#27721-a-JMK
2016 S.D. 96
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
DEBRA R. TECH COFFEY, Plaintiff and Appellee,
v.
MICHAEL F. COFFEY, Defendant and Appellant.
****
APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
MCCOOK COUNTY, SOUTH DAKOTA
****
THE HONORABLE TIMOTHY W. BJORKMAN
Judge
****
TRESSA ZAHRBOCK KOOL of
Lockwood & Zahrbock Kool Law Office
Sioux Falls, South Dakota Attorneys for plaintiff
and appellee.
MICHAEL E. UNKE
Salem, South Dakota Attorney for defendant
and appellant.
****
CONSIDERED ON BRIEFS
ON AUGUST 29, 2016
OPINION FILED 12/21/16
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KERN, Justice
[¶1.] Debra R. Tech Coffey sought a divorce from Michael F. Coffey. They
entered into a stipulation and agreement (Agreement) to resolve all issues and
divide their property and debt. Paragraph 2 of the Agreement awarded the marital
home to Michael, divided responsibility for the two mortgages on the home, and
declared that should the home be sold, the proceeds from the sale would first be
used to pay off any sum remaining on the mortgages.
[¶2.] Michael sold the home in April 2015 and used the proceeds of the sale
to pay off both mortgages. He requested reimbursement from Debra for the
mortgage debt assigned to her. She refused to reimburse him. Michael filed a
motion for an order to show cause, asking the circuit court to hold Debra in
contempt and enter a judgment against her for the amount he paid on her mortgage
plus interest. The circuit court denied his motion. Michael appeals. We affirm.
BACKGROUND
[¶3.] Michael and Debra married on February 14, 1987. On February 18,
2010, they entered into the Agreement, which divided their property and debt.
Debra’s counsel drafted the Agreement. This case concerns the first two sections of
Paragraph 2 of the Agreement:
Defendant shall be awarded the marital residence . . . . The
Plaintiff will be responsible for the 1st mortgage at Bank of
America and shall have the length of the loan to either pay it off
or refinance it. Plaintiff will save and hold harmless the
Defendant from any liability on said mortgage. Defendant will
be responsible for the second at Service First Credit Union and
shall have the length of the loan to either pay it off or refinance
it. Defendant will save and hold harmless the Plaintiff from any
liability on said mortgage. Defendant agrees to be responsible
for the taxes and insurance on said property.
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If Defendant would sell the home prior to the 1st or 2nd
mortgage being paid in full, then upon sale of the home these
mortgages will be paid in full first out of the proceeds of the
home.
On February 23, 2010, the circuit court signed a judgment and decree of divorce,
which incorporated the Agreement.
[¶4.] On April 10, 2015, Michael sold the home and used the proceeds from
the sale to extinguish both mortgages. He immediately sought reimbursement from
Debra for the $56,040.35 he paid to satisfy the remaining balance on the first
mortgage. Debra refused to pay him.
[¶5.] On August 17, 2015, Michael filed a motion for an order to show cause,
seeking to have Debra held in contempt. He requested judgment against Debra in
the amount of $56,040.35 plus prejudgment interest accrued from the date of sale
and attorney’s fees. In November 2015, with the parties’ consent, the court held a
hearing on the interpretation of the contract but did not address the contempt
portion of the motion because notice was inadequate. The court told the parties if it
determined the contract was ambiguous, it would hold a hearing to take evidence of
the parties’ intent and on the issue of contempt. On December 28, 2015, the court
issued a memorandum decision and order denying Michael’s motion. The court
held: (1) the Agreement was unambiguous, and its plain meaning did not require
Debra to reimburse Michael; (2) reimbursement would constitute an improper
modification of the property division; and (3) because Debra had no duty to
reimburse Michael, she was not in contempt. Michael appeals.
[¶6.] We restate Michael’s issues as follows:
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1. Whether the circuit court erred in its interpretation of the
Agreement as unambiguous and not requiring reimbursement.
2. Whether the circuit court erred in holding that an order for
reimbursement would constitute an impermissible modification of a
final property settlement.
3. Whether the circuit court erred in denying Michael’s motion for an
order to show cause.
