Agricultural Services Ass'n, Inc. v. Ferry-Morse Seed Co., Inc.
| Citation | 551 F.2d 1057 |
| Decision Date | 25 March 1977 |
| Docket Number | FERRY-MORSE,Nos. 75-2412 and 75-2413,s. 75-2412 and 75-2413 |
| Parties | 21 UCC Rep.Serv. 443 AGRICULTURAL SERVICES ASSOCIATION, INCORPORATED, Plaintiff-Appellee, v.SEED COMPANY, INCORPORATED, Defendant-Appellant, and Waldo Rohnert Company, Third-Party Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
John S. Porter, Charles O. McPherson, Burch, Porter & Johnson, Memphis, Tenn., for defendant-appellant in 75-2412.
Roy Hall, James D. Todd, Jackson, Tenn., James H. Kinnard, Lebanon, Tenn., for plaintiff-appellee in both cases.
Edward A. Kizer, Goff, Canale, Kizer & Cribbs, Memphis, Tenn., Spencer LeRoy, III, Chicago, Ill., for defendant-appellant in 75-2413.
Before WEICK, PECK and ENGEL, Circuit Judges.
The controversy in these appeals arose out of the sale of 25,000 pounds of Clemson Spineless Okra Seed (C/S) okra seed 1 in The District Court tried the case without a jury. In a Memorandum Opinion it adopted findings of fact and conclusions of law. It found a violation of The Federal Seed Act, 7 U.S.C. § 1551, et seq. by both W-R and F-M; that W-R breached its contract with F-M to deliver suitable and commercially acceptable and productive C/S variety okra seed; that F-M breached its contract with ASA to deliver suitable and commercially acceptable and productive C/S variety okra seed; that F-M breached and violated the provisions of T.C.A. §§ 43-1003 and 1007 with respect to mislabeling okra seed as C/S variety when in fact they were an "off brand" or another variety okra seed which F-M sold and distributed to ASA in five pound packages or containers in Tennessee; that F-M breached and violated the provisions of 7 U.S.C. §§ 1571(b) and (d) by mislabeling the okra seed which it sold and delivered to ASA in Tennessee by means of an interstate shipment, labeling the seed falsely as C/S variety when it was not, in fact, C/S variety; that W-R breached and violated the provisions of 7 U.S.C. §§ 1571(b) and (d) by mislabeling the okra seed which it sold and delivered to F-M for transport and/or delivery in an interstate shipment, labeling the seed falsely as C/S variety when it was not, in fact, C/S variety; that said mislabeling by both defendants violated California law; that both defendants breached an express warranty as well as an implied warranty of merchantability by mislabeling; that they were both negligent as a matter of law for violating the federal seeds statute and the seeds statutes of California and Tennessee, and both were negligent in failing to do sufficient and proper testing of the seed; that the violations of the statutes and the breaches of contract and warranty and the negligence of the defendants were the proximate cause of damages sustained by ASA.
September, 1967 by Ferry-Morse Seed Company, Inc. (F-M), a California corporation, to Agricultural Services Association, Inc. (ASA), a Tennessee cooperative. F-M had purchased the seed from Waldo Rohnert Company (W-R), a California corporation. Because the seed was not C/S okra seed but was defective seed and had been mislabeled, in violation of law, ASA filed a suit for damages against F-M and W-R. 2 F-M counterclaimed for indemnity against W-R
The Court entered judgment fixing liability of both F-M and W-R to ASA for those damages which may properly and proximately flow from the wrongs found to have been committed by them. It awarded judgment in favor of F-M against W-R for the purchase price of the seed plus freight charges which had been improperly and incorrectly labeled, and referred the case to its Magistrate as Special Master, to determine the amount of damages which ASA was entitled to recover. The parties then stipulated certain facts. The Magistrate conducted hearings and filed his report assessing damages, to which F-M and W-R filed exceptions.
The Court then overruled the exceptions and entered final judgment in favor of ASA against both F-M and W-R in the amount of $75,985.56, with interest at 6% from March 27, 1974, the date of its judgment fixing liability. It entered judgment in favor of ASA against F-M for.$3,519.91 (plus interest), being the purchase price of the defective seed. It entered judgment in favor of F-M against W-R for $7,505.70 (plus interest), being the purchase price of the defective seed. It denied F-M recovery against W-R for indemnity and breach of express warranty claims. Both F-M and W-R have appealed.
