RMR Equipment Rental, Inc. v. Residential Fund 1347, LLC

Filed 6/11/21
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

RMR EQUIPMENT RENTAL, B302772
INC.,
(Los Angeles County
Plaintiff and Appellant, Super. Ct. No. PC056872)

v.

RESIDENTIAL FUND 1347, LLC,
et al.,

Defendants and Respondents.

APPEAL from a judgment of the Superior Court of
Los Angeles County, Stephen P. Pfahler, Judge. Reversed in part
and remanded.

Fluetsch & Fluetsch and Michael Fluetsch for Plaintiff and
Appellant.

Jonathan T. Trevillyan for Defendants and Respondents.

____________________
 Water was a problem at the Paradise Ranch Mobile Home
Park. This privately owned rural park relied entirely on wells
because the nearest public water system was miles away. But
then something Californians dread came to pass: water demand
overtook supply.
The park, now owned by Residential Fund 1347, LLC and
related entities, contracted with RMR Equipment Rental, Inc.,
doing business as RMR Water Trucks, which owns water trucks.
The contract was for RMR to supply the park with drinking
water beyond what the wells could produce. The contract was
long-term; the parties struck the deal in 2002 and continued it
until 2015.
The trial court found the park breached the contract in
2015 but limited RMR’s damages to three months, reasoning the
contract was terminable at will. The contract was not terminable
at will. It was a requirements contract with a termination
clause. We remand for a damages award from the date of breach
to the date of trial, as RMR requested, which is about four years.
I
This contract case has two sides: seller and buyer. The
seller was RMR. The buyer was the park, which has changed
ownership, but ownership is not an issue here. We call the buyer
“the park.”
The park is nestled in the Sierra Pelona mountains, 50
miles from downtown Los Angeles and north of the town of
Castaic. This park has never been connected to a water district
or to some other large water system.
Three significant years are 2002, 2010, and 2015. In 2002,
buyer and seller signed their contract and began their long-term
commercial relationship. In 2010, the park changed ownership.

2
In 2015, the park breached the contract and ended the
relationship.
The trial record contains no disputes important to the
appellate issue. We summarize this record.
A
In 2002, the park’s peak demand for water began to
outstrip its wells’ production. Compounding declining supply
were contamination issues and changing quality standards,
which together meant some well water no longer counted as
potable. The park hired companies different from RMR to truck
in water—not every day, but as needed. The uncontested
evidence is “there are plenty of licensed water haulers that are in
the region that are capable of servicing the park.”
The park, however, was not pleased with these occasional
truck deliveries. Some truckers were unlicensed. They also were
unreliable in summer. Summer is the busy season for water
trucks. “Everybody that needs water needs more water in the
summer.” Summer brings heat. It brings wildfires, and fire
camps need potable water from trucks.
The park could not get the priority treatment it wanted
from the occasional truckers. Instead of reliably serving the
park, they would “take the work that pays more.” They exploited
demand peaks by charging the park high prices.
These problems were not transient. The park did not
expect to get “public water delivered by pipeline for quite some
years.”
The park sought to solve its long-term problems with a
long-term contract and a long-term contractor. In 2002, Pacific
Housing Management, the company then managing the park,

3
approached Donald Gilmour, who founded RMR with his father.
Gilmour was and is RMR’s sole owner.
Gilmour testified at trial.
The deal started in a diner.
Gilmour was eating at Mike’s Diner in Castaic. Lashonne
Fiala was working there and heard Gilmour say something about
water trucks. Fiala knew the park’s water problems: she lived in
the park and her father Frank Fiala was the park’s resident
manager.
Frank Fiala managed the park from 1996 to 2010. Fiala
oversaw day-to-day operation and maintenance and ran the
water and sewer systems. His off-site supervisor was Ernie
Hommerding. At trial Fiala testified by deposition: he had
retired to Florida and was too ill to get to trial in person.
Hommerding did not testify; he passed away in 2009, before this
lawsuit began.
Lashonne Fiala at the diner heard Gilmour talking about
water trucks and told him about the water trouble at the park.
She got Gilmour’s number and gave it to her father.
Frank Fiala set up a meeting with Gilmour and
Hommerding. Hommerding and Fiala negotiated for the park.
Gilmour negotiated for RMR.
Their negotiations were successful. Fiala, Hommerding,
and Gilmour struck the deal at the heart of this case.
The two surviving witnesses, Fiala and Gilmour, testified
about this contract’s formation. Their testimony was consistent
on every substantial point. On the contract’s origin and meaning,
there has been no challenge to the credibility or to the
consistency of this testimony, either in the trial court or on
appeal.

