Neumiller Farms, Inc. v. Cornett
368 So.2d 272, 1979 Ala. LEXIS 2772, 26 U.C.C. Rep. Serv. (West) 61 (1979)
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Rule of Law:
For a merchant-buyer operating under a contract with a 'satisfaction' clause, a rejection of goods must be made in good faith, which under the UCC requires both subjective honesty in fact and the objective observance of reasonable commercial standards of fair dealing in the trade.
Facts:
- Jonah D. Cornett and Ralph Moore (Sellers) entered into a written contract with Neumiller Farms, Inc. (Buyer) for twelve loads of potatoes at $4.25 per hundredweight.
- The contract required the potatoes to be U.S. Grade No. 1 and 'chipt to buyer satisfaction.'
- Buyer accepted the first three loads without objection when the market price was also $4.25 per hundredweight.
- Shortly thereafter, the market price for potatoes fell sharply to $2.00 per hundredweight.
- Buyer then began rejecting subsequent loads from Sellers, claiming the potatoes would not 'chip' satisfactorily.
- Sellers had their potatoes tested by an independent expert, who certified them as suitable for chipping.
- Buyer rejected a load of potatoes tendered by Sellers at the $4.25 contract price, even though Buyer had recently purchased potatoes from the same fields (from another grower) at the new $2.00 market price.
- A Buyer's agent told Sellers, 'I'm not going to accept any more of your potatoes... I can buy potatoes all day for $2.00.'
Procedural Posture:
- Jonah D. Cornett and Ralph Moore (Sellers) sued Neumiller Farms, Inc. (Buyer) in an Alabama trial court for breach of contract.
- The case was tried before a jury, which returned a verdict in favor of the Sellers.
- The jury awarded the Sellers damages in the amount of $17,500.
- Neumiller Farms, Inc., the Buyer, appealed the jury's verdict to the Supreme Court of Alabama.
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Issue:
Does a merchant-buyer's rejection of goods under a 'satisfaction' clause constitute a wrongful breach of contract if evidence suggests the rejection was not made in good faith but rather to escape a disadvantageous contract due to a market price decline?
Opinions:
Majority - Shores, J.
Yes. A merchant-buyer's rejection of goods based on a claim of dissatisfaction is wrongful and constitutes a breach of contract if the claim is not made in good faith. The Uniform Commercial Code (UCC) imposes a heightened standard of good faith on merchants, requiring not only subjective 'honesty in fact' but also the 'observance of reasonable commercial standards of fair dealing in the trade.' This creates an objective standard by which the buyer's dissatisfaction can be evaluated. In this case, there was substantial evidence—including the sharp drop in market price, the favorable report from an independent expert, and the buyer's own agent's statements—from which a jury could reasonably conclude that the buyer's claimed dissatisfaction was a pretext to escape a bad bargain, not a good faith assessment of the potatoes' quality. A rejection made in bad faith is wrongful and ineffectual, entitling the seller to damages.
Analysis:
This case is significant for its application of the UCC's heightened good faith standard for merchants to a 'personal satisfaction' clause. It establishes that such clauses are not a license for arbitrary rejection, especially for fungible goods. By applying an objective 'reasonable commercial standards' test, the court prevents merchants from using satisfaction clauses as a pretext to avoid contractual obligations when market conditions change unfavorably. This decision reinforces the principle that contractual discretion must be exercised in good faith and provides a framework for evaluating such claims in commercial transactions.
