United States Court of Appeals

For the Eighth Circuit

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No. 12-3308

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Commercial Resource Group, LLC

lllllllllllllllllllll Plaintiff - Appellant

v.

The J.M. Smucker Company

lllllllllllllllllllll Defendant - Appellee

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 Appeal from United States District Court 

for the District of North Dakota - Fargo

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 Submitted: October 23, 2013

 Filed: May 30, 2014 (Corrected: 06/25/2014)

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Before RILEY, Chief Judge, COLLOTON, and KELLY, Circuit Judges.

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KELLY, Circuit Judge.

J.M. Smucker Co.(“Smucker”) leased a commercial building fromCommercial

Resource Group (“CRG”). The lease provided that, after its initial term, it would

automatically renew unless Smucker provided written notice of its intent to terminate

the lease 180 days prior to the end of the current term. Smucker sent a termination

notice to CRG that arrived after the deadline. CRG refused to accept the notice and

filed suit in federal court based on diversity jurisdiction to recover rent for the
additional term. The district court found that because Smucker had substantially

performed its lease obligations, it would be unconscionable to hold Smucker to the

renewal. CRG appeals. With jurisdiction under 28 U.S.C. § 1291, we reverse.

I. Background

In March 2001, Smucker leased a commercial building in West Fargo, North

Dakota, from CRG. The parties negotiated an amendment to the lease in 2005. The

amendment provided that the lease would continue for an initial two-year term, and

it gave Smucker an option to renew the lease for up to four additional one-year terms. 

After the initial term, the lease wasset to renew automatically on July 1st of each year

unless Smucker provided CRG written notice of its intent to terminate 180 days prior,

i.e., by January 1st. The original lease specified the address to which the written

notice should be sent (“original address”). On September 15, 2006, CRG’s

management company informed Smucker of CRG’s change of address and notified

Smucker that “all future rent payments and lease correspondence” should be sent to

the new address (“2006 address”). Smucker received this notice and began sending

rent payments to the new address. The lease was not modified to reflect the change

of address.

In late 2009, Smucker decided to close down its West Fargo facility. On

December 22, 2009, Smucker sent a notice of termination to CRG by way of Federal

Express (“FedEx”); however, Smucker sent the notice to the original address instead

of the 2006 address. On December 23, 2009, Smucker received an email from FedEx

stating “FedEx attempted, but was unable to complete delivery [of the December 22,

2009, notice].” FedEx “[r]ecommended” that Smucker “[c]ontact [FedEx] to provide

correct delivery address and/or additional delivery information.” Smucker took no

action. FedEx sent a second email a week later, on December 30, 2009. The second

email stated, “FedEx attempted, but was unable to complete delivery.” This email

instructed that “[n]o action is required” because “[t]he package is being returned to

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the shipper.” Smucker took no additional action prior to the January 1st deadline for

terminating the lease.

After the deadline passed, Smucker sent a second termination notice to CRG,

this time to the 2006 address. The notice was dated January 4, 2010, and it arrived

on January 5, 2010. This second notice stated Smucker wanted to terminate the lease. 

It also explained that Smucker had sent a timely termination notice to the original

address, but that notice had been returned “as undeliverable.” The parties disagree

as to whether this second notice effectively terminated the lease.

The district court found that Smucker had substantially performed the contract

and should not be held responsible for a “minor delay” that was the result of “an

honest mistake in mailing.” The court emphasized that Smucker “made a good faith

attempt” and “acted promptly to correct [its mistake].” As such, the district court held

that “[t]o punish Smucker in the form of hundreds of thousands of dollars . . . would

be an unconscionable result . . . especially where time was not of the essence to the

contract and where the untimely notice did not result in any demonstrable injury to

CRG.” Therefore, the district court granted Smucker summary judgment on the basis

of substantial performance.

II. Discussion

We review the district court’s grant of summary judgment de novo, giving the

“nonmoving party the benefit of all relevant inferences.” Nelson v. Corr. Med.

