St. Ansgar Mills, Inc. v. Streit

• Decision Date: 06 July 2000
• Docket Number: No. 98-2025.,98-2025.
• Citation: 613 N.W.2d 289
• Parties: ST. ANSGAR MILLS, INC., Appellant, v. Duane J. STREIT, Appellee.
• Court: Iowa Supreme Court

613 N.W.2d 289

ST. ANSGAR MILLS, INC., Appellant, v. Duane J. STREIT, Appellee.

No. 98-2025.

Supreme Court of Iowa.

July 6, 2000.

Richard K. Updegraff of Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, P.L.C., Des Moines, for appellant.

A. Eric Neu of Neu, Minnich, Comito & Hall, P.C., Carroll, for appellee.

Considered en banc.

CADY, Justice.

A grain dealer appeals from an order by the district court granting summary judgment in an action to enforce an oral contract for the sale of corn based on a written confirmation. The district court held the oral contract was unenforceable because the written confirmation was not delivered within a reasonable time after the oral contract as a matter of law. We reverse the decision of the district court and remand for further proceedings.

I. Background Facts and Proceedings.

St. Ansgar Mills, Inc. is a family-owned agricultural business located in Mitchell County. As a part of its business, St. Ansgar Mills buys corn from local grain farmers and sells corn to livestock farmers for feed. The price of the corn sold to farmers is established by trades made on the Chicago Board of Trade for delivery with reference to five contract months. The sale of corn for future delivery is hedged by St. Ansgar Mills through an offsetting futures position on the Chicago Board of Trade.

A sale is typically made when a farmer calls St. Ansgar Mills and requests a quote for a cash price of grain for future delivery based on the Chicago Board of Trade price for the delivery.¹ The farmer then accepts or rejects the price. If the price is accepted, St. Ansgar Mills protects the price through a licensed brokerage house by acquiring a hedge position on the Chicago Board of Trade. This hedge position, however, obligates St. Ansgar Mills to purchase the corn at the stated price at the time of delivery. Thus, St. Ansgar Mills relies on the farmer who purchased the grain to accept delivery at the agreed price.

Duane Streit formerly resided in Mitchell County and currently practices veterinarian medicine in Carroll County. He also raises hogs. He owns a large hog farrowing operation in Carroll County and a hog finishing operation in Mitchell County near Osage. Streit purchased the Osage farm from his father in 1993. Duane's father, John Streit, resides in Mitchell County and helps Duane operate the Osage finishing facility.

Duane and his father have been long-time customers of St. Ansgar Mills. Since 1989, Duane entered into numerous contracts with St. Ansgar Mills for the purchase of large quantities of corn and other grain products. Duane would generally initiate the purchase agreement by calling St. Ansgar Mills on the telephone to obtain a price quote. If an oral contract was made, an employee of St. Ansgar Mills would prepare a written confirmation of the sale and either mail it to Duane to sign and return, or wait for Duane or John to sign the confirmation when they would stop into the business.

John would regularly stop by St. Ansgar Mills sometime during the first ten days of each month and pay the amount of the open account Duane maintained at St. Ansgar Mills for the purchase of supplies and other materials. On those occasions when St. Ansgar Mills sent the written confirmation to Duane, it was not unusual for Duane to fail to sign the confirmation for a long period of time. He also failed to return contracts sent to him. Nevertheless, Duane had never refused delivery of grain he purchased by telephone prior to the incident which gave rise to this case.

On July 1, 1996, John telephoned St. Ansgar Mills to place two orders for the purchase of 60,000 bushels of corn for delivery in December 1996 and May 1997. This order followed an earlier conversation between Duane and St. Ansgar Mills. After the order was placed, St. Ansgar Mills completed the written confirmation but set it aside for John to sign when he was expected to stop by the business to pay the open account. The agreed price of the December corn was $3.53 per bushel. The price of the May corn was $3.73 per bushel.

John failed to follow his monthly routine of stopping by the business during the month of July. St. Ansgar Mills then asked a local banker who was expected to see John to have John stop into the business.

John did not stop by St. Ansgar Mills until August 10, 1996. On that date, St. Ansgar Mills delivered the written confirmation to him.

Duane later refused delivery of the corn orally purchased on July 1, 1996. The price of corn had started to decline shortly after July 1, and eventually plummeted well below the quoted price on July 1. After Duane refused delivery of the corn, he purchased corn for his hog operations on the open market at prices well below the contract prices of July 1. St. Ansgar Mills later told Duane it should have followed up earlier with the written confirmation and had no excuse for not doing so.

