Northwest Bank & Trust Company v. Pershing Hill Lofts, LLC, John M. Carroll, and John G. Ruhl

IN THE COURT OF APPEALS OF IOWA

No. 22-1941
Filed December 4, 2024

NORTHWEST BANK & TRUST COMPANY,
Plaintiff-Appellant,

vs.

PERSHING HILL LOFTS, LLC, JOHN M. CARROLL, and JOHN G. RUHL,
Defendants-Appellees.
________________________________________________________________

Appeal from the Iowa District Court for Scott County, Tom Reidel (summary

judgment) and Meghan Corbin (trial), Judges.

A plaintiff appeals the district court’s grant of summary judgment on its

breach-of-contract claim and the court’s denial of its motion for a new trial after an

adverse jury verdict on its fraudulent-misrepresentation claims. REVERSED AND

REMANDED.

David T. Bower of Nyemaster Goode, P.C., Des Moines, and Candy K.

Pastrnak of Pastrnak Law Firm, P.C., Davenport, for appellant.

Ian J. Russell of Lane & Waterman LLP, Davenport, for appellees.

Heard by Bower, C.J., and Schumacher and Langholz, JJ., but decided by

Schumacher, P.J., Langholz, J., and Bower, S.J.*

*Senior judge assigned by order pursuant to Iowa Code section 602.9206

(2024).
2

LANGHOLZ, Judge.

Does a simple—one might even say bare bones—agreement to seek

financing exclusively from one lender in return for the lender expending resources

on due diligence on the loan become unenforceable just because it is included in

a longer document that describes tentative financing terms that everyone agrees

cannot be enforced? The district court said yes—holding that the exclusivity

clause is unenforceable as part of a single invalid agreement to agree. And so,

the court granted summary judgment and dismissed Northwest Bank & Trust

Company’s breach-of-contract claim against Pershing Hill Lofts, LLC and two of its

managing members.

But the exclusivity clause is not an agreement to agree. And its obligations

do not become unenforceable merely because other clauses in the document are.

Neither does the exclusivity clause have any condition precedent. Nor is it too

indefinite to be enforced. We thus reverse the district court’s grant of summary

judgment and remand for further proceedings on Northwest Bank’s breach-of-

contract claim.

We also agree that Northwest Bank is entitled to a new jury trial on its

related fraudulent-misrepresentation claims. The district court excluded the signed

financing proposal and any reference to it or the exclusivity clause—mainly due to

potential prejudice because the court had held it was an invalid contract. With that

basis for the exclusion eroded, and the breach-of-contract claim revived,

Northwest Bank should have the chance to get a verdict on all its claims with this

highly relevant evidence. So we reverse and remand on the fraudulent-

misrepresentation claim as well.
3

I. Background Facts and Proceedings

In early 2012, Pershing Hill bought a building in Davenport with the goal of

renovating the building into apartments. Northwest Bank first became formally

involved in the property about a year later when it provided refinancing for Pershing

Hill’s acquisition loan. In the summer of 2014, Pershing Hill began discussions

with Northwest Bank about obtaining additional financing for the renovation. And

about a year later, they both signed a five-page document titled “Proposed

Financing for Pershing Hill Lofts, LLC, Summary of Principal Terms.”

Most of the document summarizes substantive terms of the proposed

transaction. Among those terms are that Pershing Hill will obtain and sell various

state and federal tax credits, including a grayfield tax credit, as a part of the

financing for the renovation. See Iowa Code §§ 15.291–.295, 422.11V (2015)

(providing a redevelopment income tax credit for grayfield sites and other

properties). Under a “Due Diligence” heading, the document also sets out twenty

items that Northwest Bank “will need as part of necessary due diligence, and as a

condition to making” its financing available. One of those due-diligence items is

“Grayfield Tax Credit award documentation.” And under a heading “Expenses,”

the document provides that “[n]otwithstanding whether [Northwest Bank] funds the

loans described herein,” Pershing Hill must reimburse Northwest Bank “for all

reasonable out-of-pocket due diligence, legal and documentation expenses

incurred in connection with the transaction.”

The document concludes with a final unlabeled paragraph—key to this

case—that we, like the parties, will refer to as the exclusivity clause:
4

This is a summary of terms that may lead to a commitment to lend,
subject to satisfactory completion of due diligence, and a subsequent
Commitment Letter. Acceptance below assures [Northwest Bank] of
[Pershing Hill’s] exclusive consideration as “Lender” in exchange for
the expense in time and travel of the proposed due diligence. This
Summary of Principal Terms will expire if not signed by September
4, 2015.