STANDARD OF REVIEW
[¶7.] We review a circuit court’s findings of fact under the clearly erroneous
standard, while conclusions of law are reviewed de novo. Hamilton v. Sommers,
2014 S.D. 76, ¶ 17, 855 N.W.2d 855, 861. Contract interpretation is a question of
law reviewed de novo. Lillibridge v. Meade Sch. Dist. #46-1, 2008 S.D. 17, ¶ 9,
746 N.W.2d 428, 431 (citing Hanson v. Vermillion Sch. Dist. #13-1, 2007 S.D. 9, ¶
24, 727 N.W.2d 459, 467).
ANALYSIS
1. Whether the circuit court erred in its interpretation of the
Agreement as unambiguous and not requiring reimbursement.
[¶8.] “Divorce stipulations are governed by the rules of contract; their
interpretation is a matter of law for the courts to decide.” Hisgen v. Hisgen,
1996 S.D. 122, ¶ 4, 554 N.W.2d 494, 496. “[I]n determining the proper
interpretation of a contract the court must seek to ascertain and give effect to the
intention of the parties.” Id. (quoting Malcolm v. Malcolm, 365 N.W.2d 863, 865
(S.D. 1985)). “In order to ascertain the terms and conditions of a contract, we must
examine the contract as a whole and give words their ‘plain and ordinary meaning.’”
Gloe v. Union Ins. Co., 2005 S.D. 30, ¶ 29, 694 N.W.2d 252, 260 (quoting Elrod v.
Gen. Cas. Co. of Wis., 1997 S.D. 90, ¶ 15, 566 N.W.2d 482, 486). Further, we do not
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“interpret language ‘in a manner that renders a portion of [the contract]
meaningless.’” Tri-City Assocs., L.P. v. Belmont, Inc., 2014 S.D. 23, ¶ 11, 845
N.W.2d 911, 915 (quoting Estate of Fisher v. Fisher, 2002 S.D. 62, ¶ 14, 645 N.W.2d
841, 846). “Instead, we interpret the contract to give ‘a reasonable and effective
meaning to all [its] terms.’” Id. (quoting Casey Ranch Ltd. P’ship v. Casey, 2009
S.D. 88, ¶ 11, 773 N.W.2d 816, 821).
[¶9.] “When the meaning of contractual language is plain and unambiguous,
construction is not necessary. If a contract is found to be ambiguous the rules of
construction apply.” Pesicka v. Pesicka, 2000 S.D. 137, ¶ 6, 618 N.W.2d 725, 726.
Ambiguity requires more than mere disagreement:
A contract is not rendered ambiguous simply because the parties
do not agree on its proper construction or their intent upon
executing the contract. Rather, a contract is ambiguous only
when it is capable of more than one meaning when viewed
objectively by a reasonably intelligent person who has examined
the context of the entire integrated agreement.
Dowling Family P’ship v. Midland Farms, 2015 S.D. 50, ¶ 13, 865 N.W.2d 854, 860
(quoting Pesicka, 2000 S.D. 137, ¶ 10, 618 N.W.2d at 727). “This Court has said
that ‘[a]mbiguities arising in a contract should be interpreted and construed against
the scrivener.’” Advanced Recycling Sys., LLC v. Se. Props. Ltd. P’ship, 2010 S.D.
70, ¶ 19, 787 N.W.2d 778, 785 (quoting Campion v. Parkview Apartments, 1999 S.D.
10, ¶ 34, 588 N.W.2d 897, 904).
[¶10.] Both parties argue that the Agreement is unambiguous, but they reach
markedly different conclusions as to its proper meaning. Debra submits the circuit
court did not err in finding the Agreement unambiguous and not requiring
reimbursement. Debra argues her obligation was contingent upon Michael
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retaining ownership of the home. Michael, on the other hand, argues “the
Agreement and exhibit 1 are not ambiguous when construed together.” But Michael
concludes that the plain language of the Agreement obligates Debra to reimburse
him for his satisfaction of the first mortgage. In Michael’s view, to hold otherwise
would be inequitable and result in an ambiguity.
