SD Supreme Court rules for mother vs. son in farm purchase caseThe South Dakota Supreme Court ruled Friday that a Hutchinson County farmer took advantage of his 84-year-old mother in a 2008 deal to buy the family farm for nearly six times less than fair market value.
By: Ross Dolan, The Daily Republic
The South Dakota Supreme Court ruled Friday that a Hutchinson County farmer took advantage of his 84-year-old mother in a 2008 deal to buy the family farm for nearly six times less than fair market value.
The Supreme Court case, an appeal of a Minnehaha County Second Judicial Circuit Court ruling, was argued on Aug. 23.
The unanimous Supreme Court opinion, which was written by Justice Steven Zinter, affirmed the Circuit Court ruling and found for plaintiff Pearl Neugebauer against her son Lincoln Neugebauer, of Dimock.
Both courts found that Lincoln Neugebauer had taken unfair advantage of his mother and rescinded the business deal.
Pearl had rented the 159-acre family farm to Lincoln, the youngest of her seven children, under an oral lease, for almost 20 years, and he paid his mother an annual rent of $6,320.
The rental amount was never updated.
In 1984, Lincoln and his brother Dennis formed L&D Farms partnership to manage the farming operation and agreed with Pearl on a 10-year lease that included an option to purchase the family farm for $117,000, the farm’s appraised value at that time.
Pearl moved to Parkston to live, the brothers dissolved their partnership in 1989 without exercising the purchase option, and Lincoln continued to farm the land on his own.
According to the court brief, Pearl trusted Lincoln to determine how much rent to pay on the farming operation.
In 2008, after a series of private meetings with his attorney Keith Goehring, of Parkston, Lincoln purchased the farm by contract for deed.
He had privately consulted with Goehring about purchasing the place and on Dec. 8, 2008, Lincoln took his mother to Goehring’s office to discuss the purchase.
Pearl, who is hard of hearing, later testified that she could not keep up with the conversation.
On Dec. 17, 2008, he took his mother to Goehring’s office again and exercised a contract for deed that had been drafted by Goehring.
The court’s legal brief noted “Neither Lincoln nor Goehring advised Pearl that Goehring represented only Lincoln, and neither suggested that Pearl could or should retain her own legal counsel.”
In a “contract for deed,” the seller lets a buyer purchase property without a mortgage.
Under the Dec. 18 deal, Pearl sold the farm to Lincoln for $117,000 — the farm’s 1984 appraised value — to be paid out in annual payments of $6,902.98 over 30 years, for a total payout of $207,089.40.
The court noted that the 30-year payout “would have required Pearl to live to 114 years of age to receive the payments.”
The fair market value of the farm in 2008 was determined to be $697,000.
Lincoln Neugebauer did not dispute that figure in court.
After signing the contract for deed, Lincoln told Pearl not to tell his siblings about the agreement.
At that point, Pearl became suspicious that something was wrong and in 2009 she consulted with her other children. She was upset when the contract was explained to her and she then asked Lincoln to tear it up.
He refused and the case ended up in court.
Pearl argued that she did not understand the agreement and asked the court to rescind the contract on grounds of undue influence. Undue influence exists when people are taken advantage of by a person they trust.
Pearl’s attorney Tim Shattuck argued she had an eighth-grade education, that she had let her husband Harold handle all business affairs prior to his death, and frequently asked her family for advice on minor legal matters.
Lincoln Neugebauer argued that land transactions between family members do not always contemplate fair market value, and that, from a cash flow perspective, his mother was not harmed.
“The arguments,” read the court ruling, “fail to acknowledge that Pearl was entitled to fairly choose whether to sell her farm for one-sixth of its value thereby depriving her other children of a probable, substantial inheritance.”