UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
December 28, 2011
UNIHAN CORP., PLAINTIFF AND COUNTER-DEFENDANT,
MAX GROUP CORP. DEFENDANT AND COUNTER-CLAIMANT.
The opinion of the court was delivered by: Margaret M. Morrow United States District Judge
FINDINGS OF FACT AND CONCLUSIONS LAW
Plaintiff Unihan Corp. ("Unihan") commenced this action on October 29, 2009, alleging breach of contract and other common law claims.*fn1 On January 5, 2010, defendant Max Group Corp. ("Max") filed an answer that pled two counterclaims for breach of contract.*fn2
The case was tried to the court from May 31 to June 4, 2011.
Thereafter, the parties submitted written trial briefs.*fn3
Having considered the evidence presented, the arguments
counsel, and the parties' trial briefs, the court makes the following
findings of fact and conclusions of law pursuant to Rule 52 of the
Federal Rules of Civil Procedure.
I. FINDINGS OF FACT
A. Background Regarding the Parties and the Transactions
1. Unihan is a corporation organized under the laws of the Republic of China (Taiwan) with its principal place of business in Taipei, Republic of China (Taiwan). Max is a California corporation with its principal place of business in City of Industry, California.*fn4
2. Unihan is a manufacturer of telecommunications- related products.*fn5 Max is a wholesaler or distributor of computer and other electronic equipment.*fn6 In 2007, Max formed a Max Media unit within Max and named David Tang its president.*fn7
3. Television transmission in the United States was scheduled to migrate from analog to digital by February 2009. To encourage consumers to purchase digital-to-analog converter boxes so that they could use their analog televisions to watch digital transmissions, the United States Department of Commerce's National Telecommunications and Information Administration ("NTIA") offered a coupon program that provided consumers with a credit toward the purchase of a converter box.*fn8 Tang became aware of the coupon program in late 2007 or early 2008.*fn9 At the time, the deadline for using a NTIA coupon to purchase a converter box was February 17, 2009.*fn10
B. Pre-Agreement Representations, Negotiations, and the Issuance of Purchase Orders
4. In early 2008, Bob Hoard, a representative of Auvitek, Inc. ("Auvitek") approached Tang. Auvitek was designing a chip set to be used in converter boxes. Hoard introduced Tang to Mark Pai, an employee in Auvitek's Taiwan office, so that Tang and Pai could further discuss the concept. The two had a few discussions via telephone. Tang then flew to Taiwan in May 2008, where he met first with Pai of Auvitek and Daniel Kuo of Powerray Corp. ("Powerray"). Powerray was designing the main functionality in the converter box for which Auvitek was to provide the integrated circuit.*fn11
5. Pai and Kuo escorted Tang to Unihan's office. Tang understood that
Auvitek, through Pai,
was setting him up with "Unihan as a manufacturer."*fn12
At the time of the meeting in Unihan's office, Tang had not
seen an actual design for a converter box. Tang met with Dr. Steve
Huang and Phoebe Chien of Unihan, among others.*fn13
They discussed the potential project with Tang and estimated that the
cost to manufacture converter boxes would be $5.00 per
6. Following the meeting at Unihan's office, Tang went back to Auvitek's office with Pai and Kuo. There, Tang saw a sample converter box for the first time. Tang was not able to test the converter box at Auvitek's office because the channel frequencies in Taiwan are different than those in the United States.*fn15
7. After Tang returned to the United States, Powerray sent Tang a
sample converter box. Tang tested the sample and, on June 14, 2008,
reported problems to Kuo concerning, among other things,*fn16
that the "picture doesn't seem to be as vivid . . .
especially on the red color."*fn17
8. Pai and Kuo then sent Tang a modified sample, which Tang tested again. He noticed that "half the problems went away" because "50 percent of the problem[s] with the first batch . . . were AC adapter related," and Powerray had "replaced the different AC adapters."*fn18
Although the "the other half of the problems were still there," it is unclear whether Tang reported them to Pai or Kuo.*fn19 Tang never received a third sample from Powerray or Auvitek.*fn20
9. In June and July 2008, Tang discussed with Unihan's Oscar Cheng the possibility that Max would purchase 500,000 converter boxes from Unihan, which would be known as the "Lutro" converter boxes.*fn21 No purchase orders, however, were placed.*fn22 Huang instructed everyone at Unihan to take no action to manufacture boxes until a purchase order was received from Max.*fn23
10. In July 2008, Tang traveled to China to inspect Unihan's manufacturing facility. During his visit, Tan became concerned because he did not see Unihan engaged in any part of the manufacturing process for the Lutro converter boxes. Tang was expecting "some kind of engineering team there to [be] engage[d] in the Max converter box," but "there was no activity." Tang was particularly concerned because of the "time pressure" and "limited window of opportunity" to capitalize on the government's coupon program, which "was set to expire" in February 2009.*fn24
11. After Tang's visit to China, he contacted Pai and expressed concern about the lack of manufacturing activity and the time pressure created by the coupon program. As a result, Pai flew to Los Angeles in late July 2008 for a series of meetings at Max's offices.*fn25
During these meetings, Pai represented that although he was employed
by Auvitek, he would be joining Unihan immediately, where he would
continue to work on Max's Lutro converter box project.*fn26
He also represented that Huang, a general manager at Unihan,
had asked him to negotiate the terms and conditions of Lutro converter
box purchase orders, and knew that he was doing so.*fn27
Unbeknownst to Max, Pai did not have authority to
negotiate, or make any representations on Unihan's behalf. Pai did not
join Unihan as an employee during the course of the
12. While Pai was in Los Angeles, Tang continued to speak with Cheng
in Unihan's Taiwan office.*fn29 Follwing these
discussions, on July 21, 2008, Max issued Purchase Order ("PO") No.
