STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MARK K. MAST AND KIRK E. MAST ) d/b/a MAST BROTHERS FARM, )

)

Petitioners, )

)

vs. ) CASE NO. 91-7365A

) G & G SALES CORPORATION and ) ST. PAUL FIRE & MARINE )

INSURANCE COMPANY, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, the above matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on March 31, 1992, in Palatka, Florida.

APPEARANCES

For Petitioners: Joe C. Miller, II, Esquire

P. O. Box 803

Palatka, Florida 32178-0803

For Respondent: Ronald W. Brown, Esquire G & G Sales 66 Cuna Street, Suite B

St. Augustine, Florida 32084 STATEMENT OF THE ISSUES

The issue is whether respondent, G & G Sales Corporation, and its surety, St. Paul Fire & Marine Insurance Company, are liable for payment of $23,598 to petitioners as alleged in the complaint, as amended.

PRELIMINARY STATEMENT

This matter began on August 15, 1991, when petitioners, Mark K. Mast and Kirk E. Mast d/b/a Mast Brothers Farm, filed a complaint with the Department of Agriculture and Consumer Services (Department) alleging that respondent, Loren

1. Girsbirger d/b/a G & G Sales Corporation, licensed as a dealer in agricultural products, owed them $23,598 for potatoes purchased from petitioners' farm in May 1991. More specifically, petitioners alleged that under a contract executed by the parties on January 29, 1991, petitioners agreed to sell respondent 8,000 bags of potatoes from their 1991 crop year at a price of $5.75 per bag. Petitioners further alleged that due to an Act of God (a hail storm), they suffered a substantial loss of their total crop and were able to provide respondent with only 4,104 bags of potatoes. Petitioners finally contended that respondent unlawfully withheld $23,598 in payment for the potatoes and thus owes them that amount of money. Respondent has filed an answer admitting indebtedness in the amount of $4,560. Its surety, St. Paul

   Fire & Marine Insurance Company, has also been named as a respondent. The matter was referred by the Department to the Division of Administrative Hearings on November 15, 1991, with a request that a hearing officer be assigned to conduct a formal hearing.

   
   

   By notice of hearing dated December 16, 1991, a final hearing was scheduled on February 18, 1991, in Palatka, Florida. At respondent G & G Sales Corporation's request, the matter was rescheduled to March 31, 1992, at the same location.

   
   

   At final hearing, the parties agreed that Loren G. Girsbirger, who is president of G & G Sales Corporation, would be dropped as a party since the license was in the name of the corporation. Thereafter, petitioners presented the testimony of Earl Brubaker, Wayne Stuart, William R. Cotton, Mark K. Mast, and Loren R. Girsbirger. Also, they offered petitioners' exhibit 1 which was received in evidence. Respondent G & G Sales Corporation presented the testimony of Johnnie Jenkins, Jr., William Austin Tilton, Steven R. Register, Frank R. Thompson, Loren R. Girsbirger, and George "Bubba" Wilkerson. Also, it offered respondent's exhibits 1 and 2. Both exhibits were received in evidence. Finally, joint exhibits 1-3 were received in evidence.

   
   

   The transcript of hearing was filed on April 30, 1992. Proposed findings of fact and conclusions of law were filed by respondent G & G Sales Corporation and petitioners on May 4 and 11, 1992, respectively. A ruling on each proposed finding of fact has been made in the Appendix attached to this Recommended Order.

   
   

   FINDINGS OF FACT

   
   

   Based upon all of the evidence, the following findings of fact are determined:

   
   

   1. Petitioners, Mark K. Mast and Kirk E. Mast d/b/a Mast Farm, operate a sixty-acre potato farm on Cracker Swamp Road in or near East Palatka, Florida. The 1991 crop year was the first year in which the two brothers had operated their own farm. This activity was a part-time endeavor since the brothers worked full-time as logging contractors for Georgia Pacific Corporation.

      
      

   2. Respondent, G & G Sales Corporation, a Minnesota corporation licensed to do business in this state, is a dealer (broker) in agricultural products that purchases potatoes from growers throughout the country for resale to various potato chip companies. Its president and vice-president are Loren R. Girsbirger and George Wilkerson, respectively. As an agricultural dealer, respondent is required to obtain a license from and post a surety bond with the Department of Agriculture and Consumer Affairs (Department). In this case, the bond has been posted by respondent, St. Paul Fire & Marine Insurance Company. The amount of the bond is not of record.

