Land O'Lakes Creameries, Inc. v. Commodity Credit Corp.

• Decision Date: 20 June 1962
• Docket Number: No. 16855.,16855.
• Citation: 308 F.2d 604
• Parties: LAND O'LAKES CREAMERIES, INC., Appellant, v. COMMODITY CREDIT CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

308 F.2d 604 (1962)

LAND O'LAKES CREAMERIES, INC., Appellant, v. COMMODITY CREDIT CORPORATION, Appellee.

No. 16855.

United States Court of Appeals Eighth Circuit.

May 31, 1962.

Rehearing Denied June 20, 1962.

COPYRIGHT MATERIAL OMITTED

Harold Jordan, of Doherty, Rumble & Butler, St. Paul, Minn., made argument for appellant and was on brief.

John J. Connelly, Asst. U. S. Atty., Minneapolis, Minn., made argument for appellee, and Miles W. Lord, U. S. Atty., Minneapolis, Minn., Howard B. Pickard and John H. Shouse, Attys., U. S. Dept. of Agriculture, Washington, D. C., were on the brief.

Before VOGEL, BLACKMUN and RIDGE, Circuit Judges.

RIDGE, Circuit Judge.

This appeal is from a judgment in favor of Commodity Credit Corporation (CCC) on a counterclaim asserted by way of set-off, to a claim by Land O' Lakes Creameries, Inc. (L.O.L.). The liability of CCC to L.O.L. is not in dispute. The complex facts giving rise to CCC's counterclaim are meticulously and fairly set forth in the opinion of District Judge Devitt, reported at D.C., 185 F.Supp. 412. Since appellant's assignments of error on appeal are tantamount to legal issues considered and ruled by Judge Devitt and ready reference may be had to his opinion, it would serve no useful purpose for us to repeat or paraphrase his statement of the facts. Hence we shall only advert to those facts which will give some conception of the premise of appellant's assignments of error.

In the years 1953 and 1955, L.O.L. sold to CCC, under formal written requirement contracts numerous carlots of dried milk for human consumption. We are concerned only with those carlots delivered to CCC at appellant's Dresser, Wisconsin and Lake Crystal, Minnesota plants. Each contract entered into by the parties concerning those shipments contained a standard disputes clause reading as follows:

"Any dispute concerning questions of fact which may arise under the Contract and which is not disposed of by mutual agreement, shall be decided by the officer executing the Contract in behalf of the Agency or by a designee of the Agency who shall reduce his decision to writing and mail a copy to Contractor. Within 30 days from said writing Contractor may appeal to the head of Agency, whose decision or that of his designated representative shall be final and conclusive upon the parties. Pending decision of such dispute the Contractor shall diligently proceed with the performance of the Contract."

A dispute arose between CCC and L.O.L. as to insect infestation at time of delivery of some of the involved carlots. The dispute was ultimately determined by the Contract Disputes Board of CCC whose function and jurisdiction are set forth in Section 400.1 to 400.5, Title 6, C.F.R. (1956).

Initially, CCC through its Contracting Officer claimed thirteen (13) carlots of dried milk delivered from appellant's Lake Crystal plant and seven (7) carlots delivered from its Dresser plant were insect-infested. On appeal the Contract Disputes Board only sustained CCC's claim of insect infestation and rescission of contract for breach of warranty as to eleven (11) of the Lake Crystal and three (3) of the Dresser plant carlots. As to the remaining carlots, the Board found that as to some such, "notice of rescission was not timely given" and as to others, that insect infestation was not established at time of delivery. As to the fourteen (14) carlots found to be insect-infested, the Contract Disputes Board made the following findings:

"a. There was an implied warranty that the milk powder (including the liners and containers in which packaged) was reasonably fit for the purpose for which intended, namely, human food "b. The same insect was found in the carlots of milk powder and at the manufacturing plant at Lake Crystal, Minnesota. The same insect was found in numerous cars of milk powder originating from the manufacturing plant at Dresser, Wisconsin, and stored in several different warehouses at different locations.

"c. The petitioner delivered to CCC milk powder which, at the time of such delivery, was insect infested or which was contained in liners or containers which were insect infested. Such delivery constituted a breach of warranty on the part of petitioner.

"d. CCC notified the petitioner within a reasonable time of its election to rescind the sale because of the breach of warranty on the part of the petitioners."

