CHEMCO INDUSTRIAL APP. CO. v. EI du Pont de Nemours & Co.

• Decision Date: 15 October 1973
• Docket Number: No. S72 C 15 and S72 C 27.,S72 C 15 and S72 C 27.
• Citation: 366 F. Supp. 278
• Parties: CHEMCO INDUSTRIAL APPLICATORS CO., Plaintiff, v. E. I. du PONT de NEMOURS AND COMPANY, Defendant. GRADY-GOULD WATERSHED IMPROVEMENT DISTRICT, Plaintiff, v. The AETNA CASUALTY & SURETY COMPANY, Defendant and Third Party Plaintiff, and E. I. du Pont de Nemours and Company, Third Party Defendant.
• Court: U.S. District Court — Eastern District of Missouri

366 F. Supp. 278

CHEMCO INDUSTRIAL APPLICATORS CO., Plaintiff, v. E. I. du PONT de NEMOURS AND COMPANY, Defendant.

GRADY-GOULD WATERSHED IMPROVEMENT DISTRICT, Plaintiff, v. The AETNA CASUALTY & SURETY COMPANY, Defendant and Third Party Plaintiff, and E. I. du Pont de Nemours and Company, Third Party Defendant.

Nos. S72 C 15 and S72 C 27.

United States District Court, E. D. Missouri, Southeastern Division.

October 15, 1973.

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Ward & Reeves, Caruthersville, Mo., Manuel Drumm, Sikeston, Mo., for plaintiffs.

Limbaugh, Limbaugh & Russell, Cape Girardeau, Mo., for defendant.

MEMORANDUM

WANGELIN, District Judge.

These two actions resulted from the failure of Hyvar-X, a chemical weed eradicant, to kill vegetation on the banks of an Arkansas irrigation and drainage ditch system. These suits are brought under the Uniform Commercial Code as enacted in Arkansas, Title 85 of the Arkansas Statutes.

Civil Action No. S 72 C 15 was originally commenced in the Circuit Court of Pemiscot County, Missouri, and was removed to this Court on the basis of diversity of citizenship and the amount in controversy. 28 U.S.C. § 1332. By this action the chemical applicator, Chemco Industrial Applicators Company ("Chemco"), sued the manufacturer of Hyvar-X, E. I. du Pont de Nemours and Company ("duPont"), alleging a breach of express and implied warranties that Hyvar-X would completely eradicate brush and vegetation. By its answer du Pont admitted that it manufactured Hyvar-X, that it sold the chemical to Sanders Chemical Company, of Cleveland, Mississippi, that plaintiff purchased the chemical from this chemical company, but that any failure to obtain the proper results was due to Chemco's failure to properly apply the chemical. Du Pont interpleaded the Aetna Casualty and Surety Company ("Aetna") to allay possible double liability because Aetna had filed a third party claim against du Pont in Civil Action No. S 72 C 27 arising from the same circumstances.

Civil Action No. S 72 C 27 was originally commenced in the Circuit Court of Lincoln County, Arkansas, was removed to the United States District Court for the Eastern District of Arkansas, and was transferred here. Therein the Grady-Gould Watershed Improvement District ("Grady-Gould") sued Aetna as surety on Chemco's performance bond for Chemco's failure to sufficiently eradicate vegetation from the Grady-Gould drainage ditch banks. Before transferring the case, the Arkansas federal district court remanded the primary claim of Grady-Gould against Aetna to the Arkansas state courts. Only the third party complaint of Aetna against du Pont was transferred here. Aetna claims that du Pont breached its implied and express warranty that Hyvar-X would completely kill brush and trees on the ditch banks.

The Arkansas state court suit resulted in a judgment against Aetna in favor of Grady-Gould for

$24,500.00 with interest thereon from March 16, 1972, at 6% per annum, together with 12% damages thereon and reasonable attorneys' fee in the sum of $3,500.00, aggregating the sum of $30,940.00 which shall bear interest at 6% per annum from this date March 17, 1972 until paid; together with all of plaintiff's costs herein expended.

Aetna discharged this judgment by payment of $31,388.20. Upon suit in this Court in Civil Action No. S 72 C 29, Aetna recovered a judgment against Chemco and Quentin Still in the amount of $31,388.20 plus attorney's fees of $2,000.00 and costs. See, memorandum filed August 14, 1973, in Civil Action No. S 72 C 29.

This Court tried the Chemco and Aetna claims against du Pont together, without a jury.

Chemco is a Missouri corporation with its principal place of business in Missouri. Aetna is a Connecticut corporation. Du Pont is a Delaware corporation. Subject matter jurisdiction is not disputed and the Court finds that it exists by reason of diversity of citizenship and the amount in controversy. 28 U.S.C. § 1332.

The major issues to be resolved herein are three. First, what, if any, was du Pont's warranty to Chemco regarding the sale of Hyvar-X? Second, did du Pont breach that warranty? Third, if there was such a breach, for what damages is du Pont liable?

