Dowling v. Midland Farms , 865 N.W.2d 854 ( 2015 )

#27114-a-GAS
2015 S.D. 50
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
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DOWLING FAMILY PARTNERSHIP, a
South Dakota General Partnership and
DOWLING BROTHERS PARTNERSHIP,
a South Dakota General Partnership, Plaintiffs and Appellees,
v.
MIDLAND FARMS, LLC, an
Iowa Limited Liability Company; Defendant and Appellant.
and
LANNY DEMOTT, Defendant.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
HAAKON COUNTY, SOUTH DAKOTA
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THE HONORABLE PATRICIA DEVANEY
Judge
****
GREGORY A. EIESLAND of
Johnson Eiesland Law Offices, PC
Rapid City, South Dakota
THOMAS P. MAHER
THOMAS M. MAHER of
Maher Law Office, LLP
Pierre, South Dakota Attorneys for plaintiffs
and appellees.
WILLIAM G. TAYLOR
JAMES E. MOORE of
Woods, Fuller, Shultz & Smith PC
Sioux Falls, South Dakota Attorneys for defendant
and appellant.
****
ARGUED FEBRUARY 17, 2015
OPINION FILED 06/17/15
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SEVERSON, Justice
[¶1.] Midland Farms, LLC, appeals the circuit court’s denial of its request
for restitution from Dowling Family Partnership and Dowling Brothers Partnership
(collectively, “the Partnerships”). Midland asserts that the Partnerships were
unjustly enriched by receiving the proceeds from a winter wheat crop planted at the
partial expense of a third party. The Partnerships assert that Midland breached a
lease agreement with the Partnerships and should not be granted equitable relief.
We affirm.
Facts and Procedural History
[¶2.] The Partnerships were formed by brothers Scott Dowling (“Dowling”)
and Tracy Dowling for the purposes of farming and raising livestock. Dowling was
the managing partner of the Partnerships at all relevant times. Midland is a
limited liability company formed in 2008. It owns approximately 33,000 acres of
farmland in Haakon and Stanley Counties, South Dakota. Scott DeMott is a farmer
and insurance agent who resides in Little Rock, Arkansas. DeMott was a managing
member of Midland at all relevant times.
[¶3.] The parties entered into a cash farm lease on May 18, 2009, for
approximately 10,276 acres. The lease terminated after the 2009 crop harvest but
required Midland, “prior to renting the leased premises for the 2010 crop year, [to]
give Tenant a first opportunity to rent the leased premises.” In 2010, the parties
executed two leases: one crop-share farm lease for approximately 13,384 acres and
one cash farm lease for approximately 15,725 acres. Similar to the 2009 lease, the
2010 cash farm lease contained a provision that required Midland to “give Tenant a
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first opportunity to rent the leased premises” before “renting the leased premises for
the 2011 crop year[.]” On January 19, 2011, Midland and the Partnerships
executed a cash farm lease for approximately 29,012 acres at $55 per acre. That
lease contained the following provision:
TERM. The term of the cash farm lease for the leased premises
shall commence on the ___ day of October, 2010, and shall
terminate after the 2012 crop harvest, unless otherwise
extended, terminated, or provided for herein, except as provided
in 8e.
Landlord will give tenant option to rent leased premises for the
2013, 2014 and 2015 crop year. Terms and conditions to be
agreed to by Landlord and Tenant.
[¶4.] In April 2012, DeMott called Dowling and said, “You have the first
right of refusal to rent. Do you want to rent it in the future?” After Dowling
indicated he wished to continue leasing the property at the same price, DeMott said,
“We gave you your first right of refusal for the lease. We’re going to market this
because we think we have other—because we have other options to look at.” In an
email dated July 23, 2012, DeMott further stated:
Also per paragraph 3 Midland Farms has given you the option to
lease our farm for 2013, 2014 and 2015 crop years per phone
conversation with me at the end of April 2012. You indicated
you would rent the farm with the same expiring cash rent of $55
per acre. Midland Farms is not accepting this offer. We have
other qualified interested parties willing to lease our farm, if you
have any serious interest in renting all or part of Midland
Farms, contact us by August 1, 2012.
