Weathersby v. Gore

• Decision Date: 03 August 1977
• Docket Number: No. 75-2501,75-2501
• Citation: 556 F.2d 1247
• Parties: 22 UCC Rep.Serv. 336 Frank WEATHERSBY, d/b/a Weathersby Cotton Co., Plaintiff-Appellee, v. Y. B. GORE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1247

556 F.2d 1247

22 UCC Rep.Serv. 336

Frank WEATHERSBY, d/b/a Weathersby Cotton Co., Plaintiff-Appellee, v. Y. B. GORE, Defendant-Appellant.

No. 75-2501.

United States Court of Appeals, Fifth Circuit.

Aug. 3, 1977.

Armis E. Hawkins, James S. Gore, Houston, Miss., James D. Waide, West Point, Miss., for defendant-appellant.

J. Kimbrough Johnson, John J. Thomason, Memphis, Tenn., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Mississippi.

Before AINSWORTH and CLARK, Circuit Judges, and HUGHES ^*, District Judge.

CLARK, Circuit Judge:

This Mississippi-based diversity action was brought by Frank Weathersby, a Memphis, Tennessee cotton buyer doing business as Weathersby Cotton Company, against Y. B. Gore, a Webster County, Mississippi cotton farmer. Weathersby contended he had a valid contract with defendant Gore which obligated Gore to sell the cotton produced by him on 500 acres of land during the 1973 crop year. Two months after the contract was entered and many months before the cotton was to be picked, Gore gave notice that he was cancelling the contract and indicated his intention of selling his cotton elsewhere. After a jury verdict favoring Weathersby, the district court ordered specific performance of the contract. We reverse and remand.

Although the significant facts will more fully be discussed in the context of their related legal issues, a review of events preceding litigation would be helpful here. Except as indicated, the facts recited are undisputed. The genesis of this litigation is to be found in the volatility of the cotton futures market during 1972 and 1973. In 1972 Gore entered into a forward contract for the sale of his cotton, ¹ but his experience was not a happy one. The price at the time the cotton was picked was lower than that provided in the contract, and the buyer refused to purchase the cotton. Gore chose to sell at the lower price rather than to bring suit.

In February 1973, Louis B. Strong, president and sole stockholder of the Bluff City Cotton Co., Inc., in Memphis, inquired of John Henry George, a Webster County, Mississippi ginner and farm supply store owner, whether he was aware of any cotton farmers desiring to enter "forward" contracts for their crops. George contacted defendant Gore who he knew had entered a forward contract the year before. As a consequence of his 1972 experience, Gore insisted that any future purchaser provide a performance bond ensuring Gore against loss in the event of a similar breach. The contract in suit was negotiated at a price of 30 cents per pound. Throughout the subsequent months the price rose, until at the time performance was due the price had soared to 80 cents per pound.

According to Strong, he and George decided upon the figure of $25,000 as a suitable amount for a performance bond by concluding that $50 per acre on Gore's 500 acres of cotton was a fair estimate of Gore's potential damages in case of a breach. ² On March 6, 1973, after a brief period of negotiations, a contract proposal was signed by Strong, who placed the notation "agent only" following his signature, and sent to Gore. Gore signed the document sent by Strong. Weathersby was named as purchaser. Pursuant to the understanding between Strong, George and Gore that each party would furnish a $25,000 performance bond in favor of the other, a clause requiring "mutual bonds" was placed in the prepared form. On the same day, a separate contract on the same type of form was executed by Weathersby and Strong which also covered the sale of Gore's 1973 cotton to Weathersby. The second contract also detailed sales by two other farmers to Weathersby which had been made through Strong. As soon as these contracts had been made, Weathersby sold this cotton for 30.70 cents per pound to Starke Taylor & Son, Inc., a cotton merchant firm in Dallas, Texas.

Throughout March, Gore continually inquired through George whether Strong knew when Weathersby would provide his reciprocal bond. George communicated these inquiries to Strong. The requirement of a $25,000 performance bond was allegedly not transmitted to Weathersby. On March 9, three days after the contracts were signed, Strong responded to a Gore inquiry by stating he would guarantee Weathersby's performance. This was unacceptable to Gore, and his rejection of this offer was sent to Strong. After Gore provided his $25,000 bond on April 6, he was told by Strong that Weathersby was in Europe but would soon procure a bond.

