Robertson Companies, Inc. v. Kenner

• Decision Date: 23 October 1981
• Docket Number: No. 9953,9953
• Citation: 311 N.W.2d 194
• Parties: 32 UCC Rep.Serv. 387 ROBERTSON COMPANIES, INC., Plaintiff, Appellant and Cross-Appellee, v. Harold KENNER, Defendant, Appellee and Cross-Appellant. Civ.
• Court: North Dakota Supreme Court

Page 194

311 N.W.2d 194

32 UCC Rep.Serv. 387

ROBERTSON COMPANIES, INC., Plaintiff, Appellant and Cross-Appellee, v. Harold KENNER, Defendant, Appellee and Cross-Appellant.

Civ. No. 9953.

Supreme Court of North Dakota.

Oct. 23, 1981.

Dahl, Greenagel & Geiger, Grafton, and Brink, Sobolik, Severson & Vroom, Hallock, Minn., for plaintiff, appellant and cross-appellee; argued by Roger Malm, Hallock, Minn.

Kenner, Halvorson & Sturdevant, Minot, for defendant, appellee and cross-appellant; argued by Harris P. Kenner, Minot.

PEDERSON, Justice.

Three basic questions presented in this case are: (1) was the unrequested remedy of rescission properly granted; (2) does the remedy of rescission preclude allowing damages for lost profits; and (3) was there sufficient evidence to prove lack of substantial performance. In addition, we are asked to determine whether or not the trial court properly granted interest on loss of profits.

We conclude that the unrequested remedy of rescission was properly granted and that rescission and damages are not mutually exclusive remedies under the Uniform Commercial Code. We further conclude that there was sufficient evidence to prove lack of substantial performance of Robertson's obligation, and that interest was properly granted on the award of damages. The judgment is affirmed.

In June, 1977, Robertson Companies, Inc. (Robertson), contracted with Kenner to build two galvanized steel buildings on Kenner's farm. ¹ These new buildings were to be completed for October storage of the 1977 sunflower crop. The contract specified that Kenner was to lay the two concrete slabs for the buildings. The concrete slabs were apparently ready for further construction by the end of July, 1977. In mid-September, 1977, a contractor (Contractor I) hired by Robertson appeared at the Kenner farm to proceed with the construction. Contractor I visually inspected the concrete slabs and concluded that one of the slabs was unfit for immediate construction. Whereupon, Contractor I and his crew departed from the Kenner farm, never to return. The deficiencies in the one slab required only minor repairs and were corrected in a couple of hours. The other slab did not require any repair and was ready for construction when Contractor I first arrived at the Kenner farm.

At the time of the 1977 sunflower harvest, the steel buildings had not been erected. Kenner, accordingly, was forced to use temporary storage facilities which were unfit for long-term storage.

Contractor II arrived at the Kenner farm in October or November, 1977, and began erecting the new buildings. One of the two buildings was partially completed when the work was interrupted by a heavy snowstorm. Contractor II left the Kenner farm to complete another project. He did not return.

Out of the state during the pouring of the slabs and the ensuing events, Kenner returned to North Dakota in mid-November, 1977, to find only one of the two buildings partially completed. Shortly thereafter, Robertson telephoned Kenner to discuss the completion of the buildings. Following the telephone conversation, Robertson sent Contractor III to the Kenner farm to dismantle the partially completed building. The evidence is in dispute as to who wanted the construction halted. The building materials were stored on the Kenner farm for the duration of the winter. Some of the materials were stored in an existing building and the remainder was left outside.

Because the 1977 sunflower crop had to be stored in existing temporary facilities unfit for long-term storage, ² Kenner was forced to market his crop in an unfavorable winter market. It had previously been the practice of Kenner to store some of his crop through the winter in order to take advantage of higher commodity prices in the spring. Kenner marketed 500,000 pounds of sunflowers in a depressed winter market. ³

In May of 1978, Robertson hired Contractor IV to complete the construction of the new buildings. During this construction, Kenner noticed considerable amounts of white rust on the construction material and so informed Robertson by telephone. Kenner also informed Robertson that he would not accept the buildings in their defective condition. Robertson employees visited the Kenner farm to inspect the buildings but took no corrective action. Payment of the unpaid balance on the contract was demanded. Kenner refused to accept the buildings and refused to make the requested payment. There were no further contacts between the two parties until the commencement of this lawsuit on December 8, 1978.