DeMott and Dowling met in person on July 25, 2012, to discuss terms and
conditions of a potential lease for 2013, 2014, and 2015. DeMott told Dowling that
Midland required a lease price of $70 per acre and an irrevocable letter of credit for
the full amount “ASAP” to secure the rent payment for the 2013 crop year.
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Dowling’s banker approved the new lease for the 2013, 2014, and 2015 crop years at
the agreed upon price of $70 per acre and testified that the bank would have
approved a formal irrevocable letter of credit if the bank had been provided with the
final written lease documents.
[¶5.] Dowling called DeMott on August 1, 2012, and accepted the offer.
Thereafter, Dowling entered into a contract to purchase a new sprayer for $324,000
and began harrowing the Midland property in August at a cost of $46,000. Five
days after Dowling agreed to DeMott’s terms, on August 6, DeMott emailed Dowling
and asked, “What name do I use for you on our farm lease?” 1 However, only two
days later, DeMott called Dowling and told him that Midland had sold the farm to a
third party, Clement Farms. The following day, on August 9, Dowling answered
DeMott’s August 6 inquiry and provided the tenant name for the lease. No new
written lease agreement was formally drafted for the 2013, 2014, or 2015 crop
years. Instead, on August 13, 2012, DeMott emailed Dowling to inform him that
Midland was seeking a legal determination in circuit court that the parties had not
extended the prior lease and warning him to cease farming operations on Midland
property.
[¶6.] Midland served a notice to quit and vacate the property on the
Partnerships on August 20, 2012. The Partnerships filed a complaint for a
1. Prior to the meeting between Dowling and DeMott on July 25, 2012, Scott
and Tracy Dowling entered into an agreement to dissolve the Partnerships.
The brothers parted ways in 2013. Rather than dissolve the Partnerships,
however, the partnership interests of the other Dowling family members were
transferred to Scott. Afterward, Scott continued farming while Tracy focused
primarily on raising livestock.
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declaratory judgment and other relief on September 7, 2012. The circuit court
consolidated these two actions on October 30, 2012. In the meantime, Midland
entered into a lease agreement with Clement on September 21, 2012, and a
purchase agreement on September 27, 2012. Clement took possession of the land in
late September 2012 and planted winter wheat on approximately 12,269 acres at a
cost of $1,048,356.08. Both the lease and purchase agreements acknowledged the
Partnerships’ claim to the leased premises and included contingencies for an
adverse ruling in the pending litigation. Midland and Clement agreed that in the
event that the circuit court decided the Partnerships were entitled to possession of
any portion of the land leased to Clement, their lease would terminate, Midland
would reimburse Clement for its expense in planting the winter wheat, and
Midland would pay Clement up to an extra $100,000 for its indirect expenses.
[¶7.] The circuit court entered findings of fact and conclusions of law on
March 12, 2013. The court found that an enforceable contract existed between the
Partnerships and Midland and that the Partnerships exercised their right to lease
the property for the 2013, 2014, and 2015 crop years. According to an agreement
struck between the parties while the litigation was still pending, the Partnerships
paid the rent for the 2013 crop year on March 18, 2013, and were immediately
restored to possession of the leased property. Both Clement and the Partnerships
obtained crop insurance for the winter wheat planted by Clement, and over two-
thirds of those acres did not go to harvest. Clement did not receive any insurance
proceeds, but the Partnerships received two payments in the amounts of $1,519,390
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and $39,429. 2 Clement joined the litigation, seeking reimbursement for the
expenses it incurred in planting the winter wheat, but Midland later settled with
Clement and agreed to reimburse Clement a total of $1,187,500.
[¶8.] The Partnerships and Midland went to trial a second time. The
Partnerships sought damages for being denied possession of the property from
August 2012 to March 2013, and Midland sought restitution from the Partnerships
for the amount it paid to Clement as reimbursement for Clement’s planting
expenses. The circuit court found that the Partnerships did not suffer damage, that
the Partnerships were not unjustly enriched, and that Midland had unclean hands.
Midland appeals, raising the following issues:
1. Whether the circuit court erred in denying Midland’s
motion for summary judgment and concluding Midland
breached its lease with the Partnerships.
2. Whether the Partnerships were unjustly enriched.
3. Whether the doctrine of unclean hands prevents Midland
from seeking restitution for unjust enrichment.
