Cramer v. Smith, 19994

• Decision Date: 11 September 1997
• Docket Number: No. 19994,19994
• Citation: 1997 SD 137,572 N.W.2d 445
• Parties: Diane R. CRAMER, formerly known as Diane R. Smith, Plaintiff and Appellant, v. Murray T. SMITH, Defendant and Appellee. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 445

572 N.W.2d 445

1997 SD 137

Diane R. CRAMER, formerly known as Diane R. Smith, Plaintiff and Appellant, v. Murray T. SMITH, Defendant and Appellee.

No. 19994.

Supreme Court of South Dakota.

Considered on Briefs Sept. 11, 1997.

Decided Dec. 23, 1997.

Mark F. Marshall and Scott N. Heidepriem of Johnson, Heidepriem, Miner & Marlow, Sioux Falls, for plaintiff and appellant.

Richard A. Johnson of Strange, Farrell, Johnson & Casey, Sioux Falls, for defendant and appellee.

AMUNDSON, Justice.

¶1 Diane R. Cramer (Cramer) appeals the circuit court's decision declining to hold Murray T. Smith (Smith), her former husband, in contempt for an alleged violation of their divorce stipulation and property settlement agreement. We affirm.

FACTS

¶2 Cramer and Smith were divorced on June 2, 1994. The divorce decree included a negotiated stipulation and agreement (agreement) setting out the property interests of Cramer and Smith in the marital assets. The principal asset of the marriage was an ownership interest in Midwest Coast Transportation, Inc. (MCT). The agreement included three paragraphs (9, 11 and 12) pertaining to the sale of the parties' ownership interest in MCT.

¶3 Paragraph nine of the agreement stated the following:

As provided on Exhibit "A", each party shall receive one-half the gross proceeds due from the remaining note due on the contract for sale of the parties' interest in Midwest Coast Transport, Inc., as the same are paid. Each party shall be responsible for one-half the tax liability resulting therefrom.

¶4 Paragraph eleven goes further in addressing the issue of tax liability for the sale of MCT by providing:

The sum of $152,182 has been paid toward the tax liability resulting from the sale of the parties' interest in Midwest Coast Transport, Inc. Each party shall pay one-half any additional tax liability resulting from said sale. Each party shall escrow the sum of $200,000 in a separate account until such time as the complete income tax liability is determined and paid in full.

¶5 Paragraph twelve of the agreement makes Smith solely responsible for "all other debts and obligations relating to Midwest Coast Transport."

¶6 Cramer contends that Smith has attempted to renege on the provisions and intent of paragraph eleven of the agreement by misappropriating part of the money set aside for the payment of taxes due on the sale of MCT. Specifically, Cramer claims Smith applied part of the $152,182 recited in paragraph eleven of the agreement toward his personal tax obligations for the tax year 1993. Since the MCT sale closing was in 1994, Cramer contends that taxes related to the sale of MCT would not be payable at all for the tax year 1993. Therefore, payments made from the $152,182 by Smith to the IRS for 1993 could not have been incurred in the course of the sale of MCT, which did not occur until 1994. On this basis, Cramer sought to have Smith held in contempt and also to receive judgment against Smith for $47,523, plus interest and costs.

¶7 Smith's evidence revealed that there were taxable events for 1993 associated with the sale of MCT. Smith's expert, David Knudson, the attorney who represented Smith in the sale of MCT, testified that Smith received what are referred to as "draw down" ¹ distributions for the fourth quarter of 1993 pursuant to the plan for the sale of MCT. Knudson also testified that the draw down was an integral part of the sale of MCT. Previously, MCT had a history of accumulating capital because only certain distributions were allowed by the partnership agreement. Knudson testified further that, but for the sale of MCT, Smith would not have been able to receive the draw down distributions without an amendment to the partnership agreement. Such an amendment would require the consent of the other members of the partnership. Thus, because the draw down was an extraordinary event that was part of the plan for the sale of MCT, Smith argues that taxes resulting from the draw down are taxes "resulting from the sale of the parties' interest" in MCT in accordance with the agreement.

¶8 The trial court, after considering all the evidence, found there was no basis for finding Smith in contempt. The trial court grounded its decision on the fact that the parties settled a 1993 income tax dispute by filing a joint return and applying part of the $152,182 toward the 1993 tax liability and the balance toward subsequent years' liability due from the sale of MCT. The trial court did find, however, and Smith agreed, that Smith had mistakenly withheld $5,196 from the payments for the sale of MCT that were owed Cramer. Cramer appeals raising the following issue:

Did the circuit court err in determining that Smith had not violated the agreement and was not guilty of contempt?

