Galway Homes, Inc. v. Antonia Manolidis and Tom Manolidis , 919 N.W.2d 635 ( 2018 )

IN THE COURT OF APPEALS OF IOWA
No. 16-0949
Filed May 2, 2018
GALWAY HOMES, INC.,
Plaintiff-Appellant,
vs.
ANTONIA MANOLIDIS and TOM MANOLIDIS,
Defendants-Appellees/Cross-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Jeffrey D. Farrell,
Judge.
A corporation appeals and landowners cross-appeal, from a district court
order on claims related to an alleged breach of a real estate option agreement.
AFFIRMED.
Mark A. Critelli of Critelli Law Firm, P.C., Urbandale, for appellant.
Michael P. Holzworth, Des Moines, for appellees.
Heard by Vogel, P.J., and Doyle and Bower, JJ.
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VOGEL, Presiding Judge.
Galway Homes, Inc., owned and operated by James Postma, appeals a
district court decision denying its breach-of-contract claim. Antonia and Tom
Manolidis cross-appeal the district court’s decision denying their counterclaim for
earnest money. Both Galway and the Manolidises assert the district court should
have awarded attorney’s fees. Because Galway did not make a timely and
unqualified manifestation of its desire to exercise the option agreement, the district
court was correct in finding no breach of the agreement by the Manolidises.
Further, because the option agreement did not contain language regarding the
earnest money if the closing did not occur, we affirm the district court’s ruling
denying the Manolidises’ claim. As such, we agree with the district court’s denial
of any award of attorney fees.
I. Background Facts and Proceedings
On May 30, 2013, Galway and the Manolidises entered into an option
agreement for the purchase of approximately nine acres of undeveloped land that
the Manolidises owned in Johnston. The agreement included the purchase price
of $235,000 and, pursuant to an addendum, a requirement for Galway to place
$5000 of earnest money into its attorney’s trust account. The addendum also gave
Galway a period of ninety days “following the date of full execution of the purchase
agreement” to perform and complete due diligence on the property. If Galway had
not “purchased all of the Land” on or by August 30, at 5:00 p.m. the agreement
would automatically terminate. Specifically, the agreement stated:
In the event Purchaser has not purchased all of the Land on or before
______at 5:00 p.m., then this agreement will automatically be extended for
one year.
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In the event Purchaser has not purchased all of the Land on or by August
30, at 5:00 p.m., then this Agreement will automatically terminate and
Purchaser will purchase any remaining Land from Seller at the Purchase
Price.
(Strikethrough included in agreement).
The addendum provided:
Due Diligence: Purchaser shall have a period of 120 90 days
following the date of full execution of the purchase agreement during
which to perform and complete its due diligence on the Property.
Such due diligence shall include but not be limited to:
a) Purchaser obtaining zoning for its intended use of the
Property which is the development of single family residential lots
with a minimum frontage of . . . .
....
e) Purchaser being satisfied that its intended use is
economically feasible.
... .
On or before the expiration of the due diligence period,
Purchaser will have the option to terminate the transaction and all
earnest money then held on deposit shall be returned to Purchaser.
Galway sought to amend the Johnston zoning plan for the parcel of
undeveloped land. The current zoning plan required three-acre lots and, because
the undeveloped parcel was only nine acres, Galway did not consider the
development economically feasible without the amendment. Because of the
ongoing rezoning negotiations between Galway and the City of Johnston, the
Manolidises agreed to extend the option agreement four times. On October 30,
2013, the parties extended the option to November 21; on November 19 the option
extended to December 12; on December 11 the parties extended the option to
January 12, 2014; and finally, on January 10 the parties extended the option to
January 27.
On January 7, prior to the final extension, Galway sent an email to the
Manolidises, stating:
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I resent the email I sent 12-23-13. On 1-6-14 the City Council
referred the project to the Planning & Zoning meeting on 1-27-14. At
that time I am looking for a favorable vote so we can proceed.
The city wanted us to draw up a Planned Unit Development
which cost me $20,000 to have my engineer do.
My financing is all approved to develop the project.
....
