C & J Vantage Leasing Co., Assignor to Frontier Leasing Corp., Assignee v. Thomas Wolfe D/B/A Lake Macbride Golf Course and Thomas Wolfe, Individually , 2011 Iowa Sup. LEXIS 13 ( 2011 )

IN THE SUPREME COURT OF IOWA
No. 08–1100
Filed March 4, 2011
C & J VANTAGE LEASING CO.,
Assignor to Frontier Leasing Corp., Assignee,
Appellee,
vs.
THOMAS WOLFE d/b/a LAKE MACBRIDE GOLF
COURSE and THOMAS WOLFE, Individually,
Appellants.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Polk County, Don C.
Nickerson, Judge.
Defendants seek further review from the court of appeals decision
affirming the district court‘s grant of summary judgment enforcing an
agreement. DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT REVERSED AND REMANDED.
Billy J. Mallory and Allison M. Steuterman of Brick, Gentry,
Bowers, Swartz & Levis, P.C., West Des Moines, for appellants.
Edward N. McConnell and Aaron Ginkens of Ginkens & McConnell,
P.L.C., Clive, for appellee Frontier Leasing Corporation.
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WIGGINS, Justice.
Thomas Wolfe d/b/a Lake MacBride Golf Course and Thomas
Wolfe, individually (hereinafter collectively referred to as Lake MacBride),
seek a ruling reversing the district court‘s entry of summary judgment in
favor of C & J Vantage Leasing Company, assignor to Frontier Leasing
Corporation, assignee, and dismissal of Lake MacBride‘s counterclaims
and third-party claims. The court of appeals affirmed the district court‘s
rulings. On further review, we find there are genuine issues of material
fact with regard to some of Lake MacBride‘s affirmative defenses,
counterclaims, and third-party claims. Accordingly, we vacate the
decision of the court of appeals, reverse the judgment of the district
court, and remand the case to the district court for further proceedings
consistent with this opinion.
I. Background Facts and Proceedings.
In 2003, a sales representative of Royal Links USA, Inc., an
advertising company, called Lake MacBride Golf Course and informed
Lake MacBride that it could receive a nonmotorized snack and beverage
cart at no cost in exchange for displaying advertising on the cart. The
sales representative also informed Lake MacBride that Royal Links would
make all the necessary arrangements, and Lake MacBride simply had to
execute a program agreement, a lease agreement, and several other
documents.
Accordingly, in July, Tracy Hufford, Lake MacBride‘s general
manager, executed a credit application on behalf of Lake MacBride for
one beverage cart and sent the application to Royal Links. Royal Links
then transmitted the credit application to C & J, who approved the
application. Thereafter, the sales representative informed Lake MacBride
the credit application had been approved. Later in July, Royal Links sent
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Lake MacBride a program agreement, a lease agreement, and a personal
guaranty for the beverage cart, which Thomas Wolfe, Lake MacBride‘s
owner, and Hufford executed.
The program agreement provided Lake MacBride would permit
Royal Links to display advertising on the beverage cart in exchange for
sixty monthly payments from Royal Links in the amount of $299 each
month. Upon the expiration of this initial term, Royal Links agreed to
continue to pay Lake MacBride $2000 a year for the next five years for
the right to continue displaying advertising on the beverage cart. The
program agreement also provided, ―Upon expiration or termination of this
Agreement, Royal Links USA will have the option to purchase any or all
of the Beverage Caddy Express units from [Lake MacBride] for $1.00
each.‖
The lease agreement identified C & J as the lessor, Lake MacBride
as the lessee, and Royal Links as the equipment supplier of the beverage
cart. The lease agreement stated, ―The Equipment Supplier Is Not An
Agent Of The Lessor.‖ Mirroring the program agreement, the lease
agreement purported to lease the beverage cart to Lake MacBride in
exchange for sixty monthly payments to C & J in the amount of $299
each month. Thus, from Lake MacBride‘s perspective, the result of this
transaction appeared to be that Lake MacBride would receive a beverage
cart at no cost because the monthly amount it was obligated to pay
C & J to lease the beverage cart was equal to the monthly amount it
would receive from Royal Links in exchange for allowing advertising to be
displayed on the beverage cart.
The lease agreement stated in bold capital letters, ―THIS LEASE IS
NONCANCELABLE.‖ The lease agreement also provided, ―Lessee may
purchase equipment at the end of the lease for $1.00 provided the terms
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of the lease are met.‖ Finally, the lease agreement disclaimed any causes
of action based on express or implied warranties against C & J. Wolfe
also executed a personal guaranty in favor of C & J in relation to Lake
MacBride‘s obligations under the lease agreement.
Thereafter, C & J purchased one beverage cart from Royal Links
for $12,500 and shipped it to Lake MacBride. Upon receipt of the
beverage cart, Hufford signed a ―Delivery and Acceptance Certificate‖
addressed to C & J. By signing this document, Hufford acknowledged
Lake MacBride satisfactorily received the beverage cart and Royal Links
was not an employee or agent of C & J.
In October 2004, Royal Links notified Lake MacBride that it would
no longer pay Lake MacBride the monthly advertising sums of $299
pursuant to the program agreement. C & J still expected Lake MacBride
to continue to make the monthly lease payments of $299 pursuant to the
lease agreement. Nevertheless, Lake MacBride stopped making
payments to C & J.
In May 2005, C & J brought a breach of contract action against
Lake MacBride to recover the defaulted payments under the lease
agreement. In response, Lake MacBride asserted the affirmative defenses
of estoppel, unconscionability, mutual mistake, fraud in the inducement,
frustration of purpose, and negligent supervision, among others. Lake
MacBride also filed a counterclaim/third-party petition against C & J,
the President/CEO of C & J (hereinafter collectively referred to as C & J),
and Royal Links.1 The counterclaim/third-party petition raised claims of
1On August 19, 2005, Royal Links filed a voluntary petition for Chapter 7
bankruptcy. The bankruptcy court automatically stayed Lake MacBride‘s third-party
petition against Royal Links and Lake MacBride‘s counterclaims/third-party-petition
claims moved forward as to the non-bankruptcy parties.
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fraudulent misrepresentation, equitable and constructive fraud, violation
of the business opportunity statute, and concert of action. It also
attempted to pierce the corporate veil. Lake MacBride further alleged the
lease agreement was a disguised secured transaction that violated Iowa
law. In responding to the counterclaim/third-party petition, C & J
disavowed any agency relationship with Royal Links and claimed Lake
MacBride was barred from raising any counterclaims/third-party claims
against C & J due to the presence of the hell-or-high-water clause in the
lease agreement.
