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ARCHER-DANIELS-MIDLAND COMPANY v. PAULL

October 26, 1960

ARCHER-DANIELS-MIDLAND COMPANY, PLAINTIFF,
v.
R.C. PAULL, VIRGINIA PAULL, AND PAULL'S HATCHERY, INC., DEFENDANTS.



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

Statement

This is an action by the plaintiff, Archer-Daniels-Midland Company, arising out of its turkey financing program in northwest Arkansas for the years 1958 and 1959. The plaintiff seeks to recover on two notes executed by the defendant, R.C. Paull, and representing the loss incurred in 1958 by Paull individually and by the Poor Boy Feed Company, a joint venture, composed of Paull and Louis Flentge, in the turkey operations for 1958. In addition, plaintiff seeks to recover for financing advanced to Paull's Hatchery, Inc., for its 1959 turkey breeder flocks. The corporation's indebtedness is allegedly evidenced by certain delivery receipts signed by R.C. Paull. Mrs. Paull is alleged to be a guarantor to the plaintiff of the obligations of Paull's Hatchery, Inc.

Each of the defendants denies the material allegations of the complaint, and R.C. Paull and Paull's Hatchery, Inc., each filed counterclaims against the plaintiff. R.C. Paull contends that the plaintiff contracted to finance him individually for the growing of 20,000 range turkeys during 1959, and that it contracted to finance 40,000 additional range turkeys for the Poor Boy Feed Company. Paull further contends that the plaintiff breached each of these contracts.

Paull's Hatchery, Inc., alleges in its counterclaim that the plaintiff contracted to provide financing for growers to purchase 90,000 turkey poults (baby turkeys) to be hatched by the corporation and that it breached this contract.

The case was tried to the court on September 14 and 15, 1960, and at the conclusion of the testimony, the court directed the attorneys for the respective parties to file memorandum briefs in support of their contentions. The briefs have been received and considered, along with all the testimony and the evidence, and the court now files its findings of fact and conclusions of law, separately stated.

Findings of Fact

1.

The plaintiff, Archer-Daniels-Midland Company, is a corporation organized under the laws of the State of Delaware with its principal place of business in Minneapolis, Minnesota.

The defendants, R.C. Paull and Virginia Paull, are citizens of the Western District of Arkansas and reside at Berryville. The defendant, Paull's Hatchery, Inc., is an Arkansas corporation with its principal place of business at Berryville, Arkansas.

The amount in controversy is in excess of $10,000, exclusive of interest and costs.

2.

The plaintiff corporation engages in diversified lines of business. For several years prior to August 1960 it was engaged in the poultry feed business as one of its endeavors. This particular business was operated by the Feed Division of the plaintiff corporation. Ferris H. Nichols was the Credit Manager for the Feed Division during its operation in Arkansas. Mr. Nichols worked under the supervision of Wilbur F. Anderson, General Credit Manager of Archer-Daniels-Midland Company. From November 1958 until the time of its withdrawal from the poultry feed business in northern Arkansas, Clyde C. Meinhoefer was General Manager of the Feed Division. As General Manager, Meinhoefer directed the production, sales and financing activities of the plaintiff in its feed operations. Meinhoefer, Anderson, and Nichols all worked out of the home office of the plaintiff in Minneapolis, Minnesota.

The sales force of plaintiff's Feed Division for the southwestern region, of which Arkansas is a part, was headed by Frank Burson, who resided in Kansas City, Missouri, Leroy Dameron was the plaintiff's salesman for the northwest Arkansas district, and Billy Eldridge was the plaintiff's service man for that area. In this capacity, Eldridge inspected the flocks of turkeys financed by the plaintiff, and made recommendations to the growers for improvements, better sanitation, and marketing. The plaintiff operated a feed mill at Hollister, Missouri, where it manufactured most of the feed sold in the northwest Arkansas area.

The plaintiff conducted its turkey financing program in the customary fashion. It would receive a comprehensive financial statement from a grower upon commencing to do business with him. After the grower was once approved, the plaintiff would agree each year to finance up to a specified number of turkeys for the grower at a specified dollar amount per bird. As an example, the plaintiff might agree to finance for Farmer Jones 10,000 turkeys at up to $3 per turkey. The grower in turn agreed to use plaintiff's products exclusively in the growing of the flocks so financed. Upon receipt of the poults (baby turkeys) from the hatchery, the grower would execute a separate application on each flock indicating the number and type of turkeys in the flock and the location where they were to be raised. This enabled the plaintiff to keep track of the location of turkeys financed by it, and to determine production requirements of its mill. As each new flock was placed, the plaintiff would deduct the number of turkeys in the flock from its general commitment for the year. The grower would also execute a chattel mortgage covering the flock at this time. The plaintiff would pay the hatchery for the poults on behalf of the grower, and would also provide feed and medication up to the dollar limit for each turkey. When the turkeys were marketed, the processor would issue a check to the grower and the plaintiff jointly. The grower would endorse the check and forward it to the plaintiff who would deposit it. The plaintiff would then deduct the cost of the financing advanced on that particular flock, and would send the grower a check for the balance, if any.

3.

4.

Paull's Hatchery, Inc., is an Arkansas corporation which owns and operates a turkey hatchery at Berryville, Arkansas. All of the stock of the corporation is owned by R.C. Paull and his wife, Virginia Paull. He is President and General Manager of the corporation.

