IN THE SUPREME COURT OF IOWA No. 19–0491
Submitted December 15, 2020—Filed March 12, 2021
GREATAMERICA FINANCIAL SERVICES CORPORATION,
Appellee,
vs.
NATALYA RODIONOVA MEDICAL CARE, P.C.,
Appellant.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Linn County, Lars G. Anderson, Judge.
Appellee seeks further review of court of appeals decision vacating the district court’s grant of summary judgment on the issue that Appellant ratified a contract with Appellee and therefore is subject to all provisions of the contract. DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.
Appel, J., delivered the opinion of the court, in which all justices join.
Larry J. Thorson of Ackley, Kopecky & Kingery, L.L.P., Cedar Rapids, for appellant.
Randall D. Armentrout and Leslie C. Behaunek of Nyemaster Goode, P.C., Des Moines, for appellee. 2
APPEL, Justice.
In this case, we consider whether receipt and installation of certain
equipment subject to a finance agreement and payment of several
installments over a seven-month period pursuant to the finance agreement
amounts to ratification of the underlying contract, even though the lessee
alleged that the signature on the financing agreement was fraudulently
procured by a third-party seller of equipment. The finance company
moved for and obtained summary judgment. The lessee appealed.
We transferred the case to the court of appeals. The court of
appeals, over a dissent, determined that summary judgment was
improperly granted because of disputed issues of material fact related to
acceptance of the goods, ratification, and rejection of the goods. As a
result, the court of appeals reversed the district court and remanded the
case for further proceedings
For the reasons expressed below, we vacate the decision of the court
of appeals and affirm the ruling of the district court granting summary
judgment.
I. Factual and Procedural History.
A. Introduction. Defendant professional corporation Natalya Rodionova Medical Care (NRMC) provides medical services in New York,
New York. NRMC’s sole shareholder is Dr. Natalya Rodionova. NRMC and
a New York corporation, New York Digital Products, Inc. (NYDP), engaged
in discussions regarding the provision of two Kyocera copiers and a
Grandstream telephone system. On October 23, 2017, NRMC allegedly
entered a financing agreement with an Iowa corporation, GreatAmerica
Financial Services Corporation (GreatAmerica), for the leasing of telephone
and copier products that would be supplied by NYDP. The financing 3
agreement contained a “hell or high water” provision. The hell or high
water provision stated:
NET AGREEMENT. THIS AGREEMENT IS NON- CANCELABLE FOR THE ENTIRE AGREEMENT TERM. YOU UNDERSTAND WE ARE PAYING FOR THE EQUIPMENT BASED ON YOUR UNCONDITIONAL ACCEPTANCE OF IT AND YOUR PROMISE TO PAY US UNDER THE TERMS OF THIS AGREEMENT, WITHOUT SET OFFS FOR ANY REASON EVEN IF THE EQUIPMENT DOES NOT WORK OR IS DAMAGED, EVEN IF IT IS NOT YOUR FAULT.
The finance agreement appeared to be signed by Rodionova, but
NRMC asserts that the signature was a forgery. Around October 23, NYDP sent the equipment to NRMC’s office. On
October 23, a GreatAmerica employee placed a telephone call to NRMC to
determine the status of the transaction. According to GreatAmerica
business records, in response to the question of whether the equipment
was installed and working, an NRMC employee, Melissa Santiago, replied
“Yes.”
Under the finance agreement between GreatAmerica and NRMC,
NRMC was to pay GreatAmerica sixty-three monthly installments of $999
per month. GreatAmerica sent NRMC its first invoice on October 30. The
GreatAmerica invoice bears the identification header “GreatAmerica Financial Services” and identifies the invoice as presented pursuant to
“Agreement 003-1296204-000.” The GreatAmerica invoice declared that
“We appreciate your business! We are glad you chose GreatAmerica
Financial Services Corporation.” In addition, the invoice detail identified
the equipment related to the invoice as “2-Kyocera TASKalfa 4002i Copiers
& Grandstream Phone Sys.” The reverse side of the invoice asked the
lessor to provide a “New Equipment Location” if applicable. Further, under
additional information, the reverse side of the invoice referred to a 4
potential right to purchase the equipment at the end of the term “under
your agreement.”
Pursuant to the finance agreement, GreatAmerica sent monthly
invoices to NRMC. NRMC made its first payment by check dated
November 4, 2017 for $1157.17.1 The memo line of the NRMC check
contained the handwritten notation “office internet phone/fax etc.” The
NRMC check also had a handwritten notation with the invoice number and
the agreement number provided in the GreatAmerica invoice. Four
additional invoices, totaling six-months worth of installments, were paid
by NRMC via telephone calls authorizing debits to NRMC’s bank account.
