GARLOCK SEALING TECHNOLOGIES v.NAK SEALING TECHNOLOGIES CORP.,

Filed 3/21/07

CERTIFIED FOR PUBLICATION

COPY

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

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STORY CONTINUED FROM PART III..

IV.

Sunrise Trading Was Mao Shuns Agent

A. Factual Background

Dr. Ping-Chi Mao started Sunrise Trading as an import/export business in 1973. Initially he thought he would import gift items. He bought and imported wind chimes, but as he did not have any contacts for the sale of the chimes, he ended up trying to get rid of the chimes at Denios Sunday Market, a flea market in Roseville. It took him years to sell all of the chimes. After that experience, Mao gave up on purchasing and importing items to sell in the United States. He decided it would be better to provide service as an American agent for an Asian company.

In 1981, after Mao gave a speech for the Sacramento Chamber of Commerce regarding trade with Taiwan, he was contacted by Mao Shun. Mao met with Joseph Shek, the president of Mao Shun, and Jensen Chen, the general manager of Mao Shun. Shek and Chen told Mao they wanted to sell Mao Shun products in the United States and they needed an agent to find buyers and take care of the language problem. When Mao told them he had no knowledge of their products and could not buy their products, Shek and Chen assured him he did not need to worry. Mao Shun would be responsible for explaining their merchandise and would take care of all quality issues. Mao emphasized he had no knowledge of oil seals. He could only act as an agent, as a facilitator. Shek and Chen told Mao that Mao Shun would be 100 percent responsible for quality and liability. They just needed Mao to be their agent. Mao, Shek and Chen signed an agreement that day, written in Chinese, to set up their relationship. The agreement stated in part: Ping-Chi Mao, of Sunrise Trading Company, will be the representative of Mao Shun in the United States. The responsibility for Sunrise Trading Company is to help promote the merchandise . . . produced by Mao Shun Company and help to secure the orders and ship and merchandise will be directly shipped out from Mao Shun. The same word is used in Chinese for agent or representative. The agreement provided for Mao Shun to pay Sunrise Trading a base five percent commission for its sales.

After signing the agreement, Sunrise Trading sent out promotional fliers for Mao Shun products. Garlock subsequently contacted Sunrise Trading regarding purchasing Mao Shun oil seals. A Garlock representative came to Sacramento to meet with Mao and Maos assistant, April Chi. Following that meeting, Mao set up a meeting between Shek and Chen of Mao Shun and Garlock representatives at Garlocks offices in New York state. At that meeting in New York, Mao explained Sunrise Trading was the agent for Mao Shun.

James Cook, an employee of Garlock, then went to Taiwan to see the Mao Shun facilities. Garlock placed a trial piece of business with Mao Shun and then started placing further orders for oil seals. Cook testified he was told Mao Shun would do business through Sunrise Trading. Sunrise Trading was essentially a sales office of Mao Shun. Sunrise Trading was Mao Shuns agent.

Cook was the person from Garlock having personal contact with Sunrise Trading and Mao Shun until 1988, when he changed positions. Cook testified the only written contracts between Garlock and Mao Shun were the purchase orders. Each purchase order would govern the material in that order.

Sunrise Trading and Mao Shun operated under their original agreement without any amendment between 1981 and 1986. In 1986, Cook talked to Chi about Garlock increasing its volume of orders from Mao Shun. Garlock wanted to stop using expensive air freight and use ocean shipping. Cook asked Sunrise Trading if they would be able to assist. Chi discussed the proposed change in shipping with either Shek or Chen. To use ocean shipping, Sunrise Trading had to pick up the products from Oakland, pay the customs charges, and arrange for a freight forwarder. Mao Shun authorized Sunrise Trading to add an additional percentage to the product price to cover Sunrise Tradings additional costs. The total standard markup became 28 percent. It was agreed Sunrise Trading could start taking shipments into the United States for Garlock.

