Case Title: Riley v. City of Hartley

Citation: 565 N.W.2d 344

Docket Number: 

State: iowa

Court: Iowa Supreme Court

Date: 1997-06-18T00:00:00Z

Document:
565 N.W.2d 344 (1997) Peter J. RILEY, Appellant, v. CITY OF HARTLEY, Iowa, and Richard J. Barry, Appellees. No. 96-468. Supreme Court of Iowa. June 18, 1997. *345 Randall G. Sease, Hartley, for appellant. Dennis Cmelik, Hartley, for appellees. Considered by LARSON, P.J., and CARTER, SNELL, ANDREASEN, and TERNUS, JJ. LARSON, Justice. A written lease between the City of Hartley and Peter J. Riley contained a right of first refusal to allow Riley to buy a lot owned by the city. When Riley attempted to exercise this right, the city refused. Riley sued for specific performance and damages. The district court granted summary judgment for the city, and Riley appealed. We affirm. In 1987 Riley purchased a building from the city in which to operate an implement business. He also leased a vacant lot from the city to be used in conjunction with the business. The lease contained this provision regarding Riley's possible purchase of the lot: Riley leased the property for over seven years. On August 29, 1994, the city notified him that the lease would terminate on October 1, 1994. In response, Riley notified the city that he was "exercising his option to purchase the property." Two weeks later, a third party, Richard Barry, made a written offer to buy the property. Barry offered to pay $13,409, and he included with his offer a written promise to build a $150,000 building on the lot and to employ four people in the new building. In a formal resolution, the city council proposed to sell the property to Barry, subject to any rights that Riley had under his lease. This resolution was published pursuant to Iowa Code section 364.7 (1987). Riley then made an offer to pay $13,409, to match Barry's offer. He did not, *346 however, agree to construct a building or to employ anybody. The city rejected Riley's offer. We review an order for summary judgment for correction of errors at law. Gabrilson v. Flynn, 554 N.W.2d 267, 270 (Iowa 1996). A party seeking summary judgment must show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Iowa R. Civ. P. 237(c). In reviewing the record, we consider the evidence in the light most favorable to the party opposing the summary judgment motion. C-Thru Container Corp. v. Midland Mfg. Co., 533 N.W.2d 542, 544 (Iowa 1995). Although the lease refers to Riley's right as an option, his interest is more accurately referred to as a right of first refusal or, occasionally, as a preemption. Knepper v. Monticello State Bank, 450 N.W.2d 833, 836-37 (Iowa 1990) (citations omitted); accord Trecker v. Langel, 298 N.W.2d 289, 290-91 (Iowa 1980). See generally Wanda Ellen Wakefield, Annotation, Construction and Effect of Options to Purchase at Specified Price and at Price Offered by Third Person, Included in Same Instrument, 22 A.L.R.4th 1293 (1983). Under home rule, any limitation of a city's powers by state law must be expressly imposed. Iowa Code § 364.2(2); Bryan v. City of Des Moines, 261 N.W.2d 685, 687 (Iowa 1978). Two such limitations are involved in the present case: Iowa Code section 364.3, requiring an ordinance or resolution to exercise a city's power, and section 364.7, establishing a procedure for and requiring notice of a city's proposed disposition of real estate. (Riley apparently concedes that his right of first refusal is an interest in real estate within the meaning of section 364.7. See Tuecke v. Tuecke, 257 Iowa 199, 203, 131 N.W.2d 794, 796 (1964) (stating that, when exercised, an option to purchase land becomes interest in real estate).) A. Exercise of the city's powers. Iowa Code section 364.3 provides: The requirements of section 364.3 are consistent with statutes in other jurisdictions. See 10 Eugene McQuillin, The Law of Municipal Corporations § 29.19, at 335 (3d ed.1990) [hereinafter McQuillin] ("Municipal contracts frequently are required to be authorized by an ordinance or resolution, adopted in accordance with formal procedures, in compliance with the rules relating to the enactment of ordinances and resolutions generally."). See generally 63 C.J.S. Municipal Corporations § 979 (1950) (concerning limitations of a municipal corporation's power to contract). Although the 1987 lease was signed by the mayor and city clerk, Riley concedes that the city council did not contemporaneously approve it by motion, resolution, or ordinance as required by section 364.3. B. Sale of interest in real estate. A second statute is involved. Iowa Code section 364.7 provides: *347 Riley also concedes that the city did not, contemporaneously with the execution of the lease in 1987, comply with section 364.7 by publishing a resolution concerning the city's granting of the right of first refusal. The city argues, and the district court held, that any right of first refusal in the Riley lease is void because of the city's failure to comply with this statute and section 364.3. Riley claims error on two grounds: the council substantially complied with the statutory requirements, and in effect, the city is estopped from denying the effectiveness of the lease. A. The substantial compliance argument. Iowa Code section 364.6 provides in part that "[a] city shall substantially comply with a procedure established by a state law for exercising a city power." Riley argues that, when the city published a resolution in 1994 concerning the city's proposed sale to Barry, the notice mentioned the "option" rights obtained by Riley in the 1987 lease. This, according to Riley, satisfied the requirements of Iowa Code sections 364.3 and 364.7 and therefore constituted substantial compliance. The 1994 published notice stated: The problem with Riley's substantial compliance argument is that the 1994 notice concerned a resolution to sell the property to Barry, not to convey a real estate interest to Riley. It is true, as Riley claims, that the notice mentioned that the sale was subject to an option previously granted to Riley. However, this published notice in 1994 did not even purport to be a resolution exercising the city's power to grant Riley the earlier right of first refusal. In short, notice of a proposed 1994 sale cannot be substantial compliance with the statute's requirements concerning a different transaction in 1987. In fact, it was no compliance at all. B. The estoppel argument. Riley complains that "the rental arrangement was done with the full knowledge and consent of the city council" and that Riley "performed under the terms of the agreement and paid the City of Hartley monthly for a period of seven years and five months." As one authority has noted: 10 McQuillin § 29.26, at 366. The writer continues: Id. at 367 (emphasis added). It might appear to be unfair to allow the city to escape its liability under the lease on the basis of its own failure to follow the statutes. However, the public has an interest in the disposition of the city's property, and the public's rights cannot be waived by the council's improper exercise of city powers. We therefore reject Riley's estoppel argument. AFFIRMED.