Matherly v. Hanson

• Decision Date: 19 December 1984
• Docket Number: No. 83-1562,83-1562
• Citation: 359 N.W.2d 450
• Parties: Carl W. MATHERLY, Appellant, v. John K. HANSON, Appellee.
• Court: Iowa Supreme Court

Page 450

359 N.W.2d 450

Carl W. MATHERLY, Appellant, v. John K. HANSON, Appellee.

No. 83-1562.

Supreme Court of Iowa.

Dec. 19, 1984.

Rehearing Denied Jan. 10, 1985.

Robert E. Mannheimer, Ronald L. Anderson, and Barbara G. Barrett of Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, for appellant.

John A. Templer, Jr., and David J. Darrell of Davis, Hockenberg, Wine, Brown & Koehn, Des Moines, for appellee.

Considered en banc.

McGIVERIN, Justice.

This appeal requires us to determine whether a certain set of writings constitutes a written contract within the meaning of Iowa Code section 614.1(5) (1983). That section provides that an action founded on a written contract must be brought within ten years of the accrual of the cause of action. Section 614.1(4) establishes that an action founded on an unwritten contract must be brought within five years after the cause of action accrues. Plaintiff's action alleged breach of a contract between himself and defendant, and was brought approximately nine years after the cause of action was alleged to have accrued. The trial court ruled that the action was founded on an unwritten, rather than a written, contract for statute of limitations purposes and was therefore barred by section 614.1(4). We agree and affirm the trial court's entry of summary judgment for defendant based on that reasoning.

Plaintiff Carl W. Matherly filed suit against defendant John K. Hanson on April 26, 1982. In his petition he alleged that defendant owed him $78,000 for unspecified personal services rendered from 1969 to 1971. He further alleged that he and defendant agreed on a somewhat novel method of paying him. According to plaintiff, defendant loaned him money with which to invest in securities. Any gains on the investments up to $78,000 would belong to plaintiff. Any gains beyond $78,000 would belong to defendant. In the event of losses, defendant would be responsible not only for the losses but also for the $78,000 he owed plaintiff. This arrangement, plaintiff alleged, was called the "ups and downs game."

Plaintiff further alleged that during 1972 defendant loaned him a total of $506,000 with which to play the ups and downs game. Plaintiff repaid the loans at defendant's request in December 1972 and thereafter financed the game on his own until early 1973, when defendant requested him to sell all the investments and end the game.

The game resulted in a net loss of approximately $114,000 on the investments. Plaintiff paid approximately $11,000 interest on loans he took out in 1973 to finance the game. Adding those two amounts to the $78,000 he had originally claimed as compensation, plaintiff arrived at a total of approximately $203,000 allegedly owed him by defendant.

Plaintiff's suit for this amount was filed in April 1982, about nine years after his cause of action allegedly accrued in early 1973. Defendant's answer generally denied the allegations of plaintiff's petition.

Defendant then moved under Iowa R.Civ.P. 237 for summary judgment, contending that the five-year limitation period for actions founded on unwritten contracts had expired, and that the writings adduced by plaintiff as evidence of the agreement between him and defendant were insufficient as a matter of law to constitute a written contract and thus entitle plaintiff to the benefit of the ten-year limitation period for actions founded on written contracts. See Iowa Code §§ 614.1(4), (5).

Plaintiff maintained that a written contract did exist, and that, therefore, his suit was properly brought within the longer limitation period. The trial court disagreed and granted defendant's motion for summary judgment, holding that as a matter of law the writings adduced by plaintiff were not a written contract within the meaning of section 614.1(5).

Summary judgment is proper when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Iowa R.Civ.P. 237(c). The burden of showing that there is no genuine issue of material fact is upon the party moving for summary judgment. Sandbulte v. Farm Bureau Mutual Insurance Co., 343 N.W.2d 457, 464 (Iowa 1984). On appeal, we examine the record in the light most favorable to the party opposing the motion to determine if the movant has met his or her burden. Id.

There is no dispute as to the content of the writings relied upon by plaintiff as constituting a written contract between him and defendant. The first writing consists of the following lines handwritten on a piece of defendant's letterhead stationery:

Carl paid to

settlement date

Oct. 7, 1971

in full

JKH

________________

Carl stock deal

difference $78,000

game to be played

on opportunities for ups

or downs

The writing is initialed at the bottom by defendant, signed by plaintiff, and dated "10-14-71."

