Opinion
No. 5-742 / 04-1704
Filed November 23, 2005
Appeal from the Iowa District Court for Jasper County, Gary G. Kimes, Judge.
Plaintiff purchasers appeal from a district court ruling entered in favor of defendant sellers in an action arising from a failed real estate transaction. AFFIRMED.
Erik A. Luthens of Luthens Law Offices, P.C., West Des Moines, for appellants.
John H. Terpstra of Brierly Charnetski, L.L.P., Newton, for appellees.
Considered by Zimmer, P.J., and Miller and Vaitheswaran, JJ.
Plaintiffs Dale Lautenbach and Teresa Fields-Lautenbach appeal from a district court ruling in favor of defendants Donald Rowan and Annette Rowan, which dismissed the Lautenbachs' various claims stemming from a failed real estate transaction. The Lautenbachs contend the district court erred in dismissing their claims for fraudulent misrepresentation, violation of Iowa Code chapter 558A (2001), and breach of the purchase agreement; and in failing to award punitive damages and attorney fees. We affirm the district court.
I. Background Facts and Proceedings.
The pertinent facts in this matter are largely undisputed. At all relevant times the Rowans were the owners of real property located at 800 South 72nd Avenue East, in Newton, Iowa. The Rowan property consists of approximately forty-eight acres of land, a modular home constructed in 1999, and various outbuildings. In September 2002 the Rowans arranged to sell their real property, along with items of personal property, via an auction.
Dale Lautenbach learned of the upcoming auction, and he and Teresa viewed the Rowan property on more than one occasion prior to the sale. Dale, who had extensive construction experience, considered the home to be well built, and noticed no defects with the home other than damage to a basement wall. Dale and Donald discussed the damage and Donald's repairs to the wall. Donald also informed Dale of a prior problem with water leakage in the basement, and grading and other steps Donald had taken to correct the problem.
At the September 28 auction the Lautenbachs submitted the high bid of $230,000. Consistent with the terms of the auction the Lautenbachs paid a ten percent "non refundable deposit" of $23,000. The Lautenbachs and the Rowans entered into a written real estate contract, wherein the Lautenbachs agreed to pay the Rowans a ten percent $23,000 down payment, with the remaining balance of $207,000 due upon the Rowan's delivery of the deed and an abstract showing merchantable title. Closing was set for October 28, 2002. The Lautenbachs were also presented with a residential disclosure statement, prepared and signed by the Rowans, stating the home had no known problems and noted no repairs to the property.
The Lautenbachs were unable to obtain financing by the October 28 closing date. The Rowans granted the Lautenbachs an extension, but the Lautenbachs were still unable to obtain financing. Accordingly, on November 18 the Rowans served a notice of forfeiture of the real estate contract on the Lautenbachs' attorney. The notice stated the contract would be forfeited unless the Lautenbachs paid the balance due within thirty days of service.
On December 11 the Lautenbachs received a title opinion regarding the Rowan property. The opinion noted pending litigation between the Rowans and the company that constructed the Rowan home, Central Iowa Homes, LC (CIH), and advised the Lautenbachs to "require a full disclosure . . . of this transaction and . . . a resolution of the action prior to accepting title." This was the first time the Lautenbachs were informed of the litigation, which had been brought by CIH to recover $26,500 allegedly due from the Rowans. The Rowans had filed a counterclaim against CIH alleging the house was not constructed in a good and workmanlike manner, and suffered from various defects that would cost in excess of $15,000 to repair.
The Lautenbachs, who had never succeeded in obtaining financing and thus never paid the balance under the contract, demanded return of their $23,000 down payment. The Rowans did not return the down payment, and on December 18 the Lautenbachs filed suit against the Rowans, raising claims of negligent misrepresentation, fraudulent misrepresentation, breach of contract, violation of Iowa Code chapter 558A (2001), and specific performance. They sought return of the down payment, compensatory damages, punitive damages, attorney fees, costs, and judgment interest. The Rowans filed an answer denying the Lautenbachs' claims.
