Gallagher, Langlas & Gallagher v. Burco , 1998 Iowa App. LEXIS 65 ( 1998 )

STREIT, J.

A father appeals a law firm’s judgment against him for guaranteeing his daughter’s expenses in a custody trial over his grandchildren. Because the statute of frauds renders Burco’s oral contract unenforceable, the judgment is reversed.

I. Background Facts & Proceedings.

Lynn Roose requested the law firm Gallagher, Langlas and Gallagher, P.C. represent her in her dissolution action. Attorney Thomas Langlas signed an attorney fee contract in August 1994, and gave it to Roose to sign and return. He also requested a $2000 retainer fee. Roose never signed or returned the contract. She did not pay the retainer fee in full.

The firm represented Roose despite her not signing the contract or paying the retainer fee in full. On April 10, 1995, the Gallagher attorneys met with Roose and her father, Gaylen Bureo. The attorneys told Bureo about the anticipated child custody trial. The firm contends during the meeting Bureo agreed to be responsible for the remainder of Roose’s account. Bureo denies an agreement. At the end of the meeting Bureo gave the firm a check for $1000 to pay the outstanding balance of $814.92 on Roose’s account.

Before trial, Mary Chicchelly, an attorney with the firm, contacted Bureo requesting an additional retainer to secure fees to be incurred and Bureo told her, “My word as a gentleman should be enough_ I told Mr. Langlas I would pay and I will pay.”

Roose failed to pay her legal fees. In July 1995, the attorneys sent Bureo a letter requesting $5000 for Roose’s legal fees or the signing of a promissory note. At the end of July, they sent Bureo another letter asking him to sign a promissory note for $10,000. Neither Roose nor Bureo paid the attorney fees or signed the notes. The firm represented Roose in the July 1995 trial.

After trial, Bureo returned the second letter and promissory note with a notation stating he was not responsible for his daughter’s attorney fees. The firm filed a motion to withdraw in July 1996 and the motion was granted.

The firm filed a petition against Bureo and Roose for the unpaid legal fees. Bureo denied the allegations and raised affirmative defenses of statute of frauds, revocation, and waiver. On August 6, 1997, the trial court entered a trial judgment against Bureo and a default judgment against Roose for $14,-588.53. Bureo appeals.

II. Standard of Review.

Our review is for the correction of errors at law. The district court’s findings of fact have the effect of a special verdict and are binding on us if supported by substantial evidence. Iowa R.App. P. 14(f)(1); Waukon Auto. Supply v. Farmers & Merchants Sav. Bank, 440 N.W.2d 844, 846 (Iowa 1989).

III. Sufficiency of Evidence to Prove Oral Contract.

Bureo contends the district court erred in finding there was sufficient evidence of an oral contract between himself and the law firm to pay Roose’s bill.

The existence of an oral contract, as well as its terms and whether it was breached, are ordinarily questions for the trier of fact. Dallenbach v. Mapco Gas Prod., Inc., 459 N.W.2d 483, 486 (Iowa 1990). To prove the existence of an oral contract, the terms must be sufficiently definite for a court to determine with certainty the duties of each party, the conditions relative to performance, and a reasonably certain basis for a remedy. Netteland v. Farm Bureau, 510 N.W.2d 162, 165 (Iowa App.1993); Burke v. Hawkeye Nat’l. Life Ins. Co., 474 N.W.2d 110, 113 (Iowa 1991); Severson v. Elberon Elevator, Inc., 250 N.W.2d 417, 420 (Iowa 1977); Rest.2d Contracts § 33 at 597 (1979). Where a contract appears to exist, courts are reluctant to find it too uncertain to be enforceable. Audus v. Sabre Communications Corp., 554 N.W.2d 868, 872 (Iowa 1996). However, when the terms are not definite, courts are reluctant to impose reasonable terms on contracting parties. Bowser v. PMX Industries, Inc., 545 N.W.2d 898, 900 (Iowa App.1996).

The question is, then, whether the terms of the communications between Bureo and the firm were definite enough to form a contract.

At the April 10, 1996, meeting, Bureo was told the estimated expense of his daughter’s custody trial would be approximately $1000 per day. The firm would not guarantee Bur-eo the trial would only last two or three days. Bureo paid $1000 towards an existing $814.92 bill and said he would pay for future services. Before trial, Bureo was pressed for payment or to sign a promissory note. Bureo said he would pay and his word was good enough. Bureo took an active part in the trial by testifying and participating in conferences with counsel during recesses.