Between April 10 and 15, Gore phoned George to tell him he was not willing to wait much longer for the bond. Gore established a two-week deadline for receipt of the bond and notice of this specific requirement was sent to Strong and via him to Weathersby. On April 26, a $25,000 letter of credit which would expire on July 1, 1973, was mailed by Strong to George. Strong also wrote George that a bond was being prepared and that there was "no need to show this letter to Gore." On May 3, Gore through his attorney wrote Strong that the contract was cancelled.

Despite the cancellation letter, Weathersby, on May 14, sent a $25,000 performance bond to George for Gore. A subsequent bond, correcting an error in the first bond, was mailed on May 25. During this period, or somewhat later in early June, Fieldcrest Mills, Inc., a North Carolina textile company, purchased the contract from Starke Taylor for 34.8 cents per pound, giving to Weathersby a commission for arranging the sale to Fieldcrest. At the time of its purchase, Fieldcrest had knowledge of Gore's May 3 notice of cancellation.

Throughout the period following May 3 and before commencement of suit on September 28, 1973, no attempt was made by Weathersby, Starke Taylor, or Fieldcrest to effect cover. It was stipulated that any party could have purchased other cotton to cover the contract expectancy on the open market.

I. Performance Bond

The salient question at trial was the reasonableness of the time taken by Weathersby to procure a bond. Several different sub-questions must be faced before the larger issue of whether this question was correctly answered can be resolved. (A) A determination must be made of the date from which the time taken by Weathersby is to be measured. No clear evidence exists as to the date Weathersby himself learned of the necessity of a bond. However, if the providing of a performance bond was an enforceable provision of the March 6 contract, then Weathersby is bound by the contractual terms regardless of his actual knowledge. If George or Strong was acting as Weathersby's agent, then the agent's knowledge of and agreement to the performance bond requirement binds the principal from the date the agent acquired such knowledge. (B) As Weathersby did not succeed in presenting to Gore a document that could formally be called a performance bond until May 14, a decision must be made whether this is to be taken as the concluding date in the period used to gauge Weathersby's timeliness, or whether the providing of a letter of credit on April 26 or a letter from Strong guaranteeing payment on March 9 constitutes performance of any contract requirement of a bond. (C) It must also be determined whether the jury was properly instructed on the intertwined facts and legal questions presented and whether any failure to instruct was properly preserved.

A. Agency

Weathersby and Gore never communicated directly about contract terms. George and Strong were intermediaries throughout the process of reaching an agreement, and eventually a disagreement. Whether either was an agent for Weathersby for purposes of making the contract sued upon here is of crucial importance in deciding the reasonableness of the time taken by Weathersby in tendering a bond.

At the outset we note that Gore's demand that the buyer furnish a performance bond was clearly understood by George and Strong. Gore's initial reluctance to enter into a forward contract was founded on his reluctance to expose himself to a financial loss such as that occasioned by the previous crop purchaser's refusal to honor his contract. This reluctance resulted in an agreement by Gore, George and Strong that a bond requirement would be part of the contract. Gore and Strong testified without contradiction that Gore insisted on a performance bond from the time he first agreed to consider making a forward contract on his cotton in February 1973. The critical contractual language appears as a typed addition to a printed form contract, and it reads: "Mutual Bonds will be furnished if required. Required." The ambiguity created by this strikeover and retyping of the same word capitalized necessitates an examination of the negotiations surrounding the contract.

Strong, though initially testifying that he was uncertain when the bond requirement was made, also stated that he suggested to Gore that he seek to procure a bond from the Kyle Chandler Insurance Company in West Point, Mississippi. Gore's first inquiries of Chandler occurred the day the contract was signed, thereby placing this discussion at or before that date. Strong indicated that he did not believe many farmers could succeed in acquiring a bond in the amount of $25,000, despite the fact that when the contract was signed George told Strong Gore would have no difficulty. Strong stated his belief in Gore's potential inability to acquire a bond was the only reason he, Strong, did not immediately inform Weathersby that he must procure a bond. No witness ever suggested that this requirement did not exist. Strong referred as did Gore and George to Gore's repeated and unchallenged inquiries throughout March and April concerning whether Weathersby had procured a bond. Therefore, we find there is no question of Strong's and George's knowledge on March 6 that mutual bonds were required. The firm benchmarks are that George, Strong and Gore were fully aware of the necessity that Weathersby procure a...