Risse v. Thompson
471 N.W.2d 853 (1991)
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Rule of Law:
A seller in a real estate contract is only required to provide marketable title on the date designated for closing, not at the time of contract execution. Furthermore, if a seller elects the remedy of forfeiture upon a buyer's default, the contract is terminated, and the seller is barred from seeking any other damages arising from the contract.
Facts:
- In 1973, Keith Thompson purchased a home on lot 23.
- In 1973-1974, Woods Construction added a bedroom and driveway to the home which extended onto adjoining lots 22 and 24, which Woods owned. Woods orally agreed to sell the necessary portions of these lots to Thompson.
- In January 1984, Keith and Janene Thompson (defendants) entered into an installment contract to sell the home to James and Kathryn Risse (plaintiffs), with all parties understanding the sale included the portions of lots 22 and 24.
- After the lender called the Thompsons' loan due in June 1984, the Thompsons paid Woods on July 3, 1984, for the portions of lots 22 and 24, securing the ability to convey legal title.
- By the scheduled closing date of December 31, 1984, all title defects had been corrected and the Thompsons were able to provide marketable title.
- The closing failed due to a dispute between the parties over responsibility for back interest and other fees.
- On February 15, 1985, the Risses moved out of the house without notifying the Thompsons, after which water pipes froze and caused damage.
- On March 7, 1985, after the Risses gave notice of their intent to rescind, the Thompsons initiated and completed a statutory forfeiture of the contract.
Procedural Posture:
- James and Kathryn Risse (plaintiffs) filed an action in Iowa district court (trial court) against Keith and Janene Thompson (defendants), seeking rescission of a real estate contract and damages.
- The Thompsons counterclaimed for damages.
- The trial court rescinded the contract and entered a judgment for the Risses.
- The Thompsons, as appellants, appealed to the Iowa Court of Appeals (intermediate appellate court).
- The Court of Appeals reversed the trial court, denied rescission, and awarded damages to the Thompsons on their counterclaim.
- The Risses, as appellees in this action, sought further review from the Supreme Court of Iowa (highest court).
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Issue:
Does a seller's lack of perfect legal title to a portion of the property at the time of signing an installment contract constitute a substantial breach entitling the buyer to rescission, when the seller obtains marketable title before the scheduled closing date?
Opinions:
Majority - Schultz, J.
No. A seller's lack of perfect title at the time of signing does not constitute a substantial breach justifying rescission if the seller cures the defect and is able to provide marketable title by the scheduled closing date. Rescission is an extraordinary remedy that requires a substantial breach going to the heart of the contract. The general rule is that a seller under an executory contract for land must furnish marketable title on the date required for closing, not before. A buyer cannot claim breach based on a curable title defect prior to the closing date. Here, the Thompsons held equitable title to the extra parcels at signing and secured legal title before the closing date, making the title marketable at the agreed time. The closing failed due to a dispute over expenses, not because of a title defect. Therefore, the Risses were not entitled to rescission. The court also held that the Thompsons were not entitled to damages on their counterclaim because their election of forfeiture terminated the contract. Forfeiture is a remedy based on disaffirmance of the contract, which extinguishes any right to recover damages—such as unpaid installments, waste, or other consequential damages—that arise from the contract.
Analysis:
This decision solidifies the principle that a seller's title obligations are measured at the time of closing, not at the moment of contract execution. This gives sellers a window to cure title defects and prevents buyers from using discoverable, curable defects as a pretext to exit a deal prematurely. The case is also a critical illustration of the election of remedies doctrine. It establishes that forfeiture is an exclusive remedy in Iowa; by choosing to forfeit, a seller regains the property and keeps payments made but irrevocably waives the right to sue for any other damages arising from the buyer's breach.
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