Matherly v. Hanson

359 N.W.2d 450, 1984 Iowa Sup. LEXIS 1300

• Court: Supreme Court of Iowa
• Decided: December 19, 1984
• Docket: 83-1562
• Status: Published

Opinions

McGIVERIN, Justice.

This appeal requires us to determine whether a certain set of' writings constitutes a written contract within the meaning of Iowa Code section 614.1(5) (1983). That section provides that an action founded on a written contract must be brought within ten years of the accrual of the cause of action. Section 614.1(4) establishes that an action founded on an unwritten contract must be brought within five years after the cause of action accrues. Plaintiff’s action alleged breach of a contract between himself and defendant, and was brought approximately nine years after the cause of action was alleged to have accrued. The trial court ruled that the action was founded on an unwritten, rather than a written, contract for statute of limitations purposes and was therefore barred by section 614.-1(4). We agree and affirm the trial court’s entry of summary judgment for defendant based on that reasoning.

Plaintiff Carl W. Matherly filed suit against defendant John K. Hanson on April 26, 1982. . In his petition he alleged that defendant owed him $78,000 for unspecified personal services rendered from 1969 to 1971. He further alleged that he and defendant agreed on a somewhat novel method of paying him. According to plaintiff, defendant loaned him money with which to invest in securities. Any gains on the investments up to $78,000 would belong to plaintiff. Any gains beyond $78,000 would belong to defendant. In the event of losses, defendant would be responsible not only for the losses but also for the $78,000 he owed plaintiff. This arrangement, plaintiff alleged, was called the “ups and downs game.”

Plaintiff further alleged that during 1972 defendant loaned him a total of $506,000 with which to play the ups and downs game. Plaintiff repaid the loans at defendant’s request in December 1972 and thereafter financed the game on his own until early 1973, when defendant requested him to sell all the investments and end the game.

The game resulted in a net loss of approximately $114,000 on the investments. Plaintiff paid approximately $11,000 interest on loans he took out in 1973 to finance the game. Adding those two amounts to the $78,000 he had originally claimed as compensation, plaintiff arrived at a total of approximately $203,000 allegedly owed him by defendant.

Plaintiff’s suit for this amount was filed in April 1982, about nine years after his cause of action allegedly accrued in early 1973. Defendant’s answer generally denied the allegations of plaintiff’s petition.

Defendant then moved under Iowa R.Civ.P. 237 for summary judgment, contending that the five-year limitation period for actions founded on unwritten contracts had expired, and that the writings adduced by plaintiff as evidence of the agreement between him and defendant were insufficient as a matter of law to constitute a written contract and thus entitle plaintiff to the benefit of the ten-year limitation period for actions founded on written contracts. See Iowa Code §§ 614.1(4), (5).

Plaintiff maintained that a written contract did exist, and that, therefore, his suit was properly brought within the longer limitation period. The trial court disagreed and granted defendant’s motion for summary judgment, holding that as a matter of law the writings adduced by plaintiff were not a written contract within the meaning of section 614.1(5).

Summary judgment is proper when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Iowa R.Civ.P. 237(c). The burden of showing that there is no genuine issue of material fact is upon the party moving for summary judgment. Sandbulte v. Farm Bureau Mutual Insurance Co., 343 N.W.2d 457, 464 (Iowa 1984). On appeal, we examine the record in the light most favorable to the party opposing the motion to determine if the movant has met his or her burden. Id.

There is no dispute as to the content of the writings relied upon by plaintiff as constituting a written contract between him and defendant. The first writing consists of the following lines handwritten on a piece of defendant’s letterhead stationery:

Carl paid to settlement date Oct. 7, 1971 in full JKH

Carl stock deal difference $78,000 game to be played on opportunities for ups or downs

The writing is initialed at the bottom by defendant, signed by plaintiff, and dated “10-14-71.”

The other writings relied on by plaintiff are a series of standard form promissory notes which plaintiff alleges represent the money loaned to him by defendant to play the ups and downs game. On the first note these handwritten words appear. “Subject to Ups and Downs Game. Ups to Carl W. Matherly. $78M goal. Downs to John K. Hanson.” The other notes contain no handwriting except that which appears in the blanks to indicate dates, amounts loaned, and other standard note terms.

