International Feed Products, Inc. v. Alfalfa Products, Inc.

• Decision Date: 04 August 1983
• Docket Number: Nos. 10319-10321,s. 10319-10321
• Citation: 337 N.W.2d 154
• Parties: INTERNATIONAL FEED PRODUCTS, INCORPORATED, Plaintiff and Appellee, v. ALFALFA PRODUCTS, INCORPORATED, Defendant and Appellant. INTERNATIONAL FEED PRODUCTS, INCORPORATED, Plaintiff and Appellee, v. GRANDIN PELLETING, INCORPORATED, Defendant and Appellant. INTERNATIONAL FEED PRODUCTS, INCORPORATED, Plaintiff and Appellee, v. Leo FROELICH, doing business under the firm name and style of Leo Froelich Feed and Pellet Company, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 154

337 N.W.2d 154

INTERNATIONAL FEED PRODUCTS, INCORPORATED, Plaintiff and Appellee, v. ALFALFA PRODUCTS, INCORPORATED, Defendant and Appellant.

INTERNATIONAL FEED PRODUCTS, INCORPORATED, Plaintiff and Appellee, v. GRANDIN PELLETING, INCORPORATED, Defendant and Appellant.

INTERNATIONAL FEED PRODUCTS, INCORPORATED, Plaintiff and Appellee,

v.

Leo FROELICH, doing business under the firm name and style

of Leo Froelich Feed and Pellet Company, Defendant

and Appellant.

Civ. Nos. 10319-10321.

Supreme Court of North Dakota.

Aug. 4, 1983.

Conmy, Feste, Bossart, Hubbard & Corwin, Fargo, for plaintiff and appellee; argued by Charles A. Feste, Fargo.

Dosland, Dosland & Nordhougen, Moorhead, Minn., for defendants and appellants; argued by J.P. Dosland, Moorhead, Minn.

ERICKSTAD, Chief Justice.

These three consolidated appeals are from judgments entered against the defendants, Alfalfa Products, Inc. (Alfalfa), Grandin Pelleting, Inc. (Grandin), and Leo Froelich, doing business as Leo Froelich Feed and Pellet Company (LaMoure), in three breach of contract actions brought by International Feed Products, Incorporated (International Feed), that were consolidated for trial to the Court. We affirm.

Leo Froelich began operating a feed plant at LaMoure, North Dakota, in the early 1960's, in which he bought screenings and processed them into feed products. On April 26, 1973, LaMoure entered into a toll contract with Kurda Mills (Kurda), a subsidiary of W.R. Grace and Company, under which Kurda owned the LaMoure screening inventory, which LaMoure processed into feed for marketing by Kurda. LaMoure received a payment or toll for each ton processed, and, after various deductions and payments were made to Kurda, LaMoure received 80% of any margin remaining and Kurda received 20%. The April 26, 1973, agreement was modified on August 7, 1973, with a new agreement containing a shrinkage provision that was not in the prior agreement.

During 1973, Froelich also obtained control of Alfalfa and Grandin, which operated with Kurda in the same way as LaMoure without written contracts.

In 1974, Kurda decided to terminate the toll agreements. International Feed was then formed to acquire the interests of Kurda, including the inventory located at the LaMoure, Alfalfa, and Grandin plants. Leo Froelich became president and owned one-third of the shares of International Feed. He was also a director of the company until he resigned on May 17, 1976, and was replaced by Harold Pris, who was the manager of the LaMoure plant. Rolland Collison, the former general manager of Kurda, became a stockholder in and general manager of International Feed. The persons who formed International Feed agreed that the arrangements and method of operation between International Feed and the LaMoure, Alfalfa, and Grandin plants were to be the same as had existed between Kurda and the three plants.

International Feed purchased the Kurda inventory at the three plants in November, 1974, and operations began and continued without written contracts until January, 1975, when International Feed and the three plants entered into toll agreements. Leo Froelich signed the toll agreements, which were identical to the previous agreement between Kurda and the LaMoure plant, on behalf of the three plants.

The arrangement between International Feed and the three plants was discontinued in February, 1976, and International Feed then entered the book inventory value of the inventory located at each plant as an account receivable from that plant.

