Opinion
No. 04-0974.
March 31, 2005.
Appeal from the Iowa District Court for Johnson County, L. Vern Robinson, Judge.
Gee Asphalt Systems, Inc. appeals from district court's judgment of entry in favor of Envirotech of Iowa, Inc. on its breach of contract claim. AFFIRMED IN PART AND REVERSED IN PART.
James P. Craig and Brenda K. Wallrichs of Moyer Bergman, Cedar Rapids, for appellant.
Thomas D. Hobart of Meardon, Sueppel Downer, P.L.C., Iowa City, for appellee.
Heard by Sackett, C.J., and Huitink and Eisenhauer, JJ.
Gee Asphalt Systems, Inc. (Gee Asphalt) appeals from district court's judgment entry in favor of Envirotech of Iowa, Inc. (Envirotech) on its breach of contract claim. Gee Asphalt contends the court erred in holding the parties' agreement was enforceable, and in awarding future damages. Envirotech cross-appeals, contending the court erred in denying its request for liquidated damages. We affirm the district court's entry of judgment in favor of Envirotech, but reverse its award of future damages.
I. Background Facts and Proceedings.
Ken Ranshaw is an Iowa City businessman who owns and maintains rental properties. Ranshaw's son-in-law, Eugene Tardy, made Ranshaw aware of a product made by Envirotech Services, Inc. (Envirotech-Colorado), which prevents snow and ice from bonding to paved surfaces. Ranshaw was interested in the product because he owned commercial parking lots.
In 1996, Ranshaw and Tardy met with representatives of Envirotech-Colorado at a trade show in Kansas City. They discussed the possibility of obtaining a distributorship in Iowa, where Envirotech-Colorado had no outlet. Ranshaw formed Envirotech. On September 6, 1996, Tardy drafted a letter to Roger Knoph, president of Envirotech-Colorado, outlining an agreement to allow Envirotech a right of first refusal to sell its de-icing product in a designated area in Iowa. Although Envirotech-Colorado was not yet granting a distributorship to Envirotech, the parties agreed to negotiate the terms of the distributorship over a one-year period. The contract ran from September 15, 1996 until September 15, 1997. Prior to the expiration of the first contract, Envirotech-Colorado entered into a second contract, allowing Envirotech the right of first refusal for an additional year.
After obtaining the right of first refusal, Ranshaw contacted Daniel Gee, owner of Gee Asphalt. Gee believed obtaining the de-icing product would allow Gee Asphalt to expand its asphalt sealing and patching work through the winter months. Gee Asphalt agreed to purchase the products through Envirotech from November 1, 1996 until October 31, 1997. In early September 1997, Envirotech and Gee Asphalt entered into a second contract, covering ten years. Because Gee Asphalt had some difficulties in obtaining all the needed products in a timely fashion, the parties agreed Gee Asphalt would be able to obtain the products directly from Envirotech-Colorado in exchange for paying Envirotech ten percent of the purchase price of the products. After five years, Gee Asphalt would pay Envirotech five percent of the invoice price for the products purchased from Envirotech-Colorado for the next five years.
In December 1998, Gee spoke with corporate officers at Envirotech-Colorado and learned Envirotech only had a right of first refusal, and that its contract with Envirotech-Colorado had expired in September 1998. Gee Asphalt then stopped paying Envirotech. Gee Asphalt's position was that Envirotech-Iowa was either unable to enter into the contract or had violated its terms.
Gee Asphalt continued to use the de-icing product, buying directly from Envirotech-Colorado. From 1999 through 2002, Gee Asphalt paid Envirotech-Colorado over $600,000 for the de-icing product.
In February 2002, Envirotech sued Gee Asphalt, alleging breach of contract. The action was tried to the court in February 2004. The court ruled in favor of Envirotech and awarded it $55,951.64 plus interest in past damages, and $30,367.00 in future damages.
II. Scope and Standard of Review.
Because this case was tried as a law action, our review is for errors at law. Frontier Prop. Corp. v. Swanberg, 488 N.W.2d 146, 147 (Iowa 1992). In a case tried at law, the findings of fact are binding upon us if supported by substantial evidence. Id. Evidence is substantial if reasonable minds would find it adequate to reach the same conclusion, even if we might draw a contrary inference. Id. III. Breach of Contract.
In a breach-of-contract claim, the claimant must prove (1) the existence of a contract, (2) the terms and conditions of the contract, (3) he has performed all the terms and conditions required under the contract, (4) the defendant's breach of the contract in some particular way, and (5) damages as a result of the breach. Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 224 (Iowa 1998). The district court found Envirotech proved all five elements. Gee Asphalt contends Envirotech failed to prove it performed all the terms and conditions required under the contract. It argues the district court erred in finding a breach of contract because the parties' agreement was void for lack of consideration, void for failure of consideration, and void due to impossibility of performance.
