The Honorable John F. Nangle, Senior United States District Judge for the Eastern

District of Missouri, sitting by designation.

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

 

Nos. 96-3095 and 96-3281

 

Southern Implement Company, *

Inc., *

*

Appellant, *

* Appeal from the United States

v. * District Court for the 

* Eastern District of Arkansas.

Deere & Company, *

*

 Appellee. *

 

Submitted: March 13, 1997

 Filed: July 29, 1997

 

Before FAGG and HEANEY, Circuit Judges, and NANGLE, Senior 1

District Judge.

 

HEANEY, Circuit Judge.
 Southern Implement became a Deere dealer in 1951, located in Helena, Arkansas.

In 1964, Southern Implement opened another dealership in Elaine, Arkansas. In 1978,

the company purchased the dealership in Marvell, the only other Deere dealership in

Phillips County. 

Until 1985, Deere renewed annual dealership agreements with Southern

Implement. After that time, Deere and Southern Implement executed three open-ended

dealership agreements with no fixed term. The 1985 contracts ended in January 1987,

when the parties entered into the agreement at issue.

2

Southern Implement Company (“Southern Implement”) appeals the district

court’s grant of summary judgment in favor of Deere & Company (“Deere”) on

Southern Implement’s breach of contract and statutory violation claims. We affirm in

part and reverse in part.

FACTS

Given the posture of this case, we consider the facts in the light most favorable

to the nonmoving party, Southern Implement. See, e.g., Adickes v. Kress & Co., 398

U.S. 144, 157 (1970). Southern Implement is a farm equipment dealer for Deere in

Phillips County, Arkansas. Following a history of business relations with Deere,2

Southern Implement entered into a contract with the company entitled John Deere

Company Authorized Agricultural Dealer Agreement (“Agreement”) in 1987. The

terms and conditions of the Agreement are virtually identical to Deere’s agreements

with its dealers nationwide. J.A. at 65. The contract assigns to Southern Implement

an area of responsibility (“AOR”) that includes the towns of Helena, Marvell, and 
 The introduction to the contract contains the statement that “[a] Dealer accepts as

his area of responsibility the town in which his place of business is located and

vicinity.” 

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Elaine, Arkansas, and the surrounding area. The Agreement requires a dealer such as 3

Southern Implement to “thoroughly canvass his [AOR], to actively promote the sale of

all Goods which are usable in his [AOR], and to maintain an inventory of Goods in

proportion to the sales possibilities in such area.” Agreement, § 1(f).

 

The Agreement also requires a dealer to “maintain his principle place of business

at the location set forth [by the Agreement].” Agreement, § 1(k). The Agreement

prohibits dealers from “either directly or indirectly, establish[ing], maintain[ing], or

operating a facility at any other location for displaying, selling, renting, leasing, or

servicing of new or used goods, without the prior written approval of [Deere].” Id.

If a dealer’s franchise is canceled or terminated according to the terms of the

agreement, Deere “may negotiate and/or enter a Dealer Agreement with another party

for the Dealer’s [AOR].” Agreement, § 4.

One of the largest farming operations in Southern Implement’s AOR during the

mid-1980's belonged to David Brooks Griffin. Griffin and his father owned an

International Harvester (“I.H.”) dealership in Elaine until 1985 and Griffin used I.H.

equipment on his 23,000 acre farming operation. After the I.H. dealership closed,

Griffin operated Elaine Parts, an agricultural parts and equipment store, in the building

that had housed the dealership.
 For example, Deere initially permitted the placement of a computer system at Elaine

Parts that would allow Producer’s to take parts orders there, despite Deere’s internal

guidelines that restrict the systems to a dealer’s AOR. Deere revoked its permission

to install the system after it recognized the violation of its rules.

4

In 1989, Griffin bought Producer’s Tractor Company, Inc. (“Producer’s”), a

Deere dealership located in Brinkley, Arkansas, seventy miles from Elaine. Producer’s

began supplying Griffin’s Elaine farming operation with Deere parts and equipment

through Elaine Parts. Southern Implement alleges that sometime in late 1990 or early

1991 Producer’s expanded its efforts to supply Deere parts to the general public. 

Southern Implement’s Elaine facility took a downward financial turn in late

1991. In February 1992, Southern Implement’s management met with Bill Hubbard,

Manager of Deere’s Dallas branch, the unit that supervises dealership activity in

Arkansas. Southern Implement alerted Hubbard that Producer’s was distributing Deere

parts through Griffin’s Elaine Parts facility. Hubbard said he would investigate and

report the results to Southern Implement. 

Hubbard never reported back to Southern Implement regarding its complaint.

