First Nat. Bank of Biwabik Minnesota v. Bank of Lemmon, s. 18816

Citation535 N.W.2d 866
Decision Date14 February 1995
Docket Number18823,Nos. 18816,s. 18816
PartiesFIRST NATIONAL BANK OF BIWABIK, MINNESOTA, and Norwest Leasing, Inc., Plaintiffs and Appellants, v. BANK OF LEMMON, Defendant and Appellant, and First State Bank of Miller, Defendant and Appellee. . Considered on Briefs
CourtSupreme Court of South Dakota

James M. Cremer, Bantz, Gosch, Cremer, Peterson & Sommers, Aberdeen, for plaintiffs and appellants.

Robert M. Nash, Wilson, Olson, Nash, Becker & Smoot, Rapid City, for defendant and appellant.

Roger W. Damgaard and James Moore, Woods, Fuller, Shultz & Smith, Sioux Falls, for defendant and appellee.

Circuit Judge Robert L. TIMM, serving in the place of Justice Robert A. Amundson, who has deemed himself disqualified, delivers the majority opinion of the Court with respect to affirmance of the trial court's judgment.

Chief Justice Robert A. MILLER delivers the majority opinion of the Court with respect to the issue of the correct standard of review.

TIMM, Circuit Judge, writing the majority opinion with respect to the affirmance of the trial court's judgment and dissenting as to the issue of the correct standard of review:

This is an appeal from a declaratory judgment determining fair market value of certain real and personal property. We affirm.


'Lil Feller, Inc. ('Lil Feller) owned and operated convenience stores in Lemmon and Mobridge. In early 1993, 'Lil Feller and the parties in this action, all secured creditors, entered into an agreement whereby the stores would be sold. Sale proceeds were to be divided among the secured creditors.

Bank of Lemmon, First National Bank of Biwabik, Minnesota, and Norwest Leasing, Inc. (Lemmon, Biwabik and Norwest) were secured by personal property. First State Bank of Miller (Miller) was secured by real estate.

Bids were solicited. The solicitation letter read:

Enclosed please find a bid sheet for the Lemmon and Mobridge stores. I realize that you will want to allocate as much of the purchase price to depreciable assets with the shortest useful lives for tax purposes. So that the various parties realize their fair share of the sale proceeds, please make your bid based on true values at this time and at the time a sale is consumated [sic], you may allocate the total purchase price however you would like.

Mike Howes (Howes), president of Howes Oil Co., broke down his bid as follows:

                                           LEMMON 'LIL FELLER      MOBRIDGE 'LIL FELLER
                      Real Estate               $176,500                 $152,500
                      Personal Property         $ 48,500                 $ 42,500
                                                --------                 --------
                        TOTAL BID               $225,000                 $195,000

Howes' bid was accepted and 'Lil Feller sold the stores to Howes' family corporations (the real estate to I-90 Truck Haven Services, and the personal property to TAN CORP). The closing statement, executed by Howes as president for both purchasing corporations, assigned the following values to the real and personal property:

                                           LEMMON 'LIL FELLER      MOBRIDGE 'LIL FELLER
                      Real Estate               $ 85,000                 $ 85,000
                      Personal Property         $140,000                 $110,000
                                                --------                 --------
                        TOTAL BID               $225,000                 $195,000

Unable to agree on which set of values would control division of the sale proceeds, the secured creditors sought declaratory relief in circuit court. There, without objection, the bid and closing statement allocations were submitted together with related deposition testimony of Howes. A third set of values was added through testimony of Steve Tomac (Tomac), an appraiser:

                                           LEMMON 'LIL FELLER      MOBRIDGE 'LIL FELLER
                      Real Estate               $110,000                 $100,000
                      Personal Property         $115,000                 $ 95,000
                                                --------                 --------
                        TOTAL BID               $225,000                 $195,000

The trial court found several flaws in the appraiser's methodology, and rejected his appraisal as unpersuasive. The closing statement values were also rejected based on Howes' testimony that they were given for tax purposes, and did not represent fair market value. The bid allocation, given in response to the request for "true values," was found by the court to most accurately reflect the fair market value of 'Lil Feller property, real and personal, at the time of sale.

From these findings, Lemmon, Biwabik and Norwest seek to unbind themselves. First, they argue that the parol evidence rule, as a matter of law, precluded trial court consideration of the bid allocation, and compelled acceptance of closing statement values as conclusive on the issue of fair market value. Alternatively, Lemmon, Biwabik and Norwest urge this Court to review the evidence de novo, substitute its judgment for the trial court's, and establish fair market value of the 'Lil Fellers based on either the closing statement or appraisal allocation.