After disagreements arose concerning payments for inventory, International Feed's accounting firm was hired to perform an audit to determine the amounts the three plants and International Feed owed each other under the contracts.

After the three plants refused to pay the amounts in dispute, International Feed brought suits against them. The trial court concluded that International Feed was entitled to judgments against the three plants. From judgments entered against them, the three plants lodged these appeals and have raised the following issues:

(1) Was the trial court correct in determining as a matter of law that the Defendants were liable for losses of inventory?

(2) Was the finding of the trial court determining the amount of damages clearly erroneous?

I. Losses of Inventory

The major source of dispute is the following provision in the toll agreements dated January 1, 1975:

"6. That Processor is responsible for all Kurda inventory, both raw ingredients and finished products, as to quantity and quality, and must allow inspection of same by Kurda personnel at any time."

International Feed asserts that this provision renders the three plants liable for any loss of inventory. The three plants assert that this provision simply expresses a bailor-bailee relationship making them liable only for a loss of inventory due to negligence on their part.

That losses of inventory occurred is undisputed, but the three plants assert that the loss occurred because International Feed bought excessive inventory, which deteriorated during outdoor storage.

Conclusions of law are fully reviewable by this Court. Schwarting v. Schwarting, 310 N.W.2d 738 (N.D.1981). Whether or not an ambiguity exists in a contract is a question to be determined by the court as a matter of law. Berry v. Heinz, 139 N.W.2d 145 (N.D.1965).

In construing a written contract, its language is to govern its interpretation if the language is clear and explicit and does not involve an absurdity, Section 9-07-02, N.D.C.C., and the intention of the parties is to be ascertained from the writing alone if possible. Section 9-07-04, N.D.C.C.

The trial court concluded, among other things, that:

"... The written terms of the contract between the parties clearly and unambiguously state that Defendants are responsible as to quality and quantity of the inventory, both raw ingredients and finished products. If the inventory is diminished, the Defendants are liable for the deficiency under the terms of the contract...."

We agree.

A bailee may contract to assume a greater liability than that imposed by law. Grady v. Schweinler, 16 N.D. 452, 113 N.W. 1031 (1907). The appellants have so contracted in paragraph 6 of the toll agreements. The language used does more than express a bailment relationship. It enlarges the bailee's obligation.

In Sun Printing & Publishing Association v. Moore, 183 U.S. 642, 22 S.Ct. 240, 46 L.Ed. 366 (1902), the United States Supreme Court construed a contract to hire a yacht. The contract provided that the hirer keep the yacht in repair and also provided:

"[T]he hirer shall be liable and responsible for any and all loss and damage to hull, machinery, equipment, tackle, spars, furniture, or the like."

The Supreme Court, construing those provisions, stated:

"... it is difficult to conceive how language could more aptly express the absolute obligation, not only to repair and keep in good order to the end of the hiring and to return, but, moreover, to be responsible for any and all loss and damage to the vessel, the fixtures and appointments. These stipulations seem to us to leave no doubt of the absolute liability to return; in other words, of the putting of the risk of damage or loss of the vessel upon the hirer...." 183 U.S. at 656, 22 S.Ct. at 246, 46 L.Ed. at 375.

We believe that the provision involved in the instant case expresses a similarly absolute obligation that puts the risk of loss of inventory upon the processor. See also, Modlin v. Walter's Fur Shop, 96 Cal.App.2d 734, 216 P.2d 42 (1950), in which it was held that a provision that "consignee shall be responsible for any loss from fire or theft or negligence", was a direct agreement to be responsible for any loss from theft without proof of negligence.

The three plants' reliance upon State v. Grand Forks County, 71 N.D. 355, 300 N.W. 827 (1941) and Fairmont Coal Co. v. Jones & Adams Co., 134 F. 711 (7th Cir.1905) is misplaced.

In State v. Grand Forks County, supra, the State, relying on a statute providing that "each county is responsible to the state for the full amount of tax levied for state purposes", attempted to make the county treasurer liable for taxes collected, deposited in a bank, and lost when the bank closed. This Court...