To determine the applicable substantive law in these diversity actions, this Court must look to the choice of law rules of the Missouri state courts. Klaxon Company v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The evidence shows and the Court finds that Chemco purchased the Hyvar-X from the Cleveland Chemical Company (also referred to during the trial, as the Sanders Chemical Company) of Cleveland, Mississippi. However, the sales were made specifically for use on the Chemco-Grady-Gould eradication project in Arkansas. The chemical was delivered to a location near the Arkansas work site. No other state has weightier contacts with the Hyvar-X sales than Arkansas. The Court believes that under the Missouri rules the applicable substantive law is that of Arkansas. Liebing v. Mutual Life Insurance Co. of New York, 276 Mo. 118, 207 S.W. 230 (1918); Binkley Company v. Teledyne Mid-America Corporation, 333 F.Supp. 1183 (E.D.Mo.1971), aff'd 460 F.2d 276 (8th Cir. 1972).

Chemco was organized in the early part of 1970 as a business enterprise for the eradication of vegetation from the banks of rural watershed and irrigation drainage ditches. Those primarily interested in Chemco were Quentin Still, Jerome Franklin, and Larry DePriest.

DePriest had been in the chemical application business since 1962 and had three years of college education in the field of agriculture. In 1970 he became self-employed as an agricultural chemical applicator.

In June 1965 DePriest helped Jerome Franklin obtain a position with du Pont. Until this employment ended in September 1972, Franklin worked as an agricultural chemist, a chemical salesman and a herb specialist. In its answer to an interrogatory propounded by Chemco, du Pont described Franklin's employment with it during 1970 as that of a territory sales representative responsible for planning and initiating the sales of chemicals, representing his department in all chemical sales contracts with existing or prospective customers, informing du Pont of the results of sales, and recommending courses of action that will most probably increase sales. In 1970 his territory included Mississippi, Southeast Missouri, Northern Arkansas, and Western Tennessee.

Franklin had been a friend of DePriest since their youth. While he was with du Pont, Franklin occasionally worked with chemical applicators, promoting du Pont products and helping them with technical problems. He worked with DePriest in this fashion and found him to be a knowledgeable applicator.

Sometime in December 1969, or January 1970, DePriest told Franklin that his application business was failing. Franklin suggested an application enterprise that specialized in eradicating vegetation from drainage ditch banks and suggested du Pont's Hyvar-X as the chemical to use.

Franklin indicated that he did not wish to become directly involved in the enterprise while he was with du Pont and that in the Fall of 1970 he planned to quit du Pont and enter law school. Nonetheless the plans for the enterprise advanced. Because both realized the need for capital, DePriest approached Quentin Still of Steel, Missouri in early 1970.

Still had been in the cotton gin business since World War II. When DePriest first contacted him about the proposed application enterprise, Still had had no experience applying or selling herbicides. After this first contact, Still met with both DePriest and Franklin several times. During these meetings Franklin stated that he was acting as a representative of du Pont and suggested the use of Hyvar-X because of its tested results.

Still agreed to participate in the enterprise. There was no written memorandum of their agreement, but the evidence shows they agreed that Still would provide necessary capital and secure the necessary performance bonds, that DePriest would contribute his equipment and actually perform or oversee the work, and that Franklin would provide the leads to customers. The three agreed to share the profits of the business one-third each and to allow DePriest a monthly salary in addition to his share in profits. At Still's suggestion the business was incorporated with Still the sole incorporator, shareholder and officer of the corporation. No corporate meetings were ever held and no corporate records were kept.

Franklin intended to promote Chemco's business and the use of du Pont's Hyvar-X when he appeared before drainage district boards for du Pont. He further intended that the Hyvar-X that Chemco used should be purchased from Cleveland Chemical Company because at a previous time this company had given him employment. Furthermore, when Franklin visited potential customers, Wallace Rush, employed by Cleveland, would often accompany him.

While Franklin, DePriest and Still were organizing the business, DePriest told Franklin that money was needed to pay premiums for necessary insurance and to relieve encumbrances on the machinery that Chemco was to use. For these purposes, Franklin gave Still $1,600.00.

From the beginning of the Chemco enterprise Franklin suggested the use of Hyvar-X. He told DePriest and Still that it been tested and proven to be 90 to 100% effective on willow and brush in drainage ditches. Franklin showed them photographic slides that were provided by du Pont which demonstrated Hyvar-X's effectiveness. Franklin also told them that Chemco could safely guarantee an 85% kill, since Hyvar-X would effect a 90-100% kill. Still and DePriest relied upon Franklin's representations regarding Hyvar-X and agreed to use this chemical.

When Franklin made these representations to DePriest and Still, he did so as an agent of du Pont. The applicable rule regarding a salesman's authority to bind his...