4
 The negotiations began in the park’s clubhouse.
In October 2002, Fiala and Hommerding met Gilmour in
the clubhouse. Hommerding said the park lacked a reliable
water supply and faced fluctuating water prices. Gilmour said
his company RMR could solve those problems. Gilmour was
willing to make the park RMR’s primary potable water customer.
He was willing to do that at a fixed and predictable price
agreeable to all.
The three discussed the park’s need for complete reliability.
Fiala and Hommerding wanted total certainty about the water.
When they needed water and called RMR, they wanted assurance
“we would get our water” and the park would not have to compete
with other buyers.
Gilmour agreed on that score: “the park would never do
without water; and that was year-round, 365, even weekends. If
[the park] needed water, [Gilmour] had to produce it. A locked-
in, fixed price indefinitely that [Gilmour] had to deal with.”
This guarantee meant Gilmour would have to turn down
other customers “to the extent that Paradise Ranch had to be
serviced first.”
Gilmour eventually found a set price acceptable to all.
The fixed nature of this price was important to the park
because of its bad experience with price gouging.
By agreeing to a fixed price with no escalation formula,
Gilmour knew he was taking risks. If RMR’s wage, gasoline, or
insurance costs later rose, the contract did not allow RMR to
adjust the fixed price. Later, in fact, RMR’s costs did go up
“dramatically,” but RMR never reneged; it honored the fixed price
and always got the park its water on time.

5
 Gilmour did not name the price in the first meeting. Before
choosing a price, Gilmour personally drove the route to get
mileages. He did some other calculations. Then he proposed
$110 per 3,200-gallon truckload. The park agreed. So $110 was
the locked-in price.
In return for granting priority status and committing to the
locked-in price, Gilmour wanted a contract making RMR the
exclusive water hauler for the park. Gilmour “was giving [the
park] a lot, and [he] wanted something in return to know that
[he] was going to have the ability to recoup [his] investment.”
Gilmour demanded the park’s guarantee he would be its
only water trucker. The three at the meeting agreed on that
point: finding another company willing to truck in the water
would not be considered “another source of water” under the
contract. They also “specifically discussed and agreed that[,] if
the [p]ark purchased its own water truck to truck in potable
water, that would not be a legitimate ground to terminate RMR’s
contract.”
The deal would bar the park from purchasing and using its
own water truck. The park and RMR agreed the park would not
“hire or use” anyone but RMR “as long as [RMR] provided us with
the water on a timely basis as needed at the current rate.”
The parties decided to base contract duration on
performance and contingencies, not on the calendar; they set no
expiration date. Rather, the contract would end when the park
no longer needed trucked water, either because it put in enough
new wells or because it succeeded in connecting to a public water
system.
After the clubhouse meeting, Hommerding drafted a one-
page contract on Pacific’s letterhead. This agreement is concise:

6
just three paragraphs. We quote the whole thing, italicizing two
key sentences:
“Service Contract
“It is agreed that RMR Water Trucks will provide a potable
water truck that is state of California certified for Paradise
Ranch Mobilehome Park for the purpose of delivering potable
water. RMR agrees to make Paradise Ranch its primary potable
delivery account. It is further agreed that RMR Water Trucks
will provide $1,000,000.00 liability insurance, vehicle insurance
and workman compensation insurance to Paradise Ranch upon
acceptance of this contract.
“RMR Water Trucks will be guaranteed water delivery to
Paradise Ranch as long as the park needs water to supplement its
well water production or another supply of water becomes
available. The cost of delivery (3200 gal) shall be $110.00 per
load.
“By signing below, all parties agree to all of the above
statements.”
The writing did not define the phrase “another supply of
water.”
Hommerding and Gilmour signed the contract in late 2002.
What happened next stemmed from Gilmour’s contractual
promise to “provide a potable water truck that is state of
California certified for Paradise Ranch Mobilehome Park for the
purpose of delivering potable water.” Gilmour bought a truck
chassis and paid a company to weld together a custom potable
water truck to his specifications. Since then, Gilmour has added
more potable water trucks to his fleet using the same approach:
he has them custom built to his specifications, using technology
he keeps secret.

7
 In 2002, Gilmour started delivering a load to the park two
or three days a week. Over time the park demanded more water.
At times Gilmour had to deliver seven days a week, with as many
as eight loads a day. The park’s increasing demand prompted
Gilmour to build more trucks.
B
In 2010, the park changed owners. Bo Zarnegin became
sole owner. Zarnegin has purchased dozens of real estate
properties “all over the country.” Zarnegin transferred the formal
ownership of the park from one corporate entity to another.
Zarnegin was sole owner of these entities.
After the sale, Gilmour met with the park’s new manager
Chuck Lippincott. Lippincott said the new owner would assume
the contract. A few months later, a new management company
took over and new people began managing the park. Zarnegin
testified he saw RMR’s contract in 2011. The park kept calling
RMR when it needed water, and RMR kept delivering at the
contract price. That continued for years—until 2015, anyway.
C
In 2015, the park began hauling water in a truck it bought.
Gilmour confronted park managers, saying this violated the
contract. The park offered to use RMR on an as-needed basis
instead of as the park’s exclusive trucker, but wanted to keep the
price at $110 per load. Gilmour rejected this offer, saying this
proposal gave all the benefit to the park and none to RMR. The
park stopped asking RMR for water. Gilmour went to court.
D
In February 2016, RMR sued three defendants for breach of
contract: Pacific Housing Management, Residential Fund 1347,
LLC, and Residential Fund Manager 1347, LLC. During the