Rather, Southern Implement asserts that Deere encouraged Producer’s to operate the

unauthorized facility. Southern Implement continued to complain to Deere

4

management that Elaine Parts was selling Deere equipment. Deere’s representatives

asked Producer’s employees if they were selling Deere products to the general public

through Elaine parts, and the response was, “no.” They claimed that they only sold

parts to Griffin’s farming operations.
5
 Griffin requested that Deere take the Elaine AOR from Southern Implement and

assign it to Producer’s, but Deere refused, allowing Southern Implement to retain the

Elaine AOR.

6

In 1993, Griffin ceased his farming operations. The land previously farmed by

Griffin was taken over by Tyler Farms, a partnership that included multiple corporate

entities. Griffin remained the landlord, although he did not participate in farming the

land himself. Elaine Parts continued to provide Deere parts to customers in the area,

including Tyler Farms. 

In February 1993, Southern Implement closed its Elaine facility due to mounting

losses. Following the closure, Southern Implement filed a complaint alleging that

5

Deere, by allowing Producer’s to operate through a facility within Southern

Implement’s Elaine AOR: (1) breached its dealer agreement with Southern Implement,

(2) broke the implied covenant of good faith and fair dealing, (3) breached its duty to

act with commercial reasonableness under the Arkansas Franchise Practices Act, Ark.

Code Ann. § 4-72-206, and (4) changed the competitive circumstances of the

dealership in violation of the Arkansas Farm Equipment Retailer Franchise Protection

Act, Ark. Code Ann. § 4-72-310.

After Southern Implement filed its complaint, Deere conducted a survey to

discover whether Producer’s was selling parts to the general public through Elaine

Parts. Deere discovered that on at least one occasion Elaine Parts sold equipment to

a member of the general public. J.A. at 131. Deere also discovered that several large

producers in the area were acquiring equipment at Elaine Parts through what was

described as “borrowing” from the Tyler Farm inventory at Elaine Parts. Id. 
7

Moreover, two Producer’s sales representatives had offices at Elaine Parts.

Deere responded to Southern Implement’s complaint by moving for summary

judgment. Deere asserted that the Agreement does not give the franchisee an exclusive

right to sell Deere products in its AOR. Nor does the Agreement require Deere to

police a franchisee’s AOR to prevent other dealers from establishing facilities in the

AOR. 

The district court granted Deere’s motion for summary judgment. The court

construed the Agreement to allow other dealers to maintain facilities within a dealer’s

AOR. The court further held that, even if the Agreement prohibited such an

encroachment, Southern Implement failed to present evidence that Deere knew about

the violative facility or that Deere had any obligation to police Southern Implement’s

AOR. Therefore, the court determined that Deere did not breach the Agreement.

The court also held that, in the absence of a contractual obligation, Deere could

not have breached the covenant of good faith and fair dealing. Moreover, Southern

Implement did not present evidence of bad faith by Deere. The court rejected Southern

Implement’s commercial reasonableness claim, holding that Deere’s actions conformed

to the contract and were thus reasonable. Finally, the court held that the Arkansas

Farm Equipment Retailer Franchise Protection Act was inapplicable. 
8

DISCUSSION

Southern Implement appeals the district court’s grant of summary judgment. For

the reasons below, we reverse the district court with respect to Southern Implement’s

breach of contract, breach of the implied covenant of good faith and fair dealing and

commercial reasonableness claims. We affirm the district court’s grant of summary

judgment on Southern Implement’s claim under the Arkansas Farm Equipment Retailer

Franchise Law.

Breach of Contract

We review a grant of summary judgment de novo. Crawford v. Runyon, 37 F.3d

1338, 1340 (8th Cir. 1994). Under Arkansas law, the court ascertains the plain and

ordinary meaning of a contract. Moore v. Columbia Mut. Cas. Ins. Co., 821 S.W.2d

59, 60 (Ark. App. 1991). The initial determination whether a contract is ambiguous is

a legal determination for the court. Cate v. Irvin, 866 S.W.2d 423, 426 (Ark. App.

1993). When a contract is unambiguous, the court determines its construction as a

matter of law. Id. Where there is ambiguity in a contract, the meaning of the terms of

the contract becomes a question of fact. Stacy v. Williams, 834 S.W.2d 156, 158 (Ark.

1992). 

We believe that the Agreement is ambiguous with respect to a dealer’s right to

operate in an AOR free of other dealers’ facilities. Although the Agreement describes

an AOR and the dealer’s duties within its AOR, the Agreement does not explicitly 
9

provide a dealer with an exclusive right to operate a facility to sell and service Deere

products within an AOR. It does, however, contain two clauses that strongly support

a dealer’s right to operate without the encroachment of other dealers’ umauthorized

facilities within the AOR. 

Under the terms of the agreement, Deere permits a dealer to create and operate

facilities outside its AOR only by written permission from Deere. Agreement, § 1(k).