Robertson claims to be entitled to the unpaid balance of the contract purchase price, compensation for dismantling the 1977 partial construction, and other additional erection costs for the work completed in May, 1978. Kenner denys owing anything to Robertson because of the latter's breach of contract. Kenner claims that Robertson's delay in erecting the buildings, resulting in disruption of the marketing of the 1977 sunflower crop, and the furnishing of defective materials resulting in exorbitant future maintenance costs, amounts to a substantial breach of contract. Kenner also counterclaimed for loss of profits because of the early sale of the 1977 sunflower crop.

The suit was tried to the court without a jury. The court found that Robertson had not substantially performed the contract and ordered rescission thereof. Although recission had not been requested by either party, the court based its decision on that part of Rule 54(c), NDRCivP, which provides "every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in his pleading." The court awarded Kenner damages of $12,500 as compensation for losses suffered in the marketing of his sunflower crop during unfavorable conditions in early 1978. This appeal by Robertson followed.

I. RECISSION

The right to rescind a contract is governed by statute. ⁴ A party is entitled to rescind only if he uses reasonable diligence to rescind promptly and to restore to the other party everything of value which was received under the contract. ⁵ This court has held that compliance with these rules is a condition precedent to the maintenance of an action to rescind. Volk v. Volk, 121 N.W.2d 701, 706 (N.D.1963). The rule pertaining to prompt rescission, however, does not operate where legal excuse or justification for delay is shown. Lanz v. Naddy, 82 N.W.2d 809 (N.D.1957).

Robertson contends that Kenner failed to comply with the statutory requirement of prompt rescission. The determination of prompt rescission does not depend alone upon the lapse of time, but also upon the circumstances of each particular case. Lanz v. Naddy, supra. The contractual relationship between Kenner and Robertson extended over a considerable period of time. The contracted-for buildings which could have been built in six days were completed almost one year after the execution of the contract. Upon noticing the white rust on the steel panels, Kenner telephoned Robertson informing the latter that he would not accept buildings in that condition. Kenner's refusal to accept such defective buildings was sufficiently prompt to satisfy the statutory requirements. ⁶ Whether or not notice of rescission is timely is a question of fact. Gimbel v. Kuntz, 286 N.W.2d 501 (N.D.1979). Under these circumstances, the court's findings on this issue are not clearly erroneous. Rule 52(a), NDRCivP.

An additional statutory requirement is that the party seeking to rescind must offer to restore everything of value which he has received under the contract. The defective buildings were the only things of value Kenner received under his contract. Kenner's refusal to complete payment on the contract and his refusal to accept the buildings in such a defective condition constituted a sufficient offer to restore everything of value which he had received under the contract. See Schaff v. Kennelly, 61 N.W.2d 538 (N.D.1953).

Because the remedy of rescission is not held in high esteem by the courts, there must be a substantial breach of contract before there can be a basis for rescission in equity. See Schaff v. Kennelly, supra. Thus, if a builder has substantially performed the contract, then ordinarily the remedy of rescission should not be granted.

The contractor has substantially performed if the owner obtains, on the whole, what is bargained for in the contract. The question of substantial performance in this case is thus determined by the effect of white rust on the new buildings.

The trial court prepared an extensive 20-page memorandum opinion in lieu of findings of fact and conclusions of law. Insofar as findings are included therein and are supported by substantial evidence, they are not clearly erroneous. The court found that Kenner's purpose in acquiring a galvanized steel building was its freedom from maintenance over an extended period. The court further found that the white rust destroyed the maintenance-free characteristic, and therefrom appropriately concluded that there was not substantial performance. Robertson has pointed out no specific finding that we should consider to be clearly erroneous. When only a general attack is made against a decision by a trial court, this court can only give a general review. See Sorenson v. Olson, 235 N.W.2d 892 (N.D.1975), Syllabus 1.

This court has held that where defects pervade the whole building, there can be no recovery on the basis of substantial performance. Braseth v. State Bank of Edinburg, 12 N.D. 486, 98 N.W. 79 (1904). The question of substantial performance is one of fact for the trier of fact. Dittmer v. Nokleberg, 219 N.W.2d 201, 207 (N.D.1974).

Robertson further contends that rescission was improperly granted because the parties could not be restored to the status quo before the contract. Under the particular facts of this case, this argument is without merit. These buildings...