#23791-a-SLZ 

2006 SD 73 

IN THE SUPREME COURT 

OF THE 

STATE OF SOUTH DAKOTA 

* * * * 

EZRA PAULEY, ELIZABETH 

J. PAULEY, GREGORY ALLEN 

PAULEY, and AMY HUGHES 

PAULEY, Plaintiffs and Appellees, 

 v. 

MARK J. SIMONSON AND 

MIRA M. SIMONSON, Defendants and Appellants. 

* * * * 

APPEAL FROM THE CIRCUIT COURT OF 

THE FOURTH JUDICIAL CIRCUIT 

BUTTE COUNTY, SOUTH DAKOTA 

* * * * 

HONORABLE JOHN W. BASTIAN 

Judge 

* * * * 

MICHAEL A. JACKLEY of 

Jackley & Flint Attorneys for plaintiffs 

Sturgis, South Dakota and appellees. 

JOHN K. NOONEY of 

Thomas, Nooney, Braun, 

 Solay & Bernard, LLP Attorneys for defendants 

Rapid City, South Dakota and appellants. 

* * * * 

 

 CONSIDERED ON BRIEFS 

 ON MAY 23, 2006 

 OPINION FILED 08/09/06 
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ZINTER, Justice 

[¶1.] Ezra Pauley and Elizabeth J. Pauley (Pauley) leased agricultural 

property to Mark J. Simonson and Mira M. Simonson (Simonson). The lease 

included an option to purchase the property. When Simonson failed to make a lease 

payment, Pauley filed an action for forcible entry and detainer. After the circuit 

court determined that the disputed payment was required and that the lease was 

breached and terminated, both parties moved for summary judgment to determine 

whether the option to purchase survived. The circuit court concluded that the 

option to purchase was not severable, and therefore, the option did not survive the 

termination of the lease. Simonson appeals. We affirm. 

Facts and Procedural History 

[¶2.] Pauley owned agricultural land in Butte County, South Dakota. After 

expressing an interest in leasing the land, Simonson prepared a lease agreement 

and presented it to Pauley. The parties subsequently negotiated further terms of 

the agreement. The final agreement provided that Simonson would lease the land 

for $36,000 for the first year. Simonson was to pay Pauley $6,000 upon execution of 

the lease and make $10,000 payments on July 4, 2002, October 4, 2002, and 

January 4, 2003. After the first year, the annual lease was $40,000, and Simonson 

was required to make quarterly payments of $10,000 on January 4, April 4, July 4, 

and October 4 of each year. The lease was set to expire ninety days upon the last to 

die of Ezra and Elizabeth Pauley, unless it terminated under the terms of the 

agreement. 
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[¶3.] The final agreement also contained an option provision. The provision 

gave Simonson the option to purchase the property upon the last to die of Ezra and 

Elizabeth Pauley. The provision further provided that Simonson was to make a 

$4,000 nonrefundable payment for the option at the time the lease was executed. 

[¶4.] Upon execution of the lease, Simonson paid the first lease payment of 

$6,000 and, with a separate check, paid the $4,000 option payment. Simonson also 

made the three remaining $10,000 payments for the first year of the lease. 

However, Simonson failed to make the $10,000 payment on January 4 for the 

second year.1 Pursuant to Section XXIII of the lease, Pauley notified Simonson that 

he intended to terminate the lease for failing to make the payment.2 Pauley also 

filed the forcible entry and detainer action. 

 (continued . . .) 

1. Simonson made one payment of $10,000 on January 4, 2003. However, 

the trial court concluded that under Section IV of the lease, Simonson 

was required to make two payments of $10,000. Section IV provided: 

For the first year of this Lease, the rent shall be Thirty-six 

Thousand Dollars ($36,000) with the payments to be as follows: 

Six Thousand Dollars ($6,000) upon the date of execution of this 

Lease; Ten Thousand Dollars ($10,000) on July 4, 2002; Ten 

Thousand Dollars ($10,000) on October 4, 2002; and Ten 

Thousand Dollars ($10,000) on January 4, 2003. 

After the first year of this Lease, the annual rental shall be Forty 

Thousand Dollars ($40,000) per year, paid in Ten Thousand 

Dollar ($10,000) quarterly installments due and payable on 

January 4, April 4, July 4, and October 4 of each year. 

(Emphasis added.) 

2. Section XXIII provides: 

In the event Tenant should be in default of the performance of any 

terms, covenants or conditions of this Lease, Landlord may, in 

addition to every remedy now or hereafter available at law or in 

equity, have the rights and remedies herein set forth and the same 

shall be deemed cumulative and not exclusive of those available at 

law or in equity. 
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_________________ 

(. . . continued) 

[¶5.] Following the forcible entry and detainer proceeding, the circuit court 

concluded that Simonson failed to make the $10,000 payment on January 4 for the 

second year of the lease, and the lease was terminated. Thereafter, both sides 

moved for summary judgment to determine whether the option to purchase was a 

separate and distinct contract that survived the termination of the lease. 