The Lautenbachs also requested a temporary injunction preventing the Rowans from dissipating the $23,000 down payment. The court granted an injunction restraining disposal of remaining funds, subject to the filing of a bond. No bond was ever posted.
The Rowans also filed a cross-petition against the auction service. The cross-petition was dismissed by the district court and is not at issue on appeal.
The matter proceeded to trial in May 2004. The Rowans asserted the Lautenbachs had been informed of any and all significant defects in the home. The Lautenbachs asserted the Rowans failed to disclose most of the defects alleged in the Rowans' counterclaim against CIH, or the fact that those defects had been repaired.
The court entered its ruling in July 2004, dismissing the Lautenbachs' petition. In relevant part, the court found that the Lautenbachs failed to demonstrate the Rowans had made fraudulent misrepresentations, and that the Rowans had filled out the residential disclosure statement in good faith. The court concluded the Lautenbachs had not demonstrated that any acts or omissions of the Rowans had proximately caused the Lautenbachs damage, and any damages the Lautenbachs suffered were the result of their own failure to obtain financing. The court further concluded the Lautenbachs had not performed under the contract, and thus could not establish a claim for breach.
The Lautenbachs filed a motion to amend, enlarge, clarify, and reconsider pursuant to Iowa Rule of Civil Procedure 1.904(2). The motion was denied by the court, and the Lautenbachs appeal. They contend they established fraudulent misrepresentation, a violation of chapter 558A, and breach of contract by the Rowans, and accordingly should be awarded compensatory damages of $23,000, punitive damages, trial and appellate attorney fees, costs, and interest.
II. Scope and Standards of Review.
Our review is for the correction of errors at law. Iowa R. App. P. 6.4. We will uphold the district court's findings of fact if they are supported by substantial evidence. EnviroGas, L.P. v. Cedar Rapids/Linn County Solid Waste Agency, 641 N.W.2d 776, 780-81 (Iowa 2002). Evidence is substantial when a reasonable mind would accept it as adequate to reach a conclusion. Falczynski v. Amoco Oil Co., 533 N.W.2d 226, 230 (Iowa 1995). Evidence is not insubstantial simply because it supports different inferences. In re Estate of Bayer, 574 N.W.2d 667, 670 (Iowa 1998).
We view the evidence in the light most favorable to upholding the district court's ruling. Van Oort Constr. Co. v. Nuckoll's Concrete Serv., Inc., 599 N.W.2d 684, 689 (Iowa 1999). Weighing the evidence and assessing credibility are matters left to district court. Tim O'Neill Chevrolet, Inc. v. Forristall, 551 N.W.2d 611, 614 (Iowa 1996). When evidence is in conflict, it is the role of the district court to resolve this conflict in light of its own credibility assessments. State v. Hopkins, 576 N.W.2d 374, 377 (Iowa 1998).
III. Discussion.
We begin with the Lautenbachs' assertion that the district court erred in dismissing their claim for fraudulent misrepresentation. To establish such a claim, the Lautenbachs must demonstrate, through clear, satisfactory and convincing evidence, that the Rowans made a false and material representation to the Lautenbachs, the Rowans did so knowing the representation was false and with an intent to deceive the Lautenbachs, the Lautenbachs justifiably relied on the truth of the representation, that the representation proximately caused the Lautenbachs damage, and the amount of that damage. See Midwest Home Distrib., Inc. v. Domco Indus. Ltd., 585 N.W.2d 735, 738 (Iowa 1998). A "representation" can include a failure to disclose material information the Rowans had a duty to communicate. Wright v. Brooke Group Ltd., 652 N.W.2d 159, 174 (Iowa 2002).
Upon a review of the record we agree with the district court's conclusion that the Lautenbachs have failed to establish this claim. In pertinent part, the district court found (1) the Rowans did not provide any false information to the Lautenbachs and further disclosed any and all problems with the property, and (2) the Lautenbachs failed to demonstrate any damages, as the loss of their $23,000 deposit was the direct result, not of any representations or concealments made by the Rowans, but the Lautenbachs' own failure to obtain financing. Both determinations find substantial support in the record.
