Opinion
No. 5-031 / 04-0874
Filed October 12, 2005
Appeal from the Iowa District Court for Franklin County, John S. Mackey, Judge.
Jerry and Volnetta Passehl appeal from the trial court's decree interpreting and enforcing their agreement to settle several lawsuits involving Jerry's siblings and the Doris N. Passehl Estate. AFFIRMED.
George Cady of Hobson, Cady Cady, Hampton, for appellants.
John Haney of Hinshaw, Danielson, Kloberdanz Haney, Marshalltown, for appellees.
Heard by Sackett, C.J., and Huitink and Eisenhauer, JJ.
Jerry and Volnetta Passehl appeal from the trial court's decree interpreting and enforcing a written agreement to settle three lawsuits.
I. Background facts and Proceedings.
Jerry, Karen, and David are the children of Doris N. Passehl. Volnetta is Jerry's wife. Doris died in 1997. Karen and David are co-executors of Doris's estate.
Doris owned approximately 160 acres of farmland in Franklin County. At the time Doris died, Jerry and Volnetta occupied the improved five-acre portion of the farm and operated a salvage business there. Karen and David leased the remaining tillable acres for cash to Larry Hansen. Their lease provided for Hansen's use of the grain bins located on the portion of the farm occupied by Jerry and Volnetta.
Family disputes over the administration of Doris's estate and Jerry's operation of his salvage business resulted in three separate lawsuits. In an effort to resolve their differences, the parties agreed to settle their various claims on terms expressed in a written settlement agreement signed on October 17, 2002. The settlement agreement provides:
2. [Jerry and Volnetta] agree to return to Karen Zander and David Passehl the motorized Shriner's car and the cornsheller.
4. [David and Karen] agree to sell to [Jerry and Volnetta] and [Jerry and Volnetta] agree to buy from [David and Karen] the following described real estate, locally known as 513 160th Street, Latimer, Franklin County, Iowa:
An approximate five acre tract located in The Northwest Quarter (NW1/4) of Section 26, Township 92 North, Range 22 West of the 5th P.M., Franklin County, Iowa.
The legal description shall be established by survey which shall coincide with existing fence boundaries required by Franklin County Zoning Ordinances.
[Jerry and Volnetta] agree to deposit into the Brian D. Miller Trust Account Twenty Thousand Dollars ($20,000.00) on or before October 18, 2002. The purchase price for the above described real estate shall be Fifty Thousand Dollars ($50,000.00). Closing shall be held on or before March 1, 2003. The parties agree that the $20,000.00 deposited into the Brian D. Miller Trust Account shall be applied toward the purchase price at time of closing.
In the event that Plaintiff provides marketable title to the subject real estate, but closing does not occur on or before March 1, 2003, as a result of nonperformance by [Jerry and Volnetta], then the parties agree that the $20,000.00 deposited into the Brian D. Miller Trust Account shall be forfeited to [David and Karen].
The parties agree that the purchase of the above described property by [Jerry and Volnetta] is not subject to any Groundwater Hazard Statement disclosures. The parties further agree that [David and Karen] shall not be responsible for any environmental cleanup attributable to the operation of the junkyard by [Jerry and Volnetta].
The parties agree that Karen Zander and David Passehl shall have an easement for access to the grain bins located on the Passehl property but owned by Karen Zander and David Passehl for the purpose of loading and unloading grain. The parties acknowledge that Karen Zander and David Passehl shall be entitled to any and all income from said bins. [Karen and David] shall have the right to make repairs to the bins as necessary.
On the same day, the parties prepared and signed a short farm real estate contract. The real estate contract included the same provision concerning forfeiture of Jerry and Volnetta's $20,000 deposit. The contract further specified the remedies of the parties, including statutory forfeiture.
The parties agreed to postpone the contract closing date from March 1, 2003, to March 24, 2003. David and Karen later agreed to another extention and rescheduled the closing for April 1, 2003, contingent upon Jerry and Volnetta's satisfaction of five conditions specified in a March 19, 2003, letter from David and Karen's attorney. The conditions included returning the Shriner's car and cornsheller; removing the junk vehicles from around the grain bins; removing the horse pasture fence; removing the junk vehicles from outside of the fenced areas; and moving the fence to comply with zoning requirements. At the April 1, 2003, closing, a dispute arose concerning the legal description of the property to be conveyed, as well as Jerry and Volnetta's compliance with all of the terms of the settlement agreement and subsequent conditions to extend the closing date. As a result, the transaction did not close as planned. Thereafter, David and Karen retained the $20,000 deposit under the terms of the settlement agreement and demanded $50,000 from Jerry and Volnetta in order to complete the sale of property.
