TRI-COUNTY GRAIN CORPORATION, Plaintiff-Appellant/Cross-Appellee, vs. AMOS ZIMMERMAN d/b/a CANTRIL FEED & GRAIN, Defendant-Appellee/Cross-Appellant.
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IN THE COURT OF APPEALS OF IOWA
No. 9-390 / 08-1639
Filed July 2, 2009
TRI-COUNTY GRAIN CORPORATION,
Plaintiff-Appellant/Cross-Appellee,
vs.
AMOS ZIMMERMAN d/b/a CANTRIL
FEED & GRAIN,
Defendant-Appellee/Cross-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Wapello County, Joel D. Yates,
Judge.
Plaintiff appeals valuation date utilized to calculate grain-shortage
damages and defendant cross-appeals for rent owed.
AFFIRMED IN PART
REVERSED IN PART AND REMANDED.
Sean P. Moore of Brown, Winick, Graves, Gross, Baskerville, &
Schoenebaum, P.L.C., Des Moines, for appellant.
Myron L. Gookin and Amy R. Miller of Foss, Kuiken, Gookin & Cochran,
Fairfield, for appellee.
Considered by Mahan, P.J., and Eisenhauer and Mansfield, JJ.
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EISENHAUER, J.
The Tri-County Grain Corporation appeals the valuation date of the grainshortage damages owed by Amos Zimmerman, the operator of Cantril Feed and
Grain.
Tri-County also appeals the statutory interest commencement date.
Zimmerman cross-appeals claiming the court erred in failing to find Tri-County
owed him rent for grain storage. We affirm in part, but reverse and remand for
correction of the statutory interest commencement date.
I.
Background Facts and Proceedings.
Tri-County entered into a written lease for a grain warehouse facility
owned by Zimmerman. In the summer of 2006, Zimmerman told Tri-County he
would not renew the lease when it expired on September 1, 2006. Zimmerman
stored both corn and soybeans for Tri-County in his warehouse. Under the terms
of the lease, Zimmerman provided all the labor at the facility.
Additionally,
Zimmerman was solely responsible for any grain shortages. If Tri-County sold
any of its grain to Zimmerman, the lease provided Zimmerman would pay market
price plus five cents per bushel.
After the lease expired on September 1, 2006, the parties entered into an
oral contract regarding Tri-County’s remaining corn and soybeans. The parties
agreed Zimmerman would purchase the corn and Tri-County would pay
Zimmerman to transport the soybeans to ADM in Quincy, Illinois. Zimmerman
needed corn for his nearby feed mill, but did not need soybeans. There was no
discussion about Tri-County paying rent for storage and Zimmerman did not
prepare invoices for rent. Tri-County did not pay rent after the lease expired.
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Zimmerman’s purchase of Tri-County’s corn was completed on December
29, 2006. Zimmerman did not deduct any rent/storage charges from his payment
of $246,904.40 to Tri-County. On February 19, 2007, Zimmerman hauled the
beans to ADM Quincy. Tri-County’s agreement to pay Zimmerman for these
hauling services was advantageous to Zimmerman because he bought supplies
from ADM Quincy for his feed business. Therefore, he was not sending empty
trucks to pick up his feed mill supplies.
The parties stipulated a soybean shortage of 10,544.51 bushels occurred.
Zimmerman does not dispute his responsibility for the shortage. The district
court found “both parties knew of the soybean shortage sometime during
September 2006,” but the actual extent of the shortage (10,544.51 bushels) was
not determined until February 19, 2007.
In February 2007, Tri-County billed Zimmerman $76,444.11 for the
soybean shortage. On July 17, 2007, Zimmerman, for the first time, claimed he
was owed rent for storing Tri-County’s corn and beans after September 1, 2006.
Zimmerman’s note to Tri-County stated:
“If Tri-County Grain will charge
$76,444.11 for the beans I will charge them $76,444.11 for storage over that
period of time that they left the beans and corn here without paying storage . . . .”
The parties could not agree to a valuation for the soybean shortage and,
on September 13, 2007, Tri-County filed suit. Tri-County claimed the soybeans
should be valued at $7.23/bushel (approximately $76,000), the price on the
February 19, 2007 delivery date. Zimmerman claimed the valuation should be
$5.00/bushel (approximately $53,000), the price on the September 1, 2006 lease
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expiration date. Zimmerman also filed a counterclaim seeking an offset for rent
for the two bins used by Tri-County for storage after the warehouse facility lease
expired. At trial Zimmerman testified the rental offset should be $30,000.
