HIGH DEVELOPMENT CORP., an Iowa Corporation, and WOODRIDGE HOLDINGS, LLC, an Iowa Limited Liability Company, Plaintiffs-Appellees, vs. STAR OF THE WEST COMPANY, an Iowa Corporation, Defendant-Appellant.
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IN THE COURT OF APPEALS OF IOWA
No. 9-277 / 08-1245
Filed June 17, 2009
HIGH DEVELOPMENT CORP., an Iowa
Corporation, and WOODRIDGE HOLDINGS,
LLC, an Iowa Limited Liability Company,
Plaintiffs-Appellees,
vs.
STAR OF THE WEST COMPANY, an Iowa
Corporation,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, James H. Carter,
Senior Judge.
Star of the West Company appeals from the district court ruling on High
Development Corporation’s petition in equity, requiring specific performance of a
purchase agreement for the sale of real estate. REVERSED.
Larry J. Thorson of Ackley, Kopecky & Kingery, L.L.P., Cedar Rapids, for
appellant.
Matthew S. Carstens of Bradley & Riley, P.C., Cedar Rapids, for appellee.
Heard by Mahan, P.J., and Eisenhauer and Mansfield, JJ.
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EISENHAUER, J.
Star of the West Company appeals from the district court ruling on High
Development Corporation’s petition in equity, requiring specific performance of a
purchase agreement for the sale of real estate. It contends the court erred in
requiring specific performance because High Development Corporation was not
prepared to close on the specified date and the purchase agreement stated time
was of the essence.
It further contends the award of attorney fees to High
Development Corporation was unreasonable. We reverse.
I. Background Facts and Proceedings. The facts of this case can be
succinctly stated as follows: On July 5, 2006, Star of the West Company (Star of
the West) entered into a purchase agreement with High Development
Corporation (High Development) regarding property located at 1101 Old Marion
Road in Cedar Rapids. Star of the West agreed to sell the property to High
Development for a purchase price of $170,000 and $5000 in earnest money was
tendered when the purchase agreement was executed.
Closing was set for
August 30, 2006.
The purchase agreement specifically states, “In the performance of each
part of this Contract, time shall be of the essence.” In addition, the buyers were
informed in a letter from the realtor on August 27, 2006, that the sellers would not
extend the closing. The purchase agreement further states,
If the Buyer(s) fails to fulfill this Contract, Seller(s) may forfeit the
same as provided in Chapter 656 of the Code of Iowa, and all
payments made so far shall be forfeited, or the Seller(s) may
proceed by an action at law or in equity.
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On August 30, 2006, High Development informed Star of the West it would
not have the funds to close on the transaction until the following day. Star of the
West refused to extend the closing.
Although High Development had the
necessary funds and was ready to proceed with closing on August 31, 2006, Star
of the West, through the realtor, indicated the sale would not be consummated.
Closing never occurred.
Star of the West did not refund the $5000 High Development supplied in
earnest money. Nor did it take action to serve High Development with a notice of
forfeiture pursuant to Iowa Code chapter 656 (2005). Within two weeks, Star of
the West entered into a purchase agreement to sell the property to a third party.
On September 15, 2006, High Development filed a petition in equity,
seeking specific performance of the purchase agreement, damages, and attorney
fees.
Star of the West answered, stating time was of the essence in the
purchase agreement, and because High Development was unable to perform on
the specified date, specific performance could not be sought. Star of the West
also requested an award of its attorney fees.
Following a bench trial in May 2008, the district court entered its findings
of fact and conclusions of law. The court found Star of the West was obligated to
proceed under chapter 656 if it wished to extinguish High Development’s rights
under the contract for failure to timely tender the purchase price. It further found
High Development’s tender of the purchase amount on August 31, 2006, cut off
any right of forfeiture. The court then concluded High Development was entitled
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to specific performance of the purchase agreement and awarded High
Development $31,000 in attorney fees. Star of the West appeals.
II. Scope and Standard of Review. Our review of the district court’s
grant of equitable relief is de novo. SDG Macerich Prop., L.P. v. Stanek Inc., 648
N.W.2d 581, 584 (Iowa 2002). We must examine the facts as well as the law
and decide the issues anew. Id. In doing so, we give weight to the district
court’s findings of fact, but we are not bound by these findings. Id.
III. Analysis. The district court found High Development was entitled to
specific performance because Star of the West’s obligation to perform was not
legally discharged. The court concluded Star of the West was bound to proceed
to forfeit the contract in conformity with chapter 656. Because it had not, the
court concluded High Development’s tender of the purchase price on August 31,
2006, cut off any right of forfeiture. Iowa Code section 656.1 provides,
A contract which provides for the sale of real estate located in this
state, and for the forfeiture of the vendee’s rights in such contract in
case the vendee fails, in specified ways, to comply with said
contract, shall, nevertheless, not be forfeited or canceled except as
provided in this chapter.
