Hanna v. Landsman

#28927-r-PJD
2020 S.D. 33

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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TERRY HANNA and
RHONDA HANNA, Plaintiffs and Appellants,

v.

WILLIAM LANDSMAN, Defendant and Appellee.

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APPEAL FROM THE CIRCUIT COURT OF
THE THIRD JUDICIAL CIRCUIT
DEUEL COUNTY, SOUTH DAKOTA

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THE HONORABLE ROBERT L. SPEARS
Judge

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GARY W. SCHUMACHER
TODD D. WILKINSON of
Wilkinson & Schumacher Law, Prof. LLC
De Smet, South Dakota Attorneys for plaintiffs
and appellants.

JENNIFER GOLDAMMER
DONALD McCARTY of
Helsper, McCarty & Rasmussen, P.C.
Brookings, South Dakota Attorneys for defendant
and appellee.

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CONSIDERED ON BRIEFS
SEPTEMBER 30, 2019
OPINION FILED 06/17/20
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DEVANEY, Justice

[¶1.] In this breach of contract case, the circuit court granted summary

judgment to the defendant, concluding that the alleged agreement relating to the

transfer of real property was unenforceable because it was for an unlawful purpose,

lacked consideration, and violated the statute of frauds. The plaintiff appeals, and

we reverse and remand.

Factual and Procedural Background

[¶2.] Terry Hanna owned a trucking business and farmland in Deuel

County. In 2000, he experienced financial difficulties and enlisted the help of Bill

Landsman, a longtime acquaintance experienced in assisting individuals with debt

settlement and restructuring. Landsman and Hanna dispute what transpired after

Landsman began helping Hanna. However, we relate the evidence in a light most

favorable to Hanna, the party against whom summary judgment was granted.

[¶3.] Landsman holds a real estate license and operates Landsman Realty.

He also worked as a financial agricultural counselor for the State on a contract

basis. In his role as an agricultural counselor, Landsman would assist individuals

in financial distress and mediate disputes between the individuals and their

lenders. Although Landsman was not hired to be Hanna’s counselor in an official

capacity, it is undisputed that he advised Hanna on his finances and negotiated

reduced settlements for Hanna on various debt obligations. He also loaned Hanna

money to assist with Hanna’s financial situation. Landsman characterized his role

with Hanna as “his banker, per se” and explained that he came up with a plan for

Hanna to deal with his debt without going through bankruptcy.

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[¶4.] This appeal concerns 240 acres (the property) in Deuel County owned

by Hanna since 1985 and encumbered by a mortgage with First National Bank in

Brookings for approximately $260,000. Hanna’s home and shop for his trucking

business are located on the property. According to Hanna, Landsman orchestrated

a multi-step plan for Hanna to sell the property to Landsman so that Hanna could

satisfy his mortgage, but also so that Hanna could make payments toward

regaining ownership while he continued to reside on the property and operate his

trucking business.

[¶5.] The record reflects that one of Hanna’s debts included federal payroll

taxes he failed to remit from the tax period ending June 30, 1999 to the tax period

ending June 30, 2002. He testified that his now ex-wife had been his bookkeeper

and that he did not learn that his taxes were unpaid until their divorce. While

Landsman was assisting Hanna with his debt restructuring, Landsman learned

that the IRS had told Hanna that it would be filing liens for the unpaid taxes

totaling $359,593. After learning this, Landsman and Hanna executed Landsman’s

multi-step plan concerning the transfer of Hanna’s property.

[¶6.] To execute the plan, Landsman asked Midwest R & S Corporation to

purchase the property from Hanna and thereafter sell it to him (Landsman).

According to Landsman, Midwest was owned by Robert Fishback who also owned

First National Bank in Brookings, the bank holding the mortgage on Hanna’s

property. Although Landsman was not a shareholder, Landsman related that

Midwest was a company in which he would invest money, and Midwest would in

turn invest Landsman’s money in real estate. Landsman testified that he and

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Fishback had frequently, and for many years, done business together. At the time

Landsman arranged for Midwest to purchase Hanna’s property, Landsman had an

existing cash investment at Midwest, on which Midwest was paying interest to.

[¶7.] On October 7, 2000, Hanna and Midwest executed a purchase

agreement for Midwest to buy the property (including the land, buildings, truck

shop, fences, dugout, and six semi-trailers) for $183,000. Hanna and Fishback

signed the agreement, and Landsman also signed, but as the seller’s broker and

agent.

[¶8.] The record also contains a “COMMENT SHEET” for “William

Landsman” created by Midwest. The October 10, 2000 entry related the following:

Today Bill Landsman was in to get $500 from Midwest to
purchase some farm real estate from Terry Hanna. This
transaction was approved by Tom and Bob.

