Court Opinion

ID: 8482964
Source: CourtListenerOpinion
Date Created: 2022-11-10 16:07:12.664806+00
Date Added: 2024-06-11T16:49:43.258370
License: Public Domain

FILED
                                                                      IN THE OFFICE OF THE
                                                                   CLERK OF SUPREME COURT
                                                                       NOVEMBER 10, 2022
                                                                    STATE OF NORTH DAKOTA

                  IN THE SUPREME COURT
                  STATE OF NORTH DAKOTA

                                2022 ND 193

Ordahl, LLC,                                          Plaintiff and Appellant
  v.
Arlene Lykken, Bruce Lykken,
Paul Lykken, and Sandra Teske,                     Defendants and Appellees

                                No. 20220115

Appeal from the District Court of Cass County, East Central Judicial District,
the Honorable John C. Irby, Judge.

REVERSED AND REMANDED.

Opinion of the Court by Jensen, Chief Justice.

Kasey D. McNary, Fargo, ND, for plaintiff and appellant.

Andrew D. Cook, West Fargo, ND, for defendants and appellees.
                              Ordahl v. Lykken
                                No. 20220115

Jensen, Chief Justice.

[¶1] Ordahl LLC (“Ordahl”) appeals from a district court order granting
Arlene Lykken, Bruce Lykken, Paul Lykken, and Sandra Teske’s (“the
Lykkens”) motion for summary judgment and denying Ordahl’s motion for
summary judgment. We conclude the court erred in determining the purchase
agreement required Ordahl to terminate the agreement and limited Ordahl to
a recovery of its earnest money. We reverse and remand this case for
consideration of whether Ordahl should prevail on its equitable claim to
enforce the terms of the parties’ agreement through specific performance and,
if necessary, consider the Lykkens’s request for reformation of the agreement.

                                        I

[¶2] Ordahl and the Lykkens executed a purchase agreement for the sale of
12 acres of land and an easement on adjacent property to the north of the
parcel. Under the terms of the purchase agreement, Ordahl was required to
provide a $10,000 earnest money payment.

[¶3] After the purchase agreement was signed, the Lykkens anticipatorily
breached the agreement. Ordahl brought suit seeking a declaratory judgment
declaring that Ordahl’s relief was not limited to the return of its earnest money.
Ordahl claimed it was not required to terminate the parties’ agreement and
was entitled to enforce the terms of the agreement through the equitable
doctrine of specific performance. The Lykkens counterclaimed seeking
reformation of the purchase agreement.

[¶4] Both parties moved for summary judgment. The district court focused on
the interpretation of Section 12 of the parties’ agreement which provides as
follows:

      12. Remedies. If Buyer defaults under this Agreement, Seller shall
      have the right to terminate this Agreement by giving written
      notice thereof to Buyer. If Buyer fails to cure such default within
      thirty (30) days after notice of cancellation, then this Agreement

                                        1
     will terminate, and upon such termination Seller will be entitled
     to receive and retain the Earnest Money as liquidated damages, as
     its sole and exclusive remedy and Buyer expressly waives and
     releases any and all claims for incidental or consequential
     damages, time being of the essence of this Agreement. If Seller
     defaults under this Agreement, Buyer may terminate this
     Agreement and recover the Earnest Money as its sole and exclusive
     remedy and Buyer expressly waives and releases any and all claims
     for incidental or consequential damages.

(Emphasis added.) The court found the phrase “sole and exclusive
remedy” to be unambiguous and held Ordahl was limited to termination
of the agreement and the recovery of its earnest money. The court
granted the Lykkens’s motion for summary judgment and dismissed
Ordahl’s claims. Having dismissed Ordahl’s claims it was unnecessary
for the court to resolve the Lykkens’s counterclaim for reformation.

                                     II

[¶5] The standard for reviewing summary judgment is well established:

     Summary judgment is a procedural device under N.D.R.Civ.P.
     56(c) for promptly resolving a controversy on the merits without a
     trial if there are no genuine issues of material fact or inferences
     that can reasonably be drawn from undisputed facts, or if the only
     issues to be resolved are questions of law. The party seeking
     summary judgment must demonstrate there are no genuine issues
     of material fact and the case is appropriate for judgment as a
     matter of law. In deciding whether the district court appropriately
     granted summary judgment, we view the evidence in the light
     most favorable to the opposing party, giving that party the benefit
     of all favorable inferences which can reasonably be drawn from the
     record. A party opposing a motion for summary judgment cannot
     simply rely on the pleadings or on unsupported conclusory
     allegations. Rather, a party opposing a summary judgment motion
     must present competent admissible evidence by affidavit or other
     comparable means that raises an issue of material fact and must,
     if appropriate, draw the court’s attention to relevant evidence in
     the record raising an issue of material fact. When reasonable
     persons can reach only one conclusion from the evidence, a
     question of fact may become a matter of law for the court to decide.

