Pederson v. McGuire

In 1946, the City of Sioux Falls, South Dakota, granted the Chicago and Northwestern Transportation Company (the railroad) an irrevocable easement for a right-of-way contiguous to a commercial property called Cargill Tract #1. The only way to access Cargill Tract #1 was to cross over the railroad’s easement. The railroad stopped using its easement adjacent to Cargill Tract #1 in 1975. In 1978, the Pedersons (plaintiffs) bought Cargill Tract #1. At the time of their purchase, the Pedersons received a license from the railroad to install a road crossing the railroad’s easement. In 1981, Sioux Sound Co. (Sioux Sound) executed a contract to purchase Cargill Tract #1 from the Pedersons for $135,000. The agreement provided for payment of $1,000 upon signing, $29,000 upon closing, $42,000 as a first mortgage, and $63,000 as a second mortgage. No time was specified for when Sioux Sound would obtain the mortgages. The Pedersons were required to furnish title insurance showing good and merchantable title on closing, as well as a warranty deed upon full payment of the $135,000. The contract additionally stated that time was of the essence to the contract. Sioux Sound’s president, Robert McGuire (defendant) visited Cargill Tract #1 several times and noted the railroad track near the property. Sioux Sound’s attorney discovered the railroad’s easement and license relevant to Cargill Tract #1 and cancelled the purchase agreement. Over the next few months, the Pedersons amended the license it had received from the railroad, but Sioux Sound was not satisfied and still would not perform on the purchase agreement. The Pedersons sued for specific performance. The trial court granted specific performance but required the Pedersons, at their own expense, to terminate the Railroad’s interest in the easement. The Pedersons did so. Sioux Sound appealed, arguing that it was able to rescind the contract because of the contract’s statement that time was of the essence. Because the title to Cargill Tract #1 was encumbered by an easement and license that took several months to clear, Sioux Sound argued that the time-is-of-the-essence clause was violated.