Bradford v. Plains Cotton Co-op. Ass'n, s. 75-1217

• Decision Date: 11 August 1976
• Docket Number: Nos. 75-1217,s. 75-1217
• Citation: 539 F.2d 1249
• Parties: 20 UCC Rep.Serv. 610 C. M. BRADFORD et al., Plaintiffs-Appellees, v. PLAINS COTTON COOPERATIVE ASSOCIATION, Defendant-Appellant. to 75-1225.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1249

539 F.2d 1249

20 UCC Rep.Serv. 610

C. M. BRADFORD et al., Plaintiffs-Appellees, v. PLAINS COTTON COOPERATIVE ASSOCIATION, Defendant-Appellant.

Nos. 75-1217 to 75-1225.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted Jan. 29, 1976.

Decided July 9, 1976.

Rehearing Denied Aug. 11, 1976.

Burck Bailey, Oklahoma City, Okl. (Fellers, Snider, Baggett, Blankenship & Bailey, Oklahoma City, Okl., and William W. Blackledge, Lubbock, Tex., on the brief), for appellant.

Bob R. Scarbrough, Altus, Okl. (Harbison & Weber, Altus, Okl., on the brief), for appellee in No. 75-1217.

Tal Oden, Altus, Okl. (Oden & Oden, Altus, Okl., on the brief), for appellees in No. 75-1218.

Paul Stumbaugh, Mangum, Okl., for appellees in Nos. 75-1219, 75-1220, 75-1221, 75-1222, and 75-1225.

William M. Fancher, Hollis, Okl. (Fancher & Moore, Hollis, Okl., on the brief), for appellees in No. 75-1223.

Larry Weber, Altus, Okl. (Harbison & Weber and Bob R. Scarbrough, Altus, Okl., on the brief), for appellee in No. 75-1224.

Neil P. Gillen, Washington, D.C. (Walter H. E. Jaeger, Chicago, Ill., on the brief), filed a brief on behalf of the American Cotton Shipper Ass'n as amicus curiae urging reversal.

Before LEWIS, Chief Judge, BREITENSTEIN and BARRETT, Circuit Judges.

BREITENSTEIN, Circuit Judge.

The issue in these diversity jurisdiction cases is the validity of forward contracts for the sale by the plaintiffs-appellees of cotton to the defendant-appellant. The district court gave the plaintiffs judgments against the buyer totaling over $521,000, plus interest, for cotton sold by them and a total of.$19,000 for attorneys' fees. The buyer appeals. We reverse.

The plaintiffs-appellees are all farmers who raise cotton in Oklahoma. Defendant-appellant Plains Cotton Cooperative Association is a cotton marketing cooperative owned by some 20,000 farmers in Texas and Oklahoma. Its principal office is in Lubbock, Texas. In early 1973 the growers made forward contracts with the buyer covering the crop to be grown that year. After the execution of the contracts, the market price of cotton increased substantially. In the Fall of 1973 nine suits were either filed in, or removed to, the United States District Court for the Western District of Oklahoma. Seven of these were brought by individuals; one jointly by eight growers; and one jointly by four growers. The buyer, Plains, was the defendant in each suit.

The suits sought to invalidate contracts for the sale of the 1973 cotton crop to Plains. The parties stipulated that the growers would deliver to Plains all of the cotton "alleged to be contracted" to Plains and, if at delivery, the market price exceeded the contract price, Plains would pay the difference into court for the benefit of the prevailing party. The cases were consolidated for trial to the court. After making extensive findings, the court held that the contracts were invalid for a variety of reasons. The delivery price was greater than the contract price. The court entered nineteen individual judgments, ranging from $6,200 to $65,000, plus interest, and attorneys' fees, against Plains. The cases have been consolidated for purposes of review.

I.

A forward contract, as the term is used in these cases, is a contract between a grower and a buyer whereby the grower agrees to sell cotton grown on designated acreage during a certain crop year for delivery after harvesting. Forward contracts "have become common in the American cotton marketing system." Allenberg Cotton Co. v. Pittman, 419 U.S. 20, 26, 95 S.Ct. 260, 264, 42 L.Ed.2d 195. They protect a grower against a price decline, Ibid. When the price rises, "the forward contract becomes relatively unprofitable" and the grower may have "an economic incentive * * * to breach his contract and sell the cotton elsewhere." Ibid. at n. 8. The buyer may protect himself by selling cotton "in quantities approximating the expected yield" under his purchase contracts. Ibid. Alternatively, he may protect himself "by 'hedging,' i. e., offsetting his purchases with a sale of futures contracts on the cotton exchange." Ibid. at 26-27, 95 S.Ct. at 264. "The stability of the position * * * (of the buyer) clearly depends on the integrity and enforceability of his contracts for purchase and resale." Ibid. 419 U.S. at 27, 95 S.Ct. at 264 (footnote omitted).