8
lawsuit, Zarnegin transferred ownership of the park to another
entity for $1. On RMR’s motion, the court added new defendants:
“Paradise Ranch, LLC dba Paradise Ranch dba Paradise Ranch
Mobile Home Park,” as well as Zarnegin himself. We refer to all
defendants as the park.
At a bench trial, Zarnegin testified it was still necessary to
truck water to the park.
After the trial, the court took briefing in lieu of oral
argument. Later it filed a four-page statement of decision. The
court orally praised the parties’ cooperation during trial and
remarked in writing generally on “the credibility of the
witnesses.”
The statement of decision found no facts. It neither noted
nor resolved factual conflicts. Instead, the trial court decided the
case on legal conclusions it drew from an undisputed factual
record.
The trial court concluded RMR had entered a valid written
contract with Pacific Housing Management in 2002 to supply
water to its mobile home park. It further ruled, with our
emphasis, that “[i]n 2010, when the subject mobile home park
was sold, [RMR] continued to deliver water to the new owners
[Residential Fund 1347] under the same terms and conditions as
the original contract.” Again with our emphasis, the court wrote
that Residential Fund 1347 “assumed and ratified the terms of
the contract.” The court observed Zarnegin was aware RMR was
delivering the water to the park and never objected to the service.
The court ruled defendants breached their agreement in July
2015 when they stopped the water delivery service, and that
RMR “established its causes of action for breach of contract.”

9
 There was a dispute about the right way to calculate
damages. RMR asked for an award from the date of breach to the
date of trial—a span of about four years. With interest, this
request totaled $518,079. The court rejected this request. It
ruled the contract contained no express duration term and thus
was terminable at will on reasonable notice, which the court
determined was three months.
The court awarded RMR $26,250 as damages for these
three months because this sum was “fair and equitable.” The
court did not explain the factual or legal basis for its selection of
three months as the “fair and equitable” damages interval. The
park, in its briefing to us, recites this ruling but makes no effort
to connect the selection of three months to the factual record or to
any argument or logic of counsel. The three-month limitation
seems to have originated in the statement of decision, where it is
unexplained.
RMR appealed the court’s decision to award damages for
three months rather than for the duration RMR requested, which
was about four years. The park did not appeal.
II
The trial court found the park’s new owners ratified the
2002 contract with RMR and then breached it. The park has not
appealed this ruling; it is unchallenged. It binds us. The only
appeal is by RMR, and RMR’s sole complaint is the trial court
erred by awarding damages for three months only.
RMR is right. This requirements contract was not
terminable at will. It had an express termination clause that we
must respect. (Zee Medical Distributor Assn., Inc. v. Zee Medical,
Inc. (2000) 80 Cal.App.4th 1, 7–14 & fns. 3 & 6 (Zee).)

10
 A
Our mission in every contract case is to discern and
effectuate the contracting parties’ mutual intent. We begin with
the words of the contract. The nature of the contract and the
surrounding circumstances can inform those words. (See
Consolidated Theatres, Inc. v. Theatrical Stage Employees Union,
Local 16 (1968) 69 Cal.2d 713, 725–731 (Consolidated).)
We gain insight by divining the purpose of the contract.
Understanding what the parties were trying to accomplish can
illuminate their contractual language. (Regency Midland
Construction, Inc. v. Legendary Structures Inc. (2019) 41
Cal.App.5th 994, 998–999 (Regency); Rest.2d Contracts, § 202,
subd. 1 & com. c, pp. 86 & 88.)
Generally speaking, contract interpretation is a legal
rather than a factual question. (Empire Gas Corp. v. American
Bakeries Co. (7th Cir. 1988) 840 F.2d 1333, 1337 (Empire)
(Posner, J.).) It is a judicial function to interpret a written
contract, unless the interpretation turns upon the credibility of
extrinsic evidence. (Consolidated, supra, 69 Cal.2d. at p. 724.)
A trial court properly admits evidence extrinsic to the
written instrument to determine the circumstances under which
the parties contracted and the purpose of the contract. (Parsons
v. Bristol Development Co. (1965) 62 Cal.2d 861, 864–865
(Traynor, J.) (Parsons).)
When witnesses give conflicting factual accounts and the
fact finder makes credibility assessments to resolve these
conflicts, we defer to the fact finder’s determinations. (Schmidt v.
Superior Court (2020) 44 Cal.App.5th 570, 581–583; Kolender v.
San Diego County Civil Service Com. (2005) 132 Cal.App.4th
1150, 1155.)