142034 for 400 "Maxmedia Lutro NTIA approved converter box kit[s]
defined and spec by Powerray" at a $35 unit price, for a total of
$14,000, and a credit or finance term of net 30 days.*fn30
Delivery was specified as "in 3 weeks (partial if
13. Following receipt of PO No. 142034, Cheng sent Tang an email stating: "I got the PO. One question is our payment is T/T in advance not net[ ] 30 days." The email included Unihan's "internet schedule" for other anticipated Lutro converter box purchase orders. The proposed schedule was as follows: (1) sample order: 100 pieces -- August 10, 2008 delivery to customers from Taiwan; (2) engineering run order: 50 pieces -- August 25, 2008 delivery to customers from Shanghai; (3) pilot run order: 250 pieces -- September 4, 2008 delivery to customers from Shanghai; (4) mass production forecast production order: 200,000 pieces -- September 30, 2008 delivery to customers from Shanghai; and (5) rolling forecast from October: 500k per month.*fn32
14. At approximately this time, Tang became more convinced that Pai's analysis of the marketability of the converter boxes was correct. He contacted a Walmart representative to discuss Walmart's interest in the converter boxes, who expressed interest in the converter boxes. He also relied on Pai's report of a similar discussion he had had with a Best Buy representative.*fn33
15. On July 23, 2008, Max Group issued PO No. 142108 for the purchase
of 100,000 converter boxes at $33.50 per unit. The purchase order
stated that the units were to be delivered by September 30, 2008. It
also specified that the "Lutro box should be built to be 100% NTIA
compliant as an NTIA approved converter box with analog pass through
feature," and that "[p]arts and components must not be altered without
the consent of Maxmedia." The purchase order provided that the
converter box was to "include all the necessary accessories,"
including a user manual. Finally, it stated that Unihan was to
"provide a 15 month warranty to the Lutro box, [and a] return and
repair procedure to be provided by" Unihan. PO No. 142108 did not
condition purchase of the 100,000 units on fulfillment of or language
in any other purchase order, did not reference any other purchase
order, and did not include a cancellation provision.*fn34
Unihan accepted the terms of PO No. 142108.*fn35
C. Unihan Begins Manufacturing Process
16. Unihan immediately began purchasing component parts in sufficient quantities to manufacture 100,000 converter boxes by September 30, 2008, and rushed its suppliers to deliver components on an expedited schedule.*fn36
17. On July 29, 2008, Max issued and delivered PO Nos. 142034A and 142214 to Unihan, for 100 and 300 converter boxes respectively; these purchase orders were intended to replace PO No. 142034. The unit price for both POs was $35 and both contained similar language to PO No. 142108 regarding "100% NTIA complian[ce,]" alteration of parts and materials, and inclusion of "all the necessary accessories." Although the language, "Maxmedia Lutro NTIA approved converter box kit defined and spec by Powerray" was not included in these POs, it was Max's understanding that specifications for the converter boxes had to be provided by Powerray.*fn37
18. On August 12, 2008, Unihan manufactured one hundred converter boxes. Max's Frank Chang and Sue Tsai picked up ten of these in Taipei before August 15, 2008. Unihan shipped the remaining ninety to Max's Los Angeles office; they arrived on approximately August 20, 2008.*fn38
19. On August 19, 2008, Cheng informed Tang that Unihan was scheduled to complete the first 25,000 converter boxes from the mass production order by September 4, 2008. Cheng stated that he "need[ed] the user manual for [the] Spanish version before 22/Aug. Otherwise, [mass production] will miss the Spanish version in user manual."*fn39
20. On August 21, 2008, Tang informed Unihan that one of the one hundred converter boxes "displayed bright orange color on the OSD and the picture color is all wrong, so we think this box is bad." Thirty minutes later, Tang informed Unihan that "[a]fter [he] turned off the power and restart[ed] the box, it seemed OK again."*fn40
21. On August 26, 2008, Tang informed Unihan that another one of the one hundred converter boxes had color problems. He stated: "[T]his [is] the 2nd box that we see have a problem out of 20 boxes we tested."*fn41 That same day, Cheng responded: "The attached file is updated firmware to solve the OSC become red color problem. I [spoke] with Powerray, and, they say you have the tools before. So, I just attached the updated firmware and the firmware update manual to you. This bug will be gone after update the firmware. Please try it!"*fn42 On August 27, 2008, Unihan arranged with Pai to send an Auvitek engineer, Jiang Zhi, to identify the defects with the 100 samples.*fn43
22. On August 27, 2008, Cheng proposed a delivery schedule for the mass production order. The schedule contemplated delivery of 25,000 converter boxes on each of September 19, September 25, October 2, and October 9, 2008. Cheng asked Tang to "arrange your delivery schedule to us before 29/Aug."*fn44 In response, on August 27, 2008, Tang instructed Unihan to "[p]lease wait for our further notice of the MP [because] there are still technical problems with the box, the pr[i]cing iss[u]e, and customer problem[s]."*fn45
Notwithstanding Cheng's proposed delivery schedule, Unihan had the capacity, on August 27, 2008, to manufacture all 100,000 converter boxes by September 30, 2008.*fn46
D. Max's Stop Work Order and Subsequent Negotiations
23. On September 3, 2008, Tang reiterated his instruction that Unihan not move forward with mass production, stating: "The converter box program has short life as we all know, that is why I put a hold and stop on the production as you all should refer to the conditions that we listed on the PO."*fn47
24. At the time Max stopped production, it had a purchase order from
Microcenter for 2,000 converter boxes.*fn48 Max had
been in discussions with Winn-Dixie about purchasing 20,000
converter boxes, but no purchase order had ever been placed. Tang
considered Winn-Dixie "at best a potential customer."*fn49
Max's third potential customer was David Memsen. But Memsen
had previously received a severe warning from NTIA because it had
advertised Max's Lutro boxes on its website on August 1, 2008, before
the product had been NTIA approved.*fn50
25. Max was also concerned that "the market price [of the converter boxes] was going down. . . . [The] price was sliding at a pretty rapid rate. So [the] price [Max had] negotiated [with Unihan] way back in May [was being] affect[ed by] the market price in August."*fn51
Max also discovered that "retailers [were] very passive in promti[ng] the box, [because] they [would] rather sell more TV[s]. . . ." It concluded that the "project [was] way late." Although it "work[ed] very hard to squeeze into the tail end of th[e] [coupon] program," it found that the task was "[n]ot easy!!!!"*fn52
26. Following Max's stop work order in early September 2008, the
parties engaged in a series of negotiations to lower the per unit
price specified in PO No. 142108.*fn53 They were
to come to agreement regarding revised terms, however.*fn54
On September 25, 2008, Max reissued and delivered to Unihan,
PO No. 142214 for 300 converter boxes at a reduced rate of $30 per
27. On September 27, 2008, Max employee Vicky Tsai emailed Unihan, stating, "[W]e have two converter boxes [that] ]need[ ] . . . RMA. Will you give us two extra converter boxes to replace those two RMA boxes or will you deduct from the payment? On this shipment, if there [are] more converter boxes [that] need . . . RMA, we will ship those two RMA converter boxes back together . . . with others to you."*fn56 Those were the only two converter boxes for which Max ever sought a refund or replacement.*fn57
28. In early October 2008, Unihan manufactured 302 converter boxes representing the 300 converter boxes specified in PO No. 142214 and the two replacement converter boxes that Tsai had requested on September 27, 2008. Max never accepted delivery of any of these boxes.*fn58
29. As a result of Max's stop work order, and the failure of subsequent price negotiations, Unihan did not complete the manufacture of the 100,000 Lutro converter boxes specified in PO No. 142108, and was not paid by Max for the mass production order.*fn59
30. By the end of September 2008, the Lutro converter box was placed on NTIA's approved list.*fn60
E. Unihan's Damages and Mitigation Efforts
31. Unihan attempted to identify other buyers for the converter boxes, and for the unused component parts, but was unsuccessful.*fn61
32. Unihan's manufacturing cost for the Lutro converter box was $5.00 per unit. Variable costs comprised 70% of this amount, while fixed costs were 30%. As Unihan did not ultimately manufacture the mass production order for Max, it did not incur variable manufacturing costs of $350,000.*fn62
33. Had Unihan purchased all of the components necessary to manufacture 100,000 converter boxes, the total cost to Unihan would have been $2,357 ,354.*fn63 As a result of Max's stop work order, Unihan did not incur this full amount. Rather, the sum Unihan expended purchasing components parts for the mass production was $1,656,251.*fn64
And can you explain exactly what you did to get that number? A. I just used the materials that's in page 75 times unit price times quantity you needed for the production times 100K. THE COURT: And that is in Exhibit 75? THE WITNESS: Yes. This number can be calculated and acquired by a calculating based on the number data in Exhibit 75. Q. BY MR. FIGUEIREDO: So just so I understand and we all understand, on the third row, for example, of the first page, which is Cap Tan 10 U F/10 V. You took the unit price of .018; is that correct? A. Correct. Q. Multiplied it by 100,000; is that correct? A. Correct. Q. And multiplied that by 16 from the quantity needed for product column; is that correct? A. Correct. Q. And you did that for each distinct part on this exhibit; is that correct? A. Yes. Q. Well, let me ask you, Ms. Li. There was some earlier testimony by someone else as to multiple source or second source components. Do you understand what those terms mean? A. I know. Q. What is your understanding? A. That means that in terms of one single part, that there is something that's considered main part and some other things that are considered substitute parts. Q. Okay. So I want to be clear. When you did your calculation of the $2,357,354 number, did you add up main parts and substitute parts or only the main part? A. I only calculate one into that number. Q. So you excluded substitute parts for that calculation; is that correct?. . . THE WITNESS: Yes").