The Lautenbachs did not offer any affirmative proof that, at the time they viewed or bid upon the Rowan's home, the home suffered from any undisclosed defects. Rather, they rely exclusively upon allegations contained in the counterclaim the Rowans filed against CIH approximately eight months prior to the auction: that the home was not constructed in a good and workmanlike manner, the basement leaked, the house had no gutters, the retaining walls were improperly installed, the electrical work was defective, and the roof leaked. However, each allegation was refuted by testimony from not only the Rowans, but the Lautenbachs.
Dale Lautenbach testified his construction experience allowed him to assess the quality of workmanship, and that "[t]he workmanship wasn't that poor in the house." Dale further verified that he and Donald had discussed a basement leak and that the home had gutters when he inspected it prior to the auction. Dale admitted that despite his experience he detected none of the alleged defects. Moreover, Donald and Annette testified all defects had been resolved prior to the CIH litigation, and that their counterclaim should have been cast in the former rather than present tense. Donald stated he informed the Lautenbachs of "every problem that we had with the house before we lived in it," including a chimney defect not specifically listed in the counterclaim.
Donald also indicated some allegations in the counterclaim were mischaracterizations or amplifications of information the Rowans had supplied their attorney. Donald testified the retaining walls were not defective but simply "not put in how I told them," and that he had pointed this fact out to Dale. Donald further testified the only "electrical problem" that could "even come close to where this [allegation in the counterclaim] comes from is that the cover blew off of the front light . . . and some water got down [in it] and it smoked."
The foregoing provides substantial support for the district court's finding that the Rowans did not make false material representations or concealments regarding any defects to the property. Although the Lautenbachs contend the Rowans also intentionally failed to disclose material "repairs" to the property, the record substantially supports a finding that most if not all of the alleged defects and corrections were orally disclosed to Dale, and that any omissions by the Rowans were not done with an intent to deceive the Lautenbachs.
The Lautenbachs contend that, regardless of this evidence, the Rowans must be bound by the allegations in their counterclaim filed against CIH. To support this contention they cite to cases that conclude factual admissions in a pleading are binding in the action in which the pleading was filed. See, e.g., Beyer v. Todd, 601 N.W.2d 35, 41-42 (Iowa 1999); Miller v. AMF Harley-Davidson Motor Co., Inc., 328 N.W.2d 348, 352 (Iowa Ct.App. 1982). We see nothing in these cases that indicates this principle should be extended to bind a party in one litigation by a pleading he or she filed in a separate action. Moreover, even if were to bind the Rowans to their pleading in the CIH litigation, it would only establish defects in the home at the time the pleading was filed. It would not establish such defects continued to exist at the time of the inspections or auction.
When asked why no repairs were listed on the residential disclosure statement, Donald testified he believed he had filled out the statement correctly as all "major repairs" were completed during the construction phase. The Lautenbachs attempt to cast doubt on this testimony by pointing to the fact that the Rowans moved into their home in 1999 yet the 2001 counterclaim was phrased in the present tense, and that the Rowans' attorney drafted a letter in December 2002 which indicated the home still needed repairs. However, the district court was entitled to place greater weight upon the Rowans' testimony than it did upon the language in documents drafted by their attorney.
Moreover, even if the Rowans did fail to disclose any material repairs to the property, the Lautenbachs cannot establish they were damaged by such omission. The only actual damages claimed by the Lautenbachs are the loss of their $23,000 "non refundable deposit," and attorney fees and costs incurred in pursuing their rights under the real estate contract. The record clearly and substantially supports a conclusion that the forfeiture of the real estate contract, and the resulting loss of the $23,000 deposit, were the direct result of only one thing — the Lautenbachs' failure to obtain financing for their home.
