Diocese of Bismarck Trust v. Ramada, Inc.

Decision Date10 September 1996
Docket NumberNos. 950375,950380,s. 950375
Citation553 N.W.2d 760
PartiesThe DIOCESE OF BISMARCK TRUST and The Mary College, Inc. Trust, Plaintiffs and Appellees, v. RAMADA, INC., f/k/a Ramada Inns, Inc., a Delaware Corporation; Ramada Hotel Operating Company, a Corporation, Defendants and Appellees, Raymond A. Lamb; William Wood; Dan Zinda; Michael Reek; William M. Shalhoob; and LWZ Hospitality, a North Dakota General Partnership, Defendants and Appellants. The DIOCESE OF BISMARCK TRUST and The Mary College, Inc. Trust, Plaintiffs and Appellees, v. RAMADA, INC., f/k/a Ramada Inns, Inc., a Delaware Corporation; Ramada Hotel Operating Company, a Corporation, Defendants and Appellants, Raymond A. Lamb; William Wood; Dan Zinda, Michael Reek; William M. Shalhoob; and LWZ Hospitality, a North Dakota General Partnership, Defendants and Appellees. Civil
CourtNorth Dakota Supreme Court

Lawrence R. Klemin (argued), of Bucklin, Klemin & McBride, Bismarck, for plaintiffs and appellees.

Charles S. Miller, Jr. (argued), of Fleck, Mather & Strutz, Bismarck, for defendants, appellees and appellants Ramada, Inc. and Ramada Hotel Operating Company.

Pamela J. Hermes (argued), of Vogel, Kelly, Knutson, Weir, Bye & Hunke, Ltd., Fargo, for defendants, appellants and appellees Raymond A. Lamb, William Wood, Dan Zinda, Michael Reek, William M. Shalhoob, and LWZ Hospitality.

MARING, Justice.

Raymond A. Lamb, William Wood, Michael Reek, Dan Zinda, William M. Shalhoob, and LWZ Hospitality, a general partnership, (collectively referred to as LWZ) appealed from a summary judgment granting the Diocese of Bismarck Trust and the Mary College Inc. Trust (Trusts) reformation of the rental clause in a ground lease. Ramada, Inc., formerly known as Ramada Inns, Inc., and Ramada Hotel Operating Co. (collectively referred to as Ramada) also separately appealed from the summary judgment. We affirm in part, reverse in part, and remand for further proceedings.

I

In April 1972 the Trusts leased land for 75 years to Ramada Inns for a motel in Bismarck. The ground lease provided for a base minimum rent of $18,000 per year, plus a percentage of the net yearly receipts from the premises. In a provision that is at the center of this lawsuit, the lease also specified a maximum yearly rent with an adjustment multiplier tied to the consumer price index:

"4-A 3. Maximum Rental: The Lessor shall not be entitled to any rental for any 'percentage rental year' exceeding ... $40,000 per percentage rental year.

"The Maximum rental shall be adjusted by the proportionate increase or decrease (if any) in the United States City Average Consumers Price Indes [sic] for all items as determined by the United States Department of Labor, Bureau of Labor Statistics, based on all items for the period 1967 equaling 100, which index figure for March, 1972, was 124.0. Said adjusted maximum rental shall be arrived at by multiplying the said Forty Thousand Dollars & no/100 by a fraction of which the numerator shall be the index figure for the month preceding the effective date of the exercise of this Lease and the denominator shall be 124.0."

The parties do not dispute that the Trusts and Ramada made a mutual mistake in reducing to writing their agreement on the adjustment multiplier. 1 The parties agree that the Trusts and Ramada intended adjustments to the maximum rent based upon changes in the consumer price index for each year of the lease. However, in the written agreement, the consumer price indices for both the numerator and the denominator of the adjustment multiplier resulted in a maximum rent of $40,000, with no yearly adjustments to the multiplier. The parties also agree that the Trusts and Ramada did not have actual knowledge of the mutual mistake in 1972.

In 1976, Ramada Inns assigned its interest in the motel and the ground lease to Ramada Hotel Operating Company. In July 1982, Ramada Hotel sold the motel and assigned its interest in the ground lease to LWZ, which then consisted of Lamb, Wood and Zinda. The net receipts from the premises were such that the rent did not exceed $40,000 except for the lease year ending in May 1983 when the combined rent from Ramada and LWZ exceeded $40,000. According to the Trusts, they had no actual knowledge of the mistake in the rental clause until 1989 when the net receipts from the premises resulted in rent in excess of $40,000.