The document is dated August 31, 2015, and signed first by Northwest Bank’s

president and CEO as the author of the proposal.1 And under a heading

“Accepted,” it was signed on behalf of Pershing Hill by its two managing members.

About two months after Pershing Hill accepted the financing proposal, it

suffered a setback—learning that it again did not receive a grayfield tax credit in

that fall award cycle. But Pershing Hill informed Northwest Bank that its lobbyist

was “confident from his contacts” with the awarding state officials that it would

“receive our award next cycle, in March/April.”

Over the next several months, the parties continued to work toward

finalizing the financing and closing the deal. The managing members of Pershing

Hill made various statements to Northwest Bank that led it to believe that it was

still the exclusive lender on the project. But Pershing Hill was actually contacting

other potential lenders about financing.2 In late April or early May 2016, Pershing

Hill agreed to financing terms with another bank. And in May, Pershing Hill

informed Northwest Bank that it would be going with another lender to finance the

renovation project.

1 His signature appears as if signing a letter, after the valediction: “Thank you for

the opportunity to be of service to you. Sincerely, . . . .”
2 Indeed, one of the managing members wrote during this time he wanted to

explore other lenders “so we can shitcan [Northwest Bank] if possible.”
5

So Northwest Bank sued Pershing Hill and its two managing members.

Northwest Bank claimed that Pershing Hill breached the exclusivity clause. And it

sought to recover its damages caused by this breach. Northwest Bank also

claimed that both managing members made fraudulent misrepresentations that

Northwest Bank was still the exclusive lender at the same time that Pershing Hill

was actually looking for a new lender.3

Pershing Hill moved for summary judgment on the breach-of-contract claim,

arguing that the entire accepted financing proposal—including the exclusivity

clause—was an unenforceable agreement to agree. The district court agreed with

Pershing Hill and granted summary judgment, dismissing the breach-of-contract

claim in September 2018. The court held that all the terms except for the

exclusivity clause “fail for a lack of present intent to be bound.” And so, it held that

the exclusivity clause “must also fail” because if “every other term in the Financing

Proposal fails, the Exclusivity Clause is merely an agreement to negotiate further

terms in good faith,” and “agreements to negotiate in good faith toward an ultimate

agreement are not enforceable.” Alternatively, the court held that even if the

financing proposal was an enforceable contract, Pershing Hill was required to

obtain the grayfield tax credit as “a condition precedent of the other terms.” And

when Pershing Hill failed to do so and Northwest Bank did not waive that non-

occurrence, the contract was no longer enforceable. Northwest Bank did not seek

interlocutory review of the summary-judgment ruling.

3 Northwest Bank also brought claims of negligent misrepresentation against the

managing members. But the district court granted summary judgment on those
claims, and that ruling has not been appealed.
6

Northwest Bank’s remaining fraudulent-misrepresentation claims were tried

to a jury in July 2022. At the start of trial, the district court granted Pershing Hill’s

motion in limine, excluding the financing-proposal document and any reference to

that document in any other exhibit or testimony. The court reasoned that the

summary-judgment ruling “is a ruling that I have to follow in this case, and while I

understand that this agreement is the foundation of your case, the Court is saying

that that agreement was out the window.” And the court concluded that if

Northwest Bank could bring in the agreement “which the Court has already ruled

is not a contract, it is going to prejudice the jury, because the jury is going to think

that this was an active agreement and the Court has already ruled it was not.” So

the court explained that while it was permissible for Northwest Bank to present

evidence of the parties’ states of mind about whether Northwest Bank was the

exclusive lender on the project, Northwest Bank could not “present to the jury the

idea that there was a contract that bound the defendants to that state of mind” or

“reference any signed agreement.”

Because Northwest Bank viewed this ruling as going to “the heart of [its]

misrepresentation case”—including whether it was “justified in relying on the

representation” and whether the representation “was material”—Northwest Bank

asked for a continuance so that it could seek interlocutory review of the ruling.4

4 Northwest Bank even expressed an openness to a continuance so the court could

consider whether to grant summary judgment on its misrepresentation claims
without the excluded evidence as an “efficient way to preserve the error on all of
the matters and then take it up on appeal.” The court declined to do so, reasoning
that “it sounds like you have other evidence which potentially could create a
genuine issue of material fact” and that it did not want to “get into a three-hour
hearing today, ultimately rule that we have enough to proceed to trial, and now I
don’t have a jury picked” and “a four-day trial has now turned into a six-day trial.”
7

The district court declined to grant a continuance, explaining its view that it “didn’t

make any different ruling” than the summary-judgment ruling “almost four years

ago” and it had “a room full of people who are here today for the trial.” After five

days of trial, the jury returned a verdict finding that Northwest Bank failed to prove

its fraudulent-misrepresentation claims.

