RACCOON VALLEY STATE BANK, Plaintiff-Appellee, vs. DOUGLAS E. GRATIAS, VAL GRATIAS, and SUNCOAST INVESTMENTS, L.L.C., Defendants-Appellants.
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IN THE COURT OF APPEALS OF IOWA
No. 6-806 / 04-1854
Filed December 28, 2006
RACCOON VALLEY STATE BANK,
Plaintiff-Appellee,
vs.
DOUGLAS E. GRATIAS, VAL GRATIAS,
and SUNCOAST INVESTMENTS, L.L.C.,
Defendants-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Dallas County, Darrell J. Goodhue,
Judge.
Defendants appeal the district court’s order granting plaintiffs motion for
summary judgment in its action to foreclose on certain real estate. AFFIRMED.
William E. Robak of Robak Law Firm, P.C., Des Moines, for appellant.
Jeffrey N. Bump of Bump & Bump, Panora, for appellee.
Heard by Sackett, C.J., and Zimmer and Eisenhauer, JJ.
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EISENHAUER, J.
Defendants Douglas and Val Gratias and Suncoast Investments, L.L.C.
appeal the district court’s order granting Plaintiff Raccoon Valley State Bank’s
(the Bank) motion for summary judgment in its action to foreclose on certain real
estate.
They separately appeal from the denial of their motion to have the
sheriff’s sale of the property set aside. The defendants contend the promissory
note was an illusory contract, the Bank’s notice to cure was defective, and the
sheriff’s sale should have been set aside based on procedural irregularities and
an inadequate sale price. The Bank cross-appeals, contending the district court
erred in denying its motion for sanctions. The Bank also requests an award of its
appellate attorney fees. We affirm.
I. Background Facts and Proceedings. On January 28, 2000, Douglas
and Val Gratias executed a promissory note in the amount of $388,021.85. The
note was secured by mortgages on two residential rental properties. The note
contained both installment terms and a demand feature, and accrued interest on
the outstanding principal balance at the rate of 8.25% per annum.
Monthly
installments in the amount of $3018.00 were to be paid by the twentieth of each
month beginning on March 20, 2000. The full balance of principal and interest
was due on February 20, 2015.
The promissory note contained the following language:
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS
AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY
THESE TERMS IN WRITING ARE ENFORCABLE. NO OTHER
TERMS OR ORAL PROMISES NOT CONTAINED IN THIS
WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. YOU
MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY
ANOTHER WRITTEN AGREEMENT.
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The note further provided that if the Gratiases were in default on the note, the
Bank had the right to demand immediate payment of the outstanding principal,
accrued unpaid interest, and other accrued charges. The mortgage securing the
note stated the Gratiases would be in default if they failed to make a payment on
the secured debt when due.
On February 23, 2001, the Gratiases transferred title of the rental
properties at issue to Suncoast Investments, L.L.C., which they own.
In 2003, the defendants entered into an agreement to sell one of the
residential rental properties, which was encumbered by a mortgage of
$95,251.86. On May 21, 2003, the Bank requested a $111,053.01 payoff to
release the property. The defendants objected to the amount of the payoff. The
real estate agents carrying out the sale attempted to resolve the dispute with the
Bank. The Bank agreed that upon receipt of the $111,053.01 payoff and the
defendants’ updated financial statements, it would make adjustments to the loan
terms.
The defendants tendered payment but failed to submit the requisite
financial information the Bank requested.
Following the payoff, the defendants unilaterally reduced their monthly
payment to $2012.00. On July 18, 2003, after receiving two reduced payments,
the Bank sent the defendants written notification of their default under the terms
of the promissory note. The notification informed the defendants that if they
failed to cure the default by July 31, 2003, the Bank would declare the entire
balance of the note immediately due and would foreclose the mortgage.
The defendants failed to cure the default by July 31, 2003, and on August
1, 2003, the Bank accelerated the balance due and implemented the eighteen
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percent default interest rate provided in the note. On November 6, 2003, the
Bank filed a petition to foreclosure the mortgage.
The district court granted
summary judgment in favor of the Bank on September 15, 2004. Following an
Iowa Rule of Civil Procedure 1.904(2) motion, the court entered judgment in favor
of the Bank on October 15, 2004. The defendants appealed on November 15,
2004.
On January 18, 2005, the real estate at issue was sold on special
execution at a sheriff’s sale. The Bank purchased the property for $264,000.00
and a sheriff’s deed was issued. The defendants did not attend the sale.
On January 25, 2005, the defendants filed a motion to set aside the
sheriff’s sale, accusing the Bank of fraud for failing to provide notice of the
sheriff’s sale to the them or their attorney, by failing to provide an abstract of title
to the property to facilitate a sale of the property prior to the sheriff’s sale, by
disclosing to the deputy sheriff conducting the sale what it expected to bid, and
by not bidding the full market value of the property.
