Magic Valley Foods, Inc. v. Sun Valley Potatoes, Inc.

• Decision Date: 07 July 2000
• Docket Number: No. 24840.,24840.
• Citation: 134 Idaho 785,10 P.3d 734
• Parties: MAGIC VALLEY FOODS, INC., a corporation; and Rolland Jones Potatoes, Inc., a corporation, Plaintiffs-Respondents-Cross Appellants, v. SUN VALLEY POTATOES, INC., a corporation, Defendant-Appellant-Cross Respondent.
• Court: Idaho Supreme Court

10 P.3d 734

134 Idaho 785

MAGIC VALLEY FOODS, INC., a corporation; and Rolland Jones Potatoes, Inc., a corporation, Plaintiffs-Respondents-Cross Appellants, v. SUN VALLEY POTATOES, INC., a corporation, Defendant-Appellant-Cross Respondent.

No. 24840.

Supreme Court of Idaho, Twin Falls, March 2000 Term.

July 7, 2000.

Rehearing Denied October 12, 2000.

John A. Bradley, Burley, for appellants.

Bollar & Goodman, Rupert, for respondent. Alan C. Goodman argued.

KIDWELL, Justice.

This case involves a contract dispute arising from the non-delivery of and non-payment for potatoes. Plaintiffs alleged that defendants failed to deliver the potatoes contracted for, while defendant charged that it was excused from delivery because of plaintiffs' refusal to pay for past deliveries. Following a bench trial, the district court held that both sides had reasonable grounds for not performing the contract. We reverse and remand.

I. FACTS AND PROCEDURAL BACKGROUND

Appellant Sun Valley Potatoes, Inc. (Sun Valley) is a fresh packer of potatoes. Respondent Magic Valley Foods, Inc. (Magic Valley) is a processor of potatoes. Sun Valley and Magic Valley entered into three written contracts wherein Sun Valley agreed to sell and deliver and Magic Valley agreed to purchase potatoes. Subsequent to the written contracts, the parties also entered into a fourth contract which was not reduced to writing. The contracts were identified by the parties as 9415, 9416, 9418 and the oral contract 9470. During the negotiations on these contracts, Sun Valley was represented by its president, A.R. "Gus" Blase. Magic Valley was represented by Richard Johnson, a purchasing agent for Magic Valley.

The written contracts, which were all drafted by Magic Valley, were intended to follow the cycle of the potato crop for the 1994—1995 year. Thus, when delivery under one contract ended, delivery under the next contract would begin. The first contract, 9416, called for delivery of 200,000 hundred weight (cwt.) of potatoes to be delivered starting in August of 1994 and ending when delivery was complete. Even though Sun Valley did not deliver the entire 200,000 cwt., the parties agreed that the contract had been fulfilled when Sun Valley advised Magic Valley that it had ended its early season run.

The ledger sheet kept by Magic Valley showed that under contract 9416, Sun Valley provided nine weekly invoices, but none of those invoices were paid according to the term in all of the contract's "net thirty (30) days on amounts delivered on a weekly basis." Sun Valley was paid on three of the invoices on November 16, 1994. Sun Valley was paid for the remaining invoices under contract 9416 on January 19, 1995. Both of these payments were made to Sun Valley from a third corporation, Rolland Jones Potatoes, Inc. (Rolland Jones), a "sister company" of Magic Valley. At the time of the payments, Sun Valley owed money on an open account to Rolland Jones. To make payments, Rolland Jones would pay Sun Valley for potatoes delivered to Magic Valley, but only if Sun Valley agreed to "trade checks" with Rolland Jones for the amounts that Sun Valley owed to Rolland Jones. Richard Johnson of Magic Valley testified that Sun Valley was "held hostage" under the trading of checks, which had been initiated by Rolland Jones. None of the contracts between Magic Valley and Sun Valley provided for a trading of checks for payment.

The second contract, 9415, called for another 200,000 cwt. of potatoes to be delivered starting in September of 1994 and running until February of 1995. The parties agreed that this contract was filled when Sun Valley delivered 200,154.3 cwt. of potatoes. Magic Valley's invoices under contract 9415 totaled 25 in all. As with contract 9416, none of the contracts were paid pursuant to the contract's 30-day provision. On January 19, 1995, Rolland Jones paid Sun Valley for 11 of the 25 invoices by trading checks. This was the last time Sun Valley traded checks with Magic Valley; thereafter Magic Valley simply mailed a check to Sun Valley without requiring Sun Valley to tender a check back to Rolland Jones. Each of the deliveries to Magic Valley was accepted and processed by Magic Valley. At trial the parties stipulated that Magic Valley still owed Sun Valley $109,478.63 on contract 9415.

