Schwarting v. Schwarting, 10610

• Decision Date: 30 August 1984
• Docket Number: No. 10610,10610
• Citation: 354 N.W.2d 706
• Parties: LeRoy H. SCHWARTING and Marie Schwarting, Plaintiffs, Appellees and Cross-Appellants, v. LaDonna SCHWARTING (now LaDonna Olson), Defendant, Appellant and Cross-Appellee. Civ.
• Court: North Dakota Supreme Court

Page 706

354 N.W.2d 706

LeRoy H. SCHWARTING and Marie Schwarting, Plaintiffs Appellees and Cross-Appellants, v. LaDonna SCHWARTING (now LaDonna Olson), Defendant, Appellant and Cross-Appellee.

Civ. No. 10610.

Supreme Court of North Dakota.

Aug. 30, 1984.

Chapman & Chapman, Bismarck, for plaintiffs, appellees and cross-appellants; argued by Daniel J. Chapman, Bismarck.

Rausch & Rausch, Bismarck, for defendant, appellant and cross-appellee; argued by Richard P. Rausch, Bismarck.

GIERKE, Justice (On Reassignment).

LeRoy and Marie Schwarting, the unsuccessful litigants in Schwarting v. Schwarting, 310 N.W.2d 738 (N.D.1981), brought an action against LaDonna Schwarting for the fair rental value of the land at issue in the prior proceeding which LaDonna occupied during 1981 while that case was pending appeal. In Schwarting, we upheld a district court judgment ordering LeRoy and Marie to specifically perform under an option contract and convey the property to LaDonna. The trial court in the instant case refused to award LeRoy and Marie the rental value of the property, but awarded them interest on the purchase price from February 1, 1981, to January 6, 1982, the date the purchase price was paid and the deed issued. The trial court also determined that LeRoy and Marie were entitled to be reimbursed $800 for the 1981 taxes they paid on the land. Judgment was entered for $5,459.15, and LaDonna has appealed. LeRoy and Marie have cross-appealed claiming that they should be awarded the fair rental value of the land. We affirm the judgment.

On February 3, 1980, LaDonna and her husband Clark entered into a 12-month option contract for the purchase of approximately 470 acres of land owned by Clark's parents, LeRoy and Marie. The option contract listed the purchase price as $70,500 and provided that "the purchase price shall be paid at the time of recording such deed." After Clark died, LaDonna exercised the option by sending LeRoy and Marie a "Notice of Acceptance of Offer to Sell Under Option" on June 12, 1980. LeRoy and Marie rejected LaDonna's notice of acceptance and refused to convey the property because they believed the option could have been exercised only by Clark and only then if he had received a loan from the Farmers Home Administration. LaDonna had received a loan commitment in 1980 from the Federal Land Bank, and was ready, willing, and able to pay the purchase price.

In late 1980, LaDonna brought suit for specific performance. The district court granted specific performance in a judgment dated February 3, 1981, and this Court affirmed on October 5, 1981.

Although LaDonna had entered into a lease agreement with LeRoy and Marie for the farming season of 1980, no lease was executed for 1981. LaDonna remained in possession of the land while the prior case was pending appeal. She rented out the land for $8,800 for the farming season of 1981, but LeRoy and Marie paid the taxes on the land. LeRoy and Marie subsequently brought this action seeking $8,000.

Before reaching the merits, we first address LaDonna's contention that LeRoy and Marie's claim for rent is barred because it should have been pleaded as a compulsory counterclaim in the prior proceeding. This assertion is without merit. Rule 13(a), N.D.R.Civ.P., provides in part that "[a] pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, ..." [Emphasis added.] A party is not required to assert a counterclaim that has not matured at the time he serves his pleading. 6 C. Wright and A. Miller, Federal Practice and Procedure: Civil Sec. 1411 (1971). The prior proceeding was commenced in 1980. The present action seeks rent for use of the land in 1981. This claim had not matured at the time LeRoy and Marie served their answer in the prior proceeding.

The trial court, in reaching its decision, stated that it was treating this case as an "equitable matter." Where a trial court exercises its discretion after weighing the equities of the case, we will not interfere in the absence of a showing that its discretion was abused. Zimmerman v. Campbell, 245 N.W.2d 469, 471 (N.D.1976). A trial court abuses its discretion when it acts in an arbitrary, unreasonable, or unconscionable manner. Fleck v. Fleck, 337 N.W.2d 786, 789 (N.D.1983). However, equity follows the letter and the spirit of the law and courts of equity are bound by and must follow and apply the principles of substantive law. Langenes v. Bullinger, 328 N.W.2d 241, 246 (N.D.1982).

