Original Filed
April 22, 1999
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
No. 97-32025DM
Chapter 11
WIN FASHION, INC.,
Debtor.
___________________________________/
WIN FASHION, INC.,
Plaintiff,
A.P. No. 98-3143DM
vs.
BYER CALIFORNIA, a California
corporation,
Defendant.
___________________________________/
MEMORANDUM DECISION
Introduction
In this adversary proceeding the debtor, Win Fashion, Inc.
("Win") seeks to recover $41,541.50 from the defendant, Byer
California, Inc. ("Byer") for breach of twenty five separate
contracts. Twelve of these contracts were in writing
(collectively "the written agreements") and the remainder were
allegedly oral (collectively "the remaining agreements"). A
trial was held on March 12 and 24, 1999, Stephen Sherman, Esq.
appeared on behalf of Win, and William H. Bassett, Esq. appeared
on behalf of Byer. For the reasons that follow, the court will
deny recovery as to all twenty five contracts.(1)
II. Facts(2)
Between April and August, 1996, Win, an outside sewing and
clothing assembly contractor, and Byer, a seller of women's
clothes, entered into a series of twenty five transactions.
Pursuant to these transactions, Win provided sewing, cutting and
garment assembly services in exchange for which Byer provided the
design, style and fabric and paid the purchase price. The terms
and conditions of twelve of these transactions were expressed as
the written agreements. The written agreements did not contain
integration clauses and the parties' own business practices and
course of dealing did not preclude oral modification of these or
other agreements.
The parties' course of performance and dealing shows that within
a few days after each of the written agreements was signed, Win
made oral requests for payment at a higher amount than that
stated in the writings, that Byer made no meaningful response to
any of these requests, and, thereafter, Win proceeded to complete
the work as required by the written agreements. Win has demanded
payment of the higher requested amounts. Byer paid either the
amount reflected on the written agreements, or a higher amount,
but never the amount sought by Win. As to these agreements, Win
seeks damages totaling $19,605, representing the difference
between the collective amount Byer actually paid and the
collective amount Win contends is due pursuant to oral
modifications.
The remaining agreements were not reduced to writing. They are,
however, traceable to a document entitled "Byer Price Request
Form." This document shows the amount that Byer was willing to
pay Win for the sewing and assembly work associated with the
particular garment styles which were the subject of these
remaining agreements. The document also shows the amount which
Win requested to receive for this work, an amount which was
invariably higher than that which Byer was willing to pay.
Despite the lack of a clear understanding with respect to price,
Win actually performed under the remaining agreements and Byer
actually received and made use of the finished garments. Win was
paid for each of the remaining agreements, but not at the price
it requested to receive. As for these agreements, Win seeks
damages in the amount of approximately $21,000, representing the
difference between the collective amount Win was actually paid
and the collective amount to which Win alleges the parties
agreed.
III. Issue
The issue is whether Win is entitled to the damages for breach of
any of the twenty five agreements.
IV. Discussion
A. The California Commercial Code Does Not Apply To This Case
A threshold issue the court must resolve is whether the parties'
transactions are governed by the sales division of the California
Commercial Code ("UCC").(3) The parties have stipulated that the
UCC applies but the court disagrees. The UCC governs
transactions in goods. Cal.Com.Code § 2102.(4) Under the UCC
goods are generally all things which are movable at the time of
identification to the contract for sale, except the money in
which the price is to be paid. Cal.Com.Code § 2105(1).(5)
Where a transaction has both a goods and a services component,
the California courts apply the "essence of the agreement" test
to determine whether or not a contract is a transaction in goods
and, therefore, subject to the UCC, or an agreement for services.
Filmservice Laboratories, Inc. v. Harvey Bernhard Enterprises,
Inc., 208 Cal.App.3d 1297, 1305, 256 Cal.Rptr. 735, 739 (1989).
Pursuant to this test, if service predominates, then the
incidental sale of goods does not alter the basic transaction,
and the UCC does not apply. Id.
