Kirkwood Agri-Trade v. Frosty Land Foods Intern., Inc.

• Decision Date: 13 July 1981
• Docket Number: A,AGRI-TRAD,No. 80-7784,80-7784
• Citation: 650 F.2d 602
• Parties: 31 UCC Rep.Serv. 1360 KIRKWOODCorporation, Plaintiff-Appellee Cross Appellant, v. FROSTY LAND FOODS INTERNATIONAL, INC., An Alabama Corporation, Defendant-Appellant Cross Appellee. Summary Calendar. . Unit B
• Court: U.S. Court of Appeals — Fifth Circuit

Page 602

650 F.2d 602

31 UCC Rep.Serv. 1360

KIRKWOOD AGRI-TRADE, A Corporation, Plaintiff-Appellee Cross Appellant, v. FROSTY LAND FOODS INTERNATIONAL, INC., An Alabama Corporation, Defendant-Appellant Cross Appellee.

No. 80-7784

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Unit B

July 13, 1981.

Albert W. Copeland, E. Terry Brown, Montgomery, Ala., for defendant-appellant cross-appellee.

John M. Bolton, III, Montgomery, Ala., for plaintiff-appellee cross-appellant.

Appeal from the United States District Court for the Middle District of Alabama.

Before TJOFLAT, VANCE and THOMAS A. CLARK, Circuit Judges.

VANCE, Circuit Judge:

This is a diversity suit governed by Alabama law. On November 24, 1976 Kirkwood Agri-Trade, Inc. contracted with Frosty Land Foods International, Inc. to purchase Frosty Land's entire production of unscalded Mountain Chain Tripe ¹ from December 1, 1976 to December 31, 1977 at a price of $1.20 a pound. The contract estimated that production would be ten to twelve thousand pounds a month, to be shipped "semi-monthly" or when twenty to twenty-five thousand pounds were ready. Such output contracts are valid under Alabama law. Ala. Code § 7-2-306; see Darden v. Ogle, 293 Ala. 699, 704, 310 So.2d 182, 186 (1975). In fact, no tripe was ever delivered by Frosty Land to Kirkwood.

The only issue before this court is the computation of damages. By unpublished opinion, No. 79-2950 (5th Cir. Apr. 1, 1980) another panel of this court ruled that the award of damages was governed by Ala. Code § 7-2-713:

(1) Subject to the provisions of this article with respect to proof of market price the measure of damages for nondelivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this article but less expenses saved in consequence of the seller's breach.

The major difference between the parties is their contentions regarding "the time when the buyer learned of the breach."

Toward the end of December Kirkwood telephoned Frosty Land several times to ask about the tripe. Frosty Land responded each time that no tripe had been produced yet, but left the implication that production would start in the future. Not until April did Frosty Land unequivocally inform Kirkwood that it would produce no tripe at all. On these facts Frosty Land claims that Kirkwood learned of the breach in December, when the market price for tripe was below the contract price. Kirkwood, on the other hand, claims it learned of the breach in April, when the market price for tripe was considerably higher. The district court agreed with Kirkwood, but held that Kirkwood was only entitled to damages for the nine months remaining to the contract. Both sides appeal.

Both parties overlook the significance of the periodic deliveries called for in the contract. This aspect of the agreement transforms it into an installment contract, Ala. Code § 7-2-612. To determine the time Kirkwood learned of the breach, we must identify the time the breach occurred under the rules regarding installment contracts.

According to the contract, Frosty Land was to ship the tripe semi-monthly or when it had produced twenty to twenty-five thousand pounds. The contract estimated that Frosty Land would produce ten to twelve thousand pounds monthly. Hence, Frosty Land should have sent its first shipment by two months or so at the latest, that is, by late January 1977. Its failure to do so clearly constituted a default.

Default on a single installment, however, is not necessarily equivalent to a breach of the whole contract. On the contrary, official comment 6 to § 2-612 of the U.C.C., from which Ala. Code title 7 derives, specifically asserts that the law "is designed to further the continuance of the contract in the absence of an overt cancellation." ² This approach coincides with that traditionally adopted in Alabama.

A delivery of only a part of the quantity ordered, or a failure to deliver any part of it, does not terminate the contract, unless the plaintiffs saw proper to so treat and regard it. The contract continues, as to future orders, during the period stipulated. Each delivery is considered in the nature of a separate and distinct contract.

Johnson & Thornton v. Allen & Jemison, 78 Ala. 387, 391 (1884-85). In the case at bar, neither party offered any evidence suggesting it considered the contract terminated when the first shipment failed to arrive. The trial court found, on the contrary, that Frosty Land led Kirkwood to believe that it intended to begin production, and this finding is not clearly erroneous. Therefore, this first default was not a breach of the entire contract.

The failure to make the second delivery by early April was treated differently. This time, when Kirkwood contacted Frosty Land, Frosty Land said that not only had it produced no tripe, but that it would produce none in the future. We agree with the trial court that this response terminated the entire contract. See, e. g., Oloffson v. Coomer, 11 Ill.App.3d 918, 296 N.E.2d 871 (1973).

In determining damages under Ala. Code § 7-2-713, therefore, we must distinguish between the two...