No. 5-321 / 04-0879Court of Appeals of Iowa.
Filed July 13, 2005
Appeal from the Iowa District Court for Polk County, David L. Christensen, Judge.
The Howards appeal the district court’s ruling granting Anderson’s motion for summary Judgment. REVERSED AND REMANDED.
Kenneth Weiland, Des Moines, for appellant.
Kent Gummert of Gaudineer Comito, L.L.P., West Des Moines, for appellee.
Considered by Sackett, C.J., and Huitink and Vaitheswaran, JJ.
VAITHESWARAN, J.
Mark and Elizabeth Howard executed a release and settlement agreement with Don Anderson and Anderson Homes, L.L.C. (Anderson). Under the agreement, Anderson stipulated that third-party contractors would repair the Howards’ house within forty days. Anderson further agreed he would be responsible for paying the costs of the third parties’ work. Finally, Anderson agreed he would place $1,000 in an escrow account with his attorneys. The stated purpose of the account was as follows:
In the event the work items indicated above are not commenced within ten (10) days of the date of execution of this Settlement and Release Agreement, Anderson agrees to authorize his counsel to release the $1,000 to the Howards within three (3) business days. All work items shall be completed within thirty (30) days after commencement of work.
In exchange for these promises, the Howards agreed to dismiss a prior lawsuit against Anderson with prejudice. The Howards also agreed they would “release, acquit, forever discharge, and hold harmless Anderson from any and all claims, demands, or causes of action of every nature that the Howards may have or ever claim to have in the future arising out of the facts and circumstances alleged in” the prior lawsuit.
The Howards sued Anderson for breach of the agreement. They alleged that Anderson failed to begin or complete the work outlined in the release and settlement agreement. They sought damages for breach of contract together with the $1,000 specified in the agreement.[1]
Anderson moved for summary judgment. He asserted that $1,000 was tendered to the Howards and this payment fully satisfied “any and all obligations pursuant to the Release and Settlement Agreement.”[2] Anderson later amended the motion to allege that the release contained in the agreement precluded the lawsuit. In addition, Anderson claimed the agreement did not afford the Howards a right to file an action against him if work was not completed as scheduled, but only against the third-party contractors.
The Howards resisted the motion on the ground that the clause requiring payment of $1,000 was a penalty rather than a liquidated damages clause. They also pointed out that Anderson tendered a check but conditioned cashing of the check on a waiver of any further claims and dismissal of this action. Finally, they noted that Anderson did not satisfy the obligations under the release and settlement agreement.
The district court ruled as follows: “After reviewing the file, hearing arguments of counsel, and being fully advised in the premises, the court finds that said Motion for Summary Judgment should be granted.”
On appeal, the Howards seek to have the summary judgment ruling overturned on the grounds that (1) the $1,000 payment provision contained in the agreement is a penalty rather than a liquidated damages clause, and (2) the release is ineffective because it is pre-conditioned on Anderson’s performance, which did not take place. We review a summary judgment ruling to determine whether a genuine issue of material fact exists and whether the law was correctly applied. Rants v. Vilsack, 684 N.W.2d 193, 199 (Iowa 2004). We examine the record in a light most favorable to the party opposing the motion for summary judgment. Id.
I. Penalty versus Liquidated Damages
“Whether a contract provision is a valid liquidated damages clause or an unenforceable penalty is a question of law for the court.” Aurora Business Park Assocs., L.P. v. Michael Albert, Inc., 548 N.W.2d 153, 155 (Iowa 1996). In deciding this question, the Iowa Supreme Court has followed Restatement (Second) of Contracts section 356. City of Davenport v. Shewry Corp., 674 N.W.2d 79, 85 (Iowa 2004); Rohlin Constr. Co. v. City of Hilton, 476 N.W.2d 78, 80 (Iowa 1991). That provision states:
(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
(2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence. . . .
Restatement (Second) of Contracts § 356(1), (2), at 157 (1981). The focus is on two factors: (1) “the anticipated or actual loss caused by the breach,” and (2) the difficulty of “proof of loss.”Id.; see also Shewry, 674 N.W.2d at 85.
The summary judgment record does not contain information on either of these factors. We conclude these are genuine issues of material fact that preclude summary judgment. See Bradshaw v. Wakonda Club, 476 N.W.2d 743, 746 (Iowa Ct.App. 1991) (concluding fact questions bearing on interpretation of contract precluded summary judgment); cf. MidAmerican Energy Co. v. Great American Ins. Co., 171 F.Supp.2d 835, 850 (N.D.Iowa 2001) (“[A]lthough the question of whether the stipulated damages provision is enforceable is a question of law for the court, determination of that question requires the resolution of underlying factual disputes.”).
II. Release of Liability
The second question is whether the agreement’s release language, holding Anderson harmless from “any and all claims, demands, causes of action,” entitled Anderson to summary judgment. As noted, the release was contingent on Anderson’s satisfaction of his obligations under the agreement. However, the nature of those obligations was unclear. The agreement stated repair work would be completed by third party contractors within forty days of the agreement and Anderson would be responsible for paying the third parties for their work. Neither the agreement nor the rest of the summary judgment record identifies the nature of the relationship between Anderson and the third parties, the timing of payments by Anderson to the third parties, or whether Anderson was in charge of ensuring timely completion of the repairs, as the Howards maintain. We conclude these genuine issues of material fact preclude summary judgment. Crippen v. City of Cedar Rapids, 618 N.W.2d562, 565 (Iowa 2000) (“We also indulge in every legitimate inference that the evidence will bear in an effort to ascertain the existence of a fact question.”) Bradshaw, 476 N.W.2d at 746.
REVERSED AND REMANDED.