Opinion ID: 2225003
Heading Depth: 1
Heading Rank: 3

Heading: Interpretation of the Disputed Clause Based on Extrinsic Evidence.

Text: The standard form contract at issue was prepared by John D. TePaske, who at that time was an attorney as well as part owner of Farmland Realty, the broker which handled the sale. At trial Damstra offered the testimony of TePaske, as well as his own, to show the meaning of the changes made to paragraph 10. Damstra testified he signed the contract in the presence of TePaske and Larry Church, another broker for Farmland Realty. The McGees were not present, according to his testimony, and in fact, he did not meet them until several years after the contract was executed. Damstra testified a brief discussion took place with TePaske and Church at the time he signed the contract, but he could not recall whether they went through the clauses of the contract together. He testified he could not recall discussing paragraph 10 at this time, but then stated, I'm sure it was discussed. In subsequent questioning Damstra testified someone explained to him at this time that the changes to paragraph 10 meant he could not be forced to perform or continue the contract if he chose not to continue, and that his only liability would be to lose the payments made up to that point. At one point in his direct testimony the following exchange occurred: Q. Did you request the change in the language in paragraph 10 or was that alteration made before you signed the contract? A. To the best of my knowledge, that alteration was in there before I signed the contract. This answer seems to indicate that the changes were not made as the result of negotiations between the parties. TePaske testified that Farmland Realty had a practice of altering paragraph 10 of the standard bar association form with the intention of precluding the vendors' use of foreclosure. TePaske stated the changes were one of the central selling points we used with regard to buying southern Iowa farmland. The court of appeals believed the changes were a selling point in the McGee-Damstra contract. This conclusion may have been deduced from TePaske's general statement that the changes were an incentive for Damstra to sign the agreement. With regard to the McGees' understanding of the disputed clause, TePaske testified that he reviewed the contract with them on the date they signed it and specifically discussed that paragraph. He testified that he told them the changes were made so that if the buyer for some reason did not want to continu[e] buying this land, that the only remedy available to ... the McGees was that they could keep all the money that had been paid to them up to that point, and they would get clear title to the land back. The McGees did not recall receiving this explanation from the broker. John McGee testified he could recall discussing contract payments but could not recall any explanation about the changes made to paragraph 10 or its legal effect. He testified that he did not read that paragraph of the agreement and first became aware of the altered language after Damstra's default. The district court found from all of the testimony that neither the buyer nor the sellers had a clear understanding of the legal effect of paragraph 10 of the agreement. It was the court's view that notwithstanding this circumstance the sellers were possessed of all of the common-law remedies ordinarily available against a defaulting buyer which were not expressly negated by the language of the disputed clause. From this premise, the court reasoned that, although foreclosure was expressly excluded by the contract language and acceleration of the unpaid principal balance was similarly excluded, there was nothing in the wording which precluded the sellers from seeking specific performance of their right to receive each installment payment as it became due or the balloon payment to become due on January 1, 1991. The court of appeals rejected the district court's reasoning on the ground that it led to a result which was not within the contemplation of either the buyer or the sellers. It found that the agreement should be enforced in accordance with what it believed to be a standard of reasonableness, based on all of the surrounding circumstances. In challenging this result, the McGees urge that it is not reasonable to assume, in the absence of some express indication on their part, that they were relinquishing any common-law vendors' remedies which were not expressly excluded by the contract language. In deciding the issues presented, we begin with some preliminary conclusions. We have said that interpretation of a contract cannot involve giving it a meaning that none of the parties in fact gave it. Home Fed. Sav. & Loan Ass'n v. Campney, 357 N.W.2d 613, 617 (Iowa 1984). Nevertheless, unless the purported agreement remains entirely executory, the reliance factors which the purported agreement has induced require a court to divine some fair solution of the parties' misunderstandings. One writer has illustrated the problem as follows: Perhaps the contract is embodied in a printed form that neither party prepared; perhaps its clauses have been lifted from a form book; perhaps the deal is a routine one struck by minor functionaries.... The court will then have no choice but to look solely to a standard of reasonableness. Interpretation cannot turn on meanings that the parties attached if they attached none, but must turn on the meaning that reasonable persons in the positions of the parties would have attached if they had given the matter thought. E. Farnsworth, Contracts § 7.9, at 491 (1982) (citing Southern Bell Tel. & Tel. Co. v. Florida E. Coast Ry., 399 F.2d 854 (5th Cir.1968)). A similar description of the problem is found in Wolfe v. Graether, 389 N.W.2d 643 (Iowa 1986): Interpreting the elliptical expressions of the parties, the court may find that the expressions, interpreted in the light of the surrounding facts, made the understanding of one of the parties reasonable and made it unreasonable for the other party not to know that such would be the first party's understanding. In such a case, there is a contract in accordance with that understanding. Id. at 653-54 (quoting 3A A. Corbin, Contracts § 684, at 224 (1960)). Yet another illustration of this principle is found in Iowa Code section 622.22 (1985), which provides: When the terms of an agreement have been intended in a different sense by the parties to it, that sense is to prevail against either party in which a party had reason to suppose the other understood it. We believe that the application of these principles to the present dispute requires that we uphold the decision of the court of appeals and reject that of the district court. Although we agree with the district court's conclusion that the McGees, more likely than not, had no firm understanding of the legal import of the disputed clause in the contract, the same is not true of Damstra. We are convinced from the evidence that it was his firm belief that he was not obligating himself for any unpaid sums under the agreement. In applying the rule of interpretation contained in section 622.22, we must consider whether the McGees had reason to suppose the interpretation which Damstra was placing on the agreement. Under a purely subjective standard, a strong case can be made that they did not. We conclude, however, that an objective standard must be applied. The altering of the standard contract clause so as to limit the sellers' remedies is, we believe, a circumstance of which they are bound to take note. The message which such an alteration conveys is that the buyer is to receive some discernible benefit from the change made to the standardized form. Viewed in this light, we do not believe that it would have been reasonable for the McGees to assume that the effect of excluding foreclosure as a remedy was only to preclude a sale on special execution to satisfy an ensuing judgment for the contract price. That interpretation would leave the buyer nearly as financially vulnerable as if no change had been made in the standard clause. Nor would that interpretation present a satisfactory arrangement for a seller who is looking to the buyer for full satisfaction of the debt. Consequently, we conclude, as did the court of appeals, that under the circumstances the McGees should bear the burden of the misunderstanding.