Bureo claims his guarantee to pay future legal expenses is too vague and uncertain to form a contract. The dealings described above are definite. Each party’s duties are clear. The attorneys were to continue representing Roose in her custody fight. Bureo was to pay her legal fees. These terms are as definite as many attorney-fee agreements. These facts are sufficient evidence to prove an oral contract existed.

The trial courts finding an oral contract existed between Bureo and the firm is supported by substantial evidence. This may not suffice, however. Because the contract was in the nature of a surety or guaranty contract, the evidence or proof of the contract may have to be written. We now consider the statute of frauds.

TV. Enforceability of Oral Contract Under the Statute of Frauds Section 622.32(2).

Bureo next contends evidence of the oral contract is barred by the statute of frauds. Our appellate courts have held in a number of cases the statute of frauds is a rule of evidence and not of substantive law. The statute relates to the manner of proof, but does not forbid oral contracts or render them invalid. Stauter v. Walnut Grove Products, 188 N.W.2d 305, 313 (Iowa 1971); Meylor v. Brown, 281 N.W.2d 632, 634 (Iowa 1979). If the statute renders evidence of the guaranty incompetent and thus inadmissible, the judgment against Bureo must be reversed. See Maresh, 304 N.W.2d at 437.

The statute of frauds requires that certain contracts be evidenced by some kind of writing before they are enforceable. The statute applies to surety contracts — a promise to a creditor to answer for debt, default, or miscarriage of another.¹

Iowa Code section 622.32(2) codifies this doctrine:

Except when otherwise specifically provided, no evidence of the following enumerated contracts is competent, unless it be in writing and signed by the party charged or by the party’s authorized agent:

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2. Those wherein one person promises to answer for the debt, default, or miscarriage of another, including promises by executors to pay the debt of the decedent from their own estate.

Iowa Code § 622.32(2) (1997).

In construing Iowa Code section 622.32(2), the Iowa Supreme Court has distinguished between collateral and original promises. Maresh Sheet Metal Works v. N.R.G., Ltd., 304 N.W.2d 436, 438 (Iowa 1981). Original promises are made when the promise to pay the debt of another arises out of new and original consideration between the newly contracting parties. Id. With an original promise the surety has a personal concern in the debtors obligation and will achieve a personal benefit out of the debtors obligation. See 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.

Collateral promises are made when a promise 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 debtors obligation. The “main purpose” of the promise must not be the benefit of the surety. Rest. (Second) of Contracts § 116 (1979). Collateral promises fall within the statute of frauds. Maresh, 304 N.W.2d at 438.

In addition to ascertaining whether the promisor receives a benefit, we ascertain who the credit was extended to, the promisor or the party who was rendered the services.² See id. at 439; Hudson v. Ashley, 411 A.2d 963, 967 (D.C.App.1980)(citing Kerner v. Eastern Dispensary & Casualty Hospital, 214 Md. 375, 135 A.2d 303, 306-07 (1957)). This intention is ascertained from the promissory words used, the situation of the parties, and all surrounding circumstances when the promise was made. See Hudson, 411 A.2d at 968.

Whether a promise is collateral to an existing contract or creates a primary obligation on the part of the promisor is a question of fact. Maresh, 304 N.W.2d at 440. Thus, it is for this court to decide whether the trial court’s ruling Bureo’s promise was original rather than collateral is supported by substantial evidence on the record. The trial court determined the promise was original rather than collateral “inasmuch as it involved his daughter and grandchild.”

There is nothing in the record which supports the trial court’s conclusion the promise was original rather than collateral except for a vague notion his family was affected by the matter. The evidence shows the benefit to Bureo was indirect in that if his daughter won custody of his granddaughter he may get to visit her more. There is no evidence this was Burco’s primary motivating factor in promising to pay his daughter’s debt. From this record, it cannot be found Bureo gained a benefit from his promise. This being so, his promise was collateral rather than original. There is not substantial evidence supporting the courts finding Bureo made an original promise which falls outside the statute of frauds. The statute of frauds renders evidence of the contract incompetent and makes it unenforceable.