34. On May 20, 2009, Unihan informed Max of its intent to discard components and offered Max the opportunity to purchase the materials. Max did not respond.*fn65 In March 2010, Unihan discarded the materials that it could not reuse or return. The cost of the materials discarded by Unihan was $1,428,190.*fn66 Unihan received $19,532 in salvage value when it disposed of the materials.*fn67
35. From September 2008 to March 2009, Unihan incurred storage costs of $29,450 for the components purchased to complete Max's mass production order.*fn68
II. CONCLUSIONS OF LAW
A. Unihan's Claim for Breach of the Mass Production Contract (PO No. 142108)
36. To prevail on a breach of contract claim, a party must prove the existence of a valid contract, its performance of the contract or excuse for nonperformance, the other party's breach, and resulting damage.See Coprich v. Superior Court, 80 Cal.App.4th 1081, 1092 (2000); Harris v. Rudin, Richman & Appel, 74 Cal.App.4th 299, 307 (1999); Walsh v. West Valley Mission Community College District, 66 Cal.App.4th 1532, 1545 (1998). See also Kremen v. Cohen, 99 F.Supp.2d 1168, 1171 (N.D. Cal. 2000). "Implicit in the element of damage is that the defendant's breach caused the plaintiff's damage." Troyk v. Farmers Group, Inc.,171 Cal.App.4th 1305, 1352 (2009).
1. Existence of a Valid Contract
37. "To be enforceable, a promise must be definite enough that a court can determine the scope of the duty and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages," i.e., the court must be able to determine if there has been a breach of the agreement and award damages. Ladas v. California State Automobile Ass'n., 19 Cal.App.4th 761, 770 (1993) (citing Robinson & Wilson, Inc. v. Stone, 25 Cal.App.3d 396, 407 (1973)); Richards v. Oliver, 162 Cal.App.2d 548, 561 (1958); Ellis v. Klaff, 96 Cal.App.2d 471, 478 (1950)). "[T]he terms of a contract need not be stated in the minutest details," however. Lawrence Block Co. v. Palston, 123 Cal.App.2d 300, 308 (1954), disapproved on other grounds in Mattei v. Hopper, 51 Cal.2d 119 (1956). To establish the existence of an enforceable contract, a plaintiff need only show "a meeting of the minds upon the essential features of the agreement." Lawrence Block Co., 123 Cal.App.2d at 308; see also Krasley v. Superior Court, 101 Cal.App.3d 425, 431 (1980) ("The essence of a contract is the meeting of minds on the essential features of the agreement"); Justis v. Atchison, T. & S.F. Ry. Co., 12 Cal.App. 639, 641 (1910) (holding that plaintiff had sufficiently alleged the existence of a contract by producing the ticket defendant sold her, and noting that "[w]hile the ticket purchased by her, when considered alone, might be deemed merely a receipt, containing only a part of the contract made . . . it was evidence that there was a contract. It was evidence of the payment of her fare and of her right to be carried according to its terms, even though it did not express all the terms of the contract"). See also Bustamante v. Intuit, Inc., 141 Cal.App.4th 199, 209 (2006) ("Under California law, a contract will be enforced if it is sufficiently definite (and this is a question of law) for the court to ascertain the parties' obligations and to determine whether those obligations have been performed or breached. To be enforceable, a promise must be definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages. Where a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable. The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. But if a supposed 'contract' does not provide a basis for determining what obligations the parties have agreed to, and hence does not make possible a determination of whether those agreed obligations have been breached, there is no contract" (citations and quotation marks omitted)).
38. "Whether mutual assent existed is determined by objective criteria, the test being what the outward manifestations of consent would lead a reasonable person to believe." Harps v. County of Los Angeles, 8 Fed. Appx. 771, 772 (9th Cir. Apr. 25, 2001) (Unpub. Disp.) (citing Meyer v. Benko, 55 Cal.App.3d 937, 942 (1976)); see also Trew v. International Game Fish Ass'n, Inc., 404 F.Supp.2d 1173, 1177 (N.D. Cal. 2005) ("Whether parties have mutually assented to enter into a contractual relationship is determined with reference to an objective standard. The outward manifestations or expressions of consent to a contract are controlling; mutual assent is gathered from the reasonable meanings of the words and acts of the parties, not their unexpressed intentions or understandings" (citations omitted)).
