NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

KITCHING, J.

INTRODUCTION

Plaintiff G. I. McDougal entered into a franchise agreement with Mail Boxes Etc. (MBE) to operate a packaging and shipping business as a Mail Boxes Etc. Center. MBE was later acquired by and became a wholly owned subsidiary of defendant United Parcel Service (UPS), which changed the franchise name to "The UPS Store" and made changes to the pricing, services, and operations of those franchises.

The original MBE franchise agreement gave a franchisee the option to renew the franchise for 10 years on the same terms and conditions as were contained in the then current franchise agreement for the sale of new franchises. McDougal (and other franchisee plaintiffs) alleged that UPS breached the MBE franchise agreement by refusing to renew their MBE Center franchises on the same terms found in the original franchise agreement and by requiring franchisees to execute a franchise agreement for The UPS Store as a condition of renewal.

This appeal arises from a judgment for defendants after a trial by the court in which the trial court construed the renewal provision of the franchise agreement. We conclude that extrinsic evidence of the former franchisor's uncommunicated subjective intent and understanding of the renewal provision, which was irrelevant to determining the mutual consent of the contracting parties or of the meaning of contractual language, was properly excluded. The renewal provision provided for renewal of the franchise on the terms contained in the current franchise agreement for the sale of new franchises, and defendants did not breach the renewal provision of the franchise agreement by requiring plaintiff to renew the franchise according to the terms of the current franchise agreement. Even if the renewal provision was an option contract, plaintiff failed to exercise the option by acceptance of its terms and therefore the option contract did not bind the defendants. We also find that the renewal provision was not a breach of the implied covenant of good faith and fair dealing. We affirm the judgment for defendants.

FACTUAL AND PROCEDURAL HISTORY

Plaintiff McDougal and other plaintiffs were franchisees of MBE and operated franchised retail shipping stores called "Mail Boxes Etc. Centers." McDougal entered into a franchise agreement with MBE on February 5, 1994. In 2001 UPS acquired MBE, which became a wholly owned subsidiary of UPS. UPS and MBE offered "the Gold Shield Program" to its franchisees, which involved re-branding the MBE system from "Mail Boxes Etc." to "The UPS Store." UPS offered franchisees significant wholesale price discounts and incentives for UPS services if franchisees did not charge customers more than the maximum retail prices that UPS designated for those services. As of April 1, 2003, participation in the Gold Shield Program became mandatory for all purchasers of new franchises. UPS also made participation in the Gold Shield Program mandatory for all existing franchisees seeking to renew their franchise rights.

More than 3,000 former MBE Center franchisees, or approximately 90 percent of the MBE distribution system, signed amendments to their MBE franchisee agreements, joined the UPS "Gold Shield Program," and became "The UPS Store" franchisees. McDougal was not among them. Instead McDougal and other plaintiffs continued to operate their franchised businesses as MBE Centers.

The 1993 MBE franchise agreement signed by McDougal stated that the franchise was granted for a term of 10 years, and that: "At the end of such term, provided that Franchisee shall have complied with all the terms of this Agreement, Franchisee shall have the option to renew this Agreement for successive periods of ten (10) years each. . . . Such renewal shall be effected by the execution of an appropriate document extending the term of this Agreement on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers." At the time for renewal of the franchise agreement, defendants required franchisees to execute an agreement for The UPS Store as a condition of renewal. McDougal (and other plaintiffs) refused to convert to The UPS Store, and alleged that UPS breached the MBE franchise agreement by refusing to renew their MBE Center franchises.

On April 25, 2003, seven MBE franchisees filed a complaint against UPS and individual defendants who were UPS officers and executives. The 12th amended complaint, which was the operative complaint, was brought on behalf of MBE franchisees who did convert to "The UPS Store" allegedly under false information and omissions, and on behalf of the appellants—McDougal and other MBE franchisees—who did not convert their franchises to "The UPS Store" under the Gold Shield Program. The operative complaint alleged 31 causes of action, only four of which involved McDougal and other "MBE plaintiff franchisees." Three of those causes of action were later dismissed pursuant to stipulation. The remaining cause of action, for breach of contract (breach of the MBE Standard Form Agreement), alleged that McDougal (and other plaintiffs) executed an MBE standard form franchise agreement with MBE, USA for a term of 10 years. The complaint alleged that pursuant to section 14.01.B of the franchise agreement, plaintiffs had the right to renew their franchise agreements for successive 10-year periods, and that MBE, Inc., successor-in-interest to MBE, USA, breached section 14.01.B by refusing to permit plaintiffs to renew on the same material terms and conditions in plaintiffs' existing franchise agreements. The complaint also alleged that defendants breached the franchise agreements in several other ways.

