Kohanowski v. Burkhardt

Decision Date25 September 2012
Docket NumberNo. 20110317.,20110317.
Citation821 N.W.2d 740,2012 ND 199
PartiesJon KOHANOWSKI, Plaintiff and Appellee v. Jessica B. BURKHARDT, Defendant and Appellant.
CourtNorth Dakota Supreme Court

OPINION TEXT STARTS HERE

Tyler S. Carlson (argued) and Michael L. Gust (on brief), Fargo, N.D., for plaintiff and appellee.

Jonathan T. Garaas, Fargo, N.D., for defendant and appellant.

SANDSTROM, Justice.

[¶ 1] Jessica Burkhardt appealed from a district court judgment awarding damages to Jon Kohanowski for the unpaid balance of a loan and ordering Burkhardt to pay costs and attorney fees. We reverse, concluding the alleged oral loan agreement was barred by the statute of frauds.

I

[¶ 2] Burkhardt was engaged to marry Shaun Kohanowski, Jon Kohanowski's brother. In 2006, Shaun Kohanowski and Burkhardt were planning to purchase a home. Shaun Kohanowski contacted Jon Kohanowski, who agreed to lend $10,000 to assist in the purchase of the home. Jon Kohanowski alleged that Burkhardt was in the room and overheard Shaun Kohanowski's side of the telephone conversation during which the brothers discussed the loan.

[¶ 3] Jon Kohanowski contends the terms of the loan required Burkhardt and Shaun Kohanowski to repay the $10,000 in 36 monthly payments over a period of three years with interest at the rate of 7.5 percent per annum. Jon Kohanowski testified the monthly payments would be smaller the first year and would increase by $100 each year:

It was over 3 years and so it was—the payments were smaller to begin with and then gradually got bigger.

The payments of 12, 12, 12; $215.00 one year, 315 a month the next year and 415. It was very straightforward.

[¶ 4] Jon Kohanowski wired $675 to Shaun Kohanowski's and Burkhardt's bank to start the appraisal process and sent a check for $9,325 payable to Shaun Kohanowski and Burkhardt. Only Shaun Kohanowski endorsed the check, and he deposited the proceeds into a joint checking account he shared with Burkhardt. In early 2007, Burkhardt signed two checks for $215 each drawn on the joint account and payable to Jon Kohanowski. Burkhardt and Shaun Kohanowski subsequently called off their engagement, and no further payments were made on the loan. In September 2010, Shaun Kohanowski e-mailed a “Letter of Intent” to Jon Kohanowski acknowledging the debt, promising to pay one-half of the remaining debt with interest, and promising to assist Jon Kohanowski in collecting the remaining one-half of the debt from Burkhardt.

[¶ 5] In October 2010, Jon Kohanowski sued Burkhardt in small claims court for one-half of the remaining debt and a portion of the travel costs he had allegedly incurred attempting to collect the debt. Burkhardt removed the action to district court and demanded a jury trial. After a trial, the jury awarded Jon Kohanowski $6,641.29, one-half of the remaining debt plus interest. Burkhardt moved for judgment as a matter of law, a new trial, or relief from the judgment. The district court impliedly denied Burkhardt's motions, instead entering an order awarding Jon Kohanowski costs and attorney fees under N.D.C.C. § 27–08.1–04 in the amount of $5,615.65. Judgment was entered in favor of Jon Kohanowski for $12,256.94.

[¶ 6] The small claims court had jurisdiction under N.D.C.C. § 27–08.1–01. The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27–05–06. The appeal was timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art. VI, §§ 2 and 6, and N.D.C.C. § 28–27–01.

II

[¶ 7] Burkhardt contends the alleged oral agreement is barred by the statute of frauds.

[¶ 8] The relevant statutory provision is N.D.C.C. § 9–06–04(1):

The following contracts are invalid, unless the same or some note or memorandum thereof is in writing and subscribed by the party to be charged, or by the party's agent:

1. An agreement that by its terms is not to be performed within a year from the making thereof.

There is no written note or memorandum of the alleged agreement. Burkhardt therefore contends that the alleged oral agreement specifying 36 monthly installment payments over three years was, by its terms, not to be performed within one year and is barred by N.D.C.C. § 9–06–04(1). Jon Kohanowski contends that because Burkhardt and Shaun Kohanowski could have conceivably paid off the loan within one year, the agreement was capable of being performed within one year and therefore does not fall within the statute of frauds.

[¶ 9] Jon Kohanowski argues that under our caselaw, only oral contracts that are impossible to perform within one year are proscribed by N.D.C.C. § 9–06–04(1). See Thompson v. North Dakota Workers' Comp. Bureau, 490 N.W.2d 248, 251–52 (N.D.1992); Delzer v. United Bank of Bismarck, 459 N.W.2d 752, 754 (N.D.1990); In re Estate of Starcher, 447 N.W.2d 293, 297 (N.D.1989); Bergquist–Walker Real Estate, Inc. v. William Clairmont, Inc., 333 N.W.2d 414, 418 (N.D.1983). In particular, Jon Kohanowski relies upon the following language from Bergquist–Walker, at 418 (citation omitted):

If there is any possibility that an oral contract is capable of being completed within one year, the contract is not within the statute of frauds even though it is clear that the parties may have intended and thought it probable that the contract would extend over a longer period, and even though the contract does so extend. Thus the contract must be impossible of performance within one year if it is to be proscribed by the statute.

