Opinion
No. 4-101 / 03-0323
April 28, 2004.
Appeal from the Iowa District Court for Wayne County, Dale B. Hagen, Judge.
Defendants appeal the district court's ruling for plaintiff, and denial of their counterclaims, in this breach of contract action. AFFIRMED.
Bruce Green and Brett Ryan of Willson Pechacek, P.L.C., Council Bluffs, for appellant.
Verle Norris, Corydon, for appellee.
Considered by Huitink, P.J., and Vogel and Mahan, JJ.
I. Background Facts Proceedings
In January 1998 Frank Campbell entered into a contract with Management Consultants, Inc., doing business as Ag Finder Iowa Nebraska (Ag Finder), to purchase his 1997 crop of organic soybeans. Campbell was to be paid $14.50 per bushel, F.O.B. farm, for "human food quality" organic soybeans with a moisture content of less than 13.5%. Campbell agreed to provide various samples "for approval testing prior to shipment." Ag Finder resold the soybeans to Manna International, Inc., and ultimately the soybeans were to be used for soymilk production in Europe.
"F.O.B." stands for "free on board," which is a term denoting that the seller is responsible for shipping the goods to the point named. Here, the buyer, Ag Finder, assumed responsibility for shipping the goods off the farm.
Campbell provided two samples to Ag Finder. Although the moisture content was found to be greater than 13.5%, Ag Finder directed that the soybeans be transported to Brick City Mill for processing and cleaning. At the mill, Eastern Iowa Grain Inspection Weighing Service, Inc., took some samples of the soybeans in order to grade them. Eastern Iowa Grain Inspection also forwarded some samples of the soybeans to Genetic ID. Before the test results from Genetic ID were received, Manna International had the soybeans shipped out of Iowa.
On March 2, 1998, Ag Finder notified Campbell that Genetic ID had determined the soybeans contained greater than 0.1% genetically-modified organisms (GMOs). The soybeans were not of "human food quality" and had been rejected by Manna International. The soybeans were shipped back to Iowa. Manna International demanded that Ag Finder reimburse it for returning the soybeans to Iowa. Ag Finder was able to resell Campbell's soybeans to SK Food International for use as feed. From the proceeds, Ag Finder deducted all advances, prepayments, trucking expenses, freighting expenses, loading and unloading expenses, drying expenses, and cleaning expenses.
In the meantime, in February 1998 Campbell and Ag Finder had entered into a contract for his 1998 crop of organic soybeans. Due to the presence of GMOs in his 1997 soybean crop, Campbell was unable to obtain certification by the Organic Crop Improvement Association for 1998, which was a prerequisite for the contract. In May 1998 Ag Finder informed Campbell the new contract was null and void.
Campbell filed suit against Ag Finder, alleging Ag Finder breached the contract by failing to pay him the contract rate for the soybeans and by improperly deducting shipping and cleaning expenses. Ag Finder raised counterclaims of fraudulent misrepresentation, breach of contract, lack of merchantability, and anticipatory repudiation of the second contract.
On June 8, 1999, Ag Finder served Campbell with requests for admissions. Campbell did not respond within thirty days. See Iowa R. Civ. P. 1.510(2) (noting that if a party does not respond within thirty days to a request for admissions, the matter is admitted). Campbell's attorney had become seriously ill and informed opposing counsel of his circumstances. On August 2, 1999, Ag Finder filed a motion for summary judgment based upon matters which it felt had been admitted. On August 12, Campbell, through another attorney, resisted the motion for summary judgment and requested additional time to respond to the request for admissions. The district court determined Campbell should have additional time to respond to discovery requests. Campbell responded to the requests for admissions on August 27, 1999. Ag Finder filed a motion to strike Campbell's response to the request for admissions. The district court denied the motion to strike. The court also denied the motion for summary judgment, finding there were genuine issues of material fact.
The case proceeded to a bench trial on the merits. The district court determined that while Campbell did not tender organic soybeans of human food quality, as required by the contract, Ag Finder accepted the soybeans by having them shipped from the farm. The court noted that the contract provided "FOB farm," which meant the title to the soybeans, and the risk of loss, passed to Ag Finder when Campbell delivered the goods to the carrier for shipment to Brick City Mill. The court concluded Ag Finder did not timely reject the soybeans because it had the opportunity to test the soybeans for GMOs prior to shipment to the cleaning facility, but it did not do so. The court concluded that under the contract Ag Finder was responsible for shipping charges, and these could not be charged against Campbell. Ag Finder's counterclaims were dismissed.
Ag Finder filed a motion pursuant to Iowa Rule of Civil Procedure 1.904(2). The district court revised the amount of damages, finding Ag Finder owed Campbell $19,145.69. In all other respects the motion was overruled. Ag Finder appeals.
