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Pearl Neugebauer, Plaintiff and Appellee v. Lincoln J. Neugebauer

September 28, 2011



The opinion of the court was delivered by: Zinter, Justice


[¶1.] For almost twenty years, Lincoln Neugebauer rented his mother Pearl Neugebauer's farm under an oral lease. In 2008, Lincoln purchased the farm by contract for deed. Pearl later brought this action to rescind the contract on the ground of undue influence. The circuit court found that Lincoln had exerted undue influence and the court rescinded the contract. We affirm.

Facts and Procedural History

[¶2.] Harold and Pearl Neugebauer owned a 159-acre farm the parties called the "Home Place." The Hutchinson County farm included a house, garage, granary, machine sheds, barns, silos, and a dairy barn. During their marriage, Harold handled all of the legal and financial affairs of the farm and family. In 1980, Harold died, leaving Pearl as the sole owner of the Home Place and another farm property. Following Harold's death, Lincoln, the youngest of Harold and Pearl's seven children, began farming both properties. Lincoln also resided with his mother on the Home Place.

[¶3.] In 1984, Lincoln and Dennis, one of Pearl's other sons, formed L&D Farms partnership for the purpose of managing the farming operation on Pearl's land. L&D Farms entered into a ten-year lease with Pearl that included an option to purchase the Home Place for $117,000, the appraised value in 1984. In 1985, Pearl moved from the farm to a home in Parkston. In 1989, Lincoln and Dennis dissolved L&D Farms without exercising the option to purchase.

[¶4.] After dissolution of the partnership, Lincoln farmed Pearl's land by himself. He paid annual rent, but Lincoln and Pearl never reduced their oral farm lease to writing. Pearl trusted Lincoln and left it to him to determine how much rent to pay. Pearl did, however, expect that Lincoln would be "fair." Pearl never took any steps to determine if the $6,320 annual rent Lincoln was paying was fair.

[¶5.] On several occasions from 2004 to 2008, Lincoln privately consulted with attorney Keith Goehring about purchasing the Home Place. On December 3, 2008, Lincoln took Pearl to Goehring's office to discuss the purchase. Pearl, who only had an eighth-grade education, was almost eighty-four years old and was hard of hearing. Although Lincoln and Goehring discussed details of Lincoln's proposed purchase, Pearl said virtually nothing. She later testified that she could not keep up with the conversation and did not understand the terms discussed.

[¶6.] On December 17, 2008, Lincoln again took Pearl to Goehring's office. On this occasion, Pearl and Lincoln executed a contract for deed that had been drafted by Goehring. Goehring had been retained and his fees were paid by Lincoln. Neither Lincoln nor Goehring advised Pearl that Goehring represented only Lincoln, and neither suggested that Pearl could or should retain her own legal counsel.

[¶7.] There is no dispute that the fair market value of the Home Place was $697,000 in 2008 when the contract for deed was executed. Under the terms of the contract, Lincoln was to pay Pearl $117,000, the farm's 1984 appraised value. The contract price was to be paid over thirty years by making annual payments of $6,902.98.

[¶8.] After executing the contract, Lincoln told Pearl not to tell the rest of her children about the agreement. Pearl later became suspicious that something may have been wrong with the contract. In January 2009, Pearl's children returned to Parkston for a funeral. For the first time, Pearl revealed the contract to the rest of her children, and they explained the contract to her. She began to cry and wanted the contract torn up. Pearl personally and through her children asked Lincoln to tear up the contract. Lincoln refused.

[¶9.] Pearl then brought this action for rescission of the contract for deed and damages for breach of the pre-contract oral lease. Pearl challenged the contract on the ground of undue influence. Her breach of lease claim was based on the assertion that Lincoln failed to pay her the full amount of rent that was owed. The parties tried the rescission claim to the court and the breach of lease claim to a jury. The jury found for Lincoln on the breach of lease claim, and the court found for Pearl on the rescission claim.

[¶10.] With respect to rescission, the circuit court found that a confidential relationship existed between Pearl and Lincoln. The court further found that Lincoln actively participated in the contract's preparation and unduly profited from it. Based on these findings, the court determined that a presumption of undue influence arose shifting the burden of production to Lincoln to show that he took no unfair advantage of Pearl. The court found that Lincoln was unable to make that showing. Alternatively, the court found that even in the absence of a confidential relationship and the resulting presumption of undue influence, Pearl established the four elements of undue influence under SDCL 53-4-7, namely: Pearl's susceptibility to undue influence; Lincoln's opportunity to exert such influence and effect a wrongful purpose; Lincoln's disposition to do so for an improper purpose; and a result clearly showing the effects of undue influence. Ultimately, the court rescinded the contract and ordered that the parties be restored to the status quo existing before the contract was executed. The court further ordered that Lincoln pay $6,320 annual rent in accordance with the terms of the prior oral lease for the time (2009 and 2010) he used and occupied the property under the rescinded contract for deed.*fn1

[ΒΆ11.] Lincoln raises one issue on appeal: whether the circuit court erred in finding that the contract for deed was a product of undue influence. Pearl raises one issue by notice of review: whether the court erred in ruling that following rescission, Lincoln was only obligated to pay $6,320 in ...

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