Mortgage Company Negligent, But Not Deceitful In Failing To Transfer Truck Titles

Iowa law requires every seller of a motor vehicle to transfer title in a commercially reasonable time. Under Iowa Code §321.45(3), offering to sell a vehicle implies that you hold good title. In this case, an individual purchased two semi-tractors at public auction from a commercial mortgage company. A representative of the company announced at the sale that the titles were guaranteed- meaning that the buyer’s funds would not be dispersed to the company until the title transfer was complete. The buyer took possession of the trucks and assumed that he would receive title within a few weeks. However, the prior owners of the repossessed trucks made transferring the titles difficult. The mortgage company attempted to contact the prior owners with no avail. Thus, they filed a motion requesting a contempt order against the prior owners and the court granted their motion. Almost five months after the sale, the buyer finally received title to both trucks. 

The buyer sued the mortgage company for fraudulent and negligent misrepresentation and claimed that he was owed damages for his “economic losses” and punitive damages for the delay. At trial, the jury found in favor of the buyer and awarded actual damages of $27,000 and punitive damages of $250,000. 

The mortgage company appealed and the Iowa Supreme Court agreed to hear the case. The mortgage company argued that the punitive damages issue should never have been submitted to the jury, that the buyer failed to make out a claim for fraudulent misrepresentation, and that the losses the buyer suffered were purely economic. 

The court first dealt with the fraudulent misrepresentation claim. In Iowa, a person asserting this claim must prove seven elements of fraud, including falsity, intent to deceive and reliance on fraudulent statements. After examining the trial record, the court found that neither the mortgage company nor their agent intentionally made false statements in order to deceive the buyer. There was no evidence to support a claim that the mortgage company made statements in reckless disregard for the truth. They simply ran into a road block with the prior owners.

Next, the court dealt with the appropriateness of the punitive damages award.  An award of punitive damages in Iowa is the result of “willful and wanton conduct… in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow.” The court didn’t believe that had not occurred.  There was no substantial evidence of reckless behavior. Though the company could have taken more care in ensuring possession of the title certificates before the auction sale, they attempted to cooperate and in good faith sought the titles. 

Finally, the court discussed the buyer’s claim of negligent misrepresentation. In Iowa, a defense to this claim is the economic loss doctrine. The court looked to the Restatement (2nd) of Torts to examine whether this doctrine applied in this case. The tort of negligent misrepresentation has always been understood in Iowa to allow for the recovery of purely economic losses. It requires negligently supplying false information and a pecuniary loss to others based on their reliance. The economic loss doctrine is generally recognized as a legal principle that plaintiffs cannot recover in tort when they have suffered only economic harm. Thus, economic losses under a contract should be brought as contract actions. However, the economic loss doctrine is not a bar to tort claims for negligent misrepresentation in Iowa. The court addressed several cases where plaintiffs could bring a successful claim of negligent misrepresentation and recover their economic losses, and noted that the economic loss doctrine is more applicable to products liability cases, not negligent misrepresentation cases. Thus, the buyer was awarded damages for his economic loss.  Van Sickle Construction Co. v. Wachovia Commercial Mortgage, Inc., 783 N.W. 2d 684 (Iowa Sup. Ct. 2010).