Opinion ID: 1302079
Heading Depth: 1
Heading Rank: 6

Heading: Timing Regarding Patten's Obligation to Transfer the Common Areas.

Text: Although the district court found (1) Patten had agreed to transfer the common areas to SVILA and (2) what those common areas included, it still had to determine when that obligation would arise. Sky View contends the obligation was not ripe when Patten sold its interest in the development. To support its contention, Sky View points to two documents: the transfer agreement and the May 15, 1989, merger agreement.
by the engineer or engineers retained or employed by [Patten] to design or supervise or review the construction of a particular improvement. The certification of said engineer of completion shall, for purposes of this agreement, be binding upon the parties hereto. Sky View simply points out no engineer has ever certified that the improvements to the common areas have been completed. Under the evidence presented, the district court found the improvements to the common areas had been completed within the meaning of the transfer agreement. For this reason, the court concluded, no engineer's statement was required to trigger Patten's obligation to transfer the common areas. We agree and adopt the court's finding and conclusion. We further find that, by its subsequent conduct and representations, Patten waived the engineer's certification. Following execution of the transfer agreement, Patten represented to subsequent lot purchasers that it would transfer the common areas no later than such time as it left or sold its interest in the development to a third party. On this point Patten's former project director at the development testified as follows: Q. As far as what you told people or what you were instructed to tell people about the common areas, though, what did that entail? A. The entire sales force, including myself, because I was a selling sales manager, would tell a prospective buyer that there are certain common areas around the lake, which would include roads, tennis courts, gazebo areas that we couldn't build on, beach area, the clubhouse, that they would all be deeded over to the homeowners when Patten either sold the project, or Patten left, because we really don't know when we take over a project whether or not the project would be sold out or not. Q. Was the transfer to take place, then, on the earlier of those two conditions, or when exactly was this transfer to take place? A. Whichever happened first. I mean, that's the way we explained it to every prospective client that we had in front of us. Q. Were you instructed by your superiors at Patten to convey this information to the prospective clients? A. Of course, because it was a great selling point, and it was for the benefit of the prospective client and new lot owner. Q. In your opinion, did those individuals who purchased land from Patten rely upon those representations? A. Very much so. In addition, Patten's March 5, 1990, letter represents to SVILA that Patten would transfer the common areas no later than the end of Patten's involvement with the development. B. The May 15, 1989, merger agreement. As mentioned, the merger agreement provided that Patten would have the right, but not the duty, to convey any existing common property to [SVILA] and, any newly constructed common property, at any time after it is certified to be completed by the engineer employed to supervise the construction thereof. Sky View contends this language eliminated any duty on Patten's part to transfer the common areas to SVILA. The district court found the [merger] agreement did not, nor did the parties ever intend to, eliminate Patten's or its successor-in-interest's obligation to convey the common properties. In reaching this ultimate finding of fact, the court relied on (1) the covenant document, (2) Patten's subsequent conduct following the agreement, and (3) the March 5, 1990, letter from Patten to SVILA. The district court reasoned as follows. The covenant document provided that Patten would convey the common areas to SVILA. The merger agreement provided that all lots sold after the merger agreement were subject to the recorded covenants. These covenants, of course, contained Patten's obligation to convey the common areas. The right, but not the duty language in the merger agreement created confusion. Patten's subsequent conduct cleared up that confusion. Its sales personnel continued to hand out the transfer agreement to all lot buyers. Its sales personnel also continued to represent that Patten would turn over the common areas at the end of Patten's involvement in the development. The March 5, 1990, letter from Patten to SVILA reassured SVILA that Patten intended to turn over the common areas to SVILA no later than the end of Patten Corporation's involvement in the project. Without saying so, the district court reformed the merger agreement to reflect the real intention of the parties. The rules governing reformation are well-established. The party who contends an agreement does not reflect the real intention of the parties must prove this contention by clear, satisfactory, and convincing evidence. Kufer v. Carson, 230 N.W.2d 500, 503 (Iowa 1975). The right to reform the agreement (1) lies within the discretion of the equity court, and (2) depends upon whether the remedy is essential to the ends of justice. Id. at 504. The equity court will grant relief if an instrument as written fails to express the true agreement between the parties without regard to the cause of the failure to express the agreement as actually made, whether it is due to fraud, mistake in the use of language, or anything else which prevented the instrument from expressing the true intention of the parties. Id. Before equity will reform an agreement, a definite intention or agreement on which the minds of the parties had met must have preexisted the instrument in question. There can be no reformation unless there is a preliminary or prior agreement, either written or verbal, between the parties, furnishing the basis for rectification or to which the instrument can be conformed. 66 Am.Jur.2d Reformation of Instruments § 4, at 529 (1973). Here, there was an agreement preexisting the May 15, 1989, merger agreement. The preexisting agreement provided that Patten would convey the common areas to SVILA when Patten ended its involvement in the development either by leaving or selling its interest to a third party. After the merger agreement, there was written evidence confirming what the original agreement was. The written evidence is in the form of the March 5, 1990, letter. Moreover, following the merger agreement, Patten continued to sell lots on the basis of the prior agreement. Whatever the reason for the difference between the merger agreement and the preexisting agreement, the district court had adequate proof to reform the merger agreement to reflect the true intention of the parties. To do otherwise would not have served the ends of justice. As between Patten and SVILA, Patten was obligated to transfer the common areas to SVILA when Patten either left or sold its interest in the development to a third party. The question remains, however, whether Sky View had notice of this obligation before Sky View purchased Patten's interest. That brings us to the next issue.