Steven A. Gaede And Ruth A. Gaede Vs. Leslie D. Stansberry And Margery J. Stansberry

• Court: Supreme Court of Iowa
• Decided: February 26, 2010
• Docket: 06–1633
• Status: Published

Opinion

IN THE SUPREME COURT OF IOWA No. 06–1633

Filed February 26, 2010

STEVEN A. GAEDE and RUTH A. GAEDE,

Appellees,

vs.

LESLIE D. STANSBERRY and MARGERY J. STANSBERRY,

Appellants.

On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Clayton County, Lawrence H.

Fautsch, Judge.

Defendants seek further review of court of appeals’ decision affirming

adverse judgment for breach of covenant of title. DECISION OF COURT OF

APPEALS VACATED IN PART. DISTRICT COURT JUDGMENT VACATED

AND CASE REMANDED.

Terry D. Parsons of Olsen & Parsons Law Firm, Cedar Falls, for

Larry J. Cohrt of L.J. Cohrt Law Firm, Waterloo, for appellees. 2

TERNUS, Chief Justice.

The appellants, Leslie Stansberry and Margery Stansberry, sold

property to the appellees, Steven Gaede and Ruth Gaede, that included a

portion of a city street known as North Street. After the Gaedes

unsuccessfully defended a quiet title action brought against them by the City

of Marquette, they sued the Stansberrys for breach of covenant of title. The

case was tried to the court, and a judgment was entered against the

Stansberrys for over $32,000, a sum that included an award of the Gaedes’

attorney fees incurred in defending the quiet title action.

The Stansberrys appealed, and the judgment was affirmed by the

court of appeals. We granted further review to consider whether the Gaedes

were required to give the Stansberrys notice of the quiet title action and an

opportunity to defend it as a precondition to recovery of their attorney fees in

defending that action. Because we conclude the Gaedes’ failure to give

notice precludes their recovery of attorney fees, we vacate that part of the

decision of the court of appeals affirming the attorney-fee award, vacate the

judgment of the district court, and remand for entry of a judgment in favor of

the Gaedes that does not include the cost of defending the quiet title action.

I. Scope of Review.

This case was tried as a law action, so our scope of review is for the

correction of errors of law. See Longfellow v. Sayler, 737 N.W.2d 148, 153

(Iowa 2007). Accordingly, the trial court’s findings of fact are binding on us

if supported by substantial evidence. See Miller v. Rohling, 720 N.W.2d 562,

567 (Iowa 2006).

II. Factual Background and Proceedings.

In 1998 the Gaedes purchased from the Stansberrys a parcel of land

located on the Mississippi River in Marquette, Iowa. The property is a

commercially zoned bare lot with remnants of a house foundation. The 3

Stansberrys informed the Gaedes that there had been a boat ramp on the

property in the past, and in fact, remnants of an asphalt ramp, overgrown

with weeds, were visible on the property. This ramp had been used for

public access to the river until sometime in the mid-1990s.

Prior to closing, the Stansberrys provided the Gaedes with an updated

abstract that was then reviewed by the Gaedes’ attorney. The Gaedes’

attorney issued a written title opinion that included standard language

telling the Gaedes the title opinion did not speak to defects in title that could

be disclosed by survey or by a physical inspection of the property. Although

the attorney did not mention the existence of a road on the parcel, the

abstract contained a plat map showing North Street extending to the bank of

the Mississippi River. The property was not surveyed. The Stansberrys

subsequently provided the Gaedes with a warranty deed that included the

following covenant of title:

Grantors do Hereby Covenant with grantees, and successors in interest, that grantors hold the real estate by title in fee simple; that they have good and lawful authority to sell and convey the real estate; that the real estate is Free and Clear of all Liens and Encumbrances except as may be above stated; and grantors Covenant to Warrant and Defend the real estate against the lawful claims of all persons except as may be above stated.