Deere will only reassign an AOR if the existing dealer’s operation ceases. Agreement,

§ 4. Based on the language of these two provisions and the long-standing history and

conditions of Southern Implement’s prior dealings with Deere, a jury could reasonably

find that Southern Implement has a contractual right to an AOR free of unauthorized

facilities, provided Southern Implement continued to operate and Deere had not given

written permission to another dealer to place a facility in Southern Implement’s AOR.

 

We agree with the district court that the provisions above do not place a

requirement on Deere to police every dealer’s AOR for encroachment by other dealer’s

facilities. We believe, however, that a jury could find that once Deere was informed

that a dealer was operating an unauthorized facility in another dealer’s AOR, Deere had

a duty to investigate and, if necessary, to prevent the dealer from operating the

unauthorized facility by the same mechanisms Deere would use to prevent other

unauthorized dealer activity.

Southern Implement has presented evidence to support a finding that Producer’s

was operating an unauthorized facility that sold Deere parts to the general public in 
 The Arkansas Franchise Practices Act provides, in pertinent part:

Unlawful practices of franchisors.

 It shall be in violation of this chapter for any franchisor . . . to engage

directly or indirectly in any of the following practices:

. . . 

 (6) To refuse to deal with a franchise in a commercially reasonable

manner and in good faith . . . .

Ark. Code Ann. § 4-72-206.

10

Southern Implement’s AOR. Southern Implement also presented evidence to support

that Deere was bound by and failed to meet its obligation to prevent the unauthorized

facility from operating in Southern Implement’s AOR, and that the failure resulted in

lost revenue to Southern Implement’s Elaine store. Therefore, summary judgment was

improper.

Good Faith

Arkansas law states that every contract imposes an obligation of good faith in

the performance of the contract. Ark. Code Ann. § 4-1-203. To establish a breach of

that obligation, the plaintiff must demonstrate that the defendant was not honest in fact

and that he acted with a bad motive. JRT, Inc. v. TCBY Systems, Inc., 52 F.3d 734,

736 (8th Cir. 1995). Similarly, The Arkansas Franchise Practices Act requires a

franchisor to act in a commercially-reasonable manner and in good faith in its

relationship with a franchisee. Ark. Code Ann. § 4-72-206. 6
11
12

The district court held that because Deere had no contractual obligation to

prevent Producer’s from operating a facility in Southern Implement’s AOR Southern

Implement could not show Deere acted in bad faith by failing to do so. We have

determined that a jury could find that Deere had an obligation to investigate and prevent

Producer’s from operating an unauthorized facility. Therefore, we must consider

whether Southern Implement presented evidence to support a claim that Deere’s failure

to do so constitutes bad faith. 

Deere clearly knows the language contained in the Agreement. Southern

Implement presented evidence of its agents informing Deere that Producer’s was using

an unauthorized facility to sell and service Deere equipment in Elaine. Because they

were the largest operations in Phillips County, Deere had an interest in maintaining the

Griffin and Tyson farm accounts. Given this and the evidence that Deere failed to

respond to Southern Implement’s concerns, a jury could reasonably conclude that

Deere was not honest in fact and acted with a bad motive with respect to Deere’s

contractual obligations to Southern Implement. Therefore, we reverse summary

judgment on both the breach of the implied covenant of good faith and fair dealing and

the violation of the Arkansas Franchise Practices Act claims.

Violation of the Arkansas Farm Equipment Retailer Franchise Protection Act

The district court granted summary judgment on Southern Implement’s claim

under the Arkansas Farm Equipment Retailer Franchise Protection Act, Ark. Code Ann.

§ 4-72-310, holding that the law does not apply to the circumstances of this case. We

agree. The only section of the law arguably applicable to the present case is § 4-72-
 Section 4-72-310(b)(4) provides:

 (b) It is a violation of this subchapter for a manufacturer to:

. . . 

 (4) Attempt to threaten to terminate, cancel, fail to renew, or substantially

change the competitive circumstances of the dealership agreement based

on the result of a natural disaster, including a sustained drought in the

dealership market area, labor dispute, or other circumstances beyond the

dealer’s control.

§ 4-72-310(b)(4).

13

310(b)(4), which requires a “natural disaster” to trigger the law’s prohibition. While 7

we acknowledge that the law includes “labor disputes” as natural disasters and that

“other circumstances beyond the dealer’s control” is rather broad, we do not believe

that Deere’s relationship with Producer’s qualifies as a natural disaster for the purposes

of the law. We therefore affirm the district court’s grant of summary judgment on that

statutory claim.

CONCLUSION

Accordingly, the district court’s grant of summary judgment is reversed in part

and affirmed in part. We remand the case for further proceedings consistent with this

opinion.
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A true copy.

Attest:

 CLERK, U.S. COURT OF APPEALS FOR THE EIGHTH CIRCUIT.