Court Opinion

ID: 4249430
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:18:32.288425+00
Date Added: 2024-06-11T14:16:55.218228
License: Public Domain

IN THE SUPREME COURT OF IOWA
                              No.12–0338

                        Filed December 20, 2013

IOWA MORTGAGE CENTER, L.L.C.,

      Appellant,

vs.

LANA BACCAM and PHOUTHONE SYLAVONG,

      Appellees.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Polk County, Robert J.

Blink, Judge.

      A lender seeks further review of a court of appeals opinion

affirming a judgment entered in favor of the borrowers. DECISION OF

COURT OF APPEALS AFFIRMED IN PART AND VACATED IN PART;

DISTRICT COURT JUDGMENT AFFIRMED IN PART, REVERSED IN

PART, AND CASE REMANDED.

      David N. May of Bradshaw, Fowler, Proctor & Fairgrave, P.C.,

Des Moines, for appellant.

      David A. Morse of Rosenberg & Morse, Des Moines, for appellees.
                                     2

WIGGINS, Justice.

        We are reviewing the district court’s decision holding a lender did

not meet its burden to prove a breach of contract on a loan agreement

and promissory note, and even if the lender did prove a breach, it did not

prove its damages. The lender appealed and we transferred the case to

our court of appeals. The court of appeals affirmed the district court’s

decision, and the lender requested further review, which we granted. On

further review, we hold that the record establishes as a matter of law the

lender proved the existence of the contract based upon a loan agreement
and promissory note. We also find the district court applied the wrong

burden of proof to determine a breach and the amount of damages owed,

if any, on the loan agreement and promissory note.         Accordingly, we

vacate that part of the court of appeals decision and reverse that part of

the district court’s judgment regarding the loan agreement and

promissory note.       We remand the case to the district court for

reconsideration on the existing trial record so that the same district court

judge can make findings of fact as to a breach and damages, if any, on

the loan agreement and promissory note consistent with this opinion and

enter the appropriate judgment. We affirm the court of appeals decision

and the district court’s judgment on the escrow payment claim because

the lender did not appeal the district court’s decision regarding the

escrow payments.

        I. Background Facts and Proceedings.

        This case involves a dispute over a loan agreement and promissory

note.    The lender is Iowa Mortgage Center, L.L.C. (IMC).        IMC is a

mortgage broker and is not typically in the lending business.           The
borrowers are Lana Baccam and Phouthone Sylavong, husband and wife.
                                         3

       IMC made multiple loans to Baccam and Sylavong.1 The loan at

issue here is for $52,000 with an interest rate of twenty percent. On

May 22, 2009, Baccam and Sylavong signed the loan agreement and

promissory note.

       IMC disclosed the total amount of interest on the loan to Baccam

and Sylavong under a loan payment schedule. They were to pay $52,000

in interest over five years. IMC disbursed the loan proceeds directly to

Baccam and Sylavong’s creditors at the direction of Baccam.

       IMC received forty-two payments against the loan from May 22 to
September 18, both from direct deposits of Baccam and Sylavong’s

checks and cash payments.              IMC did not receive any payments

subsequent to September 18.            IMC did not have any sophisticated

software to track the various loan payments. IMC’s main accounting to

determine payments received was IMC’s bank statements.                  The bank

statements did not show how IMC applied the payments to the loan or

the interest calculations. Further, IMC did not calculate how it applied

the payments to the interest and the principal. IMC contended the loan

payment schedule attached to the loan determined how it applied the

payments.       Other than the loan payment schedule, Baccam and

Sylavong did not receive any additional statements from IMC.

       On February 15, 2011, IMC filed a petition to collect $41,568.65,

the total principal due on the loan agreement and promissory note, from

Baccam and Sylavong. IMC also claimed Baccam and Sylavong owed an

additional $355.89 for escrow payments IMC made on Baccam and

Sylavong’s behalf. IMC did not request any interest on the loan itself.

       1There   were two previous lawsuits between IMC and Baccam and/or Sylavong in
small claims court in Polk County. These lawsuits were on different loan notes. The
district court recognized that the only loan at issue here was the $52,000 loan.
                                             4

The only interest requested by IMC in its petition was interest at the

statutory rate from the date of filing the petition.                IMC also asked for

attorney fees and costs. Baccam and Sylavong answered by denying the

material allegations contained in the petition and filed a counterclaim

alleging unfair debt collection practices.2 IMC filed a motion to dismiss

the counterclaim. The district court granted the motion to dismiss the

counterclaim.

      The district court held a bench trial on the remaining issues. The

trial judge issued a ruling finding IMC did not meet its burden of proof to
prevail on the contract claim for monies owed it on the loan agreement

and promissory note because it did not show evidence of the terms of the

alleged agreement and repayment schedule. Further, the district court

determined that even if there was an enforceable contract, IMC failed to

meet its burden to prove damages.

      IMC appealed the decision. We transferred the case to our court of

appeals. The court of appeals affirmed the district court’s decision. IMC

requested further review, which we granted.

