IN THE COURT OF APPEALS OF IOWA
No. 1-359 / 00-1314
Filed December 12, 2001
M. & I. DEHY, INC.,
Appeal from the Iowa District Court for Carroll County, Joel E.
Elizabeth Opperman appeals following the denial of her action in
equity in which she sought to rescind and cancel a mortgage given by her
and her husband to M. & I. Dehy, Inc., a corporation owned and controlled
by their son. REVERSED AND REMANDED.
John F. Lorentzen and Debra L. Hulett of Nyemaster, Goode, Voigts,
West, Hansell & O'Brien, P.C., Des Moines, for appellant.
A. Eric Neu of Neu, Minnich, Comito & Neu, P.C., Carroll, for
Heard by Vogel, P.J., and Miller and Eisenhauer, JJ.
Elizabeth Opperman appeals following the denial of her action in
equity that sought to rescind and cancel a mortgage given by her and her
husband to M. & I. Dehy, Inc., a corporation owned and controlled by their
son. She contends the court erred in failing to determine that the
mortgage was invalid because it lacked consideration and was entered into
fraudulently. We reverse and remand.
I. Background Facts and Proceedings. In the 1970s, Ivan Opperman
formed M & I Dehy, Inc. to handle the alfalfa processing portion of his
farm operations. In the 1980s, Ivan and wife Elizabeth (Betty) began
experiencing financial difficulties. To avoid a complete loss of their
farm assets, Ivan arranged for M & I Dehy, Inc. to be acquired by another
company. Delray, Inc., a company formed by Ivan and Betty's sons, John and
Jim Opperman, purchased Ivan's assets. In 1985, John and Jim also formed
M. & I. Dehy, Inc. in order to continue its predecessor's operations.
Ivan and Betty's daughter, Valerie Opperman Roberts, owned a home in
Manning, Iowa. Valerie moved out of the home a short time after acquiring
it and the house remained unoccupied until 1990. The house was in poor
condition and needed major renovations. By that time, Ivan and Betty had
lost most of their assets and were living on social security benefits.
John and Jim decided Delray, Inc. would purchase the Manning home for
$18,000 and M. & I. Dehy, Inc. would pay for improvements so Ivan and Betty
could live in the home. Ivan and Betty did not pay any rent to Delray,
In 1993, John became interested in expanding his farm operations. To
finance the expansion, it became necessary to mortgage the Manning home.
Delray, Inc. became liable for a $44,000 mortgage on the home. In 1995,
Ivan learned about a program offering home improvement subsidies. Because
he and Betty were living on fixed incomes, Ivan wished to receive the
subsidies. However, the subsidies were only available to homeowners who
resided in the home. Delray, Inc., the owner of the home, was a
corporation and could not qualify for the subsidies. To help Ivan qualify
for the program, Delray quitclaimed the Manning home to Ivan in 1995.
Shortly after Delray, Inc. transferred the home to Ivan, one of Ivan's
creditors threatened to collect his outstanding obligations by pursuing
Ivan's ownership interest in the Manning house. Ivan contacted John and
Jim for the sole purpose of discussing how to protect and avoid loss of the
real estate to Ivan's creditor. The discussion resulted in the execution
of a promissory note and the execution of a mortgage securing the
promissory note. The mortgage provided that Ivan and Betty would pay M. &
I. Dehy, Inc. a $35,000 lump sum payment in 2020. This mortgage is a
second and junior mortgage to the mortgage executed by Delray, Inc. After
the execution of the mortgage, Ivan quit claimed the property to Betty.
Following resolution by the district court of a family dispute
concerning the ownership of Delray, Inc. and M. & I. Dehy, Inc., John was
determined to be sole owner of M. & I. Dehy, Inc. John subsequently became
estranged from Ivan and Betty.
In 1999, Betty filed a petition in equity requesting that the district
court cancel the 1995 mortgage and any obligations she may have arising
under the mortgage. Following a bench trial, the court denied the request
to cancel the mortgage and awarded M. & I. Dehy, Inc. attorney fees and
costs, effectively recognizing the validity of the note and mortgage.
