Opinion ID: 1655319
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Heading: Surrender of the Dealer's License was a Substantial Breach.

Text: Plaintiffs contend that the trial court erred in finding that their surrender of Beckman Chevrolet's Iowa license constituted a substantial breach of the agreements, warranting rescission. We disagree, concluding that substantial evidence and applicable legal principles support the trial court's decision. A party may obtain rescisssion of a contract where the other party's breach is so substantial as to defeat the object of the contracting parties. See Nora Springs Cooperative Co. v. Brandau, 247 N.W.2d 744, 749 (Iowa 1976); Maytag Co. v. Alward, 253 Iowa 455, 464-66, 112 N.W.2d 654, 659-60 (1962). See generally, 6 A. Corbin, Contracts §§ 1353-54 (1962). As we explained in Binkholder v. Carpenter, 260 Iowa 1297, 152 N.W.2d 593 (1967): Rescission, as used in connection with the cancellation or termination of contracts, has two connotations. A contract may be rescinded by the acts of one of the parties and does not require court action except such action at law as may be necessary to restore the status quo. Id. at 1302, 152 N.W.2d at 596 (distinguishing rescission decreed by a court of equity from recission effected by notice given by one contracting party to the other). Substantial evidence supports the trial court's finding that the surrender and subsequent revocation of the license of Beckman Chevrolet constituted a substantial breach of several provisions of the parties' agreements, defeating their purpose. The Beckman dealership was obligated to conduct the operation of the dealership until final closing in the regular, usual and normal course of business and in accordance with all applicable laws, rules and regulations, albeit with Carson Motors as its agent during the interim period. Certainly the revocation of the Iowa dealer's license constituted a major breach of that provision, particularly in view of the fact that the Beckman Chevrolet franchise agreements with GM and its divisions provided that loss of the Iowa dealer's license constituted grounds for termination of those franchises. Moreover, the parties understood from the inception of their contractual undertaking, and must have known when the dealer's license was revoked, that Carson Motors would be unable to obtain its own franchise agreements for several weeks. Carson Motors had conditioned closing of the sale on its securing of those vital agreements. Uninterrupted operation of the dealership and obtaining of satisfactory franchise agreements were basic assumptions on which the agreements were made. See Restatement (Second) of Contracts § 261 (1981): Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. Carson Motors was fully justified in deciding to withdraw from its agreements with Beckman Chevrolet when it learned that Beckman, without Carson's knowledge, had surrendered the license under which the dealership was being operated. Plaintiffs argue that when Carson learned of the surrender and impending revocation of the Iowa license of Beckman Chevrolet, he should have immediately applied for a dealer's license for Carson Motors and then relied on Iowa Code section 322A.12 (1981) to provide it with franchise agreements by operation of law. For reasons we have set forth in division I, however, that statute was not intended to apply to this transaction in that fashion. Carson Motors was entitled to rely on the condition in its agreements that it receive franchise agreements from GM before closing the sale. The trial court did not err in finding Carson Motors entitled to rescission of its agreements with the Beckman dealership.