Does A Party To A Contract Owe A Duty To Disclose An Intention Not To Renew?

Allen Matkins
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Allen Matkins

Huy Fong Foods, Inc. makes Sriracha pepper sauce and for nearly three decades Underwood Ranches, L.P. supplied the peppers for Huy Fong's sauce.  Although the parties operated under written agreements for the first decade of their relationship, they eventually dealt with each other pursuant to oral agreements.  As Huy Fong's business grew, so did its need for peppers.  According to Underwood, Huy Fong induced it to acquire more and more land by continually promising that Huy Fong would purchase all the peppers Underwood produced.   When Huy Fong eventually ended the relationship, Underwood suffered significant losses.

With no written contract, some might suppose that Underwood was simply out of luck and should have adhered to the old adage "Get it writing".   However, Underwood's theory was that Huy Fong understood that Huy Fong was inducing Underwood to commit itself into the future, while at the same time concealing Huy Fong's plan to terminate the relationship.   The jury awarded Underwood $13.32 million in compensatory damages and $10 million in punitive damages on its breach of contract and fraud claims against Huy Fong.  Yesterday, the Court of Appeal affirmed that judgment in favor of Underwood.  Huy Fong Foods v. Underwood Ranches, 2021 Cal. App. LEXIS 604.

The above brief description leaves out many facts that may serve to distinguish this case from other cases of non-renewal.  However, the Court of Appeal makes clear that the evidence supported findings of both fraudulent concealment and affirmative misrepresentation on the part of Huy Fong.  

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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