Instead of Bill purchasing the property himself, Midwest is
going to purchase it for now. It will be in turn purchased by Bill.
Tom has required a 25% down payment and the rate will be
9.5%.

Midwest will have title to the property for now but a purchase
agreement should be prepared between Midwest and Bill to
protect both parties. A loan was prepared for now between
Midwest and Bill.

The final closing is expected to happen on the 20th. Advanced
$182,933.14 24th.

The closing occurred on October 23, 2000, when Hanna executed a warranty deed

conveying the land to Midwest. Landsman notarized the deed. The closing

statement provides that the selling price was $183,000, that Hanna paid off his

existing note on the property for $146,023.43, and that $30,889.66 was due to the

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seller at closing. 1 Hanna signed the closing statement, and Landsman signed as

Hanna’s broker. The purchase agreement and warranty deed were filed on October

24, 2000.

[¶9.] Also on October 24, 2000, Midwest and Landsman executed a purchase

agreement whereby Midwest agreed to sell Landsman the same 240 acres

(including the land, buildings, truck shop, fences, dugout, and six semi-trailers) for

$183,000. The agreement required Landsman to pay Midwest $46,183.15 on

October 27, 2000 and the balance by January 2, 2003. The agreement further

indicated that “any payment made to Midwest would be subtracted from the

balance of the principal.”

[¶10.] Two other documents were executed on October 24, 2000—a lease

agreement and an option agreement. They purport to be agreements between

Hanna and Midwest; however, it appears from the record that they were drafted by

Landsman. The lease agreement listed Hanna as the tenant and Midwest as the

landlord and indicated that the property to be leased included the building site,

truck garage, and 15 of the 240 acres Hanna had just sold. The lease term was two

years, and Hanna was to pay $550 per month in rent starting in November 2000.

1. Landsman explained that the bank holding the existing note on this property
was either First National or First Bank & Trust, which he referred to as
“Fishback’s bank.” Landsman agreed with counsel’s characterization that
Fishback got involved in the transaction because “his bank [had] a loan with
Terry, and then [Fishback was] using his separate company [Midwest] to do
this land restructuring.”

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Hanna signed the agreement, and Landsman signed as follows: “Midwest R & S

Corporation by W.M. Landsman.” 2

[¶11.] The option agreement is entitled as an agreement between “Terry L.

Hanna and Midwest R & S Corporation by W.M. Landsman.” (Emphasis added.)

The option agreement provided a property description and the following options and

terms:

I, Terry Hanna may buy all the land buildings back before
December 31, 2001 for the purchase price, expenses and 5% of
the purchase price of $183,000.00
or
Terry Hanna may buy all the land and buildings back before
December 31, 2002 for the purchase price, expenses, and 10% of
the purchase price of $183,000.00
also
Teery [sic] Hanna must pay monthly payments of 550.00.
Payments are due to Midwest R & S, %[sic]First National Bank,
Brooking, SD on the first of each month. Payments will be
determined by what the taxes are. $1000 per year for up-keep
on the property, insurance on the buildings, interest and
principal on the land of $183,000 plus 9.5% interest and 30 year
amortization.
or
Terry Hanna may purchase the house acreage for $65,000 plus
expenses any time up to December 31, 2002.
or
The truck acreage for $20,000 plus expenses up to December 31,
2000.
The acreage and truck acreage may be purchased separately.
The 6 trailers and the semi tractor that are on the purchase
agreement revert to Terry Hanna at closing of property on
October 24, 2000.

2. While in his appellate brief, Landsman asserts that he was not a party to the
lease or option agreements signed by Midwest and Hanna, Landsman
testified that the plan had always been that he (Landsman) was going to
purchase the property. Moreover, because Landsman simultaneously
purchased this property from Midwest at the time the option agreement was
entered into, he was an indispensable or, at the very least, a necessary party
thereto.

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Note: Terry Hanna knows he may loose [sic] all of the land and
buildings, if the payments are not made on time.

Terry Hanna also knows W.M. Landsman is going through
Midwest R & S Corporation as the lender and W.M. Landsman
is a Licensed Real Estate Agent.

Hanna signed this document, but it does not contain a signature of either

Landsman or Fishback.

[¶12.] In November 2000, after these transactions, the IRS filed multiple tax

liens which generally attached to “all property and rights to property belonging to”

Hanna. The liens identify the last date each lien could be refiled, which varied

between November 2009 and October 2012. It is not clear what amount, if any,

Hanna paid toward these liens. He testified that he did make some payments on

the tax debt, but he also testified that he did not pay off the liens and that they

were ultimately released because of the passage of time. Hanna asserted that the

tax debt was “settled,” pointing to the IRS release forms containing language

stating that the taxes have been satisfied. Both Landsman and Hanna testified

that an IRS representative indicated that the IRS would not attempt to enforce the

liens and would allow Hanna to continue in his trucking business so long as Hanna

remained current on his taxes.

