Rusch v. Kauker

479 N.W.2d 496, 1991 S.D. LEXIS 187, 1991 WL 273926

• Court: South Dakota Supreme Court
• Decided: December 24, 1991
• Docket: 17438
• Status: Published

Opinions

SABERS, Justice.

Rusch appeals from a judgment in favor of Kauker claiming that the trial court erred in concluding the Offer and Agreement to purchase was not a binding agreement between the parties. We reverse and remand.

FACTS

Arthur and Lana Rusch (Rusch) owned a house at 620 Canby, Vermillion, S.D. Rusch lived in this house from 1976 until he moved to a new residence in Vermillion in 1982. The house had a mortgage balance of approximately $20,000. This mortgage contained a “callable on sale” clause which would allow the bank to request full payment of the mortgage if title became vested in any other person. Rusch listed the house for sale when he moved to the new residence, but no sale was made during that year. To defray expenses, Rusch leased the house for a period of nine months. This lease was later converted to a month to month basis to increase the marketability of the house.

In September of 1983, Rusch relisted the house with Sue Roach (Roach)¹ of Century 21 at $67,500 and a provision requiring buyers to “arrange own financing.”

In July, 1983, Dr. Michael Kauker (Kauker) came to Vermillion from Memphis, Tennessee looking into employment with the University of South Dakota School of Medicine. He and his wife were interested in obtaining housing in the Vermillion area. Kauker’s wife was a real estate agent with Century 21 in Memphis, which caused them to contact the Century 21 office in Vermillion. However, Kauker returned to Tennessee without making any decision as to housing.

On October 4 and 5, 1983, Kauker met with Roach for the second time. During this meeting, several houses were shown to Kauker, including the Rusch house. Roach testified that Rusch had informed her of the mortgage on the house and that she informed Kauker. On October 12, 1983, Kauker made an offer on the Rusch house which required seller financing by means of a contract for deed and a closing/possession date of December 1, 1983. Rusch rejected this offer.

On October 17, 1983, Kauker made a second offer on the Rusch house. Prior to the expiration of the offer, Rusch informed Kauker that the interest rate on the proposed contract for deed was satisfactory but the purchase price was not. On October 20, 1983, Kauker made a third offer on the Rusch house. This offer was satisfactory to Rusch in interest rate and purchase price.

The offer was prepared on a standard offer and agreement form which contained the following language:

8. If this offer is not accepted by the Seller or if offer is contingent upon buyer obtaining FHA, VA or other loan and he is unable to qualify for or obtain such loan, then this agreement (in either case) shall be abrogated and of no force or effect and Buyer’s earnest money shall be returned to him in full.

9. Upon approval and acceptance of this Agreement by Seller and in event Buyer shall not complete the purchase as herein agreed, Buyer shall forfeit the deposit made by him.

Kauker insisted on the addition of two sentences to the standard form:

Appliances & mechanically functioning systems to be in working order on closing day. This offer is contingent upon Buyers’ approval of Contract for Deed. (emphasis added).

Roach testified that following a discussion with Kauker, she informed Rusch that this approval contingency was to apply to form only. On October 23, Rusch accepted this offer, it was signed by all parties and became their agreement (Agreement). The December 1, 1983 ■ closing and possession date remained unchanged. Following the signing of the Agreement, Rusch gave his tenants notice of termination to meet the December 1, 1983 possession date.

As a result of some confusion between Rusch and Roach as to responsibility for preparing the Contract for Deed, it was not prepared until November 15,1983. Kauker testified that he did not receive the draft until November 28, 1983. Kauker responded to the Contract for Deed with approximately ten objections on November 29, 1983. The primary objection to the Contract for Deed, that contracts for deed are illegal, apparently resulted from an opinion from a Tennessee attorney. Roach persuaded Kauker and Rusch to meet on December 1, 1983 to work out an acceptable contract for deed.