[¶11.] The alleged ambiguity arises from a document titled “Spread Sheet
Asset – Liability” (Exhibit 1) that was attached to the Agreement. Michael claims
Exhibit 1 was incorporated into the Agreement because it is referenced three times
in the Agreement. Exhibit 1 is a spread sheet that lists Debra’s and Michael’s total
assets and liabilities from their property settlement. It provides for an equalizing
payment by Debra to Michael in the amount of $3,383. This payment is required by
Paragraph 30 of the Agreement. Because Exhibit 1 lists the first mortgage as a
liability assignable to Debra that was used to equalize the division of property,
Michael now submits that Debra must reimburse him for the amount he paid from
the sale proceeds to satisfy the first mortgage. Michael argues that if Paragraph 2
is interpreted to extinguish part of Debra’s total liabilities, the division of property
is unequal. Such a resolution, Michael contends, results in a direct ambiguity
within the Agreement as to Debra’s net assets: $230,825 under Exhibit 1 or
$174,785 (the net assets in Exhibit 1 less the $56,040.35 used to pay off the first
mortgage) under the terms of Paragraph 2. To avoid such an ambiguity, Michael
advances his view that the Agreement is unambiguous and requires Debra to
immediately reimburse him for his payment of the first mortgage. In the
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alternative, both parties request remand to the circuit court for an evidentiary
hearing on the parties’ intent should this Court find the Agreement ambiguous.
[¶12.] We agree with the circuit court that the Agreement is unambiguous,
and its plain meaning does not require Debra to reimburse Michael. Paragraph 2
states: “The Plaintiff [Debra] will be responsible for the 1st mortgage at Bank of
America and shall have the length of the loan to either pay it off or refinance it.” It
also requires that Debra “will save and hold harmless the defendant [Michael] from
any liability on said mortgage.” This language contemplates that Debra will be
solely responsible for the first mortgage and would prevent Michael from incurring
any liability for nonpayment of the mortgage. There are, however, two provisions in
this opening paragraph that contextualize Debra’s obligation. First, it begins:
“Defendant shall be awarded the marital residence located at 25037 444 Ave in
Salem, South Dakota.” Second, the paragraph ends: “Defendant agrees to be
responsible for the taxes and insurance on said property.” Debra’s obligation to
save and hold Michael harmless from liability for the first mortgage is embedded
between statements granting Michael possession of the home and requiring him to
pay standard expenses for the home. Thus, the duty to hold Michael harmless on
the first mortgage is moored to Michael’s continued possession of the home.
Further, Paragraph 2 gives Debra a specific timeframe to pay off or refinance the
loan (i.e., “the length of the loan”). Although Debra does have a duty to shield
Michael from liability for the first mortgage, that duty was created as part of the
arrangement awarding Michael possession of the home.
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[¶13.] The duty to shield Michael from liability on the first mortgage is
modified by a conditional provision in Paragraph 2. The provision states: “If the
Defendant would sell the home prior to the 1st or 2nd mortgage being paid in full
then upon the sell [sic] of the home these mortgages will be paid in full first out of
the proceeds of the home.” (Emphasis added.) The use of “first” removes this
language from the realm of possible ambiguity. “First” 1 indicates a demarcation of
priority; it divides the universe of payment methods into different sets. The
Agreement plainly requires the mortgages to be paid first from the proceeds from
the sale of the home.
[¶14.] A contract is not ambiguous because it fails to explicitly cover all
possible situations upon the occurrence of a conditional provision. Rather, “a
contract is ambiguous only when it is capable of more than one meaning when
viewed objectively by a reasonably intelligent person who has examined the context
of the entire integrated agreement.” Pesicka, 2000 S.D. 137, ¶ 10, 618 N.W.2d
at 727 (quoting Singpiel v. Morris, 1998 S.D. 86, ¶ 16, 582 N.W.2d 715, 719). The
Agreement requires proceeds from the sale of the home to be used first to pay off
any remaining mortgages on the home. It is necessary to draw upon other funds for
repayment only after proceeds from the sale of the home are used. 2 Paragraph 2
1. The American Heritage College Dictionary offers two common meanings of
“first” that are relevant here: “2. The one coming, occurring, or ranking before
or above all others. 3. The beginning; the outset; at first.” American Heritage
College Dictionary 513 (3rd ed. 1997).
