Opinion
No. 4-768 / 04-0010
Filed February 9, 2005
Appeal from the Iowa District Court for Black Hawk County, Joseph C. Keefe, Judge.
J.L. Hollen, L.L.C. appeals the dismissal of its claim for rent under a commercial lease. Eric Landergott appeals the dismissal of his claim for damages based on fraudulent misrepresentation. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Max Kirk, of Ball, Kirk Holm, P.C., Waterloo, for appellant.
Mark Fransdal, of Redfern, Mason, Dieter, Larsen Moore, PLC, Cedar Falls, for appellee.
Heard by Sackett, C.J., and Vogel, Zimmer, Hecht, and Eisenhauer, JJ.
Landlord J.L. Hollen, L.L.C. (Hollen), appeals a district court decision dismissing its claim for sums owing under a business lease and for future monthly obligations under the lease as they become due. Tenant Eric Landergott appeals the district court's dismissal of his fraudulent misrepresentation counterclaim against Hollen and third-party petition against Michael Hollen. Because the lease required that any waiver of its provisions or terms be in a written instrument, and because Landergott produced no evidence of a written instrument indicating that Hollen waived its right to monthly payments under the lease, we reverse the district court's finding of a waiver and its resulting dismissal of Hollen's claim to sums owing under the lease. However, we affirm the district court with regard to future rent payments as Hollen is not entitled to rent under Iowa law following its cancellation of the lease and eviction of Landergott. We further affirm the district court's dismissal of Landergott's fraudulent misrepresentation claim.
I. Background Facts and Proceedings
In 1997, Hollen purchased a building in downtown Waterloo. Hollen is an Iowa limited liability company with its agents being Michael and Joni Hollen. On January 15, 2001, Hollen and Landergott executed a sixty-month commercial lease for the first floor and basement levels of Hollen's downtown Waterloo building. The first floor was to be used as a restaurant; the basement was already being utilized as a bar named "The Cellar." Landergott rented The Cellar because it was thought it would compliment the restaurant he hoped to open on the first floor; he took over management and control of the Cellar from the outset of the lease.
Paragraph 9 of the business lease provides that the amount of rent to be paid under the lease, as well as any payments above monthly rental, is governed by Attachment No. 1. This attachment provides for two different payments. First, under column C Landergott was required to make payments of $2,000.00 per month for twenty months, beginning on May 1, 2001. Second, under column D, monthly payments of a percentage of Landergott's gross sales were due beginning on July 1, 2001. The minimum for this payment was initially set at $2,000.00 and then raised to $2,500.00 in January of 2002.
Although Attachment No. 1 refers to both these payments as rent, the parties agree that pursuant to Paragraph 27 of the business lease the $2000.00 payments required in column C actually constitute payments towards the "leasehold improvements" of the Cellar, which were listed in Attachment No. 2. Additionally, Hollen conceded in its briefs and at oral argument that this purchase contract was forfeited when Landergott failed to make the payments due under the contract. This fact is further evidenced by a letter to Landergott from Hollen's attorney dated March 8, 2002, which affirmatively states that if Landergott does not pay the amount due under column C of Attachment No. 1, the option for purchase of "the Landlord's personal property listed on Attachment 2 of the Lease will be canceled and forfeited." When Hollen exercised a right of forfeiture against Landergott and reclaimed the leasehold improvements of The Cellar, Landergott's liability for the unpaid purchase money was extinguished. See Gray v. Bowers, 332 N.W.2d 323, 325 (Iowa 1983) (holding that forfeiture terminates a contract between a buyer and seller, which extinguished the right to recover unpaid purchase payments). Thus, when referring to "amounts due," "sums due" or "payments" under the lease we refer, as do the parties in their briefs, to the rent payments due under column D of Attachment No. 1. The payment due under column D was always the established minimum payment as the percentage of sales figure never became applicable because a restaurant was never established on the first floor.