Additionally,
This chapter shall be operative in all cases where the intention of
the parties, as gathered from the contract and surrounding
circumstances, is to sell or to agree to sell an interest in real estate,
any contract or agreement of the parties to the contrary
notwithstanding.
Iowa Code § 656.6. Star of the West did not initiate forfeiture proceedings.
However, this was not its only remedy.
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A seller has several remedies when a purchaser defaults on a real estate
contract.
Pierce v. Farm Bureau Mut. Ins. Co., 548 N.W.2d 551, 556 (Iowa
1996). The seller has a right to elect whether (1) to keep good their tender of
performance, demand the balance of the purchase price, and sue for specific
performance; (2) to terminate the contract because of the vendee's breach, keep
their land and sue for damages for the breach; (3) to rescind the contract in toto;
or (4) to enforce a forfeiture under the statute. Id.; Abodeely v. Cavras, 221
N.W.2d 494, 497-98 (Iowa 1974). Here, Star of the West terminated the contract
and kept the land. It did not sue for breach of contract, but instead went about
mitigating its damages.
Iowa Code chapter 656, generally applies to the situation when a vendee
has acquired some equitable interest in property by virtue of having made
payments under an installment contract.
In order to “forfeit” this equitable
interest and reclaim the property, the vendor must go through the forfeiture
process. See Hampton Farmers Co-op. Co. v. Fehd, 133 N.W.2d 872, 874-75
(Iowa 1965) (“From the vendors’ standpoint forfeiture presents a swift and
inexpensive remedy in the event of a default.
A vendee can live with such
remedy to obtain the advantages of an installment contract . . . when other
financing could not be obtained.”).
However, when there is no installment
contract but instead a one-time closing that did not occur, we believe each party
has the ability to invoke normal contract rights and remedies.
See Passehl
Estate v. Passehl, 712 N.W.2d 408, 414-15 & n.8 (Iowa 2006) (stating that the
forfeiture statutes were inapplicable and basic contract principles applied to a
6
dispute over whether a party was entitled to specific performance of a contract to
convey land).
Furthermore, the decision to grant specific performance is within our
sound discretion; it is not to be granted as a matter of right.
Christenson, 541 N.W.2d 840, 843 (Iowa 1995).
Breitbach v.
It is to be granted only in
extraordinary, unusual cases in which irreparable harm will result in its absence,
not as a matter of grace. Id. In determining whether to grant a request for
specific performance, we must examine the particular facts of the situation and
will generally grant the request when it would subserve the ends of justice and
deny to do so where it would produce a hardship or injustice on either party. Id.
Specific performance is a remedy available particularly in cases of real estate
transactions because the court presumes real estate to possess a unique quality
such that mere monetary damages may not always constitute adequate remedy
for a breach of contract. Id.
The object of specific performance is to best effectuate the purposes for
which a contract was made, and it should be granted upon such terms and
conditions as justice requires.
Berryhill v. Hatt, 428 N.W.2d 647, 657 (Iowa
1988). Although the grant of specific performance is equitable, this court will not
remake or revise a contract the parties have freely agreed to; we will give the
parties the benefit of the contract they have made as far as possible. Brietbach,
541 N.W.2d at 843-44. Here, the purchase agreement states “time is of the
essence.” Star of the West argues High Development’s failure to close on the
specified date makes it inequitable to require specific performance.
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A cardinal rule of contract construction is that “time is of the essence.”
SDG Macerich Prop., 648 N.W.2d at 586. Where the parties set out a specific
time for performance in the contract, they have made time of the essence. Id. at
587; Ujdur v. Thompson, 878 N.W.2d 180, 183 (“[W]here the parties make time
of the essence in setting a deadline for payment, strict compliance with such
deadline is required.”).
Our supreme court has held it grossly inequitable to
require specific performance of a real estate contract where time is of the
essence and “on the day fixed [the defendant] was ready and willing to perform,
and was prevented from doing so by plaintiff’s default.” Thurston v. Arnold, 43
Iowa 43, 47 (1876); see also Peterson v. Rankin, 161 Iowa 431, 436, 143 N.W.
418, 420 (1913) (“Plaintiff must have performed his part of the contract, or
tendered performance in a legal manner, before he would be entitled to insist
upon a performance by the other party to it.”). This is true even if the tender of
money is made even one day late. Frey v. Camp, 131 Iowa 109, 111-12, 107
N.W. 1106, 1106 (1906).
We conclude High Development materially breached the contract when it
failed to complete the purchase on August 30, 2006, and therefore is not entitled
to specific performance.
Accordingly, we reverse the district court’s order,
including its award of attorney fees.
REVERSED.
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