I. Whether the documents constitute a written contract. The question presented is whether the writings relied on by plaintiff constitute a written contract for the purposes of application of the ten year limitations of actions period. Iowa Code § 614.1(5).

A. This court resolved an issue similar to that presented here in Lamb v. Withrow, 31 Iowa 164 (1871). Lamb also involved a suit on an alleged contract, brought before the limitation period for written contract suits but after the limitation period for suits on unwritten contracts. The plaintiffs had paid off certain notes of the defendant and then sought indemnification, contending that they were defendant’s sureties on the notes. However, neither the notes nor any other writing chargeable to the defendant showed the surety relationship. The plaintiffs relied on parol evidence to establish that fact. In holding that the limitation period for suits founded on unwritten contracts applied, the court said:

The spirit as well as the letter of the statute of limitations requires, that, in order to prevent the [limitation period for actions founded on unwritten contracts] from applying to this action, the essential facts establishing the liability of the defendant shall be shown by his written contract.

Lamb v. Withrow, 31 Iowa at 168. (Emphasis in original.)

We believe these words are logically well founded. Certainly one of the essential features of a contract is an obligation or liability to do or not do something. See Mullenger v. Clause, 178 N.W.2d 420, 428 (Iowa 1970). Where the liability cannot be shown by a writing, it is reasonable to say as a matter of law that an action on such liability is founded on an unwritten rather than a written contract.

This approach is consistent with that taken in other jurisdictions. In Regina Apartments, Inc. v. Village Green, Inc., 60 Ohio App.2d 345, 397 N.E.2d 420 (1978), plaintiff sued defendant for allegedly failing to repay loans made to him and offered as evidence a series of cancelled checks from plaintiff to defendant with the word “loan” written in the upper left-hand corner of each check. The trial court held that the checks did not constitute agreements in writing for the purpose of the statute of limitations, and granted defendant’s motion for summary judgment on the ground that the limitation period for actions founded on unwritten agreements had expired. In affirming the trial court, the Ohio Court of Appeals noted:

[T]he single word “loan” written on the instrument gives no indication as to who owes whom or whether the check is a loan or the repayment of a loan.

In order for an action to come within the statute of limitations governing actions upon ... an agreement, contract, or promise in writing ..'. the action must grow out of a written instrument which first acknowledges indebtedness or second promises to pay in such terms as to make supplemental evidence unnecessary. [Citations.] In this case it is clear that supplemental evidence would be required to complete the terms of whatever understanding the parties may have had.

60 Ohio App.2d at 347, 397 N.E.2d at 422.

National Bank of Commerce of Seattle v. Preston, 16 Wash.App. 678, 558 P.2d 1372 (1977), presented a similar question. Plaintiff maintained that check stubs containing the notation “loan” and the corresponding checks to defendant constituted written loan agreements within the statute of limitations for actions on written contracts. The trial court disagreed and granted summary judgment to defendant. The Court of Appeals of Washington affirmed, saying:

Parol evidence is necessary to indicate whether the check is for a loan from the drawer ... to the payee ..., for the repayment of a loan from [payee] to [drawer], or for a transaction relating to a loan involving a third party.

Admission of parol evidence is necessary to make the inert word “loan” functional. This would be more than clearing up ambiguity in a term of a contract. It would be adding a material term to the contents of the writing and this is impermissible. [Citation.]

... Since parol evidence is necessary to establish an essential term of the ... agreement, ... the [statute of limitations for oral contracts] applies.