39. The court concludes, based on the admissions of the parties and the evidence presented at trial, that PO No. 142108 constitutes a valid and enforceable contract for the purchase of 100,000 Lutro converter boxes. The key terms of the agreement are specified in the purchase order, i.e., price, quantity, product specifications, and delivery deadline.*fn69 While there was contradictory testimony at trial as to whether the parties agreed to other terms, i.e., the credit or finance term, the purchase order as drafted is "sufficiently definite . . . for the court to ascertain the parties' obligations[.]" Bustamante, 141 Cal.App.4th at 209. See Seaman's Direct Buying Service, Inc. v. Standard Oil Co., 36 Cal.3d 752, 763 (1984) ("Standard contends that the October 11th letter is not sufficiently precise, with respect to the essential terms of price, parties, and quantity, to pass muster. Put simply, this contention is not well taken. The October 11th letter evidences an agreement between the parties that Seaman's would become a 'Chevron,' i.e., Standard, dealer. The price Seaman's agreed to pay for fuel was clearly set forth in the letter as 4.5 cents less than Standard's wholesale posted price at the time of delivery. Thus, both 'parties' and 'price' were established with sufficient specificity. Moreover, although no express quantity term was set forth, none was necessary here"), overruled on other grounds by Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal.4th 85 (1995); Stockwell v. Lindeman, 229 Cal.App.2d 750, 755 (1964) ("The option covers a particular parcel, the balance of lot 8, to be sold at a purchase price of $31,000, payable $5,000 down, and $250 per month, including interest at 6 per cent, exercisable within six months. The instructions state, 'balance of terms to be set out in said option.'
Thus, this provision of the contract makes certain the property to be sold, purchase price, down payment, monthly payments, interest rate, and the term, six months, within which the option is to be exercised. Standing alone, this provision for an option constitutes an enforceable contract with the elements essential to a valid option being specified with definiteness and certainty"). Cf. B & O Mfg., Inc. v. Home Depot U.S.A., Inc., No. C 07-02864 JSW, 2007 WL 3232276, *7 (N.D. Cal. Nov. 1, 2007) ("[E]ssential terms were not included in the promise, but rather, [ ] the [contract was] missing essential terms, such as price, contract duration, description of products, timing of purchases, and quantity of products. . . ."); Western Emulsions, Inc. v. BASF Corp., No. CV 05-5246 CBM (SSx), 2006 WL 4599673, *1 (C.D. Cal. Apr. 28, 2006) ("[T]he Court finds that Western has failed to state a claim for relief because it fails to allege that the parties agreed upon such fundamental terms as the price and quantity of the NX 1120 to be purchased by Western, as well as the time for performance or the contract's alleged duration").
40. To the extent that Max asserts Unihan failed to accept the terms of PO No. 142108, that argument is foreclosed both by Max's admissions in this litigation,*fn70 and the parties' conduct after July 23, 2008. California Commercial Code § 2207(3) establishes that "[c]onduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract." Here, Unihan, the party that allegedly did not accept the terms of PO No. 142108, engaged in conduct strongly suggesting that it believed a valid contract for mass production existed, such as acquiring component parts for 100,000 converter boxes and communicating with Max regarding a production schedule. Max also acted as if a valid contract existed, by, inter alia sending Tang's August 27, 2008 and September 3, 2008 "stop work" emails, which expressly acknowledged that Unihan was engaged in manufacturing the units called for by the mass production order.
2. Fraud in the Procurement
41. Max asserts, however, that even if a valid mass production contract existed, it is void because it was procured by fraud. "[F]raud in the inducement occurs when the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable. In order to escape from its obligations the aggrieved party must rescind, by prompt notice and offer to restore the consideration received, if any." Hotels Nevada v. L.A. Pacific Center, Inc., 144 Cal.App.4th 754, 763 (2006) (citations and quotation marks omitted). In California, fraud claims have five elements: "(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." Small v. Fritz Cos., Inc., 30 Cal.4th 167, 173 (2003); see also City Solutions Inc. v. Clear Channel Commc'ns.., Inc., 365 F.3d 835, 839 (9th Cir. 2004).
42. In support of its claim of fraud in the inducement, Max cites the conduct and representations Pai made during the parties' negotiation of the purchase order. These included representations that "approval of the samples during each stage of production . . . was a condition precedent to Unihan's procurement of materials for and mass production of 100,000 converter boxes."*fn71
43. Unihan can only be liable for Pai's alleged misrepresentations if Pai was acting as Unihan's agent in his negotiations with Max. See Grigsby v. Hagler, 25 Cal.App.2d 714, 715 (1938) ("It is well settled in this state that a principal is liable to third parties not only for the negligence of his agent in the transaction of the business of the agency but also for the frauds or other wrongful acts committed by such agent in and as a part of the transaction of such business"). The authority of the agent is "the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal's manifestations of consent to [the agent]." 2B CALIFORNIA JURISPRUDENCE 3d Agency § 39 (2011). An agent may possess one of a variety of types of authority, with "[t]he principal classification and distinction [being] that between actual and ostensible authority." Id. "Actual authority is such as a principal intentionally confers upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to possess." CAL. CIV. CODE § 2316.
"Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess." CAL. CIV. CODE § 2317.
44. Max does not contend, nor is there any evidence to suggest, that Pai had actual authority to negotiate on Unihan's behalf. It is undisputed that Pai was not a Unihan employee at the time of the negotiations. Indeed, Max has acknowledged that "[u]nbeknownst to [it], . . . Pai was not authorized to act, negotiate or make any representations on behalf of Unihan to Max relating to any of the sample orders or the Mass Purchase Order."*fn72
45. Max asserts, however, that Pai had ostensible authority to act on Unihan's behalf. It cites Pai's "represent[ations] to Max's representatives that although he was currently employed by Auvitek, he would immediately be joining Unihan, . . . that certain members of his sales team that he had already placed from Auvitek, including Oscar Cheng, were at Unihan[,] . . . that he and his team would be the leaders of Unihan's sales team for the Lutro converter box project," and that "he was authorized by and acting at the request and knowledge of Dr. Steven Huang, Unihan's then General Manager of Unihan' s Business Unit No. 6, to negotiate with Max for Unihan as Unihan's agent the terms and conditions of sample and mass purchase orders for the Lutro converter box project."*fn73
46. As court's have repeatedly held, and the language of the statute makes clear,*fn74 ostensible authority turns not on the conduct of the agent, but on the conduct of the principal. New Line Productions, Inc. v. Little Caesar Enterprises, Inc., 9 Fed. Appx. 658, 661 (9th Cir. May 18, 2001) (Unpub. Disp.) ("Ostensible authority is not established by the statements and representations of the agent[,]" citing Dill v. Berquist Constr. Co., 24 Cal.App.4th 1426, 1438 n. 11 (1994)); Kaplan v. Coldwell Banker Residential Affiliates, Inc., 59 Cal.App.4th 741, 747 (1997) ("The ostensible authority of an agent cannot be based solely upon the agent's conduct. 'Liability of the principal for the acts of an ostensible agent rests on the doctrine of "estoppel," the essential elements of which are representations made by the principal, justifiable reliance by a third party, and a change of position from such reliance resulting in injury[,]'" quoting Preis v. American Indemnity Co., 220 Cal.App.3d 752, 761 (1990)).
