Shadow Industries, LLP v. Hoffman

Filed 5/7/20 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2020 ND 83Shadow Industries, LLP, Plaintiff and Appellant
v.
David Hoffman, an individual and
Christopher Hoffman, an individual, Defendants and Appellees
and
Any other occupants, Defendants
No. 20190231
Appeal from the District Court of Williams County, Northwest Judicial
District, the Honorable Benjamen J. Johnson, Judge.
REVERSED AND REMANDED.
Opinion of the Court by Jensen, Chief Justice.
Kevin J. Chapman (argued) and Kari L. Jensen (on brief), Williston, ND, for
plaintiff and appellant.
Ryan Geltel, Williston, ND, for defendants and appellees.
Shadow Industries, LLP v. Hoffman
No. 20190231
Jensen, Chief Justice.
[¶1] Shadow Industries, LLP, appeals from the judgment of the district court
dismissing its eviction action and holding the tenants David Hoffman and
Chris Hoffman had timely exercised their option to extend the term of the
parties’ lease agreement. Shadow argues the district court erred in finding the
parties’ lease agreement to be ambiguous, finding the option to extend the lease
expired on February 1, 2019, and finding the Hoffmans timely exercised their
option to extend the lease. We reverse and remand.
I
[¶2] In December 2008, the Hoffmans entered into an agreement to lease
farmland from Dwight Aune. The term of the lease was stated as “the next ten
crop years, which would be through the 2018 crop year.” The lease also
provided the Hoffmans “the option of an additional 10 years for crop years
2019-2028.” One-half of the rental payment for each crop year was due on
February 1 and the second half due on December 1 each year. Aune
subsequently transferred ownership of the farmland and his rights under the
terms of the agreement to Shadow, a limited liability partnership controlled by
Aune.
[¶3] After removing their crop in the fall of 2018, the Hoffmans deep ripped
the land, tilled to create fall bedding, and applied fertilizer. On January 4,
2019, Shadow filed a notice of termination of the lease with the county
recorder’s office. On January 14, 2019, Shadow sent notice to the Hoffmans the
lease had been terminated. On January 29, 2019, the Hoffmans wrote to
Shadow indicating they were electing to exercise their option to extend the
lease for an additional ten years and tendered payment for one-half of the 2019
rent. Shadow refused the payment and initiated eviction proceedings.
[¶4] The district court noted “the determinative issue is whether or not the
lease was terminated or expired” and found the lease did not “specify a date by
which the option must be exercised.” The court further found the lease to be
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“ambiguous as to when the initial term was to end . . . .” After finding the
ambiguity should be construed against Shadow, the court summarized its
ruling as follows:
[t]he contract allows for the Defendants [Hoffmans] to exercise the
option by making a payment in an amount equal to the average
2018 Williams County cropland rates as reported by the North
Dakota Agricultural Statistics Services by February 01, 2019, the
date that the first rental payment would be due [for the 2019 crop
year]. Since the option did not expire until after February 1, 2019,
the Plaintiff had no authority to terminate the agreement on
December 31, 2018. It appears to this Court that the Defendants
did attempt to exercise the option after December 31, 2018 but
before February 01, 2019.
II
[¶5] Hoffman asserts the district court erred in finding that the phrase
“through the 2018 crop year” creates ambiguity as to when the initial ten year
term of the lease ended. Hoffman argues the phrase “through the 2018 crop
year” is not ambiguous. The rules of contract interpretation apply to leases.
Langer v. Bartholomay, 2008 ND 40, ¶ 12, 745 N.W.2d 649. The interpretation
of a contract is a question of law. Bearce v. Yellowstone Energy Dev., LLC, 2019
ND 89, ¶ 14, 924 N.W.2d 791. “On appeal, this Court independently examines
and construes the contract to determine if the district court erred in its
interpretation.” Id.[¶6] The district court’s interpretation of the lease as having ambiguity as to
when the lease terminated was premised upon the court’s observation that
“[w]hen ‘crop years’ end and begin is undefined.” We disagree with the court
the lease is ambiguous and fails to define the end of the lease. The lease
terminated at the end of the 2018 crop year. While determining when the end
of the 2018 crop year occurred may be a question of fact, the term is not
ambiguous simply because it requires a future event or contingency.
[¶7] Aune testified the crop year ended no later than the end of October 2018.
Following the harvesting of their crops and still in 2018, the Hoffmans deep
ripped the land, tilled to create fall bedding, and applied fertilizer to prepare
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for the 2019 crop year. On the basis of these facts, and the absence of any
contrary facts in the record, we conclude as a matter of law the 2018 crop year
ended and the lease terminated in 2018.
[¶8] The district court found the Hoffmans exercised the option during
January 2019. Because the facts of this case compel a finding the 2018 crop
year ended in 2018 and the lease terminated at the end of the 2018 crop year,
the exercise of the option in January 2019 was not timely and the lease
terminated.
III
[¶9] We reverse the judgment of the district court and remand for further
proceedings consistent with termination of the lease prior to the exercise of the
option by the Hoffmans.
[¶10] Jon J. Jensen,
C.J. Daniel J. Crothers
Gerald W. VandeWalle
Dale V. Sandstrom, S.J.
Jerod E. Tufte
[¶11] The Honorable Dale V. Sandstrom, Surrogate Judge, sitting in place of
McEvers, J., disqualified.
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