Warder & Lee Elevator, Inc. v. Britten

McCORMICK, Justice.

The question in this action for breach of an oral contract to sell grain is whether the trial court erred in holding defendant’s statute of frauds defense under the Uniform Commercial Code was defeated by promissory estoppel. We affirm the trial court.

This case was tried to the court at law. The trial court’s findings of fact have the effect of a special verdict and we examine the evidence in the light most favorable to the judgment. We are not bound by trial court determinations of law. Kurtenbach v. TeKippe, 260 N.W.2d 53, 54-55 (Iowa 1977).

Plaintiff Warder & Lee Elevator, Inc., operates a grain elevator in the town of Webster. The corporation president, Francis Lee, managed the elevator for many years until he suffered a slight stroke in November 1974. He was succeeded as manager by his son James who had been an elevator employee since 1964. The Lees were the only witnesses at trial.

We recite the evidence in the light most favorable to the judgment. Francis Lee was alone in the elevator office on July 4, 1974. Defendant John W. Britten, a farmer in the area, came to the office during the morning with a friend. The elevator had purchased Britten’s grain for years, and he and Lee were well acquainted. At Britten’s request Lee quoted him the price the elevator would pay for new-crop corn and soybeans for fall delivery based on market prices of the prior day.

Britten offered to sell and Lee agreed for the elevator to purchase from Britten 4000 bushels of corn at $2.60 per bushel and 2000 bushels of beans at $5.70 per bushel for October-November delivery.

The elevator did not at that time require a seller to sign a memorandum or other writing to show the agreement. Instead, the only writing consisted of notes showing the terms of sale made by Lee for internal bookkeeping purposes. All of the elevator’s prior purchases from Britten had been upon oral agreement, and Britten had kept his promises on each occasion. In fact, no seller had previously refused to perform an oral agreement with the elevator.

It was the custom of the elevator not to speculate in grain but to act essentially as a broker. Thus on July 5, 1974, the elevator sold the same quantities of corn and beans as were involved in the Britten purchase for fall delivery to terminal elevators at Musca-tine for a few cents more per bushel.

Grain prices increased substantially during July. On July 29, 1974, Britten called Francis Lee and said he wished to “call the deal off”. Lee told him: “You cannot call it off. We sold this grain, and we expect delivery this fall.” Britten said he would not deliver the grain.

In an effort to mitigate its loss and to enable it to meet its commitment to sell the grain, the elevator purchased appropriate quantities of new-crop corn and beans from other farmers on and shortly after July 29.

In August 1974, James Lee met Britten on a street in Webster. Britten initiated a conversation in which he said he would not fulfill his agreement and offered $500 in settlement. Although counsel for Britten objected to the admissibility of the evidence at trial, the objection was untimely and no motion to strike was made. Lee rejected the offer. He told Britten the elevator had sold the grain and expected him to perform under his contract.

Britten sold his 1974 crop elsewhere.

The elevator brought this action against Britten for breach of the oral agreement, seeking as damages the loss it sustained in covering its delivery obligation under the July 5 contracts by which it sold the quantity of grain purchased from Britten. See § 554.2712, The Code. That loss was $6478.34, which was the amount, plus interest, for which the trial court entered judgment.

Britten offered no evidence at trial. He relied solely on the statute of frauds in § 554.2201, The Code. The elevator urged promissory estoppel in bar of the defense.

The statute of frauds applicable to the sale of crops is § 554.2201. Under this statute an oral contract for the sale of goods for a price of $500 or more is unenforceable, with certain stated exceptions. The elevator does not contend any of those exceptions is applicable. Promissory estop-pel is not among them.

Authority for use of promissory estoppel to defeat the statute of frauds, if it exists, must be found under § 554.1103. It provides:

Unless displaced by the particular provisions of this chapter, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.

