Real party in interest Building Materials Corporation of America doing business as GAF Materials Corporation (GAF) brought the instant breach of contract action against petitioner Paramount Petroleum Corporation (Paramount). GAF had entered into a long-term contract with Paramount by which Paramount would supply GAF with its requirements for asphalt coating for GAF's manufacture of roofing shingles. The asphalt coating was to be made from Oriente crude oil (Oriente), from Ecuador. Rather than linking the price of the asphalt coating to the price of Oriente, the parties agreed to link the contract price to that of another type of oil, West Texas Intermediate (WTI), as the prices of the two oils had, historically,
Paramount sought writ relief and we issued an order to show cause. We now conclude that (1) the trial court erred in granting summary adjudication in GAF's favor on liability because summary adjudication cannot be granted in favor of a plaintiff on liability alone, but (2) the trial court did not err in granting GAF summary adjudication on Paramount's defense of mutual mistake. We therefore will grant the petition in part and deny it in part.
GAF is in the business of manufacturing and selling roofing shingles. It is the largest manufacturer of residential roofing systems in the United States, and it manufactures roofing shingles at four different facilities in California. One of the materials used to manufacture shingles is asphalt coating.
Prior to December 2007, pursuant to a prior agreement, Paramount supplied GAF's requirements for asphalt coating with coating produced out of Alaskan North Slope crude. When the price of that oil increased, Paramount sought to use a different type of oil and proposed Oriente. GAF tested Oriente and approved it.
The parties entered into the contract effective December 1, 2007. The contract had a term running to June 30, 2013. Additionally, it would be extended for five additional one-year terms, unless GAF, in its sole discretion, chose to terminate it. Pursuant to its terms, Paramount would supply GAF with all of its requirements for asphalt coating for three of its California facilities, and 75 percent of its requirements for its fourth facility. Parmount was to produce the coating only from Alaskan North Slope or Oriente crude, unless the parties agreed in writing to another type of crude. GAF was required to provide regular forecasts of its anticipated purchase requirements.
As to pricing, the contract gave GAF discretion to choose between two different methods of pricing asphalt coating.
The contract also included a severability clause. It provided, "Any provision hereof which is (at any time) legally unenforceable shall be ineffective only to the extent of such unenforceability without thereby invalidating the remaining provisions hereof (including the remaining enforceable portion of any affected paragraph) or affecting the validity or enforceability of this Agreement as a whole. Such invalidated provision shall be replaced by the Parties hereto with a valid provision that most closely reflects the intent of the Parties in the invalidated provision."
Pursuant to the terms of the agreement, pricing under the agreement was originally calculated using Asphalt Index Pricing. In October 2008, GAF gave notice to switch to WTI Formula Pricing effective November 8, 2008. Performance under the agreement continued without issue,
WTI was regularly quoted at Cushing, Oklahoma. In early 2011, there was an unanticipated glut of oil at Cushing. The reasons for this glut are described by Paramount, somewhat generally, as follows: (1) an "astonishing amount" of crude was obtained in North America by means of hydraulic fracturing or "fracking," which oil ended up at Cushing, and (2) the lack of existing infrastructure at Cushing to transport this additional crude oil to refineries for processing.
In the summer of 2011, Paramount asked to discuss with GAF "the hardship to Paramount created by the decline in the market price of WTI crude relative to Oriente crude." Discussions were held, but were fruitless. At one point, Paramount suggested the selection and approval of a third type of crude.
By a letter dated March 16, 2012, Paramount informed GAF that it was terminating performance under the contract. Its letter stated that Paramount was taking such action because GAF had "refused to honor the spirit of the Agreement by acknowledging that WTI is no long[er] a reasonable proxy for Oriente prices." Having incurred millions of dollars in losses, Paramount stated that it was unreasonable and impracticable for it to continue. It stated, "Until such time as GAF acts reasonably by agreeing to reform the Agreement in a manner that reflects the original intent of the parties, Paramount is not in a position to continue [p]roduct deliveries."
GAF still needed asphalt coating in quantities that only Paramount could supply. It therefore continued to purchase coating from Paramount but at prices unilaterally set by Paramount. In March 2013, while this action was pending, Paramount stopped selling asphalt coating to GAF entirely.
