CHAU PHAM, Plaintiff-Appellee, vs. THOMAS NGUYEN, Defendant-Appellant.
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IN THE COURT OF APPEALS OF IOWA
No. 9-561 / 09-0120
Filed August 6, 2009
CHAU PHAM,
Plaintiff-Appellee,
vs.
THOMAS NGUYEN,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Douglas F. Staskal,
Judge.
Defendant appeals from the district court’s order finding the purchase of a
business was subject to a financing contingency and entering judgment in favor
of the plaintiff and against the defendant. AFFIRMED.
Judy D. Johnson and Steven P. Wandro of Wandro & Baer, P.C., Des
Moines, for appellant.
Kathleen T. Sandre of Coppola, McConville, Coppola, Hockenberg, &
Scalise, P.C., West Des Moines, for appellee.
Considered by Vaitheswaran, P.J., and Eisenhauer and Mansfield, JJ.
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MANSFIELD, J.
This appeal presents the question whether the district court erred in
finding that a purchase of a business was subject to a financing contingency
even though the contingency was not mentioned in the parties’ written
agreement. Because we conclude the district court committed no error of law
and its factual findings are supported by substantial evidence, we affirm the
judgment below.
I. Background Facts and Proceedings.
Thomas Nguyen owns Cali Nails, a nail care salon located in Merle Hay
Mall. In November 2007, Chau Pham learned through her brother, who worked
for Thomas,1 that the business was for sale. Chau called Thomas and told him
she was interested. The parties agreed upon a total purchase price of $112,500,
with $12,500 to be paid as a down payment.
According to Chau, it was
discussed and understood that she would obtain a loan for the $100,000
balance. Chau also contends that Thomas agreed to provide her with financial
statements to enable her to obtain a loan.
On November 27, 2007, the parties met and executed a written purchase
agreement.
Chau typed up the document, using as a model the form of
agreement that her buyer had provided when she had sold her own nail business
several months before.
The written agreement between Thomas and Chau
stated in relevant part, “Buyer is to pay twelve thousand five hundreds dollars
($12,500.00) today and the remainder ($100,000). (One hundreds thousands
even).” The document was silent on when “the remainder” was to be paid.
1
We will refer to the parties by their first names, as they have done in their briefs.
3
At the same meeting, Chau also turned over the $12,500 down payment.
Thomas contends that the written agreement included a second page, which
acknowledged receipt of the $12,500 and also stated, “Any parties break
agreement contract will lose the amount of deposit.”
Chau denies that this
second page, which she did not sign, was part of the parties’ agreement.
Chau repeatedly requested Thomas to provide the financial information for
the business. Thomas never did so. Chau was not able to obtain financing and
did not go through with the purchase.
When Thomas refused to return the
deposit, Chau sued.
This case was tried to the district court. The court determined it would be
appropriate to consider parol evidence under the circumstances, especially in
light of the incomplete payment provision.
After taking that evidence into
account, the court found Chau’s acquisition of financing—although not mentioned
in the written agreement—was a condition precedent to her obligation to buy the
salon. Because the condition failed, the court ruled that she had no obligation to
complete the purchase. The court also ordered the return of Chau’s $12,500
deposit. Because the contract was no longer effective, the district court ruled
that Thomas would be unjustly enriched if allowed to retain the deposit. Thomas
now appeals.
II. Standard of Review.
This action was tried at law, so we review for the correction of errors at
law. Iowa R. App. P. 6.907 (2009). Findings of fact in a law action are binding
upon an appellate court if they are supported by substantial evidence. Iowa R.
App. P. 6.904(3)(a). Evidence is substantial if a reasonable person would accept
4
it as adequate to reach a conclusion.
N.W.2d 415, 418 (Iowa 2005).
Chrysler Fin. Co. v. Bergstrom, 703
In determining whether substantial evidence
exists, we view the evidence in the light most favorable to the district court’s
judgment. Id.2
III. Analysis.
Thomas first argues that the district court erred in holding that a financing
contingency was part of the parties’ agreement. This argument has both legal
and factual components. Legally speaking, Thomas contends the parol evidence
rule prohibits the introduction of oral testimony to alter the meaning of clear and
unambiguous language. Even if this legal hurdle can be overcome, Thomas
urges as a factual matter that the district court’s finding that there was a financing
contingency is not supported by substantial evidence.
For the reasons we
discuss herein, we do not believe the district court committed a legal error and
we believe its factual findings are supported by substantial evidence.
The parol evidence rule prohibits the introduction of extrinsic evidence
under certain circumstances.
2
In particular, where a written agreement is a
Thomas urges us to review on a de novo basis the ruling that he had to repay the
$12,500 deposit, on the theory that unjust enrichment is rooted solely in equitable
principles. See Iowa Waste Sys., Inc. v. Buchanan County, 617 N.W.2d 23, 30 (Iowa Ct.
App. 2000). We do not agree with Thomas’s suggestion. In this case, the $12,500
award should properly be viewed as a damage award based on the “restitution interest”
in a suit over an express contract. Restatement (Second) of Contracts § 344, at 102-03
(1981). See Joseph M. Perillo, Calamari and Perillo on Contracts § 15.1, at 540 (6th ed.
