Two Iowa Breach of Contract Cases, Two Judgments for Plaintiffs
The Iowa Court of Appeals recently decided two breach of contract cases, each of which provides a useful review of key provisions of Iowa contract law.
Bruening Rock Products v. Hawkeye International Trucks
In Bruening Rock Products, Inc. v. Hawkeye International Trucks, No. 14-1215 (July 22, 2015), the plaintiff sought breach of contract damages from a truck company. The claim was simple. The plaintiff, which was a rock quarry operator, ordered four trucks from the defendant. The plaintiff required that the trucks have a gross vehicle weight rating of 74,000 pounds. This meant that each truck would have the capacity to haul 74,000 pounds, including the weight of the truck. The plaintiff needed the trucks to haul rock from its underground mines.
At trial, the plaintiff testified that the trucks had failed to perform at this level. The wheel rims had cracked and the rims malfunctioned. The jury found that the defendant had breached its contract with the plaintiff and issued a verdict in the plaintiff’s favor in the amount of $1,167,904.85.
The trial court, however, granted the defendant’s motion for a directed verdict, finding that the plaintiff had failed to generate substantial evidence of a breach of a written contract term by the defendant. The plaintiff’s actual claim, the trial court found, may have been one for breach of implied warranty. The trial court stated, however, that the statute of limitations would have already run on that claim.
Court of Appeals Decision
The Court of Appeals reversed, finding that substantial evidence supported the jury’s finding that the defendant had expressly promised performance and then failed to deliver on that promise. This, the court found, was the requirement for a breach of contract claim. The trial court had instructed the jury that it would have to find proof of the following elements to find a breach of contract:
- The existence of a contract.
- The terms of the contract, including a term that the defendant would provide trucks with a gross vehicle weight rating of 74,000 pounds.
- The plaintiff had done what the contract requires.
- The defendant had breached the contract by failing to provide trucks which met the terms of the contract.
- The amount of any damage the defendant had caused.
The Court of Appeals—agreeing that these were the correct elements to prove breach of contract—ruled that the record contained substantial evidence to support them. The court detailed the contract formation process: The plaintiff negotiated with the defendant to design and manufacture four trucks capable of hauling approximately 25 tons of rock from the underground mines. Following initial discussions, the defendant presented a proposal listing the trucks’ specifications. The plaintiff accepted the proposal and the trucks were manufactured by a third party. The proposal clearly stated that the trucks would have a gross vehicle weight rating of 74,000 pounds. Substantial evidence supported a jury finding that this requirement was not a mere boiler-plate rating, but a specific, negotiated term affecting the performance of the vehicle. Substantial evidence existed to support the jury’s verdict as a whole. The court remanded the case for a reinstatement of the verdict.
The court pointed out in a footnote that the defendant had not specifically pleaded its defense that this was really a claim of implied warranty barred by the five-year statute of limitations. The court noted that such a pleading requirement is “civil procedure 101” and that without such a pleading, the court could not entertain the question.
Nonetheless, the result appears correct based upon the facts provided in the opinion. The defendant’s written proposal, which was accepted by the plaintiff, contained the material term alleged to have been breached. The jury found that such a breach did occur. “Contracts 101” would thus suggest that the plaintiff properly prevailed.
Jerry’s Hardware, L.L.C. v. Hillcrest Partners
In Jerry’s Hardware, L.L.C. v. Hillcrest Partners, No. 14-1625, 2015 Iowa App. LEXIS 654 (July 22, 2015), the Court of Appeals affirmed a trial court’s finding of a breach of contract in a case involving a commercial lease. This case, a bit less straightforward than Bruening Rock, highlights the importance of carefully drafted contractual terms.
In Jerry’s Hardware, the plaintiff and defendant entered into a lease agreement where the plaintiff agreed to lease a commercial space that the defendant was planning to build. The defendant agreed to build the space to accommodate the plaintiff’s specific needs. Before the construction began, the plaintiff informed the defendant that he was purchasing fixtures, equipment, and inventory for the store at a cost of $100,000.
The defendant never constructed the building because it was unable to acquire financing. The plaintiff’s attorney sent two letters to the defendant requesting an explanation for the delay and stating that he was not interested in terminating the lease. The second letter itemized the losses the plaintiff had incurred due to the defendant’s failure to perform. The defendant did not answer either letter and did not seek to terminate the agreement.
To mitigate his losses, the plaintiff eventually leased another location for his business. The new location was less visible and required numerous upgrades to meet the plaintiff’s requirements. Some of the signage and inventory the plaintiff purchased in 2010 was obsolete by the time the store opened in 2012. In 2013, the plaintiff filed a breach of contract action against the defendant. After a bench trial, the trial court found that the defendant had breached its lease agreement and awarded the plaintiff $100,444.77 in damages as compensation for unexpected storage costs, costs of retrofitting the electrical system in the new location, the cost of a new paint system, and the cost of other new equipment.
The defendant appealed, alleging primarily that the lease agreement was unenforceable because certain conditions precedent were not met. The defendant also argued that the damages awarded were not caused by the alleged breach.
Court of Appeals Decision
The Court of Appeals affirmed the trial court’s judgment. The defendant had specifically argued that the lease was unenforceable because the defendant was unable to obtain financing, which was a listed “condition precedent” in the lease. The court ruled that nonfulfillment of the condition precedent did not render the lease unenforceable. Rather, the court found that under other terms of the lease, nonfulfillment of the “conditions precedent” merely granted the defendant the right to terminate the lease by providing written notice to the plaintiff. Because the defendant did not exercise this option to terminate, the lease remained in effect, and the defendant was liable for any resulting damages.
Finally, the court ruled that there was substantial evidence in the record to support the district court’s findings that the damages were caused by the defendant’s breach and were foreseeable based upon the defendant’s knowledge of the plaintiff’s circumstances. The court did reject the plaintiff’s request in a cross-appeal for more damages. The defendant was not liable for damage that occurred to the plaintiff’s property while it was in storage because it was incumbent upon the plaintiff to store the goods in a facility in which such damage would not have occurred.
This case is interesting because the court found that the “conditions precedent” listed in the contract were not “conditions precedent” at all. A true condition precedent would have to be fulfilled in order for the lease to become effective. In this case, however, the court found that additional language in this lease made the so-called “conditions precedent” permissive rather than required. After listing the items labeled “conditions precedent,” the lease stated, “If any of the conditions are not satisfied or waived on or before the dates set forth above, this Lease may be terminated by such party upon written notice to the other.” This language, the court found, transformed the character of the conditions and rendered the title “conditions precedent” a “misuse” of the term. It seems equally plausible that the use of contradicting terms could have rendered this lease ambiguous, requiring the court to look to the intent of the parties.
It will be interesting to see if the Supreme Court will review this case, which provides yet another example of the value of careful drafting.
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