Edgar v. Mills
2017 SD 7
S.D.2017Background
- In 2003 the Edgars signed a written "Lease Agreement" with the Millses covering a Faulk County farm (Section 26); rent was annual and the lease terminated February 28, 2013.
- The lease contained a provision titled "Right of First Refusal" stating that if the land became "subject to sale after completion of the crop season in the final year," the lessee could buy by paying the final lease payment plus $7,201.
- The Edgars made numerous late and underpayments and missed the January 1, 2007 payment; the Millses never declared forfeiture and accepted later payments.
- At the end of the lease term the Edgars tendered approximately $16,146 and asked the Millses to execute a warranty deed; the Millses refused and the Edgars sued for specific performance (and fraud).
- The circuit court found the contract ambiguous (particularly the right-of-first-refusal and default provisions), admitted parol evidence, concluded the parties intended a lease-with-option to purchase, ordered the Edgars to cure unpaid amounts, and directed the Millses to execute a warranty deed upon payment.
- On appeal the Supreme Court reversed the specific-performance award, holding the right-of-first-refusal language was unambiguous (not an automatic option to purchase) and remanded remaining lease issues; the Court awarded the Millses partial appellate attorneys’ fees.
Issues
| Issue | Plaintiff's Argument (Edgar) | Defendant's Argument (Mills) | Held |
|---|---|---|---|
| 1. Whether court abused discretion by allowing Edgars to file amended reply just before trial | Amendment merely articulated defenses (waiver, laches, etc.) known to Mills; no prejudice | Prejudice from two days’ notice to prepare for affirmative defenses | Court did not abuse discretion; amendment allowed (no demonstrated prejudice) |
| 2. Whether court erred by admitting parol evidence before ruling contract ambiguous / before ruling on summary judgment | Parol evidence appropriate because factual record and trial setting; issues were known | Admission premature; court considered parol evidence before finding ambiguity | No reversible error—trial court may receive evidence and sift admissible from inadmissible; presumed to have done so |
| 3. Whether lease agreement was ambiguous (right of first refusal vs. option) | Right-of-first-refusal language should be read as an option triggered by final payment plus $7,201 | Contract is an unambiguous lease with conditional right of first refusal only if property is put up for sale after final crop season | Reversed: Court of Appeals holds right-of-first-refusal unambiguous; not an automatic option to purchase |
| 4. Whether specific performance could be ordered based on court’s interpretation | Specific performance appropriate because parties intended purchase upon final payment; equitable relief warranted | Specific performance improper because contract does not obligate sale; court rewrote agreement | Reversed: Specific performance vacated because it converted an unambiguous lease/right-of-first-refusal into a sale obligation contrary to the contract |
Key Cases Cited
- Shippen v. Parrot, 506 N.W.2d 82 (S.D. 1993) (trial court presumed to disregard inadmissible evidence and sift record)
- Poeppel v. Lester, 827 N.W.2d 580 (S.D. 2013) (parol evidence rule characterized as substantive law)
- Auto-Owners Ins. Co. v. Hansen Housing, Inc., 604 N.W.2d 504 (S.D. 2000) (discussion of parol evidence rule)
- Ziegler Furniture & Funeral Home, Inc. v. Cicmanec, 709 N.W.2d 350 (S.D. 2006) (standard for reviewing contract ambiguity)
- Detmers v. Costner, 814 N.W.2d 146 (S.D. 2012) (court will not rewrite contract or add omitted terms)
- Discover Bank v. Stanley, 757 N.W.2d 756 (S.D. 2008) (plain, unambiguous contracts enforced as written)
- Dowling Family P’ship v. Midland Farms, 865 N.W.2d 854 (S.D. 2015) (right-of-first-refusal explained)
- Laska v. Barr, 876 N.W.2d 50 (S.D. 2016) (treatment of rights of first refusal under South Dakota law)