Lickley v. Max Herbold, Inc.

• Decision Date: 21 July 1999
• Docket Number: No. 24615.,24615.
• Citation: 984 P.2d 697,133 Idaho 209
• Parties: Lonnie LICKLEY, Plaintiff-Respondent-Cross Appellant, v. MAX HERBOLD, INC., an Idaho corporation, Defendant-Appellant-Cross Respondent.
• Court: Idaho Supreme Court

984 P.2d 697

133 Idaho 209

Lonnie LICKLEY, Plaintiff-Respondent-Cross Appellant, v. MAX HERBOLD, INC., an Idaho corporation, Defendant-Appellant-Cross Respondent.

No. 24615.

Supreme Court of Idaho, Boise, March 1999 Term.

July 21, 1999.

Rehearing Denied September 16, 1999.

Chisholm Law Office, Burley, for appellant. Donald J. Chisholm argued.

Parsons, Smith & Stone, Burley, for respondent. Richard K. Smith argued.

TROUT, Chief Justice.

This appeal involves a contract dispute. Lonnie Lickley (Lickley), a potato grower, entered a preseason potato growing contract with Max Herbold, Inc. (Herbold). After harvest, a dispute arose as to the price to be paid. Following a bench trial, the court awarded Lickley $33,000 in damages. The trial court found that because a substantial portion of the potatoes delivered failed to meet agreed upon standards, the contract required the parties to renegotiate a price. However, the parties could not agree, so the trial court set the price for the substandard potatoes at $7.55 per cwt., the market price at the time of delivery. Herbold appeals and Lickley cross-appeals.

I. FACTUAL AND PROCEDURAL HISTORY

In 1995, Lickley entered a "One Year Potato Growing and Sales Contract" with Herbold. Lickley agreed to plant, cultivate, harvest, and deliver 12,000 cwt. of Russet Burbank potatoes. The contract set a base price of $6.15 per cwt. Then, depending on the quality of the potatoes delivered, the contract provided for price adjustments.

To determine the quality of each load and establish a purchase price, the contract provided for inspection by the "Federal-State Inspection Service." Paragraph (C)(4)(b) of the contract set minimum quality standards providing:

Any load or combination of loads inspecting below fifty percent (50%) well shaped U.S. NO. 1, two inch or 4 ounce minimum will be rejected under the contract.

The contract also contemplated that an inspection might not be completed until after a load had been delivered and the potatoes commingled. In such instances, paragraph (C)(4)(e) provides:

The price for any load or combination of loads already delivered and placed in Company storage subsequently determined by inspection to be rejectable under this contract will have to be renegotiated between Grower and Company.

Over six days, Lickley delivered twenty-three truckloads totaling just over 12,000 cwt. of potatoes. Herbold accepted the shipments and commingled the potatoes with deliveries from other growers. Results from the inspections showed that the combination of loads delivered on each of the first four days failed to meet the minimum standards. Viewing all six days deliveries as a whole, eighty-five percent of the potatoes graded below the "U.S. No 1 two inch or 4 ounce minimum" standard.

Herbold notified Lickley that the potatoes were substandard and calculated a net price of $3.22 per cwt. using the pricing formula set out in the contract. Because a number of the accepted potatoes were "rejectable," Lickley sought to renegotiate the price under the contract insisting upon $8.00 per cwt. Herbold rejected the offer. At a second meeting, Lickley requested $5.00 per cwt. and Herbold countered offering to waive the freight charges of $4,096 or to increase the initial $3.22 per cwt. offer to reflect that amount. Lickley refused, and this litigation ensued.

In January 1996, Lickley filed a complaint alleging that Herbold breached the contract by failing to renegotiate a price for the "rejectable" potatoes. Lickley asserted that he suffered more than $80,000 in damages, the market value of the potatoes at the time of delivery. Herbold answered claiming that Lickley failed to deliver conforming potatoes. While it accepted the goods, Herbold argues that Idaho law only requires that it pay the contract price.

Following a bench trial, the late Judge Granata found that the contract only required Lickley to deliver 12,000 cwt. of "field run potatoes" and that Lickley fully performed his obligations under the agreement. Herbold accepted all shipments. Because Herbold accepted "rejectable" potatoes, the contract required the parties to renegotiate a price for those potatoes. Judge Granata ultimately concluded that Herbold failed to negotiate in good faith and, as a result, determined that a reasonable price would be $7.55 per cwt., the market price at the time.¹ The lower court awarded Lickley damages based on the market price for the rejectable potatoes and $4.11 per cwt. for the conforming potatoes—less costs, freight, and an amount previously tendered. The lower court also awarded costs and attorney fees to Lickley but denied Lickley's request for prejudgment interest.

