Commercial Trust and Sav. Bank v. Christensen

• Citation: 535 N.W.2d 853
• Decision Date: 22 May 1995
• Docket Number: 18915,Nos. 18909,s. 18909
• Parties: COMMERCIAL TRUST AND SAVINGS BANK as Administrator with Will Annexed of the Estate of Carrie Martin, Deceased, Plaintiff and Appellee, v. Russell V. CHRISTENSEN and Peter M. Christensen, Defendants and Appellants. . Considered on Briefs
• Court: Supreme Court of South Dakota

Page 853

535 N.W.2d 853

COMMERCIAL TRUST AND SAVINGS BANK as Administrator with Will Annexed of the Estate of Carrie Martin, Deceased Plaintiff and Appellee, v. Russell V. CHRISTENSEN and Peter M. Christensen, Defendants and Appellants.

Nos. 18909, 18915.

Supreme Court of South Dakota.

Considered on Briefs May 22, 1995.

Decided July 12, 1995.

Rehearing Denied August 16, 1995.

John L. Morgan of Morgan, Theeler, Cogley & Peterson, Mitchell, for plaintiff and appellee.

Wally Eklund of Johnson, Eklund, Nicholson, Dougherty & Abourezk, Gregory, for defendants and appellants.

MILLER, Chief Justice.

Appellants Russell V. Christensen and Peter M. Christensen (Christensens) appeal the trial court's grant of summary judgment to Appellee Commercial Trust & Savings Bank (Bank), the award of costs for expenses incurred by a potential witness, and the denial of restitution for improvements made to leased property. By notice of review, Bank claims Christensens were not entitled to restitution for payments of real estate taxes and purchase installments made on an invalid lease and option agreement. We affirm all issues except we reverse and remand the award of witness costs.

FACTS

Carrie Martin (Martin) owned a 627-acre tract of land in Brule County, South Dakota. On September 24, 1979, she leased this property to her grandsons, Russell Christensen and Peter Christensen. The term of the lease spanned ten years, from March 1, 1980 through February 28, 1990. The lease included an option to purchase the property, which option could be exercised at any time prior to the termination of the lease. Under the terms of the lease and option agreement, lease payments would be credited toward the purchase price in the event Christensens exercised the option.

On July 3, 1987, Martin and Christensens entered into another contract entitled Addendum to Farm Lease (Addendum). The Addendum reiterated the original ten-year lease term, ending February 28, 1990. In addition, the Addendum gave Christensens the choice to extend the original lease and option beyond the February 28, 1990, termination date. The contract stated in relevant part:

That prior to February 28, 1990 the tenants shall have the option of extending the lease for a period of twenty (20) years under the same terms and conditions. This lease shall automotically [sic] be renewed, unless tenants give written notice of their intention not to renew the lease.

. . . . .

The Landlord shall pay any and all taxes and assessments upon the premises during the term of this lease and any renewal hereof or until the option to purchase is exercised as hereinafter set forth.

The Landlord hereby gives to the Tenant an irrevocable option to purchase the real estate described herein, upon the following terms and conditions:

a. The price for said real estate shall be One Hundred Twenty Six Thousand Four Hundred ($126,400.00) Dollars, and any amounts paid under the Ten (10) year lease and any renewal hereof set forth shall apply to the total purchase price for said real estate.

. . . . .

c. This option may be exercised at anytime prior to March 1st, 2010.

. . . . .

Both parties hereto understand and agree that this lease agreement and the option herein shall be binding upon the heirs, executors and assigns of all parties.

Martin died June 8, 1988. Her will gave the bulk of her estate to her children and grandchildren, including Christensens. Some of the beneficiaries questioned the validity of the Addendum. On August 3, 1990, Christensens indicated their intent to exercise the option to purchase contained in the Addendum.

Ultimately, Bank was appointed as the administrator with will annexed of Martin's estate. On June 29, 1993, Bank commenced a quiet title action against Christensens, challenging the validity of the Addendum. Christensens later counterclaimed, seeking reimbursement for real estate taxes, improvement costs, and purchase payments on the land.

Granting Bank's summary judgment motion, the trial court ruled the lease agreement contained in the Addendum was invalid, because it violated the statutory prohibition on agricultural land leases in excess of twenty years. The trial court concluded the option to purchase the property was an integral part of the invalid lease agreement, and therefore was also void. The trial court awarded Christensens the amount of real estate taxes and installment payments made on the property from 1990 through 1993, minus the reasonable rental value of the land. The court denied Christensens any reimbursements for permanent improvements they made to the land. ¹ Finally, the trial court awarded Bank certain costs associated with bringing the matter to trial.

