Trostel v. American Life & Cas. Ins. Co.

• Decision Date: 14 August 1996
• Docket Number: No. 95-3666,95-3666
• Citation: 92 F.3d 736
• Parties: Anne C. TROSTEL; Harry A. Holman, Jr.; H.L. Van Metre; Charles H. Van Metre; Dorothy Hurley; Terrance M. Hurly, Cmdr.; Carol Sabey, Mrs.; Plaintiffs/Appellants, Norwest Bank Fort Collins, N.A., Trustee/Appellant, v. AMERICAN LIFE & CASUALTY INSURANCE COMPANY, Defendant/Appellee, Hawkeye Bank of Des Moines, Movant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 736

92 F.3d 736

65 USLW 2143

Anne C. TROSTEL; Harry A. Holman, Jr.; H.L. Van Metre Charles H. Van Metre; Dorothy Hurley; Terrance M. Hurly, Cmdr.; Carol Sabey, Mrs. Plaintiffs/Appellants Norwest Bank Fort Collins, N.A., Trustee/Appellant, v. AMERICAN LIFE & CASUALTY INSURANCE COMPANY, Defendant/Appellee Hawkeye Bank of Des Moines, Movant.

No. 95-3666.

United States Court of Appeals, Eighth Circuit.

Submitted April 10, 1996.

Decided Aug. 14, 1996.

James M. Doran, Jr., Nashville, TN, argued (John E. Quinn, John R. Caldwell and Robert M. Holliday, on the brief), for appellants.

A. Roger Witke, Des Moines, IA, argued (Richard J. Kirschman, on the brief), for appellee.

Before BOWMAN, BEAM, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

This case involves a gold clause contained in a 99-year commercial property lease originally executed in 1917. American Life & Casualty Insurance Company is the current lessee, having acquired the leasehold interest in 1990. The lessors, successors in interest to the original lessor, brought this contract action against American Life after it refused to pay its monthly rent installments in gold coin as specified in the original lease. The district court granted summary judgment in favor of American Life on the basis that the gold clause had been erased from the 1917 lease by a 1933 act of Congress. We reverse and remand.

On June 27, 1917 John Trostel entered into a lease agreement with Morris and Jacob Joseph for commercial property in Des Moines, Iowa. ¹ The second paragraph of the lease set the amount of annual rent at $12,000 for the first five years of the lease, $15,000 for the next 49 years, and $18,000 for the remaining 45 years. It also provided that "at the option of the lessor, all payments under this lease shall be made in gold coin of the United States of America, of or equal to the present standard of weight and fineness." In a separate paragraph, ninety days written notice was required as a condition precedent to the right of the lessor to demand payment in gold. Prior to the Depression era, gold clauses such as this were often included in long term rental agreements as a sort of price-indexing mechanism to protect a lessor from the effects of inflation. See Fay Corp. v. BAT Holdings I, Inc., 646 F.Supp. 946, 947 (W.D.Wash.1986), aff'd sub nom. Fay Corp. v. Frederick & Nelson Seattle, Inc., 896 F.2d 1227 (9th Cir.1990).

As part of the lease, the Josephs agreed to construct a building on the property that was at least eight stories in height. The lease gave the lessees the right to transfer or assign their interest in the lease, and provided that once the building was completed a proper assignment would relieve them of any further personal liability under the lease. A fourteen story building was completed on the property in 1931 and is now known as the Des Moines Building.

The lease was amended in writing four times, by supplemental agreements in 1921, 1927, and 1930 and by an amendment in 1959. It was also supplemented by a written Agency Agreement dated September 24, 1959. ² Among other things, the amendments related to the building construction deadline, rent increases, and the appointment of an agent for the collection and receipt of rent. ³ Each of these amendments was recorded. None of these modifications referred to the gold clause in the original lease.

In 1933 Congress passed legislation which affected all gold clauses. A joint resolution of Congress declared gold clauses to be against public policy and provided that "dollar for dollar" payments in United States currency would discharge any obligation. Joint Resolution of June 5, 1933, 48 Stat. 112, 113 (1933) (formerly codified at 31 U.S.C. § 463) (codified as amended at 31 U.S.C. § 5118(d)(2)). This was one of a series of measures taken to stabilize the value of United States currency. See Norman v. Baltimore & O.R. Co., 294 U.S. 240, 295-97, 55 S.Ct. 407, 410-12, 79 L.Ed. 885 (1935). During the same period, private ownership of gold was banned and the dollar was devalued. See Rudolph v. Steinhardt, 721 F.2d 1324, 1325-26 (11th Cir.1983) (citing Kenneth W. Dam, From the Gold Clause Cases to the Gold Commission: A Half Century of American Monetary Law, 50 Chicago L.Rev. 504 (1983)).