2. The circuit court cited two cases from other jurisdictions for the proposition
that the plain meaning of a provision in a contract is controlling. See Roe v.
Roe, 742 P.2d 203 (Wyo. 1987); Walker v. Pfeiffer, No. 1872-99-2, 2000 WL
(continued . . .)
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sets forth an arrangement that allowed Michael to live in the home and required
Debra to pay the first mortgage while holding Michael harmless from liability for
the same. Michael had the right to sell the home, but his decision altered this
arrangement.
[¶15.] Equally important as the use of the word “first” is the absence of a
reimbursement provision. The “save and hold harmless” clause does not operate to
require reimbursement. Rather, Debra’s obligation to save and hold Michael
harmless from the first mortgage was the status quo at the time of the initial
division of property. The conditional language altered Debra’s obligation but only
because Michael chose to sell the home before the first mortgage was paid off. This
provision alters the earlier obligations, not the other way around.
[¶16.] Additionally, reading the Agreement to require reimbursement even
after the conditional provision was triggered would render the language
superfluous. We must interpret the Agreement to give “a reasonable and effective
meaning to all [its] terms[.]” Casey, 2009 S.D. 88, ¶ 11, 773 N.W.2d at 821 (quoting
In re Dissolution of Midnight Star Enters., L.P. ex rel. Midnight Star Enters., Ltd.,
2006 S.D. 98, ¶ 12, 724 N.W.2d 334, 337). If the Agreement required
reimbursement because Debra’s duty to save and hold harmless was not altered by
the conditional provision, the language would merely force Michael to use proceeds
from the sale of the home instead of other personal funds to pay off the mortgages.
__________________
(. . . continued)
34617836 (Va. Ct. App. July 11, 2000). Although neither case is directly on
point, they are persuasive for the proposition that a court must interpret the
plain meaning of the contract before it.
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This reading strains credulity. A reading of the language of the Agreement that
gives effect to all the terms of the Agreement is that upon effectuating the
conditional provision, Michael was first required to use the proceeds from the sale of
the home to extinguish the first mortgage. Michael was not required to sell the
home but chose to do so, and the Agreement required the proceeds of the home to
first be used to pay off the mortgages, leaving nothing for which Debra was liable. 3
3. Contrary to the dissent’s assertion, we have not “add[ed] two unwritten
‘conditions’” to the Agreement. Infra ¶ 26. The first “unwritten condition”
the dissent discusses is that “Debra’s hold-harmless obligation was first
conditioned on Michael’s ‘continued possession of the home.’” Id. The
dissent, however, mischaracterizes our language in ¶ 12 of this opinion. To
interpret the Agreement, “we must examine the contract as a whole.” Gloe,
2005 S.D. 30, ¶ 29, 694 N.W.2d at 260. The first section of Paragraph 2, as
explained by ¶ 12 of this opinion, creates a baseline of duties and rights
associated with the two mortgages and possession of the home. The next
section of Paragraph 2, which contains the conditional provision, creates an
exception to the duties and rights spelled out in the first section upon the sale
of the home. Read together, these two sections in Paragraph 2 of the
Agreement reveal that the conditional provision in section two modifies the
duties and rights set forth in section one of Paragraph 2.
The second alleged “unwritten condition” is that “Debra’s obligation to pay
the mortgage debt was ‘modified by [a] conditional provision’ in the home-sale
clause that discharged her obligation if Michael sold the home.” Infra ¶ 26.
We have not added this “condition” but rather given effect to the plain
meaning of the Agreement. The second section of Paragraph 2 uses
conditional language: if Michael sold the home before either mortgage debt
was paid off, then those mortgages will be paid first from the proceeds of the
sale. This language is a conditional statement because it sets forth a
condition (i.e., selling the home), which triggers subsequent obligations. The
parties chose to use the words “if” and “then” in a paragraph immediately
following a paragraph that set forth rights and duties. The only reasonable
interpretation of the language in Paragraph 2 is that the if–then statement
modifies the parties’ previously stated rights and duties. While conditions in
contracts should be strictly construed, we cannot ignore the meaning of the
words “if” and “then.”