On May 9, 2018, an employee of GreatAmerica emailed Rodionova
and asked for an update on payment of an overdue invoice. On May 17,
Rodionova sent a response to GreatAmerica attempting to cancel the
finance agreement.
In the reply email, Rodionova stated, in relevant part, that “Tony
Barro and New York Digital betrayed me and broke [their] responsibility to
me.” Rodionova asserted that “[m]y services got interrupted, in both
offices, because he (they) did not pay their bills.” As a result, Rodionova
stated that she “moved back with Verizon and Cable vision.” Because of the situation, Rodionova told GreatAmerica, “You can pick up your
phones. I can not use them. If you want, and give me a fair price on used
printer/faxes, I will purchase them from your company.”
On May 21, Rodionova herself authorized payment of two invoices
to GreatAmerica. Thereafter, however, NRMC discontinued further
payments.
1This first-month payment included the $999 installment, applicable taxes, and a one-time documentation fee. 5
B. Proceedings in District Court. GreatAmerica sued NRMC for
breach of contract and unjust enrichment. NRMC filed an answer denying
the claims and affirmatively alleging that “the representative from New
York Digital Products, Inc. fraudulently induced the Defendant to enter
into a contract that was financed by GreatAmerica Financial Services
Corporation.”
GreatAmerica moved for summary judgment. GreatAmerica
asserted that even if the signature on the finance agreement, allegedly on
behalf of NRMC, was a forgery, it was still undisputed that the equipment
subject to the finance agreement was installed and working on
October 23, 2017, and that thereafter, NRMC made seven of sixty-three
payments pursuant to the finance agreement in response to invoices sent
to NRMC by GreatAmerica. GreatAmerica further claimed it was
undisputed that on May 17, 2018, Rodionova attempted to cancel the
contract, admitted that she had been using the telephone services but her
services were interrupted because of a dispute with the vendor, admitted
use of the copiers, and offered to purchase the used equipment. Finally,
GreatAmerica stated it was undisputed that NRMC made no further
payments under the finance agreement. From these facts, GreatAmerica claimed NRMC ratified the finance agreement and is bound by its terms,
including the hell or high water provision. GreatAmerica emphasized that
the hell or high water provision was important to the finance industry, and
while it protected the financing party, it did not prohibit the lessee from
pursuing an action against the vendor, in this case NYDP.
NRMC admitted the payments made to GreatAmerica. NRMC,
however, provided an affidavit from Rodionova alleging that she did not
sign the finance agreement. NRMC noted that the GreatAmerica business
record allegedly dated October 23, 2017, did not, in fact, have the year on 6
the document and did not indicate that the equipment was working. With
respect to the May 17, 2018 email, NRMC asserted that Rodionova herself
is not a defendant, so her use or nonuse of the equipment was not an
issue. From the summary judgment record, NRMC argued that NRMC
could not be bound by a fraudulently signed finance agreement.
The district court granted GreatAmerica’s motion for summary
judgment. The district court began by noting that hell or high water
provisions are enforceable in Iowa upon the acceptance of goods. GreatAm.
Leasing Corp. v. Star Photo Lab, Inc., 672 N.W.2d 502, 505
(Iowa Ct. App. 2003). The district court found that the goods in this case
were accepted by NRMC based on the substance of the phone call
verification on October 23, 2017, but also by keeping the goods for seven
months and making payment thereon without any attempt to reject the
goods. The district court recognized that a contract containing a hell or
high water provision can be attacked as invalid on grounds of fraud. But
in this case, the district court reasoned, NRMC ratified the contract
through its conduct regardless of who signed the underlying contract. Life
Invs. Ins. Co. of Am. v. Est. of Corrado, 838 N.W.2d 640, 647 (Iowa 2013).
C. Decision of Court of Appeals. NRMC appealed. In a divided opinion, the court of appeals reversed. The court of appeals found a
genuine issue of material fact because Rodionova claimed to have never
seen a copy of the contract until litigation commenced. The court of
appeals also said that while a jury could find that the contract was ratified,
it was a question of fact required to be submitted to the factfinder rather
than a question of law to be determined on summary judgment. In
particular, the court of appeals reasoned that while a party might be
bound by an unknown contract if the party failed to reasonably
investigate, whether the duty to investigate was triggered in this case was 7
a matter of fact. The court of appeals also found that there was a factual
issue on the question of acceptance. The court of appeals noted that
Rodionova in an affidavit asserted that “I never got any use out of the
equipment” and that Melissa Santiago was “not authorized to accept
delivery of equipment or make any determination as to whether or not
payment is due and owing.”