Standard of Review
[¶9.] “In reviewing a grant or a denial of summary judgment under SDCL
15-6-56(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.” Peters v. Great W. Bank, Inc., 2015 S.D. 4, ¶ 5, 859
N.W.2d 618, 621 (quoting Saathoff v. Kuhlman, 2009 S.D. 17, ¶ 11, 763 N.W.2d 800,
804). We view the evidence “most favorably to the nonmoving party and reasonable
2. The Partnerships also received $500,812 from selling the failed crop as hay.
The remaining winter wheat crop went to harvest and provided a further
$632,313 income. Thus, the Partnerships received a total of $2,691,944.
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doubts should be resolved against the moving party.” Id. (quoting Saathoff, 2009
S.D. 17, ¶ 11, 763 N.W.2d at 804).
[¶10.] “Unjust enrichment is an equitable concept.” Hofeldt v. Mehling, 2003
S.D. 25, ¶ 9, 658 N.W.2d 783, 786. The doctrine of unclean hands—or equitable
disqualification—is likewise an equitable concept. See Restatement (Third) of
Restitution & Unjust Enrichment § 63 (2011). “We review equitable actions for
abuse of discretion.” Gartner v. Temple, 2014 S.D. 74, ¶ 7, 855 N.W.2d 846, 850
(quoting Englehart v. Larson, 1997 S.D. 84, ¶ 12, 566 N.W.2d 152, 155). “An abuse
of discretion is a fundamental error of judgment, a choice outside the range of
permissible choices, a decision, which, on full consideration, is arbitrary or
unreasonable.” State v. Martin, 2015 S.D. 2, ¶ 7, 859 N.W.2d 600, 603 (quoting
Gartner, 2014 S.D. 74, ¶ 7, 855 N.W.2d at 850). Under an abuse of discretion
standard of review, the circuit court’s “factual determinations are subject to a
clearly erroneous standard[,]” Gartner, 2014 S.D. 74, ¶ 8, 855 N.W.2d at 850
(quoting State v. Guthrie, 2002 S.D. 138, ¶ 5, 654 N.W.2d 201, 203) (internal
quotation mark omitted), but we review its conclusions of law under a de novo
standard, id.
Analysis and Decision
[¶11.] 1. Whether the circuit court erred in denying Midland’s motion for
summary judgment and concluding Midland breached its lease
with the Partnerships.
[¶12.] The Partnerships assert that the portions of the 2012 crop year lease
quoted above, see supra ¶ 3, gave the Partnerships a right of first refusal. Midland
asserts the lease is evidence that the parties had not yet agreed on all terms
essential to a contract. According to Midland, the lease “states that the terms and
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conditions of a future lease must be agreed to by the parties, which precludes the
provision from constituting an enforceable option contract.” The circuit court
determined the “option” provision was ambiguous and, based in part on the
communications exchanged between DeMott and Dowling, found that the
Partnerships had proven the existence of a valid option contract. Midland argues
that the 2012 crop year lease was not ambiguous and that the circuit court “erred in
considering extrinsic evidence to determine that the lease provision was an
enforceable option.”
[¶13.] “A contract is ambiguous when application of rules of interpretation
leave[s] a genuine uncertainty as to which of two or more meanings is correct.”
Ziegler Furniture & Funeral Home, Inc. v. Cicmanec, 2006 S.D. 6, ¶ 16, 709 N.W.2d
350, 355 (quoting Alverson v. Nw. Nat’l Cas. Co., 1997 S.D. 9, ¶ 8, 559 N.W.2d 234,
235).
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.
Pesicka v. Pesicka, 2000 S.D. 137, ¶ 10, 618 N.W.2d 725, 727 (quoting Singpiel v.
Morris, 1998 S.D. 86, ¶ 16, 582 N.W.2d 715, 719). We agree with the circuit court
that the contract provision in question is ambiguous. First, the contract—which
was authored by DeMott—clearly uses the term “option.” The provision also states,
“Terms and conditions to be agreed to by Landlord and Tenant.” Given the use of
the label “option,” one interpretation of this provision could be that it intended any
additional terms and conditions to be agreed to by the parties. On the other hand,
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DeMott may have envisioned this provision as a right of first refusal and simply
applied an incorrect label. Finally, as Midland argues, the word “option” could have
been intended to mean simply that Midland would not bar the Partnerships from
asking to renew the lease. In any event, the circuit court did not err in concluding
the provision at issue is ambiguous.
