John Deere Co. v. Nygard Equipment, Inc.

• Decision Date: 31 December 1974
• Docket Number: No. 9010,9010
• Citation: John Deere Co. v. Nygard Equipment, Inc., 225 N.W.2d 80 (N.D. 1974)
• Court: North Dakota Supreme Court
• Parties: JOHN DEERE COMPANY, a Division of Deere & Company, a corporation, Plaintiff-Appellant, v. NYGARD EQUIPMENT, INC., Defendant-Appellee. Civ.

Page 80

225 N.W.2d 80

JOHN DEERE COMPANY, a Division of Deere & Company, a corporation, Plaintiff-Appellant, v. NYGARD EQUIPMENT, INC., Defendant-Appellee.

Civ. No. 9010.

Supreme Court of North Dakota.

Dec. 31, 1974.

Syllabus by the Court

1. For reasons stated in the opinion, the manner and circumstances of the termination of the dealership agreement and the conduct of the manufacturer-distributor in seizing, retaining, and disposing of the dealer's property were relevant in assessing the dealer's claim for exemplary damages and a counterclaim asserting conversion.

2. As possessory rights over collateral subject to a security agreement are inoperative when there is no debt to be satisfied, the seizure, detention, and sale of collateral much in excess of the debt owed the manufacturer-distributor by its dealer were factors to be considered by the jury in determining whether a conversion occurred and the amount of damages sustained.

3. For reasons stated in the opinion, the appellant's contention concerning instructions to the jury are held to be without merit.

4. For reasons stated in the opinion, it is held that the issue of punitive damages was properly submitted to the jury.

Nilles, Hansen, Selbo, Magill & Davies, Ltd., Fargo, for plaintiff and appellant.

Vogel, Vogel, Brantner & Kelly, Fargo, for defendant and appellee.

KNUDSON, Judge.

John Deere Company (hereafter Deere) appeals from a judgment obtained by Nygard Equipment, Inc. (hereafter Nygard) for $57,481.20, which included $25,000.00 for conversion, $15,000.00 for interest, $15,000.00 for punitive damages, and $2,481.20 for costs.

On July 7, 1971, Deere initiated an action by complaint wherein it was in essence asserted: that Deere and Nygard, on November 3, 1970, entered into a dealership agreement and that contemporaneously the parties entered into a security agreement whereby Nygard granted to Deere a security interest in the goods which were the subject of the dealership; that Nygard defaulted in the agreement by failing to pay to Deere the proceeds of sales to various customers, as required by the agreement; that the contract provides that if Nygard is in default Deere may declare all unpaid indebtedness to it immediately due and payable and that Deere was so declaring; that as of June 30, 1970, Nygard was indebted to Deere in the sum of $91,487.48 under the agreement (and $1,723.00 under another security agreement); that the security agreement provided that if default be made in the terms, Deere could take possession of the goods covered by the security agreement and sell them in the manner prescribed by law and by the security agreement; and that the property covered by the security agreement was in existence within the jurisdiction of the court and of the value of $92,500.00.

In the prayer for relief, Deere asked that it receive a judgment granting it immediate possession of the property and the right to pursue remedies provided for in the security agreement and as provided in the Uniform Commercial Code.

In Nygard's answer it was asserted: that Deere terminated the franchise agreement and in response thereto that Nygard offered to return all of the spare parts inventory under the laws governing machinery dealers in North Dakota; that the offer was rejected; that Nygard denies it owes $91,487.48; and that Nygard has total credits of $139,869.21 to offset any indebtedness claimed by Deere.

Nygard, by counterclaim, realleged a number of paragraphs of the answer, asserted that Deere maliciously, fraudulently, negligently and willfully terminated the franchise agreement between the parties and levied on said property by having the sheriff take possession of all of said property of which the value was far in excess of that claimed by Deere's complaint and specifically that the levy on all machinery was an illegal levy in that Deere had no right to take any of said items; alleged general damages in the amount of $137,360.00, and alleged exemplary damages against Deere for conversion of Nygard's property and for the malicious, fraudulent, negligent and willful manner in which its agreement was terminated and in the taking of Nygard's property and interfering with Nygard's right to transact business.

The parties entered into a stipulation on August 15, 1973, parts of which are pertinent to the issues in this case:

'The amount of the indebtedness due John Deere as of the end of July of 1971 in the sum of $89,278.94 is subject to offsets for credits due Nygard Equipment by John Deere Company as of the end of July, 1971, in the total amount of $90,280.38, exclusive of any credit due Nygard Equipment for its used machinery and equipment subsequently liquidated by John Deere.'