Landergott asserts that before the lease was signed he asked Hollen what the monthly sales of The Cellar were and that he was told they were $8,500.00 per month, which he later discovered was not accurate. Hollen contends that when asked what the sales were, no figure was provided because the bookkeeping records were, as he described them, "a mess." Although Landergott operated the bar, he was unable to obtain financing to start up a restaurant on the first floor so the restaurant was never opened. The obtaining of financing was not a condition of the lease.
To allow some time for the restaurant to become operational, the lease agreement did not require the payments to begin until a few months after Landergott took possession of the premises. However, when sums became due under the lease, no payments were made by Landergott and none was demanded by Hollen. In fact, no payment was made until January of 2002 when Landergott paid $2,000.00 in response to Hollen's first written request for payment. In February of 2002, Landergott did not pay the amount due under the lease. Hollen proceeded to terminate the lease and evict Landergott.
Pursuant to column D of Attachment No. 1, rent for January of 2002 was $2,500.00 not the $2,000.00 paid by Landergott. Moreover, Hollen's demand for payment in January was contained in a letter from Mike Hollen to Landergott asking Landergott "to begin the payments of $2000.00 per month for purchase of the Cellar." Thus, Landergott's $2,000.00 January payment was not a rent payment, but a payment under column C of Attachment No. 1 for the purchase of the leasehold improvements of the Cellar.
At trial, neither party contested the existence of the lease. Neither party asserted that it was ambiguous. However, Landergott did plead four affirmative defenses to the enforcement of the lease. Landergott first asserted that the business purpose of the lease was frustrated when he was unable to obtain financing to open a restaurant on the first floor. Second, Landergott pled that Hollen "acquiesced and waived receipt" of the back lease payments. Landergott next contended that he was induced into entering the lease by the fraudulent misrepresentations of Hollen, and that he is thereby relieved of any obligations under the lease based on fraud in the inducement. Lastly, he asserted the affirmative defense of failure to mitigate damages. Landergott also pled a counterclaim for fraudulent misrepresentation.
The district court found that because Landergott was having difficulty in opening a restaurant, which was the purpose for which both parties entered into the lease, the parties "treated the lease as if it did not exist" from the inception of the lease until Hollen demanded payment in January of 2002. The district court found Hollen's acts in ignoring the lease provisions constituted a waiver of its right to back rent. The district court further concluded that under Iowa law Hollen was not entitled to any rent after it evicted Landergott. The district court also found, in the alternative, that even if damages were recoverable after eviction in Iowa, the success of The Cellar precluded the finding that Hollen had suffered any damages. The court further found that even if Hollen had proven damages it would have been precluded from recovering them because of its failure to mitigate. Finally, with respect to Landergott's affirmative defense and counterclaim asserting fraudulent misrepresentation, the district court found that Landergott failed to establish that (1) Hollen made the statement alleged to be fraudulent, and (2) that even if this statement were made, that it was made with an intent to deceive.
II. Standard of Review
Hollen's action against Landergott for damages under the lease is an action at law. See Great America Leasing Corp. v. Star Photo Lab, Inc., 672 N.W.2d 502, 504 (Iowa Ct.App. 2003). Landergott's fraudulent misrepresentation counterclaim seeking damages is also an action at law. See Wolf v. DaCom, Inc., 499 N.W.2d 728, 730 (Iowa Ct.App. 1993) (noting that the essential character of the nature of a claim is the type of relief it seeks). As such, we review the judgment of the district court for correction of errors at law. Iowa R. App. P. 6.4. Thus, we are not bound by the trial court's "legal conclusions and application of legal principles." Land O'Lakes, Inc. v. Hanig, 610 N.W.2d 518, 522 (Iowa 2000). However, the district court's findings of fact "are binding if supported by substantial evidence." Id. "Evidence is substantial for purposes of sustaining a finding of fact when a reasonable mind would accept it as adequate to reach a conclusion." Falczynski v. Amaco Oil Co., 533 N.W.2d 226, 230 (Iowa 1995). "We view the evidence in a light most favorable to the trial court's judgment." Van Oort Constr. Co. v. Nuckoll's Concrete Serv., Inc., 599 N.W.2d 684, 689 (Iowa 1999).