The dissent would have affirmed the district court’s grant of
summary judgment. According to the dissent, after NRMC conceded the
existence of some contract in its affirmative defense and made seven
payments to GreatAmerica for the equipment, the dissent reasoned that
such action amounted to ratification. Further, while the dissent
recognized that Rodionova may not have known the precise terms of the
finance agreement, the GreatAmerica billing documents as a matter of law
put a reasonable company on notice of the existence of the contract. With
respect to the hell or high water provision in the GreatAmerica finance
agreement, the dissent found that the term applied as the agreement was
accepted or ratified by NRMC. The dissent noted that GreatAmerica
October 23, 2017 documentation showed that the equipment was in
working condition and that no contrary affidavit was provided by NRMC. Finally, the dissent noted that no rejection of the equipment occurred until
May 17, 2018, too late after the payment of seven invoices to defeat
ratification. For the above reasons, the dissent asserted that the district
court properly granted summary judgment in this matter.
II. Standard of Review.
We review a district court’s ruling on a motion for summary
judgment for correction of errors at law. See Terry v. Dorothy,
950 N.W.2d 246, 249 (Iowa 2020). The legal standard for a proper ruling
on summary judgment is when there is no genuine issue of material fact 8
on the record, and “the moving party is entitled to a judgment as a matter
of law.” Iowa R. Civ. P. 1.981(3). “Where reasonable minds can differ on
how an issue should be resolved, a fact question has been generated, and
summary judgment should not be granted.” C & J Vantage Leasing Co. v.
Wolfe, 795 N.W.2d 65, 73 (Iowa 2011).
III. Discussion.
A. Positions of the Parties. On appeal, NRMC contends that the
district court erred in finding that NRMC received a benefit from having
the equipment on the premises and that its rejection of the equipment was
not timely. NRMC asserted that there was no evidence in the summary
judgment record that the equipment was ever installed and working.
Further, NRMC claims that the period of time from the October 23, 2017
start of the agreement to her May 17, 2018 nonpayment was “very short”
and did not arise to ratification of an agreement that she did not sign.
With respect to the payments made to GreatAmerica, NRMC asserted that
Rodionova “did not consider [those] payments to GreatAmerica to be
NRMC’s responsibility.” NRMC asserted that although payments were
made on four occasions by NRMC, Rodionova expected the payments to be
made by Tony Barro, the person who she asserted was responsible for the fraudulent finance agreement.
NRMC emphasizes that she did not sign the finance agreement and
therefore cannot be bound to the hell or high water provision of the finance
agreement. Further, without a copy of the finance agreement, NRMC
asserts that Rodionova would not have known what equipment was
subject to the lease and subject to rejection.
In sum, NRMC claims that there are factual disputes regarding
acceptance or ratification and that summary judgment was improperly
granted. 9
GreatAmerica views the record differently. GreatAmerica points out
that its October 23, 2017 telephone verification record indicates that
Melissa Santiago responded “Yes” when a GreatAmerica employee asked
“Is the equipment installed and working?” GreatAmerica emphasizes the
detail on its invoices sent to NRMC including the contract number, a
description of the equipment, and the characterization of underlying
documentation as “your agreement.” GreatAmerica notes that seven
monthly invoices were honored by NRMC prior to NRMC’s default under
the contract. GreatAmerica points out that the last two invoices were
honored by Rodionova herself on May 21, 2018. GreatAmerica argues that
even if the finance agreement signature was not Rodionova’s, the
acceptance of the equipment and the payment of invoices by NRMC
amounts to a ratification.
B. Merits.
1. Ratification. Based on the applicable case law, we agree with
GreatAmerica that NRMC ratified the finance agreement through its
actions and inactions. As a matter of law, the contract was ratified by
NRMC despite any allegation of forgery.
The legal support for our conclusion derives in part from Life Investors Insurance Co. of America v. Estate of Corrado, where we approved
the Restatement (Third) of Agency’s definition of ratification. 838 N.W.2d
at 647. “Ratification is the affirmance of a prior act done by another,
whereby the act is given effect as if done by an agent acting with actual
authority.” Restatement (Third) of Agency § 4.01(1), at 304
(Am. L. Inst. 2006). To ratify an act, the ratifier must either “manifest[]
assent that the act shall affect the person’s legal relations, or [engage in]
conduct that justifies a reasonable assumption that the person so
consents.” Id. § 4.01(2)(a), at 304. A “knowing acceptance of the benefit 10
of a transaction ratifies the act of entering into the transaction.” Id. § 4.01
cmt. d, at 308; see also Stathis v. Geldermann, Inc., 692 N.E.2d 798, 808
(Ill. App. Ct. 1998) (“Ratification occurs when the principal learns of an
unauthorized transaction, then retains the benefits of the transaction or
takes a position inconsistent with nonaffirmation.”). As a generality,
manifestation of assent, and whether certain conduct is sufficient to
indicate consent, are questions of fact. See, e.g., Restatement (Third) of
Agency § 1.03, at 56–63; § 4.01 cmts. d, at 308, f, at 309, g, at 309–10..