The third written contract was number 9418 which called for 300,000 cwt. of potatoes to be delivered by Sun Valley between February 1995 and July 1995. Prior to the commencement of contract 9418, however, the parties entered into an oral contract, 9470. This contract called for either 30,000 or 50,000 cwt. (the parties did not agree at trial) of potatoes to be delivered at a price of $2.50/cwt. compared to the $1.13/cwt. of the three written contracts. The need for this contract arose because Sun Valley was having difficulty in obtaining potatoes from growers on consignment to deliver at the low contract price. Sun Valley began delivering under contract 9470 on January 3, 1995 and completed delivery on February 28, 1995. Even though the parties could not agree at trial as to how many cwt. were to be delivered, Magic Valley accepted and processed 56,536.4 cwt. of potatoes that Sun Valley delivered under contract 9470. The parties agreed that contract 9470 was fulfilled and did not dispute the price owed to Sun Valley.

Due to deliveries under contract 9470, deliveries under contract 9415 were interrupted. The parties contemplated this when they entered into contract 9470. The parties agreed to extend the delivery date of contract 9415 until May of 1995. Sun Valley filled contract 9415 prior to May of 1995.

On May 31, 1995, Sun Valley commenced delivery on the last contract, 9418. Since contract 9415 had extended late, it was agreed that contract 9418 could also be extended. The extension was until either September or October of 1995 (the parties did not agree at trial as to the length of the extension).

Sun Valley continued to deliver under contract 9418 until August 8, 1995, when Sun Valley ceased its deliveries under contract 9418 because it had not been paid for any of the ten invoices under contract 9418, nor for 14 invoices remaining on contract 9415. Thus, as of August 9, 1995, Magic Valley owed Sun Valley $234,070.44 for deliveries under contracts 9415 and 9418. In August of 1995, Sun Valley informed Magic Valley that no more potatoes would be delivered under contract 9418 unless Magic Valley made a significant payment on the delinquent accounts. Magic Valley did not make any further payments to Sun Valley on the $234,070.44 debt. At trial, Sun Valley admitted that it still owes Rolland Jones $31,-304.47. During the time Sun Valley delivered on contract 9418 from May 31 to August 8 of 1995, Sun Valley delivered to other producers for a higher price than that in the contracts. These potatoes were of the same grade as those called for in contract 9418. On August 30, 1995, Magic Valley made a written demand for delivery of the remaining 191,831.1 cwt. of potatoes that Sun Valley owed under contract 9418. Sun Valley replied that it would not perform absent payment. Because of a lack of potatoes to process, the Magic Valley processing plant ceased operations for 14 days in August of 1995, until it was able to procure potatoes from another source.

In September of 1995, Magic Valley and Rolland Jones brought suit against Sun Valley. Following a two-day court trial in February of 1998, the district court entered its findings of fact and conclusions of law on May 8, 1998. The district court concluded that because Sun Valley had not insisted on strict compliance with the 30-day payment rule, it could not unilaterally repudiate the contract due to late payments. The district court also ruled that Magic Valley was entitled to offset the $236,904.44 it owed Sun Valley against the $231,660.60 it incurred as a result of its processing plant being down for 14 days and the loss of profits associated therewith. The district court also ruled that Magic Valley was not entitled to the amount it expended to get potatoes from the other suppliers, since Magic Valley sought cover prior to the end of the time Sun Valley had to deliver. Finally, the district court ruled that after Magic Valley's offset, Sun Valley still owed Rolland Jones $26,060.63.

On July 9, 1998, Magic Valley filed its notice of appeal. Sun Valley filed its notice of cross-appeal on July 19, 1998.

II. STANDARD OF REVIEW

This Court will defer to the district court's findings of fact if they are supported by substantial and competent evidence; however this Court will freely review the conclusions of law reached by stating legal rules and applying them to the facts found. Great Plains Equip. v. N.W. Pipeline, 132 Idaho 754, 760, 979 P.2d 627, 633 (1999). In a case tried before the court, the court's findings will be liberally construed on appeal in favor of the judgment entered. Conley v. Whittlesey, 133 Idaho 265, 269, 985 P.2d 1127, 1131 (1999). Where the findings of facts are based on substantial evidence they will not be overturned on appeal, even if the evidence is conflicting. Id.

III. ANALYSIS

A. Sun Valley Was Entitled To Withhold Delivery On Contract 9418 Because Of Magic Valley's Chronic Delinquency And Non-Payment On Prior Contracts.

Sun Valley contends that it was entitled to cancel contract 9418 or withhold delivery because Magic Valley breached the contract by failing to comply with the contract's payment terms. The district court held that Sun Valley could not unilaterally repudiate the contract because it had failed to require strict compliance with the 30-day payment requirement. However, the district court also held that by August 9, 1995, Magic Valley was so delinquent that Sun Valley was justified in withholding further deliveries.

Because this case involves the sale of goods, it is within the scope of the Uniform Commercial Code (UCC) as adopted in Idaho. I.C. § 28-2-102; Lickley v. Max...