The hatchery generally operates by purchasing breeder flocks of turkeys each year, which would produce eggs to be placed in the hatchery. A period of four weeks is required to hatch a turkey egg for a range-type turkey. A range turkey is the large broad-breasted type commonly consumed at Thanksgiving and Christmas. When the eggs are hatched, the hatchery sells the poults to various growers and the hatchery is usually paid by a feed company for the account of the grower. The hatchery owned by the defendant corporation can accommodate 133,000 eggs at one time. The eggs are placed in the hatchery at intervals so as to provide a staggered production of poults, which results in finished turkeys being marketed at intervals during October, November, and December of each year.

5.

In January 1958, R.C. Paull was contacted by a representative of Archer-Daniels-Midland Company, and a conference resulted between Paull, Louis Flentge, a local Berryville feed dealer and turkey grower, and the plaintiff corporation represented by F.H. Nichols and Frank Burson. The plaintiff's representatives expressed an interest in undertaking a complete turkey feeding program. Under such a program, turkeys would be fed Archer-Daniels-Midland feed exclusively with no locally procured grain supplements as are customarily used. Nichols expressed an interest in R.C. Paull and Louis Flentge forming a partnership to act as growers, financed by plaintiff, for this "pilot" type operation. It was further agreed that Paull and Flentge would receive special consideration on the price of the feed for the purpose of this pilot operation.

Flentge and Paull then formed a joint venture and conducted its business as the Poor Boy Feed Company. Flentge and Paull were jointly and severally liable for the losses of the joint venture. The plaintiff agreed to finance up to 60,000 range turkeys during the 1958 season for the Poor Boy Company. This figure was subsequently raised by mutual consent to 80,000 turkeys. Paull and Flentge were to share the costs and the profits or losses of the Poor Boy operation on an equal basis.

The Poor Boy Feed Company would place the poults owned by it on various farms in the Berryville area and would pay the farmer a set price per head for each finished turkey. All feed and medication were provided by the Poor Boy Company and were financed by the plaintiff. Plaintiff also provided the services of its field service representative to inspect the flocks for health and sanitation conditions.

The 1958 turkey operations of the Poor Boy Feed Company resulted in a net loss. At the completion of the 1958 turkey season, the Poor Boy Feed Company owed the plaintiff $11,154.64 for financing the poults, feed and medication, and also owed its growers $16,518.16 for raising the turkeys. The loss sustained by the Poor Boy Feed Company in its 1958 turkey operations was attributed in part to poor quality breeder hens which produced the eggs for the 1958 flocks.

6.

In late November 1958, sometime after Thanksgiving, a meeting was held in Berryville, Arkansas, to discuss plans for the 1959 turkey growing season to be financed by the plaintiff. At that time not all of the 1958 turkeys had been marketed, but it was apparent that the growers would sustain a net loss for that year. Present at this late November meeting were R.C. Paull, Louis Flentge, and Rex Villines, a local turkey grower and feed dealer. The plaintiff was represented by F.H. Nichols, Frank Burson and Leroy Dameron.

Two weeks prior to this meeting, R.C. Paull had received approval of Nutrina Mills, a competitive poultry feed producer, to finance the growing of 40,000 range turkeys by him individually. Paull's financing arrangements with Nutrina were basically the same as plaintiff's plan outlined above.

It was agreed between the parties at the meeting in late November 1958 that the plaintiff would finance the growing of 40,000 range turkeys at up to $3.75 per bird for the Poor Boy Feed Company during the 1959 season. The plaintiff's products were to be used exclusively in the growing of these flocks. Paull's Hatchery, Inc., was to furnish the turkey poults at 50 cents per poult, and was to be paid by the plaintiff on behalf of Poor Boy Company for the poults. The 50-cent poult cost was included in the $3.75 total financing made available per turkey by the plaintiff. Other details were to be on the same basis as in the 1958 program.

The plaintiff also agreed to finance the growing of 20,000 range turkeys for R.C. Paull individually during the 1959 season on the same basis as for the Poor Boy Feed Company except that Paull individually was to secure his own poults, and they were not to come from the breeder flock financed by the plaintiff.

It was further agreed that Paull's Hatchery, Inc., would secure the flock of breeder turkeys required to produce the eggs, which would then be hatched, thereby producing the turkey poults required for certain range flocks to be financed by the plaintiff, including the Poor Boy flocks. The plaintiff agreed to finance the breeder flock for Paull's Hatchery, Inc., and to assist in selecting the hens for the flocks so as to attempt to circumvent the losses incurred during the 1958 season resulting from poor quality breeder hens. The plaintiff agreed to advance up to $6 per breeder turkey, with a total of 3,000 turkeys in the flocks.

F.H. Nichols acted on behalf of the plaintiff in making the above agreements, with the consent and approval of the superior officials of plaintiff.

7.

Immediately after the late November 1958 meeting, R.C. Paull, acting on behalf of Paull's Hatchery, Inc., began selecting a breeder flock for the 1959 program. He was assisted in this task by Billy Eldridge, field service representative for the plaintiff corporation. Approximately 3,000 turkeys were selected for the breeder flock. Paull's Hatchery, Inc., made arrangements with three local farmers for each to ...


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