In summary, I am ready to go as soon as the city approves it.
On January 9, Galway emailed the Manolidises, outlining the steps that
needed to be taken in order to close on the real estate transaction, anticipating the
process would take approximately two and one-half weeks. That time period would
coincide with the final extension of the option agreement, which had changed the
wording of the original agreement slightly to identify January 27 as the “Date of
Closing.” The agreement provided:
In the event Purchaser has not purchased all of the Land on or by
Date of Closing 1-27-14, at 5:00 p.m.,1 then this Agreement will
automatically terminate and Purchaser will purchase any remaining
Land from Seller at the Purchase Price.
On January 22, the Manolidises’ attorney contacted Galway to discuss
details of the anticipated closing. On January 24, Galway’s bank notified it that the
Manolidises’ attorney had questions regarding the legal description of the deed
omitting a small parcel that the Manolidises wanted to retain for themselves.2
Hours before the closing on January 27, the Manolidises’ attorney called Galway
to discuss Galway purchasing the entire property, excluding the omitted acreage
that would be handled separately at a later time. No documents had been
1
“Date of Closing” was handwritten and this change was initialed by “A.M.”
2
The legal description of the real estate contained in the option agreement stated, “less
the acreage where the house stands, to be determined.”
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prepared to complete the transaction. No future closing date was discussed and
there were no agreements as to how the parties would proceed.
Later that evening, the Johnston Planning and Zoning Commission met and
denied Galway’s rezoning request. Galway then asked its attorney to return the
$5000 it had deposited in its attorney’s trust account. On January 31, the
Manolidises, asserting Galway was not going to perform under the agreement,
demanded the earnest money. On February 8, the Manolidises filed a “Notice of
Forfeiture of Real Estate Contract” alleging Galway had breached the option
agreement by failing to purchase the property.3 The notice stated the contract
would be forfeited unless Galway tendered payment within thirty days. Galway did
not tender payment within thirty days but did submit an offer to purchase the
Manolidises’ property for $235,000, on March 24, with a deadline to accept the
offer of March 25. The Manolidises did not accept Galway’s offer.
On April 15, 2014, Galway filed a petition with the district court alleging
breach of contract against the Manolidises. The Manolidises answered and filed
a counterclaim on May 21, seeking a judgment against Galway for the earnest
money as well as attorney fees. On April 26, 2016, the district court entered its
decision following a bench trial. The court denied both Galway’s petition and the
Manolidises’ counterclaim, and it denied both parties’ requests for attorney’s fees.
Galway appeals, and the Manolidises cross-appeal.
3
As the district court noted, “The notice of forfeiture was unnecessary because the option
agreement had expired.” (citing High Dev. Corp. v. Star of the W. Co., 772 N.W.2d 15(Iowa Ct. App. 2009)).
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II. Standard of Review
We generally review the interpretation of a contract for correction of errors
at law.4 Iowa R. App. P. 6.907; Hartig Drug Co. v. Hartig, 602 N.W.2d 794, 797
(Iowa 1999). However, we are not bound by the interpretation made by the trial
court. Id.We review an award of attorney fees for an abuse of discretion.
NevadaCare, Inc. v. Dep’t of Human Serv., 783 N.W.2d 459, 469 (Iowa 2010)
(citations omitted). A court abuses its discretion when its award rests on grounds
that are clearly unreasonable or untenable. Id.III. Breach of Contract
Galway claims the Manolidises breached the option agreement by
preventing Galway from proceeding with the closing of the transaction. The district
court found no breach because Galway failed to exercise its option.
The primary goal of contract interpretation is to determine the parties’
intentions at the time they executed the contract. Walsh v. Nelson, 622 N.W.2d
499, 503 (Iowa 2001). Contract interpretation involves a two-step process: (1) the
court must determine what meanings are reasonably possible from the words
used, and (2) the court must choose among possible meanings. Id. (citing
Restatement (Second) of Contracts § 202 (1981)). Step one involves determining
whether a term is ambiguous. A term is ambiguous if a genuine uncertainty exists
concerning which of two reasonable interpretations is proper, and the court must
4
The original petition was docketed in equity. We note that the district court ruled on
evidentiary objections, which is “normally the hallmark of a law trial.” Sille v. Shaffer, 297
N.W.2d 379, 381 (Iowa 1980). Neither party objected to this procedure, despite the equity
docketing. For these reasons, we conclude our review is for errors of law.
