STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MECCA FARMS, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 87-1526A

) MO-BO ENTERPRISES, INC. and ) HARTFORD INSURANCE COMPANY ) OF THE SOUTHEAST, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal bearing was held in the above case before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on July 28, 1987, in Fort Lauderdale, Florida.

APPEARANCES

For Petitioner: Gary Smigiel (qualified representative)

Mecca Farms, Inc. Post Office Box 3815

Lantana, Florida 33462

For Respondent Jon K. Stage (qualified representative) Mo-Bo Enterprises, Post Office Box 11025

Inc.: Fort Lauderdale, Florida 33339

For Respondent Hartford Insurance Company of the

Southeast: No appearance.

BACKGROUND

This matter began on December 16, 1986, when petitioner, Mecca Farms, Inc., filed a sworn amended complaint with the Department of Agriculture and Consumer Services (agency) alleging that respondent, Mo-Bo Enterprises, Inc., was indebted to petitioner in the amount of $5,920.67 for a load of peppers sold by petitioner to respondent on March 13, 1986. Also named a respondent in this matter was Hartford Insurance Company of the Southeast, the surety company which has posted a surety bond with the agency on behalf of Mo-Bo Enterprises, Inc.

Respondent filed its answer on March 23, 1987, denying the claim.

Because of the existence of disputed facts, the matter was transmitted by the agency to the Division of Administrative Hearings on April 10, 1987 with a request that a Hearing Officer be assigned to conduct a formal hearing.

By notice of hearing dated April 24, 1987, a final hearing was scheduled for June 2, 1987, in Fort Lauderdale, Florida. At the request of the parties the matter was rescheduled to July 28, 1987 at the same location. At final hearing petitioner presented the testimony of Charles Boltz, its foreman, and Peter Andolina, its sales manager, and offered petitioner's exhibits 1-3. All were received in evidence. Respondent presented the testimony of its vice- president, Paul Boris, and offered respondent's exhibits 1 and 2 which were received in evidence. There was no appearance by the surety company. At the conclusion of the petitioner's case-in-chief, the undersigned allowed petitioner to amend its complaint to seek repayment of $8,750 rather than $5,920.67.

There is no transcript of hearing. Proposed findings of fact and conclusions of law were filed by the parties on August 12, 1987. A ruling on each proposed finding of fact is made in the Appendix attached to this Recommended Order.

The issue is whether respondent is indebted to petitioner as alleged in the amended complaint, and if so, in what amount.

Based on all of the pleadings and evidence, the following findings of fact are determined:

FINDINGS OF FACT

1. Petitioner, Mecca Farms, Inc. (MFI), is a grower and shipper of fresh produce in Lantana, Florida. Respondent, Mo-Bo Enterprises, Inc. (MBE), is an agricultural dealer in Pompano Beach, Florida, subject to the licensing requirements of the Department of Agriculture and Consumer Services (agency). As such, MBE is obligated to obtain a dealer's license from the agency, and to post a surety bond executed by a surety corpora- tion to ensure that payment is made to producers for agricultural products purchased by the dealer. To meet this latter require- ment, MBE has obtained a surety bond in an undisclosed amount from respondent, Hartford Insurance Company of the Southeast.

   
   

2. This controversy involves a dispute over payment for a shipment of produce purchased from MFI by MBE, acting as a broker, for further sale to an out-of-state distributor. The origins of the dispute began on or about March 13, 1986, when MFI's sales manager, Peter Andolina, accepted a telephone order from MBE's vice-president, Paul Boris for 1,000 boxes of large peppers. According to the parties' oral agreement, the peppers were to meet U.S. Grade No. 1 standards and were priced at $9.75 per box, or a total price of $9,750. In order to meet U.S. Grade No. 1 standards, the peppers had to be top-grade, and free from bruises, discoloration and decay. As is usual in the business,

   Andolina had no knowledge who the ultimate buyer was, or where Boris intended to ship the peppers. Boris and Andolina had been dealing with each other for at least six years on a fairly frequent basis. Both understood the shipment was to be free on board (FOB), although they disagree as to whether it was FOB place of destination or FOB place of shipment. If it was the latter, title to the goods passed from MFI to MBE when the goods were loaded on the truck in Lantana.

   Conversely, a destination contract means the seller (MFI) bears the risk of loss until tender of delivery at final destination. The invoice supporting the transaction does not clarify the matter for it makes no reference to FOB. However, the prior course of conduct between Use parties suggests they intended a destination contract, as did the conduct of Andolina in later dealings with Boris involving this same shipment.

