MOSK, J.
Plaintiff and appellant Game Source, Inc. appeals from a judgment, after a bench trial, in favor of defendants and respondents Genco Distribution Systems and Genco Marketplace, Inc. Plaintiff contends that the trial court erred in finding that defendants did not breach a purchase agreement that contained an "as is" clause because it had not been modified by the parties' prior course of dealing, defendants did not violate the implied covenant of good faith for failing to disclose the source of the goods, and defendants did not commit fraud by not disclosing the condition of the goods.
Defendants are brokers of various products including used video games and video game equipment. Plaintiff purchases, refurbishes and sells video games and video game equipment.
Defendants sell items for which they are the exclusive sellers (contracted sales). The items are provided to defendants over time, and defendants assemble them onto pallets and offer the completed pallets for sale.
Defendants also sell items for which they are not the exclusive sellers—commonly referred to as "one-off" or "spot" deals (one-off sales). For the one-off sales, defendants do not assemble the items onto pallets. Transactions may be one-off sales even if a national retailer, such as Best Buy, is the source of the goods. Two-thirds of defendants' orders are contracted sales and one-third of defendants' orders are one-off sales.
Prior to December 2007, plaintiff entered into several purchase agreements with defendants or others pursuant to which plaintiff agreed to purchase, "as is," used video games and video game equipment for which the source of the goods was a national retailer consisting of goods that had been returned to that retailer. The record includes a list of transactions that plaintiff claims constitute a course of dealing with defendants. The record, however, does not include the actual agreements memorializing the transactions, or any documentation concerning the terms and conditions of the agreements or the negotiations of them.
Between November 1999, and February 2007, plaintiff entered into sales agreements with defendants to purchase video games and video game equipment for which Target, a national retailer, was the source (Target sales agreements). The record does not disclose whether Target was identified to plaintiff as the source of the goods prior to plaintiff entering into the respective sales agreements. The goods consisted solely of items returned to Target by its customers. Only two of the Target sales agreements were entered into in or after 2004.
Also, between March 2007, and October 2007, plaintiff entered into sales agreements with Best Buy, a national retailer, to purchase goods for which Best Buy was the source (Best Buy sales agreements). Plaintiff negotiated the sales agreements with Best Buy. Defendants' role in these Best Buy transactions was to obtain the goods from Best Buy, sort and count them, and ship them to plaintiff. Like the Target transactions, the goods purchased pursuant to the Best Buy sales agreements consisted solely of items returned to Best Buy by its customers.
On December 13, 2007, defendants' Internet sales director, Joseph Reilly, sent an e-mail to several potential purchasers, including plaintiff's vice-president, Amir Ahdoot, offering to sell video games and video game equipment (goods). The e-mail did not provide a deadline by which a proposed bid must be made. The e-mail stated the identity and quantity of the goods. Ahdoot testified that he understood that the offer was to sell the goods "as is."
Plaintiff offered to purchase the goods for $326,000.
On December 18, 2007, the agreement to purchase the goods was memorialized by a purchase and sale transaction (purchase agreement). The purchase agreement was a one-off sale. The purchase agreement provided in capitalized words that "PRODUCT SOLD AS IS—ALL SALES FINAL." It also stated that "All Purchase Orders must be paid within 24 hours and scheduled for shipment within 72 hours."
On December 19, 2007, plaintiff wire transferred the purchase funds to defendants, and on January 7, 2008, the goods were delivered to plaintiff. Plaintiff learned from the truck driver who delivered the goods that Gamers Factory might have been the source of the goods. According to plaintiff, Gamers Factory is one of plaintiff's direct competitors.
The bill of lading that accompanied the delivered goods stated that 24 pallets of the goods were being delivered, but according to plaintiff it only received 23 pallets. Reilly testified that the number of pallets stated on the bill of lading was merely an estimate for purposes of obtaining the proper size truck to deliver the goods.
Plaintiff began to inspect the goods the day they were delivered. Within days of receipt plaintiff believed the goods were "junk." The goods came from several different stores and the goods were "not the same [as] before." There was a "lot of damage," and numerous empty boxes.
When plaintiff purchased goods from a national retailer, plaintiff expects that 5 to 10 percent of the goods are either not delivered or cannot be repaired. Plaintiff calculated that 40 percent of the goods delivered on January 7, 2008, were not capable of being repaired and that there was $30,311 in missing goods. Plaintiff calculated that it suffered a loss on the transaction.
On February 20, 2008, plaintiff sent defendants a letter expressing dissatisfaction with the quality and quantity of the goods. The record does not disclose whether defendants responded to plaintiff's letter.
