Opinion
No. 6-093 / 05-1109
Filed March 29, 2006
Appeal from the Iowa District Court for Linn County, Thomas L. Koehler, Judge.
Plaintiff appeals the district court's grant of a directed verdict to defendants on his claims arising from an employment contract. REVERSED AND REMANDED.
Kevin P. Shea of Nazette, Marner, Wendt, Knoll Usher, L.L.P., for appellant.
Robert F. Wilson, Cedar Rapids, for appellees.
Considered by Vogel, P.J., and Mahan, J., and Beeghly, S.J.
Senior Judge assigned by order pursuant to Iowa Code section 602.9206 (2005).
I. Background Facts Proceedings
Gazelle Village, Inc. is an internet service provider operated by Johnny Brown. In June 2003, Gazelle Village entered into an agreement with the National Baptist Convention, U.S.A., to provide internet services for about 8,000 churches. In anticipation of a large increase in its workload, Gazelle Village entered into a written employment contract with Ken Terukina, effective September 1, 2003. The employment contract provided Terukina would be paid $2,125 on the first and the sixteenth of each month. Terukina had a background in customer service call centers.
Brown testified his children were actually the majority shareholders of the company, and he managed their shares.
The parties referred to the National Baptist Convention as NBC U.S.A.
The agreement between Gazelle Village and the National Baptist Convention never came to fruition, and Gazelle Village did not receive the revenue it expected. In late January 2004, Brown explained to Terukina that the company did not have sufficient funds to pay his wages. Terukina asked if he was discharged. Brown responded that he was not, and in the future the company would "make it right" by paying him more than what was due. Terukina continued to work without pay until April 15, 2004, when he left his employment with Gazelle Village.
In June 2004, Terukina filed an action claiming Gazelle Village and Brown had breached the written employment contract by failing to pay him the wages that were due under the contract. Gazelle Village argued that the parties had orally modified the employment contract so that Terukina had agreed to work without pay until the company received its expected revenue from the National Baptist Convention. Terukina disputed that there had been an oral agreement modifying his written employment contract.
During the trial the parties stated that Gazelle Village had not yet been paid the revenue it expected, and it was involved in a federal lawsuit with the National Baptist Convention on this issue.
After plaintiff rested, the district court granted defendants' motion for a directed verdict. The court found Terukina had agreed he would not be paid until Gazelle Village received revenue from the National Baptist Convention. Terukina appeals.
II. Standard of Review
During a bench trial, a motion for a directed verdict should actually be designated as a motion to dismiss. Iowa Coal Min. Co., Inc. v. Monroe County, 555 N.W.2d 418, 438 (Iowa 1996). However, a motion to dismiss during trial is the equivalent to a motion for a directed verdict. Id. We review a district court's ruling on a motion for directed verdict for the correction of errors of law. Summy v. City of Des Moines, 708 N.W.2d 333, 343 (Iowa 2006).
A directed verdict should be granted only if there is not substantial evidence to support the elements of a party's claim. Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 472 (Iowa 2005). In determining whether there is substantial evidence, the court must view the evidence in the light most favorable to the non-moving party. Id. at 473. If reasonable minds could differ on an issue of fact, a directed verdict on the issue is not appropriate. Harriott v. Tronvold, 671 N.W.2d 417, 418 (Iowa 2003).
III. Merits
Terukina contends the district court improperly granted a directed verdict for defendants. He asserts the defendants failed to show, as a matter of law, that the written employment contract had been modified by an oral agreement. The issue of whether a contract has been modified by the parties is a question of fact. Mosebach v. Blythe, 282 N.W.2d 755, 760 (Iowa Ct.App. 1979).
A written contract can be modified by a subsequent oral agreement. Smidt v. Porter, 695 N.W.2d 9, 21 (Iowa 2005); Whalen v. Connelly, 545 N.W.2d 284, 291 (Iowa 1996). A modification occurs when the contracting parties agree to incur different duties and obligations from those in the original contract. Quigley v. Wilson, 474 N.W.2d 277, 280 (Iowa Ct.App. 1991). Generally, new consideration is needed to support the new agreement. Recker v. Gustafson, 279 N.W.2d 744, 759 (Iowa 1979).
During the trial, Terukina testified he had not entered into an oral agreement to forego being paid. He testified Brown told him there was not enough money in the company to meet payroll, but Brown stated in the future the company would "make it right" and pay him more than what was due. Terukina testified that he asked every time a payroll was due whether he would get paid. He was questioned:
Q. Were you given any indication of when payroll would be forthcoming? A. As soon as the NBC U.S.A. contract would be signed.
On cross-examination, Terukina was asked:
Q. But you worked under the terms that you were not to get paid if there was no money? A. No. I worked under the terms with the expectation that each pay period I would continue to ask, "Do we have funds?" "Do we get paid?" And the response was no —
At this point the district court questioned Terukina as follows:
THE COURT: I want to make sure that I understand this. Mr. Terukina, you had an oral agreement with Mr. Brown whereby he said he would, quote, make it right, unquote, and you had an understanding that you would be paid, quote, when funding comes from NBC U.S.A.A. Uh-huh.
THE COURT: My question is, when, if ever, did the funding ever come from NBC U.S.A.? A. I was told — it never came while I was there.
THE COURT: So as we sit here today, if the oral agreement was that you were to be paid when the funding comes from NBC U.S.A and it hasn't come to this date, why are we here? That's my question to you. A. I'm seeking to get paid for my services.
On re-direct, Terukina testified further:
Q. — was your payroll specifically tied to the NBC contract? A. No.
Q. You never had any oral agreement that your unpaid payroll would come specifically from NBC — A. Not specifically from NBC, no. The statement was more as soon as we have funding available, we'll make it right, and I'll even pay you more than what's due.
. . .
Q. Okay. But there was never any specific discussions or specific agreements that the only way you could get your money is if NBC paid. A. No.
Terukina called Brown as a witness. Brown testified that Gazelle Village was attempting to find other sources of revenue once it realized the National Baptist Convention agreement was falling through. He also admitted that Terukina asked him at least twice if he was going to get paid. After plaintiff rested, defendants sought a directed verdict. The district court granted the motion for a directed verdict.
In the present case, the defendants claimed there was an oral modification of the parties' written employment contract. They had the burden to prove this issue by a preponderance of the evidence. Iowa R. App. P. 6.14(6)( e) ("Ordinarily the burden of proof on an issue is upon the party who would suffer loss if the issue were not established."), ( f) ("In civil cases the burden of proof is measured by the test of preponderance of the evidence."). In order to grant a directed verdict to defendants, the district court would need to find defendants had established the oral modification of the contract as a matter of law. See Summy, 708 N.W.2d at 343.
On considering the evidence as a whole, we find there was a question of fact as to whether the parties had orally modified the written employment contract. See Mosebach, 282 N.W.2d at 760 ("Whether a contract has been modified by the parties is a question of fact."). We examine the evidence in a light most favorable to Terukina. See Bellville, 702 N.W.2d at 473. Terukina presented substantial evidence through his testimony that he had not agreed to wait to be paid until Gazelle Village received funding from the National Baptist Convention.
The district court's grant of a directed verdict was based on its questioning of Terukina. After this testimony, however, Terukina denied he was only to get paid once the National Baptist Convention paid Gazelle Village. We determine reasonable minds could differ on the issue of whether an oral modification of the contract had been established. Defendants failed to establish, as a matter of law, the oral modification of the parties' written contract. We conclude that a directed verdict was improperly granted in this case. We reverse the directed verdict for defendants and remand for adjudication of the case on the merits.