      
      

   3. In order to start their farming operation, it was necessary for the Mast brothers to secure a loan from the North Florida Production Credit Association. That lending institution had a practice of requiring farmers to secure their loans with contracts for the sale of all or a portion of their crop. That is to say, the lender required a farmer to have a sales contract which equaled the amount of the loan. So that petitioners could meet this requirement, on January 29, 1991, the parties executed a contract wherein petitioners agreed to sell respondent 8,000 bags of Atlantic variety potatoes at an agreed upon price of $5.75 per bag, for a total price of $46,000. The

      lending institution then agreed to loan petitioners that amount of money. Although the brothers asked that respondent purchase more than 8,000 bags, respondent declined since it had only that contract amount (with chip companies) available.

      
      

   4. A copy of the contract has been received in evidence as joint exhibit

1. The contract was drafted by respondent and it may be inferred from the evidence that it is a "standard" type of contract used by farmers and dealers in the potato business. The contract contained the following relevant conditions in paragraphs 4, 5 and 6:

   
   

   1. Buyer assumes that Seller will have sufficient amount of potatoes to cover all contracts, including open market sales. This contract does not restrict these open market

      sales, but Seller does protect Buyer's amount due.

   2. In the event of fire, unauthorized strikes, wars, transportation shortages, Acts of God,

      or events beyond the control of Seller or Buyer which prevent Seller or Buyer from performance in full or in part of the terms of this agreement, it is agreed that such failure to perform shall not be excused and shall not form the basis for any claim of damage or breach of contract.

   3. Seller agrees to seed sufficient acreage to cover the potatoes sold for delivery under this contract and other contracts to all purchasers with whom the Seller has contracted for the delivery of potatoes during the upcoming farm season. If, however, on account of shortages of crops not due to any act within the Seller's control or other causes beyond the control of the Seller, he is unable to deliver the full amount of potatoes called for in this contract, the Buyer will accept a prorated delivery with other buyers of the potatoes covered by similar contracts without any claim for damages against

the Seller. Seller will grant Buyer all necessary rights to insure and verify that he is receiving his fair and just pro-rate share. Such rights to include, but not limited to, inspection of all records, books, field reports, shipments, etc.

Burden of proof rests with Sellers.

Finally, paragraph 11 of the contract provided in part that "the terms of this contract cannot be re-negotiated without the written consent of the Buyer and the Seller." Thus, under the terms of the contract, petitioners were obliged to "have sufficient amount of potatoes to cover all contracts". However, if an Act of God prevented the seller from "deliver(ing) the full amount of potatoes called for in (the) contract", the seller was excused from full performance and could prorate its crop. Under those circumstances, respondent was required to "accept a prorated delivery with other buyers of the potatoes covered by similar contracts." In this case, there were no other buyers of potatoes covered by similar contracts. Finally, except for changes approved in writing by both parties, the terms of the contract could not be changed.

1. Petitioners planted their crop on February 2 and 10, 1991. At that time, the brothers hoped to harvest 16,000 bags of potatoes, or around 267 bags per acre. Although the average yield per acre for Atlantic type potatoes in the area had been between 250 and 270 bags, most growers assume a more conservative yield of around 200 bags per acre to insure that all contractual requirements can be met. Here, however, except for a contract with respondent, petitioners had no other contracts with other dealers or individuals. When the contract was signed in January, the brothers expected to sell the remainder of their crop to other buyers on the open market. In this regard, they entered into an agreement (presumably verbal) with their father, who had co-signed the bank note, to split the net proceeds on all sales over and above that required under the G & G Sales Corporation contract. This latter agreement with the father was not a "similar contract" within the meaning of paragraph 6 of the contract and thus the G & G Sales Corporation contract is found to be the only relevant contract for crop year 1991.

   
   

2. On April 23, 1991, a severe thunderstorm swept through a part of Putnam County. The storm was accompanied by high winds and hail and followed a path which ran through the potato farm belt in East Palatka. The Circle S farm, which lies about one-half mile from petitioner's farm, was "devastated" by the storm. Petitioners' farm received high winds, heavy rains and some hail. The extent of damage caused by the storm to petitioners' farm is in dispute, but it is agreed that the storm diminished the size of the crop. As it turned out, petitioners dug only 8,802 bags of potatoes, which still exceeded the amount required under their only contract.

   
   

3. After the storm struck, Mark Mast immediately contacted Wilkerson by telephone and advised him that the farm had been hit with hail and asked that Wilkerson and Girsbirger survey the damage. On April 24, 1991, Wilkerson and Girsbirger visited the farm and found it "very wet" and muddy but the leaves on the plants still intact. This level of damage was generally corroborated by various other witnesses. Although the above conditions were present at that time, it was still impossible then for anyone to forecast exactly how the storm impacted the volume and quality of petitioners' crop.