Jacques Stambouli, defendants' expert in the wholesale salvage industry, testified that the transaction between plaintiff and defendants was a "routine transaction" in the industry. It was not unusual in the industry that 40 percent of the goods were of poor quality. Stambouli also testified that as a buyer he does not rely on manifests stating the precise number of goods shipped. According to Stambouli, despite plaintiff's claim that there 10 percent of the videogames reflected on the manifest that were not delivered to plaintiff, that is a "normal" industry percentage. In addition, Stambouli testified that no one in the industry makes a profit on every transaction for the purchase of goods.
Defendants knew that Gamers Factory was the source of the goods. Reilly testified that he knew Gamers Factory was on a list maintained by defendants of companies potentially interested in purchasing video games and video game equipment, but he did not know it was plaintiff's competitor.
Defendants did not advise plaintiff of the source of the goods because it was a "one-off" sale and defendants therefore did not have an exclusive right to sell the goods. Defendants were concerned that if it disclosed the source of the goods to the recipients of the e-mail offering they might contact the source and purchase the goods directly from it instead of through defendants. Defendants were more likely to disclose the source of the goods in the offering e-mail when they were the exclusive sellers of the goods.
Reilly testified that 5 to 10 percent of the time defendants' prospective buyers contact defendants by telephone to ask the source of the goods, and defendants would disclose it. When that occurs, defendants contact the source of the goods to advise it that the prospective buyer was defendants' customer. Stambouli testified that before he purchases "as-is" goods he will ask the seller the source of the goods. Plaintiff did not ask defendants to identify the source of the goods. According to plaintiff, it did not do so because based upon the previous transactions between the parties, the source of the product had always been a national retailer.
Plaintiff concedes that defendants did not make any representations as to the quality of the goods. Ahdoot testified at deposition that he understood the term "as is" meant that plaintiff was "buying returns that will be in good or bad condition" and that plaintiff had to accept "whatever [was] purchase[d]." Stambouli testified that in an "as-is" sales agreement "the goods are accepted in as-is condition . . . there should be no expectation . . . as to the condition that they're in, if they're clean, if they're used, if they're beat up, things of that nature." When he buys good "as-is" "in terms of the condition of the goods . . . it's all my responsibility. . . . I'm taking all the risk. And I'm also taking all the rewards, all the downfall that would come with that." The goods are purchased for a fraction of the full price.
Reilly testified that he had not looked at the goods prior to shipment. Gamers Factory told him that the goods were from customer returns, and he testified that he believed the quality of the goods was the same as the customer returns for Target or Best Buy.
Defendants arranged for the prospective buyers to inspect the goods whenever the prospective buyers requested it. Reilly testified that the prospective buyers inspected the goods approximately 1 percent of the time. Stambouli testified that on one occasion, when the ultimate purchase price of goods was $250,000, he flew to North Carolina to inspect the goods. Plaintiff never asked defendants to inspect the goods. According to plaintiff it did not inspect the goods prior to delivery because it did not have the opportunity to do so. Plaintiff admitted, however, that there was no reason that it could not have inspected the goods prior to delivery.
Plaintiff filed a second amended complaint seeking damages against defendants based upon causes of action for breach of contract and fraud by concealment. Plaintiff alleged that "[a] material part of the implicit terms of the [purchase] agreement between the parties was that the goods would meet the quantity . . . based on their prior dealings, and that the `as is' goods purchased would be of the quality equivalent to prior orders relating to returns from one or more national retailers such as Target or Best Buy." Plaintiff alleged that defendants breached the purchase agreement by "failing to supply to Plaintiff . . . merchandise that was customary by the prior course of dealings between the parties . . . by shorting the delivery of one pallet of goods, and by sending junk merchandise to Plaintiff."
Plaintiff also alleged that defendants acted fraudulently by "conceal[ing] or suppress[ing] material facts that the goods sold to Plaintiff were not of the quality and kind as had previously been sold by Defendant[s] to Plaintiff, but were picked-over and culled product sold to Plaintiff after Gamers Factory [plaintiff's competitor] had removed the merchantable goods." Plaintiff further alleged that "Defendant[s] [were] bound to disclose such facts because the state or condition of the goods were not readily observable by Plaintiff . . . and the Defendant[s] knew that the merchandise had been picked over and was not of the quality of such goods that had been sold in the past to Plaintiff by a course of dealing over many prior years."