Mao Shun never told Chi the change in procedure made Sunrise Trading the seller of the oil seals. There was no new agreement written between Sunrise Trading and Mao Shun. Mao testified Sunrise Trading and Mao Shun were still operating under the 1981 agreement except for an oral understanding that there was a change in Sunrise Tradings compensation. Mao understood Sunrise Trading was still acting as the representative of Mao Shun. There was simply a change in the process to save Garlock costs made at the request of both Garlock and Mao Shun. Mao Shun would ship to Sunrise Trading, who would receive the product, clear customs and then ship it to Garlock. According to Chi, the purpose of the change was administrative efficiency.

Darin Thibideau was in charge of day-to-day operations for Sunrise Trading in 1997, 1998 and 1999. He was told when he was hired that the nature of Sunrise Tradings work was managing the flow of communications and products between Mao Shun and its customers in the United States. Thibideau understood Sunrise Trading was acting as an agent for Mao Shun. No one with Mao Shun ever told him Mao Shun considered Garlock to be Sunrise Tradings customer.

Thibideau described the procedure for processing a Garlock order. Garlock would fax a purchase order to Sunrise Trading. On the basis of the fax, Thibideau would generate a Sunrise Trading purchase order that he would fax to Mao Shun. Mao Shun would confirm Sunrise Tradings purchase order by hand notation on the purchase order form, which would be faxed back to Sunrise Trading. Sunrise Trading would then transmit an order confirmation form to Garlock. At a later date Garlock would send Sunrise Trading a hard copy of its faxed purchase order. The underlying agreement between Sunrise Trading and Mao Shun was that Sunrise Trading would make payment to Mao Shun only upon receipt of payment from Garlock. Thibideau could not remember a time when Garlock was late in its payment and Mao Shun nevertheless demanded payment from Sunrise Trading.

Thibideau testified Sunrise Trading never offered warranties or limitations on Mao Shun products because Mao Shun, not Sunrise Trading, was the warrantor. When a common warranty question arose, he would communicate it to Mao Shun and await their instructions.

Joseph Shek, president of Mao Shun, testified Mao Shuns agreement with Sunrise Trading changed in 1986 or 1987. Before such change, Sunrise Trading was compensated on a commission basis. After the change, the parties dealt on a quoting basis, i.e., Mao Shun would give a quote and Sunrise Trading would place an order. Sunrise Trading would ship the products and Mao Shun would receive payment from Sunrise Trading. After the change in the agreement, Mao Shun always sold directly to Sunrise Trading. After the change Mao Shun did not have an agreement with Sunrise Trading that limited who Sunrise Trading could buy seals from or whom they could sell them to in the United States. Mao Shun did not know the price Sunrise Trading charged for the seals. Shek had never authorized anyone at Sunrise Trading to enter into an agreement on behalf of Mao Shun.

B. Actual Agency

The essential characteristics of an agency relationship as laid out in the Restatement are as follows: (1) An agent or apparent agent holds a power to alter the legal relations between the principal and third persons and between the principal and himself; (2) an agent is a fiduciary with respect to matters within the scope of the agency; and (3) a principal has the right to control the conduct of the agent with respect to matters entrusted to him. [Citation.] (Alvarez v. Felker Mfg. Co. (1964) 230 Cal.App.2d 987, 999 [41 Cal. Rptr. 514]; see also Civ. Code, 2295 [An agent is one who represents another, called the principal, in dealings with third persons].) (Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1868-1869.)

In the situation where goods pass from a manufacturer to another party for resale to a third person, the Restatement adds the following: One who receives goods from another for resale to a third person is not thereby the others agent in the transaction: whether he is an agent for this purpose or is himself a buyer depends upon whether the parties agree that his duty is to act primarily for the benefit of the one delivering the goods to him or is to act primarily for his own benefit. (Rest.2d Agency, 14J; see 2 Cal.Jur.3d (1997) Agency, 5.)