[¶6.] Following a hearing on these motions, the circuit court concluded that 

the option to purchase was not severable from the lease, and therefore, the option 

did not survive the termination of the lease.3 This is the sole issue on appeal. 

Decision

[¶7.] “Summary judgment is authorized ‘if the pleadings, depositions, 

answers to interrogatories, and admissions on file, together with the affidavits, if 

any, show that there is no genuine issue as to any material fact and that the moving 

party is entitled to judgment as a matter of law.’” Krier v. Dell Rapids Twp., 2006 

SD 10, ¶12, 709 NW2d 841, 844-45 (citing SDCL 15-6-56(c)). “Once we determine 

that the material facts are undisputed, our review is limited to whether the law was 

correctly applied.” Id. (citation omitted). “We review questions of law de novo with 

Upon default Landlord shall have the right to re-enter the 

premises. Landlord, either before or after re-entry, may notify 

Tenant, if Tenant can be located, that he elects to terminate this 

Lease. Upon default Landlord shall have the right to take 

possession of all crops, both harvested and unharvested, the right to 

remove all property and persons from the leased premises, and the 

right to store in public warehouse at Tenant’s expense all property 

so removed.

3. A third trial was later held regarding damages. 
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no discretion given to the circuit court.” Wagner v. Brownlee, 2006 SD 38, ¶24, 713 

NW2d 592, 600 (citing Blenner v. City of Rapid City, 2003 SD 121, ¶41, 670 NW2d 

508, 514). 

[¶8.] The interpretation of a contract is a question of law. Ziegler Furniture 

and Funeral Home, Inc. v. Cicmanec, 2006 SD 6, ¶14, 709 NW2d 350, 354 (citations 

omitted). This Court looks “to the language that the parties used in the contract to 

determine their intention.” Id. ¶16 (citation omitted). “If that intention is clearly 

manifested by the language of the [agreement], it is the duty of this [C]ourt to 

declare and enforce it.” Id. (citations omitted). However, if the contract “is 

uncertain or ambiguous,” parol and extrinsic evidence may be used for clarification. 

Jensen v. Pure Plant Food Intern., Ltd., 274 NW2d 261, 263-64 (SD 1979). “[A] 

contract is ambiguous only when it is capable of more than one meaning when 

viewed objectively by a reasonably intelligent person who has examined the context 

of the entire integrated agreement.” Ziegler Furniture, 2006 SD 6, ¶16, 709 NW2d 

at 355 (internal citations and quotations omitted). If the agreement is ambiguous, 

parol and extrinsic evidence may be utilized “to show what they meant by what they 

said, but not to show that the parties meant something other than what they said.” 

Jensen, 274 NW2d at 264 (citing Christiansen v. Strand, 81 SD 187, 193, 132 NW2d 

386, 389 (1965)). 

[¶9.] The parties agree that there are no genuine issues of material fact in 

dispute; therefore, this Court need only determine whether the circuit court 

correctly applied the law in concluding that the option was not severable from the 

lease. In Commercial Trust & Sav. Bank v. Christensen, 535 NW2d 853 (SD 1995), 
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we set forth the requirements for severability. First, two preliminary requirements 

must be satisfied: “(1) the parties’ performances must be separable into 

corresponding pairs of part performances and (2) the parts of each pair must be 

regarded as agreed equivalents.” Id. at 857 (citing E. Allen Farnsworth, Contracts

§5.8, at 382 (2nd ed 1990); Restatement (Second) of Contracts § 183 (1979)). These 

preliminary requirements highlight that “a distinguishing mark of a divisible 

contract is that the consideration is not single, but can be apportioned to correspond 

with separate consideration offered by the other party.” Id. (citations omitted). 

Second, courts may also consider two additional limitations “if part of the 

agreement offends public policy: (1) the agreement must not be an integrated 

scheme to contravene public policy and (2) the party seeking enforcement must not 

have engaged in serious misconduct.” Id. at 858 n2 (citation omitted). We need 

only address the two preliminary requirements in this case. 

[¶10.] The circuit court concluded that the $4,000 consideration was not an 

agreed equivalent for the option. After analyzing a previous draft of the lease, the 

court concluded that there was “no equivalent value because the parties merely 

carved out the option payment from the annual lease payment.” Thus, the circuit 

court concluded that the $4,000 payment for the option was merely form over 

substance because it was, in reality, a part of the first quarterly lease payment. We 

agree. 

[¶11.] Pauley and Simonson’s agreement does not address their intention 

regarding termination of the option upon default and termination of the lease. 