[¶13.] After Hanna, Midwest, and Landsman executed their respective

agreements related to the property, Landsman and Hanna separately issued

payments to Midwest, though the reason for these payments is not apparent from

the transaction documents. Midwest’s Comment Sheet reflects that Midwest

applied these payments to Landsman’s note: “Today $46,183.15 was posted as a

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principal reduction on MW#62457. WM Landsman #18639 for $15,750.00 & Terry

Hanna #5028 for $30,433.15.” However, there is no record of a new mortgage being

placed on the property securing Landsman’s note. Nevertheless, the purchase

agreement between Landsman and Midwest sets forth a $183,000 purchase price,

with $46,183.15 to be paid on October 27, 2000, and the balance of $137,250 to be

paid by January 2, 2003. It further provides that “any payment made to Midwest

will be subtracted from balance of principal.”

[¶14.] Midwest’s Comment Sheet reflects that Hanna paid $550 for rent in

December 2000. The Comment Sheet also identifies that two additional tenants

leased portions of the 240-acre parcel and paid rent to Midwest, and that the rent

payments were being deposited in Landsman’s savings account and then posted to

the outstanding loan (sometimes referred to as a “note”). The Comment Sheet

relates one additional reference to Hanna’s rent obligation, stating that Landsman

had called Midwest indicating that Hanna’s January 2002 rental payment was

“waived due to some improvements.” Although the Comment Sheet does not

identify additional rental payments by Hanna, it is undisputed that despite the

expiration of the two-year lease, Hanna remained on the property at the time of this

suit.

[¶15.] Other than the rent payments from Hanna and the farm tenants, there

are no additional indications in Midwest’s Comment Sheet that any other payments

were being made or posted on this loan. The interest rate of the loan was modified

at least three times, and the loan’s maturity date was extended seven times at

Landsman’s request. The last entry in the Comment Sheet lists a maturity date of

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“12/31/11.” Thus, it appears the loan was still outstanding when a warranty deed

was issued from Midwest to Landsman in October 2007 after Landsman requested

that Midwest transfer title because he wanted to lease the property to a company

building wind towers. Landsman indicated that he would continue putting the cash

rent payments toward the loan and property taxes.

[¶16.] With regard to the options set forth in the October 24, 2000 agreement

between Hanna and Midwest, Hanna testified that he never directly advised

Midwest that he was exercising any of the options because “Bill [Landsman] did

everything for [him].” He further claimed that he believed that “they already knew”

it was his intention to repurchase the land. Hanna explained that he or his wife

Rhonda would call Landsman periodically to ask what amount was left to pay on

this loan (as well as the loans related to the trucking business). Landsman does not

dispute that these communications occurred. Rhonda testified that during one

particular call, she had asked Landsman for the amount Hanna still owed on the

farm, and Landsman told her $56,600. The record contains a check from Rhonda

dated August 16, 2010, payable to Landsman in the amount of $56,600, with “farm”

written on the memo line. Hanna maintained that this check was the final

payment, after which he specifically asked Landsman to transfer back the 240 acres

but Landsman refused to transfer title of the property.

[¶17.] In October 2013, Hanna and his wife brought suit against Landsman

for breach of contract, along with additional causes of action not relevant to this

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appeal. 3 Landsman answered, denying that he had any agreement with Hanna

regarding the property. He also counterclaimed, asserting causes of action not

relevant to this appeal. Because this appeal concerns only the disputed 240 acres,

we relate the procedural history relevant to that claim.

[¶18.] Hanna and Landsman filed cross-motions for partial summary

judgment. Hanna asserted that there are no disputed material facts as to the

question whether Landsman had agreed to convey the property back to him after

any debt remaining on the property was paid in full, or as to whether he had in fact

paid off his debt to Landsman under that agreement. In response and in support of

his cross-motion, Landsman asserted that no such agreement existed, oral or

otherwise. Alternatively, Landsman asserted that if an agreement existed, Hanna’s

claim was barred by the statute of frauds, that the agreement was invalid because it

was for an unlawful purpose (to defraud the IRS), that the agreement failed for lack

of consideration, and that Hanna failed to perform.

[¶19.] After a hearing and post-hearing briefing, the circuit court entered a

memorandum decision granting Landsman’s summary judgment motion and

denying Hanna’s. The circuit court identified the elements necessary to create a

3. Hanna’s second claim alleged another breach of contract pertaining to a
different real estate parcel in which Hanna had an interest that was also
transferred to Landsman. The parties reached a settlement as to this claim.
Hanna’s third claim alleged breach of contract and fraud pertaining to a
leasing company created by Landsman to assist Hanna in restructuring debt
related to his trucking business. Landsman counterclaimed for unjust
enrichment based upon Hanna receiving a benefit from Landsman’s debt
settlement services without paying for such. These claims were presented to
a jury. The jury returned verdicts for both parties, but awarded zero
damages.