STANDARD OF REVIEW

¶9 A court applies contract principles when interpreting a property settlement agreement incorporated into a divorce decree. Steffens v. Peterson, 503 N.W.2d 254, 258 (S.D.1993) (citation omitted). The interpretation of these agreements is a matter of law for the courts to decide. Hisgen v. Hisgen, 1996 SD 122, p 4, 554 N.W.2d 494, 496 (citing Houser v. Houser, 535 N.W.2d 882, 884 (S.D.1995)). Findings of fact on which the trial court based its decision are reviewed under the clearly erroneous standard. Adam v. Adam, 436 N.W.2d 266, 267 (S.D.1989). The findings of fact of the trial court will not be overturned unless this Court is left with a definite and firm conviction that a mistake has been made. Hilbrands v. Hilbrands, 429 N.W.2d 750, 751 (S.D.1988) (citation omitted).

¶10 We have set forth the procedure for analyzing a property settlement agreement as follows:

First, in determining the proper interpretation of a contract the court must seek to ascertain and give effect to the intention of the parties. Chord v. Pacer Corp., 326 N.W.2d 224, 226 (S.D.1982); Johnson v. Johnson, 291 N.W.2d 776, 778 (S.D.1980); Huffman v. Shevlin, 76 S.D. 84, 89, 72 N.W.2d 852, 855 (1955). In determining the intention of the parties, a court must look to the language that the parties used. Johnson, 291 N.W.2d at 778; Berry v. Benner, 81 S.D. 610, 617, 139 N.W.2d 285, 289 (1966).

* * *

If the intention of the parties is not clear from the writing, then it is necessary and proper for the court to consider all the circumstances surrounding the execution of the writing and the subsequent acts of the parties. Janssen v. Muller, 38 S.D. 611, 614, 162 N.W. 393, 394. The construction given by the parties themselves to the contract as shown by their acts, if reasonable, will be accorded great weight and usually will be adopted by the court. Huffman, 76 S.D. at 89, 72 N.W.2d at 855.

Malcolm v. Malcolm, 365 N.W.2d 863, 865 (S.D.1985).

¶11 Contempt requires a showing of willful disobedience of a valid court order with knowledge of the contents of the order and ability to comply with terms of the order. Taecker v. Taecker, 527 N.W.2d 295, 298 (S.D.1995).

DECISION

Was the trial court's finding that Smith did not violate the agreement and was not in contempt clearly erroneous?

¶12 The language of paragraph eleven of the agreement provides little support for Cramer's allegation of contempt. The first sentence states that "$152,182 has been paid toward the tax liability resulting from the sale of the parties' interest in Midwest Coast Transport, Inc." This language, agreed to by both parties to the agreement, is in the nature of a recital of fact. Cramer claims in her brief that this language reflected the first quarter estimates that were due on or about April 15, 1994. On its face, the sentence does not appear to create any prospective obligations of either party. It states that money "has been paid." This is a recital of past performance, not one of future duties. If so, it is not apparent how this could create any obligation on the part of either Cramer or Smith.

¶13 However, it appears that both parties have actually interpreted the first sentence of paragraph eleven of the agreement to mean $152,182 has been paid to Smith who will apply it toward any tax liability resulting from the sale of MCT. This conclusion is supported by the parties' subsequent conduct. Since the agreement does not provide a clear obligation as to the $152,182 set-aside, and since it has been given a different meaning as evidenced by the subsequent conduct of the parties, "it is necessary and proper for the court to consider all the circumstances surrounding the execution of the writing and the subsequent acts of the parties." See Malcolm, 365 N.W.2d at 865 (citation omitted).

¶14 The actions of the parties in this case provide strong evidence of the intended meaning of their agreement. The correspondence between Cramer's divorce counsel ² and Smith's divorce counsel demonstrates a dispute surrounding their clients' respective duties to pay taxes after the agreement was finalized. Cramer's counsel sent a letter dated June 21, 1994, to Smith's counsel, contending "[we] did not agree, nor do we now agree, that we will be responsible for any income tax liabilities for the Smiths in 1993 and only those in 1994 which are a direct result of the sale of Midwest Coast." However, the succeeding paragraph of the letter claims "Diane is not responsible for tax on income beyond that for the year 1993, and will file a separate return for 1994." This impliedly admits that Cramer is responsible for income taxes for 1993 in contravention to her previous claim.

¶15 The letter continues in the next paragraph as follows:

Diane will not be signing any joint income tax returns until this matter is resolved. I will hold the income tax documents you have forwarded to me for her signature until we have a written agreement between the parties. If we are not able to reach an agreement, I will ask Diane to consult with John Wanande. I would presume that she would file a separate income tax return for the calendar year of 1993, and claim only that income...