11
 When, as here, no extrinsic evidence is in conflict, we
undertake our own construction of the agreement as regards its
duration. (Consolidated, supra, 69 Cal.2d. at p. 724.) When the
material extrinsic evidence is undisputed, reviewing courts
independently determine the meaning of the contract. (Parsons,
supra, 62 Cal.2d at p. 866; cf. Johnson v. Greenelsh (2009) 47
Cal.4th 598, 604 [when there is no conflict or question of
credibility in the relevant extrinsic evidence, interpretation of a
written trust is a question of law for independent appellate
review].)
B
The controlling authority, according to the parties, is the
Consolidated decision, in which the California Supreme Court set
out a three-step analysis for determining a contract’s term of
duration. First, courts look for an express duration provision in
the contract. If one exists, we enforce it according to its terms.
Second, if the contract does not have an express provision, we
look to the intention of the parties to imply a duration. Third, if
we find neither an express nor an implied term, we construe the
term of duration to be a reasonable time. (Consolidated, supra,
69 Cal.2d at pp. 723–731.)
The proper analysis here begins and ends at step one. (See
Zee, supra, 80 Cal.App.4th at p. 10.)
This contract has an express duration provision: “RMR
Water Trucks will be guaranteed water delivery to Paradise
Ranch as long as the park needs water to supplement its well
water production or another supply of water becomes available.”
The italics are ours.
RMR had an exclusive deal the park could not circumvent
by buying and using its own water truck. The trial court found

12
the park breached the contract and the park has not appealed
this ruling. We consequently confront no dispute over
ratification; that was decided and was not appealed. Our sole
issue is contract duration.
This contract was not terminable at will. It was to continue
as long as the park needed water to supplement its well
production: until it obtained another supply of water by
connecting to some larger water system or by drilling more wells
that obviated the need for trucks. Therefore it was error to limit
damages for breach to an arbitrary three-month term. The court
should have awarded damages for roughly four years, as RMR
requested. (We do not consider the issue of interest, which is for
the trial court on remand.)
C
The park argues we should interpret the contract to allow it
to truck its own water in competition with RMR. Under the
park’s proposed interpretation, the contract allowed it to buy and
use its own truck.
The park’s argument goes like this. The contract uses the
words “another supply of water.” Water hauled in the park’s own
truck literally is “another supply of water.” The park concludes
the contract left it free at all times to use its own water truck.
The logical implication is the contract also left the park free to
use all other non-RMR trucks as well, for they too would be
“another source of water.” This proposed interpretation thus
would effectively make the contract terminable at will: a one-sale
arrangement the parties could extend load by load.
The park’s interpretation is untenable for two reasons.
First, it violates the contract’s language and purpose. Second, it
is contrary to undisputed extrinsic evidence. We explain.

13
 1
First, the park’s proposed interpretation violates the
language and the purpose of this contract.
The key contract sentence, with our emphasis, is this:
“RMR Water Trucks will be guaranteed water delivery to
Paradise Ranch as long as the park needs water to supplement its
well water production or another supply of water becomes
available.” This sentence has six crucial words: the park’s
“guarantee” that RMR would serve the park’s “needs” until
“another source of water” became available.
The park says non-RMR water trucks are “another source
of water” and so the contract allows it to haul water in its own
truck. RMR disagrees, saying “another source of water” refers to
the prospect the park someday may connect a pipe to a public
water system, which would do away with the need for trucks.
RMR thus contends the sentence designates RMR as the park’s
exclusive water trucker. (Under both proposed interpretations,
the author of this language apparently omitted the word “until”
before the word “another.” The parties make nothing of this
omission. We ascribe no significance to it.)
This sentence poses a classical problem of textual
interpretation. For two different textual reasons, we reject the
park’s proposed interpretation.
a
By ignoring the word “guaranteed,” the park offers an
interpretation that is fatally incomplete and thus unsatisfactory.
The park’s proposed interpretation of four words is literal.
Water from a non-RMR truck literally is “another source of
water.” Yet the park’s proposal ignores a fifth word:

14
“guaranteed.” The park’s brief never attempts to explain how
this word can be consistent with its proposed interpretation.
The word “guaranteed” is textual support for RMR’s
interpretation. If the park were to be free at any time to shift to
RMR’s competitors, then the word “guaranteed” becomes
meaningless. This construction of the contract would guarantee
RMR nothing. It drains the exclusive contract of all exclusivity.
Felix Frankfurter reputedly said the three rules of
statutory interpretation are to read the statute, read the statute,
and read the statute. The same wise counsel applies to
interpreting every text. (Regency, supra, 41 Cal.App.5th at p.
996.) It is a cardinal interpretative sin to ignore words you are
trying to interpret. This sin dooms the park’s argument about
the proper way to interpret the text of this contract.
Beyond this bar, the park’s proposed interpretation faces a
further barrier.
b
The park’s proposed interpretation contradicts the
commercial purpose of this requirements contract.
Determining a literal meaning is the first, not the final,
step in textual interpretation. Literary scholar Terry Eagleton
gave us his celebrated example of this escalator sign: “Dogs must
be carried on the escalator.” (Eagleton, Literary Theory: An
Introduction (2008) p. 6.) The literal reading is that, if you take
the escalator, you must carry a dog. This literal reading qualifies
as what Judge Posner calls a “semantically permissible reading”
of the words. (Empire, supra, 840 F.2d at p. 1336.)
Yet this literal and semantically permissible reading is
comically incorrect. It is woodenly insensitive to the purpose of

