Streeks, Inc. v. Diamond Hill Farms, Inc.

• Decision Date: 21 January 2000
• Docket Number: No. S-98-396.,S-98-396.
• Citation: 258 Neb. 581,605 N.W.2d 110
• Parties: STREEKS, INC., appellee and cross-appellant, v. DIAMOND HILL FARMS, INC., a Nebraska corporation, appellee, and John D. Nielsen, also known as Jack Nielsen, appellant and cross-appellee.
• Court: Nebraska Supreme Court

605 N.W.2d 110

258 Neb. 581

STREEKS, INC., appellee and cross-appellant, v. DIAMOND HILL FARMS, INC., a Nebraska corporation, appellee, and John D. Nielsen, also known as Jack Nielsen, appellant and cross-appellee.

No. S-98-396.

Supreme Court of Nebraska.

January 21, 2000.

Laurice M. Margheim, of Curtiss, Moravek, Curtiss & Margheim, Alliance, for appellant.

Robert G. Pahlke and Maren Lynn Chaloupka, of The Van Steenberg Firm, Scottsbluff, for appellee Streeks, Inc.

HENDRY, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

HENDRY, C.J.

I. INTRODUCTION

Darrel Streeks, doing business as Streeks, Inc., brought an action against John D. Nielsen for fraudulent concealment based on Nielsen's failure to disclose certain information about potato seed. A jury rendered a verdict in favor of Streeks, Inc., in the amount of $25,000. Nielsen filed a notice of appeal and a petition to bypass. Streeks, Inc., cross-appealed. We granted Nielsen's petition to bypass, see Neb.Rev.Stat. § 24-1106(2) (Reissue 1995), and now affirm.

II. BACKGROUND

Streeks, Inc. (Streeks), is a family corporation composed of Darrel Streeks and his wife, LeAnn Streeks. Nielsen, doing business as Diamond Hill Farms, Inc., is in the business of raising seed potatoes for his own use and for sale to other farmers. For a number of years, Streeks has been engaged in growing certified seed potatoes. Potato growing in Nebraska is a specialized area of farming, with only 16 certified potato growers in the state.

Since 1994, Streeks has grown certified seed potatoes for Frenchman Valley Produce, which is owned and operated by Timothy May, Streeks' brother-in-law. May grows commercial potatoes and had agreements with Streeks in 1994 through 1996 to supply seed for this purpose. Pursuant to their agreement, during each of the 3 years, May would purchase potato seed and sell it to Streeks. Streeks would then raise the seedling potatoes at his expense and sell them back to May at a specified price. May then used the seedling potatoes to grow a commercial potato crop. This arrangement guaranteed May the required seedlings at a certain price. May's operation requires a supply of seedling potatoes of a certain quality. The quality of certified potatoes is determined by classifying them into "generations." The generation of potato seed is determined by the standards set forth by the Potato Certification Association of Nebraska. One of the factors that determines a potato's generational level is the percentages of certain diseases it contains. Generation I potatoes have the lowest percentage of allowable diseases, and Generation V potatoes have the highest. Seed is evaluated by the "Florida winter test," which tests the seed for viruses. Seed can be reclassified at a lower generational level if the Florida tests detect a virus content that is above the acceptable level for that generation. Seed at one generational level produces a potato classified at the next lower generational level. May produced Generation III or IV potatoes, which required Generation II or III potato seed.

In early December 1995, Streeks contacted May and asked May to locate a supplier of Generation II seed for Streeks' use in raising the 1996 crop of Generation III seedlings for May. May located the supplier because May is a larger grower who could obtain a better price on the seed. May learned that Nielsen had some Generation II seed available for sale and contacted Nielsen about purchasing a supply. Before signing a written contract for the purchase of the seed, May informed Nielsen that Streeks would be raising the seedlings. Nielsen was aware that this was a three-party transaction in which May purchased the seed from Nielsen for Streeks' use in raising Generation III seedlings for May.

In January 1996, May entered into a contract with Nielsen for the purchase of Generation II certified seed. The contract contained a limitation-of-damages provision and an exclusion of warranties, including any warranties that the seed was free of latent potato diseases. After entering into the contract with Nielsen, May and Nielsen had no further contact with one another regarding the seed. May told Streeks that Nielsen would be supplying the seed that Streeks would raise for May. All further communication regarding the seed was between Streeks and Nielsen.

In early February 1996, Nielsen learned that the results of the Florida tests, dated January 31, 1996, showed the seed had been downgraded from Generation II to the lowest generational level, Generation V, because it contained 3.2 percent leaf roll virus. The allowable percentage of leaf roll virus for Generation II seed is two-tenths of a percent. Nielsen did not inform May or Streeks that the seed had been downgraded.