16 Wash.App. at 680-81, 558 P.2d at 1374.

In Klein v. Frank, 534 F.2d 1104 (5th Cir.1976), plaintiff sued defendant on an alleged agreement under which defendant was to sell for plaintiff 65,000 shares of a Colorado corporation’s stock and remit the proceeds to him. To avail himself of the limitation period for actions founded on written contracts, plaintiff produced a letter from defendant to a person in New York directing the sale of enclosed shares of the corporation’s stock and retention of the proceeds for the benefit of plaintiff and another person. At the conclusion of plaintiff’s case, defendant's motion for involuntary dismissal was granted on the grounds that the applicable Florida statute of limitations for actions on unwritten contracts barred the suit. On appeal, plaintiff contended that the letter he produced was a written contract of which he was a third-party beneficiary. The Court of Appeals for the Fifth Circuit disagreed:

The short answer to this contention is that such letter obviously does not contain a contract to do anything for the nonperformance of which the action was brought. The court below was eminently right in concluding that since resort to oral testimony was compelled to make complete the showing of any legal liability incurred by the defendant arising out of such letter, the [limitation period for actions founded on unwritten contracts] was applicable.

534 F.2d at 1107.

In Kersten v. Continental Bank, 129 Ariz. 44, 628 P.2d 592 (Ariz.Ct.App.1981), the plaintiff sued the defendant on an alleged agreement to make a $100,000 mortgage loan. To attempt to come within the limitation period for actions founded on written contracts, plaintiff offered in evidence a mortgage conveying to defendant a $100,000 mortgage interest in plaintiff’s business property and maintained that the mortgage was indicative of a promise by defendant to loan plaintiff $100,000. Defendant was granted summary judgment on the grounds that the action was founded on an unwritten contract, for which the limitation period had run. In affirming the summary judgment, the court said:

In order for a cause of action to be founded upon a contract in writing, the instrument itself must contain an undertaking to do the thing for the nonperformance of which the action is brought. [Citations.] A cause of action is not upon a “contract founded upon an instrument in writing” merely because it is in some way remotely or indirectly connected with the instrument or because the instrument would be a link in the chain of evidence establishing the cause of action. [Citation.]

129 Ariz. at 46-47, 628 P.2d at 594-95 (emphasis in original) (quoting Beane v. Tucson Medical Center, 13 Ariz.App. 436, 477 P.2d 555 (1970)).

In Miller v. William A. Smith Constructing Co., 226 Kan. 172, 603 P.2d 602 (1979), the court, in finding that a signed purchase order was sufficiently complete to be a written contract within the applicable statute of limitations, said:

The general rule is that a written agreement, contract, or promise in writing which falls within the [statute of limitations for actions on written contracts] must contain all its material terms in writing. A contract which is partly in writing and partly oral is in legal effect an oral contract so far as the statute of limitations may be concerned. The writing necessary to have the additional protection of the five-year statute must be full and complete in itself so as not to require proof of extrinsic facts to establish all essential contractual terms. [Citations.]

226 Kan. at 174, 603 P.2d at 604.

The Supreme Court of Nebraska has recently said:

A contract partly in writing and partly oral is, in legal effect, an oral contract. It occurs where an incomplete writing, or one expressing only part of what is meant, is by oral words rounded into the full contract ... [I]f a written agreement is so indefinite as to necessitate a resort to parol testimony to make it complete, the ... statute of limitations concerning “contracts not in writing” would be applicable, just as though the contract had rested entirely in parol.

Beekman v. Cornhusker Farms, 214 Neb. 418, 421, 333 N.W.2d 918, 920 (1983) (quoting Naeve v. Shea, 128 Neb. 374, 380, 258 N.W. 666, 668 (1935), and Grant v. Williams, 158 Neb. 107, 114, 62 N.W.2d 532, 536 (1954)).

We note that some of the above cases require that a writing, to qualify as a written contract for the purposes of the statute of limitations, must show all the material terms of the agreement, not merely obligation of the party against whom enforcement is sought. We have no reason to adopt or reject such a broad holding, for we believe the narrower rule of Lamb, relating only to such obligation, is sufficient to decide this case. Application of the Lamb rule to the present case leads us to conclude as a matter of law that plaintiffs action is founded on an unwritten contract.

There is nothing in the writings offered by plaintiff that shows any obligation or liability of defendant to him. The figure of $78,000 appears twice, but there is no indication whether this represents the amount of an outstanding debt, the amount of a loan, the dollar limit of the ups and downs game, or something else entirely. There is no indication that this sum is owed by anyone to anybody, or, if it is owed, when it is to be paid.