   
   

4. Most potato farmers purchase crop insurance prior to each farming season. A farmer has the option of purchasing either 50%, 65% or 75% coverage, although 65% coverage is the most common. This means that a farmer must lose at least 50%, 35% or 25% of his crop due to weather or insects in order to file a claim. The amount of insurance is based on a function of the percent of crop the farmer wishes to insure times the value per hundred weight of the crop. For first year farmers, such as petitioners, the Federal Crop Insurance Corporation (FCIC) establishes a designated yield per acre which is based on FCIC's estimate, albeit conservative, of what the average yield should be. In the case of petitioners, who purchased 65% coverage, the FCIC (and insurer) set a designated yield of 184 bags per acre which meant petitioner would have a crop approximating 184 hundred weight per acre. Although petitioners had a crop insurance policy in 1991, they did not file a claim after the April 23 storm since they failed to meet the threshold requirements for coverage. Indeed, the local crop insurance agent visited the farm shortly after the storm and verified there was not enough damage to file a claim. However, he noted that there was excessive water for a few days and some of the leaves on the vines had holes caused by the hail.

   
   

5. Between May 4 and 18, 1991, petitioners sold respondent nine loads of potatoes totaling 4,101 bags at a price of $5.75 per bag. During the period from April 30, 1991, through May 18, 1991, they sold ten other loads on the open

   market to two other buyers. The open market sales totaled 4,701.2 bags. Because potato prices had dramatically increased after the contract was executed, nine of these latter loads were sold at an open market price of $19

   per bag while one was sold at a price of $18.50 per bag, for a total of $88,806.

   
   

6. Petitioners contend respondent agreed that the above ten loads could be sold on the open market and thus it should not be heard now to complain that it was shorted on the contract. In this regard, the evidence shows that after the storm, which is the time period relevant to this contention, Wilkerson told Mark Mast that he had no problem with petitioners selling any extra potatoes on the open market as long as respondent received its 8,000 bags. Girsbirger also advised the Masts that it was okay to sell ten loads of potatoes on the open market if production was 200 bags per acre. However, he cautioned them to sell no more than four loads on the open market if the yield fell to 180 to 185 bags per acre since the remainder would be necessary to meet the terms of the contract. Thus, it is found that respondent did not agree to the sale of the ten loads on the open market if total production did not exceed 8,000 bags.

   
   

7. Around May 3, 1991, Mark Mast approached Wilkerson and asked if respondent would renegotiate the contract price upward. Wilkerson declined to do so. On May 6, Mast sent Wilkerson a notice by registered mail advising him that due to the crop loss, which he estimated to be one-third of the crop, he intended to adjust the contract pursuant to paragraph 6 of the contract and supply only two-thirds of the 8,000 bags. This unilateral offer to modify the contract was never accepted by respondent, and in any event, petitioners failed to supply the amount offered in their May 6 letter.

   
   

8. In all, respondent received only 51.3% of its contracted amount of 8,000 bags. Petitioners allocated respondent this amount on the theory they had originally planned to sell one-half of their total anticipated crop of 16,000 bags to respondent, that one-half of the anticipated crop was lost in the storm, and thus respondent should receive only one-half of the remaining crop, or around 4,000 bags. At hearing, petitioners defended this decision by treating the April 23 storm as an Act of God within the meaning of paragraph 6 of the contract. However, reliance on this provision was inappropriate since, despite the effects of the storm, petitioners could still deliver the full amount of potatoes called for in the contract.

   
   

9. The testimony is in conflict as to whether petitioners offered respondent more than 4,101 bags during the harvest season. At various times, respondent was offered several "extra" loads at the market price of $19 per bag but declined since it still wanted the contract honored. According to petitioners, they were ready to load a truck on two occasions but respondent failed to send a truck. Respondent denies this assertion. In addition, petitioners claim that a truck arrived late one Sunday afternoon when their farm equipment was inoperable and thus they could not load any potatoes. Conversely, Wilkerson contended that Mark telephoned him on several occasions and told him not to send a truck because Mark was loading for "another contract". Accordingly, it is found that petitioners offered respondent only the 4,101 bags at the contract price but that additional loads were offered at the substantially higher open market price.

