Opinion ID: 346815
Heading Depth: 1
Heading Rank: 3

Heading: Failure of Consideration and Breach of Warranty

Text: 28 A. Failure of Consideration. Material failure of consideration is a ground for rescission under California law. Civil Code § 1689(b)(4) (West 1973). The trial court specifically found that there was no material failure of consideration in regard to any of the three contracts germane to this action. The district judge's broad statement on its face covers both loss of clients and accounting irregularities. We will, however, consider these two points separately. 29 The trial judge specifically noted that Reliance was aware of the nature of the business it was buying and knowingly bought a risk. This conclusion was substantially supported by the evidence in the case. Miller insisted that he could not guarantee the continuity of client business, and a provision to this effect was incorporated into the contract. The Restatement of Contracts § 502, comment (f) recognizes that Where the parties know that there is doubt in regard to a certain matter and contract on that assumption, the contract is not rendered voidable because one is disappointed in the hope that the facts accord with his wishes. The risk of the existence of the doubtful fact is then assumed as one of the elements of the bargain. See Tombigbee Constructors v. United States, 420 F.2d 1037, 1043, 190 Ct.Cl. 615 (1970). The court's determination on this facet of the failure of consideration claim must also stand as not clearly erroneous. 30 Appellants complain that the district court's finding that there was an understatement of client liabilities contradicts its broad finding that there was no material failure of consideration. We see no such contradiction, for the court did not adopt appellants' calculation of the alleged understatement. Even if Reliance's figures had been accepted, we would find it impossible to say that, when the transaction was considered as a whole, the trial court erred in finding that the failure of consideration that resulted was not so substantial as to warrant rescission. See Taliaferro v. Davis,216 Cal.App.2d 398, 412, 31 Cal.Rptr. 164 (1963); Crofoot Lumber, Inc. v. Thompson, 163 Cal.App.2d 324, 332-333, 329 P.2d 302 (1958). 31 Nor is reversal mandated due to the lack of specificity of the court's findings on this point, Graham v. United States, 243 F.2d 919, 923 (9th Cir. 1957). As the Temporary Emergency Court of Appeals in Evans v. Suntreat Growers & Shippers, Inc., 531 F.2d 568, 570 (1976) recently stated: 32 The trial court did not make findings of special facts or computations on which it based Finding # 15. Appellants did not propose additional or alternate findings nor did they apply to the district court for an amendment of its findings under Rule 52(b) F.R.Civ.P. See Kennedy v. United States, 115 F.2d 624 (9 Cir. 1940). We agree with the statement that 33 It would seem that if a party is not willing to give a trial judge the benefit of suggested findings and conclusions, he is not in the best of positions to complain that the findings made and conclusions stated are incomplete. Sonken-Galamba Corp. v. Atchison, T. & S. F. Ry., 34 F.Supp. 15, 16 (W.D.Mo.1940), aff'd 124 F.2d 952 (8 Cir. 1942), cert. den., 315 U.S. 822 (62 S.Ct. 917, 86 L.Ed. 1218) (1942). 34 Appellants rightly contend that such failure does not prevent them from attacking a finding which is erroneous. But as to Finding # 15 they cannot complain of lack of specificity in the findings, when they proposed nothing to this effect. 35 B. Breach of Warranty. The court below found that Miller had not breached any of the warranties in the contract of sale. That the loss of clients breached no warranty is literally true, for Miller neither warranted nor represented that he could in any way guarantee that clients as of the time of sale would stay with the business. A provision in the contract stated: SELLING PARTIES do not, however, warrant the continuity or continued placement of claims by the present customers of CORPORATION or the number, dollar value or quality thereof. 36 The issue is a more difficult one with regard to the accounting irregularities. Appellees urge that we interpret the trial court's statement to mean that language contained in the contract of sale involved merely representations, not warranties. Examination of the contract reveals, however, that the following statement was included in article II (titled warranties and representations): 37 The CORPORATION has no debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or reserved against in the CORPORATION'S consolidated balance sheet of July 31, 1973, included in the financial statements or set forth in Exhibit 'B' to this Agreement, except for those that may have been incurred after the date of that consolidated balance sheet and that are not required by generally accepted accounting principles to be included in a balance sheet. . . . 38 Williston suggests that distinguishing between warranties and representations in this context is inappropriate. 8 Williston on Contracts § 954 (3d ed. 1964), citing Carolet Corp. v. Garfield, 339 Mass. 75, 157 N.E.2d 876 (1959). We agree. Proceeding beyond this initial stage of analysis, however, we must consider appellants' warranty claim in the context in which it is raised. 39 In count ten of their complaint appellants sought damages on the theory that breach of the contract warranties constituted a breach of the contract as a whole. No distinct claim for damages resulting from a failure to comply with the warranty provisions was asserted. Both at trial and on appeal, their focus has been on rescission. They sought to show that the accounts were in fact understated, but made no attempt to prove what damage resulted from this state of affairs. The only documentary support for the allegations of understatement was a letter from the accountant hired by Reliance after the sale, two letters from the Kimble firm stating in three sentences the sum total figures relied on in reaching its conclusion about Romer's books, and two xeroxed worksheets containing one addition and three subtractions. The testimony of appellants' witnesses was of no greater substance, dwelling as it did on the techniques used in concluding that there was an understatement, not proving or attempting to prove what net injury occurred to appellants as a result. Appellants' initial and reply briefs on appeal raised no claim of error with regard to the trial court's failure to award damages reflecting the effect of the accounting irregularities on the collection agency's value. While the final pages of their supplemental brief (limited by our order to the issue of mutual mistake) did ask for other relief under California Civil Code § 1692 should rescission be an inappropriate remedy, they may not now resurrect a theory which they have never really embraced or at the very least have already abandoned. A question that has been presented to the district court for a ruling and which has not thereafter been waived or withdrawn is preserved for review. United States v. Harue Hayashi, 282 F.2d 599, 601 (9th Cir. 1960). But cf. Graham v. United States, supra, 243 F.2d 919. No such preservation will occur, however, when, as in the instant case, an issue has been raised in the pleadings but is not pressed at trial. See Santa Clara Valley Distrib. Co. v. Pabst Brewing Co., 556 F.2d 942, at 945 (9th Cir. 1977); Stanspec Corp. v. Jelco, Inc., 464 F.2d 1184, 1187 (10th Cir. 1972). 40 The sole remaining question is therefore whether the trial court erred in refusing to grant rescission under a breach of contract theory. The courts in California as elsewhere have recognized that if a party substantially performs his obligations under a contract, he will not be found in total breach and the other party's performance will not be excused. Posner v. Grunwald-Marx, Inc., 56 Cal.2d 169, 187, 14 Cal.Rptr. 297, 363 P.2d 313 (1961). And restitution may not be given unless the defendant's non-performance is so material that it is held to go to the 'essence'; it must be such a breach as would discharge the injured party from any further contractual duty on his own part . . .. Crofoot Lumber, Inc. v. Thompson, supra, 163 Cal.App.2d at 333, 329 P.2d at 308; 5 Corbin on Contract § 1104 at 564 (1960). 41 We have already upheld the trial court's determination that there was no material failure of consideration. See part III A supra. The very same accounting variances take on no more significant statute when considered from this slightly different vantage. The trial court quite correctly refused to grant rescission and restitution. The judgment is 42 AFFIRMED.