Court of Appeals Says that Written Modification of Oral Agreement Not Effective

October 17, 2015
Kristine A. Tidgren

The plaintiff was a trucker who entered into an oral agreement in 2001 with a milk cooperative. The trucker agreed to pick up milk from dairy farms and deliver it to the cooperative’s plant. Under the oral agreement, the cooperative was to pay the trucker a certain amount per gallon of milk delivered, plus $100 for each delivery trip. On July 31, 2013, the cooperative informed the trucker, in writing, that it was reducing the trip charge by $25 per month beginning in September, fully eliminating the trip charge by December of 2013. The trucker continued to deliver the milk, as always, continuing to bill the cooperative $100 per trip. The cooperative paid the trucker in accordance with its July 31, 2013, letter. This dispute continued until November 12, 2014, when the cooperative formally terminated the relationship effective December 2, 2014. One month later, the trucker filed a petition seeking the sums allegedly due under the original oral agreement. The district court granted summary judgment for the cooperative.

On appeal, the Iowa Court of Appeals reversed and remanded the case for further proceedings. Although the parties agreed that either party could terminate the original contract after providing reasonable notice, the difference in opinion turned on whether the cooperative had terminated the contract or unilaterally attempted to revise it. The district court and cooperative believed that the July 31, 2013, letter was a cancellation of the old agreement, with a proposal for a new contract beginning in September. The trucker argued that the July 31 letter was an unsuccessful unilateral attempt by the cooperative to modify the contract without consideration.

The Iowa Court of Appeals sided with the trucker, finding that it was not until the December 2014 letter that the cooperative actually terminated the contract. The court also distinguished the agreement between the trucker and the cooperative from an at-will employment agreement. The agreement at issue in this case, the court found, was an independent subcontractor agreement, not an employment contract. As such, it was a bilateral contract subject only to modification by agreement.  The court stated that assent to a modification could be implied from the acts of the other party but whether such a contract has been modified is a question of fact, not generally amendable to determination on a motion for summary judgment. The court stated, “Although the facts are primarily undisputed, those facts do not support [the trucker’s] acceptance of [the cooperative’s] proposed modification as the only, or probable, conclusion that can be drawn from those facts.”

This is an interesting set of facts with an interesting outcome. In light of this case, parties wishing to change the terms of an at-will oral agreement should be careful to “terminate” the old agreement, with reasonable notice, and then propose a new agreement.

We will watch for further developments..

Johnson v. Associated Milk Producers, Inc., No. 15-0105 (Iowa Ct. App. Oct. 14, 2015)

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