NO. 92-593
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
COLUMBIA GRAIN INTERNATIONAL,
Plaintiff and Respondent,
JAMES AND WILLIAM CERECK,
d/b/a CERECK BROTHERS,
Defendants and Appellants.
APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable Thomas M. McKittrick, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Dirk Larsen, Larsen & Neill, Great Falls, Montana
For Respondent:
K. Dale Schwanke, Jardine, Stephenson, Blewett &
Weaver, Great Falls, Montana
Submitted on Briefs: March 4 1993
Decided: May 2 0 r ' 1 9 9 3
Filed:
Justice Fred J. Weber delivered the Opinion of the Court.
Defendants, James and William Cereck, appeal the decision of
the District Court of the Eighth Judicial District, Cascade County,
which awarded damages for breach of a contract to sell grain to
plaintiff, Columbia Grain International. We affirm.
The issues for review are restated as follows:
I. Did the District Court err in finding that an oral
contract existed for the sale of grain between the parties?
2. Did the District Court err in determining that the statute
of frauds did not apply as a defense to enforcing the contract?
3. Did the District Court err in calculating damages?
James and William Cereck (the Cerecks) formed a partnership in
1972 to raise and market grain, Columbia Grain International
(Columbia Grain) operates a grain elevator in Great Falls, Montana
dnd reguiariy deals in buying and selling grain. This appeal
concerns an alleged oral agreement between Columbia Grain and the
Cerecks to buy and sell 6,500 bushels of No. 1 dark northern spring
wheat to be delivered to Columbia Grain's Great Falls elevator in
June of 1988.
Marcus Raba (Raba), a grain buyer for Columbia Grain,
testified that he initially contacted James Cereck on May 2, 1988
concerning the purchase of the grain at issue here. At that time,
James Cereck did not agree to sell. Raba futher testified that he
had a total of six conversations with James Cereck throughout May,
and that each time, Cereck did not commit to a sale. Raba was away
on vacation for two weeks in early June. Raba testified that on
June 14, 1988, after he had returned from his vacation, he again
spoke with James Cereck over the telephone and Cereck agreed to
sell 6,500 bushels of No. 1 dark northern spring wheat at $4.05 per
bushel, for a total contract price of $26,325.00.
Raba prepared a wworkupw copy of the contract terms while he
spoke with James Cereck. He testified that he read the terms back
to James Cereck to make certain the terms were clear. He further
testified that he considered the grain sold to Columbia Grain on
June 14, 1988, when James Cereck told him over the telephone that
he would sell 6,500 bushels of grain to Columbia Grain. Raba
delivered a copy of the workup to a Columbia Grain merchandiser who
in turn sold the grain to a third party.
Columbia Grain's office staff prepared a written Contract of
Purchase from the workup copy, dated June 14, 1988. Raba '"--
CII~ZII
signed the Contract of Purchase and mailed two copies to the
Cerecks at James Cereck's address. James Cereck testified that he
received the copies within a day or two of their conversation and
then left on a vacation of a week to ten days.
Neither of the Cerecks signed or returned the contract copies
to Columbia Grain. However, Columbia Grain sold the grain in the
open market in reliance on the sale.
The price of grain rose significantly after June 14, 1988.
The Cerecks did not deliver the grain to Columbia Grain. On July
12, 1988, Raba contacted James Cereck about delivery of the grain.
James Cereck advised him that the Cerecks would not deliver the
grain and did not feel obligated to deliver because neither of them
had signed the contract. Raba asked James Cereck to reconsider.
The next day, Kaba again contacted James Cereck and Cereck again
refused to deliver the grain. The Cerecks later sold their grain
to another elevator for $4.45 per bushel. On July 14, 1988,
Columbia Grain purchased 10,000 bushels of grain from another
seller for $4.68 per bushel.
Columbia Grain brought this action against the Cerecks to
recover contract damages. The Cerecks raisedthe statute of frauds
defense in a motion to dismiss which the District Court denied.
The Cerecks later filed an answer generally denying the existence
of a contract. The Cerecks did not affirmatively plead the statute
of frauds as a defense, nor did they move to amend the pleadings to
add the statute of fraud- as a defense. After trial, the District
Court found that an oral contract existed between the parties and
concluded that the contract was enforceable because the Cerecks had
waived their right to rely on the statute of frauds defense by not
aftirmatively pleading it in their answer. The Court further found
that damages equaled the difference between the contract price of
$4.05 per bushel and the $4.68 per bushel that Columbia Grain paid
to replace the grain on July 14, 1988.
