Riegel Fiber Corp. v. Anderson Gin Co.

• Decision Date: 09 May 1975
• Docket Number: 74-2121,Nos. 74-2120,s. 74-2120
• Citation: 512 F.2d 784
• Parties: 16 UCC Rep.Serv. 1207 REIGEL FIBER CORPORATION, Plaintiff-Appellant, v. ANDERSON GIN COMPANY et al., Defendants-Appellees. REIBEL FIBER CORPORATION, Plaintiff-Appellant, v. ELLIS BROTHERS et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 784

512 F.2d 784

16 UCC Rep.Serv. 1207

REIGEL FIBER CORPORATION, Plaintiff-Appellant, v. ANDERSON GIN COMPANY et al., Defendants-Appellees.

REIBEL FIBER CORPORATION, Plaintiff-Appellant, v. ELLIS BROTHERS et al., Defendants-Appellees.

Nos. 74-2120, 74-2121.

United States Court of Appeals Fifth Circuit.

May 9, 1975.

Bennett L. Kight, Charles A. Shanor, Atlanta, Ga., for plaintiff-appellant.

Neal P. Gillen, Walter H. E. Jaeger, Washington, D. C., for American Cotton Shippers Ass'n, amicus curiae.

Arthur Burns, James F. Hinton, Gadsden, Ala., for Baker Bros. and others.

Jack W. Torbert, Gadsden, Ala., for Coley defendants.

Hugh Reed, Jr., Centre, Ala., Frank M. Bainridge, Birmingham, Ala., for Anderson and Ellis.

Herbert D. Jones, Jr., Anniston, Ala., for Sharp and others.

William J. Baxley, Atty. Gen., Myron H. Thompson, Asst. Atty. Gen., Montgomery, Ala., for State of Ala., amicus curiae.

Appeals from the United States District Court for the Northern District of Alabama.

Before THORNBERRY, CLARK and ROSENN, ^* Circuit Judges.

THORNBERRY, Circuit Judge:

This appeal comes from a judgment entered pursuant to an order of the district court, sitting without a jury, granting appellees' motion for involuntary dismissal of appellant's case. The questions presented are, first, did the court correctly hold that certain contracts on which appellant brought suit failed to satisfy the Alabama statute of frauds, and second, did the court err in holding that appellant's failure to qualify to do business in Alabama could not, consistently with the Commerce Clause of the United States Constitution, bar enforcement of its contracts. We answer no to both questions and accordingly reverse and remand.

I.

In late March 1973 Riegel Fiber Company, whose headquarters are in Trion Georgia, entered into certain "forward" contracts for the sale of cotton with the Alabama ginner-defendants, Ellis Brothers and Anderson Gin Company. ¹ After negotiations the parties agreed on a price of $.32 a pound. Contract cotton was to come from two sources. The owners of the ginning companies grow cotton as well as gin it, and they agreed to sell Riegel a portion of their own contemplated ² production. To provide the major portion of the cotton called for by the contracts, however, the ginners had earlier entered into separate contracts with a number of individual Alabama cotton farmers, who promised to sell portions of their cotton production to Ellis and Anderson-also at $.32 a pound. These contracts were executed on forms provided to the ginners by Riegel, ³ and it is undisputed that all the farmers knew that Riegel would be the ultimate buyer of their cotton. The commercial rationale for this sale and resale arrangement is not entirely clear, but nothing in the record contradicts Riegel's explanation that it allowed the company to take advantage of the ginners' familiarity with local farmers.

During the spring and summer of 1973 the price of cotton rose dramatically. By October 1973 the parties stipulated that the market price of the type of cotton called for by the contracts had reached $.81 a pound. As the Supreme Court has rather mildly put it, "This situation may generate a strong economic incentive for ... (the farmer) to breach his contract and sell the cotton elsewhere." Allenberg Cotton Co., Inc. v. Pittman, supra, 419 U.S. at 26 n.8, 95 S.Ct. at 264 n.8, 42 L.Ed.2d at 202 n.8. When Riegel's president first became aware of rumblings among the farmers, he went to Alabama and told them that Riegel intended to enforce its contracts. Learning later, however, that this warning had fallen on less than receptive ears, Riegel brought suit against both Ellis and Anderson seeking to have the contracts declared valid and asking that they be specifically enforced. ⁴ These suits names as additional defendants the individual farmers whose production Anderson and Ellis had agreed to purchase and then re-sell to Riegel.