      II. Standard of Review.

      The standard of review for a breach of contract action is for

correction of errors at law. NevadaCare, Inc. v. Dep’t of Human Servs.,

783 N.W.2d 459, 465 (Iowa 2010). If substantial evidence in the record

supports a district court’s finding of fact, we are bound by its finding. Id.

However, a district court’s conclusions of law or its application of legal

principles do not bind us. Id.

      2Both   parties had different counsel at the trial stage of this case.
                                     5

      III. Issues.

      We must decide whether the district court erred as a matter of law

when it determined IMC did not meet its burden to prove the existence of

an obligation created by the loan agreement and promissory note. If it

did, we must then decide whether the district court erred as a matter of

law when it determined IMC did not meet its burden of proof as to a

breach and damages on the loan agreement and promissory note.

      A. Whether the District Court Erred as a Matter of Law When

It Determined that IMC Did Not Meet Its Burden to Prove the
Existence of a Contract. To prove a breach of contract claim, a party

must show:

      (1) the existence of a contract; (2) the terms and conditions
      of the contract; (3) that it has performed all the terms and
      conditions required under the contract; (4) the defendant’s
      breach of the contract in some particular way; and (5) that
      plaintiff has suffered damages as a result of the breach.

Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 224

(Iowa 1998). The first three elements address the existence of a contract.

The last two elements address the breach of the contract and the

damages caused by the breach.

      1. The loan agreement and promissory note.             At trial, IMC
introduced the loan agreement and promissory note into evidence.

During the course of the trial, IMC called Baccam as a witness. Baccam

acknowledged she signed the loan agreement and promissory note. At

the end of her testimony, the court and counsel had a discussion as to

whether IMC had to call Sylavong to acknowledge that he signed the loan

agreement and promissory note.           The following colloquy occurred

between the court and counsel.

            [IMC’S TRIAL COUNSEL]: Your Honor, if [Baccam and
      Sylavong’s trial counsel] is willing to stipulate that the other
                                      6
      Defendant we have doesn’t dispute at least signing the loan
      document and receiving the proceeds in the form of paying
      these various creditors, I don’t need to call him to restate
      what’s already been stated.

            THE COURT: Do you anticipate calling him as a
      witness?

             [BACCAM AND SYLAVONG’S TRIAL COUNSEL]: I
      wasn’t anticipating calling him as a witness unless I need to
      rebut something. I don’t think it was our intention to dispute
      his signature on the note or that they received $52,000 from
      the plaintiff.

            THE COURT: The dispute here is how much remains to
      be paid on the note; is that right?

               [BACCAM AND SYLAVONG’S TRIAL COUNSEL]: That’s
      right.

               THE COURT: Very well. Then I will accept that stipulation.

(Emphasis added.)

      These stipulations are stipulations of fact.    A stipulation of fact

relieves a party from the inconvenience of proving the facts in the

stipulation. Graen’s Mens Wear, Inc. v. Stille-Pierce Agency, 329 N.W.2d
295, 300 (Iowa 1983). When construing the parties’ stipulation of fact,

we attempt to determine and give effect to the parties’ intentions. Id. We

interpret the stipulation “with reference to its subject matter and in light

of the surrounding circumstances and the whole record, including the

state of the pleadings and issues involved.” Id.

      Applying these principles, the stipulation established as a matter

of law the parties entered into a contract and the terms and conditions of

the contract were contained in the loan agreement and promissory note.

Further, the stipulation established as a matter of law IMC advanced

$52,000 to Baccam and Sylavong under the terms of the loan agreement

and promissory note.       The only factual issue left to decide was how
much, if anything, Baccam and Sylavong still owed on the loan
                                      7

agreement and promissory note. Thus, we hold as a matter of law IMC

proved the existence of a contract, the terms and conditions of the

contract, and that it performed all the terms and conditions required

under the contract.

      2. The unpaid balances for escrow payments made by IMC. At trial

IMC contended it advanced certain funds outside the loan agreement and

promissory note regarding the escrow payments IMC made on Baccam

and Sylavong’s behalf. In its brief, IMC stated:

      [IMC] has elected to narrow the issues on appeal by waiving
      all claims to the additional escrow payments, that is, the
      payments beyond the $52,000 reflected on [the loan
      disbursement summary regarding the loan agreement and
      promissory note]. Accordingly, those escrow loans will not
      be discussed further except as necessary to explain the
      evidence presented at trial.

      In other words, IMC is not appealing the district court’s decision

regarding the escrow payments IMC made on Baccam and Sylavong’s

behalf. Accordingly, we affirm that part of the court of appeals decision

affirming the district court’s judgment denying IMC any damages due to

the escrow payments.

      B. Whether the District Court Erred as a Matter of Law when
It Determined IMC Did Not Meet Its Burden of Proof as to a Breach

and Damages. Our rules of civil procedure provide: “The clerk shall not,

unless by special order of the court, enter or record any judgment based

on a note or other written evidence of indebtedness until such note or

writing is first filed with the clerk for cancellation.” Iowa R. Civ. P. 1.961.

