Get it in Writing, Especially Among Family

July 31, 2014 | Kristine A. Tidgren

Stenoien v. Stenoien, No. 13-1044, 2014 Iowa App. LEXIS 767 (Iowa Ct. App. Jul. 30, 2014)

Overview

The Iowa Court of Appeals has sent back for trial a family dispute ended by the district court on summary judgment. The district court found as a matter of law that an action to enforce an oral agreement involving the transfer of farmland was barred by the statute of limitations and the statute of frauds. The Court of Appeals said, “Not so fast.”

Facts

According to the facts set forth by the court (because this case was decided on summary judgment, the facts were viewed in the light most favorable to the plaintiffs), the father owned a 226-acre farm that he sold to non-relative buyers on July 13, 1998. The sales contract provided that the father had the right to repurchase the real estate at the 1998 sales price, plus ten percent until July 28, 2003. Before the option deadline, the father, the mother, and their five grown children had meetings and conversations through which they agreed that two children, Sheryl and Gary, would exercise the repurchase option on behalf of the family. Gary would obtain the loan, Sheryl would provide the collateral, the land would be cash rented to pay the mortgage, and the father would pay the remaining balance when he sold his horse ranch (another property that he owned). At the time the mortgage was paid off, the children would own the real estate in equal shares.

Gary obtained a loan for $610,000 to purchase the farm, and Sheryl signed a real estate mortgage on her own property to secure payment on Gary’s loan. Gary recorded the deed—which was in his name only—after the January 20, 2004 purchase.

In March of 2010, Gary, Sheryl, and their parents signed a rental agreement leasing the property to the prior buyers for the crop year 2010-11. Between 2004 and 2011, Gary continued to ask about when his father’s horse ranch would be sold to pay off the balance of the farm loan. During a family get-together for Thanksgiving in 2011, Gary’s daughter informed the family that she and Gary had hired a lawyer regarding the farm real estate. Shortly thereafter, the father asked Gary about the loan balance on the farm. Gary refused to provide the information and told his father that the property would only belong to him. The father then discovered that only Gary’s name was on the deed.

In March of 2012, Gary asked the lender to release Sheryl’s real estate from the mortgage. The lender released the lien on Sheryl’s land on May 8, 2012.

The Lawsuit

On September 23, 2012, the father, his wife, Sheryl, and one sister filed an action against Gary, seeking equitable enforcement of the oral family agreement. They alleged that Gary breached the agreement to repurchase land for the benefit of the family.

Gary sought summary judgment, arguing that the claims were barred by the five-year statute of limitations governing oral contracts, Iowa Code § 614.1(4) and the statute of frauds, Iowa Code § 622.32(3). The district court agreed, granting summary judgment in favor of Gary.

The Court of Appeals Decision

On appeal, the Iowa Court of Appeals reversed and remanded, finding that the statute of limitations on the breach of contract action had not yet begun to run and that questions of fact precluded summary judgment on the statute of frauds question.

Statute of Limitations

Gary admitted the existence of the oral contract for purposes of summary judgment. However, he argued that the oral agreement was unenforceable because of Iowa Code § 614.1(4). That statute requires actions founded upon oral contracts to be brought within five years after the “causes accrued.” Gary alleged that the plaintiffs’ cause accrued, at the latest, when he recorded the deed in his name alone in 2004. Thus, Gary argued that the five-year statutory period had lapsed. Conversely, the plaintiffs argued that their action could not have accrued until December 1, 2011, when Gary announced that he owned the property himself. Only then, argued the plaintiffs, could they have discovered the breach.

The court embraced neither theory, instead finding that, viewed in the light most favorable to the plaintiffs, their action was really one for anticipatory breach of an oral agreement. Relying upon Glass v. Minnesota Protective Life Ins. Co., 314 N.W.2d 393, 396-97 (Iowa 1982), the court found that an actual breach would not have occurred until after the repurchase loan was fully paid off. It was only then that Gary had an obligation under the agreement to place title in all of the children’s names equally. The court found that Gary did not breach the agreement by titling the property in his name alone. Because the court found that the plaintiffs’ action could be characterized as one seeking a remedy for an anticipated breach, the statute of limitations had not begun to run, and the district court improperly granted summary judgment for the defendant on that issue.

Statute of Frauds

Likewise, the court found that the district court improperly granted summary judgment on the statute of frauds question. The district court ruled that summary judgment was appropriate because the statute of frauds made oral proof of contracts concerning transfers of land unenforceable. The court found the district court's’ reliance on this rule misplaced. Instead, the court held that questions of fact existed as to whether two exceptions rendering the statute of frauds inapplicable—part performance and promissory estoppel—applied.

The court found that there was a genuine issue of material fact as to whether part performance existed in light of the plaintiffs’ alleged instances of performance: (1) one of the children exercised the option to repurchase, (2) Sheryl performed the agreement by offering her land as collateral, and (3) some of the rent from the repurchased land was applied to the loan by Gary. The court found that a question of fact existed as to whether Sheryl willingly encumbered her land with a lien to facilitate the purchase pursuant to the oral family agreement or for some “other explanation.“

Finally, the court stated without further analysis that the record before it presented a factual dispute between the parties concerning the existence of the claim of estoppel. As such, Gary had not shown that he was entitled to summary judgment.

Conclusion

Aside from reminding readers of the ease with which courts will find factual disputes precluding summary judgment, this case illustrates the importance of reducing agreements to writing, especially among family members. The Thanksgiving dinner during which this dispute arose was likely this family’s last joint celebration. A written agreement might have averted the war or at least more clearly defined the battle.