366 N.E.2d 3 (Ind.App. 1 Dist. 1977), 1-1075A191, Thompson Farms, Inc. v. Corno Feed Products, Division of Nat. Oats Co., Inc.

Docket Nº:1-1075A191.
Citation:366 N.E.2d 3, 173 Ind.App. 682
Party Name:UCC Rep.Serv. 526 THOMPSON FARMS, INC., Appellant Defendant-Counterplaintiff, v. CORNO FEED PRODUCTS, DIVISION OF NATIONAL OATS CO., INC., Appellee Plaintiff-Counterdefendant.
Case Date:August 03, 1977
Court:Court of Appeals of Indiana

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366 N.E.2d 3 (Ind.App. 1 Dist. 1977)

173 Ind.App. 682

UCC Rep.Serv. 526

THOMPSON FARMS, INC., Appellant Defendant-Counterplaintiff,



Appellee Plaintiff-Counterdefendant.

No. 1-1075A191.

Court of Appeals of Indiana, First District.

August 3, 1977

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[Copyrighted Material Omitted]

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[173 Ind.App. 683] Robert V. Kixmiller, Shake, Lewis, Kixmiller & Strum, Vincennes, Harlan Heller, Mattoon, Ill., Ray Fehrenbacher, Fehrenbacher & Fleming, Olney, Ill., for appellant.

[173 Ind.App. 684] Robert P. Doolittle, Emison, Emison & Doolittle, Vincennes, for appellee.

ROBERTSON, Chief Judge.


Corno Feed Products, a Division of National Oats, Inc. (Corno), filed a complaint on installment sale and security agreements in an action naming Thompson Farms, Inc. (Thompson Farms) defendant. Thompson Farms counterclaimed under the contract theories of breach of express warranties, and breach of implied warranties of merchantability and fitness for a particular purpose, and the tort theories of negligent design and strict liability in tort. Thompson Farms contends on appeal that the negative decision of the trial court on its counterclaims and affirmative defenses was contrary to law.

We reverse and remand.

The facts which are uncontradicted, except where indicated, are as follows. Corno was originally incorporated in 1964, and at the time of the trial was doing business in Missouri, Illinois, Kentucky, Indiana and Arkansas selling livestock and poultry feed. In 1968 and 1969, Corno formulated the Corno Full Circle Hog Marketing Plan, (the Plan) and for about one year tested the feeder pig operation under the Plan. On June 16, 1969, Bill Lannan was hired by Corno as territory manager or field representative for Indiana, northwest Kentucky and southern Illinois. During his one week orientation at Corno's home office in St. Louis, Lannan was told by Bud McCormick, the Corno sales manager, that the Plan described in the sales brochure and blueprints would be his most influential sales tool for the promotion of sales of Corno feeds and the solicitation of dealerships.

The Plan was conceived as a promotional device, which would offer the prospective dealer or producer a program that no other feed company had.

[173 Ind.App. 685] The Plan as described in the Corno brochure consists of 1) a blueprint for a slatted

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floor hog house ("Corno's Low-Cost Pork Finishing Unit") built over a lagoon, and financing for its purchase and erection, 2) Corno's Complete Feed Program for the hogs and feed financing, and 3) a Pork Production Contract for feeder pig financing in cooperation with a packing company, including assistance for marketing the fattened hogs. The producer who elects financing for his purchase of the hog house is bound under the loan agreement to purchase his requirements of feed from Corno for the duration of the loan agreement. A customer could use any combination of the Plan's components. For example, Corno would finance hogs and feed if the farmer used a different hog house.

In early August, 1969, Lannan contacted Wayne Thompson, manager of Triple T Grain and Fertilizer, Inc. (Triple T), in Vincennes, Indiana, about a Corno dealership. Shortly thereafter, Lannan, Thompson, Bud McCormick and Basil Bonner, an employee of Triple T, met in Vincennes for two days of discussions concerning the dealership, the cost of the hog houses, the design, the amount Corno would finance, the profitability of the endeavor for the dealer and hog producer, and other topics about the Plan which Corno was asking Triple T to promote. Wayne Thompson was familiar with other designs and had to be convinced about the merits of Corno's design. Also during those meetings, McCormick telephoned and obtained prices from material suppliers. A dealership agreement was consummated. At Wayne Thompson's suggestion Triple T was to undertake to furnish the hog houses according to the Plan and blueprint provided by Corno. McCormick arranged for and paid for advertising which described a "Corno Low-Cost Pork Finishing Unit", in Triple T's territory.

