Court Opinion

ID: 4250298
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:24:32.257951+00
Date Added: 2024-06-11T14:44:15.799621
License: Public Domain

IN THE SUPREME COURT OF IOWA

                           No. 135 / 04-0525

                           Filed May 5, 2006

HALLETT CONSTRUCTION COMPANY,

      Appellee,

vs.

FRANCIS A. MEISTER, IRENE M. MEISTER,
MICHAEL F. MEISTER, AND THOMAS J. MEISTER,
      Appellants.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Sac County, Gary L.

McMinimee, Judge.

      Mining company holding sand and gravel rights in property seeks

further review of court of appeals decision reversing district court’s

summary judgment ruling holding property owners’ claims were time

barred.   DECISION OF COURT OF APPEALS VACATED.               DISTRICT

COURT JUDGMENT AFFIRMED IN PART AND REVERSED IN PART.

CASE REMANDED.

      Thaddeus Cosgrove of Cosgrove Law Firm, Holstein, and Joseph J.

Heidenreich of Dresselhuis & Heidenreich, Odebolt, for appellants.

      David P. Jennett, Storm Lake, for appellee.
                                      2

TERNUS, Justice.

      This case involves a dispute over the sand and gravel rights in real

property owned by the appellants, Francis Meister, Irene Meister, Michael

Meister, and Thomas Meister. The Meisters sought to evict the appellee,

Hallett Construction Company, from the property and also claimed damages

for holding over, breach of contract, and fraud. The district court granted

Hallett’s summary judgment motion, ruling the Meisters’ claims were barred

by the applicable statutes of limitation.

      The Meisters’ appeal was transferred to the Iowa Court of Appeals.

That court reversed the district court, holding there was a factual dispute as

to when the Meisters’ claims accrued. This court granted Hallett’s request

for further review. Upon consideration of the record and the arguments of

the parties, we think the district court correctly dismissed the Meisters’

fraud claim on statute-of-limitations grounds, but incorrectly ruled the

remaining claims were time barred. Accordingly, we vacate the court of

appeals decision, affirm in part and reverse in part the judgment of the

district court, and remand this case for further proceedings consistent with

this opinion.

      I. Background Facts and Proceedings.
      Because this case comes before us on a summary judgment ruling,

we view the facts in a light most favorable to the Meisters, the parties

opposing summary judgment. See Crippen v. City of Cedar Rapids, 618
N.W.2d 562, 565 (Iowa 2000).

      Michael and Thomas Meister are the sons of Francis and Irene

Meister. Together they own ninety acres of real estate in Sac County. In

1987, the Meisters and Hallett negotiated a lease for the sand and gravel

rights to this property. A proposed ten-year lease was presented to the

Meisters at a meeting in Hallett’s offices on July 7, 1987. The Meisters
                                      3

objected to paragraph 11 in this pre-printed form that would allow Hallett to

renew the lease “for an additional period of 10 years from the date of its

termination.” Hallett agreed to remove this provision, and it did so by

striking the number “10” with x’s and typing “0” in its place. After this

change, the Meisters signed two copies of the lease. They were given one

copy, which Irene placed in a file at her home. The Hallett representatives

took the other copy to be signed by company officers.

      On August 4, 1987, a Hallett representative visited the Meisters’ farm

with a copy of the lease that had been signed by Hallett’s officers. The

representative said it was necessary for the Meisters to initial each page; so

the Meisters and the Hallett representative initialed each page, with the

exception of the signature page. Unknown to the Meisters, this copy of the

lease contained the original provision giving Hallett an option to renew.

Without any notice from Hallett that the lease again contained an option to

renew, the Meisters assumed they were signing the lease as it had been

modified on July 7. Irene was given a copy of the initialed lease [lease 2],

and she placed it in a separate file in her home.

      In 1996, the Meisters, who believed Hallett was not paying them for

sand it had taken off the property, contacted an attorney about this issue
and also about the termination of the lease at the conclusion of the ten-year

term. After reviewing lease 2, the lawyer informed Michael Meister that the

lease contained a ten-year option to renew. Although the Meisters believed

they had not agreed to an option to renew, they concluded their recollection

was mistaken, and so they continued to perform under the lease. On

May 15, 1998, pursuant to paragraph 11 of lease 2, Hallett exercised its

option to renew the lease until July 7, 2008.

