Clemens Graf Droste Zu Vischering v. Kading

• Decision Date: 22 May 1985
• Docket Number: No. 83-1616,83-1616
• Citation: 368 N.W.2d 702
• Parties: CLEMENS GRAF DROSTE ZU VISCHERING, Appellant, v. Rick KADING, d/b/a Little Kading Construction, One Trip Plumbing & Heating Co., Inc., Allied Construction Services, Inc., Baker Electric, Inc., Appellees, and National Sheet Metal Co., Inc., Rainbow Irrigation Inc., Louie's Floor Covering, Inc., Wood Roofing Co., Inc., Wood Sheet Metal Co., Inc., R.D. Guzeman, Paul E. Beech and the West Palms, Inc., Defendants.
• Court: Iowa Supreme Court

Page 702

368 N.W.2d 702

CLEMENS GRAF DROSTE ZU VISCHERING, Appellant, v. Rick KADING, d/b/a Little Kading Construction, One Trip Plumbing & Heating Co., Inc., Allied Construction Services, Inc., Baker Electric, Inc., Appellees and National Sheet Metal Co., Inc., Rainbow Irrigation Inc., Louie's Floor Covering, Inc., Wood Roofing Co., Inc., Wood Sheet Metal Co., Inc., R.D. Guzeman, Paul E. Beech and the West Palms, Inc., Defendants.

No. 83-1616.

Supreme Court of Iowa.

May 22, 1985.

James E. Gritzner of Nyemaster, Goode, McLaughlin, Emery & O'Brien, P.C., Des Moines, for appellee Rick Kading d/b/a Little Kading Const.

Joseph B. Joyce of Adler, Brennan, Joyce & Steger, Des Moines, for appellee One Trip Plumbing & Heating Co., Inc.

Roger T. Stetson and Dennis J. Nagel of Belin, Harris, Helmick, Heartney & Tesdell, Des Moines, for appellee Baker Elec., Inc.

F. Richard Lyford, Barbara G. Barrett, and Charles F. Becker of Dickinson, Throckmorton, Parker, Mannheimer &amp Raife, Des Moines, for appellee Allied Const. Services, Inc.

Robert G. Riley and Hugh J. Cain of Duncan, Jones, Riley & Finley, Des Moines, for appellant.

Considered by UHLENHOPP, P.J., and HARRIS, McCORMICK, CARTER, and WOLLE, JJ.

WOLLE, Justice.

In our de novo review of this complex quiet title action we must decide whether and to what extent several contractors may enforce mechanic's liens filed in connection with their remodeling of portions of a commercial building in West Des Moines known as One Corporate Place (the building). While the building was being remodeled for use by commercial tenants, its contract purchaser R. Dean Guzeman (Guzeman) first entered into an agreement to sell and then conveyed his interest to Clemens Graf Droste Zu Vischering (Droste), a West German entrepreneur. The contractors performed work and supplied materials for remodeling the building pursuant to contracts with Guzeman. Droste commenced this action to quiet title, and the contractors counterclaimed to enforce their mechanic's liens. The trial court allowed all of the contractors to enforce their mechanic's liens against the building, although not awarding the full amount of one lien, and it awarded the contractors reasonable attorney fees. The trial court then quieted title in Droste subject to the liens. We affirm in part and reverse in part, agreeing that title should be quieted in Droste but finding that only a portion of one contractor's lien may be enforced against the property.

Quiet title actions and actions to enforce mechanic's liens are equitable proceedings which we review de novo. Kendall v. Lowther, 356 N.W.2d 181, 183 (Iowa 1984); Ringland-Johnson-Crowley Co. v. First Central Service Corp., 255 N.W.2d 149, 151 (Iowa 1977); see Iowa Code § 572.26 (1983). We examine the whole record and determine the parties' rights anew from the evidence presented. Northwestern National Bank v. Metro Center, Inc., 303 N.W.2d 395, 397 (Iowa 1981). While giving weight to the fact findings of the trial court, especially when considering the credibility of witnesses, we are not bound by those findings. Iowa R.App.P. 14(f)(7).

I. Background Facts.

A. Ownership of the Building. Guzeman obtained his ownership interest in the building on July 1, 1980, by entering into an installment contract with Midwest Mutual Insurance Co. (Midwest), its legal title holder. Guzeman intended to syndicate the building, but his plans were waylaid by an unfavorable economic climate and personal financial setbacks. On March 5, 1981, Guzeman entered into an agreement to sell the property to Droste. That purchase agreement, as subsequently amended prior to Guzeman's conveyance of the property to Droste, required Guzeman to have the building fully rented, with leases that met Droste's approval.

