United States Court of Appeals

For the Eighth Circuit

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No. 16-4391

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First Dakota National Bank

lllllllllllllllllllll Plaintiff - Appellant

v.

Eco Energy, LLC, a Tennessee limited liability company formerly known as Eco

Energy, Inc.

lllllllllllllllllllll Defendant - Appellee

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Appeal from United States District Court 

for the District of Nebraska - Omaha

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 Submitted: November 16, 2017

 Filed: February 1, 2018 

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Before BENTON, SHEPHERD, and KELLY, Circuit Judges.

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BENTON, Circuit Judge.

First Dakota NationalBank suedEco-Energy, LLC, for breach of contract. The

district court ruled for Eco-Energy. First Dakota appeals. Having jurisdiction under

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28 U.S.C. § 1291, this court affirms.

The Honorable John M. Gerrard, United States District Judge for the District 1

of Nebraska.
I.

Eco-Energy contracted with Nedak Ethanol, LLC. Under a Marketing

Contract, Eco-Energy promised to buy all Nedak’s ethanol and to transport it by

railcar. Eco-Energy leased the railcars from a railcar company under a Car Service

Agreement. Nedak promised to sublease the railcars from Eco-Energy if the

Marketing Contract were terminated for any reason.

The next year, Nedak assigned its rights under the Marketing Contract and the

Sublease to its lead lender, AgCountry Farm Credit Services, FLCA. Eco-Energy

consented to the Assignment, agreeing “to give [AgCountry] prompt written notice

of any default under the Assigned Documents and to allow [AgCountry] a reasonable

period of time to cure any such defaults . . . .” 

About three years later, the parties terminated the Marketing Contract. As

promised, Nedak subleased the railcars from Eco-Energy. Nedak eventually

defaulted. Eco-Energy notified Nedak—but not AgCountry—of the default. EcoEnergy terminated the Sublease, ended Nedak’s use of the railcars, and denied

Nedak’s attempt to cure.

First Dakota National Bank owned an interest in the loan from AgCountry to

Nedak. First Dakota later acquired the contractual rights of AgCountry and Nedak

against Eco-Energy. First Dakota sued, claiming Eco-Energy terminated the Sublease

without giving (1) Nedak notice and a sufficient opportunity to cure, and (2)

AgCountry notice and an opportunity to cure Nedak’s default.

First Dakota and Eco-Energy both moved for summary judgment. The district

court granted Eco-Energy’s motion in part, ruling that Eco-Energy did not breach the

Sublease. The court ruled that the Sublease did not require Eco-Energy to give Nedak

notice and opportunity to cure. The court also ruled that Eco-Energy did breach the

Assignment. It reasoned that the Assignment required Eco-Energy to give AgCountry

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notice and opportunity before terminating the Sublease, because it was an “Assigned

Document.” But, according to the district court, “issues of fact remain regarding

causation which preclude summary judgment for either party” on the Assignment

claim.

The bench trialfocused on whether Eco-Energy’s breach caused damages. The

key dispute: Would AgCountry have cured if Eco-Energy had given it notice and

opportunity? According to First Dakota, curing would have been “the only

reasonable choice.” Eco-Energy countered that AgCountry would not have cured

because, for example, AgCountry had frozen Nedak’s accounts and kept them frozen

“even after discovering that Nedak had defaulted on its sublease and was in jeopardy

of losing its railcars.” The district court found that First Dakota had not “proven that

AgCountry would have exercised its right to cure Nedak’s default had it received

proper notice and opportunity.”

II.

First Dakota argues the district court erred in granting partial summary

judgment for Eco-Energy. According to First Dakota, although the Sublease by itself

does not require notice and opportunity, it incorporatesthisrequirement from the Car

Service Agreement. This court reviews de novo the district court’s interpretation of

a contract and its grant of summary judgment. Anderson v. Hess Corp., 649 F.3d

891, 896 (8th Cir. 2011). 