Following a two day bench trial, the trial court ruled in favor of defendants on both the breach of contract and fraud causes of action. The trial court stated, "I am not going to accept the plaintiff's argument, the so-called contract argument because, yes, there is some course of dealing here, but I don't think it's very sufficient after 2003. [¶] I do think that the plaintiffs [sic] had some trust, as counsel argued. But, you know, the reality is that this was an as-is situation. If it would have been a pure breach of contract I might be having a different conclusion. . . . [O]ne of plaintiff's principal's deposition testimony was that as-is means, quote, have to accept whatever is purchased, close quote. I mean, that's kind of what it is. Okay? That's what an as-is situation is. And I can't find on this record from a contract standpoint it was changed because of a course of dealing or something like that. [¶] Notwithstanding the trust issue, I think the as-is point is the determinative factor on the contract issue."
The trial court further stated, "Similarly, I can't accept the position that there was so-called negative fraud because, yes, Mr. Reilly knew about Gamers[] [Factory's] business and he knew that Gamers [Factory] was on the list [maintained by defendants of companies potentially interested in purchasing video games and video game equipment], but I do believe him when he says he doesn't know they were a competitor of plaintiff, and I accept that testimony. But even assuming arguendo he knew that, I don't know that that's something that has to be disclosed. Again, this comes back to an as-is situation. [¶] In any event, I don't think there was any so-called concealment, either intentionally or negligently, by the defense side, so I can't accept the so-called concealment prong of the argument."
"[T]he 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. [Citations.] . . . It is therefore solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence." (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.)
"When the contract is unambiguous, an appellate court is not bound by the trial court's interpretation of the contract. [Citations.] However, when the meaning of a contract is uncertain, and contradictory evidence is introduced to aid in the interpretation, the question of meaning is one of fact properly assigned to the [finder of fact] and its findings should not be disturbed by the appellate tribunal. [Citation.]" (Sunniland Fruit, Inc. v. Verni (1991) 233 Cal.App.3d 892, 898.)
When reviewing a judgment issued without a statement of decision, as occurred here, we presume the court made the findings to support its judgment under the doctrine of implied findings. (Michael U. v. Jamie B. (1985) 39 Cal.3d 787, 792-793, superseded on other grounds by statute as stated in In re Zacharia D. (1993) 6 Cal.4th 435, 448; Fladeboe v. American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 58.) "In both jury and nonjury trials, factual findings made by the trier of fact are generally reviewed for substantial evidence." (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 500-501.) That is to say, we review the entire record to determine whether substantial evidence supports the judgment. (Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632.) In so doing, we "view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor . . . ." (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660.) If the record contains substantial evidence to support the judgment, we must affirm, even if there is substantial contrary evidence which would support a different judgment. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 874.)
Plaintiff contends that defendants breached the purchase agreement because there were missing goods and much of the goods that were delivered were not merchantable. Plaintiff argues that the "as is" clause was breached because it was modified by the parties' prior course of dealing. Plaintiff also contends that defendants breached the purchase agreement because they violated the implied covenant of good faith by not disclosing the source of the goods. We disagree.
Under the California Uniform Commercial Code,
Here, the purchase agreement used language that "in common understanding . . . [made] plain there [was] no implied warranty." (§ 2316, subd. (3)(a).) In addition, the disclaimer was conspicuous—the words "`AS IS,' WITHOUT WARRANTY" were capitalized. The "as is" clause, therefore, precluded defendants' liability for the implied warranty that the goods were merchantable.
Plaintiff contends that the trial court erred in finding that plaintiff and defendants did not have a course of dealing—in which a national retailer was the source of the goods—that modified the "as is" clause. Substantial evidence supports the trial court's finding.
Section 1303, subdivision (b) defines "course of dealing" as "a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct." Section 2316, subdivision (3)(a) provides that "unless the circumstances indicate otherwise," the implied warranty of merchantability is excluded by an express "as is" clause. Section 1303, subdivision (d) provides, in pertinent part, that a "course of dealing between the parties . . . is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement."
The trial court's stated that "I can't find on this record from a contract standpoint it [the "as is" clause] was changed because of a course of dealing. . . ." Thus, according to the trial court, plaintiff had failed to establish that there was a course of dealing between plaintiff and defendants that modified the "as is" clause of the purchase agreement at issue. The record includes a list of transactions that plaintiff claims constitute a course of dealing with defendants. The record does not include the actual agreements nor does the record include any other documentation for us to determine their terms and conditions. There was testimony that in the prior transactions plaintiff purchased "as is" video games and video game equipment for which Target or Best Buy was the source. There was no other evidence, however, upon which one can determine reasonably whether the purchase agreement here was substantially similar to the prior transactions. Without this information, we cannot conclude that the trial court erred in finding that the parties did not have a course of dealing which modified the express terms of the purchase agreement at issue before us.
