Opinion
No. 5-035 / 04-0986
Filed February 9, 2005
Appeal from the Iowa District Court for Scott County, David E. Schoenthaler, Judge.
Timothy Starr appeals from a judgment denying his claim against Liberty Specialties for breach of a real estate contract and from the judgment against him on Liberty Specialties's counterclaim for return of its earnest money. AFFIRMED.
William B. Norton and Christopher L. Surls of Wm. B. Norton Law Firm, P.C., Lowden, for appellant.
Steven J. Havercamp of Stanley, Lande Hunter, Davenport, for appellee.
Considered by Huitink, P.J., and Miller and Eisenhauer, JJ.
Timothy B. Starr brought an action for specific performance of a contract to purchase real estate and for damages after the purchaser, Liberty Specialties, Inc., refused to complete the transaction. Liberty Specialties counterclaimed for the return of the earnest money it had paid to Starr. The trial court (1) dismissed Starr's specific performance claim, as Starr had sold the property at auction; (2) dismissed Starr's damages claim, concluding Starr breached the contract by failing to close the transaction on the agreed-upon date; and (3) granted Liberty Specialties a judgment of $8,500 on its counterclaim. Starr appeals.
I. Background Facts and Proceedings.
We conduct a de novo review of this action tried in equity. Gildea v. Kapanis, 402 N.W.2d 457, 459 (Iowa Ct.App. 1987).
Starr owned a plot of land in New Liberty, where he had previously operated a repair shop and towing service. Carl W. "Bill" August, the principal owner of Liberty Specialties, agreed to purchase the land for $85,000. The parties signed a contract on October 13, 2001, which provided in relevant part: (1) Starr must remove all personal property from the land prior to closing; (2) Starr would submit an abstract of title to Liberty Specialties "as soon after this date as possible" so that any title objections could be cured prior to closing; (3) Liberty Specialties would pay $8,500 in earnest money, to be held in escrow by Starr; and (4) closing would occur on January 10, 2002.
By agreement, the closing was rescheduled to February 13, 2002, then to April 3, 2002, and finally to May 15, 2002. At trial, August testified he told Starr that, if the closing were not completed as agreed, "the consequences were going to be severe." On April 8, 2002, counsel for Liberty Specialties wrote a letter to Starr, which in part stated (1) Starr would pay rent, initially $500 per month and doubling each month thereafter, if the sale did not close on May 15, and (2) the sale price would be reduced by $5,000 per month if the sale did not close on May 15. At trial, Starr testified he did not agree with the financial provisions of the April 8 letter, however he did not contact Liberty Specialties or its counsel to accept this offer or to make a counteroffer.
On May 12, August drove by the property and saw Starr working on a car. Large amounts of Starr's personal property remained on the land. August told Starr he would rescind the agreement to purchase if closing did not occur on May 15. August testified he did not think Starr could be ready to close on May 15. That day, May 12, Liberty Specialties's counsel sent a fax to Starr's counsel, informing him the deal would be called off if it did not close on May 15. On May 14, Starr's counsel left a message for Liberty Specialties's counsel, indicating the abstract to the property would be complete shortly thereafter. Although Starr removed a great deal of the personal property from the property, he did not meet the conditions of the contract and the closing did not occur on May 15.
At trial, this attorney testified he began to have a new abstract prepared after he was unable to locate the original, which had been left with him. He testified he later found the abstract, which had been misfiled.
On May 17 and in response to a telephone message from Liberty Specialties' counsel, Starr's counsel wrote to Liberty Specialties's counsel, advising the abstract was nearly done. On May 21, Liberty Specialties's counsel replied, asserting the deal was off and requesting the return of Liberty Specialties's earnest money. Instead of holding the earnest money in trust, Starr used it to, among other things, pay property taxes on the property.
