Court Opinion

ID: 856785
Source: CourtListenerOpinion
Date Created: 2013-03-29 23:34:28.197425+00
Date Added: 2024-06-11T15:06:36.510033
License: Public Domain

Filed 3/29/13 Textainer Equipment Management v. Pacific Interlink CA1/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                       FIRST APPELLATE DISTRICT

                                                  DIVISION ONE

TEXTAINER EQUIPMENT
MANAGEMENT LIMITED,
         Plaintiff and Respondent,                                   A133155

v.                                                                   (San Francisco City & County
PACIFIC INTERLINK SDN BDH,                                           Super. Ct. No. CGC10498933)
         Defendant and Appellant.

         Textainer Equipment Management Limited (Textainer) sued Pacific Interlink SDN
BDH (Pacific) for unpaid rent on shipping containers Pacific lost while it had them on
lease from Textainer. Pacific asserts it does not owe rent because Textainer did not fulfill
its contractual obligation to invoice Pacific for the lost containers‘ replacement value—
payment of which would have stopped rent from accruing. Textainer asserts it had no
obligation to invoice Pacific, which could have paid the pre-set replacement value at any
time to stop accrual of rent. After inspecting the parties‘ lease agreement, the trial court
ruled in favor of Textainer and awarded it rent and other damages. We affirm.
                                            FACTUAL BACKGROUND
         On April 1, 2001, Pacific agreed, by written agreement, to lease intermodal
shipping containers from Textainer. The 2001 agreement sets forth the general terms
governing the lease. A later 2006 schedule, active at all times relevant to this appeal,
specifies Pacific‘s minimum container commitment, the daily rental charges per

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container, the containers‘ original replacement values, and a formula for calculating
depreciated replacement value.
       Paragraph 10 of the 2001 agreement is titled ―RISK OF LOSS AND DAMAGE.‖
It provides: ―Lessee is liable for all loss . . . to the Containers subsequent to delivery and
prior to return to Lessor, regardless of when such loss . . . may be discovered. Lessee is
obligated to pay all Rental Charges on lost . . . Containers until the Off-hire Date of each
Container.‖ Further, ―Lessee shall pay to Lessor the Replacement Value for such
Container in accordance with the provisions of the Lease.‖
       For a lost container, paragraph 1 of the agreement defines ―Off-hire Date‖ as ―the
date upon which Lessee has paid the Replacement Value of the Container to Lessor.‖
       Paragraph 6 governs ―BILLING AND PAYMENT.‖ Subparagraph (c) provides:
―In the event that Lessee shall become responsible under the Lease for the Replacement
Value of Containers, Lessor will charge Lessee, and Lessee will pay Lessor for the
Replacement Value of such Containers.‖ The general terms of paragraph 6 provide:
―PAYMENT OF ALL CHARGES MUST BE MADE IN ACCORDANCE WITH
INSTRUCTIONS STATED ON EACH INVOICE ISSUED BY LESSOR. ALL
CHARGES INVOICED BY LESSOR ARE DUE AND PAYABLE WITHIN THIRTY
(30) DAYS FROM THE DATE OF EACH INVOICE. IF LESSOR‘S INVOICE IS NOT
PAID WHEN DUE, LESSOR MAY CHARGE, AS ADDITIONAL RENTAL, A
SERVICE CHARGE AT THE RATE OF 1.5% PER MONTH (18% PER ANNUM) ON
THE UNPAID BALANCE.‖
       In 2003, Pacific declared some containers lost. Pacific and Textainer negotiated a
discounted replacement value and Textainer agreed to forego rental charges following the
declared loss. Textainer told Pacific it was getting special treatment, that freezing rental
charges was an ―abnormal practise,‖ and that other customers facing similar losses were
not getting so favorable a deal.

