Truhe v. Turnac Group, L.L.C.

• Decision Date: 27 April 1999
• Docket Number: No. 20631,20631
• Citation: 1999 SD 118,599 N.W.2d 378
• Parties: Marvin D. TRUHE, Plaintiff and Appellee, v. The TURNAC GROUP, L.L.C., a South Dakota Limited Liability Company, Defendant and Appellant. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 378

599 N.W.2d 378

1999 SD 118

Marvin D. TRUHE, Plaintiff and Appellee, v. The TURNAC GROUP, L.L.C., a South Dakota Limited Liability Company, Defendant and Appellant.

No. 20631.

Supreme Court of South Dakota.

Considered on Briefs April 27, 1999.

Decided Sept. 1, 1999.

Edward C. Carpenter and Heather M. Lammers of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter, Rapid City, South Dakota, Attorneys for plaintiff and appellee.

John K. Nooney and Penny Tibke Platnick of Morrill Thomas Nooney & Braun, LLP, Rapid City, South Dakota, Attorneys for defendant and appellant.

LOVRIEN, Circuit Judge.

¶1 This case concerns a dispute between Marvin Truhe (Tenant) and Turnac Group (Landlord), regarding a written contract allowing Tenant to lease space in a building owned by Landlord. The parties later orally agreed to cancel the lease despite a provision in the lease which required all modifications to the lease be in writing. The trial court found that despite this clause, the oral agreement effectively operated to cancel the lease. Landlord appeals and we affirm.

FACTS

¶2 In 1988, Tenant began leasing office space in the First National Bank Building, in Rapid City, South Dakota. Tenant is an attorney in Rapid City and his rented office space occupied approximately 2,300 square feet, known as Suite 508. Landlord purchased the building in the fall of 1995. After the purchase, the parties began negotiating a different lease than the one Tenant had been operating under with the previous owners.

¶3 The lease negotiations occurred between Tenant and Dr. John Sabow, Landlord's principal owner, acting as agent for the company. On January 10, 1996, a new lease was signed and it is this lease which is the subject of this litigation. The lease contained the following provisions:

28. Miscellaneous.

(b) All of the agreements of landlord and tenant, whether written or oral, with respect to the premises are contained in this lease, and no modification of this lease or any of its conditions or provisions shall be binding upon landlord or tenant unless in writing signed by the party sought to be charged.

¶4 In February 1997, four attorneys joined Tenant in his legal practice, creating the need for more space in the law office. Tenant contacted Sabow regarding the possibility of leasing additional office space in the building to accommodate the new attorneys. Simultaneously, Tenant began looking at office space outside the building and was in fact negotiating the lease of space in an adjacent building owned by Black Hills Corporation.

¶5 On March 6, 1997, Sabow and Tenant met to discuss the situation. Sabow indicated that Landlord would be willing to lease additional space to Tenant, but at a rent forty percent higher than the current price Tenant was paying. Tenant replied that this amount was too high, so his group would be leaving the building and he would try to find someone to sublet their current space. ¹ Sabow responded that he would prefer to release Tenant from the remainder of his lease if a replacement tenant could be found at the higher rent amount, rather than let Tenant sublet under the current lease at the lower price. ² The trial court found this exchange to be an oral agreement to surrender and cancel the lease. For purposes of this appeal, neither party now disputes this finding. ³

¶6 Following this oral agreement to terminate the lease between Tenant and Landlord, Tenant entered into a lease with Black Hills Corporation for space in its building. Tenant also attempted to get Sabow to commit to the oral cancellation agreement in writing but Sabow refused to honor the oral agreement, claiming it never occurred.

¶7 In light of Landlord's refusal to honor the cancellation agreement and given the fact that Tenant had already entered into another lease, Tenant decided to try and sublet the space to someone under the current lease and hired a Realtor to find a sublettor. These efforts were not successful. ⁴ Tenant vacated the space on May 2, 1997, and moved his office to the new location in the Black Hills Corporation building.

¶8 Tenant continued to pay rent to Landlord for May and June 1997. In July 1997, Tenant stopped paying rent and brought suit in circuit court against Landlord to determine the obligations of the parties under the contract. Landlord counterclaimed for nonpayment of rents for the period remaining under the lease.

¶9 The matter was tried to the circuit court on April 14, 1998. The trial court ordered the lease to be of no further force or effect and entered judgment in favor of Tenant plus damages of $6,917.47. ⁵ The trial court also dismissed Landlord's counterclaim with prejudice. ⁶

¶10 On appeal, Landlord has raised a number of issues, only one of which we need address:

Could the lease be effectively canceled by an oral agreement when the terms of the lease expressly provided that any amendments, waivers, or modifications must be in writing signed by the party sought to be charged?