II. Standard of Review
This case was tried at law, and we review for correction of errors at law. See Iowa R. App. P. 6.4. The trial court's findings of fact have the effect of a special verdict and are binding upon us if supported by substantial evidence. Iowa R. App. P. 6.14(6)( a). We view the evidence in the light most favorable to the trial court's judgment. Van Oort Constr. Co., Inc. v. Nuckoll's Concrete Serv., Inc., 599 N.W.2d 684, 689 (Iowa 1999).
III. Admissions
Ag Finder claims the district court abused its discretion when it gave Campbell additional time to respond to the request for admissions. Ag Finder asserts that it was prejudiced by the court's grant of the extension, because it believes it would have been entitled to summary judgment if the requests had been deemed admitted.
The district court has discretion to permit a party to file late responses to a request for admissions. Iowa R. Civ. P. 1.510(2); Weigel v. Weigel, 467 N.W.2d 277, 279 (Iowa 1991). In order to show an abuse of discretion, a party must show the court exercised its discretion on grounds or for reasons clearly untenable to an extent clearly unreasonable. Double D Land Cattle Co., Inc. v. Brown, 541 N.W.2d 547, 549 (Iowa Ct.App. 1995).
The court should consider (1) whether the presentation of the merits would be subserved by a late filing and (2) whether the party who obtained or requested the admissions failed to satisfy the court that he would be prejudiced by a late filing. Allied Gas Chem. Co. v. Federated Mut. Ins. Co., 332 N.W.2d 877, 879 (Iowa 1983). Prejudice may be found when a party is suddenly required to prove matters otherwise admitted. Id. at 880.
We conclude the district court did not abuse its discretion in permitting Campbell to file late responses to the request for admissions. Campbell's failure to timely file responses was not due to procrastination or neglect on the part of counsel. See id. Campbell's counsel became seriously ill, and alerted opposing counsel to his problems. Based on these circumstances, Ag Finder could not be surprised a continuance was requested and granted. We determine Ag Finder has not shown it was prejudiced by the court's decision to allow Campbell to file late responses to the request for admissions.
IV. Sufficiency of the Evidence A. Acceptance
Ag Finder asserts the district court's findings are not supported by substantial evidence. In particular, Ag Finder claims that it rejected the soybeans, and did not accept them.
This case involves the sale of goods, and thus, comes under the auspices of the Iowa Uniform Commercial Code (U.C.C.). See Iowa Code § 554.2102 (1999); Flanagan v. Consolidated Nutrition, L.C., 627 N.W.2d 573, 577 (Iowa Ct.App. 2001).
The evidence clearly shows Campbell did not tender conforming goods. The soybeans were not of "human food quality," as required by the contract. Also, some of the soybeans had a higher moisture content than that provided for in the contract. If a seller tenders nonconforming goods, the buyer may reject or accept the goods. Iowa Code § 554.2601. "Rejection of goods must be within a reasonable time after their delivery or tender." Iowa Code § 554.2602(1); see also GreatAmerica Leasing Corp. v. Star Photo Lab, Inc., 672 N.W.2d 502, 506 (Iowa Ct.App. 2003) (noting a rejection is ineffective unless it is made within a reasonable time). If a buyer has a reasonable opportunity to inspect the goods, the goods are considered accepted unless there is an effective rejection. Iowa Code § 554.2606(1); Hayes v. Hettinga, 228 N.W.2d 181, 184 (Iowa 1975).
The district court found:
A reasonable time for rejection was after testing on the beans revealed the higher than required soybean moisture level, but before [Ag Finder] ordered the soybeans transported to the processing and cleaning facility. Defendants did not reject the soybeans before they were shipped to Brick City Mill for processing and cleaning. Moreover, Defendants did not take steps to notify Campbell that the soybeans were rejected until the soybeans were under the control of Defendants' buyer, and en route for Flemish ports. Therefore, Defendants did not reject the soybeans within a reasonable time as required by the U.C.C.
Generally, the determination of the reasonableness of particular conduct is a fact question. St. Ansgar Mills, Inc. v. Streit, 613 N.W.2d 289, 295 (Iowa 2000) (considering the reasonableness of a delay in confirmation under section 554.2201(2)). The district court's factual findings are binding on appeal if they are supported by substantial evidence. Iowa R. App. P. 6.14(6)( a).
We find there is substantial evidence to show Campbell tendered the soybeans by making them ready for shipment from the farm. See Iowa Code § 554.2503(1); Sand Seed Serv., Inc. v. Bainbridge, 246 N.W.2d 911, 912 (Iowa 1976) (discussing what constitutes an effective tender of goods). The parties' contract provided for shipping F.O.B. farm, which meant Campbell was only required to place the goods with a carrier for delivery from the farm. See Iowa Code § 554.2319(1)(a). Under section 554.2401(2), title passed to Ag Finder, "at the time and place at which the seller completes the seller's performance with reference to the physical delivery of the goods"; which in this case was when the soybeans left the farm. See Production Credit Ass'n v. Farm Town Indus., Inc., 518 N.W.2d 339, 346-47 (Iowa 1994); Estate of Schomer v. Piggot, 439 N.W.2d 190, 192 (Iowa 1989).
