Service Oil, Inc. v. Chabot

NEUMANN, Justice.

[¶ 1] Jack Chabot and Todd Novaczyk appeal from the district court’s decision denying summary judgment concerning their personal liability on a lease agreement. We dismiss.

[¶2] On December 5, 1989, Service Oil, Inc., leased property in Fargo to Sytje’s Pan-nekoeken Huis Family Restaurants, Inc. In the lease, Chabot, a Pannekoeken director, and Novaczyk, a Pannekoeken officer, executed a guaranty of lease agreement. The guaranty consisted of a personal guaranty from Chabot and Novaczyk, and included an alternative guaranty clause, stating that after the fifth annual anniversary of the restaurant, Chabot and Novaczyk could be personally released from the liability if they granted the lessor a first security interest in the restaurant’s assets:

“On or after the fifth annual anniversary of the Commencement Date (as defined in the Lease), the undersigned shall be released from liability under this Guaranty of Lease upon delivery to Lessor of documentation, in such form as Lessor reasonably requires, granting a first security interest in all restaurant equipment, furniture and fixtures located on the Leased Premises to Lessor in order to secure payment of all rents reserved under the Lease and performance by Lessee of all other terms, provisions, covenants and conditions thereof.”

[¶3] In 1994 and 1995, Pannekoeken defaulted on its lease obligation by failing to make rent payments and pay real estate taxes. During this time, Service Oil contacted Pannekoeken numerous times concerning curing the default.

[¶4] In December 1995, Service Oil sued Chabot and Novaczyk for payment of sums owed under the lease. Chabot and Novaczyk did not answer. Pannekoeken continued to accrue liability as a hold-over tenant.

[¶ 5] In February 1996, Pannekoeken offered a first security interest in the restaurant’s assets to obtain the release of Chabot and Novaczyk’s guaranty obligations. Service Oil rejected the offer.

[¶ 6] On May 13, 1996, Service Oil moved for default judgment against the two guarantors, Chabot and Novaczyk. On May 24, 1996, Chabot and Novaczyk answered Service Oil’s complaint raising, as an affirmative defense, their release of liability under the alternative guaranty clause. The district court denied the motion for default judgment.

[¶ 7] On September 3, 1996, Chabot and Novaczyk moved for summary judgment based on the alternative guaranty clause that provided Chabot and Novaczyk could be released from the guaranty if they granted the lessor a first security interest in the restaurant’s assets. The district court denied summary judgment.

[¶ 8] On October 11, 1996, the parties entered a stipulation, agreeing (1) Service Oil had suffered damages of $175,000, (2) a judgment of $175,000 would be entered against Chabot and Novaczyk and in favor of Service Oil, and (3) by entering the stipulation, Chabot and Novaczyk did not waive, and specifically reserved, their right to appeal the district court’s “summaiy judgment ruling regarding liability.” Chabot and No-vaczyk appeal the district court’s denial of summary judgment.

[¶ 9] Chabot and Novaczyk stipulated to the damages from the lease agreement to obtain a final, appealable judgment. In the judgment, they specifically reserved “their right to appeal the District Court’s summary judgment ruling regarding liability.” However, the district court did not make a summary judgment ruling regarding liability. The district court merely refused to grant Chabot and Novaczyk’s motion for summary judgment. In doing so, the district court did not dismiss Chabot and Novaczyk’s affirmative defense, but merely declined to rule in their favor on summary judgment, and determined the parties should proceed to trial.

[¶ 10] Under Rule 35(a), N.D.R.App.P., we review an intermediate order on appeal from a judgment “which involves the merits and necessarily affects the judgment appearing upon the record transmitted or returned from the trial court.” In Herzog v. Yuill, 399 N.W.2d 287, 293 (N.D.1987), we specifically explained that a denial of summary judgment does not involve the merits of a case because it leaves the issue still pending before the court:

“‘An order which leaves the point involved still pending before the court, and undetermined, does not involve the merits.’ Schaff v. Kennelly, 69 N.W.2d 777, 780 (N.D.1955) (quoting Ferguson v. Jensen, 76 N.D. 647, 650, 38 N.W.2d 560, 562 (1949)). ‘A denial of summary judgment is not a decision on the merits; it simply is a decision that there is a material factual issue to be tried.’ 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d § 2712, p. 587 (1983). ‘An order denying a motion for summary judgment is merely interlocutory and, leaving the case pending for trial, it decides nothing except that the parties may proceed with the case.’ Rude v. Letnes, 154 N.W.2d 380, 381 (N.D.1967).”

Accordingly, the district court’s denial of Chabot and Novaczyk’s motion did not involve the merits; it was not a “ruling on liability.”

[¶ 11] If the district court had granted summary judgment in favor of Service Oil, and determined, as a matter of law, that Chabot and Novaczyk could not exercise the alternative guaranty clause, that would have been a ruling regarding the defendants’ liability, and the issue would be properly reserved for appeal. However, the district court did not make such a ruling. Chabot and Novaczyk, in attempting to preserve the district court’s ruling on liability for appeal, preserved a ruling the district court never made.

[¶ 12] We, therefore, dismiss this case as not appealable.

[¶ 13] SANDSTROM, J., concurs. VANDE WALLE, C.J., concurs in the result.