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contract and concluded that the agreement was unlawful because “the only reason

the farmland was transferred out of Hanna’s ownership was to defraud the IRS.”

Alternatively, the court reasoned that even if the agreement was for a lawful

purpose, Hanna’s contract claim is barred by the statute of frauds and would fail for

lack of consideration. The court did not address Landsman’s alternative argument

that Hanna failed to perform. The court also declined to consider the doctrines of

promissory estoppel or part performance as asserted by Hanna because of the

court’s determination that the contract concerned an unlawful object or purpose.

[¶20.] Hanna appeals, asserting the circuit court erred in granting summary

judgment on Hanna’s breach of contract claim.

Standard of Review

[¶21.] Our standard of review from a summary judgment is well settled:

In reviewing a grant or a denial of summary judgment under
SDCL 15-5-56(c), we 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. The evidence must be viewed most favorably to the
nonmoving party and reasonable doubts should be resolved
against the moving party. The nonmoving party, however, must
present specific facts showing that a genuine, material issue for
trial exists. Our task on appeal is to determine only whether a
genuine issue of material fact exists and whether the law was
correctly applied. If there exists any basis which supports the
ruling of the trial court, affirmance of a summary judgment is
proper.

Millard v. City of Sioux Falls, 1999 S.D. 18, ¶ 8, 589 N.W.2d 217, 218 (quoting

Walther v. KPKA Meadowlands Ltd. P’ship, 1998 S.D. 78, ¶ 14, 581 N.W.2d 527,

531).

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Analysis and Decision

Whether an Enforceable Contract Exists

[¶22.] Hanna contends the circuit court erred in concluding as a matter of

law that any agreement alleged by Hanna for the return of the property at issue

fails to satisfy the statute of frauds. Hanna contends that there are material issues

of fact in dispute to support that he and Landsman “entered into an agreement

pursuant to which [Landsman] agreed to secure financing to pay off [Hanna’s]

existing loans on certain real property”; that Hanna would, under this agreement,

transfer title to the 240 acres to Landsman; and that Landsman would “reconvey

title” to Hanna “at such time as [Hanna] repaid all loan funds and interest.” Hanna

then claims that he presented evidence to support that he “made numerous

payments from October 2000 until the final payment on” August 16, 2010.

[¶23.] Hanna does not contend that one written document embodies the

essential elements of the above agreement. Rather, he claims that three written

agreements construed together establish a contract sufficient to satisfy the statute

of frauds. He directs this Court to his farm lease and option agreement and the

purchase agreement between Landsman and Midwest. He highlights that each of

these written contracts “has a lawful object and sufficient consideration[.]” He also

emphasizes that Landsman orchestrated the multi-step plan and drafted and

signed the relevant documents.

[¶24.] The “[e]lements essential to existence of a contract are: (1) [p]arties

capable of contracting; (2) [t]heir consent; (3) [a] lawful object; and (4) [s]ufficient

cause or consideration.” SDCL 53-1-2. An agreement for the sale of real estate or

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an interest therein must be in writing to be enforceable. SDCL 53-8-2(3). In re

Matheny Family Tr., 2015 S.D. 5, ¶ 11, 859 N.W.2d 609, 612. The writing relied

upon does not have to “embody the exact terms of the contract; ‘it is sufficient that

the substance of a contract for the purchase of real property is inferred from the

writing[.]’” Wiggins v. Shewmake, 374 N.W.2d 111, 114 (S.D. 1985) (quoting Drake

v. Sample, 279 N.W.2d 685, 689 (S.D. 1979)). “To satisfy the statute of frauds, a

memorandum for the sale of land must describe the land, the price, and the

contracting parties; it need not detail the form or delivery of deed, the time and

place of payment, or any other matters.” Amdahl v. Lowe, 471 N.W.2d 770, 774–75

(S.D. 1991).

[¶25.] From our review, the three writings relied upon by Hanna and

Midwest’s Comment Sheet—when construed together—establish the description of

the land, the purchase price, and the contracting parties. See Wiggins, 374 N.W.2d

at 115 (To satisfy the statute of frauds “the writings may consist of disjointed

memoranda or protracted correspondence.”). The documents identify the property

to be conveyed—the 240 acres previously owned by Hanna. The documents further

identify the subscribing parties to this three-way transaction: Hanna, Landsman,

and Midwest. Finally, the various writings also establish a price term of $183,000

plus interest. Therefore, we conclude that these writings sufficiently set forth the

substance of the parties’ agreement to satisfy the statute of frauds and the circuit

court erred in concluding otherwise.