After this court reversed a first summary judgment entered for the defendants, the trial court set a hearing on defendants' second summary judgment motion as to McDougal and two other plaintiffs and also set a trial date of February 17, 2009. Defendants then filed several motions in limine, the first of which sought to exclude deposition testimony from Anthony DeSio, CEO of the former franchisor and predecessor-in-interest, MBE, in which DeSio testified about his understanding of franchise agreements offered by MBE from 1980 to 1998, the period DeSio was associated with MBE. The trial court granted the motion in limine to exclude DeSio's testimony, finding that DeSio did not express to plaintiffs his understanding and intent concerning the meaning of the franchise agreement executed by plaintiffs, and that because this parole evidence was not communicated between the contracting parties before the contract was formed, it had no relevance. The trial court also concluded that a provision of the franchise agreement stated that any past course of dealing would not be controlling on the interpretation of the contract, which made the proffer of DeSio's testimony irrelevant.

On March 17, 2009, the trial court proposed bifurcation of the trial, with the legal question of the interpretation of section 14.01.B of the 1993 franchise agreement to be tried first by the court before a jury was impaneled. The trial court requested that each party (1) brief whether bifurcation should occur; (2) set forth positions as to whether section 14.01.B was or was not ambiguous such that extrinsic evidence would be relevant; and (3) make an offer of proof of any competent, relevant testimony which the parties believed would assist the trial court in interpreting this provision of the contract in the context of the dispute presented.

The parties briefed these issues. Defendants contended that the franchise agreement was unambiguous and made no offer of proof of extrinsic evidence. Plaintiffs made an offer of proof of DeSio's deposition testimony and other documents. On April 2, 2009, the trial court ordered the trial bifurcated, with the court first trying the legal question whether the renewal term of section 14.01.B was breached when the franchisor proffered to franchisees the then-current franchise agreement for new franchisees.

On July 6, 2009, the trial court addressed the competence and relevance of plaintiff's proffered extrinsic evidence to the trial of legal issues in the first phase of the bifurcated trial. The trial court again found excerpts of DeSio's testimony from a different litigation, involving a different franchisee and franchise agreement, to be inadmissible as DeSio's uncommunicated understanding of the MBE franchise agreements.

After a three-day court trial, the trial court found there was no conflicting extrinsic evidence, interpreted the contract as a question of law, and concluded that the renewal provision in the 1993 franchise agreement provided that the franchisor would give franchisees the benefit of the same contract offered to new franchisees at that time. Thus the trial court found that MBE did not breach section 14.01.B of the 1993 franchise agreement when it offered existing franchisees renewal under the terms of a franchise agreement for "The UPS Store."

Plaintiffs filed a petition for writ of mandate challenging the trial court's order, which this court summarily denied on January 14, 2010.

On June 14, 2010, McDougal stipulated to the dismissal with prejudice of three other causes of action (for tortious interference with contract, tortious interference with prospective economic advantage, and violation of the Indiana Franchise Relations Act), and to the dismissal with prejudice of all allegations in the 12th amended complaint which did not specifically relate to the alleged breach of section 14.01.B of the McDougal 1993 franchise agreement. The stipulation stated that in light of the dismissal of all of McDougal's claims except for the claim for breach of Section 14.01.B of the 1993 Franchise Agreement, entry of judgment on that remaining claim was proper. Judgment was entered dismissing McDougal's first, third, and 13th causes of action with prejudice, striking allegations of the 22nd cause of action for breach of the MBE franchise agreement except for those alleging breach of the renewal provision of the franchise agreement as the only breach alleged in the twenty-second cause of action, and entering judgment against McDougal and in favor of defendants.

McDougal filed a timely notice of appeal.

