Court Opinion

ID: 9514422
Source: CourtListenerOpinion
Date Created: 2023-08-06 22:49:20.893511+00
Date Added: 2024-06-11T09:06:17.340436
License: Public Domain

SABERS, Justice
(dissenting).
[¶ 40.] THE TRIAL COURT ERRED IN REFUSING TO ALLOW ANTHONY TO EXERCISE HIS OPTION TO BUY, AS DAMAGES, IF ANY, COULD SIMPLY BE ADDED TO THE PURCHASE PRICE.
[¶ 41.] I dissent because Anthony’s actions under the contracts do not constitute material breaches warranting rescission. Rescission of a contract is governed by SDCL 53-11-2; the trial court held that subdivision (2) controlled:
A party to a contract may rescind the same in the following cases only:
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(2) If through fault of the party as to whom he rescinds, the consideration for his obligation fails in whole or in part;
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*854However, a rescission is permitted only for breaches which are substantial and relate to a material part of the contract:
[Rescission of a contract is not generally permitted for a casual, technical, or unimportant breach or failure of performance, but only for a breach so substantial as to tend to defeat the very object of the contract. The same principle applies to rescission based upon partial failure of consideration under our statute. Such a breach must also be substantial or relate to a material part of the contract.
Kary v. Arnold, 252 N.W.2d 326, 329 (S.D.1977) (emphasis added) (citations & internal quotations omitted); accord S & S Trucking v. Whitewood Motors, Inc., 346 N.W.2d 297, 300 (S.D.1984). The “object” of the contract “is the thing which it is agreed, on the part of the party receiving the consideration, to do or not to do.” SDCL 53-5-1. Here, the question is whether Anthony defeated the object of the contracts, which was to transfer to him an interest in the ranch, equipment, and tools and to compensate Arlene therefor.
[¶ 42.] Under the real estate lease, Anthony agreed, among other provisions, to make payments, with one-half of the payments to be credited to the purchase price of the ranch in the event he exercised the purchase option. It is not disputed that he timely made all payments. The only alleged breach of the real estate lease was the remodeling done to the mobile home. Anthony constructed a walkway between the mobile home and an existing addition. The trial court found this was a breach of the section requiring the buildings to be maintained in their current state of repair. It is unclear how this can constitute a “substantial” breach, when the mobile home was put on the property as living quarters for Anthony and the remodeling neither affected Arlene’s home, nor bore any real relation to the object of the contract, i.e., for Anthony to lease the land and manage it as a ranching operation. The lease agreement did not preclude improve-toents10 to the buildings unless they resulted in mechanic’s or materialmen’s liens. There is no claim that any such liens materialized. Arlene claims she was worried the remodeling would prevent a later sale because she might not be able to move the mobile home. If such a speculative and remote concern amounts to a breach, the remedy is generally damages “measured by the reasonable cost of putting the leased premises into the state of repair contemplated by the broken covenant.” Regan v. Moyle Petroleum Co., 344 N.W.2d 695, 697 (S.D.1984) (citations omitted).
[¶ 43.] Additionally, when a tenant exercises his option to purchase, “the lease and all its incidents, express or implied, are blotted out of existence.” 49 AmJur2d Landlord & Tenant § 407, at 351 (1995). The mobile home was obviously part of the package, because the contract provided that Arlene would retain use of the ranch house even after Anthony became owner. Therefore, when Anthony attempted to exercise his option, any “damage” done to the mobile home ceased to be of any concern to Arlene.
[¶44.] The equipment lease, like the land lease agreement, provided that half of Anthony’s rental payments would count toward the purchase price if he exercised his option to purchase the land and the equipment. It is not disputed that Anthony made all payments in a timely fashion. He was delinquent in remitting the trade-in credits on two pieces of equipment. Arlene’s remedy in this instance was an easily ascertainable dollar amount totaling $6,300.00, plus interest. The equipment subject to the lease is worth $89,-725, according to the agreed sale price. Clearly, late payment of $6,300.00, which amounts to slightly more than 7% of the total value of the equipment, does not constitute a “substantial” breach. More importantly, all such credits have since been paid. The trial court should have simply awarded interest on those delinquent payments.11
*855[¶ 45.] The decision not to amend the agreement to include the new swather was made by Arlene. Later, two other pieces of “replaced” equipment were not added to the list either. Regardless, the clear language of the contract indicates new and replaced equipment would be included and Anthony would pay rent on such equipment. The replacement equipment also became part of the machinery included in the option to purchase.
[¶ 46.] As for the grazing agreement, it is difficult to understand how the trial court found a breach of the written contract based upon the reduction in Arlene’s herd. The agreement expressly provides that Arlene’s herd would be reduced from the 112 in existence in November 1990:
... the parties contemplate that during the term of this Agreement, Arlene shall reduce her numbers with a corresponding increase in numbers by Anthony.
In fact, by Arlene’s own testimony, two months prior to filing this lawsuit,12 she still had approximately 100 head of cattle in her herd. It was not until November of 1994 that Arlene’s herd fell below 100 when Anthony culled 19 bred heifers belonging to Arlene.13 Arlene sold them to a neighbor, who paid precisely what she asked.
[¶47.] The second basis upon which the trial court found the grazing agreement was breached was Anthony’s alleged unfair separation of the cattle, i.e., that he separated them in such a way as to give Arlene the “lower end of the stock.” This allegation by Arlene pertains to the 19 bred heifers discussed above;14 she testified that, in previous years, Anthony always kept the top end of the stock for Arlene’s replacement herd. The trial court held that there was sufficient evidence to support Arlene’s allegation that these 19 were of lower quality than the heifers Anthony kept for himself. This “evidence” was Arlene’s statement to that effect, coupled with her report of a neighbor’s comment that the 19 heifers were not of the same quality as the year before. Anthony testified that the selection was done randomly. As the trial court is in the best position to judge the credibility of the witnesses, we do not second-guess such determinations. However, as noted, this same neighbor paid Arlene’s asking price; therefore, she has not established any damages resulting from the alleged unfair separation. This clearly does not constitute a material breach of the grazing agreement.
