Opinion
No. 4-584 / 04-0105
Filed December 22, 2004
Appeal from the Iowa District Court for Polk County, Joel D. Novak, Judge.
Defendant company appeals the denial of its motion for judgment notwithstanding the verdict. AFFIRMED IN PART AND REVERSED IN PART.
Robert Fanter of Whitfield Eddy, P.L.C., Des Moines, for appellant.
Scott Long of Brown, Winnick, Graves, Gross, Baskerville Schoenebaum, P.L.C., Des Moines, and Thomas Shunk and John M. Heffernan of Baker Hostetler, Cleveland, Ohio, for appellee.
Heard by Sackett, C.J., and Vogel, Zimmer, and Hecht, JJ., and Nelson, S.J.
Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2003).
Frigidaire Company, now known as Electrolux Home Products, Inc. (Electrolux), appeals the jury verdict and the judgment entered thereon as well as the district court order denying Electrolux's motion for judgment notwithstanding the verdict. We affirm in part and reverse in part.
I. Background Proceedings and Facts:
Demco, Inc. (Demco) filed an action against Electrolux on March 15, 2002, which was tried to a jury. The jury returned a verdict finding Electrolux breached two separate contracts, and it awarded Demco $149,760 in damages for breach of each agreement. The two agreements at issue are both contracts in which Demco agreed to provide Electrolux with washing machine "counterweights," which are molded concrete pieces used for stability inside a washing machine. An early design of the washing machine used three separate counterweights, referred to as the "A," "B," and "C" parts. In 2001, the design was changed to consolidate these three parts into one larger part.
The jury also awarded nominal damages of $1,000 on Demco's breach of confidentiality claim. That amount is not at issue on appeal.
Three-Piece Agreement.
The first contract at issue is referred to as the "three piece agreement." Negotiations for this agreement began on June 22, 1999, when Electrolux contacted Demco by letter and expressed its willingness to commit to one year of production on the A and B counterweights "if pricing can be worked out." The following day, Demco responded with a price quote for the one year's production of the A and B counterweights. On June 28, 1999, Electrolux orally asked Demco for a price quote for the manufacture of A, B, and C parts. Demco provided a quote that same day indicating that both the price quote provided for manufacture of only the A and B parts as well as for the A, B, and C parts were "based upon a one year written commitment." Thus, it appears that at this time Demco had provided Electrolux with two offers, one for the manufacture of two parts, and one for the manufacture of three parts.
On July 21, 1999, Electrolux communicated to Demco by faxed letter that "Frigidaire will commit to one year's production of the A and B counterweights at the quoted prices. . . . We also understand that you are continuing to run the `C' weight and we would like you to continue to do so until Frigidaire has completedthe qualification of the dry cast `C' counterweight."
On July 22, 1999 Demco sent a letter stating it had received Electrolux's fax "confirming that Frigidaire will commit to one year's production of the A and B counterweights at the quoted prices." Demco then reiterated the prices listed on its offer to manufacture just the A and B parts. The next paragraph, however, added a new term to the agreement stating that "Demco proposes that the one year agreement begin on August 15, 1999 and be deemed automatically renewable for similar one-year periods after August 14, 2000, unless Frigidaire provides Demco with written notice of non-renewal at least ninety (90) days prior to the expiration of the term then in effect." (Emphasis added). This paragraph also states, "Unless instructed otherwise, we will consider your acceptance of deliveries on and after August 15, 1999, your acceptance of this agreement."
Production began, but shortly before the end of the first year, Electrolux decided to modify its washer design by consolidating its three counterweights into one. Electrolux gave notice of its decision to phase out the three-piece system in mid-July 2000 although production continued into December 2000. Nonetheless, because this notice was only given about one month prior to the end of the one-year buying period, Electrolux did not comply with the 90 day non-renewal notice period proposed in the July 22, 1999 letter. It is this failure that the jury considered a breach, resulting in $149,760 in damages.
One-Piece Agreement.
In 2000, when Electrolux revised its washer design to consolidate the A, B, and C counterweights into one large counterweight, it approached Demco about manufacturing this counterweight. Demco proposed an automated system for making the counterweights, which required a special shell to hold the concrete, special curing pallets for the counterweight, and a dedicated production line fabricated at Demco.