On July 3, 2003, Jerry and Volnetta filed a "motion to enforce settlement agreement" in one of the civil actions which were the subject of the settlement agreement. Jerry and Volnetta's motion included the following allegations:
6. That the Defendants are ready, willing and able to close the transaction pursuant to the terms of the settlement agreement, and the Plaintiffs refuse to close the transaction.
7. That the Plaintiffs have attempted to evict the Defendants from the property and have attempted to forfeit the $20,000.00 down payment deposited pursuant to the terms of the settlement agreement.
8. That the attempted forfeiture by the Plaintiffs violates Section 656.1 The Code in that the Plaintiffs fail to comply with Chapter 656 in connection with the forfeiture of the Defendants' down payment.
9. That the attempted forfeiture of the down payment made by the Defendants constitutes an illegal penalty and a violation of public policy.
Jerry and Volnetta requested that the court reopen Doris's estate and order the executors to specifically perform the real estate contract.
On July 23, 2003, Karen and David filed a separate "motion to enforce the settlement agreement and motion for declaratory judgment and motion for injunction." Their requested relief included all of the following:
A. That the $20,000.00 placed in the Brian D. Miller Trust Account on or before October 18, 2002, is forfeited based upon the Defendants failing to close the real estate transaction on or before March 1, 2003;
B. That the Court declare the survey conducted on December 6, 2002, establishing the fence boundary required by Franklin County Zoning Ordinance to be the legal description of the property subject to the Settlement Agreement and transaction with the Defendants;
C. That the Defendants be forced to comply with the Settlement Agreement, consistent with the previous two Declaratory Judgment requests, by paying $50,000.00 to Plaintiffs for the purchase of the real estate;
D. That pursuant to Rule 1.1501 of the Iowa Rules of Civil Procedure, an injunction issue prohibiting the Defendants from placing anything within 20 yards of the bins, thereby preventing Defendants from interfering with Plaintiffs' access easement.
E. That the Defendants be enjoined from placing property of any kind outside of the boundary required by Franklin County Zoning Ordinances;
F. That the Defendants be required to indemnify and hold harmless the Plaintiffs from any civil or criminal proceeding relating to the Defendants operation of a junkyard.
The judgment entered following a hearing on the parties' competing motions provides:
At the conclusion of the presentation of evidence, [Jerry and Volnetta] amend the pleadings to conform to the proof to request specific performance of the Settlement Agreement and real estate contract entered into between the parties, to which [David and Karen] resisted. The court reserved ruling upon [Jerry and Volnetta's] motion.
While the provision of the Settlement Agreement, "The legal description shall be established by survey which shall coincide with existing fence boundaries required by Franklin County Zoning Ordinances" is ambiguous, the extrinsic evidence adduced at time of hearing reflects that it was intended by all that the existing six-foot fence would stand as the boundary yet to be surveyed. A reasonable interpretation of the Settlement Agreement under the circumstances and facts as they existed at the time of execution thereof leads to no other conclusion but that the fence was to remain extant and that the survey would coincide with the fence. . . . .
Likewise, it is clear that the parties explicitly agreed that defendants' $20,000 down payment would be forfeited to plaintiffs as a result of defendants' nonperformance. Defendants failed to perform by not only providing access to the grain bins but also by failing to remove junk cars from outside the fence boundary, an agreed upon contingency required prior to closing. The court concludes that Chapter 656 of the Code of Iowa does not apply to the Settlement Agreement, nor is the amount forfeited contrary to equity or the expectations of the parties in the event of nonperformance.
The court further ordered the Doris N. Passehl Estate reopened; enjoined Jerry and Volnetta from placing anything within twenty yards of the grain bins or placing any kind of property outside the existing fence boundary; ordered Jerry and Volnetta to hold Karen and David harmless and indemnify them for any civil or criminal proceedings related to the operation of the salvage business; required Karen and David as co-executors to execute a deed to Jerry and Volnetta conveying the property set out in the Settlement Agreement upon payment of $50,000 and compliance with all terms and contingencies; and denied Jerry and Volnetta's motion to amend to conform to proof. Thereafter, Jerry and Volnetta filed a motion to amend, enlarge, and modify judgment. The motion was denied. Jerry and Volnetta appeal.
On appeal, Jerry and Volnetta raise the following issues for review:
I. THE TRIAL COURT ERRED IN FINDING THAT THE SETTLEMENT AGREEMENT BETWEEN THE PARTIES WAS NOT SUBJECT TO CHAPTER 656, CODE OF IOWA.
II. A VENDOR IN DEFAULT IS NOT ENTITLED TO FORFEITURE.
III. THE TRIAL COURT ERRED IN ENJOINING JERRY AND VOLNETTA PASSEHL FROM PLACING ANYTHING WITHIN TWENTY YARDS (60 FEET) OF THE GRAIN BINS LOCATED UPON THE PROPERTY.
