Farmers Union Grain Terminal Ass'n v. Nelson

• Decision Date: 31 October 1974
• Docket Number: No. 9018,9018
• Citation: 223 N.W.2d 494
• Parties: 16 UCC Rep.Serv. 139 FARMERS UNION GRAIN TERMINAL ASSOCIATION, Plaintiff/Appellee, v. Byron NELSON, Defendant/Appellant. Civ.
• Court: North Dakota Supreme Court

Page 494

223 N.W.2d 494

16 UCC Rep.Serv. 139

FARMERS UNION GRAIN TERMINAL ASSOCIATION Plaintiff/Appellee, v. Byron NELSON, Defendant/Appellant.

Civ. No. 9018.

Supreme Court of North Dakota.

Oct. 31, 1974.

Rehearing, Denied Dec. 4, 1974.

As Modified Dec. 4, 1974.

Syllabus by the Court

1. A contract is construed most strongly against the party who prepared it and who presumably looked out for his best interests in the process.

2. An agreement which is essentially a 'contract of adhesion' should be examined with special scrutiny by the court to assure that it is not applied in an unfair or unconscionable manner against the party who did not participate in its drafting.

3. A contract provision for liquidated damages, in the context presented, was intended as an exclusive remedy, though such words were not used.

4. A contract provison for liquidated damages, under the facts presented, was an exclusive or limited remedy but had not failed in its essential purpose by reason of the increased market price which rendered it more onerous to the party who drafted the contract.

5. Questions of default in the acceptance of delivery by the elevator were properly for the jury and the instructions, taken as a whole, did not erroneously present the issues.

6. Advance payments for grain under contract on which interest at five-sixths percent per month was later billed were not, under facts presented, subject to truth in lending disclosure requirements.

7. Record was insufficient to establish grounds for challenge where certain jurors indicated that their husbands had done business with the plaintiff, an interstate marketing cooperative.

Ohnstad, Twichell, Breitling, Arntson & Hagen, West Fargo, for defendant/appellant.

Pringle & Herigstad, Minot, for plaintiff/appellee.

JOHNSON, Judge.

This case involves two grain purchase contracts dated September 19, 1972, between Byron Nelson, a Hamberg, North Dakota, farmer, and the Farmers Union Grain Terminal Association, a cooperative marketing association with headquarters at Minneapolis, Minnesota (GTA). The contracts were printed forms prepared by GTA for the use of its 'line' elevators. Under the terms of the contracts Nelson agreed to deliver 17,000 bushels of durum at $1.96 per bushel, and 47,000 bushels of hard wheat at $2.00 per bushel to the GTA-owned elevator at Hamberg, North Dakota. Each contract contained the following clause:

'I agree to deliver said grain to Farmers Union Grain Terminal Association at its elevator at Hamberg, State of North Dakota, on or before 03 30, 1973 provided space is available to receive and store the same, and if not, as soon thereafter as space is available, and I agree that time is of the essence of this contract as to the delivery of said grain.'

During November of 1972 and February of 1973 Nelson made partial deliveries of grain to the Hamberg elevator, totaling some 19,847.5 bushels. In March of 1973 he received two advances of $10,000 each as prepayments on the grain contracts. Nelson made a series of inquiries during the first part of the year as to when he could deliver the contracted grain yet in his possession but was informed each time that, due primarily to its inability to obtain a sufficient number of boxcars to make space available, the Hamberg elevator was unable to accept delivery. There was evidence that during the same period the elevator was purchasing substantial amounts of noncontracted or cash grain. In addition, the elevator had entered into a considerable number of other contracts for delivery of grain during this period. Nelson subsequently became heavily engaged in spring planting operations. On June 6, 1973, the manager of the Hamberg elevator attempted to notify Nelson that he could commence hauling the grain yet to be delivered under his contracts. This message was not received by Nelson until the morning of June 9, and the evidence is conflicting as to whether he was told he could not deliver grain on that date. On June 13, 1973, Nelson notified the Hamberg elevator that he would not deliver the grain remaining under contract but would deliver it to another elevator. At the time he gave notice of his intentions, Nelson tendered a check payable to GTA in the sum of $26,555.05. This check represented a return of the $20,000 previously advanced, interest on that amount at the rate of five-sixths percent per month on the unpaid balance for the months of April and May, and the difference between the contract price and the market price on March 30, 1973.

