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Ivey and Kornmann v. Welk

Supreme Court of South Dakota

June 28, 2017

IVEY AND KORNMANN, a South Dakota Partnership, Plaintiff and Appellee,
v.
WILLIAM G. WELK, Defendant and Appellant.

          CONSIDERED ON BRIEFS ON APRIL 24, 2017

         APPEAL FROM THE CIRCUIT COURT OF THE FIFTH JUDICIAL CIRCUIT BROWN COUNTY, SOUTH DAKOTA THE HONORABLE RODNEY J. STEELE Retired Judge

          MARSHALL C. LOVRIEN of Bantz, Gosch & Cremer, LLC Aberdeen, South Dakota Attorneys for plaintiff and appellee.

          DANNY R. SMEINS Britton, South Dakota and BRAD A. SINCLAIR of Kaler Doeling, PLLP Fargo, North Dakota Attorneys for defendant and appellant.

          ZINTER, JUSTICE

         [¶1.] William Welk executed a promissory note in favor of Ivey and Kornmann, a partnership (Partnership). The Partnership subsequently brought this action to collect the debt. Welk raised several affirmative defenses, asserting that the note was satisfied by a subsequent agreement or substitute performance. Welk also counterclaimed for breach of contract, fraud, deceit, misrepresentation, negligent misrepresentation, and unjust enrichment. The circuit court granted summary judgment in favor of the Partnership on all of Welk's defenses and counterclaims. Welk appeals. We reverse and remand.

         Facts and Procedural History

         [¶2.] The Partnership owned undeveloped real property in Aberdeen. Charles Kornmann, who was both a partner in the Partnership and a trustee of the Kornmann Revocable Trust (Trust), decided to construct a twin home on the property. He discussed the project with Welk, a family friend, and Welk agreed to help construct the twin home. Welk subsequently provided labor and services between April 2009 and January 2010. There is no writing evidencing the agreement or the consideration Welk was to receive.

         [¶3.] In May 2009, after Welk had started on the project, the Partnership conveyed the property to Kornmann and his wife as trustees of the Trust. The record suggests that Welk was not aware of the transfer. The twin home was completed in mid-2010, and on August 25, 2010, the City issued a final certificate of occupancy.

         [¶4.] On September 29, 2010, the Partnership loaned Welk $31, 000. Although the record does not reflect the purpose of the loan, the record reflects that the money came from Kornmann's personal bank account. The record also reflects that on October 1, 2010, Welk executed a promissory note, payable to the Partnership on demand, for the $31, 000 plus interest.

         [¶5.] Three years later, an unrelated dispute arose between Kornmann and Welk regarding their interests in a condominium in Mexico. On December 24, 2013, Kornmann sent Welk a letter about the dispute. In the letter, Kornmann reminded Welk that the Partnership held the promissory note and that payment could be demanded at any time. Welk replied to the letter but made no reference to the note.

         [¶6.] On November 5, 2014, the Partnership demanded payment of the note. Welk did not respond to the written demand, and the Partnership commenced this action on the note. Welk raised numerous affirmative defenses, including accord and satisfaction, novation, and substitution. Welk also filed counterclaims against the Partnership for breach of contract, fraud, deceit, misrepresentation, negligent misrepresentation, and unjust enrichment. The counterclaims were based on Welk's allegation that he had entered into an agreement with the Partnership to assist with construction of the twin home. He alleged that he was to be compensated for his contributions either by obtaining an interest in the property or monetary compensation. Welk, however, alleged that he and Kornmann had agreed that Welk would give up his right to compensation in return for satisfaction of the note. Therefore, Welk claimed that if he was found liable to the Partnership on the note, the Partnership was liable to him for breach of the agreement regarding construction of the twin home. He also claimed that if he was found liable on the note, the Partnership was liable for fraud, deceit, misrepresentation, and unjust enrichment in its dealings with him.

         [¶7.] The circuit court granted summary judgment in favor of the Partnership on the note, Welk's affirmative defenses, and Welk's counterclaims. With respect to the note, there was no dispute that it was a valid note that Welk had not repaid. The court rejected Welk's affirmative defenses alleging discharge (accord and satisfaction, novation, and substitution) because the partnership agreement required unanimous consent of the partners to discharge a debt, and Welk failed to identify any evidence suggesting all partners agreed to discharge the Partnership's note. Under these circumstances, the court reasoned that even if Kornmann and Welk had agreed to discharge the note, the discharge was not enforceable because Kornmann had no authority to unilaterally discharge Partnership debts. With respect to the counterclaims against the Partnership, the court ruled that breach of contract, fraud, deceit, misrepresentation, negligent misrepresentation, and unjust enrichment could only be asserted against ...


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