Several leases of commercial space could only be signed if Guzeman were to make substantial improvements in the space the tenants were to occupy, and it is that remodeling that triggered the subsequent filing of several of the mechanic's liens here involved. Xerox Corporation (Xerox), originally a major upper-floor tenant, entered into a written lease with Guzeman for occupancy of the first and second floors, and on January 28, 1981, Guzeman contracted with Allied Construction Services, Inc. (Allied) to construct Xerox's improvements on a cost-plus basis. Later in 1981, Guzeman leased the fifth floor of the building to West Palms, Inc. (West Palms) for use as a private club and restaurant. That lease specifically provided that Guzeman and West Palms would hold Droste harmless from any expense related to the necessary remodeling of that space. One Trip Plumbing & Heating Co., Inc. (One Trip), Rick Kading doing business as Kading Construction (Kading), and Baker Electric, Inc. (Baker) all performed remodeling work on that West Palms leasehold, with the work arranged for by Guzeman after he had conveyed his interest in the building to Droste.

The amended purchase agreement for sale of the entire building gave Droste the option of requiring Guzeman to furnish mechanic's lien waivers before closing the sale. The purchase agreement also allowed Droste to postpone the closing date or even rescind the purchase agreement if Guzeman did not complete satisfactory leasing arrangements and satisfy his other contract obligations.

Closing of the sale took place on November 24, 1981. Midwest conveyed its interest in the real estate by warranty deed to Droste, and that deed was duly recorded on November 25, 1981. Guzeman simultaneously assigned his interest in the building to Droste and also furnished Droste an "affidavit of inducement" by which funds were to be escrowed for the satisfaction of mechanic's liens and rental obligations. The escrowed funds proved insufficient to cover all work performed before and after the closing.

Although the assignment and affidavit of inducement were not recorded, the deed which was recorded made specific reference to the contract with the following language:

This deed is given in compliance with a contract between Grantor and R. Dean Guzeman, dated the 14th day of May 1980 and recorded in Book 5023, Page 376 in the office of the Polk County, Iowa Recorder, on July 1, 1980, the same having been assigned by Guzeman to Clemens Graf Droste Zu Vischering; the warranties herein contained extend to the date of said contract, and thereafter only as to those persons claiming by, through, or under Grantor.

Consequently, on November 25, 1981, the day after the closing of the sale to Droste, title to the property appeared as follows, subject to unrecorded commercial leases:

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

B. Work Performed by the Contractors Before the Closing. All of the remodeling work performed by the defendant contractors on the building was undertaken pursuant to contractual arrangements made with Guzeman, not Droste. Before the closing, Allied had performed substantial work on the Xerox leasehold and several other parts of the building, while Kading and Baker had also performed work for Guzeman within the building.

Kading filed a mechanic's lien on October 8, 1981 covering work completed about a month earlier in several parts of the building. That lien was released when Kading was paid at the time of the closing, and the work Kading performed thereafter on the West Palms leasehold was separately invoiced and the subject of its liens filed in 1982.

Baker also performed work before the closing, repairing air-handling equipment in the early fall of 1981 and then remodeling portions of the building's fourth floor in November and early December of 1981. Guzeman had arranged for that work before the closing, and it was separately invoiced. Guzeman was billed $509.37 for the intitial work and $4,161.91 for work on the fourth floor, and Droste has admitted liability for that work undertaken by Guzeman while he was still an owner of the building. Baker is entitled to have its mechanic's liens enforced in those undisputed amounts totaling $4,671.28, with interest at the agreed rate of 18% per annum from March 24, 1982, through June 23, 1982, and 10% from June 23, 1982, the date of its counterclaim.

C. Work Performed by the Contractors After the Closing. After the closing, Allied continued to perform substantial remodeling work on the Xerox leasehold, remodeling the first two floors of the building which Guzeman had leased to Xerox. That work was done on a cost-plus basis pursuant to contractual arrangements made with Guzeman. In October of 1981 Allied had filed a mechanic's lien covering work it performed commencing on July 7, 1981. Allied was paid for that work and released its lien at the time Guzeman conveyed the building to Droste. After the closing Allied continued remodeling the Xerox premises, and on March 23, 1982 it filed its mechanic's lien for $70,321.03 covering that additional work. That second lien is the subject of Allied's counterclaim in this action. Droste had already contracted with Guzeman to purchase the building when Allied commenced its work, and consequently both Droste and Guzeman were then owners within the meaning of the Iowa mechanic's lien statute. Iowa Code § 572.1(1) (1981); Veale Lumber Co. v. Brown, 197 Iowa 240, 243, 195 N.W. 248, 250 (1923). The principal issue relating to Allied's claim is whether it took collateral security from Guzeman which extinguished its lien, as provided in Iowa Code section 572.1(3) (1981).

One Trip commenced its work remodeling the West Palms leasehold pursuant to contractual arrangements made with Guzeman in early December of 1981. Although One Trip filed a plumbing permit application listing Guzeman as the owner of the building, the parties agree that Guzeman did not represent himself as the owner in making arrangements with One Trip to perform the remodeling. One Trip filed a mechanic's lien on March 18, 1982, naming Guzeman as the owner and refiled on May 3, 1982, naming...