In 1993, the Trusts sued LWZ and Ramada to reform the maximum rental clause and to collect excess back rent from 1989 through 1993. LWZ and Ramada both denied liability and cross-claimed against each other for indemnity on the Trusts' claims. The district court granted summary judgment for the Trusts. The court ruled that the Trusts and Ramada made a mutual mistake when the lease was executed in 1972, because the rental clause did not reflect their agreement for yearly adjustments to the maximum rent. The court held that the Trusts' action for reformation and for excess back rent was timely under the twenty-year statute of limitations in N.D.C.C. § 28-01-05. The court further held that the Trusts' failure to read the lease or discover the mistake in 1972 did not bar reformation and that LWZ was not entitled to protection under N.D.C.C. § 32-04-17 as a good faith purchaser for value, because it had constructive notice of the mistake. The court reformed the lease to provide for an adjustment to maximum rent "arrived at by multiplying the said $40,000 by a fraction of which the numerator shall be the [consumer price] index figure for the month of March for each lease year during the term of this Lease and the denominator shall be 124.0." The court held Ramada and LWZ jointly and severally liable for excess back rent, interest, and costs and disbursements of $84,503.49 for the rental years 1989 through 1995.

Ramada and LWZ then moved for summary judgment on their cross-claims. The court concluded that reformation of the lease related back to Ramada's assignment to LWZ and therefore Ramada had not breached its warranties in the assignment. The court reiterated that LWZ was not a good faith purchaser, because it had constructive notice of the mistake at the time of the assignment and concluded that equitable principles precluded LWZ from claiming reliance on Ramada's warranty. The court thus held that LWZ was liable for the excess back rent. LWZ and Ramada appealed from the final judgment.

II

We review this appeal under our summary judgment standards. Summary judgment is a procedural method for promptly disposing of a lawsuit without a trial if, after viewing the evidence in the light most favorable to the party against whom it is sought and giving that party the benefit of all favorable inferences, there is no genuine dispute as to either the material facts or the inferences to be drawn from the undisputed facts, or if only a question of law is involved. Diegel v. City of West Fargo, 546 N.W.2d 367, 370 (N.D.1996). See N.D.R.Civ.P. 56. Even if factual disputes exist, summary judgment is proper if the law is such that resolution of those factual disputes will not change the result. Diegel, 546 N.W.2d at 370.

III
A

We initially consider which statute of limitations applies to the Trusts' action to reform the ground lease on the basis of mutual mistake. Because the applicable statute of limitations for a reformation action depends upon the particular statute of each jurisdiction, no general limitation rule for a reformation action has developed. See Annot., What Statute of Limitations Governs Action to Reform Instrument, 36 A.L.R.2d 687 (1954); 66 Am.Jur.2d, Reformation of Instruments § 90 (1973).

The district court ruled that the twenty-year statute of limitations in N.D.C.C. § 28-01-05 applied to this action, because the Trusts sought excess back rent and reformation of the ground lease.

Section 28-01-05, N.D.C.C., provides:

"Actions founded upon title to real estate or to rents or services therefrom--Limitations. No claim for relief, or defense, or counterclaim to an action founded upon the title to real property, or to rents or service out of the same, is effectual unless it appears that the person prosecuting the action or interposing the defense or counterclaim, or under whose title the action is prosecuted or the defense or counterclaim is made, or the ancestor, predecessor, or grantor of such person, was seized or possessed of the premises in question within twenty years before the committing of the act in respect to which such action is prosecuted or such defense or counterclaim is made."

In Nash v. Northwest Land Co., 15 N.D. 566, 108 N.W. 792, 796 (1906), this court held that the predecessor to N.D.C.C. § 28-01-05 did not apply to an equitable claim for redemption against a mortgagee in possession. We observed that our statute was derived from New York, and we followed New York precedent 2 holding that equitable claims were not governed by the predecessor to N.D.C.C. § 28-01-05. 108 N.W. at 795-96. We held that the mortgagors' equitable right to redeem against a mortgagee in continuous possession for more than ten years was barred by the ten-year statute of limitations in the predecessor to N.D.C.C. § 28-01-22. Nash, 108 N.W. at 796.

Reformation is an equitable remedy, Ell v. Ell, 295 N.W.2d 143, 153 (N.D.1980). We hold N.D.C.C. § 28-01-05 is not applicable to the Trusts' equitable claim for reformation. Although the Trusts' claim for excess back rent is arguably a claim for "rents" which is "founded upon the title to real property" within the meaning of N.D.C.C. § 28-01-05, the determination of which statute of limitations governs a particular action depends on the actual nature of the subject matter of the case. Johnson v. Haugland, 303 N.W.2d 533, 538 (N.D.1981). See 54 C.J.S., Limitations of Actions § 32 (1987).

In Johnson, we considered whether the six-year statute of limitations in N.D.C.C. § 28-01-16, or the two-year statute of limitations for malpractice in N.D.C.C. § 28-01-18(3)...

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