OLSON v. BIOLA COOPERATIVE RAISIN GROWERS ASS

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District Court of Appeal, Fourth District, California.

OLSON et al. v. BIOLA COOPERATIVE RAISIN GROWERS ASS'N et al.

Civ. 3578.

Decided: October 02, 1947

Lawrence W. Young, Milo Popovich, Chester R. Andrews and William C. Crossland, all of Fresno, for appellants. Irvine P. Aten and Aynesworth & Hayhurst, all of Fresno, for respondents.

This is an appeal from a judgment against defendants in the sum of $19,846.79, besides interest and costs, in an action to recover liquidated damages for the delivery of sub-standard raisins to Biola Cooperative Raisin Growers Association (hereafter called Biola) under the provisions of a marketing agreement between Biola and its various members.

Biola was organized under the laws of California as a nonprofit cooperative marketing association. It had nineteen or twenty members. It is not clear whether defendant E. Morello was a member during the time involved here. At least he delivered no raisins during that time and no judgment was rendered against him.

Biola had a board of directors of five members, all of whom are defendants together with other members. Plaintiffs are also members.

Under date of October 20, 1944, plaintiff Chris H. Scheidt and Biola entered into a contract whereby Scheidt agreed to do all the labor and furnish materials for, to receive, process and pack the raisins of the association members for $27 per ton plus the additional cost of fiber over 1943 prices, or $7 per ton if packed in picking boxes and stemmed only. He was to do other work for which he was to receive additional compensation and the total sum was to be reduced by $900 as rent for the packing house and equipment and $1,800 as compensation for a bookkeeper.

Delivery of raisins to the packing house started shortly after the date of the packing contract and was concluded early in 1945. The federal regulations permit a moisture content of 18% in raising to be processed. The evidence satisfies us that the eight growers against whom judgment was rendered delivered some of their raisins with a higher moisture content so that they could not be run through the stemmer without further drying either by the sun or dehydration.

All of the parties except J. H. Scheidt and E. Morello stipulated to an arbitration to determine the quality of the raisins delivered. The arbitrators reported that 2,610,247, pounds of the raisins delivered were in good condition and were processed and sold and that 963,886 pounds were unprocessed and were sold in boxes to other dealers; that of those sold in boxes some were in good condition and could have been processed, others were damaged by rain and still others were ‘midgets'; that the balance were too wet to be processed. Defendants J. H. Scheidt and E. Morello were not parties to the arbitration but the evidence satisfies us that J. H. Scheidt as well at the other seven defendants against whom judgment was rendered delivered a considerable quantity of raisins that were too wet to be processed. The trial court found ‘that 418–/4 tons of said raisins so delivered were not properly dried and cured but were too wet and contained too much moisture and were too heavy for processing and marketing.’ From the view we take of the case the exact weight of the wet raisins delivered is unimportant so we do not need to pursue that matter further.

All of the raisins, both wet and dry, were delivered at the packing house which was under the control of plaintiff Chris H. Scheidt. He received them knowing at the time of delivery or shortly thereafter that some of them were wet. He notified the officers of Biola of that fact but the wet raisins were not rejected nor returned and Scheidt and Biola continued to permit the delivery and acceptance of wet raisins all of which were ultimately sold. Some of the growers who delivered wet raisins offered to remove them from the packing house and properly cure them at their own expense which they were not permitted to do. Perhaps one of the reasons for this may be found in the assertion of Biola in its brief that all of the raisins both wet and dry were sold for $180 per ton and that each grower received for each ton delivered $10 from the government as a reward for drying his grapes instead of selling them fresh, so that no one suffered any loss by reason of the delivery of the wet raisins.

Many questions are argued in the briefs but we need only consider one of them, namely, can liquidated damages be collected in an action brought by members of Biola to collect the penalty under an allegation that after demand the directors failed to act because three of them, a majority of the board, were interested parties, having delivered wet raisins. The answer to the problem depends on the proper construction to be placed on sections 1208, 1209 and 1213 of the Agricultural Code, of sections 1670 and 1671 of the Civil Code and of the Marketing Contract between Biola and its members. We have been cited to and have found no case construing the sections of the Agricultural Code under facts similar to those we have before us here.

Section 1208 of the Agricultural Code provides in part as follows: ‘The association and its members may make and execute marketing contracts, requiring the members to sell, for any period of time, not over fifteen years, all or any specified part of their products or specified commodities exclusively to or through the association, or any facilities to be created by the association. If they contract a sale to the association, it shall be conclusively held that title to the products passes absolutely and unreservedly, except for recorded liens, to the association upon delivery; * * *.’