      Sometime in 2001, the Meisters came across the original lease signed

on July 7, 1987, and realized their recollection that the renewal provision
                                             4

had been eliminated was correct. Meanwhile, disagreements over payment

for materials being removed by Hallett continued, and on December 18,

2002, the Meisters served Hallett with a termination of tenancy pursuant to

Iowa Code section 562.4 (2001).1 The Meisters asserted Hallett had failed to
pay for materials removed from their land and demanded that Hallett vacate

the premises.

       Hallett then filed this action on March 18, 2003, seeking a declaratory

judgment establishing its rights in the property pursuant to lease 2. In

addition, Hallett sought damages based on interference with contractual

relationships, oral and written defamation, and breach of implied and

express covenants of the lease. The Meisters filed a counterclaim in four

counts on April 3, 2003. In count I, they claimed there was no valid written

contract and an at-will tenancy existed; they sought to recover the real

property. In count II, the Meisters sought damages based on Hallett’s

alleged intentional and unlawful holding over. In count III, the Meisters

claimed Hallett had failed to pay the agreed-upon rents and royalties. And

in count IV, they asked for damages based on Hallett’s alleged fraud in

altering the lease.

       Hallett moved for summary judgment on the Meisters’ counterclaims,
arguing they were barred by the five-year statute of limitations for fraud and

unwritten contracts. See Iowa Code § 614.1(4). Applying the discovery

rule, the district court held the undisputed facts established as a matter of

law that the Meisters’ claims accrued no later than 1996, when they learned

the lease contained an option to renew. The court concluded that because

the Meisters’ claims against Hallett were filed in 2003, more than five years

after they accrued, those claims were barred by the statute of limitations.

       1 Section 562.4 requires “thirty days’ notice in writing” of a property owner’s intent
to terminate a tenancy at will.
                                      5

Upon receiving this favorable summary judgment ruling, Hallett dismissed

without prejudice its requests for declaratory relief and damages.

      On the Meisters’ appeal, the court of appeals held count I was

governed by the ten-year statute of limitations for actions to recover

possession of real property. See id. § 614.1(5). Noting the Meisters had not

demanded that Hallett relinquish the land until December 2002, the court

held there had been no showing that Hallett’s occupancy of the land had

been other than permissive within the ten years prior to suit being filed.

Therefore, it held, the statute of limitations had not run on the claim stated

in count I. Although the court of appeals agreed with the district court that

the remaining claims were governed by the five-year statute of limitations,

the appellate court held there had been no showing these claims accrued

more than five years before suit was brought.          We granted Hallett’s

application for further review.

      II. Scope of Review.

      We review summary judgment rulings for correction of errors of law.

Crippen, 618 N.W.2d at 565. “To obtain a grant of summary judgment on

some issue in an action, the moving party must affirmatively establish the

existence of undisputed facts entitling that party to a particular result
under controlling law.”    Interstate Power Co. v. Ins. Co. of N. Am., 603
N.W.2d 751, 756 (Iowa 1999). In determining whether summary judgment

is appropriate, the court considers the pleadings, depositions, answers to

interrogatories, and admissions on file, together with any affidavits. Christy

v. Miulli, 692 N.W.2d 694, 699 (Iowa 2005).

      III. Fraud Claim.

      Since many of the parties’ arguments rely on a resolution of the

timeliness of the Meisters’ fraud claim, count IV, we begin with that issue.
                                      6

The parties disagree on the appropriate limitations period to apply and on

when the Meisters’ fraud claim accrued.

