Summary of a Recent
Judicial Development in
Bankruptcy

Cattle Ranch Buyers Sue for
Breach of Contract

John D. Mead
National AgLaw Center Graduate Assistant

In an action brought by two purchasers of a cattle ranch against the sellers of the ranch for failure to carry out the provisions of an agreement between the parties for cancellation of two contracts of deed, the Supreme Court of South Dakota has ruled that the matter was not barred by res judicata and that the purchasers were not entitled to equitable relief. Rindal v. Sohler, No. 22246, 22258, 2002 WL 32041254 (S.D. March 5, 2003).

Daniel C. Rindal and Raymond J. Shape, respondents, purchased a 2,700-acre ranch from Gail and Janet Sohler for $840,000.00 on two contracts of deed. See id. The respondents stopped paying the Sohlers on the contracts for deed in 1989. See id. At the time that the respondents stopped payment, the Sohlers had received $180,000.00 in principal and $219,450.00 in interest, for a total of $339,450.00 on the contracts for deed. See id.

Raymond Shape filed a Chapter 12 bankruptcy petition in 1991, and the Sohlers obtained relief from the automatic stay on August 27, 1991. See id. On October 16, 1991, the respondents and the Sohlers entered into an agreement for cancellation of the contracts for deed in which the ranch was deeded back to the Sohlers. See id. In consideration for the return of the property, the Sohlers agreed to make immediate efforts to resell the ranch. See id. In the event that the ranch was resold, the Sohlers agreed to pay the respondents any excess over the Sohlers' expenses. See id.

After the ranch had been quitclaim deeded back to the Sohlers, they took steps to sell the property. See id. Shape, however, did not vacate the ranch, and the Sohlers were forced to obtain a court order to evict him from the property. See id. After the eviction, the Sohlers discovered that Shape had left the property in such a condition that required them to expend thousands of dollars over several years to rehabilitate the property. See id. After the Sohlers restored the property the land value of the ranch increased. See id.

In 1997, the respondents initiated a breach of contract action against the Sohlers, contending that the Sohlers had breached their 1991 agreement when they failed to resell the property. See id. The respondents claimed that they had incurred injury because they had not received the excess money to which they were entitled under the contract because the Sohlers had failed to sell the ranch. See id. The respondents requested relief in the form of specific performance, reconveyance of the property, cancellation of the quitclaim deeds, and money damages. See id. at *2.

On the day of the trial, the respondents dropped their claim for money damages and requested to proceed to trial only on their claims in equity, a maneuver that appeared to be an attempt by the respondents to avoid a jury trial. See id. The trial proceeded, however, with an advisory jury. See id. at *1. At the close of the evidence, the advisory jury determined that the Sohlers had not breached the cancellation agreement. See id. The trial court judge, however, rejected the advisory jury's verdict and granted equitable relief to the respondents. See id. The Sohlers appealed the trial court's decision to the Supreme Court of South Dakota. See id.

The Sohlers argued that the respondents were barred by res judicata and claim preclusion because of the 1992 eviction action in which the Sohlers and Shape were parties. See id. at *2. The trial court determined that "the only issue addressed in 1992 was possession and that the alleged breach of contract was not raised and was not precluded." Id. The Sohlers claimed that the respondents' breach of contract claim was ripe at the time of the 1992 eviction action because the property had not been resold. See id. Because the breach of contract matter could have been asserted in the prior action, the Sohlers asserted that claim preclusion and res judicata barred the respondents' claims. See id.

The Supreme Court rejected the Sohlers' argument because it determined that even if Shape could have raised the breach of contract claim at the time of the eviction action, Rindal was not a party to that action. See id. The court therefore held that Rindal was not barred by res judicata or claim preclusion. See id. Furthermore, the court determined that the issue of equitable adjustment was the same whether the plaintiffs in the underlying case were Rindal and Shape or only Rindal. See id. Therefore, the court ruled neither Rindal nor Shape were precluded from pursuing the original breach of contract action by the previous eviction action against Shape. See id.

The court determined, however, that the trial court erred when it allowed the respondents to disclaim their money damages claim and proceed solely on their claim in equity. See id. at *3. The court stated that because the respondents had a plain, adequate, and speedy remedy at law for money damages on their breach of contract claim, they could not disclaim their remedy at law to avoid proceeding to a jury trial. See id. Thus, the court ruled that the trial court erred when it denied the Sohlers the right to a jury trial to which they were not only entitled but had actually won when the jury determined that the Sohlers had not breached the agreement because they had made the required attempts to sell the property. See id.

The court also determined that the respondents had given up their right to equitable adjustment when they entered into the agreement for the cancellation of the contracts for deed. See id. This agreement provided, in pertinent part, that "[t]he undersigned [Rindal and Shape] further acknowledge that this instrument shall constitute a total disclaimer of any right, title or interest in the aforementioned real estate. . . ." Id. The court determined that the language in the agreement was a disclaimer by the respondents for any actions in equity, and therefore they were left only with the ability to pursue an action at law. See id.

The court reversed the trial court's order that rejected the jury's advisory verdict and reinstated the jury's verdict. See id. at *4. The court also ruled that there was no need to retry the case because the jury had already determined that the Sohlers did not breach the agreement. See id. The trial court was ordered to reinstate the jury verdict and enter judgment in favor of the Sohlers. See id.

The dissent agreed with the majority's opinion, except for the majority's decision with respect to the reinstatement of the advisory jury verdict. See id. The dissent stated that the case should have been remanded for a full trial because the original trial took place with the understanding that the jury's verdict would only be advisory. See id. One of the overriding concerns for the dissent in merely reinstating the advisory verdict was that the attorneys would not have conducted voir dire properly because they would not have been overly concerned with the type of juror allowed to be empaneled. See id.

The case was decided on March 5, 2003; this summary was posted April, 2003