SPRANG v. Altman

#24969-a-SLZ

2009 SD 49

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

M. SCOTT SPRANG and
CHRISTINA R. SPRANG, Plaintiffs and Appellees,

v.

DOUG ALTMAN, Defendant and Appellant.

* * * *

APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
DAVISON COUNTY, SOUTH DAKOTA

* * * *

HONORABLE SEAN M. O’BRIEN
Judge

* * * *

JODY ODEGAARD SMITH of
Morgan, Theeler, LLP
Brookings, South Dakota Attorneys for plaintiffs
and appellees.

MIKE C. FINK
Bridgewater, South Dakota Attorney for defendant
and appellant.

* * * *

CONSIDERED ON BRIEFS
ON APRIL 27, 2009

OPINION FILED 06/24/09
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ZINTER, Justice

[¶1.] M. Scott Sprang and Christina R. Sprang purchased real property from

Doug Altman. Under the conditions of sale, Altman retained a qualified right of

repurchase. A few years after the sale, Sprangs commenced this action seeking a

declaration that Altman’s right of repurchase was personal to Altman and did not

run with the land. Altman counterclaimed for reformation of the condition. The

circuit court denied reformation and concluded that the condition was a personal

contract that did not run with the land. Altman appeals both issues. We affirm.

Facts and Procedural History

[¶2.] In March 2004, Altman offered to sell, and Sprangs agreed to purchase

19.5 acres of land for a homesite. Shortly thereafter, Mr. Sprang contacted Jeff

Larson of Quality Homes to purchase an off-site-constructed house and install it on

the property. At Quality Homes’ request, Custom Touch Homes constructed the

house at its facility. 1

[¶3.] In May 2004, Larson applied to the Davison County Zoning

Administrator, Dan Sudrla, for a building permit. Sudrla informed Larson that

Sudrla could not issue a building permit because the house was not being sited on a

twenty-five acre lot. A Davison County zoning ordinance prohibited non-farm single

lots containing less than twenty-five acres. See infra ¶11 & note 3. Larson

subsequently informed Mr. Sprang that Sprangs needed twenty-five acres in order

1. Custom Touch Homes constructs homes in a controlled environment. Once
the home is constructed, it is shipped to the customer’s building site.

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to obtain a building permit. Larson also informed Mr. Sprang that under the zoning

ordinance, Sprangs could build if the 19.5 acres were subdivided. Sprangs were not

interested in subdividing the property because they wanted to locate the house in

the middle of the 19.5 acre parcel.

[¶4.] Prior to closing on the real property, Mr. Sprang informed Altman

about the problem with the building permit. Altman orally agreed to sell an

additional 5.5 acres. Mr. Sprang testified that when Altman offered to sell the

additional 5.5 acres, Altman expressed concern over subdivision of the property, but

he did not mention repurchasing the 5.5 acres if the Sprangs ever sold the entire

twenty-five acres. Following the agreement to sell the additional 5.5 acres, Sudrla

issued the building permit.

[¶5.] On July 29, 2004, Sprangs closed on the sale of the twenty-five acres.

At the closing, Altman presented Sprangs with a document entitled, “Conditions for

Sale of Land,” which Altman had drafted. Paragraph 4 of the document contained a

condition of repurchase providing:

If the 25 acre minimum zoning would change in the future or if
M. Scott or Christina R. Sprang would ever separate the 25
acres, Doug Altman would have first opportunity to repurchase
the additional 5.5 acres that [Altman] agreed to sell M. Scott or
Christina R. Sprang due to the tax savings.

Altman also executed a warranty deed conveying the twenty-five acres to the

Sprangs. The warranty deed and the Conditions for Sale of Land were recorded

with the Davison County register of deeds.

[¶6.] Sprangs moved into the home in June 2004, and lived on the property

for four years. During that time, Sprangs allowed Altman to use the 5.5 acres for

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pasture at no cost. It is undisputed that the Sprangs did not use the 19.5 acres for

agricultural purposes.

[¶7.] In 2007, Sprangs decided to sell their home and the twenty-five acres.

Following Sprangs’ entry into a purchase agreement with a buyer, a title problem

was discovered regarding the meaning of the condition allowing Altman to

repurchase the 5.5 acres. As a result, Sprangs commenced this declaratory action

asking the circuit court to determine that the repurchase condition was personal to

Altman and did not run with the land. Altman counterclaimed, contending that the

condition ran with the land. He also asked for reformation of the condition and the

warranty deed to provide that, in addition to the provision allowing repurchase for

certain zoning changes or subdividing, Altman could repurchase if Sprangs did not

receive an agricultural property tax benefit from owning the additional 5.5 acres.

