Steckelberg v. Randolph

• Decision Date: 15 April 1987
• Docket Number: Nos. 84-1432,84-2001,s. 84-1432
• Citation: 404 N.W.2d 144
• Parties: Lester STECKELBERG and Norma Steckelberg, Appellees, v. Howard RANDOLPH and Rolling Ridges Ranch, Inc., Appellants, Darrell Slayton, Ernest Carstens, Douglas Carstens, James Carstens, and Gerald Carstens, Individually and d/b/a Carstens & Sons Farms, Defendants.
• Court: Iowa Supreme Court

Page 144

404 N.W.2d 144

Lester STECKELBERG and Norma Steckelberg, Appellees, v. Howard RANDOLPH and Rolling Ridges Ranch, Inc., Appellants Darrell Slayton, Ernest Carstens, Douglas Carstens, James Carstens, and Gerald Carstens, Individually and d/b/a Carstens & Sons Farms, Defendants.

Nos. 84-1432, 84-2001.

Supreme Court of Iowa.

April 15, 1987.

Rehearing Denied May 11, 1987.

Robert Kohorst of Kohorst Law Firm, Harlan, for appellants.

Tobin Swanson and Emil Trott, Jr., of Barrett & Trott, Des Moines, for appellees.

Considered by HARRIS, P.J., and SCHULTZ, CARTER, WOLLE, and LAVORATO, JJ.

HARRIS, Justice.

Plaintiffs, Lester and Norma Steckelberg, a debt-stricken farm couple, contracted with defendant Randolph for the transfer to him of their farm, farm operation, and related assets. Under the plan Randolph was to assume control over the property, take charge of the operation, and infuse it with his own capital, all with the goal of successfully conducting the farm and operation through desperate economic times. It was agreed that when the goal was reached and the debts repaid the farm would be reconveyed to the Steckelbergs. Sometime after the arrangement was in place the Steckelbergs brought this suit. Equitable and legal theories were separated for trial but have been again consolidated on this appeal. On the equity claim the trial court held that the deed of the farm amounted to an equitable mortgage. On a jury trial of the legal issues arising from fraud, the trial court directed a verdict, dismissing the claims at the close of all evidence, but set that ruling aside on a posttrial motion and ordered a new trial. We affirm.

The Steckelbergs have owned a 385 acre farm in Guthrie County since 1958. In the written agreement they made December 17, 1980, with defendant Howard Randolph ¹ they acknowledged being in debt "to numerous creditors" and facing various lawsuits, some of which had already been reduced to judgment. The agreement stated the Steckelbergs "wish to employ Howard Randolph ... for the purpose of settling matters with ... creditors and preserving as much of the Steckelbergs' property as may be reasonably possible."

In consideration of Randolph's services, the Steckelbergs conveyed or assigned the farm and an interest in other real estate installment contracts, buildings, equipment, and other assets they owned. According to the agreement the parties' intent was "to place property of the Steckelbergs at the disposal of [Randolph] for the purpose of compromising and settling the indebtedness of the Steckelbergs and obtaining redress for [them] in those matters where it may be reasonably done."

Paragraph four of the agreement authorized Randolph to settle and compromise the Steckelbergs' debts, but stated that Randolph (and his corporation) were not to receive a fee or salary for services performed. Instead Randolph would be "entitled to compensation for all reasonable expenses ... for any and all sums paid to compromise said debts," with a lien against the Steckelbergs' property for any unsatisfied expenditures. The agreement was terminable by the Steckelbergs at any time or by Randolph on sixty days notice, "at which time all sums owed ... would be due in full." Upon termination by either party, the agreement provided, the Steckelbergs would be entitled to "reconveyance" of the property upon repayment of all sums owed to Randolph.

A warranty deed to the farm, along with an assignment of a real estate contract to Randolph, and a power of attorney were executed at the same time, on December 17, 1980. The power of attorney authorized Randolph to sell, convey, or lease any of the Steckelbergs' property.

On January 13, 1981, Randolph and the Steckelbergs entered a "joint venture agreement," creating an entity known as "C & R Feed Lots." According to the joint venture agreement Randolph would contribute the use of the Steckelbergs' real estate in the venture, as well as $20,000 in capital. Randolph also agreed to furnish the financial management of the joint venture, reserving the sole authority to keep records, incur debts, make sales, and purchase items on behalf of the venture. The Steckelbergs agreed to furnish labor as independent contractors, as well as the machinery and livestock for C & R Feed Lots, retaining control over the daily activities and operations. The surplus profits of C & R Feed Lots were to be applied by Randolph to the Steckelbergs' debts and obligations.

