Smith v. Central Soya of Athens, Inc.

• Decision Date: 05 March 1985
• Docket Number: No. 82-70-Civ-8.,82-70-Civ-8.
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: H. Morrison SMITH and Dwight S. Smith, Plaintiffs, v. CENTRAL SOYA OF ATHENS, INC., and Sun City Industries, Inc., Defendants.

604 F. Supp. 518

H. Morrison SMITH and Dwight S. Smith, Plaintiffs, v. CENTRAL SOYA OF ATHENS, INC., and Sun City Industries, Inc., Defendants.

No. 82-70-Civ-8.

United States District Court, E.D. North Carolina, Wilson Division.

March 5, 1985.

COPYRIGHT MATERIAL OMITTED

George R. Kornegay, Jr., Mount Olive, N.C., for plaintiffs.

Robert W. Spearman, Raleigh, N.C., for Cent. Soya.

William R. Rand, Wilson, N.C., for Sun City.

ORDER

JAMES C. FOX, District Judge.

Plaintiffs initiated this action by complaint filed against defendant Central Soya of Athens, Inc. (hereinafter Central Soya), an Indiana corporation, in Wayne County Superior Court on December 10, 1982. Central Soya removed the case, on the basis of diversity of citizenship, to this court on December 23, 1982. Plaintiffs then filed an amended complaint, with leave of the court, on April 6, 1983, adding Sun City Industries, Inc. (hereinafter Sun City), a Delaware corporation, as an additional defendant and, further, adding a claim for relief under North Carolina's Unfair and Deceptive Trade Practices Act, N.C.GEN. STAT. § 75-1.1 et seq.¹

This matter is before the court on Sun City's motion for summary judgment and Central Soya's motions to strike and for judgment on the pleadings or, alternatively, summary judgment. The parties have expertly briefed the relevant issues and following oral argument, defendants' motions are now ripe for disposition.

Plaintiffs seek compensatory and punitive damages for injuries allegedly caused by defendants' breach of contract and violations of § 75-1.1. Plaintiffs assert that defendants induced plaintiffs to build four (4) poultry houses by representing defendants would supply the chickens for such houses and that plaintiffs would "have an income for twenty (20) years on the poultry houses." The amended complaint alleges defendants later refused to provide additional chickens, thereby breaching their promise and damaging plaintiffs. Plaintiffs further contend defendants' representations were "fraudulent, unfair and deceptive."

Both defendants deny the breach of any contractual duty. Extensive discovery has occurred and the following discussion constitutes a summary of the undisputed material facts of record taken in a light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962).

Plaintiff H. Morrison Smith began housing chickens for Central Soya pursuant to a written egg production contract in 1971. Prior to that time, Smith had engaged in a variety of commercial enterprises, including developing and selling farmland, building chicken houses, managing a profitable pullet raising business, selling fertilizer and owning an Oldsmobile dealership.

In 1973, 1976 and 1977, Smith built three (3) additional chicken houses and, after the completion of each house, entered into a new egg production contract with Central Soya to house an additional specified number of chickens. Smith's nephew, plaintiff Dwight S. Smith, participated in building the fourth house, under the partnership name "Prima Layers."

Each egg production contract related to a particular chicken house and specified the number of chickens to be housed therein. The chickens were supplied by Central Soya. The contracts were renewed approximately every year by Central Soya supplying replacement flocks of chickens and by the continued performance of the parties under the contracts.

In December, 1981, after supplying chickens to plaintiffs for ten years, Central Soya sold its business to Sun City, assigning to Sun City all of its interests and rights in the egg production contracts with plaintiffs. Sun City agreed to assume all duties and obligations of Central Soya under the contracts. With H. Morrison Smith's agreement, Sun City completed performance under the contracts for the production period then in progress.

In April, 1982, Sun City offered plaintiffs replacement chickens and a new egg production contract for the fourth (Prima Layers) chicken house. Plaintiffs refused to accept the offer. As a result, Sun City removed all chickens in plaintiffs' houses at the end of the laying cycle in August, 1982 and supplied no further replacement chickens. Plaintiff subsequently initiated this action.