Subsequent to the above events and during the month of September, 1958, L.O.L. sold CCC other carlots of nonfat dry milk for a total price of $31,629.30. When time of payment for that milk accrued, CCC only paid L.O.L. $1,057.43, and offset as a payment of the balance the sum of $30,843.57.¹ As a consequence of that set-off L.O.L. instituted the instant action against CCC to recover the amount so withheld.

In its statement of claim filed in the District Court L.O.L. alleged, among other things, that the basis of CCC's claimed offset was the decision rendered by the Contract Disputes Board of August 29, 1958. In respect to that matter, L.O.L. alleged, "(t)he decision of said Contract Disputes Board * * * was not supported by substantial evidence"; that the facts considered by the Contract Disputes Board did not legally establish an "implied warranty arose from (the) sales as regards insect infestation because the product was sold on CCC's own grading certificates"; that the notice of rescission sent by CCC regarding the Dresser plant transaction "failed to include an offer to return the goods to the place of delivery and, therefore, such notice did not constitute a rescission of those contracts of sale as a matter of law." As to the Lake Crystal transaction, L.O.L. alleged that CCC sold the product before it had decided that there was a breach of warranty and claimed that as a matter of law there could not be any valid rescission as to those contracts of sale. As to both transactions L.O.L. asserted that CCC's "only remedy (was) to recover damages measured by its loss directly resulting from breach of alleged implied warranty," and not for rescission; that because the Contract Disputes Board's decision was premised in a finding of "rescission" the District Court was limited in its consideration of the Agency's action in this case to the decision as it was made and since the decision of the Board could not be sustained on that theory CCC's offset claim could not be sustained.

By its answer and counterclaim CCC joined issue as to each allegation so made by L.O.L. and premised its offset claim on the decision of the Contract Disputes Board. Hence it appears that both parties here proffered and used the record and decision of the Contract Disputes Board as the premise of their respective claims. As Judge Devitt said: "The issue (as joined by the parties, was) whether to uphold the decision of the Board and thus to allow the defendant's (appellee's) setoff." In respect to that issue he determined "there is substantial evidence (in the record) to support the Board's findings"; that the decision of the Board was "final and conclusive"; that it was not "fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith" within the ambit of Section 321, Title 41 U.S.C.A.

In addition to his published opinion, Judge Devitt also filed formal findings of fact and conclusions of law. Appellant's assignments of error in this Court are solely directed to three of the conclusions of law so entered. We shall first consider appellant's assignment that the District Court erred in its Conclusion of Law No. 1, whereby it ruled that there was an implied warranty with regard to the sale of the Dresser carlots. The gist of appellant's contention is that the Dresser carlot sales were not made because of any reliance by CCC on L.O.L.'s skill and judgment as to the fitness of such milk for human consumption within Section 15(1) of the Uniform Sales Act, nor was it one made by way of "description" within Section 15(2) of that Act. The premise therefor as laid by L.O.L. is that the milk in those carlots was inspected by the Department of Agriculture and no insect infestation was found; that both CCC and L.O.L. were aware of the problem of insect infestation at that time; that after such inspection that quantity of milk was set aside and identified for sale to CCC before any contract of sale was ever made. Consequently, L.O.L. says that such "was not a sale by description but a sale of specific goods" as to which no implied warranty existed under Section 15(1) of the Uniform Sales Act, and the District Court erred in ruling otherwise. This contention is premised on an inference made by appellant that evidence adduced before the Contract Disputes Board revealed that there was no practical means of detecting insect infestation at a larvae state in the dried milk in question at time of sale and delivery and as a consequence there could be no reliance by CCC as to the "fitness" of the Dresser milk for human consumption. In support thereof appellant mainly relies on our opinion in Maryland Casualty Company v. Independent Metal Products Company, 203 F.2d 838 (8 Cir. 1953). We summarily reject this contention for it grows out of a misconception of the ruling made in that case. There, the buyer "designated, directed, supervised and inspected" the manufacture of the goods sold and there was specific evidence adduced that the purchaser did not rely upon the skill or judgment of the manufacturer. Here, the Contract Disputes Board found that the initial inspection made by the Department of Agriculture before delivery of the milk "was not made for the purpose of detecting the presence of insect infestation — and the method employed" in that inspection was incapable of detecting the presence of insect infestation. Appellant's argument presupposes that the only method of producing dried milk, insect-free, is by inspection of the product after manufacture. There was no evidence in this case that "no one knew...