We have not had occasion to decide whether the provisions of § 554.2201 displace the doctrine of estoppel which would otherwise be available in accordance with § 554.1103. However, other courts which have considered the question have held the doctrine is available. Several of those decisions involved grain sales in circumstances analogous to those in the present case. See Decatur Cooperative Association v. Urban, 219 Kan. 171, 547 P.2d 323 (1976); Jamestown Terminal Elevator, Inc. v. Hieb, 246 N.W.2d 736 (N.D.1976); Farmers Elevator Company of Elk Point v. Lyles, 238 N.W.2d 290 (S.D.1976).

When other courts have refused to apply the doctrine they have done so because of a different view of the doctrine of promissory estoppel rather than because of any perceived statutory bar to its use. See Cox v. Cox, 292 Ala. 106, 289 So.2d 609 (1974); Del Hayes & Sons, Inc. v. Mitchell, 304 Minn. 275, 230 N.W.2d 588 (1975); Farmland Service Coop. v. Klein, 196 Neb. 538, 244 N.W.2d 86 (1976).

We have long recognized promissory es-toppel as a means of defeating the general statute of frauds in § 622.32, The Code. See Miller v. Lawlor, 245 Iowa 1144, 66 N.W.2d 267 (1954); Shell Oil Co. v. Kelinson, 158 N.W.2d 724 (Iowa 1968); Johnson v. Pattison, 185 N.W.2d 790 (Iowa 1971). We see nothing in § 554.2201 which purports to require a different rule under the Uniform Commercial Code.

The listing of exceptions to the statute of frauds in § 554.2201 is plainly definitional. The provision does not purport to eliminate equitable and legal principles traditionally applicable in contract actions. Therefore it does not affect the viability of defenses to application of the rule of evidence which it defines. See White and Summers, Handbook of the Law Under the Uniform Commercial Code § 2-6 at 59 (1972) (“There is every reason to believe these remain good law, post-Code.”).

If § 554.2201 were construed as displacing principles otherwise preserved in § 554.1103, it would mean that an oral contract coming within its terms would be unenforceable despite fraud, deceit, misrepresentation, dishonesty or any other form of unconscionable conduct by the party relying upon the statute. No court has taken such an extreme position. Nor would we be justified in doing so. Despite differences relating to the availability of an estoppel defense, courts uniformly hold “that the Statute of Frauds, having been enacted for the purpose of preventing fraud, shall not be made the instrument of shielding protecting, or aiding the party who relies upon it in the perpetration of a fraud or in the consummation of a fraudulent scheme.” 3 Williston on Contracts § 553A at 796 (Third Ed. Jae-ger, 1960). The estoppel defense, preserved on the same basis as the fraud defense by § 554.1103, developed from this principle. “The Statute was designed as the weapon of the written law to prevent frauds; the doctrine of estoppel is that of the unwritten law to prevent a like evil.” Id. at 797-798.

We have found no reported decision in any jurisdiction holding that the statute of frauds in the Uniform Commercial Code, defined as it is in § 554.2203, displaces principles preserved in § 554.1103. We do not believe that our legislature intended for it to do so.

We hold that the provisions of § 554.2201 do not displace the doctrine of estoppel in relation to the sale of goods in Iowa.

We recently discussed the elements of promissory estoppel in Merrifield v. Troutner, 269 N.W.2d 136, 137 (Iowa 1978). Those elements are (1) a clear and definite oral agreement, (2) proof that the party urging the doctrine acted to his detriment in relying on the agreement, and (3) finding that the equities support enforcement of the agreement.

In the landmark case Miller v. Lawlor, supra, the court defined the doctrine in similar terms and did not limit its application to situations involving unilateral promises. 245 Iowa 1154, 66 N.W.2d 273. In fact the opposite contention was urged in that case, that the doctrine should be limited to situations where a clear and definite oral agreement is established. The court found such an agreement: “We find quite definite (practically undenied) evidence of ‘a clear and definite oral agreement’, relied on by plaintiff to his detriment.” Id.

The issue is whether one has acted to his detriment in reliancé upon the promise of another, and it is immaterial whether that promise was unilateral or bilateral. See, generally, Williston, supra, § 553A.

