Precedents Cited and Their Role

• Parol Evidence and Contract Primacy.
  • Hanson v. Vermillion School Dist. No. 13‑1; Roseth v. Roseth; American State Bank v. Adkins; Quick v. Bakke: Parties’ unambiguous writings govern; courts avoid speculating beyond the four corners.
  • Oxton v. Rudland; SDCL 53‑8‑5; Parmely Revocable Trust v. Magness: Parol evidence is barred absent exceptions like fraud or a collateral agreement.
  • Gardner v. Welch (1906): Early articulation that parol evidence may show an absolute deed is a mortgage only when the parties’ understanding is not reduced to writing; otherwise, the writing supersedes prior negotiations.
• Equitable Mortgage Doctrine and Substance Over Form.
  • Myers v. Eich (2006): Established five non‑exclusive markers for identifying an equitable mortgage and emphasized substance over form.
  • Adrian v. McKinnie (2002): Allowed extrinsic evidence where the transaction lacked a definitive, integrated writing; informed how courts discern true intent when documents are incomplete.
  • Shimerda v. Wohlford (1900): A mortgage is a lien, not a transfer of title; in equity, an absolute deed will be treated as a mortgage when the transaction is a loan secured by land.
  • Muller v. Flavin (1900): Where a continuous transaction contemplates reconveyance upon repayment, equity treats it as a mortgage.
• Public Policy Against Restraints on Redemption.
  • SDCL 44‑1‑8: Contracts forfeiting property to satisfy a lien or restraining redemption rights are void.
  • FarmPro Services, Inc. v. Finneman; O’Connor v. Schwan; Sannerud v. Brantz; 55 Am. Jur. 2d Mortgages § 375: The mortgagor cannot waive the equity of redemption at the outset; anti‑clogging doctrine.
  • NBC Leasing Co. v. Stilwell: Courts look through form to detect disguised loans to enforce regulatory policies (there, usury).
  • Two Eagle v. Avel eCare; SDCL 53‑9‑1: Contracts contrary to expressed law or policy are unlawful; policy derives from constitution, statutes, and judicial decisions.
• Integrated Transaction Canon.
  • SD Public Assurance Alliance v. Aurora County: Documents executed together as part of a single transaction are interpreted together.
• Preliminary Injunction and Appellate Mechanics.
  • Hedlund v. River Bluff Estates; Metropolitan Life Ins. v. Jensen; Holzworth v. Roth: Equitable nature of injunctions; elements for preliminary relief; equity applies where legal remedies are inadequate.
  • Strong v. Atlas Hydraulics; Halls v. White: Standard of review—abuse of discretion; fact findings for clear error; legal conclusions de novo.
  • SDCL 15‑26A‑3(5); SDCL 15‑26A‑10; Nelsen v. Menno State Bank; Prater v. Dahm; Estate of Tank; SDCL 15‑6‑12(c); Estate of Lester; Hodges; Slota: Appealability of PI orders; scope of review of “relevant” matters; standards for judgment on the pleadings.