47. Max proffered no evidence of any conduct by Unihan that "cause[d]
or allow[ed] [Max] to believe [Pai] . . . possess[ed]" the authority
to negotiate on Unihan's behalf. Max relies exclusively on the conduct
by Pai, the purported agent. "[O]stensible authority of an agent
cannot be based solely upon the agent's conduct," however.*fn75
Consequently, the court concludes that Max failed to prove
that there was fraud in the procurement of the mass production
purchase order contract.
3. Performance or Excuse for Nonperformance
48. "'A party complaining of the breach of a contract is not entitled to recover therefor unless he has fulfilled his obligations.'" Wiz Technology, Inc. v. Coopers & Lybrand, 106 Cal.App.4th 1, 12 (2003) (quoting Pry Corp. of America v. Leach, 177 Cal.App.2d 632, 639 (1960)). "It is elementary [that] a plaintiff suing for breach of contract must prove [it] has performed all conditions on [its] part or that [it] was excused from performance." Consolidated World Investments, Inc. v. Lido Preferred Ltd., 9 Cal.App.4th 373, 380 (1992) (citing Reichert v. General Ins. Co. of America, 68 Cal.2d 822, 830 (1968)). It is undisputed that Unihan did not manufacture and deliver 100,000 Lutro converter boxes by September 30, 2008, or at any time thereafter. Unihan contends, however, that it was excused from performing the contract due to Max's repudiation of it on August 27 and September 3, 2008.*fn76
49. An anticipatory breach occurs when a party expressly and unequivocally refuses to perform; an implied repudiation occurs "where the promisor puts it out of his power to perform so as to make substantial performance of his promise impossible." Taylor v. Johnston,15 Cal. 3d 130, 137 (1975) ("Anticipatory breach occurs when one of the parties to a bilateral contract repudiates the contract. The repudiation may be express or implied. An express repudiation is a clear, positive, unequivocal refusal to perform . . . ; an implied repudiation results from conduct where the promisor puts it out of his power to perform so as to make substantial performance of his promise impossible"); Martinez v. Scott Specialty Gases, Inc., 83 Cal.App.4th 1236, 1246 (2000) (quoting Taylor); County of Solano v. Vallejo Redevelopment Agency, 75 Cal.App.4th 1262, 1276 (1999) (same).
50. When a promisor repudiates a contract, the promisee "may treat the repudiation as an anticipatory breach and immediately seek damages for breach of contract, thereby terminating the contractual relation between the parties, or he . . . can treat the repudiation as an empty threat, wait until the time for performance arrives and exercise his . . . remedies for actual breach if a breach does in fact occur at such time." Romano v. Rockwell International, Inc., 14 Cal.4th 479, 489 (1996) (quoting Taylor, 15 Cal.3d at 137). See also CAL. CIV. CODE § 1440 ("If a party to an obligation gives notice to another, before the latter is in default, that he will not perform the same upon his part, and does not retract such notice before the time at which performance upon his part is due, such other party is entitled to enforce the obligation without previously performing or offering to perform any conditions upon his part in favor of the former party").
51. Max unequivocally expressed its intention not to perform on the contract on August 27, 2008, when Tang asked Unihan to "[p]lease wait for our further notice of the MP [because] there are still technical problems with the box, the pr[i]cing iss[u]e, and customer problem[s,]."*fn77 It expressed the same intention on September 3, 2008, when Tang reiterated his instruction that Unihan not move forward with the mass production and stated: "The converter box program has short life as we all know, that is why I put a hold and stop on the production as you all should refer to the conditions that we listed on the PO."*fn78 At that point, it was reasonable for Unihan to cease manufacturing activity on the basis of Max's anticipatory breach.
52. Max contends, however, that Unihan breached its obligations under PO No. 142108, such that it cannot claim "[it] ha[d] performed all conditions on [its] part or that [it] was excused from performance." Consolidated World Investments, 9 Cal.App.4th at 380. Specifically, Max asserts that: (1) "Unihan failed to furnish . . . 400 sample boxes that were defect free by the[ ] August 15, 2008 due date under [PO Nos. 142034A and 142214]"; (2) "Unihan failed to build . . . converter boxes [that were] 100% compliant . . . NTIA approved . . . -- it is undisputed that Unihan failed to furnish Max with a certificate evidencing NTIA approval of the converter boxes by the September 30, 2008 delivery date"; (3) "Unihan failed to furnish Max with all of the necessary EMI, FCC and UL certifications for the boxes by the September 30, 2008 delivery date"; (4) "Unihan failed to furnish Max with any licenses or license agreements with MPEG LA, MPEG 2, Dolby Lab, and Funai . . . by the September 30, 2008 delivery date"; and (5) "[u]nbeknownst to Max, Unihan started procuring materials for production of the 100,000 Mass Purchase Order before Max approved of the samples."*fn79
53. As respects the second, third, and fourth types of alleged nonperformance, the law is clear. Having repudiated the contract on August 28 and September 3, 2008, Max cannot assert that Unihan breached the agreement by failing to perform obligations on September 30, 2008. See CAL. CIV. CODE § 1440.
54. Max's contention that "Unihan failed to furnish . . . 400 sample boxes that were defect free by the[ ] August 15, 2008 due date under [PO Nos. 142034A and 142214,]" would be persuasive if such conduct were a condition of PO No. 142108. Unlike a contract term, the breach of which must be material before it excuses the other party's performance, a party's failure to satisfy a condition precedent excuses any remaining obligations of the other party. AIG Centennial Ins. Co. v. Fraley-Landers, 450 F.3d 761, 764 (8th Cir. 2006) (citing Richard A. Lord, WILLISTON ON CONTRACTS, § 38:7 (4th ed. 1990) and
RESTATEMENT (SECOND) OF CONTRACTS, § 224 (1981)).
55. Conditions precedent are disfavored, and contractual promises will not generally be construed as conditions to the other party's performance unless it is clear that this is what the parties intended. See, e.g., Alpha Beta Food Markets v. Retail Clerks Union Local 770, 45 Cal.2d 764, 771 (1956) ("[I]t is the general rule in contract interpretation that stipulations in an agreement are not to be construed as conditions precedent unless such construction is required by clear, unambiguous language. . ."); Pacific Allied v. Century Steel Products, Inc., 162 Cal.App.2d 70, 79-80 (1958) ("Conditions precedent are not favored in the law and the provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction. . . . Whether a provision constitutes a condition or a covenant is determined from the whole document, its purpose and the intention of the parties"). See also Effects Associates, Inc. v. Cohen, 908 F.2d 555, 559 n. 7 (9th Cir. 1990) ("Conditions precedent are disfavored and will not be read into a contract unless required by plain, unambiguous language"); West American Ins. Co. v. Hernandez, 669 F.Supp.2d 1211, 1223 (D. Or. 2009) ("'[A] court will not imply that a covenant is a condition unless it clearly appears the parties so intended it,'" quoting Standard Oil Co. of Cal. v. Perkins, 347 F.2d 379, 382 (9th Cir.1965)). A condition precedent is either an act of a party that must be performed or an uncertain event that must happen before a contractual right accrues or a contractual duty arises. Platt Pacific, Inc. v. Andelson, 6 Cal.4th 307, 313 (1993). See also CAL. CIV. CODE § 1436 ("A condition precedent is one which is to be performed before some right dependent thereon accrues, or some act dependent thereon is performed").