[¶14.] The circuit court did not err in considering extrinsic evidence. “When
contract language is ambiguous, and does not speak to a subject it would normally
be expected to, the court may go beyond the four corners of the contract.” LaMore
Rest. Grp., LLC v. Akers, 2008 S.D. 32, ¶ 12, 748 N.W.2d 756, 761 (quoting Vander
Heide v. Boke Ranch, Inc., 2007 S.D. 69, ¶ 17, 736 N.W.2d 824, 831-32). Here, the
circuit court considered testimony from DeMott and Dowling, as well as the
communications that the two parties exchanged leading up to August 2012. In his
deposition, DeMott repeatedly said that the existing lease gave the Partnerships a
first right of refusal. The previous two leases between the parties included the
phrase “first opportunity to rent.” When Dowling asked DeMott what price he
needed to match, DeMott responded by offering to renew the lease for $70 per acre.
The Partnerships accepted the offer on August 1, 2012. DeMott later acknowledged
the existence of a lease on August 6 when he asked Dowling, “What name do I use
for you on our farm lease?” Based on this evidence, the circuit court concluded that
the contested provision was an option and that the Partnerships exercised that
option. In their brief to us, the Partnerships characterize the provision as a right of
first refusal. Additionally, it is possible the oral and written communications
created an agreement independent of the 2012 crop year lease.
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[¶15.] The extrinsic evidence does not support the conclusion that the
contested lease provision was intended to function as an option. “An option contract
is an irrevocable offer by the owner to sell [or lease] on specified terms and creates a
power of acceptance in the optionee.” Advanced Recyc. Sys., LLC v. Se. Props. Ltd.
P’ship, 2010 S.D. 70, ¶ 12, 787 N.W.2d 778, 783. The behavior of the parties makes
clear that neither party considered the lease provision to be a true option. This is
evidenced by the fact that the parties negotiated a new price per acre in July and
August of 2012. The Partnerships have not asserted that they were entitled to lease
the property at the previous rate of $55 per acre or at any other previously
determined rate. Therefore, the contested lease provision was not an option as
written.
[¶16.] In contrast to an option, a “right of first refusal is a conditional right
that ripens into an enforceable option contract when the owner receives a third-
party offer to purchase [or lease] the property subject to the right and manifests an
intention to sell [or lease] on those terms.” See id. ¶ 15, 787 N.W.2d at 784.
Midland now argues that, “[e]ven if construed as a right of first refusal, however,
the lease provision would still not be legally enforceable.” Midland bases its
argument on Advanced Recycling Systems, where we went on to say, “An attempt to
sell the whole may not be taken as a manifestation of an intention or desire on the
part of the owner to sell the smaller optioned part so as to give the holder of the
right of first refusal the right to purchase the same.” Id. (quoting Chapman v. Mut.
Life Ins. Co. of N.Y., 800 P.2d 1147, 1151 (Wyo. 1990)). Midland points out that any
right of first refusal the Partnerships might have had applied only to the 29,012
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acres the Partnerships leased from Midland. In comparison, the lease Midland
entered into with Clement was for 33,297 acres. The circuit court seemed to agree
with Midland’s legal premise but concluded it was moot as Midland offered to renew
the Partnerships’ lease at $70 per acre. “Because [the Partnerships] could only
accept an offer to [lease the 29,012 acres], its acceptance necessarily would have
changed, added to, or qualified the terms of the offer to [lease the entire 33,297
acres].” See id. ¶ 18, 787 N.W.2d at 785.
[¶17.] Midland’s statement of the contract principles discussed in Advanced
Recycling Systems is incomplete. Citing the Wyoming Supreme Court’s decision in
Chapman, we said, “If the owner has not manifested an intention to sell the leased
premises apart from the whole, the right of first refusal does not ripen into an
enforceable option contract to purchase the leased premises.” Advanced Recyc. Sys.,
2010 S.D. 70, ¶ 15, 787 N.W.2d at 784 (citing Chapman, 800 P.2d at 1150-51). Such
an intention, however, is manifested when a price is negotiated with a third party
for the property subject to the right of first refusal. Chapman, 800 P.2d at 1151. As
the Chapman court went on to explain:
It is not sufficient that an offer was made on a larger tract
including the burdened property. The great majority of courts
that have addressed this issue have held a preemptive right may
not be defeated by a sale of the property burdened by the right
as part of a larger tract.