Approximately two years after the Gaedes purchased this land, the

City of Marquette filed a quiet title action against them and the property

owners to the north, claiming each property included half of an undeveloped

city street known as North Street. The city also sought redress for the

Gaedes’ construction of a retaining wall along the river that obstructed

public access to the river. The Gaedes did not tender the defense of this

action to the Stansberrys, but chose to hire their own attorney to defend

their title. Eventually, the Gaedes’ neighbors settled with the city, and the

city’s action against the Gaedes proceeded to trial. The district court quieted 4

title to the city in that portion of the south half of North Street contained

within the Gaedes’ property. The court also directed the Gaedes to remove

the retaining wall. This judgment was affirmed on appeal. City of Marquette

v. Gaede, 672 N.W.2d 829, 831 (Iowa 2003).

The Gaedes subsequently filed this action against the Stansberrys,

alleging breach of the covenant of title based on the fact that the Stansberrys

did not own the entire property conveyed to the Gaedes. The Gaedes sought

damages caused by the alleged breach, including the costs of defending

against the city’s claim. The case was tried to the court, and judgment was

rendered against the Stansberrys for the full amount of damages sought by

the Gaedes. These damages included $12,000 in decreased property value

as a result of the city’s ownership of a portion of the conveyed property,

$1540.79 to remove the improvements made on the city’s land, and

$23,762.93 incurred in defending the quiet title action. These damages were

reduced by $5000 paid by the attorney who had reviewed the abstract for the

Gaedes.

The Stansberrys appealed on several grounds, and as noted above, the

judgment was affirmed by the court of appeals. We granted further review to

consider the Stansberrys’ contention that the Gaedes’ failure to give the

Stanberrys notice of the quiet title action and an opportunity to defend

precluded the Gaedes’ recovery of their costs of defending that action. 1

III. Discussion.

This court has long allowed the recovery of attorney fees incurred in

defending title as an element of damages for breach of the covenant of title.

1The Stansberrys frame their argument in a theory of equitable estoppel. They also rely on authorities recognizing a common-law requirement of notice and opportunity to defend. We choose to address this issue as a matter of common law, and therefore, do not discuss whether the Gaedes are equitably estopped from recovering their expenses in defending title. 5

See Meservey v. Snell, 94 Iowa 222, 227, 62 N.W. 767, 769 (1895). In

Meservey, we observed:

The practice of allowing such fees is not uniform, but the weight of authority seems to be in favor of allowing them if necessary and reasonable, especially if the warrantor has been notified of the litigation, and given an opportunity to protect his warranty.

Id. We did not determine in Meservey whether notice to the warrantor and

an opportunity for the warrantor to defend title was required as a

prerequisite to the recovery of attorney fees. Many years later, the question

of whether notice was required arose under analogous circumstances in

Turner v. Zip Motors, Inc., 245 Iowa 1091, 65 N.W.2d 427 (1954). 2 We

concluded in that case, however, that the issue had not been raised in the

trial court, and so we did not address it. Turner, 245 Iowa at 1101, 65

N.W.2d at 433.

Based on these cases, the parties and the court of appeals proceeded

on the assumption that this court had not had the occasion to determine

whether notice and an opportunity to defend a challenge to title is required

before the costs of defending title may be recovered for breach of a warranty

or covenant of title. This supposition is not exactly accurate. Our holding in

an early case, Yokum v. Thomas, 15 Iowa 67 (1863), appears to be clear

authority that such notice is required.

In Yokum, the defendant had deeded property to the plaintiff and had

“covenanted that he [was] lawfully seised; that he [had] a good right to

2In Turner, the defendant’s employee sold the plaintiff’s automobile to a third party without the plaintiff’s knowledge or permission. 245 Iowa at 1094–95, 65 N.W.2d at 429. Thereafter, the plaintiff was required to defend a replevin action brought by the third party claiming ownership of the vehicle. Id. at 1095, 65 N.W.2d at 429. In the plaintiff’s suit against the defendant to recover the costs of defending against the replevin action, this court concluded the plaintiff could recover his attorney fees under the general principle that, “if through the tort of A, B is in good faith involved in litigation with C, . . . B may then recover the reasonable value of his expense for employment of counsel . . . from A.” Id. at 1098, 65 N.W.2d at 431. 6

convey; that the premises [were] free from incumbrances; and that he

[would] warrant and defend.” 15 Iowa at 67. Subsequently, a third party

claimed to own the property, so the plaintiff successfully pursued an action

against the third party to quiet title. Id. at 67–68. The plaintiff then sued

the defendant for breach of the covenants in the deed and obtained a

judgment that included the plaintiff’s attorney fees in the suit to establish

his title. Id. at 68. On the defendant’s appeal, this court held:

The covenants in the deed of defendant were broken, but the question then arises whether [the plaintiff] could remove such superior title by purchase, or file this bill in equity to have the same set aside, without first having called upon the warrantor to do so? We are inclined to answer this proposition negatively. There is no excuse offered for not giving the defendant the opportunity to protect himself against the costs incurred by the [plaintiff] in the proceeding against [the third party.]