56. PO No. 142108 contains no reference to and is not explicitly conditioned on the performance of PO No. 142034. PO No. 142034, moreover, does not reference PO No. 142108, or a mass production purchase order. Any oral representations that Unihan's procurement of components for, and mass production of, 100,000 units was conditioned on Max's approval of the 100 and 300 "sample orders" appear to have been made by Pai, whom the court has concluded was not an agent of Unihan.*fn80 Based on the express terms of PO No. 142108, as well as the evidence presented at trial, the court cannot conclude that parties intended defect-free performance of PO No. 142034 to be a condition precedent to performance of PO No. 142108.
57. The same is true of Max's contention that Unihan failed to perform its obligations under PO No. 142108 because "[u]nbeknownst to Max, Unihan started procuring materials for production of the 100,000 Mass Purchase Order before Max approved of the samples." Again, given the "absence of language plainly requiring such construction," the court cannot conclude that Max's approval of the samples was a condition precedent to Unihan's procurement of component parts for the mass production order.
58. Indeed, Unihan had only a short period between July 23, 2008, when Tang sent the mass production purchase order, and September 30, 2008, the production deadline, to manufacture 100,000 converter boxes. As Huang testified at trial, Unihan needed to have all the component parts purchased by the end of August 2008 to begin production and meet the September 30, 2008 deadline.*fn81 This testimony is supported by Cheng's contemporaneous emails, in which he informed Max that he "need[ed] the user manual for [the] Spanish version before 22/Aug. Otherwise, [the mass production] will miss the Spanish version [of the] user manual."*fn82 It is also supported by Cheng's August 27, 2008 email, which proposed a delivery schedule for the mass production order and asked Tang to send his "delivery schedule to us before 29/Aug."*fn83 These communications indicate that Unihan intended to begin manufacturing forthwith. As it would have been impossible for Unihan to begin manufacturing at the end of August, without having previously acquired component parts, the court credits Huang's testimony that it was reasonable for Unihan to begin immediately to acquire component parts upon receipt of the July 23, 2008 mass production purchase order. Moreover, had there been an implied condition that Unihan should delay before procuring component parts, it would have been evident in the parties' email communications, which were introduced at trial, as Unihan would likely have expressed concern regarding the impending production deadline and the need to procure component parts. Indeed, even though Unihan began procuring component parts immediately after Max sent PO No. 142108, Huang testified that it was "rushing the supplier for materials" in order to begin production on schedule.*fn84
3. Max's Breach
59. It is undisputed that Max "never paid Unihan any amount in relation to Purchase Order No. 142108."*fn85
4. Unihan's Damages
60. "Actual damage as opposed to mere nominal damage is an[ ] essential element of a cause of action for breach of contract." Roberts v. Los Angeles County Bar Assn.,105 Cal.App.4th 604, 617 (2004); see Reichert v. General Ins. Co. 68 Cal.2d 822, 830 (1968); see also Aguilera v. Pirelli Armstrong Tire Corp., 223 F.3d 1010, 1015 (9th Cir. 2000) ("Under California law, a breach of contract claim requires a showing of appreciable and actual damage"). Under California law, "the measure of damages [for a breach of contract], except where otherwise expressly provided . . . , is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom." CAL. CIV. CODE § 3300. It is therefore, "the loss or injury actually sustained rather than the price paid or agreed to be paid on full performance, [that] is the proper measure of damages[.]" Avery v. Fredericksen & Westbrook, 67 Cal.App.2d 334, 336 (1944). Damages are awarded in a breach of contract action to give the injured party "as nearly as possible the equivalent of the benefits of performance." Lisec v. United Airlines, Inc., 10 Cal.App.4th 1500, 1504 (1992). See also Lewis Jorge Const. Management, Inc. v. Pomona Unified School Dist., 34 Cal.4th 960, 967 (2004) ("Damages awarded to an injured party for breach of contract 'seek to approximate the agreed-upon performance.' The goal is to put the plaintiff 'in as good a position as he or she would have occupied' if the defendant had not breached the contract" (citations omitted)).
61. "Contractual damages are of two types -- general damages (sometimes called direct damages) and special damages (sometimes called consequential damages)." Id. at 968. "General damages are often characterized as those that flow directly and necessarily from a breach of contract, or that are a natural result of a breach. Because general damages are a natural and necessary consequence of a contract breach, they are often said to be within the contemplation of the parties, meaning that because their occurrence is sufficiently predictable the parties at the time of contracting are 'deemed' to have contemplated them." Id. (citations omitted). Special damages, by contrast, "are those losses that do not arise directly and inevitably from any similar breach of any similar agreement. Instead, they are secondary or derivative losses arising from circumstances that are particular to the contract or to the parties. Special damages are recoverable if the special or particular circumstances from which they arise were actually communicated to or known by the breaching party (a subjective test) or were matters of which the breaching party should have been aware at the time of contracting (an objective test)." Id. at 268-69.
62. Unihan seeks damages of $2,080,754.*fn86 It asserts that it has been damaged in this amount as a result of Max's failure to proceed with the mass production purchase order. The figure is calculated as follows:
a. Ordinarily, Unihan would have made a profit of $492,646 on the contract with Max. This is calculated by taking the contract price ($3,350,000)*fn87 and subtracting the manufacturing costs ($500,000),*fn88 as well as the total cost of the component parts necessary ($2,357,354) to manufacture 100,000 converter boxes.*fn89
b. Unihan did not incur full manufacturing costs, however. Instead of
purchasing $2,357,354 worth of component parts, Unihan only purchased
these, it was able to use parts worth $228,061 on other projects, and
only had to discard parts with a value of $1,428,190.*fn91
When it discarded those parts, Unihan received $19,532 in
salvage value.*fn92 Therefore, Unihan suffered a
$1,408,658 loss on its purchase of component parts.
c. Unihan also incurred $150,000 in fixed manufacturing
costs,*fn93 and $24,450 in storage costs*fn94
for the component parts purchased.
d. Therefore, Unihan seeks a total of the expenses it actually incurred preparing for performance of the Max contract ($1,408,658 $150,000 $24,450) as well as the profits it would have earned had Max not breached ($492,646) = $2,080,754.
