Contract Rescission and Disclosure of Financial Information

July 29, 2010 | Erin Herbold

This case involved the issue of how much detailed financial information a person suing to rescind a real estate contract may obtain during the discovery process.  In the end, the case turned on the question of what financial information was really relevant regarding the assets and income of the purchasers. 

The defendants (would-be purchasers of the real estate) and the plaintiff (an elderly land owner) became acquainted in the 1980’s and continued that relationship for several years. In 2004, the plaintiff executed a power of attorney, appointing the defendants as her attorneys-in-fact.  As her health declined, the elderly woman spent time at several nursing homes and the defendants moved into her farm house. In 2008, the parties entered into a real estate contract where the plaintiff agreed to sell 160 acres to the defendants on contract (10 annual payments of $20,000 with an interest rate of 4.32%, totaling $200,000). A subsequent appraisal valued the property at nearly $400,000. Thus, the plaintiff sought to rescind the contract in 2009. She alleged that the defendants had engaged in “fraud, undue influence, and self-dealing.” 

The plaintiff sent the defendants 15 formal interrogatories (questions presented prior to trial in preparation of litigation) regarding their gross annual income for the past five years, pension or profit-sharing plans, total value of real estate, and life insurance information, etc. The defendants objected, stating that the financial information sought was irrelevant and unreasonable. The plaintiff responded that it was relevant to establish the motive behind their “self-dealing” when they attempted to purchase the land at well-below fair market value. 

The trial court sided with the plaintiff and ordered the defendants to answer the interrogatories, stating that if the answers indicated that the defendants had significant real estate holdings they should have known the fair market value of the property in question. The case was appealed to the Iowa Court of Appeals and the appellate court reversed. 

In Iowa, parties to litigation may obtain discovery information regarding “any non-privileged matter” which is relevant to the litigation. So, what is relevant information? In this situation, the defendants’ financial information was largely irrelevant to the dispute and fell outside of the  scope of Iowa’s pre-trial discovery rules. In a case such as this where the plaintiff is only seeking compensable damages (not exemplary or pecuniary damages). they are only entitled to ask relevant financial questions of the defendant. Unterberger v. Bresnahan, No. 0-433/09-1538 (Iowa Ct. App., Jul. 28, 2010).