[¶26.] Landsman nevertheless asserts that even if the parties’ writings

satisfy the statute of frauds, the option agreement set forth various deadlines by

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which Hanna had to perform. The option agreement also contained the note: “Terry

Hanna knows he may loose [sic] all of the land and buildings, if the payments are

not made on time.” Hanna, on the other hand, contends that Landsman “agreed to

reconvey title to said real property to [Hanna] at such time as [Hanna] repaid all

loan funds and interest.” (Emphasis added.) According to Hanna, he and

Landsman had agreed that so long as he continued to make payments on the

property and ultimately paid off the outstanding balance on Landsman’s loan from

Midwest, he could buy back the property. Hanna further claims that he made

additional payments based upon these promises and representations by Landsman.

This dispute regarding the time and manner of performance involves matters

outside the scope of a statute of frauds defense.

[¶27.] “Although the statute of frauds prohibits oral alteration of a written

contract for the sale of land, a waiver of the time for performance is not an

alteration of a written contract.” Johnson v. Sellers, 2011 S.D. 24, ¶ 16, 798 N.W.2d

690, 695 (citing Endres v. Warriner, 307 N.W.2d 146, 149 (S.D. 1981)). In Johnson,

we held “that notwithstanding the statute of frauds, parties may orally waive

conditions involving the performance of the contract[,]” including the time of

payment. Id. ¶ 17. See also Hofeldt v. Mehling, 2003 S.D. 25, ¶ 11, 658 N.W.2d 783,

787 (The parol evidence “rule does not apply to conduct and statements taking place

after a contract agreement has been executed.” (Emphasis added.)).

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[¶28.] We further noted, in Endres, that the doctrine of estoppel “is closely

akin to waiver.” 4 307 N.W.2d at 150. The doctrine of promissory estoppel requires

proof of an unfulfilled oral promise relied upon to the detriment of the promisee.

Vander Heide v. Boke Ranch, Inc., 2007 S.D. 69, ¶ 27, 736 N.W.2d 824, 834. “To

apply the doctrine of promissory estoppel, the trial court must [also] find: 1) the

detriment suffered in reliance must be substantial in an economic sense; 2) the loss

to the promisee must have been foreseeable by the promisor; and 3) the promisee

must have acted reasonably in justifiable reliance on the promise made.” Garrett v.

BankWest, Inc., 459 N.W.2d 833, 848 (S.D. 1990).

[¶29.] From our review of the record, Hanna has identified sufficient material

facts in dispute on the question whether the identified writings contemplated a

later time for performance, or whether Landsman, by subsequent representations or

conduct, agreed to waive or extend the time for performance and Hanna thereafter

relied and acted upon such representations to his detriment. It is undisputed that

Landsman orchestrated a multi-step plan under which Hanna would transfer

ownership of the property to Landsman through the use of a third-party

intermediary, Midwest. Further, the parties’ testimony supports that the three-

party transaction was structured, at Landsman’s suggestion, as a sale-leaseback

4. Even when writings are insufficient to satisfy the statute of frauds, we have
applied the doctrine of promissory estoppel to enforce an oral promise to
convey real property. See, e.g., Durkee v. Van Well, 2002 S.D. 150, ¶ 21, 654
N.W.2d 807, 814–15, abrogated on other grounds by Mundhenke v. Holm,
2010 S.D. 67, 787 N.W.2d 302; Hahne v. Burr, 2005 S.D. 108, ¶ 10, 705
N.W.2d 867, 871.

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agreement to satisfy Hanna’s existing mortgage, with Hanna retaining the ability to

repurchase the property, and Midwest acting as the lender. 5

[¶30.] Hanna offered evidence that he relied on Landsman’s representations

when he conveyed the property to Midwest (the initial buyer), but then immediately

paid Midwest $30,433.15 (a portion of Hanna’s proceeds from the sale). This sum

was applied toward Landsman’s $46,183.15 down payment to Midwest to fund

Landsman’s simultaneous purchase of the property. Notably, nothing on the face of

the parties’ written agreements required Hanna to make such a payment.