The question of whether the parol evidence rule precluded consideration of the bid allocation and related testimony was first raised post-trial in written argument. The trial court held that failure to object to consideration of the evidence during trial waived the issue. Lemmon, Biwabik and Norwest maintain that their failure to object is of no legal consequence. They suggest that the trial court erred as a matter of law, (citing Farmers State Bank v. Keiser, 83 S.D. 354, 159 N.W.2d 388, 390 (1968)):

The parol evidence rule is not a rule of evidence, but is a rule of positive or substantive law founded upon the substantive rights of the parties. 30 Am.Jur.2d Evidence § 1017; Williams v. Williams, 251 Iowa 260, 100 N.W.2d 185 [(1959)]; City of Des Moines v. City of West Des Moines, supra [244 Iowa 310, 56 N.W.2d 904 (1953)]. Admission of testimony in violation of the parol evidence rule does not make the testimony competent, whether it is admitted without, or over, objection. Such evidence will be disregarded even though no objection is made thereto. Randolph v. Fireman's Fund Insurance Co., 255 Iowa 943, 124 N.W.2d 528, 8 A.L.R.3d 907 [(1963)]; Williams v. Williams, supra. Since the parol evidence rule is one of substantive law, the admission, without objection, of such testimony does not preclude the trial court from disregarding it upon a motion to direct a verdict, and an appellate court cannot consider such evidence or give it any weight. 30 Am.Jur.2d, Evidence § 1022.

The Farmers State Bank case was submitted under the substantive law of Iowa, not the settled law of South Dakota. Id. at 389. The long standing rule in this jurisdiction is that without a motion to strike or an objection to receipt of evidence on the basis that it violates the parol evidence rule, the issue is waived. Smolnikar v. Robinson, 479 N.W.2d 516 (S.D.1992); Cosand v. Bunker, 2 S.D. 294, 50 N.W. 84 (1891); McLaughlin v. Wheeler, 1 S.D. 497, 47 N.W. 816 (1891). That rule applies in this case. Consequently, the parol evidence issue will not be reviewed here.

a) Standard of Review

Lemmon, Biwabik and Norwest ask for de novo review of the evidence on fair market value. They contend that the clearly erroneous rule does not govern this Court's review because the evidence in support of the trial court's finding on this issue was presented by document (bid solicitation letter, bid) and deposition (Howes' deposition).

Miller responds that the clearly erroneous rule controls our review because not all of the evidence on fair market value was presented by document or deposition. Miller points out that the trial court weighed the bid allocation evidence against the in-court testimony of the appraiser, Tomac, before determining fair market value of the property.

This writer agrees the clearly erroneous standard applies, but for reasons other than those suggested by Miller.

Prior to South Dakota's adoption of the federal clearly erroneous rule, Rule 52(a), in cases where the trial judge did not have the opportunity to judge the credibility of witnesses, e.g. where the case was submitted on affidavits or deposition testimony, this Court reviewed the evidence de novo, without deference to the trial court's findings of fact. See State Auto Casualty Under. v. Ruotsalainen, 81 S.D. 472, 136 N.W.2d 884 (1965); Brewster v. F.C. Russell Co., 78 S.D. 129, 99 N.W.2d 42 (1959); Credit Management Service v. Wendbourne, 76 S.D. 80, 72 N.W.2d 926 (1955); Royal Union Life Ins. Co. v. Boynton, 54 S.D. 85, 222 N.W. 596 (1928); Smith v. Hart, 49 S.D. 582, 207 N.W. 657 (1926).

The federal standard of review was adopted by rule of this Court in 1966. It is found at SDCL 15-6-52(a) and states:

Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses.

Following the advent of this standard of review, de novo review persisted in cases where evidence was presented by deposition or affidavit. Leslie v. City of Bonesteel, 303 N.W.2d 117 (S.D.1981); Pearson v. Franklin Laboratories, Inc., 254 N.W.2d 133 (S.D.1977); Ayres v. Junek, 247 N.W.2d 488 (S.D.1976); Walsh v. Shoulders, 87 S.D. 270, 206 N.W.2d 60 (1973); Geo. A. Clark and Son, Inc. v. Nold, 85 S.D. 468, 185 N.W.2d 677 (1971), cert. denied, 404 U.S. 833, 92 S.Ct. 82, 30 L.Ed.2d 63 (1971); Davis v. Interstate Motor Carriers, 85 S.D. 101, 178 N.W.2d 204 (1970). None of these cases analyzed the language of SDCL 15-6-52(a) or questioned whether de novo review was compatible with the clearly erroneous rule.

At the federal level, courts split on whether Rule 52(a) contemplated de novo review of evidence. See Annotation, Application of "Clearly Erroneous" Test of Rule 52(a) of Federal Rules of Civil...

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