Id. In contrast to Advanced Recycling Systems, Midland’s negotiations with
Clement set a price for the property subject to the Partnerships’ right of first
refusal: $70 per acre. Therefore, the contested contract provision was a right of first
refusal that ripened into an option when Clement offered to rent the relevant
acreage from Midland at $70 per acre. “Any other result is necessarily unacceptable
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because ‘to allow the owner of the whole to by-pass the optionee merely by attaching
additional land to the part under option would render nugatory a substantial right
which the optionee had bargained for and obtained.’” Chapman, 800 P.2d at 1151
(quoting Guaclides v. Kruse, 170 A.2d 488, 495 (N.J. Super. Ct. App. Div. 1961)).
Consequently, the circuit court did not err by denying Midland’s motion for
summary judgment.
[¶18.] 2. Whether the Partnerships were unjustly enriched.
[¶19.] Midland primarily argues the Partnerships were unjustly enriched by
receiving proceeds for the winter wheat planted by Clement without paying the
associated costs of planting the crop. “Unjust enrichment occurs ‘when one confers
a benefit upon another who accepts or acquiesces in that benefit, making it
inequitable to retain that benefit without paying.’” Hofeldt, 2003 S.D. 25, ¶ 15, 658
N.W.2d at 788 (quoting Parker v. W. Dakota Ins’rs, Inc., 2000 S.D. 14, ¶ 17, 605
N.W.2d 181, 187). Restitution is not available when the rights and obligations at
issue have been defined by contract. See Johnson v. Larson, 2010 S.D. 20, ¶ 10, 779
N.W.2d 412, 416 (holding the circuit court erred in imposing restitution against a
defendant when the plaintiff’s “remedy lay in a claim for breach of contract”).
Because there does not appear to be any assertion that Midland has a claim for
breach of contract against the Partnerships, we must first determine whether
Midland has established the elements necessary to support a claim of unjust
enrichment.
[¶20.] Midland must first show that the Partnerships received a benefit.
Hofeldt, 2003 S.D. 25, ¶ 16, 658 N.W.2d at 788. Midland argues that the
Partnerships were enriched by avoiding a portion of the expense of planting the
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12,269 acres of winter wheat planted by Clement, while at the same time receiving
proceeds from that crop. The circuit court found that the Partnerships did receive a
benefit, but noted that “whether and by how much Dowling was actually
enriched . . . by Clement’s/Midland’s incurrence of a portion of the input costs is
subject to much debate[.]” According to Midland, whether or not a benefit was
conferred on the Partnerships is an issue separate from the amount of recovery.
For purposes of establishing the elements of unjust enrichment, Midland argues,
the circuit court’s statement constitutes a finding in Midland’s favor on the first
element of its unjust enrichment claim.
[¶21.] Whether a defendant has been enriched is not an analysis altogether
separate from whether the defendant has received a benefit. The word benefit
“denotes any form of advantage.” Restatement (First) of Restitution § 1 (1937). The
word enriched merely indicates that the value of any such advantage must be
measured by its usefulness relative to the defendant, rather than by the cost to the
claimant. Thus, “[u]njust enrichment . . . allows an award of restitution for the
value of the benefit unjustly received, rather than the value of the service provided.”
Johnson, 2010 S.D. 20, ¶ 15, 779 N.W.2d at 418 (distinguishing the measure of
damages for unjust enrichment and quantum meruit). Therefore, in order for a
claimant to meet its burden of proving it conferred a benefit upon the defendant, the
claimant is required to prove it transferred something more advantageous than not,
as measured relative to the defendant. In order to make such a showing, however, a
claimant necessarily must offer proof that the thing transferred is advantageous to
the defendant.