In March 1996, May and Streeks reduced to writing their agreement regarding the seed May had purchased from Nielsen in January. Streeks purchased the Generation II seed from May for $25,300 and agreed to plant the seed to raise Generation III seedlings for May. May agreed to purchase the seedlings Streeks raised for $6.50 per hundredweight.

Nielsen was aware that Streeks was going to pick up the seed. Streeks and Nielsen spoke on the telephone on several occasions prior to Streeks' picking up the seed. Streeks and Nielsen discussed the fact that the seed was supposed to be classified as Generation II and would be used to raise certified seedlings for May. Streeks claimed that during these conversations, Nielsen never told him the seed had been downgraded to Generation V and never mentioned any problem with leaf roll. Nielsen claimed he told Streeks that the seed was "loused up with leaf roll" when he spoke with Streeks on the telephone in mid-April 1996. It is undisputed in the record that Nielsen never told Streeks that the seed had been downgraded to Generation V. Only Nielsen knew that the seed had been downgraded.

On May 2, 1996, Streeks picked up the seed from Nielsen's storage Quonset and began planting later that same day, believing the seed to be classified as Generation II. After Streeks had planted the seed in early May, Nielsen informed Streeks that the seed was carrying leaf roll virus. According to Streeks, this was the first indication that the seed was not classified as Generation II. Both parties acknowledged that Streeks reacted with shock and surprise when Nielsen revealed this information.

Because the seed was classified as Generation V, instead of Generation II, Streeks could not meet the requirement under his contract with May to supply Generation III seedlings. Nielsen never requested payment from May for the seed.

Streeks was unable to sell much of his crop as seedlings because it was too early in the year to sell that type of seedling potatoes. Furthermore, a nationwide surplus of potatoes made it difficult to sell the crop as commercial potatoes. Streeks did sell some of the potatoes, but at much lower prices than originally provided for under the contract with May.

On April 8, 1997, Streeks filed an action in Banner County District Court against Nielsen based on negligence, fraudulent misrepresentation, and fraudulent concealment. The negligence and fraudulent misrepresentation claims were disposed of prior to trial. Streeks claimed approximately $152,322 in damages as the result of not being able to sell the seedlings to May at the specified price under their contract. Streeks claimed that Nielsen fraudulently concealed the fact that the seed Streeks received had been downgraded from Generation II to Generation V.

The fraudulent concealment claim was tried to a jury on January 26 through 30, 1998. At trial, Nielsen admitted that reclassification of seed is a material fact important to the grower of certified seedlings and that it is an accepted practice in the industry to disclose any reclassification. Nielsen admitted that there is an obligation to disclose a reclassification and that it would never be appropriate to fail to disclose such a fact.

Both parties moved for directed verdicts, and both motions were overruled. The jury found in favor of Streeks in the amount of $25,000. Streeks filed a motion for new trial or for judgment notwithstanding the verdict on the issue of damages only, claiming that the verdict was too small and was not supported by the evidence. The motion was denied. Nielsen thereafter appealed, and Streeks cross-appealed.

III. ASSIGNMENTS OF ERROR

Nielsen claims, rephrased, that the trial court erred in (1) denying his motion for summary judgment because Nielsen owed no duty to inform Streeks of the reclassification of the seed, (2) denying his motion for directed verdict because Nielsen owed no duty to inform Streeks of the reclassification of the seed, (3) not deciding the issue of duty to disclose as a matter of law, (4) incorrectly instructing the jury on the issue of duty to disclose, (5) refusing to give his proposed "benefit of the bargain" instruction on damages, (6) incorrectly instructing the jury on the issue of damages, (7) not allowing the contract between Nielsen and May into evidence, and (8) ruling that his contract defenses were inapplicable.

In the cross-appeal, Streeks claims the trial court erred in (1) overruling Streeks' motion for new trial or for judgment notwithstanding the verdict because the amount of damages awarded was not supported by the evidence, (2) refusing to grant Streeks' motion for directed verdict on the issue of mitigation of damages, and (3) giving an instruction on the issue of mitigation.

IV. STANDARD OF REVIEW

On a question of law, an appellate court is obligated to reach a conclusion independent of the determination reached by the court below. State v. Hittle, 257 Neb. 344, 598 N.W.2d 20 (1999). Jury instructions are subject to the harmless error rule, and an erroneous jury instruction requires reversal only if the error adversely affects the substantial rights of the complaining party....