The reason for this rule is, under our common law, when a holder of a

promissory note is in possession of the promissory note, possession of
the promissory note “raises a rebuttable presumption that a note was not

paid.” In re Estate of Rutter, 633 N.W.2d 740, 747 (Iowa 2001). Once the
                                    8

holder of the promissory note introduces the promissory note into

evidence, the borrower may then claim he or she made more payments

on the promissory note. In an action on a promissory note, we recognize

this claim by the borrower as the defense of payment. The defense of

payment in an action is an affirmative defense. Glenn v. Keedy, 248 Iowa
216, 221, 80 N.W.2d 509, 512 (1957). The burden is on the borrower to

prove his or her defense of payment. Id. In an action on a promissory

note, where the holder of the promissory note claims less than the total

amount is due and owing on the promissory note, the rebuttable
presumption of nonpayment only applies to the amount the holder

claims is still due and owing. See Burch Mfg. Co. v. McKee, 231 Iowa
730, 731–33, 2 N.W.2d 98, 99 (1942) (applying the presumption of

nonpayment to the balance due on a promissory note of $145 after

conceding the borrower made payments up to the sum of $155).

      When filing a petition on a promissory note, the petition is required

to “contain a short and plain statement of the claim showing that the

pleader is entitled to relief and a demand for judgment for the type of

relief sought.” Iowa R. Civ. P. 1.403. In other words, the pleadings of the

note holder frame the issues against which the borrower must defend.

      The district court did not follow these legal principles concerning

actions on promissory notes when it found IMC failed to meet its burden

a breach occurred or IMC failed to prove damages.           IMC’s petition

acknowledged Baccam and Sylavong had paid down some of the

principal due on the loan agreement and promissory note. At trial, IMC

acknowledged it received $15,763 in payments on the loan agreement

and promissory note from Baccam and Sylavong, leaving a net balance
on the loan principal of $36,237.       Thus, the pleadings and evidence
                                        9

introduced by IMC establish IMC’s claim Baccam and Sylavong owed

$36,237 in principal on the loan agreement and promissory note.3
       Because    IMC    had   possession     of   the   loan    agreement   and
promissory note, a rebuttable presumption exists that Baccam and
Sylavong owed this balance on the loan agreement and promissory note.
Thus, the burden then shifts to Baccam and Sylavong to prove they
made additional payments on the loan agreement and promissory note.
The court erred by requiring any further proof from IMC that Baccam
and Sylavong owed a balance of $36,237 on the loan agreement and
promissory note.        Additionally, the court erred by not considering
evidence that Baccam and Sylavong made additional payments on the
loan   agreement     and    promissory      note   above   the    $15,763    IMC
acknowledged it received.
       Having found that as a matter of law IMC proved the existence of a
contract, the terms and conditions of the contract, and that it performed
all the terms and conditions required under the contract, we must vacate
the district court’s decision and remand the case for reconsideration on
the existing trial record by the same district court judge to make findings
of facts and conclusions of law on the breach and damages regarding the
loan agreement and promissory note. See Boyle v. Alum-Line, Inc., 710
N.W.2d 741, 752 (Iowa 2006).         Upon doing so, the district court shall
apply the proper burden of proof as to the parties’ claims and enter the
appropriate judgment.
       Under this record, the only factual issue for the district court to
decide is whether Baccam and Sylavong met their burden of proof that

       3IMC’sclaim does not include any interest due under the loan agreement and
promissory note because IMC has waived any claim to interest on the loan agreement
and promissory note in its petition and is only seeking a judgment for the unpaid
principal.
                                    10

they made additional payments on the loan agreement and promissory
note. If they did not carry their burden, the court shall enter judgment
in favor of IMC for $36,237. If the court finds Baccam and Sylavong met
their burden by proving they made additional payments, the court shall
deduct the amount of additional payments found by the court from the
$36,237 and enter judgment for that amount.
      IV. Conclusion and Disposition.
      We hold as a matter of law a contract existed in the form of a loan
agreement and promissory note between the lender, IMC, and the
borrowers, Baccam and Sylavong.          We hold as a matter of law IMC
performed its obligation under the loan agreement and promissory note.
We also hold the district court applied the wrong legal analysis for an
action on a promissory note concerning breach and damages; therefore,
it committed reversible error.   Accordingly, we vacate that part of the
court of appeals decision and reverse that part of the district court’s
judgment regarding the loan agreement and promissory note.             We
remand the case to the district court for reconsideration on the existing
trial record so that the same district court judge can make findings of
fact as to the breach and damages, if any, on the loan agreement and
promissory note consistent with this opinion and enter the appropriate
judgment.   If the district court finds IMC is entitled to a judgment, it
shall also consider IMC’s request for attorney fees. We affirm the court of
appeals decision and the district court’s judgment on the escrow
payment claim because IMC did not appeal the district court’s decision
regarding the escrow payments.
      DECISION OF COURT OF APPEALS AFFIRMED IN PART AND
VACATED IN PART; DISTRICT COURT JUDGMENT AFFIRMED IN
PART, REVERSED IN PART, AND CASE REMANDED.
      All justices concur except Appel, J., who takes no part.