Court Opinion

ID: 4249701
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:20:33.242849+00
Date Added: 2024-06-11T13:53:52.710870
License: Public Domain

IN THE SUPREME COURT OF IOWA
                              No. 09–0999

                           Filed April 8, 2011

DUCK CREEK TIRE SERVICE, INC.,
An Iowa Corporation, and MIDWEST
MEXICAN CONNECTION, LTD.,
An Iowa Corporation,

      Appellants,

vs.

GOODYEAR CORNERS, L.C.,

      Appellee.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Scott County, Mark J.

Smith, Judge.

      A landlord seeks further review of a court of appeals decision

finding that it breached the covenant of quiet enjoyment contained in the

leases for two of its tenants.   DECISION OF COURT OF APPEALS
VACATED; DISTRICT COURT JUDGMENT REVERSED AND CASE

REMANDED.

      Michael J. McCarthy of McCarthy, Lammers & Hines, Davenport,

for appellants.

      Richard A. Davidson of Lane & Waterman LLP, Davenport, for

appellee.
                                     2

WIGGINS, Justice.

      This appeal involves an action for damages filed by two shopping

center sub-sublessees against their sub-sublessor based upon a breach

of the covenant of quiet enjoyment. The leased premises involved in this

action were subject to a master lease that had been assigned and

subleased    numerous     times   before   the   sub-sublessees    obtained

possession of their respective premises. The district court found in favor

of the sub-sublessor and dismissed the sub-sublessees’ claim. The court

of appeals reversed the decision of the district court and remanded the

case for a determination of damages.       On further review, we find as a

matter of law the sub-sublessor breached the covenant of quiet

enjoyment.   Therefore, we vacate the decision of the court of appeals,

reverse the judgment of the district court, and remand the case to the

district court to determine damages based on the record made below.

      I. Scope of Review.

      A district court’s judgment following a bench trial in a law action is

reviewed by this court for correction of errors at law. NevadaCare, Inc. v.

Dep’t of Human Servs., 783 N.W.2d 459, 465 (Iowa 2010). The district

court’s findings of fact have the effect of a special verdict and are binding

so long as they are supported by substantial evidence. Iowa R. App. P.

6.907; Land O’Lakes, Inc. v. Hanig, 610 N.W.2d 518, 522 (Iowa 2000).

“Evidence is substantial for purposes of sustaining a finding of fact when

a reasonable mind would accept it as adequate to reach a conclusion.”

Falczynski v. Amoco Oil Co., 533 N.W.2d 226, 230 (Iowa 1995). However,

we are not bound by the district court’s legal conclusions and application

of legal principles and must reverse if the district court has applied

erroneous rules of law that materially affected its decision.          Land

O’Lakes, Inc., 610 N.W.2d at 522. Finally, we must view the evidence in
                                       3

a light most favorable to the district court’s judgment. EnviroGas, L.P. v.

Cedar Rapids/Linn Cnty. Solid Waste Agency, 641 N.W.2d 776, 781 (Iowa

2002).

      II. Facts.

      The parties submitted a stipulation of facts regarding the liability

issues presented to the district court.      The court received testimony

regarding the damage issues.       The record shows the following facts,

viewed in the light most favorable to the district court’s ruling.

      A.   Relationship Between the Leases and the Premises. This

appeal involves an action for damages based upon a breach of the

covenant of quiet enjoyment brought by two shopping center sub-

sublessees, Duck Creek Tire Service, Inc. and Midwest Mexican

Connection, Ltd., against their sub-sublessor, Goodyear Corners, L.C.

To understand how Duck Creek and Midwest obtained possession of

their respective premises, we must establish the history of assignments

and subleases involving the property.

      On November 21, 1958, Antonio Corsiglia entered into a master

lease with Summit Center for approximately fifteen acres of property

located in Bettendorf. In 1961 Summit Center assigned its interest in

the lease to Disco Corporation, who in turn assigned this interest to

A. Abner Rosen and Abraham Kamber, doing business as Moday Realty

Co. This series of transactions made Moday, Corsiglia’s master lessee.