Section XXIII, which contains the landlord’s remedies upon default, merely provides 
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that: “Landlord, either before or after re-entry, may notify Tenant, if Tenant can be 

located, that he elects to terminate this Lease.” (Emphasis added.) However, the 

other terms of the agreement do not reveal whether “this Lease” meant the entire 

agreement, including the lease and the option, or just the lease. Thus, we turn to 

extrinsic evidence to clarify this ambiguity. 

[¶12.] The record indicates that Simonson sent Pauley an outline of a 

proposed lease agreement on February 5, 2002. This proposal, which was drafted 

by Simonson, provided that the annual lease would be $40,000. However, on March 

13, 2002, Simonson sent Pauley a more formal second draft of the lease. This draft 

reduced the annual payment for the first year by $4,000 and added the provision 

that gave Simonson the option to purchase the property for $4,000. Simonson also 

sent Pauley a note with the second draft, which stated: 

 One important point: he made the first $10,000 payment split 

into a $6,000 lease payment plus a $4,000 option-to-purchase 

payment. He did this to ensure that my option to purchase will 

stand the test of time; otherwise, the executor of your estate 

would not be obligated to honor our agreement. 

The drafts and this note reflect that although the parties intended to make the 

option binding on Pauley’s estate, the consideration for the option was merely a 

reallocation of the first quarterly lease payment. Considering the prior drafts as 

well as Simonson’s note, we agree with the circuit court that this did not evince 

equivalent value for both parts of the agreement, i.e., the consideration for the 

option was merely a part of the first quarterly lease payment. 

[¶13.] Our decision today is supported by our holding in Commercial Trust. 

In that case, farm land was leased for a ten year period, and the agreement 
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contained an option to purchase the property. Commercial Trust, 535 NW2d at 855. 

A subsequent addendum to the lease provided an option to extend “the lease for a 

period of twenty (20) years.” Id. The lessor’s successors subsequently questioned 

whether the agreement violated the twenty year limitation on the lease of 

agricultural land in SDCL 43-32-2.4 Id. at 855-56. The lessees argued that even if 

the agreement violated the statute and was invalid, the option to purchase was 

enforceable because it could “be severed from the invalid portion of the contract.” 

Id. at 857. This Court concluded that the option was not severable from the invalid 

lease because “when the lease was declared unenforceable, there was no separate 

consideration to support the continuation of the option [to purchase].” Id. at 858. 

This Court relied on the fact that the addendum merely “increased the purchase 

price o[f] the land by $1,000,” which the lessees “only promised to pay . . . if they 

chose to exercise the option.” Id. Thus, “[t]he option itself was not supported by any 

additional consideration.” Id.

[¶14.] Similarly, in Mattson v. Rachetto, 1999 SD 51, 591 NW2d 814, this 

Court considered a contract for the sale of land that contained an agricultural 

leaseback provision. Id. ¶4. The contract was rescinded by the trial court on the 

ground of a mistake of law because neither party was aware that the leaseback was 

void under SDCL 43-32-2. Id. ¶¶5, 14. In determining whether the contract for 

sale was separate and distinct from the leaseback, this Court analyzed the language 

4. SDCL 43-32-2 states, in pertinent part: 

No lease or grant of agricultural land for a longer period than 

twenty years, in which shall be reserved any rent or service of 

any kind, shall be valid.
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of the contract5 and concluded that, like the option in Christensen, the leaseback 

was inseparable because it was not supported by separate consideration. See id.

¶¶22-25. 

[¶15.] This case is similar to Commercial Trust and Mattson because there 

was no separate consideration for the option to purchase the land. Rather, the two 

drafts and Simonson’s note reveal that the parties intended to enter into an 

agreement to lease the land for $40,000 per year and that the $4,000 option price 

was merely a part of the first quarterly lease payment. Because there was no 

separate consideration for the option, there were no agreed equivalents for the parts 

of each pair of part performances. Therefore, the preliminary requirements set 

forth in Commercial Trust are not satisfied, and the option to purchase cannot be 

severed from the invalidated lease. 

[¶16.] Affirmed. 

[¶17.] GILBERTSON, Chief Justice, and SABERS, KONENKAMP, and 

MEIERHENRY, Justices, concur.

5. The agreement provided: 

1) For and in consideration of the sum of Twenty-six Thousand 

Nine Hundred Fifty-nine Dollars and Fifty Cents 

($26,959.50), [Sellers] agree to convey by Warranty Deed to 

[Purchasers] [Tract C]: 

. . . 

2) For and in consideration of the agreement by [Sellers] to sell 

the above-described property to [Purchasers], [Purchasers] 

hereby lease to [Sellers] the above-described property. 

Mattson, 1999 SD 51, ¶24, 591 NW2d at 819.