Schulz v. Helmers , 2021 ND 158 ( 2021 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
AUGUST 19, 2021
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2021 ND 158Edwin Schulz, Plaintiff and Appellant
v.
Adam Helmers, Defendant and Appellee
No. 20210025
Appeal from the District Court of Grand Forks County, Northeast Central
Judicial District, the Honorable Jay D. Knudson, Judge.
AFFIRMED.
Opinion of the Court by Crothers, Justice.
Larry J. Richards, Grand Forks, ND, for plaintiff and appellant.
Victoria A. Thoreson (argued) and Michael J. Morley (on brief), Grand Forks,
ND, for defendant and appellee.
Schulz v. Helmers
No. 20210025
Crothers, Justice.
[¶1] Edwin Schulz appeals from a judgment following a bench trial on the
damages to his barn, pole barn and shed. He argues the district court applied
the wrong measure of damages in his breach of contract claim against Adam
Helmers, whom he claims caused a fire that destroyed his buildings. We affirm.
I
[¶2] Schulz sued Helmers for negligence and breach of contract following a
fire that destroyed a barn, pole barn and shed owned by Schulz. At the time of
the fire, Schulz was leasing the farmstead to Helmers, including the three
buildings. Helmers moved for summary judgment claiming Schulz had no
damages and, in the alternative, requested the court rule as a matter of law
that under either a contract or tort theory damages were limited to the
diminution in value of the property. The district court denied the request to
dismiss the case but limited damages on both claims to the diminution in value.
Helmers subsequently admitted liability for the fire but denied “the nature and
extent of the injuries and damages being claimed by [Schulz].” After a bench
trial, the court awarded Schulz $21,663.57, offset by a payment under his
insurance policy.
II
[¶3] The standard for reviewing a district court’s decision on a motion for
summary judgment is well established:
“Summary judgment is a procedural device for the prompt
resolution of a controversy on the merits without a trial if there
are no genuine issues of material fact or inferences that can
reasonably be drawn from undisputed facts, or if the only issues to
be resolved are questions of law. A party moving for summary
judgment has the burden of showing there are no genuine issues
of material fact and the moving party is entitled to judgment as a
matter of law. In determining whether summary judgment was
appropriately granted, we must view the evidence in the light most
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favorable to the party opposing the motion, and that party will be
given the benefit of all favorable inferences which can reasonably
be drawn from the record. On appeal, this Court decides whether
the information available to the district court precluded the
existence of a genuine issue of material fact and entitled the
moving party to judgment as a matter of law. Whether the district
court properly granted summary judgment is a question of law
which we review de novo on the entire record.”
Three Aces Props. LLC v. United Rentals (N. Am.), Inc., 2020 ND 258, ¶ 8, 952
N.W.2d 64 (quoting Feltman v. Gaustad, 2020 ND 89, ¶ 7, 942 N.W.2d 844).
[¶4] The district court’s conclusions of law are fully reviewable. Stuber v.
Engel, 2017 ND 198, ¶ 10, 900 N.W.2d 230. The interpretation of a contract to
determine its legal effect is a question of law, which is fully reviewable. Three
Aces, 2020 ND 258, ¶ 10. General rules of contract interpretation apply to
leases. Id. We review the district court’s factual findings after a bench trial
under the clearly erroneous standard. Stuber, ¶ 10. A finding of fact is clearly
erroneous if it is induced by an erroneous view of the law, if no evidence
supports the findings, or if, on the entire record, we are left with a definite and
firm conviction a mistake has been made. Id. We do not reweigh conflicts in
evidence, and the district court’s choice between two permissible views of the
weight of the evidence is not clearly erroneous. Id. “The determination of the
amount of damages caused by a breach of contract is a finding of fact.” Three
Aces, ¶ 10.
III
[¶5] Schulz does not challenge the district court’s measure of damages on his
tort claim; thus our review is limited to the contract claim. On that claim
Schulz argues the proper measure of damages is the cost to replace the
buildings, not the diminution in value. He contends that damages arising from
a breach of contract are governed by terms of the lease, which provides: “The
tenant will maintain the buildings and equipment during his tenancy in as
good condition as at the beginning, normal wear and depreciation beyond
tenant’s control excepted.” Schulz asserts this language imposes on Helmers a
duty to replace the destroyed buildings.
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[¶6] Section 32-03-09, N.D.C.C., describes the measure of damages for a
breach of contract, stating:
“For the breach of an obligation arising from contract, the measure
of damages, except when otherwise expressly provided by the laws
of this state, is the amount which will compensate the party
aggrieved for all the detriment proximately caused thereby or
which in the ordinary course of things would be likely to result
therefrom. No damages can be recovered for a breach of contract if
they are not clearly ascertainable in both their nature and origin.”
[¶7] At issue here is Helmers’ obligation to maintain the leased property.