It may be true, as plaintiff maintains, that the writings represent an obligation of defendant to pay him for services rendered, but it is obvious that this state of facts neither appears on the writings nor is in-ferrable from them. Resort must be had to parol evidence if any obligation of defendant is to be established, and we believe that this precludes plaintiff’s reliance on the ten-year statute of limitations.

B. To bolster his contention that his reliance on parol evidence need not preclude his eligibility for the ten-year limitation period, plaintiff relies on a sentence in 51 Am.Jur.2d Limitation of Actions § 94 at 668-69:

If, however, a written agreement, although indefinite or incomplete in some respects, furnishes some objective standard by which its terms may be made definite and the contract made complete, then the written instrument may be considered a contract in writing within the meaning of the statute of limitations, notwithstanding the fact that resort must be had to parol evidence.

Plaintiff maintains that the phrase “ups and downs game” supplies an objective standard by which his writings can be made complete and considered contracts according to the above sentence. Even if the phrase in question does provide an objective standard for interpretation of the writings, we conclude plaintiffs reliance on the above language is misplaced. The case cited in the treatise to support that sentence involved a written instrument which of itself, without amplification by parol evidence, clearly established a duty or obligation by one party to another. See W.T. Rawleigh Co. v. Graham, 4 Wash.2d 407, 103 P.2d 1076 (1940). The treatise also cites the annotations at 3 A.L.R.2d 809, 816, § 5 (1949), and 129 A.L.R. 603, 611 (1940), but the cases found therein are similarly distinguishable from the one presented here. The parol evidence in those cases was invariably used to establish such details as the exact amount of money to be paid, or the physical specifications of work to be performed, rather than the basic existence of an obligation to pay or perform by the parties. The treatise that plaintiff quotes recognizes the distinction as an important one. The sentence immediately preceding the one quoted above reads:

And it is generally held that an action upon a contract is subject to the limitations statute applicable to oral, rather than written, contracts, where evidence extrinsic to a written agreement must be used to show the obligation itself, as distinguished from the details of, the obligation to be enforced.

51 Am.Jur.2d, Limitation of Actions § 94 at 668 (1970). Cf. Kinney v. Reed, 164 Iowa 337, 342, 145 N.W. 900, 902 (1914) (use of parol evidence to establish that time was ripe for contract performance did not make statute of limitations for unwritten contracts applicable, because writing relied on by plaintiff was itself a complete contract).

C. Plaintiff may be correct in his assertion that he and defendant intended and understood these cryptic and fragmentary writings to express a binding and complete contract. But to show this he must use parol evidence. We believe that this compels the conclusion that the writings themselves are not a contract, but at best are merely links in a chain of evidence indicating a contract. This is insufficient to allow plaintiff to claim the benefit of the ten-year statute of limitations.

We believe that this outcome comports with the policy behind the legislative provision for different statutes of limitation for actions on written and unwritten contracts. The shorter limitation period for the latter class of actions recognizes the undesirability of relying on parol evidence, which frequently tends to become less reliable with the passage of time. Kersten v. Continental Bank, 129 Ariz. at 47, 628 P.2d at 595; El Ranco, Inc. v. New York Meat & Provision Co., 88 Nev. Ill, 116, 493 P.2d 1318,1322 (1972). In view of the heavy reliance that plaintiff must place on parol evidence to establish the very existence (obligation of whom to whom, for what, and when due) of the contract he urges, we conclude that his action is within that class that the legislature has decided must be brought within five years of the accrual of the cause of action or not at all.

