Davis v. Am. Int'l Bridge, Inc.
| Citation | 910 N.W.2d 621 |
| Decision Date | 08 November 2017 |
| Docket Number | No. 16-0573,16-0573 |
| Parties | Robert W. DAVIS and Kirk K. Peterson, Plaintiffs-Appellants, v. AMERICAN INTERNATIONAL BRIDGE, INC., Anfu Wang and Chun Ling Lu, Defendants-Appellees. |
| Court | Court of Appeals of Iowa |
Robert W. Goodwin of Goodwin Law Office, P.C., Ames, for appellants.
Joseph R. Cahill of Cahill Law Offices, Nevada, for appellees.
Heard by Vaitheswaran, P.J., and Potterfield and McDonald, JJ.
Kirk Peterson and Robert Davis filed this suit against American International Bridge, Inc. ("American"), for breach of a commercial property lease agreement to which they were not parties. American filed a counterclaim against Peterson and Davis to enforce their personal guaranty of the lease after the lessee and sublessee defaulted on the lease agreement. The district court granted American’s motion for summary judgment on Peterson and Davis’s breach-of-contract claim, concluding they were not parties to the lease agreement, were not third-party beneficiaries of the lease agreement, and lacked standing to assert claims under the lease agreement. After a bench trial, the district court entered judgment in favor of American and against Peterson and Davis on their personal guaranties. Peterson and Davis timely filed this appeal. On appeal, they contend the district court erred in granting American’s motion for summary judgment, erred in finding of favor of American on its claim, erred in calculating damages, and erred in setting the interest rate on the judgment.
The record reveals the following. In 2012, Anfu Wang, doing business as American International Bridge, Inc., purchased a commercial building in Boone. In 2013, Monte Streit expressed interest in leasing the building and operating a restaurant in the building. Wang’s attorney expressed reservations to Wang that relying solely on Streit to meet the lease payments would be unduly risky. Wang insisted Streit obtain guarantors. Streit contacted Peterson, Streit’s physician, and Davis, Streit’s dentist, for assistance. In an agreement with Streit, Peterson and Davis each agreed to sign a personal guaranty of the lease agreement and each loaned Streit $37,500. In exchange, Streit agreed to repay the loans at five percent interest and pay to each thirty percent of the profits of the restaurant. In March 2013, Streit signed the commercial lease agreement. Peterson and Davis were not parties to the agreement. On the same day, Peterson and Davis each signed a personal guaranty of the lease agreement.
The restaurant, known as Sports Story Bar & Grill, began business in April 2013. Business was poor. By August, Streit was two months behind in rent. Peterson and Davis each paid one month’s rent to Wang to come current. However, Sports Story ceased operations in December 2013.
Wang reached out to Chad Borsheim, who knew several of the parties involved. Borsheim and a partner formed a partnership to run the business and sublease the building from Streit. The business they formed was called the Boone Depot. Like its predecessor, the Boone Depot ran into difficulty. It failed to make all required lease payments to American. American served Borsheim a notice of default and sent copies to Davis and Peterson. In the notice, American demanded payment of all unpaid sums. The default was not cured, and the entire unpaid balance of the lease was declared due and payable.
In March 2014, Peterson and Davis filed this action against American, Wang, and Wang’s wife, Chun Ling Lu (collectively, "American"). The petition asserted claims of negligent misrepresentation, fraudulent misrepresentation, and breach of lease, and requested a declaratory judgment that there "was failure or lack of consideration to Davis and Peterson" for the guaranty, rendering the guaranty unenforceable against them. The theory of Peterson and Davis’s case was American failed to repair a leaky roof in the restaurant and failed to repair the adjacent parking garage, the failure to repair these items damaged the restaurant’s business, the damage to the restaurant’s business caused the business to default under the lease agreement, and the default under the lease agreement caused Peterson and Davis to be liable on their personal guaranties. Peterson and Davis claimed to be third-party beneficiaries of the lease agreement because of their pecuniary interest in the restaurant. The district court dismissed the breach-of-contract claim on summary judgment, and Peterson and Davis voluntarily dismissed their misrepresentation claims.
American answered and brought counterclaims against Peterson and Davis. The only counterclaim that went to trial was American’s claim against Peterson and Davis to enforce their personal guaranties of the lease agreement. American sought past-due rent and property taxes in the amount of $159,000, plus interest and penalties as provided in the lease. Plaintiffs asserted an affirmative defense to this counterclaim of failure of consideration, which was substantially their same claim regarding the failure to repair the purportedly leaky roof and parking garage. The district court found in favor of the defendants and awarded damages of $197,004.06, plus interest of 10.47125%, and attorney fees of $47,475.