While the Lautenbachs assert their inability to obtain financing was somehow the result of the then-pending CIH litigation, such an assertion finds no support in the record. The Lautenbachs discussed financing with three different lenders. None told the Lautenbachs the CIH litigation would interfere with their ability to obtain financing, and in fact the action, which had not been reduced to judgment and was not listed on the lis pendens index, in no way impaired the Rowan's ability to transfer marketable title. Rather, one lender informed the Lautenbachs that they could obtain financing only after selling their own home, and a second lender declined to even take an application from the Lautenbachs because of their high level of credit card debt.
The matter has since been settled.
Substantial evidence supports the district court's determination that the Lautenbachs did not meet their burden to establish the elements of fraudulent misrepresentation. The foregoing evidence similarly supports the court's conclusion that the Lautenbachs failed to establish a claim under chapter 558A, which requires sellers to complete in good faith a disclosure form that informs purchasers of "the condition and important characteristics of the property," and imposes liability for failure to disclose such information when the seller has actual knowledge of the condition or characteristic, or when the seller fails to exercise ordinary care in obtaining the information. See Iowa Code §§ 558A.3-.4, 558A.6. It also precludes recovery on the Lautenbachs' breach of contract claim.
The parties and the district court all agreed this claim was governed by the case of Arthur v. Brick, 565 N.W.2d 623, 625 (Iowa Ct.App. 1997), and that under Arthur a party alleging a violation of chapter 558A must also establish all the elements of fraudulent misrepresentation. This interpretation of Arthur was in fact approved by our supreme court in the case of Sedgwick v. Bowers, 681 N.W.2d 607, 611 (Iowa 2004), filed shortly before the district court issued a ruling in this matter. As we have already concluded, the elements of fraudulent misrepresentation have not been met.
After this matter was appealed, the supreme court overruled Sedgwick, noting Arthur involved a common law fraudulent misrepresentation claim and not a chapter 558A nondisclosure claim, and moreover that chapter 558A contains an ordinary care prong. See Jensen v. Sattler, 696 N.W.2d 582, 587 (Iowa 2005). In their reply brief the Lautenbachs urge us to apply Jensen, and conclude the Rowans failed to use ordinary care in completing the disclosure statement. Even if such retroactive application were permissible it would do little to assist the Lautenbachs, as the district court's supported factual findings preclude recovery under either Sedgwick or Jensen. Moreover, we note the Lautenbachs did not rely on the ordinary care prong before the district court, and the district court's interpretation of Arthur is not an issue before us on appeal.
To prevail on a breach of contract claim a party must show
(1) the existence of the contract; (2) the terms and conditions of the contract; (3) that the buyers have performed all of the terms and conditions of the contract required of them to now require the seller to perform; (4) that the contract was breached in some particular way; and (5) that the buyer has suffered damages.
Berryhill v. Hatt, 428 N.W.2d 647, 652 (Iowa 1988).
As noted by the district court, the Lautenbachs cannot prove they performed all the terms and conditions of the contract that they were required to perform, as they did not tender the remaining $207,000 balance due within the time set for performance. Again, while the Lautenbachs seek to place blame for this failure at the Rowans' door, the record contains substantial if not overwhelming support for the conclusion the Lautenbachs' failure to pay the balance was due to their inability to obtain financing, which was directly and solely attributable to the fact they simply did not qualify to borrow the necessary amount. Similarly, any assertion the Rowans themselves breached the contract because they were unable to deliver merchantable title is simply without merit.
IV. Conclusion.
We have considered all of the Lautenbachs' claims, whether or not specifically discussed. The district court's factual findings that the Rowans did not provide false information to the Lautenbachs and disclosed any and all problems with the property, and that any damages incurred by the Lautenbachs were the direct and sole result of their own failure to carry out their contractual promises, find substantial support in the record. See Tim O'Neill Chevrolet, 551 N.W.2d at 614 (noting the question on appeal is not whether the evidence would support a different finding, but whether it would support the finding actually made by the district court). Accordingly, the district court properly dismissed the Lautenbachs' fraudulent misrepresentation, chapter 558A, and breach of contract claims.