ISSUES

McDougal claims on appeal that:

1. The trial court erroneously excluded McDougal's extrinsic evidence;

2. The trial court erroneously interpreted the renewal provision;

3. The renewal provision was an option contract, which defendants breached; and

4. The renewal provision breached the implied covenant of good faith and fair dealing.

DISCUSSION

This appeal requires this court to interpret the provision of the 1993 MBE franchise agreement signed by McDougal, which stated that the franchise was granted for a term of ten years, and that: "At the end of such term, provided that Franchisee shall have complied with all the terms of this Agreement, Franchisee shall have the option to renew this Agreement for successive periods of ten (10) years each. . . . Such renewal shall be effected by the execution of an appropriate document extending the term of this Agreement on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers."

A. The Standard of Review

"The interpretation of a written instrument, even though it involves what might properly be called questions of fact [citation], is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect. [Citation.] Extrinsic evidence is `admissible to interpret the instrument, but not to give it a meaning to which it is not reasonably susceptible' [citations], and it is the instrument itself that must be given effect. [Citations.] It is therefore solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence. Accordingly, `An appellate court is not bound by a construction of the contract based solely upon the terms of the written instrument without the aid of evidence [citations], where there is no conflict in the evidence [citations], or a determination has been made upon incompetent evidence [citation].' [Citations.]" (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866.) Thus where extrinsic evidence does not conflict, this court must independently determine the meaning of the contract. (Id. at p. 866.)

This appeal also involves the admissibility of extrinsic evidence which McDougal proffered to explain the meaning of the renewal provision of the 1993 franchise agreement he executed. The admissibility of extrinsic evidence to explain the meaning of a written instrument depends on whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. The determination of the meaning of a written instrument is not limited to its four corners. (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37 (Pacific Gas).) Because the source of contractual rights and duties is the parties' intention as expressed in the contract, the court must ascertain this intention by determining what the parties meant by the words they used. Relevant, extrinsic evidence to explain the meaning of a written instrument should be excluded only if the meaning the parties gave to the words can be determined from the instrument alone. (Id. at p. 38.) The exclusion of parole evidence regarding the circumstances in which the words were written can lead to an interpretation of the written instrument that the parties never intended. (Id. at p. 39.) Extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, but the meaning of these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. Even if the meaning of language of an instrument appears to be clear, the parties may have chosen that language to express different terms. That possibility may occur when trade usage has given contract terms a particular meaning, or when the parties' understanding of the words used differed from the judge's understanding. (Ibid.)

Therefore the court interpreting a written contract must first consider all credible evidence offered to prove the parties' intention. Such evidence includes testimony of the circumstances surrounding the making of the agreement, which includes the object, nature and subject matter of the writing, so the court can place itself in the situation in which the parties found themselves when they formed the contract. After considering this evidence, if the court decides that the language of a contract is ambiguous—i.e., that both interpretations contended by the parties are reasonable—extrinsic evidence relevant to prove either meaning is admissible. (Pacific Gas, supra, 69 Cal.2d. at pp. 39-40.)

B. Extrinsic Evidence Proffered by Plaintiff Was Correctly Excluded

1. DeSio's Testimony Did Not Provide Evidence of the Parties' Intent as Expressed in the Renewal Provision or of the Meaning the Parties Gave to That Provision

In connection with briefing whether the renewal provision of the franchise agreement was ambiguous such that extrinsic evidence would be relevant, plaintiffs made an offer of proof of the transcript of Anthony DeSio's deposition testimony.

Anthony DeSio gave deposition testimony in an arbitration proceeding involving another MBE franchisee which is not a party to this case, Noho Enterprises, Inc. v. Mail Boxes Etc. USA, Inc., et al. (Super. Ct., San Diego County, No. GIC 829404), on June 2, 2004. DeSio testified that he joined the predecessor of MBE in 1980 as Vice President of Franchise Marketing, began franchising the company, and became president a year later. The predecessor company was acquired by Mail Boxes Etc., a company DeSio founded in 1983 and which later became a public corporation. DeSio was President of MBE until January 1, 1998, at which time MBE had approximately 3,500 franchises. Regarding the renewal provision of the franchise agreement, DeSio testified that the franchisee had a perpetual right to renew provided the franchisee complied with all terms of the agreement. The franchise agreement at issue in the Noho Enterprises arbitration stated "Franchisee must execute and be bound by the then current franchise agreement for the sale of new MBE centers." DeSio testified that because changes were made to the franchise agreement, MBE wanted to have the most current franchise agreement in effect at the time of renewal. "[T]his was to make sure that all of those changes got incorporated at the time of renewal. That's what that provision was there for." Confusingly, however, DeSio also testified that changes MBE made to the franchise agreement were typically not material, and stated "I think that we did not anticipate requiring that there would be material changes in the franchise agreement in order to renew." DeSio thus seemed to say that all changes were incorporated into the franchise agreement in effect at the time of renewal, but also that those changes were not material. Thus the meaning of this testimony is not clear. DeSio agreed that one of the anticipated benefits to a franchisee of entering into an MBE franchise was that there would be a right of renewal.

