Installment Contract Sale of Farmland Ruled Void

June 27, 2006 | Roger McEowen

Installment sale contracts are a popular method to sell real estate, especially farmland. One popular feature is that the downpayment is usually low, quite often less than 20 percent of the purchase price. Beginning farmers and others with minimal amounts of cash like that. But, to be a valid contract all the requirements to have a binding contract must be satisfied - including the requirement that the seller has the authority to convey the real estate. That was the issue in this case.

A brother and sister transferred farmland to a trust and named themselves as trustees. The brother died unexpectedly about five years later and an unrecorded installment sale contract for 111 acres of farmland in the trust was discovered among his belongings. It was dated two months before his death and listed the brother and sister (the trustees) as the sellers and the defendants as the buyers. Only the brother signed the contract. While the trust specified that either of the trustees could sign legal documents so long as the signing trustee certified that the signing was at the direction or consent of the other trustee, the sister didn’t even know about the contract until after the brother died. The brother received the earnest money and the initial installment before he died. After the brother’s death, the trust’s attorney notified the buyers that the contract was void because the brother did not have the authority to convey the farmland without the sister’s consent. The buyers refused to accept a check reimbursing them for the amounts they had already paid, and also refused to execute a quit claim deed of the farmland back to the trust. While the buyers knew that the farmland was owned by the trust and that both the brother and sister were trustees of the trust, they did not ask about the trust terms concerning sale of trust property, and did not receive any certification that the contract’s execution comported with the trust’s requirements. 

The successor trustee sued to recover the farmland, but the buyers claimed that a letter they received from the brother a month before contract execution sufficed for the sister’s necessary certification. Among other things, that letter stated that “we” would lower the selling price to $100,000. The trial court disagreed with the buyers and voided the real estate contract.

On appeal, the Iowa Court of Appeals affirmed. The court noted that the trust required certification that the brother’s signing of the contract was at the sister’s direction or approval, and that the use of “we” in the letter was not the equivalent of “certification.”  In addition, the letter was not a part of the contract. Neither did it matter that certification would be placed on the deed after the abstract for the farmland was examined and the trust terms known. The trust required “certification” as a condition of sale of trust property by a single trustee. The buyer’s interest in the farmland, the court held, is determined at the time of the sale, not afterward. So, the trust terms had to be satisfied at that time. Because the contract was not executed according to the trust’s terms, no legal interest in the farmland was conveyed to the buyers. Caylor-Campbell Farm Trust v. Howe, No. 6-342/05-0848 (Iowa Ct. App. June 14, 2006).