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Kauk v. Kauk

Supreme Court of North Dakota

May 16, 2017

Herman Kauk, Jr. and Christy Kauk, Plaintiffs and Appellees
v.
Herman Kauk, Sr. and Cletis Kauk, Defendants and Appellants

         Appeal from the District Court of McIntosh County, Southeast Judicial District, the Honorable Daniel D. Narum, Judge.

          Mary E. DePuydt, Wishek, ND, for plaintiffs and appellees.

          Steven T. Ottmar, Jamestown, ND, for defendants and appellants.

          OPINION

          Kapsner, Justice.

         [¶ 1] Herman Kauk, Sr. and Cletis Kauk appeal from a district court order granting Herman Kauk, Jr. and Christy Kauk declaratory relief and declaring the issue of reformation not res judicata. Herman Kauk, Sr. and Cletis Kauk also appeal from a district court order to clarify the purchase price. Concluding the district court abused its discretion by granting declaratory relief, we reverse the district court's orders and remand for entry of an order of dismissal.

         I

         [¶ 2] Herman Kauk, Sr. and Cletis Kauk ("Sellers") contracted to sell land in McIntosh County to Herman Kauk, Jr. and Christy Kauk ("Buyers") on August 22, 2013. This agreement ("Contract 1") provided the Buyers would pay the Sellers a purchase price of $240, 000.00 on or before December 15, 2013. The property sold is known to the parties as "Walter's Quarter." Contract 1 contained this paragraph:

5. Option to Purchase Additional Land. For and in consideration of love and affection and the buyers purchasing the above described real property, sellers hereby grant unto buyers, from and after, January 1, 2015, a first option to purchase the Northeast Quarter (NE1/4) of Section Twenty-eight (28), Township One Hundred Thirty-three (133) North, Range Seventy (70), West of the 5th P.M. in McIntosh County, North Dakota, during the life time of Herman Kauk Sr. at a purchase price as may be mutually agreed upon by sellers and buyers, and if said option should not be exercised during the life time of Herman Kauk, Sr., sellers grant unto buyers a first option to purchase said real property at its appraised market value which option may be exercised by buyers at any time for one year following Herman Kauk Sr.'s death.

         The property in the option is known to the parties as "Katie's Quarter." All the parties signed this document. After executing this contract, the Buyers realized they would be unable to obtain financing for the purchase before the closing date of December 15, 2013. The Buyers informed the Sellers of this. The parties met and the Buyers presented the Sellers with a document entitled "Amended Purchase Agreement With Option to Purchase Additional Land." This document ("Amended Agreement") contained all the same terms, but had a new closing date of November 15, 2014. This document and Contract 1 were drafted by an attorney hired by the Buyers. According to testimony, the Sellers refused to sign the Amended Agreement because they did not want the paragraph containing the option in the agreement.

         [¶ 3] The Buyers had their attorney draft a new version. This version was entitled "Extension of Purchase Agreement" and specified the new closing date of November 15, 2014 in paragraph 1, and removed a paragraph which in Contract 1and in the Amended Agreement had contained the language granting an option. The parties signed this final contract ("Contract 2") on December 12, 2013. The Buyers eventually closed on "Walter's Quarter" June 26, 2014. The Sellers subsequently sent the Buyers a letter entitled "Notice of Cancellation of Option to Purchase Additional Land" on August 28, 2014. The Sellers executed a Notice of Contract for Deed with the county recorder naming a third party as grantee of the option property. The Notice of Contract for Deed was recorded and is dated June 26, 2015.

         [¶ 4] The Buyers filed a complaint on August 10, 2015 requesting a declaratory judgment that the option to purchase "Katie's Quarter" was still valid. The Sellers answered, pleading affirmative defenses which included: Contract 1 has an option to purchase land which is not owned by the Sellers; Contract 2 amended and removed the option from Contract 1; alternatively, if the district court were to find Contract 2 was an "extension" of Contract 1, the option was not supported by valid consideration. The district court held a bench trial on February 23, 2016. Both Buyers and Sellers testified at trial. At trial, both parties acknowledged Contract 1 contained the incorrect legal description for the land in the option paragraph, "Katie's Quarter." The "Notice of Cancellation of Option to Purchase Additional Land" letter contained the same legal description appearing in Contract 1. However, the Notice of Contract for Deed contained the apparently correct legal description for "Katie's Quarter." The district court took the matter under advisement and asked the parties to file written closing arguments. The parties filed final arguments and rebuttals.

         [¶ 5] The district court entered an order on March 31, 2016. The district court found the option was enforceable because it was supported by adequate consideration and nothing in Contract 2 revoked the option appearing in Contract 1. The court indicated it was clear "Katie's Quarter" was incorrectly identified in the contract. The court continued:

When, as here, there is a mutual mistake between the parties and the "written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved so as to express that intention so far as it can be done without prejudice to rights acquired by third persons in good faith and for value." N.D.C.C. § 32-04-17.

         The court noted neither party plead reformation of the agreement. The court stated evidence presented at trial indicated the "correct quarter of land is now subject to a contract for deed." The court also noted no evidence was presented to enable the court to make a determination on "whether the non-party [grantee] acquired an interest in the real property in good faith for value." The court refused to rule on the issue and declared the issue "not res judicata for future action." On April 12, 2016, the Buyers filed a request for clarification with the district court asking for clarification on the purchase price of the option land. The district court entered an order to clarify on May 18, 2016 stating the ...


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