“The word ‘maintain’ in its ordinary sense is defined as ‘to keep in a state of
repair.’” Three Aces, 2020 ND 258, ¶ 30. After the judgment was issued in this
case, we decided Three Aces, which addressed for the first time the appropriate
measure of damages for a breach of contract claim related to the failure to
repair under a lease. Id. at ¶ 15. The lease in Three Aces included a
maintenance provision, stating, “Licensee shall maintain the parking area and
fence, such parking area and fence shall be surrendered in a condition similar
to that existing at the time Licensee took occupancy, subject to wear and tear
caused by the ordinary operation of Licensee’s business on the Premises.” Id.
at ¶ 11. The district court concluded the tenant had a duty to maintain the
parking area and to surrender the parking area in a condition similar to that
which existed when the lease began, and the tenant breached the lease by
failing to repair the parking area. Id. at ¶ 12. However, the court determined
the landlord was not entitled to damages for the breach because there was no
diminution of value in the property as a result of the breach and any damages
were mitigated by redevelopment of the property. Id. at ¶ 6.
[¶8] On appeal, we reviewed the two measures of damages, stating:
“We agree that the lesser of the cost to repair or the
diminution in value is the proper measure of damages for a breach
of a duty to repair in a lease. The rule for damages in construction
contract cases is based on avoiding windfalls and economic waste,
and the same rationale applies to damages for a breach of the duty
to repair related to a lease. The cost to repair generally will be the
correct measure, but it is only a place to start in determining the
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correct amount of damages. The non-breaching party should not
be awarded an amount that will put them in a better position than
they would have been in if the breach never occurred. We conclude
either the cost of repair or the diminution of value may be an
appropriate measure of damages in this case.”
Three Aces, 2020 ND 258, ¶ 18. Because the property was worth the same
regardless of whether the repairs were made to the parking area, no damages
were recoverable under the diminution of value measure. Id. at ¶ 19. However,
the cost to repair the parking area would have been approximately $2.7
million. Id. at ¶ 20. We concluded, “[T]he cost of repairing the property was
significantly higher than the diminution in value. Thus repairing the property
was economically impractical. Awarding damages based on the cost to repair
would result in [the landlord] receiving a windfall. Diminution of value was
the correct measure of damages in this case.” Id.
[¶9] Here, Helmers admitted liability for causing the fire. Because Helmers
can no longer “maintain the buildings and equipment during his tenancy in as
good condition as at the beginning,” he breached his lease with Schulz, and
Schulz is due damages for the breach. Section 32-03-09, N.D.C.C., provides the
general measure of damages for breaching a contract. Specifically in the case
of breaching a duty to repair in a lease, Three Aces construed this statute to
mean the proper measure of damages is the lesser of the cost to repair and the
diminution in value.
[¶10] The district court found the total diminution in value of the three
buildings was $21,663.57. The court noted that although the property as a
whole may have a higher diminution in value than the combined diminution
in value of the individual buildings, Schulz failed to present sufficient, credible
evidence of a higher amount.
[¶11] At trial, Helmers’ valuation expert testified the replacement costs would
have been $83,615.41 for the barn, $31,247.54 for the pole barn and $14,488.77
for the garage/shed, totaling $129,351.72. Thus, the replacement cost is
approximately $107,688 more than the diminution of value measure. Similar
to Three Aces, the cost to repair or replace is significantly higher than the
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diminution of value, and Schulz would receive a windfall if Helmers were
required to replace the buildings. Accordingly, the diminution of value is the
appropriate measure of damages for Helmers’ breach of the lease.
[¶12] The district court concluded N.D.C.C. § 32-03-09.1 applied to the breach
of contract claim, which provides the measure of damages for an injury to
property not arising from contract:
“The measure of damages for injury to property caused by the
breach of an obligation not arising from contract, except when
otherwise expressly provided by law, is presumed to be the
reasonable cost of repairs necessary to restore the property to the
condition it was in immediately before the injury was inflicted and
the reasonable value of the loss of use pending restoration of the
property, unless restoration of the property within a reasonable
period of time is impossible or impracticable, in which case the
measure of damages is presumed to be the difference between the
market value of the property immediately before and immediately
after the injury and the reasonable value of the loss of use pending
replacement of the property. Restoration of the property shall be
deemed impracticable when the reasonable cost of necessary
repairs and the reasonable value of the loss of use pending
restoration is greater than the amount by which the market value
of the property has been diminished because of the injury and the
reasonable value of the loss of use pending replacement.”
N.D.C.C. § 32-03-09.1 (emphasis added). Although this statute is similar to the
rule established in Three Aces, the court used it in error because the statute
applies to a breach of an obligation not arising from contract. Because the claim
here is for breach of contract, N.D.C.C. § 32-03-09 is the applicable damages
statute, and Three Aces, although decided after judgment in this case,
addresses the appropriate measure of damages for a breach of contract claim
related to the failure to repair under a lease. However, the court’s
misapplication of the law is harmless error because diminution in value is the
proper measure and the result is the same whether N.D.C.C. § 32-03-09.1 or
the rule in Three Aces is applied. See Schmidt v. City of Minot, 2016 ND 175,
¶ 16, 883 N.W.2d 909 (stating that “[w]e will not set aside a correct result
5
merely because the district court’s reasoning is incorrect if the result is the
same under the correct law and reasoning”).
IV
[¶13] We affirm the judgment, concluding the diminution of value is the
appropriate measure of damages for Helmers’ breach of the lease.
[¶14] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
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