Ted Spangenberg Co. v. Peoples Natural Gas, Division of Northern Natural Gas Co.

• Decision Date: 26 November 1969
• Docket Number: Civ. No. 3-747-W.
• Citation: 305 F. Supp. 1129
• Parties: TED SPANGENBERG CO., Incorporated, Plaintiff, v. PEOPLES NATURAL GAS, DIVISION OF NORTHERN NATURAL GAS COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Iowa

305 F. Supp. 1129

TED SPANGENBERG CO., Incorporated, Plaintiff, v. PEOPLES NATURAL GAS, DIVISION OF NORTHERN NATURAL GAS COMPANY, Defendant.

Civ. No. 3-747-W.

United States District Court S. D. Iowa, W. D.

November 26, 1969.

Raymond E. Pogge, Council Bluffs, Iowa, Jack N. Hays of Gable, Gotwals, Hays, Rubin & Fox, Tulsa, Okl., for plaintiff.

Philip J. Willson, and Frank W. Pechacek, Jr. of Smith, Peterson, Beckman & Willson, Council Bluffs, Iowa, for defendant.

MEMORANDUM

HANSON, District Judge.

This is an action to recover the sum of $12,966.94 representing the alleged balance due for the installation of gas-fueled heating and air-conditioning equipment. The plaintiff, Ted Spangenberg Company, Incorporated, is an Oklahoma corporation specializing in the installation of heating and cooling equipment. Defendant, Peoples Natural Gas, is an Iowa corporation primarily engaged in supplying natural gas. The Court's jurisdiction is predicated upon diversity of citizenship and the requisite jurisdictional amount. Section 1332, 28 U.S.C. This non-jury cause was tried to the Court on July 17, 1969.

Certain facts are without dispute. The evidence shows that in late 1965 plaintiff entered into an oral agreement with Cecil R. Sullivan to install gas heating and electric cooling equipment in an apartment building Sullivan was constructing in Council Bluffs, Iowa. Ted Spangenberg, president and major shareholder of plaintiff corporation, has been in the business of installing such equipment for more than twenty years. Mr. Spangenberg testified that he had successfully completed other projects in the past for Sullivan and that they were close friends.

Work commenced in February 1966 at which time plaintiff began to rough-in the necessary piping and sheet metal. Sullivan paid plaintiff $9,125 on March 9, 1966 and $7,500 on June 10, 1966 for the preliminary work.

In April 1966 the question of installing a gas rather than an electrical air-conditioning system arose. The evidence clearly demonstrates that defendant, Peoples Natural Gas (hereinafter referred to as Peoples), actively sought to persuade Sullivan to substitute a gas airconditioner for the electrical system. It is also without dispute that plaintiff was fully aware of People's negotiations with Sullivan during this time. Also, even though plaintiff had completed substantial preliminary work, the cooling facility could be either gas or electric. Peoples' persuasions bore fruit and Sullivan signed and accepted a letter dated June 8, 1966 which is set forth here:

"Mr. Cecil R. Sullivan, 4930 So. Columbia, Tulsa, Oklahoma

"Dear Sir:

"We have had discussions with you concerning the apartment building at 38 Dillman Drive in Council Bluffs, Iowa which you are constructing and our interest in the installation of gas-fired facilities for heating and airconditioning in such apartment building.

"This letter will represent the present intention of Northern Natural Gas Company, operating as Peoples Natural Gas Division, subject to the conditions hereinafter specified, to assist you in the installation of gas-fired facilities for heating and air-conditioning at the aforesaid apartment building by the initial payment by Peoples of the cost of such facilities and installation, not to exceed $34,700.00. Further it is understood that you would repay such amount, plus interest, to Peoples in installments over five years following completion of the apartment building.

"It is specifically understood that the present intentions of the parties as hereinabove expressed are subject to Peoples examining and approving the engineering drawings and specifications for the building and the facilities for heating and air conditioning therein, and, further, are subject to the parties agreeing upon and executing appropriate forms of agreement embodying specific terms and provisions which are not expressed herein, such instruments to include promissory note, instruments securing repayment of amounts advanced as Peoples may deem necessary, and such other instruments as either party may deem necessary.

"If you agree that the terms of this letter accurately reflect our present intentions in these regards, would you please sign the original hereof in the space provided below and return to us, retaining the enclosed signed copy for your files.

"PEOPLES NATURAL GAS DIVISION "/s/ E. E. (Gene) Zimmerman "ACCEPTED /s/ Cecil R. Sullivan Cecil R. Sullivan"

On October 17, 1966 after the gas facilities had been installed and tested, Peoples and Sullivan then entered into formal agreements which further crystalized these parties' intents as found in the June 8 letter. At this time four instruments were executed by Peoples and Sullivan: an agreement, a promissory note, a security agreement and a gas sales contract.