      A. Applicable statute of limitations. The Meisters argue the ten-year

statute of limitations provided for written contracts is the applicable

limitations period for count IV. See Iowa Code § 614.1(5) (providing actions

“founded on written contracts” must be brought “within ten years”). Hallett

contends the five-year statute of limitations for fraud applies. See id. §

614.1(4) (providing actions “for relief on the ground of fraud in cases

heretofore solely cognizable in a court of chancery” must be brought “within

five years”). In resolving this dispute, we look beyond the label placed on

the claim by the parties and instead focus on “the actual nature of the

action” to determine the applicable limitations period.        Bob McKiness

Excavating & Grading, Inc. v. Morton Bldgs., Inc., 507 N.W.2d 405, 411 (Iowa

1993); accord Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457, 462

(Iowa 1984) (“It is the nature of the right sued upon and not the elements of

relief requested that governs the selection of the appropriate statutory

period for the basic right.”).

      The Meisters alleged in count IV that by reason of Hallett’s “material

alteration” of the lease without their knowledge or consent, “there [is] no
valid contract.” They further alleged that the acts of Hallett’s representative

were “false, deceitful and fraudulent” and the Meisters “relied upon the false

and fraudulent representation” made by Hallett’s representative.           The

Meisters sought compensatory and punitive damages.

      We think the actual nature of this claim is one of fraud and not of

breach of a written contract. As we have noted in the past, a claim is not

founded on a written contract “ ‘merely because [the claim] is in some way

remotely or indirectly connected with [a written] instrument or because the

instrument would be a link in the chain of evidence establishing the cause
                                       7

of action.’ ” Matherly v. Hanson, 359 N.W.2d 450, 455 (Iowa 1984) (citation

omitted). Here, the lease is merely part of the context within which Hallett’s

alleged fraud occurred. The Meisters do not seek damages for breach of the

written   contract;   they   seek   damages     for   the   alleged    fraudulent

representation made by Hallett. Clearly the core of the claim made in count

IV is fraud. Therefore, the applicable statute of limitations is the five-year

period for fraud actions contained in Iowa Code section 614.1(4).

      B. Accrual of fraud claim. The five-year limitations period of section

614.1(4) begins to run upon accrual of the claim. See Iowa Code § 614.1(4).

“Generally, a claim accrues when ‘the wrongful act produces injury to the

claimant.’ ” K & W Elec., Inc. v. State, ___ N.W.2d ___, ___ (Iowa 2006)

(citation omitted). The court of appeals held the Meisters were not damaged

by Hallett’s fraud until the option to renew was exercised in May 1998.

Therefore, it reasoned, the fraud claim—filed in April 2003—was

commenced within five years of its accrual.

      We disagree. Although the Meisters complained only of the damage

caused to them by the actual renewal of the lease, the option to renew was a

contractual right claimed by Hallett since 1987 and was a burden on the

property as of that date. See Jensen v. Sheker, 231 Iowa 240, 249, 1
N.W.2d 262, 268 (1941) (“ ‘The right to operate a mine and carry on the

business of mining therein is property . . . . It is a right as distinct and real

as the ownership of the fee itself.’ ”     (Citation omitted.)).      In fact, the

applicable measure of damages is the difference in value of the Meisters’

rights at the time of transfer, not at some later date. See B & B Asphalt Co.

v. T.S. McShane Co., 242 N.W.2d 279, 285 (Iowa 1976) (“When the fraud

occurs in the sale of personal property, the usual measure of that loss is the

difference between the actual value of the property at the time of the

transaction and the value it would have had if the representations had been
                                       8

true, the loss of benefit of the bargain.”); Likes v. Baer, 8 Iowa 368, 370

(1859) (holding true measure of plaintiff’s damage is the “difference between

the actual value of the land and what it would have been worth, had it

answered the description given of it by the defendant”). Thus, as of the date

lease 2 was signed, the Meisters’ retained rights were diminished, and

therefore, they sustained damage at that time. See Gollon v. Jackson Milling

Co., 273 N.W. 59, 61 (Wis. 1937) (holding property owner was damaged

when deed granting greater rights than owner intended was delivered, not

at later date when greater right was exercised by grantee). Consequently,

the fraud claim accrued in 1987.

      The Meisters claim that even if they were damaged in 1987, they did

not discover Hallett’s fraud until 2001 when they discovered their copy of

the original lease. The discovery rule tolls the statute of limitations until

the plaintiff has discovered “ ‘ “the fact of the injury and its cause” ’ ” or by

the exercise of reasonable diligence should have discovered these facts.

