In Re the Estate of Cullum

#27394-a-LSW

2015 S.D. 85

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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IN THE MATTER OF THE
ESTATE OF ROBERT L. CULLUM, Deceased.

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APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA

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THE HONORABLE ROBERT GUSINSKY
Judge

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JOHN K. NOONEY
ROBERT J. GALBRAITH of
Nooney & Solay, LLP
Rapid City, South Dakota Attorneys for claimant and
appellant Duane Pankratz.

SHANE M. PULLMAN
JESS M. PEKARSKI of
Costello Porter Hill Heisterkamp
Bushnell & Carpenter, LLP
Rapid City, South Dakota Attorneys for appellee Estate of
Robert L. Cullum.

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CONSIDERED ON BRIEFS
ON OCTOBER 5, 2015

OPINION FILED 11/04/15
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WILBUR, Justice

[¶1.] Duane Pankratz appeals the circuit court’s decision granting summary

judgment on his claims against Robert Cullum’s estate for breach of an oral promise

to transfer corporate stock and for the recovery of corporate debt Robert Cullum

personally guaranteed to pay. We affirm.

Background

[¶2.] Duane Pankratz and Robert Cullum have been neighbors since the

1970s. Prior to his death in 2012, Cullum owned and operated Mineral Technology

Corporation (MinTec). At some point between 2000 and 2003, Cullum and his son

Scott approached Pankratz for a loan because, according to Pankratz, MinTec was

“facing bankruptcy.” Pankratz explained that Cullum believed MinTec “was very

close to coming up with some great materials to sell and they just felt they needed a

little more time, relief, pressure from the bankers and other agencies that had

loaned them money.” Pankratz agreed to loan MinTec money, although he could

not recall the exact amount of the loan. Pankratz later claimed that in exchange for

the loan, Cullum personally guaranteed the debt and promised to give Pankratz the

same personal guaranty Cullum had given to the bank. Pankratz also claimed that

Cullum promised to give him MinTec stock equal to that held by Cullum. Neither

the personal guaranty nor promise to transfer MinTec stock was reduced to writing.

[¶3.] Over the next many years, Pankratz continued to loan MinTec money.

Pankratz claimed that he and MinTec executed approximately twenty promissory

notes related to the loans. Pankratz later claimed that each time he and Cullum

executed a note, they renegotiated the payment terms and Cullum personally

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guaranteed MinTec’s debt. It is undisputed that in 2007, MinTec was delinquent on

its debt to Pankratz. Pankratz and MinTec consolidated the previously-executed

promissory notes into two promissory notes totaling $1,557,370.70. Cullum signed

the notes in his capacity as president of MinTec. As security for the loans, Pankratz

and MinTec executed an agreement whereby Pankratz took an interest in all

MinTec’s currently-owned and after-acquired personal property, including inventory

and equipment. Pankratz also took a mortgage on certain real property owned by

MinTec. Lastly, Cullum’s wife, Mary Cullum, mortgaged four parcels of real

property to Pankratz as additional security. The mortgage identified that the real

property was leased to MinTec, and provided that “the proceeds from an [sic]

foreclosure” would not be applied to the amount due on the promissory notes until

after Pankratz exhausted recovery via MinTec.

[¶4.] After MinTec and Pankratz executed the consolidated promissory

notes, MinTec made payments to Pankratz on the debt. By 2012, MinTec had paid

Pankratz approximately $1,500,000. In January 2012, Cullum unexpectedly died.

On February 11, 2012, The Estate of Robert L. Cullum (Estate) published a notice

to creditors. Pankratz filed a statement of claim against the Estate providing:

The Claimant made substantial loans to Mineral Technology
Corporation (“MinTec”) pursuant to an agreement with the
Decedent, nearing $2 million of which $300,000 is still
outstanding. In addition to promising to repay the rescue loan
amounts, the Claimant was promised by the Decedent that the
Claimant would be given an equal number of shares in MinTec
as that owned by the Decedent.

The Estate disallowed the claim, and Pankratz petitioned the circuit court to allow

the claim. The record reveals that Pankratz also brought a separate suit against

MinTec related to debt due on the promissory notes.
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[¶5.] The Estate moved for summary judgment asserting that there existed

no binding personal guaranty between Cullum and Pankratz and that the statute of

limitations barred Pankratz’s claim for MinTec shares. In response, Pankratz

asserted that a material issue of fact was in dispute, whether Cullum personally

guaranteed MinTec’s debt, because, according to Pankratz, he loaned money to

MinTec solely on Cullum’s personal assurances. Pankratz further claimed that the

statute of limitations was tolled on his claim that Cullum breached their oral

agreement to transfer MinTec stock. The statute of limitations was tolled, Pankratz

argued, because he continued to loan MinTec money on the continued promise by

Cullum to transfer stock.

