Procedural Posture

Appellant company disputed a ruling of the Superior Court of Kern County (California) that denied its attempt to recoup from respondent Superintendent of Banks an advance payment it had made to a defunct assignee bank for oil, which was never delivered to appellant by assignor oil company. Appellant argued that its contract with the oil company was entire and its right to recoup was not equitably estopped.

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Overview

Appellant company made an advance payment to assignee bank, since defunct, for oil to be delivered in the future by assignor oil company. Next, the oil company told appellant that the oil could not be delivered. A trial court rendered judgment against appellant in its action for recoupment of its payment from respondent Superintendent of Banks. On appeal, the court held that the terms of the contract between appellant and the oil company and the circumstances of the contract’s execution made it plain that the intention of the parties was to treat the contract as a whole, and that the advance payment was made and accepted accordingly. When the oil company completely breached the contract, which occurred after appellant had notice of the assignment, appellant could recoup from respondent the payments it had made to the bank. Because appellant was ignorant of the dealings between the bank and the oil company, and appellant did not assume the burden of informing the bank of its dealings with the oil company, and the bank itself did not make proper inquiries, appellant was not estopped from exercising the right of recoupment. The court reversed.

Outcome

The court reversed because appellant was ignorant of the bank’s dealings with the oil company, and the bank was ignorant of appellant’s dealings with it, appellant was not estopped from exercising its right of recoupment. Based on the intent of the parties, the court held that appellant company’s contract with the oil company was entire. The oil company’s breach of the contract occurred after appellant had notice of the assignment.

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