Magnusson Agency v. Public Entity Nat. Company-Midwest

• Decision Date: 19 February 1997
• Docket Number: No. 95-1306,COMPANY-MIDWEST,95-1306
• Citation: 560 N.W.2d 20
• Parties: MAGNUSSON AGENCY and Michael Magnusson, Appellants, v. PUBLIC ENTITY NATIONALd/b/a PENCO, Appellee.
• Court: Iowa Supreme Court

Page 20

560 N.W.2d 20

MAGNUSSON AGENCY and Michael Magnusson, Appellants, v. PUBLIC ENTITY NATIONAL COMPANY-MIDWEST d/b/a PENCO, Appellee.

No. 95-1306.

Supreme Court of Iowa.

Feb. 19, 1997.

Rehearing Denied March 26, 1997.

James L. Kramer, Susan L. Ahlers, and Neven J. Mulholland of Johnson, Erb, Bice, Kramer, Goode & Mulholland, P.C., Fort Dodge, for appellants.

Brian L. Yung and Mark R. Crimmins of Bennett, Crimmins and Yung, Fort Dodge, for appellee.

Considered by LARSON, P.J., and NEUMAN, SNELL, ANDREASEN, and TERNUS, JJ.

ANDREASEN, Justice.

Plaintiffs Magnusson Agency and Michael Magnusson (collectively referred to as Magnusson), sued Public Entity National Company-Midwest (PENCO) for breach of contract and fraudulent misrepresentation, requesting both compensatory and punitive damages. Magnusson claimed that PENCO should have awarded its bid to obtain Webster County's insurance to him, not another agent. The jury awarded damages totaling $180,000. After judgment was entered on the verdicts, PENCO filed a motion for judgment notwithstanding the verdict (JNOV) and a motion for new trial. The district court granted the motions. On appeal, we find there is substantial evidence to support the jury's verdict that PENCO breached a contract with Magnusson, and the judgment on the verdict should not be vacated. However, we agree with the district court that there is insufficient evidence to support the jury verdict on the fraudulent misrepresentation and the punitive damages claims. We affirm in part, reverse in part, and remand.

I. Background Facts and Proceedings.

The following facts are essentially undisputed: Magnusson is the owner of Magnusson Agency in Fort Dodge, Iowa, and has been in the insurance business since 1978. Magnusson Agency is an independent insurance agency, meaning it represents more than one insurance company. In 1987, Magnusson began providing public entity insurance to Webster County, through Northwestern National Casualty Company. This continued until 1992.

In the fall of 1992, Webster County decided to seek bids for its 1993-1995 insurance. The county hired a consultant to obtain and compile the necessary information, assemble a bid package, and release it to agents who wanted to submit bids for the county's insurance. To become involved in the bidding process, the insurance agents had to deliver the bid packages and applications to the insurance companies for preparation of bids. When an insurance company finished preparing a bid, the agent could then present it to the county. These price quotations had to be presented to the county by early December 1992.

As the renewing insurance company, Northwestern National automatically gave Magnusson its bid. Magnusson also wanted to present the bid of PENCO, a company that works exclusively through independent insurance agents. PENCO has no insurance agents of its own. Even though Magnusson had never worked with it before, he had been in contact with PENCO's representatives at previous insurance conventions.

On October 22, Magnusson called PENCO to find out what he needed to do to secure a bid from it. He asked to speak to the person in charge of public entity insurance and was referred to Barb Dale, PENCO's marketing representative. Magnusson specifically asked Dale what was necessary for him to obtain a bid from PENCO. Dale told Magnusson that the first agent to provide PENCO with a completed application, including the county's budget and a signature by an appropriate county official, would receive its bid. This was PENCO's policy and procedure.

With this information, Magnusson began working on the application. On that same day, he met with the county auditor, the county engineer, the sheriff, and the conservation officer. He also made inspections of all the necessary sites. After completing the application, he took it back to the county auditor, who reviewed it, signed the application, and gave him a copy of the county budget. Magnusson then forwarded his application to PENCO's office in Omaha, Nebraska, via Airborne Express. PENCO received the application at 8:33 a.m. on October 23.

Magnusson received a letter, dated October 26, from Curtis Weible, PENCO's state manager. The letter was accompanied by Magnusson's application. It indicated that Weible received a completed application on October 23 during his travels in Iowa, prior to receiving Magnusson's application. The other application belonged to Peter Holt. Holt had worked with PENCO before and visited with Weible and PENCO as early as March 1992 to discuss securing the bid for Webster County.