3. On March 13, or the day the order was received, the peppers were placed in cartons at MFI's facility and then stacked inside a refrigerated truck for shipment. Prior to their loading, MFI's foreman claimed he made a cursory inspection of five or ten boxes of peppers and found them to be of satisfactory percent quality. However, he could not recall the details of any other shipments made that day, nor could he recall any other occasion when he inspected a shipment ordered by MBE. Consequently, his testimony is not considered credible, and does not establish whether the goods delivered that day met U.S. Grade No. 1 specifications. It is also noted that there was no requirement in the parties' agreement that MBE perform an inspection prior to loading since MBE relied upon MFI's word and reputation that it would furnish top quality produce. This was not unusual since at least sixty percent of all buyers do not personally inspect the produce at MFI's facility prior to it being shipped to the ultimate buyer.

   
   

4. The shipment was destined for a Stop and Shop distributor in Readville, Massachusetts. Although the testimony is conflicting as to normal transit time between Lantana, Florida and the State of Massachusetts, it is found that three to four days transit time is not unusual, although some loads are delivered there in less than two days if the driver puts the pedal to the metal. In any event, petitioner has conceded that if the truck was properly refrigerated, the peppers should have remained in good condition for four days.

   
   

5. On March 17, 1986, or some four days after being picked up in Lantana, the peppers were delivered to Stop and Shop in Readville. Stop and Shop apparently made an inspection of the produce prior to being unloaded and found some of the peppers not meeting U.S. Grade No. 1 standards. A federal Department of Agriculture inspector was then called in to make an inspection. The inspection report, which has been received in evidence as respondent's exhibit 1, reflects that the shipment met "quality requirements, but fails to grade U.S. No. 1, only account of condition." Stop and Shop accordingly refused to accept delivery. There is no evidence that other factors such as carrier negligence, inability to unload at destination, or unusually lengthy transit time caused a deterioration in the quality of the produce after being picked up at MFI's facility.

   
   

6. After being contacted by Stop and Shop, Boris telephoned Andolina and advised him the shipment had been rejected. Andolina told Boris to "try to give Stop and Shop an adjustment" on the price. Boris did so but was unsuccessful. Boris then telephoned Andolina a second time and asked for instructions on what to do with the peppers. Andolina told Boris to "place the peppers." This meant Boris should sell the produce at a reduced price to a commission merchant who deals in produce that fails to meet grade. It also meant MFI was accepting responsibility for the peppers failing to meet grade. Boris then sold the shipment for $3.57 per carton to W. H. Lailer & Co., Inc., a commission merchant in Chelsea, Massachusetts. After transportation ($1.70 per box) and handling charges and Lailer's commission were taken out of the proceeds, Boris received only $897.50 for the entire shipment. This amount was then forwarded to MFI on April 18, 1986. MFI endorsed the check and deposited it a few days later.

   
   

7. Andolina acknowledged at hearing that once goods are rejected by the ultimate buyer because they fail to make grade, it is MFI's standard practice to have the rejected produce sold at the best price possible. It does so by using its own commission merchant, or having the broker perform this task. By following this procedure, MFI accepts responsibility for the less-than-grade produce, and has done so on a number of prior occasions when MBE was forced to sell MFI's produce after it was rejected by the ultimate buyer.

   CONCLUSIONS OF LAW

   
   

8. The Division of Administrative Hearings has juris- diction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes (Supp. 1986).

   
   

9. This complaint arises under the provisions of Section 604.21, Florida Statutes (1985). Subsection (1) thereof provides that:

   
   

   Any person claiming himself to be damaged by any breach of the conditions of a bond or certificate of deposit assignment or agreement given by a licensed dealer in agricultural products as herein before provided may enter complaint thereof against the dealer and against the surety, if any, to the department, which complaint shall be a written statement of the facts constituting the complaint. Such complaint shall be filed within nine months from the date of sale in instances involving direct sales or from the date on which the agricultural product was received by the dealer in agricultural products, as agent, to be sold for the producer.

   
   

10. An agricultural dealer is defined by Subsection 604.15(1), Florida Statutes (1985), to be:

    
    

    ...any person...engaged within this state in the business of purchasing, receiving, or soliciting agricultural

    products from the producer or his agent or representative for resale or processing for sale; acting as an agent for such producer in the sale of agricultural products for the account of the producer on a net return basis; or acting as a negotiating broker between the producer or his agent or representative and the buyer.

    
    

11. In the case at bar, MBE, an agricultural dealer, was acting as a broker between the producer (MFI) and the ultimate buyer. By its amended complaint, MFI seeks payment for the difference between what it agreed to sell the peppers for ($9,750), and what it was actually paid by MBE ($897.50).