GAF brought the instant action shortly after Paramount terminated the contract.
Paramount filed an answer consisting of a general denial and numerous affirmative defenses. Among others, Paramount raised the affirmative defense of mistake of fact.
On August 14, 2013, GAF moved for summary judgment or, in the alternative, summary adjudication. Although GAF purported to seek summary judgment on its complaint, it specifically indicated that it was "not seeking summary judgment on the amount of ... damages through this motion. If this motion is granted, then barring settlement, the amount of damages would be established at trial." In other words, GAF sought summary adjudication on the issue of Paramount's liability for breach of contract, but not on the element of damages.
As to that defense, GAF argued that any mistake in using WTI as a proxy for the price of Oriente was a simple error in judgment by Paramount, as opposed to a mistake as to an existing fact. Further, GAF noted that Paramount was the party which had proposed the use of WTI, and Paramount had assumed the risk that WTI's price would not track Oriente's price. In this respect, it relied on the deposition testimony of Alan Moret, Paramount's
GAF also relied on an e-mail from Paramount during the negotiations of the agreement, in which Paramount first proposed using WTI Formula Pricing. The e-mail stated the following, "The pricing `formula' has worked well when crude oil was less than $40 per barrel, however, when crude is over $60 per barrel, the formula does not work. With crude oil above $95 per barrel, the resulting `formula' pricing absolutely does not and will not work.[
As to the motion for summary adjudication on liability for breach of contract, Paramount argued this was procedurally improper, as summary adjudication could not be sought on a portion of a cause of action. Paramount also argued that triable issues of fact existed as to the elements of breach of contract.
As to the mistake of fact defense, Paramount argued that triable issues of fact existed as to whether the mistake in using WTI in the pricing formula had been a mistake of fact or an error in judgment. Specifically, Paramount argued that two mutual mistakes of then existing fact had been made when the contract was negotiated in 2007: first, the parties did not know that then existing technologies (including tracking) were capable of accessing vast quantities of crude in the market area that depended on Cushing
Paramount emphasized that, at the time of contracting, both parties wanted a formula that tracked the price of Oriente. This was not a case of Paramount gambling on the price of WTI; it was, instead, both parties attempting to find a reasonable proxy for Oriente. Before entering into the agreement, Paramount had conducted research concerning the historical price movements of WTI and Oriente and had satisfied itself that WTI was a reasonable proxy for Oriente. Paramount argued that, although it had understood, at the time of contracting, that WTI's price would not always move in lockstep with Oriente's price, Paramount (and GAF) had never anticipated that WTI's price would actually become lower than Oriente's price.
In reply, GAF argued that it could, in fact, obtain summary adjudication on the issue of liability only. It further argued that, if it was incorrect on this point, it could obtain summary adjudication of two issues of duty — specifically, whether Paramount had a duty under the contract and whether it had breached that duty.
After a hearing, the trial court denied GAF's motion in all respects. It specifically found triable issues of fact existed as to, among other things, (1) the interpretation of some ambiguous or implied contractual terms; (2) whether the contract terms were performed or breached; and (3) which issues interrelate with Paramount's affirmative defenses.
More than two weeks later, the trial court issued an order vacating its initial ruling and stating that the matter stood submitted. Thereafter, it issued a new ruling granting GAF's motion for summary adjudication. The parties were not given an opportunity to provide further oral or written argument before such new ruling was issued.
As to GAF's cause of action for breach of contract, the court stated, "Paramount has breached the agreement by refusing to supply GAF with asphalt[] coating ... at the contract price. Plaintiff has suffered damages when it was forced to purchase cover from Paramount and third parties in the amounts in excess of the parties' contract price. Therefore, Plaintiff's Motion for Summary Adjudication is granted for breach of contract ...." The court did not address Paramount's procedural argument that summary adjudication could not be granted on issues of liability alone, without calculating damages.
The trial court also granted summary adjudication in GAF's favor on several of Paramount's affirmative defenses. As to mutual mistake, the only affirmative defense at issue in the instant writ proceeding, the court concluded that Paramount's mistake of fact defense was, in fact, based on an error in judgment. In this regard, the court relied on the testimony of Moret that Paramount had been aware of the risk that WTI's price would not track the price of Oriente.