On November 1, 2006, C & J assigned the lease agreement and
personal guaranty to Frontier. C & J then amended its petition to
substitute Frontier in the place of C & J as the real party in interest.
Subsequently, Frontier and Lake MacBride filed competing motions for
summary judgment.
The court determined the lease agreement constituted a finance
lease that contained an enforceable hell-or-high-water clause prohibiting
Lake MacBride from asserting any counterclaims against Frontier. The
court also held no agency relationship existed between C & J and Royal
Links. In addition, the court rejected Lake MacBride‘s affirmative
defenses and counterclaims/third-party claims of unconscionability,
mutual mistake, violation of the business opportunity statute, and
failure to mitigate damages. Further, the court rejected the claim raised
in Lake MacBride‘s resistance that the lease agreement was void because
it failed to disclose an interest rate. Finally, the court held the lease
agreement‘s integration clause and the parol-evidence rule barred
extrinsic evidence of the lease agreement. Thus, the district court
granted Frontier‘s motion for summary judgment, denied Lake
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MacBride‘s motion for partial summary judgment, and entered judgment
in favor of Frontier for $14,431.50.
Following the entry of judgment, both Frontier and Lake MacBride
filed motions to enlarge, amend, or modify the district court‘s ruling and
judgment. The parties sought clarification as to whether or not the court
had dismissed Lake MacBride‘s counterclaims and third-party-petition
claims. Accordingly, the district court modified its judgment and
dismissed Lake MacBride‘s counterclaims and third-party claims with
prejudice. In addition, the district court awarded Frontier $13,088.91 in
attorney fees.
Lake MacBride filed a notice of appeal, and we transferred the case
to the court of appeals. The court of appeals affirmed the district court‘s
judgment. Thereafter, Lake MacBride filed an application for further
review, which we granted.
II. Issues.
In this appeal, we must consider six issues. First, we must decide
whether the lease agreement constitutes a finance lease or a sale with a
security interest. Second, we must determine the enforceability of the
agreement‘s hell-or-high-water clause. Third, we must consider if there
are genuine issues of material fact regarding whether Royal Links was
acting as an agent for C & J. Fourth, we must decide whether there are
genuine issues of material fact supporting Lake MacBride‘s affirmative
defenses, counterclaims, and third-party claims. Fifth, we must resolve
whether the lease agreement‘s integration clause and the parol-evidence
rule prohibit the admission of extrinsic evidence of the agreement.
Finally, we must consider the issue of attorney fees.
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III. Scope of Review.
We review a district court decision granting or denying a motion for
summary judgment for correction of errors at law. Hills Bank & Trust Co.
v. Converse, 772 N.W.2d 764, 771 (Iowa 2009). If the moving party has
met his or her burden of showing the nonexistence of a material fact,
summary judgment is appropriate. Bank of the W. v. Kline, 782 N.W.2d
453, 456 (Iowa 2010). We afford the nonmoving party every legitimate
inference that can be reasonably deduced from the evidence. Pillsbury
Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 434 (Iowa 2008). Where
reasonable minds can differ on how an issue should be resolved, a fact
question has been generated, and summary judgment should not be
granted. Id. Accordingly, our review is limited to whether a genuine
issue of material fact exists and whether the district court applied the
correct law. Bank of the W., 782 N.W.2d at 457.
In addition, we review issues of statutory construction for
correction of errors at law. Martinek v. Belmond-Klemme Cmty. Sch. Dist.,
760 N.W.2d 454, 456 (Iowa 2009). We review a challenge to a district
court‘s award of attorney fees for an abuse of discretion. NevadaCare,
Inc. v. Dep’t of Human Servs., 783 N.W.2d 459, 469 (Iowa 2010). This
means we will only reverse an attorney-fee award if the court‘s ruling
rests on grounds that are clearly unreasonable or untenable. Id.
IV. Finance Lease or Disguised Sale with a Security Interest.
First, we must decide whether the lease agreement entered into
between the parties is properly considered a finance lease, as urged by
Frontier, or a disguised sale with a security interest, as argued by Lake
MacBride.
Iowa‘s version of the Uniform Commercial Code (UCC) is codified as
Iowa Code chapter 554 (IUCC). Article 1 of the IUCC contains general
8
provisions, including the definition of a security interest. Article 13 of
the IUCC governs leases, including finance leases. Article 9 of the IUCC
addresses secured transactions.
A lease is defined as a ―transfer of the right to possession and use
of goods for a term in return for consideration, but a sale . . . or retention
or creation of a security interest is not a lease.‖ Iowa Code
§ 554.13103(1)(j) (2003) (emphasis added). A finance lease is a lease that
meets several additional statutory requirements. See id.
§ 554.13103(1)(g). We recently described a typical finance lease as
follows:
―A ‗finance lease‘ involves three parties—the lessee/business,
the finance lessor, and the equipment supplier. The
lessee/business selects the equipment and negotiates
particularized modifications with the equipment supplier.
Instead of purchasing the equipment from the supplier, the
lessee/business has a finance lessor purchase the selected
equipment, and then leases the equipment from the finance
lessor.‖
C & J Vantage Leasing Co. v. Outlook Farm Golf Club, LLC, 784 N.W.2d
753, 756–57 (Iowa 2010) (quoting Colonial Pac. Leasing Corp. v. McNatt,
486 S.E.2d 804, 807 (Ga. 1997)).
A transaction must first qualify as a lease before it can qualify as a
finance lease. U.C.C. § 2A-103, cmt. (g) (amended 2003), 1C U.L.A. 829
(2004); see also Iowa Code § 554.13103(1)(g) (stating, ― ‗Finance lease‘
means a lease‖); Outlook Farm Golf Club, LLC, 784 N.W.2d at 757. The
definition of a lease specifically excludes a transaction that retains or
creates a security interest. Iowa Code § 554.13103(1)(j). Thus, to
determine whether the lease agreement is properly considered a finance
lease or a secured transaction, we must first consider whether the
agreement retained or created a security interest. Outlook Farm Golf
Club, LLC, 784 N.W.2d at 757. If so, the agreement cannot qualify as a
9
lease or a finance lease because an agreement retaining or creating a
security interest is specifically excluded from the definition of a lease.
Iowa Code § 554.13103(1)(j).
The facts of each transaction determine whether the transaction is
a lease or a sale with a security interest. Id. § 554.1201(37)(b). A
security interest is defined as ―an interest in personal property or fixtures
which secures payment or performance of an obligation.‖ Id.