Once a court determines the statute of frauds applies to a contract, it must be determined if there are any exceptions that overcome the statute of frauds. One such exception, if proven, is promissory estoppel.³ See Meylor v. Brown, 281 N.W.2d 632, 635 (Iowa 1979); Section 139 of Restatement (Second) of Contracts (1979).

Generally, Iowa cases hold promissory es-toppel must be pled in order to rely on it at trial. Midwest Management Corp. v. Stephens, 291 N.W.2d 896, 907 (Iowa 1980). These cases, however, were decided prior to a change in the rules of pleading dispensing with the necessity of a reply to affirmative defenses in the answer. Id. (citing Iowa R. Civ. P. 68, 72, 73). Iowa Rule of Civil Procedure 104 provides: “(e)very defense in law or fact to any pleading must be asserted in the pleading responsive thereto, if one is required, or if none is required, then at the trial_” Id. (citing Iowa R. Civ. P. 104).

The law firm was not required to file a reply to Burco’s affirmative defense of the statute of frauds in order to develop the defense of promissory estoppel at trial. Id. (holding plaintiff was not required to file a reply to affirmative defenses before it could assert its estoppel theory at trial even though it had not pleaded estoppel). See also Quigley v. Wilson, 474 N.W.2d 277, 280 (Iowa App.1991)(holding because the plaintiffs were not required by rule or court order to file a reply pleading, the trial court erred in requiring the plaintiffs plead the defense of lack of consideration in response to defendant’s affirmative defense before being able to develop the defense to the jury). Like Midwest, this is not a case in which the plaintiff pleads estoppel in the petition. The law firm did make a scanty reference to the basic concepts of estoppel during the trial when a firm attorney testified the firm relied on Burco’s “promises” to the firm’s “detriment.”

At a minimum, however, the law firm was required to urge on appeal promissory estop-pel brought Burco’s promise outside the statute of frauds. “Failure in the brief to state, argue, or cite authority in support of an issue may be deemed waiver of that issue.” Iowa R.App. P. 14(a)(3); Genetzky v. Iowa State Univ., 480 N.W.2d 858, 861 (Iowa 1992). The firm has not preserved this issue for appeal. Because we have found the statute of frauds applies, and the law firm has not raised the doctrine of promissory estoppel on appeal, Burco’s oral contract to pay the debt of his daughter may not be enforced. For these reasons, we reverse.

REVERSED.

HUITINK, J., concurs.

SACKETT, P.J., specially concurs.

1 . The purpose of thie statute of frauds in regard to surety contract is explained in the Restatement of Surety & Guaranty as follows:

In the case of secondary obligations, however, the Statute also serves the cautionary function of guarding the promisor against ill-considered action. The suretyship provision of the Statute is not limited to important or complex contracts, but applies to secondary obligations created by promises made to an obligee of the underlying obligation. Such promises serve a useful purpose, and the requirement of consideration is commonly met by the same promise or performance that is consideration for the principal obligation. However, other considerations militate in favor of requiring a writ-

ing: the motivation of the secondary obligor is often essentially gratuitous; its obligation depends on a contingency that may seem remote at the time of contracting; and natural formalities that often attend an extension of credit are unlikely to provide reliable evidence of the existence and terms of the secondary obligor's undertaking. Reliance of the kinds usual in such situations-extension of credit or forbearance to pursue the principal obligor-does not render the requirement inapplicable. It should be noted that the determination of what constitutes a writing or a signature in an environment of electronic data transmission must continue to evolve.

REST 3d SUR § 11 at 65(1995).

2 . The reliance of a third party on the guarantee of a secondary obligor does not negate the requirement the obligor's promise be in writing. For example: S orally promises C to guarantee the performance of any duty that D may incur to C within the ensuing year. Relying on this promise, C enters into a contract with D, by which D undertakes within the year to select materials for a house and to act as supervising architect during its construction. D, without excuse, fails to perform his contract. S's promise is within the Statute of Frauds. REST 3d SUR § 11 at 66(1995).

3 . To prove promissory estoppel the plaintiff must prove: (1)the promisor should reasonably have expected the agreement to induce action; (2)such action was induced; and (3)enforcement is necessary to prevent injustice. Meylor v. Brown, 281 N.W.2d 632, 635 (Iowa 1979); See § 139 of Restatement (Second) of Contracts (1979).