Davenport Osteopathic Hospital Ass'n of Davenport, Iowa v. Hospital Service, Inc., of Iowa

• Decision Date: 14 November 1967
• Docket Number: No. 52620,52620
• Citation: 154 N.W.2d 153,261 Iowa 247
• Parties: DAVENPORT OSTEOPATHIC HOSPITAL ASSOCIATION OF DAVENPORT, IOWA, Appellant-Cross Appellee, v. HOSPITAL SERVICE, INCORPORATED, OF IOWA, Appellee-Cross Appellant.
• Court: Iowa Supreme Court

Page 153

154 N.W.2d 153

261 Iowa 247

DAVENPORT OSTEOPATHIC HOSPITAL ASSOCIATION OF DAVENPORT, IOWA, Appellant-Cross Appellee, v. HOSPITAL SERVICE, INCORPORATED, OF IOWA, Appellee-Cross Appellant.

No. 52620.

Supreme Court of Iowa.

Nov. 14, 1967.

Betty, Neuman, McMahon, Hellstrom & Bittner, by R. Richard Bittner and Ronald L. Saylor, Davenport, for appellant-cross appellee.

Gamble, Riepe, Martin & Webster, by J. G. Fletcher, Des Moines, and Cook, Blair, Balluff & Nagle, by David J. Sohr, Davenport, for appellee-cross appellants.

RAWLINGS, Justice.

The facts in this case, though somewhat involved, are without substantial dispute.

December 1950, these parties entered into a written contract. Accordingly Hospital agreed to furnish services to Blue Cross subscribers, which in turn agreed to pay Hospital. It contained a ten day cancellation provision exercisable by either party.

Payments by Blue Cross to Hospital were to be in accord with a stated reimbursement cost formula.

Briefly stated Hospital agreed to accept the lesser of actual charges for services performed, or 105% Of its computed daily cost, multiplied by the number of member care days, less certain specific noncontractual services performed.

August 1951, the agreement was modified by mutual assent to provide for termination on 90 days written notice by either party.

In 1959, Hospital commenced construction of a new building. It was completed in 1960. This structure was completely financed through bonded indebtedness with interest varying from six to seven per cent.

July 27, 1961, Blue Cross advisory committee, in substance, recommended to its board of directors the reimbursement cost formula be changed to provide interest expense of participating hospitals be limited to not more than six per cent, computed on the basis of not more than 50% Of the new capital improvement.

April 12, 1962, Blue Cross board of directors approved the revised cost formula. July 11, 1962, the Iowa Insurance Commissioner, on application, approved the proposed revision.

August 7, 1962, Blue Cross advised all its participating hospitals, including plaintiff, the change would be effective January 1, 1963, later extended to January 1, 1964.

Hospital immediately commenced protesting application of the new reimbursement formula to it or its 1959--1960 capital improvements.

Eventually, and more specifically, in March 1964, Hospital appealed to Blue Cross advisory committee but to no avail.

July 1964, Hospital representatives requested the insurance commissioner reconsider the approval previously given by him. October 24, 1964, Blue Cross board of directors reaffirmed its approval of the proposed change.

February 5, 1965, the insurance commissioner gave notice to Hospital he elected to stand on his prior decision.

From May 1960, to January 1, 1964, Hospital was paid by Blue Cross in accord with the original cost formula which included its total structural indebtedness with interest.

However, Blue Cross commenced paying Hospital in accord with the modified schedule January 1, 1964, which payments were accepted by Hospital. But, as one witness for Blue Cross stated, they were objecting to it.

By stipulation the parties agreed Hospital was paid $9,738.54 less in 1964, and $9,123.16 less in 1965, than it would have received under the original contract, subject to some adjustment on accounting procedures with reference to the 1965 figure.

The trial court concluded Hospital, being advised of the insurance commissioner's final decision, failed to them declare the contract terminated; and by continuing to accept compensation computed according to the revised formula impliedly acquiesced in the modification, as a result of which it was entitled to benefits after February 5, 1965, only in accord with the modified reimbursement cost formula.

Hospital was accordingly granted judgment against Blue Cross in the sum of $9,738.54 for the year 1964, and $950.35 for the period to February 7, 1965, or a total of $10,688.89. Plaintiff appeals and defendant cross-appeals.

Propositions asserted by Hospital on appeal are, the trial court erred in concluding, (1) modification of the reimbursement cost formula was not an ineffective effort to unilaterally change the contract; (2) the contract was modified by implied mutual consent; and (3) the revised formula applied to Hospital's previously effected capital improvements.

Challenging these propositions Blue Cross contends, (1) by electing not to terminate the contract and continuing to accept payments in accord with the revised formula, Hospital accepted the modification and is estopped to claim otherwise; (2) the reimbursement formula was subject to change provided the statutory and contractual procedures were followed; and (3) the modification did apply to Hospital.

On cross-appeal Blue Cross claims error on the part of the trial court in holding, (1) the modification was not effective as to Hospital until final decision of the insurance commissioner; and (2) Hospital was not estopped to have damages by reason of laches.

