Zenda Grain & Supply Co. v. Farmland Industries, Inc.

• Court: Kansas Court of Appeals
• Writing for the Court: LEWIS
• Citation: Zenda Grain & Supply Co. v. Farmland Industries, Inc., 894 P.2d 881, 20 Kan.App.2d 728 (Kan. App. 1995)
• Decision Date: 31 March 1995
• Docket Number: No. 70410,70410
• Parties: The ZENDA GRAIN & SUPPLY COMPANY, Appellee/Cross-Appellant, v. FARMLAND INDUSTRIES, INC., Defendant, and Double Circle Farm Supply Company, Appellant/Cross-Appellee.

Page 881

894 P.2d 881

20 Kan.App.2d 728

The ZENDA GRAIN & SUPPLY COMPANY, Appellee/Cross-Appellant, v. FARMLAND INDUSTRIES, INC., Defendant and Double Circle Farm Supply Company, Appellant/Cross-Appellee.

No. 70410.

Court of Appeals of Kansas.

March 31, 1995.

Review Denied June 21, 1995.

Syllabus by the Court

1. A provision in an agreement seeking to protect a party from liability for its own negligence and mismanagement is subject to strict construction and will not be enforced unless the protection from liability for a party's own negligence and mismanagement is expressed in clear and unequivocal terms.

2. Contracts for the exemption from liability for negligence are not favored by the law and are strictly construed against the party relying on them.

3. A person who contracts to perform work or to render a service impliedly warrants to perform the task or provide the services skillfully, carefully, diligently, and in a workmanlike manner.

4. A warranty of workmanlike performance will be implied into an agreement wherein one party agrees to provide professional management services for another and there is no express warranty to that effect.

5. An implied warranty is not promissory in nature or origin; it is imposed upon the parties by operation of law regardless of whether their basic agreement is entirely oral, entirely written, or a combination of both.

6. An implied warranty which does not arise from a sale transaction has no relationship to the Uniform Commercial Code.

7. Management services are not akin to professional services and are subject to an implied warranty of workmanlike performance.

8. A cause of action based upon the breach of an implied warranty of workmanlike performance is subject to the three-year statute of limitations set out in K.S.A. 60-512.

9. A written agreement, contract, or promise in writing which falls within the five- year statute of limitations, K.S.A. 60-511(1), must contain all its material terms in writing.

10. A writing which is dependent upon a warranty implied by law to state the promise allegedly breached fails to state all of the material terms of the contract in writing.

11. An action for breach of an implied warranty, which depends upon an obligation implied by law to state the terms of the warranty, is not in the nature of an action on a writing as contemplated by K.S.A. 60-511(1).

12. Rules relating to estoppel and waiver of breach of contract are construed and applied.

13. Rules relating to the establishment of loss of profits are construed and applied.

14. A claim becomes liquidated when both the amount due and the date on which it is due are fixed and certain, or when the same becomes definitely ascertainable by mathematical computation. Where an amount is due upon contract, either express or implied, and there is no uncertainty as to the amount which is due or the date on which it becomes due, the creditor is entitled to recover interest from the due date.

15. A party who is not a party to a contract cannot be bound by the interest rates stated in that agreement.

16. Rulings on admissibility of evidence fall within the sound discretion of the trial court.

17. The failure to object to an issue submitted to the jury by way of special question prevents an appellant from raising the issue to an appellate court.

Lee M. Smithyman and David J. Roberts, of Smithyman & Zakoura, Chartered, Overland Park, for appellant, cross-appellee.

Calvin McMillan, of Kaplan, McMillan & Harris, of Wichita, and Theodore C. Geisert, of Geisert, Wunsch & Watkins, Kingman, for appellee, cross-appellant.

Before PIERRON, P.J., and GERNON and LEWIS, JJ.

LEWIS, Judge:

Zenda Grain & Supply Company (Zenda) sued Farmland Industries, Inc. (Farmland) and Double Circle Farm Supply Company (Double Circle) for breach of contract. The issues were submitted to a jury, which returned a verdict in favor of Zenda in the amount of $140,957.10. This verdict seems to have satisfied no one. Double Circle appeals, citing eight issues on which it believes the verdict should be reversed. Zenda cross-appeals, citing six issues in which it claims the trial court erred. Our obligation was to sort out what issues have merit and how they affect the verdict in this case. After doing so, we affirm in part, reverse in part, and remand for a new trial on the question of damages.