§ 554.1201(37)(a). Iowa Code section 554.1201(37)(b) contains a bright-
line test for determining whether an agreement creates a security
interest. It provides that a transaction creates a security interest if
the consideration the lessee is to pay the lessor for the right
to possession and use of the goods is an obligation for the
term of the lease not subject to termination by the lessee,
and
(1) the original term of the lease is equal to or
greater than the remaining economic life of the goods,
(2) the lessee is bound to renew the lease for the
remaining economic life of the goods or is bound to become
the owner of the goods,
(3) the lessee has an option to renew the lease for
the remaining economic life of the goods for no additional
consideration or nominal additional consideration upon
compliance with the lease agreement, or
(4) the lessee has an option to become the owner of
the goods for no additional consideration or nominal
additional consideration upon compliance with the lease
agreement.
Id. § 554.1201(37)(b) (emphasis added). The first part of the bright-line
test is found in the unnumbered paragraph of section 554.1201(37)(b).
The second part of the bright-line test contains the four criteria listed in
sections 554.1201(37)(b)(1)–(4). Each of the four criteria listed in the
second part of the bright-line test are objectively based on economics,
10
not the intent of the parties. U.C.C. § 1-201, cmt. 37 (amended 1999), 1
U.L.A. 168 (2004); PSINet, Inc. v. Cisco Sys. Capital Corp. (In re PSINet,
Inc.), 271 B.R. 1, 44 (Bankr. S.D.N.Y. 2001).
In other words, under the bright-line test, the lease agreement in
this case creates a security interest, and cannot be characterized as a
lease or a finance lease, if it: (1) prohibits Lake MacBride from
terminating the obligation to pay Frontier for the right to possess and
use the beverage cart, and (2) meets one of the four independent criteria
listed in section 544.1201(37)(b). Iowa Code § 554.1201(37)(b)(1)–(4); see
also PSINet, Inc., 271 B.R. at 43–45 (recognizing the presence of any one
of the four criteria indicates the lessor did not retain a residual interest
in the property and therefore, the lease is not a true lease); Outlook Farm
Golf Club, LLC, 784 N.W.2d at 757–58.
Applying the first part of the bright-line test, we find the lease
agreement prohibited Lake MacBride from terminating its obligation to
pay Frontier for the right to possess and use the beverage cart. The
agreement states in bold capital letters, ―THIS LEASE IS
NONCANCELABLE.‖ The parties treat this statement as a hell-or-high-
water clause, which is defined as ―[a] clause in a personal-property lease
requiring the lessee to continue to make full rent payments to the lessor
even if the thing leased is unsuitable, defective, or destroyed.‖ Black’s
Law Dictionary 742 (8th ed. 2004). Additionally, if Lake MacBride
defaulted by refusing to tender payment to Frontier, under section
fourteen of the lease agreement it would simultaneously incur an
immediate obligation for all of the agreement‘s remaining payments.
Hunter v. Snap-On Credit Corp. (In re Fox), 229 B.R. 160, 165 (Bankr.
N.D. Ohio 1998) (recognizing the first part of the bright-line test is met
when the lessee cannot cancel the agreement without simultaneously
11
incurring an immediate obligation for the total cost of the equipment).
Finally, section fifteen of the agreement states, ―All obligations of Lessee
hereunder shall continue until full performance has been rendered and
shall not be released by termination of this Lease.‖ Thus, we conclude
the lease agreement meets the first part of the bright-line test.
Applying the second part of the bright-line test, we note the lease
agreement provides, ―Lessee may purchase equipment at the end of the
lease for $1.00 provided the terms of the lease are met.‖ If the only
economically sensible decision is for the lessee to exercise the purchase
option, the additional consideration is considered nominal. PSINet, Inc.,
271 B.R. at 45. The law is well established that a purchase-option price
of $1 amounts to nominal additional consideration, leaving no need to
further analyze the economic sensibility of purchasing the equipment for
that price. Id.; accord In re Macklin, 236 B.R. 403, 407 (Bankr. E.D. Ark.
1999) (construing agreement as a secured transaction because lessee
was provided the option to become owner of the equipment at the end of
the lease term for the nominal sum of $1); In re Eagle Enters., Inc., 223
B.R. 290, 299 (Bankr. E.D. Pa. 1998) (same), aff’d 237 B.R. 269 (E.D. Pa.
1999); All Am. Mfg. Corp. v. Quality Textile Screen Prints, Inc. (In re All Am.
Mfg. Corp.), 172 B.R. 394, 398 (Bankr. S.D. Fla. 1994) (same); C & J
Leasing II Ltd. P’ship v. Swanson, 439 N.W.2d 210, 211 (Iowa 1989)
(same). Therefore, we find the lease agreement provides Lake MacBride
with the option to become the owner of the beverage cart for nominal
additional consideration upon compliance with the lease agreement.
Thus, the second part of the bright-line test under Iowa Code section
554.1201(37)(b)(4) has been satisfied. Accordingly, we hold the lease
agreement is a sale with a security interest and not a lease or a finance
lease.
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Frontier argues the parties intended the lease agreement to be a
finance lease and drafted the agreement to reflect this intent. The
agreement states,
This agreement is, and is intended to be a Lease and Lessee
does not acquire hereby any right, title or interest
whatsoever, legal or equitable, in or to any of the equipment,
or to the proceeds of the sale of any equipment, except its
interest as Lessee hereunder.
In further support of this argument, Frontier cites the UCC‘s official
comment to the definition of a finance lease, which provides, ―[i]f a
transaction does not qualify as a finance lease, the parties may achieve
the same result by agreement; no negative implications are to be drawn if
the transaction does not qualify.‖2 U.C.C. Code § 2A-103, cmt. (g)
(amended 2003), 1C U.L.A. at 830.
Frontier‘s argument, however, fails to consider the full context of
the official UCC comment from which it cites. The comment begins with
the recognition that before a transaction can qualify as a finance lease, it
must first qualify as a lease. Id. at 829. The comment then describes a
typical finance lease and explains the requirements necessary for a lease
to qualify as a finance lease. Id. at 829–30. Finally, the comment states
that if the transaction does not meet the statutory requirements
necessary for a lease to qualify as a finance lease, the parties may
nevertheless agree to treat it as having qualified as a finance lease. Id. at
830. Thus, while Lake MacBride and Frontier could have agreed to treat
a lease as a finance lease, they could not agree to treat a sale with a
2Frontier also argues the agreement constitutes a finance lease with an attached
security interest. However, in C & J Vantage Leasing Co. v. Outlook Farm Golf Club,
LLC, 784 N.W.2d 753, 756 n.3 (Iowa 2010), we recognized that due to the large body of
law dedicated to differentiating between a lease and a security interest, an agreement
cannot be both. Thus, we reject this argument.
