#24146-a-SLZ 2007 SD 51

IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA

* * * * KIM KLING and CHRIS KLING, Plaintiffs and Appellants,

v. JUDITH K. STERN, individually, JUDITH K. STERN, trustee for the Judith K. Stern Amended and Restated Revocable Trust, Defendants and Appellees, and JUDITH K. STERN, trustee for the Judith K. Stern Amended and Restated Revocable Trust, Third Party Plaintiff and Appellee,

v. ROGER A. KESSINGER and JOANNE M. KESSINGER, Third Party Defendants.

* * * *

APPEAL FROM THE CIRCUIT COURT OF THE FOURTH JUDICIAL CIRCUIT BUTTE COUNTY, SOUTH DAKOTA

* * * *

HONORABLE JOHN W. BASTIAN Judge

* * * *

KENNETH E. BARKER of Barker Reynolds Law Firm, LLC Attorneys for plaintiffs Belle Fourche, South Dakota and appellants.

WESLEY W. BUCKMASTER of Buckmaster Law Offices, PC Attorneys for defendants Belle Fourche, South Dakota and appellees.

* * * * CONSIDERED ON BRIEFS ON JANUARY 8, 2007

OPINION FILED 

### 05/30/07-1- #24146 ZINTER, Justice [¶1.] Kim and Chris Kling (Klings) sought a declaratory judgment that

Judith Stern violated a restrictive covenant prohibiting the subdivision of land into parcels containing less than forty acres. The specific question was whether Stern

violated the covenant when she subdivided the covenanted land into parcels of less than forty acres, but did so by “blending” the covenanted land with non-covenanted land to create “mixed” parcels that were fo rty acres or greater. The circuit court granted summary judgment in favor of Stern allowing the blended parcel subdivision. Klings appeal. We affirm. Facts and Procedural History [¶2.] The history of the most relevant covenanted and non-covenanted land is set out in the following time line format: 1985- Klings sold over 2,000 acres of land to Bruce L. Riley. 1998- Riley sold approximately 1,000 acres of this land to Roger and Joanne Kessinger (Kessingers). The grant was by warranty deed, with the covenant prohibiting subdivision of the land into less than fortyacre “parcels.” 1999- Klings sold over 30 acres of other land (non-covenanted land called Tract E) to Kessingers. 2003- Kessingers combined land fr om Tract E (non-covenanted land) together with the covenanted land they acquired from Riley to form Tract K-4, a 80.57 acre “mixed parce l” – containing approximately 55 acres of covenanted land and 25 acres of non-covenanted land. 2003- Stern bought Tract K-4 from Kessingers.

2005- Stern subdivided K-4 into K- 4A (40.29 acres) and K-4B (40.28 acres). This transaction divided the original covenanted land such that#24146

-2- neither K-4A nor K-4B contained forty acres of covenanted land. Stern subsequently sold K-4A and K-4B. 1 [¶3.] Because Tracts K-4A and K-4B were created by blending covenanted and non-covenanted land into parcels th at contained less than forty acres of covenanted land, Klings contend that St ern violated the forty-acre restrictive covenant. Stern, however, argues that sh e could subdivide the covenanted land as long as the mixed parcels each contained at least forty acres. [¶4.] Both parties agreed there were no material issues of disputed fact and they moved for summary judgment. The circuit court first determined that the covenant was unambiguous and the language reflected the grantor’s intent to allow subdivided parcels of mixed land. Alternat ively, the circuit court considered related

covenants 2 and Riley’s testimony concerning intent of the covenant. The circuit court ultimately found that the intent of th e covenant was to prevent subdivisions of less than forty acres to create “spacing” in “residential development.” Because Stern’s subdivision did not violate that intent, the circuit court concluded that the mixed parcels did not violate the covenant.

(continued . . .) 1 . In 2001, Kessingers combined land from Tract E (non-covenanted land) together with land purchased from Rile y (covenanted land) to also form Tract K-3, a 40-acre “mixed” parcel of covena nted and non-covenanted land. That same year, Klings purchased Tract K-3 from Kessingers. Stern has not appealed the circuit court’s ruling that Klings’ purchase of Tract K-3 did not waive or estop them from seeking to enforce the forty acre subdivision covenant with respect to Tracts K-4A and K-4B.