Legal Reasoning

1. Threshold: The Role of Parol Evidence. The Court first corrects the circuit court: because the parties’ five agreements are clear, unambiguous, and fully integrated, the parol evidence rule precludes testimony about subjective intent absent an exception. The equitable nature of the claim does not itself create an evidentiary exception. Earlier equitable mortgage cases allowing extrinsic evidence involved incomplete or ambiguous writings.
2. Public Policy Fills the Gap. Unambiguous contracts must still conform to public policy. South Dakota’s anti‑clogging rule (SDCL 44‑1‑8) declares void any contractual restraint on redemption. Therefore, courts must look through form to substance to prevent parties from drafting around redemption through sale‑leaseback‑option structures that function as security devices. This doctrinal move is crucial: it situates equitable mortgage recharacterization within public policy, not as an intrusion on the parol evidence rule.
3. Integrated Transaction Analysis. The five contemporaneous documents—the $4.25 million note, the mortgage and security agreement, the assignment of trust proceeds, the purchase agreement, and the five‑year lease with option—are construed as one transaction. That holistic reading allows the Court to determine the “true nature” of the arrangement entirely from the papers.
4. Application of the Myers Markers (all satisfied on the face of the papers):
   • Pre‑existing debt not extinguished. Judy’s $4.25 million purchase‑money debt pre‑dated the conveyance and was not extinguished by her deed to Sioux County. The purchase agreement “reduced” $3,187,500 of the loan but left $1,062,500 outstanding—a classic feature of security, not sale.
   • Agreement to reconvey. Cody’s option to repurchase after five years was conditioned on payment of the outstanding indebtedness (including amounts “reduced” by the deed) plus interest—effectively a payoff of the loan. Sioux County’s duty to reconvey upon payment confirms the security nature.
   • Property value exceeds the debt and price. The farm appraised at $4.5 million; Sioux County paid $3,187,500 and held an assignment of $1,062,500, creating immediate equity cushion. That allocation aligns with lender risk mitigation, not market‑value sale economics.
   • Appraisal not tied to sale price. Sioux County obtained an appraisal but priced the “purchase” $1.3 million below it and $1 million below the Trust price paid that same day. The disparity further indicates the deed served as collateral.
   • Creditor‑debtor dealings. The documents imposed borrower‑typical obligations (insurance, taxes, upkeep) and set a fixed repurchase price designed to amortize debt, not reflect future fair market value. Most tellingly, the $3,825,000 option equals $3,187,500 plus 4% simple interest for five years ($637,500), mirroring the note’s rate. That arithmetic is incompatible with a genuine sale followed by an independent option; it is the language of a loan payoff.
5. Consequences: Equitable Mortgage and Injunctive Relief. Because the transaction is, in substance, a loan secured by land, Sioux County cannot employ summary termination and sale to forfeit the Sturzenbechers’ equity. Foreclosure procedures and statutory redemption must be respected. On the preliminary injunction standard, this yields a strong likelihood of success; the potential sale of unique real property demonstrates irreparable harm; equities and public interest favor preserving redemption rights. The injunction stands.
6. Procedural Note: Limited Interlocutory Review. A denial of judgment on the pleadings is ordinarily non‑appealable. However, when appealing from a preliminary injunction, the Supreme Court may review “relevant” matters under SDCL 15‑26A‑10. Because the injunction rested on the equitable mortgage theory, the Court reviewed and affirmed the denial of judgment on the pleadings as to that claim. The unconscionability theory, a separate basis for declaratory relief, was not relevant to the PI order and is not reviewed.

Impact and Practical Implications

• Key Precedent Clarified. This opinion refines South Dakota’s equitable mortgage jurisprudence by:
  • Separating evidentiary rules from equitable recharacterization: unambiguous documents bar extrinsic intent evidence, yet courts will reframe transactions as mortgages when the writings themselves reveal a security arrangement that would otherwise clog redemption.
  • Grounding recharacterization in public policy (SDCL 44‑1‑8) rather than an equitable power to override clear contracts. This framing gives the rule firmer statutory footing and predictability.
• Sale‑Leaseback and “Rescue” Financings. Investors and alternative lenders employing deed‑lease‑option structures should expect heightened judicial scrutiny. Features that align option prices with accrued interest, leave antecedent debt outstanding, or pair discounted “sale” prices with separate debt assignments will strongly support equitable mortgage findings—exposing the transaction to foreclosure and redemption regimes and voiding contractual forfeiture terms.
• Drafting Guidance.
  • If the goal is a true sale, avoid replicating debt economics: do not set “repurchase” prices as prior “purchase” price plus stated interest; do not leave parallel debts in place; and do not impose lender‑style covenants on the putative seller/tenant.
  • When financing is intended, document it as such and follow mortgage formalities. Attempts to evade foreclosure and redemption will fail and may undermine enforceability of bargain terms.
• Borrowers’ Protections Strengthened. Landowners facing deed‑leaseback arrangements retain robust redemption protections. The Court’s emphasis on public policy over form helps prevent loss of farms through summary forfeiture mechanisms embedded in private contracts.
• Courtroom Practice. Trial courts should avoid admitting extrinsic intent evidence when integrated documents are unambiguous. Equitable mortgage determinations can, and often should, be made from the papers themselves, interpreted as a single transaction.
• Appellate Procedure. Litigants appealing preliminary injunctions may obtain review of otherwise non‑appealable interlocutory rulings only if they are “relevant” to the injunction order. Discrete alternative theories not underpinning the injunction (e.g., unconscionability here) will not be reviewed.