Opinion ID: 1640458
Heading Depth: 2
Heading Rank: 1

Heading: The Grower Agreements and 10/10 Contracts

Text: In its memorandum opinion and order approving the trustee's report, the district court categorized the trust fund claimants as follows and ruled that Millers was liable for the deficiency in the trust fund necessary to pay them: A) Those producers having a written contract entitled as a `Grower Agreement' delivered beans to VFBA and received a scale ticket but received no storage ticket. B) Those producers who delivered beans; received a scale ticket; received a 10/10 letter from VFBA; and which producer did not sign or return the letter indicating the options available to the producer. C) Those producers who delivered beans; received a scale ticket; received a 10/10 letter from VFBA; returned the 10/10 letter but failed to select any option. D) Those producers who delivered beans; received a scale ticket; received a 10/10 letter from VFBA; signed the option proposals in the letter but after the May 17, 1982 deadline. E) Those producers who delivered beans; received a scale ticket; received a 10/10 letter from VFBA and which producer returned the 10/10 letter timely and selected the first option in writing. None of the producers in the above four categories B), C), D) and E) received any cash payment or any promissory note. None of the producers had their beans returned to them. None of the producers received any warehouse receipts at any time. F) Producers who delivered beans to VFBA who were not under a Grower Agreement as given in category A) above, nor did such producer receive a 10/10 letter as given in category B), C), D) or E) above. These producers received scale tickets from VFBA but received no storage ticket. G) Producers who have delivered beans; received a scale ticket from VFBA and NDPSC has no evidence that such producers had an unpaid sales agreement with VFBA or that such producers received a 10/10 letter. These producers are considered as having stored their beans with VFBA. The majority of claims came from producers who had entered into grower agreements, labeled category A claimants by the district court, and from producers who had entered into the 10/10 contracts, labeled category E claimants by the district court. Millers contends that, as a matter of law, the grower agreements and 10/10 contracts constituted valid deferred payment contracts or other credit arrangements under § 60-02-09(7), N.D.C.C., and that all deliveries governed by such agreements were therefore outside the scope of the warehouseman's bonds. The district court ruled that both the grower agreements and 10/10 contracts had been canceled, or terminated because VFBA did not fulfill its obligations under the contracts, and consequently that no written contracts governed. The court concluded that all of the beans were therefore delivered for storage, rendering all deliveries eligible for redemption from the trust fund and warehouseman's bonds. Millers asserts that those determinations by the district court were in error.
The district court ruled that VFBA breached the grower agreements by failing to accept delivery of the beans covered by the agreements in a timely fashion. The district court concluded that such conduct by VFBA, coupled with the fact that the agreements could be modified only in writing, affected a cancellation of the grower agreements, and that any subsequent deliveries made by the growers became deliveries for storage. We disagree. In 11 S. Williston, A Treatise on the Law of Contracts § 1305 (3d ed. 1968), it is stated that: Neither where the plaintiff's excuse for his own non-performance is the defendant's actual breach of the contract nor where that excuse is a prospective breach because of repudiation does the plaintiff terminate the contract merely by availing himself of his excuse. The contract still exists, but one party to it has a defense and an excuse for non-performance. [Footnote omitted.] Thus, assuming that VFBA's failure to accept timely delivery of the beans constituted a material breach of the grower agreements, that breach did not of itself cancel or terminate the grower agreements. Rather, the producers who had entered into the grower agreements were thereby released from their obligations under the agreements and had the right to pursue the remedies as provided in § 41-02-82(2-703), N.D.C.C. See Ziebarth v. Kalenze, 238 N.W.2d 261 (N.D.1976); Mott Equity Elevator v. Svihovec, 236 N.W.2d 900 (N.D.1975). The grower agreements, themselves, remained in existence.