13
security interest as a lease. Before a transaction can qualify as a finance
lease, it must qualify as a lease.
Our interpretation of UCC § 2A-103 comment g is supported by
other comments throughout the UCC. For example, the UCC comment
describing the bright-line test for determining whether an agreement
creates a security interest explains that all references to ―the intent of the
parties to create a lease or a security interest‖ were deleted from the
bright-line test because such references led to ―unfortunate results.‖
U.C.C. § 1-201, cmt. 37 (amended 1999), 1 U.L.A. 168. Instead, the
bright-line test focuses objectively on the economic reality of the
transaction. Id. Moreover, the comment describing the definition of a
security agreement explains:
Whether an agreement creates a security interest
depends not on whether the parties intend that the law
characterize the transaction as a security interest but rather
on whether the transaction falls within the definition of
―security interest‖ in Section 1-201 [Iowa Code section
554.1201(37)(b)]. Thus, an agreement that the parties
characterize as a ―lease‖ of goods may be a ―security
agreement,‖ notwithstanding the parties‘ stated intention
that the law treat the transaction as a lease and not as a
secured transaction.
U.C.C. § 9-102, cmt. 3(b), 3 U.L.A. 64–65 (2010). Accordingly, the fact
the parties intended to treat the lease agreement as a lease or a finance
lease is immaterial so long as the agreement substantively qualifies as a
sale with a security interest under section 554.1201(37)(b).
V. Enforceability of the Hell-or-High-Water Clause.
Next, we must decide what consequences stem from finding the
lease agreement is a sale with a security interest. Lake MacBride claims
the lease agreement‘s hell-or-high-water clause is unenforceable if we
construe the agreement as a sale with a security interest, rather than a
finance lease. Frontier claims the hell-or-high-water clause is
14
enforceable regardless of whether we deem the transaction a sale with a
security interest or a finance lease.
A hell-or-high-water clause is a contractual provision that requires
the lessee to absolutely and unconditionally fulfill its obligations under
the lease in all events (i.e., come hell or high water).3 Citicorp of N. Am.,
Inc. v. Lifestyle Commc’ns Corp., 836 F. Supp. 644, 656 (S.D. Iowa 1993);
Excel Auto & Truck Leasing, L.L.P. v. Alief Indep. Sch. Dist., 249 S.W.3d
46, 51 (Tex. App. 2007). As explained by one court, a hell-or-high-water
provision is
a specialized clause peculiar to a three-party transaction,
which insures that the payments owed by the lessee to a
lessor who does not manufacture or supply the leased goods
are independent of the state of the goods and irrevocable, so
that the lessee looks to the manufacturer or supplier of
goods for warranties and remedies for defects in the goods,
not to the lessor.
Excel Auto & Truck Leasing, L.L.P., 249 S.W.3d at 64 (Keyes, J.,
concurring in part and dissenting in part). Courts have consistently
enforced such clauses in the financial leasing context. See, e.g., Citicorp
of N. Am., Inc., 836 F. Supp. at 656 (citing federal courts that have
upheld the general validity of hell-or-high-water clauses); W. Va. Dep’t of
Fin. & Admin. v. Hassett (In re O.P.M. Leasing Servs., Inc.), 21 B.R. 993,
1006–07 (Bankr. S.D.N.Y. 1982) (citing numerous cases strictly enforcing
hell-or-high-water provisions as a matter of law). Our task is to
determine the enforceability of such a provision in the context of a
secured transaction.
3Both parties treat the clause in the lease agreement that states, ―THIS LEASE
IS NONCANCELABLE,‖ as a properly formulated hell-or-high-water clause.
Accordingly, for the purposes of this opinion, we will assume without deciding that this
clause constitutes a hell-or-high-water clause.
15
The cardinal rule of contract interpretation is the determination of
the intent of the parties at the time they entered into the contract.
NevadaCare, Inc., 783 N.W.2d at 466. We strive to give effect to all the
language of a contract, which is the most important evidence of the
contracting parties‘ intentions. Id.; Fashion Fabrics of Iowa, Inc. v. Retail
Investors Corp., 266 N.W.2d 22, 26 (Iowa 1978).
Because an agreement is to be interpreted as a whole, it is
assumed in the first instance that no part of it is
superfluous; an interpretation which gives a reasonable,
lawful, and effective meaning to all terms is preferred to an
interpretation which leaves a part unreasonable, unlawful,
or of no effect.
Fashion Fabrics of Iowa, Inc., 266 N.W.2d at 26. Contracting parties
have wide latitude to fashion their own remedies for a breach of contract
and to deny full effect to such express contractual provisions is
ordinarily impermissible because it would ―effectively reconstruct the
contract contrary to the intent of the parties.‖ In re O.P.M. Leasing
Servs., Inc., 21 B.R. at 1006; accord Nat’l Westminster Bancorp N.J. v. ICS
Cybernetics, Inc. (In re ICS Cybernetics, Inc.), 123 B.R. 467, 477 (Bankr.
N.D.N.Y. 1989), aff’d 123 B.R. 480 (N.D.N.Y. 1990). Thus, courts
generally enforce contractual limitations upon remedies unless such
limitations are unconscionable. In re O.P.M. Leasing Servs., Inc., 21 B.R.
at 1006.
If an agreement qualifies as a finance lease under the UCC, an
express hell-or-high-water clause is unnecessary because such a
provision automatically attaches to a finance lease by statute. See
U.C.C. § 2A-407 (amended 2003), 1C U.L.A. 994 (2004); Iowa Code
§ 554.13407. With regard to security interests, no such statute exists in
article 9 of the UCC or article 9 of the IUCC. See 1 Ian Shrank & Arnold
G. Gough, Equipment Leasing-Leveraged Leasing § 3:1.10, at 3–26 (4th
16
ed. 2010) [hereinafter Equipment Leasing-Leveraged Leasing] (recognizing
UCC article 9 does not create an automatic hell-or-high-water clause for
a secured lender, although secured lenders play a similar role as finance
lessors because both are suppliers of money). Instead, for a secured
lender to receive the protection of a hell-or-high-water clause, the
secured lender must expressly assert such a provision within the
contract‘s language. Id. Accordingly, when a secured transaction
contains an express hell-or-high-water clause, courts must grant the
provision full effect. See, e.g., Key Equip. Fin. Inc. v. Pioneer Transp., Ltd.,
472 F. Supp. 2d 1131, 1140–41 (W.D. Wis. 2007) (holding express hell-
or-high-water clause was fully enforceable in a disguised sale creating a
security interest); Excel Auto & Truck Leasing, L.L.P., 249 S.W.3d at 63,
65 (Keyes, J., concurring in part and dissenting in part) (recognizing a
hell-or-high-water clause can appear in any kind of agreement).