63. "The reasonable expenditures incurred by the plaintiff in preparing to perform the contract may be included in the measure of damages." 23 CALIFORNIA JURISPRUDENCE 3d Damages § 53 (2011) (citing Buxbom v. Smith, 23 Cal. 2d 535 (1944); Sobelman v. Maier, 203 Cal. 1, 262 P. 1087 (1927); Gollaher v. Midwood Const. Co., 194 Cal.App.2d 640 (1961); Navarro v. Jeffries, 181 Cal.App.2d 454 (1960); Atlas Floor Covering v. Crescent House & Garden, Inc., 166 Cal.App.2d 211 (1958); James v. Herbert, 149 Cal.App.2d 741 (1957); and Walpole v. Prefab Mfg. Co., 103 Cal.App.2d 472 (1951)). See also Advanced Thermal Sciences Corp. v. Applied Materials, Inc., No. SACV 07-1384 JVS (JWJx), 2010 WL 2015236, *52 (C.D. Cal. May 18, 2010) ("ATS is entitled to recover, as damages for AMI's breach, ATS's research and development expenditures and the value of the services ATS performed in reliance on the JDA. See . . . Blair v. Brownstone Oil & Refining Co., 35 Cal.App. 394, 396 [ ] (1917) ('But when he elects to go for damages for the breach of the contract, the first and most obvious damage to be shown is, the amount which he has been induced to expend on the faith of the contract, including a fair allowance for his own time and services.'). . . The rule applicable here is articulated in Section 349 of the Restatement of Contracts: '. . . [T]he injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.' Restatement (Second) of Contracts § 349").
64. While Max group contends that Unihan acted unreasonably in procuring component parts for the mass production order before Max had approved the 100 and 300 unit orders, the court has previously found that the mass production order was not expressly conditioned on obtaining such approval. Moreover, given the tight production schedule, the court has found that Unihan acted reasonably by beginning to procure component parts as soon as the mass production purchase order was received. Given this, the court concludes that the damages associated with the procurement of component parts was reasonably foreseeable to Max at the time of contracting, such that Unihan may recover for the losses it incurred.
65. Unihan may also recover for $150,000 in fixed manufacturing costs incurred, as well as the $24,450 in storage costs it reasonably incurred as a result of Max's breach. Again, these were "reasonable expenditures incurred by the plaintiff in preparing to perform the contract." They were the foreseeable and "natural result of" Max's stop work order. See Silver Valley Propane, Inc. v. Lamanco, Inc., No. E045113, 2009 WL 180082, *1-5 (Cal. App. Jan. 27, 2009) (Unpub. Disp.) (rejecting an argument that fixed manufacturing costs should not be included in the amount awarded for breach of contract).*fn95
66. Finally, the court must consider whether Unihan is entitled to the profits it would have earned under the contract. "Unearned profits can sometimes be used as the measure of general damages for breach of contract. Damages measured by lost profits have been upheld . . . when the breaching party's conduct prevented the other side from undertaking performance." Lewis, 34 Cal.4th at 971. See also Coremetrics, Inc. v. Atomic Park.com, LLC, No. C-04-0222 EMC, 2005 WL 3310093, *7 (N.D. Cal. Dec. 7, 2005) ("Coremetrics argues that it is entitled to recover the contract price because it expected to receive $101,000 from this transaction. . . . The Court rejects this argument because it fails to recognize that by awarding Coremetrics the full contract price without also deducting expenses saved as a result of AtomicPark's breach, Coremetrics would be made more than whole. . . . Had the contract been performed, Coremetrics would have incurred some costs; those costs need to be accounted for in determining lost profits. Therefore, the most Coremetrics would be entitled to recover as damages here would be its lost profits, measured by the difference between the contract price and the expenses Coremetrics would have incurred had it performed" (emphasis added)).
67. Unihan has deducted all expenses it saved as a result of not having to manufacture the 100,000 converter boxes ordered in PO No. 142108. Since Max's conduct prevented Unihan from fully performing on the contract, and the amount of profits Unihan expected to earn is reasonably ascertainable by taking the contract price and deducting the expenses Unihan would have incurred but did not, the court concludes that Unihan is entitled to $492,646 in lost profits as well.
68. Unihan is therefore entitled to total damages of $2,080,754.*fn96
B. Max's Counterclaims for Breach of PO Nos. 142108 and 142034A
69. Max asserted two counterclaims for breach of contract against Unihan: (1) "Max's First Counter-claim is for breach of the Purchase Order No. 142108 [ ] dated July 23, 2008"; (2) "Max's Second Counter-claim is for breach of Purchase Order No. 142034[A] dated July 29, 2008 (the 100 sample order)[.]"*fn97
70. Max's first counterclaim is based on the same evidence that it proffered to support its contention that Unihan failed to perform the mass production purchase order contract. For the same reasons that the court found Max's defensive arguments unavailing, and concluded that Unihan was entitled to recover damages for Max's breach, the court finds that Max is not entitled to recover on its first counterclaim for breach of PO No. 142108. It will therefore enter judgment in favor of Unihan on Max's first counterclaim.