After a bench trial, the court determined the shortfall should be valued at a
market price of five dollars per bushel. It awarded judgment in favor of TriCounty for $53,249.78 (five dollars market price plus five cents/bushel) with
interest from August 26, 2008. The court denied Zimmerman’s counterclaim for
rent and ruled, “the court cannot conclude that a rental agreement . . . was part of
the agreement reached by the parties.” This appeal followed.
II.
Scope of Review.
We review for correction of errors at law. Iowa R. App. P. 6.4. The district
court’s findings of fact have the effect of a special verdict and are binding on us if
supported by substantial evidence. Van Oort Constr. Co. v. Nuckoll’s Concrete
Serv., Inc., 599 N.W.2d 684, 689 (Iowa 1999). “When a reasonable mind would
accept the evidence as adequate to reach a conclusion, the evidence is
substantial.” Raper v. State, 688 N.W.2d 29, 36 (Iowa 2004). However, we are
not bound by a district court’s conclusions of law or application of legal
conclusions. Id. “We view the evidence in a light most favorable to the trial
court’s judgment.” Van Oort, 599 N.W.2d at 689.
III.
Soybean Shortfall Valuation.
The parties agree the valuation for the soybean shortfall is governed by
the measure of damages established in Iowa’s Uniform Commercial Code:
“[T]he measure of damages for nondelivery . . . by the seller is the difference
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between the market price at the time when the buyer learned of the breach and
the contract price.” Iowa Code § 544.2713(1) (2007) (emphasis added).
Tri-County argues the damage valuation should be made in February
2007 when it learned the exact number of bushels it was shorted. We disagree.
After viewing the evidence in the light most favorable to the trial court’s judgment,
substantial evidence supports the finding the parties knew a shortfall existed in
September 2006.
Therefore, Tri-County “learned of the breach” at the time
soybeans had a market price of five dollars per bushel. Iowa courts look to the
market price for grain at the time the breach became known to set the measure
of damages. See Cargill, Inc. v. Fickbohm, 252 N.W.2d 739, 742 (Iowa 1977)
(using the market price of corn when plaintiff “learned defendant was not going to
deliver in accordance with the agreement”). We find no error in the trial court’s
damages calculation.
IV.
Rent Counterclaim.
Zimmerman cross-appeals the district court’s ruling Tri-County did not owe
rent for grain storage after the lease expired in September 2006. Substantial
evidence supports the district court’s finding, “[Zimmerman] did not act in a way
consistent with rent money being due and owing from [Tri-County] after
September 1, 2006.
More specifically, [Zimmerman] did not provide to [Tri-
County] either invoices or demands for rent.” We find no error in the court’s
dismissal of Zimmerman’s counterclaim.
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V.
Interest.
Tri-County appeals the court’s statutory interest order. The controlling
statute provides: “Interest . . . shall accrue from the date of the commencement
of the action.” Iowa Code § 668.13. We therefore remand to the district court to
modify its order and award interest from September 13, 2007, the date the case
commenced. In all other respects the district court’s judgment is affirmed.
AFFIRMED IN PART REVERSED IN PART AND REMANDED.
Mahan, P.J., concurs; Mansfield, J., concurs in part and dissents in part.
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MANSFIELD, J. (concurring in part and dissenting in part)
I concur in the disposition of the cross-appeal. However, I would sustain
Tri-County’s appeal because I believe the district court should have used the
February 19, 2007 date for valuing the shortfall in soybeans.
The pertinent facts are essentially undisputed. After the parties’ lease
expired, Zimmerman was to transport the soybeans to ADM in Quincy, Illinois,
with Tri-County paying for the transportation.
This arrangement benefited
Zimmerman because his trucks otherwise would have gone empty to ADM to
pick up feed. The parties also recognized that Zimmerman’s obligation to cover
any shortfall in the beans would continue.
In September 2006, the parties
realized there was going to be some shortfall in the beans, but no one knew the
exact shortfall until February 2007 when Zimmerman cleaned out the bins and
hauled the beans to ADM. Tri-County told ADM to clean out the bins in the fall of
2006, but Zimmerman testified that he was busy in the fall and did not have
trucks available, so the beans were not loaded and delivered to ADM until
February.
