Sternberg v. Caffee

• Citation: 2005 SD 14,692 NW 2d 549
• Decision Date: 26 January 2005
• Docket Number: No. 23104,23104
• Parties: A. CARL VON STERNBERG and MARK A. VON STERNBERG, Plaintiffs and Appellants, v. LAWRENCE CAFFEE, Defendant and Appellee.
• Court: Supreme Court of South Dakota

2005 SD 14

692 NW 2d 549

A. CARL VON STERNBERG and MARK A. VON STERNBERG, Plaintiffs and Appellants, v. LAWRENCE CAFFEE, Defendant and Appellee.

No. 23104

Supreme Court of South Dakota.

Argued on October 5, 2004

Opinion Filed January 26, 2005

CASEY N. BRIDGMAN of Bridgman and Adel, Wessington Springs, South Dakota, Attorneys for plaintiffs and appellants.

KENT SHELTON of Churchill, Manolis, Freeman, Kludt, Shelton & Burns, Huron, South Dakota, Attorneys for defendant and appellee.

KONENKAMP, Justice.

[¶ 1.] In this dispute over a farm management and cattle partnership contract, we conclude that the trial court should not have allowed defendant to offer evidence about an alleged oral modification to the contract because, in the circumstances of this case, the written contract could be modified only by a contract in writing. We affirm in part, reverse in part, and remand for a new trial on defendant's counterclaim.

Background

[¶ 2.] A. Carl and Mark A. Von Sternberg (plaintiffs) own a farm in Buffalo County, South Dakota. On December 18, 1999, Lawrence Caffee (defendant) and plaintiffs entered into a five-year "Management Agreement." Among other duties, defendant was to manage cattle and farming operations and sell gravel, sand, and rock. Plaintiffs prepaid $166,750 of anticipated expenses to defendant for the year 2000. The parties amended their written contract on February 26, 2000, agreeing that the terms were to take effect retroactively to January 1, 2000. With the amendment, defendant would continue his management responsibilities, but plaintiffs and defendant would be partners in the cattle operation.

[¶ 3.] The Management Agreement included a termination clause: on ninety days written notice to the other, either party could terminate the contract without cause or penalty. Although the agreement was to last for a period of five years, it required that the parties review the contract annually. If, after the annual review, either party was not satisfied with how the arrangement was transpiring, either side could terminate according to the contract's termination provision.

[¶ 4.] The first annual review meeting took place in November 2000. In attendance were the parties, along with their accountants, and Don Ensz, Carl Von Sternberg's friend and agent. At the meeting, defendant presented plaintiffs with an accounting, indicating that after deducting his expenditures from the $166,750 prepaid expenses, plaintiffs were entitled to $80,660.45. Defendant tendered a check for that amount. Carl Von Sternberg first accepted the check and then, wanting first to research the tax consequences, handed it back to defendant. Both accountants prepared documents indicating that the cattle partnership sustained a loss. As a result, defendant paid $8,914.55 to plaintiffs to settle the cattle operation accounting. For defendant's sale of gravel, plaintiffs paid him $10,000 as an incentive bonus.

[¶ 5.] Following the annual review meeting, Carl Von Sternberg learned that there were no adverse tax consequences in taking the $80,660.45. He asked defendant for the check, but defendant refused. On January 9, 2001, defendant notified plaintiffs by letter that the contract was terminated. Plaintiffs sued defendant for the $80,660.45 and for breach of contract in overgrazing plaintiffs' pastures. Defendant counterclaimed, alleging that (1) plaintiffs owed him $25,000 for the sale of gravel, (2) he had earned the $80,660.45, and (3) additional money was owed for other expenditures. Defendant would later support these claims with an accounting prepared long after the November 2000 annual review meeting.

[¶ 6.] The jury returned a $51,490.86 verdict for plaintiffs and a $25,000 verdict for defendant. Accordingly, the court entered a reduced judgment for plaintiffs for $26,490.86. On appeal, plaintiffs raise seven separate assignments of error. We address four issues: (1) whether the sale of gravel obtained from plaintiffs' land falls within the statute of frauds, thereby precluding oral testimony on a change in compensation terms; (2) whether the court erred in admitting the late accounting created nearly three years after the original accounting was submitted at the annual review meeting; (3) whether the court erred in allowing evidence of projected profits for the sale of cattle; and (4) whether the court erred in granting a directed verdict for defendant on plaintiffs' claim for breach of contract in overgrazing.¹

Analysis and Decision

A. Statute of Frauds

[¶ 7.] Defendant was to receive compensation at certain fixed rates for farming work and other responsibilities. No rate was fixed for the sale of gravel. Under the Management Agreement as amended on February 26, 2000, compensation for gravel sales was discretionary:

[Plaintiffs] may pay to [defendant], at [plaintiffs'] discretion, performance incentive bonuses. Such bonuses may be paid from time to time, at [plaintiffs'] discretion, and shall be based on [defendant's] overall performance regarding cropland, the sale of sand, gravel, rock, and similar materials, and the income from resale of real property purchased through the efforts of [defendant]. Nothing in this paragraph shall be construed to require [plaintiffs] to pay any such performance incentive bonuses, nor shall any practice of paying such performance incentive bonuses require [plaintiffs] to pay any future performance incentive bonuses, or to pay such bonuses at certain times.