Even if the record disclosed the terms and conditions of the agreements that plaintiff claims constitute a course of dealing, there is substantial evidence in support of the implied findings that the parties did not have one. Best Buy, and not defendants, negotiated with plaintiff and was a party to the Best Buy sales agreements. In addition, in the three years prior to the purchase agreement here, there were only two Target sales agreements entered into between plaintiff and defendants. The trial court had substantial evidence to conclude that these prior transactions may not be "fairly . . . regarded as establishing a common basis of understanding for interpreting" (§ 1303, subd. (b)) the sales agreement.
Plaintiff contends that despite the fact that the purchase agreement expressly stated that the goods were being sold "as is," defendants breached the purchase agreement because they violated the implied covenant of good faith by not disclosing the source of the goods.
As discussed post, failure to disclose a material fact may be the basis for a fraud claim seeking rescission of the agreement or damages. Plaintiff, however, has not cited any authority that a seller of "as is" goods breaches a purchase agreement by failing to disclose to the buyer the source of the goods.
To the extent plaintiff's contention can be construed reasonably to mean that the implied covenant of good faith contradicts or modifies the express "as is" term, such a contention fails. "`"Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." [Citation.]'" (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 371 (Carma ); accord, § 1304.) However, "[t]he implied covenant `is designed to effectuate the intentions and reasonable expectations of parties reflected by mutual promises within the contract.' [Citations.] For this reason, it is well established that an implied covenant cannot create an obligation inconsistent with an express term of the agreement. [Citations.]" (Nein v. HostPro, Inc. (2009) 174 Cal.App.4th 833, 852; accord, Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1033.)
Parties "`"are entitled to enforce the terms of negotiated contracts to the letter without being mulcted for lack of good faith." . . . "Express covenants abrogate the operation of implied covenants so courts will not permit implied agreements to overrule or modify the express contract of the parties."' [Citations.]" (State Farm Mutual Automobile Ins. Co. v. Superior Court (2003) 114 Cal.App.4th 434, 453.) The Supreme Court in Carma, supra, 2 Cal.4th 342, stated that "implied terms should never be read to vary express terms. [Citations.] `[I]n interpreting a contract "an implication . . . should not be made when the contrary is indicated in clear and express words." [Citation.]'" (Id. at p. 374; accord, Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100 Cal.App.4th 44, 53, 55; Locke v. Warner Bros., Inc. (1997) 57 Cal.App.4th 354, 365.)
The "as is" clause here is unambiguous. The term "as is" is "understood to mean that the buyer takes the entire risk as to the quality of the goods involved." (Official Comment on U. Comm. Code, Deering's Ann. Cal. U. Com. Code (1999 ed.) foll. § 2316, p. 148.) Plaintiff's vice president testified that "as is" meant that plaintiff was "buying returns in good or bad condition" and that plaintiff had to accept "whatever [was] purchase[d]."
The implied covenant of good faith and fair dealing does not prevent defendants from enforcing the "as is" clause. "[I]t has been held that the implied covenant of good faith and fair dealing does not impose an affirmative duty on a party to forbear from enforcing rights expressly given under the contract." (Storek & Storek, Inc. v. Citicorp Real Estate, Inc., supra, 100 Cal.App.4th at p. 56, fn. 10.)
Plaintiff correctly contends on appeal that the trial court erred by finding that its fraud by concealment claim was barred by the "as is" clause in the purchase agreement. Nothing in section 2316 or the Commercial Code excuses fraud by withholding disclosure of a material fact. "Even an `as is' sale disclaimer `does not necessarily confer on the seller a general immunity from liability for fraud. It is fairly well established in respect to sales of personal property that such a provision "does not prevent fraudulent representations relied on by the buyer from constituting fraud which invalidates the contract or is a ground for damages." [Citations.]' [Citation.]" (Reveles v. Toyota by the Bay (1997) 57 Cal.App.4th 1139, 1152, disapproved on other grounds by Gavaldon v. Daimler Chrysler Corp. (2004) 32 Cal.4th 1246, 1261;
The trial court, however, did not base its finding for defendants on plaintiff's fraud claim on the "as is" clause alone. The trial court also denied plaintiff's cause of action for fraud by concealment because defendants did not know that Gamers Factory, the supplier of the goods, was plaintiff's competitor, and defendants did not intentionally or negligently conceal facts from plaintiff. Plaintiff does not challenge the sufficiency of the evidence in support of these trial court findings. "An appellate court will consider the sufficiency of the evidence to support a given finding only after a party tenders such an issue . . . ." (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 409-410.) We therefore do not hold that there was trial court error in finding no fraud by concealment.
The judgment is affirmed. Defendants are awarded their costs on appeal.
We concur:
TURNER, P. J.
ARMSTRONG, J.