Upon appellant's request, the district court entered a preliminary injunction directing the defendants to deliver to Riegel all cotton provided for by the contracts, conditioned upon Riegel's posting a $1,725,000 bond to secure payment of costs, damages, and attorney's fee in the event that the contracts were held invalid. Both sides concede that this injunction has been fully complied with. After the normal pretrial maneuvering by the parties, the trial judge ordered a separate trial, pursuant to Fed.R.Civ.P. 42(b), on the issue of whether Riegel's failure to qualify to do business in Alabama barred it from suing on its contracts. At the conclusion of the hearing on that question the judge found that Supreme Court cases interpreting the Commerce Clause required him to hold that the Alabama qualification statutes could not be applied to Riegel on the facts presented. Subsequently, following a pretrial conference, the district court entered an order setting the following issues for separate trial:

(a) whether the plaintiff is entitled to specific enforcement of the master contracts to the extent of the cotton produced by the ginner defendants (or voluntarily furnished to the ginner defendants by other farmers), this issue to include questions as to due execution of the master contracts, the enforceability thereof under Ala. UCC § 2-201 (formal requirements; statute of frauds) and § 2-302 (unconscionability, and the remedy of specific performance) including general principles of equity and problems of identification under Ala. UCC § 2-716.

(b) whether the individual contracts (assuming their validity otherwise) are enforceable under Ala. UCC § 2-201 and 2-302.

(c) whether the plaintiff has standing to enforce the individual contracts (if otherwise valid and enforceable), either under a theory of assignment, of third party beneficiary, or of being a party to the contract as a disclosed principal.

App. at 123-24. Trial began on December 26, 1973, and the next day the trial judge granted the defendants' motion for involuntary dismissal at the close of plaintiff's evidence pursuant to Fed.R.Civ.P. 41(b) ("on the ground that upon the facts and the law the plaintiff has shown no right to relief"). Stating his conclusions orally from the bench, the district judge held (1) that the Riegel-ginner contracts (the "master" contracts) did not contain a quantity term sufficient to satisfy the Alabama statute of frauds; (2) that integration clauses in the master contracts prohibited the court from looking at extrinsic evidence to aid in interpreting the contracts so as to render them valid and enforceable; and (3) that Riegel had no standing to enforce the contracts between the ginners and the farmers (the "individual" contracts). Appellant argues, and we agree, that each of these holdings is incorrect.

II.

For the sake of clarity we will first consider Riegel's status with regard to the "individual" contracts. The district court rejected all three theories put forward by Riegel to establish its interest in those contracts: assignment, third party beneficiary, and enforceable "special property interest" as granted by U.C.C. § 2-501(1) and § 2-722(a). Because we think the evidence conclusively supports appellant's right to enforce the individual contracts as a third party beneficiary, we do not pause to consider the merits of Riegel's other theories.

(1-3) In United States Pipe v. Foundry Co. v. United States Fidelity and Guaranty Co., 5th Cir. 1974, 505 F.2d 88, 90 we noted that

Under Alabama law ... for a contract to be considered made for the benefit of a third person "the contract must have been intended for the direct benefit of the third person, as distinguished from a mere incidental benefit to him." Anderson v. Howard Hall Co., 278 Ala. 491, 493, 179 So.2d 71, 73 (1965).

Moreover, once it is established that a party is a third party beneficiary, he is fully entitled to enforce the promise made for his benefit. Anderson v. Howard Hall Co., supra, 179 So.2d at 72. The district court disposed of Riegel's third party beneficiary argument with the following reasoning:

There is no basis for concluding that the plaintiff was a third party beneficiary of the individual contracts. They provide that the individual farmers were to sell to the ginner defendants with ultimate delivery at Trion in Georgia to Riegel Fiber Corporation, but by other terms of the same agreement it is made clear that that was to be a sale and a delivery to the ginner defendants. There is nothing that indicates in the contract that the ginner defendants would not have been free so far as the individual contracts with the farmers are concerned to have sold to some other manufacturer other than Reigel.

App. at 217 (emphasis added). The language that we have emphasized discloses the source of the lower court's error. In Alabama, courts are not limited to the face of the writing when deciding whether the parties intended directly to benefit a third party; they may also hear evidence on the circumstances surrounding the making of the contract. Anderson v. Howard Hall Co., supra, 179 So.2d at 75; Mutual Benefit Health & Acc. Ass'n of Omaha v. Bullard, 270 Ala. 558, 567, 120 So.2d 714, 723 (1960). Whatever information may or may not be derivable from the face of the individual contracts here, the pleadings and the evidence concerning the circumstances of the execution of these contracts leave no possible doubt that in substance Riegel was making a direct purchase from the farmers, with the ginners acting only as a form of accommodation party. ⁵ Accordingly, we hold that appellant is entitled to enforce the individual contracts as a third party beneficiary thereof. The question remains, however, whether this right is of any value, since the district judge held that the master contracts failed to satisify the Alabama statute of frauds and strongly implied that if necessary he would have reached the same conclusion concerning the individual contracts.

Our...