Under the Tennessee law that governs the Sublease, a “cardinal rule of

contractual interpretation is to ascertain and give effect to the intent of the parties.” 

Dick Broad. Co., Inc. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 659 (Tenn. 2013). 

“The literal meaning of the contract language controls if the language is clear and

unambiguous.” Id. “Where a written contract refersto another instrument and makes

the terms and conditions of such other instrument a part of it, the two will be

construed together as the agreement of the parties.” McCall v. Towne Square, Inc.,

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503 S.W.2d 180, 183 (Tenn. 1973). See Roger Miller Music v. Sony/ATV Publ’g,

477 F.3d 383, 392 (6th Cir. 2007) (“[U]nder Tennessee law, a writing may be

incorporated by reference into a written contract.”).

Section 4.07 of the Car Service Agreement provides the time-frame for notice

and opportunity:

If [] Lessee defaults . . . and any such default continues for fifteen (15)

days after Lessor shall have mailed written notice to Lessee . . . then

Lessor shall have the right . . . to . . . terminate this Agreement . . . .

First Dakota primarily relies on section 5 of the Sublease in arguing that the

Sublease incorporates section 4.07’s notice-and-opportunity provision. Section 5

says, “NEDAK . . . agrees and confirms that it shall be bound by all of the terms of

and assumes all of the duties and obligations of Eco under the Car Service Agreement

. . . except as specifically provided herein.”

Section 5 clearly and unambiguously does not incorporate section 4.07’s

notice-and-opportunity provision. Section 5 says that Nedak is bound by all of the

terms of, and assumes all duties and obligations of the lessee under, the Car Service

Agreement. It does not say that Eco-Energy is bound by all of the terms of, or

assumes the duties and obligations of the lessor under, the Car Service Agreement. 

Thus, the Sublease incorporates only those terms that bind the lessee, or that impose

a duty or obligation on the lessee. The notice-and-opportunity provision binds or

imposes a duty or obligation on the lessor: to provide written notice and wait 15 days

before terminating for the lessee’s default. 

First Dakota argues that the notice-and-opportunity provision is part of the

lessee’s duties and obligations, because it modifiesthem. The notice-and-opportunity

provision, by requiring notice and opportunity only if lessee “defaults”—i.e., fails to

perform one of its duties—clearly and unambiguously does not modify the lessee’s

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duties. See Childress v. Sullivan County Bd. of Educ., 771 S.W.2d 411, 416 (Tenn

Ct. App. 1988) (“Default has been defined as ‘the omission or failure to perform a

legal or contractual duty.’”), quoting “default,” Black’s Law Dictionary 376 (5th ed.

1979); “default,” Black’s Law Dictionary 480 (9th ed. 2004) (unchanged since 5th

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edition). See also Carter v. Bell, 279 S.W.3d 560, 570 (Tenn. 2009) (“Recently, this

Court specifically identified Black’s Law Dictionary as an authoritative information

source.”).

First Dakota emphasizes that Nedak is “bound by all of the terms of” the Car

Service Agreement. True, the notice-and-opportunity provision is a “termof” the Car

Service Agreement. But Nedak is not “bound” by a term that imposes no duty or

obligation on it. See “bound,” Black’s Law Dictionary 210 (9th ed. 2004)

(“Constrained by a contractual or other obligation”).

First Dakota also argues that, if read as a whole, the Sublease incorporates the

entire Car Service Agreement. In addition to section 5 discussed above, First Dakota

relies on the following statement in the Sublease: “WHEREAS, Eco has leased the

railcars . . . from [a railcar company] pursuant to a railcar lease agreement (‘Car

Service Agreement’) . . . attached hereto as Exhibit 2 . . . .” 