Each of the grain purchase contracts in question contain the following clause regarding damages:

'In case of default in the delivery of said grain, then and in that event, I agree to pay to Farmers Union Grain Terminal Association, as liquidated damages, the difference between the contract price herein and the market price of grain of like grade at the close of the market at the Minneapolis Grain Exchange on the 30th day of March, 1973, after making due deductions for freight from the above station to Minneapolis, Minnesota.'

GTA refused the tender of damages and sued Nelson for the advances, plus damages based upon June 13 market prices which were substantially higher than the market on March 30. The matter was tried before a jury in the Wells County District Court, Fourth Judicial District, Judge Alfred A. Thompson, presiding. The jury found for GTA in the sum of $6,320.34 and awarded Nelson the sum of $220.76 as damages for storage of grain. Motions for judgments notwithstanding the verdict were made by both parties. The motion of GTA was granted. The court set aside the damages awarded to Nelson for grain storage and increased the award to GTA to the sum of $28,904.55.

I.

The primary dispute concerns the measure of damages to GTA for breach or cancellation of the contracts. Nelson is prepared to accept the damages formula specified under the contracts--the difference between the contract price and the market price on March 30. However, GTA contends that it is entitled to damages based upon market prices on June 13 when Nelson repudiated the contracts. The market prices on that date were substantially higher. Under the March 30 prices, the damages would be $6,220.34, while using June 13 prices results in damages of $28,904.55.

GTA relies primarily upon Section 41--02--98, N.D.C.C. (UCC 2--719), to sustain its position.

'1. Subject to the provisions of subsections 2 and 3 of this section and of the preceding section on liquidation and limitation of damages,

'A. the agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and

'b. Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.

'2. Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title.'

(Emphasis supplied.)

GTA takes the position that (1) the agreement does not specifically provide that the damage provision is exclusive and, therefore, it is not, and (2) even if the contract provision is exclusive it has failed 'of its essential purpose' and therefore is ineffective under the statute. The trial court accepted this position and instructed the jury that it should not use the contract clause in determining damages. The jury apparently used the March 30 market prices nonetheless, and the trial court ordered judgment notwithstanding the verdict.

We do not agree with the conclusions of the trial court on this question.

There are two principles of contract interpretation which should be given special weight in this situation. (1) A contract is construed most strongly against the party who prepared it, and who presumably looked out for his best interests in the process. See Stuart v. Secrest, 170 N.W.2d 878 (N.D.1969); Shimek v. Vogel, 105 N.W.2d 677 (N.D.1960); Section 9--07--19, N.D.C.C. (2) An agreement which is essentially a 'contract of adhesion' should be examined with special scrutiny by the courts to assure that it is not applied in an unfair or unconscionable manner against the party who did not participate in its drafting.

The traditional contract is a result of free bargaining between parties who are brought together by market conditions and who meet on a footing of approximate economic equality. In present-day commercial life, standardized, mass-produced contracts have appeared. These printed form agreements are used primarily by enterprises with strong bargaining power and position.

'The weaker party, in need of the goods or services, is frequently not in a position to shop around for better terms, either because the author of the standard contract has a monopoly (natural or artificial) or because all competitors use the same clauses. His contractual intention is but a subjection more or less voluntary to terms dictated by the stronger party, terms whose consequences are often understood only in a vague way, if at all.' Kessler, Contracts of Adhesion--Some Thoughts About Freedom of Contract, 43 Colum.L.Rev. 629, 632 (1943).

See also, Ehrenzweig, Adhesion Contracts in the Conflict of Laws, 53 Colum.L.Rev 1072 (1953); Henningson v. Bloomfield Motors, Inc., 32 N.J., 358, 161 A.2d 69 (1960); Bekken v. Equitable Life Assurance Society, 70 N.D. 122, 293 N.W. 200, 212 (1940). This is part of the background for the provisions of the Uniform Commercial Code regarding enforcement of unconscionable contract terms. See Section 2--302, U.C.C., and Official Comment, Section 41--02--19, N.D.C.C.

The clause regarding determination of damages in these contracts is designed to provide an agreed method of computing loss in the event of breach. See Section 41--02--97,...