After Liberty Specialties refused to complete the transaction, Starr filed this action, seeking specific performance of the October 2001 purchase agreement and damages. While this action was pending, Starr sold the property at auction in April 2003 for $55,000. The successful bidder was Liberty Pattern Co. August is the chairman of Liberty Pattern's board and a stockholder. After the auction, the abstract was delivered to Liberty Pattern and given to David Dettman, an attorney practicing in Davenport. At the time of trial, Dettman was the chair of the Iowa State Bar Association's Real Estate Modernization Committee and was the principal author of the Scott County Bar Association's title standards. He delivered a title opinion on May 30, 2003, making several objections, including problems with the property's boundary, problems arising from Starr's divorce, and unsatisfied encumbrances. Dettman testified he raised only objections he considered material. Starr's counsel, who was "overwhelmed" by Dettman's title opinion, eventually addressed Dettman's objections. The sale to Liberty Pattern closed in November 2003.
Prior to trial, Starr retained another attorney to examine the abstract. That attorney, who did not testify at trial, prepared a title opinion in January 2004. Based on this title opinion, Starr argues the defects in the property's title were not as severe as portrayed by Dettman. We find otherwise. In addition to the weight we give to Dettman's testimony, we note the sale to Liberty Pattern did not close for nearly six months after Dettman's title opinion. This span of time is inconsistent with mere minor clouds on the property's title.
II. Discussion.
Like Starr, we feel this case is governed by principles recently reiterated by the Iowa Supreme Court in Beckman v. Kitchen, 599 N.W.2d 699 (Iowa 1999). We differ with Starr, however, in our reading and application of Beckman. We affirm.
Ordinarily, time is not "of the essence" in real estate contracts, unless this is an express or implied term of the contract. Beckman, 599 N.W.2d at 701. The contract in question here contained no provision making time of the essence. Time may become "of the essence," however, if one party gives the other party "notice requiring performance within a reasonable time." Id. at 702 (quoting Mintle v. Sylvester, 202 Iowa 1128, 1132-33, 211 N.W. 367, 370 (1926)).
In Beckman, the rescinding party provided no such notice. Id. Here, Liberty Specialties gave Starr notice on May 12, 2002, which required performance by May 15, 2002. We must determine whether the notice was reasonable. "As a general rule, the question as to the reasonableness of the time given will depend upon the circumstances of the particular case." 77 Am.Jur. 2d Vendor and Purchaser § 90, at 186-87 (1997). Since the test is one of reasonableness, we consider the actions of a reasonably prudent party to a real estate contract responding to similar facts.
Under the facts of this case, we conclude the time allowed in the notice was reasonable. The three extensions of the closing date provided Starr with ample time to perform his obligations, including removing his personal property from the parcel and forwarding the abstract to Liberty Specialties in time for any title objections to be addressed by closing. The April 8 letter clearly indicates Liberty Specialties was demanding performance of the contract by May 15. By the plain language of the letter, to which Starr did not respond, any delay in Starr's performance would result in deep reductions in the purchase price. A reasonable person would have taken such action in response to the three extensions and the April 8 letter so that, by the time Liberty Specialties gave its notice on May 12, any remaining obligations could have been performed by May 15.
While Starr may have thought the April 8 letter would entitle him to again postpone closing, we conclude any such thought was not reasonable. Any reasonable person would have read the letter for what it is, a letter containing strong financial incentives to close by May 15 and a departure from the prior practice of repeatedly extending the closing. He did not accept the letter's terms or make a counteroffer. He did not take action to be able to close by May 15. Rather, he did nothing until May 12. Fundamentally, he seeks to rely on certain beneficial terms of the letter (closing may be delayed), which he did not accept, while ignoring the terms imposing heavy costs for exercising any of its benefits (any delays will be costly). His reaction to this letter is objectively unreasonable.
In support of his argument that the notice period was unreasonable, Starr points to August's trial testimony, in which he stated he did not believe Starr could close in three days. We have considered this testimony, and it does not change our conclusion. As noted above, a reasonable person in Starr's position would have been in a position to close on May 15. The failure to close by May 15 was not caused by Liberty Specialties's allegedly unreasonable notice, but by inaction by (or on behalf of) Starr.
We conclude the notice period was reasonable.
III. Conclusion.
We have considered all the arguments presented, even if not discussed in this opinion. The trial court's decision was equitable. We affirm its judgment.