Northwest Bank moved for a new trial arguing, as relevant here, that the

court erred by excluding any reference to the parties’ exclusivity agreement in the

accepted financing proposal. The court denied the motion, mainly reasoning that

permitting the evidence would have “been in direct contradiction to” the summary-

judgment ruling, which Northwest Bank did not seek to reverse through an

application for interlocutory appeal. The court also held that the evidence “would

have been more prejudicial than probative.” Northwest Bank now appeals.

II. Grant of Summary Judgment on Breach-of-Contract Claim

Northwest Bank first challenges the district court’s dismissal of its breach-

of-contract claim on summary judgment. It argues that the district court erred in

holding that the exclusivity clause on which the claim is based is an unenforceable

agreement to agree. And it argues that the court’s alternative holding is also error

because the exclusivity clause did not have a condition precedent. We agree on

both points.

“[A]n agreement to agree is not a contract.” Whalen v. Connelly, 545

N.W.2d 284, 293 (Iowa 1996). This is because “understandable or ascertainable

terms are necessary ingredients for an enforceable contract.” Air Host Cedar

Rapids, Inc. v. Cedar Rapids Airport Comm’n, 464 N.W.2d 450, 453 (Iowa 1990).

So if parties agree to a term that “is subject to future negotiations and agreement
8

by both parties”—a “basis to be settled in the future”—the term is unenforceable.

Id. And thus, our supreme court has held that a provision in an airport lease

agreement granting “the first right to lease space in the new Terminal” but providing

“the terms and conditions of such lease and license shall be as mutually agreed”

was unenforceable as a matter of law. See id.

But when an unenforceable agreement-to-agree term is part of an otherwise

valid contract, other terms in the contract may still be enforced. See id. at 452. So

in that same airport-lease-agreement case, the supreme court affirmed an award

of damages for breach of another provision in the agreement promising to pay the

lessee up to $20,000 of its expenses planning for space in the new terminal if it did

“not obtain leased premises in [the] New Airport Terminal, or is otherwise not

allowed to provide services in [the] New Airport Terminal.” Id. Indeed, it has long

been recognized that “[g]enerally, when a portion of an agreement is deemed

invalid, the remaining portions of the agreement can be enforced as long as they

can be separated from the illegality.” Miller v. Marshall Cnty., 641 N.W.2d 742,

751–52 (Iowa 2002); see also Casady v. Woodbury Cnty., 13 Iowa 113, 117 (1862)

(“[I]f one gives a good and valid consideration, and thereupon another promises to

do two things, one legal and the other illegal, he shall be held to do that which is

legal, unless the two are so mingled and bound together that they cannot be

separated, in which case the whole promise is void . . . .” (cleaned up)).

With these legal principles in mind, we review the district court’s grant of

summary judgment for corrections of errors of law. See Boelman v. Grinnell Mut.

Reinsurance Co., 826 N.W.2d 494, 500 (Iowa 2013). Interpreting a written contract

is typically a legal question. See id. “[W]e examine the record in the light most
9

favorable to” Northwest Bank as “the nonmoving party.” Id. at 501. And if we

encounter a material factual dispute, then summary judgment should not have

been granted. See id.

Here the parties agree that the proposed financing terms that make up the

first four pages of the accepted financing proposal are not enforceable. And

Northwest Bank does not seek to force Pershing Hill to obtain financing from it.

Rather, Northwest Bank only seeks to enforce the exclusivity clause in which the

parties agreed that Northwest Bank would have Pershing Hill’s “exclusive

consideration as ‘Lender’ in exchange for the expense in time and travel of the

proposed due diligence.”

