Ivey & Kornmann v. Welk
898 N.W.2d 461
| S.D. | 2017Background
- Ivey and Kornmann (the Partnership) owned property; partner Charles Kornmann (also trustee of the Kornmann Revocable Trust) arranged construction of a twin home and dealt with William Welk, who provided labor April 2009–Jan 2010.
- The Partnership conveyed the property to the Trust during construction; Kornmann handled dealings with Welk and funds appear commingled among Partnership, Trust, and Kornmann’s personal accounts.
- On Sept. 29, 2010 the Partnership (funds from Kornmann’s personal account) loaned Welk $31,000; Welk executed a demand promissory note on Oct. 1, 2010 and later failed to pay.
- Welk asserted affirmative defenses (accord and satisfaction, novation, substitution) claiming the note had been satisfied by an agreement tied to his construction work; he also counterclaimed for breach of contract, fraud/deceit/misrepresentation, negligent misrepresentation, and unjust enrichment related to the construction agreement.
- The circuit court granted summary judgment for the Partnership on the note and dismissed Welk’s defenses and counterclaims, reasoning the partnership agreement required unanimous partner consent to discharge debts and that the counterclaims belonged against the Trust (the current property owner).
- The Supreme Court reversed and remanded, finding the circuit court erred as a matter of law in two respects and that disputed factual issues remained for trial.
Issues
| Issue | Plaintiff's Argument (Partnership) | Defendant's Argument (Welk) | Held |
|---|---|---|---|
| Whether a partner’s agreement to discharge a Partnership debt is categorically ineffective because the partnership agreement requires unanimous consent to release partnership debts | The partnership agreement prohibits a partner from releasing partnership debts without unanimous consent; therefore any discharge by Kornmann is ineffective | A partnership agreement governs only relations among partners and does not necessarily prevent a partner, acting with apparent or actual authority, from binding the partnership to third parties | Reversed: partnership agreement alone does not categorically bar enforcement; whether Kornmann bound the Partnership is a factual question (apparent/actual authority, notice, and ordinary-course exceptions apply) |
| Whether Welk’s affirmative defenses (accord & satisfaction, novation, substitution) fail as a matter of law because no all-partner consent exists | No evidence all partners consented; therefore defenses that would discharge the Partnership’s note cannot succeed | Defenses raise disputed factual issues (e.g., whether an agreement to discharge existed and whether Kornmann had authority) | Reversed as to legal bar: court erred to grant summary judgment solely on partnership agreement lack of consent; factual issues remain |
| Whether Welk’s counterclaims (breach, fraud, misrepresentation, negligent misrepresentation, unjust enrichment) can be asserted against the Partnership | Counterclaims must be brought against the Trust (current owner); Partnership did not own/benefit and thus cannot be liable | The alleged construction agreement and communications were with Kornmann as a partner acting for the Partnership; Partnership may be liable if Kornmann acted for it or Partnership received benefit | Reversed: circuit court gave no legal basis for barring claims against the Partnership; disputed facts (who Kornmann represented; commingling of assets; benefit to Partnership) preclude summary dismissal |
| Whether unjust enrichment fails because the Trust, not the Partnership, retains the benefit | Unjust enrichment inapplicable because Partnership was not the entity retaining the benefit | Evidence of commingling and Partnership involvement creates a factual dispute whether Partnership received/retained benefit | Reversed: cannot conclude unjust enrichment fails as a matter of law at summary judgment given disputed facts |
Key Cases Cited
- Karst v. Shur-Co., 878 N.W.2d 604 (S.D. 2016) (summary-judgment standard and evidence viewed in favor of nonmoving party)
- Wulf v. Senst, 669 N.W.2d 135 (S.D. 2003) (summary judgment affirmed only when no genuine issue of material fact exists)
- Hofeldt v. Mehling, 658 N.W.2d 783 (S.D. 2003) (elements of unjust enrichment and requirement of retention of benefit)