Thereafter, Demco and Electrolux entered into a written agreement covering five years production of the one-piece counterweight. In recognition of the fact Demco would have to build a completely new, automated fabrication line, the agreement imposed certain responsibilities on Electrolux including: (1) to provide all necessary single piece counterweight molds; (2) to actively participate in the design of the curing pallet; and (3) to supply such curing pallets as Demco required in the manufacture of the counterweights. In addition, the agreement contained the following provision providing a remedy if Electrolux failed to order sufficient quantities of counterweights:
The parties acknowledge that production by Seller of the counterweights under this agreement requires an investment by Seller in new equipment in the approximate amount of $350,000.00. In the event this agreement is terminated or abandoned by Electrolux prior to March 1, 2006, or if Electrolux discontinues use of Demco's counterweight prior to March 1, 2006, or if this agreement is terminated at the election of Seller after production and demand of the counterweight has decreased to an average of fewer than 800 units per day over a period of two consecutive months, Electrolux shall reimburse Seller in an amount equal to $5833.33 times the number of full months remaining after such termination date until March 1, 2006.Lawsuit.
On March 15, 2002, Demco filed an action against Electrolux alleging, among other things, breach of the one-piece and three-piece agreements. Following a trial on the matter, the jury awarded Demco $149,760 in damages for breach of the three-piece agreement. It also awarded $850,000 in damages for breach of the one-piece agreement, which consisted of $640,000 in lost profits and $210,000 representing Demco's investment in new equipment. Electrolux appeals the denial of its motion for judgment notwithstanding the verdict, assailing only the $149,760 award and the $640,000 lost profits award.
II. Scope and Standard of Review.
The district court denied Electrolux a judgment notwithstanding the verdict under Iowa Rule of Civil Procedure 1.1003( b). Our review is for errors at law. Iowa R. App. P. 6.4. A judgmentnotwithstanding the verdict must be based on the grounds stated in the motion for directed verdict and our review is limited to those grounds. Watson v. Lewis, 272 N.W.2d 459, 461 (Iowa 1978). We must apply the same standard as the district court by considering the evidence in the light most favorable to the party against whom the motion is directed and conduct our review in favor of upholding the jury verdict. Id. We then decide whether there was sufficient evidence to generate a jury question. Id. at 463. "Evidence is substantial when a reasonable mind would accept it as adequate to reach a conclusion." Johnson v. Dodgen, 451 N.W.2d 168, 171 (Iowa 1990).
III. Analysis.
Three-Piece Agreement.
In Count II of its complaint, Demco alleged Electrolux breached the agreement to purchase three-piece counterweights "after and including October 2000." On appeal, Electrolux contends generally that Demco presented no evidence from which a jury could determine Electrolux accepted Demco's "proposal" to modify the three-piece agreement so as to make it automatically renewable. Our task is to determine whether the July 22, 1999, letter was a modification of an agreement formed by the July 21, 1999, letter indicating Electrolux's acceptance of Demco's offer to manufacture the A and B parts for the quoted price, or whether it was merely a counteroffer. Moreover, we ask whether substantial evidence supports that Electrolux consented to the new terms of this offer or modification by accepting Demco's goods and/or by a statement of possible consent allegedly made by an Electrolux representative.
A binding contract requires mutual assent to the contractual terms manifested by an offer and acceptance. Kristerin Dev. Co. v. Granson, 394 N.W.2d 325, 331 (Iowa 1986). An offer is a "manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his or her assent to that bargain is invited and will conclude it." Heartland Express, Inc. v. Terry, 631 N.W.2d 260, 268 (Iowa 2001). In determining whether or not an offer is intended to invite acceptance, Iowa courts "look for terms with precise meaning that provide certainty of performance" if accepted. Id.
The parties agree that there was an agreement for the manufacture of the three-piece parts. However, they disagree as to what the terms of this agreement were. Electrolux argues that the agreement was for it to buy A and B parts from Demco for one year, as evidenced by the July 21, 1999, letter committing to the production of these parts for one year at the price quoted by Demco. Electrolux's position is that the July 22, 1999, letter confirmed there was an agreement for one year's worth of A and B parts, that Demco then proposed a modification of this agreement, but that Electrolux never accepted this modification. Finally, Electrolux alternatively argues that even if the terms of the modification (automatic renewal of the agreement unless ninety days' notice is provided) were accepted, Demco received the benefit of these terms as Electrolux did not stop purchasing A and B parts until December 2000, well after ninety days from the time it gave notice.