                                      2
      A district court’s decision on summary judgment is a question of
      law that we review de novo on the record.

Solberg v. McKennett, 2021 ND 44, ¶ 6, 956 N.W.2d 767 (quoting Aftem Lake
Dev., Inc. v. Riverview Homeowners Ass’n, 2020 ND 26, ¶ 8, 938 N.W.2d 159).

[¶6] “Interpretation of a contract is a question of law if the intent of the
parties can be ascertained from the agreement alone.” Airport Inn Enters., Inc.
v. Ramage, 2004 ND 92, ¶ 10, 679 N.W.2d 269. A trial court’s finding regarding
the legal effect of terms of a contract is a question of law, which is fully
reviewable on appeal. Northstar Founders, LLC v. Hayden Capital USA, LLC,
2014 ND 200, ¶ 45, 855 N.W.2d 614. “On appeal, this Court will independently
review a contract to determine whether the district court erred in its
interpretation of it.” Airport Inn, at ¶ 10. “We construe contracts to give effect
to the parties’ mutual intent at the time the contract was formed.” Northstar,
at ¶ 45. If possible, we will look to the language of the contract alone to
determine the parties’ intent. N.D.C.C. § 9-07-04. Words are given their
ordinary and popular meaning unless the words are used in a technical sense
or given a special meaning. Myaer v. Nodak Mut. Ins. Co., 2012 ND 21, ¶ 10,
812 N.W.2d 345. When interpreting a contract, we will read the contract as a
whole to give effect to each provision. N.D.C.C. § 9-07-06. Whether a contract
is ambiguous is a question of law. Northstar, at ¶ 47.

[¶7] We conclude the purchase agreement is clear and unambiguous. The
relevant clause of Section 12 provides: “If Seller defaults under this
Agreement, Buyer may terminate this Agreement and recover the Earnest
Money as its sole and exclusive remedy and Buyer expressly waives and
releases any and all claims for incidental or consequential damages.” The plain
meaning of the terms within Section 12 provide as follows: 1) in the event of a
breach by the Lykkens, Ordahl may choose to terminate the contract, and 2) if
Ordahl chooses to terminate the agreement, Ordahl’s relief is limited to a
recovery of its earnest money.

[¶8] The district court found no ambiguity in the purchase agreement, but
concluded the purchase agreement required Ordahl to terminate the
agreement and limited Ordahl to the return of its earnest money. The court

                                        3
further found the agreement precluded Ordahl from pursuing the equitable
action of specific performance, summarizing as follows: “Ordahl may walk
away from the agreement with or without the recovery of the earnest money.”

[¶9] While we agree the purchase agreement is unambiguous, we conclude
the district court’s interpretation of Section 12 is incorrect. The court ignored
the first clause of the provision which provides Ordahl with the option to
terminate the agreement and, instead, found the phrase “sole and exclusive
remedy” to be determinative, limiting Ordahl to a return of the earnest money.
While the phrase “sole and exclusive remedy” is intended to limit Ordahl’s
recovery if Ordahl were to choose to terminate the agreement, we interpret
contracts as a whole to give effect to each provision. N.D.C.C. § 9-07-06. As
discussed in the following paragraph, giving effect to each provision provides
Ordahl with the choice of whether or not the contract is terminated, followed
by the limitation of the post-termination remedy if termination is chosen by
Ordahl.

[¶10] Before the phrase “sole and exclusive remedy” is the phrase “may
terminate.” The words “may” and “terminate” in the clause are essential to the
interpretation of Section 12. The district court found “[t]he term ‘may’ does not
alter the remaining provisions of the Purchase Agreement” or allow Ordahl the
option not to terminate the agreement. This is contrary to the plain meaning
of the language. “The word ‘may’ is, when used in its ordinary meaning,
permissive rather than compulsory.” Harding v. City of Dickinson, 33 N.W.2d
626, 632 (N.D. 1948). We have held that the use of the word “may” in a
statutory scheme is ordinarily understood as permissive rather than
mandatory. Midthun v. N.D. Workforce Safety & Ins., 2009 ND 22, ¶ 12, 761
N.W.2d 572 (quoting In re Adoption of K.S.H., 442 N.W.2d 417, 420 (N.D.
1989)). We will only construe the word “may” as “must” where the context of
the subject matter compels that construction. Id. at ¶ 13. The context here does
not compel the construction of “may” as mandatory. Giving words their
ordinary and popular meaning, we conclude the term “may” is permissive in
this instance. Myaer, 2012 ND 21, ¶ 10. Ordahl may choose to terminate the
purchase agreement or Ordahl may choose not to terminate the purchase
agreement.

                                       4
[¶11] The district court’s interpretation was premised on the assumption that
Ordahl’s only option was to terminate the contract, seek a legal remedy as
provided in the contract, and that specific performance is precluded because it
is a remedy imposed following the termination of an agreement. We disagree.
Our case law provides that specific performance is used to compel the
performance of the obligations under the agreement, not a remedy following
an early termination of an agreement.

