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IN THE COURT OF APPEALS OF IOWA No. 0-121 / 09-0925 Filed May 26, 2010

HUBBELL HOMES, L.C., Plaintiff-Appellant/Cross-Appellee, vs. BILLY MICHAEL KEY and DONNA ELIZABETH POWERS KEY, as Individuals, Defendants-Appellees/Cross-Appellants. ________________________________________________________________

Appeal from the Iowa District Court for Warren County, Darrell Goodhue, Judge.

Hubbell Homes appeals from the district courts judgment for money damages in a suit for breach of a written real estate contract. Billy Michael Key and Donna Elizabeth Powers Key cross-appeal. AND REMANDED. AFFIRMED AS MODIFIED

John F. Lorentzen, Des Moines, and Anna W. Mundy of Nyemaster, Goode, West, Hansell & OBrien, P.C., Des Moines, for appellants. Rodney Powell of The Powell Law Firm, P.C., Norwalk, for appellee.

Heard by Vaitheswaran, P.J., and Potterfield and Mansfield, JJ.

2 POTTERFIELD, J. I. Background Facts and Proceedings Hubbell Homes (Hubbell) is in the business of building and selling singlefamily houses and townhomes. In 2006, Hubbell began negotiating with Billy Michael Key (Mike) and Donna Elizabeth Powers Key for the sale of a new home in Norwalk, where Mikes employer had reassigned him. Mikes employer offered to pay a monthly rental housing allowance for one year as a reassignment benefit. Accordingly, the parties negotiated a Purchase Agreement for $376,900 with a delayed closing date of October 2, 2007, to allow the Keys to take advantage of this benefit. The parties also signed a Dwelling Unit Rental

Agreement (Rental Agreement), for rental of the home by the Keys from October 2, 2006, through September 30, 2007. The Rental Agreement provided that the Keys would have the option to purchase the home for $376,900. The Rental Agreement also contained a "put" option that reserved for Hubbell the right to require the Keys to close on the purchase of the home for $376,900 at the end of the term of the lease. In July 2007, Mikes position was eliminated, and he became unemployed. On August 6, 2007, Hubbell notified the Keys of its intent to exercise its option to force the sale of the property to them. Under the terms of the Rental Agreement, this required the Keys to close on the property at the end of the lease term on September 30, 2007. However, on September 28, 2007, the parties negotiated a First Modification of Dwelling Unit Rental Agreement (Amended Rental Agreement). The modification extended the term of the Rental Agreement for a three-month period ending December 31, 2007. The Keys offered to go forward

3 with their purchase of the house at the original purchase price if Hubbell agreed to sell on contract or with Hubbells financing. Hubbell rejected the offer, the sale did not take place, and the Keys moved out in early January 2008. Hubbell listed the house for sale at the contract price of $376,900. About six months later, in the summer of 2008, Hubbell accepted an offer to buy the house for $350,000. However, the offer was contingent on the sale of the prospective buyers current residence, a contingency which did not occur. The sale was never completed, and the house remained on the market at the time of trial at a reduced listing price. Hubbell filed a petition against the Keys on March 26, 2008, seeking compensatory damages, consequential damages, and attorney fees. At the trial to the court, Hubbell first sought general damages of $36,137.50 in lost profits, calculated as the difference between the contract price and the costs Hubbell had incurred to build the house. Hubbell chose to request this calculation of general damages rather than the difference between the contract price and market value, although the house had not sold at the time of trial. Second, Hubbell sought consequential or incidental damages for repairs made to the house after the Keys moved out to restore the home to marketable condition including cleaning, repainting, millwork, and landscaping. These

charges amounted to $3334.41. Next, Hubbell sought reimbursement for utilities totaling $2259.21, loan interest totaling $20,676.04, and internal legal fees totaling $354.17 paid from the time of the breach until trial. Hubbell also sought reimbursement for additional commission it would have to pay an outside realtor to sell the home, asserting that Hubbells inside marketing agents only sell new

4 homes. Hubbell estimated the commission to be $20,444.75, which was six

percent of the listing price at the time of trial. Finally, Hubbell sought attorney fees for outside counsel and costs. Following trial, attorney fees were $23,426. The Keys asserted defenses of frustration of purpose and

unconscionability. misrepresentation.1

They also contended they had an independent action for

The district court concluded there was no factual basis upon which the Keys could be granted relief on their defenses of frustration of purpose or unconscionability. Regarding Hubbells claim for general damages, the district court determined the fair market value of the house at the time of the breach was $350,000, relying on Hubbells acceptance of the contingent offer as an indication of fair market value. The district court therefore awarded Hubbell

damages in the amount of $26,900, the difference between the $350,000 value and the contract price. The court also awarded Hubbell consequential damages for internal legal fees and all repairs made to restore the house to marketable condition. The district court declined to award Hubbell consequential damages for landscaping fees, finding the record did not support a finding that landscaping was required because of the breach, or for utilities or interest, finding the property could have been sold immediately if offered at the $350,000 value, in which case Hubbell would not have incurred utility or interest charges. The district court also declined to award Hubbell the expense of the realtor commission. In a later

1

This claim appears to be based on problems relating to an open ditch and pooling water in the backyard of the house. It is not at issue on appeal.

5 ruling, the district court awarded Hubbell $12,960 in attorney fees, fifty-five percent of the fees it requested. Hubbell appeals, arguing the district court erred in calculating general damages. Hubbell asserts the district court should have awarded lost profits instead of the difference between fair market value and contract price. Hubbell also argues the district court erred in declining to award all of its requested consequential damages and in failing to make sufficiently detailed findings of fact for its reduction of Hubbells attorney fee award. The Keys cross-appeal, arguing the district court erred in failing to grant relief on their defense of frustration of purpose. The Keys also argue that the district court erred in determining a fair market value of the house when Hubbell failed to meet its burden of proof on that issue or, in the alternative, that the fair market value of the house was $376,900, the contract price at which the Keys offered to buy the house on contract following the expiration of the lease. Finally, the Keys argue the district court erred by awarding Hubbell fifty-five percent of its requested attorney fees when it awarded only twenty-four percent of the damages initially sought. II. Standard of Review Because this was an action at law, our review is for correction of errors at law. Iowa R. App. P. 6.907. The district courts findings of fact have the effect of a special jury verdict and are binding if supported by substantial evidence. Iowa R. App. P. 6.904(3)(a).

6 III. Frustration of Purpose The Keys have the burden of persuasion to prove their defense of frustration of purpose. See Mel Frank Tool & Supply, Inc. v. Di-Chem Co., 580 N.W.2d 802, 808 (Iowa 1998). The doctrine of frustration of purpose is a defense to a contract because of an event that occurs after the contract is made. Id. Where, after a contract is made, a partys principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. Water Dev. Co. v. Lankford, 506 N.W.2d 763, 766 (Iowa 1993) (quoting Restatement (Second) of Contracts

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