Demco argues there is substantial evidence demonstrating that Electrolux did not accept any of Demco's proposals until Electrolux agreed to the terms of the July 22, 1999, letter. With regard to the July 21, 1999, letter, which Electrolux argues evidences the formation of a contract, Demco argues that there was no "meeting of the minds" regarding the C counterweight piece so that this letter was not Electrolux's acceptance of Demco's offer to manufacture the A and B counterweights at the price quoted. Demco further argues that Electrolux accepted the terms of the July 22, 1999, letter (including the automatic renewal and notice provisions) by (1) accepting delivery of counterweights produced and supplied by Demco and (2) Electrolux's representative's later purported statement that "it looked like smooth sailing."
Demco concedes that there is a "debatable question" as to whether "mere acceptance and payment for goods" can constitute acceptance of all of the terms of a counter-offer, such as the automatic renewability term included in Demco's July, 29, 1999, letter. We agree that the mere acceptance of goods is not a valid acceptance of newly-proposed contract terms. See e.g. Iowa Code § 554.2207 (2001) (noting additional terms in an acceptance are to be construed merely as "proposals for addition to the contract"); PCS Nitrogen Fertilizer, L.P. v. The Christy Refractories, 225 F.3d 974, 979 (8th Cir. 2000) ("[M]ere acceptance of and payment for goods does not constitute acceptance of all the terms in the seller's counter-offer."); Ralph Shrader, Inc. v. Diamond Int'l Corp., 833 F.2d 1210, 1215 (6th Cir. 1987) (rejecting argument that buyer implicitly assented to counter-offer, given buyer's acceptance of and payment for goods). Therefore, as a matter of law, Electrolux's continuing acceptance of the parts could not act as an acceptance of Demco's "proposal" for automatic renewability.
We then proceed to Demco's other theory of how Electrolux bound itself to the automatic renewability provision, that is, the Electrolux representative's purported oral statement that "I checked around and I don't see any projected changes. Looks like smooth sailing." Iowa law requires that "to become contractually bound, either orally or by writing, the parties must manifest a mutual, unequivocal assent to the terms of the contract." McCarter v. Uban, 166 N.W.2d 910, 913 (Iowa 1969).
We conclude substantial evidence does not support a determination that this comment acted as an acceptance of the automatic renewability proposal. First, despite several attempts by Demco to get a written acceptance by Electrolux of the automatic renewal provision, it was never given such an acceptance. Moreover the comment noted above is only in the record in the form of hearsay — Demco President Richard Goodman testifying as to what Electrolux employee Bob Joslin allegedly told him. Finally, the comment is entirely ambiguous. Even Goodman testified that he interpreted Joslin's comment to mean that Electrolux would continue to accept the shipment of parts. This is not the type of evidence that a "reasonable mind would accept as adequate to reach a conclusion." Johnson, 451 N.W.2d at 171.
Absent an "unequivocal assent to the terms of the contract," see McCarter, 166 N.W.2d at 913, Demco's self-styled "proposal" for automatic renewability never became a term of the parties' contract. We therefore conclude the district court erred in refusing to grant Electrolux's judgment notwithstanding the verdict on this claim. We reverse the verdict in favor of Demco on the three-piece agreement claim.
One-Piece Agreement.
Electrolux concedes that a jury question was presented and the jury found it breached the one-piece agreement. Electrolux maintains, however, that the damages awarded did not "flow from the breach." Evidence of two types of damages was presented: loss of capital investment for improvements made to service the contract, and loss of future profits. Electrolux does not dispute the jury's award of $210,000 based on the liquidated damages clause for loss of capital investment. It does, however, dispute the district court's decision to allow the jury's award of $640,000 in lost profits.
When a contract has been breached, the non-breaching party is entitled to be placed in as good of a position as he or she would have been in had the contract been performed. Flom v. Stahly, 569 N.W.2d 135, 142 (Iowa 1997). This recovery is the injured party's "expectation interest." Magnusson Park Assoc. v. Pub. Entity Nat. Co.-Midwest, 560 N.W.2d 20, 27 (Iowa 1997). "Recovery based on expectation interest may include lost profit. . . ." Potter v. Oster, 426 N.W.2d 148, 150 (Iowa 1988). Lost profits are a permissible item of damages so long as the profits are not based on conjecture and speculation. Yost v. City of Council Bluffs, 471 N.W.2d 836, 840 (Iowa 1991). However, the non-breaching party's recovery "is limited to the loss he actually suffered by reason of the breach. . . ." Midland Mut. Life Ins. Co. v. Mercy Clinics, Inc., 579 N.W.2d 823, 831 (Iowa 1998). Moreover, in reviewing the jury's award of damages, the main consideration for the court is to determine whether substantial evidence supports the damage award the jury made. Id.