See also Delzer, at 754. Thus, in Bergquist–Walker, at 418, the Court held that an oral contract giving a real estate agent the exclusive right to sell certain lands could possibly have been completed within one year and was not barred under N.D.C.C. § 9–06–04(1). Similarly, the Court held in Delzer, at 754, that an oral agreement for a line of credit for the purchase of cattle could possibly be completed within one year and was not barred by N.D.C.C. § 9–06–04(1), because there was a possibility, [h]owever unlikely,” that “the Delzers would obtain the money, purchase livestock, and then sell either assets or the cattle to repay the full amount of the loan within one year.”

[¶ 10] Later cases applying N.D.C.C. § 9–06–04(1) have more carefully emphasized the precise language of the statute and have stressed that the statute applies to any oral contract that by its terms is not to be performed within one year. See Knudson v. Kyllo, 2012 ND 155, ¶ 16, 819 N.W.2d 511 (oral agreement allocating partnership's leased farmland for “each year” after the effective date of the agreement could not be performed within one year [u]nder those terms”); Rickert v. Dakota Sanitation Plus, Inc., 2012 ND 37, ¶ 10, 812 N.W.2d 413 (N.D.C.C. § 9–06–04(1) “applies to any contract which by its express terms cannot be fully performed within one year”); First State Bank of Goodrich v. Oster, 500 N.W.2d 593, 597 (N.D.1993) (oral agreement to loan funds to purchase cattle each year for three years “is an agreement which by its express terms is not to be performed within one year”). This Court in Oster, at 596–97, expressly distinguished Delzer, noting that it was not impossible in that case to fully perform the line of credit agreement within one year “under the terms of the agreement.”

[¶ 11] The language of N.D.C.C. § 9–06–04(1) is clear and unambiguous and applies to an agreement that “by its terms is not to be performed within a year.” Bergquist–Walker and Delzer both involved broad, open-ended agreements that did not include express terms specifying a time of performance. Thus, the agreements in those cases were capable of being performed within one year under the express terms of the agreements. When an oral agreement includes express terms setting specific times for performance extending beyond one year from the date of the agreement, however, it is not an agreement capable of being performed “by its terms” within one year, and it is barred by the statute of frauds. See Knudson, 2012 ND 155, ¶ 16, 819 N.W.2d 511;Rickert, 2012 ND 37, ¶ 10, 812 N.W.2d 413;Oster, 500 N.W.2d at 597.

[¶ 12] This interpretation of N.D.C.C. § 9–06–04(1) is consistent with the well-settled general rule that an alleged oral agreement to pay money in installments for a period extending longer than one year, and which does not include express terms governing prepayment, is barred by the statute of frauds. See, e.g., Learning Works, Inc. v. The Learning Annex, Inc., 830 F.2d 541, 544 (4th Cir.1987) (applying Maryland law); Rochester Civic Theatre, Inc. v. Ramsay, 368 F.2d 748, 755 (8th Cir.1966) (applying Minnesota law); Goldstein v. Abco Constr. Co., Inc., 334 So.2d 281, 282 (Fla.Dist.Ct.App.1976); Rose v. Mavrakis, 343 Ill.App.3d 1086, 278 Ill.Dec. 751, 799 N.E.2d 469, 476 (2003); Wallem v. CLS Indus., Inc., 725 N.E.2d 880, 887 (Ind.Ct.App.2000); Sawyer v. Mills, 295 S.W.3d 79, 84–86 (Ky.2009); Pritsker v. Soyferman, 275 A.D.2d 738, 713 N.Y.S.2d 213 (2000); A. Aversa Brokerage, Inc. v. Honig Ins. Agency, Inc., 249 A.D.2d 345, 671 N.Y.S.2d 135, 136 (1998); Sherman v. Haines, 73 Ohio St.3d 125, 652 N.E.2d 698, 700–01 (1995); Lectus, Inc. v. Rainier Nat'l Bank, 97 Wash.2d 584, 647 P.2d 1001, 1003 (1982); 4 Caroline N. Brown, Corbin on Contracts § 19.1 (rev. ed.1997); 9 Richard A. Lord, Williston on Contracts § 24.4 (4th ed.2011); 72 Am.Jur.2d Statute of Frauds § 23 (2012); 37 C.J.S. Frauds, Statute of § 55 (2008). The Supreme Court of Ohio summarized the general rule in Sherman, at 700:

Appellees argue, and the court of appeals held, that the oral agreement in this case could possibly have been performed within one year because appellant could have paid the entire $3,000 within a year, thus placing the agreementoutside the “not to be performed within one year” provision of R.C. 1335.05.

This position, however, is contrary to the great weight of authority. Most courts that have been confronted with oral agreements to pay money in installments over a period of time in excess of one year, the terms of which either...

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