Agra-By-Products, Inc. v. Agway, Inc., AGRA-BY-PRODUCT

• Citation: 347 N.W.2d 142
• Decision Date: 29 March 1984
• Docket Number: No. 10541,AGRA-BY-PRODUCT,INC,10541
• Parties: , a corporation, Plaintiff and Appellant, v. AGWAY, INC., a corporation, Ray Wilson and Lee Leines, Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 142

347 N.W.2d 142

AGRA-BY-PRODUCTS, INC., a corporation, Plaintiff and Appellant, v. AGWAY, INC., a corporation, Ray Wilson and Lee Leines,

Defendants and Appellees.

Civ. No. 10541.

Supreme Court of North Dakota.

March 29, 1984.

Stefanson, Landberg, & Alm, Moorhead, Minn., and Lamb, Schaefer, McNair & Larson, Fargo, for plaintiff and appellant; argued by Michael D. McNair, Fargo, and Dennis Bitz, Bismarck.

Gjevre, McLarnan, Hannaher, Vaa, Skatvold & McLarnan, Moorhead, Minn., for defendants and appellees; argued by Timothy J. McLarnan, Moorhead, Minn.

ERICKSTAD, Chief Justice.

This is an appeal from a judgment entered by the District Court of Cass County on August 2, 1983, dismissing the complaint of the plaintiff, Agra-By-Products, Inc., [Agra], pursuant to the district court's order granting a motion for summary judgment in favor of the defendants, Agway, Inc., and its employees Ray Wilson and Lee Leines [Agway]. We affirm in part, reverse in part, and remand for trial.

Traill County Storage, Inc., a North Dakota corporation, and Agway entered into a written lease on June 22, 1979, wherein it was agreed that Traill County Storage would lease to Agway a twenty-acre test plot site, iron-clad flat storage warehouse, and cribbed elevator structure located in Traill County. Pertinent provisions of the lease read as follows:

"5. That the parties hereto agree that the insurance provisions in full force and effect as shown by the policy of insurance attached hereto and made a part hereof by reference as Exhibit I shall continue unless otherwise agreed upon by the parties in writing, so long as this lease is in effect. That the LESSEE herein agrees to reimburse LESSOR for all insurance premiums of any nature of kind paid by the LESSOR for said insurance on the buildings which are the subject of this lease.

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"7. Further, the party of the second part, LESSEE, does hereby further agree to maintain the leased buildings and equipment, together with the service and access roads in as good condition as they now are, excepting normal wear and tear by the elements alone. Further, the party of the second part, LESSEE, agrees that all normal, usual and ordinary maintenance and repair of the premises ... shall be the responsibility of the LESSEE.

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"10. ... [LESSEE] will, at the expiration of the time as herein recited, quietly yield and surrender the aforesaid premises to the said party of the first part, LESSOR, his heirs and assigns, in as good condition and repair as when it took them excepting normal wear and tear as set out in Paragraph 7 above that the party of the second part, LESSEE, shall make any and all necessary repairs and maintenance on the premises during the term of this lease...."

Three previous leases dated January 31, 1972, June 6, 1975, and May 23, 1977, were entered into by the parties. These leases, superseded by the lease dated June 22, 1979, also covered the warehouse and elevator and included provisions similar or identical to paragraph 5 of the lease dated June 22, 1979.

On May 2, 1980, a fire destroyed or materially damaged the buildings under lease to Agway and other property. Agra, having "merged and consolidated" with Traill County Storage, commenced a lawsuit against Agway by service of summons and complaint on February 1, 1982, to recover its insurer's subrogation claims and its own uninsured loss resulting from the fire. ¹ Agra alleged in its complaint that the negligence of Agway constituted a proximate cause of the fire and asked that judgment be entered in its favor against Agway for $1,500,000 plus interest, costs, and disbursements. ² In its answer, Agway denied the allegations set forth in Agra's complaint and moved that the complaint be dismissed on grounds it failed to state a claim upon which relief could be granted. Agway alleged that Agra's cause of action was barred by provisions in the parties' lease.

