Mincks Agri Center, Inc. v. Bell Farms, Inc.
| Decision Date | 01 June 2000 |
| Docket Number | No. 98-28.,98-28. |
| Citation | 611 N.W.2d 270 |
| Parties | MINCKS AGRI CENTER, INC., Appellee, v. BELL FARMS, INC., Appellant. |
| Court | Iowa Supreme Court |
Bruce L. Walker and Michael J. Pugh, Phelan, Tucker, Mullen, Walker, Tucker & Gelman, L.L.P., Iowa City, for appellant.
William Scott Power of Aspelmeier, Fisch, Power, Warner & Engberg, P.L.C., Burlington, for appellee.
Considered en banc.
The appellee, Mincks Agri Center, Inc. (Mincks), sued the appellant, Bell Farms, Inc., claiming Bell Farms had breached several contracts calling for the sale of grain to Mincks. The determinative issue is whether Mincks, who did not have a grain dealer license at the time it was required to accept delivery of the grain, may still enforce the contracts by recovering damages for Bell Farms' failure to make delivery. The district court ruled that the contracts were enforceable. The Iowa Court of Appeals reversed and this court granted further review. We agree with the court of appeals that Mincks may not enforce the contracts. Therefore, we affirm the court of appeals' decision, reverse the district court's judgment, and remand for entry of judgment in favor of Bell Farms.
Mincks is a grain elevator owned by Tim Mincks (Tim). Between February and May of 1995 Mincks entered into seven grain contracts with Bell Farms. Pursuant to these contracts, Bell Farms sold corn and soybeans to Mincks with delivery to be made at a river terminal in Muscatine during the months of October, November and December 1995.
Prior to July 1995, Mincks engaged in speculation on the grain futures market, unrelated to Bell Farms' grain contracts. In July 1995 Tim wrote checks totaling $78,000 to cover margin calls on wheat futures. Mincks' bank refused to honor these checks and informed Tim that Mincks had exceeded its lending limit.
That very afternoon Tim visited with Oakville Feed & Grain, Inc. to determine if Oakville would take over the contracts held by Mincks with local producers and assume operation of the business. Oakville agreed not only to enter into contracts with Mincks' producers on the same terms as the original contracts, but also agreed to lease Mincks' premises and continue a grain business at that location.
Tim testified he took this action because he wanted to make sure that if the price of grain went down that fall, the farmers would get their contracted price. This testimony at first blush appears at odds with the fact that Mincks had hedged its contracts with producers, the purpose of which is to guarantee a price for the purchased grain so the grain dealer will be assured of funds with which to pay the producers for their grain. See Top of Iowa Coop. v. Sime Farms, Inc., 608 N.W.2d 454, 456-57 (Iowa 2000)
(). But Mincks testified in his deposition, which was read at trial, that "we weren't able to hedge our purchases on the board any longer and if the market had dropped, say corn went to $2.00[,] I knew that we were going to have a bunch of farmers angry because they weren't getting their money." Another Mincks employee confirmed this explanation, stating that Mincks "had corn purchased that there wasn't going to be enough money to cover, so Tim sold the contracts to Oakville, and Oakville assumed them." Thus, the transaction with Oakville included Oakville's purchase of the hedges held by Mincks.
Mincks then sent a letter to the producers with whom it had contracted asking them to come into the office and sign new contracts with Oakville. Although other producers complied with this request, Bell Farms refused to contract with Oakville. (Mincks was unable to unilaterally assign the Bell Farms contracts to Oakville because the contracts stated that they were not assignable.) Upon Bell Farms' refusal to contract with Oakville, Oakville canceled the hedges it held on the Bell Farms contracts.
After making arrangements with Oakville to take over its business, Mincks informed the Grain Warehouse Bureau of the Iowa Department of Agriculture and Land Stewardship that it had leased its facilities to Oakville, that all grain delivered to the Mincks facility since August 1, 1995 had been recorded on Oakville's account, and that all storage and payment obligations of Mincks had been transferred to Oakville. Mincks requested that the Bureau cancel its grain dealer and warehouse licenses. The Bureau thereupon canceled Mincks' licenses effective September 1, 1995.