K & W Elec., Inc., ___ N.W.2d at ___ (citation omitted); see also Nixon v. State,

704 N.W.2d 643, 646 (Iowa 2005) (applying discovery rule to claim of

fraudulent misrepresentation). Once a claimant learns information that

would inform a reasonable person of the need to investigate, the claimant
“ ‘is on inquiry notice of all facts that would have been disclosed by a

reasonably diligent investigation.’ ” K & W Elec., Inc., ___ N.W.2d at ___

(citation omitted). A claimant can be on inquiry notice without knowing

“the details of the evidence by which to prove the cause of action.” Vachon

v. State, 514 N.W.2d 442, 446 (Iowa 1994).

      It is undisputed the Meisters knew in 1987 they had signed a lease

without the option to renew. In 1996, they learned the lease signed by all

the parties contained the renewal provision to which they had objected. At

that point, they had actual knowledge of their injury—their property was
                                      9

arguably burdened by a lease that could be renewed for ten years—and they

were clearly on inquiry notice of the cause of that injury—Hallett’s alteration

of the original lease.   Though the Meisters may have questioned their

collective memory and not realized they possessed evidence to establish

Hallett’s alleged fraud, they certainly had enough information in 1996 to

alert them of the need to investigate. Had the Meisters exercised reasonable

diligence to investigate the facts at that time, they would have discovered

the original lease in their own files. Because the Meisters were on inquiry

notice in 1996, they discovered their fraud claim then, and accordingly, the

five-year statute of limitations began to run at that time. The district court

correctly held the fraud claim asserted in this action, filed more than five

years later, is time barred as a matter of law.

      C.   Estoppel by fraudulent concealment.      The Meisters also claim

Hallett is estopped from relying on the statute of limitations due to its

fraudulent concealment of the Meisters’ fraud claim.         The doctrine of

fraudulent concealment requires proof of “some affirmative act to conceal

the . . . cause of action independent of and subsequent to the liability-

producing conduct.” Christy, 692 N.W.2d at 702. The Meisters have not

pointed to any evidence of false or misleading conduct by Hallett, other than
the alleged fraud itself, that dissuaded them from investigating a possible

claim or that caused them to refrain from filing suit. Due to the absence of

supporting evidence, their assertion of fraudulent concealment is

insufficient to prevent summary judgment on the basis of the statute of

limitations.

      IV. Claim to Recover Real Property.

      A. Applicable statute of limitations. In count I, the Meisters sought to

recover their real property, alleging there was no valid written contract and

an at-will tenancy existed. They contend this claim is subject to the ten-
                                       10

year statute of limitations “for the recovery of real property.” See Iowa Code

§ 614.1(5). Hallett argues that because fraud is the basis for the Meisters’

claim there was no contract, resulting in a tenancy at will, and because the

fraud claim is time barred, the Meisters’ claim to recover their real property

is also necessarily time barred.

      Looking to the nature of the claim asserted in count I, we think the

ten-year statute of limitations “for the recovery of real property” applies.

See id. This court has said, “If the purpose and object of the action is the

recovery of real property, it is entirely immaterial on what ground the relief

is sought.” Tilton v. Bader, 181 Iowa 473, 480-81, 164 N.W. 871, 874

(1917). We held in Tilton that “[t]he mere fact that a litigant alleges and

must prove fraud in order to establish his title does not render the action

other than one for the recovery of real property.” Id. at 478, 164 N.W. at

873. In such cases, “evidence of fraud is merely incidental to the relief

granted.” Id.

      That is the case here.       The relief sought is the recovery of real

property; evidence of fraud is simply part of the proof that no valid contract

transferring an interest in the property exists. Therefore, the claim stated

in count I is governed by a ten-year limitations period.
      We do not agree with Hallett’s contention that because an

independent claim for damages based on fraud is time barred, the Meisters

may not use Hallett’s alleged fraud to establish that Hallett’s tenancy was at

will. If that were the case, any claim for recovery of real property that had

some component of fraud would be unprovable after five years, a result

contrary to our test for determining the applicable statute of limitations. In

other words, although the Meisters cannot sue for compensatory damages

resulting from Hallett’s alleged alteration of the lease because the five-year

statute of limitations for fraud expired before they filed their claims, they
                                       11

may seek to recover possession of their property under the ten-year statute

of limitations for recovery of real property, provided this claim accrued

within ten years of their claim being filed in 2003.

