In the Iowa Supreme Court
No. 22–1941
Submitted November 12, 2025—Filed February 20, 2026
Northwest Bank & Trust Company,
Appellant,
vs.
Pershing Hill Lofts, LLC, John M. Carroll, and John G. Ruhl,
Appellees.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Scott County, Tom Reidel
(summary judgment) and Meghan Corbin (trial), judges.
The defendants seek further review of a court of appeals decision that
reversed the district court’s grant of summary judgment on a breach of contract
claim and reversed a jury verdict on a fraud claim after finding evidence had
been erroneously excluded. Decision of the Court of Appeals Vacated; District
Court Judgment Affirmed.
McDermott, J., delivered the opinion of the court, in which all participating
justices joined. Waterman, J., took no part in the consideration or decision of
the case.
David T. Bower (argued) and Dana W. Hempy of Nyemaster Goode, P.C.,
Des Moines, and Candy K. Pastrnak of Pastrnak Law Firm, P.C., Davenport, for
appellant.
Ian J. Russell (argued) of Lane & Waterman LLP, Davenport, for appellees.
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McDermott, Justice.
A bank and a developer signed a conditional financing proposal. The
proposal included an exclusivity clause requiring the developer to work solely
with the bank in exchange for the bank’s due diligence efforts. When one of the
proposal’s conditions failed to materialize, the bank proposed either to “kill the
deal” or to proceed under different terms. The developer instead sought financing
from other lenders without notifying the bank, prompting the bank to sue for
breach of contract and fraud.
The district court granted summary judgment in the developer’s favor on
the breach of contract claim, concluding that the proposal was an unenforceable
agreement to agree or, alternatively, that it had terminated when the condition
failed. The court also excluded the proposal from the trial on the fraud claim.
The jury found for the developer. The bank appealed, and the court of appeals
reversed. We granted further review.
I.
In 2012, Pershing Hill Lofts, LLC, purchased a building in Davenport for
redevelopment. Although Quad Cities Bank initially loaned funds for the
purchase, in 2013, Pershing Hill refinanced the loan with Northwest Bank &
Trust Company. Pershing Hill’s managers, John Carroll and John Ruhl, later
began discussions with Northwest about a construction loan. On August 31,
2015, Pershing Hill and Northwest signed a document titled “Proposed Financing
for Pershing Hill Lofts, LLC Summary of Principal Terms.”
The financing proposal stated that it was a “summary of terms that may
lead to a commitment to lend, subject to satisfactory completion of due diligence,
and a subsequent Commitment Letter.” The “proposed transaction” included
“the sale of certain federal and state tax credits relating to the Project to one or
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more third party investors,” with a $5 million bridge loan to be repaid from “the
sale or realization” of the tax credits.
The financing proposal included a section titled “Due Diligence” that listed
twenty items Northwest “will need as part of necessary due diligence, and as a
condition to making the Interim Loans available.” The list included state and
federal tax credit awards, and it specifically included “Grayfield Tax Credit award
documentation.”
The final paragraph of the financing proposal includes an exclusivity
clause in favor of Northwest as lender on the project. The paragraph stated in
full:
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 Lender
of Borrower’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 bears signatures by Northwest’s president, and by Carroll and
Ruhl for Pershing Hill.
In October 2015, Pershing Hill learned that, through no fault of its own, it
had not been awarded the Grayfield tax credits, resulting in an $800,000 funding
gap. On December 11, Northwest’s president sent an email to Pershing Hill
stating in relevant part:
Without the Grayfield[] credits, [our participant bank] wants
$800,000 more in equity. I have devised a plan to alter the current
structure so as not to require this equity up front, but it costs
Northwest Bank significant dollars. Moreover, it encompasses
substantially more work for me. Even assuming we can resolve the
first three issues [discussed earlier in the email], this issue alone
presents three options[:] (i) kill the deal, (ii) raise $160,000 cash per
partner or (iii) implement my solution at a cost of about $75,000. I
know that is a lot of money, but if I am paid 1/3 at closing, I will
defer the other 2/3 until construction is completed.
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Would you like to meet? I think we can fix these things, but it
will take my time and partnership money. Either way, it is now
obvious there is no way we will close this year. Please let me know.
Soon after, on December 15, Pershing Hill began looking for an alternative
lender to finance the project. But Pershing Hill also continued to communicate
with Northwest. Northwest claims that between December and April, Pershing
Hill made statements that led Northwest to believe it would still be the lender on
the project. In late April or early May 2016, Pershing Hill secured financing with
a different bank and informed Northwest.
Northwest filed a lawsuit against Pershing Hill for breach of contract and
Carroll and Ruhl for negligent misrepresentation and fraud. The district court
granted Pershing Hill’s motion for summary judgment on the contract claim,
holding that the financing proposal was an unenforceable agreement to agree
and that the failure to obtain tax credits was a failed condition precedent that
discharged Pershing Hill’s exclusivity duty. The district court also granted
summary judgment in Carroll and Ruhl’s favor on the negligent
misrepresentation claims, but it denied summary judgment on the fraud claims.