Between 1971 and 1976 five (5) written contracts were entered into between plaintiff H. Morrison Smith and Central Soya. Contract 4, entered into on February 16, 1976, superceded contracts 1 through 3 and covered the first two chicken houses. Contract 5 related to the third house, and was executed on June 6, 1976. A fifth and final contract was executed between Central Soya and the Prima Layers partnership on September 12, 1977. It covered the fourth house. Pursuant to each contract, H. Morrison Smith or Prima Layers (the "producer") agreed to furnish the "necessary housing, equipment, utilities, litter and labor necessary for the proper care and housing of the chickens and the proper production and care of eggs covered by that contract." In return, Central Soya (the "owner") agreed to supply each house with a specific number of chickens (a "flock") and to pay the producer a designated sum per month for the producer's services. Furthermore, Central Soya agreed to transport and deliver all eggs produced by the chickens and to pay the cost of delivering the chickens to market when their usefulness as layers ended.

Critically, at all times the chickens and any eggs they produced remained the sole property of the owner. The owner retained the right to sell, mortgage or dispose of the chickens at any time "at its pleasure." Contracts 4-6, § 3. The owner retained the right to enter the producer's premises to remove the chickens or to feed and care for them should they become endangered "for any reason in the opinion of the owner." Id.

Finally, each contract contained an express and unambiguous merger clause providing that "there are no agreements, understandings, representations or warranties between Owner and Producer except those herein set forth ..." Id. at § 10. Each contract further provided that it "may not be modified by agreements hereinafter made unless the same be attached hereto in writing." Id.²

Under each contract, Central Soya was obligated to supply and plaintiffs to house and care for, one flock of chickens. Id. at § 12(b)³ The size of the flock varied depending on the poultry houses involved, but each contract specified the exact number of chickens to be supplied under the contract. Central Soya faithfully supplied the specific number of chickens required by each contract.

Thereafter, each contract was renewed, one flock at a time, and the parties continued performance under the contracts without incident until December, 1981. At that time, Central Soya assigned its contracts with plaintiffs to Sun City. As previously detailed, plaintiffs and Sun City did not renew the contract after completing performance for the laying period then in progress.

Plaintiffs' complaint focuses on alleged oral representations made to them by agents of Central Soya to the effect that they "would continue putting poultry in the houses" and that plaintiffs "would have an income for twenty (20) years on the poultry houses." H. Morrison Smith testified in his deposition that the agents made these oral representations during negotiations and prior to the execution of the 1971, 1973, 1976 and 1977 written contracts. In reliance upon these representations, plaintiff alleges he constructed the chicken houses and, therefore, Sun City's decision not to supply the replacement chickens breached oral and written contracts plaintiffs had with the defendants.

(A). Breach of Contract Claim

The primary issue before this court on plaintiffs' breach of contract claim is whether or not the purported oral representations of Central Soya's agents should be excluded as impermissible parol evidence. If the statements are inadmissible, then defendants must prevail on summary judgment for they have fulfilled all of the obligations of the contracts as written. By the same token, if the representations are admissible, then summary judgment must be denied as genuine issues of material fact would remain.

Preliminarily, in deciding whether the parol evidence at bar is admissible, the court must determine which law governs the analysis. It is generally agreed that the parol evidence rule is a rule of substantive contract law and not a rule of evidence. United States v. Bethlehem Steel Co., 215 F.Supp. 62, 68 n. 12 (D.Md.1962), aff'd. 323 F.2d 655 (4th Cir.1963); Rock-Ola Manufacturing Corp. v. Wertz, 282 F.2d 208, 210 (4th Cir.1960). Under the Erie doctrine, a federal court sitting in diversity must apply the substantive law of the forum in which it sits, including the forum's choice-of-law rules. Klaxton Company v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In North Carolina, issues of contract construction are determined by the law of the state where the contract was made. Tanglewood Land Co. v. Byrd, 299 N.C. 260, 261 S.E.2d 655 (1980). In this instance, the contracts involved were executed in North Carolina and, therefore, must be interpreted according to North Carolina's substantive law of contracts, including the state parol evidence rule.

North Carolina provides for the exclusion of parol evidence both by common law, see Neal v. Marrone, 239 N.C. 73, 77, 79 S.E.2d 239, 242 (1953) and by the sales article of the state's Uniform Commercial Code (UCC), N.C.GEN.STAT. § 25-2-202. The UCC's sales provisions focus on contracts for the sale of goods and are not applicable to contracts for the rendition of services. N.C.GEN.STAT. §§ 25-2-102 and 25-2-106(1) (Supp.1983). See Wells v. 10-X Manufacturing Co., 609 F.2d 248, 254 (6th Cir.1979).

The contracts involved in this action are clearly for services and not for the sale of goods. Plaintiffs were not buyers of the chickens,...