Moen v. Thomas
627 N.W.2d 146, 2001 ND 95, 2001 N.D. LEXIS 109 (2001)
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Rule of Law:
Testimony regarding out-of-court statements made during the formation of an oral contract is not inadmissible hearsay because such statements are considered 'verbal acts' offered to prove the words were spoken, not to prove their truth. Parties to an agreement, including one created by a will, may mutually consent to alter or terminate it and form a new oral agreement.
Facts:
- Jay Thomas owned a ranch and his will gave his son, Jerry Thomas, an option to purchase or lease certain ranch land for a seven-year term.
- After Jay Thomas died in October 1995, Jerry declined the option to purchase the land at a family meeting but orally stated his intent to exercise the option to lease and paid rent for 1996.
- In December 1996, the family, including Jerry, placed the property into the Jay V. Thomas Family Trust.
- Following the creation of the trust, Jerry told family members he did not want to be bound by a written, seven-year lease due to financial concerns about making future payments.
- At Jerry's request, the family agreed to an oral year-to-year lease instead of the seven-year lease contemplated in the will.
- Jerry paid rent for 1997 under this new oral year-to-year arrangement.
- Jerry died in a ranching accident in May 1997, and his wife, Laurie Thomas, remained in possession of the property.
- In late 1997, the trust's trustees informed Laurie Thomas they would not lease the land to her for 1998 and returned her tendered rent check.
Procedural Posture:
- The trustees of the Jay V. Thomas Family Trust sued Laurie Thomas, Kisten Thomas, and Tessa Thomas in a North Dakota trial court.
- The trustees' complaint sought to quiet title to the ranch property, recover possession, and receive damages for its use after December 31, 1997.
- Laurie Thomas filed an answer and counterclaim, asserting that a seven-year lease with an option to purchase was in effect and had survived her husband's death.
- Following a bench trial, the trial court found in favor of the trust, ruling that Jerry had a year-to-year lease that terminated at the end of 1997.
- The trial court entered a judgment quieting title in the trust, ordering possession be turned over to the trustees, awarding damages, and dismissing Laurie's counterclaim.
- Laurie Thomas, as the appellant, appealed the trial court's judgment to the Supreme Court of North Dakota.
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Issue:
Did the trial court err in admitting testimony about a decedent's oral statements agreeing to a year-to-year lease, on the grounds that such testimony constituted inadmissible hearsay?
Opinions:
Majority - Neumann, Justice
No, the trial court did not err in admitting the testimony because statements offered to prove the existence of an oral contract are not hearsay. Such statements are considered 'verbal acts,' where the utterance of the words is itself an operative fact that gives rise to legal consequences. The testimony was not offered to prove the truth of Jerry's stated financial concerns, but to prove that he made statements rejecting the seven-year lease and assenting to a year-to-year lease. Because it is the outward manifestation of assent that governs contract formation, the fact that these words were spoken is what is legally relevant. Furthermore, even if a seven-year lease had been initially formed, parties may mutually consent to terminate or alter their agreement, which the court found they did here by agreeing to the year-to-year lease.
Analysis:
This case provides a clear application of the 'verbal acts' doctrine, a significant exception to the hearsay rule. It reinforces that words of contract—offer, acceptance, and terms—are not offered for their truth but as proof of a legally significant event, making them admissible. The decision also highlights the principle of freedom of contract, affirming that parties can orally modify or supersede a prior agreement, even one originating from a formal instrument like a will, through subsequent mutual consent. This precedent is crucial for litigating the existence and terms of oral agreements, particularly when one party is deceased and direct testimony is unavailable.