      In 1986 Moday subleased approximately one acre of the property

to Jose Bucksbaum. In 1988 Bucksbaum assigned his interest in the

sublease to Midkim, Inc. By this time, someone had erected a building

on   the   one-acre   site.    Later   in   1988,   Midkim    sub-subleased

approximately 6000 square feet of floor space in the building located on

the acre of subleased property to Goodyear Tire & Rubber Company.
                                    4

This sub-sublease contained an express covenant of quiet enjoyment,

which stated: “If [Goodyear Tire & Rubber] shall perform all and singular

the covenants herein imposed upon it, [Midkim] warrants and will defend

[Goodyear Tire & Rubber] in the enjoyment and peaceful possession of

the Demised Premises during the term hereof.”

      In 1990 Midkim entered into another sub-sublease with Midwest

for approximately 3000 square feet of floor space in the building located

on the acre of subleased property. This sub-sublease also contained an

express covenant of quiet enjoyment that provided:

      [Midkim] covenants that its interest in said premises is by
      leasehold interest and that [Midwest] on paying the rent
      herein reserved and performing all the agreements by
      [Midwest] to be performed as provided in this Lease, shall
      and may peaceably have, hold and enjoy the demised
      premises for the term of this Lease free from molestation,
      eviction or disturbance by [Midkim] or any other persons or
      legal entity whatsoever. . . . [Midkim] shall provide [Midwest]
      with written evidence of [Midkim’s] valid leasehold interest.

On February 1, 2007, Goodyear Tire & Rubber assigned its interest in its

sub-sublease to Duck Creek.

      At some point, Midkim mortgaged its leasehold interest in the one-

acre parcel to Norwest Bank. Subsequently, in 1997 Midkim defaulted

on its mortgage and Norwest Bank foreclosed on the mortgage and

obtained a sheriff’s deed to Midkim’s one-acre leasehold interest.      In

1998 Norwest Bank assigned this interest—which was subject to the

sub-subleases of both Duck Creek and Midwest—to Goodyear Corners,

L.C. To better visualize the transactions involved in this case, we have

included a flow chart contained in the court of appeals’ decision that sets

out the various interests of the parties in the two parcels leased by Duck

Creek and Midwest.
                                   5

      B. Transactions Causing Duck Creek and Midwest to File this

Appeal. Beginning in 2005, Moday failed to make rental payments to

Corsiglia pursuant to the master lease. On December 6, 2006, Corsiglia

sent a “Notice to Quit, Notice of Nonpayment of Rent, and Notice of

Voiding Rental Agreement” to Moday stating the master lease between

the parties would terminate in fifteen days if Moday failed to cure its

rental delinquency.     Moday failed to cure the delinquency, and

accordingly, Corsiglia terminated the master lease. On January 3, 2007,

Corsiglia notified Goodyear Corners that Corsiglia had terminated the

master lease covering the entire property.     Goodyear Corners then

notified Duck Creek and Midwest that they no longer had any right to the

possession of the premises under the sub-subleases due to the

termination of the master lease.
                                         6

      On August 26, 2005, Corsiglia filed a petition at law against

Moday, seeking to recover Moday’s delinquent rental payments as well as

all future rent due under the terms of the master lease. On March 28,

2007, Goodyear Corners joined in this suit and asserted a third-party

claim against Moday alleging it had sustained damages as a proximate

result of Moday’s breach of the master lease. Goodyear Corners filed a

motion for partial summary judgment and alleged Moday’s failure to pay

all the rent and taxes due under the master lease was a breach of the

covenant of quiet enjoyment contained in the sublease between Moday

and Goodyear Corners. 1 The district court ultimately granted Goodyear

Corners motion for partial summary judgment on this claim.

