20 N.W.3d 419
S.D.2025Background
- Cody and Judy Sturzenbecher sought to purchase their family farm from a trust, with Judy as a beneficiary, but failed to secure traditional bank financing.
- Sioux County Ranch, LLC offered an alternative financing arrangement: Judy borrowed $4.25 million from Sioux County to buy the farm, immediately conveyed it to Sioux County for a discounted amount, and assigned her trust distribution to cover the loan.
- Cody leased the property from Sioux County with an option to purchase it after five years; he defaulted on lease payments, leading Sioux County to terminate the lease and attempt to sell the property.
- The Sturzenbechers filed suit for declaratory and injunctive relief, arguing the arrangement created an equitable mortgage rather than an absolute sale.
- The circuit court granted a preliminary injunction halting the property sale and denied Sioux County's motion for judgment on the pleadings on the equitable mortgage claim; Sioux County appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Preliminary injunction on property sale | Arrangement creates equitable mortgage, not sale; sale violates redemption right | Agreement was absolute sale; default allows sale | Injunction was proper; likely success on equitable mortgage claim |
| Use of extrinsic evidence to determine intent | Not ambiguous but intention should override form | Unambiguous written contract controls, no parol evidence | Extrinsic evidence should not have been considered, but contract unenforceable as sale |
| Denial of judgment on the pleadings (equitable mortgage claim) | Sufficient facts pled to support equitable mortgage claim | No material facts; defendants entitled to judgment as law | Denial affirmed; sufficient facts to proceed |
| Appealability of denial of judgment on pleadings (unconscionability) | Not relevant to injunction | Not relevant to injunction | Not reviewable on this appeal |
Key Cases Cited
- Adrian v. McKinnie, 639 N.W.2d 529 (S.D. 2002) (establishes that substance over form controls when deciding if a transaction is a mortgage, especially where intent is unclear)
- Myers v. Eich, 720 N.W.2d 76 (S.D. 2006) (analyzes characteristics that indicate a transaction is an equitable mortgage rather than an absolute sale)
- Gardner v. Welch, 110 N.W. 110 (S.D. 1906) (written agreements prevail over parol evidence regarding absolute versus security conveyances)
- NBC Leasing Co. v. Stilwell, 334 N.W.2d 496 (S.D. 1983) (courts assess real intent of parties to determine type of financial arrangement, looking past form)
- Am. Nat. Bank v. Groft, 229 N.W. 376 (S.D. 1930) (an essential element of an equitable mortgage is that the debt is not extinguished by the conveyance)