F-M Potatoes, Inc. v. Suda

• Decision Date: 26 October 1977
• Docket Number: No. 9366,F-M,9366
• Citation: 259 N.W.2d 487
• Parties: 23 UCC Rep.Serv. 144 POTATOES, INC., Plaintiff and Appellant, v. Paul SUDA, Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 487

259 N.W.2d 487

23 UCC Rep.Serv. 144

F-M POTATOES, INC., Plaintiff and Appellant, v. Paul SUDA, Defendant and Appellee.

Civ. No. 9366.

Supreme Court of North Dakota.

Oct. 26, 1977.

Burke, Hodny & Burke, Grafton, for plaintiff and appellant; argued by John F. Burke, Grafton.

Dahl, Dahl & Greenagel, Grafton, for defendant and appellee; argued by Robert E. Dahl, Grafton.

PAULSON, Judge.

This is an appeal by the plaintiff, F-M Potatoes, Inc. (hereinafter referred to as F-M), from the judgment of the Walsh County District Court entered on February 17, 1977. F-M brought an action against the defendant, Paul Suda (hereinafter referred to as Suda), asserting that Suda owed F-M $6,500.00 pursuant to an oral contract for "conditioned storage" of 13,000 hundredweight (hereinafter referred to as cwt.) of Kennebec potatoes from October of 1974 through March of 1975. Suda admitted there was an oral contract for the storage of his potatoes, but he denied any financial obligation to F-M for the storage, and he counterclaimed against F-M for damages for F-M's negligent storage of his potatoes, causing their deterioration and rendering them unmarketable.

The case was tried by the court without a jury. The trial court concluded that Suda incurred damages of $20,670.00 as a result of F-M's negligent storage of his potatoes and that F-M was entitled to $6,500.00 for storage charges plus an additional $1,950.00 for removing the unmarketable potatoes from its warehouse. Accordingly, judgment was entered for Suda in the net amount of $12,220.00.

On Appeal, F-M requests this court to reverse that part of the judgment granting Suda $20,670.00 damages and to affirm that part of the judgment granting F-M storage and hauling charges of $8,450.00.

F-M raises the following issues:

(1) Whether the trial court erred when it imposed a presumption of negligence against F-M as the bailee, which shifted to F-M the burden of going forward with the evidence.

(2) Whether there was sufficient evidence to support the trial court's findings that F-M was negligent and that said negligence was the proximate cause of Suda's damages.

(3) Whether the trial court erred when it admitted evidence that Suda marketed potatoes which were harvested from the same field as those stored in the F-M warehouse, but which were stored in Suda's own storage facilities.

(4) Whether the damages awarded to Suda were excessive in view of the evidence submitted at the trial.

The memorandum opinion of the trial court (adopted by the trial court as its findings of fact and conclusions of law, pursuant to Rule 52(a) of the North Dakota Rules of Civil Procedure) provides an excellent summarization of the lengthy and complex facts presented at the trial.

Suda has been a farmer since 1959 and, in 1974, he farmed approximately 1600 acres, of which he planted 425 acres to potatoes and the balance he seeded to small grains. As the 1974 potato harvest progressed it became evident to Suda that the potato storage facilities on his own farm were insufficient and that it would be necessary to obtain additional storage for part of his potato crop. Suda entered into an oral agreement with John Ferguson, the president and principal stockholder of F-M, for the conditioned storage of Suda's potatoes with F-M. The storage agreement, which is not in dispute, provided for a storage rental price of 40cents per cwt. to February 1, 1975, and an additional 10cents per cwt. to April 1 of the same year. The agreement further provided that Suda would pay F-M an additional 15cents per cwt. to have F-M load the potatoes into a truck or railroad car at the time of shipment. Pursuant to the agreement Suda stored 13,000 cwt. of Kennebec potatoes in Bin No. 6 of the F-M warehouse.

The F-M warehouse contains eight bins, each being 28 feet wide, 80 feet long, and 16 feet high. There is a work area which is 30 feet wide and which extends the full length of the warehouse. At one end of each bin is a plenum chamber. In bins numbered 1 through 6, each plenum chamber contains a three horsepower fan, a heater, and humidifying equipment, which are used to condition and prepare the stored potatoes for market. There are triangular air ducts along the bottom side of each bin opening into the plenum chamber; and there is also a flume in the floor extending through the center of each bin. Air can be forced into the ducts and flume through the potato pile where the air is then drawn from the top through a hole leading into the plenum chamber. The roof of the F-M warehouse is pitched, with the peak located over the center of the potato bins. At this peak over each bin is a vent and ventilation fan which can be used either for air intake or for air exhaust to permit proper conditioning of the potatoes. The temperature and ventilation of each bin are controlled by thermostat which can be set manually to obtain the desired temperatures and ventilation.

