Iowa Court Gives Farmer Another Trial in Case Alleging Breach of Oral Option to Purchase

February 22, 2018 | Kristine A. Tidgren

A case that has again found it's way to the Iowa Court of Appeals could give the Iowa Supreme Court another opporunity to refine the doctrine of promissory estoppel.

A farmer claimed that his neighbor granted him an oral option to purchase his farm for approximately $3,000 an acre at an unspecified time in the future. The farmer leased the property and made substantial improvements, which he alleged were consideration for the option agreement.

When the neighbor sold the farm to a third party, the farmer sued, arguing that he was entitled to purchase the farm under the verbal option agreement. At trial, the jury found that the neighbor breached the option contract and awarded the farmer $52,000 in damages. The district court, however, directed a verdict for the neighbor, finding that the terms of the alleged option contract were indefinite and that there was no consideration. On the first appeal, which came before the Iowa Court of Appeals in 2016, the court affirmed the district court’s directed verdict as to the express contract claim. The court, however, reversed the district court’s denial of a new trial to the farmer based upon his equitable claims, namely promissory estoppel.

On remand, the trial court granted summary judgment to the neighbor on the equitable claims. The court held that the farmer could not prevail on a theory of promissory estoppel where express farm lease agreements governed the parties’ rights and obligations regarding property improvements made by the farmer.  The farmer again appealed, and the Iowa Court of Appeals on February 21, 2018, reversed and remanded the case.

This time, the court found that the existence of the written farm lease agreements did not preclude recovery by the farmer. An option to purchase, said the court, did not have to be included in a written lease agreement.

The court then determined that the proper test for a promissory estoppel claim in Iowa was set forth in Kolkman v. Roth, 656 N.W.2d 148, 153 (Iowa 2003). In that case a farm tenant prevailed on a claim on promissory estoppel after showing that he moved from his prior residence and made substantial improvements to the farm property in reliance on the promise that he could live on and rent the farm for the rest of his working life. In Kolkman, the Iowa Supreme Court established four factors that must be present to prove promissory estoppel:

  1. a clear and definite promise
  2. the promise was made with the promisor’s clear understanding that the promisee was seeking an assurance upon which the promisee could rely and without which he would not act;
  3. the promisee acted to his substantial detriment in reasonable reliance on the promise; and
  4. injustice can be avoided only by enforcement of the promise.

Here, the court of appeals found that a genuine issue of material fact existed as to whether a clear and definite promise had been made. The fact that no clear and definite agreement had been reached was immaterial. The court explained that promissory estoppel was based upon the existence of a promise made by one party, not upon the existence of an agreement. The court remanded the case for a trial on this question.

One judge dissented, arguing that the proper analysis for the existence of promissory estoppel was the three part-test set forth by the Iowa Supreme Court in McKee v. Isle of Capri Casinos, Inc., 864 N.W.2d 518, 532 (Iowa 2015):

  1. a clear and definite oral agreement;
  2. proof that plaintiff acted to his detriment in reliance thereon; and
  3.  a finding that the equities entitle the plaintiff to this relief.

Because the evidence supported a finding that no definite oral agreement existed, the dissenting judge asserted that summary judgment was properly granted.

We’ll watch to see if this case will give the Iowa Supreme Court an opportunity to again clarify the required elements of promissory estoppel.

The case is Kunde v. Estate of Bowman, No. 17-0791 (Iowa Ct. App. Feb. 21, 2018).