This exclusivity clause is not an agreement to agree. It does not bind

Pershing Hill to ultimately obtain financing from Northwest Bank. It prohibits

Pershing Hill from seeking financing from other lenders while the parties are

engaged in due diligence. Such an obligation is not “subject to future negotiations

and agreement by both parties” or need to be fleshed out on a “basis to be settled

in the future.” Air Host Cedar Rapids, 464 N.W.2d at 453. It is enforceable.5

And the exclusivity clause does not become unenforceable merely because

it is included with other proposed financing terms that are not enforceable. The

exclusivity clause is distinct from—not intertwined with—the financing terms and is

thus separately enforceable. See Miller, 641 N.W.2d at 751–52; Air Host Cedar

Rapids, 464 N.W.2d at 452. Indeed, there is no real question whether the

exclusivity clause is wrapped up in other obligations because the financing terms

5 The issue of what damages are available from this enforcement is not before us

in this appeal.
10

do not even purport to create enforceable obligations. The proposal’s text clarifies

those pages of text are merely a “summary of terms that may lead to a commitment

to lend” and that any commitment would be “subject to satisfactory completion of

due diligence, and a subsequent Commitment Letter.” (Emphasis added.) So

rather than enforcing only part of an otherwise invalid agreement, it may be more

accurate to say we are enforcing the main provision of an entirely valid, albeit

limited, agreement.6

Pershing Hill argues that the exclusivity clause alone does not have

sufficiently definite terms to be enforceable. But a contract need not be lengthy or

complex to be valid. We need only to understand “the duty of each party and the

conditions of performance.” Royal Indem. Co. v. Factory Mut. Ins., 786 N.W.2d

839, 846 (Iowa 2010). And the exclusivity clause gives us that understanding.

Pershing Hill promised to give Northwest Bank its “exclusive consideration as

‘Lender.’” And “in exchange,” Northwest Bank would spend its “time and travel”

engaged in “the proposed due diligence.” This promise to spend its resources on

due diligence also provides the consideration for the contract. And the parties’

mutual assent to these terms is shown by the signatures agreeing to these terms.

6 Courts in other jurisdictions have also enforced limited provisions in letters of

intent or term sheets that make binding promises even where the rest of the
document is an unenforceable agreement to agree. See, e.g., Logan v. D.W.
Sivers Co., 169 P.3d 1255, 1258 (Or. 2007) (enforcing three provisions, including
a non-solicitation provision, much like the exclusivity clause); Weigel Broadcasting
Co. v. TV-49, Inc., 466 F. Supp. 2d 1011, 1017–19 (N.D. Ill. 2006) (applying Illinois
law to enforce exclusivity provision while finding rest of the letter-of-intent was not
a binding purchase agreement); Clark v. Nepveu, No. 2005-0923, 2007 WL
9619427, at *1 (N.H. Feb. 16, 2007) (“While the letter of intent could not have
created an enforceable purchase and sale agreement, the ‘standstill’ provision was
sufficiently definite and certain as to create a more limited agreement to negotiate
exclusively with one another over the potential transaction.”).
11

Pershing Hill correctly notes that the exclusivity clause contains no

durational period for its obligations. But that omission does not make a contract

too indefinite to enforce. When a contract lacks an express duration, a court will

imply one “from the nature and circumstances of the contract,” if possible. Shelby

Cnty. Cookers, L.L.C. v. Util. Consultants Int’l, Inc., 857 N.W.2d 186, 191 (Iowa

2014). And if no “implied term can be found, the court will generally construe the

contract as terminable at will.” Id. (cleaned up). We need not resolve whether this

contract has an implied duration or is terminable at will since neither party had

argued that the contract terminated by its implied terms or by one party giving

notice of an at-will termination before the alleged breach. The important point for

now is that the lack of an express durational term does not give us a basis to affirm

the district court’s holding that the exclusivity clause is unenforceable.

Nor can we affirm based on the district court’s alternative holding that the

exclusivity clause was made unenforceable by the nonoccurrence of a condition

precedent. See Khabbaz v. Swartz, 319 N.W.2d 279, 283 (Iowa 1982)

(“Conditions precedent are those facts and events, occurring subsequently to the

making of a valid contract, that must exist or occur before there is a right to

immediate performance, before there is a breach of contract duty, before the usual

judicial remedies are available.” (cleaned up)). The exclusivity clause does not

have a condition precedent. True, the due-diligence term of the financing proposal

states that Northwest Bank “will need” “Grayfield Tax Credit award documentation”

“as part of necessary due diligence, and as a condition to making” its financing

available. But by its plain text, this provision does not put any condition on

Pershing Hill’s promise to work exclusively with Northwest Bank in return for
12

Northwest Bank’s due-diligence efforts. It merely sets out what Pershing Hill would

be expected to provide for completion of due diligence and to obtain the financing.