ISSUE I

DID THE AMENDED LEASE AGREEMENT OF JULY 3, 1987 VIOLATE SDCL 43-32-2 BY ALLOWING A LEASE PERIOD BEYOND TWENTY YEARS?

The trial court ruled the Addendum to Farm Lease, dated July 3, 1987, violated SDCL 43-32-2, which provides in pertinent part:

No lease or grant of agricultural land for a longer period than twenty years, in which shall be reserved any rent or service of any kind, shall be valid.

The Addendum reads in part:

The Landlord hereby leases to the Tenants to occupy and use for agricultural and related purposes the following described property located in Brule County, South Dakota, for the term of ten (10) years to commence on March 1, 1980 and ending February 28, 1990:

[legal description omitted]

That prior to February 28, 1990 the tenants shall have the option of extending the lease for a period of twenty (20) years under the same terms and conditions. This lease shall automotically [sic] be renewed, unless tenants give written notice of their intention not to renew the lease.

The trial court concluded that the lease permitted Christensens to rent the property for an additional twenty years beyond the original ten-year lease period. Because the total extended lease term exceeded the twenty-year limit set forth in SDCL 43-32-2, the trial court ruled the lease was invalid.

Christensens argue the contract should be construed to effectuate valid contractual relations. They assert the language of the lease can properly be read to extend the lease for a total of twenty years, rather than for an additional twenty years. Christensens focus on the phrase "the tenants shall have the option of extending the lease for a period of twenty (20) years." They contend that the agreement simply allowed Christensens to add an additional ten-year term to the existing ten year lease. Under this interpretation, the extended lease period would expire on February 28, 2000.

Interpretation of contractual provisions is a question of law. Butterfield v. Citibank of S. Dak., 437 N.W.2d 857, 858 (S.D.1989). Because we can review the contract as easily as the trial court, there is no presumption in favor of the trial court's determination. Baker v. Wilburn, 456 N.W.2d 304, 306 (S.D.1990).

Christensens properly argue that "a contract should be construed to effectuate valid contractual relations rather than in a manner which would render the agreement invalid[.]" Kuhfeld v. Kuhfeld, 292 N.W.2d 312, 315 (S.D.1980) (citations omitted). However, in an effort to preserve the validity of a contract, this Court will not resort to strained or unusual interpretations. The Addendum gives Christensens the option of extending the lease for a period of twenty years. The Addendum does not extend the lease to a period of twenty years, as Christensens suggest. Furthermore, the notion that the phrase operates only as an outer limit on the lease term does not survive careful consideration. For example, if the contract gave the option of "extending the lease for a period of ten (10) years," rather than twenty, the provision would be a nullity under Christensens' analysis; the lease already spanned ten years, so a ten-year extension could be given no effect under their view.

Other portions of the Addendum indicate that the extension was intended to add another twenty years to the ten-year lease term. " 'A contract should be considered as a whole and all of its parts and provisions will be examined to determine the meaning of any part.' " Enchanted World Doll Museum v. Buskohl, 398 N.W.2d 149, 151-52 (S.D.1986) (quoting Jones v. American Oil Co., 87 S.D. 384, 387, 209 N.W.2d 1, 3 (1973)). The contract gave Christensens an irrevocable option to purchase the real estate, and allowed any amounts paid under the ten-year lease and the subsequent extension to be applied to the purchase price. According to the contract, the option was open until March 1, 2010, thirty years after the initial lease date. If we interpret the lease extension as allowing an additional twenty-year lease period, the lease and the option would terminate simultaneously. This is a sensible outcome, since the contract allows the lease payments to be applied toward the purchase price. In contrast, if we accept Christensens' interpretation, the option would remain open ten years after the lease had expired. Christensens could exercise the purchase option on February 28, 2010, and insist that lease payments which ended ten years earlier be applied to the purchase price. We cannot conclude that the parties to the contract intended this bizarre result.

The trial court correctly held that, because the Addendum contract extends an agricultural lease beyond twenty years, in violation of SDCL 43-32-2, the lease is invalid.

ISSUE II

WAS THE OPTION TO PURCHASE VOID BECAUSE IT WAS AN INTEGRAL PART OF THE INVALID LEASE AGREEMENT BETWEEN CHRISTENSENS AND CARRIE MARTIN?

Even though the extended lease contained in the Addendum violated South Dakota law, Christensens argue the option to purchase is enforceable because it can be severed from the invalid portion of the contract. Christensens point to statutory authority for the divisibility of contracts:

Where a contract has several distinct objects, one or more of which are lawful and one or more of which are...