The district court ruled that VFBA, as a bailee in possession of the goods, never accepted delivery of the beans covered by the contracts because it failed to receive from the producers appropriate documents of title under § 41-02-51(4)(a)(2-503), N.D.C.C.:  41-02-51. (2-503) Manner of seller's tender of delivery. 4. Where goods are in the possession of a bailee and are to be delivered without being moved: a. Tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; ... We believe that subsection 4(a) of the statute involves a situation in which a bailee merely holds possession of the goods and the sales transaction occurs between a seller and buyer unrelated to the bailee. Where, as in the present case, the buyer is also the bailee who has physical possession of the goods when the contract is executed, delivery of a negotiable document of title as a form of tender is unnecessary, absent an express agreement to the contrary. Ordinarily, a proper tender is made if the seller puts and holds conforming goods at the buyer's disposition and gives the buyer any notification reasonably necessary to enable him to take delivery. See § 41-02-51(1)(2-503), N.D.C.C.; Sand Seed Service, Inc. v. Bainbridge, 246 N.W.2d 911 (Iowa 1976); 3 R. Anderson, Uniform Commercial Code § 2-503:4 (3d ed. 1983). In this case, VFBA had physical possession of the beans at the time the 10/10 contracts were executed. The beans covered by the 10/10 contracts were therefore at VFBA's disposition at the time the contracts were executed. The mechanics of tender were not set forth in the parties' agreement. Under the provisions of § 41-02-51(2-503), N.D.C.C., no further tender of a negotiable document of title was necessary to accomplish a proper tender of delivery. Alternatively, the district court ruled that the 10/10 contracts were executory in nature because VFBA never tendered payment for the beans. Section 41-02-59(1)(2-511), N.D.C.C., provides that [u]nless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery. The district court concluded that VFBA never tendered the cash or the promissory note and the failure to do so results in no delivery of the goods and results in an executory agreement. An executory contract has been defined as [a] contract the obligation (performance) of which relates to the future. Black's Law Dictionary 512 (5th ed. 1979). However, a contract is not executory merely because it has not been fully performed by payment, if all the acts necessary to give rise to the obligation to pay have been performed. Wagstaff v. Peters, 203 Kan. 108, 453 P.2d 120, 124 (1969). In this case, the beans had already been delivered to VFBA by the producers. This gave rise to VFBA's obligation to pay the producers under the terms of the 10/10 contracts. VFBA's failure to make the agreed payments may have resulted in a material breach of the 10/10 contracts giving rise to a cause of action on the part of the producers, but it did not automatically extinguish the contracts or convert them into executory agreements. The 10/10 contracts were valid, executed agreements.
Millers asserts that a novation occurred between VFBA and the producers who validly entered into the 10/10 agreements and, therefore, that the 10/10 contracts now determine the rights of those producers, regardless of any pre-existing agreements between the parties. Having concluded that no new agreements arose by virtue of the 10/10 contracts, the district court did not specifically address the issue. Novation is defined as the substitution of a new obligation for an existing one. § 9-13-08, N.D.C.C. A novation is created by the substitution of a new obligation between the same parties with the intent to extinguish the old obligation. § 9-13-10(1), N.D.C.C.; see First National Bank, Bismarck v. O'Callaghan, 143 N.W.2d 104 (N.D.1966). A novation is created by contract and is subject to all the rules governing contracts in general. § 9-13-09, N.D.C.C.; Weiss v. Anderson, 341 N.W.2d 367, 372 n. 2 (N.D.1983). Thus, for a novation to be valid, in addition to the requirement that the parties intend to extinguish the old obligation, there must also exist mutual assent and sufficient consideration. § 9-01-02, N.D.C.C. We believe that each of the requisite elements for a valid novation exist in this case. In addition to mutual assent and consideration, each option proposal provided: By signing, dating and returning the additional copy of this letter with your intentions as referred to herein, you are to understand that you do hereby release and forever discharge the Valley Farmers Bean Association, its officers, directors, employees and agents from any further liability with respect to the pinto beans described herein and shall make no further claim or demand, and shall neither bring or pursue any action, suit or other proceeding of any nature against the releasees herein stated for damages arising out of the transaction described herein, and in particular for any damage or loss caused by or arising out of the Association's handling and/or processing of your pinto beans. The above-quoted language expresses an intent to substitute the new rights and obligations contained in the 10/10 agreement for the terms and conditions of any pre-existing agreements. Therefore, the 10/10 contracts now determine the rights of all producers who validly entered into those agreements.