[¶ 8.] Notwithstanding their written agreement, defendant asserted that plaintiffs' agent, Don Ensz, orally promised defendant that he would receive as compensation half of all gravel sales. Don Ensz testified that he never made any such promise. The trial court allowed defendant to offer this oral amendment to the Management Agreement as evidence in support of defendant's counterclaim.

[¶ 9.] Plaintiffs argue that any agreement for compensation on the sale of gravel was a sale of real property governed by the statute of frauds in SDCL 53-8-2(3). They also contend that because the Management Agreement was in writing, any amendment would have to be in writing in accord with SDCL 53-8-7. We need only address the second contention. The Management Agreement was memorialized in writing. SDCL 53-8-7 provides that "[a] contract in writing may be altered by a contract in writing without a new consideration or by an executed oral agreement, and not otherwise."

[¶ 10.] Defendant's payment for the sale of plaintiffs' gravel was set forth in the compensation clause of the contract. Any compensation for the sale of gravel was at plaintiffs' discretion. Defendant asserts that Don Ensz, Plaintiffs' agent, materially altered the payment provision entitling defendant to a 50% interest in the gravel sales. Without citing controlling legal authority, defendant insists that it "was not as much a change in the agreement as it [was] a clarification of what the bonus would be." Such an alteration of a written contract is controlled by SDCL 53-8-7. Defendant does not contend that this was an executed oral agreement. Because all the material provisions of the contract between plaintiffs and defendant were in writing, the alleged modification must also have been in writing. Accordingly, the trial court erred in permitting defendant to testify about the purported oral contract modification.

B. Admission of New Accounting

[¶ 11.] Plaintiffs next argue that the trial court erred in admitting into evidence defendant's new accounting provided nearly three years after the original accounting was supplied at the last annual review meeting.² This new accounting, plaintiffs contend, incorporated items wholly unrelated to the parties' cattle partnership. The language of the contract provision controlling the cattle agreement states:

In regard to the purchase, sale, and care of cattle, and for purposes of this paragraph . . . only, the relationship between the Owner [plaintiffs] and the Manager [defendant] shall be characterized as a partnership . . . . [Defendant] shall be referred to as the "Managing Partner" and [plaintiffs] shall be collectively referred to as the "Non-managing Partner."

(Emphasis added.) As such, plaintiffs believe that only accounting evidence of the cattle partnership should have been presented to the jury, not evidence of collateral damages.

[¶ 12.] "In all proceedings connected with the formation, conduct, dissolution, and liquidation of the partnership," partners are bound to act in the highest good faith toward their copartners. Betts v. Letcher, 1 SD 182, 46 NW 193, 198 (1890) (citation omitted). Each partner owes a fiduciary duty to the other partners. Hayes v. N. Hills Gen. Hosp., 1999 SD 28, ¶55, 590 NW2d 243, 253 (citing Betts, 1 SD 182, 46 NW at 198). It is true that we have quoted authority to the effect that an "accounting and settlement between copartners is a condition precedent to an action by one against another on partnership claims and transactions . . . ." Ellenbecker v. Volin, 75 SD 604, 609, 71 NW2d 208, 210 (1955) (citation omitted). In 2001, however, South Dakota revised its partnership laws. SDCL ch 48-7A. An accounting is now not necessary for one partner to maintain a cause of action against another partner to enforce rights under the partnership or for separate rights. SDCL 48-7A-405(b).

[¶ 13.] At the conclusion of the trial, the judge instructed the jury that it should determine what amount, if any, plaintiffs were owed under the contract with defendant. The court admitted the accounting evidence defendant provided. Trial courts are vested with wide discretion when making evidentiary rulings. U.S. Bank Nat. Ass'n v. Scott, 2003 SD 149, ¶15, 673 NW2d 646, 651. We will not disturb these rulings absent an abuse of discretion. In re Estate of Dokken, 2000 SD 9, ¶39, 604 NW2d 487, 498. This Court has held, too, that when determining damages, a party may present any evidence deemed relevant. See First Premier...