Smith v. Babcock Poultry Farms, Inc.

• Decision Date: 08 January 1973
• Docket Number: 72-1289.,No. 72-1288,72-1288
• Citation: 469 F.2d 456
• Parties: Harry I. SMITH, d/b/a Harry Smith Enterprises, Appellee, Cross-Appellant, v. BABCOCK POULTRY FARMS, INC., Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

469 F.2d 456 (1972)

Harry I. SMITH, d/b/a Harry Smith Enterprises, Appellee, Cross-Appellant, v. BABCOCK POULTRY FARMS, INC., Appellant, Cross-Appellee.

Nos. 72-1288, 72-1289.

United States Court of Appeals, Tenth Circuit.

November 14, 1972.

Rehearing Denied January 8, 1973.

Harold A. Hintze, of Strong, Poelman & Fox, Salt Lake City, Utah, for appellant, cross-appellee.

W. Brent Wilcox, of Moyle & Draper, Salt Lake City, Utah, for appellee, cross-appellant.

Before MURRAH, SETH and DOYLE, Circuit Judges.

SETH, Circuit Judge.

Harry Smith entered into a three year franchise agreement with appellant, Babcock Poultry Farms, Inc. (Babcock), wherein he agreed to purchase from Babcock a stated number of breeding chickens each of the three years. Babcock had developed a new type of breeding chicken, called the B-300, and was anxious to establish a market for them in the Utah area where Smith resided and conducted business. These breeders produce hatching quality eggs from which chicks are hatched and sold to others in the business, or the eggs could be sold to others to enable them to hatch their own chicks. The eggs that are not considered to be of hatching quality are sold at somewhat lesser prices as consumer eggs to commercial outlets.

The first and second years of the agreement Smith purchased breeders in sufficient numbers to comply with his agreement. Also, during the second year, acting on the representations made by Babcock's national franchise manager that all hatching quality eggs that Smith could produce would be purchased by other franchisees of Babcock at sixty cents a dozen, Smith ordered and received an additional 10,000 B-300 breeders. He was unable to pay for them when payment was due and later executed a non-interest bearing promissory note for their purchase price on November 27, 1967. Smith grew these additional 10,000 breeders into production, but Babcock did not arrange the purchase of all the hatching quality eggs by its other franchisees, as it had agreed it would do. Because of this failure, Smith was forced to sell hatching quality eggs as consumer eggs for an average price of twenty cents a dozen, and was unable to pay the promissory note when it became due. Smith mailed letters to Babcock complaining that it had breached its representations and warranties.

After discussions of the representations and the note with Babcock's officers, an egg assignment was entered into on April 5, 1968. This assignment provided that Babcock was to be paid on the remaining balance of the promissory note one-half of the proceeds from all hatching quality eggs sold to its other franchisees by Smith. In the event that sales of hatching quality eggs to other franchisees did not produce the necessary money to pay off the note under this arrangement, Babcock was to absorb any loss. The note was paid in full by August 1968.

Beginning about November 1, 1967, and at various times thereafter, Babcock's officers discussed with Mr. Al Rigtrup, of Spanish Fork, Utah, a former Babcock franchisee, the possibility of him becoming Babcock's franchisee in Utah. On January 27, 1968, a three year franchise agreement between Rigtrup and Babcock was signed. Babcock gave no notice of this arrangement to Smith, nor did it notify him that his franchise had been cancelled. It appears that Smith became aware of this situation sometime in July 1968.

Smith requested that Babcock sell him 5,000 B-300 breeders for the third year of the franchise in accordance with its terms, but Babcock refused to do so. The testimony was that year that these breeders would have been in production was one of the best ever for the business due to high prices for market eggs and a high demand for day-old chicks and for hatching eggs.

Smith brought this suit against Babcock alleging breach of the franchise agreement and breach of oral warranty. Babcock counterclaimed for breach of franchise agreement. The trial court, sitting without a jury, found that the egg assignment constituted an accord and satisfaction of the breach of oral warranty claim, but found a breach of the franchise agreement by the defendant Babcock. It entered judgment in favor of Smith in the amount of $22,387.00 together with interest and costs. From that judgment Babcock appeals and Smith cross-appeals.

Appellant Babcock presents two points of error in this appeal; first, that there was no substantial evidence to support the trial court's finding that appellant breached its franchise agreement with Smith, and secondly, that the damages awarded by the trial court for loss of profits were based on speculation and conjecture.

Smith on cross-appeal urges error in the trial court's finding that the egg assignment constituted an accord and satisfaction with respect to his claims arising from appellant's breach of oral warranty that the hatching quality eggs from the additional 10,000 breeders would be purchased by other franchisees of appellant.

As to appellant's first contention, we hold that the trial court's finding was not clearly erroneous and that there was substantial evidence from which the court could have concluded that appellant breached its franchise agreement with Smith. Cherokee Laboratories, Inc. v. Pierson, 415 F.2d 85 (10th Cir.); Cosby v. Shackelford, 408 F.2d 1144 (10th Cir.); Glenns Falls Insurance Co. v. Newton Lumber & Mfg. Co., 388 F.2d 66 (10th Cir.).

Appellant's officers testified that Smith's area for purposes of distribution was Utah and Idaho, that there was room in Utah for only one franchisee, and that as...