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ARKANSAS VALLEY FEED MILLS v. FOX DE LUXE FOODS

March 3, 1959

ARKANSAS VALLEY FEED MILLS, INC., PLAINTIFF,
v.
FOX DE LUXE FOODS, INC., DEFENDANT, HAROLD SNYDER, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: John E. Miller, Chief Judge.

  The plaintiff filed its complaint on December 31, 1957, which is set out more fully in D.C., 163 F. Supp. 759. The complaint alleged in essence that on December 14, 1953, the plaintiff entered into a written contract with the defendant effective January 4, 1954, for a period of one year, under which the defendant agreed to purchase from the plaintiff 50,000 chickens each week. The plaintiff further alleged that the defendant defaulted in part until July 24, 1954, and thereafter wholly refused to perform any part of the contract.

On February 8, 1958, the defendant filed its answer in which it admitted the execution of the contract sued upon, but alleged that said contract was canceled by a written agreement dated August 2, 1954, signed by Harold Snyder, president of the plaintiff, Arkansas Valley Feed Mills, Inc., and alleged that the agreement was effective to cancel all obligations under the contract of December 14, 1953.

The plaintiff also alleged in its response to the motion for summary judgment that Harold Snyder, as president of the Arkansas Valley Feed Mills, Inc., had no authority to execute the cancellation agreement, and that said agreement was not ratified by the corporation.

On July 14 the court, after considering the pleadings, depositions, affidavits, and briefs of the parties, concluded that there was a genuine issue of fact as to the authority of Harold Snyder to execute the cancellation agreement or whether the plaintiff had ratified the alleged cancellation agreement. Accordingly the motion for summary judgment was denied. D.C., 163 F. Supp. 759.

On the same day the court advised the parties that in the interest of economy of time and money the case should be tried first upon the issue of the validity and effect of the cancellation agreement, and if the court concluded that the said agreement was executed without authority of the plaintiff and had not been ratified by plaintiff, an additional hearing would be held to determine the amount of damages to which the plaintiff was entitled, if any.

On December 13, 1958, the defendant moved for leave to amend its answer and to file a third-party complaint against Harold Snyder, president of the plaintiff corporation, as an individual. On December 15 the court granted the motion, and on the same day the defendant filed its amended answer and third-party complaint. In essence the third-party complaint alleged that if in fact Harold Snyder was without authority to execute the cancellation agreement, he had fraudulently and willfully induced the defendant by false representations to execute that agreement. Consequently, the third-party complaint prayed that in the event the plaintiff recovered a judgment against the defendant, that the defendant have judgment over against Harold Snyder.

The amended answer alleged that in fact Harold Snyder had authority to execute the cancellation agreement of August 2, 1954, but that, in any event, the plaintiff corporation was estopped from denying such authority because it had held out Harold Snyder as having authority to execute contracts in its behalf both to the public generally and specifically to the defendant. The defendant also alleged that the plaintiff corporation ratified the acts of Snyder in executing the cancellation agreement by accepting the adjustments set forth in that agreement.

The answer of the third-party defendant, Harold Snyder, denied that he represented to the defendant that he had authority to act on behalf of the Arkansas Valley Feed Mills, Inc.

On January 19 and 20, 1959, the case was tried to the court without a jury on the sole issue of whether the cancellation agreement of August 2, 1954, was valid and effective. At the conclusion of the trial, the case was submitted and taken under consideration, and the attorneys were directed to file briefs in support of their contentions. The briefs of the parties have been received and considered along with the pleadings, depositions, ore tenus testimony and all exhibits, and the court now makes and files its formal findings of fact and conclusions of law.

Findings of Fact

1.

The plaintiff is a corporation organized and existing under the laws of Arkansas with its principal place of business at Dardanelle, Arkansas. The defendant is a corporation organized under the laws of Illinois and authorized to do business in Arkansas, where it maintains a place of business at Dardanelle, Arkansas. This suit was filed on December 31, 1957, and the amount in controversy is in excess of $3,000.

2.

The plaintiff corporation, Arkansas Valley Feed Mills, Inc., was incorporated in 1946 by Harold Snyder, W.H. McClure and F.S. Meek. The corporation (hereinafter referred to as the Mills) was originally formed to operate a dehydrating plant, but later expanded its activities to include the manufacture of feed and the sale of chickens. In 1952 the Mills entered into a contract with the defendant, Fox De Luxe Foods, Inc. (hereinafter referred to as Fox), for the sale of chickens at a specified rate to Fox, and subsequently an amendatory contract between those parties was entered into for an increased rate of sale.