[¶31.] Hanna also submitted evidence to support his assertion that after

transferring the property, he made payments to reacquire it. There is no dispute

Hanna remained in possession of the property after his two-year lease expired,

despite the fact that he did not continue to make monthly lease payments. A note

in Midwest’s Comment Sheet indicates that at least one rent payment was waived

due to improvements Hanna made to the property. The Comment Sheet also

reflects the parties’ agreement to directly apply Hanna’s rental payments, along

5. Landsman argues that Hanna is precluded by the doctrine of merger from
undoing “the transfer of real estate that was conveyed by warranty deed
many years ago.” “The doctrine of merger provides ‘that upon delivery and
acceptance of an unambiguous deed, all prior negotiations and agreements
are deemed merged within.’” Estate of Fisher v. Fisher, 2002 S.D. 62, ¶ 15,
645 N.W.2d 841, 846 (citation omitted). Here, Hanna does not seek to undo
his conveyance of the property by warranty deed to Midwest, or Midwest’s
conveyance of the deed to Landsman. Rather, Hanna seeks to enforce an
alleged agreement he had with Landsman under which Landsman would
convey ownership of the property back to him after Hanna made payment in
full on Landsman’s loan from Midwest. See, e.g., Nelson v. Gregory County,
323 N.W.2d 139, 142 (S.D. 1982) (noting that an exception to the doctrine of
merger is “the existence of collateral contractual provisions or agreements
which are not intended to be merged in the deed”).

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with the third-party tenants’ rental payments, toward the outstanding balance of

the loan Landsman obtained from Midwest to fund the remainder of the purchase

price Landsman had agreed to pay for this property. Finally, Rhonda testified that

long after the option agreement’s purported expiration date of December 31, 2002,

the Hannas paid what Landsman indicated, and they believed, to be the final

amount due ($56,600) on their agreement to reacquire the property. 6 Because there

are material issues of fact in dispute on Hanna’s contract and alternative estoppel

claims, the circuit court erred in granting summary judgment.

Whether an Unlawful Object Precludes Enforcement of the Contract

[¶32.] In addition to granting summary judgment on the basis that Hanna’s

alleged contract fails under the statute of frauds, the circuit court determined that

one of the essential elements of a contract is absent, in particular, the requirement

6. The option agreement includes language that could be construed to support
Hanna’s claimed oral agreement as to his time for performance, namely that
so long as he made timely payments, he would maintain the ability to regain
ownership of the 240 acres. The third paragraph prefaced by “also” provides
that “Hanna must pay monthly payments of $550.” While this sentence
appears to refer to Hanna’s $550 monthly payment on the two-year lease of a
portion of the property, this paragraph includes the following additional
language: “Payments will be determined by what the taxes are. $1,000 per
year for up-keep on the property, insurance on the buildings, interest and
principal on the land of $183,000 plus 9.5% interest and 30 year
amortization.” Notably, none of this additional language is contained in the
separate lease agreement, and the $183,000 refers to the purchase price for
the whole acreage, rather than just the smaller building site Hanna was
leasing. Moreover, the 9.5% interest rate is consistent with the rate applied
to Landsman’s note with Midwest, and Hanna testified that he believed he
was paying off Landsman’s loan under what he deemed to be a 30-year
mortgage. There is ambiguity, therefore, in the language of this particular
paragraph and how it relates to the other provisions in this option
agreement.

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of a lawful object. The court found that based upon the facts presented, “the only

reason the farmland was transferred out of Hanna’s ownership was to defraud the

IRS.” The court, therefore, concluded that the contract has “an unlawful purpose,

object or subject matter” and is “unenforceable as a matter of law.” 7

[¶33.] On appeal, Hanna argues that the circuit court erred in reaching this

conclusion. He notes that each of the written documents executed by the parties

has a lawful object and sufficient consideration. He also highlights that the IRS did

not give notice of its liens until November 29, 2000, after the property had already

been transferred. Hanna further claims that he “reached an agreement with the

IRS regarding his unpaid 941 taxes and he made payments to the IRS to satisfy this

agreement.”

[¶34.] Under SDCL 53-1-2(3), a lawful object is essential to the existence of a

contract. See Knecht v. Evridge, 2020 S.D. 9, ¶ 47, 940 N.W.2d 318, 331. The object

of the contract is defined as “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. “Where a contract

has but a single object and such object is unlawful in whole or in part, . . . the entire

contract is void.” SDCL 53-5-3. Therefore, when a contract is void, it “is invalid or

unlawful from its inception. It is a ‘mere nullity, and incapable of confirmation or

ratification.’” Nature’s 10 Jewelers v. Gunderson, 2002 S.D. 80, ¶ 12, 648 N.W.2d

7. The circuit court cited 26 U.S.C.A. § 7206 in support of its determination that
the alleged agreement is unenforceable. Under subsection (4) of this statute,
“[a]ny person who . . . [r]emoves, deposits, or conceals, or is concerned in
removing, depositing, or concealing . . . any property upon which levy is
authorized by section 6331, with intent to evade or defeat the assessment or
collection of any tax imposed by this title . . . shall be guilty of a felony[.]” Id.

