Hollerman v. F. H. Peavey & Co.

• Decision Date: 28 August 1964
• Docket Number: No. 39210,39210
• Citation: 269 Minn. 221,130 N.W.2d 534
• Parties: Norbert HOLLERMAN and Julia Hollerman, Respondents, v. F. H. PEAVEY & COMPANY et al., Appellants.
• Court: Minnesota Supreme Court

Page 534

130 N.W.2d 534

269 Minn. 221

Norbert HOLLERMAN and Julia Hollerman, Respondents, v. F. H. PEAVEY & COMPANY et al., Appellants.

No. 39210.

Supreme Court of Minnesota.

Aug. 28, 1964.

Syllabus by the Court

1. A person is liable for fraud if he makes a false representation of a past or

existing material fact susceptible of knowledge, knowing it to be false, or as of his own knowledge without knowing whether it is true or false, with intention to induce the person to whom it is made to act in reliance upon it, or under such circumstances that such person is justified in acting in reliance upon it, and such person is thereby deceived and induced to act in reliance upon it, to his pecuniary damage.

2. Where fraud and deception are in issue, the evidence must necessarily take a wide range, and collateral facts are admissible if they have a logical tendency to throw light on the issue.

3. Before instructing the jury the trial court invited counsel to make suggestions as to 'what may be considered as damages and what may not be.' No suggestions were made by counsel, and the court thereupon instructed the jury as to the correct measure of damages in fraud, to which instruction no objections or exceptions were taken. The jury considered items of damages and returned a verdict in an aggregate amount approximately $17,000 less than the amount which the evidence tended to establish. Under the circumstances, defendants' claim that the verdict may have included improper items of damage and is therefore excessive is without merit.

Cant, Haverstock, Beardsley, Gray & Plant, Franklin D. Gray, Dorsey, Owen, Marquart, Windhorst & West, Peter Dorsey, Robins, Davis & Lyons and Elliot S. Kaplan, Bernard Rosenberg, Minneapolis, for appellants.

Ryan, Ryan & Ebert, Donald I. Ryan, Brainerd, for respondents.

MURPHY, Justice.

This case is before us on an appeal from an order denying a motion of defendants for judgment notwithstanding the verdict or in the alternative for a new trial in an action for damages for fraud. Numerous errors are alleged, three of which we consider. Defendants assert (1) that the record fails to establish fraud; (2) that the court erred in permitting testimony relating to transactions between defendants and third parties; and (3) that the damages are excessive and unsupported by the record. There are various cross-claims among defendants, but they are not involved in this appeal. Defendants are treated as being jointly charged with fraud.

The dispute before us grows out of a contract entered into by plaintiffs, husband and wife who operate a farm, and certain defendant corporations who had entered into an arrangement to effect the sale of their products and services, all of which have to do with the feeding, production, and processing of chicken broilers. Defendant F. H. Peavey & Company is engaged in the production and manufacture of poultry feed. Prior to the events in this case, Peavey joined forces with defendants Farmers Produce Company and Jack Frost Hatchery Company agreeing that Jack Frost was to supply the chicks, Peavey was to supply the feed, and Farmers Produce was to process and market the grown broiler chickens. The arrangement comprehended that the individual farmer would be made a part of the project, and would provide the facilities for raising the chickens, including the building, feeding, water, heating and ventilating equipment, and the labor. Defendant E. G. Clinton Company was brought into the picture to supply the physical equipment, including the building necessary for raising of poultry. The participating farmer was told that the cost of the building would be approximately $21,000 together with carrying costs, $5,200 to be paid down and the balance to be repaid in 20 quarterly installments. In addition, he would be required to invest $10,367.87 in feeding, water, and ventilating equipment, with an additional approximate $2,500 for bins, motors, and other equipment.

From the record it appears that on November 26, 1960, the plaintiffs entered into a contract with defendants. They ordered a building from the Clinton Company and executed a conditional sales contract in which the mortgage holder on the farm joined. They agreed to purchase the produce and services of the defendant companies. Peavey was to furnish the feed and 'flock management counsel'; Jack Frost was to furnish 'healthy fast growing' broiler-type chicks; and the Farmers Produce Company was to furnish 'the processing and marketing plant and effort.' Before entering into the contract, however, plaintiff Norbert Hollerman discussed the program with Richard Gessell, Peavey's sales agent, and Nathan Adams, a Clinton salesman. With Gessell he visited two farms where the program was in operation and at one of these was told that the first flock raised under the program had brought a greater return than estimated.