Specific circumstances which justify use of the doctrine as a means of avoiding a statute of frauds defense are now expressed in Restatement (Second) of Contracts § 217A (Tent. Draft 1-7,1973), as follows:

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

(2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:

(a) the availability and adequacy of other remedies particularly cancellation and restitution;

(b) the definite and substantial character of the action or forbearance in relation to the remedy sought;

(c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;

(d) the reasonableness of the action or forbearance;

(e) the extent to which the action or forbearance was foreseeable by the promisor.

This section complements Restatement (Second) of Contracts § 90, the predecessor of which we previously approved. See Miller v. Lawlor, supra. We now approve and adopt the standard in § 217A.

This standard moots the question whether Restatement of Contracts § 90 was intended to defeat the statute of frauds. See Annot., 56 A.L.R.3d 1037, 1050-1052. The standard is consistent with our holdings permitting the doctrine to be used to defeat the general statute of frauds. It is also consistent with the decisions allowing promissory estoppel to defeat the Uniform Commercial Code statute of frauds. See Decatur Cooperative Association v. Urban, 219 Kan. 171, 547 P.2d 323 (1976); Jamestown Terminal Elevator, Inc. v. Hieb, 246 N.W.2d 736 (N.D.1976); Farmers Elevator Company of Elk Point v. Lyles, 238 N.W.2d 290 (S.D.1976). It provides a basis for distinguishing contrary holdings. See Del Hayes & Sons, Inc. v. Mitchell, 304 Minn. 275, 230 N.W.2d 588 (1975); Farmland Service Coop., Inc. v. Klein, 196 Neb. 538, 244 N.W.2d 86 (1976). Of course, it also obviates any distinction based upon whether the promise is unilateral or bilateral. Restatement § 217A, comment a. (“This Section is complementary to § 90, which dispenses with the requirement of consideration if the same conditions are met, but it also applies to promises supported by consideration.”).

In order to obtain the benefit of the doctrine of promissory estoppel to defeat a statute of frauds defense, the promisee must show more than the nonperformance of an oral contract. See 3 Williston on Contracts § 553A (Third Ed. Jaeger, 1960). Under § 217A the defense cannot be overcome, when it is otherwise applicable, unless the promisee proves (1) the promisor"! should reasonably have expected the agreement to induce action or forbearance, (2) such action or forbearance was induced, and (3) enforcement is necessary to prevent in- i justice. * — ‘

In determining whether injustice can be avoided only by enforcement of the promise, the circumstances listed in § 217A(2) must be considered. In this manner, § 217A provides a means of deciding whether the equities support enforcement of the agreement.

We must now decide whether the trial coúrt erred in applying the doctrine of promissory estoppel in this case.

Britten contends the elevator should not have the benefit of the doctrine because it did not plead it and did not prove he knew it would rely on the oral agreement.

We find no merit in his first contention for two reasons. The statute of frauds was asserted in Britten’s answer. The elevator might have pled promissory estoppel if the court had ordered a reply, but no reply was ordered. See rule 73, Rules of Civil Procedure. Furthermore, counsel for the elevator twice invoked the doctrine on the record during the course of trial, and Britten did not challenge its failure to plead it at any time in the trial court. Under these circumstances he may not complain on appeal of the elevator’s failure to plead it.

Although Britten’s second contention presents a closer question, we also find it is without merit. We do so because we believe substantial evidence supports the inference he expected or reasonably should have expected the agreement to induce action by the elevator. It was not necessary for the elevator to prove he actually knew it would rely on his promise. He should have known his prior dealings with the elevator gave the elevator manager every reason to believe he would keep his word. Furthermore, it is reasonable to believe that a farmer who sells grain regularly to country elevators knows they may immediately sell the grain which they purchase. In this case, Britten expressed no surprise when the elevator refused to allow him to rescind because of its sales in reliance on the agreement. Instead he sought to buy his way out of the transaction.

We conclude that the elements of promissory estoppel were supported by substantial evidence. In keeping with the standard in Restatement § 217A, we hold that injustice could be avoided only by enforcement of Britten’s promise. The trial court did not err in holding the agreement was enforceable despite the statute of frauds defense.

AFFIRMED.

All Justices concur except REYNOLD-SON, C. J., and ALLBEE, J., who dissent.