Before the trial on the fraud claims, the district court granted a motion in
limine excluding the financing proposal. The district court concluded that in light
of its summary judgment ruling, the financing proposal’s probative value was
outweighed by the danger that the jury would confuse it for a binding contract
when considering the fraud claims. The jury ultimately entered a verdict in
Carroll and Ruhl’s favor.
Northwest appealed. We transferred the case to the court of appeals.
Northwest argued that the district court erred in granting summary judgment
on the breach of contract claim and that it abused its discretion by excluding
the financing agreement (and any reference to it) in the fraud trial. The court of
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appeals reversed, holding that the exclusivity clause was enforceable and not
subject to a condition precedent. Given this conclusion, the court of appeals
further held that the district court erred in excluding the financing proposal in
the fraud trial. Pershing Hill sought further review, which we granted.
II.
A. Northwest’s Claim for Breach of the Exclusivity Clause. Iowa law
has long recognized that “an agreement to agree is not a contract.” Whalen v.
Connelly, 545 N.W.2d 284, 293 (Iowa 1996). For a contract to be enforceable, its
terms must be sufficiently definite. Air Host Cedar Rapids, Inc. v. Cedar Rapids
Airport Comm’n, 464 N.W.2d 450, 453 (Iowa 1990) (en banc). Northwest concedes
that the lending terms in the financing proposal were nonbinding and
unenforceable. But it argues that the exclusivity provision contained in the final
paragraph was a stand-alone, severable contract that bound Pershing Hill to deal
exclusively with the bank, regardless of the nonbinding nature of the rest of the
proposal. Valid portions of an otherwise unenforceable agreement “can be
enforced as long as they can be separated” from the invalid parts. Miller v.
Marshall County, 641 N.W.2d 742, 751–52 (Iowa 2002).
In Northwest’s view, the terms of the exclusivity clause were clear: while
the bank reviewed information about whether to lend, Pershing Hill agreed to
stay exclusive. On this view, the consideration for the contract is the process of
due diligence, not the agreement to make an actual loan. Northwest further
argues that the district court misread the financing proposal when it found the
Grayfield tax credits constituted a condition precedent to performance.
Northwest points to the language of the proposal stating that the “Grayfield Tax
Credit award documentation” was a condition “to making the Interim Loans
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available,” not a condition on the separate promise of exclusivity, which was
already in effect upon signing the proposal.
Pershing Hill counters that the entire financing proposal, by its own terms,
was a “summary of terms that may lead to a commitment.” (Emphasis added.)
This, it asserts, makes the entire document a single, unenforceable agreement
to agree. It argues that the exclusivity clause cannot be severed and, standing
alone, is too indefinite to be enforced, particularly since it lacks any limit on its
duration.
A contract need not be enforceable in its entirety for a provision within it
to have independent force. In Air Host Cedar Rapids, Inc. v. Cedar Rapids Airport
Commission, we held that a “first right to lease” was an unenforceable agreement
to agree because the contract required that “terms and conditions . . . shall be
as mutually agreed.” 464 N.W.2d 450, 453 (Iowa 1990). But in Air Host we also
enforced a separate provision in the same agreement for expense reimbursement,
thus holding that one unenforceable clause in a document does not
automatically invalidate all others. Id. at 452.
In this case, we similarly conclude that the exclusivity clause existed
separate from the other unenforceable terms in the financing proposal. Contract
terms must be definite enough 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). The exclusivity clause here contained a clear, definable
duty (exclusivity by Pershing Hill) and consideration (due diligence work by
Northwest). The lack of a specified durational limit for the exclusivity duty does
not present an insurmountable hurdle to its enforceability. We may find a
durational term not expressly stated in a contract where the contract’s nature
and circumstances imply one. Shelby Cnty. Cookers, L.L.C. v. Util. Consultants
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Int’l, Inc., 857 N.W.2d 186, 191–92 (Iowa 2014); see also 2 Restatement (Second)
of Conts. § 204, at 96–97 (A.L.I. 1981) [hereinafter Restatement (Second)]. If we
cannot find a duration implied in the contract, we will generally construe an
agreement as terminable at will. Shelby Cnty. Cookers, 857 N.W.2d at 191. In
either case, an enforceable contract may still exist notwithstanding the absence
of an express duration.
But this does not end the analysis. Even if the exclusivity clause is
independently enforceable, a performance obligation related to it may be
discharged by the nonoccurrence of a condition. A “condition” in this sense refers
to an event that is not certain to occur but that must occur (or be excused) before
performance under a contract is required. 2 Restatement (Second) § 224, at 160;
see also Khabbaz v. Swartz, 319 N.W.2d 279, 283 (Iowa 1982) (citing 3A Arthur
Linton Corbin, Corbin on Contracts: A Comprehensive Treatise on the Working
Rules of Contract Law § 628, at 16 (1960)) (describing a condition as a fact or
event “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” (quoting Mosebach v. Blythe, 282 N.W.2d 755, 759 (Iowa Ct. App.