Northwest Bank’s right to enforce the exclusivity clause is not conditioned on

receiving the grayfield tax credit award documentation from Pershing Hill.

What’s more, a contrary interpretation—in addition to flouting the text—

would not make sense. The exclusivity clause binds the parties to act during the

due-diligence phase—Pershing Hill to work exclusively with Northwest Bank as the

lender on the project and Northwest Bank to devote its time and internal resource

to the due diligence. If the twenty items, including the grayfield award

documentation, that Pershing Hill needed to provide to Northwest Bank as a part

of the due diligence were all conditions precedent to the clause, it could never have

any effect during the only time during which the clause’s terms could apply,

rendering it meaningless and negating its valuable commercial purpose. See

generally Feldman v. Allegheny Int’l, Inc. 850 F.2d 1217, 1221 (7th Cir. 1988)

(discussing the benefits to both parties of letters of intent in complex commercial

transactions).

Because the exclusivity clause is not an unenforceable agreement to agree

and is not subject to a condition precedent, we cannot say that Northwest Bank’s

breach-of-contract claim fails as a matter of law. And so, we reverse the district

court’s grant of summary judgment on Northwest Bank’s breach-of-contract claim

and remand for further proceedings.

III. Denial of New Trial on Fraudulent-Misrepresentation Verdict

Northwest Bank also argues that it is entitled to a new trial on its fraudulent-

misrepresentation claims because the district court excluded the signed financing
13

proposal and any reference to the exclusivity clause as a binding agreement.

While not expressly stating the rule of evidence under which it excluded this

evidence, it appears the court did so under rule 5.403. The court explained in

denying Northwest Bank’s motion for a new trial that admitting the evidence “would

have been more prejudicial than probative” and “in direct contradiction to the

[summary-judgment] ruling previously entered by the Court.” And it further

elaborated in its original ruling on Pershing Hill’s motion in limine that the prejudice

also rested on that summary-judgment ruling—reasoning that if Northwest Bank

could introduce evidence of the exclusivity clause “which the Court has already

ruled is not a contract, it is going to prejudice the jury, because the jury is going to

think that this was an active agreement and the Court has already ruled it was not.”

As relevant here, rule 5.403 lets a district court “exclude relevant evidence

if its probative value is substantially outweighed by a danger of . . . unfair prejudice,

confusing the issues, [or] misleading the jury.” Iowa R. Evid. 5.403. Because it

allows courts “to exclude relevant evidence,” they “should apply the rule sparingly.”

Williams v. Hedican, 561 N.W.2d 817, 832 (Iowa 1997). We review the exclusion

of evidence under rule 5.403 for abuse of discretion. See id. at 822, 832 (reversing

exclusion of expert testimony under, among other grounds, rule 5.403 as an abuse

of discretion). And we will reverse when the grounds for the court’s exclusion of

evidence are “clearly untenable or to an extent clearly unreasonable” and the error

affects a substantial right of the appealing party. Mohammed v. Otoadese, 738

N.W.2d 628, 632 (Iowa 2007) (cleaned up).

We need not decide whether excluding the evidence could have been

upheld even if the district court had been correct in its summary-judgment ruling
14

that the exclusivity clause is unenforceable. But see Lauer v. Banning, 118 N.W.

446, 449 (Iowa 1909) (reversing district court’s exclusion of an invalid contract

signed by the parties because the “contract, although invalid and illegal, should

have been admitted as bearing upon the truthfulness of plaintiff’s testimony and

upon her character”). Because we have reversed that summary-judgment ruling

that was the load-bearing wall supporting this evidentiary ruling, the evidentiary

ruling also cannot stand. Its reasoning is now untenable. The unfair prejudice or

confusion relied on by the district court cannot outweigh the probative value of the

evidence because the jury would not be mistaken in thinking the exclusivity clause

is a binding contract. And given the highly probative value of a written promise of

exclusivity by Pershing Hill to proving whether Northwest Bank justifiably relied on

the later alleged misrepresentations, excluding the evidence clearly affects

Northwest Bank’s substantial rights. See Spreitzer v. Hawkeye State Bank, 779

N.W.2d 726, 736 (Iowa 2009) (“Justifiable reliance is an essential element of a

claim for fraud.”); cf. Lauer, 118 N.W. at 449 (holding that exclusion of a contract

that had “bearing upon the issues in the case” was “manifestly prejudicial”). We

thus reverse the district court’s judgment on Northwest Bank’s fraudulent

misrepresentation claims and remand for a new trial.

REVERSED AND REMANDED.