Altman finally requested specific performance of the reformed repurchase

condition. 2

[¶8.] At trial Mr. Sprang testified that when the agreement for the sale of

the 5.5 acres was negotiated, the parties never discussed that twenty-five acres was

needed to obtain an agricultural property tax assessment to reduce Sprangs’

property taxes. On the other hand, Altman testified that Mr. Sprang had agreed

that if Sprangs no longer received the agricultural tax benefit, Altman would have a

right of repurchase. After hearing this conflicting evidence, the circuit court

resolved the dispute, finding that the condition was not intended to allow a

2. Because we affirm the circuit court’s denial of reformation, we do not reach
Altman’s counterclaim for specific performance of the reformed condition.

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repurchase if the Sprangs no longer received an agricultural tax benefit from

owning the twenty-five acre parcel. Instead, the court found: “It’s pretty clear to

the court that [the condition] was necessary that the [Sprangs] purchase the

additional 5.5 acres just to meet the minimum zoning requirements in order to

construct a house[.]” The circuit court concluded that the condition as written set

forth the intent of the parties and, therefore, reformation was not warranted. The

court finally concluded that the condition was a personal contract between Sprangs

and Altman that did not run with the land.

Reformation

[¶9.] Reformation is a “remedy in equity by means of which a written

instrument is made or construed to express or conform to the real intention of the

parties, when some error or mistake has been committed.” Enchanted World Doll

Museum v. Buskohl, 398 NW2d 149, 152 (SD 1986). See also SDCL 21-11-1

(providing that “[w]hen through fraud or mutual mistake of the parties, or a

mistake of one party which the other at the time knew or suspected, a written

contract does not truly express the intention of the parties, it may be revised . . . so

as to express that intention[.]”). We review a circuit court’s grant or denial of

reformation under the abuse of discretion standard. LPN Trust v. Farrar Outdoor

Adver., Inc., 1996 SD 97, ¶13, 552 NW2d 796, 799.

[¶10.] Altman argues that the circuit court abused its discretion when it

failed to reform the condition to specifically provide that Altman had a right of

repurchase if the Sprangs no longer received a tax benefit from owning a twenty-

five acre parcel. Altman claims that the condition he drafted mistakenly refers to

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the “25 acre minimum zoning” and subdivision restrictions, when the parties’ real

intent was to allow a repurchase if there were a change in the tax assessment rules.

(Appellant’s Br. 19-20) However, Altman concedes that the condition is silent

regarding his right of repurchase in the event the additional acres become

unnecessary to provide an agricultural tax benefit to Sprangs. He admits that he

“could have drafted the document using better language.” (Appellant’s Br. 30)

[¶11.] Sprangs respond that if they had wanted to qualify for the agricultural

tax classification, they would not have initially purchased only 19.5 acres. Sprangs

point out that although they initially discussed tax implications with Altman and

realized that the 19.5 acres did not qualify for an agricultural tax classification,

they went ahead with the 19.5 acre purchase. They further point out that Altman

conceded the point at trial.

Q: Mr. Altman, you testified that when Scott Sprang came to
you about purchasing the 19 and a half acres you had advertized
for sale that you had a discussion with him regarding the
difference between ag property and residential property and the
taxes that go along with that. Correct?

A: Yes.

Q: And Scott still went forward and purchased the 19 and a half
acres, didn’t he?

A: Yes.

Additionally, Larson, of Quality Homes, indicated that the reason for the purchase

of the 5.5 acres was to obtain a building permit. Larson testified:

Q: Did anything unusual happen when you went in to apply for
the building permit?

A: We work quite a bit with [Sudrla]; so we send our plans over,
a sketch to where we’re going to put the house and stuff – we

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sent that over to him[.] He sent [it] back stating, you know,
we’ve got to have 25 acres or divide it up into sections in order to
build a house on it.

Q: So, at that time, he did not issue a building permit?

A: Correct.

Q: What did you do with that information from [Sudrla]?

A: I just went back to Scott and Christina and told them, you
know, we’re going to need 25 acres in order to get the building
permit or section off the pieces.

Mr. Sprang confirmed that this was the nature of the issue necessitating the

purchase of the additional property:

Q: When Jeff Larson told you that information [about being
turned down for a building permit because you did not have 25
acres], what did you do?

A: I went back and talked to Doug Altman about that.

Q: What did your conversation with Doug Altman entail?

A: That I couldn’t – wouldn’t be able to build a home on 19 and
a half acres because I would not be able to acquire a building
permit.

Sprangs finally point out that they would not have purchased the 5.5 acres for tax

benefits because it is undisputed that they never farmed the acreage, and therefore,

they could not have qualified for the agricultural tax assessment, even if they had

owned twenty-five acres at the outset. See SDCL 10-6-31.3. 3 For all these reasons,

3. Sprangs could not have qualified for the agricultural classification because
they did not satisfy either of the first two requirements of SDCL 10-6-31.3,
which provides in relevant part:

For tax purposes, land is agricultural land if it meets two of the
following three criteria:

(continued . . .)
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Sprangs contend that the circuit court correctly found that the parties did not

intend that the repurchase condition would apply in the event of changes in the

agricultural tax assessment benefit.