After the contract was entered into, the building erected, and equipment installed, the Hollermans raised three flocks of chickens. There were approximately 25,000 chicks in each flock. The first flock was marketed with satisfactory results. Defendants concede that plaintiffs did a good job with their chickens. The results with the last two flocks were disastrous. In the second flock 837 chickens died and 4,459 were condemned. In the third flock 2,757 chickens died and 7,791 were condemned. The cause of mortality and condemnations was airsacculitis, an infection of the airsac, which is a part of the chicken's respiratory system. The plaintiffs assert that they have suffered a loss of approximately $57,000 as a result of this venture. They assert that they were induced to enter into it because of false and fraudulent representations made to them by defendants. The false representations relied upon are to be found in a brochure, which was given to the plaintiffs by the defendants, and in the oral statements and representations of Peavey's agent, Richard Gessell.

The brochure describing the venture in which plaintiffs were invited to participate explained the advantages of a plan in which a farmer could establish a stable poultry business through an association with a well-established feed manufacturer, a producer of chicks, and a processor who would buy the chicken broilers at a 'guarantee minimum price.' The prospective grower was told that he would be required 'to furnish suitable growing facilities, to use Peavey Feed and participating hatchery chicks and to follow a growing program established by Farmers Produce, Peavey and hatchery.' It was explained that while the program did not provide a 'panacea for a bad manager or an inefficient grower,' it would 'shield him from losses because of possible depressed market conditions.' The prospective feeder was assured, 'The plan and programs described here will return to the careful broiler raiser an income roughly equal to half as much as is obtained from an average size farm in the Midwest--and it will do so for about 6 hours of one person's attention daily.' The brochure continues, 'Your success with this plan is virtually assured, if you follow the plan as described. It puts you in a money-making business with experienced 'blue chip' organizations.' With reference to the health problem the brochure assures the prospective grower that broilers can be raised in Minnesota with 'fewer disease and management problems' than elsewhere. The grower is assured that he is 'always going to get paid at least the minimum, or advance price' and that the strength of the program is backed by 'the Peavey Company with a record of more than 80 years fair dealing with farmers and successful business management in farm product sales and service. It is backed by the largest processor and marketer of poultry in the Upper Midwest, with sales contracts and experience dealing with most of the large food chains in the nation. It is backed by a responsible hatchery with an outstanding record of breeding and supplying healthy, fast-growing broiler chicks.'

'This is a solid substantial program which combines the elements of security and success for the broiler raisers who become affiliated with them.'

The brochure further represents that 'Millions of broilers have been raised in the Upper Midwest, many of them under Peavey-Tone programs, and close records have been kept.' It pointed out, 'Some costs may vary slightly, but the following costs will occur for average good feeders. * * * If the birds sell at 20cents a lb., it would more than double this broiler grower's profit.'

The brochure further represents that defendants 'are trying to protect the grower with a market above the average good feeder's cost and offer the efficient feeder a chance to make a fine income in times of good broiler prices.' It was estimated that the cost of medication and supplies would come to .09cents per pound or $78.75 for a flock of 25,000 chicks averaging 3 1/2 pounds each.

Before entering into the contract plaintiffs discussed with Peavey's agent the dangers of loss from disease in the growing of broiler chickens. Their previous experience had been limited to the raising of small flocks of laying hens. They inquired from defendants' representative as to the danger of sickness and were told that it was negligible. The plaintiff testified:

'I said, 'In a big flock like that disease can get to be a serious problem,' I said, 'if it breaks out.' And I was told, 'That's the least of your worries,' that they have their District Manager and he makes his rounds every two weeks and checks these chickens, and if there is anything in there, he is going to see it way before we will and then they will have the medication to take care of it.'

Plaintiff understood this statement as confirming his understanding from references to 'management counsel' in the brochure that defendants would assist him in meeting any danger that might arise from disease among the flocks. Gessell, the Peavey agent, admitted...