Section 1209 contains the following: ‘The by-laws or the marketing contract may fix, as liquidated damages, specific sums to be paid by the member or stockholder to the association upon the breach by him of any provision of the marketing contract regarding the sale or delivery or withholding of products; * * * and such clauses providing for liquidated damages shall be enforceable as such and shall not be regarded as penalties.’

The first paragraph of section 1213 provides as follows: ‘Any provisions of law which are in conflict with this chapter shall not be construed as applying to the associations herein provided for.’

Section 1670 of the Civil Code provides: ‘Every contract by which the amount of damage to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void, except as expressly provided in the next section.’

Section 1671 provides: ‘The parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.’

Section 1 of the Marketing Agreement is as follows: ‘The Association buys and the Grower sells to the Association annually from the date the signing of the By-Laws of the Association and this agreement all of the raisins owned and grown by the Grower, and agrees to deliver the same and all thereof properly cured and in good condition to the plant of the Association.’

Section 5 provides: ‘The Association reserves the power to set standards of maturity, quality, sugar, and moisture content, which must be met by all raisins delivered by the Grower.’ As far as the record discloses no such standards were set.

Section 7 contains the following: ‘In the event that Grower should fail to deliver raisins hereby sold in accordance with the terms of this agreement and these By-Laws, such act will injure the Association to an amount that is, and will be impracticable and extremely difficult to determine and fix, and that is, therefore, fixed at the amount of Twenty-five (25%) per cent of the average current seasonal price for each and every ton of raisins that the Grower fails to deliver in accordance with the terms hereof and these By-Laws, and which amount the Grower agrees to pay, and shall pay, to the Association upon demand, * * *.’

Section 13 provides in part as follows: ‘It is expressly understood and agreed that Grower has by this agreement agreed to and will deliver the raisins herein contracted to be delivered to the Association, or in lieu thereof to pay liquidated damages therefor as by this agreement provided for his failure so to do, * * *.’

Section 14 provides for arbitration of any controversy between Biola and a member concerning the quality or quantity of any raisins delivered.

It is firmly established in California as a general rule that a contract may not fix the amount of damages to be paid for a future breach except in a case where it would be impracticable or extremely difficult to determine the actual damages sustained. It is also generally held that the impracticability or difficulty in determining the actual damages suffered must be alleged and proved by the party seeking to recover liquidated damages. Rice v. Schmid, 18 Cal.2d 382, 115 P.2d 498, 138 A.L.R. 589; Robert Marsh & Co. Inc., v. Tremper, 210 Cal. 572, 292 P. 950; Dyer Bros. Golden West Iron Works v. Central Iron Works, 182 Cal. 588, 189 P. 445; Kekich v. Blum, 43 Cal.App.2d 525, 111 P.2d 411.

An important exception to this general rule had been established in the case of non-profit cooperative marketing associations by the sections of the Agricultural Code from which we have already quoted. This exception permits such associations and their members to fix by contract the liquidated damages to be paid upon a breach of the contract in the particulars of the sale, or delivery, or the withholding of products that may be the subject of contract. While these provisions contain a grant of power that power is limited to the three subjects particularly and clearly mentioned so any attempt on the part of the association to go beyond those express powers granted must fall within the provisions of sections 1670 and 1671 of the Civil Code which only permit the recovery of liquidated damages where it would be impracticable or extremely difficult to fix the actual damages and the further rule established by the cases already cited that the impracticability or extreme difficulty in fixing the actual damages must be alleged and proved.

It is well established by a long line of decisions even prior to the adoption of the Agricultural Code that a non-profit cooperative marketing association could contract for the payment by a member of a fixed sum for the violation of his agreement to deliver all of his products to the association for processing and marketing. Anaheim Citrus Fruit Ass'n v. Yeoman, 51 Cal.App. 759, 197 P. 959; California Canning Peach Growers v. Downey, 76 Cal.App. 1, 243 P. 679; California Canning Peach Growers v. Harris, 91 Cal.App. 654, 267 P. 572; Irwindale Citrus Ass'n v. Semler, 60 Cal.App.2d 318, 140 P.2d 716. All such cases deal with the quantity of fruit not delivered by a member who refused to deliver all his products to the marketing association. The quality of the fruit delivered was not an issue and was not considered in any of the cases. In the case the quantity of the raisins delivered is not an issue as it is admitted that the members delivered all of their raisins to Biola. It is the quality of the raisins that is in issue here so the decided cases are of no great assistance to us. It remains to be considered in the first instance whether or not the growers who delivered wet raisins violated their marketing contract in any of the particulars mentioned in section 1209 of the Agricultural Code in regard to ‘the sale delivery or withholding’ of products.