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[¶17.] One of the necessary linchpins of Michael’s argument is the assertion
that Exhibit 1 is incorporated into the Agreement, which he contends gives rise to
an ambiguity. Although Defendant claims that “[m]ost courts would consider
[Exhibit 1] as part of the contract,” he cites no South Dakota case law for this
proposition. Instead, Michael cites a 1954 federal-district-court decision from
California that refers to a flexible process of incorporation by reference. 4 This Court
has not adopted a test for the incorporation of other documents into a contract and
declines to do so in this case as it is not necessary to resolve the issue presented. 5
4. See United States v. Outer Harbor Dock & Wharf Co., 124 F. Supp. 337, 343
(S.D. Cal. 1954) (“It is the law of contracts of California that a contract may
refer to another contract for details or conditions. When this is done, the
contracts referred to must be considered as a part of the contract in which the
reference is made. And it is not necessary that language be used
incorporating them into the second contract or that they be attached to it.”).
5. In a civil case based on diversity jurisdiction, the United States District
Court for the District of South Dakota, citing the United States Court of
Appeals for the Eighth Circuit, held that “[a] contract ‘may incorporate
another document if the terms of the incorporated document are known or
easily available to the contracting parties.’” Dakota Foundry, Inc. v. Tromley
Indus. Holdings, Inc., 891 F. Supp. 2d 1088, 1099 (D.S.D. 2012) (quoting
Halbach v. Great-West Life & Annuity Ins. Co., 561 F.3d 872, 876 (8th Cir.
2009). The district court relied upon the reasoning of the Supreme Court of
Michigan for the following principle:
Although neither physical attachment nor specific language is
necessary to incorporate a document by reference, the
incorporating instrument must clearly evidence an intent that
the writing be made part of the contract. When the question of
whether another paper or term has been incorporated by
reference depends on the ‘exercise of speculation, surmise and
conjecture’ the court will refuse to rewrite the contract.
Id. (quoting Forge v. Smith, 580 N.W.2d, 876, 882 n.21 (Mich. 1998)).
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[¶18.] Even if we were to adopt such a test and find Exhibit 1 incorporated
into the Agreement, it would not change the analysis. 6 This is because we find
significant the Agreement’s lack of a reimbursement provision or other related
language. In the first section of Paragraph 2, Debra is given the life of the loan to
extinguish or refinance the mortgage debt. The agreement is silent as to the details
of any dollar amount or terms of reimbursement for Michael for proceeds from the
sale of the home used to pay off the first mortgage. We cannot add terms to the
language of the Agreement but rather “are bound by the words chosen by the
parties.” Pesicka, 2000 S.D. 137, ¶ 12, 618 N.W.2d at 727. It is true that Exhibit 1
provides an itemized list and proposed valuations of the parties’ assets and
liabilities as described in the Agreement and as such, evinces the parties’ rights and
obligations at the time the Agreement was entered into. But “we must examine the
contract as a whole[.]” Gloe, 2005 S.D. 30, ¶ 29, 694 N.W.2d at 260. The conditional
6. The dissent alleges the Agreement is ambiguous because it does not address
the “question of ultimate liability.” Infra ¶ 24. Regarding the ultimate
liability, there is no ambiguity because the conditional language does not
eliminate the save-and-hold-harmless clauses. If the proceeds from the sale
of the home were insufficient to extinguish Debra’s obligation on the first
mortgage, then it would still be her duty to save and hold Michael harmless
from that debt. Thus, the only way an ambiguity is reached on the ultimate-
liability issue is by reading the provisions as mutually exclusive. Nothing in
the Agreement suggests that the second section wipes out the rights and
duties spelled out in the first section. Rather, the second section’s conditional
language modifies the first section’s rights and duties in a specific instance
and for a specific purpose. Accordingly, there is no need for the Agreement to
spell out what “was to come second,” as the dissent argues. Infra ¶ 24
(emphasis omitted). Hence, the Agreement is not ambiguous.
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language altered 7 the parties’ obligations when Michael sold the home. Debra is
not required to reimburse Michael because the Agreement is clear in what it
demands and conspicuous in what it does not.
2. Whether the circuit court erred in holding that an order for
reimbursement would constitute an impermissible modification
of a final property settlement.