The Restatement (Third) of Agency allows an undisclosed principal
to ratify an unauthorized actor’s act, therefore permitting ratification even
for forged documents. See id. § 4.03, at 321–23. The rationale for
ratification even in cases of alleged forgery is “[a] person should not be able
to accept the benefits of a contract even if the signer’s acts are
unauthorized, but deny his or her obligations under the contract because
the signer’s acts are unauthorized.” Life Invs. Ins. Co. of Am., 838 N.W.2d
at 647.
The Restatement (Third) of Agency further provides that “[a] person
is not bound by a ratification made without knowledge of material facts
involved in the original act when the person was unaware of such lack of knowledge.” Restatement (Third) of Agency § 4.06, at 336. And a comment
to the section clarifies that
[r]atification is the consequence of a choice freely made by the principal. The principal may choose to ratify the action of an agent or other actor without knowing material facts. A factfinder may conclude that a principal has made such a choice when the principal is shown to have had knowledge of facts that would have led a reasonable person to investigate further, but the principal ratified without further investigation.
Id. § 4.06 cmt. d, at 337–38; see also Stathis, 692 N.E.2d at 808 (“For
ratification to occur, the principal must, with full knowledge of the act, 11
manifest an intent to abide and be bound by the transaction. Ratification
may be inferred from surrounding circumstances, including long-term
acquiescence, after notice, to the benefits of an allegedly unauthorized
transaction.” (citation omitted)).
Based on this principle, fraud, forgery, misunderstanding, and
mistake could play a role in whether a contract is effectively accepted and
ratified. In many cases involving those kinds of facts, the question should
be submitted to the factfinder. Yet, even when there is a disputed fact
regarding actual knowledge of a contract, courts have deemed contracts
ratified as a matter of law based on the surrounding circumstances. See,
e.g., De Lage Landen Fin. Servs. v. St. Bernard’s Episcopal Church,
2012 WL 489149, *3 (N.J. Super. Ct. App. Div. 2012) (per curiam) (“[T]he
equipment was delivered; it was not concealed from members of the vestry
or other church officials; and the church used the machine and, in fact,
paid the lease charges for some twenty-six months. During that time,
members of the vestry and other church officials must have been aware
that the church had use of a copier and that a monthly charge was being
paid for it under a contract. Having accepted the benefits of the contract
entered into by its agent, even if unauthorized at its inception, the church could not repudiate the contract halfway through its term.”).
Rodionova claimed that she did not sign the contract and in fact
never saw the contract until the initiation of this litigation. Rodionova
further alleged that her employee, who confirmed with GreatAmerica
receipt of the goods, that the goods were installed, and that they were in
proper order, was not authorized to accept delivery or make a
determination about the fitness of the goods. Assuming all of this true for
the purposes of summary judgment, the contract was still ratified by
NRMC. 12
Rodionova’s affidavit confirmed that the goods were in fact delivered.
For the purposes of this litigation, we do not need to know whether the
goods were ever installed or in proper order. Contract law principles would
have required Rodionova to return the nonconforming or defective goods
within a reasonable time period, and Rodionova did not attempt to return
the goods until seven months later. See Iowa Code § 554.13509 (2017)
(“Rejection of goods is ineffective unless it is within a reasonable time after
tender or delivery . . . and the lessee seasonably notifies the lessor.”); see
also In re Rafter Seven Ranches L.P., 546 F.3d 1194, 1202 (10th Cir. 2008)
(holding six weeks was an unreasonable period to wait before attempting
rejection and citing cases holding under certain circumstances rejection
after a period of as little as nineteen days is unreasonable); GreatAm.