Contracting parties can incorporate an entire agreement by, for example,

referring to an attached agreement and saying its “terms” are incorporated without

specifying the terms, or saying “both parties” are bound by its terms. See Staubach

Retail Servs.-Se., LLC v. H.G. HillRealty Co., 160 S.W.3d 521, 523-25 (Tenn. 2005)

(agreement incorporated all terms of a brokerage agreement by stating “[t]he terms

and provisions of that certain Brokerage Agreement, an unexecuted photocopy of

which is attached hereto . . . and incorporated by reference, are incorporated into

The ninth edition was current when the parties entered into the Sublease. See

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State v. Edmondson, 231 S.W.3d 925, 928 n.3 (Tenn. 2007) (using the edition that

was current when the relevant statute was enacted).

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this Lease and made a part hereof” (emphasis in original)); Roger Miller, 477 F.3d

at 393 (agreement incorporated all terms of Exhibit A, even those not addressing

royalties, by stating that “the signing of separate [Exhibit A] agreements is hereby

waived, and the terms and conditions as to royalties and the payment thereof shall be

deemed part of the main agreement,” where previous agreements calling for the

execution of Exhibit A agreements stated “both [parties] are to be bound by the

terms, covenants, and conditions of [the Exhibit A agreement] as if herein fully set

forth” (emphasis added)). The Sublease attaches a copy of the Car Service

Agreement, acknowledges its existence and relevance, but says Nedak—not EcoEnergy—is bound by its terms. This clearly and unambiguously does not incorporate

the entire Car Service Agreement.

First Dakota argues that the parties’ conduct shows intent to incorporate all

terms of the Car Service Agreement. “[T]he parol evidence rule does not prohibit the

court from considering . . . the construction placed upon the contract by the parties

in carrying it out.” Adkins v. Bluegrass Estates, Inc., 360 S.W.3d 404, 412 (Tenn.

Ct. App. 2011). 

The district court found that the parties’ conduct incorporated the “Abatement

of Rental” section of the Car Service Agreement. But, as the court correctly

reasoned, incorporation of this section, part of the lessee’s rental duty, does not

suggest that all terms were incorporated. Eco-Energy also testified that Nedak would

get the benefit of any “mileage credits” from a railroad. But the testimony is

hypothetical. There had been no mileage credits, and none were expected. This is

not evidence of the parties’ construction “in carrying [the Sublease] out.” In any

event, the testimony relied on standard invoicing practice, not anything in the Car

Service Agreement.

The district court did not err in granting partial summary judgment for EcoEnergy.

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III.

First Dakota asserts that after trial, the district court erred in denying its claim

for breach of the Assignment. It argues the court applied the wrong legal standard on

causation. Under the North Dakota law that governs the Collateral Assignment, an

essential element of a breach-of-contract claim is “damages which flow from the

breach.” WFND, LLC v. Fargo Marc, LLC, 730 N.W.2d 841, 848 (N.D. 2007). The

district court found no causation because AgCountry, if given notice, would not have

cured the default. First Dakota believesthe proper standard is objective, asking what

a reasonable lender would have done. “After a bench trial, this court reviews a

district court’s . . . legal conclusions de novo.” IPSCO Tubulars, Inc. v. Ajax

TOCCO Magnathermic Corp., 779 F.3d 744, 747 (8th Cir. 2015).

First Dakota relies on section 32-03-09 of the North Dakota Code:

For the breach of an obligation arising from contract, the measure of

damages, except when otherwise expressly provided by the laws of this

state, is the amount which will compensate the party aggrieved for all

the detriment proximately caused thereby or which in the ordinary

course of things would be likely to result therefrom. No damages can

be recovered for a breach of contract if they are not clearly ascertainable

in both their nature and origin.

According to First Dakota, it is entitled to damages either proximately caused

by the breach “or which in the ordinary course of things would be likely to result

therefrom.” First Dakota argues that although AgCountry may not have cured if

given notice and opportunity, “in the ordinary course” a reasonable lender would

have.

