore must of necessity be in writing. It is undisputed that the agreement was never changed in writing to include the PT808 in the product list contained in Appendix A. Comtel's claimed oral modification would therefore be unenforceable.

While Comtel was not authorized to sell PT808 testers, it was authorized to sell PT900LP testers. The Commission Reports list the testers sold to Zenith on May 6 and June 26, 1986, as "PT900LP"testers. 3H claims that they were labelled as "PT900LP" testers "for lack of calling it anything different," but that they were in fact "PT808" testers. We need not resolve this conflict, however, as it is clear that, except with respect to the two testers sent to Zenith in Wheeling, Illinois,⁴  the testers were "products intended for export" within the meaning of Paragraph 4A of the agreement.

Paragraph 4A of the agreement provides that " [c]ommissions shall not be paid without the prior written agreement of [3H on the] ... [s]ale of authorized products intended for export." The district court found that " [t]he sales to Zenith in El Paso, Texas, for use in Zenith's plant in Chihuahua, Mexico, were sales 'intended for export' upon which no commission was payable to [Comtel]."

Comtel argues that the "intended for export" exclusion does not apply to the Zenith sales. Comtel maintains that in the electronics instrumentation industry, the phrase "intended for export" customarily means products shipped directly to a destination outside the United States. Commissions are typically excluded on these types of sales due to the added expense of the seller in acquiring export licenses. In this case, however, the testers were shipped by 3H to Zenith in Texas, and were then transported by Zenith at its own expense to Mexico.

The "intended for export" exclusion cannot be interpreted as narrowly as Comtel suggests. The "intended for export" clause modifies the word "product," not "sale." Accordingly, the proper focus is on where the product will be used, not on where the sale took place. As Comtel's President Fred Wiechering noted, commissions are often not paid on the sale of products to be used abroad due to the increased cost of support for the manufacturer. The fact that the testers were first shipped to Zenith within the United States does not make the exclusion inapplicable where it was understood that the products were purchased for use abroad.

C. Extrinsic Evidence--The Parol Evidence Rule

Comtel argues that the district court erred in failing to consider parol or extrinsic evidence in interpreting paragraphs 2 and 4A of the sales agreement.⁵  Comtel sought to introduce evidence of the party's course of dealings which it maintains would establish: (1) that Comtel was authorized to sell the PT808 tester; and (2) that the Zenith sales were not "intended for export." The course of dealing evidence consists of 3H's alleged assurances that Comtel was authorized to sell PT808 testers and that it would receive a commission on the Zenith sales.

The district court correctly found that " [t]he agreement was an integrated document reflecting all of the agreements and understandings between" the parties. Paragraph 19 of the agreement contains the following "integration" clause:

This agreement constitutes the entire understanding between the parties hereto, supersedes all prior agreements between the parties as to the subject matter hereof, and is without any representations or warranties, except as expressly set forth, or provided for, herein.

See Blumenfeld v. R.H. Macy & Co., 92 Cal. App. 3d 38, 44, 154 Cal. Rptr. 652, 655 (1979) (integration clause is conclusive on the issue of integration).

A finding of integration effectively invokes the parol evidence rule, which provides that extrinsic evidence may not be offered to vary or add to the terms of an integrated agreement. See Cal.Civ.Proc.Code Sec. 1856. However, Cal.Civ.Proc.Code Sec. 1856(c) states that the terms of an integrated document "may be explained or supplemented by course of dealing or usage of trade or by course of performance." Extrinsic evidence may also be admitted to interpret the meaning of the agreement's terms where "the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 37, 69 Cal. Rptr. 561, 564, 442 P.2d 641, 644 (1968).

Comtel's agrument that "course of dealing" evidence is admissible to show that 3H modified Appendix A to include the PT808 tester is without merit. Paragraph 19 expressly provides that the agreement could "not be modified orally, by course of dealing between the parties, or in any other manner, other than by an amendment, in writing, signed by the parties hereto." Thus, Comtel could not use "course of dealing" evidence to prove that 3H modified the product list to include PT808's. Evidence to that effect would have been inadmissible in light of paragraph 19. See Marani v. Jackson, 183 Cal. App. 3d 695, 704-05, 228 Cal. Rptr. 518, 523-24 (1986) (evidence of oral modification properly stricken where written sales commission contract required that modifications be in writing).