Zenda is a defunct farmers' cooperative headquartered in Zenda, Kansas. In the period from 1982 to 1987, Zenda was placed in jeopardy by a succession of losses in operations. It lost money each year of this period. In the aggregate, these losses exceeded $400,000, and Zenda's survival was threatened.

Either alone or prodded on by its bankers, Zenda sought outside help. Double Circle is a wholly owned subsidiary of Farmland. Double Circle had developed a contract management program designed to assist small cooperatives like Zenda in surviving the difficult conditions they faced in the 1980's.

In 1986, Zenda was on the verge of collapsing. Zenda attempted to do something positive by contacting Double Circle.

In September 1986, Zenda and Double Circle signed their first management agreement. This agreement basically turned over management of the cooperative to Double Circle. Initially, the agreement was to run from October 1, 1986, to March 1, 1988, and on a month-to-month basis thereafter. In addition, either party could terminate the agreement at any time by giving 60 days' notice. A new management agreement was entered into between the parties effective March 1, 1988, to March 1, 1989, and month to month thereafter. This second agreement remained in effect until terminated by Zenda in June 1989. Both management agreements were in writing.

During the time it managed Zenda, Double Circle provided the cooperative manager. Vincent Wilczek was the first such manager and continued in those duties until he was terminated by Double Circle in August 1988. Double Circle replaced Wilczek with Hubert Gudenkauf, who was later replaced by Dwayne Wilson. Wilson served as manager until he resigned in June 1989, just prior to the termination of the management agreement by Zenda.

For a variety of reasons, Double Circle's plans and policies were not successful at Zenda. Zenda made a profit on operations of $77,482.03 in fiscal year 1988 but otherwise continued to lose money.

One of Double Circle's obvious failures was in grain sales. Wilczek sold grain but allowed the sale to remain "uncovered" on the grain market for an inordinate length of time. This act of mismanagement caused a further loss of money by Zenda and, in all probability, led to Wilczek's being fired by Double Circle in the summer of 1988.

Zenda never saw another profitable year after fiscal year 1988. From the end of fiscal year 1988 to November 1989, Zenda suffered massive losses and ultimately was forced to liquidate by selling its assets to another cooperative.

At some point, Zenda decided to blame Double Circle for its losses and for its ultimate liquidation. It sued Double Circle and Farmland for breach of contract and mismanagement. The trial court refused to pierce the corporate veil insofar as Double Circle and Farmland were concerned, and Farmland was dismissed as a party and is no longer relevant to this lawsuit.

This case was finally tried to a jury, which returned the verdict noted above. It was very vigorously tried and contested by both sides. The record is enormous, at times confusing, and often bitter. This lawsuit has consumed much time and money and an inordinate amount of effort by both sides. The fact that after such a Herculean effort neither side is happy says volumes about why and how we have arrived at this point. We will cover additional facts where they are pertinent to the issues.

HOLD HARMLESS CLAUSE

The second written management agreement between the parties contains the following provision:

"The ASSOCIATION agrees to indemnify, protect and save MANAGER and DOUBLE CIRCLE harmless from and against any and all claims, actions, loss or damages, including reasonable attorney's fees, arising in any way on account of this agreement or services performed thereunder in the operation of ASSOCIATION'S business."

Double Circle contends that the "hold harmless" clause protects them from liability and that Zenda cannot maintain the action against it. The trial court disagreed with Double Circle and said:

"Accordingly, the Court concludes that Section Eight is overbroad and unspecific and does not show a clear unequivocal intention to waive the type of Double Circle conduct that Zenda complains of in its Petition herein. The Court preemptively rules that the Section Eight Hold Harmless Clause is not a defense to Plaintiff's cause of action. Therefore, the Court will not instruct the Jury as to a hold harmless defense."

Double Circle argues on appeal that the trial court erred in failing to enforce the hold harmless clause in its favor. We disagree.

Stripped to its bare essentials, Double Circle's argument is that it is protected contractually from liability for any mismanagement or breach of contract. The type of clause which Double Circle asserts protects it from the consequences of its own negligence is not a favorite of the law and is rarely enforced to protect a party from its own negligent or other wrongful actions:

"While it is true that the policy of the law in general is to permit mentally competent parties to arrange their own contracts and fashion their own remedies where no fraud or overreaching is practiced and that contracts freely arrived at and fairly made are favorites of the law [citations omitted], effective disclaimer of liability for one's own negligence, waiver of liability of the other party for the latter's negligence, or indemnification of the other party for its negligence is subject to strict construction and explicit expression." Elite Professionals, Inc. v. Carrier Corp., 16 Kan.App.2d 625, 634, 827...