In this case, a plumbing company sued a homeowner for fraud and breach of a settlement agreement. The plumbing work was not performed in accordance with the homeowner’s wishes and he refused to pay the plumbing company. The parties entered into the settlement agreement to avoid further litigation after the plumbing company installed plumbing, heating, ventilation, ductwork, and radiant in-floor heating systems worth several thousand dollars. The parties agreed that the plumbing company would complete certain work at no additional cost to correct initial defects and the homeowner would warrant the plumber’s work and deposit $35,000 into an escrow account for one year after the work was completed. If the homeowner discovered no problems with the work during that year, the money in the escrow account would be deposited in the plumbing company’s accounts as payment in full.
The parties continued to have problems. The plumbing company claimed that it was denied access to the home to complete the work and the homeowner claimed that the company refused to comply with state plumbing regulations. Thus, the plumber filed suit, seeking damages for fraud and asking for performance of the settlement agreement. The jury awarded the plumbing company nearly $50,000, along with $15,000 in punitive damages and $4000 to the homeowner for fixtures that were purchased but not used. The trial court judge threw out the jury’s punitive damages award, but agreed with the rest of the jury’s verdict.
On appeal, the homeowner argued that there was insufficient evidence presented at trial to show that he intentionally breached the settlement agreement and to support the high damages award to the plumber. The trial court jury was instructed to find that the homeowner had the “intent to deceive” the plumbing company if the homeowner “made representations without concern for the truth” or if the homeowner “had information from which a reasonable person would conclude that [the plumbing company] would be deceived.” The homeowner argued, on appeal, that there was no credible evidence presented at trial to the jury that he had the intent to deceive the plumbing company.
The Iowa Court of Appeals agreed that the issue of fraudulent intent should never have been presented to the jury. The “intent to deceive” must be present at the time the settlement agreement was signed. There was little to no evidence suggesting that the homeowner intended to break the agreement or lacked concern for the truth. Thus, the appellate court found that “the mere breach of a promise is never enough in itself to establish an intent to deceive.”
The appellate court next addressed the breach of contract issue. The homeowner argued that because the breach of contract claim was not properly raised by the plumbing company, it should not have been submitted to the jury. The appellate court found that the homeowner was correct that the plumbing company did not properly plead a count for monetary damages based on breach of the settlement agreement. However, it was clear during the trial that the plumbing company was pursuing those types of damages. The trial court allowed the plumbing company to plead the issue during trial and the homeowner did not object at that time. Thus, the appellate court found that the jury could have found through sufficient evidence that the homeowner actually prevented the plumbing company from performing their obligations under the contract. The homeowner should have objected to the court’s allowance of the new pleading at the time the court allowed it. Though the appellate court agreed that there had been a breach of contract, they did reduce the damages award to the $35,000 placed in the escrow account. Rabe Hardware, Inc. v. Jayapathy, No. 8-339/07-1581, 2010 Iowa App. LEXIS 423 (Iowa Ct. App. May 12, 2010).