Leasing Corp. v. Davis-Lynch, Inc., 2011 WL 167248, at *5 (N.D. Iowa
Jan. 19, 2011) (holding that rejection of goods is typically not effective if
the party makes installment payments on the contract for a period of
several months). Instead, NRMC accepted the goods in the sense that it
possessed them for seven months and made seven monthly payments
under the finance agreement. See Iowa Code § 554.13515(1) (“[Acceptance
occurs when] the lessee has had a reasonable opportunity to inspect the goods and (a) the lessee signifies or acts . . . in a manner that signifies to
the lessor . . . that the goods are conforming or that the lessee will take or
retain them in spite of their nonconformity; or (b) the lessee fails to make
an effective rejection of the goods.”); see also Woodall v. Beauchamp,
236 S.E.2d 529, 545 (Ga. Ct. App. 1977) (“[I]f a party who is entitled to
rescind a contract because of fraud or false representation, when he has
full knowledge of all the material circumstances of the case freely and
advisedly does anything which amounts to the recognition of the
transaction, or acts in a manner inconsistent with its repudiation, it 13
amounts to acquiescence, and, though originally impeachable, the
contract becomes unimpeachable even in equity. It is incumbent upon a
party who attempts to rescind a contract for fraud to repudiate it promptly
on discovery of the fraud. . . . [If no attempt is made, the party] will be
held to have waived any objection, and to be conclusively bound by the
contract as if no fraud or mistake had occurred.” (citations omitted)).
NRMC thus ratified the contract through acceptance of the benefit
of the contract (possession of the copier and phone systems) and making
seven installment payments. Effectively NRMC conducted business as if
it had a contract with GreatAmerica for seven months and then attempted
to reject the goods and cancel the contract after a third-party dispute with
NYDP.
We recognize that questions regarding acceptance, rejection, and
ratification often raise factual issues that preclude summary judgment.
But here, on the undisputed facts, NRMC had possession of the equipment
and paid invoices over a seven-month period. NRMC received invoices with
detailed documentation of “your agreement,” a description of the precise
equipment subject to the agreement, and a specific contract identification
number. If NRMC wished to reject the goods, or did not wish to be a party to contract with GreatAmerica, NRMC could have done so in a reasonable
time. But as a matter of law, the failure to reject goods over a seven-month
period and the payment of periodic invoices amounts to a ratification that
cannot be unwound by a tardy effort to reject the goods.
2. Hell or High Water Provision. Because the GreatAmerica finance
agreement was alleged to be fraudulently obtained, NRMC claims that the
hell or high water provision of the finance agreement cannot be enforced.
“In general, a hell or high water clause makes a lessee’s obligation under
a finance lease irrevocable upon acceptance of the goods, despite what 14
happens to the goods afterwards.” GreatAm. Leasing Corp., 672 N.W.2d at
504. Hell or high water provisions are valid in Iowa and may be specifically
expressed in a contract or attach by default to all finance leases under the
Uniform Commercial Code. See Iowa Code § 554.13407.
The hell or high water provision in the GreatAmerica finance
agreement take effect upon acceptance of the goods. As indicated above,
NRMC accepted the goods by taking possession for seven months before
making any attempt to reject the goods. Upon acceptance, NRMC was
obligated to pay under the terms of the agreement no matter what
happened to the goods after acceptance.
NRMC alleges that it did not receive a copy of the contract until
litigation commenced and therefore is not subject to the specific terms of
the contract. The argument is unavailing because the seven-month period
of possession and payments under the contract would have put NRMC on
notice that a contract existed and NRMC should have investigated the
provisions of the contract prior to ratification. See Advance Elevator Co. v.
Four State Supply Co., 572 N.W.2d 186, 188 (Iowa Ct. App. 1997) (“[A]
party is charged with notice of the terms and conditions of a contract if the
party is able or has had the opportunity to read the agreement.”); see also Peak v. Adams, 799 N.W.2d 535, 543 (Iowa 2011) (“It is well-settled that
failure to read a contract before signing it will not invalidate the contract.”
(quoting Huber v. Hovey, 501 N.W.2d 53, 55 (Iowa 1993))); Morgan v. Am.
Fam. Mut. Ins., 534 N.W.2d 92, 99 (Iowa 1995) (holding that an insurance
contract was formed with a new contract term despite the policy holder
never actually reading the new contract after the new policy was mailed to
the policy holder and the policy holder continued to make premium
payments), overruled on other grounds by Hamm v. Allied Mut. Ins., 612
N.W.2d 775 (Iowa 2000). Billing statements sent to NRMC, while they did 15
not contain the full contract terms, made reference to an agreement
number that NRMC could have investigated. And, any reasonable
business would have investigated in such a scenario before making the
number of payments that NRMC made. Therefore, even if NRMC did not
have actual knowledge of the specific hell or high water provision, NRMC
accepted the contract terms through its ratification.
IV. Conclusion.
For these reasons, we vacate the decision of the court of appeals,
and affirm the ruling of the district court granting summary judgment to
GreatAmerica.
DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT
JUDGMENT AFFIRMED.