Simon v. National Farmers Organization, Inc.

• Decision Date: 10 April 1992
• Docket Number: No. 66638,66638
• Citation: 250 Kan. 676,829 P.2d 884
• Parties: Reinhard SIMON, Appellee/Cross-Appellant, v. NATIONAL FARMERS ORGANIZATION, INC., Appellant/Cross-Appellee.
• Court: Kansas Supreme Court

Page 884

829 P.2d 884

250 Kan. 676

Reinhard SIMON, Appellee/Cross-Appellant, v. NATIONAL FARMERS ORGANIZATION, INC., Appellant/Cross-Appellee.

No. 66638.

Supreme Court of Kansas.

April 10, 1992.

Syllabus by the Court

1. When a contract is complete, unambiguous, and free from uncertainty, parol evidence of prior or contemporaneous agreements or understandings tending to vary the terms of the contract evidenced by the writing is inadmissible.

2. Whether an instrument is ambiguous is a matter of law to be decided by the court. As a general rule, if the language of a written instrument is clear and can be carried out as written, there is no room for rules of construction. To be ambiguous, a contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language. Ambiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it generally uncertain which one of two or more meanings is the proper meaning.

3. Regardless of the construction of a written contract made by the trial court, on appeal a contract may be construed and its legal effect determined by an appellate court.

4. K.S.A.1991 Supp. 60-250 allows a litigant to move for a directed verdict and for judgment notwithstanding the verdict. In ruling on a motion for directed verdict pursuant to K.S.A.1991 Supp. 60-250, the court is required to resolve all facts and inferences reasonably to be drawn from the evidence in favor of the party against whom the ruling is sought and, where reasonable minds could reach different conclusions based on the evidence, the motion must be denied and the matter submitted to the jury. This rule must also be applied when appellate review is sought on a motion for directed verdict.

5. In an action by a dairyman against a cooperative seeking damages for breach of an exclusive milk marketing agreement, the record is examined and it is held: (1) The trial court erred in admitting evidence of an alleged contemporaneous oral agreement which would make the cooperative a guarantor of the price to be paid for the milk as such evidence was violative of the parol evidence rule; and (2) the trial court did not err in entering a directed verdict on the breach of fiduciary duty claim.

Craig W. West of Foulston & Siefkin, Wichita, argued the cause, and James D. Oliver, of the same firm, was with him on the briefs for appellant/cross-appellee.

John B. Gilliam of Klenda, Mitchell, Austerman & Zuercher, Wichita, argued the cause and was on the brief for appellee/cross-appellant.

McFARLAND, Justice:

This is an action by the operator of a dairy farm against defendant National Farmers Organization, Inc., (NFO) seeking damages for an alleged breach of a milk marketing agreement and breach of fiduciary duty. The trial court granted a directed verdict on the fiduciary duty claim and the jury awarded $20,902.40 on the breach of contract claim. NFO appeals from the judgment against it and the dairyman cross-appeals from the entry of the directed verdict.

Reinhard Simon is the operator of a family partnership 300 cow dairy operation situated in Sedgwick County known as the Four Star Dairy. Simon has been in the dairy business since 1952 and has sold milk directly to manufacturers and processers and indirectly through marketing agreements. In February 1989, Simon entered into an exclusive marketing agreement with NFO which contained no references to price. Simon testified NFO's agent Norb Connor promised Simon would receive blend price plus 40 cents a hundredweight less certain marketing expenses. Simon terminated the agreement in July 1989 because he did not receive what he believed was the agreed-upon price for his milk.

In August 1989, Simon entered into a new marketing agreement with NFO which, again, did not contain an express guarantee of price. Simon testified he was orally promised, by Connor, that he would receive the blend price plus 20 cents a hundredweight less certain marketing expenses. The agreement was effective September 1, 1989.