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[¶22.] Midland conferred a benefit on the Partnerships. Midland seeks
$1,187,527, which reflects Clement’s direct planting expenses, indirect expenses,
and interest reimbursed by Midland. The circuit court found “numerous
discrepancies with the numbers relied on by both parties” and rejected Midland’s
accounting of Clement’s input costs as the measure of benefit received by the
Partnerships. Instead, the court found that at most, any benefit actually
transferred to the Partnerships should be measured according to the estimate of
expenses the Partnerships would have incurred if they had retained possession of
the property and planted the winter wheat themselves. According to the
Partnerships, they would have spent approximately $586,627 instead of $1,187,527.
Thus, even though Midland was unable to prove its asserted degree of the
Partnerships’ enrichment, the Partnerships admit they would have spent an
additional $586,627 beyond what they would have otherwise expended in resources
in planting winter wheat on 12,269 acres. Therefore, by their own admission,
Clement’s planting spared the Partnerships the expense of $586,627; that the
Partnerships ultimately realized a net loss on the planted wheat does not frustrate
the conclusion that the Partnerships received a benefit. As a result, Midland has
established the first element of its unjust enrichment claim.
[¶23.] Next, Midland must show that the Partnerships were aware they
received a benefit. Hofeldt, 2003 S.D. 25, ¶ 16, 658 N.W.2d at 788. The circuit
court found that the Partnerships knew Clement was planting winter wheat. The
court noted that the Partnerships informed both Clement and Midland that they
opposed Clement’s planting. Further, Dowling is an experienced farmer and was
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well aware of the effort and expense associated with planting a crop. Although the
Partnerships may contest the value of Clement’s planting, it cannot be said that the
Partnerships were unaware they were receiving some benefit from 12,269 acres of
winter wheat that they did not plant. Therefore, Midland has established the
second element of its unjust enrichment claim.
[¶24.] Finally, Midland must show “that it is inequitable to allow [the
Partnerships] to retain this benefit without paying for it.” Id. The circuit court
decided “it would be unjust and inequitable to grant relief to the party who
breached the contract under the facts of this case.” However, at this stage, “the
relevant inquiry is whether the circumstances are such that equitably the
beneficiary should restore to the benefactor the benefit or its value.” Id. ¶ 18, 658
N.W.2d at 788. While the inequitable behavior of the claimant may ultimately
preclude recovery, the initial question of whether or not a defendant has been
unjustly enriched is necessarily focused on the nature of the transfer itself. An
enrichment is unjust if it “lacks an adequate legal basis; [i.e.,] it results from a
transaction that the law treats as ineffective to work a conclusive alteration in
ownership rights. Broadly speaking, an ineffective transaction for these purposes is
one that is nonconsensual.” Restatement (Third) of Restitution & Unjust
Enrichment § 1 cmt. b (2011). Thus, “[a]s a general rule[,] . . . a person who without
mistake, coercion[,] or request has unconditionally conferred a benefit upon another
is not entitled to restitution[.]” Aetna Life Ins. Co. v. Satterlee, 475 N.W.2d 569, 574
(S.D. 1991).
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[¶25.] The Partnerships are not liable in restitution to Midland for Midland’s
reimbursement to Clement of the benefit transferred from Clement to the
Partnerships. Midland does not claim it was coerced into reimbursing Clement or
that the Partnerships requested Midland pay Clement—in fact, the Partnerships
made their opposition to Clement’s planting unequivocally known. Nor can
Midland’s decision to reimburse Clement be described as an invalidating mistake of
fact or law. An invalidating mistake does not occur where the claimant bears the
risk of loss. See Restatement (Third) of Restitution & Unjust Enrichment § 5(2)(b)
(2011). A claimant bears the risk of loss when it “has consciously assumed the risk
by deciding to act in the face of a recognized uncertainty[.]” Id. § 5(3)(b). “The
usual setting of such a transaction is the claimant’s decision to satisfy a doubtful
claim, in the face of a recognized uncertainty as to the underlying liability.” Id. § 5
cmt. b(2). “The decision to act in such a case rests on a determination that the
anticipated costs of resisting the claim outweigh the cost of settlement . . . .” Id.
