Bank of Toronto v. Lengkeek

• Decision Date: 15 February 1989
• Docket Number: Nos. 15786,15932 and 16105,15802,s. 15786
• Parties: BANK OF TORONTO, a Corporation, Plaintiff and Appellee, v. Leon L. LENGKEEK, Janelle R. Lengkeek, David Dirksen, Cheri Dirksen and Doris C. Zwach, Defendants and Appellants. Leon L. LENGKEEK and Janelle R. Lengkeek, Plaintiffs and Appellants, v. Doris C. ZWACH, Defendant and Appellee. The BROOKINGS BANK, A Corporation, Plaintiff and Appellant, v. Leon L. LENGKEEK and Janelle R. Lengkeek, Defendants and Appellees.
• Court: South Dakota Supreme Court

Page 271

436 N.W.2d 271

BANK OF TORONTO, a Corporation, Plaintiff and Appellee, v. Leon L. LENGKEEK, Janelle R. Lengkeek, David Dirksen, Cheri

Dirksen and Doris C. Zwach, Defendants and Appellants.

Leon L. LENGKEEK and Janelle R. Lengkeek, Plaintiffs and Appellants, v. Doris C. ZWACH, Defendant and Appellee.

The BROOKINGS BANK, A Corporation, Plaintiff and Appellant, v. Leon L. LENGKEEK and Janelle R. Lengkeek, Defendants and Appellees.

Nos. 15786, 15802, 15932 and 16105.

Supreme Court of South Dakota.

Argued Aug. 30, 1988.

Decided Feb. 15, 1989.

T.F. Martin of MC Cann, Martin & MC Cann, Brookings, for Lengkeeks.

Richard J. Helsper of Erickson & Helsper, Brookings, for Bank of Toronto, Doris C. Zwach, and The Brookings Bank.

MILLER, Justice.

We have before us three cases which have been consolidated on appeal. The complexities of the facts and legal issues presented do not lend themselves to a concise and meaningful introductory paragraph. However, an understanding of the factual background in these cases is necessary in order to appreciate and properly analyze this "can of worms" which we must confront.

FACTS

One of the cases was previously before us. In Bank of Toronto v. Lengkeek, 397 N.W.2d 662 (S.D.1986) (Lengkeek I), we affirmed a declaratory judgment and a summary judgment but remanded to the trial court with certain directions to make the declaratory judgment consistent with our holding.

The facts in Lengkeek I, which are crucial here, may be summarized as follows:

On November 19, 1980, Leon and Janelle Lengkeek (Lengkeeks), as sellers, and David and Cheri Dirksen (Dirksens), as buyers, executed three separate contracts for deed concerning tracts of land located in Brookings County, South Dakota. One contract for deed conveyed 147 acres of farmland. Another contract for deed conveyed a 22-acre building site. The third contract for deed concerned the sale of a residence. On the same date, the parties executed a separate agreement (denominated by them as "Exhibit B"), which provided in part that, should any part of any of the tracts be sold subsequent to January 1, 1985, the unpaid principal on all three tracts would be due and payable at the sellers' request unless the buyers agreed to increase the interest rate on the contracts to the maximum amount allowed by South Dakota law.

On December 23, 1980, Dirksens assigned all three contracts to the Bank of Toronto (Bank) for security purposes. Thereafter, in April of 1981, Dirksens, with Lengkeeks' knowledge, sold the farmland to Doris Zwach (Zwach) by contract for deed. Dirksens then assigned the Dirksen/Zwach contract to Bank in August 1981. Lengkeeks had accepted payments on the sale for 1981, 1982, and 1983.

In February 1984, Dirksens quitclaimed their right, title and interest in the farmland, building site, and residence back to Lengkeeks. Thereafter, Lengkeeks refused to accept the farmland payment under the Dirksen/Zwach contract, which was tendered on March 1, 1984. This refusal was based on Lengkeeks' belief that Exhibit B tied all three contracts for deed together and that, if all three contracts were not paid, then all three were delinquent and subject to foreclosure.

In late March 1984, Lengkeeks served Bank with a Notice of Intention to Cancel and Determine Contract for Deed. In April, Bank filed a complaint seeking a declaratory judgment as to the parties' rights and obligations arising under the farmland contract.

In March 1985, prior to a decision in the declaratory judgment action, Lengkeeks commenced an action against Zwach and Bank seeking (via the Dirksen/Zwach contract for deed, which had been assigned to Bank by Dirksens) the past due 1984 and 1985 payments, specific performance, and/or the total amount owed on the farmland. Bank and Zwach answered and moved for summary judgment. Prior to the hearing on the motion for summary judgment, Zwach quitclaimed her interest in the farmland to Bank.

In October 1985, the trial court entered two judgments. The first awarded a declaratory judgment in favor of Bank. The second granted a summary judgment in favor of Zwach and Bank, ordering Lengkeeks to accept past (1984 and 1985) and future tenders of payment. In January 1986, Bank unilaterally quitclaimed the farmland back to Lengkeeks. At this point, Lengkeeks have thus regained, via several quitclaim deeds, title to all of the property which they had initially sold on contract to Dirksens.