Consequently, we hold an express hell-or-high-water clause contained
within a disguised sale with a security interest is fully enforceable
because to do otherwise would be to improperly reconstruct the contract
contrary to the parties‘ intent.
Lake MacBride further argues Frontier cannot enforce the hell-or-
high-water clause because it does not qualify as a holder in due course.
Iowa Code section 554.9403(2) requires that an assignee must qualify as
a holder in due course in order to enforce a waiver-of-defenses clause.
See Black’s Law Dictionary at 1612 (defining a waiver-of-defenses clause
as ―[t]he intentional relinquishment by a maker, drawer, or other obligor
under a contract of the right to assert against the assignee any claims or
defenses the obligor has against the assignor‖). However, the lease
agreement does not contain a waiver-of-defenses clause; instead, it only
contains a hell-or-high-water clause.
17
One line of authority suggests that an assignee in a commercial
(non-consumer) context need not qualify as a holder in due course to
enforce a hell-or-high-water clause. Equipment Leasing-Leveraged
Leasing § 3:2.2, at 3–33 to 3–34 (recognizing hell-or-high-water
provisions are not subject to UCC § 9-403(b)); accord Benedictine Coll.,
Inc. v. Century Office Prods., Inc., 853 F. Supp. 1315, 1325 (D. Kan.
1994) (recognizing assignee could enforce hell-or-high-water provision
irrespective of holder in due course status); In re O.P.M. Leasing Servs.,
Inc., 21 B.R. at 1008 (same). Other courts, however, have treated hell-or-
high-water clauses and waiver-of-defenses clauses as indistinguishable
and required holder-in-due-course status before an assignee may enforce
either clause. See, e.g., Union Mut. Life Ins. Co. v. Chrysler Corp., 793
F.2d 1, 12–13 (1st Cir. 1986) (failing to distinguish between the two
clauses).
We believe the position that an assignee may enforce a hell-or-
high-water clause irrespective of its holder-in-due-course status is more
persuasive and adopt it as the law in Iowa. These two clauses are
distinguishable—a hell-or-high-water clause protects the lessor whereas
a waiver-of-defenses clause protects an assignee of the lessor. Compare
Black’s Law Dictionary at 742 (defining hell-or-high-water clause), with
Black’s Law Dictionary at 1612 (defining waiver-of-defenses clause).
Accordingly, we reject Lake MacBride‘s holder in due course argument.
Even though the hell-or-high-water clause is enforceable, Lake
MacBride is not completely barred from raising its claims and defenses
against Frontier. Lake MacBride may still raise claims and defenses that
relate to contract formation, i.e., fraud in the inducement, fraudulent
misrepresentation, equitable and constructive fraud, mutual mistake,
estoppel, and unconscionability. See, e.g., Outlook Farm Golf Club, LLC,
18
784 N.W.2d at 758 (recognizing party may still raise defenses to contract
formation despite presence of hell-or-high-water clause). In addition,
Lake MacBride may still assert any statutory claims and defenses it has
against Frontier, i.e., failure to disclose an interest rate in violation of
Iowa Code chapter 535 and violation of chapter 551A, Iowa‘s business-
opportunity-promotions statute.
VI. Agency.
Lake MacBride next claims genuine issues of material fact exist as
to whether Royal Links was acting as an agent of C & J, which would
allow Lake MacBride to pursue its affirmative defenses of mutual
mistake, fraud in the inducement, estoppel, and negligent supervision,
as well as its counterclaims of fraudulent misrepresentation and
equitable and constructive fraud against Frontier. These affirmative
defenses and counterclaims center on Lake MacBride‘s allegation that
the Royal Links sales representative misrepresented the nature of the
transaction to Lake MacBride, thereby fraudulently inducing it to enter
into the lease agreement. However, because the sales representative
made all the alleged misrepresentations, in order to raise these
affirmative defenses and counterclaims Lake MacBride must prove by a
preponderance of the evidence that an agency relationship existed
between the sales representative and C & J. Frontier Leasing Corp. v.
Links Eng’g, LLC, 781 N.W.2d 772, 776 (Iowa 2010); see also Hendricks
v. Great Plains Supply Co., 609 N.W.2d 486, 493 (Iowa 2000) (recognizing
a principal is bound by whatever an agent does within the agent‘s scope
of actual or apparent authority).
An agency relationship exists where an agent has actual (express
or implied) authority or apparent authority to act on behalf of a principal.
Links Eng’g, LLC, 781 N.W.2d at 776. On further review, Lake MacBride
19
only presents an apparent-authority argument. ―Apparent authority is
authority the principal has knowingly permitted or held the agent out as
possessing.‖ Id. When determining if a principal vested an agent with
apparent authority, the court must focus on the principal‘s actions and
communications to the third party. Id. Thus, we must determine
whether apparent authority exists based on C & J‘s conduct, rather than
any conduct on the part of the Royal Links sales representative.
Frontier argues the lease agreement and the delivery and
acceptance certificate explicitly stated that Royal Links was not an agent
of C & J. Nevertheless, we have recognized that such express
contractual statements are not conclusive as to whether an agency
relationship exists. Outlook Farm Golf Club, LLC, 784 N.W.2d at 760.
The record reveals the beverage-cart program was ―vendor-based,‖
meaning C & J relied on vendors, such as Royal Links, to bring lessees,
such as Lake MacBride, to C & J for financing. This may explain why
Lake MacBride exclusively dealt with the Royal Links sales representative
throughout the transaction, save for one delivery-verification telephone
call from C & J. The credit application Lake MacBride executed
contained Royal Links name at the top and restricted the release of the
information contained in the application to ―Royal Links USA and any of
its affiliates and/or assigns.‖ Royal Links then forwarded this credit
application on to C & J for approval. Finally, Frontier has failed to
explain how the monthly payments Lake MacBride was obligated to pay
C & J to lease the beverage cart were miraculously identical to the
monthly amounts Lake MacBride received from Royal Links in exchange
for allowing advertising to be displayed on the beverage cart. These facts
led Lake MacBride‘s general manager to state, ―the sales representative
20
was authorized to act on behalf of and for the benefit of the leasing
company.‖
Drawing all reasonable inferences in favor of Lake MacBride, the
abovementioned facts constitute sufficient circumstantial evidence to
generate a genuine issue of material fact that C & J knowingly permitted
and/or held out Royal Links as possessing the authority to negotiate the
terms of the lease agreement as well as prepare the paperwork used to
execute the agreement. See id. at 759–60 (finding a genuine issue of
material fact on the issue of agency under similar circumstances, where
circumstantial evidence supported a finding that the principal may have
allowed the alleged agent to negotiate the terms of the lease agreement
and prepare the accompanying paperwork). Accordingly, while the finder
of fact may ultimately conclude C & J did not permit or hold out Royal
Links as its agent, we hold Lake MacBride has generated a genuine issue
of material fact on this issue, allowing the question to go to the fact
finder.