The trial court properly excluded this evidence for several reasons. DeSio testified in a proceeding involving another franchisee which was not a party to this action. DeSio's testimony did not show that he participated in negotiations of the franchise agreement executed by McDougal. In addition, the parties concede that the 1993 franchise agreement was a non-negotiated contract of adhesion. Thus DeSio's testimony did not provide evidence of "the intention of the parties as expressed in the contract" (Pacific Gas, supra, 69 Cal.2d at p. 38) or of the meaning the parties gave to its renewal provision. DeSio's testimony was not relevant to prove a meaning to which the language of the instrument was reasonably susceptible. (Id. at p. 37.) Finally, it was evidence of the subjective intent and understanding of one party, MBE, which was not communicated to McDougal. As such DeSio's testimony is irrelevant to determining the mutual consent of the contracting parties (Reigelsperger v. Siller (2007) 40 Cal.4th 574, 579-580) or the meaning of contractual language (California Teachers' Ass'n. v. Governing Bd. of Hilmar Unified School Dist. (2002) 95 Cal.App.4th 183, 189, fn. 3). The trial court's ruling on whether proffered evidence is relevant to prove a meaning to which contractual language is reasonably susceptible is a question of law. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166.) This extrinsic evidence was properly excluded.

2. DeSio's Testimony Was Not Evidence of MBE's Acts or Conduct in Performing the Contract, and Thus Was Not Admissible on the Issue of the Parties' Intent

A provision of the franchise agreement states: "No previous course of dealing or usage of trade not specifically set forth in this Franchise Agreement shall be admissible to explain, modify or contradict the terms of this Agreement." Plaintiff argues that this provision did not preclude evidence of MBE's subsequent conduct, occurring after execution of the franchise agreement and during the performance of that agreement, to inform the meaning of the renewal provision. Plaintiff cites the rule "that in construing the terms of a contract the construction given it by the acts and conduct of the parties with knowledge of its terms, and before any controversy has arisen as to its meaning, is admissible on the issue of the parties' intent." (Southern Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 851.)

The evidence plaintiff sought to admit, however, was DeSio's testimony of his understanding of the meaning of the renewal provision and the intent of MBE in placing the renewal provision in the franchise agreement. None of DeSio's testimony which plaintiff sought to admit into evidence concerned the acts or conduct of the parties in the course of the performance of the contract. This extrinsic evidence was properly excluded.

C. The Renewal Provision Provided for Renewal of the Franchise on the Terms Contained in the Current Franchise Agreement for the Sale of New Franchises

Since the trial court properly admitted no extrinsic evidence, this court independently construes the renewal provision of the franchise agreement. (De Anza Enterprises v. Johnson (2002) 104 Cal.App.4th 1307, 1315.)

McDougal claims that the renewal provision of the franchise agreement required the franchisor to renew the franchise agreement intact and without change so as to preserve the status and economic benefits conferred by the 1993 MBE Center Franchise Agreement. McDougal also claims that the 1993 MBE Center Franchise agreement does not include an express reservation of rights to make material changes or eliminate material benefits, and that the renewal provision cannot be interpreted to mean that UPS could offer a new, materially different franchise as a renewal.

The renewal provision, Paragraph 14.01.B of the franchise agreement, states: "At the end of such [10-year] term, provided that Franchisee shall have complied with all the terms of this Agreement, Franchisee shall have the option to renew this Agreement for successive periods of ten (10) years each. As conditions to renewal, Franchisee must provide Franchisor written notice of his/her election to renew this Agreement at least six (6) months prior to the end of the term and by paying a renewal fee of 25% of the then current initial MBE Franchise Fee. Such renewal shall be effected by the execution of an appropriate document extending the term of this Agreement on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers." (Italics added.)