The district court's factual findings on this issue are supported by the testimony of Everett Rowland, the owner of the Brick City Mill, who testified:
Q. Are they [soybeans] ever probed or tested prior to delivery to your facility?
. . . .
A. In the normal type of business that I do when Paul calls and says, "I have a farmer that wants —" you know," that I want to arrange to do the conditioning of the grain," there has been a sample done by somebody, whether the farmer sent a sample to him, but somewheres there would have been a sample done where Manna would have seen it prior to where all this stuff would have started, because it has to meet the specs. . . .
Rowland also testified that the usual protocol was that when a farmer submitted grain for sale, tests would be run in order to get the grain approved for the sale. He testified Ag Finder could have ordered additional tests while the soybeans were at the mill. Furthermore, the parties' contract provided Campbell would provide samples "for approval testing prior to shipment."
We determine there is substantial evidence in the record to support the district court's findings that Ag Finder did not reject the soybeans within a reasonable amount of time. Under section 554.2606(1), because there was not an effective rejection of the soybeans, Ag Finder is considered to have accepted them. See Hayes, 228 N.W.2d at 184 (noting goods may be considered accepted if they are not rejected within a reasonable time).
B. Revocation
Ag Finder contends that even if it did accept the soybeans, it subsequently revoked its acceptance. Section 554.2608(1) permits revocation of acceptance as follows:
The buyer may revoke the buyer's acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to the buyer if the buyer has accepted it
a. on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or
b. without discovery of such nonconformity if the buyer's acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.
See Shinrone, Inc. v. Tasco, Inc., 283 N.W.2d 280, 284 (Iowa 1979) (noting a party may rightfully revoke its acceptance of goods). Furthermore, revocation must occur within a reasonable time after the nonconformity was discovered or should have been discovered. Iowa Code § 554.2608(2).
The evidence shows the value of the soybeans was substantially impaired by the presence of GMOs, but not by the soybeans' excessive moisture content. We determine the district court correctly found revocation could only be based on the presence of GMOs. The presence of GMOs could not be cured, and thus section 554.2608(1)(a) does not apply.
The district court found acceptance in this case was not induced by the difficulty of discovering the GMOs before acceptance. The court found:
The evidence indicates that GMOs are discovered by genetic testing. The evidence also indicates that in order for soybeans to be genetically tested for GMOs they simply must be given to a genetic testing facility. Therefore, in order for Defendants to find the nonconforming GMOs in the soybeans, they needed a bean sample and then they needed to provide this sample to a genetic testing facility.
The parties' contract provided that Campbell was to provide Ag Finder with samples of the soybeans before they were shipped from the farm. We determine there is substantial evidence in the record to support the district court's conclusion that Ag Finder's acceptance was not based on the difficulty of discovering the GMOs. Additionally, there is no evidence Campbell provided any assurances prior to Ag Finder's acceptance of the soybeans. We affirm the district court's ruling that Ag Finder did not revoke its acceptance within the meaning of section 554.2608.
V. Affirmative Defenses
Ag Finder raised several affirmative defenses to its contract with Campbell. The district court did not address the affirmative defenses, and Ag Finder raises this failure as an issue on appeal.
Ag Finder's motion pursuant to Iowa Rule of Civil Procedure 1.904(2) characterized its affirmative defenses as counterclaims. Even if we were to find Ag Finder sufficiently preserved error in regard to its affirmative defenses, we would deny its claims on the merits. The evidence does not support the claims Ag Finder raises as affirmative defenses.
VI. Counterclaims
Ag Finder asserts it is entitled to damages due to Campbell's failure to perform under the parties' contract regarding his 1998 soybeans. The contract for the 1998 soybeans was voided by Ag Finder in May 1998, after Ag Finder learned Campbell would not be able to be certified as an organic grower that year. Ag Finder states it had entered into contracts to resell Campbell's 1998 soybeans, and that it lost the profits it would have received if it had been able to resell the soybeans.
The district court noted that Paul Sopinski, owner of Ag Finder, testified he did not expect performance by Campbell after the contract was voided. He also testified Ag Finder was no longer obligated under the contract. The district court concluded the parties mutually abrogated and rescinded the contract for the 1998 soybeans.
The parties to a contract may mutually agree to rescind the contract. Wiysel v. William Penn Coll., 448 N.W.2d 712, 713 (Iowa Ct.App. 1989). Once a contract is rescinded, the contractual obligations of the parties are discharged. Recker v. Gustafson, 279 N.W.2d 744, 755 (Iowa 1979). "[N]either party has any further right or duty under the rescinded contract." Id. (quoting 1A Corbin on Contracts § 186, at 159 (1963)). We affirm the district court's conclusion that Ag Finder is not entitled to damages for Campbell's alleged breach of the rescinded contract.
We affirm the decision of the district court