The trial court in this case correctly refused to award LeRoy and Marie the rental value of the property during 1981. Once an option to purchase is exercised, the relationship of landlord and tenant is terminated and the relationship between the parties becomes that of vendor and vendee, and the lessor is no longer entitled to rent in the absence of an express stipulation so providing. Amann v. Frederick, 257 N.W.2d 436, 441 (N.D.1977). In Amann, supra, this Court stated:

"When the optionee exercises his option, he then becomes the owner of the real estate. As the owner of the real estate, he is entitled to collect the rents on the property. If he still had an obligation to pay rent, it would be an obligation to pay the rent to himself, which would certainly seem to be a superfluous action."

We recognize that Amann does not stand for the proposition that when an optionee exercises an option which specifies no time for payment, he becomes absolute owner of the property without making a payment within a reasonable time. Alumni Ass'n of University of North Dakota v. Hart Agency, Inc., 283 N.W.2d 119, 123 (N.D.1979). However, we do not believe that LaDonna's failure to pay the purchase price until 1982, after completion of the prior litigation, deprives her of her right to the rent received on the land in 1981. LaDonna had a loan commitment and was ready, willing and able to pay the purchase price in 1980. LeRoy testified that he would not have accepted the money from LaDonna if she had formally tendered it in 1980. The law does not require a party to a contract to perform vain and futile acts when there has been a refusal in advance to comply with the terms of the agreement. Fargo Public Library v. City of Fargo Urban Renewal Agency, 185 N.W.2d 500, 505 (N.D.1971); Sec. 9-12-17, N.D.C.C. Under these circumstances, LeRoy and Marie are not entitled to any rent.

The more difficult question is whether or not LeRoy and Marie are entitled to interest on the purchase price from February 1, 1981, the approximate date of the district court's judgment ordering specific performance in the prior proceeding, to January 6, 1982, when the purchase price was paid and the deed issued.

Although no North Dakota case is precisely in point, this Court, in Nasset v. Houska, 48 N.D. 668, 186 N.W. 255 (1921), recognized that a vendee who has had the use and benefit of land since his purchase of it may be required to pay to the vendor interest on the balance of the purchase price remaining unpaid since the date of the sale even though payment in full was not required until delivery of the warranty deed. In Nasset, however, it appears that the delay in closing the sale was caused by neither party.

The rule followed in a number of jurisdictions appears to be that where a vendee in possession exercises an option to purchase, and the vendor thereafter refuses to convey the property, the vendee is nevertheless required to pay interest on the unpaid portion of the purchase price even though the delay in the execution of the contract arises by the fault of the vendor. See generally Annot., 25 A.L.R.2d 951 (1952 and Later Case Service); Annot., 75 A.L.R. 316 (1931). The theory underlying this rule is that a purchaser should not be able to enjoy the use and profits of the land as well as the balance due on the purchase price without paying interest on the balance. Annot., 25 A.L.R.2d 951, supra; Annot., 75 A.L.R. 316, supra.

In Volk v. Atlantic Acceptance & Realty Co., 142 N.J.Eq. 67, 73, 59 A.2d 387, 392 (1948), the court stated:

" 'Where, pending the execution of an agreement for the sale of land which does not provide for possession of the land, the vendee takes possession of the land, a court of equity ordinarily will charge interest upon the unpaid purchase money. This is true although there is delay in the execution of the contract of sale by the vendor. In equity the vendor is ordinarily entitled to interest where the purchaser is let into possession and no provision is made in the contract for a delay in its execution, although the failure to complete the contract is due to the fault of the vendor, and in such a case in decreeing specific performance the purchaser is as a general rule to be charged with interest on the purchase money from the time it should have been paid if the contract had been carried out as contemplated by the parties, it being deemed inequitable that the purchaser should enjoy the benefit of the possession without liability for interest.' 55 Am.Jur. 774, Sec. 347."

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"And so, in the absence of some incompatible equity, it seems to be the predominant weight of judicial opinion in courts of equitable jurisdiction that in the ordinary case to accord the purchaser the beneficial enjoyment of the possession of the property without liability for any interest on the retained purchase money, is inequitable." [Emphasis in original.] ¹

See, e.g., Dillingham Commercial Co., Inc. v. Spears, 641 P.2d 1 (Alaska 1982); Shupe v. Ham, 98 Nev. 61, 639 P.2d 540 (1982); Estreen v. Bluhm, 79 Wis.2d 142, 255 N.W.2d 473 (1977).

Having carefully reviewed the record in this case, we cannot say that the circumstances are so inequitable as to prohibit the payment of interest to LeRoy and Marie. We further note that the trial court ordered the payment of interest at the legal rate of six percent, which is, in all probability, approximately one-half of...