15
the sign, which is to advance safety, not to prompt people to get
dogs.
How do we know that? We share background knowledge
about context. Readers of the sign all know something about
escalators, their hazards, and public safety.
In other words, we know the nature of the sign and the
surrounding circumstances.
For that reason, the Supreme Court directs us, when
interpreting a contract, to examine its nature and the
surrounding circumstances. (Consolidated, supra, 69 Cal.2d at p.
725.)
The nature of this contract is familiar in commercial
practice and commercial law: it is a requirements contract. This
is the reasonable interpretation of the words “guaranteed,” which
the park’s proposed interpretation would impermissibly erase.
The word “needs” also alerts the attentive reader this is a
requirements contract, as we shall demonstrate shortly. Until
the park established an alternative to trucked water, then, the
contract gave RMR the exclusive right to fulfill the park’s
requirements for trucked water.
RMR correctly argues the contract was for it to provide all
the trucked water the park needed. RMR did not use the words
“requirements contract” but that is semantics, not substance. On
substance, RMR’s position has been consistent and correct since
2015.
Requirements contracts are not novel. They are old in
commerce and old in the law of commerce. (E.g., Wells v.
Alexandre (1891) 130 N.Y. 642, 642 [29 N.E. 142, 142]
[requirements contract for “all coal necessary for the use of
certain steamships”]; cf. McMichael v. Price (1936) 177 Okla. 186,

16
186–190 [58 P.2d 549, 550–553] [requirements contract to furnish
all sand a salesman could sell] [collecting numerous decisions
dated 1895, 1902, 1909, 1911, and so forth].)
“In a requirements contract, the buyer agrees to purchase
and the seller agrees to sell all or up to a stated amount of what
the buyer needs or requires. There is implicit consideration in a
requirements contract, for the buyer gives up the right to buy
from any other seller, and this forfeited right creates a legal
detriment. Requirements contracts are common in the business
world . . . .” (Miller & Jentz, Business Law Today (4th ed. 1997)
p. 348, bolding deleted, underlining added, italics in original; see
also id. at p. 349 [“The obligation of good faith is particularly
important in requirements and output contracts. Without the
obligation of good faith, the potential for abuse would be
tremendous.”]; see also Smith & Robertson, Business Law (13th
ed. 2006) pp. 175, 210.)
When the parties phrase their contract in terms of what the
buyer requires or needs, we recognize they have made a
requirements contract.
Corbin explains: “In a requirements contract the quantity
term is not fixed at the time of contracting. The parties agree
that the quantity will be the buyer’s needs or requirements of a
specific commodity or service. Requirements contracts serve a
vital commercial need. The buyer gets the assurance of a source
of supply. The supplier locks in a customer, knowing, however,
that the customer’s needs are variable and uncertain.” (2 Corbin
on Contracts (Rev. ed. 1995) § 6.5, italics added.)
The parties do not cite the Uniform Commercial Code or
contend it applies to this case, but we note its section 2-306(1)
validates requirements contracts. California has adopted the

17
UCC, including this provision, which is titled “Output,
requirements and exclusive dealings.” California law recognizes
the enforceability of requirements contracts. (See Cal. U. Com.
Code, § 2306, subd. (1).)
“If there were no legal category of ‘requirements’ contracts
and no provision of the Uniform Commercial Code governing such
contracts,” (Empire, supra, 840 F.2d at p. 1336) the park’s
proposed literal interpretation might have some appeal—
assuming we are free to ignore the words “guaranteed” and
“needs,” which we are not. Yet those words, together with the
nature of this arrangement, have “sorted the contract into the
legal bin labeled ‘requirements contract’ ” (ibid.) and the logic
attending this sorting is plain.
Cardozo tells us why. His revered decision in Wood v. Lucy,
Lady Duff-Gordon (1917) 222 N.Y. 88 [118 N.E. 214] (Duff-
Gordon) is a staple of contracts casebooks. It is in the “pantheon
of contracts cases.” (Rakoff, Good Faith in Contract Performance:
Market Street Associates Ltd. Partnership v. Frey (2007) 120
Harv. L.Rev. 1187, 1187; see also id. at p. 1195 & fn. 36; Posner,
Cardozo: A Study in Reputation (1990) pp. 92–97 [explaining
opinion’s greatness] (Posner).)
Cardozo set the law on its modern path by reading a cryptic
exclusivity agreement—a type of requirements contract—with
sensitivity to its commercial purpose.
In Duff-Gordon, Cardozo recounted how Lucy, Lady Duff-
Gordon gave one Otis Wood the exclusive right to market her
fashion clothing line. Duff-Gordon would get one-half Wood’s
profits. But then Duff-Gordon began selling her line through
another retailer without Wood’s knowledge. Wood sued for
contract breach; Duff-Gordon demurred, saying the deal was