[¶6.] After considering the parties’ written briefs, arguments, and the

record, the circuit court issued a memorandum decision. It ruled that the

promissory notes, security agreement, and mortgage were “complete and

unambiguous.” It, therefore, refused to consider any extrinsic evidence that Cullum

personally guaranteed the loans between MinTec and Pankratz. The circuit court

alternatively ruled that even if it did consider Pankratz’s evidence, the personal

guaranty would be unenforceable because it was not in writing as required under

SDCL 56-1-4 and the circumstances did not warrant application of the limited

exception in SDCL 56-1-6. Lastly, the court concluded that the undisputed evidence

established Pankratz was aware in 2004 that Cullum failed to transfer the stock,

and therefore, the statute of limitations expired on Pankratz’s claim that Cullum

breached the parties’ oral agreement.

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[¶7.] Pankratz appeals and raises the following issues for our review:

1. Whether the parol evidence rule bars evidence related to
Cullum’s oral promises to Pankratz.

2. Whether there exist questions of material fact precluding
summary judgment on Cullum’s oral promises to repay
the loan of Pankratz.

3. Whether there exist questions of material fact precluding
summary judgment on Cullum’s oral promise to transfer
shares of MinTec to Pankratz.

Standard of Review

[¶8.] Our review of summary judgment is to “determine only whether a

genuine issue of material fact exists and whether the law was correctly applied.”

Jacobson v. Leisinger, 2008 S.D. 19, ¶ 24, 746 N.W.2d 739, 745 (quoting Cooper v.

James, 2001 S.D. 59, ¶ 6, 627 N.W.2d 784, 787); Millea v. Erickson, 2014 S.D. 34,

¶ 9, 849 N.W.2d 272, 275. “All facts and favorable inferences from those facts must

be viewed in a light most favorable to the nonmoving party.” Andrushchenko v.

Silchuk, 2008 S.D. 8, ¶ 8, 744 N.W.2d 850, 854 (quoting Hendrix v. Schulte, 2007

S.D. 73, ¶ 6, 736 N.W.2d 845, 847). We give no deference to a court’s interpretation

of a contract; our review is de novo. Poeppel v. Lester, 2013 S.D. 17, ¶ 16, 827

N.W.2d 580, 584.

Analysis

1. Personal Guaranty

[¶9.] Pankratz first asserts that the circuit court erred when it refused to

consider whether an oral agreement exists between Cullum and Pankratz whereby

Cullum personally guaranteed MinTec’s debt to Pankratz. In his reply brief to this

Court, Pankratz contends that the parol evidence rule is not implicated because

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there is no writing to supersede the oral negotiations between him and Cullum.

Pankratz makes this claim by isolating his oral agreement with Cullum from his

written promissory notes with MinTec. Pankratz further argues that the parol

evidence rule does not apply because he is not trying to use Cullum’s oral promise to

vary the terms of the written agreements between Pankratz and MinTec.

[¶10.] The parol evidence rule provides that “[t]he execution of a contract in

writing, whether the law requires it to be written or not, supersedes all the oral

negotiations or stipulations concerning its matter which preceded or accompanied

the execution of the instrument.” SDCL 53-8-5 (emphasis added). Even if we

accept Pankratz’s claim that the parol evidence rule is not implicated because there

is no writing related to Cullum’s oral promise, Cullum’s personal guaranty is still

unenforceable. Under SDCL 56-1-4 “a guaranty must be in writing and signed by

the guarantor[.]” (Emphasis added.)

[¶11.] Pankratz, however, contends that the exception to the writing

requirement under SDCL 56-1-6 applies. There are limited exceptions to the

requirement that a guaranty be in writing. See Builders Supply Co., Inc. v. Carr,

276 N.W.2d 252, 256 (S.D. 1979). Relevant here is the exception provided by SDCL

56-1-6:

A promise to answer for the obligation of another is deemed an
original obligation of the promiser and need not be in writing
where the creditor parts with value or enters into an obligation,
in consideration of the obligation in respect to which the promise
is made, in terms or under circumstances such as to render the
party making the promise the principal debtor, and the person
in whose behalf it is made his surety.

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In Builders Supply Co., Inc., we explained that “[i]n essence, the exception states

that where the creditor parts with value in reliance on the oral promise under

circumstances which render the party making the promise the principal debtor,

there need not be a writing.” 276 N.W.2d at 256.

[¶12.] According to Pankratz, he parted with value (his money) “solely” in

reliance on the continued oral assurances by Cullum that Cullum would pay on

MinTec’s debt. Pankratz emphasizes that MinTec was going bankrupt and that it

was in Cullum’s interest that Pankratz loan money to MinTec. Pankratz contends,

therefore, that there is a material issue of fact in dispute whether Cullum became

the “principal debtor.”

[¶13.] From our review of the record, the circumstances do not implicate the

limited exception under SDCL 56-1-6. Pankratz merely relies on his conclusory and

unsupported testimony that he loaned money to MinTec solely on Cullum’s credit.