After noting this law, the trial court considered eight factors relevant to determining whether a company that receives goods for resale is an agent or buyer of the manufacturer. The eight factors were whether the company: (1) obtains legal title and possession of the goods; (2) deals with the purchaser of the goods in its own name and does not disclose that the goods are those of another; (3) bears the risk of accident or casualty to the goods; (4) can fix the price at which it sells the goods without accounting to the manufacturer for the difference between what it obtains and the price it pays; (5) has the right to purchase goods of another manufacturer; (6) must pay for the goods regardless of whether it can resell them; (7) receives a commission for its services in reselling the goods; and (8) is obligated to complete preparation or manufacture of the goods. After considering the evidence in light of these factors, the trial court came to the conclusion the relationship between Mao Shun and Sunrise Trading was one of agency. According to the trial court, the essential facts of the parties relationship demonstrate that [Sunrise Tradings] duty was primarily to act for the benefit of Mao Shun, not itself, in its transactions with Garlock. (Capitalization omitted.)

The existence of an agency relationship is a factual question for the trier of fact whose determination must be affirmed on appeal if supported by substantial evidence. (Violette v. Shoup (1993) 16 Cal.App.4th 611, 619; Inglewood Teachers Assn. v. Public Employment Relations Bd. (1991) 227 Cal.App.3d 767, 780; Wickham v. Southland Corp., supra, 168 Cal.App.3d at p. 55.) Only when the essential facts are not in conflict will an agency determination be made as a matter of law. (Wickham v. Southland Corp., supra, at p. 55; see Violette v. Shoup, supra, at p. 619.)

Mao Shun contends the trial court incorrectly applied the law to the facts in concluding Sunrise Trading was entitled to indemnity because it was Mao Shuns agent. Mao Shun claims the trial court gave undue weight to conduct that occurred prior to the 1986 modifications to the 1981 agreement. Mao Shun then re-analyzes the eight factors considered by the trial court in the light of evidence favorable to it and argues the factors mandate a finding there was no agency relationship between Mao Shun and Sunrise Trading.^[1]

Mao Shuns argument ignores the well-settled rules regarding appellate review for sufficiency of the evidence, which we have already summarized. Mao Shuns complaint that the trial court gave undue weight to some of the evidence asks this court to reweigh the evidence, which we may not do. (Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 465.) Even more fundamentally, it is Mao Shuns burden as appellant to set forth all of the material evidence, not merely the evidence favorable to it, and to show how the evidence is insufficient to support the challenged finding. (Foreman & Clark, supra, 3 Cal.3d at p. 881; Baxter Healthcare Corp. v. Denton, supra, 120 Cal.App.4th at p. 368.) This is not what Mao Shun has done. Mao Shun has, therefore, forfeited its sufficiency of the evidence challenge to the trial courts agency finding. (Foreman & Clark, supra, at p. 881; Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc., supra, 102 Cal.App.4th at p. 782.)

Mao Shuns argument is also meritless. Our summary of the evidence amply demonstrates substantial evidence to support the trial courts finding of agency. There was considerable evidence the parties agreed to an express agency relationship in 1981 that was not changed by the amendments in 1986, which were made to accommodate Garlocks interest in having Mao Shuns product shipped by a less expensive method. A consideration of the evidence, in the light most favorable to the judgment as required on appeal, establishes Sunrise Tradings duty was to act primarily for the benefit of Mao Shun, rather than itself, in its transactions with Garlock. (Rest.2d Agency, 14J.)

TO BE CONTINUED AS PART V..

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^[1]We note Mao Shun misstates the evidence it relies upon regarding factors 5 and 6. As to factor 5, the evidence does not establish Sunrise Trading had the right to purchase the goods of other manufacturers, only that it could sell the goods of Mao Shun to other customers. As to factor 6, the evidence does not establish Sunrise Trading had to pay for the oil seals it bought from Mao Shun regardless whether it sold them. Mao and Thibideau actually testified Sunrise Trading would make payment to Mao Shun only upon receipt of payment from Garlock. Such misstatements of the evidence are unfair to both the opposing parties and this court as it takes time and resources to check and correct the misstatements.