[¶26.] The Wisconsin Supreme Court’s decision in Meeme Mutual Home
Protection Fire Insurance Co. v. Lorfeld, 216 N.W. 507 (Wis. 1927), is an exemplar of
assumption of the risk in the restitution context. In that case, “the action was to
recover payment made to the assignee of the insured on a fire loss. After the
payment, the insured confessed that he had set the fire.” Grand Trunk W. R.R. Co.
v. Lahiff, 261 N.W. 11, 13 (Wis. 1935). Investigations conducted by the claimant
and the state fire marshal indicated the loss might have been deliberately caused by
the insured. Meeme Mut., 216 N.W. at 509. The court, invoking contract principles,
said:
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Where a party enters into a contract, ignorant of a fact, but
meaning to waive all inquiry into it, or waives an investigation
after his attention has been called to it, he is not in mistake, in
the legal sense. These limitations are predicated upon common
experience, that, if people contract under such circumstances,
they usually intend to abide the resolution either way of the
known uncertainty, and have insisted on and received
consideration for taking that chance.
Id. at 508 (quoting Kowalke v. Milwaukee Elec. Ry. & Light Co., 79 N.W. 762, 763
(Wis. 1899)). In denying relief, the Wisconsin Supreme Court concluded that “[t]he
plaintiff was not unconscious or forgetful of the fact that the fire might be of
incendiary origin, but, in spite of that knowledge and conscious of that fact,
concluded to pay.” Meeme Mut., 216 N.W. at 509. Thus, the claimant’s “payment
under such circumstances was voluntary, was not made under a mistake of fact,
and [could not] be recovered[.]” Id.
[¶27.] The circumstances surrounding Midland’s payment to Clement are
strongly analogous to those in Meeme Mutual. Midland’s decision to reimburse
Clement, as well as Clement’s decision to plant, was made while litigation
regarding the right to possession of the land was pending. However confident
Midland and Clement might have been that Midland would ultimately succeed in
its contract dispute with the Partnerships, both Midland and Clement were
cognizant of the very real possibility that the Partnerships might prevail. This
conclusion is evidenced by Midland’s promise to reimburse Clement if the circuit
court decided adversely to Midland. This promise was not gratuitous—Midland
agreed to reimburse Clement as a part of the lease negotiated between Midland and
Clement in September 2012. Midland and Clement also entered into a purchase
agreement less than one week later. The combined effect of the lease and purchase
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agreements was that Clement was able to take possession and immediately begin
planting crops—an original condition of Clement’s agreement to purchase the land
in the first place. Thus, Midland’s promise to pay Clement rested on a
determination that the anticipated profit accompanying the completed sale of the
property outweighed the potential expense of reimbursing Clement’s planting costs.
“[A] party that acts on the basis of such a calculation may be said to have assumed
the risk that the calculation, depending as it does on a comparison of unknowns,
will be revealed to be wrong.” Restatement (Third) of Restitution & Unjust
Enrichment § 5 cmt. b(2) (2011).
[¶28.] Despite the foregoing, Midland argues that “the circuit court should
have considered that the denial of equitable relief places Dowling in a better
position than if there had been no breach of contract.” According to Midland, this
view is not inconsistent with our decision in Hofeldt. On the contrary, “[t]he
concern of restitution is not . . . with unjust enrichment in any such broad sense[.]”
Restatement (Third) of Restitution & Unjust Enrichment § 1 cmt. b. In Hofeldt, we
quoted the circuit court’s statement that the defendant, who received farming
subsidies for land he purchased prior to the claimant–seller providing him a clear
title, “only received what he would have received had [the claimant] acted diligently
in the beginning. The only arguable unjust enrichment is the benefit of having [the
claimant] pay the taxes over the years. In this instance, [the defendant] has
tendered those taxes.” 2003 S.D. 25, ¶ 18, 658 N.W.2d at 789. Thus, the quoted
passage indicates only that the subsidies received by the defendant were not a
benefit conferred by the claimant; the passage does not indicate that a defendant
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being placed in a better position militates in favor of finding unjust enrichment.
Enrichment does not subject a defendant to liability in restitution; unjust
enrichment does. Id. ¶ 15, 658 N.W.2d at 788.