While the transactions in this case undoubtedly had a goods
component, namely, fabric and garments, the essence of the
agreements was the provision by Win of sewing, cutting and
garment assembling services from fabric supplied by Byer. Any
sale of goods that may have occurred was merely incidental to
this purpose. This conclusion is supported by the adversary
proceeding complaint, wherein Win describes itself as engaged in
the business of providing outside contract sewing and clothing
assembly to clothing manufacturers, and prays for damages caused
by Byer's breach of clothing assembly and sewing services
agreements. That services predominated is also supported by the
language of the written agreements. These agreements describe
the contracted work as labor, including cutting and sewing.
Finally, the parties' conduct shows that the sale of goods was
merely incidental to the provision of services in that Byer, not
Win, supplied the fabric from which the finished garments were
produced.
California case law is also in accord. In Filmservice, supra,
the defendant produced prints from negatives supplied by the
plaintiff. After production, the plaintiff sold the prints to
third parties. The court found the UCC inapplicable because the
essence of the agreement between the parties was the provision of
services, not goods. Here, like Filmservice, Win produced
finished garments from fabric provided by Byer, after which Byer
sold the garments to third parties. The cases are sufficiently
analogous that the court is convinced that the parties
transactions are not governed by the UCC.(6)
B. The Written Agreements Were Not Breached
Win argues that the price terms of the written agreements were
orally modified and that Byer breached these agreements by
failing to pay the modified price. The court agrees that the
written agreements were modified, but disagrees that this
entitles Win to the damages it seeks to recover because the
written agreements were modified only to the extent that the oral
modifications were executed by the parties.
California Civil Code § 1698(7) provides that a contract in
writing may be modified by (1) a contract in writing, (2) an oral
agreement to the extent that the oral agreement is executed by
the parties, and (3) unless the contract otherwise expressly
provides, an oral agreement supported by new consideration.
There is no evidence that the written agreements were modified by
a subsequent contract in writing or that Win gave any new
consideration which would justify it being paid a higher price.
The issue then is whether the written agreements were modified by
an executed oral agreement and, if so, to what extent.
"An executed contract is one, the object of which is fully
performed. All others are executory." Cal.Civ.Code § 1661. The
evidence shows that after the written agreements were signed Win
made oral offers to modify the price term, that Byer never
responded to any of these offers, and that Win nonetheless
completed the work. The general rule is that silence or inaction
will not constitute acceptance of an offer. Golden Eagle Ins.
Co. v. Foremost Ins. Co., 20 Cal.App.4th 1372, 1385, 25
Cal.Rptr.2d 242, 251 (1993). Thus, Byer's silence cannot be
construed as an acceptance. However, Byer's payment pattern
establishes that with respect to some of the written agreements,
it did agree to pay a higher price than that stated in the
writing. When Byer paid Win for its services it paid either a
higher price than that stated in the underlying written
agreements, or the price stated in the written agreements, but it
never paid the amount which Win orally requested to receive.
Thus, as for those written agreements that Byer paid a price
higher than that stated in the writing, they were modified to the
extent that higher prices were paid. To the extent that Byer
paid the price stated in the written agreements, there were no
modifications. This entitles Win only to the amount it actually
received. Accordingly, there was no breach of contract with
respect to written agreements and Win is not entitled to damages.
C. The Remaining Agreements Were Not Breached
Win contends that the remaining agreements were express oral
agreements, all of which Byer breached by failing to make full
payment. Here, the court finds that there were no express oral
contracts, but rather that these agreements were implied-in-fact
contracts for the reasonable value of Win's services. As
explained below, this finding does not entitle Win to the amount
it seeks to recover.
Under California law contracts are either express and implied.
"An express contract is one, the terms of which are stated in
words." Cal.Civ.Code § 1620. "An implied contract is one, the
existence and terms of which are manifested by conduct."
Cal.Civ.Code § 1621. An implied contract consists of obligations
arising from a mutual agreement and intent to promise where
neither the agreement, nor the promise, have been expressed in
words. Varni Bros. Corp. v. Wine World, Inc., 35 Cal.App.4th
880, 889, 41 Cal.Rptr.2d 740, 745 (1995), citing 1 Witkin,
Summary of Cal. Law (9th ed. 1990) Contracts, § 11, p. 46. There
is an implied promise to pay the reasonable value for services
rendered when one performs services for another with the other's
knowledge, the services are of the type usually charged for, and
the other person does not dissent but benefits from the services.