STANDARD OF REVIEW

¶11 This matter presents no issue of material fact. Instead, we must decide the legal effect of an oral rescission on a written contract, which is a question of law. Olson v. U.S. Fidelity and Guar. Co., 1996 SD 66, p 6, 549 N.W.2d 199, 200; Colonial Ins. Co. of Cal. v. Lundquist, 539 N.W.2d 871, 873 (S.D.1995). As a question of law, it is fully reviewable on appeal. Lane v. Travelers Indemnity Co., 1997 SD 58, p 12, 563 N.W.2d 423, 425; De Smet Ins. Co. v. Gibson, 1996 SD 102, p 5, 552 N.W.2d 98, 99.

¶12 Under such de novo review, no deference is given to the trial court's conclusions of law. Poppen v. Walker, 520 N.W.2d 238, 241 (S.D.1994); Brown v. Egan Consol. School D. 50-2, 449 N.W.2d 259, 260 (S.D.1989). "On appeal, this court can read a contract itself without a presumption in favor of the trial court's determination." Production Credit Ass'n v. Wynne, 474 N.W.2d 735, 740 (S.D.1991)(quoting Baker v. Wilburn, 456 N.W.2d 304, 306 (S.D.1990) (citations omitted)).

DECISION

¶13 Can a lease be canceled by oral agreement of the parties despite a clause in the contract which requires modifications to the contract be in writing? South Dakota has come close to deciding this issue, but has not quite done so. In Hirsch v. Legeros, 58 S.D. 426, 235 N.W. 361, 362 (1931), we stated, "[t]here may be a cancellation or rescission of a written lease or a surrender of the premises by an oral or implied agreement." In 1983, we permitted oral rescission of a real estate contract when such agreement can be "evidenced by failure of both parties to take action towards enforcement or performance of the contract." Preheim v. Ortman, 331 N.W.2d 62, 64 (S.D.1983).

¶14 More recently, we again permitted extensive oral modification of a written contract in Moe v. John Deere, 516 N.W.2d 332, 336 (S.D.1994). In Moe we referred SDCL 53-8-7, which states: "A contract in writing may be altered by a contract in writing without a new consideration or by an executed oral agreement, and not otherwise."

¶15 In addition, the grounds for legal rescission are found in SDCL 53-11-2, which states:

A party to a contract may rescind the same in the following cases only:

(1) If consent of the party rescinding or of any party jointly contracting with him was given by mistake or obtained through duress, fraud, or undue influence exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party;

(2) If through fault of the party as to whom he rescinds, the consideration for his obligation fails in whole or in part;

(3) If the consideration becomes entirely void from any cause;

(4) If such consideration before it is rendered to him fails in a material respect from any cause; or

(5) By consent of all the other parties.

¶16 Current statutory law allows termination of a lease by oral agreement, as seen in SDCL 43-32-22:

A lease is terminated:

(1) By the expiration of the agreed term;

(2) By the mutual consent of the parties;

(3) By the tenant acquiring a title to the leased premises superior to that of the landlord.

¶17 What has not been decided in South Dakota is the issue presented here, whether such an oral surrender agreement is still sufficient when the written lease has a provision stating that all modifications must be in writing. Thus, this is truly a case of first impression in this state.

¶18 Other states and legal commentators have tackled this issue, and most have decided to allow oral cancellation of written contracts despite contract provisions requiring a writing. Wisconsin has decided as such in a case with a very similar fact scenario. ABC Outdoor Advertising, Inc. v. Dolhun's Marine, Inc., 38 Wis.2d 457, 157 N.W.2d 680 (1968). The parties had entered into a three year written contract to lease a billboard for advertising. About a year into the lease, representatives of each side orally agreed to terminate the lease because the lessee was going out of the business it was advertising. After reaching the agreement, the lessee issued a check for final payment on the contract, but the lessor did not cash the check. Instead, the lessor continued to bill the lessee for monthly rental under the contract.

¶19 The contract in ABC Outdoor contained a written requirement clause, but it was even more strict than the one in the Tenant/Landlord contract here (which merely prevented oral modification, waiver, or amendment, and does not mention cancellation or rescission.) The ABC Outdoor contract read:

This contract can be canceled only by mutual consent, in writing, of the parties hereto, and shall be binding on the heirs, assigns or successors in business of the parties hereto. (emphasis added).

After reviewing several authorities in the area, the Wisconsin Supreme Court concluded that this clause did not stop the parties from entering into a valid oral cancellation agreement. Id. at 685.

¶20 Other courts have also...