Kost v. Kraft
2011 ND 69, 2011 N.D. LEXIS 66, 795 N.W.2d 712 (2011)
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Rule of Law:
The part performance exception to the statute of frauds for an oral lease of goods under the Uniform Commercial Code is satisfied when it is shown by a preponderance of the evidence that the goods were 'received and accepted' by the lessee. This conduct does not need to be exclusively referable to the alleged oral contract.
Facts:
- Jim Kost and Allen Kraft operated a custom combining partnership, Kost and Kraft Harvesting, which they terminated in the spring of 2003.
- After ending their partnership, Kost and Kraft continued to share equipment and work together during 2003 and 2004.
- Kraft alleged that after the partnership ended, he and Kost entered into an oral agreement for Kost to lease Kraft's combining equipment for its fair rental value.
- Kraft claimed Kost used the equipment during 2003 and 2004 but failed to pay approximately $150,000 due under the oral lease agreement.
- Kraft also alleged a separate oral agreement for him to perform work for Kost in 2005 for $10,000, which he claimed Kost also failed to pay.
- In June 2005, Kraft filed for bankruptcy but did not initially list his claims against Kost as assets in his bankruptcy schedules.
Procedural Posture:
- In May 2008, Jim Kost sued Allen Kraft in a North Dakota district court to dissolve their former partnership.
- Kraft filed counterclaims against Kost, alleging breach of oral agreements for equipment rental and custom combining work.
- Kost moved for summary judgment to dismiss Kraft's counterclaims.
- The district court granted Kost's motion for summary judgment, ruling the alleged oral lease was unenforceable under the statute of frauds and that Kraft was precluded from pursuing the claims due to their non-disclosure in his prior bankruptcy proceeding.
- Kraft, as the appellant, appealed the district court's grant of summary judgment against him to the Supreme Court of North Dakota, with Kost as the appellee.
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Issue:
Under North Dakota's version of the Uniform Commercial Code, does the part performance exception to the statute of frauds for an oral lease agreement require that the lessee's conduct be exclusively referable to the alleged lease, or is it sufficient to show by a preponderance of the evidence that the goods were 'received and accepted' by the lessee?
Opinions:
Majority - Maring, Justice
No. The part performance exception for an oral lease of goods does not require that the lessee's conduct be exclusively referable to the alleged lease; it is sufficient to show by a preponderance of the evidence that the goods were 'received and accepted' by the lessee. The court holds that the 'relaxed' statute of frauds standard applicable to the sale of goods under U.C.C. Article 2 also applies to the lease of goods under U.C.C. Article 2A. The statutory language for the part performance exception ('received and accepted') is identical in both the sales statute (N.D.C.C. § 41-02-08(3)(c)) and the lease statute (N.D.C.C. § 41-02.1-10(4)(c)). Following the precedent set in Hofmann v. Stoller for sales, conduct consistent with an oral agreement is sufficient to overcome a statute of frauds defense, even if that conduct might also be consistent with another arrangement. The district court erred by applying the stricter, pre-UCC 'exclusively referable' standard and improperly resolving a disputed issue of material fact on summary judgment as to whether Kost's use of the equipment constituted acceptance under an oral lease.
Analysis:
This decision harmonizes the interpretation of the statute of frauds exceptions under U.C.C. Article 2A (Leases) and Article 2 (Sales) in North Dakota. By applying the more lenient 'received and accepted' standard from Hofmann to leases, the court reinforces the U.C.C.'s policy of validating commercial agreements based on the parties' conduct. This precedent makes it easier to enforce oral lease agreements for goods when performance has occurred, preventing the statute of frauds from being used to unjustly avoid obligations where actions corroborate the existence of a contract. The ruling clarifies that the strict, common-law 'exclusively referable' test does not apply to UCC lease transactions.
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