Harsha v. State Sav. Bank

• Decision Date: 14 March 1984
• Docket Number: No. 65188,65188
• Citation: 346 N.W.2d 791
• Parties: David George HARSHA and Baxter Feed Center, Inc., Appellees, v. STATE SAVINGS BANK and J.E. Edge, Appellants.
• Court: Iowa Supreme Court

Page 791

346 N.W.2d 791

52 A.L.R.4th 805

David George HARSHA and Baxter Feed Center, Inc., Appellees, v. STATE SAVINGS BANK and J.E. Edge, Appellants.

No. 65188.

Supreme Court of Iowa.

March 14, 1984.

Rehearing Denied April 6, 1984.

Rehearing Denied May 10, 1984.

B.C. Clayton and Roger Williams of Diehl, Clayton, Cleverley, Knopf & Williams, Newton, for appellants.

Frank G. Wieslander, Altoona, and Samuel S. Zelden, Des Moines, for appellees.

Considered by UHLENHOPP, P.J., and HARRIS, LARSON, CARTER, and WOLLE, JJ.

UHLENHOPP, Presiding Justice.

This appeal presents questions that arose from an alleged oral agreement by the State Savings Bank of Baxter, Iowa (bank), through its president, Jack E. Edge, to lend money to David G. Harsha and Richard L. Perry to open and operate a livestock feed sales business to be known as Baxter Feed Center, Inc. (Baxter Feed).

The following issues were submitted to the jury at trial: (1) whether the bank made and subsequently breached a contract to lend $25,000 to Baxter Feed on a long-term basis; (2) whether acts by the bank and Edge tortiously interfered with prospective business relationships of Baxter Feed; and (3) whether the bank and Edge intentionally inflicted severe emotional distress upon Harsha. The jury returned the following verdicts: for Baxter Feed and against the bank in the sum of $126,000 for breach of contract; for Baxter Feed and against the bank and Edge in the sums of $104,864 compensatory and $85,000 punitive damages for tortious interference with prospective business relationships; and for Harsha and against the bank and Edge in the sums of $50,000 compensatory and $15,000 punitive damages for intentional infliction of severe emotional distress. The trial court found that the contract and tortious interference verdicts were duplicative, but otherwise upheld the verdicts.

The bank and Edge appealed and Harsha and Baxter Feed cross appealed. The bank and Edge argue inter alia on appeal that no contract to lend money existed because of lack of consideration and that substantial evidence was not introduced in support of the two tort claims. Baxter Feed argues inter alia on cross appeal that the ruling regarding duplicative damages was erroneous.

The case was tried by ordinary proceedings and our review is on assigned errors. Iowa R.App.Proc. 14(f)(1).

Viewing the evidence in the light most favorable to the verdicts, the jury could find the facts substantially as follows. In the spring of 1971, Harsha and Perry discussed the possibility of opening their own livestock feed sales business. The two included Edge in some of their conversations as they were interested in obtaining a long-term bank loan guaranteed by the Small Business Administration (SBA). Various loan amounts were considered. Edge testified the loan was to be for $15,000. Harsha and Perry, however, sought and obtained an SBA guarantee of $25,000, and Edge made the note for that amount.

Harsha and Perry then prepared to open the business. They acquired a place to operate, made arrangements with a producer to obtain feed to sell, contributed $2500 each to the business, and incorporated as Baxter Feed Center, Inc. They opened for business in September 1971.

During the first year several events occurred: (1) Baxter Feed lost $2549, a sum more than $2000 less than the first-year loss of $4560 originally projected; (2) Perry became displeased, left the business, and was replaced by Harsha's mother, Zelda L. Harsha; (3) Baxter Feed executed a promissory note to the bank for $25,000, and the bank disbursed $5000 of that amount on each of three dates: November 2 and December 10, 1971, and June 9, 1972; and (4) Baxter Feed began to repay the long-term loan at a monthly rate of $397 in principal and interest.

Edge testified he became displeased with Harsha's management: running up large accounts receivable instead of selling on feed contracts, and failing to collect accounts vigorously. In June 1972, the bank informed SBA by letter that it would lend no more long-term money than $15,000 already disbursed and asked that the monthly payment figure be reduced accordingly. The amount of the reduced figure, $233.80, was not provided until a second letter was sent to SBA in July. In July or August 1972 Harsha discovered what the bank had done, and in September 1972 he began repayment at the monthly rate of $233.80. He paid this lower figure through October 1975.