St. Ansgar Mills then brought this action for breach of contract. It sought damages of $152,100, which was the difference between the contract price of the corn and the market price at the time Duane refused delivery.

Duane filed a motion for summary judgment. He claimed the oral contract alleged by St. Ansgar Mills was governed by the provisions of the Uniform Commercial Code, and was unenforceable as a matter of law under the statute of frauds. He claimed the written confirmation delivered to John on August 10, 1996 did not satisfy the statute of frauds for two reasons. First, he was not a merchant. Second, the confirmation was not received within a reasonable time after the alleged oral agreement.

The district court determined a jury question was presented on whether Duane was a merchant under the Uniform Commercial Code. However, the district court found the written confirmation did not satisfy the writing requirements of the statute of frauds because the delivery of the confirmation to John, as Duane's agent, did not occur within a reasonable time after the oral contract as a matter of law. The district court found the size of the order, the volatility of the grain market, and the lack of an explanation by St. Ansgar Mills for failing to send the confirmation to Duane after John failed to stop by the business as expected made the delay between July 1 and August 10 unreasonable as a matter of law.

St. Ansgar Mills appeals. It claims a jury question was presented on the issue of whether a written confirmation was received within a reasonable time.²

II. Scope of Review.

We review a ruling for summary judgment for errors at law. Iowa R.App. P. 4; Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Mobil Oil Corp., 606 N.W.2d 359, 362 (Iowa 2000). Summary judgment is appropriate where the record indicates no genuine issue of material fact exists, therefore the moving party is entitled to judgment as a matter of law. Iowa R. Civ. P. 237(c). When the facts are not in dispute, we decide whether the district court correctly applied the law to the facts. Kennedy v. Zimmermann, 601 N.W.2d 61, 64 (Iowa 1999). In doing so, we view the facts in the light most favorable to the party opposing the motion. See Mobil, 606 N.W.2d at 362

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III. Statute of Frauds.

The statute of frauds is one of the most well-known and venerable rules applicable to contract law. Generally, it establishes an exception to the proposition that oral contracts are enforceable in a lawsuit if sufficiently proven by requiring certain types of contracts to be in writing and signed by the party against whom enforcement is sought. See Iowa Code § 554.2201(1).

The statute of frauds originated in 17th century England to combat the use of fraud and perjury by litigants in court proceedings to establish oral contracts. See 2 E. Allan Farnsworth, Contracts § 6.1, at 82-83 (2d ed.1990). At the time, court rules prohibited parties to a lawsuit from testifying as witnesses in their case, and, consequently, an oral contract could only be established with testimony of third parties. See Azevedo v. Minister, 86 Nev. 576, 471 P.2d 661, 663 (1970). This prohibition allowed witnesses to be persuaded to give false testimony on behalf of a party in an effort to establish an oral contract, leaving the other party at a distinct disadvantage. See James J. O'Connell, Jr., Boats Against a Current: The Courts and the Statute of Frauds, 47 Emory L.J. 253, 257 (1998) [hereinafter O'Connell].³

In 1677, in response to this unsavory practice of using perjury to establish oral contracts, Parliament enacted the statute of frauds to require certain contracts to be supported by written evidence to be enforceable.⁴ 29 Car. 2, ch. 3 (1677) (Eng.); see Hugh E. Willis, Statute of Frauds—A Legal Anachronism, 3 Ind. L.J. 427, 427 (1928). The statute included contracts which were not only particularly susceptible to fraud, but those which posed serious consequences of fraud, including contracts for the sale of goods or property. See O'Connell, 47 Emory L.J. at 258.

Despite a difference in the court rules which gave rise to this statute of frauds, our American legal culture quickly adopted the principle. James J. White & Robert S. Summers, Uniform Commercial Code § 2—1, at 50 (2d ed.1980) [hereinafter White & Summers]. Iowa adopted the statute of frauds in 1851. See Iowa Code §§ 2409-10 (1851). The statute of frauds also became a part of the Uniform Sales Act in 1906, which Iowa subsequently adopted in 1924. See 1919 Iowa Acts ch. 396 (initially codified at Iowa Code §§ 9930-10007 (1924)). This statute required all contracts for the sale of goods to be in writing. Over time, the Uniform Sales Act was replaced by the Uniform Commercial Code.⁵ The Uniform Commercial Code continued to adhere to the statute of frauds, but was limited in its provisions to the sale of goods in excess of $500. Iowa enacted its version of the Uniform Commercial Code in 1966 including the statute of frauds. See 1965 Iowa Acts ch. 413. Iowa's statute of...