864 N.W.2d 1
S.D.2015Background
- In 1999 Stadheim leased land to Flack Signs for ten years with automatic yearly renewals (capped at a total of ten additional years); lease was unrecorded and two large billboards were erected.
- Flack Signs was acquired by Lamar in 2002; Carlson acquired the land in 2002 and encumbered it with cross-collateralized mortgages to Dacotah Bank (first mortgage 2005).
- In 2009 Carlson and Lamar executed a new 15-year lease for the billboard locations with materially different terms (removed certain lessor termination rights, added rent increases, and extended beyond the 1999 lease’s extension period).
- In 2012 Carlson defaulted and Dacotah Bank foreclosed nonjudicially; Jermar bought the property at foreclosure and recorded title; Lamar received notice of foreclosure and did not redeem.
- Jermar sought quiet title, arguing the 2009 lease was a novation that extinguished Lamar’s prior 1999 leasehold (which was senior to the mortgage); the circuit court found a novation and entered judgment for Jermar; Lamar appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2009 lease was a novation that extinguished the 1999 lease | The 2009 lease substituted a new contract and extinguished the old lease; parties intended replacement | The 2009 lease was merely a renewal/extension; the 1999 automatic extension remained in effect and senior to the mortgage | The court held the 2009 lease was a novation. The circuit court’s factual finding that a novation occurred was not clearly erroneous and is affirmed. |
Key Cases Cited
- Ducheneaux v. Miller, 488 N.W.2d 902 (S.D. 1992) (elements and requirements for novation)
- Haggar v. Olfert, 387 N.W.2d 45 (S.D. 1986) (intent to extinguish prior obligation is central; intent may be inferred)
- Hyde v. Hyde, 99 N.W.2d 788 (S.D. 1959) (novel fact questions for novation where agreement terms are equivocal)
- Powell v. Norman Electric Galaxy, Inc., 493 S.E.2d 205 (Ga. Ct. App. 1997) (execution of a new billboard lease can show intent to substitute and end the old lease)
- Hofer v. Merchants State Bank of Freeman, S.D., 823 F.2d 271 (8th Cir. 1987) (applying clearly erroneous standard to novation factual determination)