Sterling v. Gregory
1906 Cal. LEXIS 225, 149 Cal. 117, 85 P. 305 (1906)
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Rule of Law:
A contract containing multiple obligations with apportioned consideration will be treated as an entire, non-severable contract if the evidence demonstrates the parties intended the obligations to be interdependent and consideration for one another. A material breach of one interdependent obligation constitutes a failure of consideration, justifying rescission of the entire contract.
Facts:
- Sterling owned three orange groves: the 'Upper Orchard,' the 'Triangle,' and the 'Klondike.'
- Sterling and Gregory entered into an agreement concerning the fruit from all three groves.
- Under the agreement, Gregory agreed to buy all oranges from the 'Upper Orchard' at a fixed price of one and one quarter cents per pound.
- As part of the same agreement, Sterling promised to let Gregory handle, pack, and ship the oranges from the 'Triangle' and 'Klondike' groves for a fee of fifty cents per box.
- Gregory's agreement to purchase the 'Upper Orchard' oranges at the stated price was made in consideration of obtaining the profitable business of handling the fruit from the other two groves.
- After the contract was partially executed, Sterling breached the agreement by selling the fruit from the 'Triangle' and 'Klondike' groves to other parties.
Procedural Posture:
- Sterling (plaintiff) filed a lawsuit against Gregory (defendant) in a California trial court for damages for breach of contract.
- Gregory answered, arguing that Sterling had breached the contract first, which justified Gregory's rescission of the agreement.
- The trial court found in favor of the defendant, Gregory, and entered a judgment for his costs.
- Sterling (now appellant) appealed the judgment to the Supreme Court of California.
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Issue:
Is a contract containing multiple obligations with apportioned consideration considered entire, rather than severable, when the evidence shows the parties intended the obligations to be mutually dependent, thereby allowing one party to rescind the entire contract upon the other's breach of a single obligation?
Opinions:
Majority - Sloss, J.
Yes. A contract with multiple stipulations is considered entire if the parties intended it to be so, and a breach of one interdependent part allows for rescission of the whole. Although contracts with multiple items at different prices are generally presumed severable, this presumption is overcome by evidence that the parties intended the obligations to be mutually dependent. Here, the court found sufficient evidence that Gregory's promise to buy the 'Upper Orchard' oranges was made in consideration of his getting the profitable business of handling the oranges from the other two groves. The two promises were interdependent parts of a single, entire contract. Therefore, Sterling's refusal to perform his part of the contract regarding the 'Triangle' and 'Klondike' groves constituted a partial failure of consideration, which gave Gregory the right to rescind the entire agreement under section 1689 of the Civil Code.
Analysis:
This decision emphasizes that the ultimate test for contract severability is the intent of the parties, which can override the general rule that separately priced items imply a severable contract. It establishes that courts will look beyond the mere structure of payment to the substance of the negotiations to determine if the agreements were intended as an indivisible whole. This precedent gives courts greater flexibility to enforce the true nature of a bargain, preventing a party from 'cherry-picking' the favorable terms of a contract while defaulting on other, interdependent obligations that were essential to the overall agreement.
