Red River Commodities, Inc. v. Eidsness, 890311

• Decision Date: 01 August 1990
• Docket Number: No. 890311,890311
• Citation: Red River Commodities, Inc. v. Eidsness, 459 N.W.2d 805 (N.D. 1990)
• Parties: 13 UCC Rep.Serv.2d 1076 RED RIVER COMMODITIES, INC., Plaintiff and Appellee, v. Kelby EIDSNESS, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 805

459 N.W.2d 805

13 UCC Rep.Serv.2d 1076

RED RIVER COMMODITIES, INC., Plaintiff and Appellee, v. Kelby EIDSNESS, Defendant and Appellant.

Civ. No. 890311.

Supreme Court of North Dakota.

Aug. 1, 1990.

Yuill, Wold, Johnson & Feder, Fargo, for plaintiff and appellee; argued by Robert A. Feder.

Freed, Dynes, Reichert & Buresh, PC, Dickinson, for defendant and appellant; argued by Ronald A. Reichert.

MESCHKE, Justice.

Red River Commodities, Inc. (RRC) sued Kelby Eidsness for breach of his contract to grow and to deliver sunflowers. The trial court awarded RRC judgment for $25,800.11. Kelby appealed. We reverse and remand for a new trial.

In early 1988, Kelby signed "Confection Sunflower Production" contract No. 242 with RRC. RRC agreed to purchase 250,000 pounds from Kelby at a floor price of 11.25 cents per pound, and Kelby agreed, as "The Grower," to "plant a minimum of 250 acres to cover contracted lbs." Because of drought, Kelby grew and delivered only 75,084 pounds. In December 1988, RRC sued Kelby for his failure to deliver the contracted balance of 174,916 pounds.

At the trial without a jury, the main dispute was whether the drought excused Kelby's failure to deliver the remaining pounds. The contract contained an excuse clause for "acts of God." RRC's position was that it had not received "Certified Mail" notice from Kelby about his shortfall as the excuse clause stipulated. Kelby's position was that RRC had actual knowledge because he had orally notified RRC's agent, Richard Frith, about his poor crop in September before harvest. RRC insisted that Frith "was not a contracting agent. He [had] no authority to bind this organization in any way, shape, manner or form. He [had] no apparent authority."

The trial court ruled that Frith was "not an agent of [RRC] insofar as production, acts of God, waivers, and the like are concerned." The trial court found that Kelby was "not justified in assuming that [he was] not obligated to advise [RRC] of any shortfall caused by an act of God." The trial court determined that Kelby breached his contract "by failing to give the proper notice of low production or the inability to satisfy the contract[ ]; specifically, paragraph 8, other causes." Finding that RRC purchased replacements, the trial court held that Kelby was liable to RRC for the difference between the cost of cover at 26 cents per pound and the contract price of 11.25 cents per pound. Based on 14.75 cents for each of the 174,916 pounds undelivered, the trial court awarded damages of $25,800.11 to RRC. Kelby appealed.

On appeal, Kelby argues that the trial court erroneously determined that Frith was not RRC's agent, that Frith's knowledge of Kelby's poor production from drought was sufficient notice to RRC, and that, therefore, the trial court should have excused Kelby from the remainder of his contract. RRC responds that Frith was not its agent "for notice under the contract" and that Frith's knowledge was irrelevant because Kelby did not properly notify RRC by certified mail.

The Uniform Commercial Code chapter on Sales is the primary law on transactions in goods, including growing crops. NDCC 41-02-02 (UCC 2-102), 41-02-05(2) (UCC 2-105). Forward crop contracts, like this sunflower contract, are commercially important to both farmers and grain dealers. See Red River Commodities, Inc. v. George Eidsness, 459 N.W.2d 811, 814 (N.D.1990). In this case, we are largely guided by the Uniform Commercial Code but, as NDCC 41-01-03 (UCC 1-103) allows, principles of the law of agency and of contract supplement the UCC.

Impossibility caused by casualty or commercial impracticability caused by failure of presupposed conditions excuses performance of contracts for sale of goods. NDCC 41-02-76 (UCC 2-613), ¹ 41-02-78 (UCC 2-615), ² 41-02-79 (UCC 2-616). ³ Under NDCC 41-02-78, unless a seller has assumed a greater obligation, nondelivery "in whole or in part" is excused "if ... made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic [contract] assumption," and if the seller "seasonably" notifies the buyer. Uniform Commercial Code Sec. 2-615, 1B U.L.A. 196-97, Official Comment 9 (1989) says:

The case of a farmer who has contracted to sell crops to be grown on designated land may be regarded as falling either within the section on casualty to identified goods or this section, and he may be excused, when there is a failure of the specific crop, either on the basis of the destruction of identified goods or because of the failure of a basic assumption of the contract.