      B. Accrual of claim. The Meisters argue the statute of limitations did

not commence to run on their claim to recover their property until

December 18, 2002, when they terminated Hallett’s permissive, at-will

tenancy. Hallett, focusing on the fraud aspects of this claim, asserts the

claim accrued at the time lease 2 was executed. We think the Meisters have

the better argument.

      This court has noted the doctrine of adverse possession, which

requires a ten-year period of possession adverse to the owner, “is based on

the ten-year statute of limitations for recovery of real property.” Carpenter

v. Ruperto, 315 N.W.2d 782, 784 (Iowa 1982). Here, until the occupancy by

Hallett became adverse rather than permissive, the Meisters had no claim

for the recovery of the property: it was not being held adversely to them. A

claim clearly arose, however, when they terminated the tenancy in 2002,

and Hallett refused to vacate the property. Thus, the Meisters’ claim for

recovery of real property accrued on December 18, 2002. Consequently, the

present suit, filed within ten years of this date, is timely. The district court
erred in granting Hallett summary judgment on count I based on the

statute of limitations.

      V. Holding-Over Claim.

      A. Applicable statute of limitations. In count II, the Meisters seek

damages resulting from Hallett’s holding over after termination of its

tenancy. The court of appeals concluded this claim was either “founded on

[an] unwritten contract,” or “not otherwise provided for,” and therefore, was

subject to a five-year limitations period. Iowa Code § 614.1(4) (providing for

five-year statute of limitations for claims “founded on [an] unwritten
                                      12

contract” or “not otherwise provided for”). We agree the five-year statute of

limitations applies, and consequently, this claim is barred if it accrued more

than five years prior to this action being filed in April 2003.

      B. Accrual of claim. The Meisters’ holding-over claim is explicitly tied

to their claim for recovery of real property. Hallett cannot be deemed to be

holding over until there has been a demand by the Meisters to relinquish

the property. The undisputed facts show the Meisters did not demand that

Hallett vacate the property until 2002, within five years of the filing of this

lawsuit in 2003.    Therefore, the Meisters filed their holding-over claim

within the statute of limitations. The district court erred in ruling to the

contrary.

      VI. Claim for Unpaid Rents and Royalties.

      A. Applicable statute of limitations. In count III, the Meisters allege

there was no valid written contract between the parties, but there was an

agreement for an at-will tenancy. They further allege Hallett “agreed to pay

certain sums in consideration as rentals and royalties.” This claim falls

within the five-year statute of limitations for those “founded on unwritten

contract.” Id.

      B. Accrual of claim. Hallett has made no showing of undisputed facts
establishing the alleged failure to pay rent and royalties occurred more than

five years prior to suit being filed in 2003. See Interstate Power Co., 603
N.W.2d at 756 (stating “the moving party must affirmatively establish the

existence of undisputed facts entitling that party to a particular result

under controlling law”). Therefore, it has failed to demonstrate this claim is

barred by the statute of limitations as a matter of law. (Of course, any

recovery under this count would necessarily be limited to sums payable in

the five-year period preceding April 3, 2003.) The district court erred in

granting summary judgment to Hallett on count III.
                                      13

      VII. Summary and Disposition.

      The Meisters’ fraud claim is barred by the five-year statute of

limitations applicable to fraud actions and was properly dismissed by the

district court.   Although we affirm that aspect of the district court’s

judgment, we reverse the balance of its judgment dismissing the other

claims filed by the Meisters. Hallett has not demonstrated these claims are

barred by the governing statutes of limitations. Therefore, the district court

erred in granting summary judgment to Hallett on the Meisters’ claims for

recovery of real property, holding over, and failure to pay rents and

royalties. The case is remanded for reinstatement of these three claims and

for further proceedings on them.

      DECISION OF COURT OF APPEALS VACATED. DISTRICT COURT

JUDGMENT AFFIRMED IN PART AND REVERSED IN PART.                        CASE

REMANDED.