      On August 24, 2007, Duck Creek and Midwest filed separate

petitions of intervention against Goodyear Corners alleging Goodyear

Corners breached the covenant of quiet enjoyment in the parties’ sub-

subleases, causing Duck Creek and Midwest damages.                   In answer to

both petitions of intervention, Goodyear Corners asserted the following

affirmative defenses: (1) when it acquired its leasehold interest by way of

a sheriff’s sale, it did not assume any obligations under the sub-

subleases; (2) Duck Creek and Midwest had knowledge of a paramount
lease and assumed the risk regarding its possible termination; and

(3) Duck Creek and Midwest could have protected their interests by

obtaining a nondisturbance agreement from the owner of the property,

      1The   sublease between Moday and Goodyear Corners provided:
             14. Quiet Enjoyment: [Moday] covenants that upon [Goodyear
      Corners] paying the above specified rent and performing and complying
      with all the terms, conditions and covenants of this lease, [Goodyear
      Corners] shall peaceably have, hold and enjoy the Demised Premises for
      the term aforesaid, subject to any mortgage to which this lease shall be
      or may become subject.
                                     7

Corsiglia, and their failure to do so was the sole proximate cause of any

damages sustained.

      After a bench trial, the district court filed its findings of fact,

conclusions of law, and entry of judgment. First, the district court found

Goodyear Corners assumed all the rights and obligations under the sub-

subleases when it purchased an assignment of Midkim’s leasehold

interest from Norwest Bank because it collected rent from Duck Creek

and Midwest and did nothing to indicate it did not assume all the

obligations of the sub-subleases. Alternatively, the court held Goodyear

Corners was estopped from asserting its statute-of-frauds defense

because it collected rent under the sub-subleases and did not notify

Duck Creek and Midwest it did not intend to honor the sub-subleases.

Finally, the court found Duck Creek and Midwest knew they were

entering sub-subleases, which made them subject to superior leases.

Thus, the court reasoned Duck Creek and Midwest had a duty to

ascertain the terms of the superior leases and obtain guarantees from

the superior leaseholders to honor their sub-subleases.        Accordingly,

because Duck Creek and Midwest failed to protect their leasehold

interests and Goodyear Corners was not at fault for the termination of

the master lease, the court held Duck Creek and Midwest could not

obtain damages from Goodyear Corners for violation of the covenants of

quiet enjoyment based on the termination of the master lease.

Consequently, the district court dismissed Duck Creek’s and Midwest’s

petitions of intervention for lack of proof of a breach of the sub-subleases

by Goodyear Corners.

      Duck Creek and Midwest filed a notice of appeal from the district

court’s judgment and rulings. We transferred the case to the court of

appeals. The court of appeals reversed the district court’s finding that
                                     8

Duck Creek’s and Midwest’s claims failed for lack of proof of a breach of

the sub-subleases and remanded the case to the district court to

determine damages resulting from Goodyear Corners’ breach of the

covenants   of   quiet   enjoyment   contained    in   the   sub-subleases.

Subsequently, Goodyear Corners filed an application for further review,

which we granted.

      III. Issues.

      Goodyear Corners raises two issues on appeal.          First, we must

decide whether Goodyear Corners assumed Midkim’s obligations under

the sub-subleases’ covenants of quiet enjoyment, when it purchased an

assignment of Midkim’s leasehold interest from Norwest Bank. Second,

we must determine whether Duck Creek and Midwest can enforce the

covenants of quiet enjoyment against Goodyear Corners, when the

breach of the covenants is not caused by any fault of Goodyear Corners,

but rather by the fault of Moday.

      IV. Analysis.

      A. Whether Goodyear Corners Assumed Any Liabilities or

Obligations of Midkim When it Took the Assignment from Norwest.

At trial, Goodyear Corners argued there was no documentation of any

kind indicating it assumed any liabilities or obligations under the sub-

subleases between Midkim, Goodyear Tire & Rubber, and Duck Creek, or

Midkim and Midwest. Moreover, it argued the statute of frauds barred

any oral evidence of such an assumption. Therefore, Goodyear Corners

claimed it could not be held liable for the breach of the covenants of quiet

enjoyment in the sub-subleases.

      The district court rejected these arguments. On appeal, the court

of appeals held Goodyear Corners failed to preserve error on this issue

because it did not file a cross-appeal.     In its application for further
                                     9

review, Goodyear Corners claims it was not required to cross-appeal to

preserve this issue and urges us to consider its merits.