Subsequently in 1975 Congress repealed the ban on private ownership of gold, and in 1977 it passed an amendment to the 1933 gold clause statute. The amendment provided that the provisions of the 1933 statute would not apply to obligations issued after October 27, 1977. Act of October 28, 1977, Pub.L. No. 95-147, § 4(c), 91 Stat. 1227, 1229 (codified as amended at 31 U.S.C. § 5118(d)(2)). ⁴ In other words, as of October 28, 1977, it was once again legal to contract for payment in gold.

The interest in the Des Moines Building lease has been transferred numerous times, and three of the transfers are considered relevant by the parties. On May 7, 1969, State Automobile and Casualty Underwriters (State Auto) acquired the leasehold estate pursuant to a Warranty Assignment and Assumption. In this document, State Auto agreed to be bound by all of the terms and conditions of the 1917 lease, as amended by specific written and recorded amendments. The parties agree that this transfer of interest was a novation that created a valid contract between lessors and State Auto and that released the prior lessee from any obligation.

On December 20, 1985, State Auto transferred the leasehold interest to The Statesman Group, Inc. (Statesman), which later transferred it to American Life on August 15, 1990. ⁵ The 1985 and 1990 transfers were each accomplished pursuant to a recorded Warranty Assignment and Assumption (warranty agreement) similar to that used in the 1969 transaction.

The 1990 warranty agreement, which is the basis of the current lease, specifically incorporated the terms of the 1917 lease. It provided that Statesman:

does hereby sell, transfer, assign and setover unto [American Life] the leasehold estate more particularly described in that certain lease dated June 27, 1917, and recorded in the office of the Recorder of Polk County, Iowa, on April 25, 1923, in Book 870, Page 497, wherein Joseph (sic) and Jacob Joseph are the Lessees; as amended by Supplemental Agreement dated May 6, 1921, recorded in the office of said County Recorder on April 25, 1923, in Book 870, Page 501; as further amended by Supplemental Agreement dated July 20, 1927, in Book 1011, Page 239; as further amended by Supplemental Agreement dated may 31, 1930, in Book 1107, Page 291; and as further amended by Amendment to Lease dated September 1, 1959, recorded in the office of said County Recorder on October 2, 1959, in Book 3190, Page 331; and as further supplemented by Agency Agreement dated September 24, 1959, recorded in the office of said County Recorder on January 4, 1963, in Book 3476, Page 476....

Statesman also warranted that the lease "has not been cancelled, surrendered or modified except pursuant to those supplements above specified and that said Lease is in full force and effect." The document also provided that American Life as grantee:

hereby accepts, assumes and agrees to be bound by all of the terms and conditions to be kept, observed and performed by the lessee in said lease, as amended above described, from and after August 1, 1990....

In a letter dated December 27, 1993, an attorney for the lessors demanded payment of the rental obligation from American Life in gold coin pursuant to paragraph two of the 1917 lease. ⁶ On March 25, 1994 American Life delivered a cashier's check in the amount of $515,583.33 to the agent, along with a letter explaining that it represented the total rental obligation for the remaining lease term through the year 2016. ⁷ The letter claimed that the payment to the agent constituted a complete discharge of all rent owing. Although the 1917 lease required that rent be paid monthly in advance, American Life claims that requirement is superseded by language in the 1959 amendment related to the appointment of an agent for rent collection.

The lessors' attorney instructed the agent to hold the check for a week, after which he advised that the tender had been refused and instructed the agent to return the check to American Life. American Life has refused to accept the check back, and no rent has exchanged hands since that time.

The lessors filed this case against American Life on July 29, 1994, claiming that it had breached the lease contract by failing to make payments in monthly installments and in gold coin. They believe that the 1990 transfer of the leasehold interest to American Life was a new obligation entered into after the 1977 amendment which once again permitted requirements of payment in gold. In their view the gold clause in the 1917 lease was revived by the terms of the 1990 warranty agreement. American Life argued that the gold clause was not part of the current lease and that its prepayment of rent for the remainder of the lease term satisfied its rental obligation.

The district court granted summary judgment for American Life and dismissed the action. It held that even if a new obligation had been created in 1990, the gold clause could not have been incorporated in it by reference to the terms of the 1917 lease because the 1933 act had rendered that clause void and erased it from the 1917 lease. The lessors appealed, arguing that the gold clause had not been erased from the 1917 lease, that it was revived by what they refer to as a novation in 1990, and that American Life breached the lease by refusing to pay in gold coin and by failing to make rental payments in monthly installments. American Life responds that the gold clause was erased from the original lease by the act of Congress. It also claims that the gold clause was severed from the lease by a novation in 1969, that the current lease between lessors and American Life does not contain a gold clause because the 1990...