IN THE COURT OF APPEALS OF IOWA
No. 4-101 / 03-0323
Filed April 28, 2004
FRANK CAMPBELL,
Plaintiff-Appellee,
vs.
AG FINDER IOWA NEBRASKA, MANAGEMENT CONSULTANTS, INC., and
PAUL R. SOPINSKI,
Defendants-Appellants.
--------------------------------------------------AG FINDER IOWA NEBRASKA, MANAGEMENT CONSULTANTS, INC., and
PAUL R. SOPINSKI,
Counterclaimants-Appellants,
vs.
FRANK CAMPBELL,
Defendant to Counterclaim-Appellee.
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.
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MAHAN, J.
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,1 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.
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
“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.
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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
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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.
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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
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(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
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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
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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
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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
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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
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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
AFFIRMED.