Severson v. Elberon Elevator, Inc., 2--57585

• Decision Date: 16 February 1977
• Docket Number: No. 2--57585,2--57585
• Citation: 250 N.W.2d 417
• Parties: Eugene SEVERSON, Appellee, v. ELBERON ELEVATOR, INC., Appellant.
• Court: Iowa Supreme Court

Page 417

250 N.W.2d 417

Eugene SEVERSON, Appellee, v. ELBERON ELEVATOR, INC., Appellant.

No. 2--57585.

Supreme Court of Iowa.

Feb. 16, 1977.

Leo E. Gross and Harry Bookey, of Thoma, Schoenthal, Davis, Hockenberg & Wine, Des Moines, for appellant.

Harold J. Swailes, of Belle Plaine, and Keith Mossman, Vinton, for appellee.

Heard by REYNOLDSON, Acting C.J., and MASON, LeGRAND, HARRIS and McCORMICK, JJ.

McCORMICK, Justice.

The trial court sustained plaintiff's petition for specific performance of an oral contract to purchase the physical assets of defendant's grain elevator. The main question on appeal is the sufficiency of evidence to support the court's decree. We affirm the trial court.

Plaintiff Eugene Severson was at all material times general manager and part owner of Froning Grain Company, a corporation which owned and operated several Iowa country grain elevators. Defendant Elberon Elevator, Inc., was at all material times owner and operator of a country elevator at Elberon in Tama County. Robert C. Blythe and Larry F. Mosebach were the sole shareholders of defendant. Mosebach, who headed a C.P.A. firm with offices in Tama and several other cities, was defendant's president and secretary. He had tried to sell the financially troubled elevator for several years prior to meeting with Severson at the elevator premises on Sunday, March 4, 1973.

Severson had inspected the elevator in 1970 or 1971 and subsequently discussed purchase with Mosebach, but negotiations broke off because they could not agree on a price. Then in the fall of 1972 Mosebach contacted him again, but Severson was not interested in discussing purchase at the quoted selling price.

The March 4, 1973, meeting was initiated by Mosebach who called Severson several days earlier to tell him the asking price had been reduced to $75,000. It is undisputed that this price was for purchase of defendant's corporate stock. A. J. Froning, president of Froning Grain Company, accompanied Severson to the March meeting.

The three men walked through the elevator facilities and Severson examined them. The physical assets of the elevator on that date included a parcel of land leased from a railroad, a parcel of land owned by defendant, one 100,000 bushel capacity steel building, one frame elevator with 10,000 bushel capacity and appurtenant storage structures, a feed mill, one frame elevator with 20,000 bushel capacity with a dryer, an office building, two storage buildings, twenty 3200 bushel steel bins, inventory of feed and fertilizer, several vehicles, and miscellaneous equipment.

In asking $75,000 for defendant's corporate sock, Mosebach was attributing substantial value to an operating loss carryforward tax adjustment available to defendant as well as to the physical assets.

The parties agree they spent much of the afternoon of March 4 in negotiations. They also agree they ultimately arrived at a value of $50,000 for the physical assets of the elevator, exclusive of inventory. Moreover, they agree Severson gave Mosebach a $5,000 check as earnest money. However, they differ on whether a binding contract of sale resulted.

Severson contends the parties agreed on all necessary terms and entered on oral contract whereby he was to purchase the physical assets of defendant, exclusive of inventory, for $50,000. He maintains a written document was to be prepared merely as a memorial of the contract. Defendant contends that while the parties agreed on a value to be placed on the physical assets, exclusive of inventory, they did not settle on other essential contract terms and contemplated further negotiations culminating in a written contract.

In our De novo review, we must decide (1) whether Severson proved the terms of the alleged oral contract, (2) if so, whether the parties intended to be bound by it, (3) whether Severson subsequently rescinded or abandoned the contract, (4) whether he proved he did not have an adequate remedy at law, (5) whether the trial court erred in making incomplete findings of fact, and (6) whether the court erred in reducing the purchase price by the full amount of an insurance settlement for assets destroyed by fire on March 5, 1973.

Even though our review is De novo, we accord weight to trial court findings of fact, especially when the credibility of witnesses is involved.