Paramount filed a timely petition for writ of mandate, seeking review of the trial court's order. As already indicated, we issued an order to show cause and set the matter for hearing.
Paramount's petition focuses on three issues. First, Paramount contends the trial court improperly reconsidered its summary adjudication ruling without granting the parties notice and an additional opportunity to be heard. GAF responds that reconsideration was properly granted and, in any event, any error in granting reconsideration was necessarily harmless as the trial court's ultimate ruling was correct. Second, Paramount argues that the trial court procedurally erred in granting summary adjudication on a portion of a cause of action (i.e., liability for breach of contract). GAF responds that partial summary adjudication on liability only is proper and, in any event, the same result follows if the motion was characterized as seeking summary adjudication of issues of duty. Third, Paramount argues that triable issues of fact
Our Supreme Court has clearly stated that a trial court has the inherent power to reconsider orders on its own motion "as long as it gives the parties notice that it may do so and a reasonable opportunity to litigate the question." (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1097 [29 Cal.Rptr.3d 249, 112 P.3d 636].) "To be fair to the parties, if the court is seriously concerned that one of its prior interim rulings might have been erroneous, and thus that it might want to reconsider that ruling on its own motion — something we think will happen rather rarely — it should inform the parties of this concern, solicit briefing, and hold a hearing." (Id. at p. 1108.) As the trial court in the instant case failed to do so,
GAF argues, however, that the error is not reversible if the trial court's ultimate ruling on the summary adjudication motion was substantively correct. We agree. "[T]he California Constitution requires that in any case in which a trial judge reconsiders an erroneous order, and enters a new order that is substantively correct, the resulting ruling must be affirmed regardless of any procedural error committed along the way." (In re Marriage of Barthold (2008) 158 Cal.App.4th 1301, 1313 [70 Cal.Rptr.3d 691].) We therefore turn to the merits of the trial court's ultimate order granting summary adjudication.
GAF sought, and obtained, summary adjudication of Paramount's liability for breach of contract, with the specific understanding that damages would be determined at trial. This result is not permitted by the language of the summary adjudication statute, the legislative history of the statute, and the case authority interpreting it.
Our initial investigation of the words of the statute is somewhat complicated by an unfortunate amendment intended to clarify the statute's language. We are concerned with Code of Civil Procedure, section 437c, subdivision (f)(1), which provides for motions for summary adjudication. It states, "A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if that party contends that the cause of action has no merit or that there is no affirmative defense thereto, or that there is no merit to an affirmative defense as to any cause of action, or both, or that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs. A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty." (Code Civ. Proc., § 437c, subd. (f)(1).)
The preliminary problem arises because, technically speaking, the first sentence of the statute does not appear to allow a plaintiff to move for summary adjudication of a cause of action on the basis that the cause of action is indisputably meritorious. To see the problem, compare subdivision (a) of the same statute. This permits a party to move for summary judgment "in any action or proceeding if it is contended that the action has no merit or that there is no defense to the action or proceeding." (Code Civ. Proc., § 437c, subd. (a).) Thus, a plaintiff may move for summary judgment if it contends that "there is no defense to the action ...." A later subdivision explains that "[a] plaintiff ... has met his or her burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling the party to judgment on that cause of action." (Code Civ. Proc., § 437c, subd. (p)(1).) Thus, a plaintiff can seek summary judgment by
There is, however, no provision for a plaintiff to move for summary adjudication of a cause of action if it proves there is "no defense" to the cause of action. Subdivision (f)(1) of Code of Civil Procedure section 437c provides that a party may move for summary adjudication "if that party contends ... that there is no affirmative defense" to a cause of action.