Section 60-02-09(7), N.D.C.C., provides:  60-02-09. Bond filed by track buyer or public warehouseman. Before any license is issued to any public warehouseman or track buyer under this chapter, the applicant for such license shall file a bond with the commission which shall:       7. Not accrue to the benefit of any person entering into deferred payments contracts or other credit arrangements with a track buyer or public warehouseman. Having concluded that neither the grower agreements nor the 10/10 contracts were automatically canceled or terminated, we must next determine whether or not the agreements constituted deferred payments contracts or other credit arrangements under § 60-02-09(7), N.D.C.C. The phrase deferred payments contracts or other credit arrangements contained in § 60-02-09(7), N.D.C.C., at the time of the insolvency, was not statutorily defined. Millers asserts that the phrase should be construed to include any transaction in which the sales price is to be paid after delivery of the grain, regardless of the length of the delay, be it hours or days. See Parnell v. Baham, 228 So.2d 53 (La.Ct.App.1969); 77 C.J.S. Sales § 235 (1952). Neither the legislative history of the 1971 amendment excluding such transactions ( see Minutes of the House Committee on Agriculture, January 28, 1971 [H.B. 1241] ), nor the purpose of the warehouseman statutes support Millers' position. The rules of statutory construction require that we construe statutes liberally, with a view to effecting their objects and to promoting justice. § 1-02-01, N.D.C.C. The overriding purpose of requiring warehouseman's bonds is to protect all persons who sell or deliver grain to a warehouseman. Larkin v. Wheat Growers Warehouse Co., 64 N.D. 491, 253 N.W. 757 (1934). In State v. Hoover Grain Co., 63 N.D. 344, 248 N.W. 275, 278 (1933), this court stated: It is clearly the intent of the Legislature, however, that this law shall be comprehensive enough to settle the legitimate demands of owners of grain delivered to an insolvent elevator company, against those who have liability because of such grainan insurance company in case grain is destroyed, a surety on a bond in case grain is not paid for, and those liable for the conversion of the grain. The law was intended for the benefit of the claimants, and must be construed with sufficient liberality to effectuate its purpose without doing injury to those who are liable. If Millers' argument that any delay in payment following delivery constitutes a deferred payment contract or other credit arrangement were carried to its logical extreme, no producers selling grain in a warehouse would be entitled to protection under a warehouseman's bond because there is always some delay between delivery and payment. We do not believe the Legislature intended a result which is so wholly inconsistent with the statutory scheme. We conclude that whether or not a transaction constitutes a deferred payment contract or other credit arrangement depends not only on a delay in payment following delivery, but also on the expectations and intentions of the parties to the agreement. Cf. In re Samuels & Co., Inc., 510 F.2d 139 (5th Cir.1975), reversed en banc on other grounds, 526 F.2d 1238 (5th Cir.), cert. denied sub nom., Stowers v. Mahon, 429 U.S. 834, 97 S.Ct. 98, 50 L.Ed.2d 99 (1976). We believe that this interpretation most reasonably harmonizes the amendment with the purpose of the warehouseman statutes. The payment provision in the grower agreements provides: 5. Settlements and payments shall be made on the contracted portion of beans only. Settlements and payment shall be made in 3 payments: One-third, (1st Payment), 30 days after completion of contract; One-third, (2nd Payment), on November 15th, 1981; One-third, (3rd Payment), on December 30th, 1981, unless deferred payment is requested by Grower.  [Emphasis added.] Although the contract provision specifies that three payments shall be made following delivery, the inclusion of the phrase unless deferred payment is requested by Grower clearly indicates that neither VFBA, the drafter of the agreement, nor the producers considered the grower agreements to be deferred payment contracts. Although § 60-02-09(7), N.D.C.C., also excludes other credit arrangements from bond coverage, we do not believe the grower agreements fall within the statutory provision. In Syllabus 1 of Savelkoul v. Board of County Com'rs, Ward County, 96 N.W.2d 394 (N.D.1959), this court stated: Under the principle of ejusdem generis, general words following particular and specific words are not given their natural and ordinary sense, standing alone, but are confined to persons and things of the same kind or genus as those enumerated. Thus, we do not consider the phrase or other credit arrangements to necessarily expand the meaning of deferred payments contracts. We conclude that the grower agreements are not deferred payments contracts or other credit arrangements within the meaning of § 60-02-09(7), N.D.C.C. With regard to the producers who entered into the 10/10 contracts, we note that although they originally received scale tickets upon delivery of the beans, VFBA did not convert the scale tickets into cash or storage tickets. Section 60-02-11, N.D.C.C., provides that [a]ll scale tickets shall be converted into cash or storage tickets within a period of twenty days after first load of grain is delivered to the elevator and no longer than five days after final load is delivered to the elevator. Pursuant to § 60-02-09(3) and (6), N.D.C.C., a warehouseman's bond shall [r]un to the state of North Dakota for the benefit of all persons storing or selling grain in such warehouse, and shall [b]e, at all times, in a sufficient sum to protect the holders of outstanding storage receipts and