I.
Did the District Court err in finding that an oral contract
existed between Columbia Grain and the Cerecks for the sale of
5,500 bushels of grain?
The District Court found that the Cerecks and Columbia Grain
entered into an oral contract. Under its terms, Columbia Grain
agreed to buy and the defendants agreed to sell 6,500 bushels of
No. 1 dark northern spring wheat for $4.05 per bushel. The grain
was to be delivered to Columbia Grain's Great Falls elevator in
June 1988. The court further found that the contract terms were as
alleged by Columbia Grain and that the Cerecks had breached this
express oral contract.
The Cerecks contend that there is no contract here because
there was no mutual consent of the parties as required by 5 28-2-
102, MCA. They argue that they consented only to discuss the price
offered by Columbia Grain, but did not consent to sell the grain on
June 14, 1988 at the price of $4.05 per bushel. They contend that
James Ceresk coamunicated his lack of tionsent by telling Haba that
he would have to discuss the proposed price with his brother,
William Cereck, and that he expressed a desire not to enter into a
contract until after he had discussed Columbia Grain's proposal
with his brother.
Columbia Grain contends that 5 30-2-204, MCA, provides that a
contract for the sale of grain can be made in any manner sufficient
to show agreement. Section 30-2-204, MCA, provides in pertinent
part:
Formation i n g e n e r a l . ( 1 ) A contract for sale of goods
may be made in any manner sufficient to show agreement,
including conduct by both parties which recognizes the
existence of such a contract. ...
The District Court's finding that an oral contract existed was
based on the prior course of dealing between the parties and the
general practices in the industry.
The standard of review for a district court's findings of fact
is whether they are clearly erroneous. Interstate Production
Credit Assln v. DeSaye (1991), 250 Mont. 320, 322, 820 P.2d 1285,
1287. To determine whether a finding is clearly erroneous, this
Court uses the following three-part test: (I) the Court will review
the record to see if the findings are supported by substantial
evidence; (2) if they are supported by substantial evidence, we
determine if the trial court has misapprehended the effect of the
evidence; and (3) if the findings are supported by substantial
evidence and the trial court has not misapprehended the effect of
the evidence, the C ~ r t
may still find cllac
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LIIUUIY i6 clea~ly
erroneous although there is evidence to support it, if a review of
the record leaves the Court with the definite and firm conviction
that a mistake has been made. DeSave, 820 P.2d at 1287.
The District Court's finding is supported by substantial
evidence. The evidence established that the Cerecks were
experienced in farming and the sale of crops. Both were raised on
a farm and, at the time of this contract, had been partners in
their grain operation for eighteen years. Both Cerecks testified
they were familiar with the methods farmers use to market their
grain.
The evidence presented at trlal also established that during
the period from September 26, 1980, through February 12, 1988, the
Cerecks entered into eighteen separate grain sales transactions
with Columbia Grain. Each time, Columbia Grain prepared a contract
on its standard form and mailed the first two copies to the Cerecks
at James Cereck's address. The Cerecks never returned signed
copies of any of the former contracts.
Testimony established that it is not unusual for farmers not
to return signed contracts to the buyer. Other testimony
established that Columbia Grain buys most of its grain over the
telephone and mails contracts to the selling farmer. Rada
testified that this is standard industry practice and that it is
impracticable to buy grain in other ways because of the distance
involved and daily grain price fluctuations.
T.TL --
n u r r h a farmer has ayreed to sell grain over che teiephone, it
is Columbia Grain's business practice to repeat the terms back to
the farmer to make sure the farmer has agreed to them, A workup
copy is not submitted to accounting department staff unless a sale
is agreed to. When a sale is agreed to, the information is then
transcribed by the accounting department onto a printed "Contract
of Purchase" form which is signed by the grain buyer. Two copies
of the Contract of Purchase are then mailed to the seller.
Typically, James Cereck handled grain sales transactions for
the partnership. He had dealt with Raba on several occasions in
the previous one and one-half years. At the time of trial, Raba
had been a grain buyer for twelve years. Kaba also testified that
he keeps a daily record of his conversations with farmers. He
testified that there were times he and James Cereck would
communicate frequently and James Cereck would not agree to sell.
No contract was mailed to the Cerecks in those instances. Raba and
representatives of other grain companies which had also dealt with
the Cerecks testified that James Cereck always sold the grain for
the partnership and that he had never told them he would have to
discuss an offer with his brother before a sale could be final.