This was, in fact, what was intended. Prior to a 1993 amendment, the summary adjudication provision provided, in language paralleling that of the summary judgment provision, that a party could move for summary adjudication "[i]f it is contended that one or more causes of action within an action has no merit or that there is no defense thereto ...." (Code Civ. Proc., former § 437c, subd. (f)(1); Stats. 1992, ch. 1348, § 1, p. 6699.) In 1993, the subdivision was amended to read as it currently does, purportedly allowing a plaintiff to seek summary adjudication if it contends there is "no affirmative defense" to a cause of action, not if there is "no defense" to it. (Code Civ. Proc., § 437c, subd. (f)(1); Stats. 1993, ch. 276, § 1, p. 1969.) The legislative history confirms that this amendment was not intended, in any way, to change the bases on which a party could seek summary adjudication; instead, it was intended only to "[c]larify existing language relating to summary adjudication motions ...." (Sen. Rules Com., Off. of Sen. Floor Analyses, Analysis of Assem. Bill No. 498 (1993-1994 Reg. Sess.) as amended July 1, 1993, p. 2.) Indeed, another division of this appellate district has already concluded that "despite the more awkward sentence structure of the 1993 amendment, we can only conclude that the first sentence of section 437c, subdivision (f)(1) was amended only to provide clarity and not to alter the meaning of the prior
Moreover, subdivision (p) of Code of Civil Procedure section 437c, which sets forth the standards of proof, begins with: "For purposes of motions for summary judgment and summary adjudication" (italics added), before proceeding to subdivision (p)(1), which describes the burden of establishing that "there is no defense to a cause of action ...." The inclusion of "summary adjudication" in this subdivision would make no sense if a plaintiff could not, in fact, move for summary adjudication on the basis that there is no defense to a cause of action.
Legislative history is in accord. Prior to the 1990 amendment to the summary adjudication statute, parties could seek summary adjudication on
GAF takes the position that this case authority is not controlling. GAF argues that the court was discussing summary judgment, and that its language regarding summary adjudication was only a vague implication, bereft of analysis, in dicta. The confusion may have arisen because the court spoke of "partial summary judgment" and "summary adjudication" as two separate things. In truth, there is no such creature as "partial summary judgment" in California; the proper term is "summary adjudication." (See Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group) ¶ 10:35, p. 10-7 (rev. # 1, 2013).) With this clarification, it is apparent that the court's language is a well-reasoned holding. The court was specifically requested to enter partial summary judgment — summary adjudication — on the issue of liability, leaving damages to be tried. The court rejected the request, because there was no statutory basis for such an order. As we have explained, the governing statute provides that a plaintiff can only obtain summary adjudication of a cause of action if the plaintiff establishes each element of the cause of action entitling it to judgment on that cause of action. The court specifically held that "[a] decision on the issue of liability against the party on whom liability is sought to be imposed does not result in a judgment until the issue of damages is resolved." (Department of Industrial Relations v. UI Video Stores, Inc., supra, 55 Cal.App.4th at p. 1097.) Therefore, such a summary adjudication would be improper. We fully agree with the court's reasoning.
In sum, there is no legal basis for a plaintiff's motion for summary adjudication on liability only, and the trial court erred in granting GAF's motion in this case.
We now turn to GAF's motion for summary adjudication of Paramount's mutual mistake defense. We review the grant of summary adjudication de novo. (King v. Wu (2013) 218 Cal.App.4th 1211, 1213 [160 Cal.Rptr.3d 819].)
Civil Code section 1577 speaks in terms of mistakes as to present or past facts; there is no authority for rescission based on a mistake regarding future events. (Mosher v. Mayacamas Corp. (1989) 215 Cal.App.3d 1, 5 [263 Cal.Rptr. 373] (Mosher).) In determining whether a mistake is a mistake of fact or an error in judgment, "[i]t is the facts surrounding the mistake, not the label, i.e., `mistake of fact' or `mistake of judgment,' which should control." (White v. Berrenda Mesa Water Dist. (1970) 7 Cal.App.3d 894, 907 [87 Cal.Rptr. 338].)