      1. Preservation of error.   Generally, a party must raise an issue

and the district court must decide it for that issue to be properly

preserved for appellate review. Meier v. Senecaut, 641 N.W.2d 532, 537

(Iowa 2002). In its trial brief filed in the district court, Goodyear Corners

raised the issue that it did not assume any liabilities or obligations under

the sub-subleases between Midkim, Goodyear Tire & Rubber, and Duck

Creek, or Midkim and Midwest. Additionally, the district court rejected

this claim in its ruling.

      Under this procedural history, Goodyear Corners is not required to

cross-appeal to preserve this issue on appeal. Goodyear Corners was the

prevailing party at the district court. Although it lost on this issue in the

district court, it prevailed on the merits on another ground. On appeal,

Goodyear Corners is simply attempting to save the judgment rendered in

its favor by arguing that an alternative ground for relief raised in the

district court allows us to affirm the district court’s judgment.

      It is well-settled law that a prevailing party can raise an alternative

ground for affirmance on appeal without filing a notice of cross-appeal,

as long as the prevailing party raised the alternative ground in the

district court. See, e.g., Jasper v. H. Nizam, Inc., 764 N.W.2d 751, 774–

75 (Iowa 2009); Greene v. Friend of Court, 406 N.W.2d 433, 435 (Iowa

1987); Lowery Invs. Corp. v. Stephens Indus., Inc., 395 N.W.2d 850, 852

(Iowa 1986); Kroblin Refrigerated X Press Inc. v. Ledvina, 256 Iowa 229,

233, 127 N.W.2d 133, 136 (1964). Thus, Goodyear Corners need not file

a cross-appeal to preserve this issue since it constitutes an alternative

ground by which we may affirm             the district court’s judgment.

Accordingly, Goodyear Corners has preserved for our review the issue of
                                    10

whether it assumed any liabilities or obligations under the sub-

subleases.

      2. Merits. The district court found Goodyear Corners assumed all

the rights and obligations under the sub-subleases when it purchased an

assignment of Midkim’s leasehold interest from Norwest Bank.            The

district court also found Goodyear Corners was estopped from asserting

its statute-of-frauds defense as contained in Iowa Code section 622.32

(2007). Goodyear Corners admits that when it took its interest in the

property from Norwest Bank, it acquired Midkim’s interest in the

property due to Midkim’s sublease from Moday.          However, Goodyear

Corners further claims, when it acquired its interest from Norwest Bank,

it did not assume any liabilities or obligations owed to Midkim’s sub-

sublessees, Duck Creek or Midwest.         It bases its argument on the

grounds that the assignment of the sublease from Norwest Bank to

Goodyear Corners made no reference to any sub-subleases. Therefore, it

could not be liable to Duck Creek or Midwest for Moday’s breach of the

covenants of quiet enjoyment.

      An assignment of a leasehold interest occurs when the lessee

transfers its entire interest in the premises, for the unexpired term of the

original lease, without retaining any reversionary interest. 49 Am. Jur.

2d Landlord & Tenant § 917, at 847 (2006); 52 C.J.S. Landlord & Tenant

§ 42, at 107–09 (2003); accord Berg v. Ridgway, 258 Iowa 640, 646, 140
N.W.2d 95, 100 (1966).      The assignment between Norwest Bank and

Goodyear Corners of Midkim’s leasehold interest provided:

      NORWEST BANK IOWA, NATIONAL ASSOCIATION, a
      banking organization . . . does hereby convey to GOODYEAR
      CORNERS L.C., an Iowa limited liability company, the
      lessee’s rights under that certain ground lease dated
      October 6, 1986 . . . between Moday Realty Co., as lessor,
      and Jose Bucksbaum, as lessee . . . .
                                    11

(Emphasis added.)