Betty appeals. She contends the court erred in concluding the
mortgage was an enforceable obligation. In particular, she asserts it was
not enforceable because it was not supported by consideration and was
entered into fraudulently. She requests an award of costs of the action.
II. Scope of Review. Our review for cases in equity is de novo.
Iowa R. App. P. 4. While weight is given to the trial court's fact
findings, we are not bound by them. Israel v. Farmers Mut. Ins. Ass'n. of
Iowa, 339 N.W.2d 143, 146 (Iowa 1983).
III. Enforceability of the Mortgage. Betty first argues the
mortgage to M. & I. Dehy, Inc. is not enforceable because it is not
supported by consideration. She claims M. & I. Dehy, Inc. never made any
loan to Ivan and her.
A mortgage is not valid and binding unless founded on sufficient
consideration. 54A Am. Jur. 2d Mortgages § 29, at 616 (1996). The
execution and delivery of a note and mortgage raises a presumption of
consideration. Citizens First Nat. Bank v. Turin, 431 N.W.2d 185, 187
(Iowa Ct. App. 1988). The burden of proof is on the party alleging lack of
The district court found the home improvements funded by M. & I.
Dehy, Inc. to be sufficient consideration for the mortgage executed by
Ivan. While the parties agree there was never any talk of repayment at the
time of the purchase and remodeling of the home, the court found such
discussion was not warranted because Delray, Inc. was the owner of the
home, not Ivan. The court found the issue of repayment only became
necessary when the deed was transferred from Delray, Inc. to Ivan, which
led to the promissory note and the mortgage. On this basis, the court
found there was sufficient consideration for the execution of the mortgage
and denied Betty's petition to rescind and cancel the mortgage.
Betty argues the improvements to the Manning home were gratuitously
provided to Ivan and her. However, Betty and Ivan were not direct
beneficiaries of the improvements at the time they were made. Instead, the
improvements made by M. & I. Dehy, Inc. became fixtures to the home,
benefiting the title owner of the home, Delray, Inc. See First Trust &
Savings Bank v. Guthridge, 445 N.W.2d 401, 402 (Iowa Ct. App. 1989).
Because the parties agree there was no intent for Delray, Inc. to repay M.
& I. Dehy, Inc., the remodeling was provided to Delray, Inc. gratuitously.
The act of allowing Ivan and Betty to live in the home rent-free was
gratuitous. The transfer of title in the home was not. Therefore, as the
district court discerned, repayment for the improvements need not have been
contemplated until such time as the transfer of title occurred, making it
necessary for the corporations to secure their investment.
The difficulty with this case involves the purchase and remodeling of
the home by two separate corporations owned by the same persons. Had Jim
and John simply acted on their own, and not as corporate entities, there
would be no dispute that there was sufficient consideration for the
promissory note and subsequent mortgage. The same actors would have owned
the home, made the improvements, transferred title, and obtained the
promissory note and subsequent mortgage from Ivan and Betty. However, for
whatever reason, M. & I. Dehy, Inc. made the improvements to the home,
which Delray, Inc. owned. The promissory note and the mortgage were then
executed to M. & I. Dehy, Inc. while Delray, Inc. transferred title in the
Because the improvements are fixtures of the home, we find the only
consideration for the promissory note would be the transfer of the deed to
the home. Had the promissory note been issued to Delray, Inc., the owner
of the home, the mortgage would stand. However, it was executed in favor
of M. & I. Dehy, Inc., who did not own an interest in the home. The note
and mortgage were given without consideration. Therefore, the district
court erred in denying Betty's petition to rescind and cancel the mortgage
to M. & I. Dehy, Inc. The court also erred in awarding M. & I. Dehy, Inc.
its attorney fees and costs. On remand the court should dismiss the
defendant's counterclaim and order the court costs taxed to the defendant.
REVERSED AND REMANDED.