[¶19.] The circuit court did not err in holding that Michael’s request for
reimbursement would constitute an impermissible modification of a final property
settlement. “The long-standing law of this State is ‘that the division of property
pursuant to a divorce decree is not subject to modification.’” Hiller v. Hiller,
2015 S.D. 58, ¶ 12, 866 N.W.2d 536, 541 (quoting Sjomeling v. Sjomeling, 472
N.W.2d 487, 489 (S.D. 1991)). The Agreement divided the parties’ property
pursuant to the divorce decree, and as such, it is not subject to modification unless
indeterminate language is used in the Agreement. See Hisgen, 1996 S.D. 122, ¶ 9,
554 N.W.2d at 497 (“While a property division is irrevocably fixed by the terms of
the divorce decree and cannot be later modified, if indeterminate language was
employed, a court may clarify its decree . . . .”). But the language of Paragraph 2 is
7. The dissent contends that our opinion is “not supported by the language of
the agreement.” Infra ¶ 26. But our reading is fully supported by the text of
the Agreement. The use of conditional language creates a foreseeable future
that may not come to pass. Michael did not have to sell the home, but after
five years, he chose to do so. This decision triggered the conditional
provision, which had the effect of modifying the parties’ rights and duties as
spelled out by the Agreement and as detailed in Exhibit 1. The dissent’s
reading would invalidate the use of conditional language in this contract. We
are bound by the words the parties chose, and they explicitly set forth a
conditional provision that Michael could trigger, thereby altering the
property settlement.
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determinate, setting forth the specific manner in which the first mortgage should be
resolved without reference to reimbursement to Michael. Five years after execution
of the Agreement, Michael chose to set the conditions of repayment in motion by
selling the home, and we will not relieve him of the consequences of his decision or
rewrite the parties’ Agreement.
3. Whether the circuit court erred in denying Michael’s motion for
an order to show cause.
[¶20.] The circuit court did not err by denying Michael’s motion for an order
to show cause seeking to hold Debra in contempt for failing to reimburse him. “The
purpose of the civil contempt proceeding is to force a party ‘to comply with orders
and decrees issued by a court in a civil action for the benefit of an opposing party.’”
Sazama v. State ex rel. Muilenberg, 2007 S.D. 17, ¶ 23, 729 N.W.2d 335, 344
(quoting Wold Family Farms, Inc. v. Heartland Organic Foods, Inc., 2003 S.D. 45, ¶
14, 661 N.W.2d 719, 723). The four elements of contempt are: “(1) existence of an
order, (2) knowledge of that order, (3) ability to comply with the order, and (4)
willful or contumacious disobedience.” Talbert v. Talbert, 290 N.W.2d 862, 864
(S.D. 1980). Debra cannot be held in contempt because she did not engage in willful
or contumacious disobedience of the order dividing marital property. Debra was not
required to reimburse Michael after the proceeds from the sale of the home were
used to pay off the first mortgage. Thus, the circuit court did not err in denying
Michael’s motion for an order to show cause.
CONCLUSION
[¶21.] The circuit court did not err by finding the Agreement was
unambiguous. Nor did it err in its interpretation of the Agreement. The plain
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language of the Agreement does not require Debra to reimburse Michael. And the
circuit court correctly determined that Michael’s request for an order requiring
repayment from Debra would result in an impermissible modification of a final
property settlement. Accordingly, the circuit court did not err when it denied
Michael’s motion for an order to show cause. We affirm.
[¶22.] GILBERTSON, Chief Justice, and SEVERSON and WILBUR,
Justices, concur.
[¶23.] ZINTER, Justice, dissents.
ZINTER, Justice (dissenting).
[¶24.] The circuit court’s judgment incorporated the divorcing parties’
property-settlement agreement that provided for an equal division of their net
worth. Under the agreement, Michael was awarded the home and Debra was
obligated to pay the first-mortgage debt. A hold-harmless clause provided that
Debra was to “save and hold [Michael] harmless” for “any liability” on that debt.
She was also given the entire length of the mortgage to pay the debt. However, a
separate home-sale clause provided that if Michael sold the home before the
mortgage was satisfied, the mortgage was to “first” be satisfied from the sale
proceeds. The dispute in this case arose because although the separate home-sale
clause provided that the parties were to first use sale proceeds to satisfy the
mortgage, the parties neglected to include language as to what was to come second.