We conclude the district court properly refused to grant Electrolux's motion for judgment notwithstanding the verdict on the issue of damages due to breach of the one-piece agreement. We further conclude the jury's award of lost profits was proper. Demco presented the testimony of economist Dr. Wayne Newkirk, who testified as to the expected profits that Demco would have realized under the one-piece agreement, had Electrolux not materially breached that agreement. Based on an assumption of the production of 1700 units per day, he estimated that Demco would have suffered lost profits damages of $1,434,867 over the five-year term of the agreement. Newkirk arrived at this figure after accounting for material cost increases, projected price increases, and anticipated production rates. Thus, the expert testimony provides substantial evidence supporting this award. Furthermore, these anticipated profits were clearly in the contemplation of the defaulting party, Electrolux, at the time the contract was made. See Employee Benefits Plus v. Des Moines Gen. Hosp., 535 N.W.2d 149, 156 (Iowa Ct.App. 1995). Thus, they were recoverable upon Electrolux's admitted breach.
We further reject Electrolux's contention Demco's recovery for lost profits should not be extended for the full five-year term of the contract, but rather should be limited to the one-year of the term that had elapsed. In Unique Sys., Inc. v. Zotos Int'l, Inc., 622 F.2d 373, 379 (8th Cir. 1980), the court allowed the non-breaching party to recover lost profits covering the full two-year term of the contract in question. Also, in Groendyke Transp., Inc. v. Merchant, 380 P.2d 682, 686 (Okla. 1963), the court affirmed an award of lost profits based on the breach of a five-year contract. It determined the appropriate measure of recovery to be the amount of profits made in the one year the contract was carried out, multiplied by the four years remaining under the contract. Merchant, 380 P.2d at 686.
We note the jury's award of $640,000, therefore, only compensated Demco for roughly forty percent of the damages estimated by the expert.
Finally, it is irrelevant that Electrolux claims to have been willing to begin ordering the counterweights in March of 2002. On appeal, Electrolux concedes a jury question was presented on the question of whether the "delay [in its performance] was material" and that the delay justified Demco's decision to terminate their relationship. When a breach is "material" or "substantial," the non-breaching party may abandon and sue on the breach. See 17B C.J.S. Contracts § 541 (1999) ("To justify a party in abandoning, or failing to perform, a contract, the failure of performance on the part of the other party must go to the substance of the contract, or be material."). Thus, Demco permissibly abandoned the contract and refused Electrolux's late-coming offer to complete it. It further sought, and permissibly recovered, its anticipated lost profits under the contract stemming from the breach. Substantial evidence supports the award.
Accordingly, we affirm the jury's damages award under the one-piece agreement, and reverse the award under the three piece agreement.
AFFIRMED IN PART, REVERSED IN PART.
All judges concur, except Hecht, J., who concurs in part and dissents in part.
I concur with the majority's conclusion that the portion of the judgment arising from the one-piece contract must be affirmed. I respectfully dissent, however, to the extent that the majority opinion reverses the district court's ruling. As aptly pointed out by the majority, our review of the district court's denial of the motion for judgment notwithstanding the verdict is for errors at law. Under this standard, reversal of the district court's ruling should be ordered only if a reasonable jury could not have found that the acceptance of goods by Electrolux after July 22, 1999, and a statement made to DEMCO's president by Bob Joslin, a buyer for Electrolux, constituted acceptance of the renewal provision communicated by DEMCO to Electrolux on July 22, 1999.
While there may be legitimate disagreement over whether acceptance of goods alone may constitute evidence that the buyer has assented to each of the seller's terms, I find that when placed in context and viewed in the light most favorable to DEMCO, the statement made by Mr. Joslin is sufficient alone to preclude judgment notwithstanding the verdict.