After these dealings between the parties, negotiations began in the latter part of 1953 for a similar contract which was to be operative during the calendar year of 1954. A written memorandum of this agreement was executed by the parties on October 8, 1953.*fn1

A more formal contract embodying the terms set forth in the memorandum agreement was executed on December 14, 1953, and was to be operative beginning January 4, 1954, for a period of 52 consecutive weeks. The contract of December 14 is the contract sued upon herein by the plaintiff, and is hereinafter referred to as the marketing contract.*fn2

3.

In the spring of 1954 the defendant, apparently relying upon these provisions, began refusing to accept all of the 50,000 chickens per week which it was obligated under the contract to purchase, basing its refusal upon claims that the chickens furnished did not meet the standards prescribed by the contract. In order to determine whether the chickens were of the quality prescribed, Fox would grade the flocks of chickens offered and refuse or accept the chickens at contract prices as they met or failed to meet the standards of quality required under Fox' interpretation of the contract.

The plaintiff corporation contended that the quality was as prescribed in the contract and that, in any event, Fox was not entitled under the provisions of the contract to invoke the penalty clause. This contention was based upon the plaintiff's interpretation of the contract to the effect that the penalty could be effective against it only in the event it failed to offer 50,000 chickens each week of the required weight and that the penalty clause did not become operative because of a failure in quality of the chickens.

In July of 1954 Fox nevertheless invoked the penalty clause embodied in paragraph 4 of the marketing contract on the ground that the quality requirements of paragraph 2 were not complied with by the chickens which the plaintiff was offering.

The plaintiff was unable to persuade Fox to alter this procedure, and on August 2, 1954, in order to obtain a new contract or to cancel the existing marketing contract, the plaintiff's president and general manager, Harold Snyder, went to Chicago to meet with Fox representatives at their home office. The meeting was attended by Mr. Harold Williams, Mr. C.P. Dodd, and Mr. Roland N. Gergin, all representatives of the defendant Fox.

When this oral understanding had been reached, the meeting was adjourned to the office of Mr. Mike Fox, who is since deceased, but who at that time was president of the defendant, Fox De Luxe Foods, Inc. Mr. Fox agreed that the contract should be canceled but insisted that a cancellation agreement be signed before Snyder returned to Arkansas. Snyder agreed to sign the instrument which was prepared by Fox' attorneys at their office, where Snyder signed it on his way to the airport. The agreement in its entirety reads as follows:

"Cancellation Agreement

    "Whereas, under date of December 14, 1953, a
  written agreement was entered into between Fox De
  Luxe Foods, Inc. of Chicago, Illinois, and
  Arkansas Valley Feed Mills, Inc. of Dardanelle,
  Arkansas, wherein and whereby said Fox De Luxe
  Foods, Inc. agreed to buy from Arkansas Valley
  Feed Mills, Inc. and the latter agreed to sell
  50,000 head of chickens each week commencing
  January 4, 1954, for a period of fifty-two
  consecutive weeks thereafter on the stipulations,
  covenants and agreements in said agreement
  contained; and
    "Whereas, the parties hereto have agreed to
  cancel said contract effective the day and date
  hereof.
    "Now, Therefore, the parties hereto agree to
  and do hereby so cancel said agreement dated
  December 14, 1953, and in pursuance of this
  agreement of cancellation and of One Dollar in
  hand paid, one to the other, receipt whereof is
  hereby acknowledged, the said parties each do
  hereby release the other, their successors and
  assigns, from all sums of money, accounts,
  actions, claims and demands up to the date and
  execution of these presents, excepting an
  indebtedness now owed by said Arkansas Valley
  Feed Mills, Inc. to said Fox De Luxe Foods, Inc.,
  by reason of adjustments of the paying prices
  specified in said agreement of December 14, 1953,
  in an amount to be ascertained and adjusted by
  the parties hereto. It is understood, however,
  that this cancellation shall be in full force and
  effect from the date hereof regardless of said
  adjustment.
    "Witness our hands and seals the 2nd day of
  August, 1954.

"Fox De Luxe Foods, Inc.

"By /s/ R.N. Gergin V. Pres.

"Arkansas Valley Feed Mills, Inc.

"By /s/ Harold Snyder (Pres.)"