IV. THE TRIAL COURT ERRED IN DENYING THE PASSEHLS' MOTION TO CONFORM TO PROOF.
II. Standard of Review
Our review of the record indicates this case was tried as a law action, and our review is for corrections of errors of law. Iowa R. App. P. 6.4. On appeal, the court's findings of fact are binding upon is if they are supported by substantial evidence. Iowa R. App. P. 6.14(6)( a).
III. Forfeiture
Jerry and Volnetta argue that the forfeiture provisions of the parties' settlement agreement are unenforceable absent compliance with the provisions of Iowa Code chapter 656 (2003) governing the forfeiture of a buyer's interest in a real estate contract. We disagree.
Iowa Code section 656.1 provides:
A contract which provides for the sale of real estate located in this state, and for the forfeiture of the vendee's rights in such contract in case the vendee fails, in specified ways, to comply with said contract, shall, nevertheless, not be forfeited or canceled except as provided in this chapter.
The scope of chapter 656 includes "all cases where the intention of the parties, as gathered from the contract and surrounding circumstances, is to sell or to agree to sell an interest in real estate, any contract or agreement of the parties to the contrary notwithstanding." Iowa Code § 656.6.
Even if we assume without deciding that the provisions of section 656 are implicated because the intention of the parties to the settlement agreement was to agree to sell real estate, that determination does not necessarily preclude enforcement of the forfeiture provisions of the parties' settlement agreement. In similar circumstances, our supreme court has held:
Enforceability of the contact. Pfabs [Purchasers] allege the trial court should have held the contract unenforceable because of Gordons [sellers'] failure to follow the forfeiture procedures in Code chapter 656. This allegation is based on a mistaken view that the damages provided for in the contract would be recoverable only through forfeiture of their advance payment.
The contract contained the following provision regarding damages:
If the purchaser fails to fulfill his part of this agreement, he shall pay the Seller a sum equal to any expense incurred by the Seller as liquidated damages. The advance payment named herein shall be forfeited and the same shall be divided equally between the Seller and his agent to apply on his fee, (however not to exceed standard commission percentage).
The first sentence of this provision authorizes an award of liquidated damages based on [sellers'] expenses. Such an award does not involve forfeiture.
Gordon v. Pfab, 246 N.W.2d 283, 287 (Iowa 1976). The court, however, also held that Gordons' claim that the second sentence of the clause entitled them to forfeit a portion of the advance payment for damages other than expenses incurred was "vulnerable" to Pfabs' forfeiture defense. Id. at 289.
The dispositive question is whether the forfeiture clause in the parties' settlement agreement authorizes an award of liquidated damages based on Jerry and Volnetta's nonperformance of its terms. As already noted, the trial court found "nor is the amount forfeited contrary to equity or the expectations of the parties in the event of nonperformance." Although the factual issues underlying this finding were vigorously contested at trial, the trial court's implied if not express conclusion that the settlement agreement provided for liquidated damages is not challenged on appeal. In the absence of such a challenge or claim on appeal that the liquidated damages provisions of the settlement agreement are otherwise invalid, we believe the court's reasoning in Gordon v. Pfab controls the outcome here. Because the settlement agreement authorizes an award of liquidated damages, David and Karen were entitled to retain the $20,000 advance payment without resorting to statutory forfeiture procedures. We affirm on this issue.
IV. Injunctive Relief
Jerry and Volnetta next contend the trial court erred in enjoining them from placing anything within twenty yards of the grain bins. They believe the court "overstepped its authority and unreasonably intruded upon the[ir] rights . . . without any evidence from the Estate as to the true extent of the Estate's requirements insofar as regularity or extent of use."
The settlement agreement provided in part:
The parties agree that Karen Zander and David Passehl shall have an easement for access to the grain bins located on the Passehl property but owned by Karen Zander and David Passehl for the purpose of loading and unloading grain.
In their motion to enforce the settlement agreement, David and Karen asked for an injunction prohibiting Jerry and Volnetta from placing anything with twenty yards of the grain bins. In support of the request, both David and his attorney Brian Miller testified that Jerry and Volnetta have failed to provide any access to the grain bins as required by the agreement. Even though the parties left the specific terms of the easement out of the agreement, courts will, if possible, "attach a sufficiently definite meaning to the bargain." See Sierra Club v. Wayne Weber Inc., 689 N.W.2d 696, 705 (Iowa 2004) (affirming court's decree which provided additional terms to an existing settlement agreement). We find substantial evidence in the record to support the court's determination of the twenty-yard easement around the bins is necessary to attach meaningful purpose to the parties' settlement agreement.