The case relied on by the majority for the proposition that receipt of goods does not alone constitute acceptance of the buyer to the seller's contract terms is PCS Nitrogen Fertilizer, L.P. v. The Christy Refractories, 225 F.3d 974, 979 (8th Cir. 2000). In that case, however, there is no indication that the terms of the seller's counter-offer included an explicit clause making the buyer's receipt of goods the equivalent of an explicit acceptance of the seller's version of the contract. Because Demco's letter of July 22, 1999 expressly informed Electrolux "[u]nless otherwise instructed, we will consider your acceptance of the deliveries on and after August 15, 1999, your acceptance of this agreement," and Electrolux was clearly aware of the proposal, I believe a reasonable juror could find reasonable DEMCO's reliance on Electrolux's acceptance of the renewal provision when Electrolux failed to object. But because I find, when viewed in the light most favorable to DEMCO, the telephone conversation between Bob Joslin, Electrolux's buyer, and Richard Goodman, DEMCO's president, approximately two weeks after the July 22 letter, alone constitutes sufficient evidence upon which a reasonable jury could find Electrolux accepted the renewal term proposed by DEMCO, I need not address the receipt of the goods further.
DEMCO had repeatedly requested written confirmation of Electrolux's acceptance of the July 22 proposal. When viewed in the light most favorable to DEMCO, this evidence could support a jury finding that Electrolux was expressly aware of both DEMCO's renewal provision and the importance that Demco attached to it. In my view, a reasonable jury could easily find that Mr. Joslin's statement ("Looks like smooth sailing") as acceptance of DEMCO's proposed renewal term. The majority opinion discounts Joslin's statement as hearsay. I would instead characterize it as an admission by Electrolux. See Iowa R. Evid. 5.801( d)(2)(C),(D). Moreover, although I do not dispute that Mr. Joslin's statement might reasonably be viewed as ambiguous, I believe when viewed in the light most favorable to DEMCO and placed in context with the July 22 letter and subsequent communications between DEMCO and Electrolux prior to Mr. Joslin's statement, the ambiguity does not require judgment in favor of Electrolux as a matter of law.
As indicated by the majority, DEMCO representatives had repeatedly petitioned Electrolux to expressly assent to the renewal clause in writing, but those efforts were unavailing. In my view, this supports a finding that Electrolux was expressly aware of the term. As a contract for the sale of goods between merchants, Article 2 of the UCC has application. See Iowa Code § 554.2102 (2003). I note that while neither party addresses the UCC below, or on appeal, the circumstances surrounding the July 22 letter may well fit within the rubric of an acceptance with additional terms of Electrolux's offer by DEMCO. See id. § 554.2207. If DEMCO's acceptance were found to contain additional as opposed to different terms, "[b]etween merchants such terms become part of the contract unless (b) they materially alter [the contract]." The question of whether an additional term materially alters the contract is dependent upon whether the term would "result in surprise or hardship if incorporated without express awareness by the other party." See U.C.C § 2-207 cmt. 4 (1977). Williston notes that § 2-207 comment 4 requires only "express awareness, suggesting that if the materially altering provision is called to the attention of the offeror, he can protect himself from unfair surprise or hardship by objecting to it, and the failure to do so may amount to an assent to the otherwise materially varying term." 2 Samuel Williston Richard A. Lord, A Treatise on the Law of Contracts, § 6:22, at 202-03 (4th ed. 2004); see also Twin Disc, Inc. v. Big Bud Tractor, 772 F.2d 1329 (7th Cir. 1985) (holding that because the offeror had express awareness of the materially altering term and failed to object to its inclusion in the contract, the offeror implicitly assented to the term.) The fact that some courts would hold that an offeror's failure to object to even a materially altering additional term of which he is expressly aware is alone sufficient for the inclusion of that term in the contract, lends credence to my view that where the offeror is expressly aware of and makes statements that would lead a reasonable offeree to believe the offeree's additional terms were explicitly accepted, the offeror should be held to those terms.
Furthermore, although acceptance of goods by Electrolux after July 22, 1999 might not, standing alone, constitute that company's acceptance of DEMCO's proposed renewal term, I believe such conduct is nonetheless appropriately considered part of the context in which the parties operated. I believe the jury could consider the fact that Electrolux continued to accept goods under the contract for over three months after the first year of the contract as part of the context in which Mr. Joslin's statement is interpreted by the fact-finder.
A reasonable jury could find that Electrolux explicitly accepted the renewal provision, and this should, in my view, end the inquiry under our standardof review.