Johnson v. Dodgen

• Decision Date: 24 January 1990
• Docket Number: No. 88-1466,88-1466
• Citation: 451 N.W.2d 168
• Parties: Roland JOHNSON, as Trustee of the Ben P. St. John Trust, and Roland Johnson, Robert Mickey, and Lester Mealiff as Trustees of the Adeline G. St. John Trust, Appellees, v. Joe w. DODGEN and Iowa Growthland Financial Corp., Appellants.
• Court: Iowa Supreme Court

Page 168

451 N.W.2d 168

58 USLW 2508

Roland JOHNSON, as Trustee of the Ben P. St. John Trust, and Roland Johnson, Robert Mickey, and Lester Mealiff as Trustees of the Adeline G. St. John Trust, Appellees, v. Joe w. DODGEN and Iowa Growthland Financial Corp., Appellants.

No. 88-1466.

Supreme Court of Iowa.

Jan. 24, 1990.

Diane M. Stahle of Davis, Hockenberg, Wine, Brown, Koehn & Shors, Des Moines, for appellants.

Lawrence P. McLellan and Robert A. Sims of Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for appellees.

Considered by CARTER, P.J., and LAVORATO, NEUMAN, SNELL and ANDREASEN, JJ.

LAVORATO, Justice.

This breach of contract action is the aftermath of a bank failure caused by the embezzlement of $16.7 million by Des Moines stockbroker Gary Lewellyn. In 1967 Joe W. Dodgen agreed to buy controlling interest in the First National Bank of Humboldt under a stock purchase agreement (agreement) calling for monthly payments. Ben P. and Adeline G. St. John, the sellers, died shortly thereafter. Two trusts were then established to receive payments under the agreement.

Dodgen assigned the agreement to his company, Humboldt Realty Insurance Co., Inc. Humboldt Realty, which was not in existence at the time the agreement was executed, underwent several name changes until it became known as Iowa Growthland Financial Corporation. After the bank was closed in 1982, Iowa Growthland continued to make payments under the agreement until 1984.

The trusts then sued Dodgen and Iowa Growthland for the payments that were in arrears. Dodgen and Iowa Growthland filed an answer in which they raised failure of consideration as an affirmative defense. Simply put, they were claiming that the consideration for the agreement failed when the bank went out of existence. In addition, Dodgen asserted that he was not personally liable because he signed the agreement as an agent for Humboldt Realty. In its counterclaim, Iowa Growthland sought damages on the theory of unjust enrichment for payments it made after the bank was closed.

The case was tried to a jury. By way of answers to special verdict forms, the jury found that the trustees were not entitled to recover for breach of contract, that Dodgen was indeed acting as an agent when he signed the agreement, and that Iowa Growthland was not entitled to damages for its claim of unjust enrichment. See Iowa R.Civ.P. 205.

The district court granted a new trial on all the issues. Dodgen and Iowa Growthland appealed; the trustees cross-appealed.

We reverse and remand with directions to enter judgment in favor of the trustees pursuant to Iowa Rule of Appellate Procedure 26.

Following trial, the trustees moved for judgment notwithstanding the verdict or new trial. The trustees alleged they were entitled to a judgment notwithstanding the verdict because the district court should have sustained their motion for directed verdict on all the issues. The trustees requested, in the alternative, a new trial.

In its ruling the district court said:

In viewing the evidence most favorably to the defendants, it is clear that the defense of failure of consideration should not have been submitted. The court should have directed a verdict at the close of the evidence to the effect that the contract was enforceable and the parties were not relieved from their obligations. However, other issues exist which make it difficult for the court to enter judgment. Dodgen claimed at trial that he was merely an agent at the time he executed the contract and the jury so found pursuant to a [special verdict]. However, new trials are generally granted as to the whole case and on all issues. Moreover, once the jury in this case determined that Plaintiffs were not entitled to recover under the contract, they should not have further determined the agency issue. Also, the jury never determined Growthland's liability. The whole verdict must be set aside.

The trial court has inherent power to grant a new trial when the verdict does not effect substantial justice between the parties. The court earnestly believes this is a case for a new trial, with proper legal instruction.

On appeal, Dodgen and Iowa Growthland contend the district court erred when it granted a new trial on their failure of consideration defense. In support of their contention, Dodgen and Iowa Growthland urge three reasons why there was sufficient evidence to submit the defense. First, they contend the very essence of the agreement--the bank--ceased to exist. Second, they contend the agreement was still executory when the bank was closed because the trustees had not, before that time, delivered the stock. The trustees were holding the stock as security pursuant to the agreement. Last, they contend they did not have full ownership of the stock when the bank was closed because they could not pledge the stock as security for borrowing purposes.

