Iowa Court of Appeals rules that the Doctrine of Merger precludes the recovery of attorney fees in a Chapter 558A case

Bill Serangeli Iowa Real Estate & Land Use Dickinson Law Des Moines Iowa

Posted on 01/27/2016 at 06:52 AM by William Serangeli

Appellate Courts in Iowa have long held that the Doctrine of Merger is applicable in a real estate transaction. Specifically in Lovie v Plum, 250 N.W.2d 56, 62 (Iowa 1977) the Iowa Supreme Court held, In this jurisdiction a contract for conveyance of real estate, absent any showing to the contrary, is deemed to have merged in a subsequent deed. It is this Doctrine of Merger that was applied by the Iowa Court of Appeals to deny a claim for attorney fees in an Iowa Code Chapter 558A action.

In the unpublished decision of Payton v DiGiacomo, 2015 WL 5285740 (IA Ct. App. Sept. 10, 2015), the Iowa Court of Appeals was confronted with an issue as to whether or not the Sellers, who successfully defended themselves in an action brought by the Buyer for defects in the home, could recover attorney fees under the boiler plate remedy section of the real estate purchase agreement that allowed for the recovery of attorney fees for breach of the agreement. Payton's petition was styled in separate counts for negligent misrepresentation, fraudulent misrepresentation, violation of Chapter 558A and breach of contract.  At trial Payton specifically alleged "[t]he written Purchase Agreement entered into between the Plaintiff and the Defendants' required those Defendants to make the disclosures provided under Iowa Code Chapter 558A, and therefore disclosure is incorporated into the purchase agreement. Payton further alleged that the Defendants breached the purchase agreement by violating the provisions of Chapter 558A, causing damage to the Plaintiff and that the purchase agreement provides the prevailing party is entitled to recovery. Prior unpublished decisions of the Iowa Court of Appeals had supported Payton's contention. See: Bramwell v Tisue, 2002 Westlaw 53225 (IA Ct. App. March 27, 2002) and Johnson v. Braum, 2010 WL 2757192 (Iowa Ct. App. July 14, 2010). In Johnson that panel of the Iowa Court of Appeals held:

"Because we agree with the district court that the purchase agreement incorporated the disclosure requirements of chapter 558A, the sellers failed to fulfill the terms of the agreement. The district court did not err in awarding attorney fees."

In Payton, The Honorable George L. Stigler, Judge for the Iowa District Court for Black Hawk County denied the application for attorney fees stating:

"The Defendant DiGiacomos' application for attorney fees is misplaced. The clause of the real estate contract cited does not stand for the proposition that in an instance like this attorney fees are accessible. The clause, properly interpreted, stands for the proposition that had Mr. Payton failed to carry through on the sale of the property and the defendants sued and won based on that failure to convey title, the defendants DiGiacomo would then be entitled to attorney fees. The sale carried through without fault. The dispute arose after the sale and did not concern an attempt by the Paytons to back out of the purchase."

On appeal the DiGiacomos contended the District Court erred its interpretation of the purchase agreement language and that they were entitled to an award of attorney fees.  One of the surprising aspects about this decision is that Payton did not submit an appellate brief. In rejecting the DiGiacomo's claim for attorney fees, the Iowa Court of Appeals held:

"Chapter 558A requires certain disclosures as required by the statute and in rules adopted by the Commission but has no requirement that a Purchase Agreement contain such disclosures or that a purchase agreement require disclosures.  The requirements of disclosure are solely statutory. By way of enforcement, Section 558A.6 provides for liability for a violation of Chapter 558A.  Section 558A.7 provides that the chapter does not limit or bridge any contract between the parties. Thus the parties agree to make certain disclosures, but they are not required to do so."

In rejecting the theory that the Seller's Disclosure was incorporated into the purchase agreement, the Iowa Court of Appeals held:

"We conclude the purchase agreement in this case did not contain any term relating to the requirements of 558A. We further conclude that the DiGiacomos did not carry their burden to prove that any collateral agreements or conditions survived the merger of the purchase agreement with the deed upon its delivery and acceptance."

The Court's conclusion was "[w]e find the purchase agreement merged with the deed. Thus, the DiGiacomos may not invoke the remedies clause of the purchase agreement in support of their claim for attorney fees." Practice pointers: based upon the Payton v DiGiacomo decision, the purchase agreement should always contain language that the Seller's Disclosure Statement provided for by Chapter 558A is incorporated into the purchase agreement. Additionally, any deed given at the time of closing must also incorporate and preserve the incorporation of the Seller's Disclosure and the remedies provided by the purchase agreement.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

 

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