World Wide Lease, Inc. v. Woodworth

• Decision Date: 26 September 1986
• Docket Number: No. 14722,14722
• Citation: 728 P.2d 769,111 Idaho 880
• Parties: WORLD WIDE LEASE, INC., a Washington corporation, Plaintiff-Counter-Defendant- Appellant, v. Brent WOODWORTH, Ralph Woodworth and Ina Woodworth, husband and wife, Defendants-Counter-Claimants-Cross Claimants-Respondents.
• Court: Idaho Court of Appeals

Page 769

728 P.2d 769

111 Idaho 880

WORLD WIDE LEASE, INC., a Washington corporation, Plaintiff-Counter-Defendant- Appellant, v. Brent WOODWORTH, Ralph Woodworth and Ina Woodworth, husband and wife, Defendants-Counter-Claimants-Cross Claimants-Respondents.

No. 14722.

Court of Appeals of Idaho.

Sept. 26, 1986.

Rehearing Denied Nov. 19, 1986.

Petition for Review Denied Feb. 25, 1987.

[111 Idaho 882] John C. Hohnhorst of Hepworth, Nungester & Felton, Twin Falls, for plaintiff-counter-defendant-appellant.

W. Marcus W. Nye of Racine, Olson, Nye & Cooper, Pocatello, for defendants-counter-claimants-cross claimants-respondents.

ON PETITION FOR REHEARING

This opinion supersedes our opinion issued February 28, 1986, which is hereby withdrawn.

SWANSTROM, Judge.

World Wide Lease, Inc., a Washington corporation engaged in the business of leasing commercial equipment, appeals from a judgment entered upon a directed verdict in favor of Brent Woodworth and his parents, Ralph and Ina Woodworth. World Wide brought suit against the Woodworths and their co-defendant, Kechter Brothers, a now defunct Idaho corporation, for breach of a lease and of a subsequent compromise agreement. Following a jury trial, the district court allowed the Woodworths to amend their pleadings to allege, as an affirmative defense, failure of consideration in the lease. The court then granted the Woodworths a directed verdict based on that defense.

World Wide makes four contentions on appeal: (1) The district court abused its discretion and committed legal error when it permitted the Woodworths to amend their pleadings to allege failure of consideration as an affirmative defense. (2) The court erred in granting the Woodworths' motion for a directed verdict based upon an alleged failure of consideration. (3) The court erred in admitting certain testimony concerning an issue of agency. (4) The court erred in failing to grant World Wide's motions for directed verdict and for judgment notwithstanding the verdict (n.o.v.). We reverse the court's directed verdict based upon failure of consideration, but affirm the denial of World Wide's motions for directed verdict and judgment n.o.v. Our disposition of the case does not require us to address the amendment of the pleadings. We also need not address the evidentiary question involving agency because we must remand for a new trial.

In early 1977, Brent Woodworth undertook a project to reclaim arid land on his farm near Rockland, Idaho. He contacted Kechter Brothers to purchase irrigation equipment, but when financing proved to be a problem Woodworth was directed to Brent Van Elfin, a lease broker. After several negotiations, Van Elfin arranged a deal acceptable to all parties: World Wide Lease would purchase the irrigation equipment from Kechter Brothers for $134,109.60 and then would lease the equipment to Woodworth. Woodworth would make semi-annual lease payments of $13,165.41 for ten years. Brent Woodworth's parents, Ralph and Ina Woodworth, would sign as guarantors of the lease.

Prior to the negotiations, Woodworth had begun drilling wells, expecting to discover an adequate supply of water for the proposed irrigation system. At the time the lease documents were signed by Woodworth on April 15, 1977, he had yet to find a sufficient supply of water. Woodworth instructed Van Elfin to hold the executed "Equipment Acceptance Notice" and Woodworth's $13,165.41 initial payment until Woodworth notified Van Elfin that sufficient water had been discovered. In an effort to meet the lease's payment schedule, Woodworth entered into a collateral agreement with Kechter Brothers on June 21, 1977, wherein Kechter Brothers agreed to pay Woodworth's lease payments until sufficient water was found. This agreement is set forth below. ¹ Upon entering into the collateral agreement, Woodworth instructed Van Elfin to forward the remaining documents to World Wide. World Wide then accepted the lease on June 24, 1977, and purchased the irrigation equipment from Kechter Brothers.