No other agreements, written or oral, were entered into between the parties during Snyder's visit to Chicago, and no conditions were imposed precedent to the operation of the cancellation agreement.

4.

Prior to 1946 Harold Snyder, who is now president and general manager of the plaintiff, had had no business experience, and up until the time of the organization of the plaintiff corporation had taught school. In 1946, however, Snyder, along with W.H. McClure and F.S. Meek, organized Arkansas Valley Feed Mills, Inc. At that time Snyder owned apparently 50 percent of the original stock although shortly thereafter additional stock was issued. Snyder was made Secretary-Treasurer of the corporation. In 1948 the Mills began operating in the poultry and feed business.

In the intervening years, between Snyder's first venture into business in 1946 and the present time, he acquired interests in numerous other business enterprises. At least as early as 1950 or 1951 he was president of Dardanelle Industrial Foundation, and was still president of that organization at the time of trial. He is the largest stockholder in the Valley Poultry Company, a corporation which appears to be wholly unrelated to the plaintiff in this suit. That company is engaged in the processing of poultry, and can process birds at the rate of 125,000 for each 8-hour shift. Snyder also presently owns 40 percent of another concern, The Arkansas Valley Hatchery, and an interest in Arkansas Egg Company. He is now in the process of organizing a bank.

In 1952 Mr. Meek, who had been president of the plaintiff Mills, died, and Snyder became president. Mr. W.H. McClure at that time became Chairman of the Board of Directors, and Mr. S.D. Mitchell became secretary of the corporation and was also given the title general manager. During this period from 1952 to 1953, both Mitchell and Snyder devoted full time to the operation of the business of the Mills. However, although Mitchell was termed "general manager," he regarded Snyder as "his immediate superior" and the operations of the business were primarily directed by Snyder. No other stockholder engaged directly in the management of the business or devoted any significant time to its operation except that a secretarial and bookkeeping employee, Gretchen Goodier, was a nominal stockholder with a very small portion of the stock.

At no time during this period or afterward did the Board of Directors of the corporation meet regularly. Although the stockholders and employees of the plaintiff Mills testified that minutes of meetings of stockholders and the Board of Directors were regularly and meticulously kept by Mr. S.D. Mitchell as secretary, only several copies of such minutes and resolutions could be found. All of the papers reflecting corporate affairs from the incorporation in 1946 until the date of the trial in January 1959 comprise less than 25 documents, most of which are items of little or no significance, such as financial statements and insurance schedules of the corporation. None of the several minutes or resolutions reflect any limitation upon the authority of the president and general manager. The charter and bylaws of the corporation which were also introduced in evidence likewise impose no limitation upon that authority.

No verbal limitation upon the authority of Harold Snyder as president and general manager was imposed upon him by the Board of Directors of the corporation or by any stockholder except that upon one occasion the Board of Directors suggested to Snyder that he had allowed too many accounts receivable to accumulate. Even this suggestion, however, does not appear to be an explicit direction to Snyder as to any business policy.

Apparently because the Board of Directors of the corporation had confidence in Snyder's business ability, he was allowed a free hand in operating the corporation. He executed contracts and did all the major work of the corporation. He executed corporate warranty deeds, mortgages, and leases in the ordinary course of business without either the prior or subsequent approval of the Board of Directors. Although some resolutions apparently were passed by the Board to authorize the corporation to borrow substantial sums of money, those resolutions do not show on their face that they were made by the Board of Directors, and were signed only by Harold Snyder. It was customary for the Board to approve whatever action Snyder had taken since the preceding meeting, and never at any time was Snyder advised of any limitation upon him in the operation of the business.

5.

6.

In January of 1954, during which time the marketing contract was in operation, the plaintiff Mills had expanded its business to produce feed for General Mills. It was decided at that time to create a separate corporation to handle the retail feed business which had previously been handled by the Mills with the end in mind that the Mills would manufacture the feed and sell it wholesale to various feed dealers. Prior to that time the plaintiff Mills had contracts with various growers of chickens, the purport of which apparently was a minimum guarantee for sales of chickens which were fed with the products of the Mills. It was contemplated that these and other obligations would be fulfilled by the new corporation which was duly formed under the name of the Valley Feed Company, Inc. (hereinafter referred to as the Feed Company). The Feed Company offices were set up and maintained in the same building and adjacent to those of the plaintiff, and upon its formation in January of 1954 Mr. S.D. Mitchell left the Mills and ...


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