III. Issues
A. Waiver of Past Due Rent
Waiver is defined as "the voluntary or intentional relinquishment of a known right." Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Federated Mut. Ins. Co., 596 N.W.2d 546, 552 (Iowa 1999); Travelers Indem. Co. v. Fields, 317 N.W.2d 176, 186 (Iowa 1982). "The essential elements of a waiver are the existence of a right, knowledge, actual or constructive, and an intention to relinquish such right." Scheetz v. IMT Ins. Co. (Mut.), 324 N.W.2d 302, 304 (Iowa 1982). "It is generally recognized that waiver concedes a right, but assumes a voluntary and understanding relinquishment of it, and it is an essential element of a waiver that there exists an opportunity for choice between a relinquishment and an enforcement of the right in question, so that voluntary choice is the very essence of a waiver." Travelers Indem. Co., 317 N.W.2d at 186.
The issue of waiver of the sums due under the lease is an affirmative defense interposed by Landergott. Thus, he had the burden of proving it by a preponderance of the evidence. See Continental Cas. Co. v. G.R. Kinney Co., 258 Iowa 658, 661, 140 N.W.2d 129, 130 (1966). The issue of waiver is generally one of fact, although occasionally where the evidence is not disputed, the question becomes one of law for the court. Id.
Paragraph 24 of the lease provides:
24. CHANGES TO BE IN WRITING. None of the covenants, provisions, terms or conditions of this lease to be kept or performed by Landlord or Tenant shall be in any manner modified, waived or abandoned, except by a written instrument duly signed by the parties and delivered to the Landlord and Tenant. This lease contains the whole agreement of the parties (emphasis added).
Our review of the record reveals that there is no written instrument evidencing a waiver of Hollen's right to collect the rent due under the lease from Landergott. Landergott does not argue otherwise nor does he assert any ambiguity in the lease. Under the unambiguous and unchallenged terms of the lease Landergott could not carry his burden of establishing a waiver of back payments without producing a writing evidencing such a waiver. As no such writing exists, we accordingly conclude he failed to meet his burden.
Apart from the lease, our review of the record as a whole leaves serious doubt as to whether the district court's factual finding regarding waiver is supported by substantial evidence. In making its finding, the district court apparently accepted Landergott's version of the facts, i.e. that Hollen told Landergott, or his wife, Aimee, that Landergott did not have to pay the rent under the lease until a restaurant was operational on the first floor and that these missed payments would be forgiven. However, a close examination of the testimony reveals that Hollen never intentionally relinquished its right to collect the rent due under the lease and that even the Landergotts did not claim Hollen did so.
Hollen testified that he never told Landergott that the sums due would be forgiven. In fact, Michael Hollen testified that he told Landergott that
he was getting himself in a hole and there was going to be a real problem . . . I told him at that time that he did owe us this money, but we were so interested in having the restaurant be a possibility that we — we would take this debt that he was accruing, and we would — we would try to find some way of recapturing that out of the proceeds of the restaurant as his project moved forward. . . .
. . . .
. . . And I think it was in November I — I had another meeting with Mr. Landergott, and I explained to him that this was — this was way beyond anything that was acceptable and that there was a huge financial hole he was digging for himself and that we should essentially draw a line, draw a line in the sand, and if he wasn't going — if we weren't going to be able to complete an agreement in the venture capital realm or design, that we should hand it up and call it quits.
Furthermore, the record reveals that Hollen contacted Landergott about the amounts due under the lease in June, July, August, September, November, and December of 2001, and that a January 4, 2002, letter from Hollen's accountant to Landergott specifically references delinquent lease payments. Additionally, a January 7 letter from Michael Hollen states, "We are asking you to begin the payments of $2000 per month for purchase of the Cellar. We can negotiate the delinquencies of all earlier payments at a later date."
On cross-examination Landergott admitted that he did not rebut or attempt to refute the accusations made in the January 4 letter regarding delinquent payments.