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804, 807 (citation omitted). However, “[w]here a contract has several distinct

objects, one or more of which are lawful and one or more of which are unlawful in

whole or in part, the contract is void as to the latter and valid as to the rest.” SDCL

53-5-4.

[¶35.] Importantly, there is nothing unlawful on the face the parties’

agreement. Hanna sold his property to a third party for good and valuable

consideration and entered into a simultaneous agreement allowing him to buy the

property back over time. In declaring the contract unenforceable, the circuit court

did not consider the lawful objectives asserted by the parties. Instead, the court

referred to certain portions of the parties’ deposition testimony and concluded that

defrauding the IRS was the only purpose for the alleged agreement.

[¶36.] However, the evidence in the record reveals that whether Hanna

transferred this property with the intent to defraud the IRS is disputed. Under the

option agreement, had Hanna exercised either option of buying the property back by

December 31, 2001 or 2002, he would have owned the property before the IRS liens

were released and the IRS could then have executed on this property to satisfy the

liens. In addition, Landsman and Hanna testified that they met with IRS

representatives and were informed that the IRS would not proceed against its liens

so long as Hanna stayed current on his taxes. Hanna testified that his plan was to

make monthly payments to the IRS to pay off the debt, and while he agreed that he

did not pay off the liens, he testified that the debt was “settled.” Hanna points to

the language in the Certificates of Release filed by the IRS stating that the IRS has

“satisfied the taxes listed” and “all statutory additions.” In the same vein, during

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his deposition testimony, Landsman denied that the initial land transfers were

undertaken to avoid the IRS debt. Landsman explained that the purpose of the

underlying land transactions was to help Hanna restructure his debt and avoid

bankruptcy.

[¶37.] From our review of the record and the court’s decision, the circuit court

appears to have disregarded much of this evidence. It is also evident that the court

weighed the evidence when it entered findings of fact on what it regarded as “facts

that exist without substantial controversy.” (Emphasis added.) “The judge’s

function at the summary judgment stage, however, is not to weigh the evidence and

determine the matters’ truth.” Hamilton v. Sommers, 2014 S.D. 76, ¶ 42, 855

N.W.2d 855, 868. Moreover, on summary judgment, the evidence must be viewed in

a light most favorable to the nonmoving party (Hanna). See Millard, 1999 S.D. 18,

¶ 8, 589 N.W.2d at 218. Therefore, the circuit court erred when it summarily

concluded that the only reason Hanna transferred the property was to defraud the

IRS.

[¶38.] Landsman argues—for the first time on appeal—that summary

judgment was nevertheless proper because the doctrine of in pari delicto bars

Hanna from using the court “to effectuate illegal oral agreements.” 8 Notably, the

remedy resulting from a determination that a contract is without a lawful purpose

is the same as when parties are found to have been acting in pari delicto—the

contract cannot be enforced, either because it is void from the outset in the case of

8. Landsman asserted the similar doctrine of unclean hands in his argument to
the circuit court.

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an unlawful purpose, or because the court cannot, by enforcing the contract, “do

something that is itself part of the unlawful act.” Cowan Bros., LLC v. American

State Bank, 2007 S.D. 131, ¶ 23, 743 N.W.2d 411, 419 (quoting Katun Corp. v.

Clarke, 484 F.3d 972, 978 (8th Cir. 2007)). However, the in pari delicto doctrine is

distinct from the question whether a contract has an unlawful purpose. Our case

law has made clear that the application of “the in pari delicto doctrine is only

appropriate where the parties acted in concert or conspired to commit a wrong.” See

id. ¶ 24; accord Quick v. Samp, 2005 S.D. 60, ¶ 8, 697 N.W.2d 741, 745; Massey

Ferguson Credit Corp. v. Bice, 450 N.W.2d 435, 440 (S.D. 1990). Therefore, to apply

this doctrine, the court must find that Hanna and Landsman were mutually

involved in the wrongdoing. See Cowan Bros., 2007 S.D. 131, ¶ 23, 743 N.W.2d at

419 (citation omitted).

[¶39.] “The doctrine of in pari delicto is ‘based on judicial reluctance to

intervene in disputes’” where mutual wrongdoing has occurred. Id. ¶ 23 (quoting

Katun, 484 F.3d at 978). In Massey Ferguson, we applied this doctrine in declining

to enforce an agreement between two parties (Bice and Nelson) to a retail

installment contract who acted in concert to defraud a credit company (MF Credit)

by seeking financing for a nonexistent tractor. 450 N.W.2d at 439 (referring to the

policy where a court leaves “all equally culpable parties . . . in the position in which

they have placed themselves”). 9 The circuit court had summarily dismissed Bice’s

9. In Massey Ferguson, the circuit court denied relief to Bice who sought
indemnification from Nelson (an implement dealer) because the requested
relief arose out of their agreement to defraud MF Credit. 450 N.W.2d at 437.
Nelson and Bice had entered into a series of retail installment agreements
(continued . . .)
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third-party complaint seeking indemnity from Nelson, concluding Bice and Nelson

acted in pari delicto in perpetrating the fraud. We upheld the dismissal on appeal

as a matter of public policy and law, concluding that “[t]he uncontested facts show

that Bice was an active party in carrying out and concealing the fraud from MF

Credit.” Id. at 440.