The final quoted sentence refutes McDougal's argument that the renewal provision required the franchisor to renew the franchise agreement intact and without change so as to preserve the status and economic benefits conferred by the 1993 MBE Center Franchise Agreement. The final quoted sentence states that the franchisor would renew the franchise for 10 years on the same terms and conditions in the franchise agreement offered to new franchisees at the time of renewal. If "the then current Franchise Agreement for the sale of new MBE Centers" were interpreted literally, an existing franchisee such as McDougal would have no right of renewal at all. That is because the franchisor no longer offered a franchise agreement for the sale of new MBE Centers.

The franchise agreement gave the franchisor the right to change the name and trademarks of the franchise. Paragraph 21.01 of the franchise agreement stated that the franchisee agreed that competitive circumstances, changes in customer needs, or technological innovations could cause the franchisor to change proprietary marks, as long as the expenses to franchisees in the initial ten-year term caused by such changes were no more than $10,000. Furthermore, paragraph 1.03.A of the franchise agreement stated: "The business name of the Franchise shall be MAIL BOXES ETC., unless otherwise designated by Franchisor."

Defendant franchisor was not required to renew the existing franchise agreement intact and without change. Pursuant to the franchise agreement, the franchisor did change the business name and the proprietary marks of the franchise. Consequently the franchisor did not offer franchise agreements for the sale of "new MBE Centers" at renewal, and instead offered franchise agreements for the sale of "The UPS Store" franchises. The "then current Franchise Agreement" offered was for the sale of "The UPS Store" franchises.

McDougal claims that pursuant to paragraph 14.06 of the franchise agreement, modifications were to be by mutual consent of franchisor and franchisee, and could not alter the franchisee's fundamental status and rights.1 Section 14.06 states: "This Agreement contains no provision permitting either MBE or Franchisee to modify this Agreement except by mutual consent. MBE does have the right to make changes in the operating manual but such changes shall not substantially affect the relationship of the parties." Section 14.06 does not support McDougal's position. First, section 14.06 addresses changes to "this Agreement," and does not address changes made upon renewal, which is expressly made "on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers." Second, the franchise agreement made a "disclosure of representations," which included the statement that "MBE and its system may evolve, develop and change as new centers, growth, and policies, develop."

McDougal recognizes that elsewhere, the franchise agreement allowed the franchisor to change components of the MBE system, although McDougal argues that those changes were limited to those that served the interests of franchisor and franchisee and due to changes in competitive circumstances, customer needs, or technological innovation, and provided that such changes did not "materially and unreasonably increase Franchisee's obligations." Paragraph 21.01 of the franchise agreement, however, defined the point at which changes would be material and unreasonable: "Subject to the other provisions of this Agreement, Franchisee expressly agrees to abide by any such modifications, changes, additions, deletions and alterations, provided, however, that such changes do not materially and unreasonably increase Franchisee's obligations hereunder, it being understood and agreed that no aggregate Initial Term expense(s) less than or equal to Ten Thousand ($10,000.00) Dollars shall be deemed material and/or unreasonable."2 (Underscoring omitted, italics added.) Thus the limitation on changes to the franchise and the franchised system was defined as expenses to the franchisee of no more than $10,000 in the "Initial Term," i.e., the first 10-year term of the franchise agreement. Paragraph 21.01 did not apply to changes made by the franchisor upon renewal for a new 10-year term. Such renewal extended the franchise agreement "on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers."