The fighting issue in the case was whether the market value of the beans
should be determined as of September 2006 or February 2007. During that time,
the market price of beans increased from approximately $5.00/bushel to
approximately $7.23/bushel.
The parties agreed that Iowa Code section
554.2713 (2007) (Uniform Commercial Code section 2-713) applies to this case
and that Zimmerman should be treated as a breaching seller. Section 554.2713
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states that the buyer’s measure of damages is the difference between the market
price “at the time when the buyer learned of the breach” and the contract price.
The majority reasons that Tri-County “learned of the breach” in September
2006, when it was aware there was going to be some shortfall, even though it did
not know the amount of the shortfall. This is certainly a defensible interpretation
of Iowa Code section 554.2713, but I believe it is not the correct one. The
fundamental purpose of contract remedies is to protect the non-breaching party’s
benefit of the bargain. Had there been no shortfall, Tri-County would have sold
10,544.51 more bushels of beans in February 2007, when they were worth
$7.23/bushel, not at some earlier date. Moreover, comment 1 to U.C.C. section
2-713 makes clear that the remedy provided by that section is meant to dovetail
with the cover remedy provided by U.C.C. section 2-713. See U.C.C. § 2-713
cmt. 1 (“The general baseline adopted in this section uses as a yardstick the
market in which the buyer would have obtained cover had he sought that relief.”);
Cargill, Inc. v. Fickbohm, 252 N.W.2d 739, 742 (Iowa 1977) (quoting and relying
upon this comment). In other words, the market price should reflect the price at
which the buyer would have been able to obtain cover. Tri-County, however, had
no ability to obtain cover until it knew the actual amount of the shortfall.
I believe Carson v. Mulnix, 263 N.W.2d 701 (Iowa 1978), is the most
relevant Iowa precedent here.
In Carson, the defendant was contractually
obligated to deliver corn to the plaintiff by the end of 1973, but there was
evidence that the defendant had repudiated the contract in August 1973. 263
N.W.2d at 706. Nonetheless, the court held that it was “reasonable” for the
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plaintiff to wait until the end of December for the defendant to perform.
Id.
Accordingly, for damage calculation purposes under Iowa Code section
554.2713, the court upheld December 28, 1973, as being the “time when the
buyer learned of the breach.” Id.
Similarly, I believe that it was reasonable for Tri-County to wait for
Zimmerman to perform by cleaning out the bins and delivering the beans to
ADM.
The district court indicates that Tri-County could have taken steps to
ascertain the shortfall in Zimmerman’s bins before February 2007. But from an
economic efficiency standpoint, that would not have made sense. The parties
had a mutually beneficial arrangement under which the beans would be loaded
and delivered to ADM, at which time the actual shortfall would be determined. It
would have been illogical for Tri-County to clean out the bins itself earlier and
forgo this arrangement. The law should encourage the performance of efficient
contracts.
Moreover, if anyone should have had the burden of calculating the
shortfall, it would be the breaching party (Zimmerman), not the innocent party
(Tri-County). Zimmerman did not have a warehousing license and should not
have been commingling Tri-County’s grain with anyone else’s. How Zimmerman
managed to lose 10,544.51 bushels of Tri-County soybeans is not explained. If a
party had a duty to get to the bottom of the situation, it was Zimmerman, not TriCounty.
Finally, this is not a situation where Tri-County can be accused of failing to
mitigate. Although soybean prices went up in the winter of 2006-07, they could
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have gone down. An immediate action by Tri-County to determine the shortfall in
September 2006 and purchase a corresponding quantity of beans might have
enhanced rather than mitigated damages. See Reliance Cooperage Corp. v.
Treat, 195 F.2d 977, 982-83 (8th Cir. 1952) (holding, in a pre-U.C.C. case, that
damages for non-delivery should be based on market price as of the date of
delivery, not the date of repudiation).
In summary, I believe a proper interpretation of Iowa Code section
554.2713 holds that when a buyer learns there will be some shortfall in delivery,
but is not aware of the amount of the deficit, the damage calculation should be
based on market price at the time of delivery. I would reverse and remand for an
award of damages in the amount of $76,444.11.
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