The agreement (Defendant's Exhibit A) is of particular relevance and is in part as follows:

"AGREEMENT

"THIS AGREEMENT is made and entered into as of the 17th day of October, 1966, by and between CECIL R. SULLIVAN and BETTY SULLIVAN, husband and wife, of 4930 Columbia, Tulsa, Oklahoma, hereinafter called "Customer," and NORTHERN NATURAL GAS COMPANY, operating as PEOPLES NATURAL GAS DIVISION, with offices as 2223 Dodge Street, Omaha, Nebraska, hereinafter called "Company."

"WITNESSETH:

"WHEREAS, Customer and Company entered into a preliminary letter agreement on June 8, 1966, which agreement provided that Company intended to assist in the financing of certain gas-fired facilities to be installed by Customer in the Colonial Plaza Apartments at 38 Dillman Drive in Council Bluffs, Iowa, subject to certain conditions, including approval of equipment and installation by Company, execution of a formal contract and supporting instruments properly secured, providing for repayment of said financing with interest; and

"WHEREAS, said apartment building has been substantially completed with gas-fired heating and cooling equipment approved by Company as to type and installation and the parties wish to evidence the completion of their agreement by execution of the aforementioned instruments.

"NOW, THEREFORE, in consideration of the premises and the mutual convenants and undertakings of the parties as hereunder set forth, it is agreed as follows:

"1. Company shall issue its check in the amount of $28,517 to Customer upon receipt of the following items from Customer:

* * * * * *

d. Disclaimers of interest in said equipment (in form satisfactory to Company) from all persons, corporations, lending institutions, etc. having a present interest in the land or improvements comprising the said Colonial Plaza Apartments at 38 Dillman Drive, Council Bluffs, Iowa, together with a list naming all such persons, corporations and lending institutions, and an affidavit (in such form satisfactory to Company) stating that such list is complete.

* * * * * *

"NORTHERN NATURAL GAS COMPANY

Operating as Peoples Natural Gas Division

By /s/ ____________________________ Vice President and General Manager /s/ ______________________________ Cecil R. Sullivan /s/ ______________________________ Betty Sullivan"

Following the execution of this agreement, First Federal Savings and Loan Association of Council Bluffs, the primary lending institution as holder of Sullivan's $450,000 note and mortgage on the apartment house, refused to execute a disclaimer. This was an express requirement of the October 17 agreement and implicit in the June 8 letter. First Federal's refusal was based on the fact that at that time Sullivan was in financial difficulty.

On April 26, 1967 the District Court of Iowa, Pottawattamie County, entered a judgment and decree of foreclosure in favor of First Federal Savings and Loan against Cecil Sullivan, Peoples Natural Gas, Ted Spangenberg Company, Inc., et al. Subsequently both plaintiff and defendant herein obtained judgments against Sullivan which apparently remain unsatisfied.

Plaintiff now seeks to recover the amount still due for installation of the gas equipment from Peoples Natural Gas. The only issue in the lawsuit concerns the nature and extent of Peoples' agreement to finance the installation of gas equipment. Spangenberg maintains that Peoples promised to pay plaintiff without condition if the equipment was installed. Peoples contends that it agreed to finance the installation subject to certain conditions being met by the builder, Sullivan.

Plaintiff's first theory of recovery is based on its status as a third-party beneficiary to the agreement bement between Sullivan and Peoples. Both parties are in agreement that Iowa substantive law is the decisional law to be applied in this case. Under Iowa law, a third-party beneficiary may sue to enforce a binding contract provided he is either a donee or a creditor beneficiary. Olney v. Hutt, 251 Iowa 1379, 105 N.W.2d 515 (1960). Conversely, an incidental beneficiary, one not classified as either a donee or creditor beneficiary, has no right to a performance of the agreement. Johnson Farm Equipment v. Cook, 230 F.2d 119 (8th Cir. 1956). Plaintiff's contention that it is a creditor beneficiary to the agreement between Sullivan and Peoples is vigorously disputed by defendant.

Assuming, without deciding, that Spangenberg is a creditor beneficiary does not, in itself, dispose of the matter. It is also a generally recognized rule of law that in order for a third person to enforce a contract made for his benefit, the original agreement between the promisor and promisee must be a binding obligation. In other words, a third-party beneficiary's right to sue depends upon the liability of the promisor as established by the original agreement. See Olney v. Hutt, 251 Iowa 1379, 105 N.W.2d 515 (1960); Malanaphy v. Fuller & Johnson Mfg. Co., 125 Iowa 719, 101 N.W. 640 (1904); Coen & Conway v. Scott County Savings Bank, 205 Iowa 483, 218 N.W. 325 (1928); Iowa Home Mut. Cas. Co. v. Farmers Mut. Hail Ins. Co., 247 Iowa 183, 73 N.W.2d 22 (1955). These cases support ...