Arkansas Valley Feed Mills, Inc. v. Fox De Luxe Foods, Inc.

• Decision Date: 03 March 1959
• Docket Number: Civ. A. No. 1392.
• Citation: 171 F. Supp. 145
• Parties: ARKANSAS VALLEY FEED MILLS, INC., Plaintiff, v. FOX DE LUXE FOODS, INC., Defendant, Harold Snyder, Third-Party Defendant.
• Court: U.S. District Court — Western District of Arkansas

171 F. Supp. 145

ARKANSAS VALLEY FEED MILLS, INC., Plaintiff, v. FOX DE LUXE FOODS, INC., Defendant, Harold Snyder, Third-Party Defendant.

Civ. A. No. 1392.

United States District Court W. D. Arkansas, Fort Smith Division.

March 3, 1959.

COPYRIGHT MATERIAL OMITTED

Williams & Gardner, Russellville, Ark., for plaintiff and third-party defendant.

Crouch, Jones & Blair, Springdale, Ark., James L. Fox, Chicago, Ill., for defendant.

JOHN E. MILLER, Chief Judge.

The plaintiff filed its complaint on December 31, 1957, which is set out more fully in D.C., 163 F.Supp. 759. The complaint alleged in essence that on December 14, 1953, the plaintiff entered into a written contract with the defendant effective January 4, 1954, for a period of one year, under which the defendant agreed to purchase from the plaintiff 50,000 chickens each week. The plaintiff further alleged that the defendant defaulted in part until July 24, 1954, and thereafter wholly refused to perform any part of the contract.

On February 8, 1958, the defendant filed its answer in which it admitted the execution of the contract sued upon, but alleged that said contract was canceled by a written agreement dated August 2, 1954, signed by Harold Snyder, president of the plaintiff, Arkansas Valley Feed Mills, Inc., and alleged that the agreement was effective to cancel all obligations under the contract of December 14, 1953.

Following the filing of the deposition of Harold Snyder, president of the plaintiff corporation, the defendant on May 27, 1958, moved for a summary judgment, basing its motion upon the cancellation agreement. On June 18, 1958, the plaintiff filed its response to the motion for summary judgment, and attached affidavits thereto. In its response the plaintiff alleged that the cancellation agreement was executed without consideration, and further that the consideration for that agreement, if any, had failed.

The plaintiff also alleged in its response to the motion for summary judgment that Harold Snyder, as president of the Arkansas Valley Feed Mills, Inc., had no authority to execute the cancellation agreement, and that said agreement was not ratified by the corporation.

On July 14 the court, after considering the pleadings, depositions, affidavits, and briefs of the parties, concluded that there was a genuine issue of fact as to the authority of Harold Snyder to execute the cancellation agreement or whether the plaintiff had ratified the alleged cancellation agreement. Accordingly the motion for summary judgment was denied. D.C., 163 F.Supp. 759.

On the same day the court advised the parties that in the interest of economy of time and money the case should be tried first upon the issue of the validity and effect of the cancellation agreement, and if the court concluded that the said agreement was executed without authority of the plaintiff and had not been ratified by plaintiff, an additional hearing would be held to determine the amount of damages to which the plaintiff was entitled, if any.

On December 13, 1958, the defendant moved for leave to amend its answer and to file a third-party complaint against Harold Snyder, president of the plaintiff corporation, as an individual. On December 15 the court granted the motion, and on the same day the defendant filed its amended answer and third-party complaint. In essence the third-party complaint alleged that if in fact Harold Snyder was without authority to execute the cancellation agreement, he had fraudulently and willfully induced the defendant by false representations to execute that agreement. Consequently, the third-party complaint prayed that in the event the plaintiff recovered a judgment against the defendant, that the defendant have judgment over against Harold Snyder.

The amended answer alleged that in fact Harold Snyder had authority to execute the cancellation agreement of August 2, 1954, but that, in any event, the plaintiff corporation was estopped from denying such authority because it had held out Harold Snyder as having authority to execute contracts in its behalf both to the public generally and specifically to the defendant. The defendant also alleged that the plaintiff corporation ratified the acts of Snyder in executing the cancellation agreement by accepting the adjustments set forth in that agreement.

The answer of the third-party defendant, Harold Snyder, denied that he represented to the defendant that he had authority to act on behalf of the Arkansas Valley Feed Mills, Inc.