Because the agreement fails to address this question of ultimate liability for the
mortgage, the agreement is ambiguous. Because the agreement is ambiguous, we
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should, as the parties have requested, remand for an evidentiary hearing to
determine the parties’ intent.
[¶25.] The majority correctly states the law governing the interpretation of
ambiguous agreements. However, the Court erroneously concludes that this
agreement is “unambiguous” and that its “plain meaning” discharges Debra’s
obligation, making Michael ultimately liable for the mortgage debt. See supra
¶¶ 12-13. As is readily apparent, there is no transfer or discharge-of-liability
language in the agreement. Further, considering Debra’s contractual right to pay
the debt over the entire length of the mortgage, the home-sale clause can be
reasonably interpreted to simply enable a sale of the home by satisfying recorded
mortgages without affecting Debra’s ultimate liability for the mortgage debt.
Because the agreement is subject to different, reasonable interpretations, it is
ambiguous. See Pankratz v. Hoff, 2011 S.D. 69, ¶ 16, 806 N.W.2d 231, 237.
[¶26.] The Court determines that the contract unambiguously discharges
Debra’s obligation and transfers the mortgage liability to Michael only by adding
two unwritten “conditions” to the agreement. According to the Court, Debra’s hold-
harmless obligation was first conditioned on Michael’s “continued possession of the
home.” Supra ¶ 12 (asserting that Debra’s obligation was “moored to Michael’s
continued possession” because it is “embedded between” a sentence providing
“Defendant shall be awarded the marital residence” and a sentence providing
“Defendant agrees to be responsible for the taxes and insurance on said property”).
But those sentences contain no language tying those provisions to Debra’s mortgage
liability or the hold-harmless clause. They contain no language referencing—let
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alone modifying—the hold-harmless clause. The Court also claims that Debra’s
obligation to pay the mortgage debt was “modified by [a] conditional provision” in
the home-sale clause that discharged her obligation if Michael sold the home. See
supra ¶¶ 13, 15. But the home-sale clause is in a different paragraph than the
mortgage and hold-harmless clauses. Moreover, there is nothing in the language
(requiring that the mortgages “be paid in full first out of the proceeds” if Michael
sold the home) that purports to modify ultimate liability for the debt. Thus, the
Court’s claimed “conditions” are not supported by the language of the agreement.
[¶27.] Conditions are not favored by law and must be construed strictly.
Weitzel v. Sioux Valley Heart Partners, 2006 S.D. 45, ¶ 38, 714 N.W.2d 884, 895-96;
Point Dev., LLC v. Enter. Bank & Tr., 316 S.W.3d 543, 546-47 (Mo. Ct. App. 2010);
17A Am. Jur. 2d Contracts § 453, Westlaw (database updated Nov. 2016). “[A]n act
or event designated in a contract will not be construed as a condition unless that
clearly appears to be the intention of the parties.” 17A Am. Jur. 2d Contracts § 443.
“The document as a whole must be examined and it must be determined that the
intent of the parties was to pre-agree that the happening or nonoccurrence of the
stated event after the contract becomes binding would cause the” contractual
obligation to terminate. Weitzel, 2006 S.D. 45, ¶ 38, 714 N.W.2d at 896.
[¶28.] Here, the parties’ intent is not clearly reflected in the agreement. The
agreement included provisions for an award of the home, payment of taxes, liability
for the first- and second-mortgage debt, and immediate satisfaction of the
mortgages in the event of a sale. Although the home-sale clause provided for the
immediate satisfaction of the mortgages “first out of the” sale proceeds, the
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agreement never addresses ultimate liability. The parties also failed to include
express language either discharging Debra’s responsibility for the mortgage or
transferring that liability to Michael. Without such language, the hold-harmless
clause can be reasonably read to remain effective after the sale. Rather than
adding unwritten conditions to the agreement, we should hold that the agreement is
ambiguous and remand for the circuit court to determine the parties’ intent.
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Coffey v. Coffey
Court: South Dakota Supreme Court
Date filed: 2016-12-21
Citations: 2016 SD 96, 888 N.W.2d 805
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