   
   

10. After receiving the 4,101 bags, respondent presented petitioners a check dated June 17, 1991, in the amount of $4,777.92 as full payment for the 4,101 bags of potatoes. The check carried the notation "The undersigned, upon cashing check, accepts payment in full for attached invoices, with no recourse." It was never cashed by petitioners. Attached to the check was an invoice which

    calculated the $4,777.92 in the following manner. Respondent first calculated

    $23,598 by multiplying 4,101 bags times $5.75 per bag and then subtracted $82.08 for "Not Pat dues", an amount not explained but nonetheless unchallenged by petitioners. It then deducted $19,038 from that total for a net amount due of

    $4,777.92. The latter deduction of $19,038 represented a set-off for damages incurred by respondent in having to buy potatoes elsewhere by virtue of petitioners failing to supply the contracted amount of potatoes. It was calculated by assuming that petitioners would supply 2/3 (or 68%) of its commitment, or 5,440 bags. 1/ Since only 4,104 bags were delivered, this amounted to a shortage of 1,336 bags. Respondent represented, without contradiction, that it had to replace this shortage at the same price which petitioners received for non-contract sales on the open market. Respondent assumed that petitioners sold their potatoes at an open market price of $20, or

    $14.25 more than the contract price. Thus, it deducted 1,336 x $14.25, or

    $19,038 from the final payment. In actuality, petitioners sold the bulk of those potatoes at a price of $19 per bag. Thus, respondent's set-off should have been $17,702 rather than $19,038. This amount of set-off ($17,702) is deemed to be reasonable and should be subtracted from the amount owed by respondent to petitioners.

    
    

    CONCLUSIONS OF LAW

    
    

11. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties hereto pursuant to Subsection 120.57(1), Florida Statutes (1991).

    
    

12. In order to conduct business in the state, a dealer in agricultural products such as respondent must deliver to the Department a bond "conditioned to secure the faithful accounting for and payment to producers (such as petitioners) . . . of the proceeds of all agricultural products handled or purchased by such dealer". Subsection 604.20(1), Florida Statutes (1991). When any person claims to be damaged by any breach of conditions of a bond, he may file with the Department a complaint within six months after the date of sale of the products. Subsection 604.21(1), Florida Statutes (1991). In this case, the complaint was timely filed.

    
    

13. As the party claiming a breach of conditions of a bond, petitioners bear the burden of showing their entitlement to the requested money by a preponderance of the evidence. See, e. g., Pine Island Farms, Inc. v. Five Brothers Produce, Inc. and Fla. Farm Bureau Mutual Insurance Co., Case No. 90- 6460A (Dept. of ACS, June 4, 1991); Fla. Department of Transportation v. J. W. C. Company, Inc., 397 So.2d 778, 787 (Fla. 1st DCA 1981).

    
    

14. Under the terms of the contract, which have not been challenged by either party, petitioners were obligated to sell respondent 8,000 bags of potatoes at $5.75 per bag except in the event of an Act of God, in which case they could prorate the crop among "buyers of the potatoes covered by similar contracts." Because respondent held the only contract, and petitioners' crop exceeded the required 8,000 bags, there was no need to prorate the crop among the contractual customers. This is true even though the size and quality of the crop was diminished by the April 23 storm. Put another way, as long as an Act of God did not diminish the size of the crop below 8,000 bags, petitioners could not rely upon the terms of paragraphs 5 and 6 to excuse performance under the contract. Therefore, it is concluded that respondent was entitled to receive 8,000 bags of potatoes. By supplying respondent with only 4,101 bags, petitioners breached the terms of the contract.

15. In reaching the above conclusion, the undersigned has considered petitioners' claim that the agreement between the brothers and their father to split the net proceeds on all non-contract sales constituted a second contract which was entitled to a like amount of proration. This contention is rejected because the oral agreement between the brothers and father was to split profits and not to sell potatoes to the father and thus it cannot be construed to be a "similar contract" requiring proration. The undersigned has also considered petitioners' contention that the conduct of the parties suggests that they mutually agreed that after the April 23 storm something less than 8,000 bags was required under the contract. This contention must fail for several reasons. First, while it is true that under certain circumstances a written agreement may be modified by a course of dealings, the evidence herein does not show that respondent was willing to accept 4,101 bags or that it conveyed that understanding to petitioners. Second, the contract itself specifically provided that except for changes approved in writing by both parties, the terms of the contract could not be changed. Therefore, any change occasioned by the conduct of the parties would have to be ratified in writing. Finally, even if there was a mutual understanding that the contract would be changed to require that petitioners supply only two-thirds of the 8,000 bags, petitioners still failed to honor that commitment.

    
    

16. Petitioners were offered a check in the amount of $4,777.92 as full payment for the 4,101 bags. This amount was calculated by setting off the amount due ($23,598) with damages incurred by respondent because of petitioners' breach of contract. In this regard, it is noted that the the Department has the authority to consider the set-off claim. Full Circle Service, Inc. v. Department of Agriculture, Bureau of License and Bond, 556 So.2d 757, 758 (Fla. 2d DCA 1990). Accordingly, if the set-off is determined to be meritorious, it can be subtracted from any monies owed petitioners.