Some discussion of blend price is appropriate. Although an oversimplification, the following explanation is adequate for the issues herein. Under federal regulation raw milk is classified into three quality categories, classes one, two, and three. Class one milk is for bottled milk; class two milk is for cottage cheese and ice cream; and class three milk is for the manufacture of cheese. The United States is divided into geographical milk producing regions. The federal market administrator analyzes all milk sales in each region on a monthly basis and on the fifteenth of the following month publishes the uniform blend price for the particular area's month in question, which price is essentially an average of milk prices paid within the region and month involved. Raw milk is sold by the hundredweight (cwt), and this is the unit involved in the blend price. For example, the blend price for the region involved herein in September 1989 was $14.03 cwt.

Simon's testimony illustrates the difficult production and marketing problems facing America's dairymen. Simon's 300 cow herd requires approximately eight hours to milk and this is done twice a day. Simon has storage facilities for two days' production. He does not have the option of storing his product until the best price can be obtained. Every two days his milk has to be transported and sold. The highly perishable nature and liquid consistency of milk greatly restrict the geographical area in which milk can be profitably marketed.

Simon and four other producers market their milk together as their combined production fills the milk truck owned by one of the five, and the truck owner transports all the milk. Every two days' production leaves the respective dairyman's farm together and has to be delivered to a joint customer. If they are not operating under a marketing agreement, the little consortium of five must find its own market and deliver the milk thereto. If operating under a marketing agreement, the agent finds the market and advises the truck owner where to deliver the milk. But, in either case, the procedure is relentless and inexorable--every two days the milk has to be delivered and sold. Further complicating the situation is that within the geographical area where it is economically feasible to deliver the milk, there are relatively few buyers of large quantities of raw milk.

Two of the factors which prompted Simon to sign with NFO are that: (1) he would be paid more frequently than in direct sales; and (2) NFO had a trust fund which would enable him to be paid even if the purchaser failed to pay for the milk. This latter feature was particularly important as Simon had lost two days' production after cancellation of the first NFO contract because the buyer had defaulted.

For the months of September 1989 through March 1990, Simon did not receive the blend price or 20 cent premium. However, what he actually received was within a dollar of the blend price. In April 1990 the price received was over two dollars short of the blend price, and the price received for the first part of May 1990 was roughly four dollars less than the blend price. Connor advised Simon NFO had lost its market, and he would terminate the agreement without the 30-day notification of termination set forth in the agreement if Simon desired. Simon did so terminate and began selling his milk directly to Bordens in Tulsa. For the remainder of 1990, Simon received prices in excess of the blend price.

On July 27, 1990, Simon filed the action herein seeking damages on two theories: (1) breach of contract for not paying the agreed blend price plus 20 cents cwt; and (2) breach of fiduciary duty to obtain the highest price for Simon's milk. By trial time, the parties had stipulated Simon's damages to be $20,902.40, so we do not concern ourselves with how damages were computed.

At the close of Simon's case, NFO moved for a directed verdict as to all claims. This was taken under advisement until the close of all the evidence. The trial court granted the motion as to the claim of breach of fiduciary duty only. The claim of breach of contract was submitted to the jury, which found in favor of Simon. NFO appeals from the jury award, and Simon cross-appeals from the entry of directed verdict.

NFO'S APPEAL

For its first issue on appeal, NFO contends the trial court erred in admitting, over its objection, evidence of the alleged oral agreement to pay Simon a guaranteed price of the blend price plus 20 cents cwt. NFO argues the contract was complete and unambiguous; hence, introduction of additional oral terms violated the parol evidence rule.

When a contract is complete, unambiguous, and free from uncertainty, parol evidence of prior or contemporaneous agreements or understandings tending to vary the terms of the contract evidenced by the writing is inadmissible. First National Bank of Hutchinson v. Kaiser, 222 Kan. 274, 564 P.2d 493 (1977).

Whether an instrument is ambiguous is a matter of law to be decided by the court. As a general rule, if the language of a written instrument is clear and can be carried out as written, there is no room for rules of construction. Godfrey v. Chandley, 248 Kan. 975, Syl. p 2, 811 P.2d 1248 (1991).

Regardless of the construction of a written contract made by the trial court, on appeal a contract may be construed and its legal effect determined by an appellate court. To be ambiguous, a contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language. Ambiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it generally uncertain which one of two or more meanings is the proper meaning. Farm Bureau Mut. Ins. Co....