According to Paramount, at the time of contracting, the parties were mutually mistaken
Two California cases provide guidance in characterizing the mistake in the instant matter. The first is Mosher, in which the two parties had together owned properties in Lake Tahoe, and one party agreed to buy out the other. (Mosher, supra, 215 Cal.App.3d at p. 3.) The buyer stopped paying the agreed purchase price, and sought to rescind, when a change in federal tax law (eliminating tax benefits for secondary residences) drastically reduced the property values below the purchase price. (Id. at pp. 3-4.) The seller obtained summary judgment and the appellate court affirmed, over the buyer's contention of mutual mistake. The court explained that the buyer "asserts that the valuation of the Lake Tahoe properties which formed the basis of the 1982 contract was grossly overstated, an assertion which might raise a triable issue of fact were it supported by evidence that the valuation was overstated at the time of the sale. However, the entire thrust of [the buyer's] claim appears to be that the valuation was rendered mistaken by subsequent events, i.e., the adverse tax legislation which began affecting Lake Tahoe real estate in 1985 and was ultimately enacted in 1986, nearly four years after the parties' transaction." (Id. at p. 5.) The court continued, "Absent evidence that the
There is one sentence in Mosher on which Paramount can attempt to distinguish its situation. Mosher states that the buyer entered into the contract "presumably knowing that the availability of [tax] benefits could be affected by future legislation." (Mosher, supra, 215 Cal.App.3d at p. 6.) Paramount argues that, in contrast, it did not know that the price correlation between WTI and Oriente could be affected by then existing fracking technology and therefore could not have contracted to protect itself. But Paramount did know that there was always a risk that WTI and Oriente would not continue to track;
The second case from which we obtain guidance is Habitat, a case in which a developer sought to develop a residential subdivision. The draft environmental impact report (EIR) proposed that, in order to mitigate the potential loss of a habitat for plants and animals, the developer should convey some offsite land to a county special district. A nonprofit environmental advocacy group found this mitigation provision to be insufficient, and intended to oppose the development. (Habitat, supra, 175 Cal.App.4th at p. 1312.) The developer and the nonprofit then reached an agreement that the nonprofit would not oppose the development if, rather than conveying the mitigation land to the county, the developer conveyed the mitigation land to the nonprofit itself. (Id. at pp. 1312-1313.) The final, approved, EIR provided that the developer must convey the mitigation land to the county or "`other qualified conservation entity approved by the City.'" (Id. at p. 1313.) The developer contracted to give the mitigation land to the nonprofit, and the parties sought city approval of the nonprofit as a "qualified conservation entity." (Id. at p. 1314.) The nonprofit failed to obtain city approval, but nonetheless sued the developer for failing to transfer the land. (Id. at p. 1315.) The developer sought to rescind the contract with the nonprofit, on the basis of mutual mistake. (Id. at p. 1317.) The developer successfully obtained summary judgment, and the judgment was affirmed on the nonprofit's appeal. It was clear from the facts that the contract between the developer and the nonprofit was based on the assumption that the nonprofit would be approved by the city as a "qualified conservation entity," although the contract did not specify this. The issue arose as to whether the parties' mistake was a mistake in judgment that the city would approve the nonprofit, or a mistake in fact that the nonprofit met the necessary qualifications. (Id. at p. 1343.) The court concluded that, despite the nonprofit's characterization of the mistake as one regarding future approval, the facts showed that both parties were mistaken "as to the present fact that [the nonprofit] would qualify." (Ibid.)
The Habitat opinion illustrates the ease with which a mistake can be characterized as either a mistake of fact or an error in judgment. But, further, it demonstrates what it is to be mistaken about a present fact, even though it was a future occurrence of an unexpected event that derailed the contract. That is, in Habitat, the contract depended upon the city ultimately approving the nonprofit to take the mitigation land; it was the future event of the city's disapproval of the nonprofit that undermined the developer's reason for entering into the contract with the nonprofit. However, the parties had entered into the contract with the present understanding that the nonprofit met the requirements of a qualified conservation entity, and would therefore be
In this case, there was no such factual mistake. WTI, on which the parties relied for the formula pricing alternative, was, in fact, exactly what the parties believed it to be. The then existing capacity at Cushing was also what the parties believed it to be. There is no suggestion, for example, that at the time of contracting, the Cushing glut existed and the parties were mistaken about it. Instead, the parties were mistaken in their assumption that WTI would continue to serve as a reasonable proxy for Oriente. This is, as a matter of law, an error in judgment. While Paramount, with the benefit of hindsight, attempts to find facts existing at the time of contracting which could be blamed for eventually causing WTI's price to decouple from Oriente's,
The petition for writ of mandate is granted in part and denied in part. Let a peremptory writ of mandate issue directing the trial court to vacate its order granting GAF's motion for summary adjudication in its entirety and to issue a new and different order (1) denying GAF's motion for summary adjudication of the liability portion of its cause of action for breach of contract and (2) granting GAF's motion for summary adjudication of the identified affirmative defenses,
Klein, P. J., and Kitching, J., concurred.
