Title: Schlosser v. Norwest Bank South Dakota

State: south-dakota

Issuer: South Dakota Supreme Court

Document:

506 N.W.2d 416 (1993) Jim C. SCHLOSSER and Katherine M. Schlosser, Plaintiffs and Appellants, v. NORWEST BANK SOUTH DAKOTA, N.A., as Trustee of the Estate of Otto Borchgrevink, and Valley National Bank, as Executor of the Estate of Phyllis Borchgrevink, Defendants and Appellees. No. 18081. Supreme Court of South Dakota. September 8, 1993. Rehearing Denied October 15, 1993. *417 Harlan A. Schmidt, Spearfish, for plaintiffs and appellants. Ronald E. Clabaugh of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, for defendant and appellee Norwest Bank South Dakota, N.A. Kenneth L. Heisterkamp and William A. May of Costello, Porter, Hill Heisterkamp & Bushnell, Rapid City, for defendant and appellee Valley Nat. Bank. KEAN, Circuit Judge. Otto and Phyllis Borchgrevink (Borchgrevinks) were owners of a large ranch which straddled the Wyoming and Montana state line. Three thousand one hundred fifty-five acres were in Crook County, Wyoming, and 4002 acres were in Carter County, Montana. The ranch was sold in 1979 on a contract for deed to Jim C. and Katherine M. Schlosser (Schlossers). Annual installments were payable through 1994. A clause in the contract allowed the Borchgrevinks to reserve a joint life interest in the brick dwelling house (and other surrounding area) which house was located on the Montana property. Otto Borchgrevink died in 1982. Phyllis Borchgrevink remained in possession of the brick dwelling until December 16, 1988, when the dwelling was destroyed by a fire. Neither the Borchgrevinks nor the Schlossers had purchased insurance to cover the fire loss. Prior to Phyllis Borchgrevink's death in 1992, the Schlossers made demand upon her and Norwest Bank of South Dakota, which had succeeded to Otto Borchgrevink's interest in the contract as trustee under his will, for a reduction in the balance due on the contract commensurate with the value of the brick dwelling. That request was refused. After Phyllis Borchgrevink's death, Valley National Bank became her executor. The refusal to adjust the contract brought on this legal proceeding. The Schlossers allege two grounds for relief. First, the Borchgrevinks had the obligation under the contract to maintain insurance upon the now destroyed dwelling. Second, regardless of the contract, common and statutory law placed the risk of loss with the Borchgrevinks (now their legal successors). The Schlossers seek as relief a reduction in the contract amount corresponding to the value of the structure or its replacement upon the Montana land. After service of the summons and complaint and before an answer was filed, the defendants (Norwest Bank and Valley National Bank as trustee of Otto's estate and executor of Phyllis' estate respectively) separately moved for judgment of dismissal under SDCL 15-6-12(b) asserting that the complaint failed to state a claim upon which relief can be granted. A separate hearing upon the motion was held on each motion, but there was no record of those hearings. In separate opinions the trial court concluded that each motion should be granted. In so ruling the court concluded: (1) the Borchgrevinks had only a life estate in the dwelling; (2) the contract did not require the Borchgrevinks to maintain insurance on the dwelling; and, (3) under Montana case law the risk of loss is with the buyer once the contract is signed citing the decision of Sharbono v. Darden, 220 Mont. 320, 715 P.2d 433, 435 (1986). The trial count also made a separate ruling as to Norwest Bank, Otto Borchgrevink's trustee, holding that upon his death any obligation he might have had terminated any obligation of the trustee. In the case of Janklow v. Viking Press, 378 N.W.2d 875, 877 (S.D.1985), this Court in ruling upon a dismissal under a Rule 12(b)(5) motion held: In a concurring opinion Justice Henderson opined: Id. at 882. In accord, Johnson v. Kreiser's, Inc. 433 N.W.2d 225, 226 (S.D.1988) (a case involving wrongful termination under the public policy exception to the at-will employment doctrine under SDCL 60-4-4) and Akron Savings Bank v. Charlson, 83 S.D. 251, 158 N.W.2d 523 (1968). In determining whether to grant the Rule 12(b)(5) motion, the court considers the complaint's allegations and any exhibits which are attached. The court accepts the pleader's description of what happened along with any conclusions reasonably drawn therefrom. The motion may be directed to the whole complaint or only specified counts contained in it. The motion "is viewed with disfavor and is rarely granted." The test most often applied is found in the leading case of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80, 84 (1957): The question is whether in the light most favorable to the plaintiff, and with doubt resolved in his or her behalf, the complaint states any valid claim of relief. The court must go beyond the allegations for relief and "examine the complaint to determine if the allegations provide for relief on any possible theory." 5 C. Wright and A. Miller, supra. The dispute in this case as found in the contract, which is an exhibit to the complaint, centers upon two clauses which appear therein. In Clause 4 the parties agree that the Borchgrevinks have a right to use the dwelling during each of their respective lives. This clause also states: In Clause 6 this document reflects: The question then to be resolved is whether these facts, all of which have been gleaned *419 from the complaint and the accompanying contract, set forth a well pled cause of action or are so deficient as a matter of law that the complaint must fail. To answer this question the court must turn to the body of law governing the topic. In the annotation, "Risk of Loss by Casualty Pending Contract For Conveyance of Real PropertyModern Cases," 85 A.L.R.4th 233 (1991), the general rule of law from the cases reported indicates that the purchaser under an executory contract usually bears the risk of loss to the property caused by a casualty after execution of the contract, but prior to the transfer of title. The annotation then continues by describing various exceptions to the general rule: In accord with this Montana case is Bechtel v. Dakota Nat. Bank, 35 S.D. 191, 151 N.W. 887, 888 (1915). South Dakota has since adopted the Uniform Vendor and Purchaser Risk Act, SDCL 43-26-5 to 43-26-8. The point to be taken from this discussion is that, when the allegations of the complaint are compared to the existing law, the complaint states a good cause of action as to Valley National Bank as Phyllis Borchgrevink's executor in these particulars: (1) there is a claim that the contract allocates risk of loss to Phyllis Borchgrevink because she had the obligation to purchase insurance on the dwelling; (2) the failure of the Phyllis Borchgrevink to maintain insurance was a breach of the contract; and, (3) Phyllis Borchgrevink's possession of the premises and the duty to keep the premises in repair under the contract allocated the risk of loss to her. Moreover, the question of good title has never been analyzed. This theory has never been raised, but it is one the court can raise and has an obligation to do so because good title is the essence of this real estate contract. 5 C. Wright and A. Miller, supra. In testing the law of the Schlossers' claim against the recitations in the complaint, the complaint is adequate to defeat the Rule 12(b)(5) motion as to Valley National Bank but not as to Norwest Bank. As noted above, a Rule 12(b) motion can be directed only to a specified count in a complaint. And, if a complaint or that part thereof clearly demonstrates that no claim *420 exists, then the motion to that should be granted. 5 C. Wright and A. Miller, supra. Case v. State Farm Mutual Automobile Ins. Co., 294 F.2d 676 (5th Cir.1961). In reviewing the Schlossers' complaint, it is not disputed that Otto Borchgrevink had a life estate in the dwelling. He died in 1982. When he died, his life estate terminated. There was no interest which could pass on to his trustee. It was not an estate in real property which could be devised by will or devised in any fashion. In re Estate of Glaser, 217 Neb. 104, 348 N.W.2d 127, 129 (1984); Restatement, Property, § 152. Thus, assuming that Otto Borchgrevink had an obligation to maintain insurance on whatever legal theory might apply, this obligation to maintain property insurance was limited to a period of time "during their lives." When Otto died, his obligation ceased to exist. The purchasing of insurance is usually an annual event. Otto was not obligated to buy insurance during the term of the contract, only "during their lives." The trustee, Norwest Bank, had no interest in the real estate except to convey any real estate which Otto may have been bound to convey prior to his death. SDCL 30-19-1. If a breach of contract did occur, it could really not have occurred until 1988 when there was no insurance and when the fire destroyed the dwelling. This possible breach, however, went only as to Phyllis Borchgrevink, and her present executor, not against Otto Borchgrevink's trustee as his obligation to buy insurance was extinguished six years before the fire destroyed the dwelling. Norwest's sole obligation is to deed whatever interest it has in the contract as Otto Borchgrevink's successor by law to the Schlossers once the contract is paid in full. The case is affirmed in part, reversed in part and remanded in part back to the trial court for further proceedings after the order for dismissal is vacated. The court should require an answer to be filed within a reasonable time after the remittitur is made to the circuit clerk of courts. HENDERSON, J., concurs. SABERS, J., concurs in result. MILLER, C.J., and WUEST, J., concur in part and dissent in part. KEAN, Circuit Judge, for AMUNDSON, J., disqualified. SABERS, Justice (concurring in result). I concur in result on the basis of South Dakota law in view of the fact that the parties have not briefed the issues under Montana law. WUEST, Justice (concurring in part and dissenting in part). In my opinion, the trial court was correct in granting Valley National Bank's motion to dismiss; therefore, I dissent to that portion of the opinion that holds otherwise. Whether the language of a contract is ambiguous is a question of law. American State Bank v. Adkins, 458 N.W.2d 807, 809 (S.D.1990) (citing Enchanted World Doll Museum v. Buskohl, 398 N.W.2d 149, 151 (S.D. 1986)). Questions of law are fully reviewable de novo by this court. Permann v. Department of Labor, 411 N.W.2d 113, 116 (S.D. 1987). "Unless the language is ambiguous or a different intent is manifested, the language in a contract is to be given its plain and ordinary meaning." American State Bank, 458 N.W.2d at 809 (citing Restatement (Second) of Contracts § 202(3) (1981)). There is a presumption that the writing accurately reflects the intent of the parties. Enchanted Museum, 398 N.W.2d at 152. The Borchgrevinks and Schlossers provided for insurance of their respective interests in paragraph six of the contract for deed. Although the Borchgrevinks were responsible for maintaining insurance on the dwelling during their life tenancy, the contract specifically provided they were to receive any proceeds. Therefore, even if the Borchgrevinks had purchased insurance, by the clear terms of *421 the contract they, not the Schlossers, would have received the policy benefits. There was no contractual duty for the Borchgrevinks to replace the destroyed dwelling with any insurance proceeds. Had they done so, they would have had no right to live in the replacement house. Under paragraph four of the contract, their right live in the house: Additionally, paragraph six of the contract provided that the Schlossers could insure their own interest in the dwelling: The Schlossers did not obtain insurance on their interest in the dwelling. The contract is clear and unambiguous. Where the contract is clear, it should be enforced as written. Raben v. Schlottman, 77 S.D. 184, 190-91, 88 N.W.2d 205, 208 (1958). Where the parties had the freedom to contract and they contracted to allocate the risk of loss, they must abide by their contract. Accord, Azcon Const. Co. v. Golden Hills Resort, 498 N.W.2d 630, 634 (S.D.1993); L.R. Foy Constr. Co. v. Spearfish Sch. Dist., 341 N.W.2d 383, 388 (S.D.1983) (Henderson, J. specially concurring). Each party contracted to insure its own interest, neither party obtained insurance and now each party must bear the consequences. MILLER, C.J., joins this special writing.