VII. Other Affirmative Defenses, Counterclaims, and Third-
Party Claims.
A. Fraud in the Inducement and Equitable Estoppel. Lake
MacBride claims the Royal Links sales representative fraudulently
induced it into entering the lease agreement based on misrepresentations
that the beverage cart was free and Frontier should be equitably
estopped from claiming the sales representative was not acting as its
agent. See Paveglio v. Firestone Tire & Rubber Co., 167 N.W.2d 636, 638
(Iowa 1969) (stating the elements necessary to establish equitable
estoppel). In response to these affirmative defenses, Frontier has only
argued that the sales representative was not acting as C & J‘s agent and
therefore, it is not bound by any of the alleged misrepresentations.
21
However, we have found a genuine issue of material fact exists as to
whether C & J knowingly permitted and/or held out the sales
representative as possessing the authority to negotiate the terms of the
lease agreement and prepare the paperwork used to execute the
agreement. Accordingly, Lake MacBride has established a genuine issue
of material fact as to its affirmative defenses of fraud in the inducement
and equitable estoppel.
B. Unconscionability. Lake MacBride argues it has established a
genuine issue of material fact regarding its affirmative defense of
unconscionability. Specifically, Lake MacBride claims the lease
agreement is unconscionable because C & J used the misrepresentations
of its agent to secure Lake MacBride‘s execution of the contract,
concealed the agreement‘s interest rate, concealed the true value of the
beverage cart, and used a credit application that claimed it would only
disclose the credit information to Royal Links‘ affiliates and/or assigns.
A contract is unconscionable where no person in his or her right
senses would make it on the one hand, and no honest and fair person
would accept it on the other hand. Smith v. Harrison, 325 N.W.2d 92, 94
(Iowa 1982). In considering such claims, we consider the factors of
―assent, unfair surprise, notice, disparity of bargaining power, and
substantive unfairness.‖ C & J Fertilizer, Inc. v. Allied Mut. Ins. Co., 227
N.W.2d 169, 181 (Iowa 1975). However, the doctrine of
unconscionability does not exist to rescue parties from bad bargains.
Smith, 325 N.W.2d at 94.
This doctrine encompasses both procedural abuses arising from
the contract‘s formation and substantive abuses related to the contract‘s
terms. In re Marriage of Shanks, 758 N.W.2d 506, 515 (Iowa 2008); 17
C.J.S. Contracts § 4, at 417 (1999). Procedural unconscionability
22
involves an advantaged party‘s exploitation of a disadvantaged party‘s
lack of understanding, unequal bargaining power between the parties, as
well as the use of fine print and convoluted language. Shanks, 758
N.W.2d at 515, 517. Substantive unconscionability involves whether or
not the substantive terms of the agreement are so harsh or oppressive
that no person in his or her right senses would make it. Id. at 515–16.
Finally, whether an agreement is unconscionable must be determined at
the time it was entered. Casey v. Lupkes, 286 N.W.2d 204, 208 (Iowa
1979).
The record reveals Lake MacBride was an intelligent business
entity that had the opportunity to read the entire lease agreement and
calculate the amount it would owe C & J for the beverage cart. There is
no evidence of unequal bargaining power between the parties or a lack of
understanding on the part of Lake MacBride. There is also no evidence
the substantive terms of the agreement were so oppressive that no
person in his or her right senses would enter into it. Although the
agreement ultimately amounted to a bad bargain for Lake MacBride, for
over a year, Lake MacBride did receive the benefits of the beverage cart at
no cost. Thus, we find there is no genuine issue of material fact that the
lease agreement is procedurally or substantively unconscionable.4
Consequently, the district court was correct when it found the lease
agreement was not unconscionable.
4In In re Marriage of Shanks, 758 N.W.2d 506, 517–18 (Iowa 2008), we stated
that ―the use of fraudulent or deceptive practices to procure the disadvantaged party‘s
assent to the agreement,‖ is one of the factors we consider when determining whether
an agreement is procedurally unconscionable. This factor amounts to a claim of fraud
in the inducement. Because this is the only factor that may militate towards a finding
of procedural unconscionability and we are remanding the case for a trial on this issue,
this factor alone is not sufficient to generate a genuine issue of material fact as to
whether the lease agreement is procedurally unconscionable.
23
C. Mutual Mistake of the Parties. Lake MacBride asserts there
were two mutual mistakes in the formation of the parties‘ agreement—
the belief Lake MacBride would receive the beverage cart at no cost and
that the Royal Links sales representative was acting as an agent of
C & J.
A mutual mistake in the formation of a contract occurs when the
parties reach and correctly express the contract, yet enter into the
contract based on a false underlying assumption. State ex rel. Palmer v.
Unisys Corp., 637 N.W.2d 142, 151 (Iowa 2001). The proper remedy for a
mutual mistake in the formation of a contract is avoidance. Nichols v.
City of Evansdale, 687 N.W.2d 562, 571 (Iowa 2004). For a mistake to be
mutual, it must exist at the time the parties formed the contract and be
common to both parties. Krieger v. Iowa Dep’t of Human Servs., 439
N.W.2d 200, 203 (Iowa 1989).
The record is devoid of evidence to support the inference that the
other parties shared the mutual mistakes claimed by Lake MacBride at
the time they entered into the lease agreement. Thus, the district court
was correct when it found no genuine issue of material fact that the
mistakes were mutual to all the parties at the time the parties entered
into the lease agreement.
D. Failure to Disclose an Interest Rate Under Iowa Code
Chapter 535. Lake MacBride complains the lease agreement contains a
usurious interest rate that C & J did not disclose in violation of Iowa
Code sections 535.2(1) and 535.17(1). The Iowa Code provides:
The following persons may agree in writing to pay any rate of
interest, and a person so agreeing in writing shall not plead
or interpose the claim or defense of usury in any action or
proceeding, and the person agreeing to receive the interest is
not subject to any penalty or forfeiture for agreeing to receive
or for receiving the interest:
24
....
(5) A person borrowing money or obtaining credit for
business or agricultural purposes, or a person borrowing
money or obtaining credit in an amount which exceeds
twenty-five thousand dollars for personal, family, or
household purposes.
