592 F.2d 1074 (9th Cir. 1979), 77-1047, Coast Trading Co. v. Cudahy Co.

Docket Nº:77-1047, 77-1118.
Citation:592 F.2d 1074
Party Name:COAST TRADING COMPANY, a corporation, Plaintiff-Appellant, v. CUDAHY COMPANY, a corporation, Defendant-Cross-Appellant.
Case Date:March 09, 1979
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1074

592 F.2d 1074 (9th Cir. 1979)

COAST TRADING COMPANY, a corporation, Plaintiff-Appellant,

v.

CUDAHY COMPANY, a corporation, Defendant-Cross-Appellant.

Nos. 77-1047, 77-1118.

United States Court of Appeals, Ninth Circuit

March 9, 1979

As Amended April 12, 1979.

Page 1075

David J. Buono (argued), of Lindstedt & Buono, Portland, Or., for plaintiff-appellant.

Jack B. Schwartz (argued), of Newcomb, Sabin, Meyer & Schwartz, Portland, Or., for defendant-cross-appellant.

Before DUNIWAY and CHOY, Circuit Judges, and GRANT, District Judge.

Page 1076

ORDER

A revised opinion having been filed in response to the petition for rehearing, the petition for rehearing is denied. No further petition for a rehearing will be entertained.

Appeal from the United States District Court for the District of Oregon.

Before DUNIWAY and CHOY, Circuit Judges, and GRANT, [*] District Judge.

GRANT, District Judge:

This appeal involves an action by the plaintiff grain merchant against the defendant buyer for the anticipatory repudiation of a number of contracts for the purchase of barley.

Plaintiff, a Washington corporation, is a grain merchant with headquarters in Portland, Oregon. Its customers include other grain merchandisers, grain exporters, feed mills and processors and cattle feedlots. Defendant, a Delaware corporation, has its principal office in Phoenix, Arizona, and operated a feedlot for cattle in Sunnyside, Washington. From September 1973 through May 1974, the general manager of the feedlot was a Mr. Robin Van Woerden, having responsibility for day to day operations, including the purchase of supplies and feed. His compensation consisted of a salary and a bonus related to profits. Plaintiff had supplied feed grains to the feedlot since about 1954, and plaintiff was aware that the feedlot was owned by the defendant.

The trial court found that from 28 February to 2 April 1974, one of plaintiff's merchandisers and Van Woerden had executed 14 contracts for the sale of barley, totaling more than 10,000 tons. Van Woerden had been buying grain from other grain merchants in the same manner as from the plaintiff. The limited storage capacity at the feedlot (750-1,000 tons) required Van Woerden to arrange for outside storage. Because of that fact, plaintiff arranged for 1,500 tons of barley purchased by Van Woerden to be stored in Spokane, Washington.

In late May 1974, employees from defendant's home office first learned of the extent of barley purchases by the feedlot, and representatives of defendant met with plaintiff but no agreement could be reached. On 6 June 1974, defendant repudiated those contracts for which delivery had not been made on the basis that Van Woerden had no authority to bind defendant. Between 11 June and 19 June 1974, plaintiff allegedly sold over 10,000 tons of barley to eight purchasers and used those sales to compute resale prices for the barley repudiated by defendant. At the trial level, plaintiff argued that Van Woerden had both implied and apparent authority to bind his principal on all the contracts and plaintiff therefore sought the difference between resale prices and the prices in the repudiated contracts as damages under Section 2-706 of the Oregon Uniform Commercial Code.

The district court found that the general manager had implied authority to purchase reasonable amounts of barley for future delivery in order to assure a constant supply, but that this would not include authority for speculation in the barley market. The court concluded that in executing the 14 repudiated contracts, Van Woerden was speculating in the barley market and had exceeded his implied authority; likewise, that he had exceeded his implied authority in arranging for storage with plaintiff.

Addressing the apparent authority issue, the court found that Van Woerden had apparent authority to execute the contracts dated 28 February 1974 but that plaintiff could not rely on the apparent authority theory for contracts executed after 28 February 1974, because of changed market conditions. These conditions imposed a duty of inquiry on plaintiff regarding Van Woerden's authority in view of the continued orders of unprecedented size. Because plaintiff failed to make those appropriate inquiries, the court held that damages should be allowed for the repudiated contracts

Page 1077

signed on 28 February 1974, but not for the repudiated purchase or storage contracts signed after that date.

The court then grappled with the measure of damages under Section 2-706 of the UCC which allows the difference between the contract price and the resale price but requires Inter alia that the seller must give the repudiating buyer reasonable notice of the private resale. The court found that no reasonable notice had been given defendant by plaintiff regarding some of the resales, amounting to 1,500 tons, but that reasonable notice was given for later resales amounting to 3,000 tons. Therefore, plaintiff was partially entitled to damages provable under Section 2-706. The court calculated damages for the 3,000 tons by subtracting the June resale prices ($363,475) from the 28 February contract prices ($384,000) arriving at a difference of $20,525 in damages, to which the court added $3,606.84 in incidental damages. Interest was set at 1 1/2% Per month.

Thereafter, plaintiff instituted the present appeal, and defendant cross-appealed.

The parties present two main issues in this appeal: (1) the extent of the authority of Robin Van Woerden, and (2) the proper measure of damages.

THE AGENT'S AUTHORITY

Plaintiff argues that the district court erred in holding that Van Woerden had neither actual nor implied authority to enter into any of the barley purchase or storage contracts and, likewise, that it erred in holding that he had no apparent authority to enter into the barley purchase or storage contracts executed subsequent to 28 February 1974. Plaintiff offers Van Woerden's managerial status and a $250,000 upper limit on inventory as factors showing actual authority.

To support its contention that Van Woerden had implied authority to purchase vast amounts of barley, plaintiff points out: (1) that during his stint as general manager, the number of cattle at the feedlot rose from 2,200 head to 17,000 head; (2) that the volume of barley to be delivered under the plaintiff's contracts were within the feedlot's maximum monthly requirements (disregarding deliveries from other sellers); and (3) that Van Woerden was reasonable in buying vast quantities of declining-priced barley in order to have cheap feed for future use.

In arguing Van Woerden's apparent authority to enter into the contracts signed subsequent to 28 February 1974, plaintiff points out that it had dealt with defendant's feedlot managers for years without any repudiation from defendant's home office. Plaintiff avers that it had no duty to inquire into Van Woerden's authority because there was no notice of lack of authority, that barley is a normal product used in cattle feed, that future delivery was not unusual, and that the amounts scheduled for delivery were within the feedlot's capacity. Furthermore, plaintiff argues that it was not chargeable with notice of lack of authority because it neither knew of any loss of cattle from the feedlot nor of any amounts of barley purchased from other sources. Plaintiff claims that a dramatic rise in the price of barley over a three-year period (from $50 to $120 per ton) necessitated record costs.

The last argument plaintiff makes concerning the agency issue is Van Woerden's inherent power to bind defendant a theory not based on implied or apparent authority but, rather, upon Section 161 of the Restatement (Second) Agency. A theory that if one appoints an agent to conduct a series of transactions over a period of time, it is fair that he should bear losses which are incurred when such an agent, although without authority to do so, does something which is usually...

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