[¶12] In Jonmil, Inc. v. McMerty, 265 N.W.2d 257, 261 (N.D. 1978) we
recognized the plaintiff could not both “cancel the contract and at the same
time sue for its specific performance.” We have also recognized the following
with regard to specific performance:

                  [1] Specific performance is an equitable action, the
            purpose of which is to compel parties to agreements to
            perform what they have contracted to do. 81 C.J.S. Specific
            Performance § 1b, p. 408.

                  [2] The remedy of specific performance is purely
            equitable, and is available to a party who is injured or
            damaged by a breach of an agreement or contract. Though it
            is an equitable action, it is available to enforce agreements
            even though the injured party may have a legal remedy for
            damages, because in many cases an action for damages
            would not afford adequate relief. In such cases, equity
            permits the specific performance of the agreement of the
            parties on the theory that the most just termination of any
            contract is its complete performance by all parties in
            accordance with its terms. When parties enter into an
            agreement, each expects to receive certain benefits
            therefrom, and they never can be fully compensated unless
            such parties perform in accordance with the terms and
            provisions of their agreement.

Larson v. Larson, 129 N.W.2d 566, 567 (N.D. 1964). Recently, we recognized
that specific performance was an equitable action “available to enforce
agreements . . . .” Dale Expl., LLC v. Hiepler, 2018 ND 271, ¶ 9, 920 N.W.2d
750 (quoting Larson, at 567). We have also noted “[s]pecific performance would

                                      5
require the parties to perform their respective contractual promises.” Huber v.
Oliver Cty., 529 N.W.2d 179, 183 (N.D. 1995) (citing 71 Am.Jur.2d. Specific
Performance § 211 (1973)).

[¶13] Because specific performance requires parties to perform their
contractual promises, specific performance is inconsistent with termination of
the agreement. See RESTATEMENT (SECOND) OF CONTRACTS § 378 cmt. d (1981)
(“The remedy of specific performance or an injunction and that of restitution
are also inconsistent.”). See also 18 Wash. Prac., Real Estate § 21.26 (2d ed.)
(2022) (“Forfeiture and specific performance are totally inconsistent remedies,
one supposing the contract to be terminated and the other supposing it to be
subsisting.”). See also 28A C.J.S. Election of Remedies § 15 (2022) (“As a general
rule, a remedy based on the theory of the affirmance of a contract or other
transaction is inconsistent with a remedy arising out of the same facts and
based on the theory of its disaffirmance, or rescission[.]”). Other courts have
similarly held specific performance is distinct from termination of the
agreement. In reviewing a claim for specific performance, the Eastern Division
of the United States District Court of Illinois noted “[t]ermination, like
rescission, extinguishes the parties’ remaining obligations, such that there is
nothing to perform, making specific performance entirely inconsistent with the
self-help termination remedy under the contract.” 12 Corbin on Contracts §
66.9 (2022) (quoting Lone Star-Cardinal Motorcycle Ventures VIII, LLC v. BFC
Worldwide Holdings, Inc., 2016 WL 3671504, *3 (N.D. Ill. 2016)).

[¶14] By seeking specific performance, Ordahl chose not to terminate the
contract, an option consistent with the phrase “may terminate.” Therefore, the
district court’s finding that under the contract Ordahl’s only option was to
terminate the agreement was incorrect. The court’s interpretation would
render meaningless the phrase “may terminate” and require Ordahl, upon a
breach by the Lykkens, to terminate the agreement and recover its earnest
money. The court’s interpretation modifies the phrase from the permissive
“may terminate” to the mandatory “shall terminate.” When reading the entire
phrase as a whole, it is clear Ordahl has the option to terminate the parties’
agreement and, if the agreement is terminated, Ordahl’s legal remedy would
only be limited to return of its earnest money. Alternatively, Ordahl has the

                                        6
option not to terminate the purchase agreement and may instead seek specific
enforcement of the agreement. The court’s interpretation fails to recognize that
specific performance is an equitable remedy enforcing the terms of an
agreement, not a remedy following the termination of an agreement. We
further note that specific performance is not an absolute right, but is an
equitable remedy, and the district court will need to follow equitable principles
to determine if it is appropriate in this case. Wolf v. Anderson, 334 N.W.2d 212,
215 (N.D. 1983).

                                      III

[¶15] We conclude the unambiguous language of the purchase agreement
allowed Ordahl the option to terminate the purchase agreement upon breach
by the Lykkens with the sole and exclusive legal remedy of a return of its
earnest money. However, Ordahl chose not to terminate the agreement and
instead sought the equitable relief of specific performance to enforce the
parties’ obligations under the terms of the agreement. We reverse the district
court’s grant of summary judgment in favor of the Lykkens, reverse the finding
that Ordahl is limited to return of its earnest money, and remand for findings
on whether Ordahl is entitled to specific performance and, if necessary,
consideration of the Lykkens’s reformation claims.

[¶16] Jon J. Jensen, C.J.
      Gerald W. VandeWalle
      Daniel J. Crothers
      Lisa Fair McEvers
      Jerod E. Tufte

                                       7