I. Terms of the alleged oral contract. When the terms of an agreement are definitely fixed so that nothing remains except to reduce them to writing, an oral contract will be upheld unless the parties intended not to be bound until the agreement was reduced to writing. Marti v. Ludeking, 193 Iowa 500, 503--504, 185 N.W. 476, 477--478 (1921). The terms are sufficiently definite if the court can determine with reasonable certainty the duty of each party and the conditions relative to performance. Janssen v. North Iowa Conference Pensions, Inc., 166 N.W.2d 901, 907 (Iowa 1969).

Because Severson asked specific performance of an agreement affecting real estate, he had the burden to prove the contract by a preponderance of clear, satisfactory and convincing evidence. McCarter v. Uban, 166 N.W.2d 910, 912 (Iowa 1969).

We believe he met his burden to prove the terms of the agreement.

We find the following contract terms were established. Severson was to pay defendant $50,000 for the physical assets of defendant exclusive of inventory. Defendant's stock was not included. An April 1, 1973, date of possession was agreed on, but was not of the essence of the agreement. Defendant assured Severson existing insurance coverage of the assets was adequate and agreed to maintain it until transfer of possession. Property taxes were to be apportioned. Defendant promised to comply with the bulk sales law. Defendant was to show marketable title and transfer the real estate by warranty deed and assign its lease with the railroad. Mosebach was to terminate the employment of the elevator manager, while other employees were to be retained. Severson was to handle movement of such grain as remained in the elevator as of possession date, upon request of defendant, in consideration of customary charges for that service. Defendant was to retain and carry out its own obligations on warehouse receipts and grain contracts. Severson paid defendant $5,000 to bind the bargain. He noted on his check that it represented ten percent earnest money on a $50,000 'purchase price.'

Defendant admits several of these terms were agreed upon but denied others. It also argues that a prudent businessman would have insisted on additional and more precise terms, especially relating to handling of the grain. We agree that prudent businessmen might well have acted more wisely than the parties to this transaction. Indeed, this litigation could have been avoided if they had entered the kind of written contract defendant now asserts was then contemplated. However, our decision must be based on what the parties did in fact, not on whether they acted prudently.

Several items which defendant contends were essential elements of a valid contract but were not agreed upon are actually not essential contract elements but are either optional or matters of implementation. For example, Severson had previously ascertained the willingness of the railroad to permit assignment of the lease and had done the groundwork for obtaining financing. The existence of a valid contract was not dependent on the railroad's execution of written consent to the lease assignment or on Severson completing his financing arrangements.

Mosebach was intimately familiar with what he had to sell and what he had to do to sell it. He knew the elevator business, was a successful C.P.A., and was sophisticated in business matters. Defendant's license was in jeopardy and its finances were precarious. Mosebach obviously wished to cut his losses by disposing quickly of at least the physical assets of the business.

The record shows that when the parties reached tentative agreement Mosebach telephoned Blythe, informed him of the terms of the transaction, discussed them with him, and then said to Severson, 'Well, you have just bought an elevator.' The record also shows, through testimony of the former elevator manager, that Mosebach that evening notified the manager of the sale and told him he would not be employed by the new owner.

While we recognize a prudent businessman might have demanded additional terms and that the terms be spelled out with more precision, the persons involved in these negotiations were skilled, experienced businessmen and fully understood the implications of what they agreed upon. Neither party had any advantage over the other. We think the terms were sufficiently complete and specific when given those reasonable interpretations that ordinary businessmen are willing to give and considering the surrounding circumstances. See 5A Corbin on Contracts § 1174 at 279 (1964).

We find that the terms of the contract were established with reasonable certainty.

II. Contemplation of a written document. This same evidence satisfactorily answers the second issue. Although defendant contends the transaction of March 4 consisted only of preliminary negotiations, we believe the record shows the parties made an oral contract by which they intended to be bound.

Whether preliminary negotiations actually ripened into an oral contract depends on the intention of the parties as gleaned from the facts of the case. Alpen v. Chapman, 179 N.W.2d 585, 589 (Iowa 1970). Moreover, an oral contract may exist even though the parties intend to reduce it to writing at a later date. This principle is expressed in Restatement (Second) of Contracts § 26 (Tent. drafts 1--7 Student Ed. 1973):

Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the...