Contract for Sale of Land Set Aside Due to “Failure of Consideration”

January 17, 2014 | Kristine A. Tidgren

Ziskovsky v. Ziskovsky, No. 3-1062 / 13-0360, 2014 Iowa App. LEXIS 17 (Iowa Ct. App. Jan. 9, 2014)

The defendants were the plaintiff’s son and daughter-in-law.  In 1999, the defendants acquired a six-acre tract adjacent to the plaintiff’s farm that she owned with her husband. The tract was land-locked and zoned for agricultural use only. The zoning regulations provided that an owner could only place a residence on agricultural property if the parcel was 40 acres or larger. Because the defendants wanted to move a manufactured home to the property, and because it was unlikely that they would succeed in having the property rezoned as “residential,” the defendants sought to purchase a 60-acre adjacent parcel from the plaintiff and her husband.

Although some of the facts were in dispute, it was established that the defendants showed up at the home of the plaintiff and her husband unannounced with a written contract prepared by a lawyer for the sale of the property. The plaintiff testified that she did not know that the contract was for the sale of the property, but thought that it conveyed only an easement for access to the landlocked property. All four parties signed the document, which was not notarized. The contract required the defendants to pay no money down and $500 each month until the $60,000 purchase price was paid in full. The defendants recorded the contract, but made no payments as required under the terms of the contract. The defendants argued that the contract had been subsequently modified by an oral agreement to allow the defendants to suspend the monthly payments in exchange for allowing the plaintiff and her husband to remain on the property. The plaintiff and her husband continued to farm the 60-acre subject property, and the defendants paid the property taxes for 10 years.

After the plaintiff’s husband died, the attorney of his estate ran a title search and discovered the contract. The plaintiff then filed her action, seeking to quiet title to the property in her name. The district court found that there was no valid contract because there was no “mutual assent.” The district court quieted title in the plaintiff, and granted only an easement to the defendants.

The Court of Appeals affirmed the judgment, but on different grounds. The court first ruled that there was “mutual assent” to the written contract because the terms were definite and the parties’ obligations were ascertainable. A finding of “mutual assent,” the court explained, was based upon “objective” evidence and not the “hidden intent” of the parties. The court noted, “It is well-settled contract law that if a party to a contract is able to read the contract, and is given an opportunity to do so, that party cannot later argue she did not read the contract and remove herself from the terms of the contact.”

As to the purported contract modification, the appellate court determined that there was not sufficient evidence to find “mutual assent” to the purported subsequent oral agreement, so as to modify the terms of the written contract. The court found that the defendants had not offered evidence greater than “loose conversations” to prove the existence of the alleged modification. As such, the court ruled that the contract was not modified by an oral agreement and would be analyzed only by its written terms.

On the primary contract itself, the appellate court held that the written contract suffered from a “failure of consideration.” Although the contract had “sufficient consideration,” because it provided for regular monthly payments, there was a “failure of consideration” because the defendants failed to perform a “substantial part” of what they promised to do. Even though they did pay the property taxes, as required by the contract, they failed to make the mandated monthly payments, which comprised a “material part” of their required performance.  Consequently, the district court correctly “set aside” the real estate contract and quieted title to the property in the plaintiff.  

This family dispute again demonstrates the need for properly negotiated, drafted, and recorded legal documents in all transactions involving real property. There is no “family exception.”