Iowa Code § 535.2(2)(a)(5) (emphasis added). ― ‗[B]usiness purpose‘
includes but is not limited to a commercial, service, or industrial
enterprise carried on for profit and an investment activity.‖ Id.
Lake MacBride agreed in writing to make sixty monthly payments
of $299 to C & J in exchange for one beverage cart, which it used to sell
refreshments to customers at its golf course. The beverage carts were
used in connection with the golf course operation and its use came
within the goals of the business-purpose exception contained in section
535.2(2)(a)(5). Chapman’s Golf Ctr. v. Chapman, 524 N.W.2d 422, 426–
27 (Iowa 1994). Therefore, we find Lake MacBride could agree to pay any
rate of interest and cannot now assert a usury defense because the lease
agreement was for a ―business purpose.‖
Lake MacBride also claims a genuine issue of material fact exists
regarding its claim the lease agreement failed to disclose an interest rate
in violation of Iowa Code section 535.17(1). Section 535.17(1) states, ―A
credit agreement is not enforceable . . . unless a writing exists which
contains all of the material terms of the agreement and is signed by the
party against whom enforcement is sought.‖ Iowa Code § 535.17(1).
This section acts as a statute of frauds for credit agreements by ensuring
that actions and defenses on credit agreements ―are supported by clear
and certain written proof of the terms of such agreements.‖ Id.
§ 535.17(6).
Assuming, without deciding, C & J qualifies as a ―lender‖ and the
lease agreement qualifies as a ―credit agreement,‖ Lake MacBride has
25
failed to show the agreement is unenforceable because it fails to contain
―all of the material terms of the agreement,‖ by not explicitly listing an
interest rate. The agreement laid out the subject matter, price, payment
terms, and duration. Although the agreement did not expressly list an
interest rate, it did provide Lake MacBride was to make sixty monthly
payments of $299 to C & J. Section 535.17(1) contains no requirement
that the interest rate must be listed separate from the total payment
required under the agreement. Compare Iowa Code § 535.17(1), with 15
U.S.C. § 1632 (2006) (requiring, among other things, disclosure of
interest rates in the agreement). Accordingly, we find the express terms
contained within the lease agreement were sufficient to satisfy the
requirements of section 535.17(1).
E. Violation of Iowa’s Business-Opportunity-Promotions
Statute. Lake MacBride claims the transaction qualifies as a ―business
opportunity,‖ and consequently violates Iowa‘s business-opportunity-
promotions statute by failing to make the mandatory disclosures
required by Iowa Code section 523B.2, thereby entitling it to rescission
and damages.5 It is undisputed that C & J failed to make the disclosures
mandated by the statute. Accordingly, the only issue is whether the
transaction qualifies as a ―business opportunity‖ to which the statute
applies.
Iowa Code section 523B.2(8)(a) provides it is unlawful for a ―seller‖
to sell a ―business opportunity‖ unless certain disclosures are made to
5Both Lake MacBride and Frontier cite Iowa Code chapter 551A with regard to
the business-opportunity-promotions statute. Prior to 2004, this statute was contained
in Iowa Code chapter 523B. See Iowa Code §§ 523B.1–.13 (2003). In 2004 the
legislature amended chapter 523B and directed the code editor to transfer the statute to
chapter 551A. See 2004 Iowa Acts ch. 1104, §§ 5–31. Accordingly, because the cause
of action at issue in this case arose in 2003, prior to these changes, we will consider
Lake MacBride‘s business-opportunity-promotions counterclaim by referencing the
statute as it existed in 2003. See Iowa Code §§ 523B.1–.13 (2003).
26
the ―purchaser‖ at least ten days before the agreement is executed.
Under the statute, a ―business opportunity‖ is defined as:
[A] contract or agreement, between a seller and purchaser,
express or implied, orally or in writing, at an initial
investment exceeding five hundred dollars, where the parties
agree that the seller or a person recommended by the seller
is to provide to the purchaser any products, equipment,
supplies, materials, or services for the purpose of enabling
the purchaser to start a business, and the seller represents,
directly or indirectly, orally or in writing, any of the following:
....
(4) The purchaser will derive income from the
business which exceeds the price paid to the seller.
Iowa Code § 523B.1(3)(a)(4) (emphasis added). The statute also makes
several exclusions from the definition of ―business opportunity.‖ See id.
§ 523B.1(3)(b). One such exclusion states:
―Business opportunity‖ does not include . . . [a]n offer or sale
of a business opportunity to an ongoing business where the
seller will provide products, equipment, supplies, or services
which are substantially similar to the products, equipment,
supplies, or services sold by the purchaser in connection
with the purchaser‘s ongoing business.
Id. § 523B.1(3)(b)(2) (emphasis added). Finally, the statute further
defines ―ongoing business,‖ as
an existing business that for at least six months prior to the
offer, has been operated from a specific location, has been
open for business to the general public, and has
substantially all of the equipment and supplies necessary for
operating the business.
Id. § 523B.1(8).
The lease agreement allowed Lake MacBride to purchase the
beverage cart from C & J for $1 at the end of the lease term. However,
the program agreement between Royal Links and Lake MacBride stated
upon expiration of the agreement, Royal Links had the option to
purchase the beverage cart from Lake MacBride for $1. Accordingly,
27
Lake MacBride argues the transaction qualifies as a ―business
opportunity‖ under Iowa Code chapter 523B because it merely provided
Lake MacBride with the ability to generate a revenue stream from ―on
course concession sales and advertising revenue‖ through use of the
beverage cart. We disagree.
The transaction fails to meet the requirements of the definition of
―business opportunity‖ because C & J did not provide the beverage cart
to Lake MacBride to enable Lake MacBride to start a business. See id.
§ 523B.1(3)(a) (recognizing, for an agreement to qualify as a business
opportunity, the seller must provide the product to the purchaser ―for the
purpose of enabling the purchaser to start a business‖). At the time of
the transaction, Lake MacBride qualified as an ―ongoing business‖ under
the statute. See id. § 523B.1(8). For twenty-six years, Lake MacBride
had successfully operated its golf course in Solon, Iowa, and presumably
possessed all the equipment and supplies necessary for operating a golf
course.
In addition, the transaction satisfies one of the explicit exclusions
from the definition of a ―business opportunity.‖ See id. § 523B.1(3)(b)(2).
Because this transaction involved the sale of a product—the beverage
cart—that was substantially similar to the products and services sold by
Lake MacBride in connection to its ongoing business—the sale of
beverages and other concessions to its golfers—the transaction is
explicitly excluded from the definition of a ―business opportunity.‖ Id.