      An assignment of a lease places the assignee in the same

relationship toward the lessor as was occupied by the lessee, meaning

the assignee assumes all the burdens and benefits originally held by the

lessee.   Restatement (Second) of Contracts § 328(1), at 44–45 (1981);

accord 52 C.J.S. Landlord & Tenant § 49, at 114; § 51, at 116–17. This

assignment used the general terms of “the lessee’s rights under [the] . . .

ground lease.” Therefore, Goodyear Corners took all the interest Midkim

had in the premises when it purchased the assignment from Norwest

Bank. As we have previously held:

      When one accepts the assignment of a lease he not only has
      the benefits of the lease but the burdens as well. He stands
      in the shoes of the lessee at least for the period of time he
      occupies the premises.

Berg, 258 Iowa at 644–45, 140 N.W.2d at 99; accord Pickler v. Mershon,

212 Iowa 447, 452–53, 236 N.W. 382, 385 (1931).           Accordingly, by

purchasing the assignment from Norwest Bank, Goodyear Corners

stepped into the shoes of the sublessee, Midkim, and assumed all the

burdens as well as benefits held by Midkim under the sublease.

      A sublease reserves a reversionary interest in the lessee, whereas

an assignment is the transfer of the lessee’s entire interest, without

reserving any reversionary interest.     Berg, 258 Iowa at 646–47, 140

N.W.2d at 100; accord 1 Milton R. Friedman & Patrick A. Randolph Jr.,

Friedman on Leases § 7:4.1, at 7–82 (5th ed. 2010) [hereinafter Friedman

on Leases]. Consequently, when Midkim entered into the sub-subleases

with Duck Creek and Midwest, it retained a reversionary interest in the

premises, as well as obtained certain rights and duties under the sub-

subleases.   However, when Norwest Bank assigned Midkim’s leasehold

interest to Goodyear Corners, Midkim retained no reversionary interest
                                      12

in the premises.       Essentially, the assignment transferred any and all

interests Midkim had in the premises to Goodyear Corners, including

any reversionary interest Midkim had previously retained via the sub-

subleases as well as its rights and duties under the sub-subleases.

Thus, it was not possible for Midkim to assign its leasehold interest to

Goodyear Corners without also assigning its interests in the Duck Creek

and Midwest sub-subleases.

      Our conclusion is supported by a case decided long ago by this

court. In Collamer v. Kelley, 12 Iowa 319, 320 (1861), Russell leased a

piece of land to Wood. Wood then entered into a sublease with Shelley.

Collamer, 12 Iowa at 320. Shelley later assigned his interest to a third

party, Young. Id. at 320–21. Subsequently, Wood assigned his interest

in the master lease to another third party, C. W. Griggs.      Id. at 321.

However, Wood never assigned his interest in the sublease. Id. at 323.

The issue decided by the court is what rights Griggs acquired under the

sublease from accepting the assignment of the master lease. Id.

      We found that by the assignment of the master lease, Wood

surrendered to Griggs all his rights to control the estate, and by

accepting the assignment Griggs possessed all the same rights Wood had

in the estate.   Id.    This included the right to demand rent from the

sublessee, Young. Id. Thus, we held by accepting the assignment of the

master lease from Wood, Griggs not only acquired all of Wood’s rights

and duties under the master lease, but also stepped into Wood’s shoes as

the sublessor and acquired all Wood’s rights and duties under the

sublease as well. Id. at 323–25.

      The facts of this case require the same result.     When Goodyear

Corners purchased the assignment of the sublease from Norwest Bank,

Goodyear Corners stepped into the shoes of the sublessee, Midkim, and
                                      13

assumed all the burdens and benefits under the sublease. Moreover, as

recognized in Collamer, Goodyear Corners also stepped into Midkim’s

shoes and acquired all of Midkim’s rights and duties under its sub-

subleases with Duck Creek and Midwest. Therefore, the district court

correctly held Goodyear Corners assumed all of Midkim’s rights and

obligations under the sub-subleases when it purchased an assignment of

Midkim’s leasehold interest from Norwest Bank.

      3.   Statute-of-frauds claim.    Goodyear Corners claims that the

statute of frauds prevents Duck Creek and Midwest from enforcing the

covenants of quiet enjoyment contained in their sub-subleases. It relies

on section 622.32 of the Iowa Code that provides:

             Except when otherwise specially provided, no evidence
      of the following enumerated contracts is competent, unless it
      be in writing and signed by the party charged or by the
      party’s authorized agent:

            ....