Raba had spoken with James Cereck on six separate days in May of
1988 regarding the sale of the grain involved in this action. Raba
was gone for a two-week vacation in early June. When he returned,
he and James Cereck had the conversation at issue here.
Clearly, James Cereck was experienced in selling grain. From
prior dealings with Columbia Grai~i, he was alsu familiar with
Columbia Grain's procedures. There is substantial evidence in the
record to support the findings made by the District Court. We
conclude that the conduct of both parties is sufficient to show
consent to the contract here. We further conclude that the
District Court has not misapprehended the effect of the evidence
and our review of the record does not leave us with a firm and
definite conviction that a mistake has been made.
We hold the District Court correctly determined that an oral
contract existed between Columbia Grain and the Cereck's to buy and
sell 6,500 bushels of grain.
XI.
Did the District Court err in determining that the statute of
frauds did not apply as a defense to enforcing the contract?
The statute of frauds provision in the Montana Uniform
Commercial Code states that a contract for the sale of goods for
$500.00 or more is not enforceable unless in writing and signed by
the party against whom enforcement is sought. Section 30-2-201(1),
MCA. The contract here involved the sale of goods for over
$500.00. However, the District Court concludedthat the Cerecks had
failed to affirmatively plead the statute of frauds as a defense,
had thereby waived their right to rely on the statute of frauds as
a defense and were barred from using the defense.
The Cerecks argue that they should be allowed to use the
statute of frauds defense because they raised it in a motion to
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r before the District
Court during the pleadings stage of the proceedings, and because
Columbia Grain was aware the Cerecks were relying on the defense.
They further contend that Columbia Grain was precluded from
objecting to the use of the defense because it raised the objection
in its case in chief, was prepared to argue it and did not show any
prejudice by allowing evidence concerning the defense.
We review a district court's interpretations of the law to
determine whether they are correct. Steer, Inc. v. Department of
Revenue (1990), 245 Mcnt. 470, 803 P.2d 601.
The Cerecks' motion to dismiss and subsequent motion for
summary judgment were both based on the statute of frauds defense.
However, they made no motion to amend their answer at any time to
include the affirmative defense of the statute of frauds. Rule
8(c), M.R.Civ.P., provides:
Affirmative defenses. In pleading to a preceding
pleading, a party shall set forth affirmatively accord
and satisfaction, arbitration and award, assumption of
risk, contributory negligence, discharge in bankruptcy,
duress, estoppel, failure of consideration, fraud,
illegality, injury by fellow servant, laches, license,
payment, release, res judicata, statute of frauds,
statute of limitations, waiver, and any other matter
constituting an avoidance or affirmative defense. . . .
(Emphasis supplied.)
Rule 8(c) precludes a defendant from using the statute of frauds as
a defense when it has not been raised in the pleadings.
The Cerecks first alluded to the statute of frauds defense in
their motion to dismiss. They again argued the defense in their
summary judgment motion. The Cerecks contend that Rule 15(b),
M.R.Civ.P., allows them to rely on the defense because Columbia
Grain impliedly consented to the defense. Rule 15(b), M.R.Civ.P.,
provides :
Amendments to conform to the evidence. When issues not
raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. .
This Court has previously addressed this same issue with regard to
waiver as an affirmative defense. Waiver was not raised in either
the defendant's answer or in a subsequent motion for summary
judgment in Butte Teachers' Union Local No. 332 v. Board of
Trustees (1982), 201 Mont. 482, 655 P.2d 146. In that case, the
defense was first presented in a memorandum and supporting
affidavit in opposition to the plaintiff's motion for summary
judgment . Because the plaintiff continued to maintain its
objection to the defendant's allegations of waiver, this Court
stated:
Therefore, it cannot be said that an issue not raised by
the pleadings was tried by the express or implied consent
of the parties, as Rule 15(b), I4.R.Civ.P. would permit.
Cf. Reilly v. Maw (1965), 146 Mont. 145, 405 P.2d 440,
wherein implied consent was found on the basis that
evidence extrinsic to the claim plead, was admitted &
trial without obiection. (Empahsis in original.)
Butte Teachers' Union, 655 P.2d at 148, F.lthough the motion to
dismiss may have put Columbia Grain on notice that the Cerecks
intended to rely on the statute of frauds as a defense, Butte
Teachers' Union requires that the opposite party raise no objection
in order for implied consent to operate under Rule ' ' / h '~
Ld ( 1 ,
M.R.Civ. P.