At the December 1 meeting, Kauker expressed concern over the mortgage on the Rusch house.² Roach testified that during this meeting and throughout the negotiations, she unsuccessfully encouraged Kauker to obtain South Dakota legal counsel. Following this meeting Roach and Rusch made several changes to the Contract for Deed to attempt to satisfy Kauker’s objections.³ A second draft was delivered to Kauker on December 2, 1983, but it was also rejected. Kauker’s letter of rejection stated two primary objections:

We could not approve the contract that was presented to us for two main reasons. The contract did not involve or request approval of the sale from the involved third party, the National Bank of South Dakota, that holds a mortgage of about $20,000 on the house. We feel that their approval is needed for an acceptable transaction. Our second concern was lack of protection of buyer’s rights concerning cash deposits, additions or major improvements. We could not risk a 30 day repossession, stipulated in the original contract-for-deed, on such large investments.

Following receipt of. this letter, Rusch wrote Kauker and requested that Kauker submit a contract for deed that would be acceptable to him. Kauker did not respond other than to point out that the December 1, 1983 deadline had passed and no further negotiation was desired.

Despite no response, Rusch prepared and delivered a third draft of the contract for deed. No discussions or negotiations were had on this draft. On December 15, 1983, Rusch gave written notice to Kauker of his intention to mitigate damages by re-renting the house, but no renter was found until April, 1984. On December 19, 1983, Rusch filed suit against Kauker alleging breach of the “Offer and Agreement to Purchase” and sought specific performance and damages.

The trial court issued a memorandum decision denying Rusch’s motion for summary judgment on October 1, 1984, but failed to sign the order denying the motion for summary judgment until April 12, 1985. The matter went to trial before Circuit Judge Talbott on February 2, 1988. Since the trial court had not made a decision by late 1989, Rusch attempted to supplement the record to reflect that the house had been sold and that specific performance was no longer sought. This motion was later dropped. The trial court finally issued its memorandum opinion on November 5, 1990 in favor of Kauker and accepted the blame for the delay as follows: “Substantial delay has been encountered in the development of this Decision, fault for such delay properly lying at this Court’s door.” The trial court signed findings of fact and conclusions of law on December 10, 1990, and concluded that given the substantial negotiations that occurred between Rusch and Kauker, the Offer and Agreement was not intended to be a final or complete binding agreement, thus no enforceable contract existed between Rusch and Kauker.

Rusch appeals claiming that the trial court erred by 1) concluding that there was no binding agreement between the parties, and 2) even if no binding agreement existed between the parties, he is entitled to damages as a result of requests by Kauker.

1. OFFER AND AGREEMENT

Rusch claims the trial court erred in concluding that the Offer and Agreement was not a binding final and complete agreement. Conclusions of law “are given no deference by this court on appeal” and are reviewed de novo. Permann v. Dept. of Labor, Unemp. Ins. D., 411 N.W.2d 113, 117 (S.D.1987). We are confronted here with mixed questions of law and fact.

[Mjixed questions of law and fact [are] questions in which the historical facts are admitted or established, the rule of law is undisputed, and the issue is whether the facts satisfy the statutory standard^]

Id. at 118, quoting Pullman-Standard v. Swint, 456 U.S. 273, 289 n. 19, 102 S.Ct. 1781, 1790 n. 19, 72 L.Ed.2d 66, 80 n. 19 (1982). In this case, the facts are established and the issue is whether those facts constitute a binding agreement. Mixed questions of law and fact “are of the type which we may freely review.” Matter of Groseth Intern., Inc., 442 N.W.2d 229, 232 (1989). See also Permann, 411 N.W.2d at 119.

The trial court made its determination primarily on Sabow v. Hall, 323 N.W.2d 861 (S.D.1982). In Sabow, substantial negotiations were also conducted. However, these negotiations were not limited to the final contract for deed; they extended back to the offer and agreement.

During this process several substantial changes and additions to the offer and agreement to purchase were made at the request of appellee and Dr. Sabow, or his attorney. It is clear from these facts and circumstances that the parties did not intend the offer and agreement to purchase to be a final or complete agreement on the terms and conditions of sale.

Id. at 863 (emphasis added). In the present case, the negotiations concerned provisions of the contract for deed, not the Agreement. Thus, the underlying Agreement was left unchanged. Therefore, Sabow is factually distinguishable.