Comtel's argument regarding the phrase "products intended for export" is similarly unpersuasive. Comtel argues that " [t]he conduct of the parties bears out the conclusion that they did not intend paragraph 4A of the Agreement to preclude commissions on the Zenith sales." Again, such evidence cannot be used to override the express contractual requirement that Comtel receive 3H's written approval prior to being paid a commission on the sale of "products intended for export."⁶  The course of dealing evidence Comtel refers to is more appropriately considered in relation to its waiver and estoppel argument rather than in interpreting the terms of the agreement. See infra Part IE.

Comtel argues that even if the PT808 testers were not specifically listed in Appendix A, it is nonetheless entitled to the Zenith commissions because there are no material differences between the PT808 testers and the PT900 testers it was authorized to sell. The district court found that " [t]he PT808 power supply testers are different from the PT900 power supply testers that [Comtel] was authorized to sell under the terms of the agreement."

The district court's finding is not clearly erroneous. While it is true the PT808 is a modified or "updated" version of the PT900+, even Mr. Weichering, President of Comtel, admitted in his declaration that "there are differences between the PT900 and PT808." The evidence establishes that the PT808 power supply tester was a new product specially designed to meet Zenith's needs and requirements. The PT808 tester differs from the PT900 in terms of its load, price, abilities, size, and software. The PT808 utilized a new Multiflex load system in place of a 3H Swinger Load, which made it half the size of the PT900+ and $50,000 less expensive. The brochures distributed for each product confirm these differences.

Additionally, even if the PT808 is not "materially different" from the PT900+, it is still true that the PT808 tester was never listed as an authorized product in Appendix A. The PT900+ is also similar to the PT900LP in that one "evolved" from the other, and yet both products are listed separately in Appendix A. And finally, even if we accept Comtel's proposition that the PT808 is simply a "modified" version of the PT900+, paragraph 4C of the agreement expressly provides that commissions shall not be paid on " [s]ales necessitating an alteration in, or modification of, an authorized product." Therefore, even if no material differences exist, Comtel would not be entitled to a ten percent commission on the Zenith sales.

Comtel argues that by its representations and course of conduct, "3H has waived and is estopped from denying Comtel's entitlement to [the Zenith] commissions." Specifically, Comtel argues that 3H waived compliance with paragraph 19 of the agreement to the extent it required a written amendment to Appendix A. Comtel further maintains that 3H is estopped from denying Comtel's right to the commissions because 3H lead it to "believe that it was authorized to sell the PT808's and that it would be paid a commission for the sales to Zenith."

The district court found that 3H "did not waive any terms of the agreement" and that " [t]here was no detrimental reliance or change of position by [Comtel] as a result of any oral statements made by [3H]." Based on these findings, the court concluded that 3H had "not waived it rights under the agreement, and is not estopped to assert the provisions of the agreement."

"Under California law, a party is deemed to waive a right or privilege only by a clear expression that is made with full knowledge of the facts and an intent to waive, or by conduct that will warrant an inference of the relinquishment of such a right." Sawyer v. County of Sonoma, 719 F.2d 1001, 1008 (9th Cir. 1983). The question of waiver of a contractual right is a question of fact subject to the clearly erroneous standard. See Kern Oil & Ref. Co. v. Tenneco Oil Co., 840 F.2d 730, 736 (9th Cir.), cert. denied, 109 S. Ct. 378 (1988).

California law provides "that a party to a contract may by conduct or representations waive the performance of a condition thereof or be held estopped by such conduct or representations to deny that he has waived such performance." Panno v. Russo, 82 Cal. App. 2d 408, 186 P.2d 452, 454 (1947). A party can even waive a contractual requirement that modifications to the agreement be in writing. See Bettelheim v. Hagstrom Food Stores, Inc., 113 Cal. App. 2d 873, 249 P.2d 301, 305 (1952). Extrinsic evidence is admissible to establish such a waiver. Panno, 186 P.2d at 454.

The district court's finding that 3H did not waive any terms of the agreement is not clearly erroneous.⁷  There is insufficient evidence that 3H promised to pay a ten percent commission on the Zenith sales despite the fact the agreement had not been modified in writing to include the PT808 tester. In fact, Comtel never questioned the Commission Reports which consistently listed the commissions owed on the Zenith sales as seven, three, or zero percent. The fact that 3H did not advise Comtel that no commission would be paid is in itself insufficient to establish a intentional and knowing waiver of the contractual requirement that all modifications be in writing.