Section 32-03-09 “is, in effect, the adoption of the common law rule.” Vallejo

v. Jamestown Coll., 244 N.W.2d 753, 758 (N.D. 1976), citing Hayes v. Cooley, 100

N.W. 250 (N.D. 1904). It codifies one standard of proximate causation. See Jalbert

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v. Eagle Rigid Spans, Inc., 891 N.W.2d 135, 141 (N.D. 2017) (“Under N.D.C.C. §

32-03-09, the measure of damages for breach of contract is the amount which will

compensate the party aggrieved for all the detriment proximately caused thereby.”

(internal quotation marks omitted)). This standard requires asking what “actually”

would have happened. See Vallejo, 244 N.W.2d at 759 (“The injured person is

limited to the loss actually suffered by reason of the breach. He is not to be put in a

better position by a recovery of damages than he would have been if there had been

performance.”). The North Dakota Supreme Court has explained that the reference

to the “ordinary course of things” codifies the rule in Hadley v. Baxendale, limiting

damages to those “arising naturally, i. e., according to the usual course of things,

from such breach of contract itself, or such as may reasonably be supposed to have

been in the contemplation of both parties at the time they made the contract, as the

probable result of the breach of it.” Hayes, 100 N.W. at 251 (emphasis added),

quoting Hadley v. Baxendale, 156 Eng. Rep. 145, 151 (1854) and citing Griffin v.

Colver, 16 N.Y. 489, 494-95 (1858). See Vallejo, 244 N.W.2d at 758-59 (approving

Hayes). The district court did not err in asking what AgCountry would have done. 

What a reasonable lender would have done may be relevant, but not determinative.

True, an objective standard governs some contract-law questions. See, e.g.,

Moen v. Meidinger, 583 N.W.2d 634, 636 (N.D. 1998) (“The parties’ mutual assent

to a contract is determined by their objective manifestations of contractual assent.”);

Dan Nelson Const., Inc. v. Nodland & Dickson, 608 N.W.2d 267, 275 (N.D. 2000)

(“[C]ourts construing changed conditions clauses apply an objective, reasonable

person standard, in which a court places itself into the shoes of a reasonable and

prudent contractor to decide how such a contractor would act . . . .” (internal

quotation marks omitted)). First Dakota advocates a reasonable-lender rule here,

claiming the subjective inquiry is “speculative.” North Dakota has not adopted this

rule. 

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First Dakota emphasizes O’Neil v. Continental Bank, N.A., 662 N.E.2d 489,

496 (Ill. App. Ct. 1996), and section 245 of the Restatement (Second) of Contracts. 

In O’Neil, the court held that where causation depends on how a judge would have

ruled, “[w]hat the reasonable bankruptcy judge ‘should have done’ is the proper

causation question . . . .” 662 N.E.2d at 496. Here, the decision-maker is a lender,

not a judge. See Cogswell v. CitiFinancial Mortg. Co., Inc., 624 F.3d 395, 401 (7th

Cir. 2010) (describing O’Neil as a “special rule in breach-of-contract claims where

the asserted damage is caused by an adverse outcome of a judicial proceeding”). 

Section 245 says, “Where a party’s breach by non-performance contributes

materially to the non-occurrence of a condition of one of his duties, the nonoccurrence is excused.” Comment b explains that “it is not necessary to show that

[the condition] would have occurred but for” the breach. First Dakota applies section

245 to this case, arguing Eco-Energy’s non-performance—not giving AgCountry

notice and opportunity—“contributed materially” to a non-occurrence—no cure by

AgCountry. But section 245 addresses whether there is a breach, not whether a

breach caused damages. See Cogswell, 624 F.3d at 401 n.3 (“[Section 245] addresses

causation in the context of determining when a party’s failure to perform a condition

means the party has breached its contract. . . . In this case, by contrast, we are

confronted with the ultimate question of whether a defendant’s breach caused the

plaintiff’s damages.” (internal citations omitted)). Even if O’Neil and section 245

were North Dakota law, the district court did not err.

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The judgment is affirmed.

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