Section 1 of the marketing agreement contemplates a sale of the raisins by the grower to Biola when it says that ‘the Association buys and the Grower sells to the Association * * *’ his crop of raisins. Thus they contracted for a sale of the raisins for future delivery. This brings into force the provision of section 1208 of the Agricultural Code that ‘if they contract a sale to the association, it shall be conclusively held that title to the products passes absolutely and unreservedly, except for recorded liens, to the association upon delivery.’ Thus a sale of the raisins occurred and was completed on delivery and acceptance by Biola and the packer and no question remains of a breach by a grower of his obligation to sell his raisins to Biola. It is equally clear that there was no breach of his obligation by any grower in failing to deliver or by withholding any or all of his raisins, it being admitted that each grower delivered all his raisins to Biola. It follows that there was proved no breach of any of the three conditions set up in the Agricultural Code under which liquidated damages might be contracted for and recovered.

On the other hand plaintiffs argue that in section 1 of the marketing agreement each grower agreed to deliver his raisins ‘properly cured and in good condition’, and that this covenant was breached by the delivery of wet raisins; that in section 7 each grower agreed to pay the liquidated damages if he failed to deliver his raisins ‘in accordance with the terms of this agreement’; that this covenant was broken by the delivery of wet raisins which were neither ‘properly cured’ nor ‘in good condition’; that thereupon the agreement to pay liquidated damages came into effect and could be enforced. They argue further that under the quoted provisions of section 1213 of the Agricultural Code the provisions of sections 1670 and 1671 of the Civil Code cannot control in this case.

The answer to this argument seems obvious. In the first place we have been cited to no section of the Agricultural Code that permits contracting for the recovery of liquidated damages for breach of an agreement as to the quality of the product to be delivered. As this case involves the quality, not the quantity, of raisins delivered, the provisions of the two sections of the Civil Code are not in conflict with the provisions of the Agricultural Code in so far as the facts of this case are concerned, so section 1213 of the Agricultural Code cannot aid plaintiffs.

Next a study of the entire marketing agreement leads to the opinion that it was the intention of its framers to permit the recovery of liquidated damages only when a grower failed or refused to deliver all his raisins to Biola. Section 13 seems to be a summary of the prior provision on this subject. It conditions the agreement to pay liquidated damages upon the fact of failure to deliver. Section 7, the liquidated damage section, also suggests that it was intended to cover failure to deliver and not failure in the quality of the product. In addition to other provisions the section states that it would be impracticable and extremely difficult to fix the damages for failure to deliver raisins in accordance with the terms of the marketing agreement. It has been held that this is a true statement of a fact in the case of the failure to deliver. It is not true in case of the delivery of inferior quality raisins for the reasons that raisins are graded and each grade has an ascertainable market value which may vary from season to season and from time to time. Raisins not properly cured have a less market value that those properly cured. The loss from a violation of this provision of the contract as to quality may be ascertained and determined under the ordinary rules of the law of damages.

This conclusion as to the damages in this case being ascertainable is supported by plaintiffs themselves. In their amended complaint they allege the loss from the delivery of wet raisins ‘to be upwards of $20.00 per ton’. In their brief they arrive at the conclusion that ‘there was a net loss of $21.87 on each ton of raisins not packed out and delivered to the government.’ They reach this conclusion by the use of various government regulations effective in 1944 of which they urge us to take judicial notice.

Many practical reasons may be urged in support of the conclusion that liquidated damages should not be recovered when based solely on the inferior condition or quality of the raisins after the sale by the grower to the association has been completed by their delivery and acceptance. There are established grades for different quality of raisins which indicates that it is not always possible to have all raisins ‘Grade A’. The quality of a crop often is dependent on many natural conditions not under the control of the grower and for which he is not responsible. The product may, from natural causes, be of inferior quality which the best husbandry cannot prevent. To permit an association to allow the consummation of a sale to it of inferior quality raisins by acceptance of delivery and then to permit it to collect a heavy penalty from the grower because of an inferior quality for which he might not be to blame might be ruinous to the grower and might permit other growers to profit from his misfortune. If the grower delivering inferior fruit is to blame for that condition and has breached his contract the association is not without adequate remedies at law and need not depend on the recovery of liquidated damages to recoup any loss.

The provisions of the Agricultural Code do not authorize contracts for the recovery of liquidated damages because of raisins of inferior quality having been delivered to and accepted by a non-profit cooperative marketing association. If it be assumed that it was the intention of the authors of the marketing agreement to permit the recovery of liquidated damages for the delivery of wet raisins the question of the validity of those provisions when inferior raisins are delivered and accepted must be determined by the provisions of sections 1670 and 1671 of the Civil Code and do not come within the provisions of the Agricultural Code. As the actual damages to Biola from the delivery and acceptence of wet raisins were easily ascertainable and are not impracticable or extremely difficult to fix, the recovery of liquidated damages cannot be approved.

Judgment reversed.

MARKS, Justice.

BARNARD, P. J., and GRIFFIN, J., concur.