The Bank resisted the
motion and filed a motion for sanctions against the defendants pursuant to Iowa
Rule of Civil Procedure 1.413(1). Both motions were denied following a February
9, 2005 hearing. The defendants appealed and the Bank cross-appealed. The
appeals arising from the foreclosure and the sheriff’s sale were consolidated by
order of the supreme court.
II. Summary Judgment. Although equity cases are generally reviewed
de novo, review of a case in equity resulting in summary judgment is for
correction of errors at law. Iowa R. App. P. 6.4; Keokuk Junction Ry. Co. v. IES
Indus., Inc., 618 N.W.2d 352, 355 (Iowa 2000).
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Summary judgment is properly granted when there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of law.
Iowa R. Civ. P. 1.981(3). A factual issue is material only if the dispute is over
facts that might affect the outcome of the suit, given the applicable law. Lewis v.
State ex rel. Miler, 646 N.W.2d 121, 124 (Iowa Ct. App. 2002). The party moving
for summary judgment has the burden of proving the facts are undisputed. Id.
In ruling on a motion for summary judgment, the court must view the facts
in the light most favorable to the resisting party.
Id.
Furthermore, every
legitimate inference that can be reasonably deduced from the evidence should
be afforded the resisting party. Id. An inference is legitimate if it is "rational,
reasonable, and otherwise permissible under the governing substantive law." Id.
(citing Butler v. Hoover Nature Trail, Inc., 530 N.W.2d 85, 88 (Iowa Ct. App.
1994)).
An inference is not legitimate if it is based upon speculation or
conjecture. Id. If reasonable minds may differ on the resolution of an issue, a
genuine issue of material fact exists. Id.
The defendants first contend the court erred in granting the Bank
summary judgment because the promissory note provides for payments both in
installments and on demand.
They assert the note is a partial failure of
consideration and illusory.
The American Jurisprudence states:
A promise or apparent promise is not consideration if by its
terms the promisor or purported promisor reserves a choice of
alternative performances, unless: (a) each of the alternative
performances would have been consideration if it alone had been
bargained for; or (b) one of the alternative performances would
have been consideration and there is or appears to the parties to
be a substantial possibility that before the promisor exercises his or
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her choice events may eliminate the alternatives that would not
have been consideration.
A promise is illusory when it fails to bind the promisor, who
retains the option of discontinuing performance. Words of promise
that by their terms make performance entirely optional with the
"promisor" do not constitute a promise. In such cases there might
theoretically be a bargain to pay for the utterance of the words, but
in practice it is performance that is bargained for. Where the
apparent assurance of performance is illusory, it is not
consideration for a return promise. However, an obligation under a
contract is not illusory if the obligated party's discretion must be
exercised with reasonableness or good faith. Also, the illusory
nature of alternative promises disappears if the contract is executed
and the alternative actually performed is not illusory.
A promise in the alternative may be made because each of
the alternative performances is the object of desire to the promisee.
Or the promisee may desire one performance only, but the
promisor may reserve an alternative that he or she deems
advantageous. In either type of case the promise is consideration if
it cannot be kept without some action or forbearance that would be
consideration if it alone were bargained for. However, if the
promisor has an unfettered choice of alternatives, and one
alternative would not have been consideration if separately
bargained for, the promise in the alternative is not consideration.
17A Am. Jur. 2d Contracts § 130, at 150-51 (2004).
Although the Bank retained a choice of alternative performances, each of
the alternative performances would have been consideration if it alone had been
bargained for. Accordingly, the promissory note is supported by consideration.
Furthermore, the note is not illusory. Each alternative promise is supported by
consideration. By requiring payment on demand the Bank is not discontinuing
performance, but rather requiring a valid alternative performance.
To the extent the defendants argue the promissory note was a violation of
the implied covenants of good faith and fair dealing, we conclude this issue was
not before the district court and therefore we will not consider it on appeal. Meier
v. Senecaut, 641 N.W.2d 532, 540 (Iowa 2002). We further will not consider the
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defendant’s contention that the Bank’s July 18, 2003 notice to cure letter was
defective as the claim was not timely made to the district court.
The defendants contend the district court erred in granting summary
judgment
in
favor
to
the
Bank
on
the
defendants’
counterclaim
of
misrepresentation. They claim the court erred in determining that Iowa Code
section 535.17 (2003) bars a counterclaim for the tort of misrepresentation in a
foreclosure action.
The defendants’ counterclaim of misrepresentation centers on an oral
statement modifying the written credit agreement allegedly made by a
representative of the Bank.
Section 535.17 requires modification to credit
agreements to be made in writing. However,
a credit agreement or modification of a credit agreement which is
not in writing, but which is valid in other respects, is enforceable if
the party against whom enforcement is sought admits in court that
the agreement or modification was made, but no agreement or
modification is enforceable under this subsection beyond the terms
admitted.
Iowa Code § 535.17(4). The defendants made no such admission. Furthermore,
section 535.17(3) states any alleged verbal modification to a credit agreement is
unenforceable by way of action of defense.