Id. at 69 (emphasis added).

This conclusion appears to be in accord with the general rule under

common law that, “before a covenantee may recover the expenses attending

the defense of the title to the property, the covenantor must be given notice

of the proceeding in which the validity of the title is attacked and have failed

to or chosen not to defend.” Jeffrey J. Shampo, 20 Am. Jur. 2d Covenants,

Conditions, and Restrictions § 143, at 663–64 (2005). This requirement of

notice and an opportunity to defend is supported in case law from other

states. See Bridwell v. Gruner, 209 S.W.2d 441, 442 (Ark. 1948); Culbreth v.

Britt Corp., 56 S.E.2d 15, 19–20 (N.C. 1949); Lasswell v. Prairie Oil & Gas

Co., 47 P.2d 598, 601–02 (Okla. 1935); Black v. Patel, 594 S.E.2d 162, 165–

66 (S.C. 2004); Mellor v. Chamberlin, 673 P.2d 610, 613 (Wash. 1983); accord

Robert A. Reichard, Inc. v. Ezl. Dunwoody Co., 45 F. Supp. 153, 157 (E.D. Pa.

1942). 7

At least one court has observed that the requirement of notice and an

opportunity to defend is necessary in order to bind the covenantor to the

judgment rendered in the action contesting title. Culbreth, 56 S.E.2d at 19.

But in Mellor, the court noted a broader purpose behind the requirement; it

commented that when the covenantee retains “the driver’s seat” in the

litigation, he may “not assert all defenses or utilize all strategies to challenge

[the third-party] claim.” 673 P.2d at 613. This sentiment is consistent with

this court’s comments in Yokum that notice was required in order to give the

covenantor the opportunity to remove the cloud on title upon more favorable

terms than those accomplished by the covenantee. 15 Iowa at 69.

The Stansberrys echo this rationale in their argument in this case.

They contend it was unreasonable for the Gaedes to expend nearly $24,000

defending title to property that was worth half that sum. They assert that

had they known the Gaedes would hold them accountable for the cost of

defending the quiet title action, “the Stansberrys could have proceeded to

provide a defense with counsel of their own choosing, thereby controlling the

costs as well as having input on the result, including the potential for a

favorable verdict or a reasonable settlement.” The Stansberrys note that the

Gaedes’ neighbors negotiated a settlement with the city that allowed them to

retain title to the roadway on their property with the city taking only an

easement for a walkway. In contrast, the Gaedes, they assert, did not seek a

middle ground, proceeded to trial, and now expect the Stansberrys to bear

the full cost of the Gaedes’ failed strategy.

We think the situation described in the present case illustrates the

wisdom of the common-law rule that requires one to give notice and an

opportunity to defend before one may recover attorney fees for breach of

covenant of title. Consistent with our decision in Yokum, we hold that a

buyer who must defend title to property may not recover the expenses of that 8

defense from the seller of the property unless the buyer has given the seller

notice of the challenge to title and an opportunity to defend title. Such

notice was not given here. For that reason, the district court erred in

awarding the Gaedes the costs they incurred in defending the city’s quiet

title action.

IV. Disposition.

We vacate that portion of the court of appeals’ decision that affirmed

the trial court’s award of the Gaedes’ legal fees and expenses in the

underlying quiet title action. We also vacate the judgment of the district

court and remand this case for entry of judgment in favor of the Gaedes in

the sum of $13,540.79 plus interest and court costs.

DECISION OF COURT OF APPEALS VACATED IN PART. DISTRICT

COURT JUDGMENT VACATED AND CASE REMANDED.

All justices concur except Baker, J., who takes no part.