See Tallackson Potato Co., Inc. v. MTK Potato Co., 278 N.W.2d 417, 424, n. 6 (N.D.1979); Comment, Crop Failures and Section 2-615 of The Uniform Commercial Code, 22 S.D.L.Rev. 529 (1977); Bugg, Crop Destruction and Forward Grain Contracts: Why Don't Sections 2-613 and 2-615 of the U.C.C. Provide More Relief?, 12 Hamline L.Rev. 669 (1989); 21A Am.Jur.2d Crops Sec. 51 (1981). A crop failure excuses performance of a farmer's forward crop contract unless the farmer has assumed a greater obligation.

Kelby's contract with RRC excused performance for "acts of God ... or other causes beyond the control of the parties":

8. Fire, strikes, accidents, acts of God and public enemy, or other causes beyond the control of the parties hereto, shall excuse them from the performance of this contract. Should said events occur, either party is to notify the other within 10 days of the event by Certified Mail. Grower shall be obligated to notify RRC and the contracting representative identified below. Excuse from performance of this contract is dependent upon delivery of this notice.

Thus, non-occurrence of the loss of Kelby's crop was a basic assumption of this contract. Kelby did not assume the risk of performing if his crop was affected by causes beyond his control, but he did agree to give RRC notice of the occurrence of adverse events in a certain way, in writing by certified mail.

The UCC directs only that "[t]he seller must notify the buyer seasonably" of nondelivery if impracticable. NDCC 41-02-78(3). RRC stresses that this contract conditioned excuse from performance upon delivery of notice of the event by certified mail. Kelby argues that he did not need to strictly comply with the contracted form of notice by certified mail because he gave RRC actual notice about the effect of his poor crop by telling Frith, its agent, before harvest.

The trial court ruled that Frith was not RRC's agent for purposes of notice for excuse and that written notice to RRC by certified mail was made indispensable by the contract. The trial court determined that "Paragraph Eight ... calls for notification in the event of the occurrence of an act of God or other untoward happenstance beyond the control of the parties," and ruled that Kelby "gave no proper notification...." We believe that the trial court incorrectly applied the law in making its findings.

By delivering all of the sunflowers that he did produce, Kelby fulfilled his contract to the extent that the supervening contingency of the drought permitted. If, by Kelby's notice to its agent, RRC actually and seasonably knew that Kelby's sunflower harvest and deliveries would be reduced because of the drought, it is doubtful that RRC was harmed or prejudiced by the lack of a particular form of notice. See Ireland's Lumber Yard v. Progressive Contractors, 122 N.W.2d 554, 566 (N.D.1963); Robertson Lumber Co. v. Progressive Contractor's, Inc., 160 N.W.2d 61, 78-79 (N.D.1968). Through misapprehension of the law of contracts and of agency, the trial court did not weigh the evidence of actual knowledge communicated through RRC's agent.

Under the UCC, actual knowledge is notice of a fact.

A person has "notice" of a fact when:

a. He has actual knowledge of it;

b. He has received a notice or notification of it; or

c. From all the facts and circumstances known to him at the time in question he has reason to know that it exists.

NDCC 41-01-11(25) (UCC 1-201). Generally, "actual knowledge supersedes the requirement of notice." 6 Williston on Contracts, Third Edition Sec. 887B, p. 509 (1962). If the purpose of certified mail notice was fulfilled by Kelby's actual notice to the agent and by actual knowledge of RRC (other than through generalized knowledge of drought conditions), the departure from the form of notice was insignificant and trifling. Restatement (Second) of Contracts Sec. 229, comments b, c, and illustration 2 (1979). If Kelby seasonably notified RRC's agent, who reported that fact to his principal, any breach from failure to notify in a particular way was insubstantial and not a material breach. Restatement (Second) of Contracts Sec. 241 (1979). See also First National Bank of Belfield v. Burich, 367 N.W.2d 148, 153 (N.D.1985). Therefore, the evidence about agency, actual notice to the agent, and actual knowledge by RRC were more important in this case than the trial court realized.

There was considerable evidence that Frith was RRC's agent for this transaction, but the trial court treated it as irrelevant. Frith solicited the crop contract from Kelby for RRC. The written contract expressly limited Frith's power to bind RRC to the initial contract that he solicited:

The signature of the contracting representative does not bind Red River Commodities, Inc. upon signing of this document.... The contracting representative identified below does not have the authority to alter or vary the terms of this agreement. He is not an agent of RRC.

Nevertheless, after the contract was made, Frith frequently contacted growers for RRC to help with their production problems. Frith testified that he followed his contracts and did whatever was necessary to help insure delivery by the grower.

Frith talked to growers, inspected fields, and reported to RRC. RRC's manager testified that Frith's duties included observing the growers' crops and reporting back to him, and that Frith was his "go...