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then choose among possible meanings. Id. If the resolution of ambiguous
language involves extrinsic evidence, a question of interpretation arises, which is
reserved for the trier of fact. Id. Rules of interpretation are used both to determine
what meanings of disputed terms are reasonably possible as well as to choose
among two reasonable meanings. Id. “[T]he disputed language and the parties’
conduct must be interpreted ‘in the light of all the circumstances’ regardless of
whether the language is ambiguous.” Id.Option agreement performance is generally classified as being “exercised”
not purchased. See Figge v. Clark, 174 N.W.2d 432, 435 (Iowa 1970) (holding
defendants knew plaintiff desired to exercise the option to buy); see also Steele v.
Northup, 143 N.W.2d 302, 306 (Iowa 1966) (holding plaintiffs orally exercised their
option).
In this case, the original option agreement and the four extensions failed to
outline the manner in which the option was to be exercised. Instead, the
agreement contained language as to time but not method: “In the event Purchaser
has not purchased all of the Land, [by a date certain], then this Agreement will
automatically terminate.” The final extension changed the language to read, “In
the event Purchaser has not purchased all of the Land on or by Date of Closing 1-
27-14 at 5:00 p.m. then this Agreement will automatically terminate. . . .”
The agreement was silent regarding the manner in which the option was to
be exercised, therefore “[a]nything amounting to an unqualified manifestation of an
optionee’s determination to accept is sufficient unless the option agreement
provides otherwise.” Steele, 143 N.W.2d at 306. Galway asserts the emails from
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January 7 and 9 notified the Manolidises of Galway’s intent to exercise the option.
However, the district court, hearing the same argument at trial, found:
The very purpose [of] the option agreement was to allow
Galway time to conduct due diligence on several items, particularly
zoning. If rezoning had not mattered, Galway could have simply
purchased the property from the beginning or during any of the four
extensions. But rezoning was important. Mr. Postma told the zoning
board that he did not know if he could successfully develop the
property unless it was rezoned, and the due-diligence clause
included a clause that Galway determine that the property’s intended
use be economically feasible. It is clear that Mr. Postma delayed his
decision to exercise the option until after he knew whether Johnston
would rezone the property.
This intent is shown as late as January 7, 2014, in an email
Mr. Postma sent to Ms. Manolidis. In that email, he stated that he
was looking for a favorable vote so they could proceed with the
project. The final sentence of the email states, “In summary, I am
ready to go as soon as the city approves it.” This statement is not
an “unqualified manifestation” to purchase the property—rather, it
conditions the decision to purchase the property on the zoning
board’s decision.
Galway went before the Johnston Planning and Zoning Commission
asserting it needed to rezone the property for the project to be economically
feasible. It had been negotiating with the city for many months, and the
Manolidises agreed to extend the purchase date four times to allow Galway to
continue its efforts. This evidence lends support to the district court’s
determination that the intent of the parties was to move forward with the sale upon
the land being rezoned; otherwise, the agreement would have terminated upon
arriving at the first deadline. Although Galway asserts it was “ready, willing and
able” to close the transaction on January 27, Galway’s position was that it would
not follow through with the purchase of the property if the parcel was not rezoned.
As such, Galway’s January 7 email stating, “In summary, I am ready to go as soon
as the city approves it,” cannot be considered an unqualified manifestation of its
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decision to exercise the option before the agreement expired on January 27
because the property was not rezoned. The district court found no other
“unqualified manifestation” of Galway’s intent to exercise its option to purchase the
real estate finding, “Galway was required to make an unqualified manifestation of
its decision to exercise the option during the term of the option agreement. It did
not do so, and accordingly, the agreement terminated by its terms.”
