iowa real estate law contractOn June 12, 2020, the Iowa Supreme Court issued a ruling in the case of In The Matter of the Estate of Sandra R. Franken, John E. Rottinghaus and Dessie Rottinghaus vs. Lincoln Savings Bank, Fiduciary of the Estate of Sandra R. Franken.  Said Ruling was amended on August 17, 2020.

In 1973 the Rottinghauses sold real property of Dessie to Sandra and James Kipp, as joint tenants with full rights of survivorship.  The deed granted the Rottinghauses a first right of refusal which stated as follows:

Grantees hereby agree that they will not sell or otherwise convey the premises described above to any person other than grantors without first giving grantors the opportunity to purchase the premises at a price equal to any bona fide offer to purchase the premises made by any other person.  In the event any person offers to purchase the said premises from the grantees, the grantees shall notify the grantors immediately and grantors shall have fifteen (15) days to purchase the property at the same price as offered.

Only James Kipp signed the deed which was filed in 1973.  The Rottinghauses never refiled or renewed the right of first refusal.    In 2001 James Kipp died and Sandra subsequently married Bennett Franken.  In 2005 Sandra conveyed the property to herself and her husband as joint tenants with full rights of survivorship.  In 2010 the couple conveyed the property to Sandra.

Sandra died in 2014.  Her will granted a life estate in the property to her husband.  Her husband died in 2015.  In April of 2016, Sandra’s estate executed a purchase agreement to sell the property to a third party.  No notice was given by the estate of the purchase agreement to the Rottinghauses.  The property sold in May of 2016 to the third parties for $195,000.00.

The Rottinghauses filed a claim in the estate in 2016 claiming that the estate breached the contract granting them a first right of refusal and requested damages of $195,000.00 plus interest.  The executor disallowed the claim.  The district court ruled in favor of the estate finding that the right of first refusal was no longer enforceable under Iowa Code Section 614.17A.

On appeal the case was transferred to the Court of Appeals.  The Court of Appeals affirmed the ruling of the district court.  The Supreme Court granted the Rottinghauses request for further review.

The Supreme Court ruled that Iowa Code section 614.17A bars only those actions seeking to recover or establish an interest in or claim to real estate.  The Court went on to find that “a party pursuing an action only for damages for breach of contract does not seek to recover or establish an interest or claim to real estate”.  The Court further stated that “the statute does not at all address an action for monetary damages arising out of a real estate agreement”.  The Court also noted that “the statute provides a defense only where the action is against the holder of the record title to the real estate in possession”.  The Court further noted that the action is against the estate and as such “the Rottinghauses action is thus not one against the holder of the record title to the real estate in possession”.

The Court went on to find that the merger doctrine provides the estate with no relief, stating that “the Rottinghauses did not seek to enforce any collateral agreements or conditions not incorporated into the deed”.  The Court went on to find that the statute of frauds do not apply “where the purchase money, or any portion thereof, has been received by the vendor, or when the vendee, with the actual or implied consent of the vendor, has taken and held possession of the premises under and by virtue of the contract”.  The Court also rejected the estate’s argument that Iowa Code section 614.17A indirectly bars the Rottinghauses’ claim for damages. The Court agreed with the estate that “the Rottinghauses must first establish a right of first refusal exists as a prerequisite to seeking damages for the violation of the right”.  The Court went on to state that “however, the estate is mistaken that Section 614.17A precludes the Rottinghauses from the establishing the right of first refusal”.

Finally, the Court rejected the estate’s argument that Iowa Code section 614.1(5) bars the Rottinghauses damages action.  The Court found that “the specific claim presented in this appeal is whether the estate breached the right of first refusal when it sold the property to a third party in 2016” and as such, “the action clearly falls within the statute of limitations”.  The Court concluded that the district court erred in granting the estate’s motion for summary judgment and preceded to vacate the Court of Appeal’s opinion, and ordered that the District Court judgment is reversed and remanded for further proceedings.