Unfortunately, Woodworth's wells never produced enough water. Pursuant to its agreement with Woodworth, Kechter Brothers paid Woodworth's semi-annual lease payments to World Wide for the first two years of the lease; however, several of the payments were quite late. When the third payment due in June 1978 was not timely made, World Wide's attorney notified Woodworth of the delinquency and demanded immediate payment. Woodworth replied that Kechter Brothers was responsible for the payment and forwarded a copy of the 1977 agreement that Woodworth and Kechter Brothers had executed. Although late, Kechter Brothers did pay the third and fourth installments. When the fifth installment due June 25, 1979, was late, Woodworth again referred the lease company to Kechter Brothers for payment. After discussions with Woodworth and Kechter Brothers, World Wide directed its attorney to draft a "compromise agreement" to resolve the situation. Kechter Brothers agreed to repossess the equipment from Woodworth and to repurchase the equipment from World Wide for $134,000. Upon Kechter Brothers' full performance, Woodworth would be relieved from the lease. All the parties signed the agreement, including Ralph and Ina Woodworth. Kechter Brothers was to make six monthly interest payments and then one payment of $134,000 in February 1980 to World Wide. The compromise also contained a provision that in the event Kechter Brothers defaulted, World Wide and Woodworth would be returned to their respective positions as if the compromise "had not been entered into." ² Kechter Brothers took the equipment off Woodworth's property and sold most of it to other individuals. Kechter Brothers paid the first five interest installments but did not pay World Wide the last interest installment nor the $134,000.

World Wide sued the Woodworths for breach of the lease and sought authorization to foreclose on real property which secured the lease. World Wide also sued Kechter Brothers for breach of the compromise agreement. The Woodworths answered, raising certain defenses to the enforceability of the lease. They also cross-claimed against Kechter Brothers for indemnification and contribution. During trial, the district court granted summary judgment to World Wide against Kechter Brothers on the issue of liability under the compromise agreement and granted summary judgment to the Woodworths against Kechter Brothers for indemnification. After the parties rested, the court permitted the Woodworths to amend their answer to include the defenses of (1) failure of a condition precedent that there be an adequate water supply and (2) failure of consideration. The Woodworths then moved for a directed verdict against World Wide's claim on the original lease on the grounds that there had been a failure of consideration. World Wide countered and requested a directed verdict holding the Woodworths liable to the company under the lease. The court granted the Woodworths' motion and dismissed World Wide's complaint against them. ³ The district court granted directed verdicts to the Woodworths on their cross-claim against Kechter Brothers and to World Wide on its suit against Kechter Brothers.

The court granted the Woodworths a directed verdict against World Wide on the narrow issue that there was a subsequent failure of consideration. The court reasoned that once Kechter Brothers took back World Wide's equipment and sold it, World Wide could not perform its side of the lease with the Woodworths, and thus the Woodworths were no longer obligated to perform their part of the lease. World Wide appealed. Kechter Brothers did not appeal from the judgment of the district court.

I

World Wide has first asserted that the district court abused its discretion and committed legal error by allowing the Woodworths, at the last minute, to amend their answer so as to plead the affirmative defense of failure of consideration in order to conform the pleadings to the proof. I.R.C.P. 15(b). World Wide also asserts that the court erred in granting the Woodworth's motion for a directed verdict based upon that defense. Because we believe this second issue is dispositive we need not decide nor discuss the alleged procedural error.

The standard which a district court should follow in deciding a motion for a directed verdict is well settled. "A directed verdict should only be granted when the evidence is so clear and undisputed that all reasonable minds must reach the same conclusion." Thomas Helicopters, Inc. v. San Tan Ranches, 102 Idaho 567, 569, 633 P.2d 1145, 1147 (1981) (quoting Shields & Co. v. Green, 100 Idaho 879, 882, 606 P.2d 983, 986 (1980)). A directed verdict should not be granted against substantial evidence--that is, "evidence ... of sufficient quantity and probative value that reasonable minds could have concluded that a verdict in favor of the non-moving party was proper." Elce v. State, 110 Idaho 361, 363, 716 P.2d 505, 507 (1986). However, where the parties argue the application of law to uncontroverted facts, the question should be determined as a matter of law. See Clearwater Construction & Engineering, Inc. v. Wickes Forest Industries, A Division of The Wickes Corp., 108 Idaho 132, 697 P.2d 1146 (1985). Here, the pertinent facts are undisputed. Therefore, we must determine whether these facts disclose that there was a failure of consideration as a matter of law.

The term "failure of consideration" includes instances where a proper contract was entered into when the agreement was made, but because of supervening events, the promised performance fails, rendering the contract unenforceable. General Insurance Co. of America v. Carnicero Dynasty Corp., 545 P.2d 502 (Utah 1976); Taliaferro v. Davis, 216 Cal.App.2d 398, 31 Cal.Rptr. 164 (1963); 1 S. WILLISTON, WILLISTON ON CONTRACTS § 119A (W. Jaeger, 3d ed. 1957); 17 C.J.S. Contracts § 129 (1963). Failure of consideration generally refers to failure of...