On January 19 and 20, 1959, the case was tried to the court without a jury on the sole issue of whether the cancellation agreement of August 2, 1954, was valid and effective. At the conclusion of the trial, the case was submitted and taken under consideration, and the attorneys were directed to file briefs in support of their contentions. The briefs of the parties have been received and considered along with the pleadings, depositions, ore tenus testimony and all exhibits, and the court now makes and files its formal findings of fact and conclusions of law.

Findings of Fact

1.

The plaintiff is a corporation organized and existing under the laws of Arkansas with its principal place of business at Dardanelle, Arkansas. The defendant is a corporation organized under the laws of Illinois and authorized to do business in Arkansas, where it maintains a place of business at Dardanelle, Arkansas. This suit was filed on December 31, 1957, and the amount in controversy is in excess of $3,000.

2.

The plaintiff corporation, Arkansas Valley Feed Mills, Inc., was incorporated in 1946 by Harold Snyder, W. H. McClure and F. S. Meek. The corporation (hereinafter referred to as the Mills) was originally formed to operate a dehydrating plant, but later expanded its activities to include the manufacture of feed and the sale of chickens. In 1952 the Mills entered into a contract with the defendant, Fox De Luxe Foods, Inc. (hereinafter referred to as Fox), for the sale of chickens at a specified rate to Fox, and subsequently an amendatory contract between those parties was entered into for an increased rate of sale.

After these dealings between the parties, negotiations began in the latter part of 1953 for a similar contract which was to be operative during the calendar year of 1954. A written memorandum of this agreement was executed by the parties on October 8, 1953.¹

A more formal contract embodying the terms set forth in the memorandum agreement was executed on December 14, 1953, and was to be operative beginning January 4, 1954, for a period of 52 consecutive weeks. The contract of December 14 is the contract sued upon herein by the plaintiff, and is hereinafter referred to as the marketing contract.²

3.

The parties embarked upon the performance of this contract, but after several months of operation thereunder a dispute arose as to some of the procedures being used by the defendant in its performance. Paragraph 2 of the contract, as set forth in footnote No. 2, provided standards of weight and quality for the chickens to be bought by Fox, and paragraph 4 provided for a penalty to be imposed upon the seller in the event that the chickens furnished failed to meet the specifications of the contract.

In the spring of 1954 the defendant, apparently relying upon these provisions, began refusing to accept all of the 50,000 chickens per week which it was obligated under the contract to purchase, basing its refusal upon claims that the chickens furnished did not meet the standards prescribed by the contract. In order to determine whether the chickens were of the quality prescribed, Fox would grade the flocks of chickens offered and refuse or accept the chickens at contract prices as they met or failed to meet the standards of quality required under Fox' interpretation of the contract.

The plaintiff corporation contended that the quality was as prescribed in the contract and that, in any event, Fox was not entitled under the provisions of the contract to invoke the penalty clause. This contention was based upon the plaintiff's interpretation of the contract to the effect that the penalty could be effective against it only in the event it failed to offer 50,000 chickens each week of the required weight and that the penalty clause did not become operative because of a failure in quality of the chickens.

In July of 1954 Fox nevertheless invoked the penalty clause embodied in paragraph 4 of the marketing contract on the ground that the quality requirements of paragraph 2 were not complied with by the chickens which the plaintiff was offering.

The plaintiff was unable to persuade Fox to alter this procedure, and on August 2, 1954, in order to obtain a new contract or to cancel the existing marketing contract, the plaintiff's president and general manager, Harold Snyder, went to Chicago to meet with Fox representatives at their home office. The meeting was attended by Mr. Harold Williams, Mr. C. P. Dodd, and Mr. Roland N. Gergin, all representatives of the defendant Fox.

As the meeting progressed, it became apparent that Snyder and the Fox representatives could reach no general agreement as to the performance required by the marketing contract. Mr. Gergin, a vice president of the defendant, then advised Snyder, as president and general manager of the plaintiff Mills, that it would be necessary to invoke the penalty provision of the marketing contract each week unless the chickens met with the quality requirements as interpreted by Fox. Snyder then suggested that the marketing contract be canceled with a view in mind that Fox would continue to purchase from the plaintiff Mills, but without a contractual agreement. In other words, if the marketing contract were to be canceled, Fox would not break off its relations with the plaintiff but would continue to purchase chickens on the open market to the extent that it might find desirable or necessary. A general agreement was reached between the Fox...