To counter this evidence, Landergott relies on the testimony of his wife, Aimee, who testified that Michael and Joni Hollen stated that "they did not want Eric to pay rent, they wanted him to concentrate his efforts, his time and his money on starting the restaurant." However, further examination of this testimony reveals that Aimee concludes this testimony by stating, "they definitely stated that they did not require the rent payments at that time." (Emphasis added). Thus, while Landergott's version of the facts does indicate that Hollen allowed Landergott not to pay the rent due under the lease from June until January, this testimony does not evidence any intent on the part of Hollen to forever relinquish its right to collect these payments.
It was Landergott's burden to establish by a preponderance of the evidence that Hollen intentionally relinquished its right to the payments due under the lease. See Continental Cas. Co., 258 Iowa at 661, 140 N.W.2d at 130. Even if the lease did not require a waiver to be in a written instrument, under our standard of review, we still do not find substantial evidence to support a finding that Hollen waived its right to collect these payments. See Raper v. State, 688 N.W.2d 29, 46 (Iowa 2004) (finding a lack of substantial evidence to support a district court finding that the State did not have a custom to compensate peace officers for their travel time based in part on the testimony of peace officers that they were not docked pay for drive time and the lack of contrary testimony on behalf of the State).
B. Future Rent
In addition to past due lease payments, Hollen also claims a right to future rent payments. The district court denied this request based upon its interpretation of our Supreme Court's opinion in Ballenger v. Kahl, 247 Iowa 721, 76 N.W.2d 196 (1956). The district court determined that this case supported the proposition that when a lessee is evicted, the premises are surrendered, so that a landlord may not recover damages for rent that matured after eviction.
To the extent that some of the future obligations under the lease consist of payments for the purchase of leasehold improvements of The Cellar under column C of Attachment No. 1, we conclude Hollen is not entitled to damages for any payments due under Column C after the eviction of Landergott as Hollen forfeited this contract and re-claimed the leasehold improvement of the Cellar. See Gray v. Bowers, 332 N.W.2d 323, 325 (Iowa 1983). Moreover, we deem this claim waived as Hollen's argument on appeal addresses only its claim to rent, and Hollen fails to cite any authority or make any argument in support of its claim to future payments for the purchase of The Cellar. See Iowa R.App. P. 6.14( c).
In Ballenger, the tenants argued that they should not have to pay rent because there was a surrender of the lease. Id. at 198. The court began its analysis in Ballenger by stating that "[t]he termination of a lease by surrender . . . discharges the lessee from liability for rents that have not accrued. . . ." Id. at 199 (quoting American Bonding Co. V. Pueblo Inv. Co., 150 F. 17, 30 (8th Cir. 1906)). The court then held that the tenant failed to prove a surrender, and was thus not relieved of the rent obligation under the lease as, "nothing, as a general rule, will relieve [a tenant] from [the] covenant to pay rent for the whole term, save an actual eviction, a surrender, or an abandonment for legal cause." Id. at 199 (citing Brown v. Cairns, 107 Iowa 727, 730, 77 N.W. 478, 479 (1898) (emphasis added).
Paragraph 15 of the parties' business lease provides,
15. TERMINATION OF LEASE AND DEFAULTS OF TENANT. . . . Upon default in payment of rental herein . . . this lease may at the option of the Landlord by cancelled and forfeited . . . provided however, before any such cancellation and forfeiture . . . Landlord shall give Tenant written notice specifying the default . . . and stating that this lease shall be cancelled and forfeited ten (10) days after the giving of such notice, unless such default or defaults are remedied within such grace period.
On March 8, 2002, Hollen sent a notice of default to Landergott for failure to pay rent. This notice stated that if the back rent was not paid within ten days, the lease "would be canceled and forfeited." See Village Dev. Co., Ltd. v. Hubbard, 214 N.W.2d 178, 181-82 (Iowa 1978) (noting that nonpayment of rent when due will generally operate as a forfeiture of a lessee's term, but holding that it will not act as a forfeiture absent a prior payment demand by a lessor).