Yet, “[g]eneral allegations which do not set forth specific facts will not prevent

summary judgment.” BAC Home Loans Servicing, LP v. Trancynger, 2014 S.D. 22,

¶ 15, 847 N.W.2d 137, 141. It is undisputed that the promissory notes were

executed between MinTec and Pankratz. The notes contain identical language

recognizing that Pankratz “previously made loans” to MinTec “on varying dates and

in varying amounts.” Nothing in the notes indicates that Cullum’s credit was a

consideration. On the contrary, the notes provide:

In consideration of extending the due dates of those notes which
are now delinquent and in further consideration of extending the
due dates of notes which are not now delinquent but which
would become delinquent before the due date of this Promissory
Note and for other good and valuable consideration, Maker shall
pay to Payee the amount of Five Hundred Forty-eight Thousand

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Three Hundred Sixty-five Dollars and Sixty-nine Cents
($548,365.69) with interest[.]

Further, MinTec paid Pankratz on the loans and the debt was listed in Pankratz’s

accounts as MinTec’s obligation. See Wood v. Dodge, 23 S.D. 95, 120 N.W. 774, 775

(1909) (“an important consideration is the manner in which the creditor entered the

transaction in his books”). Because Pankratz identifies no specific fact in dispute to

support that Cullum became the principal debtor, the circuit court did not err when

it ruled that Cullum’s personal guaranty must be in writing to be enforceable.

[¶14.] We decline to address Pankratz’s additional claims that the circuit

court erred when it granted the Estate summary judgment because (1) the parties

intended the word “guarantor” in the promissory notes to mean Cullum, (2) the

doctrine of promissory estoppel applies, (3) the parties’ subsequent conduct modified

the agreement, and (4) there is evidence of fraud. On these claims, Pankratz

furnishes general allegations unsubstantiated by “sufficient probative evidence that

would permit a finding in his favor[.]” See Tolle v. Lev, 2011 S.D. 65, ¶ 11, 804

N.W.2d 440, 444 (quoting Schwaiger v. Mitchell Radiology Assocs., P.C., 2002 S.D.

97, ¶ 7, 652 N.W.2d 372, 376). To survive summary judgment, Pankratz must rely

“on more than mere speculation, conjecture, or fantasy.” See id. Pankratz has

failed to meet his summary judgment burden.

2. Oral Agreement to Transfer Stock

[¶15.] Pankratz lastly contends that the circuit court erred when it granted

summary judgment on his claim that Cullum breached the parties’ oral agreement

to transfer MinTec stock. He argues that there is a disputed issue of material fact

whether the statute of limitations expired because Cullum’s promise to transfer the

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stock was “continuous,” and Pankratz did not learn that Cullum breached the

agreement until 2011. The Estate responds that Pankratz’s deposition testimony

establishes that Pankratz was aware of his claim that Cullum breached the contract

in 2004.

[¶16.] An action for a breach of contract has a six-year statute of limitations.

SDCL 15-2-13(1). “Deciding what constitutes accrual of a cause of action . . .

entailing statutory construction, presents an issue of law.” Strassburg v. Citizens

State Bank, 1998 S.D. 72, ¶ 7, 581 N.W.2d 510, 513. A cause of action accrues when

a party has actual notice of the cause of action or is charged with notice. Id. ¶ 10.

“Actual notice consists in express information of a fact.” SDCL 17-1-2.

[¶17.] Here, the undisputed evidence establishes that Pankratz had actual

notice of the cause of action against Cullum in at least 2004. Pankratz testified in

his deposition that Cullum promised at the time of the first loan to MinTec that

Cullum would transfer stock to Pankratz. This occurred at some point between

2000 and 2003. Pankratz further explained that Cullum should have transferred

the stock to him within “a matter of months, like within the first year” of the time

Pankratz first loaned MinTec money. This means Pankratz believed Cullum had an

obligation to transfer MinTec stock to him at the latest in 2004. According to

Pankratz, Cullum told him approximately two or three months after the promise

that he could not transfer MinTec stock. Thus, in approximately 2003 or 2004,

Pankratz was on notice that a breach occurred, and the clock started running on the

statute of limitations. Under the circumstances, it is immaterial that Pankratz

made future decisions to loan MinTec money. “Statutes of limitations begin to run

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when plaintiffs first become aware of facts prompting a reasonably prudent person

to seek information about the problem and its cause.” Strassburg, 1998 S.D. 72,

¶ 13, 581 N.W.2d at 515. Moreover, there is no evidence that Cullum took

affirmative steps to prevent Pankratz from discovering his cause of action. See id.

¶ 15 (fraudulent inducement will not toll the statute of limitations if plaintiff is on

notice of the cause of action). Because Pankratz failed to bring his claim within six

years of 2004, the circuit court did not err when it granted the Estate summary

judgment.

[¶18.] Affirm.

[¶19.] GILBERTSON, Chief Justice, and ZINTER and SEVERSON, Justices,

concur.

[¶20.] KERN, Justice, deeming herself disqualified, did not participate.

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