Opinion
No. 2-055 / 00-1768.
Filed December 11, 2002.
Appeal from the Iowa District Court for Franklin County, JON STUART SCOLES, Judge.
Appellant farmers appeal the district court's grant of summary judgment to a grain elevator in this breach of contract claim involving hedge-to-arrive contracts. The grain elevator cross-appealed on the issue of interest. AFFIRMED.
Steven Wandro and Sandra Lyons of Wandro, Lyons, Wagner Baer, P.C., Des Moines, and Glenn Norris and David May of Hawkins Norris, P.C., Des Moines, for appellants-cross-appellees.
Steven Hoeft and Steven Scholes of McDermott, Will Emery, Chicago, Illinois, and Edward Mansfield and Dennis Ogden of Belin, Lamson, McCormick, Zumbach, Flynn, P.C., Des Moines, for appellee-cross-appellant.
Heard by HUITINK, P.J., and MAHAN and MILLER, JJ.
Appellant farmers (producers) appeal the district court's grant of summary judgment to North Central FS, Inc., a grain elevator, in this breach of contract claim involving hedge-to-arrive (HTA) contracts. They claim the district court erred in finding there was no genuine issue of material fact concerning whether North Central had repudiated the contracts prior to the producers' breach. They also claim North Central received windfall damages. North Central cross-appealed, claiming it should receive prejudgment interest. We affirm.
I. Background Facts Proceedings
The producers each entered into HTA contracts with North Central. Under a HTA contract, a farmer agrees to sell grain to a grain elevator on a future date for a specific price. At the same time, the grain elevator hedges its purchase by selling a short futures contract on the Chicago Board of Trade. This protects the grain elevator from any changes in the price of grain from the time of the contract to the time of delivery. A grain elevator is only able to maintain its futures position if the farmer actually delivers the grain.
Sometimes the producers would roll the contracts over with the understanding the grain would be delivered at a later date. When a HTA contract is rolled, the grain elevator must buy back its futures contract on the Chicago Board of Trade and purchase a new futures contract for the later date. If the price of grain has changed, the gain or loss is added or deducted from the new contract price the farmer will receive.
In 1996, North Central became concerned because market conditions were such that producers could make a greater profit selling their grain elsewhere, rather than fulfilling their HTA contracts. On January 12, 1996, North Central sent a letter to producers stating:
North Central FS, Inc. requests everyone holding H.T.A. contracts with us to visit the Coulter facility in January to make a determination on your present contracts as to which year you intend to deliver the grain involved. . . . This designation must be by March 15, 1996 or the contract will be considered 1996 crop year.
North Central took no action to enforce its request, and none of the producers actually designated delivery periods. North Central did not refuse any requests to roll a HTA contract.
On June 18, 1996, the producers each sent a letter to North Central which stated, "the current HTA's are an imaginary paper transaction." The producers claimed the HTA contracts were illegal under the federal Commodities Exchange Act. See 7 U.S.C. § 6(a).
On June 21, 1996, North Central sent the producers a letter which demanded adequate assurances pursuant to Iowa Code section 554.2609 (1999). A meeting was held on June 26, 1996, to attempt to settle their differences, but no agreement was reached. The producers did not provide any assurances, but reiterated their position that the HTAs were illegal. Dean Krabbe and CeBar Farms, Inc., specifically notified North Central they were not going to deliver on their HTA contracts.
In August 1996, North Central filed a petition for declaratory relief in federal court. The producers also filed an action in federal court. These actions were consolidated. The federal court determined the HTA contracts were valid cash forward contracts, and as such, were legal under the Commodities Exchange Act. The court concluded the remaining issues could be decided in state court and dismissed without prejudice.
The Iowa supreme court has determined HTA contracts which anticipate the actual delivery of grain are legal cash forward contracts. Top of Iowa Coop. v. Sime Farms, Inc., 608 N.W.2d 454, 465 (Iowa 2000). The Eighth Circuit has also followed this general principle. See Grain Land Coop. v. Kar Kim Farms, Inc., 199 F.3d 983, 990-91 (8th Cir. 1999).
The producers then filed an action in Iowa district court in January 2000, and North Central counterclaimed. The district court granted summary judgment to North Central. The court determined North Central had reasonable grounds for insecurity when it demanded adequate assurance of performance because the producers were alleging the HTA contracts were illegal. The court also determined the producers did not give adequate assurance of due performance. The court concluded there was no evidence North Central repudiated the contracts prior to the producers' repudiation.
The court determined damages should be based on Iowa Code section 554.2713. The parties entered into a stipulation concerning the amount of damages calculated under this section. The stipulation stated, "Interest shall be awarded on the foregoing amounts in accordance with Iowa Code sections 668.13 and 535.3." At the hearing on damages, North Central argued it should be awarded pre-filing interest from the date it filed its petition in federal court. The district court determined an award of pre-filing interest is governed by section 535.2, which was not part of the parties' stipulation. The court concluded the stipulation precluded an award of pre-filing interest in this case, and interest should accrue from the date the action was commenced in Iowa district court, January 24, 2000. The producers appealed and North Central cross-appealed.
II. Scope of Review
We review a district court's ruling on a motion for summary judgment for correction of errors of law. Financial Mktg. Servs., Inc. v. Hawkeye Bank Trust, 588 N.W.2d 450, 455 (Iowa 1999). Summary judgment will be upheld when the moving party shows there are no genuine issues of material fact and the party is entitled to judgment as a matter of law. See Iowa R.Civ.P. 1.981(3). In reviewing a motion for summary judgment, we consider the evidence in a light most favorable to the party opposing the motion. Crippen v. City of Cedar Rapids, 618 N.W.2d 562, 565 (Iowa 2000).