Servs., 583 F.3d 522, 527 (8th Cir. 2009) (en banc) (quotation omitted). The parties

agree that the lease was to renew automatically unless Smucker provided written

notice to CRG of its intent to terminate the lease by January 1, 2010. There is also

no dispute that Smucker’s notice failed to arrive by that date. Rather, at issue in this

case is whether the district court erred by: (1) failing to treat the lease cancellation

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provision as an option to terminate; and (2) allowing Smucker equitable relief despite

failure to strictly comply with the terms of the option. 

A. Option to Terminate the Lease

The district court treated the lease cancellation provision as a standard contract

provision and found that: (1) Smucker had substantially performed its obligations

under the lease; and (2) time was not of the essence to the lease. CRG claims the

lease cancellation provision was an option to terminate the lease and assuch required

strict compliance, including strict compliance with the time provisions.

As a case brought under diversity jurisdiction, the district court applied North

Dakota law. See, e.g., Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.,

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559 U.S. 393, 417 (2010) (Stevens, J., concurring) (“It is a long-recognized principle

that federal courts sitting in diversity apply state substantive law . . . .” (quotation

omitted)). Under North Dakota law, a lease is a contract between two parties, and

“[t]he rules of contract construction are . . . applied to leases.” Langer v.

Bartholomay, 745 N.W.2d 649, 655 (N.D. 2008); Kolling v. Goodyear Tire & Rubber

Co., 272 N.W.2d 54, 60 (N.D. 1978) (“[T]he rules of construction relating to

contracts generally apply to the construction of leases.”). As with other contracts,

“[w]hether or not a [lease] requires performance at the exact time specified in the

[lease] depends on whether or not time is of the essence.” Langer, 745 N.W.2d at

657. “[U]nless the intent that time is of the essence is manifest from the face of the

[lease], whether the parties intended time to be of the essence is a question of fact.” 

Id. “Where time is not of the essence, [i.e., is non-material,] a reasonable delay in

performance does not constitute a breach of contract.” Id. Instead, under the doctrine

of “substantial performance,” a party is relieved of exact compliance with the terms

We note the lease also contains a specific choice-of-law provision in which 1

the parties chose North Dakota law to govern this dispute.

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of a lease if the breach of the lease terms is non-material. See VND, LLC v. Leevers

Foods, Inc., 672 N.W.2d 445, 449, 453 (N.D. 2003) (citing Restatement (Second) of

Contracts § 241 (1977) and Kolling, 272 N.W.2d at 60); see also Restatement

(Second) of Contracts §§ 241 & cmt. b, 237 & cmt. d. In this case, the district court

held that time was not of the essence to the contract, and therefore Smucker’s slight

delay was not a material breach.

However, option contracts are treated differently than regular contracts. 

Langer, 745 N.W.2d at 657. An option is an irrevocable offer by the offeror to

perform. Matrix Props. Corp. v. TAG Invs., 609 N.W.2d 737, 742 (N.D. 2000). See

generally Restatement (Second) of Contracts § 25. “Courts generally construe the

attempt to exercise an option strictly and require exact compliance because the

optionee is free to exercise the option if he chooses, but an optionor is bound to

perform if the option is properly exercised.” Langer, 745 N.W.2d at 657–58. “As a

matter of law . . . time [is] of the essence” in exercising an option contract. Id. at 658. 

“[T]he optionee must perform the terms of the option within the specified time and

upon the terms and conditions provided in the agreement.” Id. at 657. North Dakota

applies the same rules to an option in a lease as to an option to buy property, whether

for an option to renew a lease or an option to terminate. Id. at 657–58.

The lease in this case contained an option to terminate, not simply a lease

cancellation provision. While the original lease provided an option to renew the lease

for up to three years, the amendment to the lease made renewal automatic and

termination optional. The amendment reads:

[T]his Commercial lease shall be automatically extended for four (4)

successive one-year periods, unless Tenant delivers written notice to

Landlord of Tenant’s intention to not extend the term for said additional

period, said notice to be delivered no later than 180 days prior to the

expiration of an option term.

