Court Opinion

ID: 9695856
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:30:26.424211+00
Date Added: 2024-06-11T18:20:17.004548
License: Public Domain

SABERS, Justice
(dissenting).
I dissent.
If courts are going to take on the responsibility under SDCL 21-50-2 and attempt to adjust the equities of the parties, they must be prepared to do the whole job, not just a part. The failure to balance all the equities of the parties is contrary to the letter and spirit of SDCL 21-50-2, Heikkila, v. Carver, 378 N.W.2d 214 (S.D.1985), and Prentice v. Classen, 355 N.W.2d 352 (S.D.1984).
First, the court erred in not considering all the costs of the original sale. It is patently unfair to allow “Sellers only 39 percent of the sale expense as a credit[;]” Sellers incurred 100 percent. Since Sellers will necessarily incur additional expenses when the property is resold, all of the original expenses must be considered a detriment.
Second, the majority rejects, without any substantial analysis, Sellers’ claims of error concerning failure to consider
—Sellers’ increased income tax liability from repossession;
—Income tax paid by Sellers on interest payments received from Buyers; and
—Income tax savings by Buyers.
The reasons given by the majority in rejecting Sellers’ claims are wholly inadequate. Apparently, they are 1) Dow v. Noble, 380 N.W.2d 359 (S.D.1986), makes no mention of income taxes, 2) Dow denied a buyer interest on a down payment, 3) tax aspects are not referred to in a certain authority on foreclosure restitution, 4) tax considerations “would take the Court far afield” and 5) tax liabilities were “not what these parties were contracting for [as tjheir contract dealt with land and payments.” In effect, the majority is saying: We have never considered these claims before, so we cannot consider them now.
The irony of these statements is obvious. The court is bold enough to change this contract for deed to a mere lease arrangement, but shies away from tax considerations because that is “not what these parties were contracting for.” These parties were not contracting for a lease arrangement either, but that did not stop the majority. If the majority is going to attempt to equitably adjust the rights of the parties by focusing on the detriments and benefits to the Sellers, then the tax issues must be taken into consideration since the tax consequences of the transaction significantly impact Sellers’ detriments and benefits. For example, if the Sellers’ taxes will increase as a result of the repossession, that is as much a detriment to Sellers as any “Miscellaneous Expenses in Land Recovery.” By the same token, the tax on the interest payments cannot be ignored. If the measuring criteria is the amount of benefit to Sellers, then it is illogical to use the amount of Buyers’ expense in the analysis. While Buyers may have paid 1114,179.36 in interest, Sellers did not benefit by that amount. Sellers’ true benefit is the amount of interest retained after taxes, and that is the amount that should be used.

A Simpler Approach to Equitable Adjustment

The difficulty and complexity of including tax calculations in the court’s analysis of benefits and detriments is readily apparent. In fact, it is probably impossible to equitably adjust all the rights of the parties by focusing upon the benefits and detriments to Sellers. Therefore, this court would be better served by an approach that attempts to enforce the agreement entered into by the parties, rather than an approach that attempts to convert a contract for deed into a lease agreement. As explained in Freyfogle, Vagueness and the Rule of Law: Reconsidering Installment Land Contract Forfeitures, 1988 Duke L.J. 609 (1988):
[A] vendor should have the right to obtain the benefit of her contract bar-gain_ Full compensation is the normal rule in contract breach settings; there is no particular reason to deviate from the rule here. In determining the amount of the vendor’s recovery, courts should focus on the proper method of *356damage calculation. The purchaser s payments, as well as the purchaser’s equity, are irrelevant. What is relevant is simply the value of the property (at the date on which the vendor recovers it) and the unpaid contract amount.
Id. at 650. It cannot be said this approach is inequitable as there is nothing inequitable about giving the Sellers the benefit of their bargain.
Equitable adjustment of the rights of the parties is still easily achieved under the above described approach. As explained by Professor Freyfogle:
Courts can calculate the restitution amount simply: the purchaser is entitled to the excess of the property’s value over the unpaid purchase price. A state, as a policy matter, might allow the vendor to retain some portion of the excess as extra compensation for her injuries.
Id. To equitably adjust the rights of the parties, the court simply subtracts the payment due Sellers from the property value and Buyers are entitled to a refund of the excess. However, Sellers should be allowed to offset their foreclosure expenses against the refund so they are not penalized for enforcing the contract. Here, Sellers were entitled under the contract to a balloon payment of $123,585.44 plus interest from the due date, November 1, 1987. In lieu of such a payment, the property, with a value adjudged to be $147,356.00, will be returned to Sellers. In this situation the equitable adjustment works out as follows:
property value: $147,356.00
LESS
balloon payment: $123,585.44
interest at 7.5% from 11 — 1— 87 to 10-1-89: $ 18,374.85
Refund: $ 5,395.71
LESS
foreclosure expense offset: $ 21,293.21
Amount due Buyers: ($ 15,897.50)
Under this approach, Sellers do not receive a windfall. Instead, they incur a loss of almost $16,000 in unrecovered foreclosure expenses. In other words, Sellers still fall short of receiving the full benefit of their bargain. At the same time, the court's interference with the contract is minimal.
I have great empathy for this elderly, retired farm couple who sold their farm and moved to town in 1977 in hopes of a financially secure and peaceful retirement, but must now pay $19,878.84, plus interest, to regain possession of their farm. This area of the law, as interpreted and implemented by the majority, is a can of worms. It may well be the death of contract for deed sales of farms, homes, and businesses. For example, see the problems identified in Freyfogle, supra, and in my writing in Safari, Inc. v. Verdoorn, 446 N.W.2d 44, 47 (S.D.1989).
I am authorized to state that MILLER, J., joins in this special writing.