Because the agreement automatically terminated when Galway did not
exercise its option, the district court did not err in finding the Manolidises did not
breach the option agreement.
IV. Earnest Money
The Manolidises’ cross-appeal asserts the district court erred in concluding
Galway was entitled to retain the earnest money held in its attorneys trust account.
The Manolidises contend Galway allowed the agreement to lapse by failing to
perform, consequently forfeiting the earnest money. In concluding the Manolidises
were not entitled to the earnest money, the district court stated:
After considering the agreement and the surrounding
evidence as a whole, the court finds that Galway should retain the
earnest money. The transaction was delayed primarily due to the
zoning issue, which was to be decided on January 27, 2014, the
same date that the option agreement expired. Mr. Postma told the
zoning board, and it was evident through his conduct during the due
diligence period, that the project could not be successful without
rezoning. Galway did not exercise the option to purchase the
property prior to the zoning board meeting for these very reasons.
The failure to do so amounted to a tacit termination of the transaction
by the terms of the agreement. Because the agreement did not
contain a provision requiring the earnest money to be forfeited to Mr.
and Ms. Manolidis, it should be retained by Galway.
In coming to its conclusion, the district court again interpreted the option
agreement because the necessary terms of the contract were either ambiguous or
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omitted. Paragraph 11 of the agreement, upon which the Manolidises rely for their
assertion Galway forfeited the earnest money, states, “If Purchaser fails to timely
perform this Agreement, Seller may forfeit as provided in the Iowa Code, and all
payments made shall be forfeited.” The agreement does not provide what would
happen to the earnest money if the property was not rezoned. However, rezoning
was contemplated by both parties and was the major hurdle facing the proposed
sale. The Manolidises knew how difficult this property was to rezone; for instance,
on July 17, 2013, Ms. Manolidis sent an email expressing her hope that the city
would “be fair” with Galway in its attempts to rezone the property, and Ms.
Manolidis testified they tried to sell the property once before without success
because they ran into zoning issues.
Upon our review of the record, we conclude the district court properly denied
the Manolidises’ counterclaim because the option agreement was devoid of any
language requiring the earnest money to be forfeited under these circumstances,
namely in the event the property was not rezoned, and because the evidence
shows both parties knew rezoning was critical to Galway’s decision to exercise the
option.
V. Attorney Fees
Both parties assert they are entitled to attorney fees. A written contract
providing for attorney’s fees must be for reasonable attorney’s fees. See Iowa
Code § 625.22 (2013). The burden is on the party seeking to recover fees to prove
both that the services were reasonably necessary and that the charges were
reasonable in amount. Ales v. Anderson, Gabelmann, Lower & Whitlow, P.C., 728
N.W.2d 832, 842 (Iowa 2007).
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Paragraph 11 of the option agreement provided for remedies, stating:
If Purchaser fails to timely perform this Agreement, Seller may
forfeit as provided in the Iowa Code, and all payments made shall be
forfeited. Purchaser and Seller also are entitled to utilize any and all
other remedies or actions at law or in equity available to them and
shall be entitled to obtain judgment for costs and attorney fees as
permitted by law.
The district court concluded that the option agreement contained too many
ambiguous terms, which confused both parties regarding what was necessary to
exercise the option. The agreement also did not state what was to happen to the
earnest money if Galway failed to perform due to unsuccessfully petitioning to
rezone the property. Because Galway did not make an unqualified manifestation
of its decision to exercise the option and because it was unclear whether the
earnest money was required to be forfeited under these circumstances the district
court denied both claims and did not award either party attorney fees. We
conclude the district court did not abuse its discretion in deciding not to award
attorney fees to either party.
VI. Conclusion
Because Galway did not make an unqualified manifestation of its desire to
exercise the option agreement, the agreement automatically terminated and the
district court correctly found no breach of the agreement by the Manolidises.
Further, because the option agreement did not contain language regarding the
earnest money if the property was not rezoned and Galway failed to follow through
with the purchase, we affirm the district court’s ruling denying the Manolidises’
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claim. We also affirm the district court’s denial of both parties’ requests for attorney
fees.
AFFIRMED.