    
    

12. The parties agree that a contract for the sale of goods was entered into on March 13, 1986. As such, there was a requirement, at least implied, that the seller (MFI) provide to the buyer (MBE) goods of a quality consistent with that agreed upon. See Sections 672.313-.315, F.S. (1985). Here, MFI represented to the buyer that the produce (peppers) would meet U.S. Grade No. 1 standards, and by doing so, warranted their fitness for this purpose. Absent any evidence that other factors caused a deterioration in the goods after being loaded at Lantana, it must be concluded that the goods did not meet U.S. Grade No. 1 standards when tendered to the carrier, and that MFI accordingly did not meet its part of the agreement. This constituted a breach of the parties'

    contract. This being so, MBE is not liable for the difference between the initial sales price ($9750) and the amount for which the peppers ultimately sold ($897.50).

    
    

13. MFI argues that the goods were sold "FOB the place of shipment," and therefore any risk of loss passed to MBE once the goods were placed in the possession of the carrier at Lantana. Subsection 672.319(1)(a), F.S. (1985). It also cites authority for the proposition that if a contract does not expressly so provide, the shipment will normally be considered a shipment contract. Ladex Corporation v. Transportes Aereos Nacionales, S.A., 476 So.2d 763, 765 (Fla. 3rd DCA 1985). In the case at bar, the documents underlying the transaction are silent on the issue. Further, the testimony of the principals is somewhat in conflict, although the prior course of dealing between the

parties suggests that a destination contract was intended. However, even if the shipment was a shipment contract, as MFI urges, MFI breached the contract by failing to deliver goods fit for resale as U.S. Grade No. 1, and must be held responsible for the goods' loss in value. Put another way, a seller's obligation to furnish merchantable goods is not extinguished simply because the parties have entered into an FOB place of shipment arrangement. Therefore, MFI's contention must fail.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a Final Order be entered denying the relief requested in

the amended complaint filed by Mecca Farms, Inc.

DONE AND ORDERED this 17th day of August, 1987, in Tallahassee, Leon County, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 17th day of August, 1987.

ENDNOTE

1/ MFI's contention was valid, whenever an FOB shipment contract was in effect, a seller could always provide less than grade produce and be held harmless on the theory he no longer owned the goods.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-1526A

Petitioner*:

1. Those portions of this paragraph which contain proposed findings of fact have been generally accepted and covered in the Recommended Order except as follows: (a) witness Boris could not have agreed with MFI's testimony to the effect that U.S. Grade No. 1 produce was loaded at MFI's facility on March 13, 1986 because he did not inspect the produce prior to its loading; and (b) the testimony and documentation do not establish that the parties intended the transaction to be an FOB shipment.

2. Rejected since the testimony does not establish an FOB shipment contract.

Respondent:

1. Covered in finding of fact 2.

2. Covered in finding of fact 2.

3. Covered in finding of fact 5.

4. Covered in finding of fact 2.

5. Covered in finding of fact 3.

6. Covered in finding of fact 3.

7. Covered in finding of fact 3.

8. Rejected as unnecessary. 9. Rejected as unnecessary.

1. Covered in finding of fact 4.

   
   

   *Petitioner filed a two and one-half page proposed final order containing two unnumbered paragraphs, part of which were conclusions of law. Therefore, a ruling will be made only on those portions of the two paragraphs which appear to be findings.

   
   

2. Rejected as unnecessary.

3. Rejected as unnecessary.

4. Rejected as unnecessary.

5. Covered in finding of fact 6.

6. Covered in finding of fact 6.

7. Covered in finding of fact 6.

8. Rejected as unnecessary.

9. Covered in finding of fact 6.

10. Covered in finding of fact 6.

11. Covered in finding of fact 6.

12. Covered in finding of fact 6.

13. Covered in finding of fact 7.

14. Covered in finding of fact 6.

15. Covered in finding of fact 6.

16. Covered in finding of fact 6.

17. Covered in finding of fact 2.

18. Covered in finding of fact 2.

19. Covered in finding of fact 7.

20. Covered in finding of fact 2.

21. Covered in finding of fact 2.

22. Rejected as unnecessary.

23. Covered in finding of fact 2.

COPIES FURNISHED:

Mr. Gary Smigiel Mecca Farms, Inc. Post Office Box 3815

Lantana Florida 33462

Mr. Jon K. Stage

Post Office Box 11025

Fort Lauderdale, Florida 33339

Hartford Insurance Company of the Southeast

Post Office Box 6000 Maitland, Florida 32751

Mr. Ben Pridgeon Chief

Bureau of License and Bond

418 Mayo Building

Tallahassee, Florida 32399-0810

Docket for Case No: 87-001526

Orders for Case No: 87-001526