In O’Brien v. R-J Development Corp., 387 N.W.2d 521 (S.D.1986), reh’g granted and aff'd in part and rev’d in part on other grounds, 398 N.W.2d 132 (S.D.1986), this court upheld the trial court’s determination that the offer and agreement constituted a complete agreement. Id. 387 N.W.2d at 525. In O’Brien, the seller objected to the purchase price after signing the offer and agreement to purchase. Id. at 524. Likewise, in Wiggins v. Shewmake, 374 N.W.2d 111 (S.D.1985), the offer and agreement together with an “Agreement to Occupy Prior to Close” was held to be sufficient to meet the writings requirement of SDCL 53-8-2 and support an action for specific performance. Id. at 115— 116. The Wiggins purchaser was required to obtain a “13% conventional loan” and we upheld the determination that such a phrase was not too ambiguous to allow specific performance. Id. at 116.

In this case, the Agreement contained all of the necessary terms to constitute a basic contract. The Agreement set forth the parties involved, a description of the property, the purchase price and the method of payment. The negotiations between Rusch and Kauker did not involve the Agreement, but concerned the Contract for Deed and topics of buyer security, i.e., time before default, inclusion of the bank in the agreement, escrow arrangements, and disposition of profits upon default. As in O’Brien, the Offer and Agreement is an agreement to purchase whereby, “all parties shall enter into subsequent paper work necessary to the incidental execution of the contract and that a party could not unreasonably withhold approval of the final document necessary to consummate the transfer of property.” O’Brien, 387 N.W.2d at 525 (emphasis added). Therefore, since all essential terms were expressed and unchanged, the Agreement was final and complete. Thus, the trial court’s conclusion to the contrary is erroneous under our standard of review of mixed questions of law and fact. Permann, 411 N.W.2d at 119.

Since the Agreement was final and complete, we must determine whether Kauker’s objections to the Contract for Deed were valid. Under the Agreement, the sale was contingent on Kauker’s approval of the Contract for Deed. It is clear that Kauker’s “approval” must be measured objectively and objections can not be arbitrary or unreasonable. O’Brien, 387 N.W.2d at 525; Restatement (Second) of Contracts § 228 comment b (1979). Kauker based his objection to the Contract for Deed primarily on the mortgage remaining on the property. This court has repeatedly stated that:

[I]n the absence of misrepresentation or fraud a purchaser cannot, prior to the time fixed by the contract for conveyance, complain that the seller’s title is deficient or encumbered.... ‘All the vendee may rightfully insist upon ... is that the title be perfect at the time fixed by the contract for final performance.’

Wolken v. Wade, 406 N.W.2d 720, 723-24 (S.D.1987), quoting Luck Land Co. v. Linstrom, 48 S.D. 21, 201 N.W. 707, 708 (1924); see also, Renner v. Crisman, 80 S.D. 532, 127 N.W.2d 717, 720 (1964). Under the proposed Contract for Deed, title was not to pass until the final payment was tendered. So long as the encumbrance remains less than the purchase price, as here, no defect to the title exists.

Where the incumbrance can be removed merely by the application of the purchase money, and the court can provide for a conveyance of clear title to the vendee, the mere fact that an incumbrance exists which the plaintiff has not removed, or even is unable to remove without the application of the purchase money, will not prevent a decree for specific performance.

Renner, 127 N.W.2d at 720, quoting Riley v. Wheat, 45 S.D. 320, 187 N.W. 425, 427 (1922). Therefore, since the mortgage was not a defect in Rusch’s title, Kauker’s objection to the Contract for Deed was unreasonable.

2. DAMAGES

Due to our holding on issue one, Rusch is entitled under the Agreement to retain Kauker’s earnest money deposit. In reliance upon the Agreement, Rusch terminated his lease to meet the closing and possession date specified by Kauker. Therefore, we reverse and remand for a determination of damages.

AMUNDSON, J., concurs. MILLER, C.J., concurs specially. WUEST and HENDERSON, JJ., dissent.

1 . Roach later married and changed her name to Christensen.

2 . There was testimony that the bank gave oral assurances that the Rusch mortgage would not be called upon the proposed sale to Kauker, but refused to give written assurance.

3 . The second draft of the contract for deed provided:

1)Monthly payments would include principal and interest.

2) Rusch would pay the mortgage in full in the event the bank exercised its rights to demand full payment due to the sale.

3) There would be 90 days notice of any intention to cancel the contract following any default.

4) Inspection of the house only upon reasonable belief that the property was being damaged, neglected or injured.