V. Motion to Amend
Jerry and Volnetta's last assignment of error concerns the trial court's decision to deny their motion to conform to proof. A decision denying a motion to conform to proof rests solely within the sound discretion of the trial court, and is reversible only through a showing of clear abuse of discretion. Scott v. Grinnell Mut. Reins. Co., 653 N.W.2d 556, 561 (Iowa 2002). Proof of abuse may be shown by demonstrating the court's decision rested on unreasonable or untenable grounds. Rife v. D.T. Corner Inc., 641 N.W.2d 761, 766 (Iowa 2002).
At the conclusion of all the evidence, Jerry and Volnetta made a motion to amend the pleadings to conform to proof requesting that the motion to enforce include the real estate contract executed by the parties. Even though the motion was made after all the evidence had been received, the timing of the motion to amend is not determinative. See Allison-Kesley Ag Ctr. Inc. v. Hildebrand, 485 N.W.2d 841, 845-46 (Iowa 1992). Instead, the crucial question is whether the motion to amend substantially changed the issues before the court. Scott, 653 N.W.2d at 561. However, "when the movant seeks to amend based upon trial testimony that the movant knew or should have known about beforehand, amendments that might well have otherwise been allowed earlier in the course of the proceedings may properly be denied by the district court judge." Hildebrand, 485 N.W.2d at 845 (citing Mora v. Savereid, 222 N.W.2d 417, 422-23 (Iowa 1974)). Because the testimony and exhibits concerning the separate real estate agreement were of no surprise to Jerry and Volnetta, we find no abuse of discretion in the court's decision denying the motion to amend to conform to proof.
We have carefully considered all of the parties' arguments on appeal and find they are either controlled by the foregoing or are without merit. The decision of the trial court is affirmed in entirety.
AFFIRMED.
Eisenhauer, J., concurs; Sackett, C.J., concurs in part and dissents in part.
I concur in part and dissent in part.
The majority has affirmed the district court's decision allowing contract sellers of real estate to forfeit a $20,000 down payment where the sellers failed to comply with the notice provisions of Iowa Code chapter 656. They have done so (1) despite language in the contract requiring compliance with section 656, and (2) the language of 656.1 (2003). This section provides a contract for sale of real estate in Iowa which provides "for the forfeiture of the vendee's rights in said contract in case the vendee fails, in specific ways, to comply,shall, nevertheless, not be forfeited or cancelled except as provided in this chapter." (Emphasis added).
The majority has reasoned that Gordon v. Pfab, 246 N.W.2d 283, 287 (Iowa 1976), allows the sellers to forfeit the $20,000 down payment without complying with the notice provisions of section 656.2. I do not find Gordon to support this position.
Gordon was a breach of contract case brought by sellers of land. Gordon, 246 N.W.2d at 285. In Gordon, the buyers contended the contract was not enforceable because the sellers failed to follow forfeiture provisions of Iowa Code section 656. Id. at 287.
A provision in the Gordon contract provided if the buyer did not perform he should pay seller any expenses incurred by the seller as liquidated damage. The court noted this provision did not involve forfeiture and affirmed an award for seller's expenses against an advance payment made by buyer. The court went on to note that a further provision, which provided the advance payment should be forfeited and divided between seller and his agent, was vulnerable to the buyer's claim that sellers did not comply with section 656. Id. Gordon addresses only recovery of expenses incurred by a seller and agreed to by contract to be paid by the buyer. Here the only agreement, presuming it is enforceable, is for buyer's money to be forfeited. The seller was not required to show damages. An agreement such as we have here in Gordon was said to be vulnerable to the defense the seller had not complied with the forfeiture provisions of section 656. Id.
Referred to by the court as the second sentence.
I see Gordon's holding as limited to very specific facts, namely where a seller seeks to recover under an agreement where the buyers agree to pay certain defined expenses.
Furthermore, the forfeiture provision in this real estate contract is rendered meaningless by section 656.6 which provides:
This chapter shall be operative in all cases where the intention of the parties, as gathered from the contract and surrounding circumstances, is to sell or agree to sell an interest in real estate, any contract or agreement of the parties to the contrary notwithstanding.
(Emphasis added).
I have concerns the majority in affirming have opened the door to allowing sellers, honest and otherwise, to include a similar provision in a real estate sales contract and forfeit payments without notice, contrary to legislative enactment and/or without any showing of an agreement to pay actual damages which facts in Gordon the court relied upon in finding compliance with the notice provisions of chapter 656 not necessary.
Furthermore, even if the provision were valid its terms and conditions were not met. The closing was postponed by agreement, and when appellants' attorney delivered a $30,000 check for the balance appellees could not provide a deed to the property. The district court ultimately determined appellants should have provided the deed. Consequently, even under its terms the liquidated damage provision was not enforceable, and the $20,000 should not have been forfeited.