Monday, July 06, 2009

Wapello County Confidential: Soybean Shortage Valuation

Tri-County Grain Corp. v. Zimmerman, no. 08-1639 (Iowa Ct. App July 2, 2009)

Tri-County leased grain warehouse space from Zimmerman. Zimmerman informed Tri-County that its lease was not going to be renewed when it expired in September 2006. Under the lease, Zimmerman supplied all labor and was solely responsible for any shortages.

When the lease expired, Tri-County and Zimmerman orally agreed that Zimmerman would buy the remaining corn and truck the remaining soybeans at Tri-County's expense to ADM. There was no discussion about holdover rent and Zimmerman never asked for it. Zimmerman paid Tri-County for the remaining corn and hauled the beans to ADM.

There was a shortage of 10,544 bushels of beans which was not determined with precision until February 2007, when Tri-County billed Zimmerman $76,444.11 for the shortage. In July, 2007 Zimmerman asserted a claim for back rent for storage for the first time.

The fighting issue was the value of the soybeans. Tri-County said they should be valued at $7.23 a bushel, which was the price in February 2007 when the beans were delivered to ADM. Zimmerman claims the value should be $5.00 per bushel which was the price when the lease expired in September 2006. Zimmerman also counterclaimed for the use of storage bins after September 2006.

The district court determined that the beans should be valued at $5.00, entered judgment for Tri-County, and denied Zimmerman's counterclaim. This appeal followed.

The Court of Appeals cited the Uniform Commercial Code section 544.2713(1) for the proposition that the valuation for the shortage was the difference between the market price at the time when the buyer learned of the breach, and not when the exact number of bushels Tri-County was shorted became known.

Mr. Justice Mansfield dissented, saying that the majority's interpretation was not the better view of the issue. He reasons that had there been no shortfall, Tri-County would have sold the missing beans at $7.23, not at what they would sell for at an earlier date. If anyone had a duty to determine the nature and reason for the shortfall it was Zimmerman as the breaching party.


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