Section 535.17(5)(a) includes
“counterclaims . . . to recover damages for the non performance of any duty” in
its definition of action.
The district court thereby concluded section 535.17
negated not only the defendants’ affirmative defenses, but also their
counterclaim. We conclude the district court properly determined that section
535.17 barred the defendants’ misrepresentation counterclaim. Accordingly, we
affirm the district court’s grant of summary judgment in favor of the plaintiffs on
both their claim and the defendants’ counterclaim.
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III. Sheriff’s Sale. The defendants next contend the district court erred in
denying their motion to set aside the sheriff’s sale due to various procedural
irregularities.
The defendants specifically claim the timely notice was not
provided, the Bank did not provide the abstract to facilitate a sale prior to the
Sheriff’s sale to a private buyer, and the purchase price was inadequate.
Our review is de novo. Iowa R. App. P. 6.4. We give weight to the trial
court’s findings, although we are not bound by them. Iowa R. App. P. 6.14(6)(g).
“The policy of the law is to uphold judicial sales, and they will not be held
invalid for mere irregularities not affecting the power of the sheriff to sell.” Brown
v. Butters, 40 Iowa 544, 546-47 (1875). Generally, a foreclosure sale will not be
set aside if the sheriff has substantially complied with the procedures established
for a foreclosure sale. First Nat'l Bank in Fairfield v. Diers, 430 N.W.2d 412, 415
(Iowa 1988).
Exceptions to the general policy of upholding a sheriff's sale exist where a
mistake of fact or law has occurred. Federal Land Bank of Omaha v. Reinhardt,
428 N.W.2d 672, 673 (Iowa Ct. App. 1988). However, “a court of equity should
be hesitant to set aside a sheriff's sale where one party claims a mistake of fact
or law.” Farmers Sav. Bank v. Gerhart, 372 N.W.2d 238, 244 (Iowa 1985). The
court should grant relief “only when enforcement of the sale would impose an
oppressive burden on the party seeking vacation and vacation of the sale would
result in no substantial hardship other than rescinding the bargain.”
Id.
Furthermore, mere inadequacy of the purchase price is not ground for setting
aside a sheriff’s sale. Federal Land Bank of Omaha, 428 N.W.2d at 673.
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The sheriff substantially complied with the established procedures and the
sale did not impose an oppressive burden to the defendants.
Nor do we
conclude the Bank’s failure to provide an abstract to the defendants prior to the
sheriff’s sale is grounds to set aside the sale. The testimony at the hearing
indicates it would have been impossible to finalize the private sale prior to the
sheriff’s sale. Accordingly, the district court did not err in denying the defendants’
motion to set aside the sale.
IV.
Motion for Sanctions. On cross appeal, the Bank contends the
district court erred in denying its motion for sanctions.
Rule 1.413(1) states in pertinent part:
Counsel's signature to every motion, pleading, or other paper shall
be deemed a certificate that: counsel has read the motion,
pleading, or other paper; that to the best of counsel's knowledge,
information, and belief, formed after reasonable inquiry, it is well
grounded in fact and is warranted by existing law or a good faith
argument for the extension, modification, or reversal of existing law;
and that it is not interposed for any improper purpose, such as to
harass or cause an unnecessary delay or needless increase in the
cost of litigation. . . . If a motion, pleading, or other paper is signed
in violation of this rule, the court, upon motion or upon its own
initiative, shall impose upon the person who signed it, a
represented party, or both, an appropriate sanction, which may
include an order to pay the other party or parties the amount of the
reasonable expenses incurred because of the filing of the motion,
pleading, or other paper, including a reasonable attorney fee.
Review of a district court's rule 1.413(1) sanction decision is for an abuse
of discretion. Mathias v. Glandon, 448 N.W.2d 443, 445 (Iowa 1989). Using the
deferential standard of review, we examine the record as to the prefiling inquiry
of counsel. Mathias v. Glandon, 448 N.W.2d 443, 445 (Iowa 1989). Compliance
with the rule is measured by an objective, not subjective, standard of
reasonableness under the circumstances.
Id.
Our rule and statute make
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sanctions mandatory when a violation occurs, but whether a violation has
occurred is a matter for the court to determine, and this involves matters of
judgment and degree. Id. The test is whether a reasonable attorney would have
filed the motion if confronted with the same circumstances. Fields v. Iowa Dist.
Court, 468 N.W.2d 38, 39 (Iowa 1991).
The filing of the motion to set aside the sheriff’s sale was reasonable given
the information the defendants’ counsel had at the time the motion was filed.
While the procedural defects in the sheriff’s sale and the testimony elicited at the
hearing were not enough to set aside the sale, we cannot conclude the filing of
the motion was meant to harass the Bank or increase its litigation costs.
Accordingly, we conclude the district court did not abuse its discretion in denying
the Bank’s motion for sanctions.
V. Appellate Attorney Fees. Finally, the Bank requests an award of its
appellate attorney fees. We decline to so award.
AFFIRMED.
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