[¶40.] Unlike the undisputedly fraudulent contract in Massey Ferguson,

material issues of fact are in dispute as to the intentions of Hanna and Landsman

when entering into the land transactions at issue here. Moreover, in Quick, we

noted an exception to the doctrine of in pari delicto “when denying relief would

offend public morals to a greater extent than granting relief.” 2005 S.D. 60, ¶ 9, 697

N.W.2d at 745 (citing Gaines v. Wolcott, 167 S.E.2d 366, 370 (Ga. Ct. App. 1969)).

As one court noted, “[a]s a general rule . . . forfeitures by operation of law are

disfavored, particularly where a defaulting party seeks to raise illegality as ‘a sword

for personal gain rather than a shield for the public good.’” Lloyd Capital Corp. v.

Pat Henchar, Inc., 603 N.E.2d 246, 248 (N.Y. 1992) (citation omitted). This is

especially true when “there are regulatory sanctions and statutory penalties in

place to redress violations of the law.” Id.

________________________
(. . . continued)
financed by MF Credit, one of which involved Nelson selling Bice a
nonexistent tractor and assigning the contract to MF Credit for immediate
cash. Nelson’s implement dealership was in financial trouble at the time,
and he agreed to provide Bice the money to make payments on the illusory
contract with MF Credit. However, Nelson did not advance Bice the money
as agreed. Bice later defaulted on the contract with MF Credit. When MF
Credit brought suit against Bice, he claimed that Nelson should be held liable
to MF Credit and filed a third-party complaint for indemnification.

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[¶41.] Therefore, the circuit court improperly granted summary judgment on

this issue. If, on remand, the object of the contract remains a disputed issue, the

finder of fact must first identify, after weighing the evidence, the object or objects of

the transactions at issue and whether any such objects are unlawful. If the circuit

court is asked to apply the equitable doctrine of in pari delicto or any of its

exceptions, the factfinder must also determine whether both Hanna and Landsman

were engaged in wrongdoing.

Lack of Consideration

[¶42.] In granting summary judgment, the circuit court also found a lack of

consideration to support the alleged contract. The court rejected the following

consideration asserted by Hanna: (1) “that the cash rent paid by the tenants, other

than [Hanna], would be applied somehow to the purchase price of the land”; and (2)

“that the rent [Hanna] was paying on his residence in the amount of $550 per

month should have been applied to the purchase price of the 240 acres of farmland.”

According to the court, neither of these assertions established consideration because

they rested on the performance of preexisting obligations.

[¶43.] Under SDCL 53-6-1, “[a]ny benefit conferred or agreed to be conferred

upon the promiser by any other person to which the promiser is not lawfully

entitled, or any prejudice suffered or agreed to be suffered by such person, other

than such as he is at the time of consent lawfully bound to suffer as an inducement

to the promiser, is a good consideration for a promise.” However, “performance of a

pre-existing duty cannot form the basis for valid consideration for a contract.”

Prairie Hills Water and Develop. Co. v. Gross, 2002 S.D. 133, ¶ 43, 653 N.W.2d 745,

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755 (citing Garrett, 459 N.W.2d at 841; Dawson v. Corbett, 71 S.D. 106, 21 N.W.2d

758 (1946)).

[¶44.] The rent payments by the farm tenants were made pursuant to the

tenants’ rental agreements with Midwest, and therefore could not form the basis for

valid consideration under the agreement alleged by Hanna. However, the same

may not be true for Hanna’s payments, because there is a factual dispute over

whether Hanna was paying solely rent, or rather paying off Landsman’s loan. The

record reflects that Hanna issued at least two payments ($30,433.15 on October 24,

2000 and $56,600 on August 16, 2010) toward his asserted agreement whereby

Landsman would transfer title after Landsman’s loan from Midwest was paid in

full. Neither of these payments were required under the terms of the option

agreement or the separately executed lease agreement. Therefore, while these

payments may not establish that Hanna has paid in full under the terms of his

asserted agreement, they are sufficient to refute Landman’s argument that the

alleged agreement fails as a matter of law for lack of consideration.

[¶45.] We reverse the circuit court’s grant of summary judgment and remand

for further proceedings.

[¶46.] GILBERTSON, Chief Justice, and KERN, JENSEN, and SALTER,

Justices, concur.

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