When Landergott failed to cure the default, the lease was cancelled and Hollen took possession of the leasehold premises by changing the locks, changing the alarm system code, and by changing the holder of the liquor license. Hollen's act of forfeiting and canceling the lease and evicting Landergott relieved Landergott of liability for all subsequently accruing rents. See Ballenger, 76 N.W.2d at 199 (noting that an eviction relieves a tenant of the obligation to pay future rent); Blond v. U.S. Fidelity Guar. Co., 80 S.W.2d 675, 690-91 (Mo. 1935) (declaring "it is well settled law that a forfeiture of a lease by the lessor and his taking possession of the leased premises without any reservations in favor of the lessee terminates absolutely the relation of lessor and lessee and discharges all the obligations of the lessee, not breached, which were to be performed after the date of taking possession."); 49 Am. Jur. 2d Landlord and Tenant § 321 at 290 (1995) (stating that "because a forfeiture which the lessor elects to assert terminates the lease and with it all obligations, covenants, and stipulations in the lease dependant upon the continuance of the term, the lessee is generally relieved from liability for subsequently accruing rents in the absence of a stipulation in the lease for continued liability"). We accordingly hold that the district court correctly concluded Hollen was not entitled to damages for rent accruing after the eviction of Landergott. Butcf. Aurora Bus. Park Assocs. v. Michael Albert, Inc., 548 N.W.2d 153, 157 (Iowa 1996) (allowing a landlord to recover future rent payments under an acceleration clause in a lease because this agreed upon remedy for the tenant's abandonment of the property and failure to pay rent did not constitute a penalty). Consequently, we need not decide whether the district court correctly ruled that Hollen failed to prove these damages, or that Hollen failed to mitigate these damages.
C. Fraudulent Misrepresentation
To establish his fraudulent misrepresentation claim, Landergott had the burden to prove (1) Hollen made a representation to the plaintiff, (2) the representation was false, (3) the representation was material, (4) Hollen knew the representation was false, (5) Hollen intended to deceive the plaintiff, (6) Landergott acted in reliance on the truth of the representation and was justified in relying on the representation, (7) the representation was a proximate cause of Landergott's damages, and (8) the amount of damages. See Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 400 (Iowa 2001). Landergott must prove these elements by a preponderance of clear, satisfactory, and convincing evidence. See Robinson v. Perpetual Servs. Corp., 412 N.W.2d 562, 565 (Iowa 1987).
Landergott contends that the representation made by Hollen was that The Cellar generated monthly revenue of $8,500.00. Michael Hollen testified that he never allowed Landergott to see his accounting books because they were a mess. He further testified that in the fall of 2000, when Landergott asked him about the sales of The Cellar, he did not have any information regarding revenue for the year 2000 because they did not keep monthly records and his accountant did not prepare a general ledger for that year until early January 2001. Additionally, Michael testified that he told Landergott that the sales of The Cellar were "phenomenally variable" and that it had "always been a loser" and that the business had to be elevated just to cover expenses.
From this evidence the district court concluded that Landergott failed to carry his burden of proving either that there had been a statement that The Cellar had monthly revenue of $8,500.00 or that if there had, it was made with an intent to deceive. We will not reverse this finding unless we determine Landergott carried his burden as a matter of law. Falczynski, 533 N.W.2d at 689 (noting that "when the trial court following a bench trial has denied recovery because a party failed to sustain its burden of proof on an issue, we will not interfere with the trial court's judgment unless we find the party has carried its burden as a matter of law." Based on the testimony of Michael Hollen, we cannot say, as a matter of law, that Landergott met his burden. Consequently, we affirm this finding of the district court.
IV. Conclusion
We conclude Hollen did not waive its right to the rent due under the lease for the months preceding the eviction of Landergott. Accordingly, the district court's finding that Hollen waived back rent is reversed and we remand the case for entry of judgment for the obligations due under the lease for those months. We additionally conclude that because of Hollen's cancellation of the lease and eviction of Landergott, Hollen is not entitled to future rent payments as they become due. Finally, because we do not conclude that Landergott proved his claim of fraudulent misrepresentation as a matter of law, we affirm the district court's dismissal of this claim.