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Through the provision for automatic extensions, CRG, the lessor, made an irrevocable

offer to extend the lease and no longer had the ability to terminate the lease at the end

of the current term—the lease would automatically renew based solely on the actions

of the lessee, Smucker. The lease could only be cancelled by Smucker, and only if

Smucker provided written notice to CRG by a specified date. As a result, after the

amendment, Smucker held an option to terminate the lease. 

As an option to terminate the lease, the cancellation provision must be “strictly

construed” and “require[s] exact compliance.” Langer, 745 N.W.2d at 658. Also, “as

a matter of law . . . time [is] of the essence” to the option. Id. Given the significant

differences between a standard lease cancellation provision and an option to

terminate, we find the district court erred in failing to treat the cancellation provision

in this case as an option to terminate.

B. Equitable Relief

In finding that Smucker had substantially performed its contract, the district

court essentially found all the factors relevant to equitable relief for failure to timely

exercise an option. CRG argues that these findings were in error and that equitable

relief should not be granted in this case. In particular, CRG asserts that holding

Smucker to the lease for another year is not unconscionable.

The Supreme Court of North Dakota has twice suggested the possibility that

equitable relief may be available when a party fails to timely exercise an option. See

Langer, 745 N.W.2d at 658–59; Western Tire, Inc. v. Skrede, 307 N.W.2d 558,

562–63 (N.D. 1981)). In Langer, the court recognized that “some courts have

invoked their equitable powers and allowed an option to be exercised when the

requirements for the option have not been met.” 745 N.W.2d at 658. Generally, “[a]

court may invoke its equitable powers and an option may nevertheless be enforced

even if the holder failed to exercise it within the specified time if: (1) the delay is

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slight[;] (2) the delay has not prejudiced the other party[;] and (3) a failure to grant

relief would result in such hardship as to make literal enforcement of the option

unconscionable.” Id. The Supreme Court of North Dakota has also noted, however,

that courts generally limit equitable relief to a very particular situation: “[e]quitable

relief is generally granted in cases where a lessee has made valuable improvements

to the property in expectation of renewing a lease, but the lessee’s notice to renew is

slightly past the deadline, and the relief is necessary to avoid the inequitable

forfeiture or literal compliance is unconscionable.” Id. at 658–59.

While the district court in this case did not explicitly grant equitable relief,

relying instead on the theory of substantial performance, the district court essentially

applied the equitable relief test outlined in Langer. The district court found that

“[u]pon discovery of the mistake, Smucker acted promptly to correct it, which caused

the notice to arrive shortly after the deadline specified in the contract.” The district

court also held that “[t]o punish Smucker in the form of hundreds of thousands of

dollars . . . would be an unconscionable result . . . especially . . . where the untimely

notice did not result in any demonstrable injury to CRG.” Thus, the district court

found that (1) the delay was slight (the notice arrived “shortly after”); (2) the delay

did not prejudice CRG (no “demonstrable injury”); and (3) enforcement of the lease

would be unconscionable (“would be an unconscionable result”).

Assuming without deciding that equitable relief is an available remedy in this

case, we find there is no showing of unconscionability upon enforcement of the

lease. In North Dakota, “[t]he determination whether a particular contractual

2

It is an open question whether North Dakota would allow equitable relief in 2

a case such as this. See Langer, 745 N.W.2d at 658–59 (discussing the possibility of

equitable relief); Western Tire, 307 N.W.2d at 562–63 (denying equitable relief). It

is also an open question whether North Dakota would require a showing of both

procedural and substantive unconscionability in this context. See, e.g., Rutherford

v. BNSF Ry. Co., 765 N.W.2d 705, 713–15 (N.D. 2009) (requiring a showing of both

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provision is unconscionable is a question of law for the court.” Strand v. U.S. Bank

Nat’l Ass’n ND, 693 N.W.2d 918, 921 (N.D. 2005). We conclude, as a matter of law,

that the harm suffered by Smucker is not so great as to rise to the level of substantive

unconscionability. There is no evidence that Smucker was at risk of losing anything

other than one year’s rent if the lease were enforced. See Langer, 745 N.W.2d at 658. 