At trial Tim claimed he surrendered Mincks' grain dealer license because there was no longer any need for it. While that may be true, as Mincks had transferred its contracts and facilities to Oakville, it is clear from Tim's own testimony that the reason Oakville was asked to take over Mincks' business was that Mincks could no longer meet its financial obligations for margin calls and ultimately for contract payments to producers. In fact, Tim admitted in answers to interrogatories that he surrendered the grain dealer license "because of [Mincks'] financial condition."
Bell Farms did not deliver the grain to the Muscatine river terminal in late 1995 as it was required to do under its contracts with Mincks. Consequently, in July 1996, Mincks brought this action seeking damages for Bell Farms' alleged breach of contract.
Bell Farms filed a motion for summary judgment alleging that Mincks' failure to have a grain dealer license at the time performance was due rendered the contracts void and illegal. The district court denied summary judgment on this basis. This issue was again raised in a motion in limine prior to trial and in motions for directed verdict during trial. Recognizing that the issue was a legal question for the court, see Bovard v. American Horse Enters., Inc., 201 Cal.App.3d 832, 247 Cal. Rptr. 340, 343 (1988),
the court reaffirmed its rejection of Bell Farms' argument, relying on the Iowa Court of Appeals decision in S & S, Inc. v. Meyer, 478 N.W.2d 857 (Iowa App.1991). Mincks' contract claim was ultimately submitted to a jury, which returned a verdict in Mincks' favor. Bell Farms raised its illegality defense once again in a motion for judgment notwithstanding the verdict, which was denied by the trial court. This appeal followed.
The appeal was transferred initially to the Iowa Court of Appeals. That court reversed the trial court, holding that the contracts were not enforceable because Mincks did not have a grain dealer license. The court of appeals reasoned that enforcement of the contracts would, therefore, violate the public policy evident in Iowa's licensing statute. We granted Mincks' application for further review.
Although Bell Farms raises several alleged errors on appeal, we find it necessary to address only one—its claim that the contracts were illegal and unenforceable. This claim was raised for the final time in Bell Farms' motion for judgment notwithstanding the verdict. We review the trial court's denial of this motion for correction of errors of law. See Field v. Palmer, 592 N.W.2d 347, 350 (Iowa 1999)
.
A. Law applied by the trial court. We start our discussion of the law with a review of the legal principles applied by the trial court in rejecting Bell Farms' argument that the contracts were unenforceable. As noted in our review of the procedural background of this case, the trial court relied on S & S, Inc. v. Meyer to support its conclusion that the contracts were enforceable. In S & S, the court of appeals held that the suspension of a grain dealer's license did not automatically void an executory sales contract that was valid at its inception where the contract may be valid at the time of performance if the license is reinstated or the contract is assigned to a licensed dealer. 478 N.W.2d at 861. The contract at issue in S & S had, in fact, been assigned by the grain dealer prior to performance. Id. The court held, therefore, that the grain dealer's loss of its license did not affect the enforceability of the contract. Id.
The trial court here held that "[b]ecause Bell failed to agree to assignment of the contracts, Bell should not now be allowed to void the contracts by arguing that they were invalid because Plaintiff temporarily turned in his grain dealer's license." This rationale is faulty for several reasons. In contrast to S & S, where the contracts were "freely assignable," id. at 860, the record here shows that Mincks had no right to unilaterally assign its contracts with Bell Farms and Bell Farms had no obligation to agree to such an assignment. Moreover, the contracts at issue in S & S had been validly assigned to a licensed dealer prior to performance being due, a fact clearly absent in the present case. Finally, there is no support in the record for the characterization of Mincks' unlicensed state as "temporary." The record reveals no subsequent reinstatement of Mincks' license nor an intention by Mincks that it would even seek reinstatement of its license. For these reasons, the trial court's ruling was based on erroneous principles of law. We turn now to a determination of the appropriate rules of law that govern the matter before us.
B. Case law. A review of our early cases shows that Bell Farms has support for its claim that a contracting party's failure to hold a license required by law for performance renders the contract void. See Keith Furnace Co. v. MacVicar, 225 Iowa 246, 280 N.W. 496 (1938). In Keith Furnace, the plaintiff brought a claim against the defendant to collect on a promissory note issued in payment for the installation of a furnace in the defendant's home. 225 Iowa at 247, 280 N.W. at 496. The defendant asserted as a defense that the plaintiff had not obtained a permit for the work as required under the city building code. Id. at 247, 280 N.W. at 496-97. In considering this claim, the court applied the following legal principles:
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