D. We do not reach the issue of what, if anything, else must be contained in a writing in order for it to constitute a written contract within the meaning of Iowa Code section 614.1(5). We hold only that where no writing (or series of writings) chargeable to one party shows the existence of an obligation to another party (or facts from which the law will infer an obligation), any action urging an obligation between the parties is subject to the statute of limitations for actions founded on unwritten contracts. Lamb v. Withrow, 31 Iowa 164, 167-68 (1871). Accord, Klein v. Frank, 534 F.2d 1104, 1107 (5th Cir.1976) (applying Florida law); Valerio v. Boise Cascade Cory., 80 F.R.D. 626, 632-33 (N.D.Cal.1978) (applying California law), affirmed 645 F.2d 699 (9th Cir.), cert. denied, 454 U.S. 1126,102 S.Ct. 976, 71 L.Ed.2d 113 (1981); Kersten v. Continental Bank, 129 Ariz. 44, 46-47, 628 P.2d 592, 594-95 (Ariz. Ct.App.1981); Estate of Garrett v. Garrett, 24 Ill.App.3d 895, 898, 322 N.E.2d 213, 216 (1975); Fairbanks v. Koelling, 167 Kan. 361, 365-66, 205 P.2d 930, 933-34 (1949); E.B. Kaiser Co. v. Ludlow, 243 So.2d 62, 64-65 (Miss.1970); Martin v. Potashnick, 358 Mo. 833, 836, 217 S.W.2d 379, 381 (1949); Beekman v. Cornhusker Farms, 214 Neb. 418, 421, 333 N.W.2d 918, 920 (1983); El Ranco, Inc. v. New York Meat & Provision Co., 88 Nev. Ill, 114-15, 493 P.2d 1318, 1321-22 (1972); Regina Apartments, Inc. v. Village Green, Inc., 60 Ohio App.2d 345, 347, 397 N.E.2d 420, 422 (1978); Shead v. Grissett, 566 S.W.2d 318, 320 (Tex.Ct.App.1978); National Bank of Commerce of Seattle v. Preston, 16 Wash.App. 678, 681, 558 P.2d 1372, 1374 (1977). See also Eyser v. Weissgerber, 2 Iowa 463, 478-79 (1856) (writing, which did not show liability of anyone to do anything, could not be a written contract).

II. Estoppel contentions.

A. Plaintiff contends that under the circumstances in this case defendant should be precluded from maintaining that no written contract exists because defendant wrote the writing dated “10/14/71.” Plaintiff relies solely on Harlow Publishing Co. v. Patrick, 181 Okla. 83, 72 P.2d 511 (1937), as authority for this contention. We find Harlow factually distinguishable as a case in which, although the writings offered by the plaintiff were authored by the defendant, the writings clearly showed the defendant’s obligation to perform.

B. Plaintiff also cites DeWall v. Prentice, 224 N.W.2d 428 (Iowa 1974), to argue that defendant should be equitably es-topped to raise the statute of limitations as a bar to this action. In DeWall we considered the factors bearing on the question of when a party is estopped to plead the statute of limitations and said:

The elements of equitable estoppel are well established. There must be conduct amounting to false representation or concealment, and a party relying thereon must.be thereby misled into doing or failing to do something he would not otherwise have done or omitted.

224 N.W.2d at 430 (quoting Holden v. Construction Machinery Co., 202 N.W.2d 348, 355 (Iowa 1972)).

The record shows no allegation or evidence of conduct on defendant’s part amounting to false representation or concealment. Even if it is true that the writing dated “10-14-71” was written by defendant at plaintiffs request, it is not argued that defendant made any false representations therein or anywhere else, or concealed any fact from plaintiff at any time. Nor is it alleged that defendant made any representation, false or otherwise, to plaintiff concerning the legal sufficiency or effect of the writing. Plaintiff may have relied on the sufficiency of the writing as a written contract in forgoing suit for nine years after his alleged cause of action accrued, but it does not appear from this record that he did so at the suggestion of defendant. We conclude the record does not show that a genuine issue of fact exists as to whether defendant is equitably es-topped to plead the statute of limitations.

C. Plaintiff also contends that, because he allegedly performed the contract, he should be allowed to enforce it. However, the issue here is not whether there is a contract between the parties, in which case the performance of one of the parties is relevant. The issue is whether the writing adduced by plaintiff constitutes a written contract for the purposes of applying the correct statute of limitations.

We conclude the trial court was right in determining as a matter of law that the writings here did not constitute a written contract for limitation of actions purposes.

Because this action was subject to Iowa Code section 614.1(4), and because the limitation period prescribed therein had run before the action was filed, the trial court was correct in granting summary judgment for defendant. The case is affirmed.

AFFIRMED.

All Justices concur except CARTER, HARRIS, LARSON and WOLLE, JJ., who dissent.