Both parties appeal.

II. STANDARD OF REVIEW

Herbold brings this appeal asking this Court to review the district judge's interpretation of the potato growing contract. Where the language of the contract makes clear the intentions of the parties, the interpretation and legal effect of the contract are questions of law over which we exercise free review. First Security Bank of Idaho v. Murphy, 131 Idaho 787, 791, 964 P.2d 654, 658 (1998). When interpreting any one contract provision, we must view the entire agreement as a whole to discern the parties' intentions. Id. However, this Court will not set aside findings of fact unless they are clearly erroneous. Hunter v. Shields, 131 Idaho 148, 151, 953 P.2d 588, 591 (1998). If the district court's factual determinations are supported by substantial and competent, albeit conflicting, evidence, we will not disturb those findings. Marshall v. Blair, 130 Idaho 675, 679, 946 P.2d 975, 979 (1997).

III. DISCUSSION

The Contract. This dispute involves a contract for sale of goods governed by the Uniform Commercial Code. See I.C. §§ 28-2-102, 105(1). There is no dispute as to the existence or validity of the contract, only the purchase price. Lickley agreed to plant, cultivate, harvest, and deliver 12,000 cwt. of Russet Burbank potatoes. Lickley delivered twenty-three loads over six days totaling just over 12,000 cwt. The purchase price depended upon the quality of the potatoes delivered. Under the contract's terms, Herbold could reject any load or combination of loads that failed to meet specific minimum requirements, that is, "fifty percent (50%) well shaped U.S. NO. 1, two inch 4 ounce minimum." The Federal-State Inspection Service examined the combined loads from each day, but did not return the results until Herbold had accepted each delivery by commingling the potatoes in its storage facilities. See I.C. § 28-2-606. Only the deliveries over the last two days met the contract requirements. In fact, viewing all shipments as a whole, eighty-five percent fell below the contract standard. Neither party challenges the inspection results.

The contract contemplated just this event, providing the following:

The price for any load or combination of loads already delivered and placed into Company storage subsequently determined by inspection to be rejectable under this contract will have to be renegotiated between Grower and Company.

Using the contract's pricing formula for conforming potatoes, Herbold calculated the purchase price for each day's deliveries. The net result was $3.22 per cwt. for all the potatoes delivered. Lickley rejected Herbold's initial offer for this amount. The parties met twice and failed to agree upon a price.

The district judge found that Herbold breached the contract by failing to renegotiate in good faith. Herbold challenges this conclusion on appeal. However, whether or not Herbold negotiated in good faith is ultimately of no consequence in this case. The fact remains that Herbold accepted the goods and that Lickley is merely attempting to recover what he believes to be the contract price. The only issue, then, is whether the district judge properly concluded $7.55 per cwt. to be the contract price for the rejectable potatoes.

Open Price Term. By commingling and failing to reject any deliveries, Herbold accepted all twenty-three loads. See I.C. § 28-2-606. Consequently, it is obligated to pay the contract price. See I.C. § 28-2-607. Paragraph C of the contract provided a specific formula to calculate the purchase price. However, under paragraph C(4)(e), if Herbold accepted "rejectable" potatoes, the contract required the parties to renegotiate the price. The parties do not dispute that at least Lickley's first four days, deliveries were rejectable, but Lickley contends that all the potatoes were rejectable. Consequently, the parties left the contract price open as to the rejectable potatoes.

So long as the parties intend to enter a contract, their agreement will not fail for indefiniteness where they do not settle the price. I.C. § 28-2-305. It is clear from the record that Herbold and Lickley intended to enter an enforceable agreement. Where the contract leaves the price open for negotiation and the parties fail to agree, § 28-2-305(1) provides: "In such a case the price is a reasonable price at the time for delivery...." Lickley and Herbold failed to agree upon a price. Lickley argued below that the market price, approximately $7.50 per cwt. at the time for delivery, was the reasonable price. Herbold argued that the market price is not a reasonable price. Instead, a reasonable price could not exceed the price as calculated under paragraph C of the contract.

The district judge determined the market price of $7.55 per cwt. to be a reasonable price at the time for delivery. So long as this factual determination is supported by substantial and competent evidence, we will not disturb this finding on appeal. Without providing an express distinction between the two, the Uniform Commercial Code uses the terms "reasonable price" and "market price" in a number of contexts. As is evident from their use, their meanings are not necessarily interchangeable.² The question facing us, however, is whether substantial and competent evidence in the...