[¶12.] A plaintiff must overcome the “presumption [ ] that the writing

accurately reflects the intent of the parties.” Enchanted World Doll Museum, 398

NW2d at 152. A plaintiff seeking reformation must prove their “cause of action by

clear, unequivocal and convincing evidence.” Northwestern Nat’l Bank of Sioux

Falls v. Brandon, 88 SD 453, 458-59, 221 NW2d 12, 15 (1974). In this case, Altman

did not present clear and convincing evidence that the condition failed to express

the intent of the parties. On the contrary, based on the evidence presented to the

circuit court, it appears that the concern of the parties giving rise to the right of

repurchase was the zoning restriction and possible subdivision rather than the

agricultural tax assessment. 4 Under these circumstances, the circuit court did not

abuse its discretion in refusing to reform the condition. 5

_________________________
(. . . continued)
(1) At least thirty-three and one-third percent of the total family
gross income of the owner is derived from the pursuit of
agriculture as defined in subdivision (2) of this section[.]

(2) Its principal use is devoted to the raising and harvesting of
crops . . . for intended profit pursuant to subdivision (1) of this
section[.]

(3) It consists of not less than twenty acres of unplatted land[.]
However, the board of county commissioners may increase the
minimum acre requirement up to one hundred sixty acres.

4. Altman also contends that the parties had agreed Altman had the exclusive
right to use the 5.5 acres “indefinitely.” Altman, however, concedes that he
did not put such a provision in the condition he drafted. Moreover, we affirm
(continued . . .)
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Whether the Condition Ran with the Land

[¶13.] Sprangs argued that the condition was a personal contract running to

Altman rather than a covenant running with the land. The circuit court agreed.

“On appeal we read a covenant as we would a contract, that is, without any

presumption that the trial court was correct.” Kling v. Stern, 2007 SD 51, ¶5, 733

NW2d 615, 617 (citation omitted).

[¶14.] SDCL 43-12-2 sets forth the requirements for covenants running with

the land:

The only covenants which run with the land are:

(1) Those made for the direct benefit of the property or some part
of it, then in existence;

(2) Covenants of warranty for quiet enjoyment or for further
assurance, on the part of the grantor;

(3) Covenants for the payment of rent or of taxes or assessments
upon the land, on the part of a grantee; and

(4) All covenants incidental to any of the foregoing covenants.

_________________________
(. . . continued)
the circuit court’s determination that the conditions did not run with the
land. Therefore, we need not consider Altman’s argument that the condition
also included an indefinite use provision.

5. It is also noteworthy that Altman drafted the condition. We have stated that
one who “writes a contract can by exactness of expression more easily
prevent mistakes in meaning than one with whom he is dealing, therefore
any doubts arising from ambiguity of language are resolved in favor of the
latter.” Enchanted World Doll Museum, 398 NW2d at 152.

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(Emphasis added.) Only subdivision (1) is implicated here. The circuit court

concluded that the condition “was meant to relate only to the parties,” not for the

direct benefit of the property. We agree for a number of reasons.

[¶15.] First, Altman did not draft the condition as a reversionary interest.

Instead, he drafted it so that it only gave him the first opportunity to repurchase.

By only retaining the first right of purchase, Altman evidently contemplated that

others could purchase the 5.5 acres, an occurrence that would have made it

unavailable for the benefit of Altman’s property. This evidence suggests that the

condition was only intended to facilitate Altman’s personal use of the property while

he was in possession. Second, although conditions were recorded, they were not

incorporated into the warranty deed. Finally, we observe that the condition failed

to contain the usual and customary language providing that the condition was to

run with the land. Under the circumstances, we affirm the circuit court’s finding

that the condition was intended only for Altman’s benefit and not for the direct

benefit of the property. See Hyde v. Liebelt, 394 NW2d 888, 890 n1 (SD 1986)

(involving a grantor’s restriction that prevented competition with the grantor’s

business, but “[f]or a covenant to run with the land . . . the covenant must have been

made for the direct benefit of existing property”); Caullett v. Stanley Stilwell &

Sons, Inc., 67 NJ Super 111, 118, 170 A2d 52, 56 (1961) (providing that when “the

[b]urden is placed upon the land, and the [b]enefit is personal to one of the parties

and does not extend to his or other lands, the burden is generally held not to run

with the land at law”).

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[¶16.] GILBERTSON, Chief Justice, and KONENKAMP, MEIERHENRY,

and SEVERSON, Justices, concur.

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