18
unenforceable because it lacked consideration: the contract did
not require Wood to do anything. (Duff-Gordon, supra, 118 N.E.
at p. 214.)
Cardozo responded: “It is true that [Wood] does not
promise in so many words that he will use reasonable efforts to
place the defendant’s indorsements and market her designs. We
think, however, that such a promise is fairly to be implied. . . .
We are not to suppose that one party was to be placed at the
mercy of the other. . . . Without an implied promise, the
transaction cannot have such business efficacy, as both parties
must have intended that at all events it should have.” (Duff-
Gordon, supra, 118 N.E. at pp. 214–215, quotation marks and
citation omitted, italics added.)
Cardozo thus ruled the contract was enforceable. It
implicitly required Woods to use his best efforts to promote Duff-
Gordon’s line.
As have most states, California has accepted Cardozo’s
pioneering analysis. (E.g., Davis v. Jacoby (1934) 1 Cal.2d 370,
379 [citing case with approval].)
By focusing on “business efficacy,” Cardozo ascribed
economic rationality to the contracting parties.
Courts have long recognized the business efficacy of
requirements contracts. Requirement contracts can assure
supply, afford protection against price increases, enable long-
term planning on the basis of known costs, and eliminate the
expense and risk of storage. From the seller’s standpoint,
requirements contracts may substantially reduce selling costs,
protect against price fluctuations, and offer the prospect of a
predictable market. (Standard Oil Co. of California v. United

19
States (1949) 337 U.S. 293, 306–307; see also Tampa Electric Co.
v. Nashville Coal Co. (1961) 365 U.S. 320, 334.)
There was a time courts badly misunderstood requirements
contracts and exclusive dealing. Scholars took on and exposed
these errors. (See, e.g., Bork, The Antitrust Paradox (1978) pp.
299–309 (Bork); Ramseyer & Rasmusen, Exclusive Dealing:
Before, Bork, and Beyond (2014) J.L. & Econ. S145, S147–S151
(Ramseyer & Rasmusen).)
Professor and later United States Circuit Judge Robert
Bork wrote that, “[q]uite obviously, exclusive dealing and
requirements contracts are forms of vertical integration.” (Bork,
supra, at p. 299.) Economically sophisticated legal scholars
working in Bork’s wake have explained these kinds of contracts
offer the parties many other potential advantages as well. (E.g.,
Klein, Exclusive Dealing as Competition for Distribution “On the
Merits” (2003) 12 Geo. Mason L.Rev. 119, 137–162; Ramseyer &
Rasmusen, supra, at pp. S149–S151.)
The purpose of the requirements contract in this case thus
was to reap the mutual advantages of a predictable and
enforceable long-term relationship, as is plain from the face of the
deal. (Cf. Posner, supra, at p. 96 [“The best-efforts obligation in
exclusive-dealing arrangements, pioneered in Wood v. Duff-
Gordon, promotes the achievement of the basic goal of contract
law, which is to facilitate the making of long-term
commitments.”].)
Under this requirements contract, the park got reliable
water service, come drought or flood, at a stable price it thought
was fair. RMR got a long-term customer that promised
significantly assured business. The long-term arrangement
reduced risk for the park and allowed RMR to invest in costly

20
custom trucks with some confidence it could recoup the expense.
The requirements contract with the park gave RMR the
confidence to make long-term investments. All benefitted.
Converting this long-term arrangement to an at-will or spot
contract, as the park urges and as the trial court did, would
frustrate this common and beneficial commercial goal. If the
park were free unilaterally to renege on its promise to make RMR
its sole trucking supplier, RMR would have had no reason to
forego its ability to jack up the price opportunistically and to
delay or divert deliveries when demand was high. As Cardozo
put it, “[w]e are not to suppose that one party was to be placed at
the mercy of the other.” (Duff-Gordon, supra, 118 N.E. at p. 214.)
In short, the park’s proposed interpretation would defeat
the routine and attractive commercial purpose that motivated the
parties to strike this deal. For this reason alone, we would reject
the park’s effort to interpret the words “another supply of water”
to include water from non-RMR trucks.
2
The second reason is extrinsic evidence. The extrinsic
evidence is consistent. It consistently contradicts the park’s
proposed interpretation.
The extrinsic evidence here is unusually clear and
powerful. Fiala and Gilmour were the only surviving people who
negotiated and agreed to the contract. They were opposing
negotiators: Fiala was the buyer; Gilmour was the seller. Often
opposing sides oppose each other. Yet here they spoke with one
voice. At trial and on appeal, the park has not questioned the
credibility or consistency of this evidence from Fiala and
Gilmour.

21
 Fiala and Gilmour were the only witnesses with personal
knowledge of the contract’s negotiation history.
Zarnegin opined about the contractual language, but he
lacked personal knowledge of the contract’s origin. As extrinsic
evidence about the contract’s creation and meaning, Zarnegin’s
testimony had nothing to offer.
When a trial court makes no finding on a factual issue, a
reviewing court will not assume the trial court would have made
a finding contrary to the uncontroverted evidence and the
reasonable inferences it creates. That would be illogical. Rather,
the reviewing court will assume that, had the finding been made,
it would have accorded with this evidence. (Walpole v. Prefab
Manufacturing Co. (1951) 103 Cal.App.2d 472, 481.)
The uncontroverted extrinsic evidence of the parties’ intent
in 2002 governs the park’s ratification of the contract in 2010.
The new owners ratified the old contract; they did not renegotiate
or reform its terms. Recall the trial court found (with our
emphasis) “that RF 1347 assumed and ratified the terms of the
contract.” (Italics added.) The park has not appealed this ruling,
which binds us.
Ratification does not alter the terms of a contract or make a
contract with different terms. (City of Brentwood v. Dept. of Fin.
(2020) 54 Cal.App.5th 418, 437.) An act of ratification adopts the
contract as it was originally made. (Id. at p. 438.)
The park says something is amiss in the prospect this
contract could last a century or two. But the park handcrafted
this document as a customized agreement between two
businesses of presumably equal bargaining power. The park
wrote this deal on its own manager’s letterhead; RMR was not
the drafting party. This long-term agreement evidently made