We affirm as to the judgment for damages and for the purchase prices of the seeds, except as to the inclusion therein of $25,000 damages to the good will of ASA, which was not proven. We reverse as to ASA is a cooperative marketing association, organized in 1966 in Tennessee, and is located at Bells, Tennessee. It is composed of individual tenant farmers who belong to cooperative associations, and the cooperative associations form ASA. ASA was incorporated after it had purchased the assets and twenty-year business of Crockett Farms, Inc. The main business of ASA is procuring farmers to grow okra for sale to Wintergarden Freezer Company, part of the frozen food industry.
the denial of indemnity and as to breach of express warranty claims of F-M against W-R.
In September, 1967 James E. Cook, an F-M sales representative, solicited an order of 25,000 pounds of C/S okra seed from ASA. The order was made and set to be delivered in Tennessee, and F-M accepted it in California; however, F-M found itself 25,000 pounds short of C/S okra seed to fill the order, and therefore, it ordered the seed from W-R.
The 25,000 pounds of seed was sent by W-R to F-M in February, 1968. The seed came from Lot No. 3501-P-38; it was labeled true to type C/S okra seed. F-M packaged the seed in its own bags as Lot No. 91710, without notice to either W-R or ASA. Of this lot, 9,645 pounds were shipped in March, 1968 as a "drop shipment" to ASA 3 and the rest was shipped to General Foods Corporation. F-M had represented and warranted to ASA that the seed was either C/S okra seed or true to type C/S okra seed, when in fact the seed was an off variety. The seed produced only about one-half of the normal C/S okra plant, a substantial reduction from previous years' production. This low yield caused ASA and its growers to fail to meet their contractual obligations.
This was not the first time that F-M had purchased seed from W-R. In 1965 F-M received from W-R 37,000 pounds of Lot No. 3501-C-25; in 1966 12,000 pounds of Lot No. 3501-0-36; and in 1967 4,000 pounds of Lot No. 3501-X-39. These three lots were related to Lot No. 3501-P-38 and had apparently been sold to Crockett Farms without complaint. 4
By simply examining the seeds themselves an expert could not determine whether the seed was true C/S variety. Despite this fact the Court found that W-R failed to conduct effective tests "to determine the geno-type or productive characteristics of its Lot 3501-P-38 or of the lots from which Lot 3501-P-38 was essentially derived." Essentially W-R neglected to make a direct comparison with other than the Rohnert source on the seed samples. Thus, W-R did not make an effective comparison test check on the seeds in Lot No. 3501-P-38 to determine whether they were true to type C/S okra seed. Nevertheless, W-R falsely labeled its seed C/S okra seed, on which label F-M relied when packaging this seed for ASA.
W-R knew that F-M intended to resell the seed, and both F-M and W-R "knew that the seed might be expected to be utilized in commercial farming operations such as that of ASA and its farmer-growers."
W-R had attached to each seed bag which it delivered to F-M a tag on which the following language was printed:
Notice to buyer: We warrant that seeds sold have been labeled as required under state and federal seed laws and that they conform to label description. We make no other or further warranty expressed or implied.
No liability hereunder shall be asserted unless the buyer or user reports to the warrantor within a reasonable period after Because of past dealings between W-R and F-M and F-M's notice of the disclaimer, the District Court limited the amount of recovery to F-M from W-R, for the warranty violations, to the purchase price which F-M paid for the seed.
discovery (not to exceed 30 days) any conditions that might lead to a complaint. Our liability on this warranty is limited in amount to the purchase price of the seed.
The Magistrate, acting as Special Master, conducted a hearing on the amount of damages. On March 24, 1975 he issued his findings. The Magistrate found the following damages were sustained by ASA from F-M and W-R as a result of the liability imposed by the Court:
Interest paid on bad seed ................... $ 1,804.56
Growers' claims assigned to plaintiff ........ 30,000.00
Losses by buying stations assigning claims
to plaintiffs ............................. 8,648.00
Loss of marketing fees on okra lost by
those filing claims ....................... 2,253.00
Other lost marketing fees of ASA .............. 8,280.00
Loss of business and good will ............... 25,000.00
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Total .................... $75,985.56
The interest was the amount paid to F-M by ASA on the purchase price for the defective seed. The assigned claims to ASA of the growers and buying stations had been stipulated by the parties. The loss of marketing fees to ASA on okra, lost by the assignors, had also been stipulated by the parties. The other lost marketing fees and the loss of business and goodwill were arrived at by estimations.
The $8,280 figure was calculated in the following manner: Mr. David M. Pearson, an agricultural expert, approximated the total loss of marketing fees from all growers as $10,533. The Magistrate subtracted $2,253, stipulated loss from the assignors, from the $10,533, to arrive at $8,280.
The Magistrate found that $25,000 was a reasonable amount of damages...
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