Accordingly, the district court rightly dismissed Lake MacBride‘s
business-opportunity-promotions counterclaim.
F. Remaining Claims and Affirmative Defenses. Lake MacBride
argues the district court erred in granting summary judgment in favor of
Frontier on its affirmative defenses of set-off, sole proximate
28
cause/negligent supervision, no meeting of the minds, and frustration of
purpose because Frontier failed to address these defenses in its motion
for summary judgment. In its motion for summary judgment, Frontier
gave cursory attention to these defenses by merely stating the defenses
―have no legal merit based on the undisputed facts and law of Iowa.‖ The
district court granted summary judgment in Frontier‘s favor without
discussing these defenses.
Such a perfunctory statement by Frontier, as the moving party, is
insufficient to satisfy the burden it carries of establishing no genuine
issue of material fact existed. Sherwood v. Nissen, 179 N.W.2d 336, 339
(Iowa 1970) (recognizing, if the moving party has not met his or her
burden, he or she is not entitled to summary judgment). Accordingly, we
find the district court erred in granting summary judgment in favor of
Frontier on these affirmative defenses and upon remand, the district
court must rule on the defenses at the appropriate time. See, e.g.,
Huffey v. Lea, 491 N.W.2d 518, 523 (Iowa 1992) (holding, upon remand,
district court must rule on party‘s affirmative defense that it earlier had
failed to rule on when dismissing the action).
In its amended answer, Lake MacBride also asserted the
counterclaims/third-party claims of fraudulent misrepresentation,
equitable fraud, constructive fraud, concert of action, and attempted to
pierce the corporate veil. The district court enlarged its ruling to dismiss
these counterclaims/third-party claims. Lake MacBride claims the
district court erred in dismissing these counterclaims/third-party claims
because Frontier never directed a motion for summary judgment at
them.
As to the fraudulent misrepresentation, equitable fraud, and
constructive fraud claims, Frontier addressed these claims generally in
29
its motion for summary judgment under the heading ―fraud and
misrepresentations.‖ Frontier argued because there was no agency
relationship between it and Royal Links, ―there was no fraud or
misrepresentation that is attributable to C and J.‖ The district court
found no agency relationship existed and enlarged its ruling to dismiss
these claims. However, we have held a genuine issue of material fact
exists as to whether Royal Links was acting as an agent of C & J.
Accordingly, we find Lake MacBride has generated a genuine issue of
material fact as to its counterclaims/third-party claims of fraudulent
misrepresentation, equitable fraud, and constructive fraud.
As to Lake MacBride‘s counterclaim/third-party claim of concert of
action and its attempt to pierce the corporate veil, Frontier failed to move
for summary judgment on these claims. Thus, the district court erred by
enlarging its ruling to dismiss these claims in favor of Frontier. See, e.g.,
In re Estate of Campbell, 253 N.W.2d 906, 907–08 (Iowa 1977) (refusing
to grant summary judgment to one who has not requested it).
Accordingly, upon remand, the district court must rule on Lake
MacBride‘s concert of action claim and its attempt to pierce the corporate
veil at an appropriate time.
VIII. The Integration Clause and the Parol-Evidence Rule.
Lake MacBride asserts there are facts in dispute that could lead a
reasonable finder of fact to believe the lease agreement was not fully
integrated and that the parol-evidence rule does not bar the introduction
of extrinsic evidence of the agreement. Specifically, Lake MacBride seeks
to introduce the program agreement it executed with Royal Links and the
statements made by the Royal Links sales representative to show the
parties intended Lake MacBride to receive the beverage cart at no cost.
30
When an agreement is fully integrated, the parol-evidence rule
forbids the use of extrinsic evidence introduced solely to vary, add to, or
subtract from the agreement. Whalen v. Connelly, 545 N.W.2d 284, 290
(Iowa 1996); Kroblin v. RDR Motels, Inc., 347 N.W.2d 430, 433 (Iowa
1984); Montgomery Props. Corp. v. Econ. Forms Corp., 305 N.W.2d 470,
475–76 (Iowa 1981). When the parties adopt a writing or writings as the
final and complete expression of their agreement, the agreement is fully
integrated. Whalen, 545 N.W.2d at 290. Determining whether an
agreement is fully integrated is a question of fact, to be determined from
the totality of the evidence. Id. The presence of an integration clause is
one factor we take into account in determining whether an agreement is
fully integrated. Nevertheless, the parol-evidence rule does not prohibit
the introduction of extrinsic evidence to show ―the situation of the
parties, . . . attendant circumstances, and the objects they were striving
to attain.‖ Kroblin, 347 N.W.2d at 433. The parol-evidence rule also
does not prohibit the admission of extrinsic evidence to prove fraud in
the inducement. Int’l Milling Co. v. Gisch, 258 Iowa 63, 71, 137 N.W.2d
625, 630 (1965).
Although the lease agreement contained an integration clause, the
parol-evidence rule does not prohibit Lake MacBride from introducing
evidence of the Royal Links‘ program agreement and the sale
representative‘s alleged misrepresentations. Lake MacBride is not
seeking to offer this extrinsic evidence to change or vary the meaning of
the lease agreement. See, e.g., Kroblin, 347 N.W.2d at 433 (holding
parol-evidence rule did not bar admission of extrinsic evidence, where
evidence was not introduced to change or vary the words of the contract).
Instead, Lake MacBride apparently seeks to offer this extrinsic evidence
to support its claim that it was fraudulently induced into entering into
31
the lease agreement based on its belief that, under the totality of the
transaction, it would receive the beverage cart at no cost. Accordingly,
the parol-evidence rule does not bar the admission of this evidence for
this purpose because Lake MacBride seeks to introduce this extrinsic
evidence to help prove fraud in the inducement and its expectations from
participating in the transaction.
IX. Attorney Fee Award.
The district court awarded attorney fees to Frontier based upon its
entry of judgment in Frontier‘s favor. On further review, we are vacating
the decision of the court of appeals, reversing the judgment of the district
court, and remanding the case to the district court for further
proceedings consistent with this opinion. Accordingly, we must vacate
the court‘s attorney-fee award because Frontier has not yet recovered a
favorable judgment upon the lease agreement. See Iowa Code § 625.22
(permitting the court to award reasonable attorney fees when judgment is
recovered upon a written contract containing an agreement to pay
attorney fees).
X. Disposition.
Because we have found genuine issues of material fact with regard
to some of Lake MacBride‘s affirmative defenses, counterclaims, and
third-party claims, we vacate the decision of the court of appeals, reverse
the judgment of the district court, and remand the case to the district
court for further proceedings consistent with this opinion.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT REVERSED AND REMANDED.