## Facts

- In 1946, the City of Sioux Falls, South Dakota granted the Chicago and Northwestern Transportation Company (the railroad) an irrevocable easement for a railway right-of-way contiguous to a commercial property known as Cargill Tract #1.
- The only means of ingress and egress to Cargill Tract #1 was by crossing the railroad’s easement.
- The railroad stopped using the tracks adjacent to the property in 1975.
- In 1978, W. Gordon Pederson and Joyce Pederson purchased Cargill Tract #1 and obtained from the railroad a license to install a private roadway crossing over the easement. The license was revocable on 30 days’ notice and was recorded.
- In 1981, Sioux Sound Co. entered a contract to purchase Cargill Tract #1 from the Pedersons for $135,000, structured as $1,000 at signing, $29,000 at closing, and the balance by a $42,000 first mortgage and a $63,000 second mortgage.
- The contract required the Pedersons to furnish title insurance showing good and merchantable title at closing and provided that a warranty deed would be delivered upon full payment of the purchase price.
- The contract also stated that time was of the essence, but it did not specify when Sioux Sound had to obtain its financing or when mortgage proceeds had to be available.
- Sioux Sound’s president, Robert P. McGuire, visited the property several times and observed the nearby railroad track.
- Sioux Sound’s attorney discovered the railroad easement and the Pedersons’ recorded, revocable crossing license and advised Sioux Sound to cancel the contract based on perceived title problems affecting access.
- Over the following months, the Pedersons worked with the railroad to modify the access arrangement to satisfy the buyer’s concerns, but Sioux Sound still refused to perform.
- The Pedersons sued for specific performance. The trial court ultimately ordered specific performance but required the Pedersons, at their own expense, to terminate the railroad’s interest that affected access and marketability of title. The Pedersons complied.
- Sioux Sound appealed, arguing that the “time is of the essence” clause allowed rescission because the title issue was not cleared by the original closing timetable.

## Issues

1. Whether Sioux Sound could rescind a real estate purchase contract based on a “time is of the essence” clause when the sellers cured an access-related title encumbrance within a reasonable time after objection.
2. Whether the Pedersons committed actionable fraud by failing to affirmatively disclose the recorded, revocable railroad crossing license before the contract was signed.

## Decision

- The Supreme Court of South Dakota affirmed the judgment requiring Sioux Sound to specifically perform the purchase contract.
- The court held that the “time is of the essence” language did not, on these facts and read with the rest of the agreement, give Sioux Sound an automatic right to cancel when the sellers needed additional time to clear title.
- Because the agreement did not fix a definite time for completion of financing and performance, the law supplied a reasonable time to satisfy the requirement of good and merchantable title.
- The Pedersons acted with reasonable diligence and cured the title objection within a reasonable time; specific performance was therefore an appropriate remedy.
- The court rejected Sioux Sound’s fraud counterclaim, concluding that the record did not show the required intent to deceive and that the challenged interests were matters of public record and within the contract’s “conditions of record” risk allocation.

## Legal Principles

- A “time is of the essence” clause is interpreted in context with the entire contract; it does not automatically mandate forfeiture where other provisions leave performance timing uncertain.
- When a real estate contract requires marketable title but does not set a definite deadline for performance steps such as financing and closing mechanics, a reasonable time may be implied for the seller to cure curable title defects.
- Specific performance may be granted where the seller can tender good and merchantable title after curing defects within a reasonable time, particularly when the seller bears the cost of curing and the buyer’s refusal to perform rests solely on a curable encumbrance.
- Fraud requires more than nondisclosure of a recorded encumbrance; absent proof of intent to deceive and justified reliance, and where the buyer had constructive notice or agreed to accept “conditions of record,” a fraud claim fails.

## Conclusion

The South Dakota Supreme Court upheld specific performance of Sioux Sound’s purchase agreement because the Pedersons cured the railroad-related title and access problems within a reasonable time despite a time-is-of-the-essence clause, and Sioux Sound failed to prove fraud where the crossing license and easement were recorded and there was no showing of intentional deception or justified reliance.


Pederson v. McGuire, 333 N.W.2d 823 (1983)