A failure of consideration exists where a contract is validly formed but unenforceable because the bargained for performance has not been rendered. Federal Land Bank v. Woods, 480 N.W.2d 61, 66 (Iowa 1992). Such failure will discharge the other party from their obligation to perform under the contract and give the right to restitution. Id. Failure of consideration may be total or partial. Id. It is the burden of the party alleging failure of consideration to prove this failure. See id.
We ordinarily will not inquire into the adequacy of consideration. Hubbard Milling Co. v. Citizens State Bank, 385 N.W.2d 255, 258 (Iowa 1986). We presume a written, signed agreement is supported by consideration. Iowa Code § 537A.2 (2001). We recognize a defense of failure or lack of consideration under Iowa Code section 537A.3 is not precluded from being raised merely because the parties recited a consideration in their agreement. Hubbard Milling, 385 N.W.2d at 259. "However, when the defense of lack of consideration is raised, we do ascertain whether any consideration was provided, that is, whether there was a benefit to the promisor or a detriment to the promisee." Id. at 258.
Our relevant inquiry is whether or not any consideration was given. PMX Indus., Inc. v. LEP Profit Int'l, 31 F.3d 701, 704 (8th Cir. 1994) (applying Iowa law). Consideration may take many forms. Kristerin Dev. Co. v. Granson Inv., 394 N.W.2d 325, 331 (Iowa 1986). It may consist of a performance or a return promise, and it must be "bargained for." Magnusson Agency v. Public Entity Nat'l Co.-Midwest, 560 N.W.2d 20, 27 (Iowa 1997). Any performance which is bargained for is consideration. Id. A performance is bargained for if it is sought by the promisor in exchange for his or her promise and is given by the promisee in exchange for that promise. Id.
The doctrine of impossibility of performance is recognized in Iowa as an excuse for nonperformance generally where that which has been promised becomes objectively impossible to perform due to no fault of the nonperforming party. Nora Springs Co-op v. Brandau, 247 N.W.2d 744, 747 (Iowa 1976). However, ordinarily a contingency which reasonably may have been anticipated must be provided for by the terms of the contract, or else the impossibility of performance resulting therefrom does not operate as an excuse. Id.
Gee Asphalt contends the agreement was not enforceable because there was no consideration supporting the agreement. It contends the foundation of the agreement was Envirotech's exclusive right to sell and distribute Envirotech-Colorado's products. Because Envirotech's right of first refusal expired with the contract in September 1998, Gee Asphalt argues no consideration existed for the ten-year agreement. In the alternative, Gee Asphalt argues the termination of Envirotech's right of first refusal resulted in impossibility of performance, and therefore it should be excused from its obligation to perform under the contract.
The first contract entered into between the parties in October 1996 states Envirotech "is a party to a distribution agreement between itself and Envirotech Services, Inc., which gives ETI the exclusive right to distribute Envirotech Services, Inc.'s products." The second contract, signed in October 1997, simply states that Envirotech "is a party to an agreement between itself and Envirotech Services, Inc., which gives ETI the right to distribute ESI products." There is no mention in the contract at issue of an exclusive right to sell and distribute Envirotech-Colorado's products.
In its ruling, the district court found Ranshaw and Gee were both experienced businessmen who were familiar with business contracts. The parties negotiated the second contract and Daniel Gee suggested the important terms. Having had ample opportunity to review the contract, Daniel Gee signed it. Gee Asphalt obtained the ability to buy the product directly from the Colorado company. Substantial evidence supports the trial court's conclusion findings the existence of a valid contract. Accordingly, we affirm the district court's ruling finding a breach occurred when Gee Asphalt stopped paying the amounts due.
IV. Damages.
Gee Asphalt also contends the district court erred in awarding future damages to Envirotech because Envirotech had only a one-year agreement with Envirotech-Colorado, and therefore had no further right to license Gee Asphalt. We have already addressed this issue above, and reject it on appeal. However, Gee Asphalt further contends the court erred in awarding future damages because the award was speculative.
If the record is uncertain and speculative whether a party has sustained damages, the fact finder must deny recovery. Field v. Palmer, 592 N.W.2d 347, 353 (Iowa 1999). But if the uncertainty is only in the amount of damages, a fact finder may allow recovery provided there is a reasonable basis in the evidence from which the fact finder can infer or approximate the damages. Id.
The trial court awarded future damages of $30,367.00. It did not explain how it arrived at the amount. Although the agreement continued into the future there is nothing in the record, except past purchases, to suggest how much of the product Gee Asphalt would purchase during the remainder of the contract. Gee Asphalt had no obligation to purchase any product in the future. We conclude substantial evidence does not establish a reasonable basis to support the district court's award of $30,367.00 in future damages. We reverse the award of future damages.
Finally, Envirotech cross-appeals, contending the district court erred in failing to award it liquidated damages. Liquidated damages must compensate for loss rather than punish for breach. Rohlin Const. Co. v. City of Hinton, 476 N.W.2d 78, 81 (Iowa 1991). Here, the amount of actual damages awarded by the district court is sufficient to compensate Envirotech for its past damages from Gee Asphalt's breach of contract. Accordingly, we affirm the denial of liquidated damages.