cash tickets or checks. Although VFBA failed to convert the scale tickets as required by law, that failure does not result in loss to the producers, but constitutes a violation of § 60-02-09(4), N.D.C.C., for which Millers is liable. See Farmers Elevator Mutual Insurance Company v. Jewett, 394 F.2d 896 (10th Cir.1968); cf. State v. Hoover Grain Co., 63 N.D. 344, 248 N.W. 275 (1933). These producers were clearly covered by the warehouseman's bonds prior to May 1982. About three months before VFBA became insolvent, the 10/10 letters were sent to producers. One of the options allowed the producers to have their beans returned to them for a price, and another allowed them to keep their beans on storage. The only sales option provided that a $10 per hundred weight payment would be made as soon as feasible, but in no event later than June 30, 1982, and an unsecured promissory note, bearing no interest, due and payable in 20 years ... would presumably be given at $10 per hundred weight as the other half of the sales price. The producers who entered into the 10/10 contracts did so in a good faith attempt to settle on payment terms which were advantageous to VFBA. It would be unconscionable to construe that good faith act on the part of the producers as resulting in a voluntary change of their status as receipt holders covered under the warehouseman's bonds to persons having entered into deferred payments contracts or other credit arrangements and no longer covered under the warehouseman's bonds. In addition, we believe that to apply § 60-02-09(7), N.D.C.C., in such a manner to the 10/10 contracts would be contrary to public policy and the fundamental purpose of the warehouseman statutes which are intended to protect all persons storing and selling grain in the warehouse. Consequently, we conclude that the producers who entered into 10/10 contracts do not fall within the category of persons who entered into deferred payments contracts or other credit arrangements under § 60-02-09(7), N.D.C.C. Even if we were to assume for discussion purposes only that the 10/10 contracts were deferred payment contracts, there is yet another reason for affirming the trial court. The statutory provision exempting deferred payments contracts or other credit arrangements from warehouseman's bond coverage was enacted in 1971. See 1971 N.D.Sess.Laws Ch. 583. The legislative hearing testimony indicates a concern that many of the elevators in the state would be unable to afford the larger bonds required to cover the liability under such contracts. One committee member stated that the provision would clarify bond coverage so that the farmer will know where he stands, and that by entering into such agreements, a farmer will be sticking his own neck out. See Minutes of the House Committee on Agriculture, January 28, 1971 [H.B. 1241]. One of the sponsors of the bill noted that the main purpose of the bill was to protect the farmer when he has his product in the elevators. See Minutes, supra. The rules of statutory construction require that we construe statutes liberally, with a view to effecting their objects and to promoting justice. § 1-02-01, N.D.C.C. The overriding purpose of requiring warehouseman's bonds is to protect all persons who sell or deliver grain to a warehouseman [ see Larkin v. Wheat Growers Warehouse Co., 64 N.D. 491, 253 N.W. 757 (1934)], and a surety's liability on a bond is conditioned on the faithful performance of a public warehouseman's duties under the law. § 60-02-09(4), N.D.C.C. See State v. Hoover Grain Co., supra . In light of the obvious purpose of the warehouseman statutes, and in order to give the 1971 amendment a meaning consistent with the overall statutory scheme, we believe that under § 60-02-09(7), N.D.C.C., a public warehouseman has a duty to disclose to producers entering into deferred payments contracts or other credit arrangements the risks of doing so. Without such a requirement, the warehouseman statutes would be reduced to a trap for unwary producers, a result we do not believe was contemplated by the Legislature in amending the statute, and which is wholly inconsistent with the statutory scheme. In the present case, the 10/10 contracts do not inform the producers that by the acceptance of its provisions, the producers would be surrendering their rights of coverage under the warehouseman's bonds. We conclude that by its failure to so inform the producers in the terms of the agreement, VFBA breached its duties under § 60-02-09(4), N.D.C.C. Because the warehouseman statutes were designed to protect the producers, the violation of subsection (4) takes precedence over the subsection (7) exemption provision of the statute, and Millers is liable as surety to those producers who entered into the 10/10 contracts without written notice that they would be giving up their rights to bond coverage. The decision we have reached today is in harmony with the latest amendments to Chapter 60-02, N.D.C.C. See 1983 N.D. Sess.Laws Ch. 672, § 13. Section 60-02-19.1, N.D.C.C., currently provides that in order to be effective, a credit sale contract must be in writing and shall state in a clear and prominent manner that the sale is not protected by the bond coverage provided for in section 60-02-09; ... We have held that [t]he principles of statutory construction do not prevent a court from looking to subsequent enactments and amendments as an aid in arriving at the correct meaning of a prior statute. State v. Novak, 338 N.W.2d 637, 640 (N.D.1983). See also Slawson v. North Dakota Indus. Com'n, 339 N.W.2d 772, 775 n. 2 (N.D.1983). Thus, we hold that the claims filed by producers who entered into grower agreements and of those who entered into 10/10 contracts are valid against the trust fund and the warehouseman's bonds.