"The essence of estoppel is that the party to be estopped has by false language or conduct led another to do that which it would not otherwise have done and as a result thereof that he has suffered injury." State Compensation Ins. Fund v. Workers' Compensation Appeals Bd., 40 Cal. 3d 5, 16, 219 Cal. Rptr. 13, 19, 706 P.2d 1146, 1153 (1985) (quotation omitted).

Under California law, the party invoking the doctrine of estoppel must prove: (1) that the party to be estopped was appraised of the facts; (2) that he intended his conduct to be acted on, or that he acted in such a way that the party asserting estoppel reasonably could believe that he intended his conduct to be acted upon; (3) that the party asserting estoppel was ignorant of the actual facts; and (4) that he relied upon the conduct to his injury. See Adams v. Johns-Manville Corp., 876 F.2d 702, 707 (9th Cir. 1989); City of Long Beach v. Mansell, 3 Cal. 3d 462, 490, 91 Cal. Rptr. 23, 42, 476 P.2d 423, 442 (1970).

The existence of estoppel is a question for the fact-finder, unless only one reasonable conclusion can be drawn from the undisputed facts, in which case the question of estoppel becomes one of law. Sawyer v. County of Sonoma, 719 F.2d 1001, 1006 n. 12 (9th Cir. 1983) (interpreting California law). The existence of detrimental reliance is a question of fact subject to the clearly erroneous standard. See L.K. Comstock & Co. v. United Eng'rs & Constructors Inc., 880 F.2d 219, 222-23 (9th Cir. 1989).

3H argues that Comtel may not assert estoppel because it did not plead such a claim. While it is true Comtel's complaint did not allege estoppel, the issue of " [w]hether the conduct and representations of 3H estops it from refusing to pay the commissions" was listed as a "disputed point [ ] of law with respect to liability and relief" in the Joint Pretrial Statement. "A pretrial order has the effect of amending the pleadings." Acorn v. City of Phoenix, 798 F.2d 1260, 1263 (9th Cir. 1986).

Comtel argues that 3H is estopped from denying its right to the commissions because 3H lead it to "believe that it was authorized to sell the PT808's and that it would be paid a commission for the sales to Zenith." Paragraph 4A of the agreement provides that absent a written agreement, commissions are not due on the " [s]ale of authorized products intended for export." Therefore, even assuming it had been authorized to sell the PT808's, Comtel must still show that 3H represented that it would pay a commission on the Zenith Mexico sales and that Comtel relied to its detriment on that representation.

The district court's finding that Comtel did not rely to its detriment on 3H's oral representations is supported by the record. While Comtel may have relied on Sandstrom's statement that it was authorized to sell PT808's, it is undisputed that Sandstrom never told representatives from Comtel that they would receive a commission on the Zenith sales. Moreover, while Comtel may have relied on 3H Vice President Stanley Sussman's statement in June 1986 that it would receive a commission on the Zenith sales,⁸  Sussman made this statement after Comtel had stopped working on the Zenith account in May 1986. Thus, no detrimental reliance has been established with respect to the Zenith sales.

It is undisputed, however, that at some point Sussman voluntarily offered to pay Comtel a seven percent commission on the first sale, and a three percent commission on the second sale, to Zenith.⁹  This is evidenced by the Commission Reports for May and July 1986, which show a three and seven percent commission rate for the first two Zenith sales. Comtel does not argue, however, that this constituted a new contract, separate and apart from the original Sales Representative Agreement. Rather, Comtel unequivocally states that it rejected that offer and hence no new contract was ever formed.¹⁰ 

II. COMMISSION ON SALE TO HONEYWELL INC.

Comtel claims a fifteen percent commission totaling $3,930 for the sale of an authorized product to Honeywell. The district court found that Comtel "was not entitled to a commission on sales to Honeywell, because those sales were upgrades of a system that Honeywell had purchased from [3H] prior to [Comtel] becoming a sales representative for [3H]."

Comtel does not argue that the district court's finding is clearly erroneous. Rather, it argues that 3H was obligated to give it notice that no commissions would be paid on the Honeywell sale in light of the fact 3H acknowledged it was a "fine line" whether commissions were due on the sale of upgraded systems. Whether or not 3H was under such an obligation, it is clear that this failure alone would not entitle Comtel to the Honeywell commission under the terms of the agreement.

AFFIRMED.