Opinion
No. 2-886 / 01-1547.
Filed April 30, 2003.
Appeal from the Iowa District Court for Linn County, DAVID S. GOOD and L. VERN ROBINSON, Judges.
Plaintiffs appeal the district court's grant of a directed verdict. AFFIRMED.
Peter Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for appellant.
Thomas Wolle of Moyer Bergman, P.L.C., Cedar Rapids, for appellee.
Considered by VOGEL, P.J., and ZIMMER and HECHT, JJ.
James and Charles Harriott appeal the district court's grant of a directed verdict. We affirm.
Background Facts . In July 1994 brothers James and Charles Harriott, and Carlton Tronvold incorporated Hitters, Inc. to operate a softball facility located near Cedar Rapids. Tronvold was the majority shareholder owning sixty percent of the shares. The Harriotts each received twenty percent of the shares which Tronvold characterized as a "gift." Charles Harriott was hired to manage the softball facility. The parties entered into a written shareholders' agreement upon incorporation.
The Harriotts commenced this action against Tronvold in 1999 seeking both a declaratory judgment and damages against Tronvold and Hitters, Inc. The petition, as later amended, alleged the shareholders entered into an oral agreement stating each would contribute cash to the corporation in proportion to their shares of stock to cover any loss of the corporation at the end of each year. The Harriotts further allege that it was also agreed that if one of the shareholders did not contribute accordingly, his interest would be forfeited. The Harriotts sought a declaratory judgment that Tronvold should lose his equity position for failure to contribute to the losses of the corporation in December 1998 and thereafter.
The amended petition also included allegations that Tronvold breached an oral agreement to sell the assets of the corporation to the Harriotts and that Tronvold interfered with the contractual relationships between the Harriotts and Hitters, Inc. Tronvold filed two motions for summary judgment prior to trial and both were denied by the district court. The case proceeded to trial. After the Harriotts' case-in-chief, the district court granted Tronvold's motion for directed verdict. The Harriotts appeal.
Hitters, Inc. was a named a defendant. The Harriotts moved to disqualify White Johnson, P.C. from representing Hitters, Inc. in the action as Tronvold's son worked as an attorney in the firm and had written a letter on behalf of Hitters, Inc. prior to joining the firm. The Harriotts' motion was denied. On the morning of trial, the parties agreed that Hitters, Inc. would be dismissed rendering the alleged conflict of issue claim moot. See Iowa Mut. Ins. Co. v. McCarthy, 572 N.W.2d 537, 540 (Iowa 1997) (citations omitted).
I. Directed Verdict . Review of the district court's grant of the directed verdict is for correction of errors at law. Iowa R.App.P. 6.4; Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 391 (Iowa 2001). "We view the evidence in the same light as the district court to determine whether the evidence generated a jury question." Gibson, 621 N.W.2d at 391. The evidence is viewed "in the light most favorable to the party opposing the motion," in this case the Harriotts. Id. If reasonable minds could differ on an issue of fact, the issue is for the jury. Id. In determining whether to sustain or overrule a motion for a directed verdict, "the district court must decide whether the nonmoving party has presented substantial evidence on each element of the claim." Id. If a jury could reasonably infer a fact from the evidence then the evidence is substantial. Id. A directed verdict is only appropriate if the evidence is not substantial. Id.
A. Breach of oral agreement of the shareholders to contribute to cash shortfalls. The Harriotts claimed they had an agreement amongst the "owners" of the corporation to infuse cash into the corporation at each year's end to cover any losses. If a "shareholder" failed to contribute accordingly, his interest in Hitters, Inc. would be forfeited. Tronvold disputed this and countered that under the statute of frauds, any such oral agreement was unenforceable. The statute of frauds governs the manner in which a contract may be proven. Garland v. Branstad, 648 N.W.2d 65, 71 (Iowa 2002). The Iowa Code provides:
[e]xcept when otherwise specially provided, no evidence of the following enumerated contracts is competent, unless it be in writing and signed by the party charged or the party's agent:
2. Those wherein one person promises to answer for the debt, default, or miscarriage of another.
Iowa Code § 622.32(2) (1999).
The district court granted a directed verdict finding insufficient evidence of an oral agreement. We can affirm on any ground urged below. See DeVoss v. State, 648 N.W.2d 56, 60-61 (Iowa 2002). In this case, we have an alleged agreement of shareholders to pay the cash shortfalls of a corporation which appears to fall under section 622.32(2), "wherein one person promises to answer for the debt . . . of another. "In construing Iowa Code section 622.32(2), the Iowa Supreme Court has distinguished between collateral and original promises." Gallagher, Langlas Gallagher v. Burco, 587 N.W.2d 615, 618 (Iowa Ct.App. 1998) (citing Maresh Sheet Metal Works v. N.R.G., Ltd., 304 N.W.2d 436, 438 (Iowa 1981)). An original promise is made when the promise to pay the debt of another arises out of new and original consideration between the newly contracting parties. Maresh Sheet Metal Works, 304 N.W.2d at 438. With an original promise the surety has a personal concern in the debtor's obligation and will achieve a personal benefit out of the debtor's obligation. Id. The "leading object of his promise is to secure some benefit or business advantage for himself." Id. at 439. Original promises are not within the statute of frauds. Id.