In Lengkeek I, we affirmed the trial court's holding (noting that Bank had exonerated itself from specific performance by quitclaiming the land back to Lengkeeks), but remanded to the circuit court to enter a judgment requiring that Bank make the 1984 and 1985 payments. We thus held, "any future right of action on the part of the Lengkeeks against the Bank shall be foreclosed." Lengkeek I at 665.

APPEAL # 15786, # 15802--BANK OF TORONTO V. LENGKEEK, ET AL.

PAYMENTS UNDER THE DIRKSEN/ZWACH CONTRACT

The Lengkeek/Dirksen contract provided for payments of $3,465 in 1984, and $3,380 in 1985. The Dirksen/Zwach contract provided for payment of $8,350 in 1984 and $8,125 in 1985. Lengkeeks contend that they should receive from Zwach the amount due under the Dirksen/Zwach contract ($8,350) because they (Lengkeeks) received a quitclaim deed on their property from Dirksen. Lengkeeks therefore refused a tender of payment from Bank (as assignee of the Dirksen/Zwach contract) for the amounts due under the Lengkeek/Dirksen contract ($3,465).

After Lengkeeks refused payment from Bank for the amount due under the Lengkeek/Dirksen contract, Lengkeeks returned the checks sent by Bank for the 1984 payment (one made by Bank for $3,465 payable to Lengkeeks; the other made by Zwach for $8,350 payable to Bank of Toronto and Leon Lengkeek, which Lengkeek was to endorse and return to Bank), stating that, because the three contracts for deed were consolidated into one contract by virtue of Exhibit B, full payment in the amount of $11,765 (the total amount payable on the property by Dirksens to Lengkeeks under the Lengkeek/Dirksen contract) was due and owing. A postscript to the letter accompanying the unendorsed checks, sent to Bank's attorney, Gordon Gunderson, by Lengkeeks' attorney, suggested that the Zwach check be placed in an interest-bearing account until the dispute was resolved. Bank, however, returned Zwach's check to her. ^*

Lengkeeks received no payments for 1984 and 1985. The dispute surrounding Lengkeeks' refusal of payment by Bank culminated in this court's remand of Lengkeek I to the circuit court to determine the amount of the payments to be made to Lengkeeks. On remand, the circuit court determined that Lengkeeks were entitled to $7,642 plus interest at the judgment rate. This is equivalent to the amount due under the original Lengkeek/Dirksen contract. Lengkeeks appeal, arguing that as assignee of the Dirksen/Zwach contract they are entitled to $16,475 (the amount due under the Dirksen/Zwach contract).

Bank argues that the doctrines of res judicata and collateral estoppel preclude Lengkeeks from arguing that the trial court erred in concluding that Lengkeeks were entitled to receive only the amount due under the original Lengkeek/Dirksen contract. Bank also raises several issues in this appeal through its notice of review.

On remand of Lengkeek I, the circuit court heard testimony from Gordon Gunderson, counsel for Bank, regarding Bank's letter and tender of the two checks to Lengkeek in March of 1984. Gunderson wrote the letter to Lengkeeks, instructing them that the smaller check ($3,465) made payable to them represented Bank's payment on the Lengkeek/Dirksen contract and that the larger check ($8,350), which was made payable to Lengkeeks and Bank, was to be endorsed by them and returned to Bank. Lengkeeks' counsel objected several times during the course of Gunderson's testimony. The first objection was overruled, but the second objection, based on relevancy, materiality, and because the question called for a conclusion, led the court, after posing several questions to Gunderson, to strike Gunderson's testimony in its entirety. Bank contends that Gunderson's testimony is crucial to establishing that Bank never received or retained any money from Zwach in 1984, thus precluding Bank from receiving any benefit on the contract.

Second, Bank contends that the trial court erred in holding that Bank should make any payment to Lengkeeks. Bank's argument rests upon the fact that it did not retain Zwach's 1984 check, but instead returned such check to Zwach. Bank contends that the mere fact that it was the assignee under the Dirksen/Zwach contract does not personally bind it to make such payments on the Lengkeek/Dirksen contract because Bank never retained or had use of any payments made to Bank by Zwach.

Bank's third issue relates to the circuit court's order that Bank make the 1985 land payment with interest at the judgment rate. Bank contends that it never received any payment from Zwach and that the circuit court, on remand of Lengkeek I, was not instructed to order payment of such interest. Bank argues that the circuit court thus failed to follow this court's instructions on remand, and that the circuit court's order regarding interest should be reversed.

Bank further argues that Lengkeeks' refusal to accept the 1984 payment under the Lengkeek/Dirksen contract negates any requirement that Bank pay interest on the balance due under the contract. Bank contends that its tender of payment to Lengkeeks, which Lengkeeks would not accept, releases it from any liability to pay interest from the date that Lengkeeks refused such tender.

DECISION

We start with the basic premise that, absent an agreement to the contrary, a purchaser is free to transfer his rights under a contract for deed without the prior consent of the original vendor. See Powell on Real Property p 938.21 (Rev.1987) (footnotes omitted). See also Flack v. Laster, 417 A.2d 393 (D.C.Ap...