            3. Those for the creation or transfer of any interest in
      lands, except leases for a term not exceeding one year.

Iowa Code § 622.32.

      The statute of frauds is not a rule of substantive law, but rather a
rule of evidence. Sun Valley Iowa Lake Ass’n v. Anderson, 551 N.W.2d
621, 630 (Iowa 1996).      The statute of frauds does not render oral

promises creating or transferring an interest in land invalid.   Id.   The

statute only relates to the manner of proof and renders oral proof of such

promises incompetent. Recker v. Gustafson, 279 N.W.2d 744, 748 (Iowa

1979). The party asserting the statute must raise it by an objection at

trial. Harriott v. Tronvold, 671 N.W.2d 417, 422 (Iowa 2003).

      We have decided that when Goodyear Corners purchased an

assignment of Midkim’s leasehold interest from Norwest Bank, it
                                    14

assumed all the obligations Midkim owed to Duck Creek and Midwest

under the sub-subleases.       Thus, the question becomes is there

competent proof in the record to establish the covenants of quiet

enjoyment in Duck Creek’s and Midwest’s sub-subleases.

      The parties submitted this case on a stipulation. The stipulation

introduced into evidence Midkim’s sub-sublease with Goodyear Tire &

Rubber, Goodyear Tire & Rubber’s assignment of that sub-sublease to

Duck Creek, and Midkim’s sub-sublease with Midwest. The stipulation

did not limit the purpose for which the parties admitted these

documents.   These documents contain proof of the covenants of quiet

enjoyment that are the subject of this action.       Although Goodyear

Corners might have been able to argue that the statute of frauds

prevents the admissibility of the covenants of quiet enjoyment, we need

not decide the issue because Goodyear Corners allowed the documents

containing the covenants of quiet enjoyment to be admitted into evidence

without objection. Therefore, we conclude there was competent evidence

in the record for the district court to find the covenants of quiet

enjoyment were part of the obligations assumed by Goodyear Corners

when it purchased the assignment of Midkim’s leasehold interest from

Norwest Bank, and the statute of frauds did not prohibit such a finding.

      B. Whether    Duck    Creek   and   Midwest    Can   Enforce   the

Covenants of Quiet Enjoyment Against Goodyear Corners, When the

Breach of the Covenant is Not Caused by Any Fault of Goodyear

Corners, but Rather by the Fault of Moday.        The covenant of quiet

enjoyment is a covenant and warranty by the lessor that the tenant shall

have quiet and peaceful possession of the demised premises as against

the lessor, any person claiming title through or under the lessor, or any

person with a title superior to the lessor. Cohen v. Hayden, 180 Iowa
15

232, 249, 163 N.W. 238, 239 (1917) (supplemental opinion on rehearing);

Kane v. Mink, 64 Iowa 84, 86, 19 N.W. 852, 853 (1884); see also 3

Friedman on Leases § 29:2.1, at 29–2 to 29–3, § 29:2.2, at 29–8; 1

Emanuel B. Halper, Shopping Center and Store Leases § 17.07, at 17-14

to 17-15 (rev. ed. 2003); Robert S. Schoshinski, American Law of

Landlord and Tenant § 3:3, at 94–95 (1980); 5 Thompson on Real Property

§ 41.03(c), at 151 (N. Gregory Smith ed., 2d Thomas ed. 1998). When a

tenant is actually evicted from the leased premises, a breach of the

covenant of quiet enjoyment has occurred. Eggers v. Mitchem, 240 Iowa
1199, 1201, 38 N.W.2d 591, 592 (1949); see also Schoshinski, American

Law of Landlord and Tenant § 3:4, at 95–96; 5 Thompson on Real

Property § 41.03(c)(1), at 151.