Sixteen of the plaintiffs-growers signed contracts in March or April, 1973, two in May, and one in July. The prices were stated in points above government loan and ranged from 9.25 cents per pound for five growers, 11.5 cents for thirteen growers, to 24 cents for one grower. Concurrently with the confirmation of the purchases Plains sold 75% of the anticipated yield and hedged the remainder.

In the late Spring and in the Summer of 1973, the price of cotton increased substantially. The growers sued to invalidate their contracts. In addition to the suits at bar, the following suits were brought, all of which held that forward contracts for the 1973 crop were valid and enforceable. Riegel Fiber Corp. v. Anderson Gin Co., 5 Cir., 512 F.2d 784; Hohenberg Bros. Co. v. Killebrew, 5 Cir., 505 F.2d 643; Taunton v. Allenberg Cotton Co., M.D.Ga., 378 F.Supp. 34; Mitchell-Huntley Cotton Co., Inc. v. Waldrep, N.D.Ala., 377 F.Supp. 1215; Cone Mills Corp. v. Hurdle, N.D.Miss., 369 F.Supp. 426; Kimsey Cotton Co., Inc. v. Ferguson, Ga., 233 Ga. 962, 214 S.E.2d 360; and Harris v. Hine, 232 Ga. 183, 205 S.E.2d 847.

No one acting for Plains solicited any grower to sell his cotton to Plains or induced him to do so. Plains furnished its contract forms and price schedules to local gins. Typically, a grower would go to a gin and ask what Plains was paying for cotton. The gin employee would quote the top price on the pertinent schedule. Although frequently the growers did not examine them, the Plains schedules were available at the gins. They provided for less than top price for inferior grades of cotton. If the grower decided to sell to Plains, a gin employee would obtain the information necessary to fill out the contract forms. The price schedule would be identified by number only. The employee would then place a telephone call to Plains at its home office in Lubbock, Texas, report the information, and inquire whether Plains would confirm the transaction. Upon Plains confirmation, the contract, executed in triplicate by the grower, would be sent to Plains. Plains would attach the pertinent schedule, execute the contract, and return to the gin a copy for the grower.

The contracts first described the cotton sold by identification of the farm and the producer, the crop year, and the total acres of farm under cultivation. Following this was a box and the words "All Cotton Produced on the Farm, OR" a specified interest therein. In the typical contract a check mark was placed in the box.

The next section of the contract contained planting information, the total farm acres of cotton, the projected yield, and other information not here pertinent. The places where the cotton was to be ginned and stored were specified.

In blanks under the heading "AGREED MARKET PRICE ADVANCE" there was written in "See schedule (followed by a number which varied from contract to contract) attached." After this was a provision that "Cotton Delivered to Compress After (a date which varied) may be Excluded from this Contract at the Option of the Association."

The contract then contained a section on "Lienholders" followed by a "Marketing Agreement" not here pertinent and under the heading "SALE AND CONVEYANCE" referred to the terms and conditions appearing on the back of the contract form and provided that the contract should be applicable to all cotton produced on the designated farm during the crop year.

At the bottom of the front page were blanks for insertion of the execution date and for the signatures of the parties. On the back of the contract were a number of printed provisions, none of which are material to the issues now under consideration.

After stating that the gin managers were the agents of Plains and that there was unreasonable delay in the delivery of a copy of the executed contract to the grower, the trial court held that no contract was made because (1) there was no meeting of the minds, and (2) Plains materially altered the contracts. The court went on to hold that the contracts were void because they were obtained by fraud and were unconscionable.

II.

Plains attacks the holding that the gin managers were its agents. The growers came to their local gin voluntarily and without solicitation. If they wished to sell to Plains a gin employee took the necessary information, filled in the blanks, and called the Lubbock office. Without any inducement by a gin employee, the grower signed three copies and the gin sent them to Plains. In the circumstances a determination of whether the gin, or any of its employees, were agents of either Plains, or of the grower, or a common agent of both, is unnecessary.

After receipt of the contracts from the gins, Plains attached the schedule pertaining to the number appearing on the form signed by the grower. These schedules contained specific provisions relating price to quality. In some cases Plains changed the exclusion date, i. e., the date after which Plains had the option to reject the cotton. An officer of Plains executed the contract on its behalf and an executed copy for the grower was sent to the gin. The gin either delivered the contract to the grower, held it for him to pick up, or mailed it to him. The time which elapsed from the execution by the grower to the delivery of the completed contract to the grower varied from transaction to transaction. No grower is shown to have suffered any detriment by the delay. Although Plains claims that the growers were estopped from rejecting the contracts because they waited until after Plains had acted thereon and also claims that the suits are barred by the laches of the...