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       Four years later, in 2007, the events giving rise to the present dispute unfolded.
On September 13, 2007, Pacific informed Textainer it had lost 131 containers. On
July 19, 2008, Pacific informed Textainer of another 141 lost containers. Pacific did not
pay the containers‘ replacement values. Nor did Textainer invoice Pacific for them.
Instead, Pacific attempted to negotiate a reduced replacement value. Textainer resisted,
saying it could not repeat the accommodations made in 2003.
       Meanwhile, Textainer continued to invoice Pacific for monthly rental charges for
the lost containers, and Pacific paid rent through the July 2009 invoice. Pacific paid this
rent despite wanting, and telling Textainer it wanted, a freeze in rental charges while the
replacement value negotiations played out. Textainer replied to Pacific that rental
charges per container ―w[ould] only be terminated as and when we receive the full
replacement value.‖ In one instance, Textainer stated, in an internal e-mail, it had told
Pacific ―termination of [rental charges] will be as per the invoice date.‖ If Pacific was
told this, there is no evidence Pacific ever requested an invoice at the time.
       In January 2010, Textainer accused Pacific of breach of the lease agreement based
on its failure to pay rent after July 2009. After some back and forth, Textainer sent, in
March 2010, an invoice for all then-lost containers in the amount of $443,656.87, a
number accurately reflecting the replacement value without any discount.
       Having not been paid, Textainer sued Pacific for breach of contract on April 22,
2010. Textainer alleged breach based on Pacific‘s failure to pay rent and failure to pay
the replacement value of the lost containers.
       In May 2010, a month after Textainer‘s lawsuit, Pacific remitted $310,416.171 to
Textainer, which the parties agree is the lost containers‘ replacement value minus the rent
paid on those containers since the September 2007 and July 2008 statements of loss—

       1
          The amount may also have been $310,394.17 according to one bank record, but
the difference is not relevant to this appeal.

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rent Pacific claims it did not owe because, according to Pacific, the statements of loss
stopped rent from accruing. The remittance did not end the dispute.
         After a bench trial on April 18, 2011 and May 2, 2011, the trial court issued a
statement of decision on July 6, 2011. It found the language of the lease agreement
answered the questions before it. It ruled Textainer had no obligation to invoice Pacific
for the replacement value of the lost containers, and thus rent did not stop accruing on
them while the replacement value went unpaid. It awarded Textainer $79,519.05 in
unpaid rent, $133,262.73 for the remaining unpaid replacement value (necessitated by
Pacific‘s deduction from the May 2010 remittance), various service charges and
relocation costs, and attorney fees and costs, to be determined later. Judgment for
Textainer was entered on July 6, 2011, in the amount of $261,455.50. An amended
judgment entered on July 26, 2011, added an award of $59,316.91 for attorney fees and
costs.
         Pacific filed a timely notice of appeal from the July 6, 2011, judgment on
September 6, 2011.
                                         DISCUSSION
         This appeal presents a question of contract interpretation. Where, as here, the
parties do not dispute the relevant facts and do not make arguments regarding the
―credibility of conflicting extrinsic evidence,‖ contract interpretation is ―a question of law
for de novo review by the appellate court.‖ (Mayer v. C.W. Driver (2002)
98 Cal. App. 4th 48, 57.)
         Textainer asserts, and the trial court concluded, Pacific owes daily rental charges
on each lost container through the date Pacific paid the replacement value for that
container. Textainer relies on paragraphs 1 and 10 of the 2001 agreement. Looking
solely at these paragraphs, when a container is lost, Pacific indeed must keep paying daily
rent charges as Textainer asserts. When Pacific pays the replacement value, the container
is finally ―off-hired‖ and rent charges no longer accrue.

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       Pacific claims, however, paragraphs 1 and 10 must be read in connection with
paragraph 6. (See Zubia v. Farmers Ins. Exchange (1993) 14 Cal. App. 4th 790, 797
[― ‗language in a contract must be construed in the context of that instrument as a
whole‘ ‖].) Paragraph 6 states Textainer ―will charge‖ Pacific for a lost container‘s
replacement value once Pacific ―become[s] responsible‖ for it. Under Pacific‘s reading
of paragraph 6, Textainer must invoice Pacific for a lost container‘s replacement value
within a reasonable period of time. If Textainer fails to do so, it is effectively thwarting
Pacific‘s contractual right to freeze rent by paying the replacement value. (See Locke v.
Warner Bros., Inc. (1997) 57 Cal. App. 4th 354, 363 [― ‗ ―[W]here a contract confers on
one party a discretionary power affecting the rights of the other, a duty is imposed to
exercise that discretion in good faith and in accordance with fair dealing.‖ [Citations.]‘
[Citations.]‖].) Pacific reads too much into paragraph 6.
       Paragraph 6 does state Textainer ―will charge‖ Pacific for lost containers once
Pacific ―become[s] responsible‖ for them, but it does not prohibit Pacific from making
payments in advance of invoice or render such payments impossible. Nor does it require
Textainer to issue an invoice before its right to payment accrues. Rather, the stated
purpose of the invoice requirement is to start a 30-day period after which accrued
payments become ―due‖ and Textainer may levy late charges of 1.5 percent per month on
overdue balances.
       Such a reading is consistent with how courts view contractual promises to issue
invoices. Thus, even if paragraph 6 contained a promise to not only invoice, but to
invoice promptly in the manner Pacific claims, courts view such promises as ministerial
or de minimus. And indeed, Pacific has cited no case enforcing an invoicing promise in
the manner it proposes.
       Thus, in Vowels v. Witt (1957) 149 Cal. App. 2d 257, 262, a contractor rendering
services was required to ― ‗bill . . . for all costs incurred during the preceding calendar
month,‘ ‖ rendering these amounts ― ‗immediately due and payable.‘ ‖ The appellate