The other writings relied on by plaintiff are a series of standard form promissory notes which plaintiff alleges represent the money loaned to him by defendant to play the ups and downs game. On the first note these handwritten words appear. "Subject to Ups and Downs Game. Ups to Carl W. Matherly. $78M goal. Downs to John K. Hanson." The other notes contain no handwriting except that which appears in the blanks to indicate dates, amounts loaned, and other standard note terms.

I. Whether the documents constitute a written contract. The question presented is whether the writings relied on by plaintiff constitute a written contract for the purposes of application of the ten year limitations of actions period. Iowa Code § 614.1(5).

A. This court resolved an issue similar to that presented here in Lamb v. Withrow, 31 Iowa 164 (1871). Lamb also involved a suit on an alleged contract, brought before the limitation period for written contract suits but after the limitation period for suits on unwritten contracts. The plaintiffs had paid off certain notes of the defendant and then sought indemnification, contending that they were defendant's sureties on the notes. However, neither the notes nor any other writing chargeable to the defendant showed the surety relationship. The plaintiffs relied on parol evidence to establish that fact. In holding that the limitation period for suits founded on unwritten contracts applied, the court said:

The spirit as well as the letter of the statute of limitations requires, that, in order to prevent the [limitation period for actions founded on unwritten contracts] from applying to this action, the essential facts establishing the liability of the defendant shall be shown by his written contract.

Lamb v. Withrow, 31 Iowa at 168. (Emphasis in original.)

We believe these words are logically well founded. Certainly one of the essential features of a contract is an obligation or liability to do or not do something. See Mullenger v. Clause, 178 N.W.2d 420, 428 (Iowa 1970). Where the liability cannot be shown by a writing, it is reasonable to say as a matter of law that an action on such liability is founded on an unwritten rather than a written contract.

This approach is consistent with that taken in other jurisdictions. In Regina Apartments, Inc. v. Village Green, Inc., 60 Ohio App.2d 345, 397 N.E.2d 420 (1978), plaintiff sued defendant for allegedly failing to repay loans made to him and offered as evidence a series of cancelled checks from plaintiff to defendant with the word "loan" written in the upper left-hand corner of each check. The trial court held that the checks did not constitute agreements in writing for the purpose of the statute of limitations, and granted defendant's motion for summary judgment on the ground that the limitation period for actions founded on unwritten agreements had expired. In affirming the trial court, the Ohio Court of Appeals noted:

[T]he single word "loan" written on the instrument gives no indication as to who owes whom or whether the check is a loan or the repayment of a loan.

In order for an action to come within the statute of limitations governing actions upon ... an agreement, contract, or promise in writing ... the action must grow out of a written instrument which first acknowledges indebtedness or second promises to pay in such terms as to make supplemental evidence unnecessary. [Citations.] In this case it is clear that supplemental evidence would be required to complete the terms of whatever understanding the parties may have had.

60 Ohio App.2d at 347, 397 N.E.2d at 422.

National Bank of Commerce of Seattle v. Preston, 16 Wash.App. 678, 558 P.2d 1372 (1977), presented a similar question. Plaintiff maintained that check stubs containing the notation "loan" and the corresponding checks to defendant constituted written loan agreements within the statute of limitations for actions on written contracts. The trial court disagreed and granted summary judgment to defendant. The Court of Appeals of Washington affirmed, saying:

Parol evidence is necessary to indicate whether the check is for a loan from the drawer ... to the payee ..., for the repayment of a loan from [payee] to [drawer], or for a transaction relating to a loan involving a third party.

Admission of parol evidence is necessary to make the inert word "loan" functional. This would be more than clearing up ambiguity in a term of a contract. It would be adding a material term to the contents of the writing and this is impermissible. [Citation.]

... Since parol evidence is necessary to establish an essential term of the ... agreement, ... the [statute of limitations for oral contracts] applies.

16 Wash.App. at 680-81, 558 P.2d at 1374.

In Klein v. Frank, 534 F.2d 1104 (5th Cir.1976), plaintiff sued defendant on an alleged agreement under which defendant was to sell for plaintiff 65,000 shares of a Colorado corporation's stock and remit the proceeds to him. To avail himself of the limitation period for actions founded on written contracts, plaintiff produced a letter from defendant to a person in New York directing...