McDougal also cites Paragraph 5.01, which states: "The Franchisee is not required to purchase or lease from MBE or any designated source any goods, services, supplies, fixtures, equipment, inventory or real estate, except for the Business Management System as set forth at Section 6.05, participation in MBEnet, and any other proprietary software, equipment or unique items that may be developed by MBE in the future and set forth as required items in the Operations Manuals." This provision applied during the initial 10-year term of the original franchise agreement, but it did not apply on the expiration of that agreement and the renewal for a new term "on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers." Plaintiff interprets the renewal provision to incorporate this and other provisions of the original franchise agreement, and to give existing franchisees the right to renew the original franchise agreement without change. However, construing a contract to confer a right in perpetuity is disfavored. (Cooper Companies v. Transcontinental Ins. Co. (1995) 31 Cal.App.4th 1094, 1103.) "`A contract will be construed to impose an obligation in perpetuity only "when the language of the agreement compels that construction."'" (Nissen v. Stovall-Wilcoxson Co. (1953) 120 Cal.App.2d 316, 319.) Here the franchise agreement does not compel the construction that the franchisee can renew the franchise agreement without change. Paragraph 14.01.B. expressly contradicts plaintiff's interpretation by stating that renewal is to be "effected by the execution of an appropriate document extending the term of this Agreement on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers."

Defendants, by requiring renewal of the franchise agreement by executing a document extending the term of the franchise agreement on the same terms and conditions as were contained in the then current franchise agreement for the sale of The UPS Store, did not breach the contract.

D. Even if the Renewal Provision Was an Option Contract, Plaintiff Failed to Exercise the Option by Acceptance of Its Terms, and Therefore the Option Contract Did Not Bind the Defendant

Plaintiff characterizes the renewal provision as an option contract to renew the franchise agreement for successive ten year periods. The language of paragraph 14.01.B, however, does not grant "an option," but instead states that at the end of the 10-year term, if the franchisee complies with all terms of the agreement, "Franchisees shall have the option to renew this Agreement for successive periods of ten (10) years each." Not "an option," but instead "the option." "[T]he word `option' is . . . often used for any continuing offer, even though revocable, and indeed is sometimes used to refer to any power to make a choice." (Rest.2d. Contracts, § 25, Com. a, p. 73.)

Even if paragraph 14.01.B constitutes an option contract—" `a contract, made for consideration to keep an offer open for a prescribed period'" (Hudson Properties Co. v. Governing Board (1985) 168 Cal.App.3d 63, 72)—the offer embodied in the option contract must be accepted in the terms in which it is made. "[T]he acceptance is required to be identical with the offer; it must be unconditional and not add any new terms thereto." (Landberg v. Landberg (1972) 24 Cal.App.3d 742, 752.) If the optionee's acceptance of the option contains conditions other than those in the offer, the optionor may ignore the purported acceptance. (Ibid.) Here plaintiff did not accept the terms of the option, which is that renewal of the franchise agreement was to be on the same terms and conditions as were contained in the then current franchise agreement for the sale of new MBE Centers. Consequently even if paragraph 14.01.B. granted an option contract to renew, plaintiff did not exercise that option and defendant, as optionor, was not bound by the option contract.

E. The Renewal Provision Was Not a Breach of the Implied Covenant of Good Faith and Fair Dealing

Plaintiff claims that the renewal provision of the franchise agreement violated the implied covenant of good faith and fair dealing because it did not expressly reserve to MBE the right to condition renewal of the franchise upon acceptance of a materially different agreement with changes to the franchisee's status and fundamental rights.

The implied covenant of good faith and fair dealing rests upon the existence of a specific contractual obligation, and is read into contracts to protect those express covenants or promises in the contract. The covenant is implied as a supplement to express contractual covenants, to prevent a contracting party from engaging in conduct which, even though it does not technically transgress express covenants, frustrates the other party's rights to the benefits of the contract. (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-1032.) The implied covenant has no existence independent of the express terms of the contract, and cannot impose substantive duties or limit on contracting parties beyond those in the specific terms of their agreements. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350.)

The renewal provision contains no express contractual obligation to renew the franchise on the same terms as in the original franchise agreement. Instead the renewal provision expressly grants renewal "on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers." There was no express, specific contractual obligation upon which to imply a covenant of good faith and fair dealing, and thus no breach of that covenant when defendants offered renewal of the franchise to McDougal on the same terms and conditions as were contained in the then current franchise agreement.

DISPOSITION

The judgment is affirmed. Costs on appeal are awarded to defendants Mail Boxes Etc., Inc.; United Parcel Services, Inc., a Delaware corporation; United Parcel Service, Inc., an Ohio corporation; United Parcel Service, Inc., a New York corporation; BSG Holdings Subsidiary, Inc., a California corporation; and BSG Holdings, Inc., a California corporation.

KLEIN, P. J. and ALDRICH, J., concurs.