Iowa Supreme Court Upholds Gift of Real Estate to Family Friend

Background

The detailed facts of this case are set forth in our summary of the Court of Appeals decision. Albert Cruz and Janice Geerdes have known each other since the early 1990’s. In 2004, Cruz and Geerdes became partners of Blue Acres Pork, a hog operation, when Geerdes deeded 9.64 acres (hereafter, “hog parcel”) to herself and Cruz as tenants-in-common.

In January 2019, Geerdes executed a quitclaim deed transferring her remaining interest in the hog parcel to Cruz. Gayle Lemmon, the tax preparer for the partnership and both parties, notarized the deed. Lemmon testified Cruz drove Geerdes to Lemmon’s office to discuss transferring the property to Cruz, both were present for the meeting, and Geerdes did most of the talking during the meeting. At the meeting, Geerdes drew the boundaries of the hog site on an aerial photograph of the surrounding area. Additionally, Geerdes gave Lemmon a copy of a handwritten, signed note stating, “[W]hat I help Albert Cruz is nobody[‘s] concern.”

In 2017 and 2018, Geerdes underwent cognitive function assessments. Both times the results indicated that Geerdes had “mild cognitive-function disability; with deficits in working memory.” Additionally, Geerdes’ daughter testified that a few months after the transfer Geerdes did not remember the transaction and claimed that she did not want the land to be transferred to Cruz.

Lower Courts’ Rulings

After a bench trial, the district court invalidated the transfer on two grounds. First, it found that there was a confidential relationship between Geerdes and Cruz. As a result, the transfer was presumed to be the result of undue influence. The district court further found that Cruz did not rebut the presumption of undue influence, and therefore the transaction was invalid. On the second ground, the court found that in January 2019 Geerdes lacked the necessary capacity to transfer her interest. Cruz appealed, and the majority of a divided court of appeals found that Geerdes lacked capacity. Neither the majority nor the dissent found there was a confidential relationship between Geerdes and Cruz.

Supreme Court Decision

On appeal, the Supreme Court overturned both the court of appeals and the district court. It found no confidential relationship and no undue influence. It also found that Geerdes had the necessary capacity to transfer real estate at the time of signing.  The Court noted this was a “close case.”

Undue Influence

The Supreme Court found no confidential relationship or undue influence. Undue influence is a four-part test, and each part must be proven by “clear, convincing, and satisfactory” evidence.  The four parts are:

• Grantor must be susceptible to influence,
• Grantee must have the opportunity to influence,
• Grantee’s disposition to influence in order to receive an improper transfer, and
• The transfer must “clearly appear” to be the result of undue influence.

Additionally, if a “confidential relationship” exists, then a transfer is presumed to be the result of undue influence. A confidential relationship occurs when one person has a “dominating influence” over another. Often times this involves the grantor relying upon the grantee to handle their business or financial matters.  When a confidential relationship exists, the grantee must prove that they did not receive the financial benefit as a result of undue influence.

The Court reviewed the record and found that no confidential relationship existed between Geerdes and Cruz. Not only did Geerdes receive financial advice from many individuals during this time, but Cruz never handled her finances. Additionally, Geerdes had a long history of helping Cruz financially.

The Court also found no undue influence, relying on Lemmon’s testimony to determine that Geerdes was the impetus for gifting Cruz the land. Additionally, the transfer was “part of a pattern of previous gifts.”  Finally, there was no evidence that Cruz did anything that would induce the transfer or that Geerdes had other plans for the parcel.

Requisite Capacity to Transfer

Next, the Supreme Court found that the record failed to show by clear, convincing, and satisfactory evidence that Geerdes lacked the mental capacity to convey her interest in the hog site to Cruz when she signed the deed in January 2019. A party wishing to invalidate a deed on the grounds the grantor lacked mental capacity to transfer real estate must prove the grantor “did not understand in any reasonable manner the nature of the particular transaction . . . and the consequences and effects upon his rights and interests[]” at the time the deed was executed. The evidence proving lack of capacity must be clear, convincing, and satisfactory.

The Court focused on the testimony from Lemmon. It found that her testimony indicated that Geerdes was aware of the nature and effect of the transaction at the time of signing. The Court noted the district court did not question Lemmon’s credibility, and that Geerdes daughters’ testimony about Geerdes’ capacity had a vague timeline. Further, the Court noted that the two cognitive assessments did not prove Geerdes had no ability to understand the transaction at the time of signing. The Court also reviewed previous caselaw where it had previously found that a “donor with strong signs of dementia nonetheless possessed the mental capacity to make a gift.”

The Court noted that the “improvidence of the transaction” is a relevant consideration, but not the only consideration. It mused that the improvidence may have been overstated since there were “few specifics” about the financial situation of Geerdes.

Ultimately, the Court vacated the court of appeals decision, reversed the district court’s judgment, and remanded the case for entry of judgment in favor of Cruz. This means that Cruz will keep the half-interest Geerdes deeded to him in January 2019.