      Duck Creek’s express covenant of quiet enjoyment stated, “Lessor

warrants and will defend Lessee in the enjoyment and peaceful

possession of the Demised Premises during the term hereof.” Midwest’s

express covenant of quiet enjoyment stated, “Tenant . . . shall and may

peaceably have, hold and enjoy the demised premises for the term of this

Lease free from molestation, eviction or disturbance by the Landlord or

any other persons or legal entity whatsoever.”      We construe these

provisions as providing Duck Creek and Midwest with the protection

generally available under an implied covenant of quiet enjoyment

because the parties do not claim these express covenants are more

restrictive than the implied covenant of quiet enjoyment. See 3 Friedman

on Leases § 29:2.2, at 29–8 to 29–9. Moreover, because the covenant of

quiet enjoyment runs with the land, Goodyear Corners acquired the

burdens of the express covenants of quiet enjoyment when it purchased

the assignment of Midkim’s leasehold interest from Norwest Bank. Id.

§ 29:2.7, at 29–19 to 29–20.
                                    16

      Duck Creek and Midwest were evicted from the premises when

Corsiglia asserted his superior title to the premises due to Moday’s

breach of the master lease. Thus, we are dealing with a breach of the

express covenants of quiet enjoyment contained in both Duck Creek’s

and Midwest’s sub-subleases based on the assertion of a paramount

title. A paramount title is

      a legal interest in the leased property held by a third party at
      the time the lease is made, and not terminable at the will of
      the landlord [Goodyear Corners] or by the time the tenant
      [Duck Creek or Midwest] is entitled to possession . . . .

Restatement (Second) of Prop.:      Landlord & Tenant § 4.1(1), at 121

(1977).   Accordingly, we must determine whether Duck Creek and

Midwest can recover from Goodyear Corners for breach of the express

covenants of quiet enjoyment, when their eviction was caused by the

assertion of a paramount title by a paramount titleholder after Duck

Creek and Midwest, as tenants, enter onto the premises.

      The Restatement (Second) of Property: Landlord and Tenant, deals

with this situation. It provides:

             Except to the extent the parties to a lease validly agree
      otherwise, after the tenant enters into possession there is no
      breach of the landlord’s obligations because of the existence
      of a paramount title, but there is a breach of his obligations
      if there is an eviction by a paramount title, if the eviction
      deprives the tenant of the use contemplated by the parties.
      For that breach the tenant may:

            (1)    terminate the lease in the manner prescribed in
                   § 10.1 and recover damages to the extent
                   prescribed in § 10.2.

Id. § 4.3, at 140. This rule developed from the common law view, which

held the eviction of a tenant by the holder of a paramount title is

attributable to the tenant’s landlord and constitutes a breach of the

covenant of quiet enjoyment, entitling the tenant to seek damages from
                                    17

its landlord.   Id. § 4.3 cmt. b, at 141; see also 5 Thompson on Real

Property § 41.03(c)(6)(iii), at 167 (recognizing where the covenant of quiet

enjoyment is breached by the actions of a paramount titleholder, the

tenant’s remedies are against the landlord rather than the paramount

titleholder).

      This rule is also consistent with our case law. In Cohen v. Hayden,

heirs of an estate held the premises in question as tenants in common.

180 Iowa 232, 240, 157 N.W. 217, 219 (1916).          At a time when the

property was held as tenants in common, one of the heirs, Hayden,

leased the property to Cohen for a term of years. Id. at 234, 157 N.W. at

217. During the term of the lease, a partition action between the tenants

in common concluded. Id. The referee in the partition action sold the

premises and the purchaser evicted Cohen from the premises. Id. In

Cohen, the heirs of the estate were the paramount titleholders. After the

sale by the referee, the purchaser became the paramount titleholder and

evicted Cohen from the property. Under these facts, we held Hayden, as

landlord, was liable to Cohen for damages by reason of Hayden’s breach

of the covenant of quiet enjoyment even though the eviction was caused

by the assertion of a paramount title held by the subsequent purchaser.

Id. at 244–45, 157 N.W. at 221.