III. Anticipatory Repudiation
The producers claim North Central repudiated the HTA contracts prior to their repudiation of the contracts, or in other words, they claim North Central should be liable because it breached the contracts first. Where one party to a contract repudiates the contract before the time for performance has arrived, the other party is relieved from its performance. Iowa Code § 554.2610; Conrad Bros. v. John Deere Ins. Co., 640 N.W.2d 231, 241 (Iowa 2001). Repudiation "consists of a statement that the repudiating party cannot or will not perform." Conrad Bros., 640 N.W.2d at 241 (citation omitted). There must be a definite and unequivocal repudiation. Lane v. Crescent Beach Lodge Resort, Inc., 199 N.W.2d 78, 82 (Iowa 1972).
Sales of grain are governed by article 2 of the Iowa Uniform Commercial Code, Iowa Code chapter 554. S S, Inc. v. Meyer, 478 N.W.2d 857, 860 (Iowa Ct.App. 1991).
There is a repudiation when a party states it will not perform except on conditions which go beyond the contract. Land O' Lakes, Inc. v. Hanig, 610 N.W.2d 518, 523-24 (Iowa 2000). Regarding this issue, our supreme court has stated:
when two or more parties differ as to the interpretation of a contract, the mere demand by one party that the contract be performed according to its interpretation does not in and of itself constitute repudiation. Instead, a demand must be accompanied by a clear expression of intent not to perform under any other interpretation. Thus, a demand for performance on terms that go beyond the contract does not constitute repudiation, unless coupled with an intent not to perform if those terms are not accepted.Conrad Bros., 640 N.W.2d at 241-42 (citations omitted).
A. Letter of January 12, 1996
The district court found, "When viewing the evidence in the light most favorable to the producers, the court believes that a finder of fact could conclude that the letter of January 12, 1996, adds additional conditions which were not part of the original HTA contracts." The court went on to conclude, however, that North Central did not indicate that it would refuse to perform unless the new terms were accepted. If fact, none of the producers actually designated delivery periods, but all parties continued to operate under the assumption they still had a contract. We find the district court did not err in concluding the January 12 letter did not constitute a repudiation.
B. Meeting of June 26, 1996
The producers contend North Central repudiated the HTA contracts at a meeting held on June 26, 1996. The district court determined the meeting was a settlement conference, and determined the statements were not admissible under Iowa Rule of Evidence 5.408, which provides, "Evidence of conduct or statements made in compromise negotiations are likewise not admissible."
Rule 5.408 requires exclusion of evidence relating to compromise or offers to compromise if the evidence being introduced is used to prove liability for or invalidity of the claim. Gail v. Clark, 410 N.W.2d 662, 671 (Iowa 1987). Such evidence is admissible, however, when offered to prove a fact other than liability. Bremicker v. MCI Telecommunications Corp., 420 N.W.2d 427, 428 (Iowa 1988). Rule 5.408 is supported by a public policy of promoting compromise. In re Marriage of Clifton, 526 N.W.2d 574, 576 (Iowa Ct.App. 1994).
On appeal, the producers assert they are not seeking to use North Central's statements at the meeting to show North Central's liability under the contract, but instead to show North Central's repudiation. It seems clear, however, that repudiation would affect liability under the contract and that the producers are not actually offering the evidence "to prove a fact other than liability." The producers are seeking to use North Central's position at a settlement negotiation meeting against it, and this use of the evidence is prohibited by rule 5.408. We find no abuse of discretion in the district court's refusal to consider statements made at the June 26, 1996, settlement conference. See Gail, 410 N.W.2d at 671 (noting judge has discretion to determine whether evidence should be admitted for alternate purpose under rule 5.408).
IV. Damages
Section 554.2713 provides that a buyer's damages for repudiation are "the difference between the market price at the time when the buyer learned of the breach and the contract price. . . ." The producers allege the phrase, "time when the buyer learned of the breach," should be interpreted to mean "time of performance." They claim damages should not be based on the market price in June 1996, but instead at the time of expected performance. They do not state when performance was expected under the facts of this case.
The producers' interpretation of section 554.2713 has not been adopted in Iowa. See Carson v. Mulnix, 263 N.W.2d 701, 709 (Iowa 1978) (damages calculated using date buyer found corn would not be delivered, not date of expected delivery); Cargill, Inc. v. Fickbohm, 252 N.W.2d 739, 742 (Iowa 1977) (same). We find no error in the calculation of damages in this case.
V. Interest
In its cross-appeal, North Central contends it is entitled to pre-filing and/or pre-judgment interest in this case. It first asks for interest from the date it learned of the producers' repudiation of the contract. In the alternative, it asks for interest from the date it first filed an action in federal court.
Pre-filing or pre-judgment interest is permitted by section 535.2. The parties stipulated to the award of interest, "in accordance with Iowa Code sections 668.13 and 535.3." North Central asserts that notwithstanding the stipulation, the district court still had the ability to award interest prior to the judgment.
A similar situation involving an offer to confess judgment was addressed in Hughes v. Burlington Northern Railroad Co., 545 N.W.2d 318, 322 (Iowa 1996):
[T]he parties could agree to settlement figures that include interest, or that provide for prejudgment statutory or other interest, or that provided interest at a stated rate commencing at a stated time. If there is no agreement as to prejudgment interest, the judgment would draw statutory interest from the date of the judgment only.
Where the offer is silent as to prejudgment interest and its rate, the court will not impose terms.
The court noted that to impose prejudgment interest where this was not part of the settlement "would in effect change the terms of the voluntary settlement made by the parties. . . ." Hughes, 545 N.W.2d at 322. We find no error in the district court's award of interest in this case.
We affirm the decision of the district court. Costs of this appeal are assessed one-half to each party.