In December, Webster County accepted PENCO's bid presented by Holt. The coverage period was three years, and the commissions paid to Holt exceeded $55,000. In November 1993, Magnusson sued PENCO for breach of contract and false misrepresentation. He also sought punitive damages. Magnusson claimed that he was the first agent to submit a completed application and that PENCO breached an oral contract by not awarding its insurance bid to him. Magnusson also claimed that PENCO made a fraudulent misrepresentation to him because it never intended to work with any agent other than Holt on the Webster County bid.

A jury trial began on June 13, 1995. Among other things, the evidence revealed that, despite Weible's letter to Magnusson stating otherwise, Holt's application was not received by PENCO prior to Magnusson's. Further, Holt's application was not signed by a county official, it did not include a budget, and it did not contain the required bid specifications. In addition, contrary to its company policy, PENCO photocopied Magnusson's application before returning it to him.

The district court denied PENCO's motions for directed verdict, and the jury returned a verdict in favor of Magnusson on both claims. The jury awarded $25,000 for the breach of contract and $30,000 for the fraudulent misrepresentation. In addition, the jury awarded $125,000 in punitive damages.

PENCO filed a motion for JNOV and, in the alternative, a motion for new trial. The district court granted PENCO's motion for JNOV, stating it failed to find substantial evidence to support Magnusson's claims for breach of contract, false misrepresentation, and punitive damages. Pursuant to Iowa Rule of Civil Procedure 248, the court also conditionally granted PENCO's motion for new trial. Magnusson filed timely notice of appeal.

II. Scope of Review.

We review the district court's grant or denial of a motion for JNOV for the correction of errors at law. Iowa R.App. P. 4; Bredberg v. Pepsico, Inc., 551 N.W.2d 321, 326 (Iowa 1996). We view the evidence in the light most favorable to the party against whom the motion was made, taking into consideration every legitimate inference that may fairly and reasonably be made. Iowa R.App. P. 14(f)(2); Bredberg, 551 N.W.2d at 326. The motion must stand or fall on the grounds raised in the motion for directed verdict. Vaughan v. Must, Inc., 542 N.W.2d 533, 538 (Iowa 1996).

Our only inquiry is whether there is sufficient evidence to justify submitting the case to the jury. Bredberg, 551 N.W.2d at 326. The motion should be denied if there is substantial evidence to support each element of the plaintiff's claims. Id. Evidence is substantial when a reasonable mind would find the evidence presented adequate to reach the same findings. Willey v. Riley, 541 N.W.2d 521, 526 (Iowa 1995).

III. Breach of Contract.

Magnusson's first claim is that the district court erred in granting PENCO's motion for JNOV on the breach-of-contract claim. The court found that Magnusson was not specifically promised anything and that no offer was made by PENCO. Magnusson argues that he presented substantial evidence upon each element of his claim, warranting its submission to the jury. We agree.

Consistent with Iowa Civil Jury Instruction 2400.1 (1986), the district court instructed the jury that Magnusson had to prove all of the following propositions on the breach-of-contract claim:

1. The parties were capable of contracting. Specifically, that Defendant's agent or employee, Barb Dale, had authority to bind Defendant to a contract with Plaintiffs.

2. A contract existed between the Plaintiffs and Defendant.

3. Consideration.

4. The terms of the contract.

5. The Plaintiffs performed what the contract required the Plaintiffs to do.

6. The Defendant breached the contract.

7. The Plaintiff has suffered damages as a result of the Defendant's breach.

Here, we are dealing with a unilateral contract, which consists of an offeror making a promise and an offeree rendering some performance as acceptance. Anderson v. Douglas & Lomason Co., 540 N.W.2d 277, 283 (Iowa 1995); Hunter v. Board of Trustees, 481 N.W.2d 510, 513 (Iowa 1992). As with any contract, the party seeking recovery on the basis of a unilateral contract has the burden of proving the existence of a contract. Anderson, 540 N.W.2d at 283.

A. Capacity to Contract.

The first essential element of a contract is that the parties have the capacity to contract. 17A Am.Jur.2d Contracts § 23, at 51 (1991); Restatement (Second) of Contracts § 12(1) (1981). Magnusson claims that Dale had actual or apparent authority to act on behalf of her employer. PENCO, however, claims that Dale did not have authority to bind it to a contract. A fundamental principle of agency law is that whatever an agent does, within the scope of his or her actual authority, binds the principal. Dillon v. City of Davenport, 366 N.W.2d 918, 924 (Iowa 1985). In addition, all acts and contracts of an agent, which are within the apparent scope of authority conferred on him or her, are also binding upon the principal. FS Credit Corp. v. Troy Elevator, Inc., 397 N.W.2d 735, 740 (Iowa 1986) (relying on Mayrath Co. v. Helgeson, 258 Iowa 543, 548, 139 N.W.2d 303, 306 (1966)).

Apparent authority is authority which, although not actually granted, has been knowingly permitted by the principal or...