71. Max also contends that Unihan breached PO No. 142034A. The parties agree that PO No. 142034A was a valid, binding contract, which required that Unihan produce 100 Lutro converter boxes at a unit price of $35.00.*fn98 It is undisputed that Max paid Unihan $3,500 by wire transfer for the 100 units that were delivered to it pursuant to PO No. 142034A.*fn99
72. Max contends that Unihan breached PO No. 142034A by: (1) "Delivering the 100 samples after the August 15, 2008 due date"; (2) "Failing to deliver 100 defect free samples -- Max discovered that in excess of 10% of the samples were defective"; (3) "Failing to remedy each of the defects to the satisfaction of Max, despite due demand. While Unihan sent an engineer from Auvitek to Max to try to remedy the problems, Auvitek's engineer could not solve the problems and Unihan failed to send any of its own engineers to do so"; (4) "[C]onceal[ing] from Max that there were additional software and hardware problems that Unihan's in-house engineers were discovering internally. . ."; (5) "[F]ail[ing] to build the sample converter boxes as 100% compliant . . . NTIA approved converter box . . . by the August 15, 2008 delivery date"; (6) "[A]lter[ing] the parts and components of the converter boxes without the knowledge, consent or approval of Max"; (7) "[F]ail[ing] to furnish Max with all of the necessary EMI, FCC and UL certifications for the product by the August 15, 2008 delivery date for the sample order"; (8) "[F]ail[ing] to furnish Max with any licenses or license agreements with MPEG LA, MPEG 2, Dolby Lab, and Funai (these licenses and agreements were necessary to avoid any infringement claims by these companies) by the August 15, 2008 delivery date"; and (9) "[F]ail[ing] to return the sum of $3,500 that Max paid for these defective samples."*fn100
73. The terms of PO No. 142034A, which are apparent on the face of the contract, were as follows: (1) Unihan was to manufacture 100 "Maxmedia Lutro HD Digital ATSC Converter Box[es]" for a unit price of $35.00 and a total contract price of $3500.00; (2) the "order [had to] be shipped before 8/15" and Unihan had to "confirm [the] shipping method with Maxgroup before shipping"; (3) "The Lutro box [had to] be built to be 100% NTIA compliant as an NTIA approved converter box with [an] analog pass through feature"; (4) "Parts and components [could] not be altered without the consent of Maxmedia"; (5) "The Lutro converter box kit [had to] include all the necessary accessories with retail box, outer shipping case, pallet (when needed), remote controller, user manual, [and] RF cable"; (6) Unihan had to "provide all the necessary EMI, FCC and UL certification[s] applicable to this product"; and (7) Unihan had to "provide all the licenses needed for the ATSC converter box [including] MPEG LA, MPEG 2, Dolby Lab, V-Chip, Funai (if needed) [and] a list of all the license agreement[s.]"*fn101
74. Max has proffered undisputed evidence that Unihan did not obtain NTIA approval for the Lutro converter boxes until the end of September 2008; thus, the 100 boxes shipped in August 2008 had not been NTIA approved.*fn102 Tang testified at trial that Unihan knew NTIA compliance was material to the parties' agreement because NTIA non-compliant boxes could be confiscated and Max intended to show the samples to potential customers, who would have been concerned about NTIA compliance.*fn103
75. Max has also proffered undisputed evidence that Unihan failed to provide 100 converter boxes with "all the necessary EMI, FCC and UL certification[s] applicable to this product" as well as "all the licenses needed for the ATSC converter box [including] MPEG LA, MPEG 2, Dolby Lab, V-Chip, Funai (if needed) [and] a list of all the license agreement[s]."*fn104 Tang testified that such certifications were material to the contract because "the products could be confiscated by DHL, by air, or by Long Beach Port Authority [if they did not] have . . . supporting documents for FCC, or Underwriter Laboratory labs, EMI, and so on and so forth," and because Max's potential customers, "Radio Shack, Best Buy, Wal-Mart, Memson, Target, CVS Drugstore," to whom Max was intending to show the 100 converter box samples, would "look at all the certificates first."*fn105
76. As it is undisputed that Unihan failed to ensure that the 100 Lutro converter boxes were 100% NTIA approved at the time of shipment, and that it failed to provide the necessary certification and license information, the court concludes that Unihan breached at least three material provisions of PO No. 142034A,*fn106 which entitles Max to damages for "the loss or injury actually sustained[.]" Avery, 67 Cal.App.2d at 336.
77. Max asserts that, as a result of Unihan's breach of PO No.
142034A, it "incurred damages in the sum of $3,500, plus interest,
that Unihan has never [returned], despite due demand."*fn107
Although "[t]he rule that the contract itself may furnish the
measure of damages is never allowed to override the paramount rule
that compensatory damages will be awarded only for actual loss
incurred by the plaintiff," 23 CALIFORNIA JURISPRUDENCE
3d Damages § 55 (2011), the crux of Max's argument appears to be that
necessary approval and certifications, the converter boxes were
worthless for the purpose intended, and Max is therefore entitled to a
refund of the entire purchase price.
78. As Unihan proffered no evidence of ways in which Max could have mitigated its damages, there is no basis upon which to reduce Max's damages. See Mass v. Board of Education, 61 Cal.2d 612, 627 (1964) ("the burden of establishing mitigation rests with the defendant"); Steelduct Co. v. Henger-Seltzer Co., 26 Cal.2d 634, 654 (1945) ("The burden of proof is on the party whose breach caused damage, to establish matters relied on to mitigate damage"); Brandon & Tibbs v. George Kevorkian Accountancy Corp., 226 Cal.App.3d 442, 460 (1990) ("The burden of proving that losses could have been avoided by reasonable effort and expense must always be borne by the party who has broken the contract"); see also Home Indemity Co. v. Lane Powell Moss & Miller, 43 F.3d 1322, 1329 (9th Cir. 1995) ("This duty to mitigate damages rests on the party claiming damages, but the burden of proving failure to mitigate falls on the breaching party").
79. Max seeks interest on the $3,500 damages it suffered as a result
of Unihan's breach. Although Max cited no case law in support of this
request, it is possible that it is entitled to mandatory prejudgment
interest under California Civil Code § 3287(a). That statute provides,
in relevant part, that "[e]very person who is entitled to recover
damages certain, or capable of being made certain by calculation, and
the right to recover which is vested in him upon a particular day, is
entitled also to recover interest thereon from that day. . . ."
CIV. CODE §
3287(a). "[T]he court has no discretion [under section 3287(a)], but
must award prejudgment interest upon request, from the first day there
exists both a breach and a liquidated claim." North Oakland Medical
Clinic v. Rogers, 65 Cal.App.4th 824, 828 (1998); see also American
Federation of Labor v. Unemployment Ins. Appeals Bd., 13 Cal.4th 1017,
1045 (1996) ("As the Court of Appeal herein explained, 'no discretion
is involved in an award of interest. Once an [administrative law judge
(ALJ) ] determines that retroactive compensation is due, the ALJ must
award interest under Civil Code section 3287, subdivision (a)'"
(alterations original)). "Damages will be deemed 'capable of being
made certain by calculation' if the amount due can be
determined by reference to a fixed standard: e.g., a payment
schedule." Marine Terminals Corp v. Paceco, Inc., 145 Cal.App.3d 991,
995 (1983); see also Leff v. Gunter, 33 Cal.3d 508, 519 (1983)
("'Damages are deemed certain or capable of being made certain . . .
where there is essentially no dispute between the parties concerning
the basis of computation of damages if any are recoverable but where
their dispute centers on the issue of liability giving rise to
damage,'" quoting Esgro Central, Inc. v. General Ins. Co., 20
Cal.App.3d 1054, 1060 (1971)).
80. Max proffered no evidence or argument regarding the "particular day" upon which its right to $3,500 in damages vested. While the court might posit that August 15, 2008, the deadline for performance under the contract, was the "particular day," it is also possible that the first material breach did not occur until sometime thereafter. Because prejudgment interest is a species of damages, Max as the moving party bears the burden of proving the amount of interest to which it is entitled.*fn108 Here, there is no justification for departing from the general rule that Max bears the burden of proving all of the facts necessary to an award of prejudgment interest. Because Max has failed to meet its burden of showing "damages certain, or capable of being made certain by calculation, and the right to recover which is vested in [it] upon a particular day," the court cannot award prejudgment interest as requested.
For the reasons stated, the court finds for Unihan on its breach of contract claim, and awards it damages of $2,080,754. The court enters judgment in favor of Unihan on Max's first counterclaim, but finds in favor of Max on its second counterclaim and awards it damages of $3,500. The court will enter judgment accordingly, offsetting the amount of Max's recovery on its counterclaim against Unihan's recovery on its breach of contract claim.