1979))). The financing proposal described the “Grayfield Tax Credit award
documentation” as a “condition to making the Interim Loans available.”
On December 11, 2015, Northwest’s president sent an email addressing
the $800,000 hole left by the failure to receive these tax credits. Northwest
presented the options as either to “kill the deal” or to require additional funds
from Pershing Hill’s partners. With this email, the loan terms in the financing
proposal that anchored the exclusivity provision were off the table. Northwest
could have excused the failure to receive the tax credits, see 2 Restatement
(Second) § 225(2) cmt. b, at 166, but as the email makes clear, it did not. The
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revised loan terms proposed in the email—requiring additional injections of
funds from Pershing Hill’s partners—were outside the scope of the financing
proposal. Northwest’s president conceded that the new requirements were
significant, acknowledging in the email, “I know that is a lot of money.” At this
point, the bank’s due diligence for the original financing proposal concluded, as
did Pershing Hill’s reciprocal duty to remain exclusive to the bank for that
specific financing structure. See id. § 225(2), at 165.
We reject the argument that Pershing Hill somehow remained bound to
exclusive negotiations for a proposed deal that the bank itself declared either
dead or requiring modification because of the failure to receive the Grayfield tax
credits. Since Pershing Hill did not seek alternative financing until after the
credits had been denied and Northwest had abandoned the proposed loan terms,
it did not breach any exclusivity duty while the clause remained in effect. Its
duty of exclusivity by that point had been discharged.
Pershing Hill’s duty of exclusivity was not unlimited; it was inextricably
linked to the specific loan structure in the financing proposal, which in turn was
tied to receiving the tax credits. When the failure to receive the tax credits
brought an end to those proposed terms, any continuing duty of exclusivity on
the part of Pershing Hill likewise came to an end. As a matter of law, there was
no breach. We thus affirm the district court’s grant of summary judgment on
Northwest’s breach of contract claim.
B. Exclusion of the Financing Proposal at Trial. Northwest argues that
the district court abused its discretion by excluding the financing proposal (and
any reference to it) from the trial on the fraud claims. The district court’s
exclusion relied heavily on its summary judgment holding. The court of appeals
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concluded the opposite and, as a result, held that the proposal should have been
admitted.
Iowa Rule of Evidence 5.403 allows courts to exclude relevant evidence if
its probative value is “substantially outweighed by a danger of . . . unfair
prejudice, confusing the issues, [or] misleading the jury.” The district court
reasoned that if Northwest could introduce evidence of the exclusivity clause, “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.”
We review rulings under rule 5.403 for abuse of discretion. State v.
Canady, 4 N.W.3d 661, 668–69 (Iowa 2024). Under an abuse of discretion
standard, we will reverse only if the ruling was “clearly untenable or
unreasonable.” State v. Tucker, 982 N.W.2d 645, 657 (Iowa 2022). “Weighing
probative value against prejudicial effect ‘is not an exact science,’ so ‘we give a
great deal of leeway to the trial judge who must make this judgment call.’ ” State
v. Lacey, 968 N.W.2d 792, 807 (Iowa 2021) (quoting State v. Thompson, 954
N.W.2d 402, 408 (Iowa 2021)).
The jury instructions required Northwest to prove that Ruhl or Carroll
made the alleged fraudulent misrepresentations “between December 11, 2015
through April of 2016.” The fraud claim thus centered on whether the defendants
misrepresented their negotiations with other lenders after the exclusivity
agreement had terminated.
We find nothing clearly unreasonable or untenable in the district court’s
conclusion that admitting the financing proposal might cause the jury to conflate
the defunct contractual exclusivity duty with the fraud claims. Stated differently,
the jury might have concluded that the defendants committed fraud simply
because they violated the financing proposal’s written terms. As such, admitting
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the proposal risked allowing the bank in effect to relitigate the dismissed breach
of contract claim under the guise of a fraud claim.
What’s more, the exclusion did not prevent Northwest from presenting its
case. The bank was permitted to—and did—present extensive testimony
regarding the parties’ course of dealing and the bank’s subjective belief that it
remained the exclusive lender. Northwest was able to present the core of its
justifiable reliance argument through other means (particularly through the
bank president’s testimony). The district court could have reasonably concluded
that exclusion of the inoperative financing proposal was necessary to prevent
unfair prejudice without infringing on the bank’s right to present its case.
In short, the district court did not abuse its discretion in weighing the
document’s probative value against the risk of unfair prejudice, particularly
considering the relevant timeframe for the fraud claim. We thus affirm the
district court’s evidentiary ruling.
III.
For these reasons, we vacate the decision of the court of appeals and affirm
the judgment of the district court.
Decision of the Court of Appeals Vacated; District Court Judgment
Affirmed.
All justices concur except Waterman, J., who takes no part.