2 . We understand Klings’ argument that re strictions in Tract E, Tract K-3, and covenants and restrictions in the Country Hills Estates development support their interpretation of the Riley-Kessi nger covenant. However, these other restrictions and covenants either do not apply to the property in Tracts K-4A#24146

-3- ____________________ (. . . continued) Standard of Review [¶5.] When reviewing a grant of summ ary judgment, “‘[w]e must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law.’” Burch v. Bricker, 2006 SD 101, ¶5 , 724 NW2d 604, 606 (quoting Garrett v. Bank West, Inc., 459 NW2d 833, 836-837 (SD 1990 )). “‘Once we determine that the material facts are undisputed, our revi ew is limited to whether the law was correctly applied.’” Pauley v. Sim onson, 2006 SD 73, ¶7, 720 NW2d 665, 667 (quoting Krier v. Dell Rapids Twp., 2006 SD 10, ¶12, 709 NW2d 841, 844-845). “On appeal we read a covenant as we would a contract, that is, without any presumption

that the trial court was correct. Whether a contract is ambiguous is a question of law.” Harksen v. Peska, 1998 SD 70, ¶1 1, 581 NW2d 170, 173 (internal and other citations omitted). Questions of law are reviewed de novo. Pauley , 2006 SD 73, ¶7, 720 NW2d at 667 (citations omitted).

Decision [¶6.] The covenant in the Riley-Kessinger deed provided: This deed is subject to two (2) rest rictive covenants, first, that no mobile homes or manufactured ho mes shall be allowed on this property other than for grantee’ s personal use and, secondly, that the above property may not be sold, transferred or alienated in parcels of less than forty (40) acres.

and K-4B or the other language is not he lpful in construing the intent of the Riley-Kessinger covenant.#24146

-4- (Emphasis added.) As previously noted, the ambiguity of this covenant is a question of law to be reviewed de novo. See supra, ¶5. Ambiguity exists when something “‘is capable of being understoo d. . .by reasonably well-informed persons

in either of two or more senses.’” Peti tion of Famous Brands, Inc., 347 NW2d 882, 886 (SD 1984) (quoting National Amusement Co. v. Wisconsin Dept of Taxation, 41 Wis2d 261, 267, 163 NW2d 625, 628 (1969) (other citation omitted)). [¶7.] In determining a covenant’s mean ing, it “‘should be considered as a whole and all of its parts and provisions will be examined to determine the meaning of any part.’” Harksen , 1998 SD 70, ¶20, 581 NW2d at 174 (quoting Piechowski v. Case, 255 NW2d 72, 74 (SD 1977) (citation omitted)). In this case, there is ambiguity created by the covenant’s use of the different terms “above property” (describing the covenanted land) and “parcels” (describing the minimum size of allowed subdivisions). The meaning of the term “above property” clearly refers to the land conveyed by the deed. This term meant that all of th e conveyed land was subject to the restrictive covenant. Howe ver, the term “parcels” is not necessarily the same as “above [described] property.” Thus, Riley chose to use different terms for what Klings now claim is the same su bject. Considering the use of different terms in the covenant, it is unclear wh ether the term “parcels” was intended to require that the subdivided parcels had to contain at least forty acres of the “above [described covenanted] property” or whet her the subdivided parcels were simply required to contain at least forty acres. [¶8.] Because we believe that it is reasonable to interpret the term “parcels” in either sense, the covenant is ambiguous and it was proper for the circuit court to#24146

-5- consider extrinsic evidence of Riley’s intent. 3 “ ‘[I]f [a] contract ‘is uncertain or ambiguous,’ parol and extrinsic evidence may be used for clarification.’” Hanks v. Corson County Board of County Commissioners, 2007 SD 10, ¶10, 727 NW2d 296, 301 (quoting Pauley , 2006 SD 73, ¶8, 720 NW2d at 668 (citing Jensen v. Pure Plant Food Intern., Ltd., 274 NW2d 261, 263-264 (SD 1979) )). Considering that the intent of the grantor was to ensure that the su bdivided parcels maintained residential spacing of at least forty acres and the su bdivision did not violate that intent, we

affirm the circuit court’s conclusion th at the blending of covenanted and noncovenanted land did not violate the covenant. [¶9.] Affirmed. [¶10.] GILBERTSON, Chief Justic e, and SABERS, KONENKAMP and MEIERHENRY, Justices, concur.

3 . We also note that Klings’ interpretation of the covenant would produce an absurd result because it would leave St ern with land that could never be resold. For example, there is little likelihood that topography and other geologic considerations would permit the entire 1000 acres of covenanted property to be subdivided into exactly twenty-five, forty acre parcels. Consequently, under Klings’ interpre tation, any remaining fragmentary parcels containing less than forty acres could never be sold. “[T]his Court is constrained from interpreting a contract literally if doing so would produce an absurd result. An absurd result is on e that is ‘ridiculously incongruous or unreasonable;’ a result that the partie s, presumed to be rational persons pursuing rational ends, are very unlikely to have agreed upon.” Nelson v. Schellpfeffer, 2003 SD 7, ¶12, 656 NW2d 740, 743 (internal and other citations omitted). Here, it is clear from the langua ge of the covenant that the parties specifically contemplated subd ivision of the covenanted land. Yet, Klings’ interpretation would not only prohibit a blended subdivision that the parties likely contemplated, but it would further prohibit any sale of residuary fragments, something the parties were very unlikely to have agreed upon.