2009) (distinguishing between restitution as a quasi-contractual recovery and as a
remedy for breach of contract). This differentiates it from an unjust enrichment claim in a
case where there was no actual contract. In any event, two additional principles counsel
against de novo review. First, our review is generally governed by how the case was
tried in district court. Ralfs v. Mowry, 586 N.W.2d 369, 371 (Iowa 1998). Second, where
both legal and equitable relief are demanded, an action is ordinarily classified according
to what appears to be its primary purpose or its controlling issue. Phone Connection,
Inc. v. Harbst, 494 N.W.2d 445, 448 (Iowa Ct. App. 1992).
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complete integration, terms that contradict or supplement the terms of that writing
may not be proved. Whalen v. Connelly, 545 N.W.2d 284, 290-91 (Iowa 1996).
Where an agreement is a partial integration, the parol evidence rule bars proof of
contradictory terms, but not additional ones. Restatement (Second) of Contracts
§§ 215-16, at 136-37 (1981).
In addition, when parties agree orally that
performance of a written agreement is subject to the occurrence of a stated
condition, the agreement is not integrated with respect to the condition.
Restatement (Second) of Contracts § 217, at 141.
Courts in other jurisdictions have determined that where evidence of an
oral financing contingency does not contradict the written terms of a partially
integrated agreement, the parol evidence rule allows the admission of such
evidence. See Morgan Stanley High Yield Sec., Inc. v. Seven Circle Gaming
Corp., 269 F. Supp. 2d 206, 217 (S.D.N.Y. 2003); see also Honeywell v. San
Francisco Hous. Auth., 72 Fed. App’x 609, 612 (9th Cir. 2003) (stating where
written agreement was silent on financing contingency, parol evidence was
admissible to establish existence thereof).
We agree with the district court that the parol evidence rule did not
preclude Chau from offering proof of a financing contingency.
The written
document was not a complete integration. It had no integration clause, and the
payment provision was incomplete on its face. In relevant part, the contract read,
“Buyer is to pay twelve thousand five hundreds dollars ($12,500.00) today and
the remainder ($100,000).” But when was the remainder to be paid? As the
district court observed, “There is obviously some language missing at the end of
this sentence.” Thus, we conclude that it was permissible for Chau to present
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proof that payment of the full purchase price was to occur when Chau had
financing in place.
This leads to the next issue, whether there is substantial evidence to
support the district court’s finding that such an oral covenant was part of the deal.
Thomas denied there was any financing contingency, so we must look to what
Chau testified. In her testimony, Chau concedes that she drafted and signed the
written agreement on the spot on November 27, 2007, because she really liked
the shop and Thomas was threatening to sell it to someone else. While Chau
testified very clearly that she told Thomas she would have to get a loan, there is
a difference between telling the other party you will need a loan and reaching
agreement with the other party that the transaction is contingent on financing.
Nevertheless, we conclude the finding that the parties orally agreed on a
financing contingency is a reasonable inference from Chau’s testimony, and
accordingly we affirm the district court on this point as well.3
Thomas argues that this case is controlled by Gerard v. Peterson, 448
N.W.2d 699 (Iowa Ct. App. 1989), where we found that a home purchase
agreement was not subject to a financing contingency as claimed by the buyers.
However, two critical differences exist between that case and this one. First,
Gerard involved “an integrated contract which did not contain a condition
precedent.” Gerard, 448 N.W.2d at 701. Here, by contrast, the written contract
had a gap in it. It was not integrated on the question of when the subsequent
payment was to be made. Second, in Gerard, the record affirmatively showed
3
Thomas does not dispute the district court’s finding that Chau attempted in good faith
to obtain financing and was unable to do so.
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that a loan contingency clause was not part of the parties’ contract. Id. The
buyers had asked the realtor about including such a clause and were told “it
wasn’t necessary.” Id. at 700-01. As we put it, “Although the Petersons clearly
were familiar with this type of clause, they unfortunately chose to rely on the bad
advice of this realtor, and did not insist on including it in their contract.” Id. at
701. Here, by contrast, Chau was not told that a financing condition “wasn’t
necessary”; she understood from her discussions with Thomas that it was part of
the deal.
Lastly, Thomas argues that even if financing was a condition precedent to
the purchase of the nail care salon, the district court erred in ruling that he had to
repay the deposit.
Here too, we believe the district court analyzed the law
correctly. According to Restatement (Second) of Contracts section 377, at 224,
when a party’s duty is discharged because of non-occurrence of a condition, that
party is entitled to restitution for any benefit he or she has conferred on the other
party by way of part performance or reliance.
That principle applies here.
Because Chau’s duty to perform was discharged based on non-occurrence of a
condition, she was entitled to recover the down payment she had made to
Thomas. Even if the disputed language on the second page were deemed part
of the contract,4 it only provides that someone who “breaks” the agreement would
lose the deposit.
Under the district court’s findings, Chau did not break the
contract.
4
The district court found the second page was not part of the contract executed by the
parties on November 27, 2007.
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IV. Conclusion.
For the foregoing reasons, we affirm the judgment below.
AFFIRMED.
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