[¶ 48.] Arlene testified that in the fall of 1991, she and Anthony agreed that she would pay him $12.00 per head per month to feed her yearlings. By mutual agreement, this amount increased to $15.00 at some later date. In December of 1994, Anthony informed Arlene the price would increase to $20.00. While Arlene may not have agreed to this, and the trial court may have been correct in concluding it was an unreasonable increase, it is not evidence of a breach of the written contract. The fee was agreed to in a collateral, oral agreement. Arlene continued to pay $15.00; therefore, Anthony owes no repayment to Arlene under this agreement. It was up to Anthony to collect the increased fee, which he attempted in his counterclaim.15 Clearly, it is not evidence of a breach of the written contracts.
[¶ 49.] Even when Anthony’s actions are considered as a whole, they do not constitute material breaches. Any damage suffered by Arlene can easily be compensated by monetary damages.
In the absence of any specific provision in the contract to the contrary, a breach *856which goes to only a part of the consideration, which is incidental and subordinate to the main purpose of the contract, and which may be compensated in damages, does not warrant a rescission of the contract; the injured party is still bound to perform his part of the agreement, and his only remedy for the breach consists of the damages he has suffered therefrom.
17A AmJur2d Contracts § 578, at 588 (1991) (collecting cases) (footnotes omitted); see also BankWest, N.A. v. Groseclose, 535 N.W.2d 860, 865 (S.D.1995) (“It is a standing rule that a forfeiture shall not bind, when a thing may be done afterwards, or any compensation may be made. Forfeitures have always been considered as odious in the law.”) (citation omitted),
[¶ 50.] Arlene was not entitled to rescission, and Anthony should have been granted specific performance for the options to purchase the ranch and the equipment. “[Wjhere there is no express condition in a lease that in order to exercise an option a lessee cannot be in default, the option to purchase could be exercised despite an asserted breach.” 49 AmJur2d Landlord & Tenant § 427, at 367 (1995) (footnote omitted). Here, nothing in any of the contracts precluded Anthony from exercising his option to buy.
[¶ 51.] In denying specific performance, the trial court and the majority completely ignore SDCL 21-9-5, which provides:16
Specific performance cannot be enforced in favor of a party who has not fully and fairly performed all the conditions precedent on his part to the obligation of the other party, except when his failure to perform is only partial, and either entirely immaterial or capable of being fully compensated; in which case specific performance may be compelled, upon full compensation being made for the default.
(Emphasis added). Here, Anthony’s failure to perform was “only partial” and “capable of being fully compensated.”
[Delay in initial payment] will not defeat specific performance under SDCL 21-9-5 unless it is material. What constitutes materiality was well analyzed in Vol. 5A, Corbin on Contracts, § 1175, p. 304. There it is stated:
But where the plaintiff has promised a performance that constitutes part or all of the exchange for the defendant’s return performance, that which he has failed to perform may be material and “of the essence” even though the parties did not expressly or impliedly make it a condition of the defendant’s duty. Its essential importance, its materiality, is determined with reference to the purposes for which the contract was made, the proportion that it bears to the rest of the contract, the extent of injury that its nonperformance causes to the defendant, and the practices and feelings of the community in like cases.
Using this test we hold that the breach was not material and will not defeat a decree of specific performance. The delay was only of a 17-day duration, the amount involved was only $500 of a $112,200 contract, and the record does not reveal that the defendant was in any way injured by the late payment. What the record does reveal is that the defendant, for personal reasons, realized that he really did not want to sell his land and was using the plaintiffs delay as an excuse for repudiating the contract.
Cook v. Rezek, 89 S.D. 667, 671-72, 237 N.W.2d 18, 20-21 (1975).
[¶ 52.] The tests in Cook can be rephrased here: 1) How material are the breaches in reference to the purposes for which the contract was made? 2) What proportion do the breaches bear to the rest of the contract? 3) *857What is the extent of injury that nonperformance caused to Arlene?
[¶53.] First, the purpose of the contracts was to enable Anthony to manage the ranch while using existing equipment and tools, and eventually to buy the ranch and equipment if he so chose. Not one of the alleged breaches undermined this purpose. He made timely rental payments. He paid $20,000 on the tool contract, the full amount due.
[¶ 54.] Second, viewing the evidence in the light most favorable to Arlene, the breaches bear insignificant proportion to the rest of the contract. If Anthony rented the property and the equipment for the full ten-year period, he would pay $220,000.17 If he exercised his option to buy, the total principal of the contract would be $303,225.18 Over a 5⅜ year period, Anthony paid $110,000 under the lease agreements and $20,000 under the tool contract, which amount is being unduly forfeited.19 Half of the lease payments— $55,000 — would apply toward the purchase of the ranch and equipment under the option to buy. Cf. Groseclose, 535 N.W.2d at 865-66 (“[I]t would be unconscionable to allow repossession of this property without allowing an opportunity to cure the breach where the bulk of the contract price has been paid.”). The “damage” to the 20-year old trailer was de minimis, as is any interest owed on the delinquent payment of trade-in credits on equipment. As noted, Arlene proved no damages regarding Anthony’s alleged unfairness in separating the cattle. There is simply no comparison between the alleged breaches and the rest of the contract.
[¶55.] Third, any “injuries” suffered by Arlene are insubstantial and compensable in damages.
[¶ 56.] The fact that this mother-son relationship obviously soured should not cause a forfeiture of Anthony’s option to buy. In fact, if these contracts were viewed objectively as between strangers, there is little question that the buyer would be allowed to exercise his option. Simply because Anthony apparently caused the breakdown in the relationship is insufficient reason to arbitrarily deny him his contractually unrestricted option to buy. I would reverse and remand to allow Anthony to exercise his option to buy in accordance with the contracts. Damages, if any, should be added to the purchase price.