We reverse on both appeals.

I. By its pleadings Hospital sought damages from Blue Cross for breach of contract, and other relief equitable in nature.

The case was submitted, tried and determined by the trial court as an action in equity. It is likewise submitted on appeal.

Under these circumstances it will be considered by us de novo. Rules 344(a) (3), and 344(f)(7), R.C.P., and Henderson v. Hawkeye-Security Ins. Co., 252 Iowa 97, 100, 106 N.W.2d 86.

While the scope of our review is the entire case it will be confined to those propositions relief on by each party for reversal. Steele v. Northup, 259 Iowa 443, 143 N.W.2d 302, 304.

II. The factual situation presented in this case discloses the original contract between these parties, at time of the claimed modification, was executory. It had been partly performed by both but not completely performed by either. Siebring Mfg. Co. v. Carlson Hybrid Corn Co., 246 Iowa 923, 928, 70 N.W.2d 149; Williams v. Cassidy, 237 Iowa 1042, 1050, 23 N.W.2d 423; In re Capital Service, D.C., 136 F.Supp. 430, 434; and 17 C.J.S. Contracts § 7, page 576.

III. Without question an executory contract may be effectively modified by one party With the consent of the other provided it does not violate the law or public policy. Stated conversely one party to a contract cannot alter its terms unilaterally or without assent of the other party. However the requisite consent may be either express or implied from acts and conduct Collins v. Gard, 224 Iowa 236, 240, 275 N.W. 392; Hueston v. Pointer Brewing Co., 222 Iowa 630, 634, 269 N.W. 754; In re Estate of Newson, 206 Iowa 514, 518, 219 N.W. 305; Sioux City and New Orleans Barge Lines, Inc. v. Brunson, D.C., 243 F.Supp. 198, 202; 17 A C.J.S. Contracts § 373--375, pages 419--428; 17 Am.Jur.2d, Contracts, section 465, page 934; and Simpson, Law of Contracts, Hornbook Series, Second Ed., page 186.

And whether a contract has been modified by the parties thereto is ordinarily a question of fact. Commercial Sav. Bank of Carroll v. Dunning, 202 Iowa 478, 484, 210 N.W. 599, 59 A.L.R. 983, and 17 Am.Jur.2d, Contracts, section 465, pages 934--936.

IV. Although there is some degree of confusion as to the necessity of consideration to support a modification, we are not here called upon to consider that matter and do not do so. In this regard however see Siebring Mfg. Co. v. Carlson Hybrid Corn Co., 246 Iowa 923, 928, 70 N.W.2d 149; Williams v. Cassidy, 237 Iowa 1042, 1050, 23 N.W.2d 423; 17 A C.J.S. Contracts § 376, page 428; 17 Am.Jur.2d, Contracts, section 469, page 939; 5 Drake L.Rev. 3; 47 Calif.L.Rev. 74, 92--98; and Simpson, Law of Contracts, Hornbook Series, Second Ed., pages 187--189.

V. The basic issue involved is whether Hospital at any time manifested assent to a modification of the reimbursement cost formula.

Blue Cross maintains Hospital, by failing to terminate the agreement and continuing to accept payments under the revised formula, acquiesced in and is estopped to now claim absence of consent.

With this contention we cannot agree.

As previously disclosed, from time of announcement by Blue Cross of the proposed modification, Hospital openly and repeatedly voiced objection to the change and its applicability to Hospital's previously effected capital improvements.

It is thus apparent Hospital never expressly agreed or consented to the revised cost formula.

The question now posed is whether Hospital by acts and conduct consented to the modification or is estopped to challenge it.

We are satisfied the mere acceptance by Hospital of a lesser amount than that prescribed in the original contrct did not of itself disclose or stand as an assent to the modification. B. C. Truck Lines, Inc. v. Kelley, 93 Ga.App. 529, 92 S.E.2d 309, 310, and 17A C.J.S. Contracts § 375, pages 425--428.

VI. Furthermore Hospital was not by any attempted modification or breach on the part of Blue Cross compelled to terminate the contract or lose its right of redress.

Simply stated Hospital elected to stand by the contract and seek recovery for any claimed breach. This it could do. Richmond and Jackson v. Dubuque & S.C.R. Co. and I.C.R. Co., 40 Iowa 264, 269, citing Richmodn v. Dubuque & Sioux City R.R. Co., 33 Iowa 422, 495; 17 A C.J.S. Contracts § 458, page 589; and 17 Am.Jur.2d, Contracts, sections 455--447, pages 903--910.

In other words Hospital, by accepting payments under repeated protest, and continued performance on its part, reserved the right to recover for breach, if any, by Blue Cross.

The law does not sanction breach of contract as a means of escape from its burdensome terms nor will it reward an offending party.

In support of the previously stated position taken by Blue Cross it cites and leans rather heavily on Siebring Mfg. Co. v. Carlson Hybrid Corn Co., 246 Iowa 923, 70 N.W.2d 149; and Williams v. Cassidy, 237 Iowa 1042, 23...