'While this Stipulation sets out the foregoing agreed upon facts and figures, it is not intended to and it shall not be construed as an admission or acknowledgment by John Deere Company that John Deere knew or should reasonably have known or was required to know that its account and claim against Nygard Equipment was paid or could have been satisfied as of the end of July, 1971, or at anytime thereafter through the sale of the Nygard Equipment Used Machinery described in Paragraph 7 above, without the necessity of seizing the machines in July, 1971, and selling them in April of 1972.

'The agreements set forth in this Stipulation as to amounts due John Deere Company or credits due Nygard Equipment are the results of compromise and are not to be construed as an admission by either party that such amounts are true and correct for any purpose other than the compromise set forth in the Stipulation or that such amounts were known or should have been known to either of the parties hereto, provided, however, that the amount thereof may be offered into evidence by either party without further foundation.

'This Stipulation finally disposes of all claims between the parties, except the following:

'A. The Counterclaim of the defendant.

'B. The defendant's claim for interest on any sums due from the plaintiff.

'C. Nothing herein shall be construed as an acknowledgment or agreement by Nygard Equipment that John Deere Company had the legal right to sell Nygard Equipment used machinery in April of 1972 and there is expressly reserved to Nygard Equipment the right to attack the sale and how and when it was conducted. As reflected by Paragraph 7 above, this Stipulation does establish the amounts that John Deere Company realized as a result of conducting the sale of the Nygard used equipment in late April of 1972.'

Nygard received a degree in agricultural engineering from North Dakota State University in 1966. Following graduation, he was employed by Deere in several capacities. In 1967 he assumed the job of territorial manager for Deere. Nygard wanted to stop traveling and start a business of his own close to his home town. He discussed the matter with Glenn Martin, Minneapolis Region Credit Manager for Deere, who suggested that the dealership in Enderlin, North Dakota, was for sale, and that the owner, Elwood Nelson, would be a good person with whom to associate. Nygard resigned from Deere and in June of 1968 Nygard Equipment, Inc. was organized. His original capital contribution to the corporation was $30,000.00, for which he secured a fifty percent interest, the other fifty percent interest being held by Nelson. Nelson also operated Deere dealerships in Milnor and Jamestown in addition to the Deere dealership at Enderlin.

In effect at the time of the institution of this lawsuit was a dealership agreement between Nygard Equipment, Inc. and John Deere Company, which was executed in November 1970 by James Nygard for Nygard Equipment, Inc. and by Gary Burau, Territory Manager, and Glenn Martin, Credit Manager, for John Deere Company. Contemporaneously a security agreement between the same parties was executed giving to Deere a security interest in Nygard's inventory of Deere products, repair parts, and used machinery.

During the years 1968--1971 Mr. Nygard met his sales goals under the John Deere sales incentive plan and won trips to various resort areas. He also earned volume discounts throughout the period during which he was a John Deere dealer.

While a John Deere dealer, Nygard paid Deere to have a Deere field accountant supervise preparation of the monthly financial statement and year-to-date financial statements that Nygard was required to provide Deere. Nygard also employed its own fulltime bookkeeper and retained an auditor to conduct year-end audits and prepare annual financial statements and tax returns.

Deere provided Nygard with wholesale financing on a floor plan basis. On occasions in 1970 and 1971, Nygard sold floorplanned items and did not immediately transmit the sales proceeds to Deere, contrary to the strict provisions of the security agreement, although delay in transmittal never amounted to as much as thirty days.

On or about March 20, 1971, a Deere delegation, headed by Dale Persinger, Divisional Credit Manager under Mr. Martin, Gary Burau and Chuck Busse, the Deere field accountant who had been preparing the Nygard monthly statements during 1970 and early 1971, arrived at Enderlin to conduct an audit of Nygard assets and liabilities. These people did not make a physical count of the parts inventory. The audit placed the value of John Deere parts at $48,334.00. Accounts receivable were placed at $23,099.90, arrived at by taking Nygard's accounts receivable less a twenty-five percent reserve. This audit reported that from 1968 to March of 1971 Nygard had sustained a loss of $67,100.68.

Nygard denies this loss and asserts that its records showed only a loss of about $17,000.00, and that that loss occurred during the first three months of 1971. Nygard testified that in the implement business in North Dakota it was not uncommon to have an operating loss during the early months of the year prior to the commencement of Spring farming operations.

Nygard...