Bill Lannan presented the brochure, Plan, and hog house blueprint to Wayne Thompson, his brother Ron Thompson, and their father, Charles Thompson. As directors of Thompson Farms, Inc., they agreed to build and have financed two hog houses. At that time Thompson Farms was not in the hog [173 Ind.App. 686] production business. Because costs of the building became higher than originally estimated, Wayne Thompson requested higher financing per head; the approval came from McCormick's superior, Mr. Matthews, president of Corno Feed Products. Triple T hired the carpenter crew and, with McCormick's help in locating suppliers, purchased the materials. Lannan inspected the structure and sent weekly reports to the Corno home office. Whenever engineering problems arose, Wayne Thompson, or Billy Wells, the Triple T employee overseeing erection of the units, called McCormick for instructions to proceed. Wayne Thompson made trips to Loogootee and Knox County, Indiana, and to Missouri to observe operating Corno hog houses.

The units were finished the last week in October 1969, and on October 31, about 1,000 pigs weighing from 35 to 45 pounds, were purchased and placed inside the units.

On November 1, 1969, Corno entered a loan commitment agreement, for a fee of $247.45, on each house.

Upon McCormick's request, Billy Wells submitted two letters containing a list of his final material requirements and the blueprint containing some approved changes. Corno's sales manager, Bud McCormick, initialed the plans so that the Corno credit department could proceed with the financing. Corno would only finance its hog house, so the plans and specifications of Thompson's hog houses had to be approved by the sales department as a Corno Low-Cost Pork Finishing Unit after it was completed. Before financing approval, Corno also required a financing statement and that the customer pay a down payment. Thompson Farms' down payment on each house, $2,981.42, was paid on December 1, 1969. The down payment was recorded as paid on Triple T's invoices, and the record was sent to Corno.

On December 2, 1969, Corno and Thompson Farms entered into what was labelled an "Installment Sale and Security Agreement" for a loan of $10,997.76 for the purchase price [173 Ind.App. 687] of the first hog house. The loan provided a security interest to Corno in that hog house. Corno's check was made the

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same day to the order of "Thompson Farms, Inc. and Triple T Grain and Fertilizer, Inc." On December 11, 1969, a similar "Installment Sale and Security Agreement" was entered into between the same parties for the same amount, on the second hog house, and the next day a check was made to the order of the same two parties. Neither Triple T nor Corno made a profit on the sale of the houses, the loan merely covered the actual cost after the units were finished.

At delivery the health of the pigs was described as very good, but within a week after the pigs were put in the houses, signs of stress appeared. Within two weeks after their arrival, Wayne Thompson contacted Lannan and McCormick, to complain that the hogs showed signs of bloody dysentery, thumping, pneumonia, coughing, tail and ear biting, and that their weights had become uneven. A veterinarian was called, medication was ordered, and more medicated feeds were purchased from Corno, but the hogs did not improve. In early February, 1970, the veterinarian performed autopsies on several pigs weighing approximately 150 pounds, and found that they died of swine dysentery and pneumonia.

On February 3, 1970, Wayne Thompson went with Lannan to St. Louis to meet with McCormick and Matthews. Thompson reiterated the problems with the units: a continuous and strong draft flowed up through the slatted floors, water vapor condensed on the uninsulated metal roof and dripped on the hogs causing them to be continuously cold and wet, the lagoon froze, the water pipes froze and broke, a strong ammonia smell filled the units, plywood put down to cover part of the floor to block some drafts was eaten by the pigs and manure piled up on the plywood, from two or three up to ten pigs died a day, and labor on the units consumed twelve to twenty man-hours a day instead of the hour recommended by Corno. Thompson had studied possible solutions, and at the meeting, he presented corrective suggestions and requested further financing. [173 Ind.App. 688] Corno reluctantly approved financing for poultry curtains to close the open side of the houses, insulation for the waterlines and the roof, windbreakers between the pens to stop drafts, louvers on the back windows, and for boxing in the sides down to the water level of the lagoon. Loans were approved for $1,500 for each house, and made payable to Triple T and Thompson Farms as were the earlier loans.

The hogs that lived from the initial batch were sold during March and April 1970. That summer another batch of approximately 1,000 hogs was introduced. The death loss from pneumonia and dysentery in these two batches of approximately 2,000 hogs was twenty-five percent.

Corno's low-cost Pork Units had been promoted for year-round use. Feeder pigs introduced at thirty-five to forty-five pounds could be finished to market weight of 200 to 220 pounds, each on 520 to 540 pounds of Corno pellet feed, which was represented to be a good feed conversion rate. At the then market value, a profit of $18 per head was predicted from which the producer would pay back to Corno on its loan, $2.00 per head or $5.00 per head per year. The discussion of costs and profit was always part of the sales pitch. Paul Herrington, another Corno sales...

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