A farm lease providing for cash or crop shares was executed as a companion document to the January 13, 1981, joint venture agreement. The land described in the farm lease included all of the land conveyed by the Steckelbergs to Randolph in December 1980. The joint venture agreement stated that the Steckelbergs were to be "partners in C & R Feed Lots." They were not so treated however. Instead they were treated as employees and paid $500 per month for their services. In 1982 Randolph issued the Steckelbergs a W-2 form for their services.

On June 5, 1981, another joint venture was undertaken. Parties to this agreement included the Steckelbergs, Randolph, and Darrell E. Slayton. According to this agreement the parties would form an enterprise, also known as "C & R Feed Lots," supplanting the prior joint venture on June 30, 1981. Randolph was to contribute the Steckelbergs' Guthrie County real estate to this enterprise, as well as "certain real estate leased to Slayton and which Slayton has by agreement and power of attorney given full authority to [Randolph] to operate." In addition Randolph agreed to contribute $20,000 in capital, as well as certain farm equipment and livestock obtained from Slayton and the Steckelbergs. In all other respects, including the distribution of the venture's profits for payment of Steckelbergs' (and Slayton's) debts, the June 5, 1981, joint venture agreement was the same as the earlier one.

The Steckelbergs and Randolph continued in the contractual relationship set up by the June 5, 1981, agreement until the summer of 1982. By July 1982 the Steckelbergs wanted to extricate themselves from the agreement. Surprised when they received the W-2 forms identifying them as wage earners of the venture, rather than partners, they unsuccessfully sought copies of the tax returns of the enterprise. They were also rebuffed in their request for a payoff figure.

Randolph's response was to demand that the Steckelbergs sign a release of their right to obtain a reconveyance of their farm. Randolph took the position that, "due to waste and mismanagement ... by the Steckelbergs in the hog raising operation," the enterprise could not be made profitable. When the Steckelbergs refused to sign the release Randolph served notice on August 3, 1982, that the December 17, 1980, agreement, was terminated. The notice demanded payment within sixty days of all sums owing Randolph by the Steckelbergs, which he calculated to be in excess of $725,000.

On August 20, 1982, Randolph, for himself, his corporation, and C & R Feed Lots, leased the Steckelberg farm to defendants Carstens who operate a partnership called Carstens & Sons Farms. The cash rent was set at $250 monthly from September to December 1982 and $1250 monthly through December 1985. The Steckelbergs were not a party to this lease and had no knowledge of it.

The Carstens were also given an alternative role. On August 20, the same day the lease was signed, Randolph signed a contract with them by which the Carstens purchased the Steckelbergs' farm for $400,000, one dollar down with a balance due and payable August 24, 1992. Interest was set at eleven percent per annum, to be paid annually. It was never paid. The contract stated it would take effect only if the Steckelbergs failed to pay their outstanding debts.

This was not all. Also on August 20 Randolph sold Carstens the Steckelbergs' farm machinery, growing crops, hogs, corn, and feed. These items had previously been transferred by the Steckelbergs to C & R Feeds. The Carstens paid $270,000 for these items, depositing a down payment of $70,000 and signing two notes in the amount of $100,000 each. The Steckelbergs were also unaware of this sale. Knowledge came October 23, 1982, in a letter from Randolph. It said:

Now that a complete sale [has been made] of all of the assets of C & R Feed Lots and of the assets of [Randolph and his corporation] used in the operation of C & R Feed Lots, I could put together a figure that would be required for you to pay off your indebtedness to me ... for what we have expended on your behalf since December 17, 1980.

The Steckelbergs filed this action, alleging fraudulent misrepresentation against Randolph, seeking a declaratory judgment, quiet title to the farm, an accounting and monetary relief. The defendants ² answered and also brought a forcible entry and detainer action against the Steckelbergs. On pretrial motions the district court appointed a special master to perform the requested accounting, ordered bifurcation of plaintiffs' legal and equitable claims for trial, and stayed the defendants' forcible entry and detainer action against the Steckelbergs until final disposition of the suit.

Upon trial of the equitable issues the trial court substantially adopted the recommendations of the special master and then determined that the Steckelbergs owed Randolph $380,000. The trial court held the defendants liable for all indebtedness, liens, and real estate taxes due on the Steckelberg farm and nullified all other agreements between the parties, including the lease and sales contracts to the Carstens. The trial court quieted title in the Steckelbergs to all real estate previously owned by them and sold to Randolph, subject only to an "equitable mortgage" of $380,000 ³ and a farm lease to the Carstens. The court's order provided that the farm lease to the Carstens would become "null and void" on December 31, 1984.

The trial court dismissed the defendants' forcible...