In addition, there has been no showing that payment of one year’s rent, in and of

itself, constitutes a forfeiture or otherwise unconscionable result. Indeed,in exchange

for the rent paid, Smucker received the lease to, and thus the use of, the building for

an additional year. On this record, there is insufficient evidence to conclude as a

matter of law that enforcing the terms of the lease against Smucker will cause

Smucker “such hardship as to make literal enforcement of the option

unconscionable.” Id.

III. Conclusion

For the reasons above, we reverse the district court’s order granting summary

judgment to Smucker and remand for further proceedings consistent with this

opinion.

COLLOTON, Circuit Judge, dissenting.

The question presented on this appeal is whether The J.M. Smucker Company

is entitled to equitable relief from strict enforcement of a lease with Commercial

Resource Group, LLC on a commercial building in West Fargo, North Dakota. 

Smucker intended to terminate the lease on June 30, 2010, but due to what the district

procedural and substantive unconscionability at the time the lease was entered). 

Because we find the lease is not substantively unconscionable, we need not consider

whether it is procedurally unconscionable.

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court described as “an honest mistake in mailing,” Smucker’s notice to terminate

arrived four days after the January 1 deadline set by the lease. Applying North

Dakota law, the district court granted equitable relief, observing that the notice

arrived shortly after the deadline, Commercial Resource Group suffered no

demonstrable injury from the slight delay, and an order requiring Smucker to pay

hundreds of thousands of dollars in back rent and utilities would be an

unconscionable result. The district court’s equitable ruling accords with North

Dakota law and should be affirmed.

We know that North Dakota is likely to allow equitable relief from option

contracts in appropriate cases, because the state supreme court said so in two

decisions. In Western Tire, Inc. v. Skrede, 307 N.W.2d 558 (N.D. 1981), the court

observed that decisions from other jurisdictions have granted equitable relief to

parties who failed timely to exercise an option to renew a lease, where “the delay is

slight, the delay has not prejudiced the landlord, and the failure to grant relief would

result in such hardship to the tenant as to make literal enforcement of the renewal

provision unconscionable.” Id. at 562 (citing Fletcher v. Frisbee, 404 A.2d 1106

(N.H. 1979); L.S. Tellier, Annotation, Effect of Lessee’s Failure or Delay in Giving

Notice Within Specified Time, of Intention to Renew Lease, 44 A.L.R.2d 1359

(1955)). The court in Western Tire rejected a lessee’s claim and distinguished

authorities granting relief, but gave no indication that equitable relief is categorically

unavailable in North Dakota.

In Langer v. Bartholomay, 745 N.W.2d 649 (N.D. 2008), the North Dakota

court said more explicitly that equitable relief is available in appropriate

circumstances:

A court may invoke its equitable powers and an option may nevertheless

be enforced even if the holder failed to exercise it within the specified

time if: (1) the delay is slight, (2) the delay has not prejudiced the other

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party, and (3) a failure to grant relief would result in such hardship as to

make literal enforcement of the option unconscionable.

Id. at 658. The North Dakota court thus followed the analysis of the Corbin treatise

on contracts concerning missed deadlines in option contracts. See 1 Joseph M.

Perillo, Corbin on Contracts § 2.15, at 203 (rev. ed. 1993). “[T]he determination of

the court turns not on a single factor but on balancing the equities between the

parties.” Id. (internal quotation omitted). Equitable relief “is often for the purpose

of avoiding an inequitable forfeiture, but even where no inequitable forfeiture will

occur, specific performance or other appropriate remedy will nevertheless be given

if there has been such reliance on the promise as to make literal compliance with the

option limitation unconscionable.” Id. at 202.