It is obvious, upon examining the expert testimony and other evidence in the record, that the modern day storage of potatoes is a sophisticated process requiring experience, knowledge, and careful management. A potato passes through three phases while in storage: (1) the wound healing or suberization phase; (2) the dormancy phase; and (3) the respiration or rest phase. The proper combination of temperature, humidity, and ventilation must be utilized for each storage phase to condition the potato for market and to prevent deterioration of the potato. The conditioning capabilities of modern warehouse facilities permit successful storage of potatoes for approximately twelve months.

The Kennebec potato, which is the variety Suda stored with F-M, is sold primarily for processing as potato chips. Processors will only purchase potatoes that deep-fry to an acceptable light color shade of potato chip, based on an industry Potato Chip Color Reference Standard chart, because the lighter colored chip is more appealing to the consumer and requires less grease while it fries. The color to which a potato deep-fries is determined by the proportions of sugar and starch in the potato. During the conditioning process at the warehouse, the proportions of sugar and starch in the potatoes can be controlled to some extent by regulating the temperature. Increasing the pulp temperature of the potato converts the reducing sugars to starch, and, as a result, the potato deep-fries to lighter colored potato chips. This process requires careful storage management and regulation of not only the temperature, but the humidity and the air flow, to prevent deterioration of the potatoes as they are being conditioned for market.

Commencing in December of 1974, and at approximately two-week intervals thereafter, samples of Suda's potatoes from Bin No. 6 of the F-M warehouse were taken to the Frito Lay laboratory for testing. At the laboratory, a slice or two was removed from several of the sample potatoes and deep-fried to determine whether the slices fried to an acceptable potato chip color shade. Suda's potatoes never attained an acceptable potato chip color shade upon frying. Thus, no buyer was found to purchase Suda's potatoes, and during the latter part of March of 1975, F-M hauled Suda's potatoes from its warehouse and disposed of them.

Suda asserted at the trial that the potatoes he stored with F-M deteriorated and failed to obtain a marketable quality as a result of F-M's negligence in failing to provide proper conditioned storage. F-M asserted that Suda's potatoes were never acceptable for marketing because of factors beyond F-M's control such as the inherent high sugar levels in Suda's potatoes, the short growing season coupled with excessive rainfall, and other inherent qualities of the potatoes rendering them susceptible to disease and breakdown.

The trial court concluded that F-M's negligence was the proximate cause of 75% of the loss of Suda's potatoes, but that 25% of the loss was due to causes other than F-M's negligence. Accordingly, the trial court deducted a 25% grade-out factor from the damages awarded to Suda. The trial court also awarded F-M $8,450.00 storage and hauling charges pursuant to the oral contract between Suda and F-M.

Prior to discussing the issues raised by F-M on this appeal, it is necessary to determine whether the legal relationship which existed between Suda and F-M, pursuant to the oral storage agreement, was that of landlord-tenant or that of bailor-bailee. In Great Plains Supply Co. v. Mobil Oil Company, 172 N.W.2d 241, 245 (N.D.1969), this court, quoting from 8 Am.Jur.2d, Bailments § 20, p. 926, adopted the following test to determine whether a relationship was one of bailor-bailee or of landlord-tenant:

" ' * * * the test is whether the person leaving the property has made such a delivery to the owner of the premises as to amount to a relinquishment, for a time, of his exclusive possession, control, and dominion over the property, so that the latter can exclude, within the limits of the agreement, the possession of all others. If he has, the general rule is that the transaction is a bailment. If there is no such delivery and relinquishment of exclusive possession, and control and dominion over the goods is dependent in no degree upon the co-operation of the owner of the premises, and access to the goods is in nowise subject to the latter's control, it is generally held that the owner of the goods is a tenant or lessee of the space upon the premises where they are left.' "

In the instant case, F-M agreed to provide conditioned storage for Suda's potatoes and to control all of the mechanical equipment for maintaining the temperature and other conditioning factors. F-M received an additional 30cents per cwt. for conditioned storage which it would not have received if it had simply rented to Suda unconditioned storage space. The agreement also provided that F-M would load Suda's potatoes on a truck or railroad car at the time of shipment for an...