Our review is for the correction of legal error. See EnviroGas, L.P. v. Cedar Rapids/Linn Cty. Solid Waste Agency , 641 N.W.2d 776, 780 (Iowa 2002) ; Hamm v. Allied Mut. Ins. Co. , 612 N.W.2d 775, 777 (Iowa 2000) (). With respect to the summary judgment motion, summary judgment is proper only when the moving party demonstrates that the record is devoid of any genuine issue of material fact and it is entitled to judgment as a matter of law. See Bill Grunder’s Sons Constr. v. Ganzer , 686 N.W.2d 193, 196 (Iowa 2004). With respect to the district court’s findings of fact and conclusions of law, the district court’s findings of fact are binding if supported by substantial evidence. See Falczynski v. Amoco Oil Co. , 533 N.W.2d 226, 230 (Iowa 1995).
We first address the question of whether the district court correctly dismissed Peterson and Davis’s claim for breach of the lease agreement as third-party beneficiaries. The primary question in a third-party beneficiary case is whether the contract manifests an intent to benefit a third party. See Midwest Dredging Co. v. McAninch Corp. , 424 N.W.2d 216, 224 (Iowa 1988). The promisee’s intent generally controls. See id. Such intent, however, need not be to benefit a third party directly. See Vogan v. Hayes Appraisal Assocs., Inc. , 588 N.W.2d 420, 423 (Iowa 1999).
Davis and Peterson argue they are third-party beneficiaries because they had a twofold pecuniary interest in the lease agreement. First, they entered into an agreement with Streit to receive thirty percent of the profits of the restaurant. Second, as guarantors of the lease agreement they had an interest in making sure the restaurant was in good repair, which would have made it more likely the restaurant would succeed, which would have made it more likely Streit would not have defaulted on the lease agreement, which would have made it less likely they would be held liable under the guaranty. There are numerous flaws in Peterson and Davis’s theory of the case.
First, in determining whether a party or parties is a third-party beneficiary, we look to the language of the contract and the circumstances surrounding contract formation. Midwest Dredging , 424 N.W.2d at 225.
A third party who is not a promisee and who gave no consideration has an enforceable right by reason of a contract made by two others ... if the promised performance will be of pecuniary benefit to [the third party] and the contract is so expressed as to give the promissor reason to know that such benefit is contemplated by the promisee as one of the motivating causes of his making the contract.
Tredrea v. Anesthesia & Analgesia, P.C. , 584 N.W.2d 276, 282 (Iowa 1998).
Midwest Dredging , 424 N.W.2d at 224 (quoting Restatement (Second) of Contracts § 302 (1979) ). In this case, the lease agreement evidences no intent to benefit Peterson or Davis, whether directly or indirectly. The facts and circumstances surrounding the formation of the lease agreement do not evidence an intent to benefit Peterson or Davis. Peterson and Davis’s pecuniary interest in the restaurant, standing alone, does not make them third-party beneficiaries of the lease agreement any more than it would make them third-party beneficiaries of any other contract of the restaurant.
In addition, it seems Peterson and Davis misapprehend the nature of the personal guaranty. Being a personal guarantor does not give Peterson and Davis a cognizable and enforceable pecuniary interest in the contracts of the restaurant. To the contrary, their personal guaranty of the lease agreement provides a pecuniary benefit to the lessor, who now has greater security under the lease agreement. Courts are uniform in concluding a personal guarantor of a contract is not a third-party beneficiary of the underlying contract. See Ex parte ReLife, Inc. , 679 So.2d 664, 668 (Ala. 1996) ; Porter Capital Corp. v. Thomas , 101 So.3d 1209, 1215 (Ala. Civ. App. 2012) ; Grand Valley Ridge, LLC v. Metro. Nat’l Bank , 2012 Ark. 121, 388 S.W.3d 24, 31 (2012) ; Farm Bur. Mut. Ins. Co. v. Running M Farms, Inc. , 366 Ark. 480, 237 S.W.3d 32, 36–37 (2006) ; McKinney-Green, Inc. v. Davis , 606 So.2d 393, 396 (Fla. Dist. Ct. App. 1992) ; Scott v. Mamari...
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