Summary of a Recent
Judicial Development in
Production Contracts

Defendant Hog Producer Fails to Establish Affirmative Defense,
Did Not Advise Growers of Good Neighbor Policy

John Pesek,
National AgLaw Center Research Associate

Summary of Decision

In Powell v. Swine Graphics Enterprises, L.P., No. 00-2002, 2002 WL 180883 (Iowa Ct. App., Feb. 6, 2002), the Iowa Court of Appeals held that the defendant did not properly preserve its defense of failure to mitigate damages for appeal, and that the defendant failed to meet its burden of proof for its affirmative defense that the plaintiffs failed to meet a condition precedent to their contract.

Background

The plaintiffs, the Powells, operated a hog farm where they finished hogs and provided nursery space for Swine Graphics, a hog producer. Id. at *1. In early 1998, the Powells had several negotiations with Swine Graphics about expanding their hog operation, which required construction of new buildings, and extending the existing contracts. See id. The Powells began constructing several new buildings near a neighboring farm owned by the Andersons, but Swine Graphics eventually withdrew its endorsement of the project when the Andersons became upset about the construction of buildings near their farm. See id. The Powells sued Swine Graphics and were awarded damages of $111,069 by a jury, and Swine Graphics appealed. See id.

Arguments

The defendant asserted that it was entitled to a directed verdict based on the plaintiff's failure to mitigate damages by: 1) neglecting to speak with their neighbors before commencing construction; 2) failing to consider alternate locations for the building; and, 3) failing to contract other hog producers to obtain other contracts for hogs. See id. The defendant also argued that the plaintiff had failed a condition precedent to the contract by not seeking the Andersons' approval before the construction began. See id.

Analysis and Holdings

The court found that, in its motion for directed verdict, the defendant failed to raise the issue of the plaintiff's failure to mitigate damages; therefore, the defendant did not properly preserve the issue for appeal. See id. The court stated that the standard for review that applied to the defendant's claim that the plaintiff failed to meet a condition precedent to the contract was to determine whether there was sufficient evidence to generate a question for the jury. Id. (citing Top of Iowa Coop. v. Sime Farms, Inc., 608 N.W.2d 454, 466 (Iowa 2000)). The court was required to view the evidence in the light most favorable for the non-moving party. See id. The court held that the question of whether there is a condition precedent depends on the intention of the parties, gathered from the language of the entire instrument. Id. at *2. The court concluded four facts central to this question: 1) the defendant never mentioned its good neighbor policy in its initial meeting with the plaintiff, nor did it mention the policy at the commencement of the construction; 2) after the plaintiff told the defendant of the Andersons' negative response to the construction, the defendant again failed to mention the policy; 3) after the defendant acknowledged that the Andersons had complained, it again failed to mention the policy even after the plaintiffs signed a credit agreement to secure funding for the project; and 4) after all of these facts, the defendant sent a letter to the plaintiffs advising them that they needed permission from their neighbors, even though there was no written good neighbor policy and it had never been mentioned. See id. The court held that the defendant did not establish its affirmative defense as a matter of law because there were sufficient issues to submit to the jury on the condition precedent to the contract. Id. at *3.

The case was decided on February 6, 2002.