See, e.g., Spinelli v. Talcott, 272 Cal.App. 2d 589, 595, 77
Cal.Rptr. 481, 485-486 (1969).
Here, there is no evidence from which the court can conclude that
the parties expressly agreed, either orally or in writing, on the
terms of their bargain with respect to the remaining agreements.
The Byer Price Request Form, offered as proof of the oral
agreements, shows just the opposite. In particular, the document
fails to disclose the prices on which the parties agreed and the
place, or manner, of delivery. Where the court cannot determine
the terms of the contract before it, there is no agreement which
it can enforce. California Lettuce Growers, Inc. v. Union Sugar
Co., 45 Cal.2d 474, 481, 289 P.2d 785, 790 (1955).
However, it is undisputed that the parties reached some agreement
with respect to these thirteen sewing jobs. It is also
undisputed that Win actually performed the work, delivered the
finished garments, and that these garments were received and used
by Byer. The only dispute is with respect to the agreed prices.
The court is unable to conclude that any agreement was ever
reached in this regard. The court does find, however, that once
Byer received and accepted the finished garments there was an
implied agreement that Byer would pay the reasonable value of the
services it received. Spinelli, supra. Win has not argued that
the amounts it actually received from Byer were unreasonable in
relation to the work it performed. Nor has it produced any
evidence to establish the reasonable value of its services.
Thus, the court concludes that a reasonable price for the work
that Win performed is the amount that it actually received.
Therefore, with respect to the remaining agreements, there was no
breach and Win has suffered no damages.
V. Conclusion
In accordance with the above, Win is not entitled to recover
damages as to any of the twenty-five contracts. Within twenty
(20) days from the date of service of this Memorandum Decision,
counsel for Byer should submit a form of judgment consistent with
the foregoing. Byer will be entitled to its costs. Counsel for
Byer should comply with B.L.R. 9021-1 and B.L.R. 9022-1.
Dated: April __, 1999
______________________________
Dennis Montali
United States Bankruptcy Judge
1. This conclusion moots Byer's contention that any damages it
must pay should be reduced by the amount it voluntarily paid to
Win as a volume bonus.
2. The following discussion constitutes the court's findings of
fact and conclusions of law. Fed. R. Bankr. P. 7052(a).
3. The sales provisions of the UCC are codified in California Commercial Code §§ 2102-2801.
4. California Commercial Code § 2102 provides as follows: "Unless
the context otherwise requires, this division applies to
transactions in goods; it does not apply to any transaction which
although in the form of an unconditional contract to sell or
present is intended to operate only as a security transaction nor
does this division impair or repeal any statute regulating sales
to consumers, farmers or other specified classes of buyers."
5. California Commercial Code § 2105(1) defines goods as follows:
"(1) 'Goods' means all things (including specially manufactured
goods) which are movable at the time of identification to the
contract for sale other than the money in which the price is to
be paid, investment securities (Division 8) and things in action.
'Goods' also includes the unborn young of animals and growing
crops and other identified things attached to realty as described
in the section on goods to be severed from realty (Section
2107)."
6. The court is mindful of the fact that the parties stipulated at
trial that the UCC applies to the case. However, the court is not
bound the parties' stipulations as to matters of law. See, e.g.,
Caravansary, Inc. v. Passanisi (In re Caravansary, Inc.), 821
F.2d 1413, 1414 n.2 (9th Cir. 1987). In any event the court
believes the result reached here would be the same under the UCC.
7. Civil Code § 1698 provides:
"(a) A contract in writing may be modified by a contract in
writing.
(b) A contract in writing may be modified by an oral agreement to
the extent that the oral agreement is executed by the parties.
( c ) Unless the contract otherwise expressly provides, a
contract in writing may be modified by an oral agreement
supported by new consideration. The statute of frauds (Section
1624) is required to be satisfied if the contract as modified is
within its provisions.
(d) Nothing in this section precludes in an appropriate case the
application of rules of law concerning estoppel, oral novation
and substitution of a new agreement, rescission of a written
contract by an oral agreement, waiver of a provision of a written
contract, or oral independent collateral contracts."
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