The Cerecks claim that Columbia Grain did not object to the
use of the statute of frauds in any of its documents or at the
hearing on the summary judgment motion and, further, that Columbia
Grain argued the merits of the defense. The Cerecks claim,
therefore, that Columbia Grain impliedly consented and the
pleadings should be treated as amended to include the defense. The
Cerecks also claim that Columbia Grain impliedly consented by its
actions at trial in eliciting testimony from witnesses and by
arguing the defense. Specifically, they cite the following from
the transcript, where Columbia Grain's counsel responded to the
Cerecks' objection to the introduction of a loan form signed by
James Cereck as being irrelevant: "[Algain I think it goes to the
practice of farmers, the business of farmers, and I think it
relates again back to what I anticipate is going to be the defense
here with respect to the statute of frauds."
Columbia Grain contends that it has maintained its objection
to the Cerecks' use of the defense throughout the proceedings. The
Cerecks admit that Columbia Grain did object at the trial to the
use of the statute of frauds as a defense for failure to plead it.
We conclude that by objecting at trial to the use of the statute of
frauds for failure to plead it and by resisting the defense at pre-
trial proceedings, Columbia Grain did not impliedly consent under
Rule 15(b), M.R.Civ.P., to the Cerecks' use of the statute of
frauds defense,
We hold the District Court correctly determined the statute of
frauds did not apply as a defense to enforcing the contract.
111.
Did the District Court err in calculating damages?
The District Court determined that Columbia Grain bought other
grain on July 14, 1988 to replace the grain the Cerecks did not
deliver. Columbia Grain purchased the replacement grain for $4.68
per bushel, which turned out to be the high price of the season.
The court awarded damages of $4,095.00 based on the difference
between $4.68 and the $4.05 contract price.
The Cerecks contend that Columbia Grain failed to show any
damages resulting from the contract breach. Alternatively, they
contend that the only damages proven are $.07 per bushel, the
margin of profit for this transaction as testified by Raba. They
also argue that no evidence was offered to show when the grain was
purchased or for what price and, therefore, the damages are
speculative and Columbia Grain has not met its burden of proving
damages as required under 27-1-311, MCA.
The Cerecks' arguments have no merit. Damages for breach of
a contract for the sale of goods are governed by § 30-2-711(1),
MCA, which provides in pertinent part:
Buyer's remedies in general ....
fails to make delivery or repudiates
(1) Where the seller
. . . then with
respect to any goods involved, and with respect to the
whole if the breach goes to the whole contract (30-2-
612), the buyer may cancel and whether or not he has done
so may in addition to recovering so much of the price as
has been paid:
(a) wcoverN and have damages under the next section
as to all the goods affected whether or not they have
been identified to the contract ...
Section 30-2-712, MCA, provides:
"Cover" -- buyer's procurement of substitute goods. (1)
After a breach within the preceding section the buyer my
"cover" by making in good faith and without unreasonable
delay any reasonable purchase of or contract to purchase
goods in substitution for those due from the seller.
(2) The buyer may recover from the seller as damages
the difference between the cost of cover and the contract
price toqether with anv incidental or conseauential
damaqes as hereinafter defined (30-2-715), but less
expenses saved in consequence of the seller's breach. .
. (Emphasis supplied.)
In addition to the provisions outlined above, § 30-2-713, MCA,
provides that the measure of damages for nondelivery or repudiation
is the difference between the market price and the contract price
at the time the buyer learns of the breach.
Columbia Grain covered the undelivered grain without
unreasonable delay. They had no way to know that $4.68 would be
the high price that season for No. 1 dark northern spring wheat.
Columbia Grain testified that to meet its obligations to the buyer,
it could not wait longer for delivery from the Cerecks after James
Cereck refused to deliver on July 13, 1988. We conclude the
Montana Uniform Commercial Code provision for damages based on cost
to cover as used by the District Court was the correct measure of
damages here.
We hold the District Court correctly calculated damages.
Aff inned.
We Concur:
May 20, 1993
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
Dirk Larsen
Larsen & Neill
P.O. Box 1692
Great Falls, MT 59403
K. Da!e Schwanke
Jardine, Stephenson, Blewett & Weaver
P.O. Box 2269
Great Falls, MT 59403
ED SMITH
CLERK OF THE SUPREME COURT
0 T A V . r AT 1 . I A \ T I I * - * T *
o l n l c vr I V I ~ I ' I L ~ I Y ~