    
    

17. Although entitled to a larger set-off, respondent calculated its damages on the theory that it would receive only two-thirds of the amount of potatoes due under the contract. Therefore, it had to purchase 1,336 bags of potatoes on the open market to cover its own contractual commitments. Respondent has represented that in order to cover the 1,336 bag shortage, it paid an amount similar to that received by petitioners on their open market sales. Since most of petitioners' open market sales were at a price of $19 per bag, the set-off should be 1,336 times $13.25 ($19 minus $5.75), or $17,702. Accordingly, it is concluded that a set-off of $17,702 is reasonable, and respondent should be required to pay petitioners the $4,477.92 originally tendered (but refused) plus an additional $1,336. In all other respects, the claim should be denied.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered by the Department of Agriculture

and Consumer Services requiring respondent to pay petitioners $5,813.92 within

thirty days of date of final order. Otherwise, the surety should be required to pay that amount.

DONE and ENTERED this 21st day of May, 1992, in Tallahassee, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 21st day of May, 1992.

1/ For purposes of determining damages, respondent decided that petitioners were entitled to some relief under the contract due to the storm. Accordingly, respondent assumed that it would receive only two-thirds of the contract requirement.

APPENDIX

Petitioners:

1. Covered in the preliminary statement.

1. Accepted in findings of fact 1 and 5.

2. Accepted in finding of fact 6. 13-14. Accepted in finding of fact 7.

1. Accepted in finding of fact 8.

2. Rejected as being unnecessary.

3. Partially accepted in finding of fact 10. The remainder has been rejected as being contrary to the more persuasive evidence.

4. Partially accepted in findings of fact 11 and 12.

5. Accepted in finding of fact 11.

6. Accepted in finding of fact 9. 21-22. Accepted in finding of fact 14.

1. Accepted in finding of fact 6.

2. Rejected as being contrary to more persuasive evidence.

3. Partially accepted in finding of fact 6 but this finding does not excuse performance under the contract. See finding of fact 12.

Respondent: *

1. Partially accepted in finding of fact 14. The remainder is covered in the preliminary statement.

2. Accepted in finding of fact 1.

3. Accepted in findings of fact 2 and 3.

4. Accepted in finding of fact 4.

5. Accepted in findings of fact 3 and 5.

6-8. Accepted in finding of fact 7. 9-10. Accepted in finding of fact 10.

1. Accepted in finding of fact 7.

2. Accepted in finding of fact 9.

3. Accepted in finding of fact 14.

* Respondent G & G Sales Corporation filed thirteen unnumbered paragraphs containing proposed findings of fact. The paragraphs have been numbered 1-13 by the undersigned for the purpose of making these rulings.

COPIES FURNISHED:

Joe C. Miller, II

P. O. Box 803

Palatka, Florida 32178-0803

Ronald W. Brown, Esquire

66 Cuna Street, Suite B

St. Augustine, Florida 32084

Honorable Bob Crawford Commissioner of Agriculture The Capitol, PL-10

Tallahassee, Florida 32399-0810

Brenda D. Hyatt, Chief Bureau of License & Bond

508 Mayo Building

Tallahassee, Florida 32399-0800

Charles T. Shad, Esquire 601 Blackstone Building East Bay & Market Street

Jacksonville, Florida 32202

(on behalf of St. Paul Fire and Marine Insurance Co.)

Richard A. Tritschler, Esquire Department of Agriculture &

Consumer Affairs The Capitol, PL-10

Tallahassee, Florida 32399-0810

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

ALL PARTIES HAVE THE RIGHT TO SUBMIT WRITTEN EXCEPTIONS TO THIS RECOMMENDED ORDER. ALL AGENCIES ALLOW EACH PARTY AT LEAST 10 DAYS IN WHICH TO SUBMIT WRITTEN EXCEPTIONS. YOU SHOULD CONTACT THE AGENCY THAT WILL ISSUE THE FINAL ORDER IN THIS CASE CONCERNING AGENCY RULES ON THE DEADLINE FOR FILING EXCEPTIONS TO THIS RECOMMENDED ORDER. ANY EXCEPTIONS TO THIS RECOMMENDED ORDER SHOULD BE FILED WITH THE AGENCY THAT WILL ISSUE THE FINAL ORDER IN THIS CASE.

Docket for Case No: 91-007365

Orders for Case No: 91-007365