Dodgen and Iowa Growthland raise two additional issues. Iowa Growthland contends that we should overturn the jury's verdict on its unjust enrichment counterclaim and enter judgment in its favor for all payments it made after the bank was closed. Dodgen challenges the district court's posttrial ruling that granted the trustees a new trial on the agency issue. He argues that the jury's verdict on this issue should stand.

The trustees in their cross-appeal contend that the district court erred when it did not direct a verdict in their favor on all three issues. So they argue that the district court should have sustained their motion for judgment notwithstanding the verdict on these issues.

The district court granted a new trial because the court believed it had committed several legal errors that resulted in a failure to effectuate justice between the parties. In these circumstances our scope of review is for errors at law rather than for abuse of discretion. See Iowa R.App.P. 14(f)(4); Julian v. City of Cedar Rapids, 271 N.W.2d 707, 709 (Iowa 1978); Kessel v. Hunt, 215 Iowa 117, 123, 244 N.W. 714, 716 (1932); Hubbard v. Bartholomew, 163 Iowa 58, 63, 144 N.W. 13, 15 (1913).

A judgment notwithstanding the verdict must stand or fall on the grounds stated in the motion for directed verdict. On appeal, our review is limited to those grounds. Watson v. Lewis, 272 N.W.2d 459, 461 (Iowa 1978).

When considering a motion for judgment notwithstanding the verdict, the district court must view the evidence in the light most favorable to the party against whom the motion is directed. Id. at 461. In reviewing the propriety of the district court's ruling on such a motion, we also view the evidence in the same manner. Simply put, we ask, was there sufficient evidence to generate a jury question? Id. at 463. These are the same principles that the district court is bound to follow on a motion for a directed verdict. Id.

Under this view of the evidence, if there is substantial evidence to support the claim or defense, the motion for directed verdict or for judgment notwithstanding the verdict should be denied. Conversely, without such evidence, a directed verdict or judgment notwithstanding the verdict is appropriate. Valadez v. City of Des Moines, 324 N.W.2d 475, 477-78 (Iowa 1982). Evidence is substantial when a reasonable mind would accept it as adequate to reach a conclusion. Briggs v. Board of Directors of Hinton Community School District, 282 N.W.2d 740, 743 (Iowa 1979).

With these principles in mind, we turn to the three issues raised in this appeal. We first consider the failure of consideration issue, and then the unjust enrichment and agency issues.

I. Failure of Consideration.

Dodgen and Iowa Growthland contend that the continued existence of the bank was the essence or root of the agreement--the thing Dodgen really bargained for. They argue that when the bank was closed the consideration for Dodgen's promise to pay failed. This failure of consideration, they assert, excused any future performance on their part.

There is a difference between lack of consideration and failure of consideration. A lack of consideration means no contract is ever formed. In contrast, a failure of consideration means the contract is valid when formed but becomes unenforceable because the performance bargained for has not been rendered. Failure of consideration

covers every case where a contractual obligation is not performed irrespective of the fault of the breaching party. Thus, a failure of consideration may describe nonperformance which does not constitute a breach. A failure to render a promised performance may not be a breach of contract for the reason that performance has become impossible without fault; but is nonetheless a failure of consideration discharging the other party from his duty to perform under the contract, giving him the right to the restitution of payments already made or other benefits conferred.

First Nat'l Bank of Belfield v. Burich, 367 N.W.2d 148, 153 n. 3 (N.D.1985) (citation omitted). See also Kristerin Dev. Co. v. Granson Inv., 394 N.W.2d 325, 331 (Iowa 1986); 6 Williston, Contracts, § 814 (3d ed. 1962); 6 Corbin on Contracts, § 125 (1964); Restatement (Second) of Contracts, § 237 comment a (1981).

To constitute a complete defense to a breach of contract claim, the alleged failure of consideration must be total. Burich, 367 N.W.2d at 153 n. 3; accord Kristerin, 394 N.W.2d at 331. A total failure of consideration occurs when a party has failed or refused to perform a substantial part of what the party agreed to do. In these circumstances the failure or refusal to perform defeats the very purpose of the contract. Burich, 367 N.W.2d at 153. Our statute recognizes total failure of consideration as a defense. Iowa Code § 537A.3 (1983).

A. Essence of the agreement.

Under the agreement here, Dodgen agreed to purchase from St. John 506 shares of capital stock of the bank. The 506 shares represented 50.6% of the issued and outstanding stock of the bank. By this purchase, Dodgen was acquiring controlling...