22
good sense to the people who forged it. The park apparently
planned to continue indefinitely; the record tells us nothing to the
contrary. As long as people are living there, they will need water.
For RMR’s part, it seemed eager to serve a significant customer
for as long as possible. And everyone signing a long-term deal
knows they always can renegotiate—if both sides agree to the
new terms.
D
The textual analysis and the analysis of extrinsic evidence
mesh perfectly. This is a clear case: all signs point the same
way.
DISPOSITION
It was error to limit damages to a three-month interval.
RMR requested damages be calculated from breach to the date of
trial, which was about four years. We remand for a calculation of
an award based on this interval. We award costs to the plaintiff
and appellant.

WILEY, J.

I concur:

GRIMES, J.

23
BIGELOW, P. J.

I concur in the judgment.
This is a simple contract dispute with a simple resolution.
The problem emanates from a single page contract about the
transportation of potable water to a mobile home park. It was
resolved after a 12-hour bench trial. Seven witnesses testified.
Three discussed the contract’s original formation by the prior
owners of the mobile home park in 2002. Four testified about the
subsequent agreement by the new owners in 2010. A solitary
issue is presented in the appeal—how long was the contract in
effect? Both parties agree the matter can be resolved by
application of longstanding California Supreme Court precedent
found in Consolidated Theaters, Inc., v. Theatrical Stage
Employees Union (1968) 69 Cal.2d 713 (Consolidated), which
guides this state’s courts in determining the duration of a
contract.
I agree the trial court incorrectly found the contract had no
express termination clause, so we must reverse and remand for a
recalculation of damages. I write separately because I would
decide this case on the issues as raised by the appellate briefs
and the trial court’s ruling.
Appellant RMR Equipment (RMR) filed a complaint for
breach of written and oral contract against Pacific Housing
Management, respondent Residential Fund 1347 LLC (RF 1347),
and Residential Fund Manager 1347 LLC. When RMR
discovered that Bo Zarnegin, the sole member of RF 1347,
transferred all the LLC’s assets to a new entity called Paradise
Ranch LLC, the court allowed RMR to add Paradise Ranch LLC
and Zarnegin as Doe defendants. RF 1347 cross-complained

1
against Pacific Housing Management and Residential Fund
Manager.
The trial court found it undisputed that RMR entered into
a written agreement with Pacific Housing Management in 2002
to supply water to its mobile home park. The one-page contract
stated in full:
“It is agreed that RMR Water Trucks will provide a potable
water truck that is state of California certified for Paradise
Ranch Mobilehome Park for the purpose of delivering potable
water. RMR agrees to make Paradise Ranch its primary potable
delivery account. It is further agreed that RMR Water Trucks
will provide $1,000,000.00 liability insurance, vehicle insurance
and workman’s compensation Insurance to Paradise Ranch upon
acceptance of this contract.
“RMR Water Trucks will be guaranteed water delivery to
Paradise Ranch as long as the park needs water to supplement
its well water production or another supply of water becomes
available. The cost of delivery (3200 gal) shall be $110.00 per
load.
“By signing below, all parties agree to all of the above
statements.”
The court found that “[i]n 2010, when the subject mobile
home park was sold, [RMR] continued to deliver water to the new
owners [RF 1347] under the same terms and conditions as the
original contract.” The court found “that RF 1347 assumed and
ratified the terms of the contract . . . .” It found that Zarnegin
was aware RMR was delivering the water to defendants and that
defendants never objected to the service. The court found
defendants breached their agreement in July 2015 when they
stopped the water delivery service, and RMR “established its

2
causes of action for breach of contract.” The court, however, did
not “find that the contract was properly assigned.”
The trial court found the contract had “neither an express
nor implied term” regarding termination of the contract. Citing
Zee Medical Distributor Assn. Inc. v. Zee Medical Inc. (2000) 80
Cal.App.4th 1, 10 (Zee Medical), the court thus found defendants
“had the right to terminate the contract within a reasonable
period of time.” The court ruled that three months was a
reasonable time to give notice of termination of RMR’s services,
and awarded $26,250 against all defendants except Zarnegin,
jointly and severally. On the cross complaint, the court awarded
$10,000 in favor of RF 1347 and against Pacific Housing
Management.
RMR alone appealed; it claims the trial court improperly
limited its damages as it erred in finding RF 1347 had the right
to terminate the contract after a reasonable time.
As noted, both parties agree the controlling authority on
this issue is Consolidated. In Consolidated, the California
Supreme Court set out a three-step analysis for determining a
contract’s term of duration. First, courts look to find an express
term of duration in the contract. If one exists, it should be
enforced according to the contract terms. Second, if the contract
does not have an express term, the court looks to the intention of
the parties to imply duration. Third, if neither an express nor an
implied term can be found, the term of duration is construed to be
a reasonable time.
RF 1347 devotes much of its respondent’s brief to arguing
there was no express term of duration because there was never a
written or oral contract between it and RMR. RMR responds that
the trial court explicitly found RF 1347 ratified and assumed the

