Can a grain company withhold money owing to a farmer to satisfy a failure to complete deliveries under a futures contract?
This was the central issue in a recent case, Feduk vs. Saskatchewan Wheat Pool. In 1993, Feduk entered into a cash call agreement, requiring him to deliver 43 rail cars of top grade canola. Later in the year, after a snowfall, Feduk realized he might have difficulty in fulfilling his contract and he ended up six cars short.
He entered into a second contract to deliver 725 tonnes of No. 3 canola. His goal with the second contract was to market his lower grade canola and raise funds to meet his obligations under the cash call agreement.
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On Jan. 5, 1994, he contacted the pool manager about a possible buyout of his first contract. He was offered a buyout at $19,000, but the pool withdrew the offer before it was accepted. On Jan. 13, 1994, the pool bought out its position on the contract for $36,288, but did not tell Feduk it had done so.
Feduk made deliveries on the second contract, but the pool withheld this payment to offset the amount owing under the first contract. In return, Feduk made no further deliveries under this contract. He also made deliveries of barley and again the pool withheld payment on those deliveries to set against the unfulfilled first contract.
Finally, Feduk asked for his pool shares so he could sell them. Again the pool withheld them to satisfy the unfulfilled contract.
The trial judge confirmed that the first contract was in breach. Previous cases have decided that failure to complete delivery under a futures contract is grounds for damages. The judge set the damages payable by Feduk at $19,320.
But she refused the pool the right to offset against the deliveries under the second contract, against the barley deliveries and against the shares. She said the pool wrongfully withheld funds from the sales of the second contract and therefore Feduk was relieved of further obligations under that contract.
She also said that the pool could not withhold payments on the barley delivery and the shares. She also awarded $30,000 in punitive damages to punish wrongdoing beyond the actual loss.
Saskatchewan’s Court of Appeal came to a different decision. Itconcluded that the pool’s calculations were accurate, thus awarding damages in the amount the pool paid to buy out the position, of $36,288.
The court also found that the two contracts were related – the second contract was entered into to raise money to satisfy the first contract. The court said the pool was within its rights to hold back money owing for deliveries under this contract. The pool was awarded damages of $74,771.69 on this contract because it had not been completed.
The court also said the Canada Grain Act, which requires an elevator operator to issue a cash purchase ticket or elevator receipt upon delivery, did not prohibit the pool from seizing the payment under the second contract to satisfy the first.
It ruled there was no relationship between the delivery of barley and the canola contract, and therefore, the pool did not have the right to those payments.
Similarly, while the pool has a lien on shares to satisfy debts owing by members, the court found that the amount owing under the first contract was not a debt but was damages for breach of contract.
In the end, the appeal court said Feduk owed the pool $111,059.69 plus interest, while the pool owed Feduk $90,449.74 for the canola sold under second contract, for the barley and pool shares. Punitive damages were refused because the court found no wrongdoing on the part of the pool.
Earlier this year, the Supreme Court of Canada refused to hear the case. Other than some limited criminal cases, there is no automatic right to appeal to the Supreme Court. You must seek permission to appear and show that your case is of national importance or that there are major unresolved legal issues.
Don Purich is a former practising lawyer who is now involved in publishing, teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