Over the life of the business Harsha also obtained $19,000 as capital funds from his mother. In addition, the bank did not cease making loans to Baxter Feed; on several occasions it provided money on a short-term basis. The jury could find from the evidence, however, that the effect of losing $10,000 in long-term funds was damaging to Baxter Feed. It reduced Baxter Feed's ratio of current assets to current liabilities to a point of nearly 1-to-1, well below the usual minimum of 2-to-1. The impact of the lack of long-term money became apparent as early as November-December 1972. On November 24 the bank lent Baxter Feed $3000 on a thirty-day note for the purchase of feed at a favorable price. On December 29 Baxter Feed owed $3000 plus $24 interest on the short-term note as well as $233.80 on the long-term note, instead of $397 which would have been owed if $25,000 in long-term money had been provided.

Harsha continued to operate with the short-term loans but the business began losing more money. Projections of profits of $3305 in 1973, $7404 in 1974, and $13,348 in 1975 turned into net losses of $739, $2105, and $7968 respectively. To maintain some cash flow, Harsha tried to collect accounts receivable before the time of payment agreed upon, which had a predictable detrimental effect on business.

By the fall of 1975 Baxter Feed was in very poor financial condition. Harsha consulted Edge, who suggested bankruptcy. Harsha closed the business at the end of November 1975, and filed for bankruptcy in October 1976.

Harsha claims that Edge calculated to destroy Baxter Feed and succeeded in doing so, and that Edge's motive was the purchase of a competing feed sales business, the Country Farm Store of Baxter, owned by Charlotte L. McCormick. This involves the McCormick matter, which takes us back in time.

The fact was well-known in Baxter that McCormick desired to sell her business. In 1970 she was forced to undergo Chapter XI bankruptcy proceedings after an employee purchased cattle (supposedly corn) for his own benefit in the amount of approximately $55,000. Thereafter McCormick wanted only to rebuild the business to the point at which she could dispose of it.

In the summer of 1972, about the time Edge decided not to make the final $10,000 of the Baxter Feed long-term loan, McCormick visited with Edge and borrowed money to purchase a portable mill for her business. In the process, Edge became aware of her financial condition.

About a year later, Harsha became interested in purchasing McCormick's business. In the fall of that year, 1973, he executed an agreement with McCormick to purchase her Country Farm Store for $80,000 plus approximately $25,000 for inventory, rolling stock, and accounts receivable, with a possession date of November 12, 1973. According to Harsha, Edge helped him apply for an SBA guarantee for a loan of $63,000 to assist him complete the deal with McCormick; SBA did approve such a guarantee; Edge never informed Harsha of the approval; and as a result the Harsha-McCormick deal fell through. Edge testified he notified Harsha of the SBA approval but the total amount needed, in excess of $100,000, would overextend Harsha's credit, and the McCormick-Harsha deal was not completed for that reason. Edge cancelled the SBA guarantee.

McCormick listed her property with a realtor. In April 1974, Dean Flora, owner of another Baxter livestock feed sales business, Baxter Grain & Coal Company, became interested in the McCormick property. Flora approached Edge to ascertain whether he could obtain financing to buy it. Edge telephoned the realtor and discovered that the McCormick property could be bought for $60,000. Flora borrowed $20,000 for a down payment and obtained an SBA guarantee for a loan of $80,000 (which included the down payment) to buy and renovate the property.

The ostensible way the Flora-McCormick transaction was handled and the actual transaction were not the same. Flora testified he was apprehensive that McCormick would not sell to him, a competitor. Edge therefore handled the transaction with McCormick as if he were the principal. He signed the purchase agreement and a down payment check of $1000 in his own name, and his name appeared in the space in the agreement for the buyer.

Thereafter, however, the typed name "Jack Edge" was scratched from the real estate contract and replaced with the name "Baxter Grain & Coal Company"; Flora signed the contract; the down payment checks--one for $1000 and one for $19,000--were paid out of the account of Baxter Grain & Coal Company; McCormick conveyed title to that company; and that company owned and operated the property. Edge was not shown to have any financial interest in Flora's business, and Flora testified Edge did not own and never had owned stock in Baxter Grain & Coal Company. The only financial benefit flowing to the bank or Edge was interest on the money Flora borrowed to make the purchase. No contrary proof was produced and no evidence was introduced that Edge or the bank has any interest in the (former) McCormick property.

We turn to the parties' arguments.

I. Contract claim. The bank argues that the claimed agreement to lend $25,000 lacked consideration. Alternatively, it argues that the trial court submitted a wrong measure of damages to the jury and that a proper foundation was not laid for expert testimony as to damages and causation, but it does not address the causation issue in the event the expert testimony is in fact admissible. It also argues that ...