[¶29.] Midland also claims that our decision in Satterlee supports the
conclusion that the Partnerships were unjustly enriched. That case involved a
foreclosure action in which the defendants agreed not to contest the foreclosure and
to give the foreclosing plaintiff “the right to prepare the land and plant the 1989
crop during the redemption period.” Satterlee, 475 N.W.2d at 572. This provision
was incorporated into the foreclosure judgment. Id. Pursuant to that judgment, the
claimant planted crops on the defendant’s land during the redemption period. One
of the defendants subsequently claimed ownership of the crop. Id. In determining
which party was entitled to the proceeds of the crops, we said, “To allow Kirby to
claim the crop after Aetna had planted and harvested would be unjust enrichment
and contrary to the agreement between the parties.” Id.
[¶30.] Contrary to Midland’s claims, our decision in Satterlee is fully in accord
with our decision today. Unlike the present case, the defendants in Satterlee would
have been unjustly enriched because the transfer of the benefit was nonconsensual.
First, the claimant planted its crops with the permission of the defendants as
embodied in the foreclosure judgment. Second, the claimant—acting under the
defendants’ promise not to contest the foreclosure proceedings—planted its crops
under the reasonable expectation that it would take full possession of the land prior
to the time for harvest. In contrast, Midland and Clement acted not with the
Partnerships’ permission or promise of noninterference, but rather planted despite
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an active legal battle disputing essentially the very right to do the same. Thus,
unlike the present case, nothing in Satterlee tends to establish that the claimant in
that case was aware of any uncertainty surrounding the right to possession of the
property or the crops, let alone that the claimant acted in disregard of that
uncertainty. As far as that claimant could have reasonably foreseen, its
expenditures in planting and harvesting the crops could have only possibly
benefited itself. Therefore, the transfer was legally ineffective to alter ownership
rights. 3
[¶31.] Although the Partnerships received a benefit, Midland’s promise to
reimburse Clement was an act in conscious disregard of the uncertain outcome of
Midland’s pending contract dispute with the Partnerships. Consequently, there is
an adequate legal justification for the Partnerships’ retention of that benefit such
that the Partnerships have not been unjustly enriched. Therefore, Midland is not
entitled to restitution, see id. at 574, and the circuit court did not abuse its
discretion in denying equitable relief.
3. Similarly, Midland also cites Kistler v. Stoddard, 688 S.W.2d 746 (Ark. Ct.
App. 1985). In that case, a farmer leased and farmed the same land for over
twenty years until the owner sold the land to a third party. Id. at 746-47.
For the years immediately prior to that sale, the farmer planted winter
wheat even though the leases ran according to the calendar year. Id. at 747.
The new buyer took possession of the land at the beginning of 1982—with
knowledge that the farmer had planted winter wheat—and claimed
possession of it. Id. The court held that while the defendant owned the
wheat crop, the defendant had no “justification” for keeping “the amount
expended to plant the crop.” Id. Like Satterlee, but in contrast to the present
case, the defendant’s retention of the benefit conferred was inequitable
because it lacked an adequate legal justification.
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[¶32.] 3. Whether the doctrine of unclean hands prevents Midland from
seeking restitution for unjust enrichment.
[¶33.] Because we hold that Midland failed to establish the Partnerships
were unjustly enriched, we need not decide whether Midland is barred from seeking
restitution by the doctrine of unclean hands. Therefore, we do not decide this issue.
Conclusion
[¶34.] The 2012 crop year lease created a right of first refusal held by the
Partnerships regarding the 2013, 2014, and 2015 crop years. This right ripened
into an option when Midland received an offer from Clement and relayed the new
price to the Partnerships. Because a fact-finder could find that the Partnerships
accepted the new price term and exercised the option, there was a genuine dispute
for trial. Consequently, the circuit court did not err in denying Midland’s motion for
summary judgment. Furthermore, Midland conferred a benefit on the Partnerships
despite Midland’s involvement in pending litigation regarding the validity of the
lease. But Midland’s decision to preserve the possibility of its purchase agreement
with Clement was the result of conscious calculation, not mistake, coercion, or
request. Thus, Midland has failed to establish that the Partnerships were unjustly
enriched and, therefore, Midland is not entitled to equitable relief. We affirm.
[¶35.] GILBERTSON, Chief Justice, and ZINTER, Justice, and SPEARS and
CUTLER, Circuit Court Judges, concur.
[¶36.] SPEARS, Circuit Court Judge, sitting for WILBUR, Justice,
disqualified.
[¶37.] CUTLER, Circuit Court Judge, sitting for KERN, Justice, disqualified.
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