Deed Transferring Interest in Hog Site Invalidated Due to Grantor’s Incapacity

In a split decision, the Iowa Court of Appeals affirmed the district court’s determination that a deed executed by a 79-year-old with dementia conveying her half-interest in a hog site to her business partner should be invalidated due to lack of capacity. The district court invalidated the conveyance on two grounds. First, the court found the grantee was in a confidential relationship with the owner, and therefore the conveyance was presumed to be the result of undue influence. Second, the district court found that the owner lacked the mental capacity to execute the deed. On appeal, the majority of the court of appeals found that the owner lacked the mental capacity to transfer her property, and did not address the district court’s determination that there was a confidential relationship. The dissent asserted that the plaintiff did not meet the high evidentiary burden required to show with clear, satisfactory and convincing evidence that the plaintiff lacked mental incapacity.

Facts

Janice Geerdes owned 300 acres of farmland. In the early 1990s, she befriended Albert Cruz. In 2004, Cruz and Geerdes formed Blue Acres Pork, a partnership hog operation located on 9.6 acres of Geerdes’ farmland (hereafter, “the parcel”). As part of the arrangement, Geerdes conveyed a half-interest in the parcel to Cruz, and they owned the parcel as tenants in common.

In 2017, Geerdes underwent cognitive testing and was diagnosed with dementia. By 2018, Geerdes’ daughter Laura Jenkins was helping Geerdes with her finances. At trial, Jenkins testified that Geerdes would overdraw her bank accounts and not remember to pay monthly bills.

In January 2019, Geerdes transferred her half-interest in the parcel to Cruz via quitclaim deed after meeting with her accountant about the proposed transfer. The accountant testified that at the meeting Geerdes did most of the talking and was the main decision-maker. On the same day as the meeting, the accountant notarized the quitclaim deed that states Cruz paid $1 for the half-interest.  Geerdes and Cruz engaged a lawyer to draft the deed. Geerdes also wrote a note to the accountant that said, “what I help [sic] Albert Cruz is nobody [sic] concern.” At the time of the transaction, Geerdes owed a significant sum to the IRS and $100,000 on a loan where the property was collateral. In March 2019, Jenkins discovered the transaction. Jenkins testified that Geerdes repeatedly denied conveying her interest to Cruz when asked about it.

Jenkins became Geerdes’ conservator in July 2019. In May 2020, Jenkins in her capacity as conservator, sued Cruz to set aside the quitclaim deed. A trial was held in 2022. The district court found that Cruz was in a confidential relationship with Geerdes, which created the presumption that the deed was the result of undue influence. The court found Cruz did not bring forth enough evidence to rebut the presumption. In the final paragraph of the opinion, the court also found that Geerdes “lacked the requisite mental capacity to quit claim her interest in the property.”[1] The court found the conveyance invalid and set aside the deed. Cruz appealed, arguing the district court erred by finding Geerdes lacked the necessary capacity and that he was in a confidential relationship with Geerdes.

Majority Opinion

The court affirmed the district court’s determination that Geerdes lacked the necessary mental capacity to execute a deed in January 2019. On de novo review, the court found that the conservator successfully proved “by clear and convincing evidence” that Geerdes was “incapable of understanding in any reasonable manner the nature of the transaction and its consequences and effects upon her rights and interests.” When evaluating mental capacity, the court reviewed Geerdes’ actions around that time period and prior, her physical condition, the financials of the transaction, and whether Geerdes received independent advice. The court found that the transaction was improvident, without fair consideration, and done without independent advice when Geerdes was mentally weak. Admitting it was a “close call”, the court ultimately found that Geerdes did not understanding the effect of signing the deed and affirmed its invalidation. The court did not address the district court’s determination that Cruz and Geerdes were in a confidential relationship or the associated undue influence claim.

Dissent

The dissent argued that Geerdes’ conservator did not meet her evidentiary burden. The judge stated, “after-the-fact observations by self-interested lay witnesses, standing alone, are not enough” to meet the clear and convincing standard. The dissent reasoned that  “close call” means a plaintiff can often win under a preponderance of the evidence standard, but the heightened standard applicable to an incapacity case requires “no serious or substantial doubt” that Geerdes lacked capacity at the time of signing. Focusing on the testimony of the accountant, the dissent asserted that there was compelling evidence that Geerdes had capacity when signing the quitclaim deed and could have transferred the land for personal, not financial, reasons. The dissent noted that the district court did not make credibility findings on the testimony presented and admonished the majority for making their own credibility findings from the record. The dissent also believed that the lack of expert testimony was fatal to this plaintiff’s case. Finally, the dissent commented that the district court ruling primarily focused on finding a confidential relationship, but the majority avoided review “presumably because [that finding was] not supported by the record.”