A promise is collateral if it is made in addition to an already existing contract and the surety has no personal concern in the debtor's obligation and gains no benefit from the debtor's obligation. Gallagher, 587 N.W.2d at 618. The "main purpose" of the promise must not be the benefit of the surety. Restatement (Second) of Contracts § 116 at 299 (1979). Collateral promises fall within the statute of frauds. Maresh Sheet Metal Works, 304 N.W.2d at 438.
Hitters, Inc. as a corporation is a separate entity from the Harriotts and Tronvold as shareholders and directors of the corporation. "It is well-established that a corporation is an entity separate and distinct from its shareholders." Boyd v. Boyd Boyd, Inc., 386 N.W.2d 540, 543 (Iowa Ct.App. 1986) (citing Northwestern Nat'l Bank of Sioux City v. Metro Center, Inc., 303 N.W.2d 395, 398 (Iowa 1981)). The only benefit to the Harriotts or Tronvold to agree to contribute to the cash losses of the corporation would derive from their status as shareholders or sureties for the corporate entity. Agreements to cover the losses of another do not create an original promise. See 72 Am.Jur.2d Statute of Frauds § 226 at 752 (1974). The alleged oral contract made by the Harriotts and Tronvold was therefore collateral and is barred by the statute of frauds. The district court was correct in directing a verdict for Tronvold on this issue.
B. Breach of oral agreement by Tronvold to sell assets of Hitters, Inc. to the Harriotts . The Harriotts next claim Tronvold offered to sell the assets of the corporation for $500,000 at a board meeting held on April 7, 1999. Tronvold denies an offer was made. He further asserts that if the words he used at the meeting would be construed as an offer, the terms were not complete and there was no final agreement as to the terms.
All contracts must contain mutual assent. Anderson v. Douglas Lomason Co., 540 N.W.2d 277, 285-86 (Iowa 1995). The mutual assent is usually given through an offer and acceptance of that offer. Id. (citations omitted). An offer is a "manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it." Id. (quoting Restatement (Second) of Contracts § 24 (1981)). We look for the existence of an offer objectively rather than subjectively. Id. "The test for an offer is whether it induces a reasonable belief in the recipient that he can, by accepting, bind the sender." Id. at 286 (quoting Architectural Metal Sys., Inc. v. Consolidated Sys., Inc., 58 F.3d 1227, 1229 (7th Cir. 1995)). If an offer is not definite, there is no intent to be bound. Id.
The alleged oral agreement occurred during Hitters, Inc. Special Meeting of Board Directors held on April 7, 1999. The minutes from the meeting reflect the following discussion:
[Charles Harriott] asked [Tronvold], "If you were offered $500,000 would you want to sell?"
[Tronvold] stated for the record that both the City of Cedar Rapids and Kirkwood declined to buy the park because neither entity had the money to do the deal.
[Tronvold] then replied, "I think the park is worth more than $500,000, but to end this bull shit, yes, I would sell."
The conversation was interrupted at that point and the parties spoke separately with their attorneys. There was no further discussion regarding the sale of the corporation to the Harriotts. The Harriotts testified they accepted the offer to purchase the softball facility after Tronvold's offer, however, this is not reflected in the minutes of the meeting.
Tronvold argues he never made an offer to sell the softball facility to the Harriotts. He claims the conversation was strictly hypothetical. Tronvold further contends that even if his statement could be construed as an offer the terms of the agreement were too incomplete to enforce. At no point after the April 7, 1999 meeting did the parties discuss the alleged offer or the terms of such offer. Further, there was no agreement as to what the $500,000 figure represented or the timing of sale or payment. We agree with the district court, there was no meeting of the minds to represent an offer and acceptance for the sale/purchase of Hitters, Inc. See Heartland Express, Inc. v. Terry, 631 N.W.2d 260, 268 (Iowa 2001).
C. Interference with Contractual Relations . The Harriotts argue Tronvold interfered with their contractual relationships with Hitters, Inc. as shareholders, and Charles as an employee. Charles Harriott was fired as manager of the softball facility by Tronvold. Tronvold asserts that any claim relating to employment or the rights, obligations and requirements of shareholders is subject to arbitration as mandated in the Shareholders' Agreement. The district court sustained Tronvold's motion for directed verdict finding the proper forum for this claim was arbitration pursuant to the Shareholders' Agreement. The Harriotts did not address the trial court's finding on this claim in their brief or reply brief but instead argued Tronvold manifested "bad faith." As such, the Harriotts' claim of error for tortious interference with contractual relations has been waived. Iowa R.App.P. 6.14(1)( c).