996 N.W.2d 362
S.D.2023Background
- Genevieve and James Parmely owned land as joint tenants; in 2000 they sold part to Brad Magness for $325/acre. The written 2000 purchase agreement contained an integration clause.
- Magness testified (undisputed) that he agreed to pay the higher $325/acre price only because the Parmelys orally promised him an option to buy the remaining land at $285/acre.
- The parties later executed two written option instruments (2002 and 2006), each notarized and describing the option to buy the remaining property at $285/acre.
- After James died and Genevieve conveyed her interest to a trust, the Genevieve J. Parmely Revocable Trust sued for a declaratory judgment (2019) seeking to extinguish the options for lack of consideration; Magness answered, later exercised the option, and asserted defenses including the statute of limitations.
- The circuit court ultimately entered summary judgment for the Trust, concluding the written options lacked independent consideration (relying on integration/parol evidence and the pre-existing duty rule).
- The South Dakota Supreme Court reversed: it held the written options are presumptive evidence of consideration, the Trust failed to rebut that presumption, the parol evidence rule did not bar proof of a collateral oral agreement, and the pre-existing duty rule did not apply; the Court directed entry of summary judgment for Magness on the consideration issue and remanded remaining matters.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the written option agreements are supported by valid consideration | The consideration in the 2000 purchase was fully allocated to that sale; no independent consideration supports the later written options | Magness paid an elevated $325/acre for the first parcel in exchange for the option to buy the rest at $285/acre — that was the consideration | Court: Reversed trial court; written options carry a presumption of consideration which Trust failed to rebut; directed summary judgment for Magness on consideration |
| Whether the integration/parol-evidence rule bars Magness’s testimony about the negotiated option | The 2000 purchase agreement’s integration clause and parol rule preclude extrinsic evidence of any oral option agreement | The option agreement was collateral/separable and later memorialized in writing; extrinsic evidence may prove a collateral agreement and support the written options | Court: Parol rule did not bar Magness’s testimony; the option agreements are separate instruments and testimony about the prior negotiation was admissible |
| Whether the “pre-existing duty” rule defeats consideration | Performance of a pre-existing duty cannot constitute valid consideration for a new promise | No pre-existing duty existed — Magness agreed contemporaneously to pay more in exchange for the option; consideration was mutual and new | Court: Pre-existing duty rule inapplicable here; parties simultaneously negotiated new terms, so consideration valid |
| Whether the Trust’s declaratory action is barred by statute of limitations or laches | Trust contended the claim was timely (statute had not run) | Magness asserted laches and SDCL 15-2-13 as defenses and moved to dismiss | Court: Did not decide on appeal (not necessary after reversal on consideration); remanded to resolve remaining counterclaim/defenses as appropriate |
Key Cases Cited
- Hofeldt v. Mehling, 658 N.W.2d 783 (discussing parol evidence rule and SDCL 53-8-5)
- Tolle v. Lev, 804 N.W.2d 440 (permitting extrinsic evidence to prove a collateral oral agreement)
- Ponderosa–Nevada, Inc. v. Venners, 243 N.W.2d 801 (treating contract for deed and option as separate agreements with separate consideration)
- Indep. Harvester Co., Ltd. v. Anderson, 186 N.W. 112 (parol evidence may show absence of consideration for a written instrument)
- In re Est. of Fox, 925 N.W.2d 467 (describing effect of a rebuttable legal presumption)
- In re Est. of Gustafson, 731 N.W.2d 922 (same — discussion of presumptions)
- Poeppel v. Lester, 827 N.W.2d 580 (adopting Restatement approach to use extrinsic evidence for invalidating causes such as fraud or lack of consideration)