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court held the contractor could collect on late bills, because late billing did not mean ―the
contractor did not substantially perform the contract.‖ (Ibid.; accord, Gastronomical
Workers Union Local 610 v. Posadas de Puerto Rico Associates, Inc. (D.P.R. 2008)
544 F. Supp. 2d 89, 95 [defendant ―may not rely on the Funds‘ alleged failure to send
timely invoices for its refusal to pay inasmuch as defendant‘s obligation to make these
contributions stems from the [agreement at issue].‖]; Chas. T. Main, Inc. v.
Massachusetts Turnpike Authority (1964) 347 Mass. 154 (Main).)
       Although not from California, we find the Main case, from Massachusetts‘s
highest court, instructive. It concerned a contract between an engineering firm and the
Massachusetts Turnpike Authority. The authority promised to make the final payment
for the firm‘s services ― ‗[u]pon the completion and acceptance by the [a]uthority of all
construction work required by all of the construction contracts and the final determination
of the cost of construction.‖ (Main, supra, 347 Mass. at pp. 155–157, fn 4. ) A formal
final determination of cost was not made until 1960, but both parties were clearly aware
of the costs due to the firm, over $170,000, as of 1958. (Id. at pp. 165, 167.) The firm
demanded interest on the balance for the period between 1958 and 1960, but the authority
rejected this claim, asserting the balance was not due until the issuance of the final cost
determination. (Id. at p. 159.) The Supreme Judicial Court of Massachusetts held as of
1958, ―the authority had no further justification for withholding‖ pay, the firm ―was
entitled to payment,‖ and entitled, furthermore, to interest. (Id. at p. 168.)
       Analogizing to the present case, Pacific knew, from the 2006 schedules, what it
owed in replacement costs. Textainer‘s failure to invoice did not change the fact that
Pacific, under the lease, had to pay replacement costs (the balance due in Main) and had
to pay for the lost use of the containers by way of continuing daily rental charges (the
interest in Main).
       In closing, we note the ―pay rent until replacement value paid‖ method of handling
lost rental goods is not unique to the present case. (See, e.g., In re Muma Services Inc.

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(Bankr. D.Del. 2002) 279 B.R. 478, 488 [―NPR may elect to continue to pay rent on the
lost unit or may elect to pay the replacement value of the unit which would stop the rent
obligation‖].) In fact, it is quite common to measure restitution damages for lost rental
items as the sum of replacement value and loss of rent that could have been earned.
(People v. Thygesen (1999) 69 Cal. App. 4th 988, 996 [―Any award . . . shall be based on
the reasonable replacement value of a cement mixer of like style and age, as well as loss
of rental value from the date of loss to the date the mixer should have reasonably been
replaced.‖]; Collin v. American Empire Ins. Co. (1994) 21 Cal. App. 4th 787, 818
[differentiating between loss of property and loss of use of that property]; accord, Walton
Commercial Enterprises, Inc. v. Associations, Conventions, Tradeshows, Inc. (Ohio Ct.
App. 1990) 593 N.E.2d 64, 67 [―until the chattel is retaken by the lessor, the lessee‘s
obligation to pay rent continues‖ and since in that case ―the equipment could not ever be
returned, appellee‘s duty to pay rent continued until appellee‘s tender of the monetary
value of the equipment‖].)
       In sum, Pacific was properly bound by the plain and express terms of its
agreement with Textainer.
                                       DISPOSITION
       The judgment is affirmed.

                                                 _________________________
                                                 Banke, J.

We concur:

_________________________
Margulies, Acting P. J.

_________________________
Dondero, J.

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