3
prior written contract with Pacific Housing Management, and the
trial court’s finding is supported by substantial evidence. RF
1347 declined to appeal the judgment, and that ends the matter.
Because RF 1347 was found to have assumed and ratified
the written contract, the next question that arises is whether the
trial court properly found the contract lacked an express or
implied term of duration. (See Consolidated, supra, 69 Cal.2d at
p. 725.)
Contrary to the trial court’s ruling, the contract has an
express termination clause. It states that RMR is guaranteed
water delivery “so long as the park needs water to supplement its
well water production or another supply of water becomes
available.” There is no problem with a contract terminating upon
an event, rather than a date. “California cases have long
recognized that a contract may, by its express terms, provide for
a term of duration of indefinite length and without specific
limitation, tied not to the calendar but to the conduct of the
contracting parties.” (Zee Medical, supra, 80 Cal.App.4th at p. 7.)
The problem is that the parties disagree on what is meant
by the phrase “another supply of water becomes available.” This
issue was hotly contested at trial. RMR contends these words
mean the contract continues until the mobile home park is
connected to a public water system, or the park’s onsite wells
produce enough water to satisfy the residents’ water needs. RF
1347 argues that bringing in potable water by its own truck is
another source of water that properly terminated the contract.
The issue is readily resolved by reference to the trial court’s
finding that RF 1347 breached the contract. Though the trial
court incorrectly found there was no termination clause, its
finding that RF 1347 breached the contract required an implied

4
finding the contract was not properly terminated upon RF 1347
trucking in its own potable water. In other words, the trial court
necessarily concluded the termination clause would be triggered
and the contract would end only if RF 1347 stopped RMR water
deliveries because it had enough onsite well water or the park
was connected to a public water system.
This leads to the simple resolution of this case. Again, RF
1347 did not appeal, meaning we must accept the court’s finding
that the contract was breached. The only remaining question is
whether the term that was breached qualified as an express
termination clause. It did, contrary to the trial court’s finding.
RMR’s damages thus were not limited to a reasonable time, and
the trial court erred by finding otherwise. This case must be
remanded for a recalculation of damages. Our analysis should
end there.
I would resolve this matter without using this case as a
platform to discuss requirements contracts and without providing
a lengthy exposition on the topic, especially given the contract
was never referred to as anything other than a service contract
and the issue was never briefed in the trial court or on appeal.
I would not make the monumental decision that extrinsic
evidence of conversations between RMR and the prior park owner
in 2002 are binding on the current defendant, RF 1347. The
majority suggests the use of such evidence is proper given the
trial court found RF 1347 “ratified” the contract between RMR
and the original park owner. Ratification, however, concerns a
principal agreeing to be bound by the unauthorized acts of an
agent. (City of Brentwood v. Department of Finance (2020) 54
Cal.App.5th 418, 436 (City of Brentwood).) The original park
owner was not RF 1347’s agent. It seems clear, therefore, that

5
when the trial court found there was ratification, it was referring
to the new park owner ratifying the act of its park manager, who
the court found agreed to be bound by the contract in
2010. Further, the majority’s use of extrinsic evidence from 2002
is not supported by City of Brentwood, supra, 54 Cal.App.5th 418,
which notes that ratification does not modify the terms of a
contract; it says nothing about the extrinsic evidence interpreting
those terms.
Neither would I declare that a Court of Appeal can resolve
the veracity of the testimony of witnesses on a contested issue
while simultaneously noting the trial court made no factual
findings on that issue. Doing so overlooks the fact that a trial
court can choose to simply disbelieve three, five, or even 100
witnesses who testify consistently if it so chooses. To quote a
recent opinion by the majority’s author: “Venerable precedent
holds that, in a bench trial, the trial court is the ‘sole judge’ of
witness credibility. [Citation.] The trial judge may believe or
disbelieve uncontradicted witnesses if there is any rational
ground for doing so. [Citation.] The fact finder’s determination
of the veracity of a witness is final. [Citation.] Credibility
determinations thus are subject to extremely deferential
review. . . . [¶] . . . [¶] These binding principles are traditional
and sound. Fact finders see and hear witnesses. The finder of
the facts has a view appellate courts lack. That view is better.
This appellate deference is long-standing.” (Schmidt v. Superior
Court (2020) 44 Cal.App.5th 570, 582–583.) To hold that an
appellate court may presume how a trial court would have
resolved an open question of witness credibility—even on
uncontradicted testimony—raises serious questions left
unaddressed by the majority’s single citation to a seventy-year-

6
old court of appeal case that did not address that specific issue.
(See Walpole v. Prefab Manufacturing Co. (1951) 103 Cal.App.2d
472, 481.)
Thus, I would avoid these matters that are not necessary to
resolve this dispute, were not discussed below, were not relied on
by the trial court in its ruling, and were not argued on appeal.

BIGELOW, P. J.

7