. The majority restates Arlene’s argument, i.e., that supports were placed in the mobile home to prevent the collapse of the roof; Anthony testified that the supports were temporary until a new wall could be built.

. When asked why she did not ask Anthony for interest on the $5,500 trade-in credit on a baler, Arlene replied, "I was just satisfied that I got the fifty-five hundred.” Anthony testified that Arlene attempted to return the check to him within moments of receiving it.

. Arlene hired an attorney in September of 1994 and filed suit in January of 1995; however, she testified that her decision to sue Anthony was made in June of 1994.

. Neither the trial court's finding that Anthony "began reducing Plaintiffs cow herd in 1994 and 1995," nor the majority’s statement that Anthony "systematically reduced his mother’s herd” (supra ¶ 27) find support in the record.

. There were other allegations that Anthony kept the best calves for himself but no evidence was offered to support this claim. Additionally, despite a provision which stated the parties would bear the death loss of their own cattle, Anthony always paid Arlene for her share of calves counted at weaning even though the sale did not occur until they were yearlings, when the numbers might be reduced.

.Anthony did not appeal the adverse ruling on this issue.

. The majority relies on the "clean hands” doctrine in support of its conclusion that Anthony was not entitled to specific performance, citing Kane v. Schnitzler, 376 N.W.2d 337, 341 (S.D.1985) and Shedd v. Lamb, 1996 SD 117, 553 N.W.2d 241. Kane is inapposite, as the parties being denied relief were guilty of fraud. Arlene made no allegation of fraud on Anthony’s part. Shedd is also distinguishable, as the parties being denied the right to rescind made gross misrepresentations regarding the general well-being of their business. As SDCL 21-9-5 makes clear, one seeking specific performance is allowed that remedy even if he has not performed, to the letter, every contractual condition.

. $140,000 rent on the real property (10 years X $14,000); $60,000 rent on the equipment (10 years x $6,000); $20,000 for the tools.

. Equipment: $89,725; tools: $20,000; land: $193,500 (4300 acres @ $45.00 per acre).

.In addition to the substantial amount of money invested by Anthony, he had already devoted five years to management of the ranch prior to the contracts being drawn. This decision will result in a forfeiture of an investment of $130,-000 and 10½ years.