There is no genuine dispute here on the first two elements of Smucker’s claim

for equitable relief under the test outlined in Langer. Smucker’s delay in giving

notice to terminate the lease was slight. The four-day delay did not prejudice

Commercial Resource Group. The dispositive question is whether failure to grant

relief would result in such hardship as to make literal enforcement of the deadline

unconscionable.

What sort of hardship would the North Dakota court consider unconscionable?

The best indication comes from authorities cited by that court in explaining the

equitable rule. When a lessee gives untimely notice to renew a lease, literal

compliance may be unconscionable where the lessee has made “valuable

improvements to the property” that would be lost if the lessee were required to

relocate. Langer, 745 N.W.2d at 658. The loss of a strategic location, associated

goodwill, three pieces of unmovable equipment, and $25,000 in moving costs was

enough to show substantial harm justifying relief. Fletcher, 404 A.2d at 1109 (cited

in Western Tire, 307 N.W.2d at 562). So too was the inability to recoup a lessee’s

full investment in equipment that had been operated for ten years of the fifteen

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required, significant reduction in value of personal property that had to be removed,

and loss of goodwill established over ten years. Trollen v. City of Wabasha, 287

N.W.2d 645, 648 (Minn. 1979) (cited in Langer, 745 N.W.2d at 658). Another

example of unconscionable hardship involved a loss of $142,038 in improvements,

the possible inability to use for tax purposes up to $100,000 in operating losses and

depreciation, and the continuing liability for outstanding loans and mortgages in the

amount of at least $112,000. Aickin v. Ocean View Invs. Co., 935 P.2d 992, 994 n.3

& 1001 (Haw. 1997) (cited in Langer, 745 F.3d at 658). See also Am. Houses, Inc.

v. Schneider, 211 F.2d 881, 883-84 (3d Cir. 1954) ($250,000 in losses, including lost

improvements and moving expenses) (cited in Annotation, 44 A.L.R.2d at 1362); JNA

Realty Corp. v. Cross BayChelsea, Inc., 366 N.E.2d 1313, 1316-18 (N.Y. 1977) (loss

of $55,000 in property improvements and “a considerable amount” of customer good

will) (cited in Fletcher, 404 A.2d at 1109); Galvin v. Simons, 25 A.2d 64, 65-66

(Conn. 1942) ($600 in costs plusinconvenience of moving and inability to find a new

location in the same area) (cited in Annotation, 44 A.L.R.2d at 1364); Xanthakey v.

Hayes, 140 A. 808, 811 (Conn. 1928) (loss of business good will and $4,000 in

improvements) (cited in Annotation, 44 A.L.R.2d at 1364).

The hardship suffered by Smucker measures up to that deemed sufficient to

justify equitable relief in the authorities referenced by the North Dakota Supreme

Court. Under the majority’s approach, Smucker is required to pay $279,450.55 in

rent payments and utility costs on a building for which it has no use. As of December

2009, Smucker notified Commercial Resource Group and others that it would close

the plant in West Fargo and consolidate its operations in one manufacturing facility. 

Production had dropped off and demand no longer justified operating the plant; a

plant in Kentucky could take over all production. Smucker ceased operationsin West

Fargo in April 2010, allowing two months to shut down and disassemble the plant

before the expiration of the lease term in June 2010. Some parts of the building and

its improvements were disassembled and sent to Kentucky. Another fifty to sixty

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pieces of equipment were sold at auction. By June 30, 2010, Smucker had vacated

the building.

Under these circumstances, the district court aptly concluded that to require

Smucker to pay hundreds of thousands of dollars in back rent and utilities—when

CRG suffered no demonstrable prejudice from a slight four-day delay in receipt of

Smucker’s notice to terminate—would be an unconscionable result that justifies

equitable relief under North Dakota law as best it can be discerned. I would affirm

the judgment of the district court.

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