Agway filed a counterclaim on March 5, 1982, alleging the fire occurred because of negligence on the part of Agra in leasing defective buildings and equipment and in negligently maintaining and inspecting the leased property. Agway alleged that it suffered damage to personal property as a result of Agra's negligence in the amount of $500,000. ³

Agway thereafter filed a motion to dismiss Agra's complaint on grounds it failed to state a claim upon which relief could be granted and because there was no genuine issue as to any material fact pursuant to Rules 12(b)(5) and 56(c), N.D.R.Civ.P. Affidavits in opposition to the motion were filed by J. Paul Gunkleman, Agra's President, and Raymond A. Lamb, a former shareholder and Director of Traill County Storage. These affidavits assert in part that it was never the intention of Agra to exonerate Agway from liability for its own negligence, that all parties knew that the leased premises were inadequately insured, that Agway had obtained its own insurance coverage on the leased premises, and that Agway would not reimburse Agra for any and all insurance Agra wished to carry on the leased premises. Fredrick Alm, an attorney for Agra, asserts in an opposing affidavit that he received a letter dated April 28, 1981, from the claims manager of Agway suggesting that the parties agree to a mutual waiver of their subrogation rights. A supporting affidavit submitted by James Krogh, Sunflower Department Manager for Agway and custodian of Agway's records relating to the leased property, includes assertions that Agway paid the premiums on the fire insurance policies referred to in the lease and that Agway had no separate fire insurance policy protecting its leasehold interest.

On June 3, 1983, Agra moved the district court for an order to amend its complaint to allege that Agway's conduct constituted gross negligence.

An affidavit filed June 9, 1983, by Duane Ilvedson on behalf of the AID Insurance Company includes the assertion that the AID Insurance Company has a $35,000 subrogation interest in certain property destroyed or damaged in the fire which was not subject to the parties' lease agreement. ⁴

On July 20, 1983, the district court issued its memorandum opinion and order granting Agway's motion for summary judgment and dismissing Agra's complaint. The court found that the terms of the parties' written lease were clear and unambiguous as a matter of law and therefore refused to consider extrinsic evidence offered to prove the intent of the parties. The court determined that it was "obvious from reading the whole lease," that the provision for insurance was for the benefit and protection of both parties and therefore Agway was an insured. The court also determined that the absence of a waiver of subrogation clause or other provision in the lease specifically absolving Agway from liability for its own negligence did not mean the parties intended that Agway be liable in such a case. The court concluded that the terms of the lease precluded any recovery by Agra from Agway. It was also concluded that the insurance companies could not recover from Agway because an insurer, as a matter of law, cannot recover from its own insured. Agra's motion to amend its complaint to allege gross negligence was denied.

Agra contends that the lease is ambiguous as to whether or not Agway is responsible for its negligence and that this ambiguity results in a genuine issue of material fact so as to preclude entry of summary judgment. In accordance with this contention, Agra raises the following issues:

I. Did the district court err in its interpretation of the parties' written lease, specifically paragraph 5 thereof, by construing it to relieve Agway from liability for fire damage caused by its alleged negligence?

II. Does the lease relieve Agway from liability for fire damage caused by its alleged gross negligence?

III. Does the lease relieve Agway from liability for fire damage in excess of the limits of the fire insurance policy covering the leased premises?

IV. Does the lease relieve Agway from liability for fire damage to property not subject to the lease or policy of insurance made a part of the lease?

The district court, in granting Agway's motion for summary judgment, made no distinction between the various subrogation claims and Agra's alleged uninsured loss, nor did it distinguish between the leased and non-leased property destroyed or damaged in the fire. Our standards for reviewing an appeal from a summary judgment were recently set forth in Hastings Pork v. Johanneson, 335 N.W.2d 802, 805 (N.D.1983):

"Summary judgment will be entered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to judgment as a matter of law. Keller v. Hummel, 334 N.W.2d 200 (N.D.1983); Rule 56(c), NDRCivP. On appeal from a summary judgment, this court must view the evidence in a light most favorable to the party against whom the summary judgment was granted and we may only determine if a genuine issue of fact exists and if the law was applied correctly. Benson Cty. Co-op., Etc. v. Central Livestock, 300 N.W.2d 236 (N.D.1980). Summary judgment is not appropriate if it appears from the record that there is an unresolved issue of material fact. Nor is summary judgment appropriate if the moving party is not entitled to judgment as a matter of law, or if reasonable differences of opinion exist as to the inference to be drawn from undisputed facts. Keller v. Hummel, supra."

A lease is subject to the general rules of contract construction. Weiss v. Anderson, 341 N.W.2d 367, 369 (N.D.1983). We have often said that the construction of a written contract to determine its legal effect is a question of law for the court to decide. See Hastings Pork v. Johanneson, supra, 335 N.W.2d at 806; Metcalf v. Security International Insurance Company, 261 N.W.2d 795, 799 (N.D.1978). The...