      We believe the rule contained in section 4.3 of the Restatement

(Second) of Property: Landlord and Tenant is sound and consistent with

our prior case law. Accordingly, we adopt it as controlling. Even with

the adoption of section 4.3, Goodyear Corners argues Duck Creek’s and

Midwest’s knowledge of the paramount title precludes them from

asserting their claims that Goodyear Corners breached the covenants of

quiet enjoyment.
                                       18

      Goodyear Corners supports its claim by citing illustration nine to

section 4.3. Illustration nine states:

              9. L leases corner commercial property to T for twenty
      years. The parties contemplate that T will erect a gasoline
      filling station thereon and that T will require financing in the
      form of a construction loan. T enters. When he seeks to
      obtain his construction loan, he discovers that the leased
      property is subject to a mortgage and when requested to do
      so, the mortgagee refused to subordinate his mortgage to the
      construction loan, with the result that T is unable to obtain
      his loan. The assertion by the mortgagee of his rights is an
      eviction that prevents the use contemplated by the parties
      and L is in default. If T knew of the mortgage at the time he
      entered the leased property, the mortgagee’s assertion of his
      rights in the manner described above would not be an
      eviction.

Restatement (Second) of Prop.: Landlord & Tenant § 4.3 illus. 9, at 143–

44. We disagree with Goodyear Corners’ argument.

      First, illustration nine goes to the issue of when the loss of use of a

premises is an eviction.      Here, Duck Creek and Midwest were evicted.
Illustration nine is not applicable.

      Second, comment f to section 4.3 does provide, “knowledge [of a

paramount title] on the tenant’s part may under certain circumstances

justify the conclusion that the parties intended that the assertion of the

known paramount title would not be a ground for holding the landlord in

default.”      Id. § 4.3 cmt. f, at 146.    However, mere knowledge of the

paramount title is irrelevant. See id. § 4.3 reporter’s note to cmt. f, at

149 (recognizing knowledge of a paramount title has generally been held

irrelevant).     The circumstances of the transaction must indicate the

lessee’s knowledge of the paramount title was a waiver of the lessee’s

rights under the covenant of quiet enjoyment.         Under the stipulation

entered into by the parties, there are no circumstances of the transaction
                                    19

indicating that Duck Creek or Midwest waived their rights under the

covenants of quiet enjoyment contained in their sub-subleases.

      Third, Goodyear Corners’ position is inconsistent with our holding

in Cohen.   At the time Cohen entered into the lease, he was not only

aware of the paramount title, but knew a partition action had been filed.

Cohen, 180 Iowa at 236, 157 N.W. at 218.            In Cohen, we held the

knowledge of the partition action was immaterial with regard to whether

the landlord breached the covenant of quiet enjoyment. Id. at 243–44,

163 N.W. at 220–21.

      Finally, every sublessee has knowledge of a paramount title by the

mere fact that the sublessee is entering into a sublease. Thus, under

Goodyear Corners’ theory that knowledge of a paramount title will defeat

a claim for the breach of the covenant of quiet enjoyment, no sublessee

will ever be able to enforce a covenant of quiet enjoyment.      Goodyear

Corners’ position is inconsistent with the Restatement’s position and

existing Iowa law. In situations such as this, if a landlord does not want

to be held responsible for a breach of the covenant of quiet enjoyment

caused by the actions of a paramount titleholder, the landlord should

consider including such a provision in the lease.

      Accordingly, applying the law contained in section 4.3 of the

Restatement (Second) of Property:     Landlord and Tenant, we find the

district court’s findings were not supported by substantial evidence and,

as a matter of law, Duck Creek and Midwest should have prevailed on

their breach-of-the-covenants-of-quiet-enjoyment claims.

      V. Disposition.

      We vacate the decision of the court of appeals and reverse the

judgment of the district court because we find, as a matter of law, Duck

Creek and Midwest should prevail on their breach-of-the-covenant-of
                                  20

quiet-enjoyment claims. Therefore, we remand the case to the district

court to decide the issue of damages based on the record